<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7530
Wisconsin Gas Company
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0476515
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
626 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
--------------------------------------- ----------
(Address of principal executive office) (Zip Code)
414-385-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 2000
-------------------------- -------------------------------
Common Stock, $8 Par Value 1,125
All Wisconsin Gas Company Common Stock is indirectly owned by
Wisconsin Energy Corporation.
<PAGE> 2
CONTENTS
--------
PAGE
PART I - Financial Information 2
------
Item 1. Financial Statements of Wisconsin Gas Company (Unaudited):
------
Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 3
Balance Sheets as of September 30, 2000 and December 31, 1999 4-5
Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999 6
Notes to Financial Statements 7
Item 2
------
Management's Discussion and Analysis
of Interim Financial Statements 8-10
Item 3
------
Quantitative and Qualitative Disclosures About Market Risk 11
PART II. Other Information
-------
Item 6
------
Exhibits and Reports on Form 8-K 12
Signatures 13
INTRODUCTION
------------
Wisconsin Gas Company ("Wisconsin Gas" or "Company"), a natural gas
distribution public utility, is a Wisconsin corporation and a
wholly-owned subsidiary of WICOR, Inc. ("WICOR"), a diversified
holding company.
On April 26, 2000, the merger between Wisconsin Energy Corporation
("Wisconsin Energy") and WICOR was completed. Upon the completion
of the merger, WICOR, Wisconsin Gas and WICOR's other subsidiaries
became wholly-owned direct or indirect subsidiaries of Wisconsin
Energy.
<PAGE> 3
Forward-Looking Statements
--------------------------
Certain matters discussed in this report are "forward-looking
statements" intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements generally can be identified
as such because they include words such as the Company "believes,"
"anticipates," "expects," or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or
goals also are considered forward-looking. Such statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from current expectations. These
factors include, but are not limited to, the risks and
uncertainties listed below. All of these factors are difficult to
predict and are generally beyond management's control. Such
factors include, but are not limited to, the following:
>> Factors affecting utility operations such as unusual weather
conditions; unanticipated changes in gas supply or water supply
costs or availability due to higher demand, shortages,
transportation problems or other developments; nonperformance by
natural gas suppliers under existing gas supply contracts;
environmental incidents; 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; distribution system operation and/or administration
initiatives; recovery of costs of previous investments made under
traditional regulation; or required approvals for new construction.
>> The rapidly changing and increasingly competitive gas utility
environment as market-based forces replace strict industry
regulation and other competitors enter the gas markets resulting in
increased wholesale and retail competition.
>> Consolidation of the industry as a result of the combination
and acquisition of utilities in the Midwest, nationally and
globally.
>> Restrictions imposed by various financing arrangements and
regulatory requirements on the ability of the utility and other
subsidiaries to transfer funds to their parent companies in the
form of cash dividends, loans or advances.
>> Changes in social attitudes regarding the utility industry.
<PAGE> 4
>> Customer business conditions including demand for their
products and 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, and investigations, claims and changes in
those matters.
>> Factors affecting the availability or cost of capital such as
changes in interest rates; market perceptions of the utility
industry or Wisconsin Gas; 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; 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 filings with the Securities and
Exchange Commission or in other publicly disseminated written
documents.
>> Unanticipated costs or difficulties related to the
integration of the businesses of Wisconsin Energy and WICOR.
The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise.
<PAGE> 5
Part 1 - Financial Information
------------------------------
Item 1. Financial Statements
-----------------------------
The financial statements included herein have been prepared without
audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote 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, although
management believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
In the opinion of management, the information furnished reflects
all adjustments, which in all circumstances were normal and
recurring, necessary for a fair presentation of the results of
operations for the interim periods.
Because of seasonal factors, the results of operations for the
interim period presented are not necessarily indicative of the
results to be expected for the full calendar year.
