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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993
Commission file number 1-1245
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WISCONSIN ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0476280
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
231 West Michigan Street, P.O. Box 2046, Milwaukee, Wisconsin 53201
(Address of principal executive offices) (Zip Code)
(414) 221-2590
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
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None --
Securities Registered Pursuant to Section 12(g) of the Act:
PREFERRED STOCK, 3.60% SERIES, $100 PAR VALUE
PREFERRED STOCK, 6.75% SERIES, $100 PAR VALUE
SIX PER CENT. PREFERRED STOCK, $100 PAR VALUE
(Title of Class)
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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
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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 Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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The aggregate market value of the voting stock of the Registrant held by non-affiliates is approximately
$21,320,000 based on the reported last sale prices on March 1, 1994 or the average bid and asked prices
of such securities on or prior to such date.
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Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the
latest practicable date.
Class Outstanding at March 1, 1994
----- ----------------------------
COMMON STOCK, $10 PAR VALUE 33,289,327 Shares
Documents Incorporated by Reference
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Portions of the Registrant's definitive Information Statement to be dated April 15, 1994 are incorporated by
reference into Part III hereof.
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WISCONSIN ELECTRIC POWER COMPANY
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1993
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TABLE OF CONTENTS
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ITEM PAGE
PART I
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1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19
4. Submission of Matters to a Vote of Security Holders . . . . . . 24
Executive Officers of the Registrant . . . . . . . . . . . . . . 24
PART II
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5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . 26
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 27
Electric Revenue, Kilowatt-Hour Sales and
Customer Statistics . . . . . . . . . . . . . . . . . . . . . 28
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 29
8. Financial Statements and Supplementary Data . . . . . . . . . . 38
Report of Independent Accountants . . . . . . . . . . . . . . . 57
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 58
PART III
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10. Directors and Executive Officers of the Registrant . . . . . . . 58
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 58
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . 58
13. Certain Relationships and Related Transactions . . . . . . . . . 58
PART IV
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14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 58
Consent of Independent Accountants . . . . . . . . . . . . . . . 68
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
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DEFINITIONS
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Abbreviations and acronyms used in the text are defined below.
Abbreviations and Acronyms Term
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Act.............................. Nuclear Waste Policy Act of 1982
BTU.............................. British Thermal Units
CPCN............................. Certificate of Public Convenience and Necessity
DNR.............................. Wisconsin Department of Natural Resources
DOE.............................. U.S. Department of Energy
EPA.............................. U.S. Environmental Protection Agency
EMFs............................. Electromagnetic Fields
EWGs............................. Exempt Wholesale Generators
FERC............................. Federal Energy Regulatory Commission
IPP.............................. Independent Power Producer
ISFSI............................ Independent Spent Fuel Storage Installation
MAPP............................. Mid-Continent Area Power Pool
MDNR............................. Michigan Department of Natural Resources
MPSC............................. Michigan Public Service Commission
MWh.............................. Megawatt-hour
NOX.............................. Nitrogen Oxide
NRC.............................. U.S. Nuclear Regulatory Commission
Oglebay.......................... Oglebay Norton Company
PRP.............................. Potentially Responsible Party
PSCR............................. Power Supply Cost Recovery
PSCW............................. Public Service Commission of Wisconsin
QFs.............................. Qualifying Facilities
SO2.............................. Sulfur Dioxide
Trust............................ Wisconsin Electric Fuel Trust (nuclear)
US............................... Utility Services
Wisconsin Electric............... Wisconsin Electric Power Company
Wisconsin Energy................. Wisconsin Energy Corporation
Wisconsin Natural................ Wisconsin Natural Gas Company
WPPI............................. Wisconsin Public Power Inc. SYSTEM
WUMS............................. Wisconsin-Upper Michigan Systems
Yellowcake....................... Uranium Concentrates
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PART I
ITEM 1. BUSINESS
Wisconsin Electric Power Company ("Wisconsin Electric" or "company") is an
operating public utility incorporated in the State of Wisconsin in 1896. Its
operations are conducted in two business segments, the primary operations of
which are as follows:
Business Segment Operations
---------------- ----------
Electric Operations Wisconsin Electric generates, transmits,
distributes and sells electric energy in a
territory of approximately 12,600 square
miles with a population estimated at over
2,000,000 in southeastern (including the
Milwaukee area), east central and northern
Wisconsin and in the Upper Peninsula of
Michigan.
Steam Operations Wisconsin Electric distributes and sells
steam supplied by its Valley Power Plant
to space heating and processing customers
in downtown and near southside Milwaukee.
For financial information about industry segments, see Note M to the Financial
Statements in Item 8 of this report.
Wisconsin Electric is a subsidiary of Wisconsin Energy Corporation ("Wisconsin
Energy"), which owns all of Wisconsin Electric's Common Stock, and is an
affiliated company to Wisconsin Natural Gas Company ("Wisconsin Natural"), the
gas utility subsidiary of Wisconsin Energy.
ELECTRIC UTILITY OPERATIONS
Electric energy sales by Wisconsin Electric in 1993, to all classes of
customers, totaled 25.7 billion kilowatt-hours. Wisconsin Electric's peak
demand in 1993 was 4,691 megawatts and occurred on August 27. Wisconsin
Electric's highest peak demand was 4,797 megawatts on August 27, 1991 during a
period of unusually hot and humid summer weather. Sales of the electric
utility are impacted by seasonal factors and varying weather conditions from
year-to-year.
There were 932,285 electric customers at December 31, 1993, an increase of 1.4
percent since December 31, 1992. For further information on revenues,
kilowatt-hour sales, and customer statistics by class, see "Electric Revenue,
Kilowatt-Hour Sales and Customer Statistics" on page 28 of this report.
In 1993, Wisconsin Electric's net generation amounted to 24.8 billion
kilowatt-hours. Generation was supplemented with 2.4 billion kilowatt-hours
purchased from neighboring utilities and, to a minor extent, from other
sources. The dependable capability of Wisconsin Electric's generating
stations was 5,041 megawatts in August, 1993 as more fully described in
Item 2. PROPERTIES.
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ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)
In January 1994, Wisconsin Electric filed with the Public Service Commission
of Wisconsin ("PSCW") its long-term load and supply plan as part of the
Advance Plan 7 docket. In the Advance Plan process, the regulated electric
utilities located in Wisconsin are required to file, for planning purposes,
long-term forecasts of future resource requirements along with plans to meet
those requirements, including the implementation of energy management and
conservation programs ("demand-side savings"). In addition to specifying the
expectations of conservation and load management programs, the plan filed with
the PSCW demonstrates Wisconsin Electric's need to add peaking and
intermediate load capacity during the 20-year planning period. Wisconsin
Electric's next base load power plant is not expected to be placed in-service
until after 2010. For additional information regarding Advance Plans, see
Item 1. BUSINESS - "REGULATION", Item 3. LEGAL PROCEEDINGS - "OTHER
LITIGATION" and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES".
Wisconsin Electric currently estimates peak demand in the year 2003 to be
about 5,100 megawatts assuming moderate growth in the economy and normal
weather. Investments in demand-side management programs have reduced and
delayed the need to add new generating capacity but have not eliminated the
need entirely. Purchases of power from other utilities and transmission
system upgrades will also combine to help delay the need to install some new
generating capacity in the future. However, to meet the anticipated growth in
peaking capacity demand requirements, Wisconsin Electric plans to complete
during 1994 the remaining two units, or approximately 150 megawatts of
additional generating capacity, at its Concord Generating Station, the first
two units of which were completed during 1993, and is expected to place in-
service an additional four units, or approximately 300 megawatts, at its new
Paris Generating Station by the summer of 1995 as described below. Wisconsin
Electric plans to make additional investments in conservation-related programs
during this period.
Wisconsin Electric is nearing completion of the renovation of units 1-4 at its
Port Washington Power Plant, which includes upgrading the turbine generators
and boilers and the installation of additional emission control equipment.
Work at units 1 and 2 was completed during 1993 with unit 3 work completed in
1992. Renovation work at unit 4 is planned to be completed during the summer
of 1994. The total cost of this renovation project is expected to be
approximately $109 million.
During the summer of 1993, Wisconsin Electric completed the construction of
the first two units (comprising approximately 150 megawatts of additional
generating capacity) at its Concord Generating Station, a four unit,
approximately 300 megawatt gas-fired combustion turbine facility located near
Watertown, Wisconsin. The remaining two units (comprising approximately 150
megawatts) are planned to be completed and available for the summer of 1994.
The total cost of the project is currently estimated at $108 million, with
capital expenditures as of December 31, 1993 totaling approximately $95
million. In addition to the planned completion of the Concord facility,
Wisconsin Electric has contracted for the purchase of up to 280 megawatts of
firm capacity for the summer of 1994 to maintain adequate reserve margins.
Arrangements for additional capacity purchases after 1996 are anticipated.
During 1993, having obtained the necessary regulatory approvals from the
applicable regulatory agencies, Wisconsin Electric proceeded with the
construction of the Paris Generating Station, an approximately 300 megawatt
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ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)
gas-fired combustion turbine power plant, to be placed in-service during the
summer of 1995. The estimated cost of this facility, to be located near Union
Grove, Wisconsin, is currently estimated at $105 million.
The supply of natural gas to operate the Concord and Paris units is to be
provided by Wisconsin Natural, an affiliated company, but may be purchased
from other suppliers with Wisconsin Natural providing gas transportation
services.
Approvals from various regulatory agencies including the PSCW, the U. S.
Environmental Protection Agency ("EPA") and the Wisconsin Department of
Natural Resources ("DNR") are required for all additions to generation
capacity. All proposed generating facilities will meet or exceed the
applicable federal and state environmental requirements.
For further information regarding future capacity additions, see Item 1.
BUSINESS - "REGULATION".
For information regarding estimated costs of Wisconsin Energy's utility
subsidiaries' construction program and projected investments in conservation
programs for the five years ending December 31, 1998, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"LIQUIDITY AND CAPITAL RESOURCES". All estimates of construction expenditures
exclude Allowance For Funds Used During Construction. For additional
information regarding matters related to Allowance for Funds Used During
Construction, see Note G to the Financial Statements in Item 8.
In accordance with a PSCW order issued in November 1993, after completing a
capacity-related competitive bidding process, Wisconsin Electric signed a 25-
year agreement to purchase the electricity that would be generated from a 215
megawatt cogeneration facility planned to be constructed by an unaffiliated
independent power producer ("IPP"). The agreement is contingent upon the
facility being completed and going into operation, which at this time is
planned for mid-1996. For additional information and related matters, see
Item 3. LEGAL PROCEEDINGS - "OTHER LITIGATION - PSCW TWO-STAGE CPCN ORDER" and
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "Capital Requirements 1994-1998".
In response to increasing competitive pressures in the markets for electricity
and natural gas, Wisconsin Electric and Wisconsin Natural have developed a
revitalization process to increase efficiencies and improve customer service.
The planned "reengineering" and restructuring of Wisconsin Electric and
Wisconsin Natural will consolidate many business functions, reduce operating
costs and lead to a reduction in the total Wisconsin Electric/Wisconsin
Natural workforce, including the implementation of a voluntary separation
package and an early retirement option for qualified employees. For
additional information, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Wisconsin Electric and
Wisconsin Natural Revitalization".
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ITEM 1. BUSINESS - (Cont'd)
SOURCES OF GENERATION
The table below indicates sources of energy generation by Wisconsin Electric:
Year Ended December 31
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1993 1994*
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Coal 67.0% 69.4%
Nuclear 30.8 28.6
Hydro-electric 1.7 1.6
Gas 0.4 0.3
Oil 0.1 0.1
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TOTAL 100.0% 100.0%
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*Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs.
COAL: Wisconsin Electric diversifies its coal sources by purchasing from
Northern Appalachia, the Southern Powder River Basin (Wyoming) and the Raton
Basin (New Mexico) mining districts for the power plants in Wisconsin, and
from central Appalachia and Montana mines for the Presque Isle Power Plant in
Michigan.
Approximately 76 percent of Wisconsin Electric's 1994 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 New Mexico and Wyoming mines. Coal from Pennsylvania mines is also
transported via rail to Lake Erie transfer docks and delivered to the Valley
and Port Washington Power Plants by lake vessels. Montana coal for Presque
Isle is transported via rail to Superior, Wisconsin, placed in dock storage
and reloaded into lake vessels for plant delivery. The Presque Isle central
Appalachian origin coal is shipped via rail to Lake Erie coal transfer docks
for lake vessel delivery to the plant. Wisconsin Electric's 1994 coal
requirements, projected to be 9.5 million tons, are 98 percent under contract.
Wisconsin Electric does not anticipate any problem in procuring its remaining
1994 requirements through short-term or spot purchases and inventory
adjustments.
Pleasant Prairie Power Plant: All of the estimated 1994 coal requirements at
Wisconsin Electric's Pleasant Prairie Power Plant are presently covered by
three long-term contracts.
Oak Creek Power Plant: All of the estimated 1994 coal requirements for
Wisconsin Electric's Oak Creek Power Plant are covered by long-term contract.
Contract provisions permit Wisconsin Electric to increase/decrease the annual
volume to match burn requirements.
Presque Isle Power Plant: This plant has six generating units designed to
burn bituminous coal and three other units designed to burn sub-bituminous
coal. The units burning sub-bituminous coal are supplied by three long-term
contracts the annual volumes of which are anticipated to be adequate to cover
coal requirements through 1996. Bituminous coal is generally purchased
through one-year contracts.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
Edgewater: Coal for Edgewater Unit 5, in which Wisconsin Electric has a 25
percent interest, is purchased by Wisconsin Power and Light Company, a non-
affiliated utility, which is the principal owner of the facility.
Valley and Port Washington Power Plants: Port Washington and Valley are both
supplied through a long-term contract that, in combination with coal supplied
to Wisconsin Electric's other Wisconsin plants, allows the plants to meet the
Wisconsin acid rain law. In the event of further air quality emission
requirements affecting these plants, the contract can be terminated without
liability.
The periods and annual tonnage amounts for Wisconsin Electric's principal coal
contracts are as follows:
Contract Period Annual Tonnage
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Jan. 1977 to Dec. 1994 300,000(A)
Jan. 1977 to Dec. 1996 240,000
Nov. 1987 to Dec. 1997 500,000(A)
Jan. 1980 to Dec. 2006 2,000,000
Jul. 1983 to Dec. 2002 1,000,000
Apr. 1990 to Nov. 1996 375,000(B)
Jan. 1992 to Dec. 2005 1,200,000(C)(1994)
Oct. 1992 to Sept. 2007 2,000,000
(A) The contract can be extended if the total volume has not been
purchased by the respective termination dates.
(B) Annual volume can be increased to meet requirements for the Port
Washington and Valley Power Plants above the 375,000 ton volume
indicated herein.
(C) Subsequent years may be of greater tonnage as allowed under certain
provisions of the contract.
For information regarding emission restrictions, see Item 3. LEGAL PROCEEDINGS
- - ENVIRONMENTAL MATTERS - "Air Quality - Acid Rain Legislation".
NUCLEAR: Wisconsin Electric purchases uranium concentrates ("yellowcake") and
contracts for its conversion, enrichment and fabrication. Wisconsin Electric
maintains title to the nuclear fuel until the fabricated fuel assemblies are
delivered to the Point Beach Nuclear Plant, whereupon it is sold to and leased
back from the Wisconsin Electric Fuel Trust ("Trust"). See Note B to the
Financial Statements in Item 8.
Uranium Requirements: Wisconsin Electric requires approximately 450,000
pounds of yellowcake annually for its two-unit Point Beach Nuclear Plant.
Uranium requirements through 1997 will be provided from a combination of
existing contracts with Malapai Resources Company (of Arizona); Energy
Resources of Australia, Ltd.; Nukem Inc. (U.S.); and Nuexco (U.S.). Wisconsin
Electric may exercise flexibilities in these contracts and purchase certain
quantities of uranium on the spot-market, should market conditions prove
favorable. Wisconsin Electric believes that adequate supplies of uranium
concentrates will be available to satisfy current and future operating
requirements.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
Conversion: Wisconsin Electric has a contract with Sequoyah Fuels
Corporation, a subsidiary of General Atomics, to provide conversion services
for the Point Beach reactors through 1995. Due to operating difficulties
encountered in 1992, Sequoyah Fuels has decided to place its Gore, Oklahoma
conversion plant on indefinite stand-by. In November 1992, Sequoyah Fuels
signed an agreement with Allied Signal Corporation which formed a partnership
called Converdyn Corporation.
Converdyn administers all existing Allied and Sequoyah contracts, with all
conversion services being performed at the existing Allied Signal conversion
facility in Metropolis, Illinois. The transfer of all uranium inventories
from the Sequoyah facility to the Allied facility will be paid for, performed
by, and be the responsibility of Converdyn, and will occur over the next few
years.
Wisconsin Electric also has a conversion contract with the Cameco Corporation,
to provide for an alternate supply of up to approximately 30 percent of
conversion requirements through 1995 and up to 100 percent of conversion
requirements from 1996 through 1999. Cameco is a Canadian based corporation
located in Saskatoon, Saskatchewan, and is a major producer of uranium
concentrates.
