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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission file number 1-1245
------------
WISCONSIN ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
Wisconsin 39-0476280
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
231 West Michigan Street, P.O. Box 2046, Milwaukee, Wisconsin 53201
(Address of principal executive offices) (Zip Code)
(414) 221-2345
(Registrant's telephone number, including area code)
------------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
----------------------------------------- ---------------------
None --
Securities Registered Pursuant to Section 12(g) of the Act:
PREFERRED STOCK, 3.60% SERIES, $100 PAR VALUE
SIX PER CENT. PREFERRED STOCK, $100 PAR VALUE
(Title of Class)
----------------
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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The aggregate market value of the voting stock of the Registrant held by non-affiliates is approximately
$16,934,000 based on the reported last sale prices on March 1, 1996 or the average bid and asked prices
of such securities on or prior to such date.
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Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the
latest practicable date.
Class Outstanding at March 1, 1996
----- ----------------------------
COMMON STOCK, $10 PAR VALUE 33,289,327 Shares
Documents Incorporated by Reference
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Portions of the Registrant's definitive Information Statement for its Annual Meeting of Stockholders to be
held on May 21, 1996, are incorporated by reference into Part III hereof.
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WISCONSIN ELECTRIC POWER COMPANY ("WE")
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1995
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TABLE OF CONTENTS
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ITEM PAGE
PART I
------
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 28
4. Submission of Matters to a Vote of Security Holders. . . . . . . 32
Executive Officers of the Registrant . . . . . . . . . . . . . . 32
PART II
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5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . 34
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 35
Electric Revenues, Kilowatt-Hour Sales and
Customer Statistics . . . . . . . . . . . . . . . . . . . . . 36
Gas Revenues, Therms Delivered and Customer Statistics . . . . . 36
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 37
8. Financial Statements and Supplementary Data. . . . . . . . . . . 56
Report of Independent Accountants . . . . . . . . . . . . . . . 80
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 81
PART III
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10. Directors and Executive Officers of the Registrant . . . . . . 81
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 81
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 81
13. Certain Relationships and Related Transactions . . . . . . . . 81
PART IV
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14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 82
Consent of Independent Accountants . . . . . . . . . . . . . . 87
Wisconsin Energy Company Unaudited Pro Forma
Combined Condensed Financial Information. . . . . . . . . . . 88
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 95
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DEFINITIONS
Abbreviations and acronyms used in the text are defined below.
Abbreviations and Acronyms Term
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BTU.............................. British Thermal Units
CO2.............................. Carbon Dioxide
Concord.......................... Concord Generating Station
CPCN............................. Certificate of Public Convenience and Necessity
DNR.............................. Wisconsin Department of Natural Resources
DOE.............................. U.S. Department of Energy
DSM.............................. Demand Side Management
Dth.............................. Dekatherm
EMFs............................. Electromagnetic Fields
EPA.............................. U.S. Environmental Protection Agency
EWGs............................. Exempt Wholesale Generators
FERC............................. Federal Energy Regulatory Commission
GRI.............................. Gas Research Institute
IPP.............................. Independent Power Producer
ISFSI............................ Independent Spent Fuel Storage Installation
LS Power......................... LSP-Whitewater L.P.
MAPP............................. Mid-Continent Area Power Pool
MDNR............................. Michigan Department of Natural Resources
MDEQ............................. Michigan Department of Environmental Quality
MGP.............................. Manufactured gas plant
MPSC............................. Michigan Public Service Commission
MWh.............................. Megawatt-hour
NOX.............................. Nitrogen Oxide
NRC.............................. U.S. Nuclear Regulatory Commission
New NSP.......................... NSP (after reincorporation in Wisconsin and related changes)
NSP.............................. Northern States Power Company, a Minnesota corporation
NSP-WI........................... Northern States Power Company, a Wisconsin corporation
Paris............................ Paris Generating Station
PGA.............................. Purchased Gas Adjustment
Point Beach...................... Point Beach Nuclear Plant
Primergy......................... Primergy Corporation
PRP ............................. Potentially Responsible Party
PSCR............................. Power Supply Cost Recovery
PSCW............................. Public Service Commission of Wisconsin
PUHCA............................ Public Utility Holding Company Act of 1935
Repap............................ Repap Wisconsin, Inc.
SEC.............................. Securities and Exchange Commission
SO2.............................. Sulfur Dioxide
Trust............................ Wisconsin Electric Fuel Trust (nuclear)
UPPCO............................ Upper Peninsula Power Company
USEC............................. U.S. Enrichment Corporation
WE............................... Wisconsin Electric Power Company
WEC or the Company............... Wisconsin Energy Corporation
WEGO............................. WE Gas Operations
WN............................... Wisconsin Natural Gas Company
WSG.............................. Wisconsin Southern Gas Company, Inc.
WPPI............................. Wisconsin Public Power Inc. SYSTEM
WUMS............................. Wisconsin-Upper Michigan Systems
Yellowcake....................... Uranium Concentrates
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PART I
ITEM 1. BUSINESS
Wisconsin Electric Power Company ("WE" or the "Company") is an operating
public utility incorporated in the State of Wisconsin in 1896. Effective
January 1, 1996, Wisconsin Energy Corporation ("WEC"), WE's parent company,
merged its natural gas utility subsidiary, Wisconsin Natural Gas Company
("WN"), into WE to form a single combined utility subsidiary. Where
applicable, references to WE include WN prior to the merger. Additional
information concerning the merger may be found in Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"RESULTS OF OPERATIONS - Mergers" and in Note B - "Mergers" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WE's operations are conducted in three business segments, the primary
operations of which are as follows:
Business Segment Operations
---------------- ----------
Electric Operations WE generates, transmits, distributes and sells
electric energy in a territory of
approximately 12,000 square miles with a
population estimated at over 2,200,000 in
southeastern (including the Milwaukee area),
east central and northern Wisconsin and in the
Upper Peninsula of Michigan.
Gas Operations The WE gas operations ("WEGO") purchases,
distributes and sells natural gas to retail
customers and transports customer-owned gas in
three distinct service areas in Wisconsin:
west and south of the City of Milwaukee, the
Appleton area and the Prairie du Chien area.
The gas service territory, which has an
estimated population of over 1,100,000, is
largely within WE's electric service area.
Steam Operations WE distributes and sells steam supplied by
WE's Valley Power Plant to space heating and
processing customers in downtown and near
southside areas of Milwaukee.
For additional financial information about business segments, see Note L -
"Information by Segments of Business" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY ("NSP")
On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP") entered into an Agreement and Plan of Merger, which was
amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger
Agreement provides for a strategic business combination involving WEC and NSP
in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will
become a registered public utility holding company under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), and will change its name to
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ITEM 1. BUSINESS - Merger Agreement with NSP - (cont'd)
Primergy Corporation ("Primergy"). The headquarters of Primergy will be in
Minneapolis, Minnesota. The business of Primergy will consist of owning
utilities and various non-utility subsidiaries.
Primergy will be the parent company of WE (which will be renamed Wisconsin
Energy Company), of NSP (which, for regulatory reasons, will reincorporate in
Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. In
connection with the Transaction, Northern States Power Company, a Wisconsin
corporation ("NSP-WI"), currently a utility subsidiary of NSP, will be merged
into Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin
Energy Company, New NSP will acquire from NSP-WI certain gas utility assets.
Wisconsin Energy Company and New NSP will operate as the principal
subsidiaries of Primergy. The headquarters of the two utilities will remain
in their current locations, Wisconsin Energy Company's in Milwaukee and New
NSP's in Minneapolis. Based upon December 31, 1995 statistics, Wisconsin
Energy Company and New NSP will serve a total of approximately 2,350,000
electric customers and 780,000 natural gas customers, and their combined
service territory will include portions of Minnesota, Wisconsin, North Dakota,
South Dakota and the Upper Peninsula of Michigan.
Upon receipt of the necessary approval from the Federal Energy Regulatory
Commission ("FERC") and on or after the effective time of the Transaction,
Wisconsin Energy Company and New NSP will become parties to an Interchange
Agreement, whereby costs of generating capacity and transmission are shared in
a manner similar to an existing interchange agreement between NSP and NSP-WI.
The integration of the Wisconsin Energy Company and New NSP generating
capacity should increase the ability of these companies to meet demands for
electricity within the service territories each serves. It is also
anticipated that a single administrative and support system will be
established following the Transaction.
The non-utility operations of WEC are presently conducted through six active
wholly-owned subsidiaries. The non-utility operations of NSP are conducted
primarily through NRG Energy, Inc., Cenergy, Inc. and Eloigne Company.
Following the Transaction, it is anticipated that New NSP will transfer its
non-utility businesses to Primergy and that such non-utility businesses of New
NSP, along with the non-utility businesses of WEC, will be conducted through
one or more subsidiaries of Primergy that are not subsidiaries of Wisconsin
Energy Company or New NSP.
WEC is currently exempt from the registration and other requirements of PUHCA,
other than from Section 9(a)(2) thereof, pursuant to an order of the
Securities and Exchange Commission ("SEC"). SEC approval under PUHCA is
required in connection with the Transaction.
The PUHCA exemption under which WEC currently operates will not be available
to Primergy after consummation of the Transaction. Accordingly, upon
consummation of the Transaction, Primergy must register as a holding company.
PUHCA imposes numerous restrictions on the operations of a registered holding
company and its subsidiaries and affiliates. Subject to limited exceptions,
SEC approval is required under PUHCA for a registered holding company or any
of its subsidiaries to: (i) issue securities, (ii) acquire utility assets from
a third person, (iii) acquire the stock of another public utility, (iv) amend
its articles of incorporation or (v) acquire stock, extend credit, pay
dividends, lend money or invest in any manner in any other businesses. SEC
approval under PUHCA also will be required for certain proposed transactions
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ITEM 1. BUSINESS - Merger Agreement with NSP - (cont'd)
relating to the Transaction. As part of the SEC approval process, PUHCA also
limits the ability of registered holding companies to engage in non-utility
ventures and regulates holding company system service companies and the
rendering of services by holding company affiliates to the system's utilities.
The SEC may require, as a condition to its approval of the Transaction, that
WEC and NSP divest their gas utility properties and possibly certain non-
utility ventures within a reasonable time after the Transaction is
consummated. In a few cases, the SEC has allowed the retention of such
properties or deferred the question of divestiture for a substantial period of
time. In those cases in which divestiture has taken place, the SEC has
usually allowed enough time to complete the divestiture so as to allow the
applicant to avoid a "fire sale" of the divested assets. WEC and NSP believe
strong policy reasons and prior SEC decisions exist which support their
retaining their existing gas utility properties and non-utility ventures, or,
alternatively, which support deferring the question of divestiture for a
substantial period of time. Accordingly, WEC and NSP will request in their
merger application with the SEC that WEC and NSP be allowed to retain, or in
the alternative, that the question of divestiture be deferred with respect to,
WEC's and NSP's existing gas utility properties and non-utility ventures.
Also, regulatory authorities may require the restructuring of transmission
system operations or administration. WEC currently cannot determine if such
restructuring will be required. In addition, Wisconsin State law limits the
total assets of non-utility affiliates of Primergy, which could affect the
amount of non-utility operations. See Item 1. BUSINESS - "NON-UTILITY
OPERATIONS" below.
Subject to the qualifications expressed below, WEC and NSP believe that
synergies from the Transaction will generate substantial cost savings to
Primergy, which would not be available absent the Transaction. Preliminary
estimates by the managements of WEC and NSP indicate that the Transaction
could result in potential net cost savings (that is, after taking into account
the costs incurred to achieve such savings) of approximately $2 billion during
the ten-year period from 1997 through 2006 assuming that the Transaction is
consummated at the beginning of 1997. Achieved savings in costs are expected
to inure to the benefit of both shareholders and customers. The treatment of
the benefits and cost savings will depend on the results of regulatory
proceedings in the various jurisdictions in which WEC and NSP operate their
businesses.
The analyses employed in order to develop estimates of potential savings as a
result of the Transaction were necessarily based upon various assumptions that
involve judgements with respect to, among other things, future national and
regional economic and competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, future business
decisions and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of WEC and NSP. Accordingly, while WEC
and NSP believe that such assumptions are reasonable for purposes of the
development of estimates of potential savings, there can be no assurance that
such assumptions will approximate actual experience or that such savings will
be realized. The parties have proposed certain utility rate reductions and
rate freezes in connection with the Transaction. See Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"RESULTS OF OPERATIONS - Mergers."
On September 13, 1995, the stockholders of WEC and NSP voted to approve the
merger. The Merger Agreement is subject to various conditions including
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ITEM 1. BUSINESS - Merger Agreement with NSP - (cont'd)
approval by all applicable regulatory authorities. Subject to obtaining all
requisite approvals, WEC and NSP anticipate completing the Transaction by
January 1, 1997.
The future operations and financial position of WE will be significantly
affected by the Transaction. Unaudited pro forma combined condensed financial
information for Wisconsin Energy Company at December 31, 1995 and for the
twelve months then ended is included in this report following Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Additional
information may be found in Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS -
Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ELECTRIC UTILITY OPERATIONS
Electric energy sales by WE in 1995, to all classes of customers, totaled
approximately 27.3 billion kilowatt-hours, a 1.4% increase over 1994. On
July 31, 1995, WE reached a new all-time electric peak demand of 5,368
megawatts during a period of unusually hot and humid weather. The previous
record peak demand prior to the summer of 1995 of 4,950 megawatts was set on
June 14, 1994. Electric energy sales are impacted by seasonal factors and
varying weather conditions from year-to-year.
There were 955,616 electric customers at December 31, 1995, an increase of
1.1% since December 31, 1994. For further information by customer class, see
"Electric Revenues, Kilowatt-Hour Sales and Customer Statistics" in Item 6.
SELECTED FINANCIAL DATA.
In 1995, WE's net generation amounted to approximately 26.7 billion kilowatt-
hours. Generation was supplemented with approximately 2.3 billion kilowatt-
hours purchased from neighboring utilities and, to a minor extent, from other
sources. The dependable capability of WE's generating stations was 5,619
megawatts in August 1995 as more fully described in Item 2. PROPERTIES.
Paris Generating Station: During 1995, WE placed in service four units of
approximately 300 megawatts of capacity at its Paris Generating Station
("Paris"). This natural gas-fired combustion turbine facility, located near
Union Grove, Wisconsin, is designed to meet peak demand requirements. Capital
costs of the Paris facility will total approximately $105 million. For
additional information, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL
RESOURCES - Investing Activities."
The supply of natural gas to operate Paris and WE's Concord Generating Station
("Concord"), a natural gas-fired combustion turbine facility located near
Watertown, Wisconsin, is delivered by the WEGO. See Item 1. BUSINESS -
"SOURCES OF GENERATION - Natural Gas (for Electric Generation)" below.
LS Power Generation Facility: In accordance with a PSCW order issued in
November 1993, after completing a capacity-related competitive bidding
process, WE signed a long-term agreement to purchase the electricity that
would be generated from a 215 megawatt cogeneration facility planned to be
constructed by an unaffiliated independent power producer ("IPP"), LSP-
Whitewater L.P. ("LS Power"). The agreement is contingent upon the facility
being completed and going into operation, which at this time is planned for
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ITEM 1. BUSINESS - Electric Utility Operations - (cont'd)
mid-1997. For additional information, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000."
PSCW Advance Plan 7: In January 1994, WE filed with the PSCW its long-term
load and supply plan as part of the Advance Plan 7 Docket. In the Advance
Plan process, the regulated electric utilities located in Wisconsin file, for
planning purposes, long-term forecasts of future resource requirements along
with plans to meet those requirements, including the planned implementation of
energy management and conservation programs ("demand-side savings"). In
addition to specifying the expectations of conservation and load management
programs, the plan filed with the PSCW indicated a need for additional peaking
and intermediate load capacity during the 20-year planning period. WE does
not anticipate needing additional base load generation until after 2010. The
PSCW approved WE's Advance Plan 7 in December 1995. For additional
information regarding Advance Plans, see Item 1. BUSINESS - "REGULATION" below
and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital
Requirements 1996-2000."
In Advance Plan 7, WE estimated peak demand in the year 2005 to be about 5,270
megawatts excluding the requirements of the Wisconsin Public Power Inc. System
("WPPI"), WE's largest municipal power agency customer. This estimate
assumes, among other things, moderate growth in the economy and normal
weather. This estimate does not, however, reflect any potential modifications
to the current regulatory environment. Investments in demand-side management
("DSM") 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. WE
plans to make continued expenditures for conservation-related programs during
this period. For additional information about WPPI, see Item 1. BUSINESS -
"Sales to Wholesale Customers" below.
The addition of new generating units requires approval of the PSCW following a
two-stage bidding process, which could influence whether WE would construct
such facilities or purchase the required power. The United States
Environmental Protection Agency ("EPA") and the Wisconsin Department of
Natural Resources ("DNR") also must approve new generating units. All
proposed generating facilities will meet or exceed the applicable federal and
state environmental requirements. For further information regarding future
capacity additions, see Item 1. BUSINESS - "REGULATION" below.
For information regarding estimated costs of WE's construction program for the
five years ending December 31, 2000, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000." All estimates of
construction expenditures exclude Allowance For Funds Used During
Construction. For additional information regarding matters related to
Allowance for Funds Used During Construction, see Note E - "Allowance for
Funds Used During Construction" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Milwaukee County Power Plant: In December 1995, WE signed an agreement with
Milwaukee County to purchase the Milwaukee County Power Plant located in
Wauwatosa, Wisconsin. The 11 megawatt power plant provides steam, chilled
water and electricity for the Milwaukee Regional Medical Center and several
other large customers located on the Milwaukee County grounds. WE had
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ITEM 1. BUSINESS - Electric Utility Operations - (cont'd)
previously obtained approval from the PSCW for the purchase of the electric
generation and distribution facilities and acquired them in December 1995 with
a capital expenditure of $7 million. As part of the agreement, WE will also
acquire in 1996 the steam facilities and a non-utility affiliate of WEC will
acquire the chilled water facilities from Milwaukee County. Purchase of the
steam and chilled water portions of the plant is contingent upon PSCW approval
to acquire the steam facilities and upon the five major customers signing ten-
year steam and chilled water service agreements. See Item 1. BUSINESS -
"STEAM UTILITY OPERATIONS" as well as Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000."
PSCW Electric Utility Investigation: The PSCW has conducted an investigation
into the state of the electric utility industry in Wisconsin, particularly its
institutional structure and regulatory regime, in order to evaluate what
changes would be beneficial for Wisconsin. The PSCW stated that this
investigation may result in profound and fundamental changes to the nature and
regulation of the electric utility industry in Wisconsin. For additional
information and related matters, see Item 1. BUSINESS - "REGULATION" below and
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates and Regulatory
Matters."
Wisconsin Electric Revitalization: In response to increasing competitive
pressures in the markets for electricity and natural gas, WE implemented a
revitalization process to increase efficiencies and improve customer service
by reengineering and restructuring the organization. The new structures
consolidated many business functions and simplified work processes. Due to
productivity improvements from the Revitalization program, staffing levels at
WE have been reduced during 1994 and 1995; 403 employees retired under an
early retirement option and 726 employees enrolled in severance packages. See
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Wisconsin Electric
Revitalization" and Note K - "Benefits Other Than Pensions" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
SOURCES OF GENERATION
The table below indicates sources of energy generation by WE for the year
ended December 31:
==============================================================================
1993 1994 1995 1996*
------ ------ ------ ------
Coal 67.0% 69.0% 70.3% 71.9%
Nuclear 30.8 29.0 26.9 25.2
Hydro-electric 1.7 1.4 1.6 1.5
Natural Gas 0.4 0.5 1.1 1.3
Oil 0.1 0.1 0.1 0.1
------ ------ ------ ------
TOTAL 100.0% 100.0% 100.0% 100.0%
==============================================================================
* Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs. See Item 1. BUSINESS - "SOURCES OF
GENERATION - Nuclear" and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS -
Capital Requirements 1996-2000" for discussion of matters related to Point
Beach Nuclear Plant.
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ITEM 1. BUSINESS - Sources of Generation - (cont'd)
WE's average total fuel costs per million BTU's by fuel type for the year
ended December 31 are shown below:
==============================================================================
1993 1994 1995
------ ------ ------
Coal $ 1.26 $ 1.26 $ 1.28
Nuclear 0.39 0.39 0.43
Natural Gas 3.02 2.54 2.21
Oil 4.94 4.33 5.32
==============================================================================
Coal
WE diversifies its coal sources by purchasing from Northern Appalachia, the
Southern Powder River Basin (Wyoming) and the Raton Basin (New Mexico) mining
districts for the power plants in Wisconsin, and from the Uinta Region
(Colorado), central Appalachia and western mines for the Presque Isle Power
Plant in Michigan.
Approximately 75% of WE's 1996 coal requirements are expected to be delivered
by WE-owned unit trains. The unit trains will transport coal for the Oak
Creek and Pleasant Prairie Power Plants from Pennsylvania, New Mexico and
Wyoming mines. Coal from Pennsylvania mines is also transported via rail to
Lake Erie transfer docks and delivered to the Valley and Port Washington Power
Plants by lake vessels. Montana coal for Presque Isle is transported via rail
to Superior, Wisconsin, placed in dock storage and reloaded into lake vessels
for plant delivery. The Presque Isle central Appalachian origin and Colorado
origin coal is shipped via rail to Lake Erie and Lake Michigan (Chicago) coal
transfer docks, respectively, for lake vessel delivery to the plant. WE's
1996 coal requirements, projected to be 10.0 million tons, are 97% under
contract. WE does not anticipate any problem in procuring its remaining 1996
requirements through short-term or spot purchases and inventory adjustments.
Pleasant Prairie Power Plant: All of the estimated 1996 coal requirements at
this plant are presently covered by three long-term contracts.
Oak Creek Power Plant: All of the estimated 1996 coal requirements for this
plant are covered by one long-term contract and two short-term contracts. A
significant coal cost decrease is anticipated with the blending of lower cost
Wyoming sub-bituminous coal with bituminous coals.
Presque Isle Power Plant: This plant has six generating units designed to
burn bituminous coal and three other units designed to burn sub-bituminous
coal. The units burning sub-bituminous coal are supplied by one long-term
contract and two medium-term contracts, the annual volumes of which are
anticipated to be adequate to cover coal requirements through 1996.
Bituminous coal is generally purchased through one-year contracts from central
Appalachia and under a five-year contract for the Colorado origin coal.
Edgewater 5 Generating Unit: Coal for this unit, in which WE has a 25%
interest, is purchased by Wisconsin Power and Light Company, a non-affiliated
utility, which is the majority owner of the facility.
Valley and Port Washington Power Plants: These plants are both supplied
through a long-term contract that, in combination with coal supplied to WE's
other Wisconsin plants, allows the plants to meet the requirements of the
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ITEM 1. BUSINESS - Sources of Generation - (cont'd)
Wisconsin acid rain law. In the event of further air quality emission
requirements affecting these plants, the contract can be terminated without
liability.
The periods and annual tonnage amounts for WE's principal coal contracts are
as follows:
==============================================================================
Contract Period Annual Tonnage
--------------- --------------
Nov. 1987 to Dec. 1997 500,000(A)
Jan. 1980 to Dec. 2006 2,000,000
Jul. 1983 to Dec. 2002 1,000,000
Apr. 1990 to Nov. 1996 375,000(B)
Jan. 1992 to Dec. 2005 2,200,000
Oct. 1992 to Sep. 2007 800,000
Sep. 1994 to Aug. 1999 500,000
==============================================================================
(A) The contract can be extended if the total volume has not been
purchased by the respective termination dates.
(B) Annual volume can be increased to meet requirements for the Port
Washington and Valley Power Plants above the 375,000 ton volume
indicated herein.
For information regarding emission restrictions, see Item 1. BUSINESS -
"ENVIRONMENTAL COMPLIANCE" below.
Nuclear
WE purchases uranium concentrates ("yellowcake") and contracts for its
conversion, enrichment and fabrication. WE maintains title to the nuclear
fuel until the fabricated fuel assemblies are delivered to the Point Beach
Nuclear Plant ("Point Beach"), whereupon it is sold to and leased back from
the Wisconsin Electric Fuel Trust ("Trust"). See Note F - "Nuclear
Operations" in the NOTES TO FINANCIAL STATEMENTS in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Uranium Requirements: WE requires approximately 450,000 pounds of yellowcake
annually for its two units at Point Beach. Uranium requirements through 1997
will be provided from a combination of existing contracts with Malapai
Resources Company (of Arizona); Energy Resources of Australia, Ltd.; and Nukem
Inc. (U.S.). WE may exercise flexibilities in these contracts and purchase
certain quantities of uranium on the spot-market, should market conditions
prove favorable. WE believes that adequate supplies of uranium concentrates
will be available to satisfy current and future operating requirements.
Under a contract with Nuexco Trading Corporation, WE was to receive 200,000
pounds of uranium concentrates on specified delivery dates in 1995 at
conversion facilities in the United States or Canada in exchange for the
transfer to Nuexco of an identical quantity of concentrates held by WE at the
conversion facilities of Comurhex in France. However, Nuexco is in default
under the contract and has filed for bankruptcy law protection. Upon
completion of review of various options available for use of the concentrates
located at Comurhex, WE decided to sell this material. A sales contract was
executed between WE and a uranium broker in December 1995.
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ITEM 1. BUSINESS - Sources of Generation - (cont'd)
Conversion: WE has a conversion contract with the Cameco Corporation, to
provide for up to 100 percent of conversion requirements for the Point Beach
reactors from 1996 through 1999. Cameco is a Canadian based corporation
located in Saskatoon, Saskatchewan, and is a major producer of uranium
concentrates.
Enrichment: WE currently has a Utility Services Contract with the United
States Department of Energy ("DOE") for 70% of the enrichment services
required for the operation of both of the Point Beach units. The contract can
provide enrichment services for the entire operating life of each unit. For a
discussion of litigation involving the Utility Services Contract, see Item 3.
LEGAL PROCEEDINGS - "OTHER LITIGATION - Uranium Enrichment Charges".
Responsibility for administering this contract and for enrichment services was
transferred from the DOE to U.S. Enrichment Corporation ("USEC") under the
Energy Policy Act of 1992. In March 1992, WE entered into an agreement with
Global Nuclear Services and Supply Limited, an international supplier of
enrichment services, for the remaining 30% of enrichment service requirements.
Fabrication: Fabrication of fuel assemblies from enriched uranium for Point
Beach is covered under a contract with Westinghouse Electric Corporation for
the balance of the plant's current operating license. During 1995, an
agreement was reached between WE and Westinghouse to supply WE with a new fuel
design beginning in the fall 1997. The new fuel design is expected to provide
additional safety margin, cost savings and reduce the number of discharged
spent fuel assemblies over the remaining operating license.
Spent Fuel Storage and Disposal: WE currently has the capability to store
certain amounts of spent nuclear fuel at Point Beach. Previous modifications
to the storage facilities at Point Beach had made it possible to accommodate
all spent fuel expected to be discharged from the reactors through 1995 while
maintaining the capability for one full core off-load. In accordance with the
provisions of the Nuclear Waste Policy Act of 1982, which requires the DOE to
provide for the disposal of spent fuel from all U.S. nuclear plants, WE
entered into a disposal contract providing for deliveries of spent fuel to the
DOE for ultimate disposal commencing in January 1998. It is anticipated that
the DOE will be unable to accept spent fuel by the 1998 timeframe as
contracted.
In November of 1991, WE filed an application with the PSCW for authority to
construct and operate an Independent Spent Fuel Storage Installation
("ISFSI"). The ISFSI provides interim dry cask storage until the DOE begins
to remove spent fuel from Point Beach in 1998 in accordance with the terms of
the contract it has with WE. Public hearings on the proposed project were
held during October 1994. On February 13, 1995, WE received a Certificate of
Authority from the PSCW to construct and operate the ISFSI for 12 storage
casks, which will handle the storage requirements until 1998. Should the DOE
be unable to begin taking ownership of and removing the spent fuel in 1998, WE
will need to construct additional casks and will seek PSCW approval to do so.
Construction of the ISFSI was completed in June 1995 and the first cask,
containing 24 spent fuel assemblies, was loaded and moved to the ISFSI during
December 1995. Transfer of additional spent fuel to the ISFSI has been
temporarily suspended by WE pending further action by the PSCW as described
below.
In March 1995 separate petitions were filed by intervenors in Dane County
Circuit Court and Fond du Lac County Circuit Court. The two petitions were
ultimately combined into one petition in Dane County Circuit Court ("Court").
The Dane County petition sought reversal of the order and a remand to the PSCW
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ITEM 1. BUSINESS - Sources of Generation - (cont'd)
directing it to deny WE's request for authorization to construct the dry cask
facility, or in the alternative, to correct the alleged errors in the PSCW's
order. On December 22, 1995, the Court issued a decision vacating and
remanding the February 1995 order of the PSCW, stating that the Environmental
Impact Statement prepared by the PSCW for this project was inadequate in two
respects. First, it did not adequately analyze the environmental impacts from
storage of spent fuel for a sufficient duration; second, it did not
sufficiently evaluate the alternative of employing a combination of renewable
energy sources and conservation in lieu of continued operation of Point Beach
beyond 1998. The Court also held that the PSCW failed to make the findings of
fact and conclusions of law, based on the record, demonstrating that it
properly considered the priorities of conservation, renewable and other energy
sources over nuclear sources to the extent cost effective, technically
feasible and environmentally sound. The PSCW issued two Supplemental
Environmental Impact Statements which address the deficiencies found by the
Court and held related hearings in February and March 1996. See Item 1.
BUSINESS - "SOURCES OF GENERATION - Point Beach Unit 2 Steam Generators" below
for related discussion and cross-references to additional information in this
report.
Point Beach Nuclear Plant: Point Beach provided 26.9% of WE's net generation
in 1995. The plant has two generating units which had a combined dependable
capability of 973 megawatts in August 1995 and which together constituted
17.3% of WE's dependable generating capability. As a result of degradation of
some of the tubes within the Unit 2 steam generators, the power level of Unit
2 has been administratively reduced by 10% to provide operating reliability
until the steam generators can be replaced, which is expected to occur in the
fall of 1996. See Item 1. BUSINESS - "SOURCES OF GENERATION - Point Beach
Unit 2 Steam Generators" below. The United States Nuclear Regulatory
Commission ("NRC") licenses for Point Beach Units 1 and 2 expire October 5,
2010 and March 8, 2013, respectively.
The NRC has, at various times, directed that certain inspections,
modifications and changes in operating practices be made at all nuclear
plants. At Point Beach, such inspections have been made and necessary changes
to equipment and in operating practices have either been completed or are
expected to be completed within the time schedules permitted by the NRC or
within approved extensions thereof. Good performance of Point Beach was
recognized by the Institute of Nuclear Power Operations ("INPO") with the
awarding of an INPO 1 rating to Point Beach in November 1995.
WE has initiated certain plant betterment projects at Point Beach that are
judged to be appropriate and beneficial. Construction is progressing on the
addition of two safety-related emergency diesel powered electrical generators
with installation to be completed in 1996.
Point Beach Unit 2 Steam Generators: On October 1, 1992, WE filed an
application with the PSCW for the replacement of the Unit 2 steam generators,
which would allow for the unit's operation until the expiration of its
operating license in 2013. This project is estimated to cost $96 million.
(In 1984 WE replaced the Unit 1 steam generators.) In an Interim Order dated
February 13, 1995, the PSCW deferred the decision on the steam generator
replacements until after the refueling outage in September 1995. The PSCW
directed WE to make suitable arrangements with the fabricator of the new steam
generators to allow the fabrication, delivery and replacement to proceed
promptly if authorized by the PSCW as a result of further investigation. The
reasonable costs of such arrangements to maintain a place in line with the
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<PAGE> 14
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
fabricator will be afforded rate recovery. Work on the Unit 2 replacement
steam generators has continued such that delivery in July of 1996 can occur in
order to meet the schedule requirements for a fall 1996 replacement. In early
February 1996, the PSCW conducted hearings on a Supplemental Environmental
Impact Statement concerning the Unit 2 steam generator replacement and the
need for such replacement taking into account the information gained from
inspections conducted during the fall 1995 refueling and maintenance outage.
WE anticipates that the PSCW will issue a combined final order on replacement
of the Unit 2 steam generators and the remanded dry cask storage matters
discussed above in May 1996. Failure by the PSCW to approve the steam
generator replacements and resolve the remanded issues could jeopardize the
continued operation of Point Beach and materially affect WE's financial
position and results of operations due to the need to replace the lost
generating capacity. WE would likely seek regulatory relief to minimize such
impact. For additional information, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000" and Note F - "Nuclear
Operations" in the NOTES TO FINANCIAL STATEMENTS in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Decommissioning Fund: Pursuant to a 1985 PSCW order, amended in 1994, WE
provides for costs associated with the eventual decommissioning of Point Beach
through the use of an external trust fund. Payments to this fund, together
with investment earnings, brought the balance in the trust fund on
December 31, 1995 to approximately $275 million. For additional information
regarding decommissioning see Note F - "Nuclear Operations" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Nuclear Plant Insurance: For information regarding matters pertaining to
nuclear plant insurance, see Note F - "Nuclear Operations" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Hydroelectric
WE has various licenses from the FERC for its hydroelectric generating
facilities that expire during the period 1998 to 2004. In February 1996, WE
filed a final application for its largest hydro facility, Big Quinnesec Falls,
which has a license expiring in 1998. During 1995, FERC issued 30 and 40 year
licenses to the Pine and Brule Hydroelectric projects, respectively. The
Draft Environmental Impact Statement for the White Rapids and Chalk Hill
Hydroelectric Projects was published by FERC in November 1995. These two
projects continue to operate under annual licenses. The three hydro
facilities, Oconto Falls, Sturgeon and Weyauwega, with a total of 2.5
megawatts installed capacity, that WE decided not to relicense in 1993 are
still being operated by WE under annual licenses until FERC determines their
disposition. WE continues to consult with the U.S. Fish and Wildlife
Service, DNR, Michigan Department of Natural Resources ("MDNR"; now the
Michigan Department of Environmental Quality ("MDEQ")) and the National Park
Service in conjunction with the licensing process. Hydroelectric facilities
provided approximately 1.6% of WE's total energy generation in 1995.
Natural Gas (for Electric Generation)
Concord, Paris and the Oak Creek combustion turbine use natural gas as their
primary fuel, with Number 2 fuel oil as backup. Natural gas for Concord and
the Oak Creek gas turbines is purchased directly from the WEGO at tariff
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<PAGE> 15
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
rates. Gas for Paris is purchased on the spot market - from gas marketers
and/or producers - and delivered on the WEGO local distribution system. A
balancing and storage agreement with ANR Pipeline facilitates the variable gas
usage pattern of Paris.
Natural gas for boiler ignition and flame stabilization purposes for the
Pleasant Prairie, Oak Creek, and Valley Power Plants is purchased under an
agency agreement with a gas marketing company. The agent purchases natural
gas and arranges for interstate pipeline transportation to the local gas
distribution utility. The local gas distribution utilities then transport
WE's gas to each plant under interruptible tariffs. WEGO is the distribution
utility for Pleasant Prairie and Oak Creek. Wisconsin Gas Company, a non-
affiliated company, is the distribution utility for the Valley Power Plant.
Oil
Fuel oil is used for the combustion turbines at Point Beach, Germantown and
Port Washington Power Plants. It is also used for boiler ignition and flame
stabilization at the Presque Isle Power Plant and as backup for ignition for
Pleasant Prairie and as a backup fuel for the natural gas fired gas turbines,
as discussed above. Fuel oil requirements are purchased under partnering
agreements with suppliers that assist WE with inventory tracking and oil
market price trends.
Interconnections with Other Utilities
WE's system is interconnected at various locations with the systems of Madison
Gas and Electric Company, Wisconsin Power and Light Company, Wisconsin Public
Service Corporation, Commonwealth Edison Company ("Commonwealth Edison"), NSP
and Upper Peninsula Power Company ("UPPCO"). These interconnections provide
for interchange of power to assure system reliability as well as facilitating
access to generating capacity and the transfer of energy for economic
purposes.
WE is a member of Wisconsin-Upper Michigan Systems ("WUMS"), a coordinating
group which includes four other electric companies in Wisconsin and Upper
Michigan. WUMS, in turn, is a member of Mid-America Interconnected Network
("MAIN"), which is one of nine regional members of the North American Electric
Reliability Council. Membership in these groups permits better utilization of
reserve generating capacity and coordination of long-range system planning and
day-to-day operations.
In March 1994, WE executed a transmission service agreement with Commonwealth
Edison that allows WE to purchase energy from southern Illinois and Indiana
suppliers, using the Commonwealth Edison transmission system to import such
energy into Wisconsin.
A transmission service agreement has been executed to allow WE to reserve
capacity and import energy from members of the Mid-Continent Area Power Pool
("MAPP"), a group consisting of electric utilities generally located west of
Wisconsin including NSP. Considerable non-firm energy is expected to be
purchased from MAPP members over the next several years.
In February 1996, WE and five other Midwest utilities announced that they had
agreed to pursue the development of an independent organization, the Midwest
Independent System Operator ("ISO"), which would be responsible for ensuring
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<PAGE> 16
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
nondiscriminatory open transmission access and the planning and security of
the combined bulk transmission systems of the utilities. In addition to WE,
the utilities signing a memorandum of understanding are American Electric
Power Co., Centerior Energy Corp., Cinergy Corp., Detroit Edison Co. and
Northern Indiana Public Service Co.. The other transmission owners of the
East Central Area Reliability Council ("ECAR") and MAIN will be invited to
participate in the development of the Midwest ISO. Plans for the Midwest ISO
are expected to be filed with the FERC in late 1996 and would be implemented
in stages after approval.
Sales to Wholesale Customers
WE currently provides wholesale electric energy to five municipally owned
systems, three rural cooperatives, two municipal joint action agencies and one
isolated system of an investor-owned utility in Wisconsin, Illinois, and the
Upper Peninsula of Michigan under rates approved by the FERC. Sales to these
wholesale customers accounted for 5.0% of total kilowatt-hour sales in 1995.
Under two agreements, service is being provided subject to a seven-year notice
of cancellation from the Wisconsin Public Power Inc. System ("WPPI"). WE also
has an eight-year power supply agreement with the Badger Power Marketing
Authority ("BPMA"). Sales to the BPMA and WPPI combined are expected to
account for approximately one half of the wholesale sales for 1996.
Service to UPPCO, under a 65 megawatt agreement which expires on
December 31, 1997, accounted for 20% of 1995 wholesale sales. In October
1993, UPPCO announced that it had reached an agreement in principle with NSP
to purchase up to 90 megawatts of base-load electric energy beginning in 1998.
WE expects to apply the 65 megawatts of capacity toward the electric energy
needs of new customers and toward the overall increase in system supply needs
anticipated by 1998.
During 1995, sales to wholesale customers declined 5.6% from 1994, largely the
result of reductions in sales to WPPI. WPPI has been reducing its purchases
from WE subsequent to acquiring generation capacity in 1990. Sales to WPPI
during 1993, 1994 and 1995 were approximately 944,000 megawatt-hours ("Mwh"),
725,000 Mwh and 627,000 Mwh, respectively. Further reductions are expected as
WPPI installs additional capacity. These sales reductions are not expected to
have a significant effect on future earnings. Under the provisions of a long-
term agreement, WE will continue to provide transmission services to WPPI.
WE's existing FERC tariffs also provide for transmission service to its
wholesale customers. During 1995, WE had nine customers taking transmission
service. For further information see Item 1. BUSINESS - "REGULATION" below.
In October 1992, the Energy Policy Act was signed into law. Passage of this
law has removed encumbrances and facilitates the entry of power producers and
power marketers into the already competitive bulk power market. Notable among
its provisions are the creation of a new class of energy producer called
Exempt Wholesale Generators ("EWGs"), who are exempt from the requirements of
PUHCA, and the rights that the Energy Policy Act provides them and utilities
to request a FERC order directing the provision of transmission service if
denied transmission access from utilities. The transmission aspects of this
law are expected to have little impact on WE since it has had open access
transmission tariffs on file with the FERC since 1980.
During 1995, WE reached agreement on new contracts of five or ten years in
length with four wholesale customers accounting for a total of 61.4 MW. Each
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<PAGE> 17
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
contract contained substantial discounts from previous rates. UPPCO, a fifth
8 MW wholesale customer, opted to obtain power supplies from another utility
for its Iron River System. Two other wholesale customers, accounting for a
total of 18 MW, have not yet made decisions on their choice of power supply.
WE is actively pursuing wholesale customers who are currently supplied by
other utilities.
In December 1995, WEC and NSP entered into a settlement agreement with certain
municipal Wisconsin intervenors that ended the latters' participation in the
FERC and state proceedings with respect to the Transaction. The settlement
agreement, which provides for certain rate reductions on power sales and
transmission services, is pending FERC action. See Item 1. BUSINESS - "MERGER
AGREEMENT WITH NORTHERN STATES POWER COMPANY" above for additional information
about the Merger Agreement with NSP.
The electric utility industry continues to become increasingly competitive.
Some municipal utilities are approaching competing utilities in a search for
lower energy prices. Additionally, some large industrial customers are
seeking regulatory changes that could permit retail wheeling to allow them to
seek proposals for energy from alternate suppliers. IPPs are also exploring
cogeneration projects which would provide process steam to customers in WE's
service territory and sell electricity to WE. Consequently, electric
wholesale and large retail customers of WE or other non-affiliated utilities
may determine, from time to time, to switch energy suppliers, purchase
interests in existing power plants or build new generating capacity, either
directly or through joint ventures with third parties. The advent of EWGs can
be expected to accelerate this practice. For additional information, see Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital Requirements 1996-
2000."
GAS UTILITY OPERATIONS
Effective January 1, 1996, WEC merged its natural gas utility subsidiary,
Wisconsin Natural Gas Company ("WN"), into WE to form a single combined
utility subsidiary. In 1995, WE and WN obtained approval of the merger by the
PSCW as well as consent of the Michigan Public Service Commission ("MPSC") for
WE to assume WN's liabilities. The merger, approved by the stockholders of WE
in December 1994, is expected to improve customer service and reduce future
operating costs. Where applicable, references to WE include WN prior to the
merger.
Effective January 1, 1994, Wisconsin Southern Gas Company, Inc. ("WSG") was
acquired by WEC through a statutory merger of WSG into WN. WE continues to
use the acquired facilities of WSG for the distribution and transportation of
natural gas. For additional information, see Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF
OPERATIONS - Mergers."
Total gas therms delivered by WE, including customer-owned gas transported,
increased 9.3% in 1995 compared to 1994, reflecting primarily colder winter
weather during 1995, which increased heating load, and warmer summer weather
during 1995, which increased deliveries to electric peak generation stations.
During 1995, approximately 6% of total deliveries were on interruptible rates.