<PAGE> 6
WISCONSIN GAS COMPANY
Statements of Operation (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------
2000 1999
---------------------------- -------------
Predecessor
----------------------------
Three Months Ended Period From Period From
September 30, Acquisition January 1,
------------------------ Date 2000 Nine Months
Predecessor Through Through Ended
------------ September 30, Acquisition September 30,
2000 1999 2000 Date 1999
---------- ------------ ------------- ------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 66,160 $ 56,827 $ 113,747 $ 216,220 $ 302,546
---------- ------------ ------------- ------------- -------------
Operating Expenses:
Cost of gas sold 42,306 33,373 71,436 127,062 169,528
Operations 18,315 17,223 30,313 31,657 62,513
Maintenance 2,601 2,372 4,221 2,549 6,482
Depreciation 9,194 8,942 15,368 12,202 26,518
Goodwill amortization 2,813 - 4,688 - -
Taxes, other
than income taxes 1,911 1,964 3,219 3,007 6,186
---------- ------------ ------------- ------------- -------------
77,140 63,874 129,245 176,477 271,227
---------- ------------ ------------- ------------- -------------
Operating (Loss) Income (10,980) (7,047) (15,498) 39,743 31,319
---------- ------------ ------------- ------------- -------------
Interest Expense 7,627 2,811 12,237 4,494 8,932
Other Income
and (Expenses), net (49) 265 (253) (856) 833
---------- ------------ ------------- ------------- -------------
(Loss) Income
Before Income Taxes (18,656) (9,593) (27,988) 34,393 23,220
Income Tax
(Benefit) Provision (6,071) (3,575) (8,943) 12,861 8,708
---------- ------------ ------------- ------------- -------------
Net (Loss) Earnings $ (12,585) $ (6,018) $ (19,045) $ 21,532 $ 14,512
========== ============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 7
WISCONSIN GAS COMPANY
Balance Sheets
<TABLE>
<CAPTION>
Predecessor
September 30, ------------
2000 December 31,
(Unaudited) 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
------
Property, Plant and Equipment, at cost $ 891,262 $ 865,109
Less - Accumulated depreciation 496,091 477,493
------------- ------------
395,171 387,616
------------- ------------
Current Assets:
Cash and cash equivalents - 11,368
Accounts receivable, less allowance
for doubtful accounts of $14,908
and $10,170, respectively 37,598 40,448
Accrued revenues 12,057 44,887
Gas in storage, at weighted average cost 67,181 40,415
Materials and supplies, at weighted average cost 6,904 6,211
Deferred income taxes 34,765 15,106
Prepaid taxes 2,939 3,966
Other 5,091 1,826
------------- ------------
166,535 164,227
------------- ------------
Deferred Charges and Other:
Goodwill, net 445,313 -
Regulatory assets 49,530 51,686
Prepaid pension costs 56,187 49,661
Systems development costs 5,376 8,601
Other 10,016 9,357
------------- ------------
566,422 119,305
------------- ------------
$ 1,128,128 $ 671,148
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 8
Wisconsin Gas Company
Balance Sheets
(continued)
<TABLE>
<CAPTION>
Predecessor
September 30, ------------
2000 December 31,
(Unaudited) 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Capitalization and Liabilities
------------------------------
Capitalization:
Common stock $ 9 $ 9
Other paid-in capital 316,025 121,978
Retained earnings 80,594 95,107
Accumulated other comprehensive income (1,536) (1,536)
Long-term debt 158,402 158,244
------------- ------------
553,494 373,802
------------- ------------
Current Liabilities:
Accounts payable 50,540 40,208
Accounts payable - affiliated company, net 825 (632)
Notes payable - merger related 255,000 -
Short-term borrowings 87,600 89,759
Refundable gas costs 20,044 24,043
Accrued payroll and benefits 11,750 9,195
Accrued taxes 13,079 (1,999)
Other 6,311 4,696
------------- ------------
445,149 165,270
------------- ------------
Deferred Credits and Other:
Postretirement benefit obligation 33,658 38,690
Deferred income taxes 48,750 46,409
Regulatory liabilities 25,096 27,742
Environmental remediation costs 4,470 2,110
Unamortized investment tax credit 5,684 5,909
Other 11,827 11,216
------------- ------------
129,485 132,076
------------- ------------
$ 1,128,128 $ 671,148
