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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, 1994
Commission file number 1-9057
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WISCONSIN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1391525
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
231 West Michigan Street, P.O. Box 2949, 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
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
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The aggregate market value of the voting stock of the Registrant held by non-affiliates is approximately
$2,934,642,000 based on the reported last sale price of such securities as of March 1, 1995.
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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, 1995
----- ----------------------------
COMMON STOCK, $.01 PAR VALUE 109,323,107 Shares
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
May 17, 1995, are incorporated by reference into Part III hereof.
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WISCONSIN ENERGY CORPORATION
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1994
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TABLE OF CONTENTS
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ITEM PAGE
PART I
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1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 24
4. Submission of Matters to a Vote of Security Holders. . . . . . . 29
Executive Officers of the Registrant . . . . . . . . . . . . . . 29
PART II
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5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . 31
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 32
Electric Revenue, Kilowatt-Hour Sales and
Customer Statistics . . . . . . . . . . . . . . . . . . . . . 33
Gas Revenue, Therms Delivered and Customer Statistics . . . . . 33
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 34
8. Financial Statements and Supplementary Data. . . . . . . . . . . 46
Report of Independent Accountants . . . . . . . . . . . . . . . 65
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 66
PART III
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10. Directors and Executive Officers of the Registrant . . . . . . 66
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 66
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 66
13. Certain Relationships and Related Transactions . . . . . . . . 66
PART IV
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14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 66
Consent of Independent Accountants . . . . . . . . . . . . . . 75
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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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
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
MAPP............................. Mid-Continent Area Power Pool
MDNR............................. Michigan Department of Natural Resources
MPSC............................. Michigan Public Service Commission
MRMC............................. Milwaukee Regional Medical Center
MWh.............................. Megawatt-hour
NOX.............................. Nitrogen Oxide
NRC.............................. U.S. Nuclear Regulatory Commission
PGA.............................. Purchased Gas Adjustment
Point Beach...................... Point Beach Nuclear Plant
PRP.............................. Potentially Responsible Party
PSCR............................. Power Supply Cost Recovery
PSCW............................. Public Service Commission of Wisconsin
Repap............................ Repap Wisconsin, Inc.
SO2.............................. Sulfur Dioxide
Trust............................ Wisconsin Electric Fuel Trust (nuclear)
USEC............................. U.S. Enrichment Corporation
WED.............................. Wisconsin's Environmental Decade
Wisconsin Electric............... Wisconsin Electric Power Company
Wisconsin Energy................. Wisconsin Energy Corporation
Wisconsin Natural................ Wisconsin Natural Gas Company
Wisconsin Southern............... Wisconsin Southern Gas Company, Inc.
WMIC............................. Wisconsin Michigan Investment Corporation
WPPI............................. Wisconsin Public Power Inc. SYSTEM
WUMS............................. Wisconsin-Upper Michigan Systems
Yellowcake....................... Uranium Concentrates
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PART I
ITEM 1. BUSINESS
Wisconsin Energy Corporation ("Wisconsin Energy"), incorporated in the State
of Wisconsin in 1981, became a holding company in 1986 whose principal
subsidiaries are Wisconsin Electric Power Company ("Wisconsin Electric") and
Wisconsin Natural Gas Company ("Wisconsin Natural"). Wisconsin Energy also
has certain non-utility subsidiaries. The operations of Wisconsin Energy and
its subsidiaries are conducted in four business segments, the primary
operations of which are as follows:
Business Segment Operations
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Electric Operations Wisconsin Electric 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 Wisconsin Natural 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 the electric service area of Wisconsin
Electric.
Steam Operations Wisconsin Electric distributes and sells
steam supplied by its Valley Power Plant
to space heating and processing customers
in downtown and near southside Milwaukee.
Non-Utility Operations For information on non-utility subsidiaries
see Item 1. BUSINESS - "Non-Utility
Operations." Non-utility operations were
not significant in 1994.
For financial information about business segments, see Note M to the Financial
Statements in Item 8 of this report.
ELECTRIC UTILITY OPERATIONS
Electric energy sales by Wisconsin Electric in 1994, to all classes of
customers, totaled 26.9 billion kilowatt-hours, a 4.8% increase over 1993. On
June 17, 1994, Wisconsin Electric experienced a new record peak demand of
4,950 megawatts during a period of unusually hot and humid summer weather.
The previous record of 4,797 megawatts occurred on August 27, 1991. Sales of
the electric utility are impacted by seasonal factors and varying weather
conditions from year-to-year.
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ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)
There were 944,855 electric customers at December 31, 1994, an increase of 1.3
percent since December 31, 1993. For further information on revenues,
kilowatt-hour sales, and customer statistics by class, see "Electric Revenue,
Kilowatt-Hour Sales and Customer Statistics" on page 33 of this report.
In 1994, Wisconsin Electric's net generation amounted to 26.4 billion
kilowatt-hours. Generation was supplemented with 2.0 billion kilowatt-hours
purchased from neighboring utilities and, to a minor extent, from other
sources. The dependable capability of Wisconsin Electric's generating
stations was 5,288 megawatts in August, 1994 as more fully described in
Item 2. PROPERTIES.
The Public Service Commission of Wisconsin ("PSCW") is conducting 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".
In January 1994, Wisconsin Electric 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 are required to
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
demonstrates Wisconsin Electric's need to add peaking and intermediate load
capacity during the 20-year planning period. Wisconsin Electric's next base
load power plant is not expected to be placed in-service until after 2010.
The PSCW began technical hearings on Advance Plan 7 in November 1994. An
order is expected later in 1995. For additional information regarding Advance
Plans, see Item 1. BUSINESS - "REGULATION", Item 3. LEGAL PROCEEDINGS - "OTHER
LITIGATION" and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES".
Wisconsin Electric currently estimates peak demand in the year 2004 to be
about 5,200 megawatts assuming 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. To
partially meet the anticipated growth in peak demand requirements, Wisconsin
Electric is constructing a four unit, approximately 300 megawatt, peaking
power plant at its Paris Generating Station expected to be placed in service
by the summer of 1995, as described below. Wisconsin Electric also plans to
make additional investments in conservation-related programs during this
period.
Wisconsin Electric has completed renovation of units 1-4 at its Port
Washington Power Plant at a cost of $107 million. The project, which began in
1991, included the installation of additional emission control equipment.
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ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)
During the second quarter of 1994, two units, approximately 150 megawatts of
peaking capacity, were placed in service marking the completion of the new
Concord Generating Station. During 1993 two units, or approximately 150
megawatts of peaking capacity, had been placed in service at this facility.
Total capital costs of the four unit facility were approximately $107 million.
The 300 megawatt natural gas-fired combustion turbine peaking facility,
located near Watertown, Wisconsin is expected to run approximately 5% of the
time helping meet electric peak demand requirements.
During 1994, Wisconsin Electric continued construction of the Paris Generating
Station, a four unit, approximately 300 megawatt, gas-fired combustion turbine
power plant, to be placed in service during the summer of 1995. The cost of
this facility, located near Union Grove, Wisconsin, is currently estimated at
$104 million.
The supply of natural gas to operate the Concord and Paris units is to be
provided by Wisconsin Natural, an affiliated company, but may be purchased
from other suppliers with Wisconsin Natural providing gas transportation
services.
Wisconsin Electric and the Milwaukee Regional Medical Center ("MRMC"),
received preliminary approval from Milwaukee County on September 22, 1994, for
the purchase of the Milwaukee County Power Plant. The 11 megawatt power plant
in Wauwatosa, Wisconsin provides steam, chilled water and electricity for the
MRMC facilities. Under the terms of the agreement, Wisconsin Electric is
expected to pay $7 million to $8 million for the electric generation and
distribution facilities. The MRMC will purchase the plant's steam and water-
chilling facilities. Wisconsin Electric will manage and operate the facility,
and collect a management fee from the MRMC. Electric revenues of about $3
million annually will be generated from the investment. It is anticipated
that this transaction will be finalized in 1995.
Approvals from various regulatory agencies including the PSCW, the U. S.
Environmental Protection Agency ("EPA") and the Wisconsin Department of
Natural Resources ("DNR") are required prior to constructing new generation
capacity. All proposed generating facilities will meet or exceed the
applicable federal and state environmental requirements.
For further information regarding future capacity additions, see Item 1.
BUSINESS - "REGULATION".
For information regarding estimated costs of Wisconsin Energy's utility
subsidiaries' construction program and projected investments in conservation
programs for the five years ending December 31, 1999, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"LIQUIDITY AND CAPITAL RESOURCES". All estimates of construction expenditures
exclude Allowance For Funds Used During Construction. For additional
information regarding matters related to Allowance for Funds Used During
Construction, see Note F to the Financial Statements in Item 8.
In accordance with a PSCW order issued in November 1993, after completing a
capacity-related competitive bidding process, Wisconsin Electric signed a
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 Limited
Partnership. The agreement is contingent upon the facility being completed
and going into operation, which at this time is planned for mid-1996. On
March 9, 1995, the PSCW approved the IPP's application to construct a
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ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)
cogeneration plant in Whitewater, Wisconsin. For additional information, see
Item 3. LEGAL PROCEEDINGS - "OTHER LITIGATION - PSCW Two-Stage CPCN Order" and
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "Capital Requirements 1995-1999".
In response to increasing competitive pressures in the markets for electricity
and natural gas, Wisconsin Electric and Wisconsin Natural are implementing a
revitalization process to increase efficiencies and improve customer service
by reengineering and restructuring their organizations. The new structures
consolidate many business functions and simplify work processes. Due to
productivity improvements, staffing levels at Wisconsin Electric and Wisconsin
Natural have been reduced; 403 employees elected to retire under an early
retirement option and 651 employees have enrolled in severance packages. For
additional information, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Wisconsin Electric and
Wisconsin Natural Revitalization".
SOURCES OF GENERATION
The table below indicates sources of energy generation by Wisconsin Electric:
Year Ended December 31
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1994 1995*
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Coal 69.0% 69.8%
Nuclear 29.0 27.9
Hydro-electric 1.4 1.6
Gas 0.5 0.6
Oil 0.1 0.1
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TOTAL 100.0% 100.0%
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*Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs.
COAL: Wisconsin Electric diversifies its coal sources by purchasing from
Northern Appalachia, the Southern Powder River Basin (Wyoming) and the Raton
Basin (New Mexico) mining districts for the power plants in Wisconsin, and
from central Appalachia and western mines for the Presque Isle Power Plant in
Michigan.
Approximately 75 percent of Wisconsin Electric's 1995 coal requirements are
expected to be delivered by Wisconsin Electric-owned unit trains. The unit
trains will transport coal for the Oak Creek and Pleasant Prairie Power Plants
from New Mexico and Wyoming mines. Coal from Pennsylvania mines is
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. Wisconsin Electric's 1995 coal requirements, projected
to be 10.0 million tons, are 98 percent under contract. Wisconsin Electric
does not anticipate any problem in procuring its remaining 1995 requirements
through short-term or spot purchases and inventory adjustments.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
Pleasant Prairie Power Plant: All of the estimated 1995 coal requirements at
this plant are presently covered by three long-term contracts.
Oak Creek Power Plant: All of the estimated 1995 coal requirements for this
plant are covered by long-term contract. Contract provisions permit Wisconsin
Electric to increase/decrease the annual volume to match burn requirements.
Presque Isle Power Plant: This plant has six generating units designed to
burn bituminous coal and three other units designed to burn sub-bituminous
coal. The units burning sub-bituminous coal are supplied by three long-term
contracts the annual volumes of which are anticipated to be adequate to cover
coal requirements through 1996. Bituminous coal is generally purchased
through one-year contracts from central Appalachia and under a 5 year contract
for the Colorado origin coal.
Edgewater 5 Generating Unit: Coal for this unit, in which Wisconsin Electric
has a 25 percent 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
Wisconsin Electric's other Wisconsin plants, allows the plants to meet the
requirements of the Wisconsin acid rain law. In the event of further air
quality emission requirements affecting these plants, the contract can be
terminated without liability.
The periods and annual tonnage amounts for Wisconsin Electric's principal coal
contracts are as follows:
Contract Period Annual Tonnage
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Jan. 1977 to Dec. 1996 240,000
Nov. 1987 to Dec. 1997 500,000(A)
Jan. 1980 to Dec. 2006 2,000,000
Jul. 1983 to Dec. 2002 1,000,000
Apr. 1990 to Nov. 1996 375,000(B)
Jan. 1992 to Dec. 2005 1,200,000(C)(1995)
Oct. 1992 to Sep. 2007 2,000,000
Sep. 1994 to Aug. 1999 500,000
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(A) The contract can be extended if the total volume has not been
purchased by the respective termination dates.
(B) Annual volume can be increased to meet requirements for the Port
Washington and Valley Power Plants above the 375,000 ton volume
indicated herein.
(C) Subsequent years may be of greater tonnage as allowed under certain
provisions of the contract.
For information regarding emission restrictions, see Item 1. BUSINESS -
ENVIRONMENTAL COMPLIANCE - "Air Quality - Acid Rain Legislation".
NUCLEAR: Wisconsin Electric purchases uranium concentrates ("yellowcake") and
contracts for its conversion, enrichment and fabrication. Wisconsin Electric
maintains title to the nuclear fuel until the fabricated fuel assemblies are
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
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 E to the Financial Statements in Item 8.
Uranium Requirements: Wisconsin Electric 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.). Wisconsin Electric may exercise
flexibilities in these contracts and purchase certain quantities of uranium on
the spot-market, should market conditions prove favorable. Wisconsin Electric
believes that adequate supplies of uranium concentrates will be available to
satisfy current and future operating requirements.
Under a contract with Nuexco Trading Corporation, Wisconsin Electric 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
Wisconsin Electric at the conversion facilities of Comurhex in France.
However, Nuexco is in default under the contract and has filed for bankruptcy
law protection. Wisconsin Electric is reviewing various options that might be
available for use of its concentrates located at Comurhex.
Conversion: Wisconsin Electric has a contract with Sequoyah Fuels
Corporation, a subsidiary of General Atomics, to provide conversion services
for the Point Beach reactors through 1995. Due to operating difficulties
encountered in 1992, Sequoyah Fuels has decided to place its Gore, Oklahoma
conversion plant on indefinite stand-by. In November 1992, Sequoyah Fuels
signed an agreement with Allied Signal Corporation which formed a partnership
called Converdyn Corporation.
Converdyn administers all existing Allied and Sequoyah contracts, with all
conversion services being performed at the existing Allied Signal conversion
facility in Metropolis, Illinois.
Wisconsin Electric also has a conversion contract with the Cameco Corporation,
to provide for an alternate supply of up to approximately 30 percent of
conversion requirements through 1995 and up to 100 percent of conversion
requirements from 1996 through 1999. Cameco is a Canadian based corporation
located in Saskatoon, Saskatchewan, and is a major producer of uranium
concentrates.
Enrichment: Wisconsin Electric currently has a Utility Services Contract with
the U.S. Department of Energy ("DOE") for 70 percent of the enrichment
services required for the operation of both of the Point Beach units. The
contract can provide enrichment services for the entire operating life of each
unit. For a discussion of litigation involving the Utility Services Contract,
see Item 3. LEGAL PROCEEDINGS - OTHER LITIGATION - "Uranium Enrichment
Charges". Wisconsin Electric entered into a supplemental agreement with the
DOE to supply the remaining 30 percent of enrichment service requirements for
the period through 1995 at prices below those offered under the Utility
Services Contract. Responsibility for administering these contracts and
agreements for enrichment services was transferred from DOE to the U.S.
Enrichment Corporation ("USEC") under the Energy Policy Act of 1992. In March
1992, Wisconsin Electric entered into an agreement with Global Nuclear
Services and Supply Limited, an international supplier of enrichment services,
for the remaining 30 percent of enrichment service requirements after 1995.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
Fabrication: Fabrication of fuel assemblies from enriched uranium for Point
Beach is covered under a contract with Westinghouse Electric Corporation for
the balance of the plant's current operating license.
Spent Fuel Storage and Disposal: Wisconsin Electric currently has the
capability to store certain amounts of spent nuclear fuel at Point Beach.
Previous modifications to the storage facilities at Point Beach have made it
possible to accommodate all spent fuel expected to be discharged from the
reactors through 1995 while maintaining the capability for one full core off-
load. In accordance with the provisions of the Nuclear Waste Policy Act of
1982, which require the DOE to provide for the disposal of spent fuel from all
U.S. nuclear plants, Wisconsin Electric entered into a disposal contract
providing for deliveries of spent fuel to the DOE for ultimate disposal
commencing in January 1998. It is anticipated that the DOE will be unable to
accept spent fuel by the 1998 timeframe as contracted. In November of 1991,
Wisconsin Electric filed an application with the PSCW for authority to
construct and operate an Independent Spent Fuel Storage Installation
("ISFSI"). The ISFSI can provide additional interim dry cask storage until
the DOE begins to remove spent fuel from Point Beach in accordance with the
terms of the contract it has with Wisconsin Electric. Public hearings on the
proposed project were held during October 1994. On February 13, 1995,
Wisconsin Electric received a Certificate of Authority from the PSCW to
construct and operate the ISFSI. Loading of the first storage unit of the
ISFSI is expected to take place in the summer of 1995. In March 1995 separate
petitions were filed by intervenors in Dane County Circuit Court and Fond du
Lac County Circuit Court. The Dane County petition seeks reversal of the
order and a remand to the PSCW directing it to deny Wisconsin Electric's
request for authorization to construct the dry cask facility, or in the
alternative, to correct the alleged errors in the PSCW's order. No specific
relief is identified in the Fond du Lac County petition; however, numerous
grounds of error are alleged. Wisconsin Electric intends to fully participate
in both judicial review proceedings and to vigorously oppose the petitions.
For additional information, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Capital Requirements 1995-
1999".
Point Beach Nuclear Plant: Point Beach provided 29 percent of Wisconsin
Electric's net generation in 1994. The plant has two generating units which
had a combined dependable capability during December 1994 of 980 megawatts and
which together constituted 18.3 percent of Wisconsin Electric's dependable
generating capability in 1994. The U.S. Nuclear Regulatory Commission ("NRC")
licenses for Point Beach Units 1 and 2 expire October 5, 2010 and March 8,
2013, respectively.
The NRC has, at various times, directed that certain inspections,
modifications and changes in operating practices be made at all nuclear
plants. At Point Beach, such inspections have been made and necessary changes
to equipment and in operating practices have either been completed or are
expected to be completed within the time schedules permitted by the NRC or
within approved extensions thereof.
Wisconsin Electric has initiated certain plant betterment projects at 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.
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
On October 1, 1992, Wisconsin Electric 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 $119 million. (In 1984 Wisconsin Electric
replaced the Unit 1 steam generators.) The PSCW deferred the decision on the
steam generator replacements until after the next refueling outage in
September 1995. In the Interim Order dated February 13, 1995, the PSCW
directed Wisconsin Electric 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 fabricator will be afforded rate recovery. It is anticipated
that the final order in this matter will be issued in early 1996. Without the
replacement of the steam generators, it is believed the unit would not be able
to operate to the end of its current license.
Decommissioning Fund: Pursuant to a 1985 PSCW order, amended in 1994,
Wisconsin Electric 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, 1994 to approximately $227 million. For
additional information regarding decommissioning see Note E to the Financial
Statements in Item 8.
Nuclear Plant Insurance: For information regarding matters pertaining to
nuclear plant insurance, see Note E to the Financial Statements in Item 8.
NATURAL GAS (FOR ELECTRIC GENERATION): Natural gas for boiler ignition and
flame stabilization purposes for the Pleasant Prairie, Oak Creek and Valley
Power Plants, is purchased under an agency agreement. The agent purchases
natural gas and arranges for interstate pipeline transportation to the local
gas distribution utility. Gas for the Pleasant Prairie and Oak Creek Power
Plants is delivered by Wisconsin Natural. Gas for the Valley Power Plant is
delivered by Wisconsin Gas Company, a non-affiliated company.
The Concord Generation Station and the Oak Creek combustion turbine use
natural gas as their primary fuel, with Number 2 fuel oil as backup, as will
the Paris Generating Station, expected to go into commercial service in the
summer of 1995. Gas for these plants may be purchased directly from Wisconsin
Natural on an interruptible basis.
OIL: Oil is used for combustion turbines at the Germantown and Port
Washington Power Plants and at Point Beach. Small amounts of oil are also
used for boiler ignition and flame stabilization at some coal-fired plants.
Number 2 fuel oil requirements for 1995 at the Presque Isle Power Plant and
the Point Beach combustion turbine are provided under one-year contracts with
equitable price adjustment formulas. All other oil requirements are purchased
as needed from local suppliers. The Concord and Paris Generating Stations and
the Oak Creek combustion turbine use oil as a secondary fuel source.
HYDRO: Wisconsin Electric has various licenses from the Federal Energy
Regulatory Commission ("FERC") for its hydroelectric generating facilities
that expire during the period 1998 to 2004. Wisconsin Electric has begun the
licensing process for its largest hydro facility, Big Quinnesec Falls, which
has a license expiring in 1998. Wisconsin Electric continues to support
FERC's efforts to complete the licensing process and issue licenses for four
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
hydro projects with 1993 expiration dates. These projects are currently being
operated by Wisconsin Electric under annual licenses issued by FERC. The
three hydro facilities, with a total of 2.5 megawatts installed capacity, that
Wisconsin Electric decided not to relicense in 1993 are still being operated
by Wisconsin Electric under annual licenses until FERC determines their
disposition. Wisconsin Electric continues to consult with the U.S. Fish and
Wildlife Service, DNR, Michigan Department of Natural Resources ("MDNR") and
the National Park Service in conjunction with the licensing process.
Hydroelectric facilities provided 1.4% of Wisconsin Electric's total energy
generation in 1994.
INTERCONNECTIONS WITH OTHER UTILITIES: Wisconsin Electric's system is
interconnected at various locations with the systems of Madison Gas and
Electric Company, Wisconsin Power and Light Company, Wisconsin Public Service
Corporation, Commonwealth Edison Company, Northern States Power Company and
Upper Peninsula Power Company. These interconnections provide for interchange
of power to assure system reliability as well as facilitating access to
generating capacity and the transfer of energy for economic purposes.
Wisconsin Electric is a member of Wisconsin-Upper Michigan Systems ("WUMS"), a
coordinating group which includes four other electric companies in Wisconsin
and Upper Michigan. WUMS, in turn, is a member of Mid-America Interconnected
Network, which is one of nine regional members of the North American Electric
Reliability Council. Membership in these groups permits better utilization of
reserve generating capacity and coordination of long-range system planning and
day-to-day operations.
In March 1994, Wisconsin Electric executed a transmission service agreement
with Commonwealth Edison that will allow Wisconsin Electric to purchase energy
from southern Illinois and Indiana suppliers, using the Commonwealth Edison
transmission system to import such energy into Wisconsin.
A transmission service agreement has been executed to allow Wisconsin Electric
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. Considerable non-firm energy is expected to be
purchased from MAPP members over the next several years.
SALES TO WHOLESALE CUSTOMERS: Wisconsin Electric currently provides wholesale
electric energy to five municipally owned systems, three rural cooperatives,
two municipal joint action agencies and one isolated system of an investor-
owned utility in Wisconsin, Illinois, and the Upper Peninsula of Michigan
under rates approved by the FERC. Sales to these wholesale customers
accounted for 5.3 percent of total kilowatt-hour sales in 1994. Under two
agreements, service is being provided subject to a seven-year notice of
cancellation from the Wisconsin Public Power Inc. SYSTEM ("WPPI"). Wisconsin
Electric also has an eight-year power supply agreement with the Badger Power
Marketing Authority. Sales to the Badger Power Marketing Authority and WPPI
combined are expected to account for approximately one half of the wholesale
sales for 1995.
Service to UPPCO, under a 65 megawatt agreement which expires on December 31,
1997, is expected to account for 30 percent of 1995 wholesale sales. In
October 1993, UPPCO announced that it had reached an agreement in principle
with NSP to purchase 90 megawatts of base-load electric energy beginning in
1998. Wisconsin Electric expects to apply the 65 megawatts of capacity toward
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ITEM 1. BUSINESS - Sources of Generation (Cont'd)
the electric energy needs of new customers and toward the overall increase in
system supply needs anticipated by 1998.
Service to the remaining wholesale customers is provided under agreements
which require a three-year notice of cancellation from the customers.
During 1994, sales to wholesale customers declined 10.4 percent from 1993,
largely the result of reductions in sales to WPPI. WPPI has been reducing its
purchases from Wisconsin Electric subsequent to acquiring generation capacity
in 1990. Sales to WPPI during 1994, 1993 and 1992 were approximately 725,000
megawatt-hours ("MWh"), 944,000 MWh and 1,166,000 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, Wisconsin Electric will
continue to provide transmission services to WPPI.
Wisconsin Electric's existing FERC tariffs also provide for transmission
service to its wholesale customers. During 1994, Wisconsin Electric had three
customers taking transmission service. For further information see Item 1.
BUSINESS - "REGULATION".
In October 1992, the Energy Policy Act was signed into law. Passage of this
law is expected to remove perceived encumbrances and facilitate the entry of
power producers into the already competitive bulk power market. Notable among
its provisions are the creation of a new class of energy producer called
Exempt Wholesale Generators ("EWGs"), who are exempt from the requirements of
the Public Utility Holding Company Act of 1935, and the rights that the Energy
Policy Act provides them and utilities to request a FERC order directing the
provision of transmission service if denied transmission access from
utilities. The transmission aspects of this law are expected to have little
impact on Wisconsin Electric since it has had open access transmission tariffs
on file with the FERC since 1980.
In September 1994 Wisconsin Electric, responding to WPPI's request and a PSCW
order in a transmission construction proceeding, filed an unexecuted Network
Transmission Service Agreement for service to WPPI at the FERC. In November
1994 Wisconsin Electric made a second filing at the FERC to extend network
transmission service to non-WPPI wholesale customers. The proposed Network
Transmission Service is firm service for the loads of wholesale customers
located in Wisconsin Electric's retail service area. It is designed to be
comparable to service provided for the Company's native load.
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
Wisconsin Electric's service territory and sell electricity to Wisconsin
Electric. Consequently, electric wholesale and large retail customers of
Wisconsin Electric or other non-affiliated utilities may determine, from time
to time, to switch energy suppliers, purchase interests in existing power
plants or build new generating capacity, either directly or through joint
ventures with third parties. The advent of EWGs can be expected to accelerate
this practice. For additional information, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"LIQUIDITY AND CAPITAL RESOURCES".
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<PAGE> 14
ITEM 1. BUSINESS - (Cont'd)
GAS UTILITY OPERATIONS
Effective January 1, 1994, Wisconsin Southern Gas Company, Inc. ("Wisconsin
Southern") was acquired by Wisconsin Energy through a statutory merger of
Wisconsin Southern into Wisconsin Natural. Wisconsin Natural continues to use
the acquired facilities of Wisconsin Southern for the distribution and
transportation of natural gas. During 1994, the administrative and operating
functions of the companies were combined. For additional information, see
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
On October 11, 1994, Wisconsin Electric and Wisconsin Natural filed a joint
application with the PSCW to merge Wisconsin Natural into Wisconsin Electric.
Wisconsin Electric also filed an application to obtain the Michigan Public
Service Commission's ("MPSC") consent to assume Wisconsin Natural's
liabilities in connection with the merger. The merger, which was approved by
the stockholders of Wisconsin Electric in December 1994, is anticipated to be
effective by year-end 1995. The merger of Wisconsin Natural into Wisconsin
Electric is expected to improve customer service and reduce future operating
costs.
Total gas therms delivered by Wisconsin Natural, including customer-owned gas
transported by Wisconsin Natural, increased 0.2 percent in 1994 compared to
1993, reflecting the offsetting effects of 5 percent warmer-than-normal
weather during 1994 and increased sales associated with a record number of new
customer additions.
Approximately 30 percent of total 1994 deliveries were on interruptible rates.
Wisconsin Natural's maximum daily send-out in 1994 was 651,643 Dths. A
dekatherm ("Dth") is equivalent to ten therms or one million British Thermal
Units ("BTU"). Sales of the gas utility fluctuate with the heating cycle of
the year and are also impacted by varying weather conditions from year-to-
year.
On November 1, 1993, FERC Order 636 went into effect, unbundling the
interstate pipeline industry. The unbundling forced Wisconsin Natural to take
on the responsibility of selecting and administering a complete portfolio of
gas supply contracts sufficient to supply sales customers.
Wisconsin Natural has entered into more than 50 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 Wisconsin Natural 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
Wisconsin Natural to take advantage of seasonal price differentials.
Wisconsin Natural has 14 firm gas storage and associated firm transportation
agreements that allow daily withdrawals of 285,025 Dths and an annual capacity
of 22 million Dths. The initial terms of these contracts vary, with the first
one expiring in March 1995, and the last in October 2003. This storage
effectively replaces storage used by the pipeline companies to provide gas
sales service to Wisconsin Natural in the pre-FERC Order 636 environment. Gas
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<PAGE> 15
ITEM 1. BUSINESS - Gas Utility Operations (Cont'd)
stored at these facilities is purchased by Wisconsin Natural from a number of
suppliers.
Wisconsin Natural has 11 transportation contracts not associated with storage.
Seven contracts expire prior to 2002, one contract expires in 2002 and the
remaining three contracts expire in 2003. In each case, subject to certain
provisions, Wisconsin Natural can extend the terms of these contracts at the
time the agreements would otherwise expire.
