<PAGE> 1
SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
Preliminary information statement
- ---
X Definitive information statement
- ---
WISCONSIN ELECTRIC POWER COMPANY
(Name of Registrant as Specified in Its Charter)
Wisconsin Electric Power Company
(Name of Person(s) Filing the Information Statement)
Payment of filing fee (Check the appropriate box):
X $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14c-5(g).
- ---
Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
- ---
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11: (Set forth the amount on which the filing fee
is calculated and state how it was determined.)
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
___ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
WISCONSIN ELECTRIC POWER COMPANY
231 West Michigan, P.O. Box 2046, Milwaukee, WI 53201-2046 (414) 221-2345
April 15, 1994
Dear Stockholder:
Wisconsin Electric Power Company will hold its annual meeting of stockholders
at 9:00 a.m. on Tuesday, May 10, 1994 at the Public Service Building, 231 West
Michigan Street, Milwaukee, Wisconsin. We are not soliciting proxies for this
meeting, as about 99% of Wisconsin Electric's voting stock is owned and will
be voted by its parent company, Wisconsin Energy Corporation. You may, if you
wish, attend the meeting and vote your shares of preferred stock; however, it
will be a short business meeting only.
On behalf of the directors and officers of Wisconsin Energy, I invite you to
attend Wisconsin Energy's annual meeting to be held Wednesday, May 11, 1994 at
1:30 p.m. The Wisconsin Energy meeting will be held at the Bradley Center,
1001 North Fourth Street, in downtown Milwaukee, Wisconsin. By attending this
meeting, you will have the opportunity to meet many of the Wisconsin Electric
officers and directors. Although you cannot vote your shares of Wisconsin
Electric preferred stock at the Wisconsin Energy meeting, you should find the
afternoon's activities to be worthwhile. You will be asked to register before
entering the meeting.
The annual report to stockholders accompanies this information statement. For
your information, you may request a Wisconsin Energy Corporation annual report
by writing to the Stock Transfer Office at the above address or calling one of
the telephone numbers listed below.
Sincerely,
Richard A. Abdoo
Chairman of the Board
and Chief Executive Officer
If you have any questions, please call our toll-free Stockholder Hotline at:
221-2100 in Metro Milwaukee
1-800-558-9663 outside Metro Milwaukee
(RECYCLE LOGO) This document is printed on recycled paper.
<PAGE> 3
---------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------------------
April 15, 1994
To the Stockholders of Wisconsin Electric Power Company:
The Annual Meeting of Stockholders of Wisconsin Electric Power Company will be
held at the Public Service Building, 231 West Michigan Street, Milwaukee,
Wisconsin, on Tuesday, May 10, 1994, at 9:00 a.m., for the following purposes:
1. To elect a Board of Directors to hold office until the 1995 Annual Meeting
of Stockholders; and
2. To consider any other matters which may properly come before the meeting.
Stockholders of record at the close of business on March 4, 1994 will be
entitled to vote at the meeting.
By Order of the Board of Directors
Ann Marie Brady
Secretary
<PAGE> 4
WISCONSIN ELECTRIC POWER COMPANY
231 West Michigan Street
P.O. Box 2046
Milwaukee, Wisconsin 53201
INFORMATION STATEMENT
and
ANNUAL REPORT TO STOCKHOLDERS
----------------------------
INFORMATION STATEMENT
April 15, 1994
This information statement is being furnished to stockholders beginning on or
about April 15, 1994 in connection with the annual meeting of stockholders of
Wisconsin Electric Power Company (WE) to be held on May 10, 1994, at the
principal office of WE at the Public Service Building, 231 West Michigan
Street, Milwaukee, Wisconsin, and all adjournments of the meeting, for the
purposes listed in the Notice of Annual Meeting of Stockholders. The WE
annual report to stockholders accompanies this information statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. However, you may vote your shares of preferred stock at the meeting.
VOTING SECURITIES
As of March 4, 1994, WE had outstanding 44,508 shares of Six Per Cent.
Preferred Stock; 312,500 shares of Serial Preferred Stock ($100 par value),
consisting of 260,000 shares of 3.60% Series and 52,500 shares of 6.75%
Series; and 33,289,327 shares of common stock. Each outstanding share of each
class is entitled to one vote. Stockholders of record at the close of
business on March 4, 1994 will be entitled to vote at the meeting. A majority
of the shares entitled to vote shall constitute a quorum. Directors are
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. "Plurality" means that
the individuals who receive the largest number of votes are elected as
directors up to the maximum number of directors to be chosen in the election.
Therefore, any shares not voted, whether by withheld authority, broker non-
vote or otherwise, have no effect in the election of directors.
All of WE's outstanding common stock, representing 99% of its voting
securities, is owned beneficially by its parent company, Wisconsin Energy
Corporation (Wisconsin Energy or WEC). A list of stockholders of record
entitled to vote at the meeting will be available for inspection by
stockholders at WE's principal business office at 231 West Michigan Street,
Milwaukee, Wisconsin, prior to and at the meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
Price Waterhouse has acted as independent public accountant for WE or its
predecessor continuously since 1932, and was appointed by WE's Board of
Directors upon recommendation of Wisconsin Energy's board of directors to
serve as such during the current year. Representatives of the firm will not
attend the annual meeting, but will be present at Wisconsin Energy's annual
meeting on May 11, 1994 to make any statement they may consider appropriate
and to respond to questions which may be directed to them.
1
<PAGE> 5
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is responsible for overseeing the performance of WE.
In 1993 the Board held twelve regular meetings and three special meetings.
None of the incumbent directors attended fewer than 86% of the total number of
meetings of the Board and the committees on which they served.
