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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission file number 1-9057
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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
----------------------------------------- -----------------------
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
$3,252,000,000 based on the reported last sale price of such securities as of March 1, 1996.
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Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the
latest practicable date.
Class Outstanding at March 1, 1996
----- ----------------------------
COMMON STOCK, $.01 PAR VALUE 110,819,337 Shares
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
May 22, 1996, are incorporated by reference into Part III hereof.
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WISCONSIN ENERGY CORPORATION ("WEC")
FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1995
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TABLE OF CONTENTS
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ITEM PAGE
PART I
------
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 31
4. Submission of Matters to a Vote of Security Holders. . . . . . . 35
Executive Officers of the Registrant . . . . . . . . . . . . . . 35
PART II
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5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . 36
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 38
Electric Revenues, Kilowatt-Hour Sales and
Customer Statistics . . . . . . . . . . . . . . . . . . . . . 39
Gas Revenues, Therms Delivered and Customer Statistics . . . . . 39
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 40
8. Financial Statements and Supplementary Data. . . . . . . . . . . 60
Report of Independent Accountants . . . . . . . . . . . . . . . 84
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . 85
PART III
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10. Directors and Executive Officers of the Registrant . . . . . . 85
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . 85
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 85
13. Certain Relationships and Related Transactions . . . . . . . . 85
PART IV
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14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 86
Consent of Independent Accountants . . . . . . . . . . . . . . 96
Primergy Corporation Unaudited Pro Forma Combined
Condensed Financial Information . . . . . . . . . . . . . . . 97
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 103
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DEFINITIONS
Abbreviations and acronyms used in the text are defined below.
Abbreviations and Acronyms Term
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BTU.............................. British Thermal Units
CO2.............................. Carbon Dioxide
Concord.......................... Concord Generating Station
CPCN............................. Certificate of Public Convenience and Necessity
DNR.............................. Wisconsin Department of Natural Resources
DOE.............................. U.S. Department of Energy
DSM.............................. Demand Side Management
Dth.............................. Dekatherm
EMFs............................. Electromagnetic Fields
EPA.............................. U.S. Environmental Protection Agency
EWGs............................. Exempt Wholesale Generators
FERC............................. Federal Energy Regulatory Commission
GRI.............................. Gas Research Institute
IPP.............................. Independent Power Producer
ISFSI............................ Independent Spent Fuel Storage Installation
LS Power......................... LSP-Whitewater L.P.
MAPP............................. Mid-Continent Area Power Pool
MDNR............................. Michigan Department of Natural Resources
MDEQ............................. Michigan Department of Environmental Quality
MGP.............................. Manufactured gas plant
Minergy.......................... Minergy Corp.
MPSC............................. Michigan Public Service Commission
MWh.............................. Megawatt-hour
NOX.............................. Nitrogen Oxide
NRC.............................. U.S. Nuclear Regulatory Commission
New NSP.......................... NSP (after reincorporation in Wisconsin and related changes)
NSP.............................. Northern States Power Company, a Minnesota corporation
NSP-WI........................... Northern States Power Company, a Wisconsin corporation
Paris............................ Paris Generating Station
PGA.............................. Purchased Gas Adjustment
Point Beach...................... Point Beach Nuclear Plant
Primergy......................... Primergy Corporation
PRP ............................. Potentially Responsible Party
PSCR............................. Power Supply Cost Recovery
PSCW............................. Public Service Commission of Wisconsin
PUHCA............................ Public Utility Holding Company Act of 1935
Repap............................ Repap Wisconsin, Inc.
SEC.............................. Securities and Exchange Commission
SO2.............................. Sulfur Dioxide
Trust............................ Wisconsin Electric Fuel Trust (nuclear)
UPPCO............................ Upper Peninsula Power Company
USEC............................. U.S. Enrichment Corporation
WE............................... Wisconsin Electric Power Company
WEC or the Company............... Wisconsin Energy Corporation
WEGO............................. WE Gas Operations
WISPARK.......................... WISPARK Corporation
WISVEST.......................... WISVEST Corporation
WITECH........................... WITECH Corporation
WN............................... Wisconsin Natural Gas Company
WSG.............................. 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 ("WEC" or the "Company") was incorporated in the
State of Wisconsin in 1981 and became a holding company in 1986. WEC's
principal subsidiaries at December 31, 1995 were Wisconsin Electric Power
Company ("WE"), an electric and steam utility, and Wisconsin Natural Gas
Company ("WN"), a natural gas utility. Effective January 1, 1996, WEC merged
WN into WE to form a single combined utility subsidiary. Where applicable,
references to WE include WN prior to the merger. Additional information
concerning the merger may be found in Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF
OPERATIONS - Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL
STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. WEC also
has certain non-utility subsidiaries. The operations of WEC and its
subsidiaries are conducted in four business segments, the primary operations
of which are as follows:
Business Segment Operations
---------------- ----------
Electric Operations WE generates, transmits, distributes and sells
electric energy in a territory of
approximately 12,000 square miles with a
population estimated at over 2,200,000 in
southeastern (including the Milwaukee area),
east central and northern Wisconsin and in the
Upper Peninsula of Michigan.
Gas Operations The WE gas operations ("WEGO") purchases,
distributes and sells natural gas to retail
customers and transports customer-owned gas in
three distinct service areas in Wisconsin:
west and south of the City of Milwaukee, the
Appleton area and the Prairie du Chien area.
The gas service territory, which has an
estimated population of over 1,100,000, is
largely within WE's electric service area.
Steam Operations WE distributes and sells steam supplied by
WE's Valley Power Plant to space heating and
processing customers in downtown and near
southside areas of Milwaukee.
Non-Utility Operations For information on non-utility subsidiaries
see Item 1. BUSINESS - "NON-UTILITY
OPERATIONS." Non-utility operations were
not significant in 1995.
For additional financial information about business segments, see Note L -
"Information by Segments of Business" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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ITEM 1. BUSINESS - (cont'd)
MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY ("NSP")
On April 28, 1995, WEC and Northern States Power Company, a Minnesota
corporation ("NSP") entered into an Agreement and Plan of Merger, which was
amended and restated as of July 26, 1995 ("Merger Agreement"). The Merger
Agreement provides for a strategic business combination involving WEC and NSP
in a "merger-of-equals" transaction ("Transaction"). As a result, WEC will
become a registered public utility holding company under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), and will change its name to
Primergy Corporation ("Primergy"). The headquarters of Primergy will be in
Minneapolis, Minnesota. The business of Primergy will consist of owning
utilities and various non-utility subsidiaries.
Primergy will be the parent company of WE (which will be renamed Wisconsin
Energy Company), of NSP (which, for regulatory reasons, will reincorporate in
Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. In
connection with the Transaction, Northern States Power Company, a Wisconsin
corporation ("NSP-WI"), currently a utility subsidiary of NSP, will be merged
into Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin
Energy Company, New NSP will acquire from NSP-WI certain gas utility assets.
Wisconsin Energy Company and New NSP will operate as the principal
subsidiaries of Primergy. The headquarters of the two utilities will remain
in their current locations, Wisconsin Energy Company's in Milwaukee and New
NSP's in Minneapolis. Based upon December 31, 1995 statistics, Wisconsin
Energy Company and New NSP will serve a total of approximately 2,350,000
electric customers and 780,000 natural gas customers, and their combined
service territory will include portions of Minnesota, Wisconsin, North Dakota,
South Dakota and the Upper Peninsula of Michigan.
The Merger Agreement provides that the Board of Directors of Primergy will,
upon consummation of the Transaction, consist of twelve directors, divided
into three classes, composed of six persons designated by NSP, including
James J. Howard, Chairman of the Board, President and Chief Executive Officer
of NSP, and six persons designated by WEC, including Richard A. Abdoo,
Chairman of the Board, President and Chief Executive Officer of WEC. At the
effective time of the Transaction, Mr. Howard will become Chairman and Chief
Executive Officer of Primergy, and Mr. Abdoo will become Vice Chairman,
President and Chief Operating Officer of Primergy, pursuant to employment
agreements to be entered into by Messrs. Howard and Abdoo with Primergy, which
will become effective upon consummation of the Transaction. Pursuant to the
employment agreements, Mr. Howard will serve as Chairman and Chief Executive
Officer of Primergy from and after the effective time of the Transaction until
the later of the date of the annual meeting of the shareholders of Primergy
that occurs in 1998 and the last day of the sixteenth full month following the
effective time of the Transaction, and thereafter will retire as Chief
Executive Officer but will continue to serve as Chairman until the later of
July 1, 2000, or two years after he ceases to be Chief Executive Officer. Mr.
Abdoo will serve as Vice Chairman, President and Chief Operating Officer of
Primergy from and after the effective time of the Transaction until Mr. Howard
ceases to be Chief Executive Officer, and thereafter will serve as Vice
Chairman, President and Chief Executive Officer. Mr. Abdoo will assume the
position of Chairman when Mr. Howard ceases to be Chairman.
Upon receipt of the necessary approval from the Federal Energy Regulatory
Commission ("FERC") and on or after the effective time of the Transaction,
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ITEM 1. BUSINESS - Merger Agreement with NSP - (cont'd)
Wisconsin Energy Company and New NSP will become parties to an Interchange
Agreement, whereby costs of generating capacity and transmission are shared in
a manner similar to an existing interchange agreement between NSP and NSP-WI.
The integration of the Wisconsin Energy Company and New NSP generating
capacity should increase the ability of these companies to meet demands for
electricity within the service territories each serves. It is also
anticipated that a single administrative and support system will be
established following the Transaction.
The non-utility operations of WEC are presently conducted through six active
wholly-owned subsidiaries. The non-utility operations of NSP are conducted
primarily through NRG Energy, Inc., Cenergy, Inc. and Eloigne Company.
Following the Transaction, it is anticipated that New NSP will transfer its
non-utility businesses to Primergy and that such non-utility businesses of New
NSP, along with the non-utility businesses of WEC, will be conducted through
one or more subsidiaries of Primergy that are not subsidiaries of Wisconsin
Energy Company or New NSP.
WEC is currently exempt from the registration and other requirements of PUHCA,
other than from Section 9(a)(2) thereof, pursuant to an order of the
Securities and Exchange Commission ("SEC"). SEC approval under PUHCA is
required in connection with the Transaction.
The PUHCA exemption under which WEC currently operates will not be available
to Primergy after consummation of the Transaction. Accordingly, upon
consummation of the Transaction, Primergy must register as a holding company.
PUHCA imposes numerous restrictions on the operations of a registered holding
company and its subsidiaries and affiliates. Subject to limited exceptions,
SEC approval is required under PUHCA for a registered holding company or any
of its subsidiaries to: (i) issue securities, (ii) acquire utility assets from
a third person, (iii) acquire the stock of another public utility, (iv) amend
its articles of incorporation or (v) acquire stock, extend credit, pay
dividends, lend money or invest in any manner in any other businesses. SEC
approval under PUHCA also will be required for certain proposed transactions
relating to the Transaction. As part of the SEC approval process, PUHCA also
limits the ability of registered holding companies to engage in non-utility
ventures and regulates holding company system service companies and the
rendering of services by holding company affiliates to the system's utilities.
The SEC may require, as a condition to its approval of the Transaction, that
WEC and NSP divest their gas utility properties and possibly certain non-
utility ventures within a reasonable time after the Transaction is
consummated. In a few cases, the SEC has allowed the retention of such
properties or deferred the question of divestiture for a substantial period of
time. In those cases in which divestiture has taken place, the SEC has
usually allowed enough time to complete the divestiture so as to allow the
applicant to avoid a "fire sale" of the divested assets. WEC and NSP believe
strong policy reasons and prior SEC decisions exist which support their
retaining their existing gas utility properties and non-utility ventures, or,
alternatively, which support deferring the question of divestiture for a
substantial period of time. Accordingly, WEC and NSP will request in their
merger application with the SEC that WEC and NSP be allowed to retain, or in
the alternative, that the question of divestiture be deferred with respect to,
WEC's and NSP's existing gas utility properties and non-utility ventures.
Also, regulatory authorities may require the restructuring of transmission
system operations or administration. WEC currently cannot determine if such
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ITEM 1. BUSINESS - Merger Agreement with NSP - (cont'd)
restructuring will be required. In addition, Wisconsin State law limits the
total assets of non-utility affiliates of Primergy, which could affect the
amount of non-utility operations. See Item 1. BUSINESS - "NON-UTILITY
OPERATIONS" below.
Subject to the qualifications expressed below, WEC and NSP believe that
synergies from the Transaction will generate substantial cost savings to
Primergy, which would not be available absent the Transaction. Preliminary
estimates by the managements of WEC and NSP indicate that the Transaction
could result in potential net cost savings (that is, after taking into account
the costs incurred to achieve such savings) of approximately $2 billion during
the ten-year period from 1997 through 2006 assuming that the Transaction is
consummated at the beginning of 1997. Achieved savings in costs are expected
to inure to the benefit of both shareholders and customers. The treatment of
the benefits and cost savings will depend on the results of regulatory
proceedings in the various jurisdictions in which WEC and NSP operate their
businesses.