Enrichment: Wisconsin Electric currently has a Utility Services ("US")
enrichment contract with the U.S. Department of Energy ("DOE") for 70 percent
of the enrichment services required for the operation of both of the Point
Beach units. The contract can provide enrichment services for the entire
operating life of each unit. Wisconsin Electric entered into a supplemental
agreement with the DOE to supply the remaining 30 percent of enrichment
service requirements for the period through 1995 at prices below those offered
under the US enrichment contract. In March 1992, Wisconsin Electric entered
into an agreement with Global Nuclear Services and Supply, an international
supplier of enrichment services, for the remaining 30 percent of enrichment
service requirements after 1995.
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 license.
Spent Fuel Storage and Disposal: Wisconsin Electric currently has the
capability to store certain amounts of spent nuclear fuel at its Point Beach
Nuclear Plant. Previous modifications to the storage facilities at Point
Beach have made it possible to accommodate all spent fuel expected to be
discharged from the reactors through 1995. In accordance with the provisions
of the Nuclear Waste Policy Act of 1982 (the "Act"), which require the DOE to
provide for the disposal of spent fuel from all U.S. nuclear plants, Wisconsin
Electric entered into a disposal contract providing for deliveries of spent
fuel to the DOE for ultimate disposal commencing in January 1998. Because of
the DOE's anticipated inability to accept spent fuel by the 1998 timeframe as
contracted, Wisconsin Electric has filed with the PSCW for a Certificate of
Authority to construct and operate an Independent Spent Fuel Storage
Installation ("ISFSI"). The ISFSI will provide additional interim storage
until the DOE begins to remove spent fuel from Point Beach in accordance with
the terms of the contract it has with Wisconsin Electric. As part of the
regulatory approval process for the ISFSI, in February 1994, the PSCW issued a
Draft Environmental Impact Statement setting forth information which Wisconsin
Electric believes supports the proposed project. Various parties have
submitted comments on the Draft Environmental Impact Statement which the PSCW
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
will use in preparing a Final Environmental Impact Statement. Public hearings
on the proposed project are anticipated to be held during August 1994 with a
PSCW decision expected later in the year. If the PSCW grants approval during
late 1994, loading of the first storage unit of the ISFSI could take place in
the summer of 1995. The matter is pending.
Point Beach Nuclear Plant: The Point Beach Nuclear Plant provided 30.8
percent of Wisconsin Electric's net generation in 1993. The plant has two
generating units which had a combined dependable capability during December
1993 of 989 megawatts and which together constituted 19.4 percent of Wisconsin
Electric's dependable generating capability in 1993. The U.S. Nuclear
Regulatory Commission ("NRC") licenses for Point Beach Units 1 and 2 expire
October 5, 2010 and March 8, 2013, respectively.
The NRC has, at various times, directed that certain inspections,
modifications and changes in operating practices be made at all nuclear
plants. At Point Beach, such inspections have been made and necessary changes
to equipment and in operating practices have either been completed or are
expected to be completed within the time schedules permitted by the NRC or
within approved extensions thereof.
Wisconsin Electric has initiated certain plant betterment projects at its
Point Beach Nuclear Plant that are judged to be appropriate and beneficial.
Construction is progressing on the addition of two safety-related emergency
diesel powered electrical generators with installation to be completed in
1995. Construction related to the replacement of the Unit 2 steam generators,
which would allow for the unit's operation until the expiration of its
operating license in 2013, is planned to begin in the fourth quarter of 1996
with a scheduled completion during 1997. This project is estimated to cost
$119 million and is currently awaiting PSCW approval. (In 1984 Wisconsin
Electric replaced the Unit 1 steam generators.) The PSCW has combined this
project with the ISFSI for purposes of the regulatory approval process
described above under Spent Fuel Storage and Disposal.
Decommissioning Fund: Pursuant to a 1985 PSCW order, Wisconsin Electric
provides for costs associated with the eventual decommissioning of the Point
Beach Nuclear Plant through the use of an external trust fund. Payments to
this fund, together with investment earnings, brought the balance on
December 31, 1993 to approximately $214 million. For additional information
regarding decommissioning see Note B to the Financial Statements in Item 8.
Nuclear Plant Insurance: For information regarding matters pertaining to
nuclear plant insurance, see Note B to the Financial Statements in Item 8.
NATURAL GAS (FOR ELECTRIC GENERATION): The combustion turbine at the Oak
Creek Power Plant is equipped to burn either natural gas or oil. This
facility has used natural gas when available. Gas for the Oak Creek
combustion turbine is supplied on an interruptible basis by Wisconsin Natural.
Natural gas for boiler ignition and flame stabilization purposes for the
Pleasant Prairie, Oak Creek and Valley Power Plants is purchased under an
agency agreement. The agent purchases natural gas and arranges for pipeline
transportation to the local gas distribution utility. Gas for the Pleasant
Prairie and Oak Creek Power Plants is delivered by Wisconsin Natural. Gas for
the Valley Power Plant is delivered by Wisconsin Gas Company, a non-affiliated
company.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
In July 1993, Wisconsin Electric began operation of the first two of four
natural gas-fired combustion turbine peaking units at the Concord Generating
Station. Gas for this facility is supplied by Wisconsin Natural.
OIL: Oil is used for combustion turbines at the Germantown and Port
Washington Power Plants and at the Point Beach Nuclear Plant. Small amounts
of oil are also used for boiler ignition and flame stabilization at some coal-
fired plants. Number 2 fuel oil requirements for 1994 at the Presque Isle
Power Plant are provided under a one-year contract with an equitable price
adjustment formula. All other oil requirements are purchased as needed from
local suppliers. The Concord Generating Station will use oil as a secondary
fuel source.
HYDRO: Wisconsin Electric has various licenses from the Federal Energy
Regulatory Commission ("FERC") for its hydro-electric generating facilities
which expire during the period of 1998 to 2004. Hydro facilities provided 1.7
percent of Wisconsin Electric's generation in 1993. Wisconsin Electric
evaluated the economic feasibility of continuing the operation of certain of
its hydro-electric facilities which had licenses that expired during 1993.
Where determined to be cost-effective, Wisconsin Electric is pursuing the
renewal of four such operating licenses. However, the operating licenses of
three other hydro facilities, totaling about 3 megawatts of generating
capacity, expired without being renewed by Wisconsin Electric. The future
ownership, operation and license renewal of these three facilities are
currently being examined by independent hydro developers. Until the final
disposition is determined, Wisconsin Electric expects to continue to operate
these three facilities under authorization provided by the FERC. As required,
where license renewal is being pursued, Wisconsin Electric is consulting with
the U.S. Fish and Wildlife Service, the Michigan and Wisconsin Departments of
Natural Resources and various other agencies.
INTERCONNECTIONS WITH OTHER UTILITIES: Wisconsin Electric's system is
interconnected at various locations with the systems of Madison Gas and
Electric Company, Wisconsin Power and Light Company, Wisconsin Public Service
Corporation, Commonwealth Edison Company ("Commonwealth Edison"), Northern
States Power Company ("NSP") and Upper Peninsula Power Company ("UPPCO").
These interconnections provide for interchange of power to assure system
reliability as well as facilitating access to generating capacity and the
transfer of energy for economic purposes.
Wisconsin Electric is a member of Wisconsin-Upper Michigan Systems ("WUMS"), a
coordinating group which includes four other electric companies in Wisconsin
and Upper Michigan. WUMS, in turn, is a member of Mid-America Interconnected
Network, which is one of nine regional members of the North American Electric
Reliability Council. Membership in these groups permits better utilization of
reserve generating capacity and coordination of long-range system planning and
day-to-day operations.
On March 15, 1994, Wisconsin Electric executed a transmission service
agreement with Commonwealth Edison that will allow Wisconsin Electric to
purchase energy from southern Illinois and Indiana suppliers, using the
Commonwealth Edison transmission system to import such energy into Wisconsin.
Additionally, Wisconsin Electric has a 40 megawatt purchase agreement with
Commonwealth Edison for the period of May to October 1994.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
A transmission service agreement has been executed with NSP to allow Wisconsin
Electric to import capacity and energy from members of the Mid-Continent Area
Power Pool ("MAPP"), a group consisting of electric utilities generally
located west of Wisconsin. Additionally, a 100 megawatt purchase agreement
exists with the Basin Electric Power Company located in Fargo, North Dakota,
allowing for capacity purchases to be made during the period of May to October
1994. A 40 megawatt purchase has been arranged for May to October 1994 with
Otter Tail Power Company, another member of MAPP. Considerable non-firm
energy is expected to be purchased from Basin Electric Power Company, Otter
Tail Power Company and other MAPP members over the next several years.
SALES TO WHOLESALE CUSTOMERS: Wisconsin Electric currently provides wholesale
electric energy to five municipally owned systems, three rural cooperatives,
two municipal joint action agencies and one isolated system of an investor-
owned utility in Wisconsin, Illinois, and the Upper Peninsula of Michigan
under rates approved by the FERC. Sales to these wholesale customers
accounted for 6.2 percent of total kilowatt-hour sales in 1993. Under two
agreements, service is being provided subject to an eight-year notice of
cancellation from the Wisconsin Public Power Inc. SYSTEM ("WPPI"). Wisconsin
Electric also has a nine-year power supply agreement with the Badger Power
Marketing Authority. Sales to the Badger Power Marketing Authority and WPPI
combined are expected to account for approximately one half of the wholesale
sales for 1994.
Service to UPPCO, under a 65 megawatt agreement which expires on December 31,
1997, is expected to account for another 30 percent of 1994 wholesale sales.
In October 1993, UPPCO announced that it had reached an agreement in principle
with NSP to purchase 90 megawatts of base-load electric energy beginning in
1998. Should a definitive agreement be reached between UPPCO and NSP,
Wisconsin Electric expects to apply the 65 megawatts of capacity toward the
electric energy needs of new customers and toward the overall increase in
system supply needs anticipated by 1998. Wisconsin Electric does not believe
that this matter will have a material adverse impact on its financial
condition.
Service to the remaining wholesale customers is provided under agreements
which require a three-year notice of cancellation from the customers.
During 1993, sales to wholesale customers declined 9.7 percent from 1992,
largely the result of reductions in sales to WPPI. WPPI has been reducing its
purchases from Wisconsin Electric subsequent to acquiring generation capacity
in 1990. Sales to WPPI during 1993, 1992 and 1991 were approximately 944,000
megawatt-hours ("MWh"), 1,166,000 MWh and 1,338,000 MWh, respectively.
Further reductions are expected in 1994 and beyond as WPPI installs additional
capacity. These sales reductions are not expected to have a significant
effect on future earnings. Under the provisions of a long-term agreement,
Wisconsin Electric will continue to provide transmission services to WPPI.
Wisconsin Electric's existing FERC tariffs also provide for transmission
service to its wholesale customers. During 1993, Wisconsin Electric had three
customers taking transmission service. For further information see Item 1.
BUSINESS - "REGULATION".
On October 24, 1992, the U.S. Energy Policy Act was signed into law. Passage
of this law is expected to remove perceived encumbrances and facilitate the
entry of power producers into the already competitive bulk power market.
Notable among its provisions are the creation of a new class of energy
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<PAGE> 13
ITEM 1. BUSINESS - Sources of Generation (Cont'd)
producer called Exempt Wholesale Generators ("EWGs"), who are exempt from the
requirements of the Public Utility Holding Company Act of 1935, and the rights
that the Energy Policy Act provides them and utilities to request a FERC order
directing the provision of transmission service if denied transmission access
from utilities. The transmission aspects of this law are expected to have
little impact on Wisconsin Electric since it has had open access transmission
tariffs on file with the FERC since 1980.
The electric utility industry continues to become increasingly competitive.
Some municipal utilities are approaching competing utilities in a search for
lower energy prices. Additionally, some large industrial customers are
seeking regulatory changes that could permit retail wheeling to allow them to
seek proposals for energy from alternate suppliers. Independent power
producers are also exploring cogeneration projects which would provide process
steam to customers in Wisconsin Electric's service territory and sell
electricity to Wisconsin Electric. Consequently, electric wholesale and large
retail customers of Wisconsin Electric or other non-affiliated utilities may
determine, from time to time, to switch energy suppliers, purchase interests
in existing power plants or build new generating capacity, either directly or
through joint ventures with third parties. The advent of EWGs can be expected
to accelerate this practice. For additional information, see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES".
SALES TO LARGE CUSTOMERS
Wisconsin Electric provides utility service to a diversified base of
industrial customers. Major industries served include the iron ore mining
industry, the paper industry, the machinery production industry, the foundry
industry and the food products industry. The Empire and Tilden iron ore
mines, the two largest customers of Wisconsin Electric, accounted for 4.4
percent and 3.4 percent, respectively, of total electric kilowatt-hour sales
in 1993 and 5.1 percent and 3.9 percent, respectively, in 1992. The reduction
in 1993 energy sales to the mines is attributable to a five-week long mine
employee strike during the third quarter.
STEAM UTILITY OPERATIONS
Wisconsin Electric operates a district steam system for space heating and
processing in downtown and near southside Milwaukee. Sales of the steam
utility fluctuate with the heating cycle of the year and are impacted by
varying weather conditions from year-to-year. The system consists of
approximately 28 miles of high and low pressure mains and related regulating
equipment. Steam for the system is supplied by Wisconsin Electric's Valley
Power Plant. At December 31, 1993, there were 459 customers on the system.
Steam sales in 1993 were 2,376 million pounds, an increase of 4.0 percent from
the 2,284 million pounds sold in 1992.
During 1993 Wisconsin Electric extended its high pressure steam main by
approximately 10,000 feet, to provide process steam to a new customer
beginning in November 1993. A minimum of 93 million pounds of steam are
expected to be sold to this new customer per year. With the completion of
this extension, which cost approximately $6 million, process steam is also
being provided to additional new customers along its route.
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<PAGE> 14
ITEM 1. BUSINESS - (Cont'd)
REGULATION
Wisconsin Electric is subject to the regulation of the Public Service
Commission of Wisconsin as to retail electric, gas and steam rates in
Wisconsin, standards of service, issuance of securities, construction of new
facilities, transactions with affiliates, levels of short-term debt
obligations, billing practices and various other matters. Wisconsin Electric
is also subject to the regulation of the Michigan Public Service Commission
("MPSC") as to the various matters associated with retail electric service in
Michigan as noted above except as to construction of certain new facilities,
levels of short-term debt obligations and advance approval of transactions
with affiliates. Wisconsin Electric, with respect to hydro-electric
facilities, wholesale rates and accounting, is subject to FERC regulation.
Operation and construction relating to Wisconsin Electric's Point Beach
Nuclear Plant facilities are subject to regulation by the NRC. Wisconsin
Electric's operations are also subject to regulations of the EPA, the DNR and
the Michigan Department of Natural Resources ("MDNR").
The PSCW is authorized to direct expenditures for promoting conservation if it
determines that the programs are in the public interest. Recent rate orders
have included provisions for substantial conservation programs initiated by
Wisconsin Electric. For additional information, see Note A to the Financial
Statements in Item 8.
Wisconsin Electric is subject to a power plant siting law in Wisconsin which
requires that electric utilities file updated long-term forecasts (called
"Advance Plans") for the location, size and type of future large generating
plants and high voltage transmission lines about every two years for PSCW
approval after public hearings. Generally, the law provides that the PSCW may
not authorize the construction of any large generating plants or high voltage
transmission lines unless they are in substantial compliance with the most
recently approved plan. The law also prohibits Wisconsin Electric from
acquiring any interest in land for such plants or transmission lines by
condemnation until construction authorization has been received. Advance Plan
orders are based on a review of the utilities' long-term planning options.
However, separate project-specific PSCW approval is required for the
construction of generating facilities and transmission lines.
Wisconsin Electric employs a least-cost integrated planning process, which
examines a full range of supply and demand side options to meet its customers'
electric needs, such as the renovation of existing power plants, promotion of
cost-effective conservation and load management options, development of
renewable energy sources, purchased power and construction of new company-
owned generation facilities.
In 1992, the Brown County Circuit Court ruled in favor of the electric
utilities who filed a petition requesting judicial review of certain aspects
of the PSCW's Advance Plan 5 order, which was issued by the PSCW in 1989,
relating to transmission line access. During 1993, the Wisconsin Supreme
Court affirmed the Circuit Court ruling on appeal.
For additional information regarding Advance Plans, see Item 3. LEGAL
PROCEEDINGS - "OTHER LITIGATION" and Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES".
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<PAGE> 15
ITEM 1. BUSINESS - (Cont'd)
RATE MATTERS
See Item 3. LEGAL PROCEEDINGS - "RATE MATTERS" - for a discussion of rate
matters, including recent rate changes and a discussion of the tariffs and
procedures with respect to recovery of changes in the costs of fuel and
purchased power.
ENERGY EFFICIENCY
The management of Wisconsin Electric believes that a strong and continuing
emphasis must be placed on energy management and efficient energy use.
Wisconsin Electric is continuing to develop programs to inform and assist its
customers with respect to conservation options. This policy is regarded by
Wisconsin Electric as in the best interests of its customers and the owners of
its securities.
Efficient use of energy is not limited to reduced consumption. Time-of-use
rates for certain electric customers promote the shifting of electricity usage
to those times when electric generating facilities are not fully utilized.
Direct load control of some residential electric water heaters and
interruptible and curtailable rates to certain industrial customers are used
to control peak demand. Direct load control of some residential central air
conditioners continues as part of a pilot program which began in 1992.