On November 24, 1993, the Board of Directors elected Robert A. Cornog,
Chairman, President and Chief Executive Officer of Snap-on Tools Corporation,
as a director of WE to fill the vacancy on the Board created by the retirement
on June 30, 1993 of Charles S. McNeer. This election is subject to
authorization of the Federal Energy Regulatory Commission (FERC) and will be
effective with the date of authorization by the FERC. FERC authorization is
required because Mr. Cornog is also a director of Johnson Controls, Inc. which
supplies WE with electrical equipment. WE does not expect that the FERC will
deny Mr. Cornog's directorship as the total dollar volume of purchases by WE
from Johnson Controls, Inc. including electrical equipment purchases, is
minimal, ranging from .031% to .108% of WE's total annual purchases of
materials, supplies and equipment during the past four calendar years. As of
April 1, 1994, FERC authorization is pending. In the unlikely event that the
FERC denies Mr. Cornog's WE directorship, the Board reserves the right to name
another nominee to fill this vacant director position.
WE has an Executive Committee and a Compensation Committee; it does not have
audit or nominating committees. The Executive Committee, which did not meet
in 1993, may exercise all of the powers vested in the Board during periods
between Board meetings except, among other things, action regarding dividends
or other distributions to stockholders, election of officers or the filling of
vacancies on the Board or its committees. Messrs. Abdoo, Boston, Reid,
Stratton and Udell are regular members of the Executive Committee; all other
directors are alternate members. The Compensation Committee, which met four
times in 1993, determines compensation policies for executive officers of WE,
reviews and recommends adjustments to the salaries of elected officers and the
fees of directors of WE, and reviews and recommends other direct and indirect
forms of compensation, benefits and privileges which the elected officers and
directors may receive. Messrs. Bergstrom, Murray, Reid, Stratton, Udell, and
Mrs. Johnson are members of the Compensation Committee. Mr. Cornog has been
designated a member of the Compensation Committee effective with the date of
authorization of his directorship by the FERC.
INFORMATION CONCERNING NOMINEES FOR DIRECTORS
At the 1994 annual meeting, there will be an election of twelve directors to
hold office for a term of one year and until they are reelected or until their
respective successors are duly elected and qualified.
The nominees named below have consented to being nominated and to serve if
elected. The Board of Directors does not expect that any of the nominees will
become unavailable for any reason. If that should occur before the meeting,
another nominee or nominees will be selected by the WE Board of Directors.
Biographical information regarding each nominee is shown below. Ages are
shown as of December 31, 1993. Wisconsin Energy Corporation's principal
subsidiaries are WE and Wisconsin Natural Gas Company (Wisconsin Natural).
2
<PAGE> 6
NOMINEES FOR DIRECTORS (FOR TERMS EXPIRING IN 1995)
RICHARD A. ABDOO. Age 49. Chairman of the Board and Chief Executive Officer
of WE and Wisconsin Natural since June 1990. Chairman of the Board, President
and Chief Executive Officer of WEC since 1991. President and Chief Executive
Officer of WE from January 1990 to June 1990. President and Chief Operating
Officer of WE from June 1989 to January 1990. Executive Vice President of WE
from January 1989 to June 1989. Senior Vice President of WE from 1984 to
January 1989. Executive Vice President of WEC from January 1990 to May 1991.
Vice President of WEC from May 1987 to January 1990. Director of WE and
Wisconsin Natural since 1989. Director of WEC since 1988. Director of M&I
Marshall & Ilsley Bank, ARI Network Services, Inc., Blue Cross & Blue Shield
United of Wisconsin and United Wisconsin Services, Inc.
JOHN F. BERGSTROM. Age 47. President and Chief Executive Officer of
Bergstrom Corporation since 1974; Bergstrom Corporation owns and operates
twelve automobile dealerships, three hotels, a convention center, and a real
estate company. Director of WE since 1985. Director of WEC since 1987.
Director of First National Bank-Fox Valley, Kimberly-Clark Corporation,
Midwest Express Airlines, Inc. and Universal Foods Corporation.
JOHN W. BOSTON. Age 60. President and Chief Operating Officer of WE since
1990 and of Wisconsin Natural since April 1994. Vice President of WEC since
1991. Executive Vice President and Chief Operating Officer of WE from January
to June 1990. Senior Vice President of WE from 1982 to January 1990.
Director of WE since 1988. Director of WEC since 1991. Director of Wisconsin
Natural since March 1994.
ROBERT A. CORNOG. Age 53. Chairman of the Board, President and Chief
Executive Officer of Snap-on Tools Corporation, a tool manufacturer, since
1991. President of Macwhyte Company, a maker of wire rope and a subsidiary of
Amsted Industries, from 1981 to 1991. Director-designate of WE. Director of
WEC since 1993. Director of Snap-on Tools Corporation and Johnson Controls,
Inc.
ROBERT H. GORSKE. Age 61. Vice President and General Counsel of WE and of
Wisconsin Natural since 1976. General Counsel of WEC since 1981. Director of
WE since 1991. Director of Wisconsin Natural since 1976.
GENEVA B. JOHNSON. Age 64. Corporate Director. President and Chief
Executive Officer of Family Service America, Inc., an organization
representing private agencies in the United States and Canada that provide
human service programs, from 1983 to March 1994. Director of WE and WEC since
1988. Director of Firstar Bank Milwaukee, N.A.
JOHN L. MURRAY. Age 66. Corporate Director. Chairman of the Board of
Universal Foods Corporation, a manufacturer and marketer of food ingredients
and selected consumer food items, from 1984 to 1990. Chief Executive Officer
of Universal Foods from 1979 to 1988. Director of WE since 1983. Director of
WEC since 1987. Director of Briggs & Stratton Corporation, The Marcus
Corporation, Twin Disc, Inc. and Universal Foods Corporation.
DAVID K. PORTER. Age 50. Senior Vice President of WE and Vice President of
Wisconsin Natural since 1989. Vice President-Corporate Planning of WE from
1986 to 1989. Director of WE since 1989. Director of Wisconsin Natural since
1988.
