UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
001-01245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether 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 each Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date (August 10, 2000):
Common Stock, $10 Par Value 33,289,327 shares outstanding.
Wisconsin Energy Corporation is the sole holder of Wisconsin
Electric Power Company Common Stock.
<TABLE>
<CAPTION>
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<S> <C>
Item Page
---- ----
Introduction...............................................................
Part I - Financial Information
------------------------------
1. Financial Statements
Condensed Income Statement...............................................
Condensed Balance Sheet..................................................
Statement of Cash Flows..................................................
Notes to Financial Statement.............................................
2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations...........................
3. Quantitative and Qualitative Disclosures About Market Risk.................
Part II - Other Information
---------------------------
1. Legal Proceedings..........................................................
4. Submission of Matters to a Vote of Security Holders........................
6. Exhibits and Reports on Form 8-K...........................................
Signatures.................................................................
</TABLE>
INTRODUCTION
Wisconsin Electric Power Company, a wholly-owned subsidiary of
Wisconsin Energy Corporation ("Wisconsin Energy"), is an
electric, gas and steam utility ("Wisconsin Electric" or "the
Company") with operations in the states of Wisconsin and
Michigan. The unaudited interim financial statements presented
in this Form 10-Q have been prepared by Wisconsin Electric
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The financial
statements should be read in conjunction with the financial
statements and notes thereto included in Wisconsin Electric's
1999 Annual Report on Form 10-K.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
-------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues $496.9 $469.9 $1,037.7 $997.7
Operating Expenses
Fuel and purchased power 116.5 109.3 221.9 211.1
Cost of gas sold 39.3 27.7 108.6 96.6
Other operation and maintenance 165.8 163.2 326.6 336.6
Depreciation, decommissioning
and amortization 67.0 54.0 133.5 114.7
Property and revenue tax 16.9 16.8 34.3 33.6
------ ------ -------- ------
Total Operating Expenses 405.5 371.0 824.9 792.6
------ ------ -------- ------
Operating Income 91.4 98.9 212.8 205.1
Other Income and Deductions
Interest income 0.8 1.8 2.4 3.7
Allowance for other funds
used during construction 1.0 1.4 1.9 2.4
Other - (0.4) (0.3) 5.3
------ ------ -------- ------
Total Other Income & Deductions 1.8 2.8 4.0 11.4
Financing Costs
Interest expense 28.9 28.4 58.1 56.8
Allowance for borrowed funds
used during construction (0.5) (0.7) (0.9) (1.2)
------ ------ -------- ------
Total Financing Costs 28.4 27.7 57.2 55.6
------ ------ -------- ------
Income Before Income Taxes 64.8 74.0 159.6 160.9
Income Taxes 24.6 25.6 60.6 56.5
------ ------ -------- ------
Net Income 40.2 48.4 99.0 104.4
Preferred Stock Dividend Requirement 0.3 0.3 0.6 0.6
------ ------ -------- ------
Earnings Available for Common
Stockholder $39.9 $48.1 $98.4 $103.8
====== ====== ======== ======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
June 30, 2000 December 31, 1999
------------- -----------------
(Millions of Dollars)
<S> <C> <C>
Assets
------
Property, Plant and Equipment
Electric utility $5,221.1 $5,070.2
Gas utility 564.4 552.4
Steam utility 63.9 63.5
Common utility 396.9 391.8
Other property 7.8 7.6
Accumulated provision for depreciation (3,330.1) (3,189.9)
-------- --------
2,924.0 2,895.6
Construction work in progress 79.0 99.0
Leased facilities - net 124.5 127.3
Nuclear fuel - net 87.2 83.4
-------- --------
Net Property, Plant and Equipment 3,214.7 3,205.3
Investments 707.6 663.8
Current Assets
Cash and cash equivalents 8.0 49.9
Accounts receivable 171.5 166.6
Accrued utility revenues 90.3 133.4
Materials, supplies and fossil fuel 191.0 197.2
Prepayments and other assets 65.2 98.8
-------- --------
Total Current Assets 526.0 645.9
Deferred Charges and Other Assets
Accumulated deferred income taxes 192.4 188.2
Other 361.7 349.4
-------- --------
Total Deferred Charges and Other Assets 554.1 537.6
-------- --------
Total Assets $5,002.4 $5,052.6
======== ========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $863.6 $863.6
Retained earnings 1,025.9 1,017.3
-------- --------
Total Common Stock Equity 1,889.5 1,880.9
Preferred stock 30.4 30.4
Long-term debt 1,667.2 1,677.6
-------- --------
Total Capitalization 3,587.1 3,588.9
Current Liabilities
Long-term debt due currently 28.5 30.8
Short-term debt 188.6 264.7
Accounts payable 143.5 127.1
Accrued liabilities 101.4 86.1
Other 39.8 39.7
-------- --------
Total Current Liabilities 501.8 548.4
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 608.4 610.0
Other 305.1 305.3
-------- --------
Total Deferred Credits and Other Liabilities 913.5 915.3
-------- --------
Total Capitalization and Liabilities $5,002.4 $5,052.6
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
-------------------------------
2000 1999
----------- -----------
(Millions of Dollars)
<S> <C> <C>
Operating Activities
Net income $99.0 $104.4
Reconciliation to cash
Depreciation, decommissioning
and amortization 133.5 114.7
Nuclear fuel expense - amortization 14.7 11.8
Conservation expense - amortization 2.8 11.2
Debt premium, discount & expense amortization 1.3 1.3
Deferred income taxes - net (6.3) (4.7)
Investment tax credit - net (2.3) (2.3)
Allowance for other funds
used during construction (1.9) (2.4)
Change in - Accounts receivable (4.9) 0.8
Inventories 6.2 17.7
Other current assets 76.7 35.4
Accounts payable 16.4 (27.5)
Other current liabilities 15.4 16.2
Other (0.2) (14.6)
------ ------
Cash Provided by Operating Activities 350.4 262.0
Investing Activities
Capital expenditures (174.6) (183.2)
Allowance for borrowed funds
used during construction (0.9) (1.2)
Nuclear fuel (21.7) (13.7)
Nuclear decommissioning trust (8.8) (8.8)
Other (5.0) (5.7)
------ ------
Cash Used in Investing Activities (211.0) (212.6)
Financing Activities
Issuance of long-term debt - 29.5
Retirement of long-term debt (14.8) (12.1)
Change in short-term debt (76.1) 20.9
Dividends paid on - Common stock (89.8) (89.8)
Preferred stock (0.6) (0.6)
------ ------
Cash Used in Financing Activities (181.3) (52.1)
------ ------
Change in Cash and Cash Equivalents (41.9) (2.7)
Cash and Cash Equivalents at Beginning of Period 49.9 14.2
------ ------
Cash and Cash Equivalents at End of Period $8.0 $11.5
====== ======
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $68.2 $64.1
Income taxes 26.4 62.1
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited financial statements for Wisconsin
Electric Power Company should be read in conjunction with Item 8.