The analyses employed in order to develop estimates of potential savings as a
result of the Transaction were necessarily based upon various assumptions that
involve judgements with respect to, among other things, future national and
regional economic and competitive conditions, inflation rates, regulatory
treatment, weather conditions, financial market conditions, future business
decisions and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of WEC and NSP. Accordingly, while WEC
and NSP believe that such assumptions are reasonable for purposes of the
development of estimates of potential savings, there can be no assurance that
such assumptions will approximate actual experience or that such savings will
be realized. The parties have proposed certain utility rate reductions and
rate freezes in connection with the Transaction. See Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"RESULTS OF OPERATIONS - Mergers."
On September 13, 1995, the stockholders of WEC and NSP voted to approve the
merger. The Merger Agreement is subject to various conditions including
approval by all applicable regulatory authorities. Subject to obtaining all
requisite approvals, WEC and NSP anticipate completing the Transaction by
January 1, 1997.
The future operations and financial position of WEC will be significantly
affected by the Transaction. Unaudited pro forma combined condensed financial
information for Primergy at December 31, 1995 and for the twelve months then
ended is included in this report following Item 14. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Additional information may be
found in Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS - "DIVIDEND POLICY OF PRIMERGY", in Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF
OPERATIONS - Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL
STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ELECTRIC UTILITY OPERATIONS
Electric energy sales by WE in 1995, to all classes of customers, totaled
approximately 27.3 billion kilowatt-hours, a 1.4% increase over 1994. On
July 31, 1995, WE reached a new all-time electric peak demand of 5,368
megawatts during a period of unusually hot and humid weather. The previous
record peak demand prior to the summer of 1995 of 4,950 megawatts was set on
June 14, 1994. Electric energy sales are impacted by seasonal factors and
varying weather conditions from year-to-year.
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ITEM 1. BUSINESS - Electric Utility Operations - (cont'd)
There were 955,616 electric customers at December 31, 1995, an increase of
1.1% since December 31, 1994. For further information by customer class, see
"Electric Revenues, Kilowatt-Hour Sales and Customer Statistics" in Item 6.
SELECTED FINANCIAL DATA.
In 1995, WE's net generation amounted to approximately 26.7 billion kilowatt-
hours. Generation was supplemented with approximately 2.3 billion kilowatt-
hours purchased from neighboring utilities and, to a minor extent, from other
sources. The dependable capability of WE's generating stations was 5,619
megawatts in August 1995 as more fully described in Item 2. PROPERTIES.
Paris Generating Station: During 1995, WE placed in service four units of
approximately 300 megawatts of capacity at its Paris Generating Station
("Paris"). This natural gas-fired combustion turbine facility, located near
Union Grove, Wisconsin, is designed to meet peak demand requirements. Capital
costs of the Paris facility will total approximately $105 million. For
additional information, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL
RESOURCES - Investing Activities."
The supply of natural gas to operate Paris and WE's Concord Generating Station
("Concord"), a natural gas-fired combustion turbine facility located near
Watertown, Wisconsin, is delivered by the WEGO. See Item 1. BUSINESS -
"SOURCES OF GENERATION - Natural Gas (for Electric Generation)" below.
LS Power Generation Facility: In accordance with a PSCW order issued in
November 1993, after completing a capacity-related competitive bidding
process, WE signed a long-term agreement to purchase the electricity that
would be generated from a 215 megawatt cogeneration facility planned to be
constructed by an unaffiliated independent power producer ("IPP"), LSP-
Whitewater L.P. ("LS Power"). The agreement is contingent upon the facility
being completed and going into operation, which at this time is planned for
mid-1997. For additional information, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000."
PSCW Advance Plan 7: In January 1994, WE filed with the PSCW its long-term
load and supply plan as part of the Advance Plan 7 Docket. In the Advance
Plan process, the regulated electric utilities located in Wisconsin file, for
planning purposes, long-term forecasts of future resource requirements along
with plans to meet those requirements, including the planned implementation of
energy management and conservation programs ("demand-side savings"). In
addition to specifying the expectations of conservation and load management
programs, the plan filed with the PSCW indicated a need for additional peaking
and intermediate load capacity during the 20-year planning period. WE does
not anticipate needing additional base load generation until after 2010. The
PSCW approved WE's Advance Plan 7 in December 1995. For additional
information regarding Advance Plans, see Item 1. BUSINESS - "REGULATION" below
and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital
Requirements 1996-2000."
In Advance Plan 7, WE estimated peak demand in the year 2005 to be about 5,270
megawatts excluding the requirements of the Wisconsin Public Power, Inc.
System ("WPPI"), WE's largest municipal power agency customer. This estimate
assumes, among other factors, moderate growth in the economy and normal
weather. This estimate does not, however, reflect any potential modifications
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ITEM 1. BUSINESS - Electric Utility Operations - (cont'd)
to the current regulatory environment. Investments in demand-side management
("DSM") programs have reduced and delayed the need to add new generating
capacity but have not eliminated the need entirely. Purchases of power from
other utilities and transmission system upgrades will also combine to help
delay the need to install some new generating capacity in the future. WE
plans to make continued expenditures for conservation-related programs during
this period. For additional information about WPPI, see Item 1. BUSINESS -
"Sales to Wholesale Customers" below.
The addition of new generating units requires approval of the PSCW following a
two-stage bidding process, which could influence whether WE would construct
such facilities or purchase the required power. The United States
Environmental Protection Agency ("EPA") and the Wisconsin Department of
Natural Resources ("DNR") also must approve new generating units. All
proposed generating facilities will meet or exceed the applicable federal and
state environmental requirements. For further information regarding future
capacity additions, see Item 1. BUSINESS - "REGULATION" below.
For information regarding estimated costs of WE's construction program for the
five years ending December 31, 2000, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000." All estimates of
construction expenditures exclude Allowance For Funds Used During
Construction. For additional information regarding matters related to
Allowance for Funds Used During Construction, see Note E - "Allowance for
Funds Used During Construction" in the NOTES TO FINANCIAL STATEMENTS in Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Milwaukee County Power Plant: In December 1995, WE signed an agreement with
Milwaukee County to purchase the Milwaukee County Power Plant located in
Wauwatosa, Wisconsin. The 11 megawatt power plant provides steam, chilled
water and electricity for the Milwaukee Regional Medical Center and several
other large customers located on the Milwaukee County grounds. WE had
previously obtained approval from the PSCW for the purchase of the electric
generation and distribution facilities and acquired them in December 1995 with
a capital expenditure of $7 million. As part of the agreement, WE will also
acquire in 1996 the steam facilities and a non-utility affiliate of WEC will
acquire the chilled water facilities from Milwaukee County. Purchase of the
steam and chilled water portions of the plant is contingent upon PSCW approval
to acquire the steam facilities and upon the five major customers signing ten-
year steam and chilled water service agreements. See Item 1. BUSINESS -
"STEAM UTILITY OPERATIONS" and "NON-UTILITY OPERATIONS" below as well as Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital Requirements 1996-
2000."
PSCW Electric Utility Investigation: The PSCW has conducted an investigation
into the state of the electric utility industry in Wisconsin, particularly its
institutional structure and regulatory regime, in order to evaluate what
changes would be beneficial for Wisconsin. The PSCW stated that this
investigation may result in profound and fundamental changes to the nature and
regulation of the electric utility industry in Wisconsin. For additional
information and related matters, see Item 1. BUSINESS - "REGULATION" below and
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates and Regulatory
Matters."
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ITEM 1. BUSINESS - Electric Utility Operations - (cont'd)
Wisconsin Electric Revitalization: In response to increasing competitive
pressures in the markets for electricity and natural gas, WE implemented a
revitalization process to increase efficiencies and improve customer service
by reengineering and restructuring the organization. The new structures
consolidated many business functions and simplified work processes. Due to
productivity improvements from the Revitalization program, staffing levels at
WE have been reduced during 1994 and 1995; 403 employees retired under an
early retirement option and 726 employees enrolled in severance packages. See
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Wisconsin Electric
Revitalization" and Note K - "Benefits Other Than Pensions" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
SOURCES OF GENERATION
The table below indicates sources of energy generation by WE for the year
ended December 31:
==============================================================================
1993 1994 1995 1996*
------ ------ ------ ------
Coal 67.0% 69.0% 70.3% 71.9%
Nuclear 30.8 29.0 26.9 25.2
Hydro-electric 1.7 1.4 1.6 1.5
Natural Gas 0.4 0.5 1.1 1.3
Oil 0.1 0.1 0.1 0.1
------ ------ ------ ------
TOTAL 100.0% 100.0% 100.0% 100.0%
==============================================================================
* Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs. See Item 1. BUSINESS - "SOURCES OF
GENERATION - Nuclear" and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS -
Capital Requirements 1996-2000" for discussion of matters related to Point
Beach Nuclear Plant.
WE's average total fuel costs per million BTU's by fuel type for the year
ended December 31 are shown below:
==============================================================================
1993 1994 1995
------ ------ ------
Coal $ 1.26 $ 1.26 $ 1.28
Nuclear 0.39 0.39 0.43
Natural Gas 3.02 2.54 2.21
Oil 4.94 4.33 5.32
==============================================================================
Coal
WE diversifies its coal sources by purchasing from Northern Appalachia, the
Southern Powder River Basin (Wyoming) and the Raton Basin (New Mexico) mining
districts for the power plants in Wisconsin, and from the Uinta Region
(Colorado), central Appalachia and western mines for the Presque Isle Power
Plant in Michigan.
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ITEM 1. BUSINESS - Sources of Generation - (cont'd)
Approximately 75% of WE's 1996 coal requirements are expected to be delivered
by WE-owned unit trains. The unit trains will transport coal for the Oak
Creek and Pleasant Prairie Power Plants from Pennsylvania, New Mexico and
Wyoming mines. Coal from Pennsylvania mines is also transported via rail to
Lake Erie transfer docks and delivered to the Valley and Port Washington Power
Plants by lake vessels. Montana coal for Presque Isle is transported via rail
to Superior, Wisconsin, placed in dock storage and reloaded into lake vessels
for plant delivery. The Presque Isle central Appalachian origin and Colorado
origin coal is shipped via rail to Lake Erie and Lake Michigan (Chicago) coal
transfer docks, respectively, for lake vessel delivery to the plant. WE's
1996 coal requirements, projected to be 10.0 million tons, are 97% under
contract. WE does not anticipate any problem in procuring its remaining 1996
requirements through short-term or spot purchases and inventory adjustments.
Pleasant Prairie Power Plant: All of the estimated 1996 coal requirements at
this plant are presently covered by three long-term contracts.
Oak Creek Power Plant: All of the estimated 1996 coal requirements for this
plant are covered by one long-term contract and two short-term contracts. A
significant coal cost decrease is anticipated with the blending of lower cost
Wyoming sub-bituminous coal with bituminous coals.
Presque Isle Power Plant: This plant has six generating units designed to
burn bituminous coal and three other units designed to burn sub-bituminous
coal. The units burning sub-bituminous coal are supplied by one long-term
contract and two medium-term contracts, the annual volumes of which are
anticipated to be adequate to cover coal requirements through 1996.
Bituminous coal is generally purchased through one-year contracts from central
Appalachia and under a five-year contract for the Colorado origin coal.
Edgewater 5 Generating Unit: Coal for this unit, in which WE has a 25%
interest, is purchased by Wisconsin Power and Light Company, a non-affiliated
utility, which is the majority owner of the facility.
Valley and Port Washington Power Plants: These plants are both supplied
through a long-term contract that, in combination with coal supplied to WE's
other Wisconsin plants, allows the plants to meet the requirements of the
Wisconsin acid rain law. In the event of further air quality emission
requirements affecting these plants, the contract can be terminated without
liability.
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<PAGE> 12
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
The periods and annual tonnage amounts for WE's principal coal contracts are
as follows:
==============================================================================
Contract Period Annual Tonnage
--------------- --------------
Nov. 1987 to Dec. 1997 500,000(A)
Jan. 1980 to Dec. 2006 2,000,000
Jul. 1983 to Dec. 2002 1,000,000
Apr. 1990 to Nov. 1996 375,000(B)
Jan. 1992 to Dec. 2005 2,200,000
Oct. 1992 to Sep. 2007 800,000
Sep. 1994 to Aug. 1999 500,000
==============================================================================
(A) The contract can be extended if the total volume has not been
purchased by the respective termination dates.
(B) Annual volume can be increased to meet requirements for the Port
Washington and Valley Power Plants above the 375,000 ton volume
indicated herein.
For information regarding emission restrictions, see Item 1. BUSINESS -
"ENVIRONMENTAL COMPLIANCE" below.
Nuclear
WE purchases uranium concentrates ("yellowcake") and contracts for its
conversion, enrichment and fabrication. WE maintains title to the nuclear
fuel until the fabricated fuel assemblies are delivered to the Point Beach
Nuclear Plant ("Point Beach"), whereupon it is sold to and leased back from
the Wisconsin Electric Fuel Trust ("Trust"). See Note F - "Nuclear
Operations" in the NOTES TO FINANCIAL STATEMENTS in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Uranium Requirements: WE requires approximately 450,000 pounds of yellowcake
annually for its two units at Point Beach. Uranium requirements through 1997
will be provided from a combination of existing contracts with Malapai
Resources Company (of Arizona); Energy Resources of Australia, Ltd.; and Nukem
Inc. (U.S.). WE may exercise flexibilities in these contracts and purchase
certain quantities of uranium on the spot-market, should market conditions
prove favorable. WE believes that adequate supplies of uranium concentrates
will be available to satisfy current and future operating requirements.