3
<PAGE> 7
MORRIS W. REID. Age 68. Vice Chairman of the Board of Versa Technologies,
Inc., a manufacturer of fluid power and silicone rubber products, since 1989.
Vice Chairman, President and Chief Operating Officer of Versa Technologies
from 1989 to 1992. Chairman of the Board of Versa Technologies from 1982 to
1989. Independent Management Consultant and Corporate Director since 1978.
Chairman of the Board of J. I. Case Co., a manufacturer of construction and
farm machinery, from 1972 to 1978. Director of WE since 1979. Director of
WEC since 1987. Director of Banc One Wisconsin Corporation, A&E Manufacturing
Company, Research Products Corporation and Versa Technologies, Inc.
JERRY G. REMMEL. Age 62. Chief Financial Officer of WE, WEC and Wisconsin
Natural since 1989. Vice President of WEC since January 1994. Treasurer of
WEC since 1981. Senior Vice President of WE and Vice President-Finance of
Wisconsin Natural from 1989 to 1993. Vice President and Treasurer of WE from
1983 to 1989. Treasurer of Wisconsin Natural from 1974 to 1989. Director of
WE since 1989. Director of Wisconsin Natural since 1988.
FREDERICK P. STRATTON, JR. Age 54. Chairman and Chief Executive Officer of
Briggs & Stratton Corporation, a manufacturer of small gasoline engines and
automotive locks, since 1986. Director of WE since 1986. Director of WEC
since 1987. Director of Briggs & Stratton Corporation, Banc One Corporation,
Banc One Wisconsin Corporation, Midwest Express Airlines, Inc. and Weyco
Group, Inc.
JON G. UDELL. Age 58. Irwin Maier Professor of Business at the University of
Wisconsin-Madison since 1975. Director of WE since 1977. Director of WEC
since 1987. Chairman of the Board of Directors of the Federal Home Loan Bank
of Chicago from 1982 to 1989. Director of Research Products Corporation and
Versa Technologies, Inc.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may properly
come before the meeting. The WE Bylaws set forth the requirements that must
be followed should a stockholder wish to propose any floor nominations for
director or floor proposals at annual or special meetings of stockholders. In
the case of annual meetings, the Bylaws state, among other things, that notice
and certain other documentation must be provided to WE at least 70 days before
the annual meeting.
STOCK OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
WE directors, nominees and executive officers as a group (15 persons) do not
own any of WE's stock, but beneficially own 74,801 shares of common stock of
its parent company, Wisconsin Energy Corporation (less than 1% of total WEC
common stock outstanding). The following table lists the beneficial ownership
of WEC common stock of each director, nominee and named executive officer as
of February 28, 1994. Included are shares owned by each individual's spouse,
minor children or any other relative sharing the same residence, as well as
shares held in a fiduciary capacity or held in WEC's Tax Reduction Act Stock
Ownership Plan and Stock Plus Investment Plan, and WE's Management Employee
Savings Plan (MESP).
4
<PAGE> 8
<TABLE>
<CAPTION>
Number Number Number
Name of Shares Name of Shares Name of Shares
- ---- --------- ---- -------- ---- ---------
<S> <C> <C> <C>
R. A. Abdoo.......... 11,781 R. H. Gorske.......... 14,432 M. W. Reid........... 3,273
J. F. Bergstrom...... 3,000 G. B. Johnson......... 2,053 J. G. Remmel......... 5,827
J. W. Boston......... 3,911 J. L. Murray.......... 3,000 F. P. Stratton, Jr... 3,600
R. A. Cornog......... 1,000 D. K. Porter.......... 8,062 J. G. Udell.......... 5,877(1)
<FN>
(1) Dr. Udell disclaims beneficial ownership of 2,521 of such shares.
</TABLE>
Each person has sole voting and investment power as to all shares listed for
such person except that the following persons have shared voting and/or
investment power as to the indicated number of shares so listed: Mr. Boston
(2,562), Mr. Gorske (356), Mr. Stratton (1,500), and Dr. Udell (2,521) and all
directors and executive officers as a group (9,659).
The above beneficial ownership information is based on information furnished
by the specified persons and is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as required for purposes of this
information statement. It is not necessarily to be construed as an admission
of beneficial ownership for other purposes.
COMPENSATION
DIRECTORS' COMPENSATION
Since 1991 and continuing through 1993, each nonemployee director received a
monthly retainer fee of $1,500 plus $1,000 for each Board or committee meeting
attended. In addition, a per diem fee of $1,000 for travel on company
business is paid for each day on which a Board or committee meeting is not
also held. Nonemployee directors are also paid $300 for each signed, written
unanimous consent in lieu of a meeting. Director Reid also received a one-
time payment of $5,000 for special services rendered in 1993 as chairman of
the WE and WEC compensation committees in connection with the development and
establishment of a long-term incentive plan for key executives of WEC and its
subsidiaries, including WE. In this regard, Director Reid examined comparable
practices of other corporations and prepared an extensive study of long-term
incentive plan alternatives for consideration by the compensation committees.
Although certain WE directors also serve on WEC's board and compensation
committee, only single fees are paid for meetings held by both boards or
committees on the same day. In these cases, fees are allocated between WE and
WEC based on services rendered. Nonemployee directors may defer fees so long
as they serve on the Board of WE and/or its affiliates pursuant to an
established plan which accrues interest semiannually at the prime rate on the
amounts which have been deferred. Such deferral amounts are credited to an
unsecured account in the name of each participating director on the books of
WE and are payable only following termination of the director's service to WE.
Employee directors receive no directors' fees.