Wisconsin Natural transports gas for its customers who purchase gas directly
from other suppliers. Transported gas accounted for approximately 30% of the
company's total therms delivered during 1994, 31% during 1993, and 33% during
1992.
Wisconsin Natural is the supplier of natural gas for Wisconsin Electric's
Concord Combustion Turbine Power Plant and Paris Combustion Turbine Power
Plant that will begin operation in 1995. Delivery of the Paris facility's
fuel requirements is made possible by a pipeline extension completed in 1994.
On March 9, 1995, the PSCW issued Wisconsin Natural a certificate for
construction of a gas pipeline to provide gas transportation service to LSP -
Whitewater Limited Partnership's proposed Whitewater cogeneration facility.
For additional information, see ELECTRIC UTILITY OPERATIONS above.
SALES TO LARGE CUSTOMERS
Wisconsin Electric and Wisconsin Natural provide utility service to a
diversified base of industrial customers. Major industries served by
Wisconsin Electric include the iron ore mining industry, the paper industry,
the machinery production industry, the foundry industry and the food products
industry. The Empire and Tilden iron ore mines, the two largest customers of
Wisconsin Electric, accounted for 4.6 percent and 4.0 percent, respectively,
of total electric kilowatt-hour sales in 1994. Sales to the mines were 15.0
percent higher in 1994 compared to 1993, attributable to a five week strike in
1993. For additional information see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Electric Sales
and Revenues". Major industries served by Wisconsin Natural include the paper
industry, the food products industry and the machinery production industry.
No single customer of Wisconsin Natural accounted for more than 3.2 percent of
total gas therms sold and transported in 1994.
STEAM UTILITY OPERATIONS
Wisconsin Electric operates a district steam system for space heating and
processing in downtown and near southside Milwaukee. Sales of the steam
utility fluctuate with the heating cycle of the year and are impacted by
varying weather conditions from year-to-year. The system consists of
approximately 28 miles of high and low pressure mains and related regulating
equipment. Steam for the system is supplied by Wisconsin Electric's Valley
Power Plant. At December 31, 1994, there were 471 customers on the system.
Steam sales in 1994 were 2,395 million pounds, an increase of 0.8 percent from
the 2,376 million pounds sold in 1993.
NON-UTILITY OPERATIONS
Wisconsin Energy has five non-utility subsidiaries:
WISPARK Corporation develops and invests in real estate projects within
Wisconsin Energy's utility subsidiaries' service territories. WISPARK is
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<PAGE> 16
ITEM 1. BUSINESS - Non-Utility Operations (Cont'd)
currently developing several industrial/business parks in southeastern
Wisconsin. WISPARK's primary development is LakeView Corporate Park, a 1,439
acre business park located near Kenosha, Wisconsin. Thirty-nine companies
have purchased a total of 426 acres in this development during its first six
years. WISPARK is also developing business parks in Pewaukee and New Berlin
(Waukesha County), Yorkville (Racine County) and Milwaukee, Wisconsin.
WISPARK has also been involved in the development of East Pointe Commons, a
housing and retail complex in Milwaukee, Wisconsin. A WISPARK subsidiary,
Syndesis Development Corporation, has developed Gaslight Pointe, a residential
complex, also featuring a hotel and restaurant, on 12 acres along the Lake
Michigan waterfront in Racine, Wisconsin.
WITECH Corporation is a venture capital company operating in Wisconsin and the
Upper Peninsula of Michigan. At December 31, 1994, WITECH had investments in
19 companies and 3 funds totaling more than $52 million. The companies
include, among others, an operator of a nationwide data communications network
for the agriculture industry, a specialty printing firm, a manufacturer of
motor drives and a manufacturer of customized furniture. WITECH's subsidiary,
Minergy Corp., develops and markets technology involving lightweight aggregate
produced from fly ash, sludge and other waste by-products. Minergy is
marketing this technology in areas outside Wisconsin Electric's service
territory.
Wisconsin Michigan Investment Corporation ("WMIC") engages in investing and
financing activities. Activities include advances to affiliated companies and
investments in financial instruments and in partnerships developing low- and
moderate-income housing projects. Other investments may be made from time to
time. WMIC's subsidiary, WMF Corp., engages in financing activities; any
funds obtained by WMF Corp. through financing arrangements are advanced to
WMIC.
Badger Service Company holds coal rights in Indiana. Estimates indicate that
40 million tons of coal could be recovered from this property with
conventional mining techniques; however, there are no current plans to develop
the property. Badger Service Company may sell or develop these rights in the
future as conditions warrant.
WISVEST Corporation was formed to provide capital to help businesses expand in
Wisconsin and to help Wisconsin corporations avoid takeover bids by out-of-
state companies.
Wisconsin Energy is subject to certain restrictions which limit
diversification in non-utility activities. Under Wisconsin law, the sum of
the assets of all non-utility affiliates may not exceed the sum of 25 percent
of the assets of Wisconsin Electric and a percentage as determined by the PSCW
(equal to 25 percent) of the assets of Wisconsin Natural.
REGULATION
Wisconsin Electric and Wisconsin Natural are 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. Wisconsin Electric 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 construction of certain new
facilities, levels of short-term debt obligations and advance approval of
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<PAGE> 17
ITEM 1. BUSINESS - Regulation (Cont'd)
transactions with affiliates. Wisconsin Electric, with respect to hydro-
electric facilities, wholesale rates and accounting, is subject to FERC
regulation. Operation and construction relating to Wisconsin Electric's Point
Beach facilities are subject to regulation by the NRC. Wisconsin Electric's
operations are also subject to regulations of the EPA, the DNR and the MDNR.
The PSCW is authorized to direct expenditures for promoting conservation if it
determines that the programs are in the public interest. Recent rate orders
have included provisions for substantial conservation programs initiated by
Wisconsin Electric. For additional information, see Note A to the Financial
Statements in Item 8.
Wisconsin Energy is an exempt holding company by order of the Securities and
Exchange Commission under Section 3(a)(1) of the Public Utility Holding
Company Act of 1935, as amended, and accordingly is exempt from the provisions
of that act, other than with respect to certain acquisitions of securities of
a public utility.
Wisconsin Electric is subject to a power plant siting law in Wisconsin which
requires that electric utilities file updated long-term forecasts (called
"Advance Plans") for the location, size and type of future large generating
plants and high voltage transmission lines about every two years for PSCW
approval after public hearings. Generally, the law provides that the PSCW may
not authorize the construction of any large generating plants or high voltage
transmission lines unless they are in substantial compliance with the most
recently approved plan. The law also prohibits Wisconsin Electric from
acquiring any interest in land for such plants or transmission lines by
condemnation until construction authorization has been received. Advance Plan
orders are based on a review of the utilities' long-term planning options.
However, separate project-specific PSCW approval is required for the
construction of generating facilities and transmission lines.
Wisconsin Electric employs a least-cost integrated planning process, which
examines a full range of supply and demand side options to meet its customers'
electric needs, such as the renovation of existing power plants, promotion of
cost-effective conservation and load management options, development of
renewable energy sources, purchased power and construction of new company-
owned generation facilities.
For additional information regarding Advance Plans, see Item 3. LEGAL
PROCEEDINGS - "OTHER LITIGATION" and Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES".
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.
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
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<PAGE> 18
ITEM 1. BUSINESS - Regulation (Cont'd)
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 3. LEGAL PROCEEDINGS - OTHER
LITIGATION and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "Capital Requirements 1995-1999."
The PSCW is conducting 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. About 50 interested parties, including Wisconsin Electric,
submitted comments as to appropriate objectives for regulation of the electric
utility industry and the utility structures and regulatory approaches likely
to provide the best balance of such objectives. Initial question and answer
sessions were held in November, 1994. The PSCW also scheduled meetings for
early 1995 for the purpose of narrowing the scope of the investigation and has
indicated it anticipates submitting a final report to the Wisconsin
Legislature in late 1995. Copies of Wisconsin Electric's proposal are
available upon request.
Wisconsin Electric's view of industry restructuring separates various electric
utility functions into two major categories - natural monopolies and
competitive entities. The natural monopolies are functions where a single
entity can provide the lowest cost. The competitive entities are functions
where competition can provide the lowest cost. The natural monopolies would
be re-regulated so the appropriate incentives exist to provide electricity at
reasonable prices. The competitive entities would eventually see an
elimination of traditional regulation.
In Wisconsin Electric's plan, the re-regulated natural monopolies are the
transmission and distribution functions. Re-regulation of these entities
should 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 Wisconsin Electric 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.
Wisconsin Natural is also participating in a generic investigation, initiated
by the PSCW, addressing the extent to which traditional regulation of the
natural gas distribution function could be replaced.
RATE MATTERS
See Item 3. LEGAL PROCEEDINGS - "RATE MATTERS" - for a discussion of rate
matters, including recent rate changes and a discussion of the tariffs and
procedures with respect to recovery of changes in the costs of fuel, purchased
power and gas purchased for resale.
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<PAGE> 19
ITEM 1. BUSINESS - (Cont'd)
ENERGY EFFICIENCY
The management of Wisconsin Energy and its utility subsidiaries believes that
a strong and continuing emphasis must be placed on energy management and
efficient energy use. Wisconsin Electric and Wisconsin Natural are continuing
to develop programs to inform and assist their customers with respect to
conservation options. This policy is regarded by Wisconsin Energy and its
utility subsidiaries as in the best interests of their customers and security
holders.
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 some residential central air
conditioners continues as part of a pilot program which began in 1992.
To promote their energy management and conservation policies, Wisconsin
Electric and Wisconsin Natural offer various programs and services to their
customers. For industrial and commercial customers, Wisconsin Electric offers
energy evaluations identifying cost-effective customer conservation
opportunities as well as financial assistance, including direct grants and
interest-free financing to purchase and maintain energy-efficient equipment.
Additional financial incentives are also offered to residential electric
customers to encourage the purchase of energy-efficient appliances and the
removal of older inefficient appliances from the system.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental protection requirements
resulted in capital expenditures by Wisconsin Energy's utility subsidiaries of
approximately $57 million in 1994, a decrease of $8 million from 1993.
Expenditures incurred during 1994 included costs associated with the
replacement of the precipitators at Valley Power Plant, the installation of
pollution abatement facilities at Wisconsin Electric's power plants, the
installation of underground distribution lines and environmental studies
associated with power plants. Such expenditures are budgeted at approximately
$35 million for 1995.
Operation, maintenance and depreciation expenses of Wisconsin Electric's fly
ash removal equipment and other environmental protection systems are estimated
to have been $47 million in 1994. Other environmental costs, primarily for
environmental studies, amounted to $1 million in 1994.
Solid Waste Landfills
Wisconsin Energy's utility subsidiaries provide 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, Wisconsin Electric 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
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<PAGE> 20
ITEM 1. BUSINESS - Environmental Compliance (Cont'd)
Waukesha County, Wisconsin). On January 14, 1993, Wisconsin Electric notified
EPA that it was proceeding, with other PRPs, to comply with the order. The
first step toward remediation has been identified, with the Wisconsin Electric
portion of the $16.8 million dollar effort identified as $115,414 (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 would be allocated among the
PRPs based on their waste contribution to the site. Wisconsin Electric has
been identified as one of the small waste contributors to the site.
Maxey Flats Nuclear Disposal Site: In 1986, Wisconsin Electric 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 Wisconsin Electric was significantly less than one percent of
the total. Under the terms of a consent decree agreed to by all parties,
Wisconsin Electric will pay the amount of $163,830 (minus a small credit for
an amount previously paid) as its share of the settlement fund for site clean
up costs.
Lenz Oil: A request for information or PRP letter was received from EPA on
March 25, 1994. Wisconsin Southern was identified as the PRP because of used
oil sent to the Lenz Oil facility. Wisconsin Southern was acquired by
Wisconsin Energy on January 1, 1994. A response was filed with EPA. No known
cleanup schedule has been set or remediation costs identified.
Manistique River/Harbor Area: Wisconsin Electric 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. Wisconsin Electric responded to this request on April
22, 1993. Additional information requests from EPA have also been responded
to by Wisconsin Electric. Wisconsin Electric has no reason to believe that
the company is responsible in total or in part for the PCB contamination in
the Manistique River/harbor area. No known cleanup schedule has been set or
remediation costs identified.
Kenosha Iron and Metal: Wisconsin Electric received a request for information
or PRP letter from EPA on December 9, 1994. The letter requested information
regarding any involvement Wisconsin Electric's Pleasant Prairie Power Plant
may have had with this operation. A response to EPA was sent December 29,
1994 indicating that Wisconsin Electric had no reason to believe that the
power plant or Wisconsin Electric did any business with Kenosha Iron and
Metal. No cleanup schedule has been set or remediation costs identified.
Marina Cliffs Barrel Dump Site: Wisconsin Electric received a special notice
letter and information request on March 25, 1994 from the DNR. The letter
describes a release of hazardous substances at a former barrel reclamation
facility and landfill site, and requests information on any business dealings
Wisconsin Electric may have had with this former operation. Wisconsin
Electric has no reason to believe that it is responsible for the contamination
problems at this site. No known cleanup schedule has been set or remediation
costs identified.
ETSM Property: Iron cyanide bearing wastes were found both on property owned
by Wisconsin Electric (ETSM facility) and adjacent landowners. The wastes
were removed and properly disposed, with Wisconsin Electric's share of the
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<PAGE> 21
ITEM 1. BUSINESS - Environmental Compliance (Cont'd)
cleanup at about $100,000. Adjacent landowners believe Wisconsin Electric to
be the source of the material, however, records do not support that
allegation.
Ash Landfills
Wisconsin Electric 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. These costs are included in the environmental operating and
maintenance costs for Wisconsin Electric. Sites currently undergoing
remediation include:
Presque Isle Landfill: Wisconsin Electric entered into a settlement agreement
with the MDNR for conditions existing at an ash landfill site acquired by
Wisconsin Electric when it purchased the Presque Isle Power Plant in 1988.
Wisconsin Electric's groundwater monitoring program at the site detected
elevated levels of certain substances at the oldest portion of the landfill.
Wisconsin Electric has reconstructed and capped that portion of the landfill
to prevent further leachate from entering the groundwater at an approximate
cost of $2.6 million. The cost to implement a remediation plan for the
cleanup of the current groundwater conditions, when approved by the MDNR, is
estimated to not exceed $1 million.
Highway 59 Landfill: In 1989, a sulfate plume was detected in the groundwater
beneath a Wisconsin Electric-owned former ash landfill located in the town of
Waukesha, Wisconsin. After notifying the DNR, Wisconsin Electric initiated a
five-year expanded monitoring program. In response to a request from the DNR,
Wisconsin Electric is preparing an environmental contamination assessment of
the landfill, and will submit the report to the DNR in May, 1995. Wisconsin
Electric believes that any remediation plan developed, approved and
implemented for this site would not have a material adverse effect on its
financial condition.
Manufactured Gas Sites
As have other public utilities, the utility subsidiaries of Wisconsin Energy
and/or their predecessors, have operated manufactured gas plants. Operations
at these manufactured gas sites ceased over 40 years ago with remediation
activities having been conducted at certain of these sites, while other sites
are scheduled for investigation. A plan to investigate and remediate these
sites was presented to the DNR. The plan, estimated to cost approximately $12
million over the next six years, will result in the majority of the sites
being restored to commercial use. Costs associated with these types of
efforts, to the extent not covered by insurance, historically have been
allowed to be recovered in rates for utility service. Wisconsin Energy's
utility subsidiaries believe any such future costs will continue to be
considered appropriate for inclusion in rates and therefore will not have a
material adverse impact on their financial condition.
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<PAGE> 22
ITEM 1. BUSINESS - Environmental Compliance (Cont'd)
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 Wisconsin Electric. 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 1994, approximately
181,000 tons of SO2 were emitted by such utilities, equivalent to an annual
average emission rate of 0.97 lbs SO2 per million BTU.
Wisconsin Electric'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 nation-
wide reductions in air emissions. Most significant to the country's electric
utility companies are the "acid rain" provisions of the amendments which are
scheduled to limit SO2 and nitrogen oxide ("NOX") emissions in phases which
take effect in 1995 and 2000. Wisconsin Electric evaluated the potential
impact resulting from this legislation and concluded that minimal impact will
result from Phase I requirements because of actions taken to meet the above
mentioned Wisconsin acid rain law. Phase II requirements, together with
separate ozone nonattainment provisions of the Clean Air Act which may call
for additional NOX reductions, however, will necessitate the implementation of
a compliance strategy which is not expected to 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 - "ENVIRONMENTAL ISSUES".
OTHER
Wisconsin Electric and Wisconsin Natural are 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. Wisconsin Electric
provides electric service in certain territories in the state of Michigan
pursuant to franchises granted by municipalities.
Research and development expenditures of Wisconsin Energy's utility
subsidiaries amounted to $8,063,000 in 1994, $8,629,000 in 1993, and
$7,885,000 in 1992. Such expenditures were primarily for improvement of
service and abatement of air and water pollution. The capitalized portion of
research and development costs amounted to $15,000 in 1993 and $55,000 in
1992; there were no such capitalized costs in 1994. Research and development
activities include work done by employees, consultants and contractors, plus
sponsorship of research by industry associations. In addition to the
- 22 -
<PAGE> 23
ITEM 1. BUSINESS - Other (Cont'd)
foregoing amounts, Wisconsin Natural paid $766,000 in 1994, $1,300,000 in 1993
and $767,000 in 1992 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, 1994, Wisconsin Energy and its subsidiaries employed 4,801
persons, of which 114 were part-time.
ITEM 2. PROPERTIES
Wisconsin Electric owns the following generating stations with 1994
capabilities as indicated:
Dependable
Capability In
Megawatts (1)
-----------------------
No. of
Generating August December
Name Fuel Units 1994 1994
---- ---- ---------- ------- --------
Steam Plants:
Point Beach Nuclear 2 974 980
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 4,608 4,592
Hydro Plants (16 in number) 38 75 75
Germantown Combustion
Turbines Oil 4 212 252
Other Combustion
Turbines & Diesel(4) Gas/Oil 6 393 450
-- ----- -----
TOTAL SYSTEM 72 5,288 5,369
== ===== =====
-----------------------
(1) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given
month in a given year. Changing seasonal conditions are responsible
for the different capabilities reported for the winter and summer
periods in the above table. The values were established by test and
may change slightly from year to year.
(2) UPPCO, a non-affiliated utility, staffs and operates the Presque Isle
Power Plant under an operating agreement with Wisconsin Electric which
extends through December 31, 1997.
(3) Wisconsin Electric has a 25 percent interest in Edgewater 5 Generating
Unit, which is operated by Wisconsin Power and Light Company, a non-
affiliated utility.
- 23 -
<PAGE> 24
ITEM 2. PROPERTIES - (Cont'd)
(4) During the second quarter of 1994, two units, or approximately 150
megawatts of additional peaking combustion turbine generation capacity,
were placed in service at Wisconsin Electric's Concord Generating Station.
At December 31, 1994, the Wisconsin Electric system had 2,759 miles of
transmission circuits, of which 639 miles were operating at 345 kilovolts, 123
miles at 230 kilovolts, 1,603 miles at 138 kilovolts, and 394 miles at voltage
levels less than 138 kilovolts. At December 31, 1994, Wisconsin Electric was
operating 22,327 pole miles of overhead distribution lines and 13,481 miles of
underground distribution cable, as well as 360 distribution substations and
216,973 line transformers.
As of December 31, 1994, the gas distribution system of Wisconsin Natural
includes approximately 6,786 miles of mains connected at 18 gate stations to
the pipeline transmission systems of: ANR Pipeline Company, ANR; Natural Gas
Pipeline Company of America, NGPL; and Northern Natural Pipeline Company,
Northern Natural. Wisconsin Natural 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. Through the acquisition of
Wisconsin Southern, Wisconsin Natural acquired propane tanks for peaking
purposes. These tanks will provide approximately 10,000 Dths of supply to the
system. For additional information, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Acquisition of
Wisconsin Southern Gas Company, Inc.".
Wisconsin Electric and Wisconsin Natural own various office buildings and
service centers throughout their service areas.
WISPARK properties include the following commercial and industrial parks in
Wisconsin: LakeView, located near Kenosha; Grandview, in Racine County;
RidgeView, in Pewaukee; and the industrial development of Westridge, in New
Berlin. WISPARK also owns Gaslight Pointe, a residential and commercial
complex located in Racine, Wisconsin and other properties located in the
Wisconsin Energy's utility subsidiaries' service territories that are held for
future development.
Badger Service Company holds rights to coal in an area of 8,568 acres in Knox
County, Indiana.
The principal properties of Wisconsin Energy and its subsidiaries 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
Wisconsin Electric and Wisconsin Natural are subject to federal, state and
certain local laws and regulations governing the environmental aspects of
their operations. Wisconsin Electric and Wisconsin Natural believe that, with
immaterial exceptions, their existing facilities are in compliance with
applicable environmental requirements.
- 24 -
<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS - Environmental Matters (Cont'd)
Stephenson Building: Crown Life Insurance Company has sued Wisconsin Electric
in federal court, seeking contribution and damages from Wisconsin Electric for
the cost of removing asbestos from boilers and piping in a building owned by
Crown Life. Wisconsin Electric sold that equipment and piping to a former
building owner in 1970. Wisconsin Electric 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 Electric Jurisdiction
Fuel Cost Adjustment Procedure: Wisconsin Electric's retail rates in
Wisconsin do not contain an automatic fuel adjustment clause, but can be
adjusted by the PSCW if actual cumulative fuel and purchased power costs, when
compared to the costs projected in the retail electric rate proceeding,
deviate from a prescribed range and are expected to continue to be above or
below the authorized annual range of 3 percent.
1994 Fuel Cost Adjustment: Effective August 4, 1994, the PSCW authorized
Wisconsin Electric 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 $6.8 million through December 31, 1994. The level of fuel
expense currently included in rates will continue until either the actual
cumulative fuel and purchased power costs exceed the range in the fuel cost
adjustment procedure, at which time Wisconsin Electric can apply for a change
to the fuel adjustment factor, or rates are revised by the PSCW in a rate
case.
1994 Test Year: In April 1993, Wisconsin Electric filed with the PSCW required
data relating to the 1994 test year. In support of its goal to become the
lowest cost energy provider in the region, Wisconsin Electric did not seek an
increase in retail electric rates for 1994 over those which were authorized on
February 17, 1993.
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 rate cases to be conducted once every two years. As a result, no
filing was made with respect to the 1995 test year.
1996 Test Year: Under the PSCW's biennial rate case schedule, Wisconsin
Electric would be scheduled to file in mid-1995 for rates to reflect a 1996
test year. Wisconsin Electric and Wisconsin Natural may make a single
combined filing covering electric, steam and gas operations in May 1995 for
the test year beginning January 1, 1996. On March 27, 1995, Wisconsin
Electric and Wisconsin Natural sent a letter to the PSCW proposing a one year
deferral of their upcoming rate case filing. The matter is pending.
Wholesale Electric Jurisdiction
Fuel and Purchased Power Adjustment Tariffs: Wisconsin Electric's wholesale
rates contain an automatic fuel adjustment provision to reflect varying fuel
and purchased power costs. Wholesale sales, to municipals and cooperatives,
represented approximately 5% of total electric sales in 1994.
- 25 -
<PAGE> 26
ITEM 3. LEGAL PROCEEDINGS - Rate Matters (Cont'd)
Michigan Retail Electric Jurisdiction
1993 Test Year: Effective July 9, 1993, the MPSC authorized an annualized
rate increase of $1.4 million, or 4.3%, for Wisconsin Electric's non-mine
retail electric customers. Excluding sales to the two mine customers, which
are separately regulated by the MPSC, retail electric sales in Michigan
account for approximately 2% of Wisconsin Electric's total kilowatt-hour
sales.
Power Supply Cost Recovery Clause: Rates are adjusted to reflect varying fuel
and purchased power costs through a power supply cost recovery ("PSCR") clause
in Wisconsin Electric's tariffs. Such PSCR clause provides for, among other
things, an annual filing of a PSCR plan and, after notice and an opportunity
for hearing, the development of PSCR factors to be applied to customers' bills
during the period covered by the PSCR plan to allow Wisconsin Electric to
recover its costs of fuel and purchased power transactions, as estimated in
its annual filing. The amounts so collected are subject to a reconciliation
proceeding conducted by the MPSC at the end of the period covered by the plan
for recovery of any undercollections of actual costs or for refund or credit
of any amounts in excess of its actual costs in such period. On November 30,
1994, the MPSC approved the proposed PSCR credit factor of $.00535 per
kilowatt-hour for the year 1995.
Wisconsin Retail Gas Jurisdiction
1994/1995 Test Year: In 1993, the PSCW adopted a biennial rate case schedule.
As a result, no filing was made with respect to the 1994/1995 test year.
1996/1997 Test Year: Wisconsin Natural received approval from the PSCW to
change its test year from a biennial period ending August 31 to a biennial
period ending December 31, which coincides with Wisconsin Electric's rate case
schedule. Wisconsin Natural and Wisconsin Electric may make a single combined
filing covering electric, steam and gas operations in May 1995 for the test
year beginning January 1, 1996. On March 27, 1995, Wisconsin Electric and
Wisconsin Natural sent a letter to the PSCW proposing a one year deferral of
their upcoming rate case filing. The matter is pending.
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 - "Rates and Regulatory Matters".
FERC Order 636 Transition Costs
As a result of FERC Order 636, pipeline companies are no longer in the
merchant business and have begun billing transition costs, such as Gas Supply
Realignment and stranded capacity costs, to their customers. The transition
costs to be billed to Wisconsin Natural are currently estimated to be about
$7.5 million for 1995, $6.0 million annually during 1996-1997 and $2.0 million
each year thereafter until 2008. These estimates include the components
attributable to Wisconsin Southern, which was merged into Wisconsin Natural
effective January 1, 1994. The PSCW is allowing the local gas distribution
companies to pass these costs on to their customers through the purchased gas
adjustment mechanism.
- 26 -
<PAGE> 27
ITEM 3. LEGAL PROCEEDINGS - Rate Matters (Cont'd)
Wisconsin Retail Steam Jurisdiction
Fuel Adjustment: Wisconsin Electric steam rates contain a provision to adjust
rates to reflect varying fuel costs for all customers except for a large
volume contract representing approximately 14 percent of steam sales in 1994.
1994 Test Year: Consistent with the actions taken with respect to Wisconsin
Electric's Wisconsin Retail Electric Jurisdiction, Wisconsin Electric did not
seek an increase in retail steam rates for 1994 above those authorized in
February 1993.
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 rate cases to be conducted once every two years. As a result, no
filing was made with respect to the 1995 test year.
1996 Test Year: Under the PSCW's biennial rate case schedule, Wisconsin
Electric would be scheduled to file data in mid-1995 to reflect a 1996 test
year period. Wisconsin Electric and Wisconsin Natural may make a single
combined filing covering electric, steam and gas operations in May 1995 for
the test year beginning January 1, 1996. On March 27, 1995, Wisconsin
Electric and Wisconsin Natural sent a letter to the PSCW proposing a one year
deferral of their upcoming rate case filing. The matter is pending.
For additional information see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Rates and Regulatory
Matters".
OTHER LITIGATION
Advance Plan 6: In 1992, Wisconsin Electric joined with other state utilities
in a petition filed in Brown County Circuit Court requesting judicial review
of one aspect of the PSCW's Advance Plan 6 order. The action involved the
Commission's authority to require the utilities to consider, in their
planning, monetized effects of so-called "greenhouse gases".
Also, in 1992, Wisconsin's Environmental Decade ("WED") filed a petition in
Dane County Circuit Court requesting judicial review of another aspect of the
PSCW's Advance Plan 6 order. That proceeding involved the question of whether
the PSCW should have required the utilities to reflect, in their planning,
claimed beneficial employment impacts associated with demand-side management
activities and whether the PSCW's environmental assessment was sufficient. A
group of utilities, including Wisconsin Electric, appeared in that proceeding
in opposition to WED.
The two petitions were consolidated for judicial review in Dane County Circuit
Court. On September 2, 1994, the Court issued a decision that the PSCW (1)
has authority to require the utilities to monetize the economic risk of
potential future regulation of greenhouse gases for advance planning purposes,
and (2) was not required to direct utilities to include the economic impact of
employment benefits in their advance plans. In addition, the Court held the
PSCW's environmental assessment was deficient. The Court remanded the Advance
Plan order to the PSCW for the purpose of providing a factual basis for the
monetized values of greenhouse gases and correcting the environmental
assessment deficiencies. On December 21, 1994, the PSCW issued a supplemental
order purporting to explain the factual basis for the monetized values.
- 27 -
<PAGE> 28
ITEM 3. LEGAL PROCEEDINGS - Other Litigation (Cont'd)
PSCW Two-Stage CPCN Order: In January 1994, Wisconsin Electric filed an
action in Milwaukee County Circuit Court seeking judicial determination
concerning the PSCW's authority to adopt a new "two-stage" CPCN process and to
order utilities to enter into contracts to buy power from other entities.
This action was in response to the PSCW's December 1993 order which detailed
the requirements of the new process to be implemented by the PSCW in making
the final selection from among competing alternatives to construct proposed
future capacity additions, including projects that would be owned and operated
by unaffiliated IPPs. On June 27, 1994, this action was dismissed by
stipulation of the parties. Wisconsin Electric is also an intervenor in a
similar action brought by an unaffiliated IPP in Dane County Circuit Court.