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
WISCONSIN GAS COMPANY
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------
2000 1999
---------------------------- -------------
Predecessor
-----------------------------
Period From
Period From January 1, Nine
Acquisition 2000 Months
Date to Through Ended
September 30, Acquisition September 30,
2000 Date 1999
------------- ------------- -------------
(Thousands of Dollars)
<S> <C> <C> <C>
Operations:
Net (loss) earnings $ (19,045) $ 21,532 $ 14,512
Adjustments to reconcile net (loss)
earnings to net cash flows:
Depreciation and amortization 23,051 14,453 31,496
Deferred income taxes - (17,318) -
Net pension and other postretire-
ment benefit (income) (5,509) (4,710) (8,603)
Change in:
Receivables 50,162 (14,482) 47,428
Gas in storage (57,007) 30,241 (9,075)
Other current assets (3,835) (123) (2,468)
Accounts payable 10,237 95 1,232
Accrued taxes (16,144) 32,249 (5,997)
Refundable gas costs (30,715) 26,716 2,653
Other current liabilities 3,962 208 1,328
Other non-current assets
and liabilities (992) 447 (6,748)
------------- ------------- -------------
(45,835) 89,308 65,758
------------- ------------- -------------
Investment Activities:
Capital expenditures (23,969) (11,875) (28,930)
Other, net 102 60 82
------------- ------------- -------------
(23,867) (11,815) (28,848)
------------- ------------- -------------
Financing Activities:
Change in short-term borrowings 78,700 (80,859) (22,100)
Reduction of long-term debt - - (2,000)
Cash dividends paid to WICOR, Inc. (10,500) (6,500) (19,500)
------------- ------------- -------------
68,200 (87,359) (43,600)
------------- ------------- -------------
Change in Cash and Cash Equivalents (1,502) (9,866) (6,690)
Cash and Cash Equivalents at
Beginning of Period 1,502 11,368 6,690
------------- ------------- -------------
Cash and Cash Equivalents at End of Period $ - $ 1,502 $ -
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE> 10
Notes to Financial Statements (Unaudited):
------------------------------------------
1) On April 26, 2000, Wisconsin Energy Corporation (WEC) acquired
WICOR, Inc. (WIC) for $1.2 billion in cash, including related costs
and expenses. WEC accounted for its acquisition of WICOR as a
purchase. The financial statements of Wisconsin Gas for the
periods ended before April 27, 2000 were prepared using Wisconsin
Gas' historical basis of accounting and are designated as
"Predecessor". The comparability of the operating results for the
Predecessor and the periods encompassing push down accounting are
affected by the purchase accounting adjustments, including the
amortization of goodwill over a period of forty years and the
pushdown of debt associated with the merger ($255.0 million).
The fair value of the assets and liabilities of Wisconsin Gas'
rate-regulated natural gas utility business is considered to be
equivalent to the historical basis of accounting due to the
regulated nature of the business and accordingly, no adjustment has
been made to the carrying value. The excess of the consideration
paid by WEC over the estimated fair value of the assets and
liabilities of Wisconsin Gas at the merger date was approximately
$450 million and is reflected as goodwill in the Wisconsin Gas
balance sheet as of September 30, 2000. The process of determining
the fair value of assets and liabilities at the acquisition date is
continuing, and the final result awaits the resolution of income
tax and other contingencies and finalization of certain estimates.
The following unaudited pro forma data summarize the results of
operations for the periods indicated as if the WICOR acquisition
had been completed as of the beginning of the periods presented.
The pro forma amounts give effect to actual operating results prior
to the acquisition, adjusted to include the pro forma effect of
interest expense, amortization of intangibles and income taxes.
The pro forma information does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative
of future results of operations of the combined companies. Since
the Company is an indirect wholly owned subsidiary of Wisconsin
Energy, the presentation of earnings per share data is not
meaningful.