To promote its energy management and conservation policies, Wisconsin Electric
offers various programs and services to its customers. For industrial and
commercial customers, Wisconsin Electric offers energy evaluations identifying
cost-effective customer conservation opportunities as well as financial
assistance, including direct grants and interest-free financing to purchase
and maintain energy-efficient equipment. Additional financial incentives are
also offered to residential electric customers to encourage the purchase of
energy-efficient appliances and the removal of older inefficient appliances
from the system.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental protection requirements
resulted in capital expenditures by Wisconsin Electric of approximately $65
million in 1993 and $50 million in 1992. Expenditures incurred during 1993
and 1992 included costs associated with the replacement of the precipitators
at the Oak Creek Power Plant units 7 and 8, the installation of pollution
abatement facilities at Wisconsin Electric's power plants, the installation of
underground distribution lines and environmental studies associated with power
plants. Such expenditures are budgeted at approximately $60 million for 1994.
Operation, maintenance and depreciation expenses of Wisconsin Electric's fly
ash removal equipment and other environmental protection systems are estimated
to have been $44 million in 1993. Other environmental costs, primarily for
environmental studies, amounted to $1 million in 1993.
See Item 3. LEGAL PROCEEDINGS - ENVIRONMENTAL MATTERS - "Air Quality - Acid
Rain Legislation" for a discussion of compliance matters with respect to
Wisconsin's acid rain law and the amendments to the Clean Air Act.
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<PAGE> 16
ITEM 1. BUSINESS - Environmental Compliance (Cont'd)
Solid Waste Landfills
Wisconsin Electric 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 clean-up costs. Remediation-related activity pertaining to
specific sites is discussed below.
Maxey Flats Nuclear Disposal Site: In 1986, Wisconsin Electric was advised by
the EPA that it is one of a number of potentially responsible parties ("PRPs")
for clean-up at this low-level radioactive waste site located in Morehead,
Kentucky. The amount of waste contributed by Wisconsin Electric is
significantly less than one percent of the total. Wisconsin Electric has been
cooperating with the appropriate agencies in this matter and believes that its
portion of clean-up costs is not expected to exceed approximately $350,000.
Wisconsin Electric's involvement in this matter is expected to be resolved
during 1994.
Hunt's Landfill: In 1991, PRPs included in the clean-up of the former Hunt's
Landfill (located in Racine County, Wisconsin) notified Wisconsin Electric
that they considered it an additional PRP which should be liable for a portion
of the clean-up costs. Even though it is not believed that Wisconsin Electric
was responsible for the disposal of any hazardous substances or materials at
the site, to avoid litigation with the PRPs, Wisconsin Electric has agreed to
participate in the funding as a "de minimis" party in the execution of a
consent decree with the EPA for clean-up. Materials disposed of at the site
by Wisconsin Electric consisted primarily of soil from construction sites.
Wisconsin Natural, declared a PRP by the EPA in 1991, is also a participant in
the clean-up of this site as a "de minimis" party. The portion of clean-up
costs assigned to Wisconsin Electric and Wisconsin Natural is expected to be
about $20,000 in total.
Muskego Sanitary Landfill: In 1992, Wisconsin Electric was informed by the
EPA that it will be included in a group of approximately 50 PRPs against which
the EPA will issue orders requiring that the PRPs clean-up the Muskego
Sanitary Landfill (located in Southeastern Waukesha County, Wisconsin), or
face the risk of substantial penalties. On January 14, 1993, Wisconsin
Electric notified the EPA that it is proceeding, with other PRPs, to comply
with the order. The estimated total cost of the clean-up is $10 to $15
million. Under tentative allocation of the total estimated clean up cost
among the PRPs, Wisconsin Electric's share is approximately $84,000.
The EPA is conducting a second remedial investigation/feasibility study of
alleged groundwater pollution at the site. Although this matter is in its
early stages, Wisconsin Electric does not believe the outcome will have a
material adverse effect on its financial condition.
Presque Isle Landfill: Wisconsin Electric has entered into a settlement
agreement with the MDNR for conditions existing at the site of an ash landfill
acquired by Wisconsin Electric when it purchased the Presque Isle Power Plant
in 1988. Wisconsin Electric's groundwater monitoring program at the site
(located in Marquette Township, Michigan), has detected elevated levels of
certain substances at the oldest portion of the landfill. Wisconsin Electric
has reconstructed and capped that portion of the landfill to prevent further
leachate from entering the groundwater at an approximate cost of $2.5 million
and has paid a fine of $45,000 plus $6,000 in administrative costs to the
state of Michigan. The cost to implement a remediation plan for the clean-up
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<PAGE> 17
ITEM 1. BUSINESS - Environmental Compliance (Cont'd)
of the current groundwater conditions, when approved by the MDNR, is estimated
to not exceed $1 million.
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 DNR, Wisconsin Electric initiated a
five-year expanded monitoring program to determine if the level of groundwater
contamination was increasing and if there was movement of the plume offsite.
The additional monitoring data indicates that there is some offsite movement
of the plume in the groundwater.
Wisconsin Electric is further expanding its investigation. Although no
remediation plan has yet been developed, Wisconsin Electric believes that any
remediation plan developed, approved and implemented for this site would not
have a material adverse effect on its financial condition.
OTHER
Wisconsin Electric is authorized to provide 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. Wisconsin Electric provides electric service
in certain territories in the state of Michigan pursuant to franchises granted
by municipalities.
Research and development expenditures of Wisconsin Electric amounted to
$8,485,000 in 1993, $7,835,000 in 1992, and $7,562,000 in 1991. Such
expenditures were primarily for improvement of service and abatement of air
and water pollution. The capitalized portion of research and development
costs amounted to $15,000 in 1993, $55,000 in 1992 and $15,000 in 1991.
Research and development activities include work done by employees,
consultants and contractors, plus sponsorship of research by industry
associations.
At December 31, 1993, Wisconsin Electric employed 5,068 persons, of which 157
were part-time.
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<PAGE> 18
ITEM 2. PROPERTIES
Wisconsin Electric owns the following generating stations with 1993
capabilities as indicated:
Dependable
Capability In
Megawatts (1)
-----------------------
No. of
Generating August December
Name Fuel Units 1993 1993
- ---- ---- ---------- ------- --------
Steam Plants:
Point Beach Nuclear 2 981 989
Oak Creek Coal 4 1,103 1,114
Presque Isle (2) Coal 9 594 594
Pleasant Prairie Coal 2 1,160 1,170
Port Washington (3) Coal 4 310 312
Valley Coal 2 280 226
Edgewater (4) Coal 1 99 98
-- ----- -----
TOTAL STEAM 24 4,527 4,503
Hydro Plants (16 in number) 38 75 75
Germantown Combustion
Turbines Oil 4 212 252
Other Combustion
Turbines & Diesel(5) Gas/Oil 6 227 262
-- ----- -----
TOTAL SYSTEM 72 5,041 5,092
== ===== =====
- -----------------------
(1) 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.
(2) UPPCO, a non-affiliated utility, staffs and operates the Presque Isle
Power Plant under an operating agreement with Wisconsin Electric which
extends through December 31, 1997.
(3) Port Washington Unit 5 was retired in December 1991 and is not included in
the dependable capability ratings shown in the table. Unit 5 will not be
renovated as part of the Port Washington Power Plant renovation project
which received PSCW approval in December 1990. Renovation work at units
1 and 2 was completed during 1993 with unit 3 work completed in 1992.
The renovation of unit 4 is planned to be completed during the summer of
1994.
(4) Wisconsin Electric has a 25 percent interest in Edgewater Unit 5, which is
operated by Wisconsin Power and Light Company, a non-affiliated utility.
(5) During July 1993, two units, or approximately 150 megawatts of peaking
combustion turbine generation capacity, was placed in-service at Wisconsin
Electric's Concord Generating Station. Another two units, or
approximately 150 megawatts, are planned to be placed in-service during
the summer of 1994 at this facility.
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<PAGE> 19
ITEM 2. PROPERTIES - (Cont'd)
At December 31, 1993, the Wisconsin Electric system had 2,759 miles of
transmission circuits, of which 639 miles were operating at 345 kilovolts, 123
miles at 230 kilovolts, 1,603 miles at 138 kilovolts, and 394 miles at voltage
levels less than 138 kilovolts. At December 31, 1993, Wisconsin Electric was
operating 21,697 pole miles of overhead distribution lines and 12,778 miles of
underground distribution cable, as well as 359 distribution substations and
216,827 line transformers.
Wisconsin Electric owns various office buildings and service centers
throughout its service area. The principal properties of Wisconsin Electric
are owned in fee except that the major portion of electric transmission and
distribution lines and steam distribution mains are located, for the most
part, on or in streets and highways and on land owned by others.
Substantially all utility property is subject to first mortgage liens.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
Wisconsin Electric is subject to federal, state and certain local laws and
regulations governing the environmental aspects of its operations. Wisconsin
Electric believes that, with immaterial exceptions, its existing facilities
are in compliance with applicable environmental requirements.
As have other public utilities, Wisconsin Electric and/or its predecessors and
affiliated companies, have operated manufactured gas plants and disposed of
ash and other waste products from electric utility activities. Operations at
these manufactured gas sites ceased over 40 years ago with remediation
activities having been conducted at certain of these sites, while other sites
are currently being or are planned to be investigated. Costs associated with
remediation activities, to the extent not covered by insurance, have been
allowed in rates for utility service. Wisconsin Electric believes any such
future costs will continue to be considered appropriate for inclusion in rates
and therefore will not have a material adverse impact on its financial
condition.
See Item 1. BUSINESS - ENVIRONMENTAL COMPLIANCE - "Solid Waste Landfills" for
a discussion of matters related to specific solid waste landfill sites.
Air Quality - Acid Rain Legislation
In 1986, the Wisconsin Legislature passed legislation establishing new sulfur
dioxide limitations applicable to Wisconsin's five major electric utilities,
including Wisconsin Electric. The law requires each of the five major
electric utilities to meet a 1.20 lb sulfur dioxide per million BTU corporate
average annual emission rate limit beginning in 1993. Prior to 1993,
Wisconsin law limited the total annual sulfur dioxide emissions from the five
major electric utilities to 500,000 tons per year. During 1993, approximately
174,000 tons of sulfur dioxide were emitted by such utilities, equivalent to
an annual average emission rate of 0.97 lbs sulfur dioxide per million BTU.
Wisconsin Electric's compliance plan to meet the sulfur dioxide limitations
under Wisconsin's acid rain law includes the increased use of low-sulfur coal
at certain power plant units. Some changes to existing power plant equipment
have been made to accommodate the use of low-sulfur coals.
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<PAGE> 20
ITEM 3. LEGAL PROCEEDINGS - Environmental Matters (Cont'd)
The 1990 amendments to the Federal Clean Air Act mandate significant nation-
wide reductions in air emissions. Most significant to the country's electric
utility companies are the "acid rain" provisions of the amendments which are
scheduled to limit sulfur dioxide ("SO2") and nitrogen oxide ("NOX") emissions
in phases which take effect in 1995 and 2000. Wisconsin Electric has
evaluated the potential impact resulting from this legislation and has
concluded that minimal impact will result from Phase I requirements because of
actions taken to meet the above mentioned Wisconsin acid rain law. Phase II
requirements, together with separate ozone nonattainment provisions of the
Clean Air Act which may call for additional NOX reductions, however, will
necessitate the implementation of a compliance strategy which could increase
rates by 1 to 2 percent. Since a portion of the regulations that have been
issued by the EPA are not complete or are not yet final, these rate estimates
are subject to change and will be reevaluated as needed.
For additional information regarding the impact of the Clean Air Act
Amendments, including estimates of the cost of compliance, see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "CLEAN AIR ACT".
RATE MATTERS
Wisconsin Retail Electric Jurisdiction
Fuel Cost Adjustment Procedure: Wisconsin Electric's retail rates in
Wisconsin do not contain an automatic fuel adjustment clause, but can be
adjusted by the PSCW if actual cumulative fuel and purchased power costs, when
compared to the costs projected in the retail electric rate proceeding,
deviate from a prescribed range and are expected to continue to be above or
below the authorized annual range of 3 percent.
1993 Rate Order: In February 1993, the PSCW authorized an annualized retail
electric rate increase of $26.7 million, or 2.3 percent, effective
February 17, 1993, which includes the elimination of the $24.2 million fuel
adjustment rate reduction which had been in effect since May 29, 1992. The
increase is based on an authorized regulatory return on common equity of 12.3
percent, down from 12.8 percent authorized for 1992.
1993 Fuel Cost Adjustment: Effective November 5, 1993 through December 31,
1993, the PSCW authorized Wisconsin Electric to reduce Wisconsin retail
electric rates to reflect lower fuel and purchased power expenses. The
adjustment reduced Wisconsin retail electric revenue by approximately $1.3
million during this period.
1994 Test Year: In April 1993, Wisconsin Electric filed with the PSCW required
data relating to the 1994 test year. In support of its goal to become the
lowest-cost energy provider in the region, Wisconsin Electric announced that
it did not intend to seek an increase in retail electric rates for 1994.
Under the PSCW's newly adopted biennial rate case schedule, Wisconsin Electric
would be scheduled to file in mid-1995 for rates to reflect a 1996 test year.
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<PAGE> 21
ITEM 3. LEGAL PROCEEDINGS - Rate Matters (Cont'd)
Wholesale Electric Jurisdiction
Fuel and Purchased Power Adjustment Tariffs: Wisconsin Electric's wholesale
rates contain an automatic fuel adjustment provision to reflect varying fuel
and purchased power costs.
1993 Rate Order: In October 1993, the FERC approved the settlement agreement
which Wisconsin Electric had previously reached with its wholesale customers
in May 1993. The order authorizes an annualized wholesale electric base rate
increase of $6 million, or 10.6%, effective June 9, 1993. In August 1993, the
FERC had authorized Wisconsin Electric to implement its proposed settlement
rates, on an interim basis effective as of June 9, 1993, pending final FERC
approval of the settlement agreement. This action represents the first
increase in wholesale base rates since 1986. Wholesale electric sales account
for approximately 7 percent of Wisconsin Electric's total kilowatt-hour sales.
Michigan Retail Electric Jurisdiction
1993 Test Year: Effective July 9, 1993, the MPSC authorized an annualized
rate increase of $1.4 million, or 4.3%, for Wisconsin Electric's non-mine
retail electric customers. Excluding sales to the two mine customers, which
are separately regulated by the MPSC, retail electric sales in Michigan
account for approximately 2% of Wisconsin Electric's total kilowatt-hour
sales.
Power Supply Cost Recovery Clause: Rates are adjusted to reflect varying fuel
and purchased power costs through a power supply cost recovery ("PSCR") clause
in Wisconsin Electric's tariffs. Such PSCR clause provides for, among other
things, an annual filing of a PSCR plan and, after notice and an opportunity
for hearing, the development of PSCR factors to be applied to customers' bills
during the period covered by the PSCR plan to allow Wisconsin Electric to
recover its costs of fuel and purchased power transactions, as estimated in
its annual filing. The amounts so collected are subject to a reconciliation
proceeding conducted by the MPSC at the end of the period covered by the plan
for recovery of any undercollections of actual costs or for refund or credit
of any amounts in excess of its actual costs in such period. On December 20,
1993, the MPSC approved the proposed PSCR credit factor of $.00483 per
kilowatt-hour for the year 1994.
Wisconsin Retail Steam Jurisdiction
Fuel Adjustment: Wisconsin Electric steam rates contain a provision to adjust
rates to reflect varying fuel costs for all customers except for a large
volume contract representing approximately 16 percent of steam sales in 1993.
1993 Rate Order: In February 1993, the PSCW issued an order authorizing
Wisconsin Electric to place in effect an annualized rate increase of $505,000,
or 3.5 percent, in its steam rates effective February 17, 1993. The order was
based on a 1993 test year and authorized a 12.3 percent regulatory return on
common equity as determined for ratemaking purposes.
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<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS - Rate Matters (Cont'd)
1994 Test Year: Consistent with the actions taken with respect to Wisconsin
Electric's Wisconsin Retail Electric Jurisdiction, Wisconsin Electric
announced that it did not intend to seek an increase in retail steam rates for
1994. Under the PSCW's newly adopted biennial rate case schedule, Wisconsin
Electric would be scheduled to file in mid-1995 for rates to reflect a 1996
test year.
For additional information see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Rates and Regulatory
Matters".
OTHER LITIGATION
Personal Injury Suit: In 1990, a five-year old boy suffered severe and
disabling injuries (including amputations) as a result of contacting energized
equipment inside an unlocked Wisconsin Electric distribution transformer in
the city of Oak Creek, Wisconsin. In 1992, Wisconsin Electric entered into a
court-approved settlement of an action in Milwaukee County Circuit Court which
sought compensatory, punitive and statutory treble damages. Of the total
settlement payment, a self-insured retention of $2 million was not covered by
insurance and was charged to income during 1990.
After an investigation into whether the above described accident was caused by
Wisconsin Electric's failure to maintain its equipment in a reasonably safe
manner as required by a Wisconsin statute and PSCW rules, the PSCW in 1991
referred the matter of "probable violations" of its administrative rules to
the Wisconsin Attorney General for possible forfeiture and enforcement. In
June 1993, Wisconsin Electric agreed to pay a $1 million civil forfeiture to
the state of Wisconsin to settle the matter. The amount of the forfeiture was
charged to income during June 1993.
Advance Plan 5: In 1992, a Brown County Circuit Court judge ruled in favor of
Wisconsin Electric and three other major electric utilities in Wisconsin who
had requested that the court set aside the transmission access provisions of
the PSCW's Advance Plan 5 order which required the utilities to negotiate and
file transmission access agreements. In summary, the court decided that such
provisions are preempted by the Federal Power Act which gives the FERC
exclusive jurisdiction over transmission service on an interconnected system.