WE's maximum daily send-out in 1995 was 630,823 Dths. A dekatherm ("Dth") is
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<PAGE> 18
ITEM 1. BUSINESS - Gas Utility Operations - (cont'd)
equivalent to ten therms or one million British Thermal Units ("BTU"). Sales
of gas fluctuate with the heating cycle of the year and are also impacted by
varying weather conditions from year-to-year.
The WEGO has entered into more than 45 gas service contracts for supply,
pipeline capacity, underground storage and balancing services. Contracts vary
in term from less than one year to ten years. Gas supply contracts contain
pricing options that allow pricing at market rates or the ability to fix
future prices for varying terms which the WEGO can exercise to manage the risk
of substantial market price fluctuations. The gas from these contracts is
used to meet customer requirements on a daily basis and to fill storage during
the warm months to be withdrawn from storage during the heating season in
order to meet system gas demands.
The use of storage increases the load factor of supply contracts and allows
the WEGO to take advantage of seasonal price differentials. The WEGO has
eight firm gas storage agreements that allow daily withdrawals of 313,608 Dths
and an annual capacity of 23 million Dths. The initial terms of these
contracts vary with the last one expiring in October 2003. This storage
effectively replaces storage used by the pipeline companies to provide gas
sales service to the WEGO in the pre-FERC Order 636 environment. Gas stored
at these facilities is purchased by the WEGO from a number of suppliers.
The WEGO has 12 transportation contracts, the last of which expires in 2003,
that it uses to meet daily customer requirements and to inject and withdraw
from gas storage. In each case, subject to certain provisions, the WEGO can
extend the terms of these contracts at the time the agreements would otherwise
expire.
The WEGO also has three contracts for salt dome storage that provide gas
supply backup in the event of well freeze-off or other loss of supply.
The WEGO transports gas for its customers who purchase gas directly from other
suppliers. Transported gas accounted for approximately 32% of total therms
delivered during 1995, 30% during 1994 and 31% during 1993.
There were 357,030 natural gas customers at December 31, 1995, an increase of
approximately 2.9% since December 31, 1994. For further information by
customer class, see "Gas Revenues, Therms Delivered and Customer Statistics"
in Item 6. SELECTED FINANCIAL DATA.
The WEGO delivers natural gas to WE's Concord and Paris Combustion Turbine
Power Plants. Deliveries to these peaking power plants are at rates approved
by the PSCW. See Item 1. BUSINESS - "SOURCES OF GENERATION - Natural Gas (for
Electric Generation)" above.
In 1995, the PSCW issued WE a certificate for construction of a gas pipeline
to provide gas transportation service to LS Power's proposed Whitewater
cogeneration facility. For additional information, see Item 1. BUSINESS -
"ELECTRIC UTILITY OPERATIONS" above.
SALES TO LARGE CUSTOMERS
WE provides utility service to a diversified base of industrial customers.
Major industries served by the electric operations include the iron ore mining
industry, the paper industry, the machinery production industry, the foundry
industry and the food products industry. The Empire and Tilden iron ore
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<PAGE> 19
ITEM 1. BUSINESS - Sales to Large Customers - (cont'd)
mines, the two largest electric customers of WE, accounted for 4.5% and 3.9%,
respectively, of total electric kilowatt-hour sales in 1995. Sales to the
mines were 0.5% lower in 1995 compared to 1994. In January 1996, new power
purchase agreements were executed with both mines which extend the term of the
agreements by five years, through December 31, 2002. See Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "RESULTS OF OPERATIONS - Electric Revenues, Gross Margins and
Sales." Major industries served by the WEGO include the paper industry, the
food products industry and the fabricated metal products industry. During
1995, WE's electric operations was the largest gas customer using 2.4% of
total therm deliveries. No single retail customer of the gas utility
accounted for more than 2.1% of total gas therms sold and transported in 1995.
STEAM UTILITY OPERATIONS
WE operates a district steam system in Downtown Milwaukee and the near
southside of Downtown Milwaukee. Steam is used by 473 customers for
processing, space heating, domestic hot water and humidification. Annual
sales of steam fluctuate from year to year based on system growth and
variations in normalized weather conditions. Steam is supplied to the system
from WE's Valley Power Plant, a coal-fired cogeneration facility.
The steam system consists of approximately 30 miles of both high pressure and
low pressure steam piping, 3.8 miles of walkable tunnels and other pressure
regulating equipment. Steam sales in 1995 were 2.53 billion pounds of steam
as compared to 2.39 billion pounds sold in 1994, an increase of 5.8%.
Milwaukee County Power Plant: WE has entered into an agreement with Milwaukee
County to acquire in 1996 the steam production and distribution facilities of
the Milwaukee County Power Plant located on the Milwaukee County Grounds in
Wauwatosa, Wisconsin. WE plans to integrate these facilities into its current
steam utility operations. This acquisition is contingent upon approval of the
PSCW and upon the five major customers signing ten-year steam service
agreements. See Item 1. BUSINESS - "ELECTRIC UTILITY OPERATIONS" above and
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital
Requirements 1996-2000."
REGULATION
WE is subject to the regulation of the PSCW as to retail electric, gas and
steam rates in Wisconsin, standards of service, issuance of securities,
construction of new facilities, transactions with affiliates, levels of short-
term debt obligations, billing practices and various other matters. WE is
also subject to the regulation of the MPSC as to the various matters
associated with retail electric service in Michigan as noted above except as
to issuance of securities, construction of certain new facilities, levels of
short-term debt obligations and advance approval of transactions with
affiliates. WE, with respect to hydro-electric facilities, wholesale power
service, electric transmission, gas transportation and accounting, is subject
to FERC regulation. Operation and construction relating to WE's Point Beach
facilities are subject to regulation by the NRC. WE's operations are also
subject to regulations of the EPA, the DNR and the MDEQ.
The PSCW is authorized to direct expenditures for promoting conservation if it
determines that the programs are in the public interest. Rate orders have
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<PAGE> 20
ITEM 1. BUSINESS - Regulation - (cont'd)
consistently included provisions for substantial conservation programs
initiated by WE. For additional information, see Note A - "Summary of
Significant Accounting Policies" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WE is subject to a power plant siting law in Wisconsin which requires that
electric utilities file updated long-term forecasts and plans (called "Advance
Plans") for the location, size and type of future large generating plants and
high voltage transmission lines about every two years for PSCW approval after
public hearings. Generally, the law provides that the PSCW may not authorize
the construction of any large generating plants or high voltage transmission
lines unless they are in substantial compliance with the most recently
approved plan. The law also prohibits WE from acquiring any interest in land
for such plants or transmission lines by condemnation until construction
authorization has been received. Advance Plan orders are based on a review of
the utilities' long-term planning options. However, separate project-specific
PSCW approval is required for the construction of generating facilities and
transmission lines.
WE employs a least-cost integrated planning process, which examines a full
range of supply and demand side options to meet its customers' electric needs,
such as the renovation of existing power plants, promotion of cost-effective
conservation and load management options, development of renewable energy
sources, purchased power and construction of new company-owned generation
facilities.
For additional information regarding Advance Plans, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"LIQUIDITY AND CAPITAL RESOURCES - Capital Requirements 1996-2000."
In 1994, the PSCW ordered the state's utilities to competitively bid all new
generation needs in excess of 12 megawatts to be built in Wisconsin. The two-
stage process established by the PSCW consists of: (1) an all-parties
(including utilities) bidding procedure for fossil-fueled and renewable
generation projects and (2) the conventional Certificate of Public Convenience
and Necessity ("CPCN") procedure for the winner or winners. For additional
information regarding the CPCN process, see Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000."
In 1992, the PSCW ordered that utilities should include a cost of $15 per ton
of carbon dioxide ("CO2") when comparing resource planning options (both
supply and demand-side) to account for the economic risk of future greenhouse
gas regulation. Appeals through 1993 and 1994 did not substantially change
the order. Recent supply and DSM plans included the greenhouse gas adder.
There are only minor differences in supply and DSM plans prepared with and
without the greenhouse gas adder.
PSCW Electric Utility Industry Investigation: The PSCW has conducted an
investigation into the state of the electric utility industry in Wisconsin,
particularly its institutional structure and regulatory regime, in order to
evaluate what changes would be beneficial for Wisconsin. In early 1995, the
PSCW formed an Electric Advisory Committee (the "Committee") comprised of
representatives from the utility, independent power and merchant businesses as
well as environmental and consumer advocates. The Committee met throughout
the year and discussed all aspects of the business to determine where the
introduction of competition would benefit consumers. The PSCW used the input
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<PAGE> 21
ITEM 1. BUSINESS - Regulation - (cont'd)
from the Committee to develop their proposal for restructuring of the
industry. The PSCW's proposal would permit all consumers to choose their
electricity provider as well as a competitive generation business. The
transmission and distribution portions of the business would remain regulated.
Several work groups and studies were recommended in the proposal to resolve
various issues that will allow for full retail competition by the year 2001.
WE will work throughout 1996 participating in these work groups and studies.
The restructuring envisioned in the proposal is similar to WE's view of
industry restructuring where all electric utility functions are separated into
two major categories - natural monopolies and competitive entities. The
natural monopolies are functions where a single entity can provide the lowest
cost (the transmission and distribution functions). The competitive entities
are functions where competition can provide the lowest cost (the generation
and energy merchant functions).
In WE's model, the re-regulated natural monopolies are the transmission and
distribution functions. Re-regulation of these entities would involve some
form of price cap and performance-standard operation rules. In the new
structure, the FERC would regulate the transmission systems through a regional
transmission group to ensure open access, comparable pricing, comparable
service and adequate cost recovery. The PSCW would regulate the distribution
function for reasonable price, reliability, public safety and customer
satisfaction.
The competitive entities in the WE model are the generation, customer service
and energy merchant functions. In the restructured electric utility industry,
utilities would unbundle costs into the individual components of generation,
transmission, distribution and service.
PSCW Natural Gas Utility Industry Investigation: The PSCW continued a generic
investigation of the natural gas industry in Wisconsin and addressed the
extent to which traditional regulation should be replaced with a different
approach. In conjunction with this generic investigation, the PSCW staff is
reviewing the use of the current purchased gas adjustment ("PGA") mechanism
which is designed to pass on to gas customers increases or decreases in the
cost of natural gas purchased for resale. A separate docket has been
established to review the PGA. WE is participating in these PSCW
investigations.
For additional information regarding the PSCW electric and gas utility
industry investigations, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates
and Regulatory Matters."
RATE MATTERS
See Item 3. LEGAL PROCEEDINGS - "RATE MATTERS" and Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"RESULTS OF OPERATIONS - Rates and Regulatory Matters" for a discussion of
rate matters, including recent rate changes and a discussion of the tariffs
and procedures with respect to recovery of changes in the costs of fuel,
purchased power and gas purchased for resale.
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<PAGE> 22
ITEM 1. BUSINESS - (cont'd)
ENERGY EFFICIENCY
Utility involvement in energy efficiency is an area in which there may be
significant changes in the future as a result of the PSCW electric utility
industry investigation mentioned earlier. There was general agreement on the
Committee to begin to move responsibility for energy efficiency away from
utilities and toward competitive market forces.
WE has begun to move in this direction by reducing the areas in which it
provides direct customer rebates. For industrial and commercial electric and
natural gas customers, WE continues to provide energy evaluations identifying
cost-effective customer saving opportunities, as well as below market rate
financing for the purchase of energy efficiency equipment. In 1995, WE hired
a contractor to obtain energy efficiency among smaller customers, in part to
help develop the market for energy efficiency among these customers. The
contractor offers incentives for electric and natural gas customers to
encourage the purchase of energy efficient equipment and the removal of older
inefficient appliances from the system.
Efficient use of energy is not limited to reduced consumption. Time-of-use
rates for certain electric customers promote the shifting of electricity usage
to those times when electric generating facilities are not fully utilized.
Interruptible and curtailable rates, along with an energy cooperative-managed
load curtailment program, are offered to certain industrial customers to
control peak demand. Direct load control of central air conditioners is
available to most residential customers.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental protection requirements
resulted in capital expenditures by WEC's utility subsidiary of approximately
$31 million in 1995. Expenditures incurred during 1995 included costs
associated with the replacement of the precipitators at Valley Power Plant,
the construction of the ISFSI at Point Beach and the installation of pollution
abatement facilities at WE's power plants, as well as the installation of
underground distribution lines and environmental studies associated with power
plants. Such expenditures are budgeted at approximately $15 million for 1996.
Operation, maintenance and depreciation expenses of WE's fly ash removal
equipment and other environmental protection systems are estimated to have
been $41 million in 1995. Other environmental costs, primarily for
environmental studies, amounted to $200,000 in 1995.
Solid Waste Landfills
WE provides for the disposal of non-ash related solid wastes and hazardous
wastes through licensed independent contractors, but federal statutory
provisions impose joint and several liability on the generators of waste for
certain cleanup costs. Remediation-related activity pertaining to specific
sites is discussed below.
Muskego Sanitary Landfill: In 1992, WE was informed by the EPA that it was
included in a group of approximately 50 potentially responsible parties
("PRPs") against which the EPA will issue orders requiring that the PRPs clean
up the Muskego Sanitary Landfill (located in Southeastern Waukesha County,
Wisconsin). On January 14, 1993, WE notified EPA that it was proceeding, with
other PRPs, to comply with the order. The first step toward remediation has
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<PAGE> 23
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
been identified, with the WE portion of the $16.8 million effort identified as
$115,000 (paid in 1994). Remedial actions for the second step (Groundwater
Operable Unit Remedy) are being evaluated, with EPA recommending a limited
pump and treat option, estimated to cost $7.4 million. Costs will be
allocated among the PRPs based on their waste contribution to the site. WE
has been identified as one of the small waste contributors required to
contribute to the groundwater cleanup.
Maxey Flats Nuclear Disposal Site: In 1986, WE was advised by EPA that it is
one of a number of PRPs for cleanup at this low-level radioactive waste site
located in Morehead, Kentucky. The amount of waste contributed by WE was
significantly less than one percent of the total. Under the terms of a
consent decree agreed to by all parties, WE was to pay the amount of $164,000
(minus a small credit for an amount previously paid) as its share of the
settlement fund for site cleanup costs. This settlement was to be completed
in 1995, but has been held up by a lawsuit filed by the unions concerning the
amount of work on the cleanup to be done by union labor. The potential impact
on WE would be a limited increase in the settlement if additional labor costs
result from the lawsuit.
Manistique River/Harbor Area: WE received a request for information or PRP
letter from EPA on March 12, 1993. The letter states that the river/harbor
has PCB contamination. EPA has requested information regarding company PCB
and oil filled equipment management in the Manistique River drainage basin.
WE responded to this request on April 22, 1993. An additional information
request from EPA was responded to on January 4, 1995. WE has no reason to
believe that it is responsible in total or in part for the PCB contamination
in the Manistique River/harbor area. WE has learned through newspaper
articles that the EPA announced a preliminary plan to dredge most of the PCB-
contaminated sediments, with only limited capping along the breakwater. The
two identified PRPs, Manistique Papers and Edison Sault Electric Company, have
advocated installation of a permanent cap.
Kenosha Iron and Metal: WE received a request for information or PRP letter
from EPA on December 9, 1994. The letter requested information regarding any
involvement WE's Pleasant Prairie Power Plant may have had with this operation
in Kenosha, Wisconsin. A response to EPA was sent December 29, 1994,
indicating that WE had no reason to believe that the power plant or WE did any
business with Kenosha Iron and Metal. No response from EPA has been received
since this response.
Marina Cliffs Barrel Dump Site: WE received a special notice letter and
information request on March 25, 1994 from the DNR. The letter described a
release of hazardous substances at a former barrel reclamation facility and
landfill site, located in the City of South Milwaukee, Wisconsin, and
requested information on any business dealings WE may have had with this
former operation. This request for information was responded to on
April 26, 1994. An additional request for information or PRP letter, was
received on March 24, 1995. This request was responded to by WE in April
1995. Since that time a number of follow-up contacts have been made with EPA.
WE has no reason to believe that it is responsible for the contamination
problems at this site. While WE continues to believe it has no responsibility
at this site, the EPA, which has undertaken remediation activities at the
site, has refused to offer WE a buyout option. As a result, WE has joined a
group of PRPs who will fund the cleanup. No known cleanup schedule has been
set or remediation costs identified.
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<PAGE> 24
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
ETSM Property: Iron cyanide bearing wastes were found both on property owned
by WE (ETSM facility), located in the City of West Allis, Wisconsin, and
adjacent landowners. The wastes were removed and properly disposed, with WE's
share of the cleanup at about $100,000. Adjacent landowners believe WE to be
the source of the material; however, records do not support that allegation.
WE has received a notice sent by one of the property owners, of its intent to
sue WE under the Resource Conservation and Recovery Act of 1976.
City of West Allis: The City of West Allis, Wisconsin discovered iron cyanide
bearing wastes on a parcel of property owned by the city at 113th St. and
Greenfield Ave. The source of the waste is believed to be process waste
hauled to the site from a former manufactured gas plant. The City of West
Allis alleges that WE was the source of this material and is pursuing action
against WE to remediate the site. This matter is pending. There is no reason
to believe that WE nor WN was the source of or involved in the disposal of the
iron cyanide bearing wastes on this property.
Lenz Oil: A request for information or PRP letter was received from EPA on
March 25, 1994. WSG was identified as the PRP because of used oil sent to the
Lenz Oil facility located in Lemont, Illinois. WSG was acquired by WEC on
January 1, 1994. A response was filed with EPA. No known cleanup schedule
has been set or remediation costs identified.
Boundary Road Landfill: WE was contacted by Waste Management, Inc. ("WMI") in
October 1995 requesting voluntary participation in the cleanup of its former
landfill. The landfill, formerly known as the Lauer Landfill, is a Superfund
site located in the Village of Menomonee Falls, Wisconsin. WMI is alleging
that waste from some of WE's service centers was disposed of at this site and
is now contributing to the environmental problems at the site. WE met with
WMI on February 12, 1996 to discuss the situation. No known cleanup schedule
has been set or remediation costs identified. This matter is pending.
Lake Geneva Service Center: The property, in Lake Geneva, Wisconsin, was
acquired as part of the acquisition of WSG. A groundwater problem was
identified by WSG reportedly caused by past disposal practices. In 1995, the
extent of contamination was defined, and a remediation system was designed and
installed. Approximately $200,000 was spent in 1995. Remaining remediation
costs are estimated to be approximately $150,000.
Ash Landfills
WE aggressively seeks environmentally acceptable, beneficial uses of its
combustion byproducts. However, ash materials have been, and to some degree,
continue to be disposed of in company-owned, licensed landfills. Some early
designed and constructed landfills may allow the release of low levels of
constituents resulting in the need for various levels of remediation. Where
WE has become aware of these conditions, efforts have been expended to define
the nature and extent of any release, and work has been performed to address
these conditions. These costs are included in the environmental operating and
maintenance costs for WE. Sites currently undergoing remediation include:
Presque Isle Landfill: WE entered into a consent order with the MDNR (now the
MDEQ) regarding conditions existing at an ash landfill site acquired by WE
when it purchased the Presque Isle Power Plant in 1988. WE's groundwater
monitoring program at the site detected elevated levels of certain substances
at the oldest portion of the landfill. WE has reconstructed, closed and
capped the landfill to prevent further leachate from entering the groundwater
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<PAGE> 25
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
at an approximate cost of $2.6 million. A Remedial Action Plan was submitted
to the MDEQ in 1995 that includes limited groundwater monitoring to further
document the improvement in groundwater quality that has occurred at the site.
The cost to implement the Remedial Action Plan is estimated to not exceed
$100,000.
Highway 59 Landfill: In 1989, a sulfate plume was detected in the groundwater
beneath a WE-owned former ash landfill located in the Town of Waukesha,
Wisconsin. After notifying the DNR, WE initiated a five-year expanded
monitoring program. In response to a request from the DNR, WE prepared an
environmental contamination assessment of the landfill and submitted the
report to the DNR in July 1995. WE believes that any remediation plan
developed, approved and implemented for this site would not have a material
adverse effect on its financial condition.
Manufactured Gas Sites
WE's natural gas business unit is investigating the remediation of a number of
former manufactured gas plant ("MGP") sites. Operation at these MGP sites
ceased over 40 years ago. Limited remediation activities occurred at a number
of these sites during the 1980's, with removal of waste materials known to be
present at the time. In 1995, WE presented a plan to investigate and further
remediate sites to the DNR. During 1995, WE conducted site investigations at
four MGP sites and partial remediation activities were conducted at one site.
Approximately $1.6 million has been spent through December 31, 1995 for such
activities. Remediation costs to be incurred through the year 2000 have been
estimated to be $12 million, but the total costs are uncertain pending results
of further site specific investigations and the selection of site specific
remedial actions. In its September 11, 1995 letter order, the PSCW allowed WE
to defer MGP site remediation costs with final rate treatment of such costs to
be determined in future rate cases. As of December 31, 1995, WE has recorded
an accrued liability of $1.6 million for MGP site remediation and a related
deferred regulatory asset of $3.2 million. WE expects to accrue additional
MGP site remediation liabilities during 1996 as site specific investigations
are completed and site specific remedial actions are identified. WE will
seek rate recovery of these costs and does not anticipate that there will be a
material adverse effect on its net income or financial condition.
Air Quality - Acid Rain Legislation
In 1986, the Wisconsin Legislature passed legislation establishing new sulfur
dioxide ("SO2") limitations applicable to Wisconsin's five major electric
utilities, including WE. The law requires each of the five major electric
utilities to meet a 1.20 lb SO2 per million BTU corporate average annual
emission rate limit beginning in 1993. Prior to 1993, Wisconsin law limited
the total annual SO2 emissions from the five major electric utilities to
500,000 tons per year. During 1995, approximately 177,000 tons of SO2 were
emitted by such utilities, equivalent to an annual average emission rate of
0.88 lbs SO2 per million BTU.
WE's compliance plan to meet the SO2 limitations under Wisconsin's acid rain
law includes the increased use of low-sulfur coal at certain power plant
units. Some changes to existing power plant equipment were made to
accommodate the use of low-sulfur coals.
The 1990 amendments to the Federal Clean Air Act mandate significant
nationwide reductions in air emissions. Most significant to the country's
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<PAGE> 26
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
electric utility companies are the "acid rain" provisions of the amendments
which are scheduled to limit SO2 and nitrogen oxide ("NOX") emissions in
phases. Phase I became effective in 1995 and Phase II will take effect in
2000. Phase I requirements had minimal impact on the Company because of
actions taken to meet the above-mentioned Wisconsin acid rain law. Phase II
requirements, together with separate ozone nonattainment provisions of the
Clean Air Act which may call for additional NOX reductions, however, will
necessitate the implementation of a compliance strategy which is not expected
to materially impact rates. Since a portion of the regulations that have been
issued by the EPA are not complete or are not yet final, the rate impact is
subject to change and will be reevaluated as needed.
For additional information regarding the impact of the Clean Air Act
Amendments, including estimates of the cost of compliance, see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Environmental Issues."
OTHER
WE is authorized to provide electric and gas service in designated territories
in the state of Wisconsin, as established by indeterminate permits,
certificates of public convenience and necessity, or boundary agreements with
other utilities. WE provides electric service in certain territories in the
state of Michigan pursuant to franchises granted by municipalities.
Research and development expenditures of WE amounted to $6,427,000 in 1995,
$8,063,000 in 1994 and $8,629,000 in 1993. Such expenditures were primarily
for improvement of service and abatement of air and water pollution. Research
and development activities include work done by employees, consultants and
contractors, plus sponsorship of research by industry associations. In
addition to the foregoing amounts, the WEGO paid $1,033,000 in 1995, $766,000
in 1994 and $1,300,000 in 1993 for support of the Gas Research Institute
("GRI"). The GRI surcharge, currently assessed on all gas deliveries, is
calculated on pipeline utilization.
At December 31, 1995, WE employed 4,492 persons, of which 95 were part-time.
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<PAGE> 27
ITEM 2. PROPERTIES
WE owns the following generating stations with 1995 capabilities as indicated:
==============================================================================
Dependable
No. of Capability In
Generating Megawatts (1)
Units at -----------------------
December August December
Name Fuel 1995 1995 1995
- ---- ---- ---------- ------- --------
Steam Plants:
Point Beach Nuclear 2 973 947
Oak Creek Coal 4 1,135 1,141
Presque Isle (2) Coal 9 612 612
Pleasant Prairie Coal 2 1,200 1,210
Port Washington Coal 4 322 324
Valley Coal 2 267 227
Edgewater (3) Coal 1 98 98
-- ----- -----
TOTAL STEAM 24 4,607 4,559
Hydro Plants (16 in number) 38 75 75
Germantown Combustion
Turbines Oil 4 212 252
Concord Combustion
Turbines Gas/Oil 4 332 376
Paris Combustion
Turbines (4) Gas/Oil 4 332 376
Other Combustion
Turbines & Diesel Gas/Oil 4 61 74
-- ----- -----
TOTAL SYSTEM 78 5,619 5,712
==============================================================================
(1) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given
month in a given year. Changing seasonal conditions are responsible
for the different capabilities reported for the winter and summer
periods in the above table. The values were established by test and
may change slightly from year to year.
(2) UPPCO, a non-affiliated utility, staffs and operates the Presque Isle
Power Plant under an operating agreement with WE which extends through
December 31, 1997.
(3) WE has a 25% interest in Edgewater 5 Generating Unit, which is operated by
Wisconsin Power and Light Company, a non-affiliated utility.
(4) During the second quarter of 1995, four units, or approximately 360
megawatts of additional peaking combustion turbine generation capacity,
were placed in service at WE's Paris Generating Station.
At December 31, 1995, the electric transmission and distribution system had
2,761 miles of transmission circuits, of which 639 miles were operating at 345
kilovolts, 123 miles at 230 kilovolts, 1,605 miles at 138 kilovolts, and 394
miles at voltage levels less than 138 kilovolts. At December 31, 1995, WE was
operating 23,004 pole miles of overhead distribution lines and 14,428 miles of
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<PAGE> 28
ITEM 2. PROPERTIES - (cont'd)
underground distribution cable, as well as 360 distribution substations and
222,294 line transformers.
As of December 31, 1995, the gas distribution system includes approximately
7,040 miles of mains connected at 18 gate stations to the pipeline
transmission systems of ANR Pipeline Company, Natural Gas Pipeline Company of
America and Northern Natural Pipeline Company. WE has a liquefied natural gas
storage plant which converts and stores in liquefied form natural gas received
during periods of low consumption. The liquefied natural gas storage plant
has a send-out capability of 70,000 Dths per day. WE also has propane tanks
for peaking purposes. These tanks will provide approximately 7,000 Dths of
supply to the system.
WE owns various office buildings and service centers throughout its service
area. The principal properties of WE are owned in fee except that the major
portion of electric transmission and distribution lines and steam distribution
mains and gas distribution mains and services are located, for the most part,
on or in streets and highways and on land owned by others. Substantially all
utility property is subject to first mortgage liens.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
WE is subject to federal, state and certain local laws and regulations
governing the environmental aspects of its operations. WE believes that, with
immaterial exceptions, its existing facilities are in compliance with
applicable environmental requirements.
Stephenson Building: On September 21, 1994, Crown Life Insurance Company sued
WE in the United States District Court for the Eastern District of Wisconsin,
seeking contribution and damages from WE under various federal and state
claims for the unspecified costs of removing asbestos from boilers and piping
in a building in downtown Milwaukee owned by Crown Life. WE sold that
equipment and piping to a former building owner in 1970. WE is defending this
lawsuit.
See Item 1. BUSINESS - "ENVIRONMENTAL COMPLIANCE" for a discussion of matters
related to certain solid waste and ash landfills and manufactured gas plant
sites.
RATE MATTERS
Wisconsin Retail Jurisdiction
Fuel Cost Adjustment Procedure: WE's electric retail rates in Wisconsin do
not contain an automatic fuel adjustment clause, but can be adjusted by the
PSCW if actual cumulative fuel and purchased power costs, when compared to the
costs projected in the retail electric rate proceeding, deviate from a
prescribed range and are expected to continue to be above or below the
authorized annual range of 3%. WE steam rates also contain a provision to
adjust rates to reflect varying fuel costs for all customers except for a
large volume contract representing approximately 13% of steam sales in 1995.
WE believes that it has the ability to maintain low fuel costs through
efficient management of its power supply system and fuel procurement
practices. Therefore, WE has proposed, in its 1997 Test Year filing with the
PSCW, the elimination of the retail electric fuel cost adjustment procedure.
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<PAGE> 29
ITEM 3. LEGAL PROCEEDINGS - Rate Matters - (cont'd)
1995 Fuel Cost Adjustment: Effective August 4, 1994, the PSCW authorized WE
to reduce Wisconsin retail electric rates, through the use of a fuel
adjustment credit, to reflect lower fuel and purchased power expenses. The
adjustment reduced Wisconsin retail electric revenue by approximately $16.7
million through December 31, 1995. Effective January 1, 1996, the fuel
adjustment credit was removed from Wisconsin retail electric rates. Under
WE's proposal in the 1997 Test Year filing to eliminate the fuel cost
adjustment credit, the level of fuel expense currently included in rates will
continue until rates are revised by the PSCW in a rate case.
Purchased Gas Adjustment Tariffs: Sales of natural gas are subject to
adjustment tariffs designed to pass on to gas customers increases or decreases
in the cost of natural gas purchased for resale. For additional information,
see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates and Regulatory
Matters."
1995 Test Year: In 1993 the PSCW discontinued the practice of conducting
annual rate case proceedings, replacing it with a new schedule which calls for
future biennial rate cases. As a result, no electric, gas or steam filings
were made with respect to the 1995 test year.
1996 Test Year: On May 1, 1995, WE filed with the PSCW required data related
to the 1996 test year. This was an abbreviated filing since no increase in
rates was requested. At the PSCW's open meeting on August 21, 1995, the PSCW
determined that Wisconsin retail rates for 1996 should be decreased from
existing levels. In a letter order dated September 11, 1995, the PSCW
directed WE to implement rate decreases for Wisconsin retail electric, gas and
steam customers of $33.383 million or 2.75%, $8.298 million or 2.6% and $0.790
million or 5.1%, respectively, on an annualized basis effective
January 1, 1996. The decrease is based upon a regulatory return on common
equity of 11.3%, down from 12.3% authorized since 1993.
1997 Test Year: On January 16, 1996, WE filed specific financial data with
the PSCW related to the 1997 test year showing an $82.2 million revenue
deficiency for its utility operations. The dollar impacts and percentage
increases requested for Wisconsin retail electric, gas and steam customers are
$77.0 million or 6.2%, $4.3 million or 1.4% and $0.9 million or 6.4%,
respectively, on an annualized basis. On March 15, 1996, WE filed testimony
and exhibits with the PSCW related to the 1997 test year. The PSCW had
determined that it required a special full review of WE's rates for the 1997
test year in connection with consideration of the application for approval of
the proposed merger of WEC and NSP. For additional information regarding the
merger of WEC and NSP, see Item 1. BUSINESS - "MERGER AGREEMENT WITH NORTHERN
STATES POWER COMPANY", Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS -
Mergers" and Note B - "Mergers" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Wholesale Electric Jurisdiction
Fuel and Purchased Power Adjustment Tariffs: Some customers served under WE's
wholesale rates are subject to an automatic fuel adjustment provision to
reflect varying fuel and purchased power costs. Wholesale sales to municipals
and cooperatives represented approximately 5% of total electric sales in 1995.
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<PAGE> 30
ITEM 3. LEGAL PROCEEDINGS - Rate Matters - (cont'd)
Michigan Retail Electric Jurisdiction
1996 Test Year: Effective January 1, 1996, the MPSC authorized an annualized
rate decrease of $1.13 million or 3.3% for WE's non-mine retail electric
customers. Excluding sales to the two mine customers, which are separately
regulated by the MPSC, retail electric sales in Michigan account for
approximately 2% of WE's total kilowatt-hour sales.
Power Supply Cost Recovery Clause: In the past, rates were adjusted to
reflect varying fuel and purchased power costs through a power supply cost
recovery ("PSCR") clause in WE's tariffs. Such PSCR clause provided for,
among other things, an annual filing of a PSCR plan and, after notice and an
opportunity for hearing, the development of PSCR factors to be applied to
customers' bills during the period covered by the PSCR plan to allow WE to
recover its costs of fuel and purchased power transactions, as estimated in
its annual filing. The amounts so collected were subject to a reconciliation
proceeding conducted by the MPSC at the end of the period covered by the plan
for recovery of any undercollections of actual costs or for refund or credit
of any amounts in excess of its actual costs in such period. On
November 30, 1994, the MPSC approved the proposed PSCR credit factor of
$.00535 per kilowatt-hour for the year 1995. Effective December 15, 1995, the
MPSC authorized suspension of the PSCR clause for a five-year period. The
existing PSCR credit factor of $.00535 per kilowatt-hour was rolled into the
energy rate.
FERC Order 636 Transition Costs
As a result of the FERC's Order 636, pipeline companies are no longer in the
merchant business and are billing transition costs, such as Gas Supply
Realignment and stranded capacity costs, to their customers. Due to the
netting of refunds against liabilities in 1995, the net remaining transition
costs to be billed to WE are currently estimated to be $2.0 million. This
estimate includes the amount attributable to WSG, which was merged into WN
effective January 1, 1994. The PSCW is allowing local gas distribution
companies to pass these costs on to their customers through the purchased gas
adjustment mechanism.
For additional information see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates
and Regulatory Matters."
Stray Voltage
In March 1996, technical hearings were concluded in a PSCW proceeding to
further evaluate the results of stray voltage research that has been completed
since 1989 and to update, if necessary, PSCW policies regarding stray voltage
that were included in a 1989 PSCW order. WE expects the PSCW to issue an
updated order on stray voltage in April 1996 but does not anticipate that it
will have a significant impact on WE's financial position or results of
operations.
OTHER LITIGATION
Spent Fuel Storage and Disposal: See Item 1. BUSINESS - "SOURCES OF
GENERATION - Nuclear" for information concerning the PSCW's approval of WE's
application to utilize dry cask storage for spent nuclear fuel generated at
Point Beach Nuclear Plant and pending legal proceedings with respect to the
PSCW's decision.
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<PAGE> 31
ITEM 3. LEGAL PROCEEDINGS - Other Litigation - (cont'd)
Pittsburg & Midway Case: In a matter brought before the FERC, in July 1993,
WE filed an initial brief supporting its right to retain coal reclamation
costs collected through the wholesale fuel adjustment clause in 1986 that it
believes were prudently incurred in a settlement with the Pittsburg & Midway
Coal Mining Company. Of the total costs involved, the portion recovered
through the wholesale fuel clause amounts to approximately $750,000. This
filing was made in response to a FERC audit staff determination that WE should
have applied for a waiver of the FERC's fuel clause regulations in order to
attempt to pass through the wholesale portion of the settlement costs. On
December 13, 1995, the administrative law judge issued an initial decision
that WE was required to refund the portion of such costs collected from its
wholesale customers. The administrative law judge's initial decision found in
favor of WE with respect to the prudence of the administration of the coal
contracts. The matter is pending before the full commission.
In November 1993, the FERC rejected WE's request to be allowed to recover, in
wholesale rates in the future, the amount which may have to be refunded to
customers in the event of an unfavorable ruling in the pending fuel adjustment
clause proceeding concerning the Pittsburg & Midway reclamation charges. In
January 1994, WE filed an appeal with the U.S. Court of Appeals for the
District of Columbia Circuit regarding this rejection. The matter is pending.
Electromagnetic Fields: Claims are being made or threatened with increasing
frequency against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by exposure to
electromagnetic fields ("EMFs") associated with electric transmission and
distribution lines. Results of scientific studies conducted to date do not
establish the existence of a causal connection between EMFs and any adverse
health effects. WE believes that its facilities are constructed and operated
in accordance with all applicable legal requirements and standards. WE does
not believe that any claims thus far made or threatened against it in
connection with EMFs will result in any substantial liability on the part of
WE.
Uranium Enrichment Charges: On February 9, 1995, WE and ten other utilities
filed an action against the USEC in the U.S. Court of Federal Claims
challenging the final decision of the USEC contracting officer in November
1994 which denied claims of the utilities for damages by reason of overcharges
for uranium enrichment services provided under Utility Services Contracts
between July 1, 1993 and September 30, 1994. The damages sought by WE total
$3.3 million. The matter is pending.
Personal Injury Suit: On October 1, 1994, a jury returned a $2.85 million
verdict against WN, which was merged into WE effective January 1, 1996, in a
case in the Circuit Court for Milwaukee County, involving a gas pipe fire
which injured the plaintiff. On December 23, 1994, WN resolved the litigation
between itself and plaintiff with a payment of $2.55 million to plaintiff, of
which $550,000 was covered by WN's general liability insurer. The contract
with the construction company that installed the gas pipe provides for
indemnification of WN. On September 8, 1995, WN commenced an action for such
indemnification in Milwaukee County Circuit Court against the construction
company and its insurers. The matter is pending.
- 31 -
<PAGE> 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of WE's security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages at December 31, 1995 and positions of the executive officers
of WE are listed below along with their business experience during the past
five years. All officers are appointed for one year terms or until their
respective successors are duly chosen. There are no family relationships
among these officers, nor is there any agreement or understanding between any
officer and any other person pursuant to which the officer was selected.
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- ---------------------- ----------------------
Richard A. Abdoo, 51 Chairman of the Board, President and Chief
Executive Officer of WEC since 1991; Executive
Vice President, 1990 to 1991; Director of WEC
since 1988.
Chairman of the Board and Chief Executive Officer
of WE since 1990; Director of WE since 1989.
Chairman of the Board and Chief Executive Officer
of WN, a former subsidiary of WEC that was
merged into WE on January 1, 1996, from 1990
through 1995; Director of WN from 1989 through
1995.
Richard R. Grigg, Jr., 47 Vice President of WEC since January 1995; Director
of WEC since May 1995.
President and Chief Operating Officer of WE since
January 1995; Group Executive and Vice
President, June to December 1994; Vice
President, 1990 to June 1994; Director of WE
since 1994.
President and Chief Operating Officer of WN during
1995; Director of WN during 1995.
David K. Porter, 52 Senior Vice President of WE since 1989; Director of
WE since 1989.
Vice President of WN from 1989 through 1995;
Director of WN from 1988 through 1995.
Calvin H. Baker, 52 Treasurer and Chief Financial Officer of WEC
since March 1996.
Chief Financial Officer of WE since March 1996;
Vice President-Finance of WE since 1994; Vice
President-Marketing, 1992 through 1993; Vice
President-Finance 1991 to 1992.
Senior Vice President, Financial Services
Corporation of New York City (provider of
direct loan programs and industrial
development projects in New York City),
1989 to 1991.
- 32 -
<PAGE> 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Executive Officers of the Registrant - (cont'd)
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- ---------------------- ----------------------
Ann Marie Brady, 43 Secretary of WEC since March 1996; Assistant
Secretary of WEC from 1989 to March 1996.
Vice President-External Affairs of WE since
March 1996; Secretary of WE since 1994;
Assistant Secretary, 1989 through 1993.
Secretary of WN, 1993 through 1995; Assistant
Secretary, 1989 through 1993.
Francis Brzezinski, 44 Vice President of WEC since 1990.
Vice President-Business Development of WE
since 1994.
President and Chief Operating Officer of Wispark
Corp., Wisvest Corp., and Witech Corp.
since 1990.
Charles T. Govin, Jr., 49 Vice President - Gas Operations of WE since
January 1996.
Vice President of WN, September 1994 to December
1995; General Manager of WN during 1994 and
1995; Director of Administrative Services of
WN, 1991 to 1993; Director of WN, June to
December 1995.
Anne K. Klisurich, 48 Controller of WEC since June 1995; Accounting
Manager of WEC, 1987 to 1994.
Controller of WE since 1994.
Controller of WN from 1994 through 1995.
Kristine M. Krause, 41 Vice President - Fossil Operations of WE since
1994; Manager of Valley Power Plant and Steam
Services, 1992 to 1994; Manager of Technical &
Administrative Services, 1991 to 1992; General
Superintendent - Technical Services & Control,
1990 to 1991.
Robert E. Link, 44 Vice President - Nuclear Power of WE since 1992;
Vice President - Marketing, 1991 to 1992;
Assistant Vice President - Marketing, 1990 to
1991.
Kristine A. Rappe, 39 Vice President - Customer Services (formerly Sales,
Service and Marketing) of WE since 1994;
Regional Manager of Customer Operations - Fox
Valley Region, 1991 to 1994; Assistant Regional
Manager of Customer Operations - Fox Valley
Region during 1991; Manager - Marketing
Department, 1990 to 1991.
- 33 -
<PAGE> 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The amount of cash dividends declared on WE's Common Stock during the two most
recent fiscal years are set forth below. Dividends were paid to WE's sole
common stockholder, WEC.
==============================================================================
Quarter Total Dividend *
- ------------------------------------------------------------------------------
1994 1 $ 36,325,000
2 $ 38,208,667
3 $ 38,208,667
4 $ 38,208,667
- ------------------------------------------------------------------------------
1995 1 $ 38,208,667
2 $ 40,455,444
3 $ 40,455,444
4 $ 40,455,444
==============================================================================
* Includes dividends paid by WN in 1994 and 1995.
- 34 -
<PAGE> 35
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
WISCONSIN ELECTRIC POWER COMPANY ***
SELECTED FINANCIAL DATA
===============================================================================================
Year Ended December 31 1995 1994 1993** 1992** 1991**
- ---------------------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Earnings available
for common stockholder $ 239,465 $ 180,403* $ 187,703 $ 170,034 $ 188,554
Operating revenues
Electric $1,437,480 $1,403,562 $1,347,844 $1,298,723 $1,292,809
Gas 318,262 324,349 331,301 283,699 273,803
Steam 14,742 14,281 14,090 13,093 12,986
---------- ---------- ---------- ---------- ----------
Total operating revenues $1,770,484 $1,742,192 $1,693,235 $1,595,515 $1,579,598
========== ========== ========== ========== ==========
Total assets $4,318,924 $4,202,193 $4,078,973 $3,623,838 $3,366,063
Long-term debt and preferred stock-
redemption required $1,325,169 $1,257,776 $1,274,476 $1,280,012 $1,171,017
- -----------------------------------------------------------------------------------------------
Sales and Customers
Electric
Megawatt-hours sold 27,283,869 26,911,363 25,685,436 24,747,581 25,016,247
Customers (End of year) 955,616 944,855 932,285 919,466 907,871
Gas
Therms delivered (Thousands) 886,729 811,219 809,348 772,036 767,071
Customers (End of year) 357,030 347,080 336,571 327,247 317,891
Steam
Pounds sold (Millions) 2,532 2,395 2,376 2,284 2,282
Customers (End of year) 473 471 459 472 468
===============================================================================================
<CAPTION>
QUARTERLY FINANCIAL DATA
===============================================================================================
(Thousands of Dollars)
- -----------------------------------------------------------------------------------------------
March June
Three Months Ended 1995 1994 1995 1994
- ------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating revenues $ 471,122 $ 509,681 $ 405,093 $ 400,340
Operating income 84,572 43,436* 72,848 63,854
Earnings available
for common stockholder 62,121 22,712* 51,249 42,885
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
September December
Three Months Ended 1995 1994 1995 1994
- ------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating revenues $ 426,413 $ 400,512 $ 467,856 $ 431,659
Operating income 80,704 71,248 90,897 84,735
Earnings available
for common stockholder 58,679 50,796 67,416 64,010
===============================================================================================
<FN>
Quarterly results of operations are not directly comparable because of seasonal and other factors.