Financial Statements and Supplementary Data in Wisconsin
Electric's 1999 Annual Report on Form 10-K. In the opinion of
management, all adjustments, normal and recurring in nature,
necessary to a fair statement of the results of operations and
financial position of Wisconsin Electric, have been included in
the accompanying income statements and balance sheets. The
results of operations for the three and six months ended June 30,
2000 are not necessarily indicative, however, of the results
which may be expected for the year 2000 because of seasonal and
other factors.
2. Certain prior year financial statement amounts have been
reclassified to conform to their current year presentation.
3. Wisconsin Electric, a wholly-owned subsidiary of Wisconsin
Energy Corporation, has organized its operating segments
according to how it is currently regulated. Wisconsin Electric's
reportable operating segments include electric, natural gas and
steam utility segments. The electric utility engages in the
generation, transmission, distribution and sale of electric
energy in southeastern (including Metropolitan Milwaukee), east
central and northern Wisconsin and in the Upper Peninsula of
Michigan. The natural gas utility is responsible for the
purchase, distribution and sale of natural gas to retail
customers and the transportation of customer-owned natural gas in
four service areas in southeastern, east central, western and
northern Wisconsin. The steam utility produces, distributes and
sells steam to space heating and processing customers in the
Milwaukee, Wisconsin area. The following table summarizes the
reportable operating segments of Wisconsin Electric for the three
and six month periods ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Wisconsin Electric
Power Company Electric Gas Steam Total
------------------ ---------- ------- --------- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Three Months Ended
------------------
June 30, 2000
Operating Revenues (a) $427.2 $64.4 $5.3 $496.9
Operating Income (Loss) (b) 93.3 (2.5) 0.6 91.4
June 30, 1999
Operating Revenues (a) $416.5 $49.5 $3.9 $469.9
Operating Income (Loss) (b) 101.2 (2.1) (0.2) 98.9
Six Months Ended
----------------
June 30, 2000
Operating Revenues (a) $842.1 $182.9 $12.7 $1,037.7
Operating Income (b) 190.7 19.3 2.8 212.8
June 30, 1999
Operating Revenues (a) $814.1 $171.5 $12.1 $997.7
Operating Income (b) 177.4 25.2 2.5 205.1
<FN>
(a) Wisconsin Electric accounts for intersegment revenues at tariff rates
established by the Public Service Commission of Wisconsin. Intersegment
revenues are not material.
(b) Interest income, interest expense and operating income taxes are not
included in segment operating income.
</FN>
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Electric Power Company, a wholly-owned subsidiary of
Wisconsin Energy Corporation, is an energy utility with electric,
natural gas and steam utility operations. See Note 2 above in
Item 1. Financial Statements - "Notes to Financial Statements"
for information concerning the reclassification to current year
presentation of certain amounts in Wisconsin Electric's prior
year financial statements.
CAUTIONARY FACTORS: A number of forward-looking statements are
included in this document. When used, the terms "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "possible,"
"potential," "project" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
are subject to certain risks, uncertainties and assumptions which
could cause actual results to differ materially from those that
are described, including the factors that are noted in "Factors
Affecting Results of Operations" and "Cautionary Factors."
RESULTS OF OPERATIONS - 2000 SECOND QUARTER
EARNINGS
During the second quarter of 2000, Wisconsin Electric's earnings
decreased to $39.9 million compared with $48.1 million during the
second quarter of 1999. The following table reconciles the
change in Wisconsin Electric's earnings between the comparative
periods.
<TABLE>
<CAPTION>
Three Months Ended June 30
----------------------------------------------
Increase
Wisconsin Electric 1999 (Decrease) 2000
------------------------ -------- ---------- --------
(Millions of Dollars)
<S> <C> <C> <C>
Gross Margin:
Electric Utility $307.2 $3.5 $310.7
Gas Utility 21.8 3.3 25.1
Steam Utility 3.9 1.4 5.3
------ ----- ------
Gross Margin 332.9 8.2 341.1
Other Operating Expenses:
Other Operation and Maintenance 163.2 2.6 165.8
Depreciation, Decommissioning
and Amortization 54.0 13.0 67.0
Property and Revenue Taxes 16.8 0.1 16.9
------ ----- ------
Operating Income 98.9 (7.5) 91.4
Other Income, Net 2.8 (1.0) 1.8
Financing Costs 27.7 0.7 28.4
------ ----- ------
Income Before Income Taxes 74.0 (9.2) 64.8
Income Taxes 25.6 (1.0) 24.6
Preferred Stock Dividend Requirement 0.3 - 0.3
------ ----- ------
Earnings Available to Common
Stockholder $48.1 ($8.2) $39.9
====== ===== ======
</TABLE>
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses increased by $2.6 million during the second
quarter of 2000 compared to the second quarter of 1999. The most
significant changes in other operation and maintenance expenses
between the comparative periods include $3.1 million of higher
power generation expenses, $3.0 million of higher electric
distribution expenses and $2.5 million of higher customer account
expenses, offset in part by a $3.3 million decline in customer
service expenses and $2.3 million of lower administrative and
general expenses.
Power generation expenses increased during 2000 primarily due to
differences in the scope and timing of scheduled maintenance
outages for various generating facilities at Wisconsin Electric
in anticipation of the summer cooling season. During the same
period, electric distribution expenses were higher due to
increased forestry and maintenance activity, and customer account
expenses grew primarily due to higher bad debt expenses.
Between the comparative periods, customer service expenses were
lower primarily due to a change in the period over which
conservation expenses are being amortized, and administrative and
general expenses decreased primarily due to a decline in costs
associated with contract labor, which was used during 1999 to
prepare the Company for Year 2000 technology issues.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Depreciation, decommissioning and amortization expenses were
$13.0 million higher during the second quarter of 2000 compared
with the second quarter of 1999. Contributing to the comparative
increase in expenses, at the end of 1999, Wisconsin Electric
completed amortizing a monthly credit to depreciation for pre-
1991 contributions in aid of construction, which reduced
depreciation expense by $5.7 million during the second quarter of
1999. Higher average depreciable plant during the second quarter
of 2000 also contributed to an increase in depreciation expense.