Under a contract with Nuexco Trading Corporation, WE was to receive 200,000
pounds of uranium concentrates on specified delivery dates in 1995 at
conversion facilities in the United States or Canada in exchange for the
transfer to Nuexco of an identical quantity of concentrates held by WE at the
conversion facilities of Comurhex in France. However, Nuexco is in default
under the contract and has filed for bankruptcy law protection. Upon
completion of review of various options available for use of the concentrates
located at Comurhex, WE decided to sell this material. A sales contract was
executed between WE and a uranium broker in December 1995.
Conversion: WE has a conversion contract with the Cameco Corporation, to
provide for up to 100 percent of conversion requirements for the Point Beach
reactors from 1996 through 1999. Cameco is a Canadian based corporation
located in Saskatoon, Saskatchewan, and is a major producer of uranium
concentrates.
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<PAGE> 13
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
Enrichment: WE currently has a Utility Services Contract with the United
States Department of Energy ("DOE") for 70% of the enrichment services
required for the operation of both of the Point Beach units. The contract can
provide enrichment services for the entire operating life of each unit. For a
discussion of litigation involving the Utility Services Contract, see Item 3.
LEGAL PROCEEDINGS - "OTHER LITIGATION - Uranium Enrichment Charges".
Responsibility for administering this contract and for enrichment services was
transferred from the DOE to U.S. Enrichment Corporation ("USEC") under the
Energy Policy Act of 1992. In March 1992, WE entered into an agreement with
Global Nuclear Services and Supply Limited, an international supplier of
enrichment services, for the remaining 30% of enrichment service requirements.
Fabrication: Fabrication of fuel assemblies from enriched uranium for Point
Beach is covered under a contract with Westinghouse Electric Corporation for
the balance of the plant's current operating license. During 1995, an
agreement was reached between WE and Westinghouse to supply WE with a new fuel
design beginning in the fall 1997. The new fuel design is expected to provide
additional safety margin, cost savings and reduce the number of discharged
spent fuel assemblies over the remaining operating license.
Spent Fuel Storage and Disposal: WE currently has the capability to store
certain amounts of spent nuclear fuel at Point Beach. Previous modifications
to the storage facilities at Point Beach had made it possible to accommodate
all spent fuel expected to be discharged from the reactors through 1995 while
maintaining the capability for one full core off-load. In accordance with the
provisions of the Nuclear Waste Policy Act of 1982, which requires the DOE to
provide for the disposal of spent fuel from all U.S. nuclear plants, WE
entered into a disposal contract providing for deliveries of spent fuel to the
DOE for ultimate disposal commencing in January 1998. It is anticipated that
the DOE will be unable to accept spent fuel by the 1998 timeframe as
contracted.
In November of 1991, WE filed an application with the PSCW for authority to
construct and operate an Independent Spent Fuel Storage Installation
("ISFSI"). The ISFSI provides interim dry cask storage until the DOE begins
to remove spent fuel from Point Beach in 1998 in accordance with the terms of
the contract it has with WE. Public hearings on the proposed project were
held during October 1994. On February 13, 1995, WE received a Certificate of
Authority from the PSCW to construct and operate the ISFSI for 12 storage
casks, which will handle the storage requirements until 1998. Should the DOE
be unable to begin taking ownership of and removing the spent fuel in 1998, WE
will need to construct additional casks and will seek PSCW approval to do so.
Construction of the ISFSI was completed in June 1995 and the first cask,
containing 24 spent fuel assemblies, was loaded and moved to the ISFSI during
December 1995. Transfer of additional spent fuel to the ISFSI has been
temporarily suspended by WE pending further action by the PSCW as described
below.
In March 1995 separate petitions were filed by intervenors in Dane County
Circuit Court and Fond du Lac County Circuit Court. The two petitions were
ultimately combined into one petition in Dane County Circuit Court ("Court").
The Dane County petition sought reversal of the order and a remand to the PSCW
directing it to deny WE's request for authorization to construct the dry cask
facility, or in the alternative, to correct the alleged errors in the PSCW's
order. On December 22, 1995, the Court issued a decision vacating and
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<PAGE> 14
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
remanding the February 1995 order of the PSCW, stating that the Environmental
Impact Statement prepared by the PSCW for this project was inadequate in two
respects. First, it did not adequately analyze the environmental impacts from
storage of spent fuel for a sufficient duration; second, it did not
sufficiently evaluate the alternative of employing a combination of renewable
energy sources and conservation in lieu of continued operation of Point Beach
beyond 1998. The Court also held that the PSCW failed to make the findings of
fact and conclusions of law, based on the record, demonstrating that it
properly considered the priorities of conservation, renewable and other energy
sources over nuclear sources to the extent cost effective, technically
feasible and environmentally sound. The PSCW issued two Supplemental
Environmental Impact Statements which address the deficiencies found by the
Court and held related hearings in February and March 1996. See Item 1.
BUSINESS - "SOURCES OF GENERATION - Point Beach Unit 2 Steam Generators" below
for related discussion and cross-references to additional information in this
report.
Point Beach Nuclear Plant: Point Beach provided 26.9% of WE's net generation
in 1995. The plant has two generating units which had a combined dependable
capability of 973 megawatts in August 1995 and which together constituted
17.3% of WE's dependable generating capability. As a result of degradation of
some of the tubes within the Unit 2 steam generators, the power level of Unit
2 has been administratively reduced by 10% to provide operating reliability
until the steam generators can be replaced, which is expected to occur in the
fall of 1996. See Item 1. BUSINESS - "SOURCES OF GENERATION - Point Beach
Unit 2 Steam Generators" below. The United States Nuclear Regulatory
Commission ("NRC") licenses for Point Beach Units 1 and 2 expire October 5,
2010 and March 8, 2013, respectively.
The NRC has, at various times, directed that certain inspections,
modifications and changes in operating practices be made at all nuclear
plants. At Point Beach, such inspections have been made and necessary changes
to equipment and in operating practices have either been completed or are
expected to be completed within the time schedules permitted by the NRC or
within approved extensions thereof. Good performance of Point Beach was
recognized by the Institute of Nuclear Power Operations ("INPO") with the
awarding of an INPO 1 rating to Point Beach in November 1995.
WE has initiated certain plant betterment projects at Point Beach that are
judged to be appropriate and beneficial. Construction is progressing on the
addition of two safety-related emergency diesel powered electrical generators
with installation to be completed in 1996.
Point Beach Unit 2 Steam Generators: On October 1, 1992, WE filed an
application with the PSCW for the replacement of the Unit 2 steam generators,
which would allow for the unit's operation until the expiration of its
operating license in 2013. This project is estimated to cost $96 million.
(In 1984 WE replaced the Unit 1 steam generators.) In an Interim Order dated
February 13, 1995, the PSCW deferred the decision on the steam generator
replacements until after the refueling outage in September 1995. The PSCW
directed WE to make suitable arrangements with the fabricator of the new steam
generators to allow the fabrication, delivery and replacement to proceed
promptly if authorized by the PSCW as a result of further investigation. The
reasonable costs of such arrangements to maintain a place in line with the
fabricator will be afforded rate recovery. Work on the Unit 2 replacement
steam generators has continued such that delivery in July of 1996 can occur in
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<PAGE> 15
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
order to meet the schedule requirements for a fall 1996 replacement. In early
February 1996, the PSCW conducted hearings on a Supplemental Environmental
Impact Statement concerning the Unit 2 steam generator replacement and the
need for such replacement taking into account the information gained from
inspections conducted during the fall 1995 refueling and maintenance outage.
WE anticipates that the PSCW will issue a combined final order on replacement
of the Unit 2 steam generators and the remanded dry cask storage matters
discussed above in May 1996. Failure by the PSCW to approve the steam
generator replacements and resolve the remanded issues could jeopardize the
continued operation of Point Beach and materially affect WE's financial
position and results of operations due to the need to replace the lost
generating capacity. WE would likely seek regulatory relief to minimize such
impact. For additional information, see Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000" and Note F - "Nuclear
Operations" in the NOTES TO FINANCIAL STATEMENTS in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
Decommissioning Fund: Pursuant to a 1985 PSCW order, amended in 1994, WE
provides for costs associated with the eventual decommissioning of Point Beach
through the use of an external trust fund. Payments to this fund, together
with investment earnings, brought the balance in the trust fund on
December 31, 1995 to approximately $275 million. For additional information
regarding decommissioning see Note F - "Nuclear Operations" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Nuclear Plant Insurance: For information regarding matters pertaining to
nuclear plant insurance, see Note F - "Nuclear Operations" in the NOTES TO
FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Hydroelectric
WE has various licenses from the FERC for its hydroelectric generating
facilities that expire during the period 1998 to 2004. In February 1996, WE
filed a final application for its largest hydro facility, Big Quinnesec Falls,
which has a license expiring in 1998. During 1995, FERC issued 30 and 40 year
licenses to the Pine and Brule Hydroelectric projects, respectively. The
Draft Environmental Impact Statement for the White Rapids and Chalk Hill
Hydroelectric Projects was published by FERC in November 1995. These two
projects continue to operate under annual licenses. The three hydro
facilities, Oconto Falls, Sturgeon and Weyauwega, with a total of 2.5
megawatts installed capacity, that WE decided not to relicense in 1993 are
still being operated by WE under annual licenses until FERC determines their
disposition. WE continues to consult with the U.S. Fish and Wildlife
Service, DNR, Michigan Department of Natural Resources ("MDNR"; now the
Michigan Department of Environmental Quality ("MDEQ")) and the National Park
Service in conjunction with the licensing process. Hydroelectric facilities
provided approximately 1.6% of WE's total energy generation in 1995.
Natural Gas (for Electric Generation)
Concord, Paris and the Oak Creek combustion turbine use natural gas as their
primary fuel, with Number 2 fuel oil as backup. Natural gas for Concord and
the Oak Creek gas turbines is purchased directly from the WEGO at tariff
rates. Gas for Paris is purchased on the spot market - from gas marketers
and/or producers - and delivered on the WEGO local distribution system.
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<PAGE> 16
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
A balancing and storage agreement with ANR Pipeline facilitates the variable
gas usage pattern of Paris.
Natural gas for boiler ignition and flame stabilization purposes for the
Pleasant Prairie, Oak Creek, and Valley Power Plants is purchased under an
agency agreement with a gas marketing company. The agent purchases natural
gas and arranges for interstate pipeline transportation to the local gas
distribution utility. The local gas distribution utilities then transport
WE's gas to each plant under interruptible tariffs. WEGO is the distribution
utility for Pleasant Prairie and Oak Creek. Wisconsin Gas Company, a non-
affiliated company, is the distribution utility for the Valley Power Plant.
Oil
Fuel oil is used for the combustion turbines at Point Beach, Germantown and
Port Washington Power Plants. It is also used for boiler ignition and flame
stabilization at the Presque Isle Power Plant and as backup for ignition for
Pleasant Prairie and as a backup fuel for the natural gas fired gas turbines,
as discussed above. Fuel oil requirements are purchased under partnering
agreements with suppliers that assist WE with inventory tracking and oil
market price trends.
Interconnections with Other Utilities
WE's system is interconnected at various locations with the systems of Madison
Gas and Electric Company, Wisconsin Power and Light Company, Wisconsin Public
Service Corporation, Commonwealth Edison Company ("Commonwealth Edison"), NSP
and Upper Peninsula Power Company ("UPPCO"). These interconnections provide
for interchange of power to assure system reliability as well as facilitating
access to generating capacity and the transfer of energy for economic
purposes.
WE is a member of Wisconsin-Upper Michigan Systems ("WUMS"), a coordinating
group which includes four other electric companies in Wisconsin and Upper
Michigan. WUMS, in turn, is a member of Mid-America Interconnected Network
("MAIN"), which is one of nine regional members of the North American Electric
Reliability Council. Membership in these groups permits better utilization of
reserve generating capacity and coordination of long-range system planning and
day-to-day operations.
In March 1994, WE executed a transmission service agreement with Commonwealth
Edison that allows WE to purchase energy from southern Illinois and Indiana
suppliers, using the Commonwealth Edison transmission system to import such
energy into Wisconsin.
A transmission service agreement has been executed to allow WE to reserve
capacity and import energy from members of the Mid-Continent Area Power Pool
("MAPP"), a group consisting of electric utilities generally located west of
Wisconsin including NSP. Considerable non-firm energy is expected to be
purchased from MAPP members over the next several years.
In February 1996, WE and five other Midwest utilities announced that they had
agreed to pursue the development of an independent organization, the Midwest
Independent System Operator ("ISO"), which would be responsible for ensuring
nondiscriminatory open transmission access and the planning and security of
the combined bulk transmission systems of the utilities. In addition to WE,
the utilities signing a memorandum of understanding are American Electric
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<PAGE> 17
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
Power Co., Centerior Energy Corp., Cinergy Corp., Detroit Edison Co. and
Northern Indiana Public Service Company. The other transmission owners of the
East Central Area Reliability Council ("ECAR") and MAIN will be invited to
participate in the development of the Midwest ISO. Plans for the Midwest ISO
are expected to be filed with the FERC in late 1996 and would be implemented
in stages after approval.
Sales to Wholesale Customers
WE currently provides wholesale electric energy to five municipally owned
systems, three rural cooperatives, two municipal joint action agencies and one
isolated system of an investor-owned utility in Wisconsin, Illinois, and the
Upper Peninsula of Michigan under rates approved by the FERC. Sales to these
wholesale customers accounted for 5.0% of total kilowatt-hour sales in 1995.