See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Earnings and dividends per share are not provided as all of WE's common stock is held by WEC.
* Includes nonrecurring $73.9 million charge in 1994 ($45 million net of tax) related to WE's
Revitalization program.
** Restated to reflect the merger of Wisconsin Southern Gas Company, Inc. ("WSG") into Wisconsin
Natural Gas Company ("WN") effective on January 1, 1994.
*** Where applicable, prior year financial and statistical information has been restated to
include WN at historical values.
- 35 -
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
Electric Revenues, Kilowatt-Hour Sales and Customer Statistics
Year Ended December 31 1995 1994 1993 1992 1991
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues ($000)
Residential $ 507,416 $ 484,627 $ 472,903 $ 441,240 $ 444,542
Small commercial and industrial 423,039 406,043 386,736 372,213 363,906
Large commercial and industrial 401,794 398,179 380,482 381,083 372,768
Other retail 13,505 13,750 13,975 15,245 15,368
Resale - municipals 55,813 55,508 57,039 62,787 71,382
---------- ---------- ---------- ---------- ----------
Total retail and municipals 1,401,567 1,358,107 1,311,135 1,272,568 1,267,966
Resale - public utilities 24,811 31,295 25,879 18,080 18,476
---------- ---------- ---------- ---------- ----------
Total revenue from sales 1,426,378 1,389,402 1,337,014 1,290,648 1,286,442
Other operating revenue 11,102 14,160 10,830 8,075 6,367
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $1,437,480 $1,403,562 $1,347,844 $1,298,723 $1,292,809
========== ========== ========== ========== ==========
Kilowatt-hour Sales (Millions)
Residential 7,043 6,670 6,551 6,230 6,567
Small commercial and industrial 7,047 6,699 6,358 6,155 6,153
Large commercial and industrial 10,640 10,472 9,771 9,702 9,462
Other retail 182 189 196 217 226
Resale - municipals 1,369 1,415 1,580 1,779 1,935
---------- ---------- ---------- ---------- ----------
Total retail and municipals 26,281 25,445 24,456 24,083 24,343
Resale - public utilities 1,003 1,466 1,229 665 673
---------- ---------- ---------- ---------- ----------
Total Sales 27,284 26,911 25,685 24,748 25,016
========== ========== ========== ========== ==========
Number of Customers - Average
Residential 857,924 846,745 835,685 824,544 814,078
Small commercial and industrial 90,386 88,765 87,351 85,990 84,540
Large commercial and industrial 679 674 675 670 664
Other 1,821 1,811 1,831 1,945 1,980
---------- ---------- ---------- ---------- ----------
Total 950,810 937,995 925,542 913,149 901,262
========== ========== ========== ========== ==========
<CAPTION>
Gas Revenues, Therms Delivered and Customer Statistics
Year Ended December 31 1995 1994 1993** 1992** 1991**
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues ($000)
Residential $ 194,226 $ 200,824 $ 199,509 $ 175,824 $ 170,827
Commercial and Industrial 94,482 102,496 102,425 82,853 77,031
Interruptible and other 12,763 15,338 12,858 9,406 9,959
---------- ---------- ---------- ---------- ----------
Total revenues from sales 301,471 318,658 314,792 268,083 257,817
Other operating revenue 16,791 5,691 16,509 15,616 15,986
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $ 318,262 $ 324,349 $ 331,301 $ 283,699 $ 273,803
========== ========== ========== ========== ==========
Therms Delivered (Thousands)
Residential 345,140 323,913 322,444 309,968 308,980
Commercial and Industrial 207,358 199,206 202,549 183,588 176,707
Interruptible and other 50,646 47,467 34,608 24,710 26,442
---------- ---------- ---------- ---------- ----------
Total Sales 603,144 570,586 559,601 518,266 512,129
Transportation of Customer
Owned Gas 283,585 240,633 249,747 253,770 254,942
---------- ---------- ---------- ---------- ----------
Total Delivered 886,729 811,219 809,348 772,036 767,071
========== ========== ========== ========== ==========
Number of Customers - Average
Residential 321,643 311,288 302,355 293,437 284,728
Commercial and Industrial 29,287 28,506 27,871 27,291 26,536
Interruptible and other 361 340 356 376 404
---------- ---------- ---------- ---------- ----------
Total 351,291 340,134 330,582 321,104 311,668
========== ========== ========== ========== ==========
Degree Days (Milwaukee)
Heating (Normal 7,020) 6,825 6,431 6,775 6,723 6,416
Cooling (Normal 650) 953 877 651 364 1,056
** Restated to reflect the merger of WSG into WN effective on January 1, 1994.
- 36 -
</TABLE>
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Effective January 1, 1996, Wisconsin Energy Corporation ("WEC"), Wisconsin
Electric Power Company's ("WE" or the "Company") parent company, merged its
natural gas utility subsidiary, Wisconsin Natural Gas Company ("WN"), into WE
to form a single combined utility subsidiary. Where applicable, references to
WE include WN prior to the merger and financial and statistical information
has been restated to include WN at historical values. Additional information
concerning the merger may be found below under "RESULTS OF OPERATIONS -
Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL STATEMENTS.
As previously reported, WEC has entered into an agreement with Northern States
Power Company, a Minnesota corporation ("NSP"), which provides for a strategic
business combination involving the two companies in a "merger-of-equals"
transaction. The future operations and financial position of WE will be
significantly affected by the proposed merger. Consummation of the proposed
merger is subject to a number of conditions, including obtaining all required
regulatory approvals. Additional information concerning such agreement and
proposed transaction may be found below under "RESULTS OF OPERATIONS -
Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL STATEMENTS
(including unaudited pro forma financial information).
RESULTS OF OPERATIONS
Earnings
1995 Compared to 1994: Earnings Available for Common Stockholder ("Earnings")
of WE increased to $239 million in 1995 compared to $180 million in 1994, an
increase of 32.8%. Earnings during 1994 reflect a nonrecurring charge of
approximately $73.9 million ($45 million net of tax) associated with the
organizational restructuring program at WE.
The 1994 nonrecurring charge primarily included the costs of early retirement
and severance packages which were elements of a revitalization program
("Revitalization") designed to better position the Company in a changing
energy marketplace. The Company has recovered the 1994 nonrecurring charge in
avoided labor costs that would have been charged to Other Operations and
Maintenance expense during 1994 and 1995.
Excluding the Revitalization charge, 1995 Earnings were 6.2% greater than 1994
Earnings of $225 million. The increase in 1995 Earnings reflects 1.4% higher
electric sales, 9.3% higher gas deliveries and a 3.1% decrease in Other
Operation and Maintenance expenses. Electric sales grew primarily as a result
of warmer summer weather during 1995. Gas deliveries increased due to
increased deliveries to Interruptible and Transportation customers and to
colder weather during the fourth quarter of 1995. Additional economic
activity in WE's service area also contributed to the increase in electric
sales and gas deliveries. The reduction in Other Operation and Maintenance
expenses primarily reflects payroll-related savings and efficiencies gained
through WE's Revitalization program.
1993 Through 1995: Earnings increased at a compound annual rate of 12.9% from
$188 million in 1993 to $239 million in 1995. The increase in Earnings
primarily resulted from corresponding growth in electric sales and therm
deliveries and a decline in Other Operation and Maintenance expense.
- 37 -
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Wisconsin Electric Revitalization
In response to increasing competitive pressures in the markets for electricity
and natural gas, WE implemented Revitalization in 1994 to increase
efficiencies and improve customer service by reengineering and restructuring
the organization. The new structure consolidated many business functions and
simplified work processes. See Note K - "Benefits Other Than Pensions" in the
NOTES TO FINANCIAL STATEMENTS.
Mergers
Wisconsin Natural Gas Company: As part of Revitalization, WEC has merged WN
into WE. The merger, which was effective January 1, 1996, is expected to
improve customer service and reduce operating costs. The accounting treatment
for this merger was similar to that which would result from a pooling of
interests. Accordingly, WE's prior year financial and statistical information
has been restated to include WN at historical values.
Wisconsin Southern Gas Company, Inc.: Effective January 1, 1994, WEC acquired
Wisconsin Southern Gas Company, Inc. ("WSG") through a statutory merger of WSG
into WN in which all of WSG's common stock was converted into common stock of
WEC. WSG was a gas utility engaged in the purchase, distribution,
transportation and sale of natural gas primarily in an area of southeastern
Wisconsin which was contiguous to WN's service territory. WSG was merged into
WN using the pooling of interests method of accounting. Accordingly, prior
years' financial and statistical information was restated to include WSG at
historical values.
Northern States Power Company: On April 28, 1995, WEC and NSP entered into an
Agreement and Plan of Merger, which was amended and restated as of
July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a
strategic business combination involving WEC and NSP in a "merger-of-equals"
transaction ("Transaction"). As a result, WEC will become a registered public
utility holding company under the Public Utility Holding Company Act of 1935,
as amended ("PUHCA"), and will change its name to Primergy Corporation
("Primergy"). Primergy will be the parent company of WE (which will be
renamed Wisconsin Energy Company), of NSP (which, for regulatory reasons, will
reincorporate in Wisconsin ("New NSP")), and of the other subsidiaries of WEC
and NSP. In connection with the Transaction, Northern States Power Company, a
Wisconsin corporation ("NSP-WI"), currently a utility subsidiary of NSP, will
be merged into Wisconsin Energy Company. Prior to the merger of NSP-WI into
Wisconsin Energy Company, New NSP will acquire from NSP-WI certain gas utility
assets. The Transaction is intended to be tax free for income tax purposes
and to be accounted for as a pooling of interests.
On September 13, 1995, stockholders of WEC and NSP voted to approve the
Transaction. Under the provisions of the Merger Agreement, each share of WEC
and NSP common stock will become 1.0 and 1.626 shares of Primergy common
stock, respectively, following the proposed Transaction.
As a result of the Transaction, the Company anticipates cost savings of
approximately $2 billion over a ten year period, net of transaction costs and
costs to achieve the savings of approximately $30 million and $122 million,
respectively. WE and NSP have proposed, in their filings with the numerous
state jurisdictions to which they are subject, a reduction of approximately
1.5% in retail electric rates beginning on or about January 1997 (assuming
- 38 -
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Mergers - (cont'd)
that the Transaction is then consummated) and a rate freeze through the year
2000, subject to certain exceptions regarding matters beyond WE's or NSP's
control. For the same periods and subject to the same types of exceptions, WE
and NSP-WI have proposed a $4.2 million reduction in retail gas rates on an
annualized basis in Wisconsin and Michigan and a rate freeze through the year
2000. Similarly, NSP anticipates proposing in 1996 a 1.25% rate reduction for
retail gas customers in North Dakota and four and two year rate freezes in
North Dakota and Minnesota, respectively, effective following consummation of
the Transaction. Subject to the same types of exceptions noted above, WE and
NSP have agreed to a freeze in their electric wholesale rates for a four year
period subsequent to the Transaction. In December 1995, WEC and NSP entered
into a settlement agreement with certain municipal Wisconsin intervenors that
ended the latters' participation in the FERC and state merger proceedings.
The settlement agreement, which provides for certain rate reductions on power
sales and transmission services, is pending FERC action. The state filings
include a request for deferred accounting treatment and rate recovery of costs
incurred associated with the Transaction. As of December 31, 1995, WEC has
deferred $8.1 million of costs associated with the Transaction as a component
of Deferred Charges and Other Assets-Other.
The Merger Agreement is subject to various conditions including approval by
all applicable regulatory authorities. In July 1995, WEC and NSP filed an
application and supporting testimony with the FERC seeking approval of the
Merger Agreement. In August 1995, WEC and NSP made similar filings with
regulatory agencies in the states where WEC and NSP provide utility services
and in which such filings are required. Applications for license amendments
and approvals relating to the Merger Agreement were filed with the Nuclear
Regulatory Commission ("NRC") in the fall of 1995. The FERC has put the
merger application on an accelerated schedule, ordering the administrative law
judge's initial decision by August 30, 1996 and briefs on exception by
September 30, 1996. In March 1996, the Public Service Commission of Wisconsin
("PSCW") requested that the FERC broaden the scope of the merger application
hearing to evaluate whether the proposed Transaction will impair effective
state oversight of retail rates. The matter is pending. Not all of the
regulatory agencies have established a timetable for their decision.
During 1995, WEC and NSP received a ruling from the Internal Revenue Service
indicating that the proposed successive merger transactions defined in the
Merger Agreement would not prevent the treatment of the Transaction as a tax-
free reorganization under applicable tax law if each transaction independently
so qualified. In 1996, WEC and NSP will file an application with the
Securities and Exchange Commission ("SEC") for authority to form Primergy
under the requirements of PUHCA as well as required notifications with the
Federal Trade Commission and the Department of Justice under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended. Subject to obtaining
all requisite approvals, WEC and NSP anticipate completing the Transaction by
January 1, 1997.
The SEC may require, as a condition to its approval of the Transaction, that
WEC and NSP divest their gas utility properties and possibly certain non-
utility ventures within a reasonable time after the Transaction is
consummated. In a few cases, the SEC has allowed the retention of such
properties or deferred the question of divestiture for a substantial period of
time. In those cases in which divestiture has taken place, the SEC has
- 39 -
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Mergers - (cont'd)
usually allowed enough time to complete the divestiture so as to allow the
applicant to avoid a "fire sale" of the divested assets. WEC and NSP believe
strong policy reasons and prior SEC decisions exist which support their
retaining their existing gas utility properties and non-utility ventures, or,
alternatively, which support deferring the question of divestiture for a
substantial period of time; accordingly, WEC and NSP will request in their
merger application with the SEC that WEC and NSP be allowed to retain, or, in
the alternative, that the question of divestiture be deferred with respect to,
WEC's and NSP's existing gas utility properties and non-utility ventures.
Regulatory authorities may also require the restructuring of transmission
system operations or administration. WEC and NSP currently cannot determine
if such restructuring will be required. In addition, Wisconsin State law
limits the total assets of non-utility affiliates of Primergy, which could
affect the amount of non-regulated operations.
Electric Revenues, Gross Margins and Sales
1995 Compared to 1994: Despite an annualized $16 million or 1.3% Wisconsin
retail electric fuel adjustment rate decrease that became effective on
August 4, 1994, total Electric Operating Revenues increased by 2.4% from
$1,404 million in 1994 to $1,437 million in 1995 due to increased 1995
electric sales. The gross margin on Electric Operating Revenues (Electric
Operating Revenues less Fuel and Purchased Power expenses) increased by 1.6%
from $1,075 million in 1994 to $1,092 million in 1995. The gross margin grew
because the increased electric sales were primarily to Residential and Small
Commercial/Industrial customers who contribute higher margins to earnings than
other customer classes.
==============================================================================
Electric Gross Margin ($000) 1995 1994 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $1,437,480 $1,403,562 2.4
Fuel & Purchased Power 345,387 328,485 5.1
---------- ----------
Gross Margin $1,092,093 $1,075,077 1.6
==============================================================================
Total electric sales, detailed below by customer class, increased by 1.4% to
approximately 27,284,000 megawatt-hours in 1995 compared to 26,911,000
megawatt-hours in 1994. Electric sales were positively impacted by
substantially warmer summer weather conditions during 1995, resulting in
increased use of electricity for air conditioning and other cooling purposes.
As measured by cooling degree days, the 1995 cooling season (June through
August) was 27.7% warmer than the same period in 1994. During the summer of
1995, WE experienced eight days of electric peak demands greater than the
previous record which had been set in June 1994. The increase in electric
sales also reflects colder winter weather during the fourth quarter of 1995
and a moderate increase in economic activity in WE's service area.
- 40 -
<PAGE> 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Electric Revenues, Gross Margins and Sales - (cont'd)
==============================================================================
Electric Sales (Megawatt-hours) 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 7,042,691 6,670,081 5.6
Small Commercial/Industrial 7,047,277 6,699,073 5.2
Large Commercial/Industrial 10,639,782 10,471,869 1.6
Other 1,550,937 1,603,741 (3.3)
---------- ----------
Total Retail and Municipal 26,280,687 25,444,764 3.3
Resale-Utilities 1,003,182 1,466,599 (31.6)
---------- ----------
Total Sales 27,283,869 26,911,363 1.4
==============================================================================
The warmer 1995 summer weather increased sales primarily to Residential and
Small Commercial/Industrial customers. These customers are more sensitive to
weather variations than other customer classes. The average number of
customers in the Residential and Small Commercial/Industrial customer classes
grew by 1.3% and 1.8% or from 846,745 and 88,765, respectively, in 1994 to
857,924 and 90,386 in 1995.
Electric energy sales to the Empire and Tilden iron ore mines, WE's two
largest customers, decreased by 0.5% to 2,296,000 megawatt-hours in 1995
compared to 2,308,000 megawatt-hours in 1994. Excluding the mines, sales to
Large Commercial/Industrial customers increased 2.2%.
The 3.3% reduction in 1995 sales to the Other customer class is largely the
result of reductions in sales to WPPI, WE's largest municipal power agency
customer. WPPI has been reducing its purchases from WE subsequent to
acquiring generating capacity in 1990, 1993 and 1996. Since that time, WPPI
has expanded the use of its existing generating facilities and has installed
additional capacity, further reducing its reliance on energy purchases from
WE. These sales reductions did not have a significant effect on earnings.
The market for electric wholesale customers (included in the Other customer
class) is increasingly competitive. WE is in the process of renegotiating or
has renegotiated long-term power sales contracts with most of its municipal
wholesale customers. While WE anticipates retaining most of these customers
over the long-term, WE expects that municipal wholesale revenues will begin to
decline starting in 1996 as a result of lower margins included in the
renegotiated contracts. WE is actively seeking to obtain new municipal
wholesale customers to increase sales in this customer class.
Resale of energy to other utilities declined 31.6% in 1995. This decline can
in part be attributed to unplanned or longer than expected outages at two of
WE's least cost generating facilities during 1995 and to increased retail
customer load as a result of the warmer summer weather, both of which reduced
the opportunity to sell electric energy to other utilities. Additionally,
Upper Peninsula Power Company has permanently reduced the amount of energy
that it is purchasing from WE for resale. These sales reductions did not have
a significant effect on earnings.
- 41 -
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Electric Revenues, Gross Margins and Sales - (cont'd)
1993 Through 1995: Total Electric Operating Revenues increased at a compound
annual growth rate of 3.3% or from approximately $1,348 million in 1993 to
$1,437 million in 1995 due to increased electric sales. Total electric sales
grew from 25,685,000 megawatt-hours in 1993 to 27,284,000 megawatt-hours in
1995, a compound annual increase of 3.1%. These increases reflect, among
other things, more favorable weather conditions in 1995 and a moderate
increase in economic activity in WE's service area. The gross margin on
Electric Operating Revenues increased at a compound annual rate of 3.0% from
approximately $1,030 million in 1993 to $1,092 million in 1995. This was due
to increased electric sales to Residential and Small Commercial/Industrial
customers who contribute higher margins to earnings than other customer
classes.
From 1993 through 1995, sales to Residential and Small Commercial/Industrial
customers increased at compound annual rates of 3.7% and 5.3% or from
6,551,000 and 6,358,000 megawatt-hours, respectively, in 1993 to 7,043,000 and
7,047,000 megawatt-hours in 1995. This increase was due primarily to warm
summer weather in 1994 and 1995. The average number of Residential and Small
Commercial/Industrial customers has increased at compound annual rates of 1.3%
and 1.7%, respectively, during this period.
Large Commercial/Industrial sales increased from 9,771,000 megawatt-hours in
1993 to 10,640,000 megawatt-hours in 1995, a compound annual increase of 4.3%
attributable in part to a five-week long mine strike during the third quarter
of 1993 which reduced 1993 sales. WE's contracts with the mines require the
payment of a demand charge regardless of power usage which partially offset
the impact on 1993 revenues of lost sales. Sales to the mines represented
8.4%, 8.6% and 7.8% of total electric sales during 1995, 1994 and 1993,
respectively.
For the three year period ending with 1995, sales to the Other customer class
declined from 1,776,000 megawatt-hours in 1993 to 1,551,000 megawatt-hours in
1995, a compound annual decrease of 6.6% resulting from the decreased sales to
WPPI noted above. Sales for Resale to other utilities declined from 1,229,000
megawatt-hours in 1993 to 1,003,000 megawatt-hours in 1995, a compound annual
decrease of 9.7% resulting from the decreased opportunity sales and the
reduction in purchases by Upper Peninsula Power Company described above.
In addition to the results of higher total electric sales, the compound annual
increase in Electric Operating Revenues since 1993 includes the impacts of
rate changes which were effective during 1993 and 1994 as shown below in
"Rates and Regulatory Matters."
Gas Revenues, Gross Margins and Sales
1995 Compared to 1994: Despite an increase in 1995 total gas deliveries,
total Gas Operating Revenues decreased by 1.9% or from $324 million in 1994 to
$318 million in 1995 as a result of a reduction in the cost of gas which is
recovered through the purchased gas adjustment clause. The gross margin on
Gas Operating Revenues (Gas Operating Revenues less Cost of Gas Sold)
increased by 3.7% or from $125 million in 1994 to $129 million in 1995. The
gross margin grew because of increased therm sales to Residential and
Commercial customers who contribute higher margins to earnings than other
customer classes.
- 42 -
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Gas Revenues, Gross Margins and Sales - (cont'd)
==============================================================================
Gas Gross Margin ($000) 1995 1994 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 318,262 $ 324,349 (1.9)
Cost of Gas Sold 188,764 199,511 (5.4)
---------- ----------
Gross Margin $ 129,498 $ 124,838 3.7
==============================================================================
Total natural gas therms delivered, detailed below by customer class,
increased by 9.3% or from 811,219 thousand therms in 1994 to 886,729 thousand
therms in 1995, due in part to the effects of weather. Colder weather during
the fourth quarter of 1995 contributed to net increased deliveries for the
year. As measured by heating degree days, the fourth quarter was 43.1% colder
than the same period in 1994. The increase in therms delivered also reflects
the warmer summer weather conditions noted above, which increased therm
deliveries to electric peak generating stations described below, and a
moderate increase in economic activity in WE's service area.
==============================================================================
Therms Delivered - Thousands 1995 1994 % Change
- ---------------------------- ---------- ---------- --------
Residential 345,140 323,913 6.6
Commercial/Industrial 207,358 199,206 4.1
Interruptible 50,646 47,467 6.7
---------- ----------
Total Sales 603,144 570,586 5.7
Transported Customer Owned Gas 283,585 240,633 17.8
---------- ----------
Total Gas Delivered 886,729 811,219 9.3
==============================================================================
The colder fourth quarter of 1995 weather increased sales to Residential and
Commercial customers. These customers are more sensitive to weather
variations as a result of heating requirements than other customer classes.
The average number of Residential and Commercial/Industrial customers
increased by 3.3% and 2.7% or from 311,288 and 28,506, respectively, in 1994
to 321,643 and 29,287 in 1995.
During 1995, therm deliveries to Interruptible and Transportation customers
increased by 6.7% and 17.8%, respectively. WE attributes these increases in
part to increased electric generation peaking requirements of its Concord
("Concord") and Paris ("Paris") Generating Stations, especially given the
warmer weather during the summer of 1995. All of the gas fired generating
units at Concord and Paris were in operation by the end of the second quarter
of 1995 while only the generating units at Concord were in operation by the
end of the second quarter of 1994. Deliveries to the Concord and Paris
peaking power plants are at rates approved by the PSCW.
WE transports gas for customers who purchase gas directly from other
suppliers. Rates charged for transportation services are designed to recover
the same margin as natural gas sold directly by WE.
- 43 -
<PAGE> 44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Gas Revenues, Gross Margins and Sales - (cont'd)
WE arranges for its own gas supply under contracts with terms of various
lengths. Changes in the cost of natural gas purchased at market prices are
passed through to customers via WE's purchased gas adjustment clause.
1993 Through 1995: While total Gas Operating Revenues decreased at a compound
annual rate of 2.0% or from $331 million in 1993 to $318 million in 1995, the
gross margin on Gas Operating Revenues increased at a compound annual rate of
5.1% or from $117 million in 1993 to $129 million in 1995. Total therms
delivered increased from 809,348 thousand therms in 1993 to 886,729 thousand
therms in 1995, or at a compound annual rate of 4.7%. Despite an annualized
$9 million or 3.3% rate increase that became effective September 2, 1993 and
the increased therm deliveries, Gas Operating Revenues declined due to a
reduction in the cost of gas which is passed through to customers via the
purchased gas adjustment clause. Gross margin grew as a result of increased
therm sales to Residential and Commercial customers who contribute higher
margins to earnings than other customer classes. Total therm deliveries
increased in part due to favorable weather conditions and moderate economic
growth in WE's service territory from 1993 through 1995.
From 1993 through 1995, therm sales to Residential and Commercial/Industrial
customers increased at compound annual rates of 3.5% and 1.2% or from 322,444
thousand and 202,549 thousand therms, respectively, in 1993 to 345,140
thousand and 207,358 thousand therms in 1995. The average number of
Residential and Commercial/Industrial customers increased at compound annual
rates of 3.1% and 2.5%, respectively, during this period. Therm deliveries to
Interruptible and to Transportation customers increased at compound annual
rates of 21.0% and 6.6% or from 34,608 thousand and 249,747 thousand therms,
respectively, in 1993 to 50,646 thousand and 283,585 thousand therms in 1995.
These gas deliveries increased in part due to the increased electric
generation peaking requirements of Paris and Concord noted above. Therms of
Transported Customer Owned Gas accounted for 32.0%, 29.7% and 30.9% of WE's
total therms delivered during 1995, 1994 and 1993, respectively.
Operating Expenses
1995 Compared to 1994: Excluding Depreciation expense, total operating taxes
and the nonrecurring 1994 Revitalization charge, total Operating Expenses
decreased 0.9% in 1995, reflecting a reduction of approximately $16 million or
3.1% in Other Operation and Maintenance expenses attributable to payroll-
related savings and efficiencies gained through WE's Revitalization program.
Such reductions were partially offset by higher costs related to increased
generation, the availability of Paris and unscheduled or longer than expected
outages at two of WE's most efficient power plants.
Fuel expense increased by approximately $18 million or 6.2% while Purchased
Power expense declined approximately $1 million or 1.9% in 1995. Fuel expense
rose as a result of higher electric sales. Purchased Power expense fell as a
result of decreased marginal generating costs at three of WE's fossil plants
and the newly installed peaking capacity at Paris. Lower generating costs at
the fossil plants were due to decreased per unit fuel costs and the benefits
of Revitalization, allowing WE to substitute generation for power purchases.
The addition of Paris in 1995 allowed WE to eliminate firm power purchase
- 44 -
<PAGE> 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Operating Expenses - (cont'd)
contracts that contained fixed demand charges. The unscheduled or longer than
expected outages in 1995 noted above, however, offset most of the decrease in
Purchased Power expense as WE purchased nonfirm replacement energy on the spot
market.
Despite the increase in therm deliveries during 1995 noted above, Cost of Gas
Sold decreased by approximately $11 million or 5.4% in 1995 as a result of a
decrease in the average cost per therm sold.
From 1994 to 1995, total operating taxes increased $41 million or 41.4% due to
lower taxable income in 1994 caused by the nonrecurring Revitalization charge.
Deferred Income Taxes - Net increased $22 million or 88.7% primarily due to
tax matters related to the timing of payments made in connection with WE's
Revitalization program.
1993 Through 1995: Since 1993, total Operating Expenses excluding
Depreciation expense, total operating taxes and the nonrecurring 1994
Revitalization charge have decreased at a compound annual rate of 2.1% or from
$1,088 million in 1993 to $1,042 million in 1995. Other Operation and
Maintenance expenses decreased from $555 million in 1993 to approximately $508
million in 1995, a compound annual decrease of 4.4% largely due to the
Revitalization related work force reductions and efficiency gains referred to
above as well as to lower expenditures made in connection with power plant
renovation work as certain major maintenance programs were completed in 1994.
These decreases have been partially offset by expenses associated with the
implementation of Revitalization and increases in conservation-related
expenses associated with improving the efficiency of customers' energy usage.
Fuel expense increased at a compound annual rate of 7.4% or from $263 million
in 1993 to approximately $304 million in 1995, primarily due to increased
electric sales. Purchased Power expense decreased at a compound annual rate
of 12.7% or from $55 million in 1993 to approximately $42 million in 1995 due
to the decreased marginal generating costs at three of WE's fossil plants
noted above and to additional peak generating capacity placed in service at
Concord and Paris in 1994 and 1995, respectively. A 6.1% compound annual
decrease in the Cost of Gas Sold from $214 million in 1993 to approximately
$189 million in 1995 is attributable to a decrease in the average cost per
therm sold. Depreciation expense has increased at a compound annual rate of
4.9% from $167 million in 1993 to $184 million in 1995 as a result of higher
depreciable plant balances. During this period, total operating income taxes
and Deferred Income Taxes-Net have been affected by tax matters related to
Revitalization as noted above and by a prior period reclassification between
current and deferred income taxes.
Other Items
Other Interest Charges increased by $4 million between 1995 and 1994 and by
approximately $4 million between 1994 and 1993, reflecting increased average
short-term debt balances.
New Pronouncements: In 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets ("FAS 121"). FAS 121
- 45 -
<PAGE> 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Other Items - (cont'd)
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company will adopt FAS 121 prospectively in 1996. It is
anticipated that adoption will not have a material effect on the Company's net
income or financial position.
In February 1996, FASB released for comment an exposure draft of a Proposed
Statement of Financial Accounting Standards ("FAS"), Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets. The proposed
FAS, if issued, would require WE to recognize as a liability the present value
of the estimated future total costs associated with closure or removal of
certain long-lived assets and to correspondingly capitalize those costs. The
capitalized costs would be depreciated to expense over the useful life of the
asset. The proposed statement would become effective in 1997. This proposed
FAS would apply to decommissioning costs for Point Beach Nuclear Plant ("Point
Beach") and would result in WE recording a decommissioning liability and
corresponding asset as required by the pronouncement. Currently, nuclear
decommissioning costs are accrued as depreciation expense over the expected
service lives of the two units at Point Beach based on an external sinking
fund method. Any changes in depreciation expense due to differing assumptions
between the proposed FAS and those currently required by the PSCW are not
expected to be material and would most likely be deferrable and recoverable in
rates. For additional information on the costs of decommissioning Point
Beach, see Note F - "Nuclear Operations" in the NOTES TO FINANCIAL STATEMENTS.
Effects of Inflation: With expectations of low-to-moderate inflation, the
Company does not believe the impact of inflation will have a material effect
on its future results of operations.
Electric Sales and Gas Deliveries Outlook
Assuming moderate growth in the economy of its service territory and normal
weather, WE presently anticipates total electric kilowatt-hour sales to grow
at a compound annual rate of approximately 1.1% over the five-year period
ending December 31, 2000. WE forecasts total therm deliveries of natural gas
to grow at a compound annual rate of approximately 2.1% over the same five-
year period. These forecasts are subject to a number of variables, including
among others the economy, weather and the restructuring of the electric and
gas utility industries, which may affect the actual growth in sales. These
estimates do not reflect the operations of NSP, which will become a part of
Primergy after consummation of the Transaction. See "RESULTS OF OPERATIONS -
Mergers" above.
Rates and Regulatory Matters
The table below summarizes the projected annual revenue impact of recent rate
changes authorized by regulatory commissions for the electric, natural gas and
steam utilities of the Company based on the sales projections utilized by
those commissions in setting rates. The PSCW regulates Wisconsin retail
electric, steam and natural gas rates, while the FERC regulates wholesale
power and electric transmission and gas transportation service rates. The
Michigan Public Service Commission ("MPSC") regulates retail electric rates in
Michigan. The PSCW has discontinued 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.
- 46 -
<PAGE> 47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Rates and Regulatory Matters - (cont'd)
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, WE did not seek an increase in rates for 1994 or
1995.
==============================================================================
Revenue Percent
Increase Change in Effective
Service (Decrease) Rates Date
- ------------------------- ------------ --------- ---------
(Thousands)
Retail electric, WI $ (33,383) (2.8) 01/01/96
Retail electric, MI (1,128) (3.3) 01/01/96
Retail gas (8,298) (2.6) 01/01/96
Steam heating (790) (5.1) 01/01/96
Fuel electric, WI (16,179)* (1.3) 08/04/94
Fuel electric, WI (8,596)** (0.9) 11/05/93
Retail gas 9,172 3.3 09/02/93
Retail electric, MI 1,366 4.3 07/09/93
Wholesale electric 6,000 10.6 06/09/93
Retail electric, WI 26,655 2.3 02/17/93
Steam heating 505 3.5 02/17/93
==============================================================================
* The 8/4/94 fuel credit was eliminated 1/1/96 by PSCW Order.
** The 11/5/93 fuel credit was eliminated 1/1/94 by PSCW Order.
Under the Wisconsin retail electric fuel cost 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. WE believes that it has the ability
to maintain low fuel costs through efficient management of its power supply
system and fuel procurement practices. Therefore, WE has proposed the
elimination of the retail electric fuel cost adjustment procedure in its 1997
Test Year filing with the PSCW. On December 15, 1995, the MPSC approved the
suspension of the Power Supply Cost Recovery Clause (fuel adjustment
procedure) for a five-year period for Michigan retail electric customers. In
the case of natural gas costs, differences between the test year estimate and
the actual cost of purchased gas are accounted for through a purchased gas
adjustment clause.
1996 Test Year: In a letter order dated September 11, 1995, the PSCW directed
WE to implement rate decreases for Wisconsin retail electric, gas and steam
customers of $33.383 million or 2.75%, $8.298 million or 2.6% and $0.790
million or 5.1%, respectively, on an annualized basis effective January 1,
1996. The decrease is based on a regulatory return on common equity of 11.3%,
down from 12.3% authorized since 1993. Also effective January 1, 1996, the
MPSC authorized WE to implement a rate decrease for Michigan non-mine retail
electric customers of $1.128 million or 3.3% on an annualized basis.
1997 Test Year: On January 16, 1996, WE filed specific financial data with
the PSCW related to the 1997 test year showing an $82.2 million revenue
- 47 -
<PAGE> 48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Rates and Regulatory Matters - (cont'd)
deficiency for its utility operations. The dollar impacts and percentage
increases requested for Wisconsin retail electric, gas and steam customers are
$77.0 million or 6.2%, $4.3 million or 1.4% and $0.9 million or 6.4%,
respectively, on an annualized basis. On March 15, 1996, WE filed testimony
and exhibits with the PSCW related to the 1997 test year. The PSCW had
determined that it required a special full review of WE's rates for the 1997
test year in connection with consideration of the application for approval of
the proposed merger of WEC and NSP.
Neither the 1996 nor 1997 Test Year changes reflect the proposed retail
electric and gas rate reductions and freezes nor the wholesale rate reductions
and freezes related to the proposed merger with NSP. See "RESULTS OF
OPERATIONS - Mergers" above for a separate discussion of rate actions related
to the proposed Transaction.
PSCW Electric Utility Industry Investigation: The PSCW has conducted an
investigation into the electric utility industry in Wisconsin, particularly
its institutional structure and regulatory regime, in order to evaluate what
changes would be beneficial for Wisconsin. The PSCW stated that this
investigation may result in profound and fundamental changes to the nature and
regulation of the electric utility industry in Wisconsin. In January 1995,
the PSCW established an advisory committee, including WE, to examine all
aspects of the electric utility industry and to suggest which functions should
be performed in a competitive market. The PSCW decided on December 12, 1995
the general direction of utility regulation in Wisconsin. This proposed
restructuring of the industry would permit all consumers to choose their
electricity provider by the year 2001 and it would establish a competitive
generation business. The transmission and distribution functions would remain
regulated. In a February 22, 1996 Report to the Wisconsin Legislature, the
PSCW identified a 32 step workplan that it would follow for Electric Utility
Restructuring in Wisconsin. In the plan, the PSCW indicated that during 1996
it will begin activities on 12 of these steps, some of which would seek
changes in applicable administrative rules under its jurisdiction, including
affiliated interest standards and quality of service standards. The PSCW
expects to present an electric utility restructuring proposal to the Wisconsin
State Legislature in 1997. In its February 22, 1996 report, the PSCW stated
that the implementation timetable for its plan is subject to change depending
on the pace of resolution of the specific restructuring steps and on external
events.
PSCW Natural Gas Utility Industry Investigation: The PSCW also continued a
generic investigation of the natural gas industry in Wisconsin and addressed
the extent to which traditional regulation should be replaced with a different
approach. In conjunction with this generic investigation, the PSCW staff is
reviewing the use of the current purchased gas adjustment ("PGA") mechanism
which is designed to pass on to gas customers increases or decreases in the
cost of natural gas purchased for resale. A separate docket has been
established to review the PGA. WE is participating in these PSCW
investigations.
In June 1995, WE filed with the PSCW a proposal to replace the current PGA
mechanism with a new market-based pricing mechanism. The proposed gas pricing
mechanism would link gas commodity prices to market indices and incorporate
- 48 -
<PAGE> 49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Rates and Regulatory Matters - (cont'd)
all other gas supply costs such as transportation and storage, under a price
cap. The price cap would be designed to provide balanced financial incentives
and risks for WE based upon performance standards, while ensuring a reliable
gas supply for consumers. In July 1995, the PSCW decided to analyze and
review this proposal as part of the generic docket established to review the
PGA. The matter is pending.
FERC Open Access Transmission NOPR: In March 1995, the FERC issued a Notice
of Proposed Rulemaking ("NOPR") on Open Access Non-Discriminatory Transmission
Services by Public Utilities. The NOPR's goal is to create a more competitive
wholesale electric power market. In the proposed rulemaking, FERC would
require all electric utilities that own or control transmission facilities to
file non-discriminatory open access transmission tariffs available to
wholesale sellers and buyers of electric energy, to take service under the
tariffs for their own wholesale sales and purchases of electric energy and to
provide utilities the opportunity to recover legitimate and verifiable
stranded costs on the federal and state levels. WE advocates open access to
transmission facilities as a necessary step in the competitive restructuring
of the electric utility industry and does not believe that the issuance of a
final rule by FERC will have a negative material impact on the Company's
financial position or results of operations. WE expects FERC to finalize and
issue its open access transmission rules in the second quarter of 1996.
Regulatory Accounting: WE operates under electric utility rates which are
subject to the approval of the PSCW, MPSC and FERC, and natural gas and steam
utility rates that are subject to the approval of the PSCW (see "Rates and
Regulatory Matters" above). Such rates are designed to recover the cost of
service and provide a reasonable return to investors. Developing competitive
pressures in the utility industry may result in future utility rates which are
based upon factors other than the traditional original cost of investment. In
such a situation, continued deferral of certain regulatory asset and liability
amounts on the utility's books may no longer be appropriate as allowed under
Statement of Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation. At this time, WE is unable to predict whether
any adjustments to regulatory assets and liabilities will occur in the future.
See Note A - "Summary of Significant Accounting Policies" in the NOTES TO
FINANCIAL STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Investing Activities
WE invested $1.035 billion in its businesses during the three years ended
December 31, 1995. The investments made during this three-year period include
construction expenditures for new or improved facilities totaling $855
million, purchases of nuclear fuel of approximately $70 million, net
capitalized conservation expenditures of approximately $54 million and
payments to an external trust for the eventual decommissioning of WE's Point
Beach Nuclear Plant totaling $32 million.
Paris Generating Station: During 1995, WE placed in service four units, or
approximately 300 megawatts of capacity, at its Paris Generating Station.
This natural gas-fired combustion turbine facility, located near Union Grove,
- 49 -
<PAGE> 50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Investing Activities - (cont'd)
Wisconsin, is designed to meet peak demand requirements. Capital expenditures
of $10 million, $54 million and $28 million were made during 1995, 1994 and
1993, respectively, for construction of this facility. The capital costs of
the Paris facility will total approximately $105 million.
Concord Generating Station: During 1994, WE placed in service the last two
units, or approximately 150 megawatts of capacity, at its Concord Generating
Station. This four unit 300 megawatt natural gas-fired combustion turbine
facility, located near Watertown, Wisconsin, is designed to meet peak demand
requirements. The first two units were completed in 1993. Capital
expenditures of $3 million, $6 million and $35 million were made during 1995,
1994 and 1993, respectively, for construction of this facility. The capital
costs of the Concord facility will total approximately $107 million.
Port Washington Power Plant Renovation: Additionally during 1994, WE
completed the $107 million renovation project at its Port Washington Power
Plant. The renovation work, which began in September 1991, included the
installation of additional emission control equipment. Expenditures totaling
$12 million and $36 million were made during 1994 and 1993, respectively.
Cash Provided by Operating and Financing Activities
During the three years ended December 31, 1995, cash provided by operating
activities totaled $1.252 billion. During this period, internal sources of
funds, after the payment of dividends to WEC, provided approximately 84% of
the Company's capital requirements.
Financing activities during the three-year period ended December 31, 1995
included the issuance of approximately $611 million of long-term debt,
principally to refinance higher coupon debt and the purchase or redemption of
approximately $71 million of preferred stock. No preferred stock was issued
during this period. Additionally, during the three-year period ended
December 31, 1995, the Company retired a total of $502 million of long-term
debt and increased short-term debt by $28 million. Dividends on the Company's
common stock were approximately $160 million, $151 million and $75 million
during 1995, 1994 and 1993, respectively.
In December 1995, WE issued $100 million of unsecured One Hundred Year 6 7/8%
Debentures due 2095. Proceeds of the issue were added to WE's general funds
and were applied to the repayment of short-term borrowings.
In August 1995, WE called for optional redemption $98.35 million aggregate
principal amount of fixed rate tax exempt bonds issued by three political
jurisdictions on WE's behalf that were secured by issues of WE's First
Mortgage Bonds with terms corresponding to the tax exempt bonds called for
redemption. During September and October 1995, the three political
jurisdictions issued $98.35 million aggregate principal amount of new tax
exempt bonds on behalf of WE, collateralized by unsecured variable rate
promissory notes issued by WE, maturing between March 1, 2006 and September 1,
2030, with terms corresponding to the respective issues of the refunding tax
exempt bonds. The proceeds were used to finance the optional redemptions.