INCOME TAXES: The effective income tax rate increased in the
second quarter of 2000 as compared with the prior year due to the
ending of the amortization of pre-1991 contributions in aid of
construction as described above under the subcaption
"Depreciation, Decommissioning and Amortization Expenses."
Electric Utility Revenues, Gross Margins and Sales
During the second quarter of 2000, Wisconsin Electric's total
electric utility operating revenues increased by $10.7 million or
2.6% compared to the second quarter of 1999, and gross margin on
electric utility operating revenues (electric utility operating
revenues less fuel and purchased power expenses) increased by
$3.5 million or 1.1%. Wisconsin Electric attributes this growth
in part to a 1.7% interim electric retail rate increase in the
Wisconsin jurisdiction that became effective in early April 2000
significantly offset by a weather-related 0.4% decrease in total
electric energy sales. The change in gross margin between the
comparative periods also reflects higher fuel and fixed costs
during the second quarter of 2000 associated with long-term
purchased power contracts into which Wisconsin Electric has
entered.. For additional information concerning the status of
Wisconsin Electric's interim electric retail rate increase, see
Item 1. Legal Proceedings - "Utility Rates and Regulatory
Matters" in Part II of this report.
The following table compares Wisconsin Electric's electric
utility operating revenues, gross margins and electric utility
energy sales during the second quarter of 2000 with similar
information for the second quarter of 1999.
<TABLE>
<CAPTION>
Gross Margin Megawatt-Hour Sales
Three Months Ended June 30 Three Months Ended June 30
Wisconsin Electric -------------------------------- --------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
--------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $137.6 $136.4 0.9% 1,713.4 1,716.8 (0.2%)
Small Commercial/Industrial 132.2 127.5 3.7% 2,019.5 1,957.5 3.2%
Large Commercial/Industrial 118.6 114.8 3.3% 2,959.0 2,945.6 0.5%
Other-Retail/Municipal 13.8 12.3 12.2% 367.1 313.6 17.1%
Resale-Utilities 17.4 19.0 (8.4%) 546.7 704.5 (22.4%)
Other-Operating Revenues 7.6 6.5 16.9% - - -
------ ------ ------- -------
Total Operating Revenues 427.2 416.5 2.6% 7,605.7 7,638.0 (0.4%)
Fuel and Purchased Power: ======= =======
Fuel 75.4 75.3 0.1%
Purchased Power 41.1 34.0 20.9%
------ ------
Total Fuel and Purchased Power 116.5 109.3 6.6%
------ ------
Gross Margin $310.7 $307.2 1.1%
====== ======
Weather - Degree Days (a):
Heating (961 Normal) 952 875 8.8%
Cooling (167 Normal) 160 182 (12.1%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
Compared to the second quarter of 1999, electric energy sales
decreased during the second quarter of 2000 primarily due to
cooler weather and lower opportunity sales. Growth in the
average number of residential, small commercial/industrial and
other retail/municipal customers between the comparative periods
significantly offset the effects of weather on total electric
energy sales. Sales to the Empire and Tilden iron ore mines,
Wisconsin Electric's two largest retail customers, decreased 0.5%
during the second quarter of 2000. Excluding the Empire and
Tilden mines, sales to the remaining large commercial/industrial
customers grew by 0.7%.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the second quarter of 2000, Wisconsin Electric's total gas
utility operating revenues increased by $14.9 million or 30.1%
compared to the second quarter of 1999, and gross margin on gas
utility operating revenues (gas operating revenues less cost of
gas sold) increased by $3.3 million or 15.1%. Significantly
higher per unit gas costs during the second quarter of 2000
primarily drove the increase in operating revenues, while a 3.1%
interim retail gas rate increase that became effective in early
April 2000 contributed to the increase in operating revenues and
gross margin. For additional information concerning the status
of the interim gas retail rate increase, see Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report.
Gas utility operating revenues, gross margins and gas utility
therm deliveries during the comparative periods are summarized
below. Gross margin is a better performance indicator than
revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustment mechanism
that does not impact gross margin. For further information about
the purchased gas adjustment mechanism, see Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report.
<TABLE>
<CAPTION>
Gross Margin Therm Deliveries
Three Months Ended June 30 Three Months Ended June 30
Wisconsin Electric -------------------------------- --------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
--------------------------- ------- ------ -------- ------ ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $32.0 $22.8 40.4% 43.2 43.7 (1.1%)
Commercial/Industrial 18.3 9.7 88.7% 30.5 26.6 14.7%
Interruptible 1.0 1.1 (9.1%) 2.4 3.9 (38.5%)
----- ----- ----- -----
Total Retail Gas Sales 51.3 33.6 52.7% 76.1 74.2 2.6%
Transported Customer-Owned Gas 4.0 2.7 48.1% 77.2 75.6 2.1%
Transported-Interdepartmental 0.6 0.6 - 14.6 17.4 (16.1%)
Other-Operating Revenues 8.5 12.6 (32.5%) - - -
----- ----- ----- -----
Total Operating Revenues 64.4 49.5 30.1% 167.9 167.2 0.4%
Cost of Gas Sold 39.3 27.7 41.9% ===== =====
----- -----
Gross Margin $25.1 $21.8 15.1%
===== =====
Weather - Degree Days (a):
Heating (961 Normal) 952 875 8.8%
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year average.
</FN>
</TABLE>
RESULTS OF OPERATIONS - 2000 YEAR-TO-DATE
EARNINGS
During the first half of 2000, Wisconsin Electric's earnings
decreased to $98.4 million compared with $103.8 million during
the first half of 1999. The following table reconciles the
change in Wisconsin Electric's earnings between the comparative
periods.