Under two agreements, service is being provided subject to a seven-year notice
of cancellation from WPPI. WE also has an eight-year power supply agreement
with the Badger Power Marketing Authority ("BPMA"). Sales to the BPMA and
WPPI combined are expected to account for approximately one half of the
wholesale sales for 1996.
Service to UPPCO, under a 65 megawatt agreement which expires on
December 31, 1997, accounted for 20% of 1995 wholesale sales. In October
1993, UPPCO announced that it had reached an agreement in principle with NSP
to purchase up to 90 megawatts of base-load electric energy beginning in 1998.
WE expects to apply the 65 megawatts of capacity toward the electric energy
needs of new customers and toward the overall increase in system supply needs
anticipated by 1998.
During 1995, sales to wholesale customers declined 5.6% from 1994, largely the
result of reductions in sales to WPPI. WPPI has been reducing its purchases
from WE subsequent to acquiring generation capacity in 1990. Sales to WPPI
during 1993, 1994 and 1995 were approximately 944,000 megawatt-hours ("Mwh"),
725,000 Mwh and 627,000 Mwh, respectively. Further reductions are expected as
WPPI installs additional capacity. These sales reductions are not expected to
have a significant effect on future earnings. Under the provisions of a long-
term agreement, WE will continue to provide transmission services to WPPI.
WE's existing FERC tariffs also provide for transmission service to its
wholesale customers. During 1995, WE had nine customers taking transmission
service. For further information see Item 1. BUSINESS - "REGULATION" below.
In October 1992, the Energy Policy Act was signed into law. Passage of this
law has removed encumbrances and facilitates the entry of power producers and
power marketers into the already competitive bulk power market. Notable among
its provisions are the creation of a new class of energy producer called
Exempt Wholesale Generators ("EWGs"), who are exempt from the requirements of
PUHCA, and the rights that the Energy Policy Act provides them and utilities
to request a FERC order directing the provision of transmission service if
denied transmission access from utilities. The transmission aspects of this
law are expected to have little impact on WE since it has had open access
transmission tariffs on file with the FERC since 1980.
During 1995, WE reached agreement on new contracts of five or ten years in
length with four wholesale customers accounting for a total of 61.4 MW. Each
contract contained substantial discounts from previous rates. UPPCO, a fifth
8 MW wholesale customer, opted to obtain power supplies from another utility
for its Iron River System. Two other wholesale customers, accounting for a
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<PAGE> 18
ITEM 1. BUSINESS - Sources of Generation - (cont'd)
total of 18 MW, have not yet made decisions on their choice of power supply.
WE is actively pursuing wholesale customers who are currently supplied by
other utilities.
In December 1995, WEC and NSP entered into a settlement agreement with certain
municipal Wisconsin intervenors that ended the latters' participation in the
FERC and state merger proceedings with respect to the Transaction. The
settlement agreement, which provides for certain rate reductions on power
sales and transmission services, is pending FERC action. See Item 1. BUSINESS
- - "MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" above for additional
information about the Merger Agreement with NSP.
The electric utility industry continues to become increasingly competitive.
Some municipal utilities are approaching competing utilities in a search for
lower energy prices. Additionally, some large industrial customers are
seeking regulatory changes that could permit retail wheeling to allow them to
seek proposals for energy from alternate suppliers. IPPs are also exploring
cogeneration projects which would provide process steam to customers in WE's
service territory and sell electricity to WE. Consequently, electric
wholesale and large retail customers of WE or other non-affiliated utilities
may determine, from time to time, to switch energy suppliers, purchase
interests in existing power plants or build new generating capacity, either
directly or through joint ventures with third parties. The advent of EWGs can
be expected to accelerate this practice. For additional information, see Item
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital Requirements 1996-
2000."
GAS UTILITY OPERATIONS
Effective January 1, 1996, WEC merged its natural gas utility subsidiary,
Wisconsin Natural Gas Company ("WN"), into WE to form a single combined
utility subsidiary. In 1995, WE and WN obtained approval of the merger by the
PSCW as well as consent of the Michigan Public Service Commission ("MPSC") for
WE to assume WN's liabilities. The merger, approved by the stockholders of WE
in December 1994, is expected to improve customer service and reduce future
operating costs. Where applicable, references to WE include WN prior to the
merger.
Effective January 1, 1994, Wisconsin Southern Gas Company, Inc. ("WSG") was
acquired by WEC through a statutory merger of WSG into WN. WE continues to
use the acquired facilities of WSG for the distribution and transportation of
natural gas. For additional information, see Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF
OPERATIONS - Mergers."
Total gas therms delivered by WE, including customer-owned gas transported,
increased 9.3% in 1995 compared to 1994, reflecting primarily colder winter
weather during 1995, which increased heating load, and warmer summer weather
during 1995, which increased deliveries to electric peak generation stations.
During 1995, approximately 6% of total deliveries were on interruptible rates.
WE's maximum daily send-out in 1995 was 630,823 Dths. A dekatherm ("Dth") is
equivalent to ten therms or one million British Thermal Units ("BTU"). Sales
of gas fluctuate with the heating cycle of the year and are also impacted by
varying weather conditions from year-to-year.
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<PAGE> 19
ITEM 1. BUSINESS - Gas Utility Operations - (cont'd)
The WEGO has entered into more than 45 gas service contracts for supply,
pipeline capacity, underground storage and balancing services. Contracts vary
in term from less than one year to ten years. Gas supply contracts contain
pricing options that allow pricing at market rates or the ability to fix
future prices for varying terms which the WEGO can exercise to manage the risk
of substantial market price fluctuations. The gas from these contracts is
used to meet customer requirements on a daily basis and to fill storage during
the warm months to be withdrawn from storage during the heating season in
order to meet system gas demands.
The use of storage increases the load factor of supply contracts and allows
the WEGO to take advantage of seasonal price differentials. The WEGO has
eight firm gas storage agreements that allow daily withdrawals of 313,608 Dths
and an annual capacity of 23 million Dths. The initial terms of these
contracts vary with the last one expiring in October 2003. This storage
effectively replaces storage used by the pipeline companies to provide gas
sales service to the WEGO in the pre-FERC Order 636 environment. Gas stored
at these facilities is purchased by the WEGO from a number of suppliers.
The WEGO has 12 transportation contracts, the last of which expires in 2003,
that it uses to meet daily customer requirements and to inject and withdraw
from gas storage. In each case, subject to certain provisions, the WEGO can
extend the terms of these contracts at the time the agreements would otherwise
expire.
The WEGO also has three contracts for salt dome storage that provide gas
supply backup in the event of well freeze-off or other loss of supply.
The WEGO transports gas for its customers who purchase gas directly from other
suppliers. Transported gas accounted for approximately 32% of total therms
delivered during 1995, 30% during 1994 and 31% during 1993.
There were 357,030 natural gas customers at December 31, 1995, an increase of
approximately 2.9% since December 31, 1994. For further information by
customer class, see "Gas Revenues, Therms Delivered and Customer Statistics"
in Item 6. SELECTED FINANCIAL DATA.
The WEGO delivers natural gas to WE's Concord and Paris Combustion Turbine
Power Plants. Deliveries to these peaking power plants are at rates approved
by the PSCW. See Item 1. BUSINESS - "SOURCES OF GENERATION - Natural Gas (for
Electric Generation)" above.
In 1995, the PSCW issued WE a certificate for construction of a gas pipeline
to provide gas transportation service to LS Power's proposed Whitewater
cogeneration facility. For additional information, see Item 1. BUSINESS -
"ELECTRIC UTILITY OPERATIONS" above.
SALES TO LARGE CUSTOMERS
WE provides utility service to a diversified base of industrial customers.
Major industries served by the electric operations include the iron ore mining
industry, the paper industry, the machinery production industry, the foundry
industry and the food products industry. The Empire and Tilden iron ore
mines, the two largest electric customers of WE, accounted for 4.5% and 3.9%,
respectively, of total electric kilowatt-hour sales in 1995. Sales to the
- 19 -
<PAGE> 20
ITEM 1. BUSINESS - Sales to Large Customers - (cont'd)
mines were 0.5% lower in 1995 compared to 1994. In January 1996, new power
purchase agreements were executed with both mines which extend the term of the
agreements by five years, through December 31, 2002. See Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "RESULTS OF OPERATIONS - Electric Revenues, Gross Margins and
Sales." Major industries served by the WEGO include the paper industry, the
food products industry and the fabricated metal products industry. During
1995, WE's electric operations was the largest gas customer using 2.4% of
total therm deliveries. No single retail customer of the gas utility
accounted for more than 2.1% of total gas therms sold and transported in 1995.
STEAM UTILITY OPERATIONS
WE operates a district steam system in Downtown Milwaukee and the near
southside of Downtown Milwaukee. Steam is used by 473 customers for
processing, space heating, domestic hot water and humidification. Annual
sales of steam fluctuate from year to year based on system growth and
variations in normalized weather conditions. Steam is supplied to the system
from WE's Valley Power Plant, a coal-fired cogeneration facility.
The steam system consists of approximately 30 miles of both high pressure and
low pressure steam piping, 3.8 miles of walkable tunnels and other pressure
regulating equipment. Steam sales in 1995 were 2.53 billion pounds of steam
as compared to 2.39 billion pounds sold in 1994, an increase of 5.8%.
Milwaukee County Power Plant: WE has entered into an agreement with Milwaukee
County to acquire in 1996 the steam production and distribution facilities of
the Milwaukee County Power Plant located on the Milwaukee County Grounds in
Wauwatosa, Wisconsin. WE plans to integrate these facilities into its current
steam utility operations. This acquisition is contingent upon approval of the
PSCW and upon the five major customers signing ten-year steam service
agreements. See Item 1. BUSINESS - "ELECTRIC UTILITY OPERATIONS" above and
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Capital
Requirements 1996-2000."
NON-UTILITY OPERATIONS
WEC non-utility subsidiaries include the following:
WISPARK Corporation develops and invests in real estate projects within WEC's
utility subsidiary's service territories. WISPARK is 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. WISPARK has developed 500 acres for a total
of 47 companies in LakeView during its first seven years. WISPARK is also
developing another business park in the City of Kenosha in addition to
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.
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<PAGE> 21
ITEM 1. BUSINESS - Non-Utility Operations - (cont'd)
WITECH Corporation ("WITECH") is a venture capital company operating in
Wisconsin and the Upper Peninsula of Michigan. At December 31, 1995, WITECH
had investments in 17 companies and 3 funds totaling more than $44 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.
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.
Minergy Corp., formerly a subsidiary of WITECH, is engaged in the business of
developing and marketing proprietary technologies designed to convert high
volume industrial and municipal wastes into value-added products. Minergy is
proposing to build a $45 million facility in Neenah, Wisconsin that would
recycle paper sludge from area paper mills into two usable and sellable
products: glass aggregate and steam. The plant will also provide substantial
environmental and economic benefits to the area by providing a beneficial
alternative to landfilling paper sludge. See Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Nonutility Investments."
WISVEST Corporation ("WISVEST") invests in energy-related entities.
Currently, it is an investor in a company which provides strategic energy
management services with a focus on natural gas management. WISVEST is also
an investor in a company which markets an advanced energy information system
to utilities which gives them the ability to communicate directly with its
customers.
WEC 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 in a holding company system of any holding company formed
on or after November 28, 1985, may not exceed the sum of the following:
- - 25% of the assets of all public utility affiliates in the holding company
system engaged in the generation, transmission or distribution of electric
power.
- - A percentage of the assets, as determined by the PSCW, which may be more,
but may not be less, than 25% of all public utility affiliates in the
holding company system engaged in providing utility service other than the
generation, transmission or distribution of electric power.
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ITEM 1. BUSINESS - Non-Utility Operations - (cont'd)
- - For any public utility affiliate which is in the holding company system and
which engages in the provision of more than one type of utility service, a
percentage of assets equal to the amount of the public utility affiliate's
assets devoted to public utility service, other than the generation,
transmission and distribution of electric power, multiplied by a percentage,
as determined by the PSCW, which may be more, but may not be less, than 25%,
plus 25% of all remaining assets of the public utility affiliate.
Milwaukee County Power Plant: As part of the agreement between WE and
Milwaukee County, a non-utility affiliate of WEC will acquire in 1996 the
chilled water production and distribution facilities of the Milwaukee County
Power Plant located on the Milwaukee County Grounds in Wauwatosa, Wisconsin.
The Company plans to operate these facilities as a non-regulated business.
This acquisition is contingent upon approval by the PSCW of the acquisition of
the related steam facilities noted above and upon the five major customers
signing ten-year chilled water service agreements. See Item 1. BUSINESS -
"ELECTRIC UTILITY OPERATIONS" above and Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000."
REGULATION
WE is subject to the regulation of the PSCW as to retail electric, gas and
steam rates in Wisconsin, standards of service, issuance of securities,
construction of new facilities, transactions with affiliates, levels of short-
term debt obligations, billing practices and various other matters. WE is
also subject to the regulation of the MPSC as to the various matters
associated with retail electric service in Michigan as noted above except as
to issuance of securities, construction of certain new facilities, levels of
short-term debt obligations and advance approval of transactions with
affiliates. WE, with respect to hydro-electric facilities, wholesale power
service, electric transmission, gas transportation and accounting, is subject
to FERC regulation. Operation and construction relating to WE's Point Beach
facilities are subject to regulation by the NRC. WE's operations are also
subject to regulations of the EPA, the DNR and the MDEQ.