The matter is pending. For additional information see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"Capital Requirements 1995-1999".
Spent Fuel Storage and Disposal: See Item 1. BUSINESS - SOURCES OF GENERATION
- NUCLEAR - "Spent Fuel Storage and Disposal" for information concerning the
PSCW's approval of Wisconsin Electric's application to utilize dry cask
storage for spent nuclear fuel generated at Point Beach, and pending petitions
for judicial review of the PSCW's decision.
Pittsburg & Midway Case: In a matter brought before the FERC, in July 1993,
Wisconsin Electric filed an initial brief supporting its right to retain coal
reclamation costs collected through the wholesale fuel adjustment clause in
1986 that it believes were prudently incurred in a settlement with the
Pittsburg & Midway Coal Mining Company. Of the total costs involved, the
portion recovered through the wholesale fuel clause amounts to approximately
$750,000. This filing was made in response to a FERC audit staff
determination that Wisconsin Electric should have applied for a waiver of the
FERC's fuel clause regulations in order to attempt to pass through the
wholesale portion of the settlement costs. In order for a final decision to
be made, the FERC must first await the initial decision expected from an
Administrative Law Judge. The matter is pending.
In November 1993, the FERC rejected Wisconsin Electric's request to be allowed
to recover, in wholesale rates in the future, the amount which may have to be
refunded to customers in the event of an unfavorable ruling in the pending
fuel adjustment clause proceeding concerning the Pittsburg & Midway
reclamation charges. In January 1994, Wisconsin Electric 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. Wisconsin Electric believes that its facilities are
constructed and operated in accordance with all applicable legal requirements
and standards. Wisconsin Electric 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 Wisconsin Electric.
Uranium Enrichment Charges: On February 9, 1995, Wisconsin Electric 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
- 28 -
<PAGE> 29
ITEM 3. LEGAL PROCEEDINGS - Other Litigation (Cont'd)
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
Wisconsin Electric total $3.3 million.
Personal Injury Suit: On October 1, 1994 a jury returned a $2.85 million
verdict against Wisconsin Natural in a case in Circuit Court for Milwaukee
County, involving a gas pipe fire which injured the plaintiff. On
December 23, 1994, Wisconsin Natural resolved the litigation between itself
and plaintiff with a payment of $2.55 million to plaintiff, of which $550,000
was covered by Wisconsin Natural's general liability insurer. The contract
with the construction company that installed the gas pipe provides for
indemnification of Wisconsin Natural and notice has been given to the
construction company and its insurers that Wisconsin Natural intends to pursue
its indemnification rights. The matter is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Wisconsin Energy'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, 1994 and positions of the executive officers
of Wisconsin Energy, including certain officers of the utility subsidiaries,
are listed below along with their business experience during the past five
years. All officers are elected for one year terms or until their respective
successors are duly chosen. There are no family relationships among these
officers, nor is there any agreement or understanding between any officer and
any other person pursuant to which the officer was selected.
Current Position(s) and
Business Experience
Name and Age During Past Five Years
---------------------- ----------------------
Richard A. Abdoo, 50 Chairman of the Board, President and Chief Executive
Officer of Wisconsin Energy Corporation since
1991; Executive Vice President, 1990 to 1991;
Vice President, 1987 to 1990; Director of
Wisconsin Energy since 1988.
Chairman of the Board and Chief Executive Officer
of Wisconsin Electric Power Company, a
subsidiary of Wisconsin Energy, since 1990;
President and Chief Executive Officer, during
1990; President and Chief Operating Officer,
1989 to 1990; Director of Wisconsin Electric
since 1989.
Chairman of the Board and Chief Executive Officer
of Wisconsin Natural Gas Company, a subsidiary
of Wisconsin Energy, since 1990; Director of
Wisconsin Natural since 1989.
- 29 -
<PAGE> 30
EXECUTIVE OFFICERS OF THE REGISTRANT - (Cont'd)
Current Position(s) and
Business Experience
Name and Age During Past Five Years
---------------------- ----------------------
John W. Boston, 61 Vice Chairman of the Board of Wisconsin Energy
since January 1995; Vice President of
Wisconsin Energy, 1991 to 1994, Director of
Wisconsin Energy since 1991.
President and Chief Operating Officer of Wisconsin
Electric, 1990 to 1994; Executive Vice President
and Chief Operating Officer during 1990;
Senior Vice President, 1982 to 1990; Director
of Wisconsin Electric since 1988.
President and Chief Operating Officer of Wisconsin
Natural during 1994; Director of Wisconsin
Natural during 1994.
Richard R. Grigg, Jr., 46 Vice President of Wisconsin Energy since January
1995.
President and Chief Operating Officer of Wisconsin
Electric since January 1995; Group Executive
and Vice President, June to December 1994; Vice
President, 1990 to 1994; Director of Wisconsin
Electric since 1994.
President and Chief Operating Officer of Wisconsin
Natural since January 1995; Director of
Wisconsin Natural since January 1995.
Francis Brzezinski, 43 Vice President of Wisconsin Energy since 1990.
Vice President-Bulk Power of Wisconsin Electric
since 1994.
President and Chief Operating Officer of Wispark
Corp., Wisvest Corp., and Witech Corp.
since 1990.
Owner of Brzezinski Real Estate Advisors, 1989 to
1990.
Jerry G. Remmel, 63 Vice President of Wisconsin Energy since 1994;
Chief Financial Officer since 1989;
Treasurer since 1981.
Chief Financial Officer of Wisconsin Electric
since 1989; Senior Vice President,
1989 to 1994; Director of Wisconsin Electric
since 1989.
Chief Financial Officer of Wisconsin Natural
since 1989; Vice President-Finance, 1989 to
1994; Director of Wisconsin Natural since 1988.
David K. Porter, 51 Senior Vice President of Wisconsin Electric since
1989; Director of Wisconsin Electric since 1989.
Vice President of Wisconsin Natural since 1989;
Director of Wisconsin Natural since 1988.
- 30 -
<PAGE> 31
EXECUTIVE OFFICERS OF THE REGISTRANT - (Cont'd)
Current Position(s) and
Business Experience
Name and Age During Past Five Years
---------------------- ----------------------
John H. Goetsch, 61 Vice President of Wisconsin Energy since
1994; Secretary since 1981.
Vice President of Wisconsin Electric,
1988 to 1994; Secretary, 1979 to 1994.
Secretary of Wisconsin Natural, 1979 to 1993.
Richard R. Piltz, 54 Controller of Wisconsin Energy since 1994.
Controller of Wisconsin Electric, 1977 to
1994.
Anne K. Klisurich, 47 Controller of Wisconsin Electric since 1994.
Controller of Wisconsin Natural since 1994.
Accounting Manager of Wisconsin Energy, 1987 to 1994.
Certain executive officers in addition to Mr. Brzezinski also hold offices in
Wisconsin Energy's non-utility subsidiaries.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
NUMBER OF COMMON STOCKHOLDERS:
As of year-end 1994, based on the number of stockholder accounts, there were
85,255 stockholders.
COMMON STOCK LISTING AND TRADING:
Wisconsin Energy Corporation common stock is listed on the New York Stock
Exchange. The ticker symbol is WEC. Daily trading prices and volume can be
found in the "NYSE Composite" section of most major newspapers, usually
abbreviated as WiscEn or WiscEngy.
DIVIDENDS:
Dividends on common stock, as declared by the Board of Directors, are normally
paid on or about the first day of March, June, September and December.
RANGE OF COMMON STOCK PRICES AND DIVIDENDS :
----------------------------------------------------------------------------
| 1994 | 1993 |
|------------------------------------------|---------------------------------|
| Quarter High Low Dividend | High Low Dividend |
|------------------------------------------|---------------------------------|
| First $27-1/2 $24 $ .33875 | $28-3/8 $24-3/4 $ .325 |
| Second 26-3/8 23-1/8 .3525 | 28-1/8 25-3/8 .33875 |
| Third 26-3/8 23-3/8 .3525 | 29-3/8 27 .33875 |
| Fourth 27 24-1/2 .3525 | 29-3/8 25-7/8 .33875 |
|==========================================|=================================|
| Year $27-1/2 $23-1/8 $1.39625 | $29-3/8 $24-3/4 $1.34125 |
----------------------------------------------------------------------------
- 31 -
<PAGE> 32
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Wisconsin Energy Corporation
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars except for per share amounts)
-----------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993* 1992* 1991* 1990*
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income 180,868 190,135 171,239 190,125 188,092
Earnings per share of
common stock ($) 1.67 1.80 1.66 1.85 1.83
Dividends per share
of common stock ($) 1.396 1.341 1.285 1.223 1.157
Operating revenues
Electric 1,403,562 1,347,844 1,298,723 1,292,809 1,208,045
Gas 324,349 331,301 283,699 273,803 259,672
Steam 14,281 14,090 13,093 12,986 12,126
-----------------------------------------------------------------------------------------------
Total operating revenues 1,742,192 1,693,235 1,595,515 1,579,598 1,479,843
Total assets 4,408,259 4,270,592 3,788,955 3,533,745 3,397,038
Long-term debt and preferred stock-
redemption required 1,283,686 1,300,781 1,289,082 1,175,417 1,066,907
===============================================================================================
Sales and Customers -- Utility
Electric
Megawatt-hours sold 26,911,363 25,685,436 24,747,581 25,016,247 23,656,727
Customers (End of year) 944,855 932,285 919,466 907,871 896,393
Gas
Therms delivered (thousands) 811,219 809,348* 772,036* 767,071* 727,534*
Customers (End of year) 347,080 336,571* 327,247* 317,891* 308,230*
Steam
Pounds sold (millions) 2,395 2,376 2,284 2,282 2,213
Customers (End of year) 471 459 472 468 470
===============================================================================================
<CAPTION>
CONSOLIDATED QUARTERLY FINANCIAL DATA
(Thousands of Dollars except for per share amounts)
-----------------------------------------------------------------------------------------------
Three Months Ended March June
-----------------------------------------------------------------------------------------------
1994 1993* 1994 1993*
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total operating revenues 509,681 463,571 400,340 383,498
Operating income 43,436 80,528 63,854 47,542
Net income 22,822 60,452 43,430 28,102
Earnings per share of common stock ($) 0.21 0.58 0.40 0.27
-----------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------------------------
Three Months Ended September December
-----------------------------------------------------------------------------------------------
1994 1993* 1994 1993*
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total operating revenues 400,512 397,857 431,659 448,309
Operating income 71,248 63,976 84,735 73,390
Net income 51,490 46,424 63,126 55,157
Earnings per share of common stock ($) 0.48 0.44 0.58 0.52
===============================================================================================
<FN>
The quarterly results of operations are not directly comparable because of
seasonal and other factors. See Management's Discussion and Analysis in
Item 7 for further information.
* Restated to reflect the merger of Wisconsin Southern Gas Company, Inc. into
Wisconsin Natural Gas Company effective on 1/1/94.
- 32 -
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
Electric Revenue, Kilowatt-Hour Sales and Customer Statistics
-------------------------------------------------------------
Year Ended December 31 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES ($000)
Residential $ 484,627 $ 472,903 $ 441,240 $ 444,542 $ 407,675
Small commercial and industrial 406,043 386,736 372,213 363,906 347,706
Large commercial and industrial 398,179 380,482 381,083 372,768 347,723
Other retail 13,750 13,975 15,245 15,368 15,097
Resale - municipals 55,508 57,039 62,787 71,382 66,240
---------- ---------- ---------- ---------- ----------
Total retail and municipals 1,358,107 1,311,135 1,272,568 1,267,966 1,184,441
Resale - public utilities 31,295 25,879 18,080 18,476 17,799
---------- ---------- ---------- ---------- ----------
Total revenue from sales 1,389,402 1,337,014 1,290,648 1,286,442 1,202,240
Other operating revenue 14,160 10,830 8,075 6,367 5,805
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $1,403,562 $1,347,844 $1,298,723 $1,292,809 $1,208,045
========== ========== ========== ========== ==========
KILOWATT-HOUR SALES (Millions)
Residential 6,670 6,551 6,230 6,567 6,197
Small commercial and industrial 6,699 6,358 6,155 6,153 5,955
Large commercial and industrial 10,472 9,771 9,702 9,462 8,764
Other retail 189 196 217 226 232
Resale - municipals 1,415 1,580 1,779 1,935 1,834
---------- ---------- ---------- ---------- ----------
Total retail and municipals 25,445 24,456 24,083 24,343 22,982
Resale - public utilities 1,466 1,229 665 673 675
---------- ---------- ---------- ---------- ----------
Total Sales 26,911 25,685 24,748 25,016 23,657
========== ========== ========== ========== ==========
NUMBER OF CUSTOMERS - Average
Residential 846,745 835,685 824,544 814,078 803,820
Small commercial and industrial 88,765 87,351 85,990 84,540 83,126
Large commercial and industrial 674 675 670 664 654
Other 1,811 1,831 1,945 1,980 1,991
---------- ---------- ---------- ---------- ----------
Total 937,995 925,542 913,149 901,262 889,591
========== ========== ========== ========== ==========
<CAPTION>
Gas Revenue, Therms Delivered and Customer Statistics
-----------------------------------------------------
Year Ended December 31 1994 1993* 1992* 1991* 1990*
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES ($000)
Residential $200,824 $199,509 $175,824 $170,827 $157,424
Commercial and Industrial 102,496 102,425 82,853 77,031 72,017
Interruptible and other 15,338 12,858 9,406 9,959 12,440
-------- -------- -------- -------- --------
Total revenues from sales 318,658 314,792 268,083 257,817 241,881
Other operating revenue 5,691 16,509 15,616 15,986 17,791
-------- -------- -------- -------- --------
Total Operating Revenues $324,349 $331,301 $283,699 $273,803 $259,672
======== ======== ======== ======== ========
THERMS DELIVERED (Thousands)
Residential 323,913 322,444 309,968 308,980 282,189
Commercial and Industrial 199,206 202,549 183,588 176,707 163,511
Interruptible and other 47,467 34,608 24,710 26,442 33,901
-------- -------- -------- -------- --------
Total Sales 570,586 559,601 518,266 512,129 479,601
Transportation of Customer
Owned Gas 240,633 249,747 253,770 254,942 247,933
-------- -------- -------- -------- --------
Total Delivered 811,219 809,348 772,036 767,071 727,534
======== ======== ======== ======== ========
NUMBER OF CUSTOMERS - Average
Residential 311,288 302,355 293,437 284,728 275,950
Commercial and Industrial 28,506 27,871 27,291 26,536 25,660
Interruptible and other 340 356 376 404 421
-------- -------- -------- -------- --------
Total 340,134 330,582 321,104 311,668 302,031
======== ======== ======== ======== ========
DEGREE DAYS (Milwaukee)
Heating (Normal 7,061) 6,431 6,775 6,723 6,416 6,103
Cooling (Normal 626) 877 651 364 1,056 728
* Restated to reflect the merger of Wisconsin Southern into Wisconsin Natural effective on 1/1/94.
- 33 -
</TABLE>
<PAGE> 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Earnings
Earnings per share of Wisconsin Energy's common stock in 1994 were $1.67
compared with $1.80 a share in 1993, a decrease of 7.2 percent. Earnings for
the 12 months reflect a non-recurring charge of approximately $73.9 million
($45 million net of tax, or 42 cents a share) associated with the company's
organizational restructuring program.
The charge primarily reflects the costs of severance and early retirement
packages which are elements of a "revitalization" program designed to better
position Wisconsin Energy in a changing energy marketplace. The company
anticipates that the one-time restructuring charge, which was taken in the
first quarter of 1994, will be offset by the end of 1995 through savings in
operation and maintenance costs.
Excluding the non-recurring charge, earnings per share of common stock were
$2.09 for the 12 months ended December 31, 1994 compared with $1.80 in 1993,
an increase of 16.1 percent. Earnings reflect a 4.8 percent increase in
electric kilowatt-hour sales and a 5.7 percent reduction in non-fuel operation
and maintenance expenses. Electric sales increased primarily due to warmer
weather during the summer of 1994 and additional economic activity in the
company's service area. The reduction in non-fuel operation and maintenance
expenses reflects, among other things, payroll-related savings as a result of
workforce reductions, and lower expenditures made in connection with power
plant renovation work as maintenance programs were completed.
Wisconsin Electric and Wisconsin Natural Revitalization
In response to increasing competitive pressures in the markets for electricity
and natural gas, Wisconsin Electric and Wisconsin Natural have developed and
are implementing a revitalization process to increase efficiencies and improve
customer service.
Wisconsin Electric and Wisconsin Natural are "reengineering" and restructuring
their organizations. The new structures consolidate many business functions
and simplify work processes. Due to productivity improvements, staffing
levels at Wisconsin Electric and Wisconsin Natural have been reduced; 403
employees elected to retire under an early retirement option and 651 employees
have enrolled in severance packages. See Note J to the Financial Statements -
Benefits Other Than Pensions, for additional information.
As part of the revitalization effort, Wisconsin Energy intends to merge
Wisconsin Electric and Wisconsin Natural to form a single combined utility
subsidiary. The proposed merger will improve customer service and reduce
operating costs. The merger, which is anticipated to be effective by year-end
1995, is subject to a number of conditions, including requisite regulatory and
other approvals. Wisconsin Electric and Wisconsin Natural filed a joint
application on October 11, 1994, to obtain the PSCW's approval of the merger.
Wisconsin Electric also filed an application to obtain the MPSC consent to
assume Wisconsin Natural's liabilities in connection with the merger. Both
approvals are expected by year-end 1995.
- 34 -
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Acquisition of Wisconsin Southern Gas Company, Inc.
Effective January 1, 1994, Wisconsin Southern was acquired by Wisconsin Energy
through a merger of Wisconsin Southern into Wisconsin Natural. In the
transaction, structured as a tax-free reorganization, all outstanding shares
of Wisconsin Southern common stock were converted into 1,637,935 shares of
Wisconsin Energy common stock, with fractional interests paid in cash, based
on an exchange ratio of 1.6330 shares of Wisconsin Energy common stock for
each outstanding share of Wisconsin Southern common stock. The merger was
structured to qualify as a pooling of interests for accounting and financial
reporting purposes. Accordingly, financial and statistical information for
prior years has been restated to reflect the acquisition.
Wisconsin Southern was a gas utility engaged in the purchase, distribution,
transportation and sale of natural gas for residential, commercial and
industrial consumption in a service territory contiguous to Wisconsin
Natural's service territory located in southeastern Wisconsin. Wisconsin
Natural is Wisconsin's second largest gas distribution company.
Electric Sales and Revenues
Total electric sales of Wisconsin Electric, the principal subsidiary of
Wisconsin Energy, detailed below by customer class, increased 4.8 percent in
1994 compared to 1993.
Electric Sales - Megawatt Hours 1994 1993 % Change
------------------------------- ---------- ---------- --------
Residential 6,670,081 6,551,061 1.8
Small Commercial and Industrial 6,699,073 6,357,510 5.4
Large Commercial and Industrial 10,471,869 9,771,383 7.2
Other 1,603,741 1,776,061 (9.7)
---------- ----------
Total Retail and Municipal 25,444,764 24,456,015 4.0
Resale-Utilities 1,466,599 1,229,421 19.3
---------- ----------
Total Sales 26,911,363 25,685,436 4.8
==========================================================================
Electric energy sales were positively impacted by warmer summer weather in
1994, which resulted in increased use of electricity for air conditioning and
other cooling purposes, and increased economic activity. The increase in
electric sales also reflects colder winter weather during the first quarter of
1994 and increased sales to the Empire and Tilden iron ore mines.
Electric energy sales to the Empire and Tilden iron ore mines, Wisconsin
Electric's two largest customers, were 15.0 percent higher in 1994 compared to
1993. The increase is attributable to a five-week long mine strike during the
third quarter of 1993 which reduced sales during 1993. Wisconsin Electric's
contracts with the mines require the payment of a demand charge regardless of
power usage which partially offset the impact of lost sales on 1993 revenues.
Excluding the mines, sales to large commercial and industrial customers
increased 5.1 percent in 1994. Sales to the mines represented 8.6 percent,
7.8 percent and 9.0 percent of total electric sales during 1994, 1993 and
1992, respectively.
- 35 -
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
The 19.3 percent increase in the resale of energy to other utilities is
attributable to the increased availability of Wisconsin Electric's power
plants. This allowed Wisconsin Electric additional energy for external sales.
The percentage change is not indicative of future sales growth in this
customer class.
The 9.7 percent reduction in sales to the Other customer class, referred to in
the table above, is largely the result of reductions in sales to WPPI,
Wisconsin Electric's largest municipal customer consortium. WPPI has been
reducing its purchases from Wisconsin Electric subsequent to acquiring
generation capacity in 1990. Since that time, WPPI has expanded the use of
its existing generation facilities and has installed additional capacity,
further reducing its reliance on energy purchases from Wisconsin Electric.
These sales reductions did not have a significant effect on earnings.
Total electric kilowatt-hour sales increased at a compound annual rate of 4.3
percent between the years 1992 and 1994, while electric revenues increased at
a compound annual rate of 4.0 percent during this period. These increases
reflect among other things, more favorable weather conditions in 1994 compared
to 1992. The warmer than normal summer in 1994 contrasted sharply with the
summer of 1992, the coolest since Wisconsin Electric began keeping records in
1948.
Electric Operation and Maintenance Expenses
Total electric operating expenses, excluding income taxes, depreciation and
the non-recurring revitalization charge, decreased $17 million in 1994
compared to 1993. The decrease largely reflects the payroll-related savings
as a result of workforce reductions referred to above and lower expenditures
made in connection with power plant renovation work as maintenance programs
were completed. These decreases were partially offset by expenses associated
with the implementation of the revitalization program and growth in
conservation-related expenses associated with improving the efficiency of
customers' electric energy usage. Operating expenses, excluding income taxes,
depreciation and the non-recurring charge, have remained relatively flat over
the three-year period ended December 31, 1994.
Gas Sales and Revenues
Total gas therms delivered by the company's gas utility subsidiary, Wisconsin
Natural, were flat in 1994 compared to 1993. Increased gas deliveries in the
first quarter of 1994, compared to the same period in 1993, due to colder
winter weather, were offset by a decline in deliveries in the fourth quarter
due to unseasonably mild weather. Financial and statistical information has
been restated where appropriate to reflect the January 1, 1994, acquisition of
Wisconsin Southern.
- 36 -
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Therms Delivered - Thousands 1994 1993 % Change
---------------------------- ---------- ---------- --------
Residential 323,913 322,444 0.5
Commercial and Industrial 199,206 202,549 (1.7)
Interruptible 47,467 34,608 37.2
---------- ----------
Total Sales 570,586 559,601 2.0
Transported Customer Owned Gas 240,633 249,747 (3.6)
---------- ----------
Total Gas Delivered 811,219 809,348 0.2
==========================================================================
Gas revenues decreased $7 million, or 2.1 percent, in 1994 compared to 1993.
This reflects the flat gas deliveries and reduced purchased gas costs.
Wisconsin Natural transports gas for its customers who purchase gas directly
from other suppliers, accounting for 29.7 percent of Wisconsin Natural's total
therms delivered during 1994, 30.9 percent during 1993 and 32.9 percent during
1992. Rates charged for transportation services are designed to recover the
same margin as gas sold directly by Wisconsin Natural.
As a result of FERC Order 636, the number of gas supply choices now available
to Wisconsin Natural has expanded, but the responsibility for the selection
and administration of the proper mix and level of services has commensurately
increased. Wisconsin Natural 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 Wisconsin Natural's
purchased gas adjustment clause.
Total gas therms delivered increased at a compound annual rate of 2.5 percent
from 1992 to 1994, with gas revenues increasing at a compound annual rate of
6.9 percent. The increase in revenues reflects the recovery of increased
purchased gas costs, the impact of increased gas deliveries over this period
and small rate increases during 1992 and 1993.
Gas Operating Expenses
The $15 million decrease in the cost of gas sold during 1994 compared to 1993
reflects the slight increase in natural gas therm sales offset by the lower
average delivered cost of gas during 1994. Other operation expenses were $3
million lower during 1994 compared to 1993 largely reflecting payroll related
savings as a result of workforce reductions.
Since 1992, the cost of gas sold increased at a compound annual rate of 5.9
percent. This increase reflects higher therm sales, which increased at an
annual compound rate of 4.9 percent during this same period, and a 1.0 percent
compound annual increase in the average delivered cost of gas sold.
- 37 -
<PAGE> 38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Gas operating expenses, excluding income taxes, depreciation and the non-
recurring revitalization charge, increased at a compound annual rate of 5.5
percent since 1992, reflecting the aforementioned increases in the cost of gas
sold and a 5.5 percent compound annual increase in Other Operation expenses
during this period. Other Operation expenses reflect an increase in
postretirement benefit costs associated with the adoption in 1993 of Statement
of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, and growth in conservation
related expenses associated with improving the efficiency of customers' use of
natural gas.
Other Items
Deferred Income Taxes decreased $38 million during 1994 compared to 1993, due
in part to tax matters related to the timing of payments made in connection
with the severance and early retirement packages associated with the company's
organizational restructuring program. Deferred Income Taxes also reflect a
prior period reclassification between current and deferred income taxes.
Other Interest increased $5 million during 1994 compared to 1993 reflecting
increased short-term debt balances, primarily at Wisconsin Electric. Interest
charges on long-term debt increased $13 million during 1993 compared to 1992
largely due to the additional debt issued by the utility subsidiaries to
finance their construction programs and the amortization of premiums
associated with the debt securities refinanced during 1992 and 1993.
With expectations of low-to-moderate inflation and future operating cost
reductions discussed above, Wisconsin Electric and Wisconsin Natural do not
believe the impact of inflation will have a material effect on their future
results of operations.
Electric and Gas Sales Outlook
Assuming moderate growth in the service territory economy and normal weather,
Wisconsin Electric presently anticipates electric kilowatt-hour sales to grow
at a compound annual rate of approximately 1.0 percent over the five-year
period ending December 31, 1999. Including the sales projections of the
former Wisconsin Southern, which was acquired and merged into Wisconsin
Natural effective January 1, 1994 (see "Acquisition of Wisconsin Southern Gas
Company, Inc."), Wisconsin Natural forecasts therm deliveries of natural gas
to grow at a compound annual rate of approximately 2.2 percent over the same
five-year period. These forecasts are subject to a number of variables,
including the economy and weather, which may affect the actual growth in
sales.
Rates and Regulatory Matters
The table below summarizes the projected annual revenue impact of recent rate
changes authorized by regulatory commissions for the electric and gas
subsidiaries 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 electric
- 38 -
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
rates. The 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.
In support of its goal to become the lowest-cost energy provider in the region
and in light of the operating cost reductions expected from the reengineering
process discussed above, Wisconsin Electric did not seek an increase in rates
for 1994 or 1995.
Revenue Percent
Increase Change in Effective
Company/Service (Decrease) Rates Date
------------------------- ------------ --------- ---------
Wisconsin Electric
Retail electric, WI $ 26,655,000 2.3 02/17/93
Steam heating 505,000 3.5 02/17/93
Wholesale electric 6,000,000 10.6 06/09/93
Retail electric, MI 1,366,000 4.3 07/09/93
Fuel electric, WI (8,596,000)* (0.9) 11/05/93
Fuel electric, WI (16,179,000) (1.3) 08/04/94
Wisconsin Natural
Natural gas $ 9,172,000 3.3 09/02/93
------------------------------------------------------------------------------
* The 1993 fuel credit was eliminated 1/1/94 by PSCW Order.
Under the Wisconsin retail electric fuel adjustment procedure, retail electric
rates may be adjusted, on a prospective basis, if cumulative fuel and
purchased power costs, when compared to the costs projected in the retail
electric rate proceeding, deviate from a prescribed range and are expected to
continue to be above or below that range. In the case of Wisconsin Natural,
differences between the test year estimate and the actual cost of purchased
gas are accounted for through a purchased gas adjustment clause.
On September 8, 1994, the PSCW issued a notice that it will conduct 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 notice states
that this investigation may result in profound and fundamental changes to the
nature and regulation of the electric utility industry in Wisconsin. It is
the PSCW's stated intention that this proceeding will establish criteria and
direction for utilities to incorporate into any proposals involving structural
or regulatory changes they may put forward. The PSCW also intends that the
proceeding reflect input from all those having a stake in Wisconsin's electric
utility industry, including large and small retail customers; wholesale
customers; utility management; utility securities holders; independent power
producers; purveyors of demand-side options and renewable resources;
representatives of the environmental, financial, academic, labor, small
business and governmental communities; and elected representatives. The PSCW
invited interested persons to submit comments as to appropriate objectives for
regulation of the electric utility industry and the utility structures and
regulatory approaches likely to provide the best balance of such objectives.
- 39 -
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
On November 1, 1994, Wisconsin Electric submitted its comments to the PSCW in
a paper describing a framework for a restructured industry. Wisconsin
Electric's view of industry restructuring would seek to achieve the benefits
of competition while maintaining reliability of electric service, controlling
costs during the transition to the envisioned end-state, and protecting the
environment with increasing vigor. Today's various electric utility functions
would be split into two major categories--natural monopolies and competitive
entities. The natural monopolies are functions where a single entity can
provide the lowest cost. The competitive entities would perform functions
where competition can provide the lowest cost. The natural monopolies would
be re-regulated so the appropriate incentives exist to provide electricity at
reasonable prices. The competitive entities would eventually see an
elimination of traditional regulation.