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------
Increase
Wisconsin Electric 1999 (Decrease) 2000
------------------------ -------- ---------- --------
(Millions of Dollars)
<S> <C> <C> <C>
Gross Margin:
Electric Utility $603.0 $17.2 $620.2
Gas Utility 74.9 (0.6) 74.3
Steam Utility 12.1 0.6 12.7
------ ----- ------
Gross Margin 690.0 17.2 707.2
Other Operating Expenses:
Other Operation and Maintenance 336.6 (10.0) 326.6
Depreciation, Decommissioning
and Amortization 114.7 18.8 133.5
Property and Revenue Taxes 33.6 0.7 34.3
------ ----- ------
Operating Income 205.1 7.7 212.8
Other Income, Net 11.4 (7.4) 4.0
Financing Costs 55.6 1.6 57.2
------ ----- ------
Income Before Income Taxes 160.9 (1.3) 159.6
Income Taxes 56.5 4.1 60.6
Preferred Stock Dividend Requirement 0.6 - 0.6
------ ----- ------
Earnings Available to Common
Stockholder $103.8 ($5.4) $98.4
====== ===== ======
</TABLE>
OPERATING REVENUES AND GROSS MARGINS: For further information
concerning electric utility operations, see "Electric Utility
Revenues, Gross Margins and Sales" below. For further
information concerning gas utility operations, see "Gas Utility
Revenues, Gross Margins and Therm Deliveries" below.
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses decreased by $10.0 million during the first
half of 2000 compared to the first half of 1999. The most
significant changes in other operation and maintenance expenses
between the comparative periods include a $12.4 million decline
in nuclear non-fuel expenses and a $7.0 million decline in
customer service expenses offset in part by $5.5 million of
higher power generation expenses and $3.2 million of higher
electric distribution expenses.
Nuclear non-fuel expenses were lower during the first six months
of 2000 as a result of continued progress on various performance
improvement initiatives. During the same period, customer
service expenses were lower primarily due to a change in the
period over which conservation expenses are being amortized.
Power generation expenses increased primarily due to differences
in the scope and timing of scheduled maintenance outages for
various facilities at Wisconsin Electric in anticipation of the
summer cooling season. Between the comparative periods, electric
distribution expenses were higher due to increased forestry and
maintenance activity.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Depreciation, decommissioning and amortization expenses were
$18.8 million higher during the first six months of 2000 compared
with the first six months of 1999. Contributing to the
comparative increase in expenses, at the end of 1999, Wisconsin
Electric completed amortizing a monthly credit to depreciation
for pre-1991 contributions in aid of construction, which reduced
depreciation expense by $11.4 million during the first half of
1999. Higher average depreciable plant during the first six
months of 2000 also contributed to an increase in depreciation
expense.
OTHER INCOME, NET: Net other income was $7.4 million lower
between the comparative periods primarily due to the gain on the
sale of certain properties at Wisconsin Electric during the first
half of 1999.
INCOME TAXES: The effective income tax rate increased in the
first half of 2000 as compared with the prior year due to the
ending of the amortization of pre-1991 contributions in aid of
construction as described above under the subcaption
"Depreciation, Decommissioning and Amortization Expenses."
Electric Utility Revenues, Gross Margins and Sales
During the first six months of 2000, Wisconsin Electric's total
electric utility operating revenues increased by $28.0 million or
3.4% compared to the same period during 1999, and gross margin on
electric utility operating revenues increased by $17.2 million or
2.9%. Wisconsin Electric attributes this growth in part to
higher total electric energy sales during 2000 and to a 1.7%
interim electric retail rate increase in the Wisconsin
jurisdiction that became effective in early April 2000. The
change in gross margin between the comparative periods also
reflects a $10.8 million or 5.1% increase in total fuel and
purchased power expenses due in large part to higher generation
required to supply the growth in total electric energy sales
during the first half of 2000 and to higher fuel and fixed costs
associated with long-term purchased power contracts into which
Wisconsin Electric has entered. For additional information
concerning the status of Wisconsin Electric's interim electric
retail rate increase, see Item 1. Legal Proceedings - "Utility
Rates and Regulatory Matters" in Part II of this report.
The following table compares Wisconsin Electric's electric
utility operating revenues, gross margins and electric utility
energy sales during the first six months of 2000 with similar
information for the first six months of 1999.
<TABLE>
<CAPTION>
Gross Margin Megawatt-Hour Sales
Six Months Ended June 30 Six Months Ended June 30
Wisconsin Electric ------------------------------- -------------------------------
Electric Utility Operations 2000 1999 % Change 2000 1999 % Change
--------------------------- ------ ------ -------- ------ ------ --------
(Millions of Dollars) (Thousands, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $282.4 $275.6 2.5% 3,563.8 3,509.0 1.6%
Small Commercial/Industrial 257.2 248.7 3.4% 4,006.2 3,905.9 2.6%
Large Commercial/Industrial 230.1 225.9 1.9% 5,772.3 5,706.2 1.2%
Other-Retail/Municipal 26.9 24.1 11.6% 731.1 622.9 17.4%
Resale-Utilities 31.9 29.1 9.6% 1,153.5 1,120.0 3.0%
Other-Operating Revenues 13.6 10.7 27.1% - - -
------ ------ -------- --------
Total Operating Revenues 842.1 814.1 3.4% 15,226.9 14,864.0 2.4%
Fuel and Purchased Power: ======== ========
Fuel 150.7 146.1 3.1%
Purchased Power 71.2 65.0 9.5%
------ ------
Total Fuel and Purchased Power 221.9 211.1 5.1%
------ ------
Gross Margin $620.2 $603.0 2.9%
====== ======
Weather - Degree Days (a):
Heating (4,332 Normal) 3,883 4,110 (5.5%)
Cooling (167 Normal) 161 182 (11.5%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
Compared with the same period during 1999, electric energy sales
increased 2.4% during the first half of 2000 primarily due to
growth in the average number of residential, small
commercial/industrial and other retail/municipal customers and,
to a lesser extent, due to higher use per large
commercial/industrial customer. Cooler weather between the
comparative periods offset some of the growth in electric energy
sales. Sales to the Empire and Tilden iron ore mines, Wisconsin
Electric's two largest retail customers, decreased 1.4% during
the first half of 2000. Excluding these mine customers, total
electric energy sales between the comparative periods grew by
2.8% and sales to the remaining large commercial/industrial
customers grew by 1.9%.
Gas Utility Revenues, Gross Margins and Therm Deliveries
During the first six months of 2000, Wisconsin Electric's total
gas utility operating revenues increased by $11.4 million or 6.6%
compared with the same period during 1999 while gross margin on
gas utility operating revenues decreased by $0.6 million or 0.8%.