The PSCW is authorized to direct expenditures for promoting conservation if it
determines that the programs are in the public interest. Rate orders have
consistently included provisions for substantial conservation programs
initiated by WE. For additional information, see Note A - "Summary of
Significant Accounting Policies" in the NOTES TO FINANCIAL STATEMENTS in Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
WEC is an exempt holding company by order of the SEC under Section 3(a)(1) of
PUHCA and accordingly is exempt from the provisions of that act, other than
with respect to certain acquisitions of securities of a public utility. It
will become a registered public utility holding company under PUHCA upon
consummation of the Transaction to form Primergy. See Item 1. BUSINESS -
"MERGER AGREEMENT WITH NORTHERN STATES POWER COMPANY" above.
WE is subject to a power plant siting law in Wisconsin which requires that
electric utilities file updated long-term forecasts and plans (called "Advance
Plans") for the location, size and type of future large generating plants and
high voltage transmission lines about every two years for PSCW approval after
public hearings. Generally, the law provides that the PSCW may not authorize
the construction of any large generating plants or high voltage transmission
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<PAGE> 23
ITEM 1. BUSINESS - Regulation - (cont'd)
lines unless they are in substantial compliance with the most recently
approved plan. The law also prohibits WE from acquiring any interest in land
for such plants or transmission lines by condemnation until construction
authorization has been received. Advance Plan orders are based on a review of
the utilities' long-term planning options. However, separate project-specific
PSCW approval is required for the construction of generating facilities and
transmission lines.
WE employs a least-cost integrated planning process, which examines a full
range of supply and demand side options to meet its customers' electric needs,
such as the renovation of existing power plants, promotion of cost-effective
conservation and load management options, development of renewable energy
sources, purchased power and construction of new company-owned generation
facilities.
For additional information regarding Advance Plans, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"LIQUIDITY AND CAPITAL RESOURCES - Capital Requirements 1996-2000."
In 1994, the PSCW ordered the state's utilities to competitively bid all new
generation needs in excess of 12 megawatts to be built in Wisconsin. The two-
stage process established by the PSCW consists of: (1) an all-parties
(including utilities) bidding procedure for fossil-fueled and renewable
generation projects and (2) the conventional Certificate of Public Convenience
and Necessity ("CPCN") procedure for the winner or winners. For additional
information regarding the CPCN process, see Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES - Capital Requirements 1996-2000."
In 1992, the PSCW ordered that utilities should include a cost of $15 per ton
of carbon dioxide ("CO2") when comparing resource planning options (both
supply and demand-side) to account for the economic risk of future greenhouse
gas regulation. Appeals through 1993 and 1994 did not substantially change
the order. Recent supply and DSM plans included the greenhouse gas adder.
There are only minor differences in supply and DSM plans prepared with and
without the greenhouse gas adder.
PSCW Electric Utility Industry Investigation: The PSCW has conducted an
investigation into the state of the electric utility industry in Wisconsin,
particularly its institutional structure and regulatory regime, in order to
evaluate what changes would be beneficial for Wisconsin. In early 1995, the
PSCW formed an Electric Advisory Committee (the "Committee") comprised of
representatives from the utility, independent power and merchant businesses as
well as environmental and consumer advocates. The Committee met throughout
the year and discussed all aspects of the business to determine where the
introduction of competition would benefit consumers. The PSCW used the input
from the Committee to develop their proposal for restructuring of the
industry. The PSCW's proposal would permit all consumers to choose their
electricity provider as well as a competitive generation business. The
transmission and distribution portions of the business would remain regulated.
Several work groups and studies were recommended in the proposal to resolve
various issues that will allow for full retail competition by the year 2001.
WE will work throughout 1996 participating in these work groups and studies.
The restructuring envisioned in the proposal is similar to WE's view of
industry restructuring where all electric utility functions are separated into
two major categories - natural monopolies and competitive entities. The
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<PAGE> 24
ITEM 1. BUSINESS - Regulation - (cont'd)
natural monopolies are functions where a single entity can provide the lowest
cost (the transmission and distribution functions). The competitive entities
are functions where competition can provide the lowest cost (the generation
and energy merchant functions).
In WE's model, the re-regulated natural monopolies are the transmission and
distribution functions. Re-regulation of these entities would involve some
form of price cap and performance-standard operation rules. In the new
structure, the FERC would regulate the transmission systems through a regional
transmission group to ensure open access, comparable pricing, comparable
service and adequate cost recovery. The PSCW would regulate the distribution
function for reasonable price, reliability, public safety and customer
satisfaction.
The competitive entities in the WE model are the generation, customer service
and energy merchant functions. In the restructured electric utility industry,
utilities would unbundle costs into the individual components of generation,
transmission, distribution and service.
PSCW Natural Gas Utility Industry Investigation: The PSCW continued a generic
investigation of the natural gas industry in Wisconsin and addressed the
extent to which traditional regulation should be replaced with a different
approach. In conjunction with this generic investigation, the PSCW staff is
reviewing the use of the current purchased gas adjustment ("PGA") mechanism
which is designed to pass on to gas customers increases or decreases in the
cost of natural gas purchased for resale. A separate docket has been
established to review the PGA. WE is participating in these PSCW
investigations.
For additional information regarding the PSCW electric and gas utility
industry investigations, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates
and Regulatory Matters."
RATE MATTERS
See Item 3. LEGAL PROCEEDINGS - "RATE MATTERS" and Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"RESULTS OF OPERATIONS - Rates and Regulatory Matters" for a discussion of
rate matters, including recent rate changes and a discussion of the tariffs
and procedures with respect to recovery of changes in the costs of fuel,
purchased power and gas purchased for resale.
ENERGY EFFICIENCY
Utility involvement in energy efficiency is an area in which there may be
significant changes in the future as a result of the PSCW electric utility
industry investigation mentioned earlier. There was general agreement on the
Committee to begin to move responsibility for energy efficiency away from
utilities and toward competitive market forces.
WE has begun to move in this direction by reducing the areas in which it
provides direct customer rebates. For industrial and commercial electric and
natural gas customers, WE continues to provide energy evaluations identifying
cost-effective customer saving opportunities, as well as below market rate
financing for the purchase of energy efficiency equipment. In 1995, WE hired
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<PAGE> 25
ITEM 1. BUSINESS - Energy Efficiency - (cont'd)
a contractor to obtain energy efficiency among smaller customers, in part to
help develop the market for energy efficiency among these customers. The
contractor offers incentives for electric and natural gas customers to
encourage the purchase of energy efficient equipment and the removal of older
inefficient appliances from the system.
Efficient use of energy is not limited to reduced consumption. Time-of-use
rates for certain electric customers promote the shifting of electricity usage
to those times when electric generating facilities are not fully utilized.
Interruptible and curtailable rates, along with an energy cooperative-managed
load curtailment program, are offered to certain industrial customers to
control peak demand. Direct load control of central air conditioners is
available to most residential customers.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental protection requirements
resulted in capital expenditures by WEC's utility subsidiary of approximately
$31 million in 1995. Expenditures incurred during 1995 included costs
associated with the replacement of the precipitators at Valley Power Plant,
the construction of the ISFSI at Point Beach and the installation of pollution
abatement facilities at WE's power plants, as well as the installation of
underground distribution lines and environmental studies associated with power
plants. Such expenditures are budgeted at approximately $15 million for 1996.
Operation, maintenance and depreciation expenses of WE's fly ash removal
equipment and other environmental protection systems are estimated to have
been $41 million in 1995. Other environmental costs, primarily for
environmental studies, amounted to $200,000 in 1995.
Solid Waste Landfills
WEC's utility subsidiary provides for the disposal of non-ash related solid
wastes and hazardous wastes through licensed independent contractors, but
federal statutory provisions impose joint and several liability on the
generators of waste for certain cleanup costs. Remediation-related activity
pertaining to specific sites is discussed below.
Muskego Sanitary Landfill: In 1992, WE was informed by the EPA that it was
included in a group of approximately 50 potentially responsible parties
("PRPs") against which the EPA will issue orders requiring that the PRPs clean
up the Muskego Sanitary Landfill (located in Southeastern Waukesha County,
Wisconsin). On January 14, 1993, WE notified EPA that it was proceeding, with
other PRPs, to comply with the order. The first step toward remediation has
been identified, with the WE portion of the $16.8 million effort identified as
$115,000 (paid in 1994). Remedial actions for the second step (Groundwater
Operable Unit Remedy) are being evaluated, with EPA recommending a limited
pump and treat option, estimated to cost $7.4 million. Costs will be
allocated among the PRPs based on their waste contribution to the site. WE
has been identified as one of the small waste contributors required to
contribute to the groundwater cleanup.
Maxey Flats Nuclear Disposal Site: In 1986, WE was advised by EPA that it is
one of a number of PRPs for cleanup at this low-level radioactive waste site
located in Morehead, Kentucky. The amount of waste contributed by WE was
significantly less than one percent of the total. Under the terms of a
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<PAGE> 26
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
consent decree agreed to by all parties, WE was to pay the amount of $164,000
(minus a small credit for an amount previously paid) as its share of the
settlement fund for site cleanup costs. This settlement was to be completed
in 1995, but has been held up by a lawsuit filed by the unions concerning the
amount of work on the cleanup to be done by union labor. The potential impact
on WE would be a limited increase in the settlement if additional labor costs
result from the lawsuit.
Manistique River/Harbor Area: WE received a request for information or PRP
letter from EPA on March 12, 1993. The letter states that the river/harbor
has PCB contamination. EPA has requested information regarding company PCB
and oil filled equipment management in the Manistique River drainage basin.
WE responded to this request on April 22, 1993. An additional information
request from EPA was responded to on January 4, 1995. WE has no reason to
believe that it is responsible in total or in part for the PCB contamination
in the Manistique River/harbor area. WE has learned through newspaper
articles that the EPA announced a preliminary plan to dredge most of the PCB-
contaminated sediments, with only limited capping along the breakwater. The
two identified PRPs, Manistique Papers and Edison Sault Electric Company, have
advocated installation of a permanent cap.
Kenosha Iron and Metal: WE received a request for information or PRP letter
from EPA on December 9, 1994. The letter requested information regarding any
involvement WE's Pleasant Prairie Power Plant may have had with this operation
in Kenosha, Wisconsin. A response to EPA was sent December 29, 1994,
indicating that WE had no reason to believe that the power plant or WE did any
business with Kenosha Iron and Metal. No response from EPA has been received
since this response.
Marina Cliffs Barrel Dump Site: WE received a special notice letter and
information request on March 25, 1994 from the DNR. The letter described a
release of hazardous substances at a former barrel reclamation facility and
landfill site, located in the City of South Milwaukee, Wisconsin, and
requested information on any business dealings WE may have had with this
former operation. This request for information was responded to on
April 26, 1994. An additional request for information or PRP letter, was
received on March 24, 1995. This request was responded to by WE in April
1995. Since that time a number of follow-up contacts have been made with EPA.
WE has no reason to believe that it is responsible for the contamination
problems at this site. While WE continues to believe it has no responsibility
at this site, the EPA, which has undertaken remediation activities at the
site, has refused to offer WE a buyout option. As a result, WE has joined a
group of PRPs who will fund the cleanup. No known cleanup schedule has been
set or remediation costs identified.
ETSM Property: Iron cyanide bearing wastes were found both on property owned
by WE (ETSM facility), located in the City of West Allis, Wisconsin, and
adjacent landowners. The wastes were removed and properly disposed, with WE's
share of the cleanup at about $100,000. Adjacent landowners believe WE to be
the source of the material; however, records do not support that allegation.
WE has received a notice sent by one of the property owners, of its intent to
sue WE under the Resource Conservation and Recovery Act of 1976.
City of West Allis: The City of West Allis, Wisconsin discovered iron cyanide
bearing wastes on a parcel of property owned by the city at 113th St. and
Greenfield Ave. The source of the waste is believed to be process waste
hauled to the site from a former manufactured gas plant. The City of West
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<PAGE> 27
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
Allis alleges that WE was the source of this material and is pursuing action
against WE to remediate the site. This matter is pending. There is no reason
to believe that WE nor WN was the source of or involved in the disposal of the
iron cyanide bearing wastes on this property.
Lenz Oil: A request for information or PRP letter was received from EPA on
March 25, 1994. WSG was identified as the PRP because of used oil sent to the
Lenz Oil facility located in Lemont, Illinois. WSG was acquired by WEC on
January 1, 1994. A response was filed with EPA. No known cleanup schedule
has been set or remediation costs identified.
Boundary Road Landfill: WE was contacted by Waste Management, Inc. ("WMI") in
October 1995 requesting voluntary participation in the cleanup of its former
landfill. The landfill, formerly known as the Lauer Landfill, is a Superfund
site located in the Village of Menomonee Falls, Wisconsin. WMI is alleging
that waste from some of WE's service centers was disposed of at this site and
is now contributing to the environmental problems at the site. WE met with
WMI on February 12, 1996 to discuss the situation. No known cleanup schedule
has been set or remediation costs identified. This matter is pending.