EXECUTIVE OFFICERS' COMPENSATION
The following table summarizes certain information concerning compensation
awarded to, earned by or paid to WE's Chief Executive Officer and each of WE's
other four most highly compensated executive officers for services in all
capacities to WEC and its subsidiaries, including WE, for the last three
fiscal years. The amounts shown in this and all subsequent tables in this
information statement are WEC consolidated compensation data. Consequently,
the information for 1992 and 1991 will differ from that reported previously,
which related only to services rendered to WE. The portion of time devoted by
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<PAGE> 9
each officer to WE, as determined by the percent of time each officer worked
for WE versus the other affiliated companies, is as follows: Mr. Abdoo (79%),
Mr. Boston (98%), Mr. Gorske (88%), Mr. Remmel (79%) and Mr. Porter (90%).
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Awards
Annual Compensation ------------
-------------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position (1) Year Salary Bonus Compensation Options/SARs Compensation
($) ($) ($) (2) (#) (3) ($) (2) (4)
- ------------------------------- ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
RICHARD A. ABDOO
Chairman of the Board 1993 450,000 122,000 0 22,500 15,170
and Chief Executive Officer 1992 429,167 59,500 3,153 0 12,875
1991 389,167 65,000 0
JOHN W. BOSTON
President and Chief 1993 262,000 56,000 0 0 8,876
Operating Officer 1992 247,667 33,900 3,067 0 7,430
1991 244,000 39,024 0
ROBERT H. GORSKE
Vice President and 1993 205,000 44,000 0 0 6,928
General Counsel 1992 196,500 20,000 3,067 0 5,895
1991 186,667 28,000 0
JERRY G. REMMEL
Senior Vice President 1993 190,000 41,000 0 0 6,406
1992 181,500 22,000 3,153 0 5,445
1991 166,667 23,333 0
DAVID K. PORTER
Senior Vice President 1993 185,000 20,000 0 6,500 6,242
1992 178,167 17,500 3,497 0 5,345
1991 162,000 25,920 0
</TABLE>
(1) Principal position at WE during 1993 is listed; each of the named
executive officers also held positions with one or more of WE's affiliated
companies.
(2) In accordance with the transitional provisions applicable to the revised
rules on executive compensation disclosure adopted by the Securities and
Exchange Commission, amounts of "Other Annual Compensation" and "All Other
Compensation" are not presented for 1991.
(3) Grants in 1993 were in combination with contingent dividend awards, as
described in the table entitled "Long-Term Incentive Plans--Awards in Last
Fiscal Year".
(4) All Other Compensation for 1993 for Messrs. Abdoo, Boston, Gorske, Remmel
and Porter, respectively, includes: (i) employer matching of contributions by
each named executive into the MESP in the amounts of $4,497, $4,497, $4,497,
$4,182 and $4,497, respectively, (ii) "make whole" payments under the
Executive Deferred Compensation Plan with respect to matching in the MESP on
deferred salary or salary received but not otherwise eligible for matching in
the amounts of $9,003, $3,363, $1,653, $1,518 and $1,053, respectively, and
(iii) term life insurance premiums in the amounts of $1,670, $1,016, $778,
$706, and $692, respectively.
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<PAGE> 10
In connection with the proposed 1993 Omnibus Stock Incentive Plan (the
"Plan"), which is subject to WEC stockholder approval at the May 11, 1994 WEC
annual meeting, the stock options and contingent dividend awards granted in
fiscal year 1993 to Messrs. Abdoo and Porter listed in the above table and as
set forth below shall be null and void should WEC stockholder approval not be
obtained.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants (1)
Percent of Value At Assumed
Number of Total Annual Rates of
Securities Options/SARs Exercise Stock Price
Underlying Granted to or Base Appreciation for
Options/SARs Employees in Price Expiration Option Term (2)
Name Granted(#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ----------------- ------------ ------------ ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Abdoo 22,500 33.5% 27.375 12/14/03 387,360 981,646
John W. Boston 0 N/A N/A N/A N/A N/A
Robert H. Gorske 0 N/A N/A N/A N/A N/A
Jerry G. Remmel 0 N/A N/A N/A N/A N/A
David K. Porter 6,500 9.7% 27.375 12/14/03 111,904 283,587
N/A = Not Applicable
</TABLE>
(1) Consists of incentive and non-qualified stock options to purchase shares
of WEC common stock granted pursuant to the 1993 Omnibus Stock Incentive Plan
on December 15, 1993. These options were granted with an equal number of
contingent dividend awards (as described in the table entitled "Long-Term
Incentive Plans--Awards in Last Fiscal Year"), have exercise prices equal to
the fair market value of the WEC shares on the date of grant and first become
exercisable on December 15, 1997, at which time they become fully exercisable.
Upon a "change in control" of WEC, as defined in the Plan, these options shall
become immediately exercisable. These options were granted for a term of ten
years, subject to earlier termination in certain events related to termination
of employment. In the discretion of the WEC compensation committee, the
exercise price may be paid by delivery of already owned shares and tax
withholding obligations related to exercise may be satisfied by withholding
shares otherwise deliverable upon exercise, subject to certain conditions.
Subject to the limitations of the Plan, the WEC compensation committee has the
power with the participant's consent to modify or waive the restrictions on
vesting of these options, to amend these options and to grant extensions or to
accelerate these options.
(2) The dollar amounts in these columns are the result of calculations at the
5% and 10% stock appreciation rates set by the Securities and Exchange
Commission and therefore do not forecast possible future appreciation, if any,
of WEC's common stock price. At the December 14, 2003 expiration date of the
options granted in 1993, the price of a share of WEC common stock would be
$44.59 at an assumed annual appreciation rate of 5% and $71.00 at an assumed
annual appreciation rate of 10%. Gains to all WEC stockholders of record at
year-end 1993 at those assumed annual appreciation rates would be
approximately $1.8 billion and $4.6 billion, respectively. The total
"Potential Realizable Value" for the named executive officers would represent
less than .03% of such gains.
No stock options other than those granted pursuant to the proposed 1993
Omnibus Stock Incentive Plan were outstanding in the last fiscal year.