Nine Months Ended Nine Months Ended
(In thousands) September 30, 2000 September 30, 1999
------------------- ------------------ ------------------
Revenues $ 329,967 $ 302,546
Net (Loss) $ (4,527) $ (1,268)
<PAGE> 11
2) As of September 30, 2000, commercial paper totaling $87.6
million was outstanding with a weighted average interest rate of
6.6%. In connection with the Wisconsin Gas commercial paper
program, the Company had total unsecured lines of credit of $55.0
million available at September 30, 2000.
3) For purposes of the Statements of Cash Flows, income taxes
paid, net of refunds, and interest paid (excluding capitalized
interest) were as follows:
Predecessor
---------------------------
Period from
Period From January 1,
Acquisition 2000 Nine
Date to Through Months
September 30, Acquisition September 30,
2000 Date 1999
------------- ------------ -------------
(Thousands of Dollars)
Income taxes paid $ 5,959 $ 1,001 $ 17,291
Interest paid $ 5,594 $ 4,361 $ 7,602
4) For the three and nine month periods ended September 30, 2000
and 1999, net earnings was the only component of comprehensive
income.
<PAGE> 12
Management's Discussion and Analysis
of Interim Financial Statements of
Wisconsin Gas Company
Merger with Wisconsin Energy Corporation
----------------------------------------
On April 26, 2000 the merger between a subsidiary of Wisconsin
Energy Corporation (WEC) and WICOR, Inc. (WICOR), the Company's
parent corporation, was completed, and WICOR became a wholly-owned
direct subsidiary of WEC. The Company became a wholly owned
indirect subsidiary of WEC.
WEC accounted for its acquisition of WICOR as a purchase, and
purchase accounting adjustments, including goodwill, have been
pushed down and are reflected in the financial statements of the
Company for the period subsequent to April 26, 2000. The financial
statements of Wisconsin Gas for the periods ended before April 27,
2000, were prepared using Wisconsin Gas' historical basis of
accounting and are designated as "Predecessor". The comparability
of the operating results for the Predecessor and the periods
encompassing push down accounting are affected by the purchase
accounting adjustments including the amortization of goodwill over
a period of forty years. For purposes of the discussion of
quarterly and year-to-date operating results provided herein, the
financial information of the Predecessor for the 2000 periods prior
to the merger date have been combined with the post-merger
financial information. The business operations of Wisconsin Gas
were not significantly changed as a result of the merger, and post-
merger and pre-merger operating results, except as noted, are
comparable.
Results of Operations
---------------------
The Company typically incurs a loss in the third quarter due to the
seasonal nature of the gas distribution business. The net loss for
the third quarter of 2000 was $12.6 million compared to a net loss
of $6.0 million for the 1999 third quarter. Net earnings for the
nine months ended September 30, 2000 decreased by $12.0 million, or
83%, compared with the same period last year. The decreased
earnings for the nine month period resulted primarily from
decreased gas margins and increased interest expense and goodwill
amortization associated with the Wisconsin Energy merger which
became effective on April 26, 2000. The following factors had a
significant effect on the results of operations during the three-
and nine-month periods ended September 30, 2000.