Lake Geneva Service Center: The property, in Lake Geneva, Wisconsin, was
acquired as part of the acquisition of WSG. A groundwater problem was
identified by WSG reportedly caused by past disposal practices. In 1995, the
extent of contamination was defined, and a remediation system was designed and
installed. Approximately $200,000 was spent in 1995. Remaining remediation
costs are estimated to be approximately $150,000.
Ash Landfills
WE aggressively seeks environmentally acceptable, beneficial uses of its
combustion byproducts. However, ash materials have been, and to some degree,
continue to be disposed of in company-owned, licensed landfills. Some early
designed and constructed landfills may allow the release of low levels of
constituents resulting in the need for various levels of remediation. Where
WE has become aware of these conditions, efforts have been expended to define
the nature and extent of any release, and work has been performed to address
these conditions. These costs are included in the environmental operating and
maintenance costs for WE. Sites currently undergoing remediation include:
Presque Isle Landfill: WE entered into a consent order with the MDNR (now the
MDEQ) regarding conditions existing at an ash landfill site acquired by WE
when it purchased the Presque Isle Power Plant in 1988. WE's groundwater
monitoring program at the site detected elevated levels of certain substances
at the oldest portion of the landfill. WE has reconstructed, closed and
capped the landfill to prevent further leachate from entering the groundwater
at an approximate cost of $2.6 million. A Remedial Action Plan was submitted
to the MDEQ in 1995 that includes limited groundwater monitoring to further
document the improvement in groundwater quality that has occurred at the site.
The cost to implement the Remedial Action Plan is estimated to not exceed
$100,000.
Highway 59 Landfill: In 1989, a sulfate plume was detected in the groundwater
beneath a WE-owned former ash landfill located in the Town of Waukesha,
Wisconsin. After notifying the DNR, WE initiated a five-year expanded
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ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
monitoring program. In response to a request from the DNR, WE prepared an
environmental contamination assessment of the landfill and submitted the
report to the DNR in July 1995. WE believes that any remediation plan
developed, approved and implemented for this site would not have a material
adverse effect on its financial condition.
Manufactured Gas Sites
WE's natural gas business unit is investigating the remediation of a number of
former manufactured gas plant ("MGP") sites. Operation at these MGP sites
ceased over 40 years ago. Limited remediation activities occurred at a number
of these sites during the 1980's, with removal of waste materials known to be
present at the time. In 1995, WE presented a plan to investigate and further
remediate sites to the DNR. During 1995, WE conducted site investigations at
four MGP sites and partial remediation activities were conducted at one site.
Approximately $1.6 million has been spent through December 31, 1995 for such
activities. Remediation costs to be incurred through the year 2000 have been
estimated to be $12 million, but the total costs are uncertain pending results
of further site specific investigations and the selection of site specific
remedial actions. In its September 11, 1995 letter order, the PSCW allowed WE
to defer MGP site remediation costs with final rate treatment of such costs to
be determined in future rate cases. As of December 31, 1995, WE has recorded
an accrued liability of $1.6 million for MGP site remediation and a related
deferred regulatory asset of $3.2 million. WE expects to accrue additional
MGP site remediation liabilities during 1996 as site specific investigations
are completed and site specific remedial actions are identified. WE will
seek rate recovery of these costs and does not anticipate that there will be a
material adverse effect on its net income or financial condition.
Air Quality - Acid Rain Legislation
In 1986, the Wisconsin Legislature passed legislation establishing new sulfur
dioxide ("SO2") limitations applicable to Wisconsin's five major electric
utilities, including WE. The law requires each of the five major electric
utilities to meet a 1.20 lb SO2 per million BTU corporate average annual
emission rate limit beginning in 1993. Prior to 1993, Wisconsin law limited
the total annual SO2 emissions from the five major electric utilities to
500,000 tons per year. During 1995, approximately 177,000 tons of SO2 were
emitted by such utilities, equivalent to an annual average emission rate of
0.88 lbs SO2 per million BTU.
WE's compliance plan to meet the SO2 limitations under Wisconsin's acid rain
law includes the increased use of low-sulfur coal at certain power plant
units. Some changes to existing power plant equipment were made to
accommodate the use of low-sulfur coals.
The 1990 amendments to the Federal Clean Air Act mandate significant
nationwide reductions in air emissions. Most significant to the country's
electric utility companies are the "acid rain" provisions of the amendments
which are scheduled to limit SO2 and nitrogen oxide ("NOX") emissions in
phases. Phase I became effective in 1995 and Phase II will take effect in
2000. Phase I requirements had minimal impact on the Company because of
actions taken to meet the above-mentioned Wisconsin acid rain law. Phase II
requirements, together with separate ozone nonattainment provisions of the
Clean Air Act which may call for additional NOX reductions, however, will
necessitate the implementation of a compliance strategy which is not expected
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<PAGE> 29
ITEM 1. BUSINESS - Environmental Compliance - (cont'd)
to materially impact rates. Since a portion of the regulations that have been
issued by the EPA are not complete or are not yet final, the rate impact is
subject to change and will be reevaluated as needed.
For additional information regarding the impact of the Clean Air Act
Amendments, including estimates of the cost of compliance, see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES - Environmental Issues."
OTHER
WE is authorized to provide electric and gas service in designated territories
in the state of Wisconsin, as established by indeterminate permits,
certificates of public convenience and necessity, or boundary agreements with
other utilities. WE provides electric service in certain territories in the
state of Michigan pursuant to franchises granted by municipalities.
Research and development expenditures of WEC's utility subsidiary amounted to
$6,427,000 in 1995, $8,063,000 in 1994 and $8,629,000 in 1993. Such
expenditures were primarily for improvement of service and abatement of air
and water pollution. Research and development activities include work done by
employees, consultants and contractors, plus sponsorship of research by
industry associations. In addition to the foregoing amounts, the WEGO paid
$1,033,000 in 1995, $766,000 in 1994 and $1,300,000 in 1993 for support of the
Gas Research Institute ("GRI"). The GRI surcharge, currently assessed on all
gas deliveries, is calculated on pipeline utilization.
At December 31, 1995, WEC and its subsidiaries employed 4,514 persons, of
which 95 were part-time.
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<PAGE> 30
ITEM 2. PROPERTIES
WE owns the following generating stations with 1995 capabilities as indicated:
==============================================================================
Dependable
No. of Capability In
Generating Megawatts (1)
Units at -----------------------
December August December
Name Fuel 1995 1995 1995
- ---- ---- ---------- ------- --------
Steam Plants:
Point Beach Nuclear 2 973 947
Oak Creek Coal 4 1,135 1,141
Presque Isle (2) Coal 9 612 612
Pleasant Prairie Coal 2 1,200 1,210
Port Washington Coal 4 322 324
Valley Coal 2 267 227
Edgewater (3) Coal 1 98 98
-- ----- -----
TOTAL STEAM 24 4,607 4,559
Hydro Plants (16 in number) 38 75 75
Germantown Combustion
Turbines Oil 4 212 252
Concord Combustion
Turbines Gas/Oil 4 332 376
Paris Combustion
Turbines (4) Gas/Oil 4 332 376
Other Combustion
Turbines & Diesel Gas/Oil 4 61 74
-- ----- -----
TOTAL SYSTEM 78 5,619 5,712
==============================================================================
(1) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given
month in a given year. Changing seasonal conditions are responsible
for the different capabilities reported for the winter and summer
periods in the above table. The values were established by test and
may change slightly from year to year.
(2) UPPCO, a non-affiliated utility, staffs and operates the Presque Isle
Power Plant under an operating agreement with WE which extends through
December 31, 1997.
(3) WE has a 25% interest in Edgewater 5 Generating Unit, which is operated by
Wisconsin Power and Light Company, a non-affiliated utility.
(4) During the second quarter of 1995, four units, or approximately 360
megawatts of additional peaking combustion turbine generation capacity,
were placed in service at WE's Paris Generating Station.
At December 31, 1995, the electric transmission and distribution system had
2,761 miles of transmission circuits, of which 639 miles were operating at 345
kilovolts, 123 miles at 230 kilovolts, 1,605 miles at 138 kilovolts, and 394
miles at voltage levels less than 138 kilovolts. At December 31, 1995, WE was
operating 23,004 pole miles of overhead distribution lines and 14,428 miles of
underground distribution cable, as well as 360 distribution substations and
222,294 line transformers.
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<PAGE> 31
ITEM 2. PROPERTIES - (cont'd)
As of December 31, 1995, the gas distribution system includes approximately
7,040 miles of mains connected at 18 gate stations to the pipeline
transmission systems of ANR Pipeline Company, Natural Gas Pipeline Company of
America and Northern Natural Pipeline Company. WE has a liquefied natural gas
storage plant which converts and stores in liquefied form natural gas received
during periods of low consumption. The liquefied natural gas storage plant
has a send-out capability of 70,000 Dths per day. WE also has propane tanks
for peaking purposes. These tanks will provide approximately 7,000 Dths of
supply to the system.
WE owns various office buildings and service centers throughout its service
area.
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 WE's
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 WEC 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
WE is subject to federal, state and certain local laws and regulations
governing the environmental aspects of its operations. WE believes that, with
immaterial exceptions, its existing facilities are in compliance with
applicable environmental requirements.
Stephenson Building: On September 21, 1994, Crown Life Insurance Company sued
WE in the United States District Court for the Eastern District of Wisconsin,
seeking contribution and damages from WE under various federal and state
claims for the costs of removing asbestos from boilers and piping in a
building in downtown Milwaukee owned by Crown Life. WE sold that equipment
and piping to a former building owner in 1970. WE is defending this lawsuit.
See Item 1. BUSINESS - "ENVIRONMENTAL COMPLIANCE" for a discussion of matters
related to certain solid waste and ash landfills and manufactured gas plant
sites.
RATE MATTERS
Wisconsin Retail Jurisdiction
Fuel Cost Adjustment Procedure: WE's electric retail rates in Wisconsin do
not contain an automatic fuel adjustment clause, but can be adjusted by the
PSCW if actual cumulative fuel and purchased power costs, when compared to the
costs projected in the retail electric rate proceeding, deviate from a
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<PAGE> 32
ITEM 3. LEGAL PROCEEDINGS - Rate Matters - (cont'd)
prescribed range and are expected to continue to be above or below the
authorized annual range of 3%. WE steam rates also contain a provision to
adjust rates to reflect varying fuel costs for all customers except for a
large volume contract representing approximately 13% of steam sales in 1995.
WE believes that it has the ability to maintain low fuel costs through
efficient management of its power supply system and fuel procurement
practices. Therefore, WE has proposed, in its 1997 Test Year filing with the
PSCW, the elimination of the retail electric fuel cost adjustment procedure.
1995 Fuel Cost Adjustment: Effective August 4, 1994, the PSCW authorized WE
to reduce Wisconsin retail electric rates, through the use of a fuel
adjustment credit, to reflect lower fuel and purchased power expenses. The
adjustment reduced Wisconsin retail electric revenue by approximately $16.7
million through December 31, 1995. Effective January 1, 1996, the fuel
adjustment credit was removed from Wisconsin retail electric rates. Under
WE's proposal in the 1997 Test Year filing to eliminate the fuel cost
adjustment credit, the level of fuel expense currently included in rates will
continue until rates are revised by the PSCW in a rate case.
Purchased Gas Adjustment Tariffs: Sales of natural gas are subject to
adjustment tariffs designed to pass on to gas customers increases or decreases
in the cost of natural gas purchased for resale. For additional information,
see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates and Regulatory
Matters."
1995 Test Year: In 1993 the PSCW discontinued the practice of conducting
annual rate case proceedings, replacing it with a new schedule which calls for
future biennial rate cases. As a result, no electric, gas or steam filings
were made with respect to the 1995 test year.
1996 Test Year: On May 1, 1995, WE filed with the PSCW required data related
to the 1996 test year. This was an abbreviated filing since no increase in
rates was requested. At the PSCW's open meeting on August 21, 1995, the PSCW
determined that Wisconsin retail rates for 1996 should be decreased from
existing levels. In a letter order dated September 11, 1995, the PSCW
directed WE to implement rate decreases for Wisconsin retail electric, gas and
steam customers of $33.383 million or 2.75%, $8.298 million or 2.6% and $0.790
million or 5.1%, respectively, on an annualized basis effective January 1,
1996. The decrease is based upon a regulatory return on common equity of
11.3%, down from 12.3% authorized since 1993.
1997 Test Year: On January 16, 1996, WE filed specific financial data with
the PSCW related to the 1997 test year showing an $82.2 million revenue
deficiency for its utility operations. The dollar impacts and percentage
increases requested for Wisconsin retail electric, gas and steam customers are
$77.0 million or 6.2%, $4.3 million or 1.4% and $0.9 million or 6.4%,
respectively, on an annualized basis. On March 15, 1996, WE filed testimony
and exhibits with the PSCW related to the 1997 test year. The PSCW had
determined that it required a special full review of WE's rates for the 1997
test year in connection with consideration of the application for approval of
the proposed merger of WEC and NSP. For additional information regarding the
merger of WEC and NSP, see Item 1. BUSINESS - "MERGER AGREEMENT WITH NORTHERN
STATES POWER COMPANY", Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS -
Mergers" and Note B - "Mergers" in the NOTES TO FINANCIAL STATEMENTS in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- 32 -
<PAGE> 33
ITEM 3. LEGAL PROCEEDINGS - Rate Matters - (cont'd)
Wholesale Electric Jurisdiction
Fuel and Purchased Power Adjustment Tariffs: Some customers served under WE's
wholesale rates are subject to an automatic fuel adjustment provision to
reflect varying fuel and purchased power costs. Wholesale sales to municipals
and cooperatives represented approximately 5% of total electric sales in 1995.