The WE First Mortgage Bonds, which collateralized the redeemed tax exempt
bonds, have been canceled.
- 50 -
<PAGE> 51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Cash Provided by Operating and Financing Activities - (cont'd)
During 1993, WE 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 WE's 6.75% Series Preferred Stock. These
refunding transactions are expected to result in significant savings over the
lives of the new debt issues. Depending on market conditions and other
factors, additional debt refundings may occur.
The Merger Agreement, entered into by WEC and NSP, provides for restrictions
on certain transactions by both the Company and NSP, including the issuance of
debt and equity securities. While WE does not currently plan to enter into
transactions that would not comply with these restrictions, circumstances may
arise to make such transactions necessary. Under such circumstances, NSP
would need to agree to consent to any such change in the Merger Agreement.
Capital Structure
The Company's capitalization at December 31 was as follows:
==============================================================================
1995 1994
------ ------
Common Equity 52.1% 50.4%
Preferred Stock 1.0 0.9
Long-Term Debt
(including current maturities) 42.3 41.0
Short-Term Debt 4.6 7.7
------ ------
100.0% 100.0%
==============================================================================
Compared to the utility industry in general, WE 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 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 utility business. WE
currently has senior secured debt ratings of AA+ by Standard & Poor's
Corporation ("S&P"), Duff & Phelps Inc. and Fitch Investors Service Inc.
("Fitch") and Aa2 by Moody's Investors Service ("Moody's").
Following announcement of the Transaction, on May 1, 1995 S&P reported that it
was placing on CreditWatch with negative implications its AA+ senior secured
debt and AA+ preferred stock ratings of WE. S&P stated that if the
Transaction is completed, the likely credit rating for the senior secured debt
of WE is expected to be AA or AA-. As part of its rating process, S&P intends
to review the financial and operating plans of the merged utilities. Also on
May 1, 1995, citing WE's continued operation as a separate utility subsidiary
after the Transaction, its strength within its rating category and its strong
capital structure, Moody's confirmed its Aa2 first mortgage bond rating of WE.
On December 5, 1995, Fitch changed WE's credit trend from "stable" to
"declining" based upon its analysis of cash flow trends versus its standards
for an AA+ rating.
At year-end 1995, WE had approximately $109 million of unused lines of bank
credit and $20 million of cash and cash equivalents.
- 51 -
<PAGE> 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000
The estimated capital requirements for WE for the years 1996-2000 are outlined
in the table below. Compared to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, the table below no longer reflects
conservation expenditures. Effective January 1, 1995, WE began expensing
conservation expenditures currently. Through 1995, capitalized conservation
investments were amortized to Operating Expense over a ten-year amortization
period. Effective January 1, 1996, WE began amortizing the remaining
capitalized conservation investment to operating expense over a five-year
amortization period.
The capital requirements table below does not reflect the impact of the
proposed Transaction with NSP. See "RESULTS OF OPERATIONS - Mergers" above.
==============================================================================
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(Millions of Dollars)
Construction $228 $189 $181 $183 $215
Bond Maturities and
Refinancings 30 166 61 93 2
Changes in Fuel
Inventories 3 13 4 (5) 11
Decommissioning Trust
Payments 31 33 35 38 40
---- ---- ---- ---- ----
Total $292 $401 $281 $309 $268
==============================================================================
LS Power Generation Facility: In 1993, a competitive bidding process
conducted by the PSCW resulted in the selection of a proposal submitted by an
unaffiliated independent power producer, LSP-Whitewater L.P. ("LS Power"), to
construct a generation facility to meet a portion of WE's anticipated increase
in system supply needs. WE subsequently signed a long-term agreement to
purchase electricity from the proposed facility. The agreement is contingent
upon the facility being completed and placed into operation, which at this
time is planned for mid-1997.
PSCW Advance Plan 7: In January 1994, a coordinated state-wide 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, WE, in
conjunction with the other regulated electric utilities located in Wisconsin,
files 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. The
PSCW approved WE's Advance Plan 7 filing in December 1995.
In order to reliably meet its forecasted growth in demand, WE 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, purchases of power and construction
of new company-owned generation facilities.
- 52 -
<PAGE> 53
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000 - (cont'd)
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.
Finally, WE's Advance Plan 7 filing indicated 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. WE
does not anticipate needing additional base load generation until after 2010.
The addition of new generating units requires approval of the PSCW following a
two-stage bidding process, which could influence whether WE would construct
such facilities or purchase the required power. The United States
Environmental Protection Agency and the Wisconsin Department of Natural
Resources ("DNR") also must approve new generating units. All generating
facilities proposed by WE will meet or exceed the applicable federal and state
environmental requirements.
Kimberly Cogeneration Facility: Prior to the 1993 selection of the LS Power
generation facility by the PSCW, WE had proposed to construct its own 220
megawatt cogeneration facility in Kimberly, Wisconsin, which was intended to
provide process steam to Repap Wisconsin, Inc. ("Repap") starting in mid-1994.
In the PSCW Order, the WE project was selected as the second place conditional
project if the LS Power project did not proceed. WE had made expenditures for
the Kimberly facility of approximately $65.8 million associated with the
procurement of three combustion turbines, one steam turbine and three heat
recovery boilers in order to achieve the in-service dates as agreed to in a
steam service contract with Repap.
The Company is currently reviewing its options regarding its Kimberly
Cogeneration Facility equipment (the "Equipment"). The Equipment is of a
technology of natural gas-fired combined cycle generation equipment that is
marketed worldwide. The Company is investigating opportunities to sell the
Equipment or to use it in another power project and is currently evaluating
potential sales opportunities and/or power projects involving the Equipment.
At this time, the Company does not believe that disposition of the Equipment
will have a material adverse effect on its financial condition. However,
there is a possibility that WE may need to recognize an impairment of the
Equipment in the future should the projects noted above not occur and should
no other viable sales opportunities and/or power projects involving the
Equipment be identified.
Point Beach Unit 2 Steam Generators and Dry Cask Storage Facility: WE
operates two 500 megawatt generating units at Point Beach. During 1995, Point
Beach accounted for 26.9% of WE's net electric generation. The current
operating licenses for the two units at Point Beach expire in 2010 and 2013
for Units 1 and 2, respectively.
In October 1992, WE filed an application with the PSCW for replacement of the
Point Beach Unit 2 steam generators. As a result of degradation of some of
the tubes within the Unit 2 steam generators, the unit has been operating at
approximately 90% of its capacity since its return to service after its annual
- 53 -
<PAGE> 54
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000 - (cont'd)
refueling outage in the fall of 1995. In February 1995, the PSCW deferred a
decision on the replacement of the steam generators in part to gather more
information during the fall 1995 refueling outage. An evaluation of
information gathered during this outage was included in a Supplemental
Environmental Impact Statement ("SEIS") prepared by the PSCW that shows the
replacement of the Unit 2 steam generators to be the most cost-effective
option when compared to all credible alternatives. Considering the rate of
tube degradation in the steam generators, there is a likelihood that WE would
not be able to restart Unit 2 following the fall 1996 outage without
replacement of the steam generators. In its SEIS, the PSCW estimates that
failure to replace the Unit 2 steam generators would cost WE customers up to
$494 million over the next 25 years to replace lost generation when compared
to the current estimated cost of replacement of $96 million.
In a related matter, WE received a Certificate of Authority from the PSCW in
February 1995 to construct and operate an Independent Spent Fuel Storage
Installation ("ISFSI"). The ISFSI will provide interim dry cask storage of
spent fuel from Point Beach using a system that was certified by the NRC after
a four-year technical review. Construction was completed in June 1995 with
associated capital costs of $8.5 million. WE loaded the first cask with spent
fuel in December 1995. On December 22, 1995, the Dane County Circuit Court
("Court") issued a decision vacating and remanding the February 1995 order of
the PSCW on procedural grounds, stating that the Environmental Impact
Statement prepared by the PSCW for this project was inadequate in two
respects. Transfer of additional spent fuel to the ISFSI has been temporarily
suspended by WE pending the PSCW's further action.
The PSCW has issued two SEIS's which address steam generator issues and the
inadequacies found by the Court with the original Environmental Impact
Statement for the ISFSI project. The PSCW held related hearings on these
matters in February and March 1996. WE anticipates that the PSCW will issue a
combined final order on replacement of the Unit 2 steam generators and the
remanded dry cask storage matters in May 1996. Failure by the PSCW to approve
the steam generator replacement and resolve the remanded issues could
jeopardize the continued operation of Point Beach and materially affect WE's
financial position and results of operations. WE would likely seek regulatory
relief to minimize the replacement power costs resulting from lost generating
capacity.
The ISFSI was necessary because the spent fuel pool inside the plant is
nearly full. The dry storage facility will be used until the United States
Department of Energy ("DOE") takes ownership of and removes the spent fuel.
While WE as well as other operators of nuclear power facilities in the United
States have a contract mandated by federal law that calls for the DOE to begin
accepting fuel in 1998, the DOE is not in a position to meet its commitment.
If this commitment is not met, WE will need to construct additional casks and
will seek PSCW approval to do so.
Milwaukee County Power Plant: In December 1995, WE signed an agreement with
Milwaukee County to purchase the Milwaukee County Power Plant located in
Wauwatosa, Wisconsin. The 11 megawatt power plant provides steam, chilled
water and electricity for the Milwaukee Regional Medical Center and several
other large customers located on the Milwaukee County grounds. WE had
- 54 -
<PAGE> 55
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000 - (cont'd)
previously obtained approval from the PSCW for the purchase of the electric
generation and distribution facilities and acquired them in December 1995 with
a capital expenditure of $7 million. WE will integrate the electric
facilities into its current electric utility operations. In February 1996, WE
filed an application with the PSCW for a Certificate of Authority to acquire
and place in operation the steam production and distribution facilities.
Capital costs for the steam facilities will be $20 million. WE anticipates
PSCW approval of the acquisition by mid-1996 and will integrate the steam
facilities into its current steam utility operations. In conjunction with the
steam facility acquisition anticipated in mid-1996, WEC will acquire and
operate the chilled water facility as a non-regulated business. Purchase of
the steam and chilled water portions of the plant is contingent upon PSCW
approval to acquire the steam facilities and upon the five major customers
signing ten-year steam and chilled water service agreements.
Capital Resources
During the five-year period ending December 31, 2000, WE expects internal
sources of funds from operations, after dividends to WEC, to provide about 87%
of the utility capital requirements. The remaining utility cash requirements
are expected to be met through short-term borrowings and the issuance of
intermediate or long-term debt. The specific form, amount and timing of debt
securities which may be issued have not yet been determined and will depend,
to a large extent, on market conditions and other factors. The anticipated
capital resources during this period do not reflect the impact of the proposed
merger with NSP. See "RESULTS OF OPERATIONS - Mergers" above.
Environmental Issues
Clean Air Act: The 1990 Amendments to the Clean Air Act mandate significant
nation-wide reductions in SO2 and NOx emissions to address acid rain and
ground level ozone control requirements.
In 1994, WE completed the installation of continuous emission monitors at all
of its facilities and installed low NOx burners on one boiler at its Oak Creek
Power Plant and two boilers at its Valley Power Plant. These actions, along
with the burning of low sulfur coal and the installation of low NOx burners on
other boilers at Oak Creek and Valley Power Plants in early 1995, meet the
requirements that became effective January 1, 1995. To date, approximately
$45.3 million has been spent on compliance with the 1990 amendments to the
Clean Air Act.
WE elected to voluntarily bring the Valley and Port Washington Power Plants
under jurisdiction of the NOx and SO2 requirements of the Clean Air Act
amendments of 1990, five years earlier than mandated. This was possible
because these units meet the more stringent phase II emissions standards
today.
WE projects a surplus of SO2 emission allowances and is seeking additional
allowances available as a result of energy conservation programs. As an
integral component of its least-cost plan, WE is active in SO2 allowance
trading. Revenue from the sale of allowances is being used to offset future
potential rate increases.
- 55 -
<PAGE> 56
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Environmental Issues - (cont'd)
Additional fuel switching and the installation of NOx controls at various
power plants will be required to meet the second phase of reduction
requirements that become effective January 1, 2000. These costs, along with
additional operating expenses, are not expected to exceed $40.3 million based
on today's costs.
Manufactured Gas Plant Sites: WE's natural gas business unit is investigating
the remediation of a number of former manufactured gas plant ("MGP") sites.
Operations at these MGP sites ceased over 40 years ago. Limited remediation
activities occurred at a number of these sites during the 1980's, with removal
of waste materials known to be present at that time. In 1995, WE presented a
plan to investigate and further remediate sites to the DNR. During 1995, WE
conducted site investigations at four sites and partial remediation activities
were conducted at one site. Approximately $1.6 million has been spent through
December 31, 1995 for such activities. Remediation costs to be incurred
through the year 2000 have been estimated to be $12 million, but the total
costs are uncertain pending the results of further site specific
investigations and the selection of site specific remedial actions. In its
September 11, 1995 letter order, the PSCW allowed WE to defer MGP site
remediation costs with final rate treatment of such costs to be determined in
future rate cases. As of December 31, 1995, WE has recorded an accrued
liability of $1.6 million for MGP site remediation and a related deferred
regulatory asset of $3.2 million. WE expects to accrue additional MGP site
remediation liabilities during 1996 as site specific investigations are
completed and site specific remedial actions are identified. WE will seek
rate recovery for these costs and does not anticipate that there will be a
material adverse effect on its net income or financial position.
Ash Landfill Sites: WE aggressively seeks environmentally acceptable,
beneficial uses of its combustion byproducts. However, ash materials have
been, and to some degree, continue to be disposed in company-owned, licensed
landfills. Some early designed and constructed landfills may allow the
release of low levels of constituents resulting in the need for various levels
of remediation. Where WE has become aware of these conditions, efforts have
been expended to define the nature and extent of any release, and work has
been performed to address these conditions. These costs are included in the
environmental operating and maintenance costs of WE.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Quarterly Financial Data" in SELECTED FINANCIAL DATA is
incorporated herein by reference.
- 56 -
<PAGE> 57
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (cont'd)
WISCONSIN ELECTRIC POWER COMPANY
INCOME STATEMENT
Year Ended December 31
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues
Electric $1,437,480 $1,403,562 $1,347,844
Gas 318,262 324,349 331,301
Steam 14,742 14,281 14,090
---------- ---------- ----------
Total Operating Revenues 1,770,484 1,742,192 1,693,235
Operating Expenses
Fuel (Note F) 303,553 285,862 263,385
Purchased power 41,834 42,623 54,880
Cost of gas sold 188,764 199,511 214,132
Other operation expenses 395,242 399,011 399,135
Maintenance 112,400 124,602 156,085
Revitalization (Note K) - 73,900 -
Depreciation (Note C) 183,876 177,614 167,066
Taxes other than income taxes 74,765 76,035 74,653
Federal income tax (Note D) 119,939 104,725 74,463
State income tax (Note D) 28,405 24,756 15,530
Deferred income taxes - net (Note D) (2,833) (25,095) 13,096
Investment tax credit - net (Note D) (4,482) (4,625) (4,626)
---------- ---------- ----------
Total Operating Expenses 1,441,463 1,478,919 1,427,799
Operating Income 329,021 263,273 265,436
Other Income and Deductions
Interest income 12,850 11,715 13,753
Allowance for other funds used during
construction (Note E) 3,650 4,985 8,457
Miscellaneous - net 5,677 10,727 9,568
Federal income tax (Note D) (535) (1,504) (1,832)
State income tax (Note D) (370) (589) (832)
---------- ---------- ----------
Total Other Income and Deductions 21,272 25,334 29,114
Income Before Interest Charges 350,293 288,607 294,550
Interest Charges
Long-term debt 99,727 102,059 103,262
Other interest 11,960 7,610 3,945
Allowance for borrowed funds used
during construction (Note E) (2,062) (2,816) (4,737)
---------- ---------- ----------
Total Interest Charges 109,625 106,853 102,470
---------- ---------- ----------
Net Income 240,668 181,754 192,080
Preferred Stock Dividend Requirement 1,203 1,351 4,377
---------- ---------- ----------
Earnings Available for Common
Stockholder $ 239,465 $ 180,403 $ 187,703
========== ========== ==========
<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.
The notes are an integral part of the financial statements.
- 57 -
</TABLE>
<PAGE> 58
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
Year Ended December 31
<CAPTION>
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities
Net income $240,668 $181,754 $192,080
Reconciliation to cash
Depreciation 183,876 177,614 167,066
Revitalization - net (5,404) 43,860 -
Nuclear fuel expense - amortization 22,324 21,437 21,366
Conservation expense - amortization 21,870 20,910 15,254
Debt premium, discount & expense -
amortization 12,652 14,368 13,617
Deferred income taxes - net (2,833) (25,095) 13,096
Investment tax credit - net (4,482) (4,625) (4,626)
Allowance for other funds used
during construction (3,650) (4,985) (8,457)
Change in - Accounts receivable (32,639) 7,684 (17,952)
Inventories 5,233 11,455 (11,186)
Accounts payable 16,650 (20,683) 7,864
Other current assets (4,068) (9,878) 1,039
Other current liabilities 17,097 9,980 19,273
Other (29,204) (13,123) (5,606)
-------- -------- --------
Cash Provided by Operating Activities 438,090 410,673 402,828
Investing Activities
Construction expenditures (248,867) (271,448) (334,932)
Allowance for borrowed funds used
during construction (2,062) (2,816) (4,737)
Nuclear fuel (23,454) (26,351) (20,016)
Nuclear decommissioning trust (10,861) (10,138) (11,371)
Conservation investments - net 2,130 (20,823) (35,252)
Other (4,511) (10,205) 612
-------- -------- --------
Cash Used in Investing Activities (287,625) (341,781) (405,696)
Financing Activities
Sale of long-term debt 217,453 32,474 361,049
Retirement of long-term debt (134,172) (35,069) (332,862)
Change in short-term debt (91,811) 49,294 71,004
Stockholder capital contribution 30,000 30,000 10,000
Retirement of preferred stock - (5,250) (65,504)
Dividends on stock - common (159,576) (150,951) (74,771)
- preferred (1,203) (1,381) (4,729)
Other - - 135
-------- -------- --------
Cash Used in Financing Activities (139,309) (80,883) (35,678)
-------- -------- --------
Change in Cash and Cash Equivalents $ 11,156 $(11,991) $(38,546)
======== ======== ========
Supplemental information disclosures
Cash Paid For
Interest (net of amount capitalized) $ 99,352 $ 93,383 $ 85,299
Income taxes 149,224 148,552 101,216
<FN>
The notes are an integral part of the financial statements.
- 58 -
</TABLE>
<PAGE> 59
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
ASSETS
<CAPTION>
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant
Electric $4,531,404 $4,304,925
Gas 489,739 467,732
Steam 40,078 40,103
---------- ----------
5,061,221 4,812,760
Accumulated provision for depreciation (2,288,080) (2,134,469)
---------- ----------
2,773,141 2,678,291
Construction work in progress 78,153 205,835
Nuclear fuel - net (Note F) 59,260 56,606
---------- ----------
Net Utility Plant 2,910,554 2,940,732
Other Property and Investments
Nuclear decommissioning trust fund (Note F) 275,125 226,805
Conservation investments 115,523 138,489
Other 36,979 32,974
---------- ----------
Total Other Property and Investments 427,627 398,268
Current Assets
Cash and cash equivalents 19,550 8,394
Accounts receivable, net of allowance for
doubtful accounts - $13,400 and $12,078 144,476 111,837
Accrued utility revenues 140,201 128,107
Fossil fuel (at average cost) 83,366 88,587
Materials and supplies (at average cost) 70,347 70,359
Prepayments 55,147 61,160
Other assets 4,637 6,650
---------- ----------
Total Current Assets 517,724 475,094
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note D) 136,581 137,931
Deferred regulatory assets (Note A) 193,757 197,103
Other 132,681 53,065
---------- ----------
Total Deferred Charges and Other Assets 463,019 388,099
---------- ----------
Total Assets $4,318,924 $4,202,193
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 59 -
</TABLE>
<PAGE> 60
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
BALANCE SHEET
December 31
CAPITALIZATION and LIABILITIES
<CAPTION>
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (See Capitalization Statement)
Common stock equity $1,696,565 $1,586,676
Preferred stock 30,451 30,451
Long-term debt (Note H) 1,325,169 1,257,776
---------- ----------
Total Capitalization 3,052,185 2,874,903
Current Liabilities
Long-term debt due currently (Note H) 51,419 32,136
Notes payable (Note I) 150,694 242,505
Accounts payable 107,115 90,465
Payroll and vacation accrued 26,699 26,507
Taxes accrued - income and other 18,378 20,589
Interest accrued 21,617 23,254
Other 48,762 28,009
---------- ----------
Total Current Liabilities 424,684 463,465
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note D) 479,828 472,746
Accumulated deferred investment tax credits 89,672 94,154
Deferred regulatory liabilities (Note A) 167,483 171,599
Other 105,072 125,326
---------- ----------
Total Deferred Credits and Other
Liabilities 842,055 863,825
Commitments and Contingencies (Note N)
---------- ----------
Total Capitalization and Liabilities $4,318,924 $4,202,193
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 60 -
</TABLE>
<PAGE> 61
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CAPITALIZATION STATEMENT
December 31
<CAPTION>
1995 1994
---------- ----------
(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 280,689 250,689
Retained earnings 1,082,983 1,003,094
---------- ----------
Total Common Stock Equity 1,696,565 1,586,676
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 2,286,500 and
2,360,000 shares; outstanding - 3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock (Note G) 30,451 30,451
Long-Term Debt
First mortgage bonds
Series Due
------ ---
5-5/8% 1995 - 10,000
4-1/2% 1996 30,000 30,000
5-7/8% 1997 130,000 130,000
6-5/8% 1997 10,000 10,000
5-1/8% 1998 60,000 60,000
6.10 % 1999-2008 - 25,000
6.25 % 1999-2008 - 1,000
6-1/2% 1999 40,000 40,000
6-5/8% 1999 51,000 51,000
6.45 % 2004 - 12,000
7-1/4% 2004 140,000 140,000
6.45 % 2006 - 4,000
6.50 % 2007-2009 - 10,000
9-3/4% 2015 - 46,350
7-1/8% 2016 100,000 100,000
6.85 % 2021 9,000 9,000
7-3/4% 2023 100,000 100,000
7.05 % 2024 60,000 60,000
9-1/8% 2024 3,443 3,443
8-3/8% 2026 100,000 100,000
7.70 % 2027 200,000 200,000
---------- ----------
1,033,443 1,141,793
Debentures (unsecured)
6-1/8% 1997 25,000 25,000
10-1/4% 1998 - 2,290
9.47% 2006 7,000 7,000
8-1/4% 2022 25,000 25,000
6-7/8% 2095 100,000 -
Notes (unsecured)
Variable rate due 2006 1,000 -
Variable rate due 2015 17,350 -
Variable rate due 2016 67,000 67,000
Variable rate due 2030 80,000 -
Obligations under capital lease (Note F) 43,924 43,696
Unamortized discount - net (23,129) (21,867)
Long-term debt due currently (51,419) (32,136)
---------- ----------
Total Long-Term Debt (Note H) 1,325,169 1,257,776
---------- ----------
Total Capitalization $3,052,185 $2,874,903
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 61 -
</TABLE>
<PAGE> 62
<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, 1992 33,289,327 $332,893 $213,409 $ 861,092 $1,407,394
Net income 192,080 192,080
Cash dividends
Common stock (74,771) (74,771)
Preferred stock (4,729) (4,729)
Purchase of preferred stock (Note G) (2,854) (2,854)
Stockholder capital contribution 10,000 10,000
Other 134 245 379
- -------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1993 33,289,327 332,893 220,689 973,917 1,527,499
Net income 181,754 181,754
Cash dividends
Common stock (150,951) (150,951)
Preferred stock (1,381) (1,381)
Stockholder capital contribution 30,000 30,000
Other (245) (245)
- -------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1994 33,289,327 332,893 250,689 1,003,094 1,586,676
Net income 240,668 240,668
Cash dividends
Common stock (159,576) (159,576)
Preferred stock (1,203) (1,203)
Stockholder capital contribution 30,000 30,000
- -------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1995 33,289,327 $332,893 $280,689 $1,082,983 $1,696,565
================================================== ==========================================================
<FN>
The notes are an integral part of the financial statements.
- 62 -
</TABLE>
<PAGE> 63
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
A - Summary of Significant Accounting Policies
General: The accounting records of Wisconsin Electric Power Company ("WE" or
the "Company") are kept as prescribed by the Federal Energy Regulatory
Commission ("FERC"), modified for requirements of the Public Service
Commission of Wisconsin ("PSCW").
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 E). 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, WE capitalizes, as deferred regulatory assets, incurred
costs which are expected to be recovered in future utility rates. WE also
records, as deferred regulatory liabilities, the current recovery in utility
rates of costs which are expected to be paid in the future. A significant
portion of WE'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 D.)
Statement of Cash Flows: Cash and cash equivalents include marketable debt
securities acquired three months or less from maturity.
Conservation Investments: WE directs a variety of demand-side management
programs to help foster energy conservation by its customers. As authorized
by the PSCW, WE capitalized certain conservation program costs prior to 1995.
Utility rates approved by the PSCW provide for a current return on these
conservation investments. Through 1995, conservation investments were charged
to operating expense over a ten-year amortization period. Beginning in 1996,
the capitalized conservation balance will be charged to operating expense on a
straight line basis over a five-year amortization period.
New Pronouncements: In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets ("FAS 121"). FAS 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
- 63 -
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS - (cont'd)
A - Summary of Significant Accounting Policies - (cont'd)
indicate that the carrying amount of an asset may not be recoverable. The
Company will adopt FAS 121 prospectively in 1996. It is anticipated that
adoption will not have a material effect on net income or financial position.
B - Mergers
Wisconsin Natural Gas Company: Effective January 1, 1996, Wisconsin Energy
Corporation ("WEC"), WE's parent company, merged its natural gas utility
subsidiary, Wisconsin Natural Gas Company ("WN") into WE. The accounting
treatment for this merger was similar to that which would result from a
pooling of interests. The Company's prior years' financial information has
been restated to include WN at historical values. Where applicable,
references to WE include WN prior to their merger.
Wisconsin Southern Gas Company, Inc.: Effective January 1, 1994, WEC acquired
all of the outstanding common stock of Wisconsin Southern Gas Company, Inc.
("WSG") through a statutory merger of WSG into WN in which all of WSG's common
stock was converted into common stock of WEC. WSG was a gas utility engaged
in the purchase, distribution, transportation and sale of natural gas
primarily in a section of southeastern Wisconsin which was contiguous to WN's
service territory. WSG was merged into WN using the pooling of interests
method of accounting. Accordingly, prior years' financial and statistical
information was restated to include WSG at historical values.
Northern States Power Company: On April 28, 1995, WEC and Northern States
Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and
Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger
Agreement"). The Merger Agreement provides for a strategic business
combination involving WEC and NSP in a "merger-of-equals" transaction
("Transaction"). As a result, WEC will become a registered public utility
holding company under the Public Utility Holding Company Act of 1935, as
amended, and will change its name to Primergy Corporation ("Primergy").
Primergy will be the parent company of WE (which will be renamed Wisconsin
Energy Company), of NSP (which, for regulatory reasons, will reincorporate in
Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. The
Transaction is intended to be tax-free for income tax purposes and to be
accounted for as a pooling of interests. On September 13, 1995, stockholders
of WEC and NSP voted to approve the Transaction. The Merger Agreement is
subject to various conditions, including the approval of various regulatory
agencies. Subject to obtaining all requisite approvals, WEC and NSP
anticipate completing the Transaction by January 1, 1997.
In connection with the Transaction, Northern States Power Company, a Wisconsin
corporation ("NSP-WI"), currently a subsidiary of NSP, will be merged into
Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin Energy
Company, New NSP will acquire from NSP-WI certain gas utility assets in
LaCrosse and Hudson, Wisconsin with a net historical cost at December 31, 1995
of approximately $19.3 million.
The following summarized Wisconsin Energy Company unaudited pro forma
financial information combines historical balance sheet and income statement
information of WE and NSP-WI to give effect to the Transaction, including the
transfer of the gas assets from NSP-WI to New NSP, and should be read in
- 64 -
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS - (cont'd)
B - Mergers - (cont'd)
conjunction with the historical financial statements and related notes thereto
of WE and NSP-WI. The unaudited pro forma income statement information does
not reflect adjustments for 1995 revenues of $28.9 million and related
expenses associated with the transfer of the gas assets from NSP-WI to New
NSP. A $136.6 million pro forma adjustment has been made to conform the
presentation of noncurrent deferred income taxes in the summarized unaudited
pro forma combined balance sheet information as a net liability. The
allocation between WEC and NSP and their customers of the estimated cost
savings resulting from the Transaction, net of costs incurred to achieve such
savings, will be subject to regulatory review and approval. None of the
estimated cost savings, the costs to achieve such savings, nor transaction
costs are reflected in the unaudited pro forma financial information. All
other financial statement presentation and accounting policy differences are
immaterial and have not been adjusted in the unaudited pro forma financial
information.
The unaudited pro forma balance sheet information gives effect to the
Transaction as if it had occurred at December 31, 1995. The unaudited pro
forma income statement information gives effect to the Transaction as if it
had occurred at January 1, 1995. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Transaction been consummated on the date or at the beginning
of the period for which the Transaction is being given effect nor is it
necessarily indicative of future operating results or financial position.
==============================================================================
Wisconsin Energy Company: * Unaudited
WE NSP-WI Pro Forma
(As Reported) (As Reported) Combined**
------------- ------------- -------------
(Millions of Dollars)
As of December 31, 1995:
Utility plant-net $ 2,911 $ 652 $ 3,544
Current assets 518 86 620
Other assets 890 53 807
----------- ----------- -----------
Total Assets $ 4,319 $ 791 $ 4,971
=========== =========== ===========
Common stockholder's equity $ 1,697 $ 318 $ 2,015
Preferred stock and premium 30 - 30
Long-term debt 1,325 214 1,539
----------- ----------- -----------
Total Capitalization 3,052 532 3,584
Current liabilities 425 102 527
Other liabilities 842 157 860
----------- ----------- -----------
Total Equity & Liabilities $ 4,319 $ 791 $ 4,971
=========== =========== ===========
==============================================================================
- 65 -
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS - (cont'd)
B - Mergers - (cont'd)
==============================================================================
Wisconsin Energy Company: * Unaudited
(cont'd) WE NSP-WI Pro Forma
(As Reported) (As Reported) Combined**
------------- ------------- -------------
(Millions of Dollars)
For the Year Ended
December 31, 1995:
Utility Operating Revenues $ 1,770 $ 459 $ 2,229
Utility Operating Income $ 329 $ 56 $ 385
Net Income, after Preferred
Dividend Requirements $ 239 $ 39 $ 278
==============================================================================
* In connection with the Merger Agreement, WE will be renamed Wisconsin
Energy Company.
** Includes a pro forma adjustment for the transfer of selected gas assets
from NSP-WI to New NSP and a $136.6 million pro forma adjustment to conform
the presentation of noncurrent deferred taxes as a net liability.
Note: Earnings per share of common stock are not applicable because all of
the Wisconsin Energy Company common stock will be owned by Primergy.
C - Depreciation
Depreciation expense is accrued at straight line rates over the estimated
useful lives of the assets. These rates are certified by the PSCW and include
estimates for salvage and removal costs. Depreciation as a percent of average
depreciable utility plant was 3.8% in 1995 and 3.9% in 1994 and 1993. Nuclear
plant decommissioning is accrued as depreciation expense (see Note F).
D - 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:
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Current tax expense $149,249 $131,574 $ 92,657
Investment tax credit-net (4,482) (4,625) (4,626)
Deferred tax expense (2,833) (25,095) 13,096
-------- -------- --------
Total Tax Expense $141,934 $101,854 $101,127
======== ======== ========
==============================================================================
- 66 -
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS - (cont'd)
D - Income Taxes - (cont'd)
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Income Before Income Taxes
and Preferred Dividend $382,602 $283,608 $293,207
======== ======== ========
Expected tax at federal
statutory rate $133,911 $ 99,263 $102,622
State income tax net of
federal tax reduction 18,943 14,087 12,078
Investment tax credit
restored (4,482) (4,625) (5,241)
Other (no item over
5% of expected tax) (6,438) (6,871) (8,332)
-------- -------- --------
Total Tax Expense $141,934 $101,854 $101,127
======== ======== ========
==============================================================================
FAS 109 requires the recording of deferred assets and liabilities to recognize
the expected future tax consequences of events that have been reflected in the
Company's financial statements or tax returns and the adjustment of deferred
tax balances to reflect tax rate changes. Following is a summary of deferred
income taxes under FAS 109:
==============================================================================
December 31
1995 1994
-------- --------
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $ 43,759 $ 42,685
Construction advances 43,052 40,839
Other 49,770 54,407
-------- --------
Total Deferred Income Tax Assets $136,581 $137,931
======== ========
Deferred Income Tax Liabilities
Property related $445,878 $428,044
Conservation investments 25,775 27,564
Other 8,175 17,138
-------- --------
Total Deferred Income Tax Liabilities $479,828 $472,746
======== ========
==============================================================================
- 67 -
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - (cont'd)
D - Income Taxes - (cont'd)
WE also has recorded the following deferred regulatory assets and liabilities
representing the future expected impact of deferred taxes on utility revenues:
==============================================================================
December 31
1995 1994
-------- --------
(Thousands of Dollars)
Deferred Regulatory Assets $155,944 $158,912
Deferred Regulatory Liabilities 163,676 171,599
==============================================================================
E - 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
1995, 1994 and 1993, as approved by the PSCW.
F - Nuclear Operations
Point Beach Nuclear Plant: WE operates two 500 megawatt generating units at
its Point Beach Nuclear Plant ("Point Beach"). During 1995, Point Beach
accounted for 26.9% of WE's net electric generation. The current operating
licenses for the two units at Point Beach expire in 2010 and 2013 for Units 1
and 2, respectively.
WE has filed an application with the PSCW for replacement of the Point Beach
Unit 2 steam generators. As a result of degradation of some of the tubes
within the Unit 2 steam generators, the unit has been operating at
approximately 90% of its capacity since its return to service after its annual
refueling outage in the fall of 1995. Considering the rate of tube
degradation in the steam generators, there is a likelihood that WE would not
be able to restart Unit 2 following the fall 1996 outage without replacement
of the steam generators.
In a related matter, WE completed construction of an Independent Spent Fuel
Storage Installation ("ISFSI") in June 1995. The ISFSI will provide interim
dry cask storage of spent fuel from Point Beach, which is necessary because
the spent fuel pool inside the plant is nearly full. WE loaded the first cask
with spent fuel in December 1995. On December 22, 1995, the Dane County
Circuit Court ("Court") issued a decision vacating and remanding the February
1995 PSCW approval of the ISFSI on procedural grounds, stating that the
- 68 -
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - (cont'd)
F - Nuclear Operations - (cont'd)
Environmental Impact Statement prepared by the PSCW for this project was
inadequate in two respects. Transfer of additional spent fuel to the ISFSI
has been temporarily suspended by WE pending the PSCW's further action.
The PSCW has issued two Supplemental Environmental Impact Statements which
address steam generator issues and the inadequacies found by the Court with
the original Environmental Impact Statement for the ISFSI project. The PSCW
held related hearings on these matters in February and March 1996. WE
anticipates that the PSCW will issue a combined final order on the replacement
of the Unit 2 steam generators and the remanded dry cask storage matters in
May 1996. Failure by the PSCW to approve steam generator replacement and
resolve the remanded issues could jeopardize the continued operation of Point
Beach and materially affect WE's financial position and results of operations.
WE would likely seek regulatory relief to minimize the replacement power costs
resulting from lost generating capacity.
Nuclear Fuel: WE 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 WE or
the Trust terminates the lease, the Trust would recover its unamortized cost
of nuclear fuel from WE. Under the lease terms, WE 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 for the respective years on the nuclear fuel lease:
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $ 89,840 $ 89,705
Accumulated provision for amortization (50,532) (50,983)
In process/stock 19,952 17,884
-------- --------
Total Nuclear Fuel $ 59,260 $ 56,606
======== ========
Interest Expense on Nuclear Fuel Lease $ 2,401 $ 1,896 $ 1,697
==============================================================================
- 69 -
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - (cont'd)
F - Nuclear Operations - (cont'd)
The future minimum lease payments under the capital lease and the present
value of the net minimum lease payments as of December 31, 1995 are as
follows:
============================================================================
(Thousands of Dollars)
1996 $ 22,446
1997 14,747
1998 6,960
1999 2,443
2000 490
--------
Total Minimum Lease Payments 47,086
Less: Interest (3,162)
--------
Present Value of Net Minimum Lease Payments $ 43,924
========
==============================================================================
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 ("D&D Fund") for the DOE's nuclear fuel enrichment
facilities. Deposits to the D&D Fund are derived in part from special
assessments to utilities. As of December 31, 1995, WE has on its books a
remaining estimated liability equal to the projected special assessments of
$29.5 million. A corresponding deferred regulatory asset will be amortized to
nuclear fuel expense and included in utility rates over the next 12 years.
Nuclear Insurance: The Price-Anderson Act ("Act") provides an aggregate
limitation of $8.9 billion on public liability claims arising out of a nuclear
incident. WE 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
(WE 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, WE
could be assessed a maximum of approximately $3.0 million per reactor.
WE has property damage, decontamination and decommissioning insurance totaling
$1.5 billion for loss from damage at Point Beach with Nuclear Mutual Limited
("NML") and Nuclear Electric Insurance Limited ("NEIL"). Under the NML and
NEIL policies, WE has a potential maximum retrospective premium liability per
loss of $5.6 million and $9.8 million, respectively.
WE also maintains additional insurance with NEIL covering extra expenses of
obtaining replacement power during a prolonged accidental outage (in excess of
21 weeks) at Point Beach. This insurance coverage provides weekly indemnities
of $3.5 million per unit for outages during the first year, declining to 80%
of the amounts during the second and third years. Under the policy, WE's
maximum retrospective premium liability is approximately $7.7 million.
- 70 -
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - (cont'd)
F - Nuclear Operations - (cont'd)
It should not be assumed that, in the event of a major nuclear incident, any
insurance or statutory limitation of liability would protect WE from material
adverse impact.
Nuclear Decommissioning: Subject to approval by the PSCW of the Point Beach
Unit 2 steam generator replacements and resolution of the remanded ISFSI
matters described above, WE expects to operate the two units at Point Beach to
the expiration of their current operating licenses. The estimated cost to
decommission the plant in 1995 dollars is $356 million based upon a site
specific decommissioning cost study completed in 1994. Assuming plant
shutdown at the expiration of the current operating licenses, prompt
dismantlement and annual escalation of costs at specific inflation factors
established by the PSCW, it is projected that approximately $1.6 billion will
be spent over a twenty-year period, beginning in 2010, to decommission the
plant.
Nuclear decommissioning costs are accrued as depreciation expense over the
expected service lives of the two units based upon an external sinking fund
method. In 1996, WE has increased its funding levels based on a site specific
estimate as required by the PSCW. It is expected that the annual payments to
the Nuclear Decommissioning Trust Fund ("Fund") along with the earnings on the
Fund will provide sufficient funds at the time of decommissioning. WE
believes it is probable that any shortfall in funding would be recoverable in
utility rates.
As required by Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("FAS 115"), WE's debt
and equity security investments in the Fund are classified as available for
sale. Gains and losses on the Fund were determined on the basis of specific
identification; net unrealized holding gains on the Fund were recorded as part
of accumulated provision for depreciation.
Following is a summary of decommissioning costs and earnings charged to
depreciation expense and the Fund balance included in accumulated provision
for depreciation at December 31. The Fund balance is stated at fair value:
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Decommissioning costs $ 3,456 $ 3,456 $ 3,456
Earnings 7,405 6,682 7,915
-------- -------- --------
Depreciation Expense $ 10,861 $ 10,138 $ 11,371
======== ======== ========
Total costs accrued to date $235,420 $224,559
Unrealized gain 39,705 2,246
-------- --------
Accumulated Provision for Depreciation $275,125 $226,805
======== ========
==============================================================================
- 71 -
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - (cont'd)
G - 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, no dividends or
other distributions may be paid on the Company's common stock.
The 3.60% Series Preferred Stock is redeemable in whole or in part at the
option of WE at $101 per share plus any accrued dividends.
In 1994, WE called for redemption all of its 52,500 outstanding shares of
6.75% Series Preferred Stock at a redemption price of par. In 1993, WE called
for redemption 626,500 shares at a purchase price of $104.05 per share plus
accrued dividends to the redemption date.
H - Long-Term Debt
The maturities and sinking fund requirements through 2000 for the aggregate
amount of long-term debt outstanding (excluding obligations under capital
lease, see Note F) at December 31, 1995 are shown below:
==============================================================================
(Thousands of Dollars)
1996 $ 30,000
1997 165,700
1998 60,700
1999 91,700
2000 700
==============================================================================
Sinking fund requirements for the years 1996 through 2000, included in the
table above, are $2.8 million. 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.
The fair value of the Company's long-term debt was $1.5 billion and $1.2
billion at December 31, 1995 and 1994, respectively. The fair value of the
first mortgage bonds and debentures is estimated based upon the market value
of the same or similar issues. Book value approximates fair value for the
Company's unsecured notes. The fair value of WE's obligations under capital
lease is the market value of the Wisconsin Electric Fuel Trust's commercial
paper.
In September and October 1995, WE issued $98.35 million of unsecured variable
rate promissory notes maturing between March 1, 2006 and September 1, 2030.
These notes were issued as a revenue and collateral source for an equal
principal amount of tax exempt Refunding Revenue Bonds issued on WE's behalf
to refund $98.35 million of previously issued tax exempt bonds called for
optional redemption that were secured by WE's First Mortgage Bonds.
- 72 -
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS - (cont'd)
H - Long-Term Debt - (cont'd)
In December 1995, WE issued $100 million of unsecured One Hundred Year 6 7/8%
Debentures due 2095. Proceeds of the issue were added to WE's general funds
and were applied to the repayment of short-term borrowings.
At December 31, 1995, the interest rate for the $67 million variable rate note
due 2016 was 5.00% and the interest rate for the $98.35 million variable rate
notes due 2006-2030 was 5.10%.