Significantly higher per unit gas costs during the first half of
2000 primarily drove the increase in operating revenues. In
addition, a weather-related decrease in higher margin residential
and commercial/industrial retail gas sales during the winter
months of 2000 offset the impact on operating revenues and gross
margin of a 3.1% interim gas retail rate increase that became
effective in early April 2000. For additional information
concerning the status of the interim gas retail rate increase,
see Item 1. Legal Proceedings - "Utility Rates and Regulatory
Matters" in Part II of this report.
Gas utility operating revenues, gross margins and gas utility
therm deliveries during the comparative periods are summarized
below. Gross margin is a better performance indicator than
revenues because changes in the cost of gas sold are flowed
through to revenue under a purchased gas adjustment mechanism
that does not impact gross margin. For further information about
the purchased gas adjustment mechanism, see Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report.
<TABLE>
<CAPTION>
Gross Margin Therm Deliveries
Six Months Ended June 30 Six Months Ended June 30
Wisconsin Electric ------------------------------- -------------------------------
Gas Utility Operations 2000 1999 % Change 2000 1999 % Change
--------------------------- ------- ------ -------- ------- ------ --------
(Millions of Dollars) (Millions, Except
Degree Days)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Residential $110.3 $114.2 (3.4%) 182.8 195.4 (6.4%)
Commercial/Industrial 60.0 57.2 4.9% 116.0 120.8 (4.0%)
Interruptible 2.4 3.5 (31.4%) 6.7 10.8 (38.0%)
------ ------ ----- -----
Total Retail Gas Sales 172.7 174.9 (1.3%) 305.5 327.0 (6.6%)
Transported Customer-Owned Gas 9.3 6.5 43.1% 186.4 183.8 1.4%
Transported-Interdepartmental 0.9 0.7 28.6% 22.7 21.7 4.6%
Other-Operating Revenues - (10.6) - - - -
------ ------ ----- -----
Total Operating Revenues 182.9 171.5 6.6% 514.6 532.5 (3.4%)
Cost of Gas Sold 108.6 96.6 12.4% ===== =====
------ ------
Gross Margin $74.3 $74.9 (0.8%)
====== ======
Weather - Degree Days (a):
Heating (4,332 Normal) 3,883 4,110 (5.5%)
<FN>
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
</FN>
</TABLE>
FACTORS AFFECTING RESULTS OF OPERATIONS
ACQUISITION OF WICOR, INC.
On April 26, 2000, Wisconsin Energy Corporation, Wisconsin
Electric's parent company, acquired WICOR, Inc., a diversified
holding company with two principal business groups: energy
services and pump manufacturing. Wisconsin Energy is undertaking
a thorough review of WICOR's operations and studying the manner
in which the operations of the two companies can best be
optimized. Wisconsin Energy intends to take such actions as a
result of this review as may be deemed appropriate under the
circumstances including the potential combination of the gas
utility operations of Wisconsin Electric with WICOR's wholly-
owned natural gas distribution utility subsidiary, Wisconsin Gas
Company. Wisconsin Energy currently intends to continue the
primary business operations of WICOR and to continue to use the
physical assets of such primary business operations for that
purpose, while integrating such operations with its own.
LEGAL MATTERS
GIDDINGS & LEWIS INC. / CITY OF WEST ALLIS LAWSUIT: See Item 1.
Legal Proceedings - "Environmental Matters" in Part II of this
report for information concerning a July 1999 jury verdict
against Wisconsin Electric awarding the plaintiffs $4.5 million
of actual damages and $100 million in punitive damages in a
lawsuit alleging that Wisconsin Electric had placed contaminated
wastes at two sites in the City of West Allis, Wisconsin.
INDUSTRY RESTRUCTURING AND COMPETITION
ELECTRIC UTILITY INDUSTRY RESTRUCTURING IN MICHIGAN: On June 3,
2000, the Governor of the state of Michigan signed the "Customer
Choice and Electric Reliability Act" into law empowering the
Michigan Public Service Commission to enforce implementation of
prior electric retail access plans. In effect, the new law
provides that all Michigan retail customers of investor-owned
utilities will have the ability to choose their electric power
producer as of January 1, 2002. As directed by the Michigan
Public Service Commission, utilities such as Wisconsin Electric
are required to submit choice implementation plans by October 1,
2000. Revenue during 1999 from electric retail customers of
Wisconsin Electric in the state of Michigan were approximately
$107 million, representing 5.3% of total utility operating
revenues and 6.3% of total electric utility operating revenues.
Since Wisconsin Electric believes that its power supply costs are
and will be below prevailing market costs, the Company does not
expect many of its Michigan customers to switch to alternative
power suppliers in January of 2002.
NUCLEAR MATTERS
NUCLEAR MANAGEMENT COMPANY: As previously reported, all
participants in the Nuclear Management Company, including
Wisconsin Electric, filed applications with the Nuclear
Regulatory Commission to transfer applicable nuclear generating
unit authority under their operating licenses to the Nuclear
Management Company. This application was approved on May 15,
2000. The Nuclear Management Company assumed operating
responsibility for Point Beach Nuclear Plant with the transfer of
operating authority under the operating licenses on August 7,
2000. Wisconsin Electric continues to own Point Beach and
retains exclusive rights to the energy generated as well as
financial responsibility for the plant's safe operation,
maintenance and decommissioning.
USED NUCLEAR FUEL STORAGE & DISPOSAL: As previously reported,
Wisconsin Electric estimates that it currently has sufficient
temporary used fuel storage capacity to continue operating Point
Beach Nuclear Plant until the Spring of 2005. In May 2000,
Wisconsin Electric applied to the Public Service Commission of
Wisconsin for authority to load additional temporary used fuel
dry storage casks beyond the twelve that are currently
authorized. The application requests authorization for
additional used fuel casks to operate Point Beach Units 1 and 2
to the end of their current operating licenses of 2010 and 2013,
respectively. Wisconsin Electric anticipates that the Public
Service Commission of Wisconsin will issue an order on the
application by the end of the fourth quarter of 2000.
See Item 1. Legal Proceedings - "Other Matters" in Part II of
this report for information concerning the United States
Department of Energy's breach of a contract with Wisconsin
Electric that required the Department of Energy to begin
permanently removing used fuel from Point Beach by January 31,
1998.
UTILITY RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS: See Item 1. Legal Proceedings - "Utility
Rates and Regulatory Matters" in Part II of this report for
information concerning an application that Wisconsin Electric
filed with the Public Service Commission of Wisconsin in
September 1999 requesting incremental price relief as well as for
information concerning a related interim order received in April
2000.