In Wisconsin Electric's plan, the re-regulated natural monopolies are the
transmission and distribution functions. Re-regulation of these entities
should 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 Wisconsin
Electric model are the generation, customer service and energy merchant
functions.
Initial question and answer sessions were held November 28-29, 1994. At a
meeting on January 24, 1995, the PSCW approved the establishment of an
advisory committee that will examine all aspects of electrical service and the
electric utility industry and suggest which functions should be performed by a
competitive market. The PSCW established a timetable which would have a final
committee report available to the Wisconsin Legislature by the end of 1995.
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. Wisconsin Natural is
participating in these PSCW investigations.
Wisconsin Energy's principal subsidiaries, Wisconsin Electric and Wisconsin
Natural, operate under utility rates which are subject to the approval of the
PSCW, MPSC and FERC. 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 utilities' 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, Wisconsin Energy is unable to
predict whether any adjustments to regulatory assets and liabilities will
occur in the future. See Note A to the Financial Statements - Summary of
Significant Accounting Policies - Deferred Regulatory Assets and Liabilities,
for further information.
- 40 -
<PAGE> 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
LIQUIDITY AND CAPITAL RESOURCES
Investing Activities
Wisconsin Energy invested $1,211 million in its businesses during the three
years ended December 31, 1994. The investments made during this three-year
period include construction expenditures for new or improved facilities
totaling $984 million, net capitalized conservation expenditures of $87
million, purchases of nuclear fuel at $64 million and payments to an external
trust for the eventual decommissioning of Wisconsin Electric's Point Beach
Nuclear Plant totaling $42 million.
During the second quarter of 1994, Wisconsin Electric placed in service the
last two units, or approximately 150 megawatts of capacity, at its Concord
Generating Station, a four unit 300 megawatt natural gas-fired combustion
turbine facility designed to meet peak demand requirements. The first two
units were completed in 1993. Capital expenditures of $6 million, $35 million
and $47 million were made during 1994, 1993 and 1992, respectively, for
construction of this facility. Total capital costs of the Concord facility
were approximately $107 million.
Additionally, during 1994, Wisconsin Electric continued construction of the
new Paris Generating Station, a four unit, approximately 300 megawatt natural
gas-fired combustion turbine facility intended to meet growing peak demand
requirements. This generating station, which is expected to have all four
units in service during the summer of 1995, is currently estimated to cost
$104 million. Capital expenditures of $54 million and $28 million were made
during 1994 and 1993, respectively, for construction of this facility.
Wisconsin Electric completed the $107 million renovation project at its Port
Washington Power Plant in 1994. Unit 4, the last of four units to be
renovated, returned to service in July. The renovation work, which began in
September 1991, restored approximately 320 megawatts of capacity and included
the installation of additional emission control equipment. Expenditures
totaling $12 million, $36 million and $43 million were made during 1994, 1993
and 1992, respectively.
Cash Provided by Operating and Financing Activities
During the three years ended December 31, 1994, cash provided by operating
activities totaled $1,203 million. During this period, internal sources of
funds, after the payment of dividends, provided 64 percent of the company's
capital requirements.
Financing activities during the three-year period ended December 31, 1994,
included the issuance of $1,053 million of long-term debt, principally to
refinance higher coupon debt, the addition of $167 million of common equity
from the issuance of new shares through the company's stock plans and the
retirement of $73 million of preferred stock. No preferred stock was issued
during this period. Additionally, during the three-year period ended
December 31, 1994, the company retired a total of $920 million of long-term
debt and increased short-term debt by $155 million. Dividends on the
company's common stock were $151 million, $141 million, and $132 million,
during 1994, 1993 and 1992, respectively.
- 41 -
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
During 1993, Wisconsin Electric issued five new series of First Mortgage Bonds
aggregating $350 million in principal amount, the proceeds of which were used
to redeem $284.3 million principal amount of four outstanding series of First
Mortgage Bonds and 626,500 shares of Wisconsin Electric's 6.75% Series
Preferred Stock.
During 1992, Wisconsin Electric and Wisconsin Natural issued seven new series
of First Mortgage Bonds and two series of Debentures, the proceeds of which
provided $476 million principal amount to redeem 14 outstanding series of
higher coupon First Mortgage Bonds and $155 million of new capital for the
utility subsidiaries.
These refunding transactions are expected to result in approximately $194
million in savings over the lives of the new debt issues. Depending on market
conditions and other factors, additional debt refundings may occur.
See Note A to the Financial Statements - Summary of Significant Accounting
Policies - Restrictions for a discussion of various limitations on the ability
of the company's utility subsidiaries to transfer funds to Wisconsin Energy.
Capital Structure
The company's capitalization at December 31 is shown as follows:
1994 1993
------ ------
Common Equity 52.2% 51.6%
Preferred Stock 0.9 1.1
Long-Term Debt
(including current maturities) 39.4 40.9
Short-Term Debt 7.5 6.4
------ ------
100.0% 100.0%
Compared to the electric utility industry generally, the company has
maintained a relatively high ratio of common equity to total capitalization
and low debt and preferred stock ratios. This conservative capital structure,
along with strong bond ratings (Wisconsin Electric currently has ratings of
AA+ by Standard & Poor's Corporation, Aa2 by Moody's Investors Service and AA+
by Duff & Phelps Inc.) and internal cash generation has provided, and should
continue to provide, the company with access to the capital markets when
necessary to finance the anticipated growth in the company's utility
businesses. At year-end 1994, the company had $209 million of unused lines of
bank credit, $9 million of cash and cash equivalents, $285 million of short-
term debt (including long-term debt due currently) and $21 million of
construction funds held by trustees.
- 42 -
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Capital Requirements 1995-1999
The estimated capital requirements for the company's utility subsidiaries for
the years 1995-1999 are outlined in the table below. The construction
expenditures have decreased significantly from the estimates reported
previously in the 1993 Annual Report to Stockholders. The primary reason for
the decrease is the revitalization initiative which will reduce the cost to
design, build and maintain company facilities.
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Millions of Dollars)
Construction $248 $225 $186 $176 $174
Conservation 14 13 13 14 14
Bond Maturities and
Refinancings 11 31 166 61 92
Changes in Fuel
Inventories (2) 8 1 5 (2)
Decommissioning Trust
Payments 20 30 32 35 37
---- ---- ---- ---- ----
Total $291 $307 $398 $291 $315
==============================================================================
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, Wisconsin Electric, in conjunction with
the other regulated electric utilities located in Wisconsin, is required to
file long-term forecasts of resource requirements, such as the need for
generation and transmission facilities, along with plans to meet those
requirements, including the use of energy management and conservation.
In order to reliably meet its forecasted growth in demand, Wisconsin Electric
employs a least-cost integrated planning process which includes renovation of
existing power plants, promotion of cost-effective conservation and load
management options, development of renewable energy sources, purchases of
power and construction of new company-owned generation facilities.
Investments in demand-side management programs have reduced and delayed the
need to add new generating capacity but have not eliminated the need entirely.
Purchases of power from other utilities and transmission system upgrades will
also combine to help delay the need to install some new generating capacity in
the future. However, in order to serve the near-term growth in peak demand
requirements, Wisconsin Electric has received PSCW approval and is currently
in various stages of adding new capacity as previously described under
"Investing Activities".
Finally, Wisconsin Electric's Advance Plan 7 filing indicates a need for
additional peaking capacity after the turn of the century, along with an
anticipated need for additional intermediate-load capacity during the 2000 to
2010 time period. Wisconsin Electric's next base load power plant is not
expected to be placed in service until after 2010.
- 43 -
<PAGE> 44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
The addition of new generating units requires approval from various regulatory
agencies, including the PSCW, the EPA and the DNR. All generating facilities
proposed by Wisconsin Electric will meet or exceed the applicable federal and
state environmental requirements.
In 1993, the PSCW, after conducting a competitive bidding process, issued an
order selecting a proposal submitted by an unaffiliated IPP to construct a
generation facility to meet a portion of Wisconsin Electric's anticipated
increase in system supply needs. In accordance with the PSCW Order, Wisconsin
Electric subsequently signed a 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-1996. A number of parties have filed petitions for judicial review of
this PSCW Order, taking the position that the Order should be set aside on
various legal grounds. In a decision dated March 17, 1995, the Dane County
Circuit Court affirmed the PSCW's selection of the LS Power project and the
PSCW's approval of the power purchase agreement entered into by Wisconsin
Electric and LSP-Whitewater L.P., the project's developer. The Court remanded
to the PSCW for further proceedings the PSCW's selection of Wisconsin
Electric's Kimberly project as the conditional second place project to proceed
if the LS Power project does not.
Prior to the PSCW selection of the IPP's generation facility, Wisconsin
Electric 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-1995. Wisconsin Electric had made
expenditures toward the Kimberly facility amounting to approximately $70
million. These expenditures were primarily associated with the procurement of
combustion turbines, the steam turbine and the heat recovery boiler in order
to achieve the in-service dates as agreed to in a steam service contract with
Repap. Wisconsin Electric is currently evaluating its options regarding its
Kimberly Cogeneration Facility investment. The equipment procured to date is
a technology of natural gas-fired combined cycle generation equipment that is
marketed worldwide. Wisconsin Electric believes that a market for the
equipment exists and is investigating opportunities to sell the equipment or
to use it in another power project. At this time, Wisconsin Electric does not
believe that the PSCW's selection of an IPP proposal will have a material
adverse effect on its financial condition.
The PSCW has approved Wisconsin Electric's application to utilize dry storage
for spent nuclear fuel generated at Point Beach. The decision completed a
multi-year state review of the Wisconsin Electric proposal. The storage
system to be used at Point Beach also has been certified by the NRC after a
four-year technical review. Dry cask storage at Point Beach will use a two-
container system made of steel and reinforced concrete. Capital costs
associated with this facility are estimated at $6.5 million and are included
in the above forecast. In March 1995 separate petitions were filed by
intervenors in Dane County Circuit Court and Fond du Lac County Circuit Court.
The Dane County petition seeks reversal of the order and a remand to the PSCW
directing it to deny Wisconsin Electric's request for authorization to
construct the dry cask facility, or in the alternative, to correct the alleged
errors in the PSCW's order. No specific relief is identified in the Fond du
Lac County petition; however, numerous grounds of error are alleged.
Wisconsin Electric intends to fully participate in both judicial review
proceedings and to vigorously oppose the petitions.
- 44 -
<PAGE> 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
The temporary dry storage facility is necessary because the spent fuel pool
inside the plant is becoming full. The plant would be forced to shut down by
1998 without additional on-site storage capacity. The dry storage facility
will be used until the DOE takes ownership of the spent fuel. While the DOE
and the operators of nuclear power facilities have a contract mandated by
federal law that calls for the DOE to begin accepting fuel in 1998, the
government is not in a position to meet its commitment. If this commitment is
not met, Wisconsin Electric will need to construct additional casks and will
seek PSCW approval to do so.
In a related matter, Wisconsin Electric filed with the PSCW for a Certificate
of Authority to proceed with the planned 1996 replacement of the Unit 2 steam
generators at Point Beach. In 1984, Wisconsin Electric replaced the Unit 1
steam generators. Estimated at a cost of $119 million, which is also included
in the above forecast, the Unit 2 project would allow for its operation until
the expiration of its operating license in 2013. Without the replacement of
the steam generators, it is believed the unit would not be able to operate to
the end of its current license. The PSCW deferred a decision on Wisconsin
Electric's request to replace Unit 2 steam generators until early 1996, but
directed Wisconsin Electric to make arrangements with the fabricator of the
new steam generators to allow replacement to proceed promptly if authorized by
the PSCW.
Capital Resources
During the five-year forecast period ending December 31, 1999, the utility
subsidiaries expect internal sources of funds from operations, after dividends
to the company, to provide about 79 percent of the utility capital
requirements. The remaining utility cash requirements are expected to be met
through the reduction of existing cash investments and construction funds on
deposit with trustees, short-term borrowings, the issuance of long-term debt
and capital contributions from Wisconsin Energy.
Beginning June 1, 1992, Wisconsin Energy began issuing new shares of common
stock through the company's stock plans. During the period of December 1,
1988 to June 1, 1992, shares required for these plans were purchased on the
open market. Cash investments and reinvested dividends aggregating $50.5
million were used to purchase 1,981,602 new issue shares during 1994.
Exclusive of debt refundings, utility debt issues of $130 million are
anticipated in 1995 and $140 million in 1997.
Environmental Issues
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, Wisconsin Electric 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 $31 million has been spent on Clean Air Act compliance.
- 45 -
<PAGE> 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)
Wisconsin Electric elected to voluntarily bring the Valley and Port Washington
Power Plants under jurisdiction of the NOx and SO2 requirements of the Clean
Air Act, five years earlier than mandated. This was possible because these
units meet the more stringent phase II emissions standards today.
Wisconsin Electric 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, Wisconsin Electric
is active in SO2 allowance trading. Revenue from the sale of allowances is
being used to offset future potential rate increases.
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 $54 million based on
today's cost.
Like numerous other utilities, Wisconsin Natural is investigating the
remediation of a number of former manufactured gas plant sites. Operations at
these manufactured gas sites ceased over 40 years ago with remediation
activities having been conducted at certain of these sites, while other sites
are scheduled for investigation. With estimated remediation costs of
approximately $12 million during the next five-year period, based on today's
costs, remediation activities are not expected to have a material adverse
impact on Wisconsin Energy's financial condition.
Wisconsin Electric 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. These costs are included in the environmental operating and
maintenance costs for Wisconsin Electric.
Nonutility Investments
The company's nonutility assets amounted to $206 million at December 31, 1994.
The company currently anticipates making additional nonutility investments
from time to time. For additional information, see Note M - Information by
Segments of Business in the Notes to Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Quarterly Financial Data" in Item 6 on page 32 is
incorporated herein by reference.
- 46 -
<PAGE> 47
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (Cont'd)
WISCONSIN ENERGY CORPORATION
CONSOLIDATED INCOME STATEMENT
Year Ended December 31
<CAPTION>
1994 1993 1992
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues
Electric $1,403,562 $1,347,844 $1,298,723
Gas 324,349 331,301 283,699
Steam 14,281 14,090 13,093
---------- ---------- ----------
Total Operating Revenues 1,742,192 1,693,235 1,595,515
Operating Expenses
Fuel (Note E) 285,862 263,385 266,716
Purchased power 42,623 54,880 63,745
Cost of gas sold 199,511 214,132 177,947
Other operation expenses 399,011 399,135 367,020
Maintenance 124,602 156,085 150,462
Revitalization 73,900 - -
Depreciation (Note D) 177,614 167,066 164,367
Taxes other than income taxes 76,035 74,653 73,714
Federal income tax (Note C) 104,725 74,463 67,804
State income tax (Note C) 24,756 15,530 16,524
Deferred income taxes - net (Note C) (25,095) 13,096 9,979
Investment tax credit - net (Note C) (4,625) (4,626) (4,469)
---------- ---------- ----------
Total Operating Expenses 1,478,919 1,427,799 1,353,809
Operating Income 263,273 265,436 241,706
Other Income and Deductions
Interest income 17,484 18,809 17,899
Allowance for other funds used during
construction (Note F) 4,985 8,457 6,968
Miscellaneous - net 3,318 4,564 2,077
Federal income tax (Note C) 2,118 994 77
State income tax (Note C) (940) (751) (885)
---------- ---------- ----------
Total Other Income and Deductions 26,965 32,073 26,136
Income Before Interest Charges
and Preferred Dividend 290,238 297,509 267,842
Interest Charges
Long-term debt 103,897 104,859 91,464
Other interest 9,206 4,356 4,330
Allowance for borrowed funds used
during construction (Note F) (5,084) (6,218) (5,107)
---------- ---------- ----------
Total Interest Charges 108,019 102,997 90,687
Preferred Dividend Requirement
of Subsidiary 1,351 4,377 5,916
---------- ---------- ----------
Net Income $180,868 $190,135 $171,239
========== ========== ==========
Average Number of Shares of
Common Stock Outstanding (Thousands) 108,025 105,878 103,382
========== ========== ==========
Earnings Per Share of Common Stock $1.67 $1.80 $1.66
========== ========== ==========
<FN>
The notes are an integral part of the financial statements.
- 47 -
</TABLE>
<PAGE> 48
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31
<CAPTION>
1994 1993 1992
---- ---- ----
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities
Net income $180,868 $190,135 $171,239
Reconciliation to cash
Depreciation 177,614 167,066 164,367
Nuclear fuel expense - amortization 21,437 21,366 20,818
Conservation expense - amortization 20,910 15,254 13,009
Debt premium, discount & expense - amortization 14,405 13,647 5,182
Revitalization - net 43,860 - -
Deferred income taxes - net (25,095) 13,096 9,979
Investment tax credit - net (4,625) (4,626) (4,469)
Allowance for other funds used
during construction (4,985) (8,457) (6,968)
Change in - Accounts receivable 11,912 (22,691) 10,069
Inventories 11,455 (11,186) (8,637)
Accounts payable (21,343) 9,543 15,993
Other current assets (9,897) 985 (14,387)
Other current liabilities 9,509 19,184 (6,792)
Other (9,715) 1,970 11,668
-------- -------- --------
Cash Provided by Operating Activities 416,310 405,286 381,071
Investing Activities
Construction expenditures (295,769) (364,810) (323,387)
Allowance for borrowed funds used
during construction (5,084) (6,218) (5,107)
Nuclear fuel (26,351) (20,016) (17,709)
Nuclear decommissioning trust (10,138) (11,371) (20,212)
Conservation investments - net (20,823) (35,252) (31,087)
Other (6,519) 865 (11,681)
-------- -------- --------
Cash Used in Investing Activities (364,684) (436,802) (409,183)
Financing Activities
Sale of - Common Stock 50,494 61,460 54,546
Long-term debt 32,474 378,649 641,392
Retirement of - Preferred stock (5,250) (65,504) (2,035)
Long-term debt (35,434) (333,192) (551,588)
Change in short-term debt 44,769 85,079 24,688
Dividends on stock - common (150,708) (140,876) (131,752)
-------- -------- --------
Cash Provided by (Used in) Financing Activities (63,655) (14,384) 35,251
Change in Cash and Cash Equivalents $(12,029) $(45,900) $ 7,139
======== ======== ========
Supplemental Information
Cash Paid For
Interest (net of amount capitalized) $ 86,619 $ 85,717 $ 89,110
Income taxes 145,883 99,437 90,236
<FN>
The notes are an integral part of the financial statements.
- 48 -
</TABLE>
<PAGE> 49
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
December 31
ASSETS
<CAPTION>
1994 1993
---- ----
(Thousands of Dollars)
<S> <C> <C>
Utility Plant
Electric $4,304,925 $4,079,794
Gas 467,732 443,643
Steam 40,103 39,113
---------- ----------
4,812,760 4,562,550
Accumulated provision for depreciation (2,134,469) (1,989,357)
---------- ----------
2,678,291 2,573,193
Construction work in progress 205,835 209,644
Nuclear fuel - net (Note E) 56,606 52,665
---------- ----------
Net Utility Plant 2,940,732 2,835,502
Other Property and Investments
Nuclear decommissioning trust fund (Note E) 226,805 214,421
Conservation investments 138,489 136,995
Nonutility property - net 94,799 86,668
Other 136,626 118,402
---------- ----------
Total Other Property and Investments 596,719 556,486
Current Assets
Cash and cash equivalents 8,976 21,005
Accounts receivable, net of allowance for
doubtful accounts - $12,078 and $8,410 114,657 126,569
Accrued utility revenues 128,107 128,459
Fossil fuel (Note A) 88,587 97,847
Materials and supplies (at average cost) 70,359 72,554
Prepayments 61,232 51,656
Other 7,040 6,367
---------- ----------
Total Current Assets 478,958 504,457
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note C) 139,927 114,154
Deferred regulatory assets (Note A) 197,103 200,649
Other 54,820 59,344
---------- ----------
Total Deferred Charges and Other Assets 391,850 374,147
---------- ----------
Total Assets $4,408,259 $4,270,592
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 49 -
</TABLE>
<PAGE> 50
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
December 31
CAPITALIZATION and LIABILITIES
<CAPTION>
1994 1993
---- ----
(Thousands of Dollars)
<S> <C> <C>
Capitalization (See Capitalization Statement)
Common stock equity $1,744,566 $1,663,912
Preferred stock - redemption not required 30,451 30,451
Preferred stock - redemption required - 5,250
Long-term debt (Note G) 1,283,686 1,295,531
---------- ----------
Total Capitalization 3,058,703 2,995,144
Current Liabilities
Long-term debt due currently (Note G) 32,531 22,272
Notes payable (Note K) 252,055 207,286
Accounts payable 91,795 113,138
Payroll and vacation accrued 26,507 29,157
Taxes accrued - income and other 18,250 17,443
Interest accrued 23,477 23,377
Other 29,822 18,570
---------- ----------
Total Current Liabilities 474,437 431,243
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note C) 475,541 477,595
Accumulated deferred investment tax credits 94,154 98,779
Deferred regulatory liabilities (Note A) 171,599 180,401
Other 133,825 87,430
---------- ----------
Total Deferred Credits and Other
Liabilities 875,119 844,205
Commitments and Contingencies (Note L)
---------- ----------
Total Capitalization and Liabilities $4,408,259 $4,270,592
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 50 -
</TABLE>
<PAGE> 51
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CAPITALIZATION STATEMENT
December 31
<CAPTION>
1994 1993
---- ----
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity (See Common Stock Equity Statement)
Common stock - $.01 par value; authorized 325,000,000 shares;
outstanding - 108,939,769 and 106,958,167 shares $ 1,089 $ 1,069
Other paid in capital 624,568 574,077
Retained earnings 1,118,909 1,088,766
---------- ----------
Total Common Stock Equity 1,744,566 1,663,912
Preferred Stock - Wisconsin Electric Power Company, Cumulative
Six Per Cent. Preferred Stock - $100 par value;
authorized 45,000 shares; outstanding - 44,508 shares 4,451 4,451
Serial preferred stock - $100 par value; authorized 2,360,000 shares; outstanding -
3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock - Redemption Not Required (Note H) 30,451 30,451
6.75% Series - 0 and 52,500 shares - 5,250
---------- ----------
Total Preferred Stock - Redemption Required (Note H) - 5,250
Long-Term Debt
First mortgage bonds
Series Due 1994 1993 Series Due 1994 1993
------ --- -------- ------- ------ --- ------- -------
Wisconsin Electric Power Company 7-3/4% 2023 100,000 100,000
4-1/2% 1996 $ 30,000 $ 30,000 7.05 % 2024 60,000 60,000
5-7/8% 1997 130,000 130,000 9-1/8% 2024 3,443 3,443
5-1/8% 1998 60,000 60,000 8-3/8% 2026 100,000 100,000
6.10 % 1999-2008 25,000 25,000 7.70 % 2027 200,000 200,000
6.25 % 1999-2008 1,000 1,000
6-1/2% 1999 40,000 40,000 Wisconsin Natural Gas Company
6-5/8% 1999 51,000 51,000 5-5/8% 1995 10,000 10,000
6.45 % 2004 12,000 12,000 9-5/8% 1995 - 403
7-1/4% 2004 140,000 140,000 11.0 % 1995 - 480
6.45 % 2006 4,000 4,000 6-5/8% 1997 10,000 10,000
6.50 % 2007-2009 10,000 10,000 10-1/4% 1998 - 2,860
9-3/4% 2015 46,350 46,350 9.47 % 2006 - 7,000
7-1/8% 2016 100,000 100,000 9-1/4% 2016 - 3,000
6.85% 2021 9,000 9,000
1,141,793 1,155,536
Debentures (unsecured)
Wisconsin Natural Gas Company - 6-1/8% Series due 1997 25,000 25,000
10-1/4% Series due 1998 2,290 -
9.47 % Series due 2006 7,000 -
8-1/4% Series due 2022 25,000 25,000
Notes (unsecured)
Wisconsin Michigan Investment Corporation - 6.83% due 1997 5,000 5,000
5.80% due 1998 7,000 7,000
6.66% due 2003 10,600 10,600
WMF Corp. - 9.1% due 2001 3,705 4,070
Wisconsin Electric Power Company - Variable rate due 2016 67,000 67,000
Obligations under capital lease - Wisconsin Electric Power Company (Note E) 43,696 41,870
Unamortized discount - net (21,867) (23,273)
Long-term debt due currently (32,531) (22,272)
---------- ----------
Total Long-Term Debt (Note G) 1,283,686 1,295,531
---------- ----------
Total Capitalization $3,058,703 $2,995,144
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 51 -
</TABLE>
<PAGE> 52
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED COMMON STOCK EQUITY STATEMENT
<CAPTION>
(Thousands of Dollars)
-------------------------------------------------- ----------------------------------------------------------
Common Stock Common Stock Other Paid Retained
Shares $.01 Par Value In Capital Earnings Total
-------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1991 102,674,827 $1,026 $460,541 $1,000,382 $1,461,949
Net income 171,239 171,239
Common stock cash dividends
$1.285 per share (131,752) (131,752)
Sale of common stock 2,055,698 21 54,770 (245) 54,546
Other 65 65
-------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1992 104,730,525 1,047 515,376 1,039,624 1,556,047
Net income 190,135 190,135
Common stock cash dividends
$1.341 per share (140,876) (140,876)
Sale of common stock 2,227,642 22 61,555 (117) 61,460
Purchase of preferred stock (Note H) (2,854) (2,854)
-------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1993 106,958,167 1,069 574,077 1,088,766 1,663,912
Net Income 180,868 180,868
Common stock cash dividends
$1.396 per share (150,708) (150,708)
Sale of common stock 1,981,602 20 50,491 (17) 50,494
-------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1994 108,939,769 $1,089 $624,568 $1,118,909 $1,744,566
================================================== ==========================================================
<FN>
The notes are an integral part of the financial statements.
- 52 -
</TABLE>
<PAGE> 53
WISCONSIN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
A - Summary of Significant Accounting Policies
----------------------------------------------
General
-------
The consolidated financial statements include the accounts of Wisconsin Energy
Corporation (WEC or the company) and its utility subsidiaries, Wisconsin
Electric Power Company (WE) and Wisconsin Natural Gas Company (WN), and its
nonutility subsidiaries, Wisconsin Michigan Investment Corporation, Badger
Service Company, Wispark Corporation, Wisvest Corporation, Witech Corporation,
and other nonutility companies.
The accounting records of the company's utility subsidiaries are kept as
prescribed by the Federal Energy Regulatory Commission (FERC), modified for
requirements of the Public Service Commission of Wisconsin (PSCW).
Revenues
--------
Utility revenues are recognized on the accrual basis and include estimated
amounts for service rendered but not billed.
Fuel
----
Fossil fuel is stated at average cost on the balance sheet except for natural
gas which is accounted for primarily under the first-in, first-out basis. 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 F). The cost of depreciable utility
property, together with removal cost less salvage, is charged to accumulated
provision for depreciation when property is retired.
Deferred Regulatory Assets and Liabilities
------------------------------------------
Pursuant to Statement of Financial Accounting Standards No. 71, Accounting for
the Effects of Certain Types of Regulation, the company capitalizes as
deferred regulatory assets incurred costs which are expected to be recovered
in future utility rates. The company also records as deferred regulatory
liabilities the current recovery in utility rates of costs which are expected
to be paid in the future. A significant portion of the company's deferred
regulatory assets and liabilities relate to the amounts recorded due to the
adoption of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (FAS 109). See Note C.
- 53 -
<PAGE> 54
Statement of Cash Flows
-----------------------
Cash and cash equivalents include marketable debt securities acquired three
months or less from maturity.
Restrictions
------------
Various financing arrangements and regulatory requirements impose certain
restrictions on the ability of WEC's utility subsidiaries to transfer funds to
WEC in the form of cash dividends, loans, or advances. Under Wisconsin law, WE
and WN are prohibited from loaning funds, either directly or indirectly, to
WEC. WEC does not believe that such restrictions will affect its operations.
Conservation Investments
------------------------
WE and WN direct a variety of demand-side management programs to help foster
energy conservation by their customers. As authorized by the PSCW, WE has
capitalized certain conservation program costs. Utility rates approved by the
PSCW provide for a current return on these conservation investments.
Conservation investments are amortized to operating expense over a ten-year
period.
B - Utility Mergers
-------------------
Effective January 1, 1994, the company 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 is contiguous to WN's service territory. WSG was merged into
WN using the pooling of interests method of accounting. Accordingly,
historical financial data has been restated to include WSG.
In January 1994, the company announced plans to merge WN into WE. The
completion of the merger, which is subject to a number of conditions including
requisite regulatory approvals, is currently anticipated to occur by year-end
1995.
C - 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.
- 54 -
<PAGE> 55
C - Income Taxes - (Cont'd)
---------------------------
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.