Accordingly, no options were exercisable in 1993. The following table sets
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<PAGE> 11
forth the number of options which were not exercisable and the value of such
options based upon the difference between the exercise price and the market
price of the underlying shares as of December 31, 1993.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised In-the Money
Unexercised Options/SARs Options/SARs
at Fiscal Year-End at Fiscal Year-End
(#) ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard A. Abdoo 0 22,500 0 2,813
John W. Boston N/A N/A N/A N/A
Robert H. Gorske N/A N/A N/A N/A
Jerry G. Remmel N/A N/A N/A N/A
David K. Porter 0 6,500 0 813
N/A = Not Applicable
</TABLE>
The following table shows long-term incentive awards made during 1993:
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS--AWARDS
IN LAST FISCAL YEAR
Estimated Future
Performance Payouts Under
Number of or Other Non-Stock
Shares, Units Period Until Price-Based Plans
or Other Maturation Target
Name Rights (1) or Payout ($ or #) (2)
- ---- ---------- --------- ------------
<S> <C> <C> <C>
Richard A. Abdoo 22,500 12/14/97 $129,465
John W. Boston 0 N/A N/A
Robert H. Gorske 0 N/A N/A
Jerry G. Remmel 0 N/A N/A
David K. Porter 6,500 12/14/97 $37,401
N/A = Not Applicable
</TABLE>
(1) Consists of performance units awarded under the 1993 Omnibus Stock
Incentive Plan in combination with stock options (as described in the table
entitled "Option/SAR Grants in Last Fiscal Year" above). These performance
units, entirely in the form of contingent dividends, will be paid if total
shareholder return (appreciation in the value of WEC common stock plus
dividends) over a four year period ending December 14, 1997 equals or exceeds
the median return earned by the other companies included in an externally
defined peer group (the companies included in the Peer Group Index in the
Performance Graph section of WEC's proxy statement dated May 11, 1994), except
that there will be no payout if WEC's total shareholder return is negative
over the course of such period. If payable, each participant shall receive an
amount equal to the actual dividends paid on WEC common stock for the period
of December 15, 1993 through December 14, 1997 multiplied by the number of
performance units awarded to such participant.
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<PAGE> 12
(2) Assumes, for purposes of illustration, 4% per year compound annual
dividend increase based on the current quarterly dividend rate for WEC common
stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Corporate Mission Statement
Wisconsin Electric Power Company (WE) is an electric utility whose principal
mission is being the energy supplier of choice in the region it serves while
providing earnings to support its financial goals. WE's core business is
generating, transmitting and distributing electric and steam energy to meet
the needs and wants of its customers and to assure the economic vitality of
the region. WE is committed to improving the quality of life in the area it
serves, to maintaining employee excellence and to providing a working
environment that encourages each employee to achieve superior results and
satisfaction.
Compensation Consultant
The Compensation Committee, comprised entirely of non-employee directors, has
retained Towers Perrin, a nationally recognized compensation consultant, to
work with it on matters relating to the administration and design of WE's
executive compensation program. The consultant reports directly to the
Committee. The consultant provided the Committee with direct access to
competitive information regarding pay levels and practices within the
industry, and the Compensation Committee's decisions regarding executive
compensation have been based, in part, on such information.
Philosophy & Objectives
The Board of Directors of WE strives to attract, retain and motivate a top-
caliber executive team. To that end, it is WE's intent to offer an industry-
competitive, performance-based executive compensation program.
The components of the program, as well as the opportunities offered through
the program, are designed to be competitive with practices at other
comparably-sized and situated electric utilities. In determining competitive
pay rates for WE's officer positions, the Committee relies primarily on an
analysis of compensation (including base salary, annual bonus and long-term
incentive grant values) for an externally defined peer group (i.e., the
companies included in the Peer Group Index in the Performance Graph section of
Wisconsin Energy Corporations's (WEC's) proxy statement dated May 11, 1994,)
(the "peer companies"). Data are collected and analyzed for these companies
from both recent proxy statements and from the Edison Electric Institute (EEI)
survey. The Committee relies secondarily on a broader analysis of utility
compensation rates. In this analysis, the Committee reviews compensation data
from the entire EEI database, adjusted appropriately for company size. While
the peer group is a carefully selected group of utilities of comparable size
and offering comparable services, the Committee does not believe these
companies to be the only direct competitors for WE's executive talent. The
Committee reviews both peer group specific and broader industry pay practices
to be fully informed of industry compensation levels. The Committee does not
mathematically average the data from the two analyses but, rather, considers
them as separate reads of the external market. While base salaries provide
the basis for the executive compensation program, the Compensation Committee
believes that a substantial portion of the total compensation package should
be at risk, dependent on achievement of individual and corporate goals.
Successful achievement of these goals is critical to meeting WE's longer-term
9
<PAGE> 13
financial, authorized rate of return on equity and WEC shareholder return
goals. Accordingly, the annual incentive compensation program links a portion
of each executive's pay to the successful and timely completion of key
operational, safety, financial and customer satisfaction goals and the long-
term incentive compensation program specifically links a portion of each
executive's compensation to the achievement of the longer-term goals of WE,
including total return on shareholder equity. The long-term incentive plan,
designated the 1993 Omnibus Stock Incentive Plan (OSIP), was adopted by the WE
and WEC boards in 1993, subject to WEC stockholder approval at WEC's May 11,
1994 annual meeting.
The executive compensation program strikes a balance between offering fair and
reasonable fixed compensation (e.g., base salary tied to the executive's
skills and responsibilities), and variable compensation (e.g., annual
incentive compensation tied to the executive's and the company's results over
the most recent fiscal year and long-term incentive compensation tied to the
company's results over a longer designated period of time). If the OSIP is
approved by WEC stockholders, a greater portion of the executive's
compensation will be at risk; the Compensation Committee believes that placing
a greater proportion of executive compensation at risk will benefit WE. The
Compensation Committee expects total cash compensation (base salary + annual
incentive compensation) for executives to vary from year-to-year, based upon
WE's operating, safety, financial and customer satisfaction performance. In
line with WE's pay-for-performance philosophy, superior performance will yield
above-average compensation; likewise, below-average performance will yield
below-average compensation.