PURCHASED GAS ADJUSTMENT MECHANISM: See Item 1. Legal
Proceedings - "Utility Rates and Regulatory Matters" in Part II
of this report for information concerning a common gas cost
recovery mechanism for Wisconsin Electric's gas operations and
for Wisconsin Gas Company required by the Public Service
Commission of Wisconsin as a condition of its approval of
Wisconsin Energy's merger with WICOR.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities
totaled $350.4 million during the first six months of 2000
compared with $262.0 million during the same period in 1999.
INVESTING ACTIVITIES: Net cash used in investing activities
totaled $211.0 million during the first half of 2000 compared to
$212.6 million during the same period in 1999.
Wisconsin Electric's investing activities during the first six
months of 2000 included $174.6 million for the acquisition or
construction of new or improved facilities. During 2000,
Wisconsin Electric recorded $21.7 million for the acquisition of
nuclear fuel and $8.8 million of payments to and earnings of the
Nuclear Decommissioning Trust Fund for the eventual
decommissioning of Point Beach Nuclear Plant.
FINANCING ACTIVITIES: During the first half of 2000, Wisconsin
Electric used $181.3 million of net cash in its financing
activities compared to using a net of $52.1 million during the
first half of 1999.
During the six months ended June 30, 2000, Wisconsin Electric
reduced its short-term debt by $76.1 million and paid
$89.8 million of dividends to Wisconsin Energy.
CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements during
the remainder of 2000 are expected to be principally for
construction expenditures and for other investments, for long and
short-term debt maturity and sinking fund requirements and for
payments to the Nuclear Decommissioning Trust Fund for the
eventual decommissioning of Point Beach Nuclear Plant. Wisconsin
Electric's total construction and other investment budget for the
remainder of 2000 is approximately $211 million.
These cash requirements are expected to be met through a
combination of the following possible resources: internal sources
of funds from operations, short-term borrowings and the issuance
of intermediate or long-term debt. The amount and timing of any
capital market financing has not been determined and will depend
on market conditions and other factors.
The following table shows Wisconsin Electric's capitalization
structure at June 30, 2000.
<TABLE>
<CAPTION>
June 30, 2000
--------------------------
(Millions of Dollars)
<S> <C> <C>
Common Equity $1,889.5 49.7%
Preferred Stock 30.4 0.8%
Long - Term Debt (Including
current maturities) 1,695.7 44.5%
Short - Term Debt 188.6 5.0%
-------- ------
$3,804.2 100.0%
======== ======
</TABLE>
As previously reported, Wisconsin Electric has agreed to join the
American Transmission Company LLC by contributing electric
utility transmission assets in exchange for an equity interest in
the new company. Transfer of these electric transmission system
assets, with a net book value of approximately $200 million, is
expected to occur by January 1, 2001. Shortly following transfer
of the assets, the American Transmission Company LLC is expected
to issue debt and distribute cash back to Wisconsin Electric in
an amount equal to approximately 50% of the net book value of the
assets transferred.
In April 2000, in conjunction with consummation of Wisconsin
Energy's acquisition of WICOR, Moody's Investors Service
("Moody's") maintained its rating of the debt securities of
Wisconsin Electric. Duff & Phelps Inc. ("D&P") reaffirmed its
short-term rating of Wisconsin Electric, but lowered its long-
term credit ratings of Wisconsin Electric. Fitch Investors
Service ("Fitch") assigned initial credit ratings for Wisconsin
Electric commercial paper and reaffirmed its long-term ratings of
Wisconsin Electric. Also in April 2000, Standard & Poors
Corporation ("S&P") reaffirmed its short-term ratings of
Wisconsin Electric. In conjunction with its debt rating
adjustments at the end of April 2000, S&P removed all long-term
ratings on Wisconsin Energy and its subsidiaries from credit
watch with negative implications, assigning a negative outlook.
The following table summarizes various current ratings of
Wisconsin Electric's securities by S&P, Moody's, D&P and Fitch.
<TABLE>
<CAPTION>
Wisconsin Electric Power Company S & P Moody's D & P Fitch
-------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commercial Paper A-1+ P-1 D-1+ F1+
Senior Secured Debt AA- Aa2 AA AA
Unsecured Debt A+ Aa3 AA- AA-
Preferred Stock A aa3 AA- AA-
</TABLE>
At June 30, 2000, Wisconsin Electric had $128.3 million of unused
lines of bank credit.
*****
For certain other information which may impact Wisconsin
Electric's future financial condition or results of operations,
see Item 1. Financial Statements - "Notes to Financial
Statements" in Part I of this report as well as Item 1. Legal
Proceedings in Part II of this report.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of
Wisconsin Electric. Such statements are based upon management's
current expectations and are subject to risks and uncertainties
that could cause Wisconsin Electric's actual results to differ
materially from those contemplated in the statements. Readers
are cautioned not to place undue reliance on the forward-looking
statements. When used in written documents or oral
presentations, the terms "anticipate," "believe," "estimate,"
"expect," "objective," "plan," "possible," "potential," "project"
and similar expressions are intended to identify forward-looking
statements. In addition to the assumptions and other factors
referred to specifically in connection with such statements,
factors that could cause Wisconsin Electric's actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the following.
OPERATING, FINANCIAL AND INDUSTRY FACTORS
* Factors affecting utility operations such as unusual weather
conditions; catastrophic weather-related damage; availability of
electric generating facilities; unscheduled generation outages,
or unplanned maintenance or repairs; unanticipated changes in
fossil fuel, nuclear fuel, purchased power, gas supply or water
supply costs or availability due to higher demand, shortages,
transportation problems or other developments; nonperformance by
electric energy or natural gas suppliers under existing power
purchase or gas supply contracts; nuclear or environmental
incidents; resolution of used nuclear fuel storage and disposal
issues; electric transmission or gas pipeline system constraints;
unanticipated organizational structure or key personnel changes;
collective bargaining agreements with union employees or work
stoppages; inflation rates; or demographic and economic factors
affecting utility service territories or operating environment.
* Regulatory factors such as unanticipated changes in rate-
setting policies or procedures; unanticipated changes in
regulatory accounting policies and practices; industry
restructuring initiatives; transmission system operation and/or
administration initiatives; recovery of costs of previous
investments made under traditional regulation; required approvals
for new construction; changes in the United States Nuclear
Regulatory Commission's regulations related to Point Beach
Nuclear Plant; changes in the United States Environmental
Protection Agency's regulations as well as regulations from the
Wisconsin or Michigan Departments of Natural Resources; or the
siting approval process for new generation and transmission
facilities.