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Current tax expense $128,303 $ 89,750 $ 85,136
Investment tax credit-net (4,625) (4,626) (4,469)
Deferred tax expense (25,095) 13,096 9,979
-------- -------- --------
Total tax expense $ 98,583 $ 98,220 $ 90,646
======== ======== ========
Income before income taxes
and preferred dividend $280,802 $292,732 $267,801
======== ======== ========
Expected tax at federal
statutory rate $ 98,281 $102,456 $ 91,052
State income tax net of
federal tax reduction 14,382 12,024 13,604
Investment tax credit
restored (4,625) (5,241) (4,580)
Other (no item over
5% of expected tax) (9,455) (11,019) (9,430)
-------- -------- --------
Total tax expense $ 98,583 $ 98,220 $ 90,646
======== ======== ========
FAS 109 requires the recording of deferred assets and liabilities to recognize
the expected future tax consequences of events that have been reflected in the
company's financial statements or tax returns, the adjustment of deferred tax
balances to reflect tax rate changes and the recognition of previously
unrecorded deferred taxes. Following is a summary of deferred income taxes
under FAS 109.
December 31
1994 1993
-------- --------
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $ 42,685 $ 44,888
Construction advances 40,839 39,497
ERIP accrual 18,410 -
Other 37,993 29,769
-------- --------
Total Deferred Income Tax Assets $139,927 $114,154
======== ========
Deferred Income Tax Liabilities
Property related $430,740 $414,238
Conservation investments 27,564 51,882
Other 17,237 11,475
-------- --------
Total Deferred Income Tax Liabilities $475,541 $477,595
======== ========
- 55 -
<PAGE> 56
C - Income Taxes - (Cont'd)
---------------------------
The company also has recorded deferred regulatory assets and liabilities which
represent the future expected impact of deferred taxes on utility revenues.
December 31
(Thousands of Dollars) 1994 1993
-------- --------
Deferred regulatory assets $158,912 $159,760
Deferred regulatory liabilities 171,599 180,401
D - Depreciation
-----------------
Depreciation expense is accrued at straight line rates, certified by the PSCW,
which include estimates for salvage and removal costs. Depreciation as a
percent of average depreciable utility plant was 3.9% in 1994 and 1993, and
4.1% in 1992.
Nuclear plant decommissioning is accrued as depreciation expense (see Note E).
E - Nuclear Operations
----------------------
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:
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $ 89,705 $ 91,201
Accumulated provision for amortization (50,983) (54,207)
In process/stock 17,884 15,671
-------- --------
Total nuclear fuel $ 56,606 $ 52,665
======== ========
Interest expense on nuclear fuel lease $ 1,896 $ 1,697 $ 2,098
- 56 -
<PAGE> 57
E - 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, 1994 are as
follows:
(Thousands of Dollars)
1995 $22,620
1996 14,705
1997 7,992
1998 1,472
1999 539
-------
Total Minimum Lease Payments 47,328
Less: Interest (3,632)
-------
Present Value of Net Minimum
Lease Payments $43,696
=======
The estimated cost of disposal of spent fuel based on a contract with the U.S.
Department of Energy (DOE) is included in nuclear fuel expense. The Energy
Policy Act of 1992 establishes a Uranium Enrichment Decontamination and
Decommissioning Fund (Fund) for the DOE's nuclear fuel enrichment facilities.
Deposits to the fund will be derived in part from special assessments to
utilities. As of December 31, 1994, WE has on its books a remaining estimated
liability equal to the projected special assessments of $31,133,000. A
corresponding deferred regulatory asset will be amortized to nuclear fuel
expense and included in utility rates over the next 13 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 $3.2 million per reactor.
WE has property damage, decontamination and decommissioning insurance totaling
$2 billion for loss from damage at the Point Beach Nuclear Plant 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 $6 million and $15.9 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 the Point Beach Nuclear Plant. This insurance coverage provides
weekly indemnities of $3.5 million per unit for outages during the first year,
declining to 80% of the amounts during the second and third years. Under the
policy, WE's maximum retrospective premium liability is approximately $9
million.
- 57 -
<PAGE> 58
E - 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 the company from
material adverse impact.
Nuclear Decommissioning
-----------------------
WE expects to operate the two units at its Point Beach Nuclear Plant to the
expiration of their current operating licenses, 2010 for Unit 1 and 2013 for
Unit 2. The estimated cost to decommission the plant in 1994 dollars is $335
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. It is expected that the annual payments to the Nuclear
Decommissioning Trust Fund (Fund) along with 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.
In a generic proceeding in 1994, the PSCW issued an order setting forth the
requirement of a site specific estimate with prompt dismantlement for
determining decommissioning funding levels for the owners of nuclear power
plants located in Wisconsin. WE will modify its funding requirements based on
the order in its next utility rate case filing; an increase in funding is
anticipated along with a corresponding increase in expense.
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 the accumulated provision for depreciation.
Following is a summary of decommissioning costs and earnings charged to
depreciation expense and the Fund balance included in the accumulated
provision for depreciation at December 31:
1994 1993 1992
-------- -------- -------
(Thousands of Dollars)
Decommissioning costs $ 3,456 $ 3,456 $12,162
Earnings 6,682 7,915 8,050
-------- -------- -------
Depreciation Expense $ 10,138 $ 11,371 $20,212
Total costs accrued to date $224,559 $214,421
Unrealized gain 2,246
-------- --------
Accumulated Provision for Depreciation $226,805 $214,421
======== ========
- 58 -
<PAGE> 59
E - Nuclear Operations - (Cont'd)
---------------------------------
The December 31, 1994 Fund balance was stated at fair value, whereas the
December 31, 1993 Fund balance was stated at historical cost. The fair value
of the Fund at December 31, 1993 was $231,991,000.
F - 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. Allowance for borrowed funds also
includes interest capitalized on qualifying assets of nonutility subsidiaries.
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
1994 and 1993, and 11.10% in 1992, as approved by the PSCW.
G - Long-Term Debt
------------------
The maturities and sinking fund requirements through 1999 for the aggregate
amount of long-term debt outstanding (excluding obligations under capital
lease, see Note E) at December 31, 1994 are shown below:
(Thousands of Dollars)
1995 $ 12,685
1996 30,435
1997 171,175
1998 68,220
1999 93,310
Sinking fund requirements for the years 1995 through 1999, included in the
table above, are $6,105,000. 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.
Fair value of long-term debt is estimated based upon the market value of the
same or similar issues. The fair value of the company's long-term debt was
$1.2 billion and $1.4 billion at December 31, 1994 and 1993, respectively.
H - Preferred Stock
-------------------
Preferred stock authorized but unissued is: WEC, $.01 par value, 15,000,000
shares; WE, cumulative, $25 par value, 5,000,000 shares; and WN, cumulative,
$100 par value, 120,000 shares.
- 59 -
<PAGE> 60
H - Preferred Stock (cont'd)
----------------------------
Redemption Not Required
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.
Redemption Required
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.
I - Pension Plans
-----------------
Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions (FAS 87), for ratemaking.
For 1992, the PSCW recognized funded amounts for ratemaking, and WE and WN
charged $4,127,000 to expense as paid.
WE and WN have several noncontributory pension plans covering all eligible
employees. Pension benefits are based on years of service and the employee's
compensation. The majority of the plans' assets are equity securities; other
assets include corporate and government bonds and real estate. The plans are
funded to meet the requirements of the Employee Retirement Income Security Act
of 1974.
In the opinion of the company, current pension trust assets and amounts which
are expected to be paid to the trusts in the future will be adequate to meet
future pension payment obligations to current and future retirees.
Pension Cost calculated per FAS 87 1994 1993 1992
---------------------------------- ------ ------ ------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 10,933 $ 10,842 $ 9,858
Interest cost on projected benefit
obligation 38,736 36,335 33,137
Actual (return) loss on plan assets 7,634 (43,226) (16,779)
Net amortization and deferral (52,180) 1,067 (33,934)
-------- -------- -------
Total pension cost (credit) calculated
under FAS 87 $ 5,123 $ 5,018 $(7,718)
======== ======== =======
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $436,697 $393,527
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 1,113 6,579
-------- --------
Total obligation $437,810 $400,106
======== ========
- 60 -
<PAGE> 61
I - Pension Plans (cont'd)
--------------------------
1994 1993 1992
------ ------ ------
(Thousands of Dollars)
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $527,182 $555,260
Projected benefit obligation
at present value (513,166) (502,254)
Unrecognized transition asset (24,628) (27,211)
Unrecognized prior service cost 593 3,107
Unrecognized net (gain) loss 5,903 (7,539)
-------- --------
Projected status of plans $ (4,116) $ 21,363
======== ========
Rates used for calculations (%) -
Discount Rate-interest rate used to
adjust for the time value of money 8.25 7.5 8.0
Assumed rate of increase in
compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0
J - 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 postretirement benefit
obligation. The PSCW has issued an order recognizing FAS 106 for ratemaking;
therefore adoption has no material impact on net income. Prior to 1993 the
cost of these postretirement benefits was expensed when paid and was
$4,766,000 in 1992.
WE and WN sponsor 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.
- 61 -
<PAGE> 62
J - Benefits Other Than Pensions - (Cont'd)
-------------------------------------------
1994 1993
--------- ---------
(Thousands of Dollars)
Components of Net Periodic Postretirement Benefit Cost,
Year Ended December 31 -
Cost of postretirement benefits earned by employees $ 2,653 $ 3,105
Interest cost on projected benefit obligation 10,148 10,395
Actual return on plan assets (3,893) (2,388)
Net amortization and deferral 5,648 5,082
--------- ---------
Total postretirement benefit cost calculated
under FAS 106 $ 14,556 $ 16,194
========= =========
Funded Status of Plans: Postretirement Obligations
and Assets at December 31 -
Accumulated Postretirement Benefit Obligation
Retirees $ (83,670) $ (66,861)
Fully eligible active plan participants (7,223) (19,480)
Other active plan participants (37,255) (55,062)
--------- ---------
Total obligation (128,148) (141,403)
Postretirement assets at fair market value 37,919 32,098
--------- ---------
Accumulated postretirement benefit obligation in
excess of plan assets (90,229) (109,305)
Unrecognized transition obligation 90,302 97,471
Unrecognized prior service cost (1,169) -
Unrecognized net (gain) loss (16,484) 5,393
--------- ---------
Accrued postretirement benefit obligation $ (17,580) $ (6,441)
========= =========
Rates used for calculations (%) -
Discount Rate-interest rate used to adjust
for the time value of money 8.25 7.5
Assumed rate of increase in compensation levels 5.0 5.0
Expected long-term rate of return on
postretirement assets 9.0 9.0
Health care cost trend rate 12.0 declining to
5.0 in 2002
Changes in health care cost trend rates will affect the amounts reported. For
example, a 1% increase in rates would increase the accumulated postretirement
benefit obligation as of December 31, 1994 by $8,392,000 and the aggregate of
the service and interest cost components of the postretirement benefit cost
for the year then ended by $1,004,000.
Revitalization
--------------
In the first quarter of 1994, the company 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 are being used to reduce employee staffing levels.
ERIP provided for a monthly income supplement, medical benefits, and waiver of
- 62 -
<PAGE> 63
J - Benefits Other Than Pensions - (Cont'd)
-------------------------------------------
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, WN and the bargaining units. These
plans have been available to most management employees but not elected
officers.
Under ERIP, 403 employees elected to retire and 651 employees have enrolled in
SP. It is anticipated that the revitalization charge will be offset by the
end of 1995 through savings in operation and maintenance costs. ERIP
supplemental income costs are being paid from pension plan trusts and
medical/dental benefits from employee benefit trusts. Remaining ERIP and SP
costs are being paid from general corporate funds. The ultimate timing of
cash flows for revitalization will depend in part upon the funding limitations
of the WE and WN pension plans. Through December 31, 1994, $30 million have
been paid against the revitalization liability.
Omnibus Stock Incentive Plan
----------------------------
A stockholder approved Omnibus Stock Incentive Plan (the Plan) enables the
company to offer selected officers and key employees performance-based
incentives. The Plan provides for the granting of stock options, stock
appreciation rights (SARS), stock awards and performance units over a period
of no more than 10 years. Awards under the Plan may be paid in common stock,
cash or a combination thereof. Four million shares of common stock have been
reserved under the Plan. The exercise price of a stock option will not be
less than 100% of the common stock's fair market value on grant date and
options may not be exercised within 6 months of the grant date. As of
December 31, 1994 and 1993, options for 145,500 and 64,250 shares,
respectively, have been granted. These options are exercisable 4 years after
the grant date at per share prices of $26.813 and $27.375 for 1994 and 1993,
respectively. No SARS or stock awards have been granted and no performance
units have been earned to date.
K - Notes Payable
-----------------
Short-term notes payable balances and their corresponding weighted average
interest rates consist of:
December 31
1994 1993
-------------------- ----------------------
Interest Interest
Balance Rate Balance Rate
-------- -------- -------- --------
(Thousands of Dollars)
Banks $ 96,949 6.06% $110,874 3.39%
Commercial paper 155,106 6.04% 96,412 3.33%
-------- --------
$252,055 $207,286
======== ========
Unused lines of credit for short-term borrowing amounted to $209,050,000 at
December 31, 1994. In support of various informal lines of credit from banks,
WEC subsidiaries have agreed to maintain unrestricted compensating balances or
to pay commitment fees; neither the compensating balances nor the commitment
fees are significant.
- 63 -
<PAGE> 64
L - Commitments and Contingencies
---------------------------------
Plans for the construction and financing of future additions to utility plant
can be found elsewhere in this report in "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
M - Information By Segments of Business
---------------------------------------
(Thousands of Dollars)
Year ended December 31 1994 1993 1992
---------------------- ---- ---- ----
Electric Operations
Operating revenues $1,403,562 $1,347,844 $1,298,723
Operating income before income taxes 329,216 329,727 299,902
Depreciation 159,414 149,646 147,859
Construction expenditures 244,718 305,467 292,031
Gas Operations
Operating revenues 324,349 331,301 283,699
Operating income before income taxes 30,993 31,025 29,407
Depreciation 16,856 16,235 15,400
Construction expenditures 25,481 24,419 25,188
Steam Operations
Operating revenues 14,281 14,090 13,093
Operating income before income taxes 2,825 3,147 2,235
Depreciation 1,344 1,185 1,108
Construction expenditures 1,213 4,940 1,530
Consolidated
Operating revenues 1,742,192 1,693,235 1,595,515
Operating income before income taxes 363,034 363,899 331,544
Depreciation 177,614 167,066 164,367
Construction expenditures
(including nonutility) 295,769 364,810 323,387
Other Information
Nonutility Net Income
Real estate activities 2,768 2,211 200
Venture capital and other
investing activities (2,303) 220 1,005
=============================================================================
At December 31
--------------
Net Identifiable Assets
Electric $3,800,377 $3,668,151 $3,264,839
Gas 376,494 385,460 338,021
Steam 25,315 25,119 20,972
Nonutility
Real estate activities 148,401 134,669 107,677
Venture capital and other
investing activities 57,672 57,193 57,446
---------- ---------- ----------
Total Consolidated Assets $4,408,259 $4,270,592 $3,788,955
========== ========== ==========
- 64 -
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
the Stockholders of Wisconsin Energy Corporation
In our opinion, the consolidated financial statements listed under Item
14(a)(1) and (2) on pages 66 and 67 present fairly, in all material respects,
the financial position of Wisconsin Energy Corporation and its subsidiaries at
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/Price Waterhouse LLP
-----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 25, 1995
- 65 -
<PAGE> 66
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 Wisconsin Energy's definitive Proxy Statement
for its Annual Meeting of Stockholders to be held May 17, 1995 (the "1995
Annual Meeting Proxy 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 of the Board of Directors", "Executive Officers'
Compensation" and "Retirement Plans" in the 1995 Annual Meeting Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
In accordance with General Instruction G(3) of Form 10-K, the security
ownership information under "Stock Ownership of Directors, Nominees and
Executive Officers" in the 1995 Annual Meeting Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements and
Report of Independent Accountants
Included in Part II of this report:
Consolidated Income Statement for the three years ended
December 31, 1994
Consolidated Statement of Cash Flows for the three years
ended December 31, 1994
Consolidated Balance Sheet at December 31, 1994 and 1993
Consolidated Capitalization Statement at December 31, 1994
and 1993
- 66 -
<PAGE> 67
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (Cont'd)
Consolidated Common Stock Equity Statement for the three
years ended December 31, 1994
Notes to Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules
Included in Part IV of this report:
For the three years ended December 31, 1994
Schedule I Condensed Parent Company Financial
Statements
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information
is given in the consolidated financial statements or notes thereto.
3. Exhibits
The following Exhibits are filed with this report:
Exhibit No.
(10)-1 Executive Deferred Compensation Plan of Wisconsin
Energy Corporation effective January 1, 1989, as
amended and restated as of January 1, 1994. *
2 Supplemental Benefits Agreement between Wisconsin
Energy Corporation and employee Richard A. Abdoo dated
November 21, 1994. *
3 Supplemental Benefits Agreement between Wisconsin
Electric Power Company and employee John W. Boston
dated November 21, 1994. *
4 Supplemental Executive Retirement Plan of Wisconsin
Energy Corporation (as amended and restated as of
January 1, 1994). *
5 Directors' Deferred Compensation Plan of Wisconsin
Energy Corporation, effective January 1, 1987 and as
restated as of January 1, 1994. *
6 Directors' Deferred Compensation Plan of Wisconsin
Electric Power Company, as restated as of
January 1, 1994. *
(23) Consent of Independent Accountants, dated March 30,
1995, appearing on page 75 of this Annual Report
on Form 10-K for the year ended December 31, 1994.
(27) Wisconsin Energy Corporation Financial Data Schedule
for the fiscal year ended December 31, 1994.
- 67 -
<PAGE> 68
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (Cont'd)
(99)-1 Information furnished in lieu of the Form 11-K
Annual Report for Wisconsin Energy Corporation
Management Employee Savings Plan for the year
ended December 31, 1994. (To be filed by
amendment.)
2 Information furnished in lieu of the Form 11-K
Annual Report for Wisconsin Energy Corporation
Represented Employee Savings Plan for the year
ended December 31, 1994. (To be filed by
amendment.)
In addition to those Exhibits shown above, which are filed herewith, Wisconsin
Energy 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) Agreement and Plan of Restructuring, including Plan of Merger.
(Incorporated herein by reference to Exhibit 2 to Amendment No. 1
to Wisconsin Energy's Registration Statement on Form S-4,
File No. 33-7045.)
(3)-1 Restated Articles of Incorporation of Wisconsin Energy Corporation.
(Incorporated herein by reference to Exhibit (19) to Wisconsin Energy
Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992, File No. 1-9057.)
2 Bylaws of Wisconsin Energy Corporation, as amended to October 27,
1993. (Exhibit 3-1 to Wisconsin Energy Corporation's 1993 Form 10-K
in File No. 1-9057.)
(4)-1 Reference is made to Article III of the Restated Articles of
Incorporation of Wisconsin Energy. (Exhibit (3)-1 herein.)
Mortgage or Supplemental
Indenture Company Date Exhibit # Under File No.
------------------------------------------------------------------------------
(4)- 2 Mortgage and Wisconsin 10/28/38 B-1 2-4340
Deed of Trust Electric
("WE")
3 Second WE 6/1/46 7-C 2-6422
4 Third WE 3/1/49 7-C 2-8456
5 Fourth WE 6/1/50 7-D 2-8456
6 Fifth WE 5/1/52 4-G 2-9588
7 Sixth WE 5/1/54 4-H 2-10846
8 Seventh WE 4/15/56 4-1 2-12400
9 Eighth WE 4/1/58 2-I 2-13937
10 Ninth WE 11/15/60 2-J 2-17087
11 Tenth WE 11/1/66 2-K 2-25593
12 Eleventh WE 11/15/67 2-L 2-27504
13 Twelfth WE 5/15/68 2-M 2-28799
14 Thirteenth WE 5/15/69 2-N 2-32629
15 Fourteenth WE 11/1/69 2-O 2-34942
16 Fifteenth WE 7/15/76 2-P 2-54211
17 Sixteenth WE 1/1/78 2-Q 2-61220
18 Seventeenth WE 5/1/78 2-R 2-61220
- 68 -
<PAGE> 69
Mortgage or Supplemental
Indenture Company Date Exhibit # Under File No.
------------------------------------------------------------------------------
19 Eighteenth WE 5/15/78 2-S 2-61220
20 Nineteenth WE 8/1/79 (a)2(a) 1-1245 (9/30/79
WE Form 10-Q)
21 Twentieth WE 11/15/79 (a)2(a) 1-1245 (12/31/79
WE Form 10-K)
22 Twenty-First WE 4/15/80 (4)-21 2-69488
23 Twenty-Second WE 12/1/80 (4)-1 1-1245 (12/31/80
WE Form 10-K)
24 Twenty-Third WE 9/15/85 (4)-1 1-1245 (9/30/85
WE Form 10-Q)
25 Twenty-Four WE 9/15/85 (4)-1 1-1245 (9/30/85
WE Form 10-Q)
26 Twenty-Fifth WE 12/15/86 (4)-25 1-1245 (12/31/86
WE Form 10-K)
27 Twenty-Sixth WE 1/15/88 4 1-1245 (1/26/88
Form 8-K)
28 Twenty-Seventh WE 4/15/88 4 1-1245 (3/31/88
Form 10-Q)
29 Twenty-Eighth WE 9/1/89 4 1-1245 (9/30/89
WE Form 10-Q)
30 Twenty-Ninth WE 10/1/91 4-1 1-1245 (12/31/91
WE Form 10-K)
31 Thirtieth WE 12/1/91 4-2 1-1245 (12/31/91
WE Form 10-K)
32 Thirty-First WE 8/1/92 4-1 1-1245 (6/30/92
WE Form 10-Q)
33 Thirty-Second WE 8/1/92 4-2 1-1245 (6/30/92
WE Form 10-Q)
34 Thirty-Third WE 10/1/92 4-1 1-1245 (9/30/92
WE Form 10-Q)
35 Thirty-Fourth WE 11/1/92 4-2 1-1245 (9/30/92
WE Form 10-Q)
36 Thirty-Fifth WE 12/15/92 4-1 1-1245 (12/31/92
WE Form 10-K)
37 Thirty-Sixth WE 1/15/93 4-2 1-1245 (12/31/92
WE Form 10-K)
38 Thirty-Seventh WE 3/15/93 4-3 1-1245 (12/31/92
WE Form 10-K)
39 Thirty-Eighth WE 8/01/93 (4)-1 1-1245 (6/30/93
WE Form 10-Q)
40 Thirty-Ninth WE 9/15/93 (4)-1 1-1245 (9/30/93
WE Form 10-Q)
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)-7 Executive Non-Qualified Trust by and between Wisconsin Energy
Corporation and Firstar Trust Company, dated May 12, 1994,
established to provide a source of funds to assist in the meeting of
the liabilities under various nonqualified deferred compensation
plans made between the Registrant or its subsidiaries and various plan
participants. (Exhibit 10-1 to Wisconsin Energy's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, File No. 1-9057.)*
- 69 -
<PAGE> 70
(10)-8 1993 Omnibus Stock Incentive Plan adopted by the Board of Directors on
December 15, 1993, approved by shareholders at the
Annual Meeting of Stockholders held on May 11, 1994, offering
performance-based incentives and other equity interests in Wisconsin
Energy to officers and other key employees. (Exhibit 10-1 to Wisconsin
Energy's 1993 Form 10-K in File No. 1-9057.) *
9 Agreement between Wisconsin Energy Corporation, WITECH Corporation and
employee Francis Brzezinski dated November 30, 1992, naming him a
participant in the Wisconsin Energy Corporation Supplemental Executive
Retirement Plan retroactive to September 1, 1990. (Exhibit 10-1 to
Wisconsin Energy's 1992 Form 10-K in File No. 1-9057.) *
10 Executive Incentive Compensation Plan of Wisconsin Energy Corporation
as amended and renewed effective December 18, 1991. (Exhibit 10-1 to
Wisconsin Energy's 1991 Form 10-K in File No. 1-9057.) *
11 Short-Term Performance Plan of Wisconsin Energy Corporation effective
January 1, 1992. (Exhibit 10-3 to Wisconsin Energy's 1991 Form 10-K
in File No. 1-9057.) *
12 Purchase and Sale Agreement by and among The Cleveland-Cliffs Iron
Company, Cliffs Electric Service Company, Upper Peninsula Generating
Company, Upper Peninsula Power Company and Wisconsin Electric Power
Company, dated as of December 8, 1987. (Exhibit 10 to Wisconsin
Electric's Form 8-K dated December 18, 1987 in File No. 1-1245.)
13 Service Agreement dated January 1, 1987, between Wisconsin Electric,
Wisconsin Energy and other non-utility affiliated companies.
(Exhibit (10)-(a) to Wisconsin Electric's Current Report on Form 8-K
dated January 2, 1987 in File No. 1-1245.)
14 Service Agreement dated January 1, 1987, between Wisconsin Natural,
Wisconsin Energy and other non-utility affiliated companies.
(Exhibit (10)-(a) to Wisconsin Natural's Current Report on Form 8-K
dated January 2, 1987 in File No. 2-2066.)
* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
(21) Subsidiaries of Wisconsin Energy Corporation (Incorporated herein
by reference to Exhibit (22) to Wisconsin Energy's Form 8-B filed
on January 7, 1987, File No. 33-7045.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 1994.
- 70 -
<PAGE> 71
WISCONSIN ENERGY CORPORATION
INCOME STATEMENT
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
----------------------
1994 1993* 1992*
-------- -------- --------
(Thousands of Dollars)
Miscellaneous Income $ 373 $ 411 $ 429
Nonoperating Expense 423 250 251
-------- -------- --------
(50) 161 178
Income Taxes (20) 17 30
-------- -------- --------
(30) 144 148
Equity in Subsidiaries' Earnings 180,898 189,991 171,091
-------- -------- --------
Net Income $ 180,868 $ 190,135 $ 171,239
======== ======== ========
* Restated to reflect the acquisition of Wisconsin Southern Gas Company, Inc.
on 1/1/94.
See Notes on Page 74.
(continued on next page)
- 71 -
<PAGE> 72
WISCONSIN ENERGY CORPORATION
STATEMENT OF CASH FLOWS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
----------------------
1994 1993* 1992*
--------- --------- ---------
(Thousands of Dollars)
Operating Activities:
Net Income $ 180,868 $ 190,135 $ 171,239
Reconciliation to cash:
Equity in subsidiaries' earnings (180,898) (189,991) (171,091)
Dividends from subsidiaries 150,951 74,654 74,576
Other 235 109 27
--------- --------- ---------
Cash Provided by Operating Activities 151,156 74,907 74,751
Investing Activities:
Equity investment in subsidiaries - net (19,500) (23,500) 6,363
Change in notes receivable -
associated companies (17,535) 13,330 (13,330)
Other (870) (8) (3)
--------- --------- ---------
Cash Used in Investing Activities (37,905) (10,178) (6,970)
Financing Activities:
Sale of common stock 50,494 61,442 54,465
Dividends on common stock (150,708) (140,876) (131,752)
Change in notes payable -
associated companies (13,100) 13,100 -
--------- --------- ---------
Cash Used in Financing Activities (113,314) (66,334) (77,287)
--------- --------- ---------
Change in Cash and Cash Equivalents $ (63) $ (1,605) $ (9,506)
========= ========= =========
Cash Paid for-
Interest $ 62 $ - $ -
Income Taxes (15) (3) 25
* Restated to reflect the acquisition of Wisconsin Southern Gas Company, Inc.
on 1/1/94.
See Notes on Page 74.
(continued on next page)
- 72 -
<PAGE> 73
WISCONSIN ENERGY CORPORATION
BALANCE SHEET
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
----------------------
1994 1993*
--------- --------
(Thousands of Dollars)
Assets
------
Current Assets
Cash and cash equivalents $ 3 $ 66
Accounts and notes receivable
from associated companies 17,909 166
Other 297 471
---------- ----------
Total Current Assets 18,209 703
Property and Investments
Investment in subsidiary companies 1,729,052 1,679,605
Other 885 29
---------- ----------
Total Property and Investments 1,729,937 1,679,634
Deferred Charges 7,585 7,164
---------- ----------
$1,755,731 $1,687,501
========== ==========
Liabilities
-----------
Current Liabilities
Accounts payable $ 41 $ 90
Accounts and notes payable
to associated companies 132 13,103
Other (61) 210
---------- ----------
Total Current Liabilities 112 13,403
Deferred Credits 8,264 7,397
Stockholders' Equity
Common stock 628,446 577,935
Retained earnings 116,187 115,991
Undistributed subsidiaries' earnings 1,002,722 972,775
---------- ----------
Total Stockholders' Equity 1,747,355 1,666,701
---------- ----------
$1,755,731 $1,687,501
========== ==========
* Restated to reflect the acquisition of Wisconsin Southern Gas Company, Inc.
on 1/1/94.
See Notes on Page 74.
(continued on next page)
- 73 -
<PAGE> 74
WISCONSIN ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
1. The condensed parent company financial statements and notes should be read
in conjunction with the consolidated financial statements and notes
appearing on pages 47-64 of this Annual Report on Form 10-K.
2. Various financing arrangements and regulatory requirements impose certain
restrictions on the ability of Wisconsin Energy Corporation's utility
subsidiaries to transfer funds to Wisconsin Energy Corporation (WEC) in
the form of cash dividends, loans, or advances. Under Wisconsin law,
Wisconsin Electric Power Company and Wisconsin Natural Gas Company are
prohibited from loaning funds, either directly or indirectly, to WEC.
WEC does not believe that such restrictions will affect its operations.