Michigan Retail Electric Jurisdiction
1996 Test Year: Effective January 1, 1996, the MPSC authorized an annualized
rate decrease of $1.13 million or 3.3% for WE's non-mine retail electric
customers. Excluding sales to the two mine customers, which are separately
regulated by the MPSC, retail electric sales in Michigan account for
approximately 2% of WE's total kilowatt-hour sales.
Power Supply Cost Recovery Clause: In the past, rates were adjusted to
reflect varying fuel and purchased power costs through a power supply cost
recovery ("PSCR") clause in WE's tariffs. Such PSCR clause provided for,
among other things, an annual filing of a PSCR plan and, after notice and an
opportunity for hearing, the development of PSCR factors to be applied to
customers' bills during the period covered by the PSCR plan to allow WE to
recover its costs of fuel and purchased power transactions, as estimated in
its annual filing. The amounts so collected were subject to a reconciliation
proceeding conducted by the MPSC at the end of the period covered by the plan
for recovery of any undercollections of actual costs or for refund or credit
of any amounts in excess of its actual costs in such period. On
November 30, 1994, the MPSC approved the proposed PSCR credit factor of
$.00535 per kilowatt-hour for the year 1995. Effective December 15, 1995, the
MPSC authorized suspension of the PSCR clause for a five-year period. The
existing PSCR credit factor of $.00535 per kilowatt-hour was rolled into the
energy rate.
FERC Order 636 Transition Costs
As a result of the FERC's Order 636, pipeline companies are no longer in the
merchant business and are billing transition costs, such as Gas Supply
Realignment and stranded capacity costs, to their customers. Due to the
netting of refunds against liabilities in 1995, the net remaining transition
costs to be billed to WE are currently estimated to be $2.0 million. This
estimate includes the amount attributable to WSG, which was merged into WN
effective January 1, 1994. The PSCW is allowing local gas distribution
companies to pass these costs on to their customers through the purchased gas
adjustment mechanism.
For additional information see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "RESULTS OF OPERATIONS - Rates
and Regulatory Matters."
Stray Voltage
In March 1996, technical hearings were concluded in a PSCW proceeding to
further evaluate the results of stray voltage research that has been completed
since 1989 and to update, if necessary, PSCW policies regarding stray voltage
that were included in a 1989 PSCW order. WE expects the PSCW to issue an
updated order on stray voltage in April 1996 but does not anticipate that it
will have a significant impact on WE's financial position or results of
operations.
- 33 -
<PAGE> 34
ITEM 3. LEGAL PROCEEDINGS - (cont'd)
OTHER LITIGATION
Spent Fuel Storage and Disposal: See Item 1. BUSINESS - "SOURCES OF
GENERATION - Nuclear" for information concerning the PSCW's approval of WE's
application to utilize dry cask storage for spent nuclear fuel generated at
Point Beach Nuclear Plant and pending legal proceedings with respect to the
PSCW's decision.
Pittsburg & Midway Case: In a matter brought before the FERC, in July 1993,
WE filed an initial brief supporting its right to retain coal reclamation
costs collected through the wholesale fuel adjustment clause in 1986 that it
believes were prudently incurred in a settlement with the Pittsburg & Midway
Coal Mining Company. Of the total costs involved, the portion recovered
through the wholesale fuel clause amounts to approximately $750,000. This
filing was made in response to a FERC audit staff determination that WE should
have applied for a waiver of the FERC's fuel clause regulations in order to
attempt to pass through the wholesale portion of the settlement costs. On
December 13, 1995, the administrative law judge issued an initial decision
that WE was required to refund the portion of such costs collected from its
wholesale customers. The administrative law judge's initial decision found in
favor of WE with respect to the prudence of the administration of the coal
contracts. The matter is pending before the full commission.
In November 1993, the FERC rejected WE's request to be allowed to recover, in
wholesale rates in the future, the amount which may have to be refunded to
customers in the event of an unfavorable ruling in the pending fuel adjustment
clause proceeding concerning the Pittsburg & Midway reclamation charges. In
January 1994, WE filed an appeal with the U.S. Court of Appeals for the
District of Columbia Circuit regarding this rejection. The matter is pending.
Electromagnetic Fields: Claims are being made or threatened with increasing
frequency against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by exposure to
electromagnetic fields ("EMFs") associated with electric transmission and
distribution lines. Results of scientific studies conducted to date do not
establish the existence of a causal connection between EMFs and any adverse
health effects. WE believes that its facilities are constructed and operated
in accordance with all applicable legal requirements and standards. WE does
not believe that any claims thus far made or threatened against it in
connection with EMFs will result in any substantial liability on the part of
WE.
Uranium Enrichment Charges: On February 9, 1995, WE and ten other utilities
filed an action against the USEC in the U.S. Court of Federal Claims
challenging the final decision of the USEC contracting officer in November
1994 which denied claims of the utilities for damages by reason of overcharges
for uranium enrichment services provided under Utility Services Contracts
between July 1, 1993 and September 30, 1994. The damages sought by WE total
$3.3 million. The matter is pending.
Personal Injury Suit: On October 1, 1994, a jury returned a $2.85 million
verdict against WN, which was merged into WE effective January 1, 1996, in a
case in the Circuit Court for Milwaukee County, involving a gas pipe fire
which injured the plaintiff. On December 23, 1994, WN resolved the litigation
between itself and plaintiff with a payment of $2.55 million to plaintiff, of
which $550,000 was covered by WN's general liability insurer. The contract
with the construction company that installed the gas pipe provides for
- 34 -
<PAGE> 35
ITEM 3. LEGAL PROCEEDINGS - Other Litigation - (cont'd)
indemnification of WN. On September 8, 1995, WN commenced an action for such
indemnification in Milwaukee County Circuit Court against the construction
company and its insurers. The matter is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of WEC's security holders during the
fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages at December 31, 1995 and positions of the executive officers
of WEC, including certain officers of WE, are listed below along with their
business experience during the past five years. All officers are appointed
for one-year terms or until their respective successors are duly chosen.
There are no family relationships among these officers, nor is there any
agreement or understanding between any officer and any other person pursuant
to which the officer was selected.
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- ---------------------- ----------------------
Richard A. Abdoo, 51 Chairman of the Board, President and Chief
Executive Officer of WEC since 1991; Executive
Vice President, 1990 to 1991; Director of WEC
since 1988.
Chairman of the Board and Chief Executive Officer
of WE, a subsidiary of WEC, since 1990; Director
of WE since 1989.
Chairman of the Board and Chief Executive Officer
of WN, a former subsidiary of WEC that was
merged into WE on January 1, 1996, from 1990
through 1995; Director of WN from 1989 through
1995.
Richard R. Grigg, Jr., 47 Vice President of WEC since January 1995; Director
of WEC since May 1995.
President and Chief Operating Officer of WE since
January 1995; Group Executive and Vice
President, June to December 1994; Vice
President, 1990 to June 1994; Director of WE
since 1994.
President and Chief Operating Officer of WN during
1995; Director of WN during 1995.
Francis Brzezinski, 44 Vice President of WEC since 1990.
Vice President-Business Development of WE
since 1994.
President and Chief Operating Officer of Wispark
Corp., Wisvest Corp., and Witech Corp.
since 1990.
- 35 -
<PAGE> 36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Executive Officers of the Registrant - (cont'd)
Current Position(s) and
Business Experience
Name and Age During Past Five Years
- ---------------------- ----------------------
Calvin H. Baker, 52 Treasurer and Chief Financial Officer of WEC
since March 1996.
Chief Financial Officer of WE since March 1996;
Vice President-Finance of WE since 1994; Vice
President-Marketing, 1992 through 1993; Vice
President-Finance 1991 to 1992.
Senior Vice President, Financial Services
Corporation of New York City (provider of
direct loan programs and industrial
development projects in New York City),
1989 to 1991.
David K. Porter, 52 Senior Vice President of WE since 1989; Director of
WE since 1989.
Vice President of WN from 1989 through 1995;
Director of WN from 1988 through 1995.
Ann Marie Brady, 43 Secretary of WEC since March 1996; Assistant
Secretary of WEC from 1989 to March 1996.
Vice President-External Affairs of WE since
March 1996; Secretary of WE since 1994;
Assistant Secretary, 1989 through 1993.
Secretary of WN, 1993 through 1995; Assistant
Secretary, 1989 through 1993.
Anne K. Klisurich, 48 Controller of WEC since June 1995; Accounting
Manager of WEC, 1987 to 1994.
Controller of WE since 1994.
Controller of WN from 1994 through 1995.
Certain executive officers in addition to Mr. Brzezinski also hold offices in
WEC'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 1995, based on the number of Wisconsin Energy Corporation
("WEC") stockholder accounts, there were 88,481 registered stockholders.
- 36 -
<PAGE> 37
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS - (cont'd)
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 WEC 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 WEC COMMON STOCK PRICES AND DIVIDENDS
============================================================================
1995 | 1994
------------------------------------------|---------------------------------
Quarter High Low Dividend | High Low Dividend
------------------------------------------|---------------------------------
First $28-1/4 $25-1/2 $ .3525 | $27-1/2 $24 $ .33875
Second 29 26-3/4 .3675 | 26-3/8 23-1/8 .3525
Third 28-1/2 26-1/8 .3675 | 26-3/8 23-3/8 .3525
Fourth 30-7/8 28 .3675 | 27 24-1/2 .3525
------------------------------------------|---------------------------------
Year $30-7/8 $25-1/2 $1.4550 | $27-1/2 $23-1/8 $1.39625
============================================================================
DIVIDEND POLICY OF PRIMERGY
In accordance with the provisions of the Merger Agreement between WEC and
Northern States Power Company ("NSP") to form Primergy Corporation
("Primergy"), each share of WEC common stock will become 1.0 share of Primergy
common stock and each share of NSP common stock will be converted into 1.626
shares (the "Ratio) of Primergy common stock upon consummation of the
Transaction. It is anticipated that Primergy will adopt NSP's common share
dividend payment level adjusted for the Ratio. NSP currently pays $2.70 per
share annually while WEC's annual dividend rate is currently $1.47 per share.
Based on the Ratio and NSP's current dividend rate, the pro forma dividend
rate for Primergy would be $1.66 per share at December 31, 1995. However, no
assurance can be given that such dividend rate will be in effect or will
remain unchanged, and Primergy reserves the right to increase or decrease its
dividend as may be required by law or contract or as may be determined by the
Primergy Board of Directors, in its discretion, to be advisable. Declaration
and timing of dividends on Primergy common stock will be a business decision
to be made by the Primergy Board from time to time based upon the results of
operations and financial condition of Primergy and its subsidiaries and such
other business considerations as the Primergy Board considers relevant in
accordance with applicable laws. Additional information concerning the
proposed merger of WEC and NSP may be found in MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - "RESULTS OF
OPERATIONS - Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL
STATEMENTS.
- 37 -
<PAGE> 38
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 1995 1994 1993** 1992** 1991**
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income $ 234,034 $ 180,868* $ 190,135 $ 171,239 $ 190,125
Earnings per share of
common stock ($) 2.13 1.67* 1.80 1.66 1.85
Dividends per share
of common stock ($) 1.455 1.396 1.341 1.285 1.223
Operating revenues
Electric $1,437,480 $1,403,562 $1,347,844 $1,298,723 $1,292,809
Gas 318,262 324,349 331,301 283,699 273,803
Steam 14,742 14,281 14,090 13,093 12,986
---------- ---------- ---------- ---------- ----------
Total operating revenues $1,770,484 $1,742,192 $1,693,235 $1,595,515 $1,579,598
========== ========== ========== ========== ==========
Total assets $4,560,735 $4,408,259 $4,270,592 $3,788,955 $3,533,745
Long-term debt and preferred stock-
redemption required $1,367,644 $1,283,686 $1,300,781 $1,289,082 $1,175,417
- -----------------------------------------------------------------------------------------------
Sales and Customers - Utility
Electric
Megawatt-hours sold 27,283,869 26,911,363 25,685,436 24,747,581 25,016,247
Customers (End of year) 955,616 944,855 932,285 919,466 907,871
Gas
Therms delivered (Thousands) 886,729 811,219 809,348 772,036 767,071
Customers (End of year) 357,030 347,080 336,571 327,247 317,891
Steam
Pounds sold (Millions) 2,532 2,395 2,376 2,284 2,282
Customers (End of year) 473 471 459 472 468
===============================================================================================
<CAPTION>
CONSOLIDATED QUARTERLY FINANCIAL DATA
===============================================================================================
(Thousands of Dollars except for per share amounts)
- -----------------------------------------------------------------------------------------------
March June
Three Months Ended 1995 1994 1995 1994
- ------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating revenues $ 471,122 $ 509,681 $ 405,093 $ 400,340
Operating income 84,572 43,436* 72,848 63,854
Net income 62,534 22,822* 51,595 43,430
Earnings per share of common stock ($) 0.57 0.21* 0.47 0.40
- -----------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------
September December
Three Months Ended 1995 1994 1995 1994
- ------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total operating revenues $ 426,413 $ 400,512 $ 467,856 $ 431,659
Operating income 80,704 71,248 90,897 84,735
Net income 58,436 51,490 61,469 63,126
Earnings per share of common stock ($) 0.53 0.48 0.56 0.58
===============================================================================================
<FN>
Quarterly results of operations are not directly comparable because of seasonal and other factors.