This decision was appealed to the Wisconsin Court of Appeals by the PSCW and
WPPI, which later petitioned the Wisconsin Supreme Court to by-pass the Court
of Appeals. In 1992, the Supreme Court granted WPPI's petition and accepted
the appeal for consideration. In April 1993, a ruling by the Wisconsin
Supreme Court resulted in a 3-3 split, thereby affirming the Circuit Court
decision.
A petition for a declaratory order is still pending at the FERC (Docket
No. EL89-40). The petition seeks to have FERC acknowledge its jurisdiction
over wholesale transmission services terms and conditions, including pricing.
Advance Plan 6: In 1992, Wisconsin Electric joined with other state utilities
in a petition filed in Brown County Circuit Court requesting judicial review
of one aspect of the PSCW's Advance Plan 6 order. The action involves the
Commission's authority to require the utilities to consider, in their
planning, monetized effects of so-called "greenhouse gasses".
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<PAGE> 23
ITEM 3. LEGAL PROCEEDINGS - Other Litigation (Cont'd)
Also, in 1992, Wisconsin Environmental Decade ("WED") filed a petition in Dane
County Circuit Court requesting judicial review of another aspect of the
PSCW's Advance Plan 6 order. That proceeding involves the question of whether
the PSCW should have required the utilities to reflect, in their planning,
claimed beneficial employment impacts associated with demand-side management
activities. A group of utilities, including Wisconsin Electric, have appeared
in that proceeding in opposition to WED.
The two petitions have been consolidated for judicial review in Dane County
Circuit Court. The matters are pending.
Oglebay Norton Suit: In 1989, an action was brought to the U.S. District
Court for the Northern District of Ohio by Oglebay Norton Company ("Oglebay")
against Wisconsin Electric and other defendants. This action sought indemnity
and contribution in the amount of $7.8 million in connection with the defense
and settlement of two death claims resulting from a 1986 flash fire and
explosion aboard its steamer Middletown which was carrying a cargo of coal to
Wisconsin Electric's Port Washington Power Plant. A settlement was reached
under which Wisconsin Electric paid $150,000 to Oglebay on December 9, 1993,
in full satisfaction of Oglebay's claim for indemnity and contribution.
PSCW Two-Stage CPCN Order: In January 1994, Wisconsin Electric filed a
lawsuit in Milwaukee County Circuit Court seeking judicial determination
concerning the PSCW's authority to adopt a new "two-stage" Certificate of
Public Convenience and Necessity ("CPCN") process and to order utilities to
enter into contracts to buy power from other entities. This action is in
response to the PSCW's December 1993 order which details the requirements of
the new process to be implemented by the PSCW in making the final selection
from among competing alternatives to construct proposed future capacity
additions, including projects that would be owned and operated by unaffiliated
IPPs. In summary, Wisconsin Electric does not believe the PSCW has authority
to specifically order utilities to enter into contracts. The matter is
pending. For additional information see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Capital
Requirements 1994-1998".
Pittsburg & Midway Case: In a matter brought before the FERC, in July 1993,
Wisconsin Electric filed an initial brief supporting its right to retain coal
reclamation costs collected through the wholesale fuel adjustment clause in
1986 that it believes were prudently incurred in a settlement with the
Pittsburg & Midway Coal Mining Company. Of the total costs involved, the
portion recovered through the wholesale fuel clause amounts to approximately
$750,000. This filing was made in response to a FERC audit staff
determination that Wisconsin Electric should have applied for a waiver of the
FERC's fuel clause regulations in order to attempt to pass through the
wholesale portion of the settlement costs. In order for a final decision to
be made, the FERC must first await the initial decision expected from an
Administrative Law Judge. The matter is pending.
In November 1993, the FERC rejected Wisconsin Electric's request to be allowed
to recover, in wholesale rates in the future, the amount which may have to be
refunded to customers in the event of an unfavorable ruling in the pending
fuel adjustment clause proceeding concerning the Pittsburg and Midway
reclamation charges. In January 1994, Wisconsin Electric filed an appeal with
the U.S. Court of Appeals in the District of Columbia Circuit regarding this
rejection. The matter is pending.
- 23 -
<PAGE> 24
ITEM 3. LEGAL PROCEEDINGS - Other Litigation (Cont'd)
Electromagnetic Fields: Claims are being made or threatened with increasing
frequency against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by exposure to
electromagnetic fields ("EMFs") associated with electric transmission and
distribution lines. Results of scientific studies conducted to date do not
establish the existence of a causal connection between EMFs and any adverse
health effects. Wisconsin Electric believes that its facilities are
constructed and operated in accordance with all applicable legal requirements
and standards.
In an action filed against Wisconsin Electric in Waukesha County Circuit Court
in 1992, plaintiffs sought unspecified compensatory and statutory treble
damages by reason of pain, suffering, complications and aggravations of a
congenital neurological disorder in a minor allegedly caused by EMFs
associated with Wisconsin Electric's transmission lines. In July 1993,
plaintiffs filed a motion to dismiss without prejudice their action. The
reason given for dismissal was that medical science had not progressed to a
point where the case could be adequately tried. Wisconsin Electric does not
believe that other claims thus far made or threatened against it in connection
with EMFs will result in any substantial liability on the part of Wisconsin
Electric.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Wisconsin Electric's security holders
during the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages at December 31, 1993 and positions of all of the executive
officers of Wisconsin Electric are listed below along with their business
experience during the past five years. All officers are elected for one year
terms or until their respective successors are duly chosen. 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.
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- --------------------- ----------------------
Richard A. Abdoo, 49 Chairman of the Board, President and Chief Executive
Officer of Wisconsin Energy Corporation since
1991; Executive Vice President, 1990 to 1991;
Vice President, 1987 to 1990; Director of
Wisconsin Energy since 1988.
Chairman of the Board and Chief Executive Officer of
Wisconsin Electric Power Company since 1990;
President and Chief Executive Officer, during
1990; President and Chief Operating Officer, 1989
to 1990; Executive Vice President, during 1989;
Senior Vice President, 1984 to 1989; Director of
Wisconsin Electric since 1989.
Chairman of the Board and Chief Executive Officer of
Wisconsin Natural Gas Company since 1990;
Director of Wisconsin Natural since 1989.
- 24 -
<PAGE> 25
EXECUTIVE OFFICERS OF THE REGISTRANT (Cont'd)
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- --------------------- ----------------------
John W. Boston, 60 Vice President of Wisconsin Energy since 1991;
Director of Wisconsin Energy since 1991.
President and Chief Operating Officer of Wisconsin
Electric since 1990; Executive Vice President
and Chief Operating Officer during 1990;
Senior Vice President, 1982 to 1990; Director
of Wisconsin Electric since 1988.
Director of Wisconsin Natural since March 1994.
(Assuming the positions of President and Chief
Operating Officer effective April 1, 1994).
Robert H. Gorske, 61 General Counsel of Wisconsin Energy since 1981.
Vice President and General Counsel of Wisconsin
Electric since 1976; Director of Wisconsin
Electric since 1991.
Director, Vice President and General Counsel of
Wisconsin Natural since 1976.
Jerry G. Remmel, 62 Vice President of Wisconsin Energy since January
1994; Chief Financial Officer since 1989;
Treasurer since 1981.
Chief Financial Officer of Wisconsin Electric
since 1989; Senior Vice President,
1989 to January 1994; Vice President and
Treasurer, 1983 to 1989; Director of
Wisconsin Electric since 1989.
Chief Financial Officer of Wisconsin Natural
since 1989; Vice President-Finance,
1989 to January 1994; Treasurer, 1974 to 1989;
Director of Wisconsin Natural since 1988.
David K. Porter, 50 Senior Vice President of Wisconsin Electric since
1989; Vice President-Corporate Planning, 1986
to 1989; Director of Wisconsin Electric since
1989.
Vice President of Wisconsin Natural since 1989;
Director of Wisconsin Natural since 1988.
Calvin H. Baker, 50 Vice President-Finance of Wisconsin Electric since
January 1994; Vice President-Marketing, 1992 to
January 1994; Vice President-Finance, 1991 to
1992.
Senior Vice President, Financial Services Corporation
of New York City (provider of direct loan
programs and industrial development projects in
New York City), 1989 to 1991.
Ann Marie Brady, 41 Assistant Secretary of Wisconsin Energy since 1989.
Secretary of Wisconsin Electric since January 1994;
Assistant Secretary, 1989 to January 1994.
Secretary of Wisconsin Natural since June 1993;
Assistant Secretary, 1989 to June 1993.
- 25 -
<PAGE> 26
EXECUTIVE OFFICERS OF THE REGISTRANT (Cont'd)
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- --------------------- ----------------------
Anne K. Klisurich, 46 Accounting Manager of Wisconsin Energy, 1987 to
January 1994.
Controller of Wisconsin Electric since January 1994.
Controller of Wisconsin Natural since February 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The amount of cash dividends declared on Wisconsin Electric's Common Stock
during the two most recent fiscal years are set forth below. Dividends were
paid to Wisconsin Electric's sole common stockholder, Wisconsin Energy.
Quarter Total Dividend
- -----------------------------------------------------------------------------
1992 1 $16,250,000
2 $16,250,000
3 $16,250,000
4 $16,250,000
- -----------------------------------------------------------------------------
1993 1 $16,250,000
2 $16,250,000
3 $16,250,000
4 $16,250,000
- 26 -
<PAGE> 27
<TABLE>
PART II
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
FINANCIAL
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings available
for common
stockholder $ 173,548 $ 155,826 $ 175,641 $ 179,990 $ 184,354
Operating revenues:
Electric $1,347,844 $1,298,723 $1,292,809 $1,208,045 $1,245,701
Steam 14,090 13,093 12,986 12,126 12,292
---------- ---------- ---------- ---------- --------
Total operating
revenues $1,361,934 $1,311,816 $1,305,795 $1,220,171 $1,257,993
Total assets $3,693,556 $3,285,845 $3,052,133 $2,972,903 $2,967,006
Long-term debt and
preferred stock-
redemption
required $1,193,994 $1,195,210 $1,110,572 $1,002,852 $1,016,197
<CAPTION>
SALES AND CUSTOMERS
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Electric
Megawatt-hours
sold 25,685,436 24,747,581 25,016,247 23,656,727 24,293,356
Customers
(End of year) 932,285 919,466 907,871 896,393 882,883
Steam
Pounds sold
(millions) 2,376 2,284 2,282 2,213 2,160
Customers
(End of year) 459 472 468 470 482
<CAPTION>
QUARTERLY FINANCIAL DATA
Three Months Ended
------------------
March June
----- ----
1993 1992 1993 1992
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Total operating revenues $339,651 $335,963 $323,416 $315,163
Operating income $ 63,087 $ 58,638 $ 47,733 $ 45,404
Earnings available
for common stockholder $ 44,806 $ 43,244 $ 29,835 $ 30,421
<CAPTION>
Three Months Ended
------------------
September December
----------- ----------
1993 1992 1993 1992
---- ---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Total operating revenues $355,436 $329,374 $343,431 $331,316
Operating income $ 68,489 $ 58,778 $ 63,528 $ 57,176
Earnings available
for common stockholder $ 51,707 $ 42,204 $ 47,200 $ 39,957
<FN>
- -----------------------------------------------------------------------------
The quarterly results of operations are not directly comparable because of
seasonal and other factors. See Management's Discussion and Analysis in
Item 7 for further discussion.
Earnings and dividends per share are not provided as all Wisconsin Electric's
Common Stock is held by Wisconsin Energy.
- 27 -
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
Electric Revenue, Kilowatt-Hour Sales and Customer Statistics
-------------------------------------------------------------
Year Ended December 31 1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES ($000)
Residential $ 472,903 $ 441,240 $ 444,542 $ 407,675 $ 408,778
Small commercial and industrial 386,736 372,213 363,906 347,706 352,170
Large commercial and industrial 380,482 381,083 372,768 347,723 373,352
Other retail 13,975 15,245 15,368 15,097 15,332
Resale - municipals 57,039 62,787 71,382 66,240 66,977
---------- ---------- ---------- ---------- ----------
Total retail and municipals 1,311,135 1,272,568 1,267,966 1,184,441 1,216,609
Resale - public utilities 25,879 18,080 18,476 17,799 23,222
---------- ---------- ---------- ---------- ----------
Total revenue from sales 1,337,014 1,290,648 1,286,442 1,202,240 1,239,831
Other operating revenue 10,830 8,075 6,367 5,805 5,870
---------- ---------- ---------- ---------- ----------
Total operating revenues $1,347,844 $1,298,723 $1,292,809 $1,208,045 $1,245,701
========== ========== ========== ========== ==========
KILOWATT-HOUR SALES (Millions)
Residential 6,551 6,230 6,567 6,197 6,088
Small commercial and industrial 6,358 6,155 6,153 5,955 5,779
Large commercial and industrial 9,771 9,702 9,462 8,764 9,487
Other retail 196 217 226 232 235
Resale - municipals 1,580 1,779 1,935 1,834 1,760
---------- ---------- ---------- ---------- ----------
Total retail and municipals 24,456 24,083 24,343 22,982 23,349
Resale - public utilities 1,229 665 673 675 944
---------- ---------- ---------- ---------- ----------
Total Sales 25,685 24,748 25,016 23,657 24,293
========== ========== ========== ========== ==========
NUMBER OF CUSTOMERS - Average
Residential 835,685 824,544 814,078 803,820 791,513
Small commercial and industrial 87,351 85,990 84,540 83,126 81,218
Large commercial and industrial 675 670 664 654 650
Other 1,831 1,945 1,980 1,991 1,984
---------- ---------- ---------- ---------- ----------
Total 925,542 913,149 901,262 889,591 875,365
========== ========== ========== ========== ==========
DEGREE DAYS (Milwaukee)
Heating (Normal 7,192) 6,775 6,723 6,416 6,103 7,382
Cooling (Normal 594) 651 364 1,056 728 485
- 28 -
</TABLE>
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Earnings
Earnings for Wisconsin Electric increased to $173,548,000 in 1993 compared to
$155,826,000 in 1992 primarily because of higher kilowatt-hour sales.
Electric energy sales were positively impacted by, among other things,
significantly warmer weather during the summer of 1993. The increase in
revenues attributable to the increased energy sales and the various rate
increases effective during 1993 were partially offset by increases in non-fuel
related operation and maintenance expenses and higher interest charges.
Electric Sales and Revenues
Total electric sales of Wisconsin Electric, detailed below by customer class,
increased 3.8 percent in 1993 compared to 1992 reflecting, among other things,
the weather-related increase in sales to other utilities discussed below.
Electric energy sales were positively impacted by, among other things, the
significantly warmer summer weather experienced during the third quarter of
1993 which resulted in an increased use of electricity for air conditioning
and other cooling purposes. The warmer than normal summer of 1993 contrasted
sharply with the summer of 1992, the coolest since Wisconsin Electric began
keeping records in 1948. Sales were also positively impacted by colder winter
weather during the first quarter of 1993. The 3.8 percent increase in
electric revenues achieved during 1993 over 1992 reflects the increase in
kilowatt-hour sales and the net increases in electric rates effective in 1993.
Electric Sales - Megawatt Hours 1993 1992 % Change
- ------------------------------- ---------- ---------- --------
Residential 6,551,061 6,230,136 5.2
Small Commercial
and Industrial 6,357,510 6,154,530 3.3
Large Commercial
and Industrial 9,771,383 9,702,303 0.7
Other 1,776,061 1,995,349 (11.0)
---------- ----------
Total Retail
and Municipal 24,456,015 24,082,318 1.6
Resale-Utilities 1,229,421 665,263 84.8
---------- ----------
Total Sales 25,685,436 24,747,581 3.8
- --------------------------------------------------------------------------
Electric energy sales to the Empire and Tilden iron-ore mines, Wisconsin
Electric's two largest customers, were 9.5 percent lower in 1993 compared to
1992. This decrease is attributable to a five-week long mine employee strike
during the third quarter of 1993. Wisconsin Electric's contracts with the
mines require the payment of a demand charge regardless of power usage which
partially offset the impact of lost sales on revenues. Excluding the mines,
sales to large commercial and industrial customers increased 3.7 percent in
1993. Sales to the mines represented 7.8 percent, 9.0 percent and 8.3 percent
of total electric sales during 1993, 1992 and 1991, respectively.
- 29 -
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
The 84.8 percent increase in the resale of energy to other utilities is
attributable to unseasonable weather in the east and south and to the severe
flooding which hit the midwestern states during the summer of 1993. This
percentage change is not indicative of future sales growth in this customer
class.
The 11.0 percent reduction in sales to the Other customer class is largely the
result of reductions in sales to The Wisconsin Public Power, Inc. SYSTEM
("WPPI"), Wisconsin Electric's largest municipal customer consortium. WPPI
has been reducing its purchases from Wisconsin Electric subsequent to
acquiring generation capacity in 1990. Since that time, WPPI has expanded the
use of its existing generation facilities and has installed additional
capacity during 1993, further reducing its reliance on energy purchases from
Wisconsin Electric. Additional reductions are expected in 1994 and beyond.
These sales reductions are not expected to have a significant effect on future
earnings. Sales to WPPI during 1993, 1992 and 1991 were approximately 944,000
megawatt-hours ("MWh"), 1,166,000 MWh and 1,338,000 MWh, respectively.