- 74 -
<PAGE> 75
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements and Prospectuses constituting part of or relating to the
Registration Statements listed below of Wisconsin Energy Corporation of our
report dated January 25, 1995 appearing on page 65 of this Form 10-K.
1. Registration Statements on Form S-3 (Registration Nos. 33-43737 and
33-57765) - Stock Plus Investment Plan
2. Registration Statement on Form S-8 (Registration No. 33-34656) -
Represented Employee Savings Plan
3. Registration Statement on Form S-8 (Registration No. 33-34657) -
Management Employee Savings Plan
/s/Price Waterhouse LLP
-----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 30, 1995
- 75 -
<PAGE> 76
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 ENERGY CORPORATION
/s/R. A. Abdoo
By -------------------------------------
Date March 30, 1995 (R. A. Abdoo, Chairman of the Board,
President and Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
/s/R. A. Abdoo
--------------------------------------------------- March 30, 1995
(R. A. Abdoo, Chairman of the Board, President
and Chief Executive Officer and Director
- Principal Executive Officer)
/s/J. W. Boston
--------------------------------------------------- March 30, 1995
(J. W. Boston, Vice Chairman of the Board and
Director)
/s/J. G. Remmel
--------------------------------------------------- March 30, 1995
(J. G. Remmel, Vice President, Treasurer, Chief
Financial Officer - Principal Financial
Officer and Principal Accounting Officer)
/s/J. F. Ahearne
---------------------------------------------------- March 30, 1995
(J. F. Ahearne, Director)
/s/J. F. Bergstrom
---------------------------------------------------- March 30, 1995
(J. F. Bergstrom, Director)
/s/R. A. Cornog
---------------------------------------------------- March 30, 1995
(R. A. Cornog, Director)
- 76 -
<PAGE> 77
Signature and Title Date
/s/G. B. Johnson
---------------------------------------------------- March 30, 1995
(G. B. Johnson, Director)
/s/J. L. Murray
---------------------------------------------------- March 30, 1995
(J. L. Murray, Director)
/s/M. W. Reid
---------------------------------------------------- March 30, 1995
(M. W. Reid, Director)
/s/F. P. Stratton, Jr.
---------------------------------------------------- March 30, 1995
(F. P. Stratton, Jr., Director)
/s/J. G. Udell
---------------------------------------------------- March 30, 1995
(J. G. Udell, Director)
- 77 -
<PAGE> 78
Wisconsin Energy Corporation
EXHIBIT INDEX
-------------
1994 Annual Report on Form 10-K
For the Year Ended December 31, 1994
Exhibit
Number
-------
(10)-1 Executive Deferred Compensation Plan of Wisconsin Energy Corporation
effective January 1, 1989, as amended and restated as of January 1,
1994.
2 Supplemental Benefits Agreement between Wisconsin Energy Corporation
and employee Richard A. Abdoo dated November 21, 1994.
3 Supplemental Benefits Agreement between Wisconsin Electric Power
Company and employee John W. Boston dated November 21, 1994.
4 Supplemental Executive Retirement Plan of Wisconsin Energy Corporation
(as amended and restated as of January 1, 1994.)
5 Directors' Deferred Compensation Plan of Wisconsin Energy Corporation,
effective January 1, 1987 and as restated as of January 1, 1994.
6 Directors' Deferred Compensation Plan of Wisconsin Electric Power
Company, as restated as of January 1, 1994.
(23) Consent of Independent Accountants, dated March 30, 1994, appearing
on page 75 of this Annual Report on Form 10-K for the year ended
December 31, 1993.
(27) Wisconsin Energy Corporation Financial Data Schedule for the fiscal
year ended December 31, 1994.
(99)-1 Information furnished in lieu of the Form 11-K Annual Report for
Wisconsin Energy Corporation Management Employee Savings Plan for the
year ended December 31, 1993. (To be filed by amendment.)
2 Information furnished in lieu of the Form 11-K Annual Report for
Wisconsin Energy Corporation Represented Employee Savings Plan for the
year ended December 31, 1993. (To be filed by amendment.)
The foregoing Exhibits are (or will be) filed with this report. The
additional Exhibits which are incorporated by reference are listed in Item
14(a)(3) of this report.
- 78 -
<PAGE> 1
EXHIBIT (10)-1
WISCONSIN ENERGY CORPORATION
----------------------------
EXECUTIVE DEFERRED COMPENSATION PLAN
------------------------------------
Effective January 1, 1989
As Amended and Restated as of January 1, 1994
<PAGE> 2
WISCONSIN ENERGY CORPORATION
----------------------------
EXECUTIVE DEFERRED COMPENSATION PLAN
------------------------------------
I. OBJECTIVES
----------
This Executive Deferred Compensation Plan (the "Plan") is maintained by
Wisconsin Energy Corporation (the "Company"), effective January 1, 1989,
to enable eligible participants, on a calendar year basis, an
opportunity to defer income until retirement or other termination of
employment.
II. ELIGIBILITY
-----------
Elected officers and other management or highly compensated employees of
the Company and its utility subsidiaries as may be designated by the
Chief Executive Officer of the Company and approved by the Company's
Board of Directors (the "Board") and by the Board(s) of Directors of the
employing company or companies are eligible to participate in the Plan.
It is intended that participation in the Plan be limited to a select
group of management or highly compensated employees within the meaning
of Title 1 of the Employee Retirement Income Security Act and that the
designation of eligible participants will generally occur near the end
of a calendar year, to become effective as of the start of the
immediately following calendar year.
III. DEFINITION OF COVERED COMPENSATION
----------------------------------
Compensation that may be deferred into the Plan includes:
(1) Annual base salary,
(2) Individual Incentive Awards under the Company's Executive
Incentive Compensation Plan, and
(3) Performance awards under the Company's Short-Term Performance Plan
or other such short-term performance plan(s) as approved by the
Board.
IV. AMOUNT OF COMPENSATION WHICH MAY BE DEFERRED
--------------------------------------------
Participants in the Plan may elect to defer up to 30% of base salary
compensation, and 25%, 50%, 75% or 100% of their Performance Awards as
described hereinafter. Regarding such other Board approved short-term
performance plan(s), the amount of compensation which may be deferred
will be specified in the respective plan(s).
V. DEFERRAL ELECTIONS
------------------
(1) BASE SALARY
A participant may elect to defer from 1% to 30% of monthly base
salary (defined as the aggregate monthly base salary from the
Company and its utility subsidiaries). A written deferral
election form regarding base salary must be filed with the Company
on or before December 31st of a particular calendar year, to
<PAGE> 3
- 2 -
take effect only as to compensation earned from and after the
January 1st of the immediately following year. However, if an
individual is designated as eligible to participate in the Plan
effective as of a date other than a January 1st, the deferral
election form regarding base salary must be filed with the Company
prior to such special effective date and such form shall apply
only to compensation earned after the special effective date.
(2) PERFORMANCE AWARDS AND SUCH OTHER AWARDS AS APPROVED BY THE BOARD
A participant may elect to defer from 25% to 100% (increments of
25%) of any Performance Award under the Company's Short-Term
Performance Plan. A written deferral election form regarding a
Performance Award which may ultimately become payable on account
of a participant's services during the calendar year under the
Company's Short-Term Performance Plan (or any other Board approved
short-term performance plan) must be filed with the Company no
later than December 31st of such calendar year and in any event,
prior to the time that the participant has earned an absolute and
unconditional right to payment.
(3) DEFERRAL ELECTION RULES
A participant may revoke any deferral election regarding base
salary under (1) above at any time by giving written notice of
revocation to the Company; such notice shall become effective the
first day of the month immediately following receipt of such
notice by the Company. A participant may not revoke a deferral
election regarding either portion of an Incentive Award, a
Performance Award or any such like award once such election has
been made. Any election or revocation will be given prospective
effect only and will not affect prior deferrals.
VI. INTEREST CREDITED
-----------------
(1) An amount equivalent to the deferrals elected regarding base
salary, Incentive Awards, Performance Awards, or such other Board
approved short-term performance plan awards shall be credited to a
bookkeeping account on the records of the Company in the name of
the participant, at the time when such base salary, Incentive
Awards, Performance Awards or other awards would otherwise have
been payable in cash had the participant not made such deferral
elections. Such account shall be simply an unsecured claim
against the general assets of the Company. A participant shall
have no interest in such account, which is established merely as
an accounting convenience.
(2) Interest shall accrue on the average balance in each participant's
account which interest shall be determined by averaging the
beginning and ending balance of such account within the period
intervening since interest was last credited to the account
(except, in the case of a new participant, within the period from
the effective date of such participant's participation in the Plan
to the next June 30 or December 31 or the date such participant
terminates participation, whichever is earlier) and shall be
credited to the account semiannually, as of June 30 and December
31 of each year, until all distributions to which the participant,
the participant's estate or beneficiary is entitled shall have
<PAGE> 4
- 3 -
been made. Whenever a lump sum amount or final distribution is
made as of a date other than June 30 or December 31, interest
shall be credited to the account as of such payment date.
(3) The rate of interest used under (2) above shall be the "Firstar
Bank, Milwaukee, N.A. prime rate" which means the rate of interest
adopted by Firstar Bank, Milwaukee, N.A., from time to time, as
the base rate for interest rate determinations. Such rate of
interest in effect on June 30 shall be used for the period ending
June 30, and such rate as in effect on December 31 shall be used
for the period ending December 31 of each year, except for any
period in which any lump sum amount or final distribution from an
account is made as of a date other than June 30 or December 31, in
which case the rate of interest shall be the Firstar Bank,
Milwaukee, N.A. prime rate in effect on the date interest was last
credited as determined under (2) above.
VII. VESTING
-------
Participants are always 100% vested in amounts deferred to the Plan plus
interest credited to their account.
VIII. BENEFIT PAYMENT
---------------
(1) IN THE EVENT OF RETIREMENT
At the time when a participant completes any deferral election
form under this Plan, the participant shall also irrevocably
specify the method of payment in which all deferred compensation
covered by such election form shall be made if the participant
terminates service with the Company or its utility subsidiaries
because of "retirement". For purposes of the Plan, "retirement"
shall have occurred if the participant terminates service and
thereupon begins to receive an immediate retirement income benefit
under the Company's or a utility subsidiary's tax-qualified
defined benefit retirement plan or would have been able to receive
such an income had he been covered under such plan. The available
methods under such circumstances are:
(i) a single lump sum payment as soon as practical after the
participant's retirement,
(ii) a single lump sum payment to be made as of the first
business day of the year immediately following the
participant's retirement,
(iii) payment over a ten-year period [as of the first business day
of the January immediately following the participant's
retirement, 1/10th of the amount credited to the
participant's account (the "principal amount") shall be paid
to the participant and as of the first business day of each
January thereafter, 1/10th of the principal amount and in
addition thereto any interest credited to the account in the
period intervening since the last payment shall be paid
until a total of ten payments have been made. If any share
equivalents portion of an Incentive award shall be first
credited to the participant's account during the ten-year
period, it shall be treated for payout purposes solely as an
<PAGE> 5
- 4 -
additional interest credit. Such ten payments, regardless
of the total amount thereof, shall constitute full payment
of all amounts due the Participant under this Plan],
(iv) payment over a five year period [calculated in the same
fashion as provided in subparagraph (iii) above, but
substituting "1/5th" for "1/10th" and "five" for "ten"
wherever the same appear].
A participant shall have the right to designate a beneficiary or
beneficiaries to receive a distribution with respect to any
portion of such participant's account remaining unpaid at the
participant's death. Such designation shall be effected by filing
written notification with the Company in the form prescribed by it
and may be changed from time to time by similar action. If the
participant fails to make such designation, or if the beneficiary
predeceases the participant, any such distribution shall be paid
to the participant's estate within six months after the Company
has been notified of such death.
If a retired participant dies before all payments have been made
under the selected method, the remaining payments shall be paid to
the beneficiary for the balance of the applicable ten- or five-
year period (or under the lump sum method, if that was in effect).
If the last beneficiary shall die before receiving the full amount
payable under this Plan, then the balance of the account not paid
shall be paid in a single lump sum to the estate of such
beneficiary within six months after the Company has been notified
of such death.
(2) IN THE EVENT OF DEATH PRIOR TO TERMINATION OF EMPLOYMENT
If a participant dies prior to termination of employment with the
Company or its utility subsidiaries, the designated beneficiary
shall be paid the entire balance of the account in a single lump
sum, with such distribution to be made within six months after the
Company has been notified of such death. If the participant has
failed to designate a beneficiary, or if the beneficiary
predeceases the participant, the entire balance of the account
shall be paid to the participant's estate within six months after
the Company has been notified of such death.
(3) IN THE EVENT OF TERMINATION FOR REASON OTHER THAN RETIREMENT OR
DEATH
If a participant terminates employment with the Company or its
utility subsidiaries for a reason other than retirement or death,
the participant's account shall be paid to the participant in a
single lump sum. Such distribution will be made within 90 days of
termination of employment.
(4) NO ACCELERATION OF INCENTIVE AWARD PAYMENT
It is recognized that the Company's Executive Incentive
Compensation Plan (under which the last Incentive Award was made
in January of 1992 and which Plan has been currently replaced by
the Short-Term Performance Plan) provided for a three-year
deferred payout of the share equivalents portion of any Incentive
Award. Thus, a participant who filed a deferral election form as
to any part of the share equivalents portion of an Incentive Award
<PAGE> 6
- 5 -
for a particular year will not have any amount with respect
thereto credited to his account until the end of such three-year
period. Further, nothing in this Article VIII shall accelerate
the time when the aforesaid three-year period expires, so that
whenever reference is made in this Plan to a single lump sum
payment, this Plan refers only to amounts already credited to the
participant's account at the time, not to future credits to the
account that would have accrued had the participant continued in
service.
(5) OPTIONAL LUMP SUM PAYMENTS UPON APPROVAL BY BOARD
Notwithstanding any other provision hereof, a participant at the
time of retirement may make a written request to the Board for a
single lump sum payment of all amounts covered by this Article
VIII and Article IX as soon as practical after the participant's
retirement. As to any "make whole" retirement income or long-term
disability benefit covered by Article IX, the same shall be
converted into a single lump sum payment equal to the then present
value of such benefit, calculated using (i) an interest rate equal
to the five-year United States Treasury Note yield in effect on
the last business day of the month prior to the payment as such
yield is reported in the WALL STREET JOURNAL or comparable
publication, (ii) the mortality tables then in use under the
qualified defined benefit plan of the Company or its subsidiaries
applicable to the participant, and (iii) any other factors needed
in order to determine the present value of the "make whole" long-
term disability benefit covered by Article IX as determined in
good faith by the Company. The Board, in its sole and absolute
discretion, may grant or deny such request.
(6) MANDATORY LUMP SUM PAYMENTS UPON CHANGE IN CONTROL
For purposes of this Plan, a "Change in Control" with respect to
the Company shall mean the occurrence of any of the following
events, as a result of one transaction or a series of
transactions:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, but excluding
the Company, its affiliates and any qualified or non-
qualified plan maintained by the Company or its affiliates)
becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under such Act), directly or indirectly, of
securities of the Company representing more than 20% of the
combined voting power of the Company's then outstanding
securities;
(b) individuals who constitute a majority of the Board
immediately prior to a contested election for positions on
the Board cease to constitute a majority as a result of such
contested election;
(c) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as
a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Company;
<PAGE> 7
- 6 -
(d) the Company sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity; or
(e) the Board determines in its sole and absolute discretion
that there has been a Change in Control of the Company.
These Change in Control provisions shall apply to successive
Changes in Control on an individual transaction basis.
Upon the occurrence of a Change in Control, then notwithstanding
any other provision of this Plan, the Company shall promptly cause
to be paid to each active and retired participant or beneficiary
receiving benefits under this Plan a single lump sum payment for
all amounts covered by this Article VIII and Article IX
(calculated as set forth in paragraph (5) above), without regard
to whether any participant's employment with the Company or any of
its subsidiaries is continuing. However, if the participant in
fact so continues and this Plan continues, appropriate provisions
shall be made so that any subsequent payments made from this Plan
are reduced to reflect the value of such lump sum payment.
IX. "MAKE WHOLE" RETIREMENT INCOME BENEFIT, COMPANY SAVINGS PLAN MATCH AND
LONG-TERM DISABILITY BENEFIT
(1) "MAKE WHOLE" RETIREMENT INCOME BENEFIT WITH RESPECT TO BASE SALARY
DEFERRALS
Base salary which is deferred pursuant to this Plan cannot be
included in the compensation base for calculating retirement
income under qualified defined benefit retirement plans of the
Company and its utility subsidiaries (the "Pension Plans").
Therefore, a "make whole" benefit will be paid from this Plan as a
pension supplement to a participant whose deferrals of base salary
hereunder result in a lesser pension payment under the Pension
Plans. Such pension supplement shall equal the monthly amount by
which the participant's pension under the Pension Plans
(calculated for this purpose without regard to any limitation on
benefits imposed by Section 415 of the Internal Revenue Code or
the $200,000 limitation on annual compensation, as adjusted from
time to time, imposed by Section 401(a)(17) of such Code;
hereinafter, the "IRS Limitations") was less because deferrals of
base salary under this Plan were not taken into account in the
calculation of such participant's pension (but the amount of any
Monthly Benefit A applicable to the participant under the
Company's Supplemental Executive Retirement Plan shall be taken
into account to avoid any duplication of the pension supplement
provided hereunder). Payment of such pension supplement shall
commence at the same time and be paid in the same form as the
benefit paid under the Pension Plans. This section applies to all
forms of pensions payable under the Pension Plans, including
spousal pensions. All pension supplements paid hereunder shall be
paid out of general corporate assets or out of a grantor trust as
provided in Article XII hereof.
<PAGE> 8
- 7 -
(2) "MAKE WHOLE" RETIREMENT INCOME BENEFIT WITH RESPECT TO PERFORMANCE
AND INCENTIVE AWARDS AND SUCH OTHER AWARDS AS APPROVED BY THE
BOARD
Performance and Incentive Awards are excluded from the
compensation base used for calculating retirement income under the
Pension Plans. Further, in certain circumstances, a participant
may have been granted a special award and such special awards are
likewise excluded. Therefore, a "make whole" benefit will be paid
from this Plan as a pension supplement to a participant whose
pension paid under the Pension Plans would have been greater had a
Performance Award, Incentive Award or special awards been included
in the compensation base of the Pension Plans. Such pension
supplement shall equal the monthly amount of increase in the
participant's pension benefit under the Pension Plans (calculated
for this purpose without regard to the IRS Limitations) that would
have resulted if the amount of any Performance Award, Incentive
Award or special award, calculated as to an Incentive Award or
Performance Award at the time of its determination by the Board
under Article VI(1) of the Wisconsin Energy Corporation Executive
Incentive Compensation Plan or under Article 5 of the Short Term
Performance Plan and as to such special award at the time of its
determination by the Board, had then been paid in full as base
salary (but the amount of any Monthly Benefit A applicable to the
participant under the Company's Supplemental Executive Retirement
Plan shall be taken into account to avoid any duplication of the
pension supplement provided hereunder). Since the date of
determination rather than the date of payment is controlling for
purposes of the calculation of such pension supplement, the actual
date of payment of any Performance, Incentive or special award and
the amount of any Performance, Incentive or special award at the
time of payment shall be disregarded. Payment of such pension
supplement shall commence at the same time and be paid in the same
form as the benefit paid under the Pension Plans. This section
applies to all forms of pensions payable under the Pension Plans,
including spousal pensions. All pension supplements paid
hereunder shall be paid out of general corporate assets or out of
a grantor trust as provided in Article XII hereof. Any other
Board approved short-term performance plan must also have Board
approval for specific inclusion in this "make whole" retirement
income benefit or such inclusion must be specified in such other
Board approved short-term performance plan prior to the payment of
any "make whole" retirement income benefit hereunder.
(3) MANAGEMENT EMPLOYEE SAVINGS PLAN MATCH
It is the intent of this Plan that a participant not suffer any
loss with respect to an employer savings plan match under the
Management Employee Savings Plan of the Company and its utility
subsidiaries (the "Savings Plan") because of (a) having elected
deferrals of base salary under this Plan, (b) the limitation
imposed by Section 402(g)(1) of the Internal Revenue Code (the
"$7,000 Adjusted Limit") on the amount of a participant's Savings
Plan elective deferral contributions, (c) the $200,000 limitation
on annual compensation, as adjusted from time to time, imposed by
Section 401(a)(17) of such Code (the "$200,000 Adjusted Limit"),
or (d) any limitation on benefits and contributions imposed by
Section 415 of such Code (the "Section 415 Limits"). Therefore,
with respect to Savings Plan elective deferral contributions which
would have been made by a participant had the Savings Plan salary
<PAGE> 9
- 8 -
deferral contribution percentage actually chosen by such
participant been applied to all of such participant's otherwise
eligible Savings Plan compensation for the Savings Plan year
involved (including the deferrals of base salary elected under
this Plan) and without regard to the $7,000 or $200,000 Adjusted
Limits or the Section 415 Limits, a special contribution equal to
the additional employer matching contribution that would have been
made to the Savings Plan will be credited to such participant's
account in this Plan at the same time or times that it would have
been credited under the Savings Plan if allowed thereunder. An
example of the calculation of such special contribution is shown
on Exhibit 1 attached to and made a part of this Plan.
(4) "MAKE WHOLE" LONG-TERM DISABILITY BENEFIT
It is the intent of this Plan that a participant not suffer any
loss with respect to a disability benefit under the Long-Term
Disability Benefit Plan applicable to employees of the Company and
its utility subsidiaries (the "LTD Plan") because of either the
exclusion of base salary deferred under this Plan from the
compensation base in the LTD Plan ("Salary Deferral") or the
$200,000 limitation on annual compensation, as adjusted from time
to time, imposed by Section 505(b)(7) of the Internal Revenue Code
(the "IRS Special Limit"). Therefore, in the event a participant
of this Plan becomes eligible for and begins to receive a
disability benefit from the LTD Plan and the amount of such
disability benefit is limited because of application of Salary
Deferral or the IRS Special Limit, a "make whole" disability
benefit shall be paid from this Plan as a supplement to the
disability benefit paid from the LTD Plan. Such LTD supplement
shall equal the monthly amount by which the participant's
disability benefit under the LTD Plan was less because of
application of Salary Deferral and the IRS Special Limit. Such
LTD supplement shall commence at the same time as the disability
benefit paid under the LTD Plan and continue for so long as such
disability benefit is paid. All LTD supplements paid hereunder
shall be paid out of general corporate assets or out of a grantor
trust as provided in Article XII hereof.
X. PLAN AMENDMENT
The Board reserves the right to amend, modify or terminate this Plan at
any time; provided, however, no such action will reduce the amounts then
credited to any participant's account or change the time and manner of
payment of the value thereof, without the consent of the participant, if
living, or the participant's designated beneficiary or beneficiaries, if
the participant is not living.
XI. CLAIM PROCEDURE
The participant or the participant's beneficiary (a "Claimant") may file
a written request for benefits or claim with the Company under this
Plan. In the event of any dispute with respect to such a claim, the
following claim procedures shall apply:
(1) The Company acting as the administrator for this Plan, shall
notify the Claimant within 90 days of receipt by the Company of a
written claim of its allowance or denial, unless the Claimant
receives written notice from the Company prior to the end of the
initial 90-day period indicating that special circumstances
<PAGE> 10
- 9 -
require an extension of time for decision. A written notice of
decision shall be provided to the Claimant and if the claim is
denied in whole or in part, the notice shall contain the following
information: the specific reasons for the denial; specific
reference to pertinent provisions of the Plan on which the denial
is based; if applicable, a description of any additional material
information necessary to perfect the claim and an explanation of
why such information is necessary; and an explanation of the claim
review procedure.
(2) A Claimant is entitled to request a review of any denial of
his/her claim by the Board or Committee thereof. The request for
review must be submitted in writing within 60 days of mailing of
notice of the denial. Absent a request for review within the 60-
day period, the claim will be deemed to be conclusively denied.
The Claimant or the Claimant's representative shall be entitled to
review all pertinent documents, and to submit issues and comments
orally and in writing. The Board or Committee thereof shall
render a review decision in writing, within 60 days after receipt
of a request for a review, provided that, in special circumstances
(such as the necessity of holding a hearing) the Board or
Committee thereof may extend the time for decision by not more
than 60 days upon written notice to the Claimant. The Claimant
shall receive written notice of the separate review decision of
the Board or Committee thereof, together with specific reasons for
the decision and reference to the pertinent provisions of this
Plan.
(3) The Company, as administrator for this Plan (whether acting
through its employees, the Board or a Committee thereof), shall
have full and complete discretionary authority to construe and
interpret this Plan and to decide any matter presented through the
claims review procedure. Any final determination by the
administrator shall be binding on all parties. If challenged in
court, such determination shall not be subject to DE NOVO review
and shall not be overturned unless proven to be arbitrary and
capricious based upon the evidence considered by the administrator
at the time of such determination.
XII. MISCELLANEOUS
(1) Neither the Company nor the participant nor any beneficiary shall
have the power to transfer, assign, encumber, commute or
anticipate any amounts payable hereunder.
(2) The Company shall have the right to withhold from any amounts
payable hereunder any taxes or other amounts required by any
governmental authority to be withheld. The Company may establish
a grantor trust to serve as a vehicle to hold such contributions
as the Company may choose to make to pre-fund its obligations for
benefits hereunder, but the trust shall be designed so that this
Plan remains an unfunded plan and a participant's rights to
benefits under this Plan shall be those of an unsecured creditor
of the Company.
(3) Every person receiving or claiming payments under this Plan shall
be conclusively presumed to be mentally competent until the date
on which the Company receives a written notice, in form and manner
acceptable to it, that such person is incompetent and that a
guardian, conservator, or other person legally vested with the
<PAGE> 11
- 10 -
care of such person's estate has been appointed. In the event a
guardian or conservator of the estate of any person receiving or
claiming payments under this Plan shall be appointed by a court of
competent jurisdiction, payments may be made to such guardian or
conservator provided that proper proof of appointment and
continuing qualification is furnished in a form and manner
acceptable to the Company. Any such payment so made shall be a
complete discharge of any liability therefor.
(4) Participation in this Plan, or any modifications thereof, or the
payment of any benefits hereunder, shall not be construed as
giving to the participant any right to be retained in the service
of the Company or its subsidiaries, limiting in any way the right
of the Company or its subsidiaries to terminate the participant's
employment at any time, evidencing any agreement or understanding,
express or implied, that the Company or its subsidiaries will
employ the participant in any particular position or at any
particular rate of compensation and/or guaranteeing the
participant any right to receive a salary increase in any year,
such increase being granted only at the sole discretion of the
Board.
(5) The Company, or its utility subsidiaries, or their Boards of
Directors or any committees thereof, or any officer or director of
the Company or its utility subsidiaries or any other person shall
not be liable for any act or failure to act hereunder, except for
gross negligence or fraud.
<PAGE> 12
- 11 -
EXHIBIT 1
SPECIAL CONTRIBUTION ATTRIBUTABLE TO SAVINGS PLAN
EXAMPLE
ASSUMPTIONS: The participant will have pre-deferred compensation in 1994 of
$240,000. The participant has signed up for a Savings Plan deferral
contribution percentage of 6% of pay. The Savings Plan calls for an employer
match of 50% of the elective deferral contribution made by the participant up
to 6% of pay. The participant has also elected a deferral of 15% of base
salary under the Executive Deferred Compensation Plan for 1994. Article IX(3)
of the Plan requires a comparison between the actual employer matching
contribution received by the participant under the Savings Plan and the
matching contribution that would have been received, but for the deferrals
under the Plan and the application of the $7,000 and $200,000 Adjusted Limits
and the Section 415 Limits (this Example simply assumes flat $7,000 and
$200,000 limits, whereas in reality the actual adjusted limits applicable in
1994 would apply) as follows:
ACTUAL SAVINGS PLAN MATCH v. HYPOTHETICAL SAVINGS PLAN MATCH
Monthly Pay: Monthly Pay:
Gross $240,000 $240,000/12 = $20,000
15% Deferral -36,000
--------
Net $204,000
$204,000/12 = $ 17,000
Hypothetical Elective Monthly
Elective Monthly Deferral Deferral to Savings
Contribution Plan: Contributions to Savings Plan:
$ 17,000 x 6% = $ 1,020 $ 20,000 x 6% = $ 1,200
Elective Deferral Contribution
Over First 6 Months:
$ 1,020 x 6 = $ 6,120
Elective Deferral
Contribution 7th Month
($7,000 Limit): $ 880
Actual Employer Savings Plan Match: Hypothetical Employer Savings
Plan Match:
50% of $1,020 x 6 = $ 3,060
50% of $ 880 x 1 = $ 440 50% of $1,200 x 12 = $7,200
-------- ------
Total Actual Total Hypothetical
Employer Match: = $ 3,500 Employer Match: = $7,200
SPECIAL CONTRIBUTION CALCULATIONS
Hypothetical Employer Match $7,200
Less Actual Employer Match - 3,500
-------
Special Contribution to be
Credited to Participant's
Records 3,700
<PAGE> 1
EXHIBIT (10)-2
November 21, 1994
Mr. R. A. Abdoo
231 West Michigan Street
Milwaukee, Wisconsin 53201
Dear Mr. Abdoo:
RE: SUPPLEMENTAL BENEFITS
---------------------
This letter agreement replaces in its entirety the letter agreement between us
dated December 14, 1990 and signed by you on December 18, 1990.