* The rapidly changing and increasingly competitive electric and
gas utility environment as market-based forces replace strict
industry regulation and other competitors enter the electric and
gas markets resulting in increased wholesale and retail
competition.
* Consolidation of the industry as a result of the combination
and acquisition of utilities in the midwest, nationally and
globally.
* Changes in social attitudes regarding the utility and power
industries.
* Customer business conditions including demand for their
products or services and supply of labor and material used in
creating their products and services.
* The cost and other effects of legal and administrative
proceedings, settlements, investigations and claims, and changes
in those matters including the final outcome of the Giddings &
Lewis, Inc. / City of West Allis lawsuit against Wisconsin
Electric.
* Factors affecting the availability or cost of capital such as
changes in interest rates; the Company's capitalization
structure; market perceptions of the utility industry; or
security ratings.
* Federal, state or local legislative factors such as changes in
tax laws or rates; changes in trade, monetary and fiscal
policies, laws and regulations; electric and gas industry
restructuring initiatives; or changes in environmental laws and
regulations.
* Authoritative generally accepted accounting principle or
policy changes from such standard setting bodies as the Financial
Accounting Standards Board and the Securities and Exchange
Commission.
* Unanticipated technological developments that result in
competitive disadvantages and create the potential for impairment
of existing assets.
* Other business or investment considerations that may be
disclosed from time to time in Wisconsin Energy's Securities and
Exchange Commission filings or in other publicly disseminated
written documents.
BUSINESS COMBINATION FACTORS
* Unanticipated costs or difficulties related to the integration
of the businesses of Wisconsin Energy and WICOR.
* Unexpected difficulties or delays in realizing anticipated net
cost savings or unanticipated effects of the qualified five-year
electric and gas rate freeze ordered by the Public Service
Commission of Wisconsin as a condition of approval of the merger.
Wisconsin Electric undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
For information concerning Wisconsin Electric's market risk
exposures, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Market Risks" in Part II of
Wisconsin Electric's 1999 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal
Proceedings in Part I of Wisconsin Electric's 1999 Annual Report
on Form 10-K and Item 1. Legal Proceedings in Part II of
Wisconsin Electric's Quarterly Report on Form 10-Q for the period
ended March 31, 2000.
ENVIRONMENTAL MATTERS
GIDDINGS & LEWIS, INC. / CITY OF WEST ALLIS LAWSUIT: In July
1996, Giddings & Lewis, Inc., Kearney & Trecker Corporation, now
a part of Giddings & Lewis, Inc., and the City of West Allis
brought an action in the Milwaukee County Circuit Court alleging
that in 1959 Wisconsin Electric had deposited cyanide
contaminated wood chips at two sites in West Allis, Wisconsin,
owned by the plaintiffs. Environmental remediation at both sites
was completed several years ago, with the current owners paying
for disposal of materials found on their respective portions of
the sites. Internal investigations led Wisconsin Electric to
believe that it was not the source of this waste.
In July 1999, a jury issued a verdict against Wisconsin Electric
awarding the plaintiffs $4.5 million in compensatory damages for
clean-up costs and loss of property value and $100 million in
punitive damages. In October 1999, the Circuit Court denied
Wisconsin Electric's post trial motions and directed that
judgment on the verdict be entered. Wisconsin Electric has filed
a notice of appeal of the judgment to the Wisconsin Court of
Appeals.
In December 1999, in order to stop the post-judgment accrual of
interest at 12% per annum during the pendency of the appeal,
Wisconsin Electric tendered a contested liability payment of
$110 million, which is part of "Deferred Charges and Other
Assets - Other" on the condensed balance sheet, to the Clerk of
Circuit Court for Milwaukee County representing the amount of the
verdict and accrued interest. Under Wisconsin law, the
plaintiffs are liable to Wisconsin Electric upon reversal or
reduction of the judgment for the applicable amount of the funds
tendered with interest.
In further post-trial proceedings, the plaintiffs filed with the
Circuit Court a motion for sanctions based upon representations
made by Wisconsin Electric during trial that it had no insurance
coverage for the punitive damage award. The Circuit Court held
hearings on the sanctions issue in February 2000. On April 27,
2000, the Circuit Court Judge issued a ruling on the sanctions
matter, imposing the following sanctions against Wisconsin
Electric: (i) "judgment in the alternative" as a sanction,
thereby finding an alternative basis upon which to sustain the
$104.5 million verdict returned by the jury; (ii) a bar against
Wisconsin Electric pursuing insurance coverage for the punitive
damage portion of the verdict; and (iii) a requirement that
Wisconsin Electric pay the plaintiffs' costs relating to the
sanctions matter. In addition to its appeal of the judgment
entered on the jury's verdict, Wisconsin Electric is appealing
the Judge's ruling on the sanctions matter.
In the opinion of management, based in part on the advice of
legal counsel, the jury verdict was not supported by the evidence
or the law and the unprecedented award of punitive damages of
this magnitude was unwarranted and should therefore be reversed
or substantially reduced on appeal. Management also believes
that the sanctions imposed by the Judge were not supported by the
evidence or the law. As such, Wisconsin Electric has not
established a reserve for potential damages from this suit.
As a further development, Wisconsin Energy Corporation, in May
and June 2000, respectively, received letters from two separate
shareholders demanding that the Company bring a derivative suit
for alleged injuries to shareholders resulting from the Giddings
& Lewis / City of West Allis litigation. In accordance with
Wisconsin law, the Board of Directors of Wisconsin Energy has
created a special committee of independent directors, which has
retained independent counsel to assist it, to investigate the
allegations raised in the shareholder letters and determine
whether a derivative action should be brought.
UTILITY RATES AND REGULATORY MATTERS
2000/2001 TEST YEARS: In September 1999, Wisconsin Electric
submitted an application with the Public Service Commission of
Wisconsin requesting incremental price relief for specific
capital investments for electric and gas system reliability and
safety and for a one-time accounting adjustment. The application
further recommended the adoption of performance-based measures
and incentives. In its application, Wisconsin Electric proposed
a two-step price increase. The first requested increase, to be
effective January 1, 2000, totaled $46 million (3.1%) for
electric operations and $8 million (2.3%) for gas operations.
The second requested price increase, to be effective January 1,
2001, totaled $29 million (2.0%) for electric operations.