I - Notes Payable
Short-term notes payable balances and their corresponding weighted average
interest rates consist of:
==============================================================================
December 31
1995 1994
-------------------- ----------------------
Interest Interest
Balance Rate Balance Rate
-------- -------- -------- --------
(Thousands of Dollars)
Banks $100,885 5.78% $ 87,399 6.03%
Commercial paper 49,809 5.88% 155,106 6.04%
-------- --------
$150,694 $242,505
======== ========
==============================================================================
Unused lines of credit for short-term borrowing amounted to $108.6 million at
December 31, 1995. 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.
J - Pension Plans
Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions ("FAS 87"), for
ratemaking.
WE has several defined benefit 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 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.
- 73 -
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS - (cont'd)
J - Pension Plans - (cont'd)
==============================================================================
Pension Cost calculated per FAS 87 1995 1994 1993
- ---------------------------------- -------- -------- --------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 8,985 $ 10,933 $ 10,842
Interest cost on projected benefit
obligation 41,586 38,736 36,335
Actual (return) loss on plan assets (136,243) 7,634 (43,226)
Net amortization and deferral 88,493 (52,180) 1,067
-------- -------- --------
Total pension cost calculated
under FAS 87 $ 2,821 $ 5,123 $ 5,018
======== ======== ========
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $543,371 $427,847
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 12,651 9,963
-------- --------
Total obligation $556,022 $437,810
======== ========
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $637,529 $527,182
Projected benefit obligation
at present value (584,785) (513,166)
Unrecognized transition asset (22,034) (24,628)
Unrecognized prior service cost 23,194 19,567
Unrecognized net gain (54,780) (17,569)
-------- --------
Projected status of plans $ (876) $ (8,614)
======== ========
Rates used for calculations (%) -
Discount rate-interest rate used to
adjust for the time value of money 7.25 8.25 7.5
Assumed rate of increase in
compensation levels 4.75 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0
==============================================================================
K - Benefits Other Than Pensions
Postretirement Benefits: Effective in 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
- 74 -
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS - (cont'd)
K - Benefits Other Than Pensions - (cont'd)
postretirement benefit obligation. The PSCW has issued an order recognizing
FAS 106 for ratemaking; therefore adoption has no material impact on net
income.
WE 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.
==============================================================================
Postretirement Benefit Cost
calculated per FAS 106 1995 1994 1993
- ------------------------------------------- -------- -------- --------
(Thousands of Dollars)
Components of Net Periodic Postretirement
Benefit Cost, Year Ended December 31 -
Cost of postretirement benefits
earned by employees $ 2,276 $ 2,653 $ 3,105
Interest cost on projected
benefit obligation 10,458 10,148 10,395
Actual return on plan assets (12,598) (3,893) (2,388)
Net amortization and deferral 13,951 5,648 5,082
-------- -------- --------
Total postretirement benefit cost
calculated under FAS 106 $ 14,087 $ 14,556 $ 16,194
======== ======== ========
Funded Status of Plans: Postretirement
Obligations and Assets at December 31 -
Accumulated Postretirement Benefit
Obligation at December 31 -
Retirees $(92,746) $(83,670)
Fully eligible active plan participants (10,304) (7,223)
Other active plan participants (41,732) (37,255)
-------- --------
Total obligation (144,782) (128,148)
Postretirement assets at
fair market value 45,086 37,919
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets (99,696) (90,229)
Unrecognized transition obligation 83,268 90,302
Unrecognized prior service cost (1,279) (1,169)
Unrecognized net gain (6,102) (16,484)
-------- --------
Accrued Postretirement Benefit Obligation $(23,809) $(17,580)
======== ========
==============================================================================
- 75 -
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS - (cont'd)
K - Benefits Other Than Pensions - (cont'd)
==============================================================================
Postretirement Benefit Cost
calculated per FAS 106 (cont'd) 1995 1994 1993
- ------------------------------------------- -------- -------- --------
(Thousands of Dollars)
Rates used for calculations (%) -
Discount rate-interest rate used to
adjust for the time value of money 7.25 8.25 7.5
Assumed rate of increase in
compensation levels 4.75 5.0 5.0
Expected long-term rate of return
on postretirement assets 9.0 9.0 9.0
Health care cost trend rate 11.0 declining to
5.0 in year 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, 1995 by $9.5 million and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $1 million.
Revitalization: In the first quarter of 1994, WE recorded a $73.9 million
charge related to its revitalization program. This charge included $37.5
million for Early Retirement Incentive Packages ("ERIP") and $25 million for
Severance Packages ("SP"). These plans were used to reduce employee staffing
levels. ERIP provided for a monthly income supplement ("ERIP supplement"),
medical benefits and waiver of an early retirement pension reduction. The SP
included a severance payment, medical/dental insurance, outplacement services,
personal financial planning and tuition support. Availability of these plans
to various bargaining units was based upon agreements made between WE and the
bargaining units. These plans were available to most management employees but
not to elected officers.
Under ERIP, 403 employees elected to retire in 1994. Under SP, 651 and 75
employees enrolled in 1994 and 1995, respectively. ERIP supplement costs are
paid from pension plan trusts and medical/dental benefits from employee
benefit trusts. Remaining ERIP and SP costs are paid from general corporate
funds. The ultimate timing of cash flows for ERIP supplement costs depends
upon the funding limitations of WE's pension plans. With the exception of
ERIP supplement costs, approximately $35.4 million have been paid against the
revitalization liability through December 31, 1995, and a liability of $0.9
million remains outstanding at December 31, 1995.
L - Information By Segments of Business
WE is a public utility incorporated in the State of Wisconsin. The Company's
principal business segments include electric, gas and steam utility
operations. The electric utility generates, transmits, distributes and sells
electric energy in southeastern (including metropolitan Milwaukee), east
central and northern Wisconsin and in the Upper Peninsula of Michigan. The
gas utility purchases, distributes and sells natural gas to retail customers
and transports customer-owned gas in three service areas in southeastern, east
central and western Wisconsin that are largely within the electric service
- 76 -
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS - (cont'd)
L - Information By Segments of Business - (cont'd)
area. The steam utility produces, distributes and sells steam to space
heating and processing customers in downtown and the near south side of
Milwaukee. The following summarizes the business segments of the Company:
==============================================================================
Year ended December 31 1995 1994 1993
- ---------------------- ---------- ---------- ----------
(Thousands of Dollars)
Electric Operations
Operating revenues $1,437,480 $1,403,562 $1,347,844
Operating income before income taxes 419,271 329,216 329,727
Depreciation 164,789 159,414 149,646
Construction expenditures 223,723 244,718 305,467
Gas Operations
Operating revenues 318,262 324,349 331,301
Operating income before income taxes 47,022 30,993 31,025
Depreciation 17,722 16,856 16,235
Construction expenditures 24,851 25,481 24,419
Steam Operations
Operating revenues 14,742 14,281 14,090
Operating income before income taxes 3,757 2,825 3,147
Depreciation 1,365 1,344 1,185
Construction expenditures 206 1,213 4,940
Total
Operating revenues 1,770,484 1,742,192 1,693,235
Operating income before income taxes 470,050 363,034 363,899
Depreciation 183,876 177,614 167,066
Construction expenditures
(including non-utility) 248,867 271,448 334,932
At December 31
- --------------
Net Identifiable Assets
Electric $3,901,611 $3,797,755 $3,665,493
Gas 386,864 376,344 385,390
Steam 25,214 25,315 25,119
Non-utility 5,235 2,779 2,971
---------- ---------- ----------
Total Assets $4,318,924 $4,202,193 $4,078,973
========== ========== ==========
==============================================================================
M - 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 received from WEC
stockholder capital contributions of $30 million in 1995 and 1994, and $10
million in 1993.
- 77 -
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS - (cont'd)
N - Commitments and Contingencies
Kimberly Cogeneration Facility: In 1993, a competitive bidding process
conducted by the PSCW resulted in selection of a proposal submitted by an
unaffiliated independent power producer, LSP-Whitewater L.P. ("LS Power"), to
construct a generation facility to meet a portion of WE's anticipated increase
in system supply needs. WE subsequently signed a long-term 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-1997.
Prior to the 1993 selection of the LS Power generation facility by the PSCW,
WE had proposed to construct its own 220 megawatt cogeneration facility in
Kimberly, Wisconsin, which was intended to provide process steam to Repap
Wisconsin, Inc. ("Repap") starting in mid-1994. In the PSCW Order, the WE
project was selected as the second place conditional project if the LS Power
project did not proceed. WE had made expenditures for the Kimberly facility
of approximately $65.8 million associated with the procurement of three
combustion turbines, one steam turbine and three heat recovery boilers in
order to achieve the in-service dates as agreed to in a steam service contract
with Repap.
The Company is currently reviewing other options for use or sale of its
Kimberly Cogeneration Facility equipment (the "Equipment"). The Equipment is
of a technology of natural gas-fired combined cycle generation equipment that
is marketed worldwide. The Company is investigating opportunities to sell the
Equipment or to use it in another power project and is currently evaluating
potential sales opportunities and/or power projects involving the Equipment.
At this time, the Company does not believe that disposition of the Equipment
will have a material adverse effect on its financial condition. However,
there is a possibility that WE may need to recognize an impairment of the
Equipment in the future should the projects noted above not occur and should
no other viable sales opportunities and/or power projects involving the
Equipment be identified.
Manufactured Gas Plant Sites: WE's natural gas business unit is investigating
the remediation of a number of former manufactured gas plant ("MGP") sites.
Operations at these MGP sites ceased over 40 years ago. Limited remediation
activities occurred at a number of these sites during the 1980's, with removal
of waste materials known to be present at that time. In 1995, WE presented a
plan to investigate and remediate sites to the Wisconsin Department of Natural
Resources ("DNR"). During 1995, WE conducted site investigations at four
sites and partial remediation activities were conducted at one site.
Approximately $1.6 million has been spent through December 31, 1995 for such
activities. Remediation costs to be incurred through the year 2000 have been
estimated to be $12 million, but the total costs are uncertain pending the
results of further site specific investigations and the selection of site
specific remedial actions. In a September 11, 1995 letter order, the PSCW
allowed WE to defer MGP site remediation costs with final rate treatment of
such costs to be determined in future rate cases. As of December 31, 1995, WE
has recorded an accrued liability of $1.6 million for MGP site remediation and
a related deferred regulatory asset of $3.2 million. WE expects to accrue
additional MGP site remediation liabilities during 1996 as site specific
investigations are completed and site specific remedial actions are
identified. WE will seek rate recovery for these costs and does not
anticipate that there will be a material adverse effect on its net income or
financial position.
- 78 -
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS - (cont'd)
N - Commitments and Contingencies - (cont'd)
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 - "LIQUIDITY AND CAPITAL
RESOURCES - Capital Requirements 1996-2000."
- 79 -
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the
Stockholders of Wisconsin Electric Power Company
In our opinion, the financial statements listed under Item 14(a)(1) appearing
on page 82 of this report present fairly, in all material respects, the
financial position of Wisconsin Electric Power Company at December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, 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.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 31, 1996
- 80 -
<PAGE> 81
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In accordance with General Instruction G(3) of Form 10-K, the information
under "Election of Directors" in WE's definitive Information Statement for its
Annual Meeting of Stockholders to be held May 21, 1996 (the "1996 Annual
Meeting Information Statement") is incorporated herein by reference. Also see
"Executive Officers of the Registrant" in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
In accordance with General Instruction G(3) of Form 10-K, the information
under "Compensation" and "Retirement Plans" in the 1996 Annual Meeting
Information Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
All of WE's Common Stock (100% of such class) is owned by the parent company,
Wisconsin Energy Corporation, 231 West Michigan Street, P.O. Box 2949,
Milwaukee, Wisconsin 53201. The directors, director nominees and executive
officers of WE do not own any of the voting securities of WE. In accordance
with General Instruction G(3) of Form 10-K, the information concerning their
beneficial ownership of WEC stock set forth under "Stock Ownership of
Directors, Nominees and Executive Officers" in the 1996 Annual Meeting
Information Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- 81 -
<PAGE> 82
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements and Report of Independent Accountants
Included in Part II of this report:
Income Statement for the three years ended
December 31, 1995
Statement of Cash Flows for the three years ended
December 31, 1995
Balance Sheet at December 31, 1995 and 1994
Capitalization Statement at December 31, 1995 and 1994
Common Stock Equity Statement for the three years ended
December 31, 1995
Notes to Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules are omitted because of the
absence of conditions under which they are required or
because the required information is given in the
financial statements or notes thereto.
* * * * *
The following Wisconsin Energy Company Unaudited Pro Forma Combined
Condensed Financial Information is contained herein after this
Item 14:
Unaudited Pro Forma Combined Condensed Balance Sheet at
December 31, 1995
Unaudited Pro Forma Combined Condensed Statements of Income
for the 12 months ended December 31, 1995
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
3. Exhibits
The following Exhibits are filed with this report:
Exhibit No.
(3)-1 Bylaws of Wisconsin Electric Power Company ("WE"),
as amended and restated January 31, 1996.
(4)-1 Indenture for Debt Securities (the
"Indenture") dated as of December 1, 1995.
- 82 -
<PAGE> 83
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
(4)-2 Securities Resolution No. 1 under the
Indenture dated December 5, 1995.
(23)-1 Price Waterhouse LLP - Milwaukee, WI Consent of
Independent Accountants appearing on page 87 of this
Annual Report on Form 10-K for the year ended
December 31, 1995.
(23)-2 Consent of Price Waterhouse LLP - Minneapolis, MN,
Northern States Power Company - Wisconsin's ("NSP-WI")
Independent Accountants.
(23)-3 Consent of Deloitte & Touche LLP - Minneapolis, MN,
NSP-WI's Independent Auditors prior to 1995.
(27)-1 WE Financial Data Schedule for the fiscal year ended
December 31, 1995.
In addition to those Exhibits shown above, which are filed herewith, WE hereby
incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and
Regulation Section 201.24 by reference to the filings set forth below:
(2)-1 Amended and Restated Agreement and Plan of Merger, dated as of
April 28, 1995, as amended and restated as of July 26, 1995, by and
among Northern States Power Company ("NSP"), Wisconsin Energy
Corporation ("WEC"), Northern Power Wisconsin Corp. ("New NSP") and
WEC Sub Corp. (Exhibit (2)-1 to WEC's Registration Statement on
Form S-4 filed on August 7, 1995, Registration No. 33-61619
("Form S-4, No. 33-61619"); other related documents are also filed as
exhibits to such Registration Statement.)
(2)-2 WEC Stock Option Agreement, dated as of April 28, 1995, by and among
NSP and WEC. (Exhibit (2)-2 to Form S-4, No. 33-61619.)
(2)-3 NSP Stock Option Agreement, dated as of April 28, 1995, by and among
WEC and NSP. (Exhibit (2)-3 to Form S-4, No. 33-61619.)
(2)-4 Committees of the Board of Directors of Primergy Corporation
("Primergy"). (Exhibit (2)-4 to Form S-4, No. 33-61619.)
(2)-5 Form of Employment Agreement between Primergy and James J. Howard.
(Exhibit (2)-5 to Form S-4, No. 33-61619.)
(2)-6 Form of Employment Agreement between Primergy and Richard A. Abdoo.
(Exhibit (2)-6 to Form S-4, No. 33-61619.)
(2)-7 Form of Amended and Restated Articles of Incorporation of New NSP.
(Exhibit 3-3 (b) to Form S-4, No. 33-61619.)
(2)-8 Letter Agreement, dated January 17, 1995, between NSP and WEC.
(Exhibit (2)-8 to WEC's Schedule 13D dated May 4, 1995 with respect
to the NSP Stock Option Agreement.)
- 83 -
<PAGE> 84
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
(2)-9 Letter Agreement, dated April 26, 1995, between NSP and WEC amending
Letter Agreement dated January 17, 1995. (Exhibit (2)-9 to WEC's
Schedule 13D dated May 4, 1995 with respect to the NSP Stock Option
Agreement.)
(2)-10 Plan and Agreement of Merger, dated June 30, 1994, by and between WE
and Wisconsin Natural Gas Company ("WN"). (Appendix A to WE's Proxy
Statement dated October 31, 1994, in File No. 1-1245.)
(3)-2 Restated Articles of Incorporation of WE, as amended and restated
effective January 10, 1995. (Exhibit (3)-1 to WE's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 1-1245.)
(4)-3 Reference is made to Article III of the Restated Articles of
Incorporation of WE. (Exhibit (3)-2 herein.)
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
(4)- 4 Mortgage and Wisconsin 10/28/38 B-1 2-4340
Deed of Trust Electric
("WE")
5 Second WE 6/1/46 7-C 2-6422
6 Third WE 3/1/49 7-C 2-8456
7 Fourth WE 6/1/50 7-D 2-8456
8 Fifth WE 5/1/52 4-G 2-9588
9 Sixth WE 5/1/54 4-H 2-10846
10 Seventh WE 4/15/56 4-I 2-12400
11 Eighth WE 4/1/58 2-I 2-13937
12 Ninth WE 11/15/60 2-J 2-17087
13 Tenth WE 11/1/66 2-K 2-25593
14 Eleventh WE 11/15/67 2-L 2-27504
15 Twelfth WE 5/15/68 2-M 2-28799
16 Thirteenth WE 5/15/69 2-N 2-32629
17 Fourteenth WE 11/1/69 2-O 2-34942
18 Fifteenth WE 7/15/76 2-P 2-54211
19 Sixteenth WE 1/1/78 2-Q 2-61220
20 Seventeenth WE 5/1/78 2-R 2-61220
21 Eighteenth WE 5/15/78 2-S 2-61220
22 Nineteenth WE 8/1/79 (a)2(a) 1-1245 (9/30/79
WE Form 10-Q)
23 Twentieth WE 11/15/79 (a)2(a) 1-1245 (12/31/79
WE Form 10-K)
24 Twenty-First WE 4/15/80 (4)-21 2-69488
25 Twenty-Second WE 12/1/80 (4)-1 1-1245 (12/31/80
WE Form 10-K)
26 Twenty-Third WE 9/15/85 (4)-1 1-1245 (9/30/85
WE Form 10-Q)
27 Twenty-Four WE 9/15/85 (4)-1 1-1245 (9/30/85
WE Form 10-Q)
28 Twenty-Fifth WE 12/15/86 (4)-25 1-1245 (12/31/86
WE Form 10-K)
- 84 -
<PAGE> 85
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
29 Twenty-Sixth WE 1/15/88 4 1-1245 (1/26/88
Form 8-K)
30 Twenty-Seventh WE 4/15/88 4 1-1245 (3/31/88
Form 10-Q)
31 Twenty-Eighth WE 9/1/89 4 1-1245 (9/30/89
WE Form 10-Q)
32 Twenty-Ninth WE 10/1/91 4-1 1-1245 (12/31/91
WE Form 10-K)
33 Thirtieth WE 12/1/91 4-2 1-1245 (12/31/91
WE Form 10-K)
34 Thirty-First WE 8/1/92 4-1 1-1245 (6/30/92
WE Form 10-Q)
35 Thirty-Second WE 8/1/92 4-2 1-1245 (6/30/92
WE Form 10-Q)
36 Thirty-Third WE 10/1/92 4-1 1-1245 (9/30/92
WE Form 10-Q)
37 Thirty-Fourth WE 11/1/92 4-2 1-1245 (9/30/92
WE Form 10-Q)
38 Thirty-Fifth WE 12/15/92 4-1 1-1245 (12/31/92
WE Form 10-K)
39 Thirty-Sixth WE 1/15/93 4-2 1-1245 (12/31/92
WE Form 10-K)
40 Thirty-Seventh WE 3/15/93 4-3 1-1245 (12/31/92
WE Form 10-K)
41 Thirty-Eighth WE 8/01/93 (4)-1 1-1245 (6/30/93
WE Form 10-Q)
42 Thirty-Ninth WE 9/15/93 (4)-1 1-1245 (9/30/93
WE Form 10-Q)
43 Fortieth WE 1/01/96 (4)-1 1-1245 (1/1/96
WE Form 8-K)
All agreements and instruments with respect to long-term debt not
exceeding 10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis have been omitted as permitted
by related instructions. The Registrant agrees pursuant to Item
601(b)(4) of Regulation S-K to furnish to the Securities and Exchange
Commission, upon request, a copy of all such agreements and
instruments.
(10)-1 Amended Non-Qualified Trust Agreement by and between WEC and Firstar
Trust Company dated January 26, 1996, regarding trust established to
provide a source of funds to assist in meeting of the liabilities under
various nonqualified deferred compensation plans made between WEC or
its subsidiaries and various plan participants. (Exhibit (10)-2 to
WEC's Annual Report on Form 10-K for the year ended December 31, 1995,
File No. 1-9057.) *
(10)-2 Supplemental Benefits Agreement between WEC and Richard A. Abdoo dated
November 21, 1994, and April 26, 1995 letter agreement.
(Exhibit (10)-1 to WEC's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, File No. 1-9057. ("WEC's 6/30/95 10-Q")) *
- 85 -
<PAGE> 86
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
(10)-3 WEC Senior Executive Severance Policy, as adopted effective
April 28, 1995 and amended on July 26, 1995. (Exhibit (10)-3 to
WEC's 6/30/95 10-Q.) *
(10)-4 Service Agreement dated January 1, 1987, between WE, WEC and other
non-utility affiliated companies. (Exhibit (10)-(a) to WE's Current
Report on Form 8-K dated January 2, 1987 in File No. 1-1245.)
(99)-1 Wisconsin Energy Company unaudited pro forma combined condensed
statements of income for each of the three years in the period ended
December 31, 1994. (Included in WE's Current Report on Form 8-K dated
as of August 25, 1995, File No. 1-1245.)
(99)-2 Audited Financial Statements of NSP-WI. (Item 8 of NSP-WI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, File
No. 10-3140):
Report of Independent Accountants.
Independent Auditor's Report for years prior to 1995.
Statements of Income and Retained Earnings for the three years ended
December 31, 1995.
Statements of Cash Flows for the three years ended December 31, 1995.
Balance Sheets at December 31, 1995 and 1994.
Notes to Financial Statements.
- -----------------------
* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
Certain compensatory plans in which directors or executive officers of
the Registrant are eligible to participate are not filed in reliance
on the exclusion in Item 601(b)(10)(iii)(B)(6) of Regulation S-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended December 31, 1995.
A Current Report on Form 8-K dated as of January 1, 1996 was filed on
January 16, 1996 to report the consummation of the merger of WN into WE,
incorporate by reference or file related historical and pro forma
financial statements and exhibits, and report developments concerning
WE's Point Beach Nuclear Plant independent spent fuel storage
installation.
- 86 -
<PAGE> 87
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements and Prospectuses constituting part of the Registration Statements
on Form S-3 (Nos. 33-51749 and 33-64343) of Wisconsin Electric Power Company
of our report dated January 31, 1996 appearing in this Form 10-K.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 28, 1996
- 87 -
<PAGE> 88
WISCONSIN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On April 28, 1995, Wisconsin Energy Corporation ("WEC"), Wisconsin Electric
Power Company's ("WE") parent company, entered into an Agreement and Plan of
Merger with Northern States Power Company, a Minnesota corporation ("NSP"),
which was amended and restated as of July 26, 1995 (the "Merger Agreement").
The Merger Agreement provides for a strategic business combination involving
the two companies in a "merger-of-equals" transaction (the "Transaction"), as
previously reported in WE's Current Report on Form 8-K dated as of August 25,
1995 and in its Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995, June 30, 1995 and September 30, 1995 ("WE's 3/31/95, 6/30/95
and 9/30/95 10-Q's"). Detailed information with respect to the Merger
Agreement and the proposed Transaction is contained in the Joint Proxy
Statement / Prospectus dated August 7, 1995 (contained in WEC's Registration
Statement on Form S-4, Registration No. 33-61619) relating to the meetings of
the stockholders of WEC and NSP to vote on the Merger Agreement and related
matters.
Further information concerning the Merger Agreement and the proposed
Transaction is included in Item 1. BUSINESS - "MERGER AGREEMENT WITH NORTHERN
STATES POWER COMPANY", in Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS -
Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA in this report.
As a result of the Transaction, WEC will become a registered public utility
holding company under the Public Utility Holding Company Act of 1935, as
amended, and will change its name to Primergy Corporation ("Primergy").
Primergy will be the parent company of WE (which will be renamed Wisconsin
Energy Company), of NSP (which, for regulatory reasons, will reincorporate in
Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. In
connection with the Transaction, Northern States Power Company, a Wisconsin
corporation ("NSP-WI"), currently a utility subsidiary of NSP, will be merged
into Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin
Energy Company, New NSP will acquire certain gas utility assets and
liabilities of NSP-WI divisions in LaCrosse and Hudson, Wisconsin from NSP-WI.
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of WE (as
restated to reflect the merger of WN into WE effective January 1, 1996) and
NSP-WI after giving effect to the proposed Transaction. The unaudited pro
forma combined condensed balance sheet information at December 31, 1995 give
effect to the Transaction as if it had occurred at December 31, 1995. The
unaudited pro forma combined condensed statements of income for the twelve
months ended December 31, 1995 gives effect to the Transaction as if it had
occurred at January 1, 1995. This financial information is prepared on the
basis of accounting for the Transaction as a pooling of interests. WE's
Current Report on Form 8-K dated as of August 25, 1995 contains unaudited pro
forma combined condensed statements of income of Wisconsin Energy Company for
each of the three years in the period ended December 31, 1994, which are not
repeated herein, but are incorporated by reference as an exhibit to this
report.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of WE and NSP-WI. The
- 88 -
<PAGE> 89
WISCONSIN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION -
(cont'd)
following information is not necessarily indicative of the financial position
or operating results that would have occurred had the Transaction been
consummated on the date, or at the beginning of the period for which the
Transaction is being given effect nor is it necessarily indicative of future
operating results or financial position.
- 89 -
<PAGE> 90
<TABLE>
NORTHERN STATES POWER COMPANY - WISCONSIN
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(In thousands)
<CAPTION>
NSP-WI Pro Forma NSP-WI
Pro Forma Balance Sheet As Reported Adjustments As Adjusted
------------------------------------------ ------------ ------------ ------------
(Note 2)
<S> <C> <C> <C>
Assets
Utility Plant
Electric $ 864,514 $ - $ 864,514
Gas 94,425 (33,644) 60,781
Other 63,758 - 63,758
------------ ------------ ------------
Total 1,022,697 (33,644) 989,053
Accumulated provision for depreciation (370,634) 15,215 (355,419)
Nuclear fuel - net - - -
------------ ------------ ------------
Net Utility Plant 652,063 (18,429) 633,634
Current Assets 85,591 16,836 102,427
Other Assets 53,244 (944) 52,300
------------ ------------ ------------
Total Assets $ 790,898 $ (2,537) $ 788,361
============ ============ ============
Liabilities and Equity
Capitalization
Common stock equity $ 318,299 $ - $ 318,299
Cumulative preferred stock and premium - - -
Long-term debt 213,235 - 213,235
------------ ------------ ------------
Total Capitalization 531,534 - 531,534
Current Liabilities
Current portion of long-term debt - - -
Short-term debt 50,900 - 50,900
Other 51,362 (38) 51,324
------------ ------------ ------------
Total Current Liabilities 102,262 (38) 102,224
Other Liabilities 157,102 (2,499) 154,603
------------ ------------ ------------
Total Capitalization and Liabilities $ 790,898 $ (2,537) $ 788,361
============ ============ ============
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
- 90 -
</TABLE>
<PAGE> 91
<TABLE>
WISCONSIN ENERGY COMPANY *
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(In thousands)
<CAPTION>
Adjusted
WE NSP-WI Pro Forma Pro Forma
Pro Forma Balance Sheet As Reported As Adjusted Adjustments Combined
------------------------------------------ ------------ ------------ ------------ ------------
(See Page 93) (Note 3)
<S> <C> <C> <C> <C>
Assets
Utility Plant
Electric $ 4,608,120 $ 864,514 $ - $ 5,472,634
Gas 491,176 60,781 - 551,957
Other 40,078 63,758 - 103,836
------------ ------------ ------------ ------------
Total 5,139,374 989,053 - 6,128,427
Accumulated provision for depreciation (2,288,080) (355,419) - (2,643,499)
Nuclear fuel - net 59,260 - - 59,260
------------ ------------ ------------ ------------
Net Utility Plant 2,910,554 633,634 - 3,544,188
Current Assets 517,724 102,427 - 620,151
Other Assets 890,646 52,300 (136,581) 806,365
------------ ------------ ------------ ------------
Total Assets $ 4,318,924 $ 788,361 $ (136,581) $ 4,970,704
============ ============ ============ ============
Liabilities and Equity
Capitalization
Common stock equity $ 1,696,565 $ 318,299 $ - $ 2,014,864
Cumulative preferred stock and premium 30,451 - - 30,451
Long-term debt 1,325,169 213,235 - 1,538,404
------------ ------------ ------------ ------------
Total Capitalization 3,052,185 531,534 - 3,583,719
Current Liabilities
Current portion of long-term debt 51,419 - - 51,419
Short-term debt 150,694 50,900 - 201,594
Other 222,571 51,324 - 273,895
------------ ------------ ------------ ------------
Total Current Liabilities 424,684 102,224 - 526,908
Other Liabilities 842,055 154,603 (136,581) 860,077
------------ ------------ ------------ ------------
Total Capitalization and Liabilities $ 4,318,924 $ 788,361 $ (136,581) $ 4,970,704
============ ============ ============ ============
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
* In connection with the Merger Agreement, WE will be renamed Wisconsin Energy Company.
- 91 -
</TABLE>
<PAGE> 92
<TABLE>
WISCONSIN ENERGY COMPANY *
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
12 MONTHS ENDED DECEMBER 31, 1995
(In thousands)
<CAPTION>
WE NSP-WI Pro Forma Pro Forma
As Reported As Reported Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $ 1,437,480 $ 380,724 $ - $ 1,818,204
Gas 318,262 78,058 - 396,320
Steam 14,742 - - 14,742
----------- ----------- ----------- -----------
Total Operating Revenues 1,770,484 458,782 - 2,229,266
Utility Operating Expenses
Electric production - fuel
and purchased power 345,387 178,446 - 523,833
Cost of gas sold
and transported 188,764 52,356 - 241,120
Other operation 395,242 79,472 - 474,714
Maintenance 112,400 20,780 - 133,180
Depreciation and amortization 183,876 33,059 - 216,935
Taxes other than income taxes 74,765 14,109 - 88,874
Income taxes 141,029 24,662 - 165,691
----------- ----------- ----------- -----------
Total Operating Expenses 1,441,463 402,884 - 1,844,347
----------- ----------- ----------- -----------
Utility Operating Income 329,021 55,898 - 384,919
Other Income (Expense) 21,272 2,421 - 23,693
----------- ----------- ----------- -----------
Income Before Interest Charges
and Preferred Dividends 350,293 58,319 - 408,612
Interest Charges 109,625 19,102 - 128,727
----------- ----------- ----------- -----------
Net Income 240,668 39,217 - 279,885
Preferred Dividend
Stock Requirement 1,203 - - 1,203
----------- ----------- ----------- -----------
Earnings Available
for Common Stockholder $ 239,465 $ 39,217 $ - $ 278,682
=========== =========== =========== ===========
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
* In connection with the Merger Agreement, WE will be renamed Wisconsin Energy Company.
Note: Earnings per share of common stock are not applicable because all of the Wisconsin Energy Company
common stock will be owned by Primergy.
- 92 -
</TABLE>
<PAGE> 93
WISCONSIN ENERGY COMPANY *
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The unaudited pro forma combined condensed financial statements reflect
the previously planned merger by WEC of WN into WE to form a single
combined utility subsidiary. Completion of the planned merger occurred on
January 1, 1996. WE's financial information has been restated to include
WN.
As previously reported, on April 28, 1995, WEC, WE's parent company, and
NSP entered into a Merger Agreement, which was amended and restated as of
July 26, 1995. The Merger Agreement provides for a strategic business
combination involving WEC and NSP in a "merger-of-equals" transaction. As
a result, WEC will become a registered public utility holding company
under the Public Utility Holding Company Act of 1935, as amended, and will
change its name to Primergy Corporation ("Primergy"). Primergy will be
the parent company of NSP, WE (which will be renamed Wisconsin Energy
Company) and the other subsidiaries of WEC and NSP. The business
combination is intended to be tax-free for income tax purposes and to be
accounted for as a "pooling of interests". Subject to obtaining all
requisite approvals, WEC and NSP anticipate completing this business
combination by January 1, 1997.
As part of this proposed merger, the unaudited pro forma combined
condensed financial statements reflect the merger of NSP-WI, currently a
wholly owned subsidiary of NSP, into Wisconsin Energy Company. Prior to
the merger of NSP-WI into Wisconsin Energy Company, New NSP will acquire
certain gas utility assets in LaCrosse and Hudson, Wisconsin from NSP-WI.
2. A pro forma adjustment has been made in the NSP-WI Unaudited Pro Forma
Condensed Balance Sheet at December 31, 1995 to reflect the sale at net
book value of the gas utility assets and liabilities of NSP-WI divisions
in LaCrosse and Hudson, Wisconsin to New NSP.
3. A pro forma adjustment has been made in the Wisconsin Energy Company
Unaudited Pro Forma Combined Condensed Balance Sheet at December 31, 1995
to conform the presentation of noncurrent deferred income taxes into one
net amount. All other financial statement presentation and accounting
policy differences are immaterial and have not been adjusted in the
unaudited pro forma combined condensed financial statements.
4. Unaudited pro forma income statement amounts for Wisconsin Energy Company
do not reflect the transfer of the LaCrosse and Hudson divisions by NSP-WI
to New NSP. The revenues related to those divisions for the twelve months
ended December 31, 1995 were $28,897,000. The amount of related expenses
has not been quantified.
5. Intercompany transactions (including purchased power and exchanged power
transactions) between WE and NSP-WI during the period presented were not
material and, accordingly, no pro forma adjustments were made to eliminate
such transactions.
* In connection with the Merger Agreement, WE will be renamed Wisconsin Energy
Company.
- 93 -
<PAGE> 94
WISCONSIN ENERGY COMPANY *
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Cont'd)
6. The allocation between NSP and WEC and their customers of the estimated
cost savings resulting from the transactions contemplated by the Merger
Agreement, net of the costs incurred to achieve such savings, will be
subject to regulatory review and approval. Cost savings resulting from
the proposed merger are estimated to be approximately $2 billion over a
10-year period, net of transaction costs (including fees for financial
advisors, attorneys, accountants, consultants, filings and printing) and
costs to achieve the savings of approximately $30 million and $122
million, respectively. None of these estimated cost savings, the costs to
achieve such savings, or transaction costs have been reflected in the
unaudited pro forma combined condensed financial statements.
* In connection with the Merger Agreement, WE will be renamed Wisconsin Energy
Company.
- 94 -
<PAGE> 95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WISCONSIN ELECTRIC POWER COMPANY
/s/R. A. Abdoo
By -------------------------------------
Date March 28, 1996 (R. A. Abdoo, Chairman of the Board
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/R. A. Abdoo
- --------------------------------------------------- March 28, 1996
(R. A. Abdoo, Chairman of the Board and
Chief Executive Officer and Director
- Principal Executive Officer)
/s/R. R. Grigg, Jr.
- --------------------------------------------------- March 28, 1996
(R. R. Grigg, Jr., President and Chief Operating
Officer and Director)
/s/D. K. Porter
- --------------------------------------------------- March 28, 1996
(D. K. Porter, Senior Vice President
and Director)
/s/C. H. Baker
- --------------------------------------------------- March 28, 1996
(C. H. Baker, Vice President and Chief Financial
Officer)
/s/A. K. Klisurich
- --------------------------------------------------- March 28, 1996
(A. K. Klisurich, Controller
- Principal Accounting Officer)
- 95 -
<PAGE> 96
Signature and Title Date
/s/J. F. Ahearne
- ---------------------------------------------------- March 28, 1996
(J. F. Ahearne, Director)
/s/J. F. Bergstrom
- ---------------------------------------------------- March 28, 1996
(J. F. Bergstrom, Director)
/s/R. A. Cornog
- ---------------------------------------------------- March 28, 1996
(R. A. Cornog, Director)
/s/G. B. Johnson
- ---------------------------------------------------- March 28, 1996
(G. B. Johnson, Director)
/s/F. P. Stratton
- ---------------------------------------------------- March 28, 1996
(F. P. Stratton, Jr., Director)
/s/J. G. Udell
- ---------------------------------------------------- March 28, 1996
(J. G. Udell, Director)
- 96 -
<PAGE> 97
Wisconsin Electric Power Company
EXHIBIT INDEX
-------------
1995 Annual Report on Form 10-K
For the Year Ended December 31, 1995
Exhibit
Number
- -------
The following Exhibits are filed with this report:
(3)-1 Bylaws of Wisconsin Electric Power Company ("WE"), as amended and
restated January 31, 1996.
(4)-1 Indenture for Debt Securities (the "Indenture") dated as of December 1,
1995.
(4)-2 Securities Resolution No. 1 under the Indenture dated December 5, 1995.
(23)-1 Price Waterhouse LLP - Milwaukee, WI Consent of Independent Accountants
appearing on page 87 of this Annual Report on Form 10-K for the year
ended December 31, 1995.
(23)-2 Consent of Price Waterhouse LLP - Minneapolis, MN, Northern States
Power Company - Wisconsin's ("NSP-WI") Independent Accountants.
(23)-3 Consent of Deloitte & Touche LLP - Minneapolis, MN, NSP-WI's
Independent Auditors prior to 1995.
(27)-1 WE Financial Data Schedule for the fiscal year ended December 31, 1995.
In addition to those Exhibits shown above, which are filed herewith, WE hereby
incorporates the following Exhibits pursuant to Exchange Act Rule 12b-32 and
Regulation Section 201.24 by reference to the filings set forth below:
(2)-1 Amended and Restated Agreement and Plan of Merger, dated as of
April 28, 1995, as amended and restated as of July 26, 1995, by and
among Northern States Power Company ("NSP"), Wisconsin Energy
Corporation ("WEC"), Northern Power Wisconsin Corp. ("New NSP") and
WEC Sub Corp. (Exhibit (2)-1 to WEC's Registration Statement on
Form S-4 filed on August 7, 1995, Registration No. 33-61619
("Form S-4, No. 33-61619"); other related documents are also filed as
exhibits to such Registration Statement.)
(2)-2 WEC Stock Option Agreement, dated as of April 28, 1995, by and among
NSP and WEC. (Exhibit (2)-2 to Form S-4, No. 33-61619.)
(2)-3 NSP Stock Option Agreement, dated as of April 28, 1995, by and among
WEC and NSP. (Exhibit (2)-3 to Form S-4, No. 33-61619.)
(2)-4 Committees of the Board of Directors of Primergy Corporation
("Primergy"). (Exhibit (2)-4 to Form S-4, No. 33-61619.)
(2)-5 Form of Employment Agreement between Primergy and James J. Howard.
(Exhibit (2)-5 to Form S-4, No. 33-61619.)
- 97 -
<PAGE> 98
Exhibit
Number
- -------
(2)-6 Form of Employment Agreement between Primergy and Richard A. Abdoo.
(Exhibit (2)-6 to Form S-4, No. 33-61619.)
(2)-7 Form of Amended and Restated Articles of Incorporation of New NSP.
(Exhibit 3-3 (b) to Form S-4, No. 33-61619.)
(2)-8 Letter Agreement, dated January 17, 1995, between NSP and WEC.
(Exhibit (2)-8 to WEC's Schedule 13D dated May 4, 1995 with respect
to the NSP Stock Option Agreement.)
(2)-9 Letter Agreement, dated April 26, 1995, between NSP and WEC amending
Letter Agreement dated January 17, 1995. (Exhibit (2)-9 to WEC's
Schedule 13D dated May 4, 1995 with respect to the NSP Stock Option
Agreement.)
(2)-10 Plan and Agreement of Merger, dated June 30, 1994, by and between WE
and Wisconsin Natural Gas Company ("WN"). (Appendix A to WE's Proxy
Statement dated October 31, 1994, in File No. 1-1245.)
(3)-2 Restated Articles of Incorporation of WE, as amended and restated
effective January 10, 1995. (Exhibit (3)-1 to WE's Annual Report on
Form 10-K for the year ended December 31, 1994, File No. 1-1245.)
(4)-3 Reference is made to Article III of the Restated Articles of
Incorporation of WE. (Exhibit (3)-2 herein.)
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
(4)- 4 Mortgage and Wisconsin 10/28/38 B-1 2-4340
Deed of Trust Electric
("WE")
5 Second WE 6/1/46 7-C 2-6422
6 Third WE 3/1/49 7-C 2-8456
7 Fourth WE 6/1/50 7-D 2-8456
8 Fifth WE 5/1/52 4-G 2-9588
9 Sixth WE 5/1/54 4-H 2-10846
10 Seventh WE 4/15/56 4-I 2-12400
11 Eighth WE 4/1/58 2-I 2-13937
12 Ninth WE 11/15/60 2-J 2-17087
13 Tenth WE 11/1/66 2-K 2-25593
14 Eleventh WE 11/15/67 2-L 2-27504
15 Twelfth WE 5/15/68 2-M 2-28799
16 Thirteenth WE 5/15/69 2-N 2-32629
17 Fourteenth WE 11/1/69 2-O 2-34942
18 Fifteenth WE 7/15/76 2-P 2-54211
19 Sixteenth WE 1/1/78 2-Q 2-61220
20 Seventeenth WE 5/1/78 2-R 2-61220
21 Eighteenth WE 5/15/78 2-S 2-61220
- 98 -
<PAGE> 99
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
22 Nineteenth WE 8/1/79 (a)2(a) 1-1245 (9/30/79
WE Form 10-Q)
23 Twentieth WE 11/15/79 (a)2(a) 1-1245 (12/31/79
WE Form 10-K)
24 Twenty-First WE 4/15/80 (4)-21 2-69488
25 Twenty-Second WE 12/1/80 (4)-1 1-1245 (12/31/80
WE Form 10-K)
26 Twenty-Third WE 9/15/85 (4)-1 1-1245 (9/30/85
WE Form 10-Q)
27 Twenty-Four WE 9/15/85 (4)-1 1-1245 (9/30/85
WE Form 10-Q)
28 Twenty-Fifth WE 12/15/86 (4)-25 1-1245 (12/31/86
WE Form 10-K)
29 Twenty-Sixth WE 1/15/88 4 1-1245 (1/26/88
Form 8-K)
30 Twenty-Seventh WE 4/15/88 4 1-1245 (3/31/88
Form 10-Q)
31 Twenty-Eighth WE 9/1/89 4 1-1245 (9/30/89
WE Form 10-Q)
32 Twenty-Ninth WE 10/1/91 4-1 1-1245 (12/31/91
WE Form 10-K)
33 Thirtieth WE 12/1/91 4-2 1-1245 (12/31/91
WE Form 10-K)
34 Thirty-First WE 8/1/92 4-1 1-1245 (6/30/92
WE Form 10-Q)
35 Thirty-Second WE 8/1/92 4-2 1-1245 (6/30/92
WE Form 10-Q)
36 Thirty-Third WE 10/1/92 4-1 1-1245 (9/30/92
WE Form 10-Q)
37 Thirty-Fourth WE 11/1/92 4-2 1-1245 (9/30/92
WE Form 10-Q)
38 Thirty-Fifth WE 12/15/92 4-1 1-1245 (12/31/92
WE Form 10-K)
39 Thirty-Sixth WE 1/15/93 4-2 1-1245 (12/31/92
WE Form 10-K)
40 Thirty-Seventh WE 3/15/93 4-3 1-1245 (12/31/92
WE Form 10-K)
41 Thirty-Eighth WE 8/01/93 (4)-1 1-1245 (6/30/93
WE Form 10-Q)
42 Thirty-Ninth WE 9/15/93 (4)-1 1-1245 (9/30/93
WE Form 10-Q)
43 Fortieth WE 1/01/96 (4)-1 1-1245 (1/1/96
WE Form 8-K)
All agreements and instruments with respect to long-term debt not
exceeding 10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis have been omitted as permitted
by related instructions. The Registrant agrees pursuant to Item
601(b)(4) of Regulation S-K to furnish to the Securities and Exchange
Commission, upon request, a copy of all such agreements and
instruments.