The Compensation Committee annually reviews the competitiveness of executive
base salary levels and annual and long-term incentive opportunities relative
to the external market. As described earlier, the Committee primarily
considers compensation practices at the peer companies, and secondarily
reviews broader industry pay practices. The Committee periodically conducts
an extensive review of peer group pay practices covering all elements of
compensation (base salary, annual incentive and longer-term incentives), and
is advised as to how these compensation practices differed from or were
similar to broader utility industry practices. As general business and
competitive factors dictate, the Compensation Committee recommends to the
Board of Directors for approval adjustments to the level of base salary and
incentive opportunities for executives. Periodically, the Compensation
Committee also reviews the design of the executive compensation program, to
make sure that it ties closely to WE's strategic goals and operating style,
and reflects prevailing industry compensation practices.
Program Components
The executive compensation program currently consists of base salary, annual
incentive compensation and long-term incentive compensation. Base salaries,
annual incentive targets and long-term incentive grant guidelines are targeted
at the 50th percentile of industry pay practices. As stated previously, the
Committee primarily considers compensation practices at the peer companies in
this review and has data presented to it from recent proxies and from the EEI
survey in this regard. The Committee also reviews broader industry data from
the entire EEI database, consisting of approximately 100 utilities, adjusted
appropriately for company size. The Committee reviews these data separately
and does not mathematically average or combine the various competitive
analyses. The Committee sets salaries, annual incentive targets and long-term
incentive grant guidelines in consideration of these data, and after direct
discussion with and recommendations from Towers Perrin, its consultant.
10
<PAGE> 14
In addition to external competitive data, base salaries are determined by
factors including individual performance and potential, changes in duties and
responsibilities, economic conditions in the utility service area, financial
success of WE (measured in terms of such factors as achievement of authorized
rate of return on equity and target earnings, customer satisfaction,
competitiveness of utility service rates and outlook for such rates in the
coming year, and changes in salary compensation for comparable jobs at other
utilities. The Committee weights these factors substantially equally.
WE provides annual incentive compensation pursuant to WEC's Short-Term
Performance Plan (STPP) which is administered by the WEC compensation
committee. Target annual incentive compensation awards for each individual
for 1993 ranged from 15% to 30% of base salary. Annual incentive payouts
under the plan are based upon the achievement of individual and specific
company-wide operating, safety, financial and customer satisfaction
objectives. Individual award payouts are permitted to range from 0% to 125%
of targeted amounts based on individual and team performance.
For 1993, the STPP financial performance goals for WE focused on achievement
of target earnings, while the 1993 STPP operational performance goals related
principally to:
*Total WEC shareholder return versus the peer companies
*Demand-side management including conservation and load management
*Energy production availability
*Customer satisfaction
*Operating and maintenance cost management
*Safety of nuclear operations
Under the STPP for 1993, the Compensation Committee awarded key employee
participants amounts ranging from 8% to 27% of base salary as calculated under
the formula for the STPP for each individual. This decision was based on (i)
the extent to which a variety of predetermined 1993 STPP corporate performance
goals were achieved (principally those enumerated above) and (ii) the extent
to which each STPP participant met his or her 1993 individual goals. The STPP
corporate performance goals are divided into two parts--60% operational and
40% financial (except that the weightings for the Chief Executive Officer
(CEO) are 60% financial and 40% operational, as the Compensation Committee
believes that the CEO has the primary responsibility for the financial success
of WE).
Under the OSIP, the Compensation Committee awarded long-term incentive
compensation in the form of stock options and performance dividend units to
certain key employees selected by the Compensation Committee. The
Compensation Committee and the Board of Directors have approved a table of
stock option and performance dividend unit grant guidelines for each of four
groups of OSIP participants. The grant guidelines range from 20,000 to 25,000
stock options and performance dividend units for the Chairman of the Board and
Chief Executive Officer to 1,000 to 1,500 of such options and units for
participating junior executives. The Compensation Committee determined, based
on its subjective evaluation of each participant, that the initial grant
should be made at the mid-point of the respective guideline range for each
participant. The Compensation Committee expects that the present guideline
range will be modified from time to time based on changing conditions in the
electric utility industry. As a condition of participation in the OSIP, each
participant must achieve specified WEC stock ownership targets. Several
officers who are nearing retirement, including named executive officers John
W. Boston, Robert H. Gorske and Jerry G. Remmel, will not participate in the
OSIP.
11
<PAGE> 15
Chief Executive Officer Compensation
Mr. Abdoo's WEC consolidated base salary for 1993 was $450,000, 79% of which
was paid by WE, and has been set by the Committee at approximately the 50th
percentile as compared to industry pay practices. His salary was also
adjusted to account for the factors listed in the Program Components section
of this report pertaining to base salaries; such factors were weighted
substantially equally. Mr. Abdoo's base salary has not been increased since
November 1992 because in 1993 it continued to approximate such 50th
percentile.
Mr. Abdoo is a designated participant in the STPP and the OSIP. With respect
to the STPP, for fiscal year 1993, the Compensation Committee awarded Mr.