On December 23, 1999, Wisconsin Electric requested that interim
price relief be granted, subject to refund, as soon as possible
because it anticipated that a final order on its price request
would not be issued until the summer of 2000. Wisconsin Electric
withdrew its request to implement performance-based prices
because some elements of the proposed performance-based price
plan were not compatible with the Public Service Commission of
Wisconsin's approval of the Company's merger with WICOR. The
Public Service Commission of Wisconsin has proceeded to review
Wisconsin Electric's 2000/2001 test year data as a traditional
cost of service rate request. As a result, Wisconsin Electric
anticipates that interim and final rates could recover higher
cost of service expenses included in the 2000/2001 test year data
as well as provide an increase in income available to
stockholders to the extent that higher utility plant investments
increase the total approved rate base.
On March 23, 2000, the Public Service Commission of Wisconsin
approved Wisconsin Electric's request for interim price
increases, authorizing a $25.2 million (1.7%) increase for
electric operations and an $11.6 million (3.1%) increase for gas
operations. The interim increase, which is subject to potential
refund, became effective April 11, 2000. Rates in the interim
order, which are based on a 12.2% return on common equity, will
be in effect until superceded by a final order establishing new
rates.
The Public Service Commission of Wisconsin finished hearing
testimony on April 26, 2000 on Wisconsin Electric's original
September 1999 application and has made certain preliminary
determinations not yet finalized in a rate order indicating the
possibility of additional electric retail price increases
effective in the third quarter of 2000 and again on January 1,
2001 as well as increases in gas rates that are less than the
interim rates noted above. Wisconsin Electric will know the
magnitude of any rate changes when an anticipated final order is
issued in the third quarter of 2000.
As a condition of its approval of Wisconsin Energy's merger with
WICOR, the Public Service Commission of Wisconsin ordered a
qualified five-year rate freeze that becomes effective on
January 1, 2001 concurrent with any second step rate changes
included in the final order on the 2000/2001 test years.
PURCHASED GAS ADJUSTMENT MECHANISM: As a result of the
acquisition of WICOR by Wisconsin Energy, the Public Service
Commission of Wisconsin required a common purchased gas
adjustment clause for Wisconsin Electric's gas operations and for
Wisconsin Gas Company. In a filing on April 17, 2000, Wisconsin
Gas Company requested to make several modifications to its
existing incentive gas cost recovery mechanism and to extend the
recovery mechanism for another three year term starting
November 1, 2000. On May 23, 2000, Wisconsin Electric filed with
the Public Service Commission of Wisconsin a request to change
from its existing modified dollar for dollar recovery mechanism
to the same incentive mechanism used by Wisconsin Gas Company and
also requested approval of a common purchased gas adjustment
clause with Wisconsin Gas. The requested effective date for
changing to the incentive gas cost recovery mechanism is
November 1, 2000. The Public Service Commission of Wisconsin
held hearings on the requested changes on August 9, 2000.
Wisconsin Electric anticipates receiving an order during the
fourth quarter of 2000. Under the incentive gas cost recovery
mechanism, most purchased gas costs will be subject to an
incentive with the possibility of a gain or loss which will be
shared between ratepayers and shareholders.
OTHER MATTERS
USED NUCLEAR FUEL STORAGE & DISPOSAL: On August 24, 1999,
Wisconsin Electric filed a petition for review and for writ of
mandamus in the United States Court of Appeals for the District
of Columbia Circuit seeking both monetary and non-monetary relief
under its Standard Contract with the Department of Energy as a
result of their failure to comply with their unconditional
obligation under the Nuclear Waste Policy Act of 1982, as amended
in 1987, to dispose of the used nuclear fuel at Point Beach
Nuclear Plant. Wisconsin Electric requested a contract
modification requiring the Department of Energy to provide
storage casks for the used fuel, to take title of the used fuel
when it is placed in dry storage at Point Beach and to reimburse
Wisconsin Electric for costs incurred as a result of the
Department of Energy's failure to comply with its obligations.
On October 12, 1999, the government filed a motion to dismiss
Wisconsin Electric's petition for review on grounds of failure to
exhaust administrative remedies and lack of jurisdiction. On
October 25, 1999, Wisconsin Electric filed a response to the
government's motion, asking the court to deny the motion. On
May 19, 2000, the Appeals Court granted the government's motion
and dismissed Wisconsin Electric's petition for want of
jurisdiction. Wisconsin Electric is considering pursuing other
remedies against the Department of Energy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Wisconsin Electric's 2000 Annual Meeting of Stockholders held
on June 22, 2000 for which Wisconsin Electric did not solicit
proxies, nine incumbent directors, as listed in Wisconsin
Electric's Information Statement dated April 28, 2000, were
elected for one year terms. Each director received 33,289,327
votes (100% of votes cast). Directors are elected by a plurality
of the votes cast by the shares entitled to vote. Any shares not
voted, whether by withheld authority, broker non-votes or
otherwise, have no effect in the election of directors. There
was no solicitation in opposition to the nominees proposed in the
Information Statement.
Further information concerning these matters is contained in
Wisconsin Electric's Information Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following Exhibits are filed with or incorporated by
reference in this Form 10-Q report:
Exhibit No.
-----------
27.1 Wisconsin Electric Power Company Financial Data
Schedule for the six months ended June 30, 2000.
27.2 Wisconsin Electric Power Company Reclassified Financial
Data Schedule for the six months ended June 30, 1999,
which reflects the reclassification of certain amounts
to conform to Wisconsin Electric's current financial
statement presentation.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated as of April 27, 2000 was
filed by Wisconsin Electric disclosing an update on
securities ratings and the Circuit Court Judge's ruling on
the sanctions matter relating to the Giddings & Lewis / City
of West Allis lawsuit.
No other reports on Form 8-K were filed by Wisconsin Electric
during the quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements 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
--------------------------------
(Registrant)
/s/ Stephen P. Dickson
-------------------------------------
Date: August 11, 2000 Stephen P. Dickson, Controller, Chief
Accounting Officer and duly authorized
officer
WISCONSIN ELECTRIC POWER COMPANY
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2000
EXHIBIT INDEX
The following exhibits are in this report:
Exhibit No.
-----------
27.1 Wisconsin Electric Power Company Financial Data
Schedule for the six months ended June 30, 2000.
27.2 Wisconsin Electric Power Company Reclassified Financial
Data Schedule for the six months ended June 30, 1999,
which reflects the reclassification of certain amounts
to conform to Wisconsin Electric's current financial
statement presentation.