In addition to the revenues provided by the higher kilowatt-hour sales, the
3.8 percent increase in electric revenues during 1993 includes the impacts of
rate changes which were effective during 1993, as shown in "Rates and
Regulatory Matters".
Total electric kilowatt-hour sales increased at a compound annual rate of 1.3
percent between the years 1991 and 1993, while electric revenues increased at
a compound annual rate of 2.1 percent during this period. Excluding the
mines, total electric kilowatt-hour sales increased at a compound annual rate
of 1.6 percent between the years 1991 and 1993 and revenues increased at a
compound annual rate of 2.5 percent.
Electric revenues were slightly higher, 0.5 percent, in 1992 compared to 1991
despite a 1.1 percent reduction in electric kilowatt-hour sales, primarily
because of net increases in Wisconsin and non-mine Michigan retail electric
rates. Excluding the mines, total electric sales in 1992 decreased 1.7
percent compared to 1991.
Electric Operation and Maintenance Expenses
Total electric operating expenses, excluding income taxes and depreciation,
were $18 million higher in 1993 compared to 1992. This increase largely
reflects an increase in postretirement benefit costs associated with the
adoption of Statement of Financial Accounting Standards No. 106 ("FAS
No. 106") - "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (see Note D to the Financial Statements - Benefits Other Than
Pensions), growth in conservation related expenditures associated with
improving the efficiency of customers' electric energy usage and maintenance
expenditures related to the renovation of the Port Washington Power Plant.
The increases in other operation expenses and maintenance were partially
offset by lower fuel and purchased power expenses due to lower average per
unit generation and purchased power costs.
- 30 -
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
While depreciation during 1993 increased 1.3 percent compared to 1992, largely
reflecting higher depreciable plant balances and lower decommissioning
payments, the 11.2 percent increase in depreciation during 1992 compared to
1991 is primarily the result of higher depreciable plant balances and higher
authorized depreciation rates effective January 1992. Additionally, Taxes
Other Than Income Taxes were higher during 1992 compared to 1991 largely due
to a $5 million one-time ad valorem tax credit recognized in 1991 and an
increase in the 1992 Wisconsin License Fee on gross revenues.
Since 1991, operating expenses, excluding income taxes and depreciation, have
increased at a compound annual rate of 1.9 percent, reflecting increases in
non-fuel related operation and maintenance expenses which were largely offset
by reductions in fuel and purchased power expenses.
Other Items
Interest charges on long-term debt increased $11 million during 1993 compared
to 1992 largely due to the additional debt issued to finance Wisconsin
Electric's construction program and the amortization of premiums associated
with the debt securities refinanced during 1992 and 1993.
Wisconsin Electric and Wisconsin Natural Revitalization
In response to increasing competitive pressures in the markets for electricity
and natural gas, Wisconsin Electric and Wisconsin Natural have developed a
revitalization process to increase efficiencies and improve customer service.
Wisconsin Electric and Wisconsin Natural are "reengineering" and restructuring
their organizations. The new structures consolidate many business functions.
This "reengineering" and restructuring of the business systems will lead to a
reduction in the total Wisconsin Electric/Wisconsin Natural workforce.
Effective in early 1994, employees have the option of choosing a voluntary
separation package. An early retirement option also has been offered to
qualified employees. As a result, it is currently estimated that Wisconsin
Energy's utility subsidiaries will incur non-recurring reorganization charges
aggregating between $30 to $75 million during 1994. The portion attributable
to Wisconsin Electric is currently estimated to be between $27 and $65
million. See Note D to the Financial Statements - Benefits Other Than
Pensions, for additional information. It is expected that these costs will be
offset, before the end of 1995, by the reductions in future operating costs
that these programs will achieve.
In addition to the corporate restructuring at Wisconsin Electric and Wisconsin
Natural, as part of this revitalization effort, Wisconsin Energy announced its
intent to merge the two companies to form a single combined utility
subsidiary. The proposed merger will accomplish the goal of improved customer
service and will also enable the reduction of operating costs. The merger,
which is anticipated to be effective by year-end 1994, will be subject to a
number of conditions, including regulatory and other approvals.
- 31 -
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Rates and Regulatory Matters
The following table summarizes the projected annual revenue impact of recent
rate changes authorized by regulatory commissions based on the sales
projections utilized by those commissions in setting rates. The Public
Service Commission of Wisconsin ("PSCW") regulates Wisconsin retail electric
and steam rates, while the FERC regulates wholesale electric rates. The
Michigan Public Service Commission ("MPSC") regulates retail electric rates in
Michigan. The PSCW announced that it will discontinue the practice of
conducting annual rate case proceedings, replacing it with a new schedule
which calls for future rate cases to be conducted once every two years.
In April 1993, Wisconsin Electric filed required data with the PSCW relating
to the 1994 test year indicating a need to raise retail rates. However, in
support of its goal to become the lowest-cost energy provider in the region
and in light of the operating cost reductions expected from the reengineering
process discussed above, Wisconsin Electric has indicated that it has no
current plans to seek an increase in rates for 1994 and 1995. Because of the
PSCW's newly adopted biennial rate case schedule, Wisconsin Electric's next
rate case would be filed in mid-1995 for rates to be effective in 1996.
Revenue Percent
Increase Change in Effective
Company/Service (Decrease) Rates Date
- ------------------------- ------------ --------- ---------
Wisconsin Electric
Fuel electric, WI $(24,207,000) (2.1) 05/29/92
Retail electric, WI 26,655,000 2.3 02/17/93
Steam heating 505,000 3.5 02/17/93
Wholesale electric 6,000,000 10.6 06/09/93
Retail electric, MI 1,366,000 4.3 07/09/93
Fuel electric, WI (8,596,000) (0.9) 11/05/93
- ------------------------------------------------------------------------------
Under the Wisconsin retail electric fuel adjustment procedure, retail electric
rates may be adjusted, on a prospective basis, if cumulative fuel and
purchased power costs, when compared to the costs projected in the retail
electric rate proceeding, deviate from a prescribed range and are expected to
continue to be above or below that range.
With expectations of low-to-moderate inflation and future operating cost
reductions discussed above, Wisconsin Electric does not believe the impact of
inflation will have a material effect on its future results of operations.
Electric Sales Outlook
Assuming moderate growth in the service territory economy and normal weather,
Wisconsin Electric presently anticipates electric kilowatt-hour sales to grow
at a compound annual rate of approximately 1.1 percent over the five-year
period ending December 31, 1998. This forecast is subject to a number of
variables, including the economy and weather, which may affect the actual
growth in sales.
- 32 -
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES
Investing Activities
Wisconsin Electric invested $986 million in its business during the three
years ended December 31, 1993. The investments made during this three year
period include construction expenditures for new or improved facilities
totaling $820 million, net capitalized conservation expenditures of $86
million, purchases of nuclear fuel at $57 million and payments to an external
trust for the eventual decommissioning of Wisconsin Electric's Point Beach
Nuclear Plant totaling $51 million.
In July 1993, Wisconsin Electric placed in-service two units, or approximately
150 megawatts of capacity, at its new Concord Generating Station, a four unit,
approximately 300 megawatt natural gas-fired combustion turbine facility
designed to meet peak demand requirements. Capital expenditures of $35
million, $47 million and $13 million were made during 1993, 1992 and 1991,
respectively, for the construction of this facility. The two remaining units,
or approximately another 150 megawatts of capacity, are expected to be placed
in-service during the summer of 1994. The total cost of this project is
currently estimated at $108 million. Wisconsin Electric has firm capacity
purchased power contracts intended to maintain adequate reserve margins prior
to completion of this facility.
Additionally, during 1993 Wisconsin Electric started work related to the
construction of the new Paris Generating Station, also a four unit,
approximately 300 megawatt combustion turbine facility intended to meet
growing peak demand requirements. This generating station, which is expected
to have all four units in-service during the summer of 1995 is currently
estimated to cost $105 million. Capital expenditures of $28 million were made
for work performed on this project during 1993.
The PSCW has allowed Wisconsin Electric to earn a current return on
construction work in progress ("CWIP") related to the construction of the
Concord and Paris power plants.
Wisconsin Electric is nearing completion of the renovation work at its Port
Washington Power Plant, which includes upgrading the turbine generators and
boilers and the installation of additional emission control equipment. With
units 1 and 2 completed during 1993 and unit 3 completed in 1992, the project
will conclude with the completion of the unit 4 work during the summer of
1994. The total cost of this project is currently estimated at $109 million.
Expenditures totaling $32 million, $43 million and $15 million were made
during 1993, 1992 and 1991, respectively.
Cash Provided by Operating and Financing Activities
During the three years ended December 31, 1993, cash provided by operating
activities totaled $1,099 million. During this period, internal sources of
funds, after the payment of dividends to Wisconsin Energy, Wisconsin
Electric's sole common stockholder, provided 81 percent of the company's
capital requirements.
Financing activities during the three-year period ended December 31, 1993
included the issuance of $1,053 million of long-term debt, principally to
- 33 -
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
refinance higher coupon debt and the retirement of $68 million of preferred
stock. No preferred stock was issued during this period. Additionally,
during the three-year period ended December 31, 1993, the company retired a
total of $852 million of long-term debt and increased short-term debt by $62
million. Dividends on the company's common stock were $65 million, $65
million, and $168 million, during 1993, 1992, and 1991, respectively.
The company continued efforts to reduce its overall cost of capital. During
1993, Wisconsin Electric issued five new series of First Mortgage Bonds
aggregating $350 million in principal amount, the proceeds of which were used
to redeem $284.3 million principal amount of four outstanding series of First
Mortgage Bonds and 626,500 shares of Wisconsin Electric's 6.75% Series
Preferred Stock.
During 1992, Wisconsin Electric issued five new series of First Mortgage Bonds
the proceeds of which provided $431 million principal amount to redeem 12
outstanding series of higher coupon First Mortgage Bonds and $130 million of
new capital for the company.
The aggregate principal amount of securities refunded during 1993 and 1992
represents approximately three-quarters of the outstanding long-term debt of
Wisconsin Electric at December 31, 1991. These transactions have reduced the
company's embedded cost of long-term debt from 8.24 percent at December 31,
1991 to 6.90 percent at December 31, 1993, and are expected to result in
approximately $191 million in savings over the lives of the new debt issues.
Depending on market conditions and other factors, additional debt refundings
may occur.
Other financing efforts during the three years ended December 31, 1993 include
Wisconsin Electric's 1991 issuance of $100 million of First Mortgage Bonds,
8-3/8% Series, the proceeds of which were used to reduce short-term
borrowings.
Capital Structure
The company's capitalization at December 31 is shown below:
1993 1992 1991
------ ------ ------
Common Equity 50.7% 49.5% 50.2%
Preferred Stock 1.3 3.8 4.2
Long-Term Debt
(including current maturities) 43.7 43.9 44.0
Short-Term Debt 4.3 2.8 1.6
------ ------ ------
100.0% 100.0% 100.0%
- 34 -
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Compared to the electric utility industry generally, the company has
maintained a relatively high ratio of common equity to total capitalization
and low debt and preferred stock ratios. This conservative capital structure,
along with strong bond ratings (Wisconsin Electric currently has ratings of
AA+ by Standard & Poor's Corporation, Aa2 by Moody's Investors Service and AA+
by Duff & Phelps Inc.) and internal cash generation has provided, and should
continue to provide, the company with access to the capital markets when
necessary to finance the anticipated growth in the company's business. At
year-end 1993, the company had $102 million of unused lines of bank credit,
$13 million of cash and cash equivalents, $137 million of short-term debt
(including long-term debt due currently) and $21 million of construction funds
held by trustees.
Capital Requirements 1994-1998
The company's estimated capital requirements for the years 1994-1998 are
outlined below:
(Millions of Dollars)
------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Construction $286 $344 $215 $245 $191
Conservation 24 14 13 13 14
Bond/Preferred Stock
Maturities and
Sinking Funds 5 0 30 130 60
Changes in Fuel
Inventories 3 5 11 7 7
Decommissioning Trust
Payments 16 17 39 42 45
---- ---- ---- ---- ----
Total $334 $380 $308 $437 $317
- ------------------------------------------------------------------------------
A number of independent power producers ("IPPs") are actively exploring
cogeneration projects in Wisconsin, which would be qualifying facilities
("QFs"), including some which are proposed to be within Wisconsin Electric's
service territory. Under the requirements of the Public Utility Regulatory
Policies Act ("PURPA"), utilities are required to purchase electricity from
QFs at no more than the utilities' avoided costs. Consequently, should IPP-
owned QF generating capacity be constructed and placed in operation in
Wisconsin Electric's service territory, some generation-related expenditures
included in the above forecast may be reduced or delayed.
In November 1993, the PSCW, after conducting a competitive bidding process,
issued an order selecting a proposal submitted by an unaffiliated IPP to
construct a generation facility to meet a portion of Wisconsin Electric's
anticipated increase in system supply needs. In accordance with the PSCW
order, Wisconsin Electric subsequently signed a 25-year agreement to purchase
electricity from the proposed facility. The agreement is contingent upon the
facility being completed and going into operation, which at this time is
planned for mid-1996. A number of parties have filed petitions for judicial
review of this PSCW order, taking the position that the order should be set
aside on various legal grounds. The matter is pending.
- 35 -
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Included in the above capital requirements are expenditures associated with
the proposed construction of Wisconsin Electric's Kimberly Cogeneration
Facility. This proposed facility, which was submitted to but not selected by
the PSCW in the competitive bidding process described above, would have
provided approximately 220 megawatts of intermediate-load capacity. This
project would be canceled upon completion and operation of the IPP-owned
facility discussed above.
In December 1993, the PSCW issued an order detailing the requirements of a new
"Two-Stage" Certificate of Public Convenience and Necessity ("CPCN") process
which would be implemented by the PSCW in making the final selection from
among competing alternatives to construct proposed future capacity additions
(the "first stage"). Under this process, the proposal determined to be in the
best public interest would be allowed to proceed to the "second stage" and
submit a CPCN application requesting authority to proceed with construction.
Wisconsin Electric and one other party have filed petitions for judicial
review of this PSCW order, taking the position that the order should be set
aside on various legal grounds. The matter is pending.
In January 1994, a coordinated statewide plan for meeting future electricity
needs of Wisconsin customers was filed with the PSCW in the Advance Plan 7
docket. In the Advance Plan process, Wisconsin Electric, in conjunction with
the other regulated electric utilities located in Wisconsin, is required to
file long-term forecasts of resource requirements, such as the need for
generation and transmission facilities, along with plans to meet those
requirements, including the use of energy management and conservation.
In order to reliably meet its forecasted growth in demand, Wisconsin Electric
employs a least-cost integrated planning process which includes renovation of
existing power plants, promotion of cost effective conservation and load
management options, development of renewable energy sources, purchased power
and construction of new company-owned generation facilities.
Investments in demand-side management programs have reduced and delayed the
need to add new generating capacity but have not eliminated the need entirely.
Purchases of power from other utilities and transmission system upgrades will
also combine to help delay the need to install some new generating capacity in
the future. However, in order to serve the near-term growth in peak demand
requirements, Wisconsin Electric has received PSCW approval and is currently
in various stages of completing two of its planned capacity additions.
Included in the forecast of capital requirements shown above are expenditures
related to the construction of the Concord and Paris Generating Stations, as
previously described under "Investing Activities".
Finally, Wisconsin Electric's Advance Plan 7 filing indicates a need for
additional peaking capacity after the turn of the century along with an
anticipated need for additional intermediate-load capacity during the 2000 to
2010 time period. Wisconsin Electric's next base load power plant is not
expected to be placed in-service until after 2010.
The addition of new generating units requires approval from various regulatory
agencies including the PSCW, the U.S. Environmental Protection Agency ("EPA")
and the Wisconsin Department of Natural Resources ("DNR"). All generating
facilities proposed by Wisconsin Electric will meet or exceed the applicable
federal and state environmental requirements.
- 36 -
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Because of the U.S. Department of Energy's ("DOE") inability to begin
accepting spent nuclear fuel for permanent disposal as required by federal
law, Wisconsin Electric's current capability to temporarily store spent
nuclear fuel from its Point Beach Nuclear Plant ("Point Beach") is expected to
reach full capacity by the end of 1998. In order to continue the operation of
Point Beach beyond 1998, Wisconsin Electric has filed with the PSCW for a
Certificate of Authority to construct and operate a twelve unit, above-ground
steel and concrete cask spent fuel storage system. Capital costs associated
with this facility, the design of which has been approved by the DOE, are
estimated at $6 million and are included in the above forecast. The storage
units will provide additional interim storage until the DOE begins to remove
spent fuel in accordance with the terms of the contract it has with Wisconsin
Electric.
In a related matter, Wisconsin Electric has filed with the PSCW for a
Certificate of Authority to proceed with the planned 1996 replacement of the
Unit 2 steam generators at Point Beach. In 1984 Wisconsin Electric replaced
the Unit 1 steam generators. Estimated at a cost of $119 million, which is
also included in the above forecast, the Unit 2 project would allow for its
operation until the expiration of its operating license in 2013. Without the
replacement of the steam generators, the unit would not be able to operate to
the end of its current license. Wisconsin Electric is awaiting approval from
the PSCW to proceed with these projects.
Capital Resources
During the five-year forecast period ending December 31, 1998, Wisconsin
Electric expects internal sources of funds from operations, after dividends to
the company, to provide about 78 percent of the utility capital requirements.