- 99 -
<PAGE> 100
Exhibit
Number
- -------
(10)-1 Amended Non-Qualified Trust Agreement by and between WEC and Firstar
Trust Company dated January 26, 1996, regarding trust established to
provide a source of funds to assist in meeting of the liabilities under
various nonqualified deferred compensation plans made between WEC or
its subsidiaries and various plan participants. (Exhibit (10)-2 to
WEC's Annual Report on Form 10-K for the year ended December 31, 1995,
File No. 1-9057.) *
(10)-2 Supplemental Benefits Agreement between WEC and Richard A. Abdoo dated
November 21, 1994, and April 26, 1995 letter agreement.
(Exhibit (10)-1 to WEC's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, File No. 1-9057. ("WEC's 6/30/95 10-Q")) *
(10)-3 WEC Senior Executive Severance Policy, as adopted effective
April 28, 1995 and amended on July 26, 1995. (Exhibit (10)-3 to
WEC's 6/30/95 10-Q.) *
(10)-4 Service Agreement dated January 1, 1987, between WE, WEC and other
non-utility affiliated companies. (Exhibit (10)-(a) to WE's Current
Report on Form 8-K dated January 2, 1987 in File No. 1-1245.)
(99)-1 Wisconsin Energy Company unaudited pro forma combined condensed
statements of income for each of the three years in the period ended
December 31, 1994. (Included in WE's Current Report on Form 8-K dated
as of August 25, 1995, File No. 1-1245.)
(99)-2 Audited Financial Statements of NSP-WI. (Item 8 of NSP-WI's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, File
No. 10-3140):
Report of Independent Accountants.
Independent Auditor's Report for years prior to 1995.
Statements of Income and Retained Earnings for the three years ended
December 31, 1995.
Statements of Cash Flows for the three years ended December 31, 1995.
Balance Sheets at December 31, 1995 and 1994.
Notes to Financial Statements.
- ---------------------------
* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
Certain compensatory plans in which directors or executive officers of
the Registrant are eligible to participate are not filed in reliance
on the exclusion in Item 601(b)(10)(iii)(B)(6) of Regulation S-K.
- 100 -
<PAGE> 1
Exhibit (3)-1
BYLAWS
of
WISCONSIN ELECTRIC POWER COMPANY
As Amended and Restated
January 31, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I. STOCKHOLDERS.............................................. 1
1.01 Annual Meeting....................................................... 1
1.02 Special Meetings..................................................... 1
1.03 Place of Meetings; Postponements and Adjournments.................... 1
1.04 Notices to Stockholders.............................................. 1
(a) Required Notice.................................................. 1
(b) Fundamental Transactions......................................... 2
1.05 Fixing of Record Date................................................ 2
1.06 Quorum and Voting Requirements....................................... 2
1.07 Conduct of Meetings.................................................. 3
1.08 Voting at Meetings................................................... 3
(a) Proxies; Balloting and Inspectors of Election.................... 3
(b) Proxies Upon Accrual of Special Right............................ 3
1.09 Stockholder Unanimous Consent Without a Meeting...................... 3
1.10 Stockholder Waiver of Notice......................................... 4
1.11 Notice of Stockholder Nomination(s) and/or Proposal(s)............... 4
ARTICLE II. BOARD OF DIRECTORS....................................... 5
2.01 Number............................................................... 5
2.02 Term of Office....................................................... 5
2.03 Election and Tenure.................................................. 5
2.04 Removal.............................................................. 6
2.05 Vacancies............................................................ 6
2.06 Regular Meetings..................................................... 6
2.07 Special Meetings..................................................... 6
2.08 Meetings by Telephone or Other Communication Technology.............. 6
2.09 Notice of Meetings................................................... 7
2.10 Quorum............................................................... 7
2.11 Manner of Acting..................................................... 7
2.12 Committees........................................................... 7
2.13 Compensation......................................................... 8
2.14 Presumption of Assent................................................ 8
2.15 Director Unanimous Consent Without a Meeting......................... 8
ARTICLE III. OFFICERS................................................ 9
3.01 Positions............................................................ 9
3.02 Resignation and Removal.............................................. 9
3.03 Vacancies............................................................ 9
3.04 Powers and Duties.................................................... 9
ARTICLE IV. CERTIFICATES FOR SHARES AND THEIR TRANSFER............... 9
4.01 Stock Certificates and Facsimile Signatures.......................... 9
4.02 Transfer of Stock.................................................... 10
4.03 Lost, Destroyed or Stolen Certificates............................... 10
4.04 Shares Without Certificates.......................................... 10
ARTICLE V. INDEMNIFICATION........................................... 11
5.01 Mandatory Indemnification............................................ 11
5.02 Certain Definitions.................................................. 11
5.03 Legal Enforceability................................................. 11
5.04 Limitation on Modification or Termination............................ 11
5.05 Non-Exclusive Bylaw.................................................. 11
ARTICLE VI. OTHER INDEMNIFICATION PROVISIONS......................... 12
6.01 Indemnification for Successful Defense............................... 12
6.02 Other Indemnification................................................ 12
6.03 Written Request...................................................... 12
6.04 Nonduplication....................................................... 12
6.05 Determination of Right to Indemnification............................ 12
-i-
<PAGE> 3
6.06 Advance of Expenses.................................................. 13
6.07 Limitations on Indemnification....................................... 14
6.08 Court-Ordered Indemnification........................................ 14
6.09 Indemnification and Allowance of Expenses of Employees and Agents.... 14
6.10 Insurance............................................................ 15
6.11 Securities Law Claims................................................ 15
6.12 Liberal Construction................................................. 15
ARTICLE VII. CONTRACTS, CHECKS, NOTES, BONDS, ETC.................... 15
7.01 Contracts............................................................ 15
7.02 Checks, Drafts, Etc.................................................. 15
ARTICLE VIII. FISCAL YEAR............................................ 16
ARTICLE IX. CORPORATE SEAL........................................... 16
ARTICLE X. EFFECT OF HEADINGS........................................ 16
ARTICLE XI. AMENDMENTS............................................... 16
11.01 By Stockholders...................................................... 16
11.02 By Directors......................................................... 16
11.03 Implied Amendments................................................... 17
11.04 Certain Voting Requirements Preserved................................ 17
-ii-
<PAGE> 4
ARTICLE I.
STOCKHOLDERS
1.01. Annual Meeting. The annual meeting of the stockholders of the
corporation shall be held each year on the first business day of June, or on
such earlier or later date and at the time designated by or under the
authority of the Board of Directors, the Chairman of the Board, the President
or the Secretary, for the purpose of electing directors and for the
transaction of such other business as may properly come before the meeting.
1.02. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by the Wisconsin Business
Corporation Law, may be called by the Chairman of the Board, the President or
a majority of the Board of Directors, or in case the meeting is for the
purpose of enabling the holders of the Six Per Cent Preferred Stock, the $100
Par Value Serial Preferred Stock and the $25 Par Value Serial Preferred Stock
(hereinafter together called the "Preferred Stocks") to elect directors of the
corporation, upon the conditions set forth in the Articles of Incorporation,
then, upon call as therein provided. [Old Bylaw I, Section 2.] If and as
required by the Wisconsin Business Corporation Law, a special meeting shall be
called upon written demand describing one or more purposes for which it is to
be held by holders of shares with at least 10% of the votes entitled to be
cast on any issue proposed to be considered at the meeting. The time and
purpose or purposes of any special meeting shall be described in the notice
required by Section 1.04 of these Bylaws and only business within the
purpose(s) described in such notice shall be conducted at such meeting.
1.03. Place of Meetings; Postponements and Adjournments. The Board of
Directors, the Chairman of the Board, the President or the Secretary may
designate any place, either within or without the State of Wisconsin, as the
place of meeting for any annual meeting or any special meeting, including any
adjourned meeting. The Board of Directors, the Chairman of the Board, the
President or the Secretary may postpone any previously scheduled annual
meeting or special meeting by giving public notice of the postponed meeting
date at any time prior to the scheduled meeting date. If no designation is
made, the place of meeting shall be the principal office of the corporation.
Any meeting may be adjourned from time to time, whether or not a quorum is
present, by the chairperson of the meeting or by vote of a majority of the
votes entitled to be cast by the shares represented thereat.
1.04. Notices to Stockholders.
(a) Required Notice. Notice may be communicated by mail, private
carrier, or any other means permissible under Wisconsin law. Written notice
stating the scheduled place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is called,
shall be communicated or sent not less than ten (10) days, unless a longer
period is required by the Wisconsin Business Corporation Law or the Articles
of Incorporation, nor more than ninety (90) days, unless a longer period is
permitted or a shorter period is required by the Wisconsin Business
Corporation Law, before the date of the meeting, by or at the direction of the
Chairman of the Board, the President or the Secretary, to each stockholder of
record entitled to vote at such meeting or, for the fundamental transactions
described in subsections (b)(1) to (4) below, for which the Wisconsin Business
Corporation Law requires that notice be given to stockholders not entitled to
vote, to all stockholders of record. At least twenty (20) days' notice shall
be provided if the purpose, or one of the purposes, of the meeting is to
consider a plan of merger or share exchange for which stockholder approval is
-1-
<PAGE> 5
required by law, or the sale, lease, exchange or other disposition of all or
substantially all of the corporation's property, with or without good will,
otherwise than in the usual and regular course of business. A stockholder may
waive notice in accordance with Section 1.10 of these Bylaws.
(b) Fundamental Transactions. If a purpose of any stockholder meeting
is to consider either: (1) a proposed amendment to the Articles of
Incorporation (including any restated articles); (2) a plan of merger or share
exchange for which stockholder approval is required by law; (3) the sale,
lease, exchange or other disposition of all or substantially all of the
corporation's property, with or without good will, otherwise than in the usual
and regular course of business; (4) the dissolution of the corporation; or
(5) the removal of a director, the notice must so state and in cases (1),
(2) and (3) above must be accompanied by, respectively, a copy or summary of
the: (1) proposed articles of amendment or a copy of the restated articles
that identifies any amendment or other change; (2) proposed plan of merger or
share exchange; or (3) proposed transaction for disposition of all or
substantially all of the corporation's property. If the proposed corporate
action creates dissenters' rights, the notice must state that stockholders and
beneficial stockholders are or may be entitled to assert dissenters' rights,
and must be accompanied by a copy of Sections 180.1301 to 180.1331 (or
successor provisions) of the Wisconsin Business Corporation Law.
1.05. Fixing of Record Date. The Board of Directors, or any officer
authorized by the Board of Directors, may fix in advance a date as the record
date for one or more voting groups for any determination of stockholders
entitled to notice of a stockholders' meeting, to demand a special meeting, to
vote, or to take any other action, such date in any case to be not more than
seventy (70) days and, in case of a meeting of stockholders, dividend or stock
split, not less than ten (10) days prior to the meeting or action requiring
such determination of stockholders, and may fix the record date for
determining stockholders entitled to a share dividend or distribution. If
within thirty (30) days after the corporation receives one or more written
demands for a special stockholder meeting that purport to satisfy the
requirements of Section 180.0702(1)(b) of the Wisconsin Business Corporation
Law (or any successor provision) no record date has been fixed pursuant to the
first sentence of this Section 1.05 for the determination of stockholders
entitled to demand such a stockholder meeting, the record date for determining
stockholders entitled to demand such meeting shall be the date that the first
stockholder signed the demand. If no record date has been fixed pursuant to
the first sentence of this Section 1.05 for the determination of stockholders
entitled (A) to notice of or to vote at a meeting of stockholders prior to the
time that notice of the meeting is mailed or otherwise delivered to
stockholders, or (B) to consent to action without a meeting within thirty (30)
days after the corporation receives the first written consent to stockholder
action without a meeting, (a) the close of business on the day before the
first notice of the meeting is mailed or otherwise delivered to stockholders
or (b) the date that the first stockholder signed the first written consent to
stockholder action without a meeting, respectively, shall be the record date
for the determination of such stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall be applied to any
postponement or adjournment thereof unless the Board of Directors fixes a new
record date and except as otherwise required by law. A new record date must
be set if a meeting is postponed or adjourned to a date more than 120 days
after the date fixed for the original meeting.
1.06. Quorum and Voting Requirements. Except as otherwise provided in
the Articles of Incorporation or in the Wisconsin Business Corporation Law, a
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majority of the votes entitled to be cast by shares entitled to vote as a
separate voting group on a matter, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter at a
meeting of stockholders. If a quorum exists, action on a matter, other than
the election of directors, by a voting group is approved if the votes cast
within the voting group favoring the action exceed the votes cast opposing the
action unless a greater number of affirmative votes is required by the
Wisconsin Business Corporation Law, the Articles of Incorporation, or any
other provision of these Bylaws. If the Articles of Incorporation or the
Wisconsin Business Corporation Law provide for voting by two (2) or more
classes or voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately.
1.07. Conduct of Meetings. The Chairman of the Board, or in his
absence or at his request, the President, and in the President's absence, a
Vice President, and in their absence, any person chosen by the stockholders
present shall call the meeting of the stockholders to order and shall act as
chairperson of the meeting, and the Secretary shall act as secretary of all
meetings of the stockholders, but, in the absence of the Secretary, the
chairperson of the meeting may appoint any other person to act as secretary of
the meeting.
1.08. Voting at Meetings.
(a) Proxies; Balloting and Inspectors of Election. At all meetings of
stockholders, a stockholder entitled to vote may vote in person or by proxy
appointed in writing by the stockholder or by his or her duly authorized
attorney-in-fact. Voting at meetings of stockholders need not be by written
ballot unless so determined by the Board of Directors, the Chairman of the
Board, the President or the Secretary. Voting at meetings of stockholders
shall be conducted by one or more inspectors of election appointed by the
Board of Directors, the Chairman of the Board, the President or the Secretary.
However, no director or person who is a candidate for the office of director
shall be appointed as such inspector. The inspectors, or persons representing
the inspector if the inspector is an institution, before entering upon the
discharge of their duties, shall take and subscribe an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of their ability.
(b) Proxies Upon Accrual of Special Right. In connection with the
first election of a majority of the members of the Board of Directors by the
holders of the Preferred Stocks upon accrual of the special right of such
holders to elect a majority of the members of the Board, as provided in
Article III of the Articles of Incorporation, the corporation shall prepare
and mail to such holders of record such proxy forms, communications and
documents as may be deemed appropriate (and also such as may be required by
any governmental authority having jurisdiction) for the purpose of soliciting
proxies for the election of directors by such holders, voting separately as a
class without regard to series. [Old Bylaw I, Section 5D.]
1.09. Stockholder Unanimous Consent Without a Meeting. Any action
required by the Articles of Incorporation, Bylaws or any provision of law to
be taken at a meeting of stockholders or any other action which may be taken
at such a meeting may be taken without a meeting if consent in writing setting
forth the action so taken shall be signed by all of the stockholders entitled
to vote with respect to the subject matter thereof and such consent shall have
the same force and effect as a unanimous vote.
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1.10. Stockholder Waiver of Notice. A stockholder may waive any
notice required by the Wisconsin Business Corporation Law, the Articles of
Incorporation or these Bylaws before or after the date and time stated in the
notice. The waiver shall be in writing and signed by the stockholder entitled
to the notice, shall contain the same information that would have been
required in the notice under the Wisconsin Business Corporation Law except
that the time and place of meeting need not be stated, and shall be delivered
to the corporation for inclusion in the corporate records. A stockholder's
attendance at a meeting, in person or by proxy, waives objection to both of
the following:
(a) Lack of notice or defective notice of the meeting, unless the
stockholder at the beginning of the meeting or promptly upon arrival
objects to holding the meeting or transacting business at the meeting.
(b) Consideration of a particular matter at the meeting that is
not within the purpose described in the meeting notice, unless the
stockholder objects to considering the matter when it is presented.
1.11. Notice of Stockholder Nomination(s) and/or Proposal(s). Except
with respect to nomination(s) or proposal(s) adopted or recommended by the
Board of Directors for inclusion in the corporation's proxy statement for its
annual meeting, a stockholder entitled to vote at a meeting may nominate a
person or persons for election as director(s) or propose action(s) to be taken
at a meeting only if written notice of any stockholder nomination(s) and/or
proposal(s) to be considered for a vote at an annual meeting of stockholders
is delivered personally or mailed by Certified Mail-Return Receipt Requested
at least seventy (70) days and not more than one hundred (100) days before the
scheduled date of such meeting to the Secretary of the corporation at the
principal business office of the corporation. With respect to stockholder
nomination(s) for the election of directors each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination(s), of any beneficial owner of shares on whose behalf such
nomination is being made and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting (including the number of shares
the stockholder owns as of the record date (or as of the most recent
practicable date if no record date has been set) and the length of time the
shares have been held) and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements and understandings between the stockholder or
any beneficial holder on whose behalf it holds such shares, and their
respective affiliates, and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission (whether or not such rules are
applicable) had each nominee been nominated, or intended to be nominated, by
the Board of Directors; and (e) the consent of each nominee to serve as a
director of the corporation if so elected. With respect to stockholder
proposal(s) for action(s) to be taken at an annual meeting of stockholders,
the notice shall clearly set forth: (a) the name and address of the
stockholder who intends to make the proposal(s); (b) a representation that the
stockholder is a holder of record of the stock of the corporation entitled to
vote at the meeting (including the number of shares the stockholder owns as of
the record date (or as of the most recent practicable date if no record date
has been set) and the length of time the shares have been held) and intends to
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appear in person or by proxy to make the proposal(s) specified in the notice;
(c) the proposal(s) and a brief supporting statement of such proposal(s); and
(d) such other information regarding the proposal(s) as would have been
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission (whether or not such rules are
applicable).
Except with respect to nomination(s) or proposal(s) adopted or
recommended by the Board of Directors for inclusion in the notice to
stockholders for a special meeting of stockholders, a stockholder entitled to
vote at a special meeting may nominate a person or persons for election as
director(s) and/or propose action(s) to be taken at a meeting only if written
notice of any stockholder nomination(s) and/or proposal(s) to be considered
for a vote at a special meeting is delivered personally or mailed by Certified
Mail-Return Receipt Requested to the Secretary of the corporation at the
principal business office of the corporation so that it is received in a
reasonable period of time before such special meeting and only if such
nomination or proposal is within the purposes described in the notice to
stockholders of the special meeting. All other notice requirements regarding
stockholder nomination(s) and/or proposal(s) applicable to annual meetings
also apply to nomination(s) and/or proposal(s) for special meetings.
The chairperson of the meeting may refuse to acknowledge the
nomination(s) and/or proposal(s) of any person made without compliance with
the foregoing procedures. This section shall not affect the corporation's
rights or responsibilities with respect to its proxies or proxy statement for
any meeting.
ARTICLE II.
BOARD OF DIRECTORS
2.01. Number. The number of directors constituting the whole Board of
Directors shall be such number as shall be fixed from time to time by the
affirmative vote of the whole Board but in no event shall the number be less
than three. The number of directors at any time constituting the whole Board
shall not be reduced so as to shorten the term of any director then in office.
Directors need not be stockholders of the corporation.
2.02. Term of Office. The directors shall hold office until the next
annual meeting of stockholders at which their respective terms of office shall
expire and until their respective successors are duly elected and qualified,
unless their term of office shall be sooner terminated as provided in the
Articles of Incorporation in connection with the accrual of the special right
of the holders of the Preferred Stocks to elect a majority of the members of
the Board of Directors in the event of certain dividend defaults. [Art.
III.C.(6)(b) of Restated Articles]
2.03. Election and Tenure. Unless action is taken without a meeting
under these Bylaws, directors shall be elected by a plurality of the votes
cast by the shares entitled to vote in the election at a stockholders meeting
at which a quorum is present. Each director shall hold office until the end
of such director's term and until such director's successor has been elected,
or until such director's prior death, resignation or removal. A director may
resign at any time by filing a written resignation with the Secretary of the
corporation.
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2.04. Removal. Subject to the remainder of this Section 2.04, the
shareholders may remove one or more directors from office as provided in the
Wisconsin Business Corporation Law. During any continuance of the special
right of the holders of the Preferred Stocks to elect a majority of the
members of the Board, as provided in Article III of the Articles of
Incorporation, at any meeting of the stockholders, the holders of a majority
of the votes entitled to be cast by shares of the Preferred Stocks of the
corporation, voting separately as a class without regard to series, may remove
any director theretofore elected by the holders of the Preferred Stocks or
elected by the Board to fill a vacancy among the directors elected by the
holders of the Preferred Stocks, and may fill any vacancy in the Board for the
unexpired term thus caused; and the holders of a majority of the votes
entitled to be cast by the shares of Common Stock of the corporation, voting
separately as a class, may remove any director theretofore elected by the
Common stockholders or elected by the Board to fill a vacancy among the
directors elected by the Common stockholders, and may fill the vacancy in the
Board for the unexpired term thus caused. [Old Bylaw II, Section 2, 2nd
Paragraph.]
2.05. Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by the stockholders or the Board of Directors. If the directors
remaining in office constitute fewer than a quorum of the Board, the directors
may fill a vacancy by the affirmative vote of a majority of all directors
remaining in office. Each director so elected shall hold office for a term
expiring at the next annual stockholders' meeting. However, if the vacant
office was held by a director elected by the holders of the Preferred Stocks
or by the holders of the Common Stock, only the holders of shares of that
voting group may vote to fill the vacancy if it is filled by the shareholders,
and only the remaining directors elected by that voting group may vote to fill
the vacancy if it is filled by the directors. [WBCL Section 180.0810(2),
replacing Old Bylaw II, Section 2, 1st Paragraph.]
2.06. Regular Meetings. Regular meetings of the Board of Directors
and any committee thereof shall be held at such time and place, either within
or without the State of Wisconsin, as may from time to time be fixed by the
Board or such committee without other notice than the schedule prepared by the
Secretary or the resolution or other action of the Board or committee
establishing the time and place of such regular meetings.
2.07. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Board of Directors, the Executive
Committee, the Chairman of the Board, the President, any committee designated
by the Board with specific authority to do such or any two (2) directors.
Special meetings of any committee may be called by or at the request of the
foregoing persons or the chairman of the committee. The persons calling any
special meeting of the Board of Directors or committee may fix any place,
either within or without the State of Wisconsin, as the place for holding any
special meeting called by them, and if no other place is fixed the place of
meeting shall be the principal business office of the corporation.
2.08. Meetings by Telephone or Other Communication Technology.
(a) Any or all directors may participate in a regular or special meeting of
the Board of Directors or in a committee meeting by, or conduct the meeting
through the use of, telephone or any other means of communication by which
either: (i) all participating directors may simultaneously hear each other
during the meeting or (ii) all communication during the meeting is immediately
transmitted to each participating director, and each participating director is
able to immediately send messages to all other participating directors.
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(b) If a meeting will be conducted through the use of any means
described in paragraph (a), all participating directors shall be informed that
a meeting is taking place at which official business may be transacted. A
director participating in a meeting by any means described in paragraph (a) is
deemed to be present in person at the meeting.
2.09. Notice of Meetings. Notice of each meeting of the Board of
Directors (unless otherwise provided in or pursuant to Section 2.06 of these
Bylaws) shall be given by written notice delivered personally or mailed or
given by telephone or telegram to each director at his business address or at
such other address as such director shall have designated in writing filed
with the Secretary, in each case not less than 6 hours prior thereto. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company; if by telephone, at the time
the call is completed. Whenever any notice whatever is required to be given
to any director of the corporation under the Articles of Incorporation, Bylaws
or any provision of law, a waiver thereof in writing, signed at any time,
whether before or after the time of meeting, by the director entitled to such
notice, shall be deemed equivalent to the giving of such notice. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting and objects thereat to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice or
waiver of notice of such meeting.
2.10. Quorum. Except as otherwise provided by the Wisconsin Business
Corporation Law or these Bylaws, a majority of the number of directors as
provided in or pursuant to Section 2.01 shall constitute a quorum of the Board
of Directors, and a majority of the number of directors appointed to serve on
a committee shall constitute a quorum of the committee. If at any meeting of
the Board of Directors or any committee thereof there shall be less than a
quorum present, a majority of the directors present may adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall have been obtained, when any business may be transacted
which might have been transacted at the meeting as first convened had there
been a quorum.
2.11. Manner of Acting. The affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors or any committee thereof unless the affirmative vote
of a greater number is otherwise required by the Wisconsin Business
Corporation Law, the Articles of Incorporation, the Bylaws or any provision of
law.
2.12. Committees. The Board of Directors, by resolution adopted by
the affirmative vote of a majority of all the directors then in office, may
create one or more committees, each committee to consist of two (2) or more
directors appointed by the Board of Directors to serve as members of the
committee, which to the extent provided in the resolution as initially
adopted, and as thereafter supplemented or amended by further resolution
adopted by a like vote, may exercise the authority of the Board of Directors.
Notwithstanding the foregoing, no committee may: (a) authorize distributions;
(b) approve or propose to stockholders action that the Wisconsin Business
Corporation Law requires be approved by stockholders; (c) fill vacancies on
the Board of Directors or any of its committees, except that the Board of
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Directors may provide by resolution that any vacancies on a committee shall be
filled by the affirmative vote of a majority of the remaining committee
members; (d) amend the Articles of Incorporation; (e) adopt, amend or repeal
Bylaws; (f) approve a plan of merger not requiring stockholder approval;
(g) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors; or (h) authorize or
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except within limits prescribed by the Board of Directors.
Unless otherwise provided by the Board of Directors, members of any
committee shall serve at the pleasure of the Board of Directors. The Board of
Directors may elect one or more of its members as alternate members of any
such committee who may take the place of any absent member or members at any
meeting of such committee, upon request by the Chairman of the Board or upon
request by the chairperson of such meeting. Each such committee shall fix its
own rules (consistent with the Wisconsin Business Corporation Law, the
Articles of Incorporation and these Bylaws) governing the conduct of its
activities and shall make such reports to the Board of Directors of its
activities as the Board of Directors may request. Unless otherwise provided
by the Board of Directors in creating a committee, a committee may employ
counsel, accountants and other consultants to assist it in the exercise of
authority.
The provisions of Section 2.09 shall also apply to notice and waiver of
notice of meetings of any committee of the Board of Directors.
2.13. Compensation. The Board of Directors, by affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, may (a) establish reasonable compensation of
all directors for services to the corporation as directors, officers or
otherwise, and the manner and time and payment thereof, (b) provide for
reasonable pensions, disability or death benefits, and other benefits or
payments, to directors, officers and employees and to their estates, families,
dependents or beneficiaries on account of prior services rendered by such
directors, officers and employees to the corporation, and (c) provide for
reimbursement of reasonable expenses incurred in the performance of directors'
duties.
2.14. Presumption of Assent. A director who is present and is
announced as present at a meeting of the Board of Directors or a committee
thereof at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless (a) the director objects at the
beginning of the meeting or promptly upon his or her arrival to holding the
meeting or transacting business at the meeting, or (b) the director's dissent
or abstention from the action taken is entered in the minutes of the meeting,
or (c) the director delivers his or her written notice of dissent or
abstention to the presiding officer of the meeting before the adjournment
thereof or to the corporation immediately after the adjournment of the
meeting, or (d) the director dissents or abstains from an action taken,
minutes of the meeting are prepared that fail to show the director's dissent
or abstention and the director delivers to the corporation a written notice of
that failure promptly after receiving the minutes. Such right to dissent or
abstain shall not apply to a director who voted in favor of an action.
2.15. Director Unanimous Consent Without a Meeting. Any action
required or permitted by the Articles of Incorporation, these Bylaws or any
provision of law to be taken at a Board of Directors meeting or committee
meeting may be taken without a meeting if the action is taken by all members
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of the Board or committee. The action shall be evidenced by one or more
written consents describing the action taken, signed by each director and
retained by the corporation. Action taken hereunder is effective when the
last director signs the consent, unless the consent specifies a different
effective date. A consent signed hereunder has the effect of a unanimous vote
taken at a meeting at which all directors or committee members were present,
and may be described as such in any document.
ARTICLE III.
OFFICERS
3.01. Positions. The officers of the corporation shall include a
Chairman of the Board, a President, the number of Vice Presidents provided for
by the Board of Directors, a Treasurer, and a Secretary, each of whom shall be
appointed by the Board of Directors. The Board of Directors shall also
designate a Chief Executive Officer, a Chief Operating Officer and a Chief
Financial Officer. Such other officers and assistant officers as may be
deemed necessary may be appointed by the Board of Directors. Any two or more
offices may be held by the same person.
3.02. Resignation and Removal. An officer shall hold office until he
or she resigns, dies, is removed hereunder, or a different person is appointed
to the office. An officer may resign at any time by delivering an appropriate
written notice to the corporation. The resignation is effective when the
notice is delivered, unless the notice specifies a later effective date and
the corporation accepts the later effective date. Any officer may be removed
from office by the affirmative vote of a majority of the whole Board of
Directors at any time, with or without cause and notwithstanding the contract
rights, if any, of the person removed. Except as provided in the preceding
sentence, the resignation or removal is subject to any remedies provided by
any contract between the officer and the corporation or otherwise provided by
law. Appointment shall not of itself create contract rights.
3.03. Vacancies. A vacancy in any office because of death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
The Board of Directors may, from time to time, omit to elect one or more
officers or may omit to fill a vacancy, and in such case, the designated
duties of such officer, unless otherwise provided in these Bylaws, shall be
discharged by the Chief Executive Officer or such other officers as he or she
may designate.
3.04. Powers and Duties. Subject to such limitations as the Board of
Directors may from time to time prescribe, the officers of the corporation
shall each have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be conferred by the Chief Executive Officer or the Board of Directors. The
Treasurer and the Assistant Treasurers may be required to give bond for the
faithful discharge of their duties, in such sum and of such character as the
Board of Directors may from time to time prescribe.
ARTICLE IV.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
4.01. Stock Certificates and Facsimile Signatures. The certificates
for shares of stock of the corporation shall be signed either manually or by
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facsimile signature by the Chief Executive Officer, the President or a Vice
President, and by the Secretary or an Assistant Secretary of the corporation,
or any other officer or officers that the Board of Directors designates, and
may be sealed with the seal of the corporation.
The certificates for shares shall be countersigned and registered either
manually or by facsimile signature in such manner, if any, as the Board of
Directors may from time to time prescribe. The transfer agent and the
registrar may, but need not be, the same person or agency. In the event that
the corporation or its agent is acting in the dual capacity of transfer agent
and registrar, a single manual or facsimile signature may be used.
In case any such person acting as an officer, transfer agent or
registrar, who has signed, or whose facsimile signature has been placed upon
such certificate, shall have ceased to be such officer, transfer agent or
registrar, before such certificate is issued, it may be used by the
corporation with the same effect as if such person had not ceased to be such
at the date of its issue.
4.02. Transfer of Stock. The shares of stock of the corporation shall
be transferable on the books of the corporation upon request by the holders
thereof or by duly authorized attorney, upon surrender and cancellation of
certificates for a like number of shares of the same class and series of
stock, with duly executed assignment and power of transfer endorsed thereon or
attached thereto, and with such proof of the authenticity of the signature as
the corporation or its agents may reasonably require.
Prior to due presentment of a certificate for shares for registration of
transfer the corporation may treat the registered owner of such shares as the
person exclusively entitled to vote, to receive notifications and otherwise to
have and exercise all the rights and powers of an owner. Where a certificate
for shares is presented to the corporation with a request to register for
transfer, the corporation shall not be liable to the owner or any other person
suffering loss as a result of such registration of transfer if (a) there were
on or with the certificate the necessary endorsements, and (b) the corporation
had no duty to inquire into adverse claims or has discharged any such duty.
The corporation may require reasonable assurance that said endorsements are
genuine and effective and in compliance with such other regulations as may be
prescribed by or under the authority of the Board of Directors.
4.03. Lost, Destroyed or Stolen Certificates. Where the owner claims
that his certificate for shares has been lost, destroyed or wrongfully taken,
a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, (b) files with the corporation a sufficient
indemnity bond and (c) satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of Directors.
4.04. Shares Without Certificates. The Board of Directors may
authorize the issuance of any shares of any of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until the certificates are surrendered to the corporation.
Within a reasonable time after the issuance or transfer of shares without
certificates, the corporation shall send the stockholder a written statement
that includes (1) all of the information required on share certificates and
(2) any transfer restrictions applicable to the shares.
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ARTICLE V.
INDEMNIFICATION
5.01. Mandatory Indemnification. The corporation shall indemnify to
the fullest extent permitted by law any person who is or was a party or
threatened to be made a party to any legal proceeding by reason of the fact
that such person is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of
another enterprise, against expenses (including attorney fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by the
person in connection with such legal proceeding.
5.02. Certain Definitions. As used in this Article V, (a) "indemnify"
includes the advancement of expenses upon receipt of an undertaking to repay
upon specified conditions, (b) "fullest extent permitted by law" means the
fullest extent to which indemnity may lawfully be provided by, pursuant to or
consistently with, the provisions of Sections 180.0850 to 180.0859 of the
Wisconsin Business Corporation Law (or any successor provisions) or any other
applicable law, whether statutory or otherwise, (c) "person" includes the
person's heirs, executors and administrators, (d) "legal proceeding" means any
threatened, pending or completed action, suit or proceeding, whether or not by
or in right of the corporation, (e) "other enterprise" includes any
corporation, partnership, joint venture, trust, dividend reinvestment plan,
stock purchase plan, employee benefit plan or other plan or entity,
(f) "expenses" include expenses in the enforcement of rights under this Bylaw
and any excise taxes assessed with respect to an employee benefit plan and
(g) in respect of any of such plans, (i) "serving at the request of the
corporation as a director or officer" includes serving at the request of the
corporation in any capacity that involves services or duties with respect to
the plan or its participants or beneficiaries and (ii) action reasonably
believed to be in the interest of such participants or beneficiaries shall be
deemed reasonably believed to be in, or not opposed to, the best interests of
the corporation.
5.03. Legal Enforceability. The rights provided to any person by the
terms of this Article V shall be legally enforceable against the corporation
by such person, who shall be presumed to have relied on the provisions of this
Article V in undertaking or continuing any of the positions with the
corporation or other enterprise referred to in Section 5.01.
5.04. Limitation on Modification or Termination. No modification or
termination of this Article V shall be effected which would impair any rights
hereunder arising at any time out of events occurring prior to such
modification or termination.
5.05. Non-Exclusive Bylaw. This Article V is not intended to be
exclusive and accordingly shall not be construed as impairing in any way the
power and authority of the corporation, to the extent legally permissible
without regard to this Article V, in its discretion to indemnify or agree to
indemnify, or to purchase insurance indemnifying, any employee, agent or other
person.
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ARTICLE VI.
OTHER INDEMNIFICATION PROVISIONS
6.01. Indemnification for Successful Defense. Within twenty (20) days
after receipt of a written request pursuant to Section 6.03, the corporation
shall indemnify a director or officer, to the extent he or she has been
successful on the merits or otherwise in the defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the director or officer was
a party because he or she is a director or officer of the corporation.
6.02. Other Indemnification. (a) In cases not included under
Section 6.01, the corporation shall indemnify a director or officer against
all liabilities and expenses incurred by the director or officer in a
proceeding to which the director or officer was a party because he or she is a
director or officer of the corporation, unless liability was incurred because
the director or officer breached or failed to perform a duty he or she owes to
the corporation and the breach or failure to perform constitutes any of the
following:
(1) A willful failure to deal fairly with the corporation or its
stockholders in connection with a matter in which the director or
officer has a material conflict of interest.
(2) A violation of criminal law, unless the director or officer
had reasonable cause to believe that his or her conduct was lawful or no
reasonable cause to believe that his or her conduct was unlawful.
(3) A transaction from which the director or officer derived an
improper personal profit.
(4) Willful misconduct.
(b) Determination of whether indemnification is required under this
Section or Article V shall be made pursuant to Section 6.05.
(c) The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not, by
itself, create a presumption that indemnification of the director or officer
is not required under this Section.
6.03. Written Request. A director or officer who seeks
indemnification under Article V or Sections 6.01 or 6.02 shall make a written
request to the corporation.
6.04. Nonduplication. The corporation shall not indemnify a director
or officer under Sections 6.01 or 6.02 if the director or officer has
previously received indemnification or allowance of expenses from any person,
including the corporation, in connection with the same proceeding. However,
the director or officer has no duty to look to any other person for
indemnification.
6.05. Determination of Right to Indemnification. (a) Unless otherwise
provided by the Articles of Incorporation or by written agreement between the
director or officer and the corporation, the director or officer seeking
indemnification under Article V or Section 6.02 shall select one of the
following means for determining his or her right to indemnification:
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<PAGE> 16
(1) By a majority vote of a quorum of the Board of Directors
consisting of directors not at the time parties to the same or related
proceedings. If a quorum of disinterested directors cannot be obtained,
by majority vote of a committee duly appointed by the Board of Directors
and consisting solely of two (2) or more directors who are not at the
time parties to the same or related proceedings. Directors who are
parties to the same or related proceedings may participate in the
designation of members of the committee.
(2) By independent legal counsel selected by a quorum of the
Board of Directors or its committee in the manner prescribed in sub.
(1) or, if unable to obtain such a quorum or committee, by a majority
vote of the full Board of Directors, including directors who are parties
to the same or related proceedings.
(3) By a panel of three (3) arbitrators consisting of one
arbitrator selected by those directors entitled under sub. (2) to select
independent legal counsel, one arbitrator selected by the director or
officer seeking indemnification and one arbitrator selected by the two
(2) arbitrators previously selected.
(4) By an affirmative vote of shares represented at a meeting of
stockholders at which a quorum of the voting group entitled to vote
thereon is present. Shares owned by, or voted under the control of,
persons who are at the time parties to the same or related proceedings,
whether as plaintiffs or defendants or in any other capacity, may not be
voted in making the determination.
(5) By a court under Section 6.08.
(6) By any other method provided for in any additional right to
indemnification.
(b) In any determination under (a), the burden of proof is on the
corporation to prove by clear and convincing evidence that indemnification
under Article V or Section 6.02 should not be allowed.
(c) A written determination as to a director's or officer's
indemnification under Article V or Section 6.02 shall be submitted to both the
corporation and the director or officer within 60 days of the selection made
under (a).
(d) If it is determined that indemnification is required under
Article V or Section 6.02, the corporation shall pay all liabilities and
expenses not prohibited by Section 6.04 within ten (10) days after receipt of
the written determination under (c). The corporation shall also pay all
expenses incurred by the director or officer in the determination process
under (a).
6.06. Advance of Expenses. Within ten (10) days after receipt of a
written request by a director or officer who is a party to a proceeding, the
corporation shall pay or reimburse his or her reasonable expenses as incurred
if the director or officer provides the corporation with all of the following:
(1) A written affirmation of his or her good faith belief that he
or she has not breached or failed to perform his or her duties to the
corporation.
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<PAGE> 17
(2) A written undertaking, executed personally or on his or her
behalf, to repay the allowance to the extent that it is ultimately
determined under Section 6.05 that indemnification under Article V or
Section 6.02 is not required and that indemnification is not ordered by
a court under Section 6.08(b)(2). The undertaking under this subsection
shall be an unlimited general obligation of the director or officer and
may be accepted without reference to his or her ability to repay the
allowance. The undertaking may be secured or unsecured.
6.07. Limitations on Indemnification. (a) Regardless of the existence
or rights under these Bylaws and additional rights to indemnification under
any agreement with the corporation, the corporation shall not indemnify a
director or officer, or permit a director or officer to retain any allowance
of expenses, unless it is determined by or on behalf of the corporation that
the director or officer did not breach or fail to perform a duty he or she
owes to the corporation which constitutes conduct under Section 6.02(a)(1),
(2), (3) or (4). A director or officer who is a party to the same or related
proceedings for which indemnification or an allowance of expenses is sought
may not participate in a determination under this subsection.
(b) Sections 6.01 to 6.12 do not affect the corporation's power to pay
or reimburse expenses incurred by a director or officer in any of the
following circumstances.
(1) As a witness in a proceeding to which he or she is not a
party.
(2) As a plaintiff or petitioner in a proceeding because he or
she is or was an employee, agent, director or officer of the
corporation.
6.08. Court-Ordered Indemnification. (a) Except as provided otherwise
by written agreement between the director or officer and the corporation, a
director or officer who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. Application shall be made for an initial determination
by the court under Section 6.05(a)(5) or for review by the court of an adverse
determination under Section 6.05(a) (1), (2), (3), (4) or (6). After receipt
of an application, the court shall give any notice it considers necessary.
(b) The court shall order indemnification if it determines any of the
following:
(1) That the director or officer is entitled to indemnification
under Article V or Sections 6.01 or 6.02.
(2) That the director or officer is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
regardless of whether indemnification is required under Article V or
Section 6.02.
(c) If the court determines under (b) that the director or officer is
entitled to indemnification, the corporation shall pay the director's or
officer's expenses incurred to obtain the court-ordered indemnification.
6.09. Indemnification and Allowance of Expenses of Employees and
Agents. The corporation shall indemnify an employee of the corporation who is
not a director or officer of the corporation, to the extent that he or she has
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<PAGE> 18
been successful on the merits or otherwise in defense of a proceeding, for all
reasonable expenses incurred in the proceeding if the employee was a party
because he or she was an employee of the corporation. In addition, the
corporation may indemnify and allow reasonable expenses of an employee or
agent who is not a director or officer of the corporation to the extent
provided by the Articles of Incorporation or these Bylaws, by general or
specific action of the Board of Directors or by contract.