<PAGE> 13
Revenues, margins and volumes are summarized below for each of the
periods shown. Margin, defined as revenues less cost of gas sold,
is a better comparative performance indicator than revenues because
changes in the cost of gas sold are flowed through to revenue under
a gas adjustment clause that does not impact margin. The Company
operates under a gas cost incentive mechanism (GCIM) which allows
it to share in the risk and rewards of purchasing gas. The GCIM
favorably impacted margins by $1.0 million for each of the three
months ended September 30, 2000 and 1999 and $2.2 million for each
of the nine month periods ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
----------------- % ----------------- %
2000 1999 Change 2000 1999 Change
(Millions of Dollars) -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Gas Sales Revenues $ 62.3 $ 52.8 18 $ 313.2 $ 285.8 10
Cost of Gas Sold 42.3 33.4 27 198.5 169.5 17
-------- -------- -------- --------
Gas Sales Margin 20.0 19.4 3 114.7 116.3 (1)
Gas Transport Margin 3.9 4.1 (5) 16.8 16.7 1
-------- -------- -------- --------
Total Margin $ 23.9 $ 23.5 2 $ 131.5 $ 133.0 (1)
======== ======== ======== ========
(Millions of Therms)
-------------------
Sales Volumes
Firm 51.6 51.2 1 457.0 475.0 (4)
Interruptible 3.3 5.0 (34) 16.4 20.6 (20)
Transportation Volume 94.1 96.8 (3) 366.1 363.5 1
-------- -------- -------- --------
Total Throughput 149.0 153.0 (3) 839.5 859.1 (2)
======== ======== ======== ========
Degree Days
Actual 174 121 44 4,057 4,231 (4)
======== ======== ======== ========
20 year average 153 4,511
======== ========
</TABLE>
The decrease in firm sales volumes for the nine months ended
September 30, 2000 was caused principally by extremely mild weather
during the 2000 heating season compared to 1999. The weather was 4%
warmer during the first nine months of 2000 than during the same
period in 1999 and 10% warmer than the 20-year average.
Operating and maintenance expenses increased by $1.3 million, or
7%, during the three months ended September 30, 2000 compared with
the same period of last year. Operating and maintenance expenses
were relatively flat during the nine months ended September 30,
2000 compared to the same period in 1999.
Depreciation expense for the three and nine month periods ended
September 30, 2000, increased by $0.3 million, or 3%, and $1.1
million, or 4%, respectively, as compared to the same periods in
the prior year. The 2000 increase in both periods was due to
additions to depreciable plant balances.
The amortization of goodwill arising from the acquisition by
Wisconsin Energy Corporation was $2.8 million and $4.7 million for
the three and nine months ended September 30, 2000, respectively.
Interest expense for the three and nine months ended September 30,
2000, increased by $4.8 million and $7.8 million, respectively,
compared with the same periods of last year. The third quarter and
year-to-date periods of 2000 were negatively impacted by merger
related interest expense of $4.2 million and $6.9 million,
respectively.
Other (expenses) income, net for the three- and nine-month periods
ending September 30, 2000, decreased by $0.3 million and $1.9
million, respectively, compared with the same periods of last year.
The results for both periods were unfavorably affected by non-
utility operations.
Income tax expense was $4.8 million lower for the first nine months
of 2000, compared with the same period last year, reflecting the
decrease in pre-tax income. The effective tax rate differed from
the statutory rate due primarily to the non-deductibility of
goodwill amortization.
Liquidity and Capital Resources
-------------------------------
Cash flow from operations for the nine months ended September 30,
2000, decreased by $22.3 million, or 34%, to $43.5 million,
compared to the same period in 1999. A portion of the decrease is
attributable to the merger related items discussed previously. In
addition, due to the seasonal nature of the energy business,
accrued revenues, accounts receivable and accounts payable are
higher in the heating season.
The Company anticipates additional short-term borrowing during the
fourth quarter of 2000 to finance working capital needs primarily
related to gas storage and the financing of accounts receivable
during the heating season. The Company believes that it has
sufficient borrowing capacity under commercial paper programs or
existing lines of credit to satisfy these working capital needs.
<PAGE> 15
Capital expenditures increased by $6.9 million, or 24%, to $35.8
million for the nine months ended September 30, 2000 compared to
the same period of last year. Cash flow from operations is
expected to be sufficient to fund remaining capital expenditures
for 2000.
Purchase accounting adjustments due to the merger resulted in a
$255.0 million increase in "Notes Payable - merger related" which
is included in current liabilities in the accompanying balance
sheet.
In September 2000, following WEC's announcement of the "Power The
Future" growth strategy plan, Standard & Poors Corporation
reaffirmed its ratings of the securities of the subsidiaries of WEC
including Wisconsin Gas.