The remaining utility cash requirements are expected to be met through the
reduction of existing cash investments and construction funds on deposit with
trustees, short-term borrowings, the issuance of long-term debt and capital
contributions from Wisconsin Energy.
Exclusive of debt refundings, utility debt issues of $100 million are
anticipated in 1994 and 1997.
Clean Air Act
The 1990 Amendments to the Clean Air Act mandate significant nationwide
reductions in nitrogen oxide (NOX) and sulfur dioxide (SO2) emissions to
address acid rain and ozone control requirements.
Wisconsin Electric's strategy for complying with the requirements which become
effective in 1995 calls for the use of low sulfur coal and the installation of
low NOX burners and continuous emission monitoring equipment at its Oak Creek
Power Plant. Equipment costs, which are not expected to exceed $9 million
based on today's costs, along with additional operating expenses are expected
to increase electric rates by less than 1 percent.
Wisconsin Electric projects a surplus of SO2 allowances and is also seeking
additional SO2 allowances which may be available as a result of its energy
conservation programs. As an integral component of its least-cost SO2
emission compliance plan, Wisconsin Electric has been active in SO2 allowance
- 37 -
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
trading. Revenues from the sale of surplus allowances are being used to
offset future rate increases.
Wisconsin Electric's strategy for complying with the requirements which become
effective after 1995 includes installation of continuous emission monitoring
equipment on the remaining company boilers, fuel switching and installation of
NOX control equipment, if needed. With an estimated cost not to exceed $75
million based on today's costs, this compliance strategy could increase rates
by 1 to 2 percent.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Quarterly Financial Data" in Item 6 on page 27 is incorporated herein by
reference.
- 38 -
<PAGE> 39
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Cont'd)
WISCONSIN ELECTRIC POWER COMPANY
INCOME STATEMENT
Year Ended December 31
<CAPTION>
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues
Electric $1,347,844 $1,298,723 $1,292,809
Steam 14,090 13,093 12,986
---------- ---------- ----------
Total Operating Revenues 1,361,934 1,311,816 1,305,795
Operating Expenses
Fuel (Note B) 263,385 266,716 291,271
Purchased power 54,880 63,745 65,261
Other operation expenses 341,748 318,253 295,654
Maintenance 149,247 143,618 136,142
Depreciation (Note E) 150,831 148,967 133,997
Taxes other than income taxes 68,969 68,380 57,916
Federal income tax (Note F) 68,239 61,235 73,854
State income tax (Note F) 13,887 14,783 16,889
Deferred income taxes - net (Note F) 12,034 10,083 6,148
Investment tax credit - net (Note F) (4,123) (3,960) (4,381)
---------- ---------- ----------
Total Operating Expenses 1,119,097 1,091,820 1,072,751
Operating Income 242,837 219,996 233,044
Other Income and Deductions
Interest income 13,351 13,624 15,688
Allowance for other funds used during
construction (Note G) 8,453 6,936 7,227
Miscellaneous - net 9,638 6,547 6,649
Federal income tax (Note F) (1,718) (1,127) (1,292)
State income tax (Note F) (811) (630) (843)
---------- ---------- ----------
Total Other Income and Deductions 28,913 25,350 27,429
Income Before Interest Charges 271,750 245,346 260,473
Interest Charges
Long-term debt 96,110 84,843 77,615
Other interest 2,450 2,414 4,849
Allowance for borrowed funds used
during construction (Note G) (4,735) (3,653) (3,560)
---------- ---------- ----------
Total Interest Charges 93,825 83,604 78,904
---------- ---------- ----------
Net Income 177,925 161,742 181,569
Preferred Stock Dividend Requirement 4,377 5,916 5,928
---------- ---------- ----------
Earnings Available for Common
Stockholder $ 173,548 $ 155,826 $ 175,641
========== ========== ==========
<FN>
Note: Earnings and dividends per share of common stock are not applicable because all of the
company's common stock is owned by Wisconsin Energy Corporation.
See Notes to Financial Statements.
</TABLE>
- 39 -
<PAGE> 40
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31
<CAPTION>
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities
Net income $177,925 $161,742 $181,569
Reconciliation to cash
Depreciation 150,831 148,967 133,997
Nuclear fuel expense - amortization 21,366 20,818 22,139
Conservation expense - amortization 15,254 13,009 10,175
Debt premium, discount & expense -
amortization 12,813 4,483 2,857
Deferred income taxes - net 12,034 10,083 6,148
Investment tax credit - net (4,123) (3,960) (4,381)
Allowance for other funds used
during construction (8,453) (6,936) (7,227)
Change in Accounts receivable (16,981) 9,993 (6,308)
Inventories 15,181 (5,294) 11,670
Accounts payable 11,620 9,195 (6,790)
Other current assets 3,231 (10,073) (2,413)
Other current liabilities 15,453 (3,664) 3,452
Other (5,176) 8,272 (3,633)
-------- -------- --------
Cash Provided by Operating Activities 400,975 356,635 341,255
Investing Activities
Construction expenditures (310,513) (293,589) (215,446)
Allowance for borrowed funds used
during construction (4,735) (3,653) (3,560)
Nuclear fuel (20,016) (17,709) (19,728)
Nuclear decommissioning trust (11,371) (20,212) (19,358)
Conservation investments - net (35,252) (31,087) (19,986)
Change in construction funds held
by trustee 3,006 1,930 37,813
Other (1,926) (746) (15)
-------- --------- --------
Cash Used in Investing Activities (380,807) (365,066) (240,280)
Financing Activities
Sale of long-term debt 361,049 567,360 124,221
Retirement of long-term debt (328,771) (495,940) (27,552)
Change in short-term debt 44,179 34,820 (16,900)
Retirement of preferred stock (65,504) (2,035) -
Dividends on stock - common (65,000) (65,000) (167,745)
- preferred (4,729) (5,928) (5,928)
-------- --------- --------
Cash Provided by (Used in) Financing Activities (58,776) 33,277 (93,904)
Change in Cash and Cash Equivalents $(38,608) $ 24,846 $ 7,071
======== ========= ========
Supplemental information disclosures:
Cash Paid For
Interest (net of amount capitalized) $ 77,357 $ 82,193 $ 78,332
Income taxes 94,103 82,126 90,981
<FN>
See Notes to Financial Statements.
</TABLE>
- 40 -
<PAGE> 41
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
ASSETS
<CAPTION>
1993 1992
---- ----
(Thousands of Dollars)
<S> <C> <C>
Utility Plant
Electric $4,079,794 $3,821,490
Steam 39,113 33,177
---------- ----------
4,118,907 3,854,667
Accumulated provision for depreciation (1,784,110) (1,668,264)
---------- ----------
2,334,797 2,186,403
Construction work in progress 208,834 181,451
Nuclear fuel - net (Note B) 52,665 53,800
---------- ----------
Net Utility Plant 2,596,296 2,421,654
Other Property and Investments
Nuclear decommissioning trust fund (Note B) 214,421 203,050
Construction funds held by trustees 20,550 23,556
Conservation investments 136,995 117,964
Other 3,491 3,482
---------- ----------
Total Other Property and Investments 375,457 348,052
Current Assets
Cash and cash equivalents 13,421 52,029
Accounts receivable, net of allowance for
doubtful accounts - $7,201 and $6,842 91,849 74,868
Accrued utility revenues 89,306 92,328
Fossil fuel (at average cost) 57,955 70,122
Materials and supplies (at average cost) 69,357 72,371
Prepayments 47,939 47,117
Other assets 5,873 6,904
---------- ----------
Total Current Assets 375,700 415,739
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note F) 97,788 61,396
Deferred regulatory assets (Note A) 191,969 -
Other 56,346 39,004
---------- ----------
Total Deferred Charges and Other Assets 346,103 100,400
---------- ----------
Total Assets $3,693,556 $3,285,845
========== ==========
<FN>
See Notes to Financial Statements.
- 41 -
<PAGE> 42
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
CAPITALIZATION AND LIABILITIES
<CAPTION>
1993 1992
---- ----
(Thousands of Dollars)
<S> <C> <C>
Capitalization (See Capitalization Statement)
Common stock equity $1,399,686 $1,294,099
Preferred stock - redemption not required 30,451 30,451
Preferred stock - redemption required 5,250 67,900
Long-term debt (Note J) 1,188,744 1,127,310
---------- ----------
Total Capitalization 2,624,131 2,519,760
Current Liabilities
Long-term debt due currently (Note J) 19,254 19,633
Notes payable (Note K) 117,903 73,724
Accounts payable 81,630 70,010
Payroll and vacation accrued 26,058 26,018
Taxes accrued - income and other 14,422 11,706
Interest accrued 21,295 17,023
Other 13,238 4,813
---------- ----------
Total Current Liabilities 293,800 222,927
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note F) 444,717 415,076
Accumulated deferred investment tax credits 91,495 96,233
Deferred regulatory liabilities (Note A) 167,403 -
Other 72,010 31,849
---------- ----------
Total Deferred Credits and Other
Liabilities 775,625 543,158
Commitments and Contingencies (Note N)
---------- ----------
Total Capitalization and Liabilities $3,693,556 $3,285,845
========== ==========
<FN>
See Notes to Financial Statements.
</TABLE>
- 42 -
<PAGE> 43
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CAPITALIZATION STATEMENT
December 31
<CAPTION>
1993 1992
---- ----
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity (See Common Stock Equity Statement)
Common stock ($10 par value; authorized 65,000,000 shares;
outstanding - 33,289,327 shares) $ 332,893 $ 332,893
Other paid in capital 139,673 142,527
Retained earnings 927,120 818,679
---------- ----------
Total Common Stock Equity 1,399,686 1,294,099
Preferred Stock - Cumulative
Six Per Cent. Preferred Stock - $100 par value; authorized 45,000 shares;
outstanding - 44,508 shares 4,451 4,451
Serial preferred stock - $100 par value; authorized 2,360,000 shares;
outstanding -
3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock - Redemption Not Required (Note I) 30,451 30,451
6.75% Series - 52,500 shares and 679,000 shares 5,250 67,900
---------- ----------
Total Preferred Stock - Redemption Required (Note I) 5,250 67,900
Long-Term Debt
First mortgage bonds
Series Due
------ ---
4-1/2% 1996 30,000 -
5-7/8% 1996 - 27,726
5-7/8% 1997 130,000 130,000
5-1/8% 1998 60,000 -
6.10 % 1999-2008 25,000 25,000
6.25 % 1999-2008 1,000 1,000
6-1/2% 1999 40,000 40,000
6-5/8% 1999 51,000 51,000
6.45 % 2004 12,000 12,000
7-1/4% 2004 140,000 140,000
6.45 % 2006 4,000 4,000
6.50 % 2007-2009 10,000 10,000
9-3/4% 2015 46,350 46,350
7-1/8% 2016 100,000 -
8-1/2% 2016 - 100,000
6.85 % 2021 9,000 9,000
7-3/4% 2023 100,000 -
9.85 % 2023 - 100,000
7.05 % 2024 60,000 -
9-1/8% 2024 3,443 60,000
8-3/8% 2026 100,000 100,000
7.70 % 2027 200,000 200,000
---------- ---------
1,121,793 1,056,076
Note (unsecured)
Variable rate due 2016 67,000 67,000
Obligations under capital lease (Note B) 41,870 42,604
Unamortized discount - net (22,665) (18,737)
Long-term debt due currently (19,254) (19,633)
---------- ----------
Total Long-Term Debt (Note J) 1,188,744 1,127,310
---------- ----------
Total Capitalization $2,624,131 $2,519,760
========== ==========
<FN>
See Notes to Financial Statements.
</TABLE>
- 43 -
<PAGE> 44
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
COMMON STOCK EQUITY STATEMENT
<CAPTION>
Common Stock Common Stock Other Paid Retained
Shares $10 Par Value In Capital Earnings Total
------------ ------------- ---------- -------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1990 33,289,327 $332,893 $142,462 $704,969 $1,180,324
Net income 181,569 181,569
Cash dividends
Common stock (152,745) (152,745)
Preferred stock (5,928) (5,928)
----------- -------- -------- -------- ----------
Balance - December 31, 1991 33,289,327 332,893 142,462 727,865 1,203,220
Net income 161,742 161,742
Cash dividends
Common stock (65,000) (65,000)
Preferred stock (5,928) (5,928)
Other 65 65
----------- -------- -------- -------- ----------
Balance - December 31, 1992 33,289,327 332,893 142,527 818,679 1,294,099
Net income 177,925 177,925
Cash dividends
Common stock (65,000) (65,000)
Preferred stock (4,729) (4,729)
Purchase of Preferred Stock (2,854) (2,854)
Other 245 245
----------- -------- -------- -------- ----------
Balance - December 31, 1993 33,289,327 $332,893 $139,673 $927,120 $1,399,686
=========== ======== ======== ======== ==========
<FN>
See Notes to Financial Statements.
</TABLE>
- 44 -
<PAGE> 45
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
A - Summary of Significant Accounting Policies
- ----------------------------------------------
General
- -------
The accounting records of the company are kept as prescribed by the Federal
Energy Regulatory Commission (FERC), modified for requirements of the Public
Service Commission of Wisconsin (PSCW).
Revenues
- --------
Utility revenues are recognized on the accrual basis and include estimated
amounts for service rendered but not billed.
Fuel
- ----
The cost of fuel is expensed in the period consumed.
Property
- --------
Property is recorded at cost. Additions to and significant replacements of
utility property are charged to utility plant at cost; minor items are charged
to maintenance expense. Cost includes material, labor and allowance for funds
used during construction (see Note G). The cost of depreciable utility
property, together with removal cost less salvage, is charged to accumulated
provision for depreciation when property is retired.
Deferred Regulatory Assets and Liabilities
- ------------------------------------------
Pursuant to Statement of Financial Accounting Standards No. 71, Accounting for
the Effects of Certain Types of Regulation, the company capitalizes as
deferred regulatory assets incurred costs which are expected to be recovered
in future utility rates. The company also records as deferred regulatory
liabilities the current recovery in utility rates of costs which are expected
to be paid in the future.
The significant portion of the company's deferred regulatory assets and
liabilities relate to the amounts recorded due to the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109).
See Note F.
Statement of Cash Flows
- -----------------------
Cash and cash equivalents include marketable debt securities acquired three
months or less from maturity.
- 45 -
<PAGE> 46
Conservation Investments
- ------------------------
The company directs a variety of demand-side management programs to help
foster energy conservation by its customers. As authorized by the PSCW, the
company has capitalized certain conservation program costs. Utility rates
approved by the PSCW provide for a current return on these conservation
investments. Conservation investments are amortized to operating expense over
a ten-year period.
B - Nuclear Operations
- ----------------------
The company has a nuclear fuel leasing arrangement with Wisconsin Electric
Fuel Trust (Trust), which is treated as a capital lease. The nuclear fuel is
leased 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 a management fee. In the event the company or the
Trust terminates the lease, the Trust would recover its unamortized cost of
nuclear fuel from the company. Under the lease terms, the company is in
effect the ultimate guarantor of the Trust's commercial paper and line of
credit borrowings financing the investment in nuclear fuel.
Provided below is a summary of nuclear fuel investment at December 31 and
interest expense on the nuclear fuel lease:
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $ 91,201 $ 92,807
Accumulated provision for amortization (54,207) (54,786)
In process/stock 15,671 15,779
------- -------
Total nuclear fuel $ 52,665 $ 53,800
Interest expense on nuclear fuel lease $ 1,697 $ 2,098 $ 3,174
The future minimum lease payments under the capital lease and the present
value of the net minimum lease payments as of December 31, 1993 are as
follows:
(Thousands of Dollars)
1994 $20,335
1995 12,992
1996 7,559
1997 2,881
1998 538
------
Total Minimum Lease Payments 44,305
Less: Interest (2,435)
------
Present Value of Net Minimum
Lease Payments $41,870
======
- 46 -
<PAGE> 47
B - Nuclear Operations - (Cont'd)
- ---------------------------------
The estimated cost of disposal of spent fuel based on a contract with the U.S.
Department of Energy (DOE) is included in nuclear fuel expense. The Energy
Policy Act of 1992 establishes a Uranium Enrichment Decontamination and
Decommissioning fund (fund) for the DOE's nuclear fuel enrichment facilities.
Deposits to the fund will be derived in part from special assessments to
utilities. The company has booked the remaining estimated liability of
$36,774,000, which will be assessed over fourteen years. Assessments are
included in nuclear fuel expense and reflected in utility rates.
Nuclear plant decommissioning is accrued as depreciation expense based on an
external sinking fund method. Total decommissioning is currently estimated at
$280 million in 1993 dollars and is subject to periodic review.
The Price-Anderson Act (Act) provides an aggregate limitation of $9.4 billion
on public liability claims arising out of a nuclear incident. The company has
$200 million of liability insurance from commercial sources. The Act also
establishes an industry-wide retrospective rating plan under which nuclear
reactor owners could be assessed up to $79 million per reactor (the company
owns two), but not more than $10 million in any one year for each reactor, in
the event of a nuclear incident.
An industry-wide insurance program, with an aggregate limit of $200 million,
has been established to cover radiation injury claims of nuclear workers first
employed after 1987. If claims in excess of the available funds develop, the
company could be assessed a maximum of approximately $3.2 million per reactor.