Abdoo the annual incentive award set forth in the "Bonus" column of the
Summary Compensation Table. The award is 27% of Mr. Abdoo's consolidated base
salary which is within the Committee's target level of setting the annual
incentive compensation range between 15% and 30% of base salary. The award
was based upon WE's actual performance versus the specific company-wide
operational and financial performance goals cited above in the Program
Components section. Mr. Abdoo's award was also based on the degree to which
his 1993 individual goals were achieved. His principal goals related to
achieving a safe and effective operation of WE's Point Beach Nuclear Plant,
achieving a satisfactory earnings level for WE, and providing leadership to
ensure that WE operates in an environmentally responsible, community-minded
manner to improve the quality of life in the areas it serves. Mr. Abdoo's
award was principally determined by achievement of the company-wide goals and
was adjusted based on accomplishment of individual goals. The Committee
weighted the company-wide performance goals as cited above in the Program
Components section; individual goals were weighted substantially equally with
the exception of goals relating to financial performance, such as achievement
of authorized rate of return on equity and target earnings, which were
weighted somewhat higher.
With respect to the OSIP, in keeping with the Compensation Committee's
philosophy as stated above, Mr. Abdoo was awarded stock options and related
dividend performance units in 1993 as set forth in the "Long-Term Compensation
Awards" column of the Summary Compensation Table to specifically link a
portion of his compensation to the achievement of WE's longer-term goals. Mr.
Abdoo's award was set by the Committee at approximately the 50th percentile as
compared to industry grant practices. The award of dividend performance units
will be paid if total WEC shareholder return (appreciation in the value of WEC
common stock plus dividends) over a four year period ending December 14, 1997
equals or exceeds the median return earned by the peer companies, except that
there will be no payout if WEC's total shareholder return is negative over the
course of such period.
The Committee also applied subjective judgment in evaluating the relative
importance of the factors which were the basis for determining each component
of Mr. Abdoo's compensation (i.e., base salary, annual and long-term
incentives) to determine precisely his salary and awards.
Compensation of Other Named Executive Officers
The other four named executive officers each received merit increases during
the fiscal year ranging from approximately 4% to 6% of base salary on an
annualized basis. The Committee set such salaries at approximately the 50th
percentile as compared to industry pay practices. Each salary was also
adjusted to account for the factors listed in the Program Components section
of this report pertaining to base salaries; such factors were weighted
substantially equally.
12
<PAGE> 16
The other four named executive officers are designated participants in the
STPP. For fiscal year 1993, such officers received annual incentive awards as
set forth in the "Bonus" column of the Summary Compensation Table. Their
awards, which ranged between 11% and 22% of consolidated base salary, were
based upon criteria similar to those described for Mr. Abdoo's annual
incentive award. Each such award was principally determined by achievement of
the company-wide goals and was adjusted based on accomplishment of individual
goals. The Committee weighted the company-wide goals as cited above in the
Program Components section; individual goals were weighted substantially
equally with the exception of goals relating to financial performance, which
were weighted somewhat higher.
Of the other four named executive officers, only Mr. Porter is a participant
in the OSIP. Mr. Porter's long-term incentive compensation, awarded based
upon criteria similar to those described for Mr. Abdoo's long-term incentive
award, is reflected in the "Long-Term Compensation Awards" column of the
Summary Compensation Table. Mr. Porter's award was set by the Committee at
approximately the 50th percentile as compared to industry grant practices.
The Committee also applied subjective judgment in evaluating the relative
importance of the factors which were the basis for determining each component
of the named executive officers' compensation (i.e., base salary, annual and
long-term incentives) to determine precisely their respective salaries and
awards.
Compliance With New Tax Regulations Regarding Executive Compensation
Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget
Reconciliation Act of 1993, generally disallows a tax deduction to public
companies for compensation over $1 million paid to the corporation's chief
executive officer and the other executive officers named in the Summary
Compensation Table. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. WE's
executive compensation program, as presently constructed, including the OSIP
being submitted for WEC shareholder approval, is not likely to generate non-
deductible compensation in excess of these limits. The Committee will
continue to review these evolving tax regulations as they apply to WE's
executive compensation program. It is the Committee's intent to preserve the
deductibility of executive compensation to the extent reasonably practicable
and to the extent consistent with its other compensation objectives.
Compensation Committee
----------------------
Morris W. Reid (chair)
John F. Bergstrom
Geneva B. Johnson
John L. Murray
Frederick P. Stratton, Jr.
Jon G. Udell
RETIREMENT PLANS
WEC's utility subsidiaries maintain separate retirement plans for management
employees, including executive officers. WE's executive officers participate
in the WE management employee retirement plan. The plans provide retirement
income based upon years of credited service and final average annual
compensation for the 36 highest consecutive months. The following table shows
the estimated annual pension benefits payable upon retirement to persons in
various compensation and years-of-service classifications:
13
<PAGE> 17
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35 40
- ------------ -- -- -- -- -- --
$50,000 $ 11,295 $ 15,060 $ 18,825 $ 22,590 $ 24,754 $ 26,918
100,000 24,233 32,311 40,389 48,467 53,068 57,670
150,000 37,172 49,562 61,953 74,344 81,383 88,422
200,000 50,108 66,811 83,514 100,217 109,693 119,170
250,000 63,045 84,060 105,075 126,090 138,004 149,918
300,000 75,983 101,311 126,639 151,967 166,318 180,670
400,000 101,858 135,811 169,764 203,717 222,943 242,170
500,000 127,733 170,311 212,889 255,467 279,568 303,670
600,000 153,608 204,811 256,014 307,217 336,193 365,170
700,000 179,483 239,311 299,139 358,967 392,818 426,670
The compensation for the individuals listed in the Summary Compensation Table
in the columns labeled "Salary", "Bonus" and "All Other Compensation" is
virtually equivalent to the compensation considered for purposes of the
retirement plans and the various supplemental plans. Messrs. Abdoo, Boston,
Gorske, Remmel and Porter currently have 18, 11, 25, 39 and 24 credited years
of service, respectively. Credited years of service under the retirement
plans for certain individuals may be fewer than years of service with the
companies as reported in the attached Annual Report to Stockholders.