6.10. Insurance. The corporation may purchase and maintain insurance
on behalf of an individual who is an employee, agent, director or officer of
the corporation against liability asserted against or incurred by the
individual in his or her capacity as an employee, agent, director or officer,
regardless of whether the corporation is required or authorized to indemnify
or allow expenses to the individual against the same liability under Article V
or Sections 6.01, 6.02, 6.06, 6.07 and 6.09.
6.11. Securities Law Claims. (a) Pursuant to the public policy of the
State of Wisconsin, the corporation shall provide indemnification and
allowance of expenses and may insure for any liability incurred in connection
with a proceeding involving securities regulation described under (b) to the
extent required or permitted under Article V or Sections 6.01 to 6.10.
(b) Article V and Sections 6.01 to 6.10 apply, to the extent applicable
to any other proceeding, to any proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities, securities brokers or dealers, or investment companies or
investment advisers.
6.12. Liberal Construction. In order for the corporation to obtain
and retain qualified directors, officers and employees, the foregoing
provisions shall be liberally administered in order to afford maximum
indemnification of directors, officers and, where Section 6.09 of these Bylaws
applies, employees. The indemnification above provided for shall be granted
in all applicable cases unless to do so would clearly contravene law,
controlling precedent or public policy.
ARTICLE VII.
CONTRACTS, CHECKS, NOTES, BONDS, ETC.
7.01. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver
any document or instrument, whether of conveyance or otherwise, in the name of
and on behalf of the corporation, and such authorization may be general or
confined to specific instances.
7.02. Checks, Drafts, Etc. All checks and drafts on the corporation's
bank accounts and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be signed or, in the case of wire transfers, shall be authorized by such
officer or officers, employee or employees or agent or agents as shall be
thereunto authorized from time to time by the Board of Directors; provided
that checks drawn on the corporation's bank accounts may bear the facsimile
signature of such officer or officers, employee or employees, or agent or
agents as the Board of Directors shall authorize; and provided further that in
the case of notes, bonds or debentures issued under a trust instrument of the
corporation and required to be signed by two officers of the corporation, the
signatures of either or both of such officers may be in facsimile if
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<PAGE> 19
specifically authorized and directed by the Board of Directors of the
corporation and if such notes, bonds or debentures are required to be
authenticated by a corporate trustee which is a party to the trust instrument.
In case any such officer who has signed or whose facsimile signature has been
placed upon such instrument shall have ceased to be such officer before such
instrument is issued, it may be issued by the corporation with the same effect
as if such officer had not ceased to be such at the date of its issue.
ARTICLE VIII.
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January in each year and shall end on the thirty-first day of
December following.
ARTICLE IX.
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Jan. 29, 1896."
ARTICLE X.
EFFECT OF HEADINGS
The descriptive headings and references to Articles and Sections in
these Bylaws were formulated, used and inserted herein for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
ARTICLE XI.
AMENDMENTS
11.01. By Stockholders. These Bylaws may be amended or repealed and
new Bylaws may be adopted by the stockholders by the vote provided in Section
1.06 of these Bylaws except as specifically provided below or in the Articles
of Incorporation. If authorized by the Articles of Incorporation, the
stockholders may adopt or amend a Bylaw that fixes a greater or lower quorum
requirement or a greater voting requirement for stockholders or voting groups
of stockholders than otherwise is provided in the Wisconsin Business
Corporation Law. The adoption or amendment of a Bylaw that adds, changes or
deletes a greater or lower quorum requirement or a greater voting requirement
for stockholders must meet the same quorum requirement and be adopted by the
same vote and voting groups required to take action under the quorum and
voting requirement then in effect.
11.02. By Directors. Except as the Articles of Incorporation may
otherwise provide, these Bylaws may also be amended or repealed and new Bylaws
may be adopted by the Board of Directors by the vote provided in Sections 2.10
and 2.11, but (a) no Bylaw adopted by the stockholders shall be amended,
repealed or readopted by the Board of Directors if such Bylaw provides that it
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<PAGE> 20
may not be amended, repealed or readopted by the Board of Directors and (b) a
Bylaw adopted or amended by the stockholders that fixes a greater or lower
quorum requirement or a greater voting requirement for the Board of Directors
than otherwise is provided in the Wisconsin Business Corporation Law may not
be amended or repealed by the Board of Directors unless the Bylaw expressly
provides that it may be amended or repealed by a specified vote of the Board
of Directors. Action by the Board of Directors to adopt or amend a Bylaw that
changes the quorum or voting requirement for the Board of Directors must meet
the same quorum requirement and be adopted by the same vote required to take
action under the quorum and voting requirement then in effect, unless a
different voting requirement is specified as provided by the preceding
sentence. A Bylaw that fixes a greater or lower quorum requirement or a
greater voting requirement for stockholders or voting groups of stockholders
than otherwise is provided in the Wisconsin Business Corporation Law may not
be adopted, amended or repealed by the Board of Directors.
11.03. Implied Amendments. Any action taken or authorized by the
stockholders or by the Board of Directors, which would be inconsistent with
the Bylaws then in effect but is taken or authorized by a vote that would be
sufficient to amend the Bylaws so that the Bylaws would be consistent with
such action, shall be given the same effect as though the Bylaws had been
temporarily amended or suspended so far, but only so far, as is necessary to
permit the specific action so taken or authorized.
11.04. Certain Voting Requirements Preserved. If the corporation had
a Bylaw in effect on December 31, 1990, that establishes a greater shareholder
voting requirement than one required under the Wisconsin Business Corporation
Law, that voting requirement applies until the Bylaw is amended or repealed.
[WBCL, Section 180.1706(4).]
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<PAGE> 1
Exhibit (4)-1
CONFORMED COPY
- ----------------------------------------------------------------------------
WISCONSIN ELECTRIC POWER COMPANY
and
FIRSTAR TRUST COMPANY,
as Trustee
-----------------------
INDENTURE
Dated as of December 1, 1995
----------------------
DEBT SECURITIES
- ------------------------------------------------------------------------------
<PAGE> 2
WISCONSIN ELECTRIC POWER COMPANY
PARTIAL CROSS-REFERENCE TABLE
Trust Indenture Act of 1939
and Indenture dated as of December 1, 1995
Indenture Section TIA Section
2.05............................................317(b)
2.06............................................312(a), 313(c)
2.11............................................316(a) (last sentence)
4.04............................................314(a)(4)
4.05............................................314(a)(1)
6.03............................................317(a)(1)
6.04............................................316(a)(1)(B)
6.05............................................316(a)(1)(A)
6.07............................................317(a)(1)
7.01............................................315(a), 315(d)
7.04............................................315(b)
7.05............................................313(a)
7.05............................................313(d)
7.07............................................310(a), 310(b)
7.09............................................310(a)(2)
8.02............................................310(a),310(b)
9.04............................................316(c)
10.01...........................................318(a)
10.02...........................................313(c)
10.03...........................................314(c)(1), 314(c)(2)
10.04...........................................314(e)
<PAGE> 3
WISCONSIN ELECTRIC POWER COMPANY
DEBT SECURITIES INDENTURE
Dated As Of December 1, 1995
TABLE OF CONTENTS
Article Section Heading Page
- ------- ------- ------- ----
1 DEFINITIONS
1.01 Definitions.................................... 1
1.02 Other Definitions.............................. 3
1.03 Rules of Construction.......................... 3
2 THE SECURITIES
2.01 Issuable in Series............................. 3
2.02 Execution and Authentication................... 5
2.03 Securities Agents.............................. 5
2.04 Bearer Securities.............................. 6
2.05 Paying Agent to Hold Money in
Trust........................................ 6
2.06 Securityholder Lists........................... 7
2.07 Transfer and Exchange.......................... 7
2.08 Replacement Securities......................... 7
2.09 Outstanding Securities......................... 8
2.10 Discounted Securities.......................... 8
2.11 Treasury Securities............................ 8
2.12 Global Securities.............................. 8
2.13 Temporary Securities........................... 9
2.14 Cancellation................................... 9
2.15 Defaulted Interest............................. 9
3 REDEMPTION
3.01 Notices to Trustee............................. 10
3.02 Selection of Securities to Be
Redeemed..................................... 10
3.03 Notice of Redemption........................... 10
3.04 Effect of Notice of
Redemption................................... 11
3.05 Payment of Redemption Price.................... 11
3.06 Securities Redeemed in Part.................... 12
4 COVENANTS
4.01 Payment of Securities.......................... 12
4.02 Overdue Interest............................... 12
4.03 No Lien Created, etc........................... 12
4.04 Compliance Certificate......................... 12
4.05 SEC Reports.................................... 13
4.06 Certain Definitions............................ 13
4.07 Limitations on Liens........................... 15
5 SUCCESSORS
5.01 When Company May Merge, etc.................... 16
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<PAGE> 4
Article Section Heading Page
- ------- ------- ------- ----
6 DEFAULTS AND REMEDIES
6.01 Events of Default.............................. 16
6.02 Acceleration................................... 18
6.03 Other Remedies................................. 18
6.04 Waiver of Past Defaults........................ 18
6.05 Control by Majority............................ 18
6.06 Limitation on Suits............................ 19
6.07 Collection Suit by Trustee..................... 19
6.08 Priorities..................................... 19
7 TRUSTEE
7.01 Rights of Trustee.............................. 20
7.02 Individual Rights of Trustee................... 20
7.03 Trustee's Disclaimer........................... 20
7.04 Notice of Defaults............................. 21
7.05 Reports by Trustee to Holders.................. 21
7.06 Compensation and Indemnity..................... 21
7.07 Replacement of Trustee......................... 22
7.08 Successor Trustee by Merger, etc............... 23
7.09 Trustee's Capital and Surplus.................. 23
8 DISCHARGE OF INDENTURE
8.01 Defeasance..................................... 23
8.02 Conditions to Defeasance....................... 23
8.03 Application of Trust Money..................... 24
8.04 Repayment to Company........................... 24
9 AMENDMENTS AND WAIVERS
9.01 Without Consent of Holders..................... 25
9.02 With Consent of Holders........................ 25
9.03 Compliance with Trust Indenture Act............ 26
9.04 Effect of Consents............................. 26
9.05 Notation on or Exchange of Securities.......... 26
9.06 Trustee Protected.............................. 26
10 MISCELLANEOUS
10.01 Trust Indenture Act............................ 26
10.02 Notices........................................ 27
10.03 Certificate and Opinion as to
Conditions Precedent......................... 27
10.04 Statements Required in Certificate or Opinion.. 28
10.05 Rules by Company and Agents.................... 28
10.06 Legal Holidays................................. 28
10.07 No Recourse Against Others..................... 28
10.08 Duplicate Originals............................ 28
10.09 Governing Law.................................. 28
SIGNATURES..................................... 29
Exhibit A: A Form of Registered
Security..................................... 33
Exhibit B: A Form of Bearer Security.................... 38
Notes to Exhibits A and B................................ 45
Exhibit C: Assignment Form.............................. 47
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<PAGE> 5
INDENTURE dated as of December 1, 1995 between WISCONSIN ELECTRIC POWER
COMPANY, a Wisconsin corporation (the "Company"), and FIRSTAR TRUST COMPANY, a
Wisconsin state banking corporation (the "Trustee").
Each party agrees as follows for the benefit of the Holders of the
Company's debt securities issued under this Indenture:
ARTICLE 1--DEFINITIONS
SECTION 1.01. Definitions.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
"Agent" means any Registrar, Transfer Agent or Paying Agent.
"Authorized Newspaper" means a newspaper that is:
(1) printed in the English language or in an official language of
the country of publication;
(2) customarily published on each business day in the place of
publication; and
(3) of general circulation in the relevant place or in the
financial community of such place.
Whenever successive publications in an Authorized Newspaper are required, they
may be made on the same or different business days and in the same or
different Authorized Newspapers.
"Bearer Security" means a Security payable to bearer.
"Board" means the Board of Directors of the Company or any authorized
committee of the Board.
"Company" means the party named as such above until a successor replaces
it and thereafter means the successor.
"coupon" means an interest coupon for a Bearer Security.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Discounted Security" means a Security where the amount of principal due
upon acceleration is less than the stated principal amount.
"Holder" or "Securityholder" means the person in whose name a Registered
Security is registered and the bearer of a Bearer Security or coupon.
"Indenture" means this Indenture and any Securities Resolution as
amended from time to time.
"Lien" means any mortgage, pledge, security interest or other lien.
"Officer" means the Chairman of the Board, any Vice Chairman, the Pres-
ident, any Executive Vice President, any Senior Vice President, any Vice
President, the Treasurer, the Secretary, the Controller, any Assistant
Treasurer, any Assistant Secretary or any Assistant Controller of the Company.
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<PAGE> 6
"Officers' Certificate" means a certificate signed by any one or more
Officers.
"Opinion of Counsel" means a written opinion, complying with Sections
10.03 and 10.04 hereof, from legal counsel who is acceptable to the Trustee.
The counsel may be an employee of or counsel to the Company or the Trustee.
"principal" of a debt security means the principal of the security plus
the premium, if and when applicable, on the security.
"Registered Security" means a Security registered as to principal and
interest by the Registrar.
"SEC" means the Securities and Exchange Commission.
"Securities" means the debt securities issued under this Indenture.
"Securities Resolution" means a resolution establishing a series of
Securities adopted by the Board or by an Officer or committee of Officers
pursuant to Board delegation or a supplemental indenture establishing such
series of Securities executed by an authorized Officer.
"series" means a series of Securities or the Securities of the series.
"Subsidiary" means a corporation a majority of whose Voting Stock is
owned by the Company or a Subsidiary.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb), as amended by the Trust Indenture Reform Act of 1990,
as in effect on the date shown above.
"Trustee" means the party named as such above until a successor replaces
it and thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"United States" means the United States of America, its territories and
possessions and other areas subject to its jurisdiction.
"Voting Stock" means capital stock having voting power under ordinary
circumstances to elect directors.
"Yield to Maturity" means the yield to maturity on a Security at the
time of its issuance or at the most recent determination of interest on the
Security.
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SECTION 1.02. Other Definitions.
Term Defined in Section
"Bankruptcy Law"............................. 6.01
"Conditional Redemption"..................... 3.04
"Custodian".................................. 6.01
"Event of Default"........................... 6.01
"Funded Debt"................................ 4.06
"Legal Holiday".............................. 10.06
"Mortgage"................................... 4.06
"Paying Agent"............................... 2.03
"Permitted Encumbrances"..................... 4.06
"Person"..................................... 4.06
"Principal Property"......................... 4.06
"Registrar".................................. 2.03
"Tangible Net Worth"......................... 4.06
"Transfer Agent"............................. 2.03
"Treasury Regulations"....................... 2.04
"U.S. Government Obligations"................ 8.02
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles in the United States;
(3) generally accepted accounting principles are those applicable
from time to time;
(4) all terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC
rule under the TIA have the meanings assigned to them by such
definitions;
(5) "or" is not exclusive; and
(6) words in the singular include the plural, and in the plural
include the singular.
ARTICLE 2--THE SECURITIES
SECTION 2.01. Issuable in Series.
The aggregate principal amount of Securities that may be issued under
this Indenture is unlimited. The Securities may be issued from time to time
in one or more series. Each series shall be created by a Securities
Resolution that establishes the terms of the series, which may include the
following:
(1) the title of the series;
(2) the aggregate principal amount of the series;
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<PAGE> 8
(3) the interest rate, if any, or method of calculating the
interest rate;
(4) the date from which interest will accrue;
(5) the record dates for interest payable on Registered Securities;
(6) the dates when principal and interest are payable;
(7) the manner of paying principal and interest;
(8) the places where principal and interest are payable;
(9) the Registrar, Transfer Agent and Paying Agent;
(10) the terms of any mandatory or optional redemption by the
Company;
(11) the terms of any redemption at the option of Holders;
(12) the denominations in which Securities are issuable;
(13) whether Securities will be issuable as Registered Securities or
Bearer Securities;
(14) whether and upon what terms Registered Securities and Bearer
Securities may be exchanged;
(15) whether any Securities will be represented by a Security in
global form and the terms of any global Security;
(16) the terms of any tax indemnity;
(17) the currencies (including any composite currency) in which
principal or interest may be paid and if payments of principal
or interest may be made in a currency other than that in which
Securities are denominated, the manner for determining such
payments;
(18) if amounts of principal or interest may be determined by
reference to an index, formula or other method, the manner for
determining such amounts;
(19) provisions for electronic issuance of Securities or for
Securities in uncertificated form;
(20) the portion of principal payable upon acceleration of a
Discounted Security;
(21) whether Section 4.07 applies, and any Events of Default or
covenants in addition to or in lieu of those set forth in this
Indenture;
(22) whether and upon what terms Securities may be defeased;
(23) the forms of the Securities or any coupon, which may be in the
form of Exhibit A or B;
(24) any terms that may be required by or advisable under U.S. or
other applicable laws; and
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<PAGE> 9
(25) any other terms not inconsistent with this Indenture.
All Securities of one series need not be issued at the same time and,
unless otherwise provided, a series may be reopened for issuances of
additional Securities of such series.
The creation and issuance of a series and the authentication and
delivery thereof are not subject to any conditions precedent.
SECTION 2.02. Execution and Authentication.
Two Officers shall sign the Securities by manual or facsimile
signature. The Company's seal shall be reproduced on the Securities, which
seal may be affixed or in facsimile form. An Officer shall sign any coupons
by facsimile signature.
If an Officer whose signature is on a Security or its coupons no
longer holds that office at the time the Security is authenticated or
delivered, the Security and coupons shall nevertheless be valid.
A Security and its coupons shall not be valid until the Security is
authenticated by the manual signature of the Registrar. The signature shall
be conclusive evidence that the Security has been authenticated under this
Indenture.
Each Registered Security shall be dated the date of its
authentication. Each Bearer Security shall be dated the date of its
authentication or as provided in the Securities Resolution.
Securities may have notations, legends or endorsements required by
law, stock exchange rule, agreement or usage, which shall be provided to the
Trustee in writing by the Company.
In the event Securities are issued in electronic or other
uncertificated form, such Securities may be validly issued without the
signatures or seal contemplated by this Section 2.02.
SECTION 2.03. Securities Agents.
The Company shall maintain an office or agency where Securities may
be authenticated ("Registrar"), where Securities may be presented for
registration of transfer or for exchange ("Transfer Agent") and where
Securities may be presented for payment ("Paying Agent"). Whenever the
Company must issue or deliver Securities pursuant to this Indenture, the
Registrar shall authenticate the Securities at the Company's request. The
Transfer Agent shall keep a register of the Securities and of their transfer
and exchange.
The Trustee shall be, and is hereby appointed as, the Registrar. The
Company may appoint more than one Transfer Agent or Paying Agent for a series.
The Company shall notify the Trustee of the name and address of any Agent not
a party to this Indenture. If the Company fails to maintain a Transfer Agent
or Paying Agent for a series, the Trustee shall act as such.
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SECTION 2.04. Bearer Securities.
U.S. laws and Treasury Regulations restrict sales or exchanges of and
payments on Bearer Securities. Therefore, except as provided below:
(1) Bearer Securities will be offered, sold and delivered only
outside the United States and will be delivered only upon
presentation of a certificate in a form prescribed by the
Company to comply with U.S. laws and regulations.
(2) Bearer Securities will not be issued in exchange for Registered
Securities.
(3) All payments of principal and interest (including original
issue discount) on Bearer Securities will be made outside the
United States by a Paying Agent located outside the United
States unless the Company determines that:
(A) such payments may not be made by such Paying Agent
because the payments are illegal or prevented by exchange
controls as described in Treasury Regulation section
1.163-5(c)(2)(v); and
(B) making the payments in the United States would not have
an adverse tax effect on the Company.
If there is a change in the relevant provisions of U.S. laws or
Treasury Regulations or the judicial or administrative interpretation thereof,
a restriction set forth in paragraph (1), (2) or (3) above will not apply to a
series if the Company determines that the relevant provisions no longer apply
to the series or that failure to comply with the relevant provisions would not
have an adverse tax effect on the Company or on Securityholders or cause the
series to be treated as "registration-required" obligations under U.S. law.
The Company shall notify the Trustee in writing of any determinations
by the Company under this Section.
"Treasury Regulations" means regulations of the U.S. Treasury
Department under the Internal Revenue Code of 1986, as amended.
SECTION 2.05. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent for a series other than
the Trustee to agree in writing that the Paying Agent will hold in trust for
the benefit of the persons entitled thereto all money held by the Paying Agent
for the payment of principal of or interest on the series, and will notify the
Trustee in writing of any default by the Company in making any such payment.
While any such default continues, the Trustee may require a Paying
Agent to pay all money so held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent shall have no further liability
for the money.
If the Company or an Affiliate acts as Paying Agent for a series, it
shall segregate and hold as a separate trust fund all money held by it as
Paying Agent for the series.
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SECTION 2.06. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Transfer Agent, the Company shall
furnish to the Trustee semiannually and at such other times as the Trustee may
request a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Holders of Registered Securities and
Holders of Bearer Securities whose names are on the list referred to below.
The Transfer Agent shall keep a list of the names and addresses of
Holders of Bearer Securities who file a request to be included on such list.
A request will remain in effect for two years but successive requests may be
made.
Whenever the Company or the Trustee is required to mail a notice to
all Holders of Registered Securities of a series, it also shall mail the
notice to Holders of Bearer Securities of the series whose names are on the
list, if any.
Whenever the Company is required to publish a notice to all Holders
of Bearer Securities of a series, it also shall mail the notice to such of
them whose names are on the list, if any.
SECTION 2.07. Transfer and Exchange.
Where Registered Securities of a series are presented to the Transfer
Agent with a request to register a transfer or to exchange them for an equal
principal amount of Registered Securities of other denominations of the
series, the Transfer Agent shall register the transfer or make the exchange if
its requirements for such transactions are met. Where Bearer Securities of a
series are presented to the Transfer Agent with a request to exchange them for
an equal principal amount of Bearer Securities of other denominations of the
series, the Transfer Agent shall make the exchange if its requirements for
such transactions are met.
The Transfer Agent may require a Holder to pay a sum sufficient to
cover any taxes imposed on a transfer or exchange.
If a series provides for Registered and Bearer Securities and for
their exchange, Bearer Securities may be exchanged for Registered Securities
and Registered Securities may be exchanged for Bearer Securities as provided
in the Securities or the Securities Resolution establishing the series if the
requirements of the Transfer Agent for such transactions are met and if
Section 2.04 permits the exchange.
SECTION 2.08. Replacement Securities.
If the Holder of a Security or coupon claims that it has been lost,
destroyed or wrongfully taken, then, in the absence of notice to the Company
or the Trustee that the Security or coupon has been acquired by a bona fide
purchaser, the Company shall issue a replacement Security or coupon if the
Company and the Trustee receive:
(1) evidence satisfactory to them of the loss, destruction or
taking;
(2) an indemnity bond satisfactory to them; and
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(3) payment of a sum sufficient to cover their expenses and any
taxes for replacing the Security or coupon.
A replacement Security shall have coupons attached corresponding to those, if
any, on the replaced Security.
Every replacement Security or coupon is an additional obligation of
the Company.
SECTION 2.09. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Registrar except for those canceled by it, those
delivered to it for cancellation, and those described in this Section as not
outstanding.
If a Security is replaced pursuant to Section 2.08, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.01, they cease to
be outstanding and interest on them ceases to accrue.
A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
SECTION 2.10. Discounted Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, the
principal amount of a Discounted Security shall be the amount of principal
that would be due as of the date of such determination if payment of the
Security were accelerated on that date.
SECTION 2.11. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company or an Affiliate shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities for which the Trustee
has received an Officers' Certificate stating that such Securities are so
owned shall be so disregarded.
SECTION 2.12. Global Securities.
If the Securities Resolution establishing a series so provides, the
Company may issue some or all of the Securities of the series in temporary or
permanent global form. A global Security may be in registered form, in bearer
form with or without coupons or in uncertificated form. A global Security
shall represent that amount of Securities of a series as specified in the
global Security or as endorsed thereon from time to time. At the Company's
request, the Registrar shall endorse a global Security to reflect the amount
of any increase or decrease in the Securities represented thereby.
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The Company may issue a global Security only to a depositary
designated by the Company. A depositary may transfer a global Security only
as a whole to its nominee or to a successor depositary.
The Securities Resolution may establish, among other things, the
manner of paying principal and interest on a global Security and whether and
upon what terms a beneficial owner of an interest in a global Security may
exchange such interest for definitive Securities.
The Company, an Affiliate, the Trustee and any Agent shall not be
responsible for any acts or omissions of a depositary, for any depositary
records of beneficial ownership interests or for any transactions between the
depositary and beneficial owners.
SECTION 2.13. Temporary Securities.
Until definitive Securities of a series are ready for delivery, the
Company may use temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Temporary
Securities may be in global form. Temporary Bearer Securities may have one or
more coupons or no coupons. Without unreasonable delay, the Company shall
deliver definitive Securities in exchange for temporary Securities.
SECTION 2.14. Cancellation.
The Company at any time may deliver Securities to the Registrar for
cancellation. The Transfer Agent and the Paying Agent shall forward to the
Registrar any Securities and coupons surrendered to them for payment, exchange
or registration of transfer. The Registrar shall cancel all Securities or
coupons surrendered for payment, registration of transfer, exchange or
cancellation as follows: the Registrar will cancel all Registered Securities
and matured coupons. The Registrar also will cancel all Bearer Securities and
unmatured coupons unless the Company requests the Registrar to hold the same
for redelivery. Any Bearer Securities so held shall be considered delivered
for cancellation under Section 2.09. The Registrar shall destroy canceled
Securities and coupons and deliver a certificate of cancellation thereof to
the Company unless the Company otherwise directs.
Unless the Securities Resolution establishing a series otherwise
provides, the Company may not issue new Securities to replace Securities that
the Company has paid or that the Company has delivered to the Registrar for
cancellation.
SECTION 2.15. Defaulted Interest.
If the Company defaults in a payment of interest on Registered
Securities, it need not pay the defaulted interest to Holders on the regular
record date. The Company may fix a special record date for determining
Holders entitled to receive defaulted interest or the Company may pay
defaulted interest in any other lawful manner.
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ARTICLE 3--REDEMPTION
SECTION 3.01. Notices to Trustee.
Securities of a series that are redeemable before maturity shall be
redeemable in accordance with their terms and, unless the Securities
Resolution establishing the series otherwise provides, in accordance with this
Article.
In the case of a redemption by the Company, the Company shall notify
the Trustee of the redemption date and the principal amount of Securities to
be redeemed. The Company shall notify the Trustee at least 35 days before the
redemption date unless a shorter notice is satisfactory to the Trustee.
If the Company is required to redeem Securities, it may reduce the
principal amount of Securities required to be redeemed to the extent it is
permitted a credit by the terms of the Securities and it notifies the Trustee
of the amount of the credit and the basis for it. If the reduction is based
on a credit for acquired or redeemed Securities that the Company has
not previously delivered to the Registrar for cancellation, the Company shall
deliver the Securities at the same time as the notice.
SECTION 3.02. Selection of Securities to Be Redeemed.
If less than all the Securities of a series are to be redeemed, the
Trustee shall select the Securities to be redeemed pro rata or by any other
method the Trustee considers fair and appropriate, unless the Company
otherwise directs in writing. The Trustee shall make the selection from
Securities of the series outstanding not previously called for redemption.
The Trustee may select for redemption portions of the principal of Securities
having denominations larger than the minimum denomination for the series.
Securities and portions thereof selected for redemption shall be in amounts
equal to the minimum denomination for the series or an integral multiple
thereof. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption by first-class mail to each
Holder of Registered Securities whose Securities are to be redeemed.
If Bearer Securities are to be redeemed, the Company shall publish a
notice of redemption in an Authorized Newspaper as provided in the Securities.
A notice shall identify the Securities of the series to be redeemed
and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
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(4) that Securities called for redemption, together with all
coupons, if any, maturing after the redemption date, must be
surrendered to the Paying Agent to collect the redemption
price;
(5) that interest on Securities called for redemption ceases to
accrue on and after the redemption date;
(6) whether the redemption by the Company is mandatory or optional;
and
(7) whether the redemption is conditional as provided in Section
3.04, the terms of the condition, and that, if the condition is
not satisfied or is not waived by the Company, the Securities
will not be redeemed and such a failure to redeem will not
constitute an Event of Default.
A redemption notice given by publication need not identify Registered
Securities to be redeemed.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
SECTION 3.04. Effect of Notice of Redemption.
Except as provided below, once notice of redemption is given,
Securities called for redemption become due and payable on the redemption date
at the redemption price stated in the notice.
A notice of redemption may provide that it is subject to the
occurrence of any event before the date fixed for such redemption as described
in such notice ("Conditional Redemption") and such notice of Conditional
Redemption shall be of no effect unless all such conditions to the redemption
have occurred before such date or have been waived by the Company.
SECTION 3.05. Payment of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Paying Agent money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date.
When the Holder of a Security surrenders it for redemption in
accordance with the redemption notice, the Company shall pay to the Holder on
the redemption date the redemption price and accrued interest to such date,
except that:
(1) the Company will pay any such interest (except defaulted
interest) to Holders on the record date of Registered
Securities if the redemption date occurs on an interest payment
date; and
(2) the Company will pay any such interest to Holders of coupons
that mature on or before the redemption date upon surrender of
such coupons to the Paying Agent.
Coupons maturing after the redemption date on a called Security are
void absent a payment default on that date. Nevertheless, if a Holder
surrenders for redemption a Bearer Security missing any such coupons, the
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Company may deduct the face amount of such coupons from the redemption price.
If thereafter the Holder surrenders to the Paying Agent the missing coupons,
the Company will return the amount so deducted. The Company also may waive
surrender of the missing coupons if it receives an indemnity bond satisfactory
to the Company.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall deliver to the Holder a new Security of the same series equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4--COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on a series in
accordance with the terms of the Securities for the series, any related
coupons, and this Indenture. On each payment date, the Company shall have
deposited with the Paying Agent in funds which are then immediately available
money sufficient to pay all principal and interest then due on the series.
Principal and interest on a series shall be considered paid on the date due if
the Paying Agent for the series holds on that date money sufficient to pay all
principal and interest then due on the series.
SECTION 4.02. Overdue Interest.
Unless the Securities Resolution establishing a series otherwise
provides, the Company shall pay interest on overdue principal of a Security of
a series at the rate (or Yield to Maturity in the case of a Discounted
Security) borne by the series; it shall pay interest on overdue installments
of interest at the same rate or Yield to Maturity to the extent lawful.
SECTION 4.03. No Lien Created, etc.
This Indenture and the Securities do not create a Lien, charge or
encumbrance on any property of the Company or any Subsidiary.
SECTION 4.04. Compliance Certificate.
The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company, a brief certificate signed by the
principal executive officer, principal financial officer or principal
accounting officer of the Company, as to the signer's knowledge of the
Company's compliance with all conditions and covenants under this Indenture
(determined without regard to any period of grace or requirement of notice
provided herein).
Any other obligor on the Securities also shall deliver to the Trustee
such a certificate similarly signed as to its compliance with this Indenture
within 120 days after the end of each of its fiscal years.
The certificates need not comply with Section 10.04.
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SECTION 4.05. SEC Reports.
The Company shall provide to the Trustee, within 15 days after the
Company is required to file the same with the SEC, copies of the annual
reports and of the information, documents, and other reports (or such portions
of the foregoing as the SEC may prescribe) which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Any other obligor on the Securities shall do likewise as to the above
items which it is required to file with the SEC pursuant to those Sections.
SECTION 4.06. Certain Definitions.
"Funded Debt" means all indebtedness for money borrowed having a
maturity of more than twelve months from the date of the most recent balance
sheet of the Company (or consolidated balance sheet of the Company and its
Subsidiaries if the Company then has one or more Subsidiaries the accounts of
which are consolidated with the accounts of the Company) or renewable and
extendible beyond twelve months at the option of the borrower and all
obligations in respect of lease rentals which under generally accepted
accounting principles would be shown on such balance sheet (or consolidated
balance sheet) of the Company as a liability item other than a current
liability; provided, however, that Funded Debt shall not include any of the
foregoing to the extent that such indebtedness or obligations are not required
by generally accepted accounting principles to be shown on such balance sheet.
"Mortgage" means the Company's Mortgage and Deed of Trust dated
October 28, 1938, as heretofore or hereafter amended, modified and
supplemented, to Firstar Trust Company, as trustee, providing for the
Company's First Mortgage Bonds.
"Permitted Encumbrances" means any of the following:
(1) Liens of taxes, assessments or governmental charges for the
then current year and taxes, assessments or governmental
charges not then delinquent; Liens for workers' compensation
awards and similar obligations not then delinquent; mechanics',
laborers', materialmen's and similar Liens not then delinquent;
and any of such Liens, whether or not delinquent, whose
validity is at the time being contested in good faith by the
Company or any Subsidiary;
(2) Liens and charges incidental to construction or current
operations which have not at the time been filed or asserted or
the payment of which has been adequately secured or which, in
the opinion of counsel, are not material in amount;
(3) Liens, securing obligations neither assumed by the Company or
any Subsidiary nor on account of which any of them customarily
pays interest directly or indirectly, existing, either at the
date hereof, or, as to property hereafter acquired, at the time
of acquisition by the Company or a Subsidiary;
(4) Any right which any municipal or governmental body or agency
may have by virtue of any franchise, license, contract or
statute to purchase, or designate a purchaser of or order the
sale of, any property of the Company or any Subsidiary upon
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payment of reasonable compensation therefor, or to terminate
any franchise, license or other rights or to regulate the
property and business of the Company or any Subsidiary;
(5) The Lien of judgments covered by insurance, or upon appeal and
covered, if necessary, by the filing of an appeal bond, or if
not so covered not exceeding at any one time $1,000,000 in
aggregate amount;
(6) Easements or reservations in respect of any property of the
Company or any Subsidiary for the purpose of roads, pipelines,
utility transmission and distribution lines or other rights-of-
way and similar purposes, zoning ordinances, regulations,
reservations, restrictions, covenants, party wall agreements,
conditions of record and other encumbrances (other than to
secure the payment of money), none of which in the opinion of
counsel are such as to interfere with the proper operation and
development of the property affected thereby in the business of
the Company and its Subsidiaries for the use intended;
(7) Any Lien or encumbrance, moneys sufficient for the discharge of
which have been deposited in trust with the Trustee hereunder
or with the trustee or mortgagee under the instrument
evidencing such Lien or encumbrance, with irrevocable authority
to the Trustee hereunder or to such other trustee or mortgagee
to apply such moneys to the discharge of such Lien or
encumbrance to the extent required for such purpose;
(8) Any defects of title and any terms, conditions, agreements,
covenants, exceptions and reservations expressed or provided in
deeds or other instruments, respectively, under and by virtue
of which the Company or any Subsidiary has acquired any
property or shall hereafter acquire any property, none of
which, in the opinion of counsel, materially adversely affects
the operation of the properties of the Company and its
Subsidiaries, taken as a whole;
(9) The pledge of cash or marketable securities for the purpose of
obtaining any indemnity, performance or other similar bonds in
the ordinary course of business, or as security for the payment
of taxes or other assessments being contested in good faith, or
for the purpose of obtaining a stay or discharge in the course
of any legal proceedings;
(10) The pledge or assignment in the ordinary course of business of
electricity, gas (either natural or artificial) or steam,
accounts receivable or customers' installment paper;
(11) Rights reserved to or vested in others to take or receive any
part of the electricity, gas (either natural or artificial),
steam or any by-products thereof generated or produced by or
from any properties of the Company or with respect to any other
rights concerning electricity, gas (either natural or
artificial) or steam supply, transportation, or storage which
are in use in the ordinary course of the electricity, gas
(either natural or artificial) or steam business;
(12) Any landlord's Lien;
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(13) Liens created or assumed by the Company or a Subsidiary in
connection with the issuance of debt securities, the interest
on which is excludable from the gross income of the holders of
such securities pursuant to Section 103 of the Internal Revenue
Code of 1986, or any successor section, for purposes of
financing, in whole or in part, the acquisition or construction
of property to be used by the Company or a Subsidiary, but such
Liens shall be limited to the property so financed (and the
real estate on which such property is to be located);
(14) Liens incurred pursuant to Section 7.06;
(15) Liens affixing to property of the Company or a Subsidiary at
the time a Person consolidates with or merges into, or
transfers all or substantially all of its assets to, the
Company or a Subsidiary, provided that in the opinion of the
Board or Company management (evidenced by a certified Board
resolution or an Officers' Certificate delivered to the
Trustee) the property acquired pursuant to the consolidation,
merger or asset transfer is adequate security for the Lien; and
(16) Liens or encumbrances not otherwise permitted if, at the time
of incurrence and after giving effect thereto, the aggregate of
all obligations of the Company and its Subsidiaries secured
thereby does not exceed 10% of Tangible Net Worth.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Principal Property" means any tangible real or personal property or
portion thereof unless, in the opinion of the Board or Company management
(evidenced by a certified Board resolution or an Officers' Certificate
delivered to the Trustee) such property is not of material importance to the
total business conducted by the Company and its Subsidiaries taken as a whole.
"Tangible Net Worth" means (i) common stockholders' equity appearing
on the most recent balance sheet of the Company (or consolidated balance sheet
of the Company and its Subsidiaries if the Company then has one or more
Subsidiaries the accounts of which are consolidated with the accounts of the
Company) prepared in accordance with generally accepted accounting principles
less (ii) intangible assets (excluding intangible assets recoverable through
rates as prescribed by applicable regulatory authorities).
SECTION 4.07. Limitations on Liens.
So long as there remain outstanding any Securities of any series to
which this Section 4.07 applies under the terms of the series, the Company
will not, and will not permit any Subsidiary to, create or suffer to be
created or to exist any Lien on any of its properties or assets now owned or
hereafter acquired to secure any indebtedness, without making effective
provision whereby the Securities of such series shall be equally and ratably
secured with any and all such indebtedness and with any other indebtedness
similarly entitled to be equally and ratably secured. However, this
restriction shall not apply to or prevent the creation or existence of:
(1) the Mortgage securing the Company's First Mortgage Bonds or any
indenture supplemental thereto subjecting any property to the
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Lien thereof or confirming the Lien thereof upon any property,
whether now owned or hereafter acquired;
(2) Liens on property existing at the time of acquisition or
construction of such property (or created within one year after
completion of such acquisition or construction), whether by
purchase, merger, construction or otherwise (or on the property
of a Subsidiary at the date it became a Subsidiary), or to
secure the payment of all or any part of the purchase price or
construction cost thereof, including the extension of any such
Liens to repairs, renewals, replacements, substitutions,
betterments, additions, extensions and improvements then or
thereafter made on the property subject thereto;
(3) any extensions, renewals or replacements (or successive
extensions, renewals or replacements), in whole or in part of
Liens (including, without limitation, the Mortgage) permitted
by the foregoing clauses (1) and (2);
(4) the pledge of any bonds or other securities at any time issued
under any of the Liens permitted by clauses (1), (2) or (3); or
(5) Permitted Encumbrances.
Further, this restriction shall not apply to or prevent the creation
or existence of leases made, or existing on property acquired, in the ordinary
course of business.
ARTICLE 5--SUCCESSORS
SECTION 5.01. When Company May Merge, etc.
Unless the Securities Resolution establishing a series otherwise
provides, the Company shall not consolidate with or merge into, or transfer
all or substantially all of its assets to, any Person unless:
(1) the Person is organized under the laws of the United States or
a State thereof;
(2) the Person assumes by supplemental indenture all the
obligations of the Company under this Indenture, the Securities
and any coupons; and
(3) immediately after the transaction no Default exists.
The successor shall be substituted for the Company, and thereafter
all obligations of the Company under this Indenture, the Securities and any
coupons shall terminate.
ARTICLE 6--DEFAULTS AND REMEDIES
SECTION 6.01. Events of Default.
Unless the Securities Resolution establishing a series otherwise
provides, an "Event of Default" on the series so established occurs if:
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(1) the Company defaults in any payment of interest on any
Securities of the series when the same becomes due and payable
and the Default continues for a period of 60 days;
(2) the Company defaults in the payment of the principal of any
Securities of the series when the same becomes due and payable
at maturity or upon redemption, acceleration or otherwise;
(3) the Company defaults in the payment or satisfaction of any
sinking fund obligation with respect to any Securities of a
series as required by the Securities Resolution establishing
such series and the Default continues for a period of 60 days;
(4) the Company defaults in the performance of any of its other
agreements applicable to the series and the Default continues
for 90 days after the notice specified below;
(5) the Company pursuant to or within the meaning of any Bankruptcy
Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a Custodian for it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors;
(6) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case,
(B) appoints a Custodian for the Company or for all or
substantially all of its property, or
(C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 60
days; or
(7) there occurs any other Event of Default provided for in the
series.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or State law for the relief of debtors. The term "Custodian" means
any receiver, trustee, assignee, liquidator or a similar official under any
Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the series
notify the Company of the Default and the Company does not cure the Default
within the time specified after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default." If Holders notify the Company of a Default, they shall
notify the Trustee at the same time.
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The failure to redeem any Security subject to a Conditional
Redemption is not an Event of Default if any event on which such redemption is
so conditioned does not occur before the redemption date.
SECTION 6.02. Acceleration.
If an Event of Default occurs and is continuing on a series, the
Trustee by notice to the Company, or the Holders of at least 25% in principal
amount of the series by notice to the Company and the Trustee, may declare the
principal of and accrued interest on all the Securities of the series to be
due and payable immediately. Discounted Securities may provide that the
amount of principal due upon acceleration is less than the stated principal
amount.
The Holders of a majority in principal amount of the series by notice
to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default on the series have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing on a series, the
Trustee may pursue any available remedy to collect principal or interest then
due on the series, to enforce the performance of any provision applicable to
the series, or otherwise to protect the rights of the Trustee and Holders of
the series.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or coupons or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of a series by notice
to the Trustee may waive an existing Default on the series and its
consequences except:
(1) a Default in the payment of the principal of or interest on the
series, or
(2) a Default in respect of a provision that under Section 9.02
cannot be amended without the consent of each Securityholder
affected.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of a series may direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or of exercising any trust or power conferred on the
Trustee, with respect to the series. However, the Trustee may refuse to fol-
low any direction that conflicts with law or this Indenture.
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SECTION 6.06. Limitation on Suits.
A Securityholder of a series may pursue a remedy with respect to the
series only if:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default on the series;
(2) the Holders of at least 25% in principal amount of the series
make a request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or
expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the series do not give the Trustee a
direction inconsistent with such request.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Collection Suit by Trustee.
If an Event of Default in payment of interest, principal or sinking
fund payment specified in Section 6.01(1), (2) or (3) occurs and is continuing
on a series, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the series.
SECTION 6.08. Priorities.