In consideration of your service with Wisconsin Energy Corporation and its
subsidiaries (hereinafter collectively called the Corporation) and your
agreement to devote your individual best efforts to the interest of said
Corporation in the future, it is agreed that supplemental benefits as
described in this Agreement will be provided on behalf of the Corporation by
Wisconsin Electric Power Company (hereinafter called the Company).
Retirement
----------
Upon your retirement at age 60 or older (or prior to age 60 with the approval
of the Boards of Directors of Wisconsin Energy Corporation and the Company),
the Company will pay a supplemental monthly retirement benefit equal to the
difference between (1) and (2) below, less the amount of the monthly vested
retirement benefits payable to you at age 65 under defined benefit plans from
previous employers for periods of employment prior to your employment by the
Corporation, where (1) and (2) are defined as follows:
(1) equals the monthly retirement benefit payable from the Management
Employees' Retirement Plan of the Company or such successor Plans as may
be adopted by the Company (hereinafter called the Plan) plus the amounts
of any actual "make whole" pension supplements due under the provisions
of Section IX(1) and (2) of the Wisconsin Energy Corporation Executive
Deferred Compensation Plan, plus any amount payable under Monthly
Benefit A under the Corporation's Supplemental Executive Retirement
Plan, and
(2) equals the monthly retirement benefit which would have been payable from
the Plan calculated without regard to any limitations imposed by
Section 415 of the Internal Revenue Code or any limitation on annual
compensation, as adjusted from time to time, imposed by
Section 401(a)(17) of such Code and under the assumptions that (i) your
participation in the Plan had commenced on the first day of the month
following your twenty-fifth birthday and continued uninterrupted
thereafter, (ii) any deferrals of base salary you elected under the
Corporation's Executive Deferred Compensation Plan were disregarded and
instead included in your compensation base for calculating retirement
income under the Plan, and (iii) the amount of any Performance Award,
Incentive Award or special award, calculated at the time of its
determination by the Board of Wisconsin Energy Corporation had also been
included in your compensation base for calculating retirement income
under the Plan.
<PAGE> 2
The reduction amount with respect to benefits payable to you at age 65 under
defined benefit plans from previous employers shall be converted into an
actuarial equivalent of a Life Annuity Form payable at age 65 using the
actuarial equivalency factors under the Plan, but shall be subtracted, without
any further adjustment, from any supplemental monthly retirement benefit
calculated as above set forth whenever the same commences whether before or
after your 65th birthday. Further, such reduction amount applies to any
supplemental monthly retirement benefit calculated as above set forth and
expressed as a Life Annuity Form of benefit and shall be made prior to the
application of factors applicable for any other form of benefit available
under the provisions of the Plan. Prior to the time of retirement, you will
provide the Company with certified information regarding any such defined
benefit retirement benefits payable or to be payable to you by a previous
employer.
Preretirement Spouse's Benefit
------------------------------
In the event of your death while in the employ of the Corporation, the Company
will pay to your surviving spouse a monthly benefit equal to the difference
between (a) and (b) below, but reduced as provided below to reflect the value
of any vested defined benefit retirement benefits attributable to prior
employment as set forth under the "Retirement" paragraph of this letter, where
(a) and (b) are defined as follows:
(a) equals the monthly spouse's benefit, if any, payable from the Plan
plus the amounts of any actual "make whole" spousal pension supplements
due under the provisions of Section IX(1) and (2) of the Wisconsin
Energy Corporation Executive Deferred Compensation Plan, plus any amount
payable under Monthly Benefit A under the Corporation's Supplemental
Executive Retirement Plan, and
(b) equals the monthly spouse's benefit which would have been payable
from the Plan calculated on all the same assumptions as set forth in
subsection (2) of the "Retirement" paragraph of this letter.
The reduction amount with respect to vested defined benefit retirement
benefits attributable to prior employment is to be applied by reducing the
monthly surviving spouse benefit calculated as above set forth by one-half of
the dollar amount of the vested benefit which would have been offset under the
"Retirement" paragraph of this letter.
Condition of Payment
--------------------
All of the terms and conditions of the supplemental benefits provided herein
shall be subject to and shall be administered as if such supplemental benefits
were payable directly from the Plan. No supplemental benefits, other than
those specifically provided herein, shall be paid by the Company or the
Corporation upon your termination of employment with the Corporation for any
other reasons.
The form of your supplemental benefits will follow the form payable to you
from the Plan. However, notwithstanding any other provision hereof, you may
<PAGE> 3
at the time of your retirement make a written request to the Board of
Directors of the Corporation for a single lump sum payment of an amount equal
to the then present value of all supplemental benefits accrued under this
letter agreement, calculated using (i) an interest rate equal to the five-year
United States Treasury Note yield in effect on the last business day of the
month prior to the payment (as reported in the WALL STREET JOURNAL or
comparable publication), and (ii) the mortality tables then in use under the
Plan. The Board of Directors of the Corporation, in its sole and absolute
discretion, may grant or deny such request.
Further, upon the occurrence of a "Change in Control" of the Corporation (as
defined in Exhibit A attached to and made a part of this letter), then
notwithstanding any other provision hereof, the Corporation shall promptly pay
to you or to anyone then receiving supplemental benefits under this letter
agreement a single lump sum payment of an amount equal to the then present
value of all such supplemental benefits accrued (whether or not in pay status
and without regard to whether your employment is continuing), calculated using
the same assumptions as set forth in the immediately preceding paragraph, with
an interest rate to equal the five-year United States Treasury Note yield in
effect on the last business day of the month prior to the date when the Change
in Control occurred. If you continue in employment and the supplemental
benefits provided for in this letter continue, appropriate provisions shall be
made so that any subsequent payments under this letter agreement are reduced
to reflect the value of such lump sum payment.
All amounts payable under this letter agreement shall be subject to all
applicable withholding taxes. The Corporation may establish a grantor trust
to serve as a vehicle to hold such contributions as the Corporation may choose
to make to pre-fund its obligations hereunder, but the trust shall be designed
so that this letter agreement remains an unfunded arrangement and your rights
to benefits under this letter agreement shall be those of an unsecured
creditor.
If the terms of this agreement are satisfactory to you, please indicate your
acceptance below.
Sincerely,
WISCONSIN ENERGY CORPORATION
By: /s/John H. Goetsch
-------------------------------
Vice President and Secretary
I understand, accept and agree to all the provisions and conditions contained
in the above Agreement.
/s/R. A. Abdoo
----------------------------------
R. A. Abdoo
Nov. 22, 1994
----------------------------------
Date
<PAGE> 4
EXHIBIT A
CHANGE IN CONTROL DEFINITION
For purposes of this Plan, a "change in control" with respect to
Wisconsin Energy Corporation shall mean the occurrence of any of the following
events, as a result of one transaction or a series of transactions:
(a) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, but
excluding the Company, its affiliates and any qualified or
non-qualified plan maintained by the Company or its
affiliates) becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under such Act), directly or
indirectly, of securities of the Company representing more
than 20% of the combined voting power of the Company's then
outstanding securities;
(b) individuals who constitute a majority of the Board
immediately prior to a contested election for positions on
the Board cease to constitute a majority as a result of such
contested election;
(c) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as
a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Company;
(d) the Company sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity; or
(e) the Board determines in its sole and absolute discretion
that there has been a Change in Control of the Company.
These Change in Control provisions shall apply to successive Changes in
Control on an individual transaction basis.
<PAGE> 1
EXHIBIT (10)-3
November 21, 1994
Mr. J. W. Boston
231 West Michigan Street
Milwaukee, Wisconsin 53201
Dear Mr. Boston:
RE: SUPPLEMENTAL BENEFITS
---------------------
This letter agreement replaces in its entirety the letter agreement between us
dated December 14, 1990 and signed by you on December 16, 1990.
In consideration of your service with Wisconsin Electric Power Company
(hereinafter called the Company) and your agreement to devote your individual
best efforts to the interest of said Company in the future, it is agreed that
supplemental benefits as described in this Agreement will be provided by the
Company.
Retirement
----------
Upon your retirement at age 60 or older (or prior to age 60 with the approval
of the Chief Executive Officer and the Board of Directors of the Company), the
Company will pay a supplemental monthly retirement benefit equal to the
difference between (1) and (2) below, less the amount of the monthly vested
retirement benefits payable to you at age 65 from the Power Authority of the
State of New York (PASNY) for periods of employment prior to your employment
by the Company, where (1) and (2) are defined as follows:
(1) equals the monthly retirement benefit payable from the Management
Employees' Retirement Plan of the Company or such successor Plans as may
be adopted by the Company (hereinafter called the Plan) plus the amounts
of any actual "make whole" pension supplements due under the provisions
of Section IX(1) and (2) of the Wisconsin Energy Corporation Executive
Deferred Compensation Plan, plus any amount payable under Monthly
Benefit A under the Wisconsin Energy Corporation Supplemental Executive
Retirement Plan, and
(2) equals the monthly retirement benefit which would have been payable from
the Plan calculated without regard to any limitations imposed by
Section 415 of the Internal Revenue Code or any limitation on annual
compensation, as adjusted from time to time, imposed by
Section 401(a)(17) of such Code and under the assumptions that (i) your
participation in the Plan had commenced on the first day of the month
following your twenty-fifth birthday and continued uninterrupted
thereafter, (ii) any deferrals of base salary you elected under the
Wisconsin Energy Corporation Executive Deferred Compensation Plan were
disregarded and instead included in your compensation base for
calculating retirement income under the Plan, and (iii) the amount of
any Performance Award, Incentive Award or special award, calculated at
the time of its determination by the Board of Wisconsin Energy
Corporation had also been included in your compensation base for
calculating retirement income under the Plan.
The reduction amount with respect to benefits payable to you at age 65 under
the PASNY retirement plan shall be converted into an actuarial equivalent of a
Life Annuity Form payable at age 65 using the actuarial equivalency factors
<PAGE> 2
under the Plan, but shall be subtracted, without any further adjustment, from
any supplemental monthly retirement benefit calculated as above set forth
whenever the same commences whether before or after your 65th birthday.
Further, such reduction amount applies to any supplemental monthly retirement
benefit calculated as above set forth and expressed as a Life Annuity Form of
benefit and shall be made prior to the application of factors applicable for
any other form of benefit available under the provisions of the Plan. Prior
to the time of retirement, you will provide the Company with certified
information regarding the PASNY benefits.
Preretirement Spouse's Benefit
------------------------------
In the event of your death while in the employ of the Company, the Company
will pay to your surviving spouse a monthly benefit equal to the difference
between (a) and (b) below, but reduced as provided below to reflect the value
of the vested retirement benefits attributable to your prior employment with
PASNY as set forth under the "Retirement" paragraph of this letter, where (a)
and (b) are defined as follows:
(a) equals the monthly spouse's benefit, if any, payable from the Plan
plus the amounts of any actual "make whole" spousal pension supplements
due under the provisions of Section IX(1) and (2) of the Wisconsin
Energy Corporation Executive Deferred Compensation Plan, plus any amount
payable under Monthly Benefit A under the Wisconsin Energy Corporation
Supplemental Executive Retirement Plan, and
(b) equals the monthly spouse's benefit which would have been payable
from the Plan calculated on all the same assumptions as set forth in
subsection (2) of the "Retirement" paragraph of this letter.
The reduction amount with respect to vested retirement benefits attributable
to your prior employment with PASNY is to be applied by reducing the monthly
surviving spouse benefit calculated as above set forth by one-half of the
dollar amount of the vested benefit which would have been offset under the
"Retirement" paragraph of this letter.
Condition of Payment
--------------------
All of the terms and conditions of the supplemental benefits provided herein
shall be subject to and shall be administered as if such supplemental benefits
were payable directly from the Plan. No supplemental benefits, other than
those specifically provided herein, shall be paid by the Company upon your
termination of employment with the Company for any other reasons.
The form of your supplemental benefits will follow the form payable to you
from the Plan. However, notwithstanding any other provision hereof, you may
at the time of your retirement make a written request to the Board of
Directors of the Company for a single lump sum payment of an amount equal to
the then present value of all supplemental benefits accrued under this letter
agreement, calculated using (i) an interest rate equal to the five-year
United States Treasury Note yield in effect on the last business day of the
month prior to the payment (as reported in the WALL STREET JOURNAL or
comparable publication), and (ii) the mortality tables then in use under the
Plan. The Board of Directors of the Company, in its sole and absolute
discretion, may grant or deny such request.
Further, upon the occurrence of a "Change in Control" of Wisconsin Energy
Corporation (as defined in Exhibit A attached to and made a part of this
letter), then notwithstanding any other provision hereof, the Company shall
<PAGE> 3
promptly pay to you or to anyone then receiving supplemental benefits under
this letter agreement a single lump sum payment of an amount equal to the then
present value of all such supplemental benefits accrued (whether or not in pay
status and without regard to whether your employment is continuing),
calculated using the same assumptions as set forth in the immediately
preceding paragraph, with an interest rate to equal the five-year United
States Treasury Note yield in effect on the last business day of the month
prior to the date when the Change in Control occurred. If you continue in
employment and the supplemental benefits provided for in this letter continue,
appropriate provisions shall be made so that any subsequent payments under
this letter agreement are reduced to reflect the value of such lump sum
payment.
All amounts payable under this letter agreement shall be subject to all
applicable withholding taxes. The Company or its parent may establish a
grantor trust to serve as a vehicle to hold such contributions as the Company
may choose to make to pre-fund its obligations hereunder, but the trust shall
be designed so that this letter agreement remains an unfunded arrangement and
your rights to benefits under this letter agreement shall be those of an
unsecured creditor.
If the terms of this agreement are satisfactory to you, please indicate your
acceptance below.
Sincerely,
WISCONSIN ELECTRIC POWER COMPANY
By: /s/R. A. Abdoo
-----------------------------
Chairman of the Board and
Chief Executive Officer
I understand, accept and agree to all the provisions and conditions contained
in the above Agreement.
/s/John W. Boston
----------------------------------
J. W. Boston
12/7/94
----------------------------------
Date
<PAGE> 4
EXHIBIT A
CHANGE IN CONTROL DEFINITION
For purposes of this Plan, a "change in control" with respect to
Wisconsin Energy Corporation (the "Corporation") shall mean the occurrence of
any of the following events, as a result of one transaction or a series of
transactions:
(a) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, but
excluding the Corporation, its affiliates and any qualified
or non-qualified plan maintained by the Corporation or its
affiliates) becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under such Act), directly or
indirectly, of securities of the Corporation representing
more than 20% of the combined voting power of the
Corporation's then outstanding securities;
(b) individuals who constitute a majority of the Board of
Directors of the Corporation immediately prior to a
contested election for positions on the Board cease to
constitute a majority as a result of such contested
election;
(c) the Corporation is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as
a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Corporation;
(d) the Corporation sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity; or
(e) the Board of Directors of the Corporation determines in its
sole and absolute discretion that there has been a Change in
Control of the Corporation.
These Change in Control provisions shall apply to successive Changes in
Control on an individual transaction basis.
<PAGE> 1
EXHIBIT (10)-4
WISCONSIN ENERGY CORPORATION
----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(As amended and restated
as of January 1, 1994)
<PAGE> 2
WISCONSIN ENERGY CORPORATION
----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
This plan, which is retitled the Wisconsin Energy Corporation Supplemental
Executive Retirement Plan, succeeds to and constitutes an amendment and
restatement of the Wisconsin Energy Corporation Executive Deferred
Compensation Plan; such amendment and restatement is effective as of January
1, 1994. All the provisions of this amended and restated Plan shall apply to
all Participants, active and retired, except for Nancy R. Noeske and except as
otherwise specifically provided herein. The rights of Ms. Noeske shall be as
defined in the Wisconsin Energy Corporation Supplemental Executive Retirement
Plan as restated and effective as of January 1, 1989 (including amendments
made in February of 1990 which became effective as of January 1, 1989) and as
defined in that certain Special Employment, Retirement and Release Agreement
made between Wisconsin Electric Power Company and Ms. Noeske in 1993.
1. PURPOSE. The Supplemental Executive Retirement Plan (the "Plan") is
maintained by Wisconsin Energy Corporation (the "Company") for the
purpose of providing supplemental retirement benefits for a select group
of management or highly compensated employees (key employees) within the
meaning of Title 1 of the Employee Retirement Income Security Act.
The objective of the Plan is to provide an incentive for key employees
to remain in the service of Wisconsin Energy Corporation and/or its
subsidiaries by providing them with supplemental retirement benefits
which are payable, except for the change in control provisions hereafter
set forth, only if they remain in the service of Wisconsin Energy
Corporation and/or its subsidiaries until they die or retire.
2. PARTICIPATION.
(A) Definition of a "Participant".
The term "Participant" as used herein refers to any key employee
of the Company and/or any of its subsidiaries who shall have
automatically or by designation become subject to this Plan and
who has not been removed from the Plan pursuant to (D) herein.
(B) Key Employees Presently Party to the Plan.
Any key employee who was a party to this Plan before January 1,
1989, (this Plan being designated the Wisconsin Energy Corporation
Executive Deferred Compensation Plan), shall automatically remain
subject to the Plan as amended on that date, and any Monthly
Benefits payable to a Participant shall be administered subject to
the Plan as amended and all beneficiary designations under the
Plan in effect immediately before January 1, 1989 shall remain in
effect until changed by proper notice under the Plan.
(C) Key Employees Not Presently Party to the Plan.
Key employees not presently party to the Plan who are designated
by the Chief Executive Officer of Wisconsin Energy Corporation and
whose designation is approved by the Boards of Directors of
Wisconsin Energy Corporation and the employing company or
companies shall be eligible as Participants for payments under the
Plan in accordance with the provisions hereof.
<PAGE> 3
- 2 -
(D) Removal of a Participant.
A Participant may be removed from the Plan at any time upon the
recommendation of the Chief Executive Officer of Wisconsin Energy
Corporation and with the approval of the Boards of Directors of
Wisconsin Energy Corporation and the employing company or
companies, provided no such removal may eliminate or reduce any
benefits which are protected under Section 12 hereof in the event
of termination of this Plan.
3. PAYMENTS UPON RETIREMENT. Upon the retirement of a Participant as an
employee of Wisconsin Energy Corporation and all of its subsidiaries
either:
(a) at age 60 or later, or
(b) prior to age 60 subject to approval by the Chief Executive
Officer of Wisconsin Energy Corporation and the Boards of
Directors of the Wisconsin Energy Corporation and employing
company or companies,
such Participant shall be entitled to receive Monthly Benefit A and
Monthly Benefit B described in paragraph 4 below. Further, subject to
the above conditions, Participants listed on the attached Schedule (the
"Listed Participants") shall be entitled to receive Monthly Benefit C
described in paragraph 4 below.
4. AMOUNT OF BENEFIT. Monthly Benefit A shall equal (a) less (b) where:
(a) equals the Participant's accrued benefit(s), as of the date
of determination, calculated on a straight life annuity basis
under the provisions of the Company's and/or all of its
subsidiaries' applicable qualified defined benefit retirement
plan(s), without regard to any limitations on benefits imposed by
IRC Section 415 or the $200,000 limitation on annual compensation,
as adjusted from time to time, imposed by IRC Section 401(a)(17)
applicable to the qualified plan; and
(b) equals the Participant's accrued benefit(s), as of the date
of determination, calculated on a straight life annuity basis
under the provisions of the Company's and/or its subsidiaries'
applicable qualified defined benefit retirement plan(s).
For all Participants whose service with the Company or any of its
subsidiaries terminated on or before December 31, 1993, Monthly Benefit
B and post retirement death benefits with respect to Monthly Benefit B
shall be as defined in this plan as restated effective as of January 1,
1989 (including amendments made in February, 1990 which became effective
as of January 1, 1989). For all Participants still in the active
service of the Company or any of its subsidiaries on and after January
1, 1994, Monthly Benefit B shall equal a life annuity of 10% of the
average total monthly compensation received by the Participant from the
Company and/or all of its subsidiaries during whichever period of 36
consecutive months produces the highest average total monthly
compensation. [Solely for purposes of determining Monthly Benefit B,
average total monthly compensation during such 36-month period includes
the monthly average of (i) any Incentive Award determined under the
Company's Executive Incentive Compensation Plan, calculated as of the
date of determination as if then paid in full as base salary and
disregarding the actual date of payment of any such Incentive Award
<PAGE> 4
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and the amount thereof at the time of payment, (ii) the amount of any
other annual incentive salary award paid to the Participant, and (iii)
any amounts of base salary that would have been paid to the Participant
during such 36-month period but are not paid because of deferral
elections made by the Participant under a savings or other deferred com-
pensation plan.]
Monthly Benefit C shall equal (a) less (b) where:
(a) equals the Listed Participant's accrued benefit(s), as of
the date of determination, calculated on a straight life annuity
basis under the provisions of the Wisconsin Electric Power Company
Management Employees' Retirement Plan and/or the Wisconsin Natural
Gas Company Management Employees' Retirement Plan, as in effect on
December 31, 1988 (the "1988 Management Plans", whichever such
Plan(s) applied to the Listed Participant as of December 31, 1988)
plus any benefits under any individual supplemental benefits
agreement(s) between the Company, and/or any of its subsidiaries
and any Listed Participant, all calculated without regard to any
limitations imposed by IRC Section 415 or the $200,000 limitation
on annual compensation, as adjusted from time to time, imposed by
IRC 401(a)(17), and all calculated under the further assumptions
that (i) the 1988 Management Plans continued without change until
the date of determination; (ii) any deferrals of base salary
elected by the Listed Participant under the Wisconsin Energy
Corporation Executive Deferred Compensation Plan were disregarded
and instead included in the compensation base for calculating
retirement income under the 1988 Management Plans; and (iii) the
amount of any Incentive Award or special award to the Listed
Participant, calculated at the time of its determination by the
Board, had also been included in the compensation base for
calculating retirement income under the 1988 Management Plans; and
(b) equals the sum of (i) the Listed Participant's accrued bene-
fit(s), as of the date of determination, calculated on a straight
life annuity basis under the provisions of the Wisconsin Electric
Power Company Management Employees' Retirement Plan and/or the
Wisconsin Natural Gas Company Management Employees' Retirement
Plan, whichever such Plan(s) applies to the Listed Participant, as
in effect on the date of determination; plus (ii) any actual
benefits under any individual supplemental benefits agreement(s)
between the Company and/or any of its subsidiaries and any Listed
Participant, plus (iii) any actual Monthly Benefit A, and plus
(iv) any actual "make whole" pension supplements due under the
provisions of Section IX(1) and (2) of the Wisconsin Energy
Corporation Executive Deferred Compensation Plan.
5. FORM OF PAYMENT. Monthly Benefits A, B and C shall be paid in the same
form as the benefit(s) paid from the Company's and/or its subsidiaries'
applicable qualified defined benefit retirement plan(s). If a form
other than a straight life annuity is applicable, the same option and
actuarial equivalent factors that apply in such qualified defined
benefit retirement plans(s) shall apply to Monthly Benefits A, B and C.
Monthly Benefits A, B and C shall be administered in the same manner as
the provisions of the applicable qualified retirement plan(s) are
administered. Notwithstanding any other provision hereof, a Participant
who is entitled to begin receiving payments under any or all of Monthly
Benefits A, B or C may make a written request to the Board of Directors
of Wisconsin Energy Corporation for a lump sum payment of an amount
<PAGE> 5
- 4 -
equal to the then present value of all benefits then accrued under this
plan, calculated using (i) an interest rate equal to the five-year
United States Treasury Note yield in effect on the last business day of
the month prior to payment as such yield is reported in the WALL STREET
JOURNAL or comparable publication and (ii) the mortality tables then in
use under the qualified defined benefit plan of the Company or its
subsidiaries applicable to the Participant. The Board of Directors, in
its sole and absolute discretion, may grant or deny such request.
6. PRERETIREMENT DEATH BENEFITS RESPECTING MONTHLY BENEFITS A AND C.
Provided that a Participant is entitled to preretirement spouse's
benefits under the Company's and/or its subsidiaries' applicable
qualified defined benefit retirement plan(s), payments of Monthly
Benefits A and C (reduced according to the same ratio as the spouse's
benefit(s) under the qualified plan(s) bears to the Participant's
accrued benefit(s) as of his/her date of death) shall become payable
upon the death of the Participant before retirement to the spouse of
such Participant for the balance of his/her lifetime.
7. PRE- AND POST-RETIREMENT DEATH BENEFITS RESPECTING MONTHLY BENEFIT B.
If a Participant dies before payments of Monthly Benefit B commence, the
beneficiary or beneficiaries designated by the Participant shall become
entitled to receive a lump sum amount equal to the then present value of
Monthly Benefit B, calculated using (i) an interest rate equal to the
five-year United States Treasury Note yield in effect on the last
business day of the month prior to the date of death as such yield is
reported in the WALL STREET JOURNAL or comparable publication, and (ii)
the mortality tables then in use under the qualified defined benefit
plan of the Company or its subsidiaries applicable to the Participant.
If a retired Participant receiving Monthly Benefit B dies, whether any
payments continue thereafter will depend upon the form of payment such
Participant had elected.
8. PAYMENTS UPON CHANGE IN CONTROL. For purposes of this paragraph 8, a
"Change in Control" with respect to the Company shall mean the
occurrence of any of the following events, as a result of one
transaction or a series of transactions:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, but excluding
the Company, its affiliates and any qualified or
non-qualified plan maintained by the Company or its
affiliates) becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under such Act), directly or
indirectly, of securities of the Company representing more
than 20% of the combined voting power of the Company's then
outstanding securities;
(b) individuals who constitute a majority of the Board
immediately prior to a contested election for positions on
the Board cease to constitute a majority as a result of such
contested election;
(c) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as
a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Company;
<PAGE> 6
- 5 -
(d) the Company sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity; or
(e) the Board determines in its sole and absolute discretion
that there has been a Change in Control of the Company.
These Change in Control provisions shall apply to successive Changes in
Control on an individual transaction basis.
Upon the occurrence of a Change in Control, then notwithstanding
any other provision of this plan, the Company shall promptly cause
to be paid to each active and retired Participant or beneficiary
receiving benefits under this plan a lump sum amount equal to the
then present value of all benefits then accrued under this plan,
calculated using (i) an interest rate equal to the five-year
United States Treasury Note yield in effect on the last business
day of the month prior to the date when a Change in Control event
described in subparagraphs (a) through (e) above has occurred as
such yield is reported in the WALL STREET JOURNAL or comparable
publication, and (ii) the mortality tables then in use under the
qualified defined benefit plan of the Company or its subsidiaries
applicable to the Participant. Such payments shall be made
without regard to whether the Participant's employment with the
Company or any of its subsidiaries is continuing. However, if the
Participant in fact so continues and this plan continues,
appropriate provisions shall be made so that any subsequent
payments made from this plan are reduced to reflect the value of
such lump sum payments.
9. GOVERNMENT REGULATIONS. It is intended that the Plan will comply with
all applicable laws and governmental regulations, and the Company and/or
its subsidiaries shall not be obligated to perform an obligation
hereunder in any case where, in the opinion of the Company's Counsel,
such performance would result in violation of any law or regulation.
All amounts payable under this plan shall be subject to all applicable
withholding taxes.
10. NONASSIGNMENT. No benefit(s) under the Plan, nor any other interest
hereunder of any Participant or beneficiary shall be assignable,
transferable, or subject to sale, mortgage, pledge, hypothecation,
anticipation, garnishment, attachment, execution, or levy of any kind.
11. PROVISION OF BENEFITS. The Company may establish a grantor trust (a
"rabbi trust") to serve as a vehicle to hold such contributions as the
Company may choose to make to pre-fund its obligation for benefits
hereunder, but the trust shall be designed so that all assets therein
are subject to the claims of the creditors of the Company or any of its
subsidiaries which have used such rabbi trust in the event of
insolvency, consistent with the provisions of Revenue Procedure 92-64.
Notwithstanding the existence of such a rabbi trust, the plan shall
remain an unfunded plan. A Participant's rights to benefits under the
plan shall be those of an unsecured creditor of the Company and/or its
subsidiaries.
12. TERMINATION OR MODIFICATION OF PLAN. The Board of Directors of
Wisconsin Energy Corporation shall have the right to terminate or modify
the Plan at any time and from time to time, provided that no such action
may eliminate or reduce or change the time or manner of payment of any
benefits which: (i) have already become payable hereunder to any
<PAGE> 7
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Participant or beneficiary; or (ii) would have become payable to any
Participant without the need for any approval under the terms of Section
3 hereof if he or she had retired immediately before such action is
taken.
13. CLAIM PROCEDURES. A Participant or beneficiary (a 'Claimant') may file
a written request for benefits or claim with the Company under the Plan.
In the event of any dispute with respect to such a claim, the following
claim procedures shall apply:
(a) The Company, acting as the administrator for this Plan,
shall notify the Claimant within 90 days of receipt by the
Company of a written claim of its allowance or denial,
unless the Claimant receives written notice from the Company
prior to the end of the initial 90-day period indicating
that special circumstances require an extension of time for
decision. A written notice of decision shall be provided to
the Claimant and if the claim is denied in whole or in part,
the notice shall contain the following information: the
specific reasons for the denial; specific reference to
pertinent provisions of the Plan on which the denial is
based; if applicable, a description of any additional
material information necessary to perfect the claim and an
explanation of why such information is necessary; and an ex-
planation of the claim review procedure.