Retirement benefits are not subject to any deduction for Social Security or
other offset since they are computed using a step-rate formula which provides
a Social Security integrated benefit based upon percentages of the average of
the participant's highest 36 consecutive months of compensation for up to 30
years of credited service with additional (lower) percentages of compensation
in excess of 30 years up to a maximum of 10 years. The Supplemental Executive
Retirement Plan (described below) provides designated participants a "make
whole" benefit equal to any decrease in pension which may have resulted when
the retirement plans adopted the step-rate formula. Such "make whole" benefit
will be paid as a pension supplement out of general corporate assets.
Designated elected officers of WEC and the utility subsidiaries, including WE,
participate in the Supplemental Executive Retirement Plan (SERP). The SERP
provides a supplemental pension benefit to participants, which will be paid
out of corporate assets, equal to the difference between the actual pension
benefit payable under the management employee retirement plan and what such
pension benefit would be if calculated without regard to any limitation
imposed by the Internal Revenue Code on pension benefits or covered
compensation. The SERP also heretofore provided for monthly payments of
benefits for a period of ten years to the participant after retirement or to
his/her beneficiaries in the event of the participant's death equal to 12.5%
(25% upon death of the participant) of the average of the participant's
highest 36 consecutive months of compensation from the employing company. No
such payments are made until after the retirement or death of the participant.
Effective January 1, 1994 this SERP benefit will be calculated so as to
provide participants instead with a lifetime annuity, estimated to amount to
between 8% and 10% of final average compensation depending on which pension
payment option is selected, that is actuarially equivalent to the value of the
benefit as described above.
14
<PAGE> 18
WEC has entered into an agreement with Mr. Abdoo and WE has entered into
agreements with Messrs. Boston and Gorske, who cannot accumulate by normal
retirement age the maximum number of years of credited service under the
management employee retirement plans. According to these agreements, Messrs.
Abdoo, Boston and Gorske at retirement will receive supplemental retirement
payments which will make their total retirement benefits at age 60 or older
substantially the same as those payable to employees who are in the same
compensation bracket and who became plan participants at the age of 25. On
October 27, 1993, resolutions were adopted authorizing amendments to these
agreements, the SERP and the Executive Deferred Compensation Plan to provide
for establishment of a grantor trust to fund such agreements and plans and to
provide for optional lump sum payments and, in the instance of a change in
control, mandatory lump sum payouts without regard to whether the executive's
employment has terminated. In each case, the interest rate benchmark formula
for calculating the lump sum amount is the five-year U. S. Treasury Security
yield as of the last business day of the month prior to date of payment.
AVAILABILITY OF FORM 10-K
THE WISCONSIN ELECTRIC POWER COMPANY FORM 10-K REPORT FOR 1993 TO THE
SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE AT NO COST BY WRITING TO WE'S
SECRETARY, ANN MARIE BRADY, 231 WEST MICHIGAN STREET, P.O. BOX 2046,
MILWAUKEE, WISCONSIN 53201.
15
<PAGE> 1
WISCONSIN ELECTRIC POWER COMPANY
1993 ANNUAL REPORT TO STOCKHOLDERS
ACCOMPANYING INFORMATION STATEMENT
----------------------------------
TABLE OF CONTENTS
-----------------
ITEM PAGE
- ---- ----
Business................................................................. A-2
Market for Common Equity and Related Stockholder Matters................. A-2
Selected Financial Data.................................................. A-3
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... A-4
Income Statement......................................................... A-14
Statement of Cash Flows.................................................. A-15
Balance Sheet............................................................ A-16
Capitalization Statement................................................. A-18
Common Stock Equity Statement............................................ A-19
Notes to Financial Statements............................................ A-20
Directors................................................................ A-33
Executive Officers....................................................... A-33
A-1
<PAGE> 2
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.
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.
MARKET FOR 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
A-2
<PAGE> 3
SELECTED FINANCIAL DATA
<TABLE>
<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
for further discussion.
Earnings and dividends per share are not provided as all Wisconsin Electric's
Common Stock is held by Wisconsin Energy.
</TABLE>
A-3
<PAGE> 4
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.
A-4
<PAGE> 5
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.
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.
A-5
<PAGE> 6
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.
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
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<PAGE> 7
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.
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.
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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
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.
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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%
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
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<PAGE> 10
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.
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".
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<PAGE> 11
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.
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.
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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
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.
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<TABLE>
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>
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<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>
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<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.
</TABLE>
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<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>
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<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>
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<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>
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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.
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<PAGE> 20
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
======
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<PAGE> 21
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.
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<PAGE> 22
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
========= =========
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
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<PAGE> 23
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.
A-23
<PAGE> 24
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.
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.
A-24
<PAGE> 25
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).
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
======== ======== ========
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<PAGE> 26
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.
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.
A-26
<PAGE> 27
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.
A-27
<PAGE> 28
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.
A-28
<PAGE> 29
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".
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.
DIRECTORS
The information in "Information Concerning Nominees for Directors" appearing
on pages 2-3 of Wisconsin Electric's definitive Information Statement dated
April 15, 1994, attached hereto, is incorporated herein by reference.
A-29
<PAGE> 30
EXECUTIVE OFFICERS
(Figures in brackets indicate age and years of service with Wisconsin Electric
Power Company as of December 31, 1993.)
RICHARD A. ABDOO [49, 18] ROBERT H. GORSKE [61, 29]
Chairman of the Board Vice President & General
& Chief Executive Officer Counsel
JOHN W. BOSTON [60, 11] ANN MARIE BRADY [41, 5]
President & Chief Secretary
Operating Officer
ANNE K. KLISURICH [46, 21]
DAVID K. PORTER [50, 24] Controller
Senior Vice President
--------------------------
CALVIN H. BAKER [50, 2]
Vice President-Finance JERRY G. REMMEL [62, 38]
Chief Financial Officer
A-30
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders
of Wisconsin Electric Power Company
In our opinion, the accompanying balance sheet and capitalization statement
and the related statements of income, of common stock equity and of cash flows
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
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
January 26, 1994
A-31