If the Trustee collects any money for a series pursuant to this
Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.06;
Second: to Securityholders of the series for amounts due and
unpaid for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable for
principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a payment date for any payment to
Securityholders.
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<PAGE> 24
ARTICLE 7--TRUSTEE
SECTION 7.01. Rights of Trustee.
(1) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter
stated in the document.
(2) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in
good faith in reliance on the Certificate or Opinion.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with
due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(5) The Trustee may refuse to perform any duty or exercise any
right or power which it reasonably believes may expose it to
any loss, liability or expense unless it receives indemnity
satisfactory to it against such loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by
law.
(7) The Trustee shall have no duty with respect to a Default unless
a Trust Officer has received written notice of such Default.
(8) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized
and within its powers.
(9) Any Agent shall have the same rights and be protected to the
same extent as if it were Trustee.
SECTION 7.02. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities or coupons and may otherwise deal with the
Company or an Affiliate with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
SECTION 7.03. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities or any coupons; it shall not be accountable
for the Company's use of the proceeds from the Securities; it shall not be
responsible for any statement in the Securities or any coupons; it shall not
be responsible for any overissue; it shall not be responsible for determining
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<PAGE> 25
whether the form and terms of any Securities or coupons were established in
conformity with this Indenture; and it shall not be responsible for
determining whether any Securities were issued in accordance with this
Indenture.
SECTION 7.04. Notice of Defaults.
If a Default occurs and is continuing on a series and if it is known
to the Trustee, the Trustee shall mail a notice of the Default within 90 days
after it occurs to Holders of Registered Securities of the series. Except in
the case of a Default in payment on a series, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of Holders of the
series. The Trustee shall withhold notice of a Default described in Section
6.01(4) until at least 90 days after it occurs.
SECTION 7.05. Reports by Trustee to Holders.
Any report required by TIA Section 313(a) to be mailed to
Securityholders shall be mailed by the Trustee on or before July 15 of each
year.
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which any Securities
are listed. The Company shall notify the Trustee when any Securities are
listed on a stock exchange.
SECTION 7.06. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable out-of-
pocket expenses incurred by it. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee (including its officers,
directors and employees) against any loss or liability incurred by it. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel and the Company shall
pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities and any coupons on all money
or property held or collected by the Trustee, except that held in trust to pay
principal or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(5) or (6) occurs, such expenses and the
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
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<PAGE> 26
The provisions of this Section shall survive any termination or
discharge of this Indenture (including without limitation any termination
under any Bankruptcy Law) and the resignation or removal of the Trustee.
SECTION 7.07. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the Securities may remove the Trustee by so
notifying the Trustee and may appoint a successor Trustee with the Company's
consent.
The Company may remove the Trustee if:
(1) the Trustee fails to comply with TIA Section 310(a) or TIA
Section 310(b) or with Section 7.09;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a Custodian or other public officer takes charge of the Trustee
or its property;
(4) the Trustee becomes incapable of acting; or
(5) an event of the kind described in Section 6.01(5) or (6) occurs
with respect to the Trustee.
The Company also may remove the Trustee with or without cause if the
Company so notifies the Trustee six months in advance and if no Default occurs
or is continuing during the six-month period.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in principal amount of the Securities may petition
any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with TIA Section 310(a) or TIA
Section 310(b) or with Section 7.09, any Securityholder may petition any court
of competent jurisdiction for the removal of the Trustee and the appointment
of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of Registered Securities. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee,
subject to the Lien provided for in Section 7.06.
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SECTION 7.08. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.09. Trustee's Capital and Surplus.
The Trustee at all times shall have a combined capital and surplus of
at least $10,000,000 as set forth in its most recent published report of
condition.
ARTICLE 8--DISCHARGE OF INDENTURE
SECTION 8.01. Defeasance.
Securities of a series may be defeased in accordance with their terms
and, unless the Securities Resolution establishing the series otherwise
provides, in accordance with this Article.
The Company at any time may terminate as to a series all of its
obligations under this Indenture, the Securities of a series and any related
coupons ("legal defeasance option"). The Company at any time may terminate as
to a series its obligations, if any, under Section 4.07 and any other
restrictive covenants which may be applicable to a particular series
("covenant defeasance option"). However, in the case of the legal defeasance
option, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
2.08, 7.06, 7.07 and 8.04 shall survive until the Securities of the series are
no longer outstanding; thereafter the Company's obligations in Section 7.06
shall survive.
The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If the Company
exercises its legal defeasance option, a series may not be accelerated because
of an Event of Default. If the Company exercises its covenant defeasance
option, a series may not be accelerated by reference to Section 4.07 or any
other restrictive covenants which may be applicable to a particular series so
defeased under the terms of the series.
The Trustee upon request shall acknowledge in writing the discharge
of those obligations that the Company terminates.
SECTION 8.02. Conditions to Defeasance.
The Company may exercise as to a series its legal defeasance option
or its covenant defeasance option if:
(1) the Company irrevocably deposits in trust with the Trustee or
another trustee money or U.S. Government Obligations;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants
expressing their opinion that the payments of principal and
interest when due on the deposited U.S. Government Obligations
without reinvestment plus any deposited money without
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<PAGE> 28
investment will provide cash at such times and in such amounts
as will be sufficient to pay principal and interest when due on
all the Securities of the series to maturity or redemption, as
the case may be;
(3) immediately after the deposit no Default exists;
(4) the deposit does not constitute a default under any other
agreement binding on the Company;
(5) the deposit does not cause the Trustee to have a conflicting
interest under TIA Section 310(a) or TIA Section 310(b) as to
another series;
(6) the Company delivers to the Trustee an Opinion of Counsel to
the effect that Holders of the series will not recognize
income, gain or loss for Federal income tax purposes as a
result of the defeasance; and
(7) 91 days pass after the deposit is made and during the 91-day
period no Default specified in Section 6.01(5) or (6) occurs
that is continuing at the end of the period.
Before or after a deposit the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article 3.
"U.S. Government Obligations" means securities which are direct
obligations of (i) the United States or (ii) an agency or instrumentality of
the United States, the payment of which is unconditionally guaranteed by the
United States, which, in either case, have the full faith and credit of the
United States pledged for payment and are not callable at the issuer's option,
or certificates representing an ownership interest in such obligations.
SECTION 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.02. It shall apply the deposited
money and the money from U.S. Government Obligations through the Paying Agent
and in accordance with this Indenture to the payment of principal and interest
on Securities of the defeased series.
SECTION 8.04. Repayment to Company.
The Trustee and the Paying Agent shall promptly turn over to the
Company upon request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal or interest that
remains unclaimed for two years. After payment to the Company,
Securityholders entitled to the money must look to the Company for payment as
unsecured general creditors unless an abandoned property law designates
another person.
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ARTICLE 9--AMENDMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company and the Trustee may amend this Indenture, the Securities
or any coupons without the consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide that specific provisions of this Indenture shall not
apply to a series not previously issued;
(4) to create a series and establish its terms;
(5) to provide for a separate Trustee for one or more series; or
(6) to make any change that does not materially adversely affect
the rights of any Securityholder.
SECTION 9.02. With Consent of Holders.
The Company and the Trustee may amend this Indenture, the Securities
and any coupons with the written consent of the Holders of a majority in
principal amount of the Securities of all series affected by the amendment
voting as one class. However, without the consent of each Securityholder
affected, an amendment under this Section may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment;
(2) reduce the interest on or change the time for payment of
interest on any Security;
(3) change the fixed maturity of any Security;
(4) reduce the principal of any non-Discounted Security or reduce
the amount of principal of any Discounted Security that would
be due upon an acceleration thereof;
(5) change the currency in which principal or interest on a
Security is payable; or
(6) make any change in Section 6.04 or 9.02, except to increase the
amount of Securities whose Holders must consent to an amendment
or waiver or to provide that other provisions of this Indenture
cannot be amended or waived without the consent of each
Securityholder affected thereby.
An amendment of a provision included solely for the benefit of one or
more series does not affect Securityholders of any other series.
Securityholders need not consent to the exact text of a proposed
amendment or waiver; it is sufficient if they consent to the substance
thereof.
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<PAGE> 30
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment pursuant to Section 9.01 or 9.02 shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
If a provision of the TIA requires or permits a provision of this
Indenture and the TIA provision is amended, then the Indenture provision shall
be automatically amended to like effect.
SECTION 9.04. Effect of Consents.
An amendment or waiver becomes effective in accordance with its terms
and thereafter binds every Securityholder entitled to consent to it.
A consent to an amendment or waiver by a Holder of a Security is a
continuing consent by the Holder and every subsequent Holder of a Security
that evidences the same debt as the consenting Holder's Security. Any Holder
or subsequent Holder may revoke the consent as to his Security if the Trustee
receives notice of the revocation before the amendment or waiver becomes
effective.
The Company may fix a record date for the determination of Holders of
Registered Securities entitled to give a consent. The record date shall not
be less than 10 nor more than 60 days prior to the first written solicitation
of Securityholders.
SECTION 9.05. Notation on or Exchange of Securities.
The Company or the Trustee may place an appropriate notation about an
amendment or waiver on any Security thereafter authenticated. The Company may
issue in exchange for affected Securities new Securities that reflect the
amendment or waiver.
SECTION 9.06. Trustee Protected.
The Trustee need not sign any supplemental indenture that adversely
affects its rights. The Trustee shall be entitled to receive, and shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate each stating that the execution of any amendment or supplement or
waiver authorized pursuant to this Article is authorized or permitted by this
Indenture, and that such amendment or supplement or waiver constitutes the
legal, valid and binding obligation of the Company.
ARTICLE 10--MISCELLANEOUS
SECTION 10.01. Trust Indenture Act.
The provisions of TIA Sections 310 through 317 that impose duties on
any person (including the provisions automatically deemed included herein
unless expressly excluded by this Indenture) are a part of and govern this
Indenture, whether or not expressly set forth herein.
If any provision of this Indenture limits, qualifies or conflicts
with another provision which is required to be included in this Indenture by
the TIA, the required provision shall control.
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<PAGE> 31
SECTION 10.02. Notices.
Any notice by one party to another is duly given if in writing and
delivered in person, sent by facsimile transmission confirmed by mail or
mailed by first-class mail to the other's address shown below:
Company: Wisconsin Electric Power Company
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
Attention: Corporate Secretary
Trustee: Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Corporate Trust Department
A party by notice to the other parties may designate additional or
different addresses for subsequent notices.
Any notice mailed to a Securityholder shall be mailed to his address
shown on the register kept by the Transfer Agent or on the list referred to in
Section 2.06. Failure to mail a notice to a Securityholder or any defect in a
notice mailed to a Securityholder shall not affect the sufficiency of the
notice mailed to other Securityholders or the sufficiency of any published
notice.
If a notice is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice to Securityholders, it shall mail a
copy to the Trustee and each Agent at the same time.
If in the Company's opinion it is impractical to mail a notice
required to be mailed or to publish a notice required to be published, the
Company may give such substitute notice as the Trustee approves. Failure to
publish a notice as required or any defect in it shall not affect the
sufficiency of any mailed notice.
All notices shall be in the English language, except that any
published notice may be in an official language of the country of publication.
A "notice" includes any communication required by this Indenture.
SECTION 10.03. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall if so requested furnish to
the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
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<PAGE> 32
SECTION 10.04. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such cove-
nant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 10.05. Rules by Company and Agents.
The Company may make reasonable rules for action by or a meeting of
Securityholders. An Agent may make reasonable rules and set reasonable
requirements for its functions.
SECTION 10.06. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open. If a payment date is a Legal
Holiday at a place of payment, unless the Securities Resolution establishing a
series otherwise provides with respect to Securities of the series, payment
may be made at that place on the next succeeding day that is not a Legal Holi-
day, and no interest shall accrue for the intervening period.
SECTION 10.07. No Recourse Against Others.
All liability described in the Securities of any director, officer,
employee or stockholder, as such, of the Company is waived and released.
SECTION 10.08. Duplicate Originals.
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
SECTION 10.09. Governing Law.
The laws of the State of Wisconsin shall govern this Indenture, the
Securities and any coupons, unless federal law governs.
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<PAGE> 33
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first above written.
WISCONSIN ELECTRIC POWER COMPANY
(CORPORATE SEAL)
By /s/ Richard R. Grigg, Jr.
-------------------------------
Richard R. Grigg, Jr.
President and Chief
Operating Officer
Attest:
/s/ Ann Marie Brady
- -------------------------
Ann Marie Brady
Secretary
FIRSTAR TRUST COMPANY
By /s/ Gene E. Ploeger
-------------------------------
(CORPORATE SEAL) Gene Ploeger
Assistant Vice President
Attest:
/s/ Amy E. Nolde
- -------------------------
Amy Nolde
Assistant Secretary
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<PAGE> 34
(THIS PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 35
STATE OF WISCONSIN,)
) ss.:
COUNTY OF MILWAUKEE)
On this 6th day of December, 1995, before me personally appeared
Richard R. Grigg, Jr. and Ann Marie Brady to me personally known who being by
me severally duly sworn, did say: that Richard R. Grigg, Jr. is President and
Chief Operating Officer and Ann Marie Brady is Secretary of WISCONSIN ELECTRIC
POWER COMPANY, and that the seal affixed to the foregoing instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors;
and said Richard R. Grigg, Jr. and Ann Marie Brady severally acknowledged said
instrument to be the free act and deed of said corporation.
/s/ Karen G. Paul
- ------------------------------
Notary Public
State of Wisconsin
My Commission expires 10/12/97
(SEAL OF NOTARY PUBLIC)
STATE OF WISCONSIN,)
) ss.:
COUNTY OF MILWAUKEE)
On this 6th day of December, 1995, before me personally appeared Gene
Ploeger and Amy Nolde to me personally known, who being by me severally duly
sworn, did say: that Gene Ploeger is an Assistant Vice President and Amy
Nolde is an Assistant Secretary of FIRSTAR TRUST COMPANY, and that the seal
affixed to the foregoing instrument is the corporate seal of said corporation
and that said instrument was signed and sealed on behalf of said corporation
by authority of its Board of Directors; and said Gene Ploeger and Amy Nolde
severally acknowledged said instrument to be the free act and deed of said
corporation.
/s/ Janice S. Grezinski
- ------------------------
Notary Public
State of Wisconsin
My Commission expires 2-2-97
(SEAL OF NOTARY PUBLIC)
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(THIS PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 37
EXHIBIT A
A Form of Registered Security
No._____________ $_____________
WISCONSIN ELECTRIC POWER COMPANY
[Title of Security]
WISCONSIN ELECTRIC POWER COMPANY
promises to pay to ______________________________________________
or registered assigns
the principal sum of ____________ Dollars on ______________, ____
Interest Payment Dates: ___________________
Record Dates: ___________________
Dated:
FIRSTAR TRUST COMPANY WISCONSIN ELECTRIC POWER COMPANY
Transfer Agent and Paying Agent
by
______________________________
Authenticated: [Title of Authorized Officer]
FIRSTAR TRUST COMPANY (CORPORATE SEAL)
Registrar, by
______________________________ ______________________________
Authorized Signature [Assistant] Secretary
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<PAGE> 38
WISCONSIN ELECTRIC POWER COMPANY
[Title of Security]
1. Interest.(1)
Wisconsin Electric Power Company (the "Company"), a Wisconsin
corporation, promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay
interest semiannually on _________________ and _________________ of
each year commencing ________________, 19__. Interest on the
Securities will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from
_________________, 19__. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment.(2)
The Company will pay interest on the Securities to the persons who
are registered holders of Securities at the close of business on the
record date for the next interest payment date, except as otherwise
provided in the Indenture. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts.
The Company may pay principal and interest by check payable in such
money. It may mail an interest check to a holder's registered
address.
3. Securities Agents.(2A)
Initially, Firstar Trust Company will act as Paying Agent, Transfer
Agent and Registrar. The Company may change any Paying Agent or
Transfer Agent without notice. The Company or any Affiliate may act
in any such capacity. Subject to certain conditions, the Company may
change the Trustee.
4. Indenture.
The Company issued the securities of this series (the "Securities")
under an Indenture dated as of December 1, 1995 (the "Indenture")
between the Company and Firstar Trust Company (the "Trustee"). The
terms of the Securities include those stated in the Indenture and in
the Securities Resolution establishing the Securities and those made
part of the Indenture by the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb). Securityholders are referred to the
Indenture, the Securities Resolution and such Act for a statement of
such terms.
5. Optional Redemption.(3)
On or after _____________, ____, the Company may redeem all the
Securities at any time or some of them from time to time at the
following redemption prices (expressed in percentages of principal
amount), plus accrued interest to the redemption date.
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<PAGE> 39
If redeemed during the 12-month period beginning _______________,
Year Percentage Year Percentage
and thereafter at 100%.
6. Mandatory Redemption.(4)
The Company will redeem $____________ principal amount of Securities
on _________________________ and on each _______________ thereafter
through ____________________ at a redemption price of 100% of
principal amount, plus accrued interest to the redemption date.(5)
The Company may reduce the principal amount of Securities to be
redeemed pursuant to this paragraph by subtracting 100% of the
principal amount (excluding premium) of any Securities (i) that the
Company has acquired or that the Company has redeemed other than
pursuant to this paragraph and (ii) that the Company has delivered to
the Registrar for cancellation. The Company may so subtract the same
Security only once.
7. Additional Optional Redemption.(6)
In addition to redemptions pursuant to the above paragraph(s), the
Company may redeem not more than $____________ principal amount of
Securities on ________________________ and on each __________________
thereafter through __________________ at a redemption price of 100%
of principal amount, plus accrued interest to the redemption date.
8. Notice of Redemption.(7)
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of Securities
to be redeemed at his registered address.
9. Denominations, Transfer, Exchange.
The Securities are in registered form without coupons in
denominations of $1,000(8) and whole multiples of $1,000. The
transfer of Securities may be registered and Securities may be
exchanged as provided in the Indenture. The Transfer Agent may
require a holder, among other things, to furnish appropriate endorse-
ments and transfer documents and to pay any taxes and fees required
by law or the Indenture. The Transfer Agent need not exchange or
register the transfer of any Security or portion of a Security
selected for redemption. Also, it need not exchange or register the
transfer of any Securities for a period of 15 days before a selection
of Securities to be redeemed.
10. Persons Deemed Owners.
The registered holder of a Security may be treated as its owner for
all purposes.
11. Amendments and Waivers.
Subject to certain exceptions, the Indenture or the Securities may be
amended with the consent of the holders of a majority in principal
amount of the securities of all series affected by the amendment.(9)
-35-
<PAGE> 40
Subject to certain exceptions, a default on a series may be waived
with the consent of the holders of a majority in principal amount of
the series.
Without the consent of any Securityholder, the Indenture or the
Securities may be amended, among other things, to cure any ambiguity,
omission, defect or inconsistency; to provide for assumption of Com-
pany obligations to Securityholders; or to make any change that does
not materially adversely affect the rights of any Securityholder.
12. Restrictive Covenants.(10)
The Securities are unsecured general obligations of the Company
limited to $____________ principal amount. The Indenture does not
limit other unsecured debt. Section 4.07 of the Indenture, which if
applicable limits certain mortgages and other liens, [will] [will
not] apply with respect to the Securities. [The limitations are
subject to a number of important qualifications and exceptions.]
13. Successors.
When a successor assumes all the obligations of the Company under the
Securities and the Indenture, the Company will be released from those
obligations.
14. Defeasance Prior to Redemption or Maturity.(11)
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the
Securities to redemption or maturity. U.S. Government Obligations
are securities backed by the full faith and credit of the United
States of America or certificates representing an ownership interest
in such Obligations.
15. Defaults and Remedies.
An Event of Default(12) includes: default for 60 days in payment of
interest on the Securities; default in payment of principal on the
Securities; default for 60 days in the payment of any sinking fund
obligation; default by the Company for a specified period after
notice to it in the performance of any of its other agreements
applicable to the Securities; certain events of bankruptcy or
insolvency; and any other Event of Default provided for in the
series. If an Event of Default occurs and is continuing, the Trustee
or the holders of at least 25% in principal amount of the Securities
may declare the principal(13) of all the Securities to be due and
payable immediately.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, holders of a majority in
principal amount of the Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
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<PAGE> 41
16. Trustee Dealings with Company.
Firstar Trust Company, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may
otherwise deal with those persons, as if it were not Trustee.
17. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for
the issue of the Securities.
18. Authentication.
This Security shall not be valid until authenticated by a manual
signature of the Registrar.
19. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=custodian),
U/G/M/A (=Uniform Gifts to Minors Act), and U/T/M/A (=Uniform
Transfers to Minors Act).
The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture and the Securities Resolution, which
contains the text of this Security in larger type. Requests may be made to:
Corporate Secretary, Wisconsin Electric Power Company, 231 West Michigan
Street, P.O. Box 2046, Milwaukee, WI 53201.
-37-
<PAGE> 42
EXHIBIT B
A Form of Bearer Security
No. _____________ $_____________
WISCONSIN ELECTRIC POWER COMPANY
[Title of Security]
WISCONSIN ELECTRIC POWER COMPANY
promises to pay to bearer
the principal sum of ______________ Dollars on ____________, ____
Interest Payment Dates: _____________________________
Dated:
FIRSTAR TRUST COMPANY WISCONSIN ELECTRIC POWER COMPANY
Transfer Agent and Paying Agent
by
_____________________________
Authenticated: [Title of Authorized Officer]
FIRSTAR TRUST COMPANY (CORPORATE SEAL)
Registrar, by
_____________________________ ___________________________
Authorized Signature [Assistant] Secretary
-38-
<PAGE> 43
WISCONSIN ELECTRIC POWER COMPANY
[Title of Security]
1. Interest.(1)
Wisconsin Electric Power Company (the "Company"), a Wisconsin
corporation, promises to pay to bearer interest on the principal
amount of this Security at the rate per annum shown above. The
Company will pay interest semiannually on __________________________
and __________________________ of each year commencing
_________________, 19__. Interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no
interest has been paid, from ______________, 19__. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment.(2)
Holders must surrender Securities and any coupons to a Paying Agent
to collect principal and interest payments. The Company will pay
principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts.
The Company may pay principal and interest by check payable in such
money.
3. Securities Agents.(2A)
Initially, Firstar Trust Company will act as Transfer Agent, Paying
Agent and Registrar. The Company may change any Paying Agent or
Transfer Agent without notice. The Company or any Affiliate may act
in any such capacity. Subject to certain conditions, the Company may
change the Trustee.
4. Indenture.
The Company issued the securities of this series (the "Securities")
under an Indenture dated as of December 1, 1995 (the "Indenture")
between the Company and Firstar Trust Company (the "Trustee"). The
terms of the Securities include those stated in the Indenture and the
Securities Resolution establishing the series and those made part of
the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb). Securityholders are referred to the
Indenture, the Securities Resolution and such Act for a statement of
such terms.
5. Optional Redemption.(3)
On or after ____________, ____, the Company may redeem all the
Securities at any time or some of them from time to time at the
following redemption prices (expressed in percentages of principal
amount), plus accrued interest to the redemption date.
If redeemed during the 12-month period beginning ___________________,
Year Percentage Year Percentage
and thereafter at 100%.
-39-
<PAGE> 44
6. Mandatory Redemption.(4)
The Company will redeem $_________ principal amount of Securities on
__________________ and on each __________________ thereafter through
_________________ at a redemption price of 100% of principal amount,
plus accrued interest to the redemption date(5). The Company may
reduce the principal amount of Securities to be redeemed pursuant to
this paragraph by subtracting 100% of the principal amount (excluding
premium) of any Securities (i) that the Company has acquired or that
the Company has redeemed other than pursuant to this paragraph and
(ii) that the Company has delivered to the Registrar for
cancellation. The Company may so subtract the same Security only
once.
7. Additional Optional Redemption.(6)
In addition to redemptions pursuant to the above paragraph(s), the
Company may redeem not more than $____________ principal amount of
Securities on __________________ and on each __________________
thereafter through __________________ at a redemption price of 100%
of principal amount, plus accrued interest to the redemption date.
8. Notice of Redemption.(7)
Notice of redemption will be published once in an Authorized
Newspaper in the City of New York and if the Securities are listed on
any stock exchange located outside the United States and such stock
exchange so requires, in any other required city outside the United
States at least 30 days but not more than 60 days before the
redemption date. Notice of redemption also will be mailed to holders
who have filed their names and addresses with the Transfer Agent
within the two preceding years. A holder of Securities may miss
important notices if he fails to maintain his name and address with
the Transfer Agent.
9. Denominations, Transfer, Exchange.
The Securities are in bearer form with coupons in denominations of
$5,000(8) and whole multiples of $5,000. The Securities may be
transferred by delivery and exchanged as provided in the Indenture.
Upon an exchange, the Transfer Agent may require a holder, among
other things, to furnish appropriate documents and to pay any taxes
and fees required by law or the Indenture. The Transfer Agent need
not exchange any Security or portion of a Security selected for
redemption. Also, it need not exchange any Securities for a period
of 15 days before a selection of Securities to be redeemed.
10. Persons Deemed Owners.
The holder of a Security or coupon may be treated as its owner for
all purposes.
11. Amendments and Waivers.
Subject to certain exceptions, the Indenture or the Securities may be
amended with the consent of the holders of a majority in principal
amount of the securities of all series affected by the amendment.(9)
Subject to certain exceptions, a default on a series may be waived
with the consent of the holders of a majority in principal amount of
the series.
-40-
<PAGE> 45
Without the consent of any Securityholder, the Indenture or the
Securities may be amended, among other things, to cure any ambiguity,
omission, defect or inconsistency; to provide for assumption of
Company obligations to Securityholders; or to make any change that
does not materially adversely affect the rights of any
Securityholder.
12. Restrictive Covenants.(10)
The Securities are unsecured general obligations of the Company
limited to $____________ principal amount. The Indenture does not
limit other unsecured debt. Section 4.07 of the Indenture, which if
applicable limits certain mortgages and other liens, [will] [will
not] apply with respect to the Securities. [The limitations are
subject to a number of important qualifications and exceptions.]
13. Successors.
When a successor assumes all the obligations of the Company under the
Securities, any coupons and the Indenture, the Company will be
released from those obligations.
14. Defeasance Prior to Redemption or Maturity.(11)
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities, any coupons and
the Indenture if the Company deposits with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on
the Securities to redemption or maturity. U.S. Government
Obligations are securities backed by the full faith and credit of the
United States of America or certificates representing an ownership
interest in such Obligations.
15. Defaults and Remedies.
An Event of Default(12) includes: default for 60 days in payment of
interest on the Securities; default in payment of principal on the
Securities; default for 60 days in the making of any sinking fund
payment; default by the Company for a specified period after notice
to it in the performance of any of its other agreements applicable to
the Securities; certain events of bankruptcy or insolvency; and any
other Event of Default provided for in the series. If an Event of
Default occurs and is continuing, the Trustee or the holders of at
least 25% in principal amount of the Securities may declare the
principal(13) of all the Securities to be due and payable
immediately.
Securityholders may not enforce the Indenture or the Securities
except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, holders of a majority in
principal amount of the Securities may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
-41-
<PAGE> 46
16. Trustee Dealings with Company.
Firstar Trust Company, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may
otherwise deal with those persons, as if it were not Trustee.
17. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for
the issue of the Securities.
18. Authentication.
This Security shall not be valid until authenticated by a manual
signature of the Registrar.
19. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder
or an assignee, such as: TEN COM (=tenants in common), TEN ENT
(=tenants by the entirety), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=custodian),
U/G/M/A (=Uniform Gifts to Minors Act), and U/T/M/A (=Uniform
Transfers to Minors Act).
The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture and the Securities Resolution, which
contains the text of this Security in larger type. Requests may be made to:
Corporate Secretary, Wisconsin Electric Power Company, 231 West Michigan
Street, P.O. Box 2046, Milwaukee, WI 53201.
-42-
<PAGE> 47
[FACE OF COUPON]
..............
[$]...........
Due...........
WISCONSIN ELECTRIC POWER COMPANY
[Title of Security]
Unless the Security attached to this coupon has been called for redemption,
Wisconsin Electric Power Company (the "Company") will pay to bearer, upon
surrender, the amount shown hereon when due. This coupon may be surrendered
for payment to any Paying Agent listed on the back of this coupon unless the
Company has replaced such Agent. Payment may be made by check. This coupon
represents six months' interest.
___________________________________
By_________________________________
[REVERSE OF COUPON]
PAYING AGENTS
-43-
<PAGE> 48
(THIS PAGE INTENTIONALLY LEFT BLANK)
-44-
<PAGE> 49
NOTES TO EXHIBITS A AND B
(1) If the Security is not to bear interest at a fixed rate per annum, insert
a description of the manner in which the rate of interest is to be
determined. If the Security is not to bear interest prior to maturity,
so state.
(2) If the method or currency of payment is different, insert a statement
thereof.
(2A) As is done in Section 2.03 of the Indenture, the Trustee must be
appointed Registrar under Section 182.23, Wis. Stats., and Wisconsin
Electric Power Company's Bylaws as in effect as of the date of this
Indenture, for officers' signatures on Securities to be in facsimile.
(3) If applicable. If the Security is to be subject to a nonrefunding
restriction, insert a brief summary thereof. If the redemption is to be
subject to a condition, insert a brief summary thereof.
(4) If applicable.
(5) If the Security is a Discounted Security, insert amount to be redeemed or
method of calculating such amount.
(6) If applicable. Also insert, if applicable, provisions for repayment of
Securities at the option of the Securityholder.
(7) If applicable. If the Company may condition such redemption on the
happening of a stated event, in which case the notice will so provide,
insert a brief summary thereof.
(8) If applicable. Insert additional or different denominations.
(9) If different terms apply, insert a brief summary thereof.
(10) If applicable. If the Security is to have the benefit of additional or
different covenants, insert a brief summary thereof.
(11) If applicable. If different defeasance terms apply, insert a brief
summary thereof.
(12) If additional or different Events of Default apply, insert a brief
summary thereof.
(13) If the Security is a Discounted Security, set forth the amount due and
payable upon an Event of Default.
Note: U.S. tax law may require certain legends on Discounted and Bearer
Securities.
-45-
<PAGE> 50
(THIS PAGE INTENTIONALLY LEFT BLANK)
-46-
<PAGE> 51
EXHIBIT C
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print or type assignee's name, address and zip code)
_____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
and irrevocably appoint ___________________________________ agent to transfer
this Security on the books of the Company. The agent may substitute another
to act for him.
Date: _______________ Your Signature: ________________________
________________________
(Sign exactly as your name appears on the face of this Security)
[Signature Guaranteed:
___________________________________]
-47-
<PAGE> 1
Exhibit (4)-2
Closing Document No. 4(f)
ONE HUNDRED YEAR
6-7/8% DEBENTURES DUE DECEMBER 1, 2095
SECURITIES RESOLUTION NO. 1
OF
WISCONSIN ELECTRIC POWER COMPANY
The actions described below are taken by the Board (as defined in the
Indenture referred to below) of WISCONSIN ELECTRIC POWER COMPANY (the
"Company") pursuant to resolutions adopted by the Board of Directors of the
Company as of April 28, 1993, July 26, 1995, August 23, 1995 and October 25,
1995, resolutions adopted by the Finance Committee of the Board of Directors
as of December 5, 1995, and Section 2.01 of the Indenture dated as of
December 1, 1995 (the "Indenture") between the Company and Firstar Trust
Company, as trustee. Terms used herein and not defined have the same meaning
as in the Indenture.
RESOLVED, that a new series of Securities is authorized as follows:
1. The title of the series is One Hundred Year 6-7/8% Debentures due
December 1, 2095 ("6-7/8% Debentures").
2. The form of the 6-7/8% Debentures shall be substantially in the
form of Exhibit 1 hereto.
3. The 6-7/8% Debentures shall have the terms set forth in Exhibit 1.
4. The 6-7/8% Debentures shall have such other terms as are set forth
in Exhibit 2 hereto.
5. The 6-7/8% Debentures shall be sold to the underwriter(s) named in
the Prospectus Supplement dated December 5, 1995 on the following terms:
Price to Public: 97.990%
Underwriting Discount: 1.125%
Closing Date: December 8, 1995
This Securities Resolution shall be effective as of December 5, 1995.
<PAGE> 2
EXHIBIT 1
No. _____________ $_____________
WISCONSIN ELECTRIC POWER COMPANY
One Hundred Year
6-7/8% Debentures due December 1, 2095
WISCONSIN ELECTRIC POWER COMPANY
promises to pay to ______________________________________________
or registered assigns
the principal sum of ____________________________________________ Dollars
on December 1, 2095
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Dated:
FIRSTAR TRUST COMPANY WISCONSIN ELECTRIC POWER COMPANY
Transfer Agent and Paying Agent
by
______________________________
Authenticated: [Title of Authorized Officer]
FIRSTAR TRUST COMPANY (CORPORATE SEAL)
Registrar, by
______________________________ ______________________________
Authorized Signature [Assistant] Secretary
- 2 -
<PAGE> 3
WISCONSIN ELECTRIC POWER COMPANY
One Hundred Year
6-7/8% Debentures due December 1, 2095
1. Interest.
Wisconsin Electric Power Company (the "Company"), a Wisconsin
corporation, promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay
interest semiannually on June 1 and December 1 of each year commencing
June 1, 1996. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been
paid, from December 1, 1995. Interest will be computed on the basis of
a 360-day year of twelve 30-day months.
2. Method of Payment.
The Company will pay interest on the Securities to the persons who are
registered holders of Securities at the close of business on the record
date for the next interest payment date, except as otherwise provided in
the Indenture. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company may pay
principal and interest by check payable in such money. It may mail an
interest check to a holder's registered address.
3. Securities Agents.
Initially, Firstar Trust Company will act as Paying Agent, Transfer
Agent and Registrar. The Company may change any Paying Agent or
Transfer Agent without notice. The Company or any Affiliate may act in
any such capacity. Subject to certain conditions, the Company may
change the Trustee.
4. Indenture.
The Company issued the securities of this series (the "Securities")
under an Indenture dated as of December 1, 1995 (the "Indenture")
between the Company and Firstar Trust Company (the "Trustee"). The
terms of the Securities include those stated in the Indenture and in the
Securities Resolution establishing the Securities and those made part of
the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb). Securityholders are referred to the Indenture,
the Securities Resolution and such Act for a statement of such terms.
5. Redemption.
The Securities will not be redeemable prior to maturity.
6. Denominations, Transfer, Exchange.
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. The transfer of Securities may
be registered and Securities may be exchanged as provided in the
Indenture. The Transfer Agent may require a holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or the Indenture. The Transfer Agent
- 3 -
<PAGE> 4
need not exchange or register the transfer of any Security or portion of
a Security selected for redemption. Also, it need not exchange or
register the transfer of any Securities for a period of 15 days before a
selection of Securities to be redeemed.
7. Persons Deemed Owners.
The registered holder of a Security may be treated as its owner for all
purposes.
8. Amendments and Waivers.
Subject to certain exceptions, the Indenture or the Securities may be
amended with the consent of the holders of a majority in principal
amount of the securities of all series affected by the amendment.
Subject to certain exceptions, a default on a series may be waived with
the consent of the holders of a majority in principal amount of the
series.
Without the consent of any Securityholder, the Indenture or the
Securities may be amended, among other things, to cure any ambiguity,
omission, defect or inconsistency; to provide for assumption of Company
obligations to Securityholders; or to make any change that does not
materially adversely affect the rights of any Securityholder.
9. Restrictive Covenants.
The Securities are unsecured general obligations of the Company limited
to $100,000,000 principal amount. The Indenture does not limit other
unsecured debt. Section 4.07 of the Indenture, which if applicable
limits certain mortgages and other liens, will apply with respect to the
Securities. The limitations are subject to a number of important
qualifications and exceptions.
10. Successors.
When a successor assumes all the obligations of the Company under the
Securities and the Indenture, the Company will be released from those
obligations.
11. Defeasance Prior to Redemption or Maturity.
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if
the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Securities
to redemption or maturity. U.S. Government Obligations are securities
backed by the full faith and credit of the United States of America or
certificates representing an ownership interest in such Obligations.
12. Defaults and Remedies.
An Event of Default includes: default for 60 days in payment of interest
on the Securities; default in payment of principal on the Securities;
default for 60 days in the payment of any sinking fund obligation;
default by the Company for a specified period after notice to it in the
performance of any of its other agreements applicable to the Securities;
certain events of bankruptcy or insolvency; and any other Event of
- 4 -
<PAGE> 5
Default provided for in the series. If an Event of Default occurs and
is continuing, the Trustee or the holders of at least 25% in principal
amount of the Securities may declare the principal of all the Securities
to be due and payable immediately.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders notice of
any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with Company.
Firstar Trust Company, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may
otherwise deal with those persons, as if it were not Trustee.
14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Securityholder
by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
15. Authentication.
This Security shall not be valid until authenticated by a manual
signature of the Registrar.
16. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by
the entirety), JT TEN (=joint tenants with right of survivorship and not
as tenants in common), CUST (=custodian), U/G/M/A (=Uniform Gifts to
Minors Act), and U/T/M/A (=Uniform Transfers to Minors Act).
The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture and the Securities Resolution, which
contains the text of this Security in larger type. Requests may be made to:
Corporate Secretary, Wisconsin Electric Power Company, 231 West Michigan
Street, P.O. Box 2046, Milwaukee, WI 53201.
- 5 -
<PAGE> 6
EXHIBIT 2
6-7/8% Debentures
Supplemental Terms
In addition to the terms set forth in Exhibit 1 to Securities Resolution
No. 1, the 6-7/8% Debentures shall have the following terms:
Section 1. Definitions. Capitalized terms used and not defined herein
shall have the meaning given such terms in the Indenture. The following is an
additional definition applicable to the 6-7/8% Debentures:
"Depositary" means, with respect to the 6-7/8% Debentures issued as a
global Security, The Depository Trust Company, New York, New York, or
any successor thereto registered under the Securities Exchange Act of
1934 or other applicable statute or regulation.
Section 2. Securities Issuable as Global Securities.
(a) The 6-7/8% Debentures shall be issued in the form of one or more
permanent global Securities and shall, except as otherwise provided in this
Section 2, be registered only in the name of the Depositary or its nominee.
Each global Security shall bear a legend substantially to the following
effect:
"Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to the Company or its agent for registration
of transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or to such other entity as is requested by
an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein."
(b) If at any time (i) the Depositary with respect to the 6-7/8%
Debentures notifies the Company that it is unwilling or unable to continue as
Depositary for such global Security or (ii) the Depositary for the 6-7/8%
Debentures shall no longer be eligible or in good standing under the
Securities Exchange Act of 1934 or other applicable statute or regulation, the
Company shall appoint a successor Depositary with respect to such global
Security. If a successor Depositary for such global Security is not appointed
by the Company within 90 days after the Company receives such notice or
becomes aware of such ineligibility, the Transfer Agent shall register the
exchange of such global Security for an equal principal amount of Registered
Securities in the manner provided in Section 2.07 of the Indenture.
(c) The Transfer Agent shall register the transfer or exchange of a
global Security for Registered Securities pursuant to Section 2.07 of the
Indenture if (i) a Default or Event of Default shall have occurred and be
continuing with respect to the 6-7/8% Debentures or (ii) the Company
determines that the 6-7/8% Debentures shall no longer be represented by global
Securities.
- 6 -
<PAGE> 7
(d) In any exchange provided for in the preceding paragraphs (b) or
(c), the Company will execute and the Registrar will authenticate and deliver
Registered Securities. Registered Securities issued in exchange for a global
Security shall be in such names and denominations as the Depositary for such
global Security shall instruct the Registrar. The Registrar shall deliver
such Registered Securities to the persons in whose names such Securities are
so registered.
(e) The 6-7/8% Debentures will trade in the Depositary's Same-Day
Funds Settlement System. All payments of principal and interest on global
Securities will be made by the Company in immediately available funds.
- 7 -
<PAGE> 1
Exhibit (23)-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements and Prospectuses constituting part of the Registration Statements
on Form S-3 (Nos. 33-51749 and 33-64343) of Wisconsin Electric Power Company
of our report dated February 5, 1996, except as to the Environmental
Contingencies section of Note 8, which is as of February 19, 1996, relating to
the financial statements of Northern States Power Company, a Wisconsin
Corporation ("NSP-WI"), appearing in NSP-WI's Form 10-K for the year ended
December 31, 1995, which is incorporated by reference in this Form 10-K.
/s/Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
March 28, 1996
<PAGE> 1
Exhibit (23)-3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
and Prospectuses on Form S-3 (Nos. 33-51749 and 33-64343) of Wisconsin
Electric Power Company of our report dated January 27, 1995 appearing on page
23 in Item 8 of the Annual Report on Form 10-K of Northern States Power
Company (Wisconsin) for the fiscal year ended December 31, 1995 (File No. 10-
3140).
/s/Deloitte & Touche LLP
- ------------------------
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS OF WISCONSIN ELECTRIC POWER
COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,910,554
<OTHER-PROPERTY-AND-INVEST> 427,627
<TOTAL-CURRENT-ASSETS> 517,724
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 463,019
<TOTAL-ASSETS> 4,318,924
<COMMON> 332,893
<CAPITAL-SURPLUS-PAID-IN> 280,689
<RETAINED-EARNINGS> 1,082,983
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,696,565
0
30,451
<LONG-TERM-DEBT-NET> 1,137,314
<SHORT-TERM-NOTES> 100,885
<LONG-TERM-NOTES-PAYABLE> 165,350
<COMMERCIAL-PAPER-OBLIGATIONS> 49,809
<LONG-TERM-DEBT-CURRENT-PORT> 30,000
0
<CAPITAL-LEASE-OBLIGATIONS> 22,505
<LEASES-CURRENT> 21,419
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,064,626
<TOT-CAPITALIZATION-AND-LIAB> 4,318,924
<GROSS-OPERATING-REVENUE> 1,770,484
<INCOME-TAX-EXPENSE> 141,029
<OTHER-OPERATING-EXPENSES> 1,300,434
<TOTAL-OPERATING-EXPENSES> 1,441,463
<OPERATING-INCOME-LOSS> 329,021
<OTHER-INCOME-NET> 21,272
<INCOME-BEFORE-INTEREST-EXPEN> 350,293
<TOTAL-INTEREST-EXPENSE> 109,625
<NET-INCOME> 240,668
1,203
<EARNINGS-AVAILABLE-FOR-COMM> 239,465
<COMMON-STOCK-DIVIDENDS> 159,576
<TOTAL-INTEREST-ON-BONDS> 99,727
<CASH-FLOW-OPERATIONS> 438,090
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
Earnings per share of common stock is not applicable because all of the
company's common stock is owned by Wisconsin Energy Corporation.
See financial statements and notes in accompanying 10-K.
</TABLE>