(b) A Claimant is entitled to request a review of any denial of
his/her claim by the Board of Directors of the Company or
Committee thereof. The request for review must be submitted
in writing within 60 days of mailing of notice of the
denial. Absent a request for review within the 60-day pe-
riod, the claim will be deemed to be conclusively denied.
The Claimant or his/her representative shall be entitled to
review all pertinent documents, and to submit issues and
comments orally and in writing. The Board of Directors of
the Company or Committee thereof shall render a review
decision in writing, within 60 days after receipt of a
request for a review, provided that, in special
circumstances (such as the necessity of holding a hearing)
the Board of Directors of the Company or Committee thereof
may extend the time for decision by not more than 60 days
upon written notice to the Claimant. The Claimant shall
receive notice of the separate review decision of the Board
of Directors or Committee, together with specific reasons
for the decision and reference to the pertinent provisions
of this plan.
(c) The Company as the administrator of this Plan shall have
full and complete discretionary authority to determine
eligibility for benefits, to construe the terms of the Plan
and to decide any matter presented through the claims review
procedure. Any final determination by the Company shall be
binding on all parties. If challenged in court, such
determination shall not be subject to DE NOVO review and
shall not be overturned unless proven to be arbitrary and
capricious upon the evidence considered by the Company at
the time of such determination.
<PAGE> 8
- 9 -
Schedule to the
Wisconsin Energy Corporation
Supplemental Executive Retirement Plan
-----------------------------------------------------------------------------
The following is a list of the Company officers who have been designated
as eligible for Monthly Benefit C:
T. J. Cassidy
K. E. Wolters
R. W. Britt
C. S. McNeer
C. W. Fay
R. E. Skogg
H. R. Platz
J. E. Speaker
J. G. Remmel
R. H. Gorske
R. K. Espe
J. W. Boston
J. H. Goetsch
<PAGE> 1
EXHIBIT (10)-5
WISCONSIN ENERGY CORPORATION
----------------------------
DIRECTORS' DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1987
AND AS RESTATED AS OF JANUARY 1, 1994
<PAGE> 2
Wisconsin Energy Corporation
----------------------------
Directors' Deferred Compensation Plan
-------------------------------------
I. PURPOSE
The purpose of the Wisconsin Energy Corporation Directors' Deferred
Compensation Plan (the "Plan") is to establish a method of paying
directors' compensation which will aid Wisconsin Energy Corporation (the
"Company") in attracting and retaining as members of its Board of
Directors persons whose abilities, experience and judgment can
contribute to the continued progress of the Company.
II. PARTICIPATION
(A) Definition of "Participant"
The term "Participant" as used herein refers to any former, present or
future member of the Board of Directors of the Company (the "Director")
who shall by election become subject to this Plan.
(B) Election By Directors
Any Director who is not also an officer or employee of the Company or of
a subsidiary of the Company may elect to have all fees otherwise payable
to such Director for service as a Director retained by the Company and
paid in accordance with the Plan, effective on the first day of the
calendar month following the date of acknowledgement of receipt of such
election. Such election shall be made by notice in writing mailed or
delivered to the Secretary of the Company. All such fees, otherwise
payable, shall thereafter be retained by the Company until a written
notice of termination signed by Participant has been mailed or delivered
to the Secretary of the Company. A notice of termination of
authorization to retain all fees otherwise payable will be effective as
to those fees payable in the calendar month subsequent to the month in
which such notice of termination was received and acknowledged by the
Secretary of the Company but will have no force or effect on any fees
retained by the Company in the month such notice of termination was
mailed or delivered or any prior months, or on the dispersal of fees
retained in the month such notice of termination was mailed or delivered
or in any prior months.
III. DEFERRED COMPENSATION ACCOUNTS
An amount equivalent to any fees, which would otherwise be payable and
which have been retained by the Company under Paragraph II, shall be
credited to an account on the books of the Company, to be designated as
the Participant's Deferred Compensation Account (the "Account"), at the
time the fees would have been payable had Participant not agreed to have
the fees retained by the Company. The Account to which such retained
fees are credited shall be an unsecured claim against the general assets
of Company and shall be treated as any other account payable on the
books of the Company. Participant shall have no interest in the
Account, which is established merely as an accounting convenience and
which shall not operate to segregate any balance therein from the
general assets of the Company. The Company may establish a grantor
trust to serve as a vehicle to hold amounts credited to the Accounts
<PAGE> 3
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established hereunder, but the trust shall be designed so that this Plan
remains an unfunded plan and no Participant or Beneficiary shall have
any rights other than those of an unsecured creditor.
IV. INTEREST
(A) Accrual of Interest
Interest shall accrue on the average balance in each Account which shall
be determined by averaging the beginning and ending balance of such
Account within the period intervening since interest was last credited
to the Account, except, in the case of a new Participant, within the
period from the effective date a Director becomes a Participant to the
next June 30 or December 31 or the date such Participant terminates
participation, whichever is earlier, and shall be credited to the
Account semiannually, as of June 30 and December 31 of each year, until
all distributions to which Participant, Participant's estate or
Beneficiary is entitled shall have been made. Whenever a lump sum
amount or final distribution is made as of a date other than June 30 or
December 31, interest shall be credited to the Account as of such
payment date.
(B) Rate of Interest
The rate of interest shall be the prime commercial rate as published by
Firstar Bank, Milwaukee, N.A. in effect on June 30, for the period
ending June 30, and December 31, for the period ending December 31, of
each year, except for any period in which any lump sum amount or final
distribution from an Account is made as of a date other than June 30 or
December 31, in which case the rate of interest shall be the prime
commercial rate as published by Firstar Bank, Milwaukee, N.A. in effect
on the date interest was last credited as determined above.
V. PAYMENT TO PARTICIPANTS
(A) No Payment during Tenure
None of the amounts including interest credited to the Account shall be
paid to Participant as long as Participant serves as a Director of the
Company or as a Director of any of the Company's subsidiaries.
(B) Normal Payment Method
Subject to the provisions of Paragraphs VI and VII hereof, as of the
first business day of the sixth calendar month subsequent to the month
in which the later of the following events occurs, (i) Participant's
service as a Director with the Company terminates for any reason other
than death, (ii) Participant's service as a Director with all of the
Company's subsidiaries terminates for any reason other than death, or
(iii) Participant attains the mandatory retirement age for Directors
under Board policy, the Company shall pay to Participant, if Participant
be living, one-tenth (1/10th) of the amount credited to the Account as
of said payment date (the "principal amount") and as of the first
business day of each January thereafter, one-tenth (1/10th) of the
principal amount and in addition thereto any interest credited to the
Account in the period intervening since the last payment until a total
of ten payments have been made. Such ten payments, regardless of the
total amount thereof, shall constitute full payment of all amounts due
Participant under this Plan.
<PAGE> 4
- 3 -
(C) Alternate Payment Methods
Upon written application of Participant made prior to the termination of
such Participant's service as a Director (which application shall be
irrevocable during the Participant's lifetime if approved by the
Company), and subject to the approval of the Company in its sole
discretion upon such terms and conditions as it may determine, the
Company may allow the following alternate payment methods:
(1) Subject to the provisions of Paragraphs VI and VII hereof, as of
the first business day of the sixth calendar month subsequent to
the month in which the later of the following events occurs, (i)
Participant's service as a Director with the Company terminates
for any reason other than death, (ii) Participant's service as a
Director with all of the Company's subsidiaries terminates for any
reason other than death, or (iii) Participant attains the
mandatory retirement age for Directors under Board policy, the
Company shall pay to Participant, if Participant be living, one-
tenth (1/10th) of the amount credited to the Account as of said
payment date (the "principal amount") and as of the first business
day of each January thereafter, that portion of the amount
credited to the Account as of said payment date which is
determined by multiplying said Account balance by a fraction the
numerator of which is one (1) and the denominator of which is the
number of years of distribution remaining until a total of ten
payments have been made. Such ten payments, regardless of the
total amount thereof, shall constitute full payment of all amounts
due Participant under this Plan.
(2) Under either the Normal Payment Method, or the alternative under
Paragraph V(C)(1), if allowed, commence distribution of the
Account on an earlier date than that provided in Paragraph V(B),
which date shall in no event be earlier than the first day of the
calendar month subsequent to the month in which the later of the
following events occurs, (i) Participant's service as a Director
with the Company terminates or (ii) Participant's services as a
Director of all the Company's subsidiaries terminates.
(3) Under either the Normal Payment Method, or the alternative under
Paragraph V(C)(1), if allowed, commence distribution of the
Account on a later date than that provided in Paragraph V(B).
(4) Pay to Participant the amount standing in the Account in larger
installments or in a lump sum amount, in lieu of the amount and
form of payments provided in Paragraph V(B).
(D) Date of Payment
In all cases under any payment method, actual payment of the amounts due
shall be made within five business days after the determined payment
date.
<PAGE> 5
- 4 -
VI. PAYMENT TO BENEFICIARY, EXECUTOR OR ADMINISTRATOR OF PARTICIPANT
(A) Normal Payment Method
In the event of Participant's death, annual payments will be made to
Participant's Beneficiary (as hereinafter defined), provided that the
Beneficiary is alive at the time such payments are to be made, in the
following manner:
(1) If Participant dies while still serving as a Director of the
Company or as a Director of any of the Company's subsidiaries, the
payments will be in the same amount and payable at the same time
as the payments which would have otherwise been payable to
Participant had Participant's service to the Company as a Director
terminated on the date of Participant's death under the conditions
precedent for distribution described in Paragraph V(B) and had
Participant been alive until the ten payments had been paid under
Paragraph V(B).
(2) If Participant dies after such service has terminated and while
Participant is receiving payments under Paragraph V, the payments,
if any, will be in the same amount and payable at the same time as
if Participant had been alive until the ten payments had been paid
under Paragraph V(B).
(3) If Participant dies after such service has terminated, but before
payment had commenced under Paragraph V(B), the payments will be
in the same amount and payable at the same time as the payments
which would have otherwise been payable to Participant had
Participant's service as a Director terminated on the date of
Participant's death under the conditions precedent for
distribution described in Paragraph V(B) and had Participant been
alive until the ten payments had been paid under Paragraph V(B).
(B) Alternate Payment Methods
Upon written application of Participant's Beneficiary made prior to the
time any distribution under this Plan is payable to said Beneficiary
(which application shall be irrevocable if approved by the Company), and
subject to the approval of the Company in its sole discretion upon such
terms and conditions as it may determine, forms of payment as provided
in Paragraph V(C) may be made in lieu of the payments in Paragraph
VI(A).
(C) Payment in the Event of Beneficiary's Death
If the last Beneficiary who survives Participant shall die before
receiving the full amount payable hereunder, then the balance of the
Account not paid shall be paid in a lump sum to the estate of such
Beneficiary within six months after Company has been notified of such
death.
(D) Definition and Designation of Beneficiary
The term "Beneficiary" as used herein includes the plural and means any
person(s), including corporate or individual persons, designated by
Participant in a written instrument filed with the Secretary of the
Company. Participant may designate a primary beneficiary and, in the
event of the death of the primary beneficiary, a contingent beneficiary.
The right is reserved to Participant to change the person or persons
<PAGE> 6
- 5 -
designated as Beneficiary, by filing with the Secretary of the Company a
written notice of change in Beneficiary, and any such change shall not
require the consent of the Beneficiary.
(E) Payment in the Event no Beneficiary is Designated
If Participant has failed to designate a Beneficiary in a written
instrument filed with the Secretary of the Company, or if the
Beneficiary predeceases Participant, then the balance of the Account not
paid shall be paid in a lump sum amount to Participant's estate within
six months after Company has been notified of Participant's death.
(F) Date of Payment
In all cases under any payment method, actual payment of the amounts due
shall be made within five business days after the determined payment
date.
VII. MANDATORY LUMP SUM PAYMENT
Upon the occurrence of a "Change in Control" of Wisconsin Energy
Corporation, as defined in Exhibit A attached to and made a part of this
Plan, then notwithstanding any other provision hereof, the Company shall
promptly pay each Participant and each Beneficiary receiving benefits a
single lump sum equal to the amount credited to the Account as of the
payment date (without regard to whether the Participant is still serving
as a Director of the Company or any of its subsidiaries), in lieu of
whatever other method of payment, if any, had been elected or placed
into effect.
VIII. WITHHOLDING OF TAXES
The Company shall have the right to retain from payments payable to
Participant, Participant's estate or Beneficiary amounts required by any
government to be withheld and paid to such government with respect to
such payment.
IX. GENERAL PROVISIONS
(A) Termination, Amendment, or Modification of Plan
The Company may terminate, amend, or modify the Plan at any time,
provided that such termination, amendment or modification shall not
adversely affect the rights of any Participant, Participant's estate or
Beneficiary, to receive the amounts theretofore credited to
Participant's Account as provided in the Plan.
(B) Assignment by Company
The Company shall have the right to assign all of its right, title and
obligation in and under this Plan upon a merger or consolidation or upon
the purchase of substantially its entire business or assets, provided
such assignee agrees to perform after the effective date of such
assignment all of the terms, conditions and provisions imposed by this
Plan upon the Company. In the event of such an assignment, all of the
rights and obligations of the Company under this Plan shall thereupon
cease and terminate.
<PAGE> 7
- 6 -
(C) Assignment by Participant
No Participant, Participant's Beneficiary or estate shall have the power
to transfer, assign, encumber, commute or anticipate any amounts payable
hereunder.
(D) Approval of Alternate Payment Methods
Whenever it is provided in this Plan that matters are subject to
approval of the Company, authority for approval shall be exercised by
the Chief Executive Officer of the Company.
(E) Plan Administrator
This Plan shall be administered by the Secretary of the Company.
<PAGE> 8
- 7 -
EXHIBIT A
CHANGE IN CONTROL DEFINITION
For purposes of this Plan, a "change in control" with respect to
Wisconsin Energy Corporation shall mean the occurrence of any of the following
events, as a result of one transaction or a series of transactions:
(a) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, but excluding
the Company, its affiliates and any qualified or
non-qualified plan maintained by the Company or its
affiliates) becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under such Act), directly or
indirectly, of securities of the Company representing more
than 20% of the combined voting power of the Company's then
outstanding securities;
(b) individuals who constitute a majority of the Board
immediately prior to a contested election for positions on
the Board cease to constitute a majority as a result of such
contested election;
(c) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as
a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Company;
(d) the Company sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity; or
(e) the Board determines in its sole and absolute discretion
that there has been a Change in Control of the Company.
These Change in Control provisions shall apply to successive Changes in
Control on an individual transaction basis.
<PAGE> 1
EXHIBIT (10)-6
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
DIRECTORS' DEFERRED COMPENSATION PLAN
AS RESTATED AS OF JANUARY 1, 1994
<PAGE> 2
Wisconsin Electric Power Company
--------------------------------
Directors' Deferred Compensation Plan
-------------------------------------
I. PURPOSE
The purpose of the Wisconsin Electric Power Company Directors' Deferred
Compensation Plan (the "Plan") is to establish a method of paying
directors' compensation which will aid Wisconsin Electric Power Company
(the "Company") in attracting and retaining as members of its Board of
Directors persons whose abilities, experience and judgment can
contribute to the continued progress of the Company.
II. PARTICIPATION
(A) Definition of "Participant"
The term "Participant" as used herein refers to any former, present or
future member of the Board of Directors of the Company (the "Director")
who shall by election become subject to this Plan.
(B) Election By Directors
Any Director who is not also an officer or employee of the Company or of
an affiliate of the Company may elect to have all fees otherwise payable
to such Director for service as a Director retained by the Company and
paid in accordance with the Plan, effective on the first day of the
calendar month following the date of acknowledgement of receipt of such
election. Such election shall be made by notice in writing mailed or
delivered to the Secretary of the Company. All such fees, otherwise
payable, shall thereafter be retained by the Company until a written
notice of termination signed by Participant has been mailed or delivered
to the Secretary of the Company. A notice of termination of
authorization to retain all fees otherwise payable will be effective as
to those fees payable in the calendar month subsequent to the month in
which such notice of termination was received and acknowledged by the
Secretary of the Company but will have no force or effect on any fees
retained by the Company in the month such notice of termination was
mailed or delivered or any prior months, or on the dispersal of fees
retained in the month such notice of termination was mailed or delivered
or in any prior months.
III. DEFERRED COMPENSATION ACCOUNTS
An amount equivalent to any fees, which would otherwise be payable and
which have been retained by the Company under Paragraph II, shall be
credited to an account on the books of the Company, to be designated as
the Participant's Deferred Compensation Account (the "Account"), at the
time the fees would have been payable had Participant not agreed to have
the fees retained by the Company. The Account to which such retained
fees are credited shall be an unsecured claim against the general assets
of Company and shall be treated as any other account payable on the
books of the Company. Participant shall have no interest in the
Account, which is established merely as an accounting convenience and
which shall not operate to segregate any balance therein from the
<PAGE> 3
- 2 -
general assets of the Company. The Company may establish a grantor
trust to serve as a vehicle to hold amounts credited to the Accounts
established hereunder, but the trust shall be designed so that this Plan
remains an unfunded plan and no Participant or Beneficiary shall have
any rights other than those of an unsecured creditor.
IV. INTEREST
(A) Accrual of Interest
Interest shall accrue on the average balance in each Account which shall
be determined by averaging the beginning and ending balance of such
Account within the period intervening since interest was last credited
to the Account, except, in the case of a new Participant, within the
period from the effective date a Director becomes a Participant to the
next June 30 or December 31 or the date such Participant terminates
participation, whichever is earlier, and shall be credited to the
Account semiannually, as of June 30 and December 31 of each year, until
all distributions to which Participant, Participant's estate or
Beneficiary is entitled shall have been made. Whenever a lump sum
amount or final distribution is made as of a date other than June 30 or
December 31, interest shall be credited to the Account as of such
payment date.
(B) Rate of Interest
The rate of interest shall be the prime commercial rate as published by
Firstar Bank, Milwaukee, N.A. in effect on June 30, for the period
ending June 30, and December 31, for the period ending December 31, of
each year, except for any period in which any lump sum amount or final
distribution from an Account is made as of a date other than June 30 or
December 31, in which case the rate of interest shall be the prime
commercial rate as published by Firstar Bank, Milwaukee, N.A. in effect
on the date interest was last credited as determined above.
V. PAYMENT TO PARTICIPANTS
(A) No Payment during Tenure
None of the amounts including interest credited to the Account shall be
paid to Participant as long as Participant serves as a Director of the
Company or as a Director of Wisconsin Energy Corporation or any of
Wisconsin Energy Corporation's subsidiaries.
(B) Normal Payment Method
Subject to the provisions of Paragraphs VI and VII hereof, as of the
first business day of the sixth calendar month subsequent to the month
in which the later of the following events occurs, (i) Participant's
service as a Director with the Company terminates for any reason other
than death, (ii) Participant's service as a Director with Wisconsin
Energy Corporation and all of Wisconsin Energy Corporation's
subsidiaries terminates for any reason other than death, or (iii)
Participant attains the mandatory retirement age for Directors under
Board policy, the Company shall pay to Participant, if Participant be
living, one-tenth (1/10th) of the amount credited to the Account as of
said payment date (the "principal amount") and as of the first business
<PAGE> 4
- 3 -
day of each January thereafter, one-tenth (1/10th) of the principal
amount and in addition thereto any interest credited to the Account in
the period intervening since the last payment until a total of ten
payments have been made. Such ten payments, regardless of the total
amount thereof, shall constitute full payment of all amounts due
Participant under this Plan.
(C) Alternate Payment Methods
Upon written application of Participant made prior to the termination of
such Participant's service as a Director (which application shall be
irrevocable during the Participant's lifetime if approved by the
Company), and subject to the approval of the Company in its sole
discretion upon such terms and conditions as it may determine, the
Company may allow the following alternate payment methods:
(1) Subject to the provisions of Paragraphs VI and VII hereof, as of
the first business day of the sixth calendar month subsequent to
the month in which the later of the following events occurs, (i)
Participant's service as a Director with the Company terminates
for any reason other than death, (ii) Participant's service as a
Director with Wisconsin Energy Corporation and all of Wisconsin
Energy Corporation's subsidiaries terminates for any reason other
than death, or (iii) Participant attains the mandatory retirement
age for Directors under Board policy, the Company shall pay to
Participant, if Participant be living, one-tenth (1/10th) of the
amount credited to the Account as of said payment date (the
"principal amount") and as of the first business day of each
January thereafter, that portion of the amount credited to the
Account as of said payment date which is determined by multiplying
said Account balance by a fraction the numerator of which is one
(1) and the denominator of which is the number of years of
distribution remaining until a total of ten payments have been
made. Such ten payments, regardless of the total amount thereof,
shall constitute full payment of all amounts due Participant under
this Plan.
(2) Under either the Normal Payment Method, or the alternative under
Paragraph V(C)(1), if allowed, commence distribution of the
Account on an earlier date than that provided in Paragraph V(B),
which date shall in no event be earlier than the first day of the
calendar month subsequent to the month in which the later of the
following events occurs, (i) Participant's service as a Director
with the Company terminates or (ii) Participant's service as a
Director of Wisconsin Energy Corporation and all of Wisconsin
Energy Corporation's subsidiaries terminates.
(3) Under either the Normal Payment Method, or the alternative under
Paragraph V(C)(1), if allowed, commence distribution of the
Account on a later date than that provided in Paragraph V(B).
(4) Pay to Participant the amount standing in the Account in larger
installments or in a lump sum amount, in lieu of the amount and
form of payments provided in Paragraph V(B).
(D) Date of Payment
In all cases under any payment method, actual payment of the amounts due
shall be made within five business days after the determined payment
date.
<PAGE> 5
- 4 -
VI. PAYMENT TO BENEFICIARY, EXECUTOR OR ADMINISTRATOR OF PARTICIPANT
(A) Normal Payment Method
In the event of Participant's death, annual payments will be made to
Participant's Beneficiary (as hereinafter defined), provided that the
Beneficiary is alive at the time such payments are to be made, in the
following manner:
(1) If Participant dies while still serving as a Director of the
Company or as a Director of any of the Company's subsidiaries, the
payments will be in the same amount and payable at the same time
as the payments which would have otherwise been payable to
Participant had Participant's service to the Company as a Director
terminated on the date of Participant's death under the conditions
precedent for distribution described in Paragraph V(B) and had
Participant been alive until the ten payments had been paid under
Paragraph V(B).
(2) If Participant dies after such service has terminated and while
Participant is receiving payments under Paragraph V, the payments,
if any, will be in the same amount and payable at the same time as
if Participant had been alive until the ten payments had been paid
under Paragraph V(B).
(3) If Participant dies after such service has terminated, but before
payment had commenced under Paragraph V(B), the payments will be
in the same amount and payable at the same time as the payments
which would have otherwise been payable to Participant had
Participant's service as a Director terminated on the date of
Participant's death under the conditions precedent for
distribution described in Paragraph V(B) and had Participant been
alive until the ten payments had been paid under Paragraph V(B).
(B) Alternate Payment Methods
Upon written application of Participant's Beneficiary made prior to the
time any distribution under this Plan is payable to said Beneficiary
(which application shall be irrevocable if approved by the Company), and
subject to the approval of the Company in its sole discretion upon such
terms and conditions as it may determine, forms of payment as provided
in Paragraph V(C) may be made in lieu of the payments in Paragraph
VI(A).
(C) Payment in the Event of Beneficiary's Death
If the last Beneficiary who survives Participant shall die before
receiving the full amount payable hereunder, then the balance of the
Account not paid shall be paid in a lump sum to the estate of such
Beneficiary within six months after Company has been notified of such
death.
(D) Definition and Designation of Beneficiary
The term "Beneficiary" as used herein includes the plural and means any
person(s), including corporate or individual persons, designated by
Participant in a written instrument filed with the Secretary of the
Company. Participant may designate a primary beneficiary and, in the
<PAGE> 6
- 5 -
event of the death of the primary beneficiary, a contingent beneficiary.
The right is reserved to Participant to change the person or persons
designated as Beneficiary, by filing with the Secretary of the Company a
written notice of change in Beneficiary, and any such change shall not
require the consent of the Beneficiary.
(E) Payment in the Event no Beneficiary is Designated
If Participant has failed to designate a Beneficiary in a written
instrument filed with the Secretary of the Company, or if the
Beneficiary predeceases Participant, then the balance of the Account not
paid shall be paid in a lump sum amount to Participant's estate within
six months after Company has been notified of Participant's death.
(F) Date of Payment
In all cases under any payment method, actual payment of the amounts due
shall be made within five business days after the determined payment
date.
VII. MANDATORY LUMP SUM PAYMENT
Upon the occurrence of a "Change in Control" of Wisconsin Energy
Corporation, as defined in Exhibit A attached to and made a part of this
Plan, then notwithstanding any other provision hereof, the Company shall
promptly pay each Participant and each Beneficiary receiving benefits a
single lump sum equal to the amount credited to the Account as of the
payment date (without regard to whether the Participant is still serving
as a Director of the Company or any of its affiliates), in lieu of
whatever other method of payment, if any, had been elected or placed
into effect.
VIII. WITHHOLDING OF TAXES
The Company shall have the right to retain from payments payable to
Participant, Participant's estate or Beneficiary amounts required by any
government to be withheld and paid to such government with respect to
such payment.
IX. GENERAL PROVISIONS
(A) Termination, Amendment, or Modification of Plan
The Company may terminate, amend, or modify the Plan at any time,
provided that such termination, amendment or modification shall not
adversely affect the rights of any Participant, Participant's estate or
Beneficiary, to receive the amounts theretofore credited to
Participant's Account as provided in the Plan.
(B) Assignment by Company
The Company shall have the right to assign all of its right, title and
obligation in and under this Plan upon a merger or consolidation or upon
the purchase of substantially its entire business or assets, provided
such assignee agrees to perform after the effective date of such
assignment all of the terms, conditions and provisions imposed by this
<PAGE> 7
- 6 -
Plan upon the Company. In the event of such an assignment, all of the
rights and obligations of the Company under this Plan shall thereupon
cease and terminate.
(C) Assignment by Participant
No Participant, Participant's Beneficiary or estate shall have the power
to transfer, assign, encumber, commute or anticipate any amounts payable
hereunder.
(D) Approval of Alternate Payment Methods
Whenever it is provided in this Plan that matters are subject to
approval of the Company, authority for approval shall be exercised by
the Chief Executive Officer of the Company.
(E) Plan Administrator
This Plan shall be administered by the Secretary of the Company.
<PAGE> 8
- 7 -
EXHIBIT A
CHANGE IN CONTROL DEFINITION
For purposes of this Plan, a "change in control" with respect to
Wisconsin Energy Corporation shall mean the occurrence of any of the following
events, as a result of one transaction or a series of transactions:
(a) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, but
excluding the Company, its affiliates and any qualified or
non-qualified plan maintained by the Company or its
affiliates) becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under such Act), directly or
indirectly, of securities of the Company representing more
than 20% of the combined voting power of the Company's then
outstanding securities;
(b) individuals who constitute a majority of the Board
immediately prior to a contested election for positions on
the Board cease to constitute a majority as a result of such
contested election;
(c) the Company is combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as
a result of such combination, less than 60% of the
outstanding securities of the surviving or resulting
corporation are owned in the aggregate by the former
shareholders of the Company;
(d) the Company sells, leases, or otherwise transfers all or
substantially all of its properties or assets not in the
ordinary course of business to another person or entity; or
(e) the Board determines in its sole and absolute discretion
that there has been a Change in Control of the Company.
These Change in Control provisions shall apply to successive Changes in
Control on an individual transaction basis.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY
CORPORATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 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-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,940,732
<OTHER-PROPERTY-AND-INVEST> 596,719
<TOTAL-CURRENT-ASSETS> 478,958
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 391,850
<TOTAL-ASSETS> 4,408,259
<COMMON> 1,089
<CAPITAL-SURPLUS-PAID-IN> 624,568
<RETAINED-EARNINGS> 1,118,909
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,744,566
0
30,451
<LONG-TERM-DEBT-NET> 1,166,926
<SHORT-TERM-NOTES> 96,949
<LONG-TERM-NOTES-PAYABLE> 92,910
<COMMERCIAL-PAPER-OBLIGATIONS> 155,106
<LONG-TERM-DEBT-CURRENT-PORT> 12,685
0
<CAPITAL-LEASE-OBLIGATIONS> 23,850
<LEASES-CURRENT> 19,846
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,064,970
<TOT-CAPITALIZATION-AND-LIAB> 4,408,259
<GROSS-OPERATING-REVENUE> 1,742,192
<INCOME-TAX-EXPENSE> 99,761
<OTHER-OPERATING-EXPENSES> 1,379,158
<TOTAL-OPERATING-EXPENSES> 1,478,919
<OPERATING-INCOME-LOSS> 263,273
<OTHER-INCOME-NET> 26,965
<INCOME-BEFORE-INTEREST-EXPEN> 290,238
<TOTAL-INTEREST-EXPENSE> 108,019
<NET-INCOME> 182,219
1,351
<EARNINGS-AVAILABLE-FOR-COMM> 180,868
<COMMON-STOCK-DIVIDENDS> 150,708
<TOTAL-INTEREST-ON-BONDS> 103,897
<CASH-FLOW-OPERATIONS> 416,310
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
<FN>
See financial statements and footnotes in accompanying 10-K.