New Accounting Standard
-----------------------
In June 1998, the FASB issued SFAS 133, which has been amended by
SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS 133, an
amendment of SFAS 133" and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment
of SFAS 133." SFAS 133 requires that every derivative instrument
be recorded on the balance sheet as an asset or liability measured
at its fair value and that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge
accounting criteria are met.
SFAS 133 is effective for fiscal years beginning after June 15,
2000 and must be applied to: (a) derivative instruments; and (b)
certain derivative instruments embedded in hybrid contracts that
were issued, acquired or substantively modified after December 31,
1998. Wisconsin Gas is in the process of identifying all
derivative instruments, determining fair market values of
derivatives, designating and documenting hedge relationships, and
evaluating the effectiveness of those hedge relationships. Through
this process, the Company has identified a limited number of both
financial and physical commodity contracts that meet the definition
of a derivative under SFAS 133 in its natural gas utility
operations as well as in its non-regulated energy operations. These
contracts are used to manage the Company's exposure to commodity
price volatility. While a number of derivatives have been
identified, the inventory process is not yet complete and the fair
market values of all derivatives identified has not been
determined. Consequently, Wisconsin Gas cannot at this time assess
the implications of adopting SFAS 133. The Company expects to
implement SFAS 133 on January 1, 2001.
<PAGE> 16
Regulatory Matters
------------------
On November 1, 2000, Wisconsin Gas and Wisconsin Electric filed a
joint application with the Public Service Commission of Wisconsin
(PSCW) to transfer the physical gas utility assets of Wisconsin
Electric, with a book value of $402 million at December 31, 1999,
to Wisconsin Gas in return for stock in Wisconsin Gas. Wisconsin
Energy expects that the combined gas operation will result in
improved customer service and greater synergy savings as a result
of the WICOR acquisition. The combined gas operations would retain
the name Wisconsin Gas Company and become the 11th largest gas
distribution company in the United States. Wisconsin Gas and
Wisconsin Electric expect to make a second filing with the PSCW in
2001 to combine tariffs and rates.
On October 19, 2000, the PSCW affirmed the need for the Wisconsin
Gas lateral in a preliminary determination of the proposed 37-mile
natural gas pipeline. The lateral line would connect Wisconsin
Gas' existing facilities to the Guardian Pipeline, which will bring
natural gas from the Chicago market hub to southeastern Wisconsin.
The preliminary determination covers all non-environmental aspects
of the Company's application, including need and economic
justification. The Company has requested final PSCW action on the
lateral in Spring 2001. Pending all regulatory approvals,
construction on the connecting lateral will begin in the spring of
2002 and commercial operation will begin in the fall of the same
year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
------------------------------------------------------------------
The Company's market risk includes the potential loss arising from
adverse changes in the price of natural gas. The Company's
objective in managing this risk is to reduce fluctuations in
earnings and cash flows associated with changes in natural gas
prices. The Company's policy prohibits the use of derivative
financial instruments for trading purposes.
Wisconsin Gas has a commodity risk management program that has been
approved by the PSCW. This program allows Wisconsin Gas to utilize
purchased call and put option contracts to reduce market risk
associated with fluctuations in the price of natural gas purchases
and gas in storage. Under this program, Wisconsin Gas has the
ability to hedge up to 50% of its planned gas deliveries for the
heating season. The PSCW has also allowed Wisconsin Gas to hedge
gas purchased for storage during non-heating months. The cost of
the call and put option contracts, as well as gains or losses
realized under the contracts do not affect net income as they are
recovered dollar for dollar under the purchased gas adjustment
clause. The notional amount of these contracts is not material to
the Company.
<PAGE> 17
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits
27 Financial data schedule (EDGAR version only)
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed by the Company during the third quarter of 2000.
<PAGE> 18
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 GAS COMPANY
Dated: November 14, 2000 By: /s/ Stephen P. Dickson
-------------------------------------
Stephen P. Dickson
Controller (Chief Accounting Officer)
and duly authorized officer