The company has property damage, decontamination and decommissioning insurance
totaling $2.2 billion for loss from damage at the Point Beach Nuclear Plant
with Nuclear Mutual Limited (NML), Nuclear Electric Insurance Limited (NEIL),
American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters.
Under the NML and NEIL policies, the company has potential maximum
retrospective premium liability per loss of $7.0 million and $14.2 million,
respectively.
The company also maintains additional insurance with NEIL covering extra
expenses of obtaining replacement power during a prolonged accidental outage
(in excess of 21 weeks) at the Point Beach Nuclear Plant. This insurance
coverage provides weekly indemnities of $3.5 million per unit for outages
during the first year, declining to 67% of the amounts during the second and
third years. Under the policy, the company's maximum retrospective premium
liability is approximately $8.9 million.
It should not be assumed that, in the event of a major nuclear incident, any
insurance or statutory limitation of liability would protect the company from
material adverse impact.
C - Pension Plans
- -----------------
Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions (FAS 87), for ratemaking.
For 1992 and 1991, the PSCW recognized funded amounts for ratemaking and the
company charged the following amounts to expense as paid, $3,962,000 and
$3,739,000, respectively.
- 47 -
<PAGE> 48
C - Pension Plans - (Cont'd)
- ----------------------------
The company has several noncontributory pension plans covering all eligible
employees. Pension benefits are based on years of service and the employee's
compensation. The majority of the plans' assets are equity securities; other
assets include corporate and government bonds, guaranteed investment contracts
and real estate. The plans are funded to meet the requirements of the
Employee Retirement Income Security Act of 1974.
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
future pension payment obligations to current and future retirees.
Pension Cost calculated per FAS 87 1993 1992 1991
- ---------------------------------- --------- --------- ---------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 9,185 $ 8,290 $ 7,523
Interest cost on projected benefit
obligation 31,650 28,874 27,394
Actual return on plan assets (37,846) (14,090) (88,243)
Net amortization and deferral 1,176 (30,216) 51,694
--------- --------- --------
Total pension cost (credit) calculated
under FAS 87 $ 4,165 $ (7,142) $ (1,632)
========= ========= ========
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $ 343,265 $ 304,769
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 6,124 5,905
--------- ---------
Total obligation $ 349,389 $ 310,674
========= =========
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $ 483,391 $ 461,954
Projected benefit obligation
at present value (437,461) (379,587)
Unrecognized transition asset (25,497) (27,937)
Unrecognized prior service cost 143 14,980
Unrecognized net gain (954) (50,112)
--------- ---------
Projected status of plans $ 19,622 $ 19,298
========= =========
- 48 -
<PAGE> 49
C - Pension Plans - (Cont'd)
- ----------------------------
Rates used for calculations (%) -
Discount Rate-interest rate used to
adjust for the time value of money 7.5 8.0 8.0
Assumed rate of increase
in compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0
D - Benefits Other Than Pensions
- --------------------------------
In January 1993, the company adopted prospectively Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions (FAS 106), and elected the 20 year option for
amortization of the previously unrecognized accumulated postretirement benefit
obligation. The PSCW has issued an order recognizing FAS 106 for ratemaking;
therefore, adoption has no material impact on net income. For years prior to
1993 the cost of these postretirement benefits was expensed when paid and was
$4,151,000 in 1992, and $4,365,000 in 1991.
The company sponsors defined benefit postretirement plans that cover both
salaried and nonsalaried employees who retire at age 55 or older with at least
10 years of credited service. The postretirement medical plan provides
coverage to retirees and their dependents. Retirees contribute to the medical
plan. The group life insurance benefit is based on employee compensation and
is reduced upon retirement.
Employees' Benefit Trusts (Trusts) are used to fund a major portion of
postretirement benefits. The funding policy for the Trusts is to maximize tax
deductibility. The majority of the Trusts' assets are mutual funds.
- 49 -
<PAGE> 50
D - Benefits Other Than Pensions - (Cont'd)
- -------------------------------------------
Postretirement Benefit Cost calculated per FAS 106 (Thousands of Dollars)
- --------------------------------------------------
Components of Net Periodic Postretirement Benefit Cost,
Year Ended December 31, 1993 -
Cost of postretirement benefits earned by employees $ 2,291
Interest cost on projected benefit obligation 8,404
Actual return on plan assets (2,096)
Net amortization and deferral 4,161
---------
Total postretirement benefit cost calculated $ 12,760
under FAS 106 =========
Funded Status of Plans: Postretirement Obligations
and Assets at December 31 -
Accumulated Postretirement Benefit Obligation at
December 31, 1993 -
Retirees $ (57,061)
Fully eligible active plan participants (13,434)
Other active plan participants (43,485)
---------
Total obligation (113,980)
Postretirement assets at fair market value 26,216
---------
Accumulated postretirement benefit obligation in
excess of plan assets (87,764)
Unrecognized transition obligation 77,943
Unrecognized net loss 4,981
--------
Accrued Postretirement Benefit Obligation $ (4,840)
========
Rates used for calculations (%) -
Discount Rate-interest rate used to adjust
for the time value of money 7.5
Assumed rate of increase in compensation levels 5.0
Expected long-term rate of return on
postretirement assets 9.0
Health care cost trend rate 14.0 declining to
5.0 in 2002
Changes in health care cost trend rates will affect the amounts reported. For
example, a 1% increase in rates would increase the accumulated postretirement
benefit obligation as of December 31, 1993 by $7,900,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $900,000.
- 50 -
<PAGE> 51
D - Benefits Other Than Pensions - (Cont'd)
- -------------------------------------------
Statement of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (FAS 112), was issued in 1992. This statement
establishes standards of financial accounting and reporting for the estimated
cost of benefits provided by an employer to former or inactive employees after
employment but before retirement. The company adopted FAS 112 prospectively
for 1994. It is anticipated that adoption will not have a material effect on
net income.
The company has announced a Voluntary Severance Package (VSP) and Early
Retirement Incentive Program (ERIP) effective January 1994 and March 1994,
respectively to eligible employees. The availability of these plans to
various bargaining units is based upon agreements made between the company and
the unions. These plans are available to most management employees but not
elected officers.
The VSP includes a severance payment, medical/dental insurance, outplacement
services, personal financial planning and tuition support. ERIP provides for
a monthly income supplement, medical benefits, and personal financial
planning. It is estimated that 11-23% of total employees will elect one of
these plans. The estimated cost associated with these plans is $27,000,000 -
$65,000,000.
E - Depreciation
- -----------------
Depreciation expense is accrued at straight line rates, certified by the PSCW,
which include estimates for salvage and removal costs.
Depreciation as a percent of average depreciable utility plant was 3.9% in
1993, 4.1% in 1992, and 4.0% in 1991.
Nuclear plant decommissioning is accrued as depreciation expense (see Note B).
- 51 -
<PAGE> 52
F - Income Taxes
- ----------------
Comprehensive interperiod income tax allocation is used for federal and state
temporary differences. The federal investment tax credit is accounted for on
the deferred basis and is reflected in income ratably over the life of the
related property.
Following is a summary of income tax expense and a reconciliation of total
income tax expense with the tax expected at the federal statutory rate.
1993 1992 1991
-------- -------- --------
(Thousands of Dollars)
Current tax expense $ 84,655 $ 77,775 $ 92,878
Investment tax credit-net (4,123) (3,960) (4,381)
Deferred tax expense 12,034 10,083 6,148
-------- -------- --------
Total tax expense $ 92,566 $ 83,898 $ 94,645
======== ======== ========
Income before income
taxes $270,491 $245,640 $276,214
======== ======== ========
Expected tax at federal
statutory rate $ 94,672 $ 83,518 $ 93,913
State income tax net of
federal tax reduction 10,808 12,242 13,820
Investment tax credit
restored (4,738) (4,071) (4,394)
Other (no item over
5% of expected tax) (8,176) (7,791) (8,694)
-------- -------- --------
Total tax expense $ 92,566 $ 83,898 $ 94,645
======== ======== ========
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, the adjustment of deferred tax
balances to reflect tax rate changes and the recognition of previously
unrecorded deferred taxes. The company adopted FAS 109 prospectively in 1993.
Following is a summary of deferred income taxes as of December 31, 1993, after
FAS 109 adoption, and December 31, 1992, prior to adoption.
- 52 -
<PAGE> 53
F - Income Taxes - (Cont'd)
- ---------------------------
1993 1992
-------- --------
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $ 44,888 $ 48,740
Construction advances 30,777 9,371
Accrued vacation 6,692 -
Other 15,431 3,285
-------- --------
Total Deferred Income Tax Assets $ 97,788 $ 61,396
======== ========
Deferred Income Tax Liabilities
Plant related $383,796 $371,411
Conservation investments 51,882 43,665
Other 9,039 -
-------- --------
Total Deferred Income Tax Liabilities $444,717 $415,076
======== ========
The company also has recorded deferred regulatory assets and liabilities of
$155,881,000 and $167,403,000, respectively, as of December 31, 1993, which
represent the future expected impact of deferred taxes on utility revenues.
Adoption of FAS 109 had no material effect on net income.
G - Allowance for Funds Used During Construction (AFUDC)
- --------------------------------------------------------
AFUDC is included in utility plant accounts and represents the cost of
borrowed funds used during plant construction and a return on stockholders'
capital used for construction purposes. On the 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 noncash other income.
Utility rates approved by the PSCW provide for a current return on investment
for selected long-term projects included in construction work in progress
(CWIP). AFUDC was capitalized on the remaining CWIP at a rate of 10.83% in
1993, 11.10% in 1992, and 11.16% in 1991, as approved by the PSCW.
H - Transactions with Associated Companies
- ------------------------------------------
Managerial, financial, accounting, legal, data processing and other services
may be rendered between associated companies and are billed in accordance with
service agreements approved by the PSCW. The company also buys gas from
Wisconsin Natural (WN), another subsidiary of Wisconsin Energy Corporation,
for electric generation at rates approved by the PSCW.
- 53 -
<PAGE> 54
I - Preferred Stock
- -------------------
Serial Preferred Stock authorized but unissued is cumulative, $25 par value,
5,000,000 shares.
In the event of default in the payment of preferred dividends or in the
mandatory redemption requirements, no dividends or other distributions may be
paid on the company's common stock.
Redemption Not Required -
The 3.60% Series Preferred Stock is redeemable in whole or in part at the
option of the company at $101 per share plus any accrued dividends.
Redemption Required -
In 1993 the company called for redemption 626,500 shares of its 6.75% Series
Preferred Stock at a purchase price of $104.05 per share plus accrued
dividends to the redemption date. In 1992 the company purchased 21,000 shares
on the open market. The 6.75% Series Preferred Stock has a redemption
requirement of 21,000 shares at par value annually on each June 1 with a
noncumulative option to redeem up to 31,500 additional shares annually.
J - Long-Term Debt
- ------------------
The maturities through 1998 for the aggregate amount of long-term debt
outstanding (excluding obligations under capital lease, see Note B) at
December 31, 1993 are shown below.
1994 $ -
1995 -
1996 30,000,000
1997 130,000,000
1998 60,000,000
There are no sinking fund requirements for the years 1994 through 1998.
Substantially all utility plant is subject to the applicable mortgage.
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. Unamortized amounts pertaining to reacquired debt are
written off currently, when acquired for sinking fund purposes, or amortized
in accordance with PSCW orders, when acquired for early retirement.
- 54 -
<PAGE> 55
K - Notes Payable
- -----------------
Short-term notes payable consist of:
December 31
1993 1992
-------- --------
(Thousands of Dollars)
Banks $ 50,000 $ -
Commercial paper 67,903 73,724
-------- --------
$117,903 $ 73,724
======== ========
Unused lines of credit for short-term borrowing amounted to $101,600,000 at
December 31, 1993. In support of various informal lines of credit from banks,
the company has agreed to maintain unrestricted compensating balances or to
pay commitment fees; neither the compensating balances nor the commitment fees
are significant.
L - Fair Value of Financial Instruments
- ---------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (FAS 107), requires, if practicable, disclosure
of the fair value of financial instruments, both assets and liabilities
recognized and not recognized in the balance sheet. The fair values provided
below represent the amounts at which the financial instruments could have been
exchanged between willing parties on December 31.
Fair value is estimated based upon the market value of the financial
instrument or upon instruments with similar characteristics. For most
financial instruments held by the company, book value approximates fair value.
The value of financial instruments recognized on the balance sheet, for which
book value does not approximate fair value, is as follows:
December 31
1993 1992
Book Fair Book Fair
Value Value Value Value
-------- -------- -------- --------
(Thousands of dollars)
Nuclear Decommissioning
Trust Fund $214,421 $231,991 $203,050 $213,049
First Mortgage Bonds 1,121,793 1,169,432 1,056,076 1,066,491
In 1993, the FASB issued Statement of Financial Accounting Standards No. 115
(FAS 115), Accounting for Certain Investments in Debt and Equity Securities.
This standard addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments
in debt securities. The company adopted FAS 115 prospectively in 1994. It is
anticipated that adoption will not have a material effect on net income.
- 55 -
<PAGE> 56
M - Information by Segments of Business
- ---------------------------------------
Year ended December 31 1993 1992 1991
- ---------------------- ---- ---- ----
(Thousands of Dollars)
Electric Operations
Operating revenues $1,347,844 $1,298,723 $1,292,809
Operating income before income taxes 329,727 299,902 323,075
Depreciation 149,646 147,859 132,912
Construction expenditures 305,467 292,031 212,408
Steam Operations
Operating revenues 14,090 13,093 12,986
Operating income before income taxes 3,147 2,235 2,479
Depreciation 1,185 1,108 1,085
Construction expenditures 4,940 1,530 2,803
Total
Operating revenues 1,361,934 1,311,816 1,305,795
Operating income before income taxes 332,874 302,137 325,554
Depreciation 150,831 148,967 133,997
Construction expenditures
(including nonutility) 310,513 293,589 215,446
At December 31
- --------------
Net Identifiable Assets
Electric $3,665,536 $3,262,031 $3,028,283
Steam 25,119 20,972 20,963
Nonutility 2,901 2,842 2,887
---------- ---------- ----------
Total Assets $3,693,556 $3,285,845 $3,052,133
========== ========== ==========
N - Commitments and Contingencies
- ---------------------------------
Plans for the construction and financing of future additions to utility plant
can be found elsewhere in this report in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7.
O - Subsequent Event
- --------------------
In January 1994, Wisconsin Energy Corporation, the parent company of Wisconsin
Electric, announced plans to merge its wholly-owned natural gas utility
subsidiary, Wisconsin Natural Gas Company, into Wisconsin Electric. The
merger, subject to requisite regulatory and other approvals, is anticipated to
be effective by year-end 1994.
- 56 -
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
the Stockholders of Wisconsin Electric Power Company
In our opinion, the financial statements listed under Item 14(a)(1) and (2) on
pages 58 and 59 present fairly, in all material respects, the financial
position of Wisconsin Electric Power Company at December 31, 1993 and 1992,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally accepted
auditing standards 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 the opinion expressed above. As
discussed in the Notes to Financial Statements, the Company changed its method
of accounting for income taxes and postretirement benefits effective
January 1, 1993. We concur with these changes in accounting.
/s/Price Waterhouse
- -------------------
PRICE WATERHOUSE
Milwaukee, Wisconsin
January 26, 1994
- 57 -
<PAGE> 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of Form 10-K, the information
under "Information Concerning Nominees for Directors" in Wisconsin Electric's
definitive Information Statement to be dated April 15, 1994 is incorporated
herein by reference. Also see "Executive Officers of the Registrant" in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
under "Compensation" in Wisconsin Electric's definitive Information Statement
to be dated April 15, 1994 is incorporated herein by reference (except for the
information under "Compensation Committee Report on Executive Compensation
Matters").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of Wisconsin Electric's Common Stock (100% of such class) is owned by the
parent company, Wisconsin Energy Corporation, 231 West Michigan Street, P.O.
Box 2949, Milwaukee, Wisconsin 53201. The directors, director nominees and
executive officers of Wisconsin Electric do not own any of the voting
securities of Wisconsin Electric. In accordance with General Instruction G(3)
of Form 10-K, the information concerning their beneficial ownership of
Wisconsin Energy stock set forth under "Stock Ownership of Directors, Nominees
and Executive Officers" in Wisconsin Electric's definitive Information
Statement to be dated April 15, 1994 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements and Report of Independent Accountants
Included in Part II of this report:
Income Statement for the three years ended December 31,
1993
Statement of Cash Flows for the three years ended
December 31, 1993
- 58 -
<PAGE> 59
Balance Sheet at December 31, 1993 and 1992
Capitalization Statement at December 31, 1993 and 1992
Common Stock Equity Statement for the three years ended
December 31, 1993
Notes to Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules
Included in Part IV of this report:
For the three years ended December 31, 1993
Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation, Depletion, and
Amortization of Property, Plant and
Equipment
Schedule IX Short-Term Borrowings
Schedule X Supplementary Income Statement
Information
As of December 31, 1993
Schedule VII Guarantees of Securities of Other
Issuers
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
The following Exhibits are filed with this report:
Exhibit No.
(23) Consent of Independent Accountants, dated
March 30, 1994 appearing on page 68 of this Annual
Report on Form 10-K for the year ended
December 31, 1993.
- 59 -
<PAGE> 60
In addition to the Exhibits shown above, which are filed herewith, Wisconsin
Electric hereby incorporates the following Exhibits pursuant to Exchange Act
Rule 12b-32 and Regulation Section 201.24 by reference to the filings set
forth below:
(3)-1 Amended and Restated Articles of Incorporation
of Wisconsin Electric Power Company dated
March 23, 1987. (Exhibit (3)-2 to Wisconsin
Electric's 1987 Form 10-K in File No. 1-1245)
2 Bylaws of Wisconsin Electric Power Company, as
amended to November 25, 1992. (Exhibit (3)-1
to Wisconsin Electric's 1992 Form 10-K in File
No. 1-1245)
(4)-1 Reference is made to Article III of the Amended
and Restated Articles of Incorporation of
Wisconsin Electric dated March 23, 1987
(Exhibit (3)-1 herein).
Mortgage or Supplemental
Indenture Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
(4)- 2 Mortgage and Wisconsin 10/28/38 B-1 2-4340
Deed of Trust Electric
("WE")
3 Second WE 6/1/46 7-C 2-6422
4 Third WE 3/1/49 7-C 2-8456
5 Fourth WE 6/1/50 7-D 2-8456
6 Fifth WE 5/1/52 4-G 2-9588
7 Sixth WE 5/1/54 4-H 2-10846
8 Seventh WE 4/15/56 4-I 2-12400
9 Eighth WE 4/1/58 2-I 2-13937
10 Ninth WE 11/15/60 2-J 2-17087
11 Tenth WE 11/1/66 2-K 2-25593
12 Eleventh WE 11/15/67 2-L 2-27504
13 Twelfth WE 5/15/68 2-M 2-28799
14 Thirteenth WE 5/15/69 2-N 2-32629
15 Fourteenth WE 11/1/69 2-0 2-34942
16 Fifteenth WE 7/15/76 2-P 2-54211
17 Sixteenth WE 1/1/78 2-Q 2-61220
18 Seventeenth WE 5/1/78 2-R 2-61220
19 Eighteenth WE 5/15/78 2-S 2-61220
20 Nineteenth WE 8/1/79 (a)2(a) 1-1245 (9/30/79
Form 10-Q)
21 Twentieth WE 11/15/79 (a)2(a) 1-1245 (12/31/79
Form 10-K)
22 Twenty-First WE 4/15/80 (4)-21 2-69488
23 Twenty-Second WE 12/1/80 (4)-1 1-1245 (12/31/80
Form 10-K)
24 Twenty-Third WE 9/15/85 (4)-1 1-1245 (9/30/85
Form 10-Q)
25 Twenty-Four WE 9/15/85 (4)-2 1-1245 (9/30/85
Form 10-Q)
26 Twenty-Fifth WE 12/15/86 (4)-25 1-1245 (12/31/86
Form 10-K)
27 Twenty-Sixth WE 1/15/88 4 1-1245 (1/26/88
Form 8-K)
- 60 -
<PAGE> 61
Mortgage or Supplemental
Indenture Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
28 Twenty-Seventh WE 4/15/88 4 1-1245 (3/31/88
Form 10-Q)
29 Twenty-Eighth WE 9/1/89 4 1-1245 (9/30/89
Form 10-Q)
30 Twenty-Ninth WE 10/1/91 (4)-1 1-1245 (12/31/91
Form 10-K)
31 Thirtieth WE 12/1/91 (4)-2 1-1245 (12/31/91
Form 10-K)
32 Thirty-First WE 8/1/92 (4)-1 1-1245 (6/30/92
Form 10-Q)
33 Thirty-Second WE 8/1/92 (4)-2 1-1245 (6/30/92
Form 10-Q)
34 Thirty-Third WE 10/1/92 (4)-1 1-1245 (9/30/92
Form 10-Q)
35 Thirty-Fourth WE 11/1/92 (4)-2 1-1245 (9/30/92
Form 10-Q)
36 Thirty-Fifth WE 12/15/92 (4)-1 1-1245 (12/31/92
Form 10-K)
37 Thirty-Sixth WE 1/15/93 (4)-2 1-1245 (12/31/92
Form 10-K)
38 Thirty-Seventh WE 3/15/93 (4)-3 1-1245 (12/31/92
Form 10-K)
39 Thirty-Eighth WE 8/01/93 (4)-1 1-1245 (6/30/93
Form 10-Q)
40 Thirty-Ninth WE 9/15/93 (4)-1 1-1245 (9/30/93
Form 10-Q)
All agreements and instruments with respect to long-term debt not
exceeding 10 percent of the total assets of the Registrant 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)-1 Purchase and Sale Agreement by and among The Cleveland-Cliffs Iron
Company, Cliffs Electric Service Company, Upper Peninsula Generating
Company, Upper Peninsula Power Company and Wisconsin Electric Power
Company, dated as of December 8, 1987. (Exhibit 10 to Wisconsin
Electric's Form 8-K dated December 18, 1987 in File No. 1-1245)
2 Supplemental Benefits Agreement between Wisconsin Energy Corporation
and employee Richard A. Abdoo dated December 14, 1990. (Exhibit
(10)-2 to Wisconsin Energy's 1990 Form 10-K in File No. 1-9057) *
3 Supplemental Benefits Agreement between Wisconsin Electric and
employee John W. Boston dated December 14, 1990. (Exhibit (10)-1
to Wisconsin Electric's 1990 Form 10-K in File No. 1-1245) *
4 Supplemental Benefits Agreement between Wisconsin Electric and
employee Robert H. Gorske dated December 14, 1990. (Exhibit (10)-3
to Wisconsin Energy's 1990 Form 10-K in File No. 1-9057) *
5 Director's Deferred Compensation Plan of Wisconsin Electric Power
Company, effective January 1, 1987. (Exhibit (10)-(b) to Wisconsin
Electric's Form 8-K dated January 2, 1987 in File No. 1-1245) *
- 61 -
<PAGE> 62
6 Service Agreement dated January 1, 1987 between Wisconsin Electric
Power Company, Wisconsin Energy Corporation and other non-utility
affiliated companies (Exhibit (10)-(a) to Wisconsin Electric's Form
8-K dated January 2, 1987 in File No. 1-1245)
* 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
the Registrant are eligible to participate are not filed in reliance
on the exclusion in Item 601(b)(10)(iii)(B)(6) of Regulation S-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 1993.
However, a report on Form 8-K dated January 24, 1994 was filed by Wisconsin
Electric reporting the announced plan to merge Wisconsin Energy's wholly-owned
natural gas utility subsidiary, Wisconsin Natural into Wisconsin Electric,
anticipated to be effective by year-end 1994.
- 62 -
<PAGE> 63
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (Note A)
DECEMBER 31
<CAPTION>
Col. A Col. F
-------------- --------------------------------------------------
Classification 1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Electric Utility Plant
Production Plant $2,017,504 $1,913,763 $1,840,616
Transmission Plant 305,118 299,972 251,032
Distribution Plant 1,467,969 1,344,764 1,266,146
General Plant 282,902 257,191 235,685
Property Held for Future Use 6,301 5,800 5,220
Work in Progress 208,826 180,413 127,929
---------- ---------- ----------
Total Electric Utility Plant 4,288,620 4,001,903 3,726,628
Steam Utility Plant
Production Plant 585 585 585
Distribution Plant 38,019 32,130 30,952
General Plant 509 462 438
Work in Progress 8 1,038 936
---------- ---------- ----------
Total Steam Utility Plant 39,121 34,215 32,911
Nuclear Fuel 106,872 108,586 112,716
---------- ---------- ----------
Total Utility Plant 4,434,613 4,144,704 3,872,255
Nonutility Property 3,891 3,491 3,560
---------- ---------- ----------
Total Property and Plant $4,438,504 $4,148,195 $3,875,815
========== ========== ==========
<FN>
Note A - Neither total additions nor total retirements in 1993, 1992 or 1991 amounted to
more than 10% of the total property balances at December 31 of the respective
year. All additions were for ordinary extensions and improvements of the system.
Total additions, including Allowance for Funds Used During Construction of
$13,188,000 in 1993, $10,589,000 in 1992, and $10,787,000 in 1991, and retirements
are shown below.
1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Total Additions $344,193 $322,224 $245,420
Total Retirements 53,884 49,844 78,023
Depreciation and Amortization -
Depreciation expense is accrued at straight line rates certified by the PSCW. Nuclear
plant decommissioning is accrued as depreciation expense. Average depreciation rates
were 3.9% in 1993, 4.1% in 1992, and 4.0% in 1991 for electric plant and 3.4% in 1993,
3.4% in 1992, and 3.6% in 1991 for steam utility plant. Amortization of nuclear fuel
is accrued based on fuel consumed.
</TABLE>
- 63 -
<PAGE> 64
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Additions Other
Balance at Charged to Changes- Balance at
Beginning Costs and Add End of
Description of Period Expenses Retirements (Deduct) Period
(Note A)
---------- ---------- ----------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
- -----------------------------
Accumulated Depreciation
Electric Utility $1,653,090 $155,225 $38,891 $(1,202) $1,768,222
Steam Utility 15,174 1,148 367 (67) 15,888
---------- -------- ------- ------- ----------
Total Utility 1,668,264 156,373 39,258 (1,269) 1,784,110
Nonutility Property 648 27 46 361 990
---------- -------- ------- ------- ----------
Total 1,668,912 156,400 39,304 (908) 1,785,100
Accumulated Amortization
Electric Utility -
Nuclear Fuel 54,786 21,610 22,189 - 54,207
---------- -------- ------- ------- ----------
Total $1,723,698 $178,010 $61,493 $ (908) $1,839,307
========== ======== ======= ======= ==========
Year Ended December 31, 1992:
- -----------------------------
Accumulated Depreciation
Electric Utility $1,534,539 $153,307 $33,987 $ (769) $1,653,090
Steam Utility 14,236 1,094 88 (68) 15,174
---------- -------- ------- ------- ----------
Total Utility 1,548,775 154,401 34,075 (837) 1,668,264
Nonutility Property 673 24 49 - 648
---------- -------- ------- ------ ----------
Total 1,549,448 154,425 34,124 (837) 1,668,912
Accumulated Amortization
Electric Utility
Nuclear Fuel 55,817 21,144 22,175 - 54,786
---------- -------- ------- ------ ----------
Total $1,605,265 $175,569 $56,299 $ (837) $1,723,698
========== ======== ======= ====== ==========
Year Ended December 31, 1991:
- -----------------------------
Accumulated Depreciation
Electric Utility $1,446,713 $141,726 $52,108 $(1,766)
(26)(B) $1,534,539
Steam Utility 13,486 1,052 309 9
(2)(B) 14,236
---------- -------- ------- ------ ----------
Total Utility 1,460,199 142,778 52,417 (1,785) 1,548,775
Nonutility Property 1,318 37 710 28 (B) 673
---------- -------- ------- ------ ----------
Total 1,461,517 142,815 53,127 (1,757) 1,549,448
Accumulated Amortization
Electric Utility
Nuclear Fuel 60,630 22,541 27,354 - 55,817
---------- -------- ------- ------ ----------
Total $1,522,147 $165,356 $80,481 $(1,757) $1,605,265
========== ======== ======= ====== ==========
<FN>
Notes: A - After deduction of net salvage from property retired.
B - Includes transfers between electric utility, steam utility and
nonutility property.
</TABLE>
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<PAGE> 65
WISCONSIN ELECTRIC POWER COMPANY
SCHEDULE VII - GUARANTEES OF SECURITIES OF OTHER ISSUERS
DECEMBER 31, 1993
Column A Column B Column C Column D
-------- -------- -------- --------
Amount Owned
By Person or
Name of Issuer of Title of Issue Total Amount Persons for
Securities Guaranteed of Each Class of Guaranteed Which
By Person for Which Securities and Statement is
Statement is Filed Guaranteed Outstanding Filed
- --------------------- ---------------- ------------- -------------
Wisconsin Electric Commercial $42,225,000(a)(b) ---
Fuel Trust Paper
Column E Column F Column G
-------- -------- --------
Name of any Default
Amount in By Issuer of Securities
Treasury of Guaranteed in Principal,
Issuer of Interest, Sinking Fund
Securities Nature of or Redemption Provisions,
Guaranteed Guarantee or Payments of Dividends
- ---------- --------- -------------------------
--- Principal, ---
interest and
other
financing
costs (c)
(a) The Wisconsin Electric Fuel Trust owns nuclear fuel financed by the sale
of commercial paper. The nuclear fuel is leased to Wisconsin Electric.
The commercial paper is backed by a revolving line of bank credit.
(b) A maximum of $75,000,000 of obligations may be incurred.
(c) Principal, interest and other financing costs of borrowings are
guaranteed through rent payments by Wisconsin Electric under a nuclear
fuel lease agreement and are further guaranteed by a group of banks which
will loan money if needed if payments by Wisconsin Electric are not
sufficient. The line of revolving bank credit would be generally
available to finance the trust's ownership for a period of three years if
the trust were unable to sell its commercial paper. Wisconsin Electric
is in effect the ultimate guarantor of the commercial paper and the
revolving line of bank credit.
- 65 -
<PAGE> 66
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
SCHEDULE IX - SHORT-TERM BORROWINGS
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest
Category of Aggregate End of Interest During the During the Rate During
Short-Term Borrowings Period Rate Period Period the Period
(Note A) (Note B) (Note C)
- --------------------- ----------- -------- ------------ ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Year 1993
- ---------
Notes payable to banks $ 50,000 3.28% $ 50,000 $18,286 3.16%
Commercial paper 67,903 3.34% 67,903 35,656 4.44%
Year 1992
- ---------
Notes payable to banks - - $ 25,000 $ 6,219 3.27%
Commercial Paper $ 73,724 4.00% $ 81,107 $50,006 4.20%
Year 1991
- ---------
Commercial Paper $ 38,904 4.56% $ 85,768 $70,645 6.12%
<FN>
Note A - Commercial paper outstanding at December 31, 1993 is due within one month.
Note B - Based on daily amounts outstanding.
Note C - The weighted average interest rate was derived by relating short-term interest expense to
average short-term loans outstanding.
</TABLE>
- 66 -
<PAGE> 67
WISCONSIN ELECTRIC POWER COMPANY
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (Note A)
Col. A Col. B
Charged to Costs and Expenses
------------------------------
Item 1993 1992 1991
---- ---- ---- ----
(Thousands of Dollars)
Taxes other than payroll and
income taxes
Wisconsin license fee tax $38,412 $38,269 $35,702
Other 15,062 14,101 6,633
------- ------- -------
Total $53,474 $52,370 $42,335
======= ======= =======
Note A - Maintenance expense and depreciation are shown on the Income
Statement. No royalties were paid and advertising costs did
not exceed 1% of revenues.
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<PAGE> 68
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements and Prospectuses constituting part of the Registration Statements
on Form S-3 (Nos. 33-49199 and 33-51749) of Wisconsin Electric Power Company
of our report dated January 26, 1994 appearing on page 57 of this Form 10-K.
/s/ Price Waterhouse
- --------------------
PRICE WATERHOUSE
Milwaukee, Wisconsin
March 30, 1994
- 68 -
<PAGE> 69
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, thereunto duly authorized.
WISCONSIN ELECTRIC POWER COMPANY
/s/R. A. Abdoo
By -------------------------------------
Date March 30, 1994 (R. A. Abdoo, Chairman of the Board
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 dates indicated.
Signature and Title Date
/s/R. A. Abdoo
- --------------------------------------------------- March 30, 1994
(R. A. Abdoo, Chairman of the Board and
Chief Executive Officer and Director
- Principal Executive Officer)
/s/J. W. Boston
- --------------------------------------------------- March 30, 1994
(J. W. Boston, President and Chief Operating
Officer and Director)
/s/J. G. Remmel
- --------------------------------------------------- March 30, 1994
(J. G. Remmel, Chief Financial Officer and
Director - Principal Financial Officer)
/s/A. K. Klisurich
- --------------------------------------------------- March 30, 1994
(A. K. Klisurich, Controller
- Principal Accounting Officer)
/s/D. K. Porter
- --------------------------------------------------- March 30, 1994
(D. K. Porter, Senior Vice President
and Director)
- 69 -
<PAGE> 70
Signature and Title Date
/s/R. H. Gorske
- ---------------------------------------------------- March 30, 1994
(R. H. Gorske, Vice President and
General Counsel and Director)
- ---------------------------------------------------
(J. F. Bergstrom, Director)
/s/R. A. Cornog
- ---------------------------------------------------- March 30, 1994
(R. A. Cornog, Director - designate)
/s/G. B. Johnson
- ---------------------------------------------------- March 30, 1994
(G. B. Johnson, Director)
/s/J. L. Murray
- ---------------------------------------------------- March 30, 1994
(J. L. Murray, Director)
/s/M. W. Reid
- ---------------------------------------------------- March 30, 1994
(M. W. Reid, Director)
/s/F. P. Stratton, Jr.
- ---------------------------------------------------- March 30, 1994
(F. P. Stratton, Jr., Director)
/s/J. G. Udell
- ---------------------------------------------------- March 30, 1994
(J. G. Udell, Director)
- 70 -
<PAGE> 71
Wisconsin Electric Power Company
EXHIBIT INDEX
-------------
1993 Annual Report on Form 10-K
Exhibit
Number
- -------
(23) Consent of Independent Accountants, dated March 30, 1994 appearing
on page 68 of this Annual Report on Form 10-K for the year ended
December 31, 1993.
The foregoing Exhibit is filed with this report. The additional Exhibits
which are incorporated by reference are listed in Item 14(a)(3) of this
report.
- 71 -