See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
* Includes nonrecurring $73.9 million charge in 1994 ($45 million net of tax or $.42 per share)
related to WE's Revitalization program.
** Restated to reflect the merger of Wisconsin Southern Gas Company, Inc. ("WSG") into Wisconsin
Natural Gas Company ("WN") effective on January 1, 1994.
- 38 -
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
Electric Revenues, Kilowatt-Hour Sales and Customer Statistics
Year Ended December 31 1995 1994 1993 1992 1991
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues ($000)
Residential $ 507,416 $ 484,627 $ 472,903 $ 441,240 $ 444,542
Small commercial and industrial 423,039 406,043 386,736 372,213 363,906
Large commercial and industrial 401,794 398,179 380,482 381,083 372,768
Other retail 13,505 13,750 13,975 15,245 15,368
Resale - municipals 55,813 55,508 57,039 62,787 71,382
---------- ---------- ---------- ---------- ----------
Total retail and municipals 1,401,567 1,358,107 1,311,135 1,272,568 1,267,966
Resale - public utilities 24,811 31,295 25,879 18,080 18,476
---------- ---------- ---------- ---------- ----------
Total revenue from sales 1,426,378 1,389,402 1,337,014 1,290,648 1,286,442
Other operating revenue 11,102 14,160 10,830 8,075 6,367
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $1,437,480 $1,403,562 $1,347,844 $1,298,723 $1,292,809
========== ========== ========== ========== ==========
Kilowatt-hour Sales (Millions)
Residential 7,043 6,670 6,551 6,230 6,567
Small commercial and industrial 7,047 6,699 6,358 6,155 6,153
Large commercial and industrial 10,640 10,472 9,771 9,702 9,462
Other retail 182 189 196 217 226
Resale - municipals 1,369 1,415 1,580 1,779 1,935
---------- ---------- ---------- ---------- ----------
Total retail and municipals 26,281 25,445 24,456 24,083 24,343
Resale - public utilities 1,003 1,466 1,229 665 673
---------- ---------- ---------- ---------- ----------
Total Sales 27,284 26,911 25,685 24,748 25,016
========== ========== ========== ========== ==========
Number of Customers - Average
Residential 857,924 846,745 835,685 824,544 814,078
Small commercial and industrial 90,386 88,765 87,351 85,990 84,540
Large commercial and industrial 679 674 675 670 664
Other 1,821 1,811 1,831 1,945 1,980
---------- ---------- ---------- ---------- ----------
Total 950,810 937,995 925,542 913,149 901,262
========== ========== ========== ========== ==========
<CAPTION>
Gas Revenues, Therms Delivered and Customer Statistics
Year Ended December 31 1995 1994 1993** 1992** 1991**
- ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues ($000)
Residential $ 194,226 $ 200,824 $ 199,509 $ 175,824 $ 170,827
Commercial and Industrial 94,482 102,496 102,425 82,853 77,031
Interruptible and other 12,763 15,338 12,858 9,406 9,959
---------- ---------- ---------- ---------- ----------
Total revenues from sales 301,471 318,658 314,792 268,083 257,817
Other operating revenue 16,791 5,691 16,509 15,616 15,986
---------- ---------- ---------- ---------- ----------
Total Operating Revenues $ 318,262 $ 324,349 $ 331,301 $ 283,699 $ 273,803
========== ========== ========== ========== ==========
Therms Delivered (Thousands)
Residential 345,140 323,913 322,444 309,968 308,980
Commercial and Industrial 207,358 199,206 202,549 183,588 176,707
Interruptible and other 50,646 47,467 34,608 24,710 26,442
---------- ---------- ---------- ---------- ----------
Total Sales 603,144 570,586 559,601 518,266 512,129
Transportation of Customer
Owned Gas 283,585 240,633 249,747 253,770 254,942
---------- ---------- ---------- ---------- ----------
Total Delivered 886,729 811,219 809,348 772,036 767,071
========== ========== ========== ========== ==========
Number of Customers - Average
Residential 321,643 311,288 302,355 293,437 284,728
Commercial and Industrial 29,287 28,506 27,871 27,291 26,536
Interruptible and other 361 340 356 376 404
---------- ---------- ---------- ---------- ----------
Total 351,291 340,134 330,582 321,104 311,668
========== ========== ========== ========== ==========
Degree Days (Milwaukee)
Heating (Normal 7,020) 6,825 6,431 6,775 6,723 6,416
Cooling (Normal 650) 953 877 651 364 1,056
** Restated to reflect the merger of WSG into WN effective on January 1, 1994.
- 39 -
</TABLE>
<PAGE> 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Effective January 1, 1996, Wisconsin Energy Corporation ("WEC" or the
"Company") merged its natural gas utility subsidiary, Wisconsin Natural Gas
Company ("WN"), into its electric and steam utility subsidiary, Wisconsin
Electric Power Company ("WE"), to form a single combined utility subsidiary.
Where applicable, references to WE include WN prior to the merger. Additional
information concerning the merger may be found below under "RESULTS OF
OPERATIONS - Mergers" and in Note B - "Mergers" in the NOTES TO FINANCIAL
STATEMENTS.
As previously reported, WEC has entered into an agreement with Northern States
Power Company, a Minnesota corporation ("NSP"), which provides for a strategic
business combination involving the two companies in a "merger-of-equals"
transaction. The future operations and financial position of the Company will
be significantly affected by the proposed merger. Consummation of the
proposed merger is subject to a number of conditions, including obtaining all
required regulatory approvals. Additional information concerning such
agreement and proposed transaction may be found below under "RESULTS OF
OPERATIONS - Mergers", in MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS - "Dividend Policy of Primergy" and in Note B - "Mergers"
in the NOTES TO FINANCIAL STATEMENTS (including unaudited pro forma financial
information).
RESULTS OF OPERATIONS
Earnings
1995 Compared to 1994: Earnings per share of WEC's common stock in 1995 were
$2.13 compared with $1.67 per share in 1994, an increase of 27.5%. Earnings
during 1994 reflect a nonrecurring charge of approximately $73.9 million ($45
million net of tax, or 42 cents per share) associated with the organizational
restructuring program at WE.
The 1994 nonrecurring charge primarily included the costs of early retirement
and severance packages which were elements of a revitalization program
("Revitalization") designed to better position the Company in a changing
energy marketplace. The Company has recovered the 1994 nonrecurring charge in
avoided labor costs that would have been charged to Other Operations and
Maintenance expense during 1994 and 1995.
Excluding the Revitalization charge, 1995 earnings per share of common stock
were 1.9% greater than 1994 earnings per share of $2.09. The increase in 1995
earnings reflects 1.4% higher electric sales, 9.3% higher gas deliveries and a
3.1% decrease in Other Operation and Maintenance expenses. Electric sales
grew primarily as a result of warmer summer weather during 1995. Gas
deliveries increased due to increased deliveries to Interruptible and
Transportation customers and to colder weather during the fourth quarter of
1995. Additional economic activity in WE's service area also contributed to
the increase in electric sales and gas deliveries. The reduction in Other
Operation and Maintenance expenses primarily reflects payroll-related savings
and efficiencies gained through WE's Revitalization program.
1993 Through 1995: Earnings per share of common stock increased at a compound
annual rate of 8.9% from $1.80 in 1993 to $2.13 in 1995. The increase in
earnings per share primarily resulted from corresponding growth in electric
sales and therm deliveries and a decline in Other Operation and Maintenance
expense.
- 40 -
<PAGE> 41
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Wisconsin Electric Revitalization
In response to increasing competitive pressures in the markets for electricity
and natural gas, WE implemented Revitalization in 1994 to increase
efficiencies and improve customer service by reengineering and restructuring
the organization. The new structure consolidated many business functions and
simplified work processes. See Note K - "Benefits Other Than Pensions" in the
NOTES TO FINANCIAL STATEMENTS.
Mergers
Wisconsin Natural Gas Company: As part of Revitalization, WEC has merged WN
into WE. The merger, which was effective January 1, 1996, is expected to
improve customer service and reduce operating costs. The accounting treatment
for this merger was similar to that which would result from a pooling of
interests.
Wisconsin Southern Gas Company, Inc.: Effective January 1, 1994, WEC acquired
Wisconsin Southern Gas Company, Inc. ("WSG") through a statutory merger of WSG
into WN in which all of WSG's common stock was converted into common stock of
WEC. WSG was a gas utility engaged in the purchase, distribution,
transportation and sale of natural gas primarily in an area of southeastern
Wisconsin which was contiguous to WN's service territory. WSG was merged into
WN using the pooling of interests method of accounting. Accordingly, prior
years' financial and statistical information was restated to include WSG at
historical values.
Northern States Power Company: On April 28, 1995, WEC and NSP entered into an
Agreement and Plan of Merger, which was amended and restated as of
July 26, 1995 ("Merger Agreement"). The Merger Agreement provides for a
strategic business combination involving WEC and NSP in a "merger-of-equals"
transaction ("Transaction"). As a result, WEC will become a registered public
utility holding company under the Public Utility Holding Company Act of 1935,
as amended ("PUHCA"), and will change its name to Primergy Corporation
("Primergy"). Primergy will be the parent company of WE (which will be
renamed Wisconsin Energy Company), of NSP (which, for regulatory reasons, will
reincorporate in Wisconsin ("New NSP")), and of the other subsidiaries of WEC
and NSP. In connection with the Transaction, Northern States Power Company, a
Wisconsin corporation ("NSP-WI"), currently a utility subsidiary of NSP, will
be merged into Wisconsin Energy Company. Prior to the merger of NSP-WI into
Wisconsin Energy Company, New NSP will acquire from NSP-WI certain gas utility
assets. The Transaction is intended to be tax free for income tax purposes
and to be accounted for as a pooling of interests.
On September 13, 1995, stockholders of WEC and NSP voted to approve the
Transaction. Under the provisions of the Merger Agreement, each share of WEC
and NSP common stock will become 1.0 and 1.626 shares of Primergy common
stock, respectively, following the proposed Transaction.
As a result of the Transaction, the Company anticipates cost savings of
approximately $2 billion over a ten year period, net of transaction costs and
costs to achieve the savings of approximately $30 million and $122 million,
respectively. WE and NSP have proposed, in their filings with the numerous
state jurisdictions to which they are subject, a reduction of approximately
1.5% in retail electric rates beginning on or about January 1997 (assuming
that the Transaction is then consummated) and a rate freeze through the year
- 41 -
<PAGE> 42
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Mergers - (cont'd)
2000, subject to certain exceptions regarding matters beyond WE's or NSP's
control. For the same periods and subject to the same types of exceptions, WE
and NSP-WI have proposed a $4.2 million reduction in retail gas rates on an
annualized basis in Wisconsin and Michigan and a rate freeze through the year
2000. Similarly, NSP anticipates proposing in 1996 a 1.25% rate reduction for
retail gas customers in North Dakota and four and two year rate freezes in
North Dakota and Minnesota, respectively, effective following consummation of
the Transaction. Subject to the same types of exceptions noted above, WE and
NSP have agreed to a freeze in their electric wholesale rates for a four year
period subsequent to the Transaction. In December 1995, WEC and NSP entered
into a settlement agreement with certain municipal Wisconsin intervenors that
ended the latters' participation in the FERC and state merger proceedings.
The settlement agreement, which provides for certain rate reductions on power
sales and transmission services, is pending FERC action. The state filings
include a request for deferred accounting treatment and rate recovery of costs
incurred associated with the Transaction. As of December 31, 1995, WEC has
deferred $8.1 million of costs associated with the Transaction as a component
of Deferred Charges and Other Assets-Other.
The Merger Agreement is subject to various conditions including approval by
all applicable regulatory authorities. In July 1995, WEC and NSP filed an
application and supporting testimony with the FERC seeking approval of the
Merger Agreement. In August 1995, WEC and NSP made similar filings with
regulatory agencies in the states where WEC and NSP provide utility services
and in which such filings are required. Applications for license amendments
and approvals relating to the Merger Agreement were filed with the Nuclear
Regulatory Commission ("NRC") in the fall of 1995. The FERC has put the
merger application on an accelerated schedule, ordering the administrative law
judge's initial decision by August 30, 1996 and briefs on exception by
September 30, 1996. In March 1996, the Public Service Commission of Wisconsin
("PSCW") requested that the FERC broaden the scope of the merger application
hearing to evaluate whether the proposed Transaction will impair effective
state oversight of retail rates. The matter is pending. Not all of the
regulatory agencies have established a timetable for their decision.
During 1995, WEC and NSP received a ruling from the Internal Revenue Service
indicating that the proposed successive merger transactions defined in the
Merger Agreement would not prevent the treatment of the Transaction as a tax-
free reorganization under applicable tax law if each transaction independently
so qualified. In 1996, WEC and NSP will file an application with the
Securities and Exchange Commission ("SEC") for authority to form Primergy
under the requirements of PUHCA as well as required notifications with the
Federal Trade Commission and the Department of Justice under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended. Subject to obtaining
all requisite approvals, WEC and NSP anticipate completing the Transaction by
January 1, 1997.
The SEC may require, as a condition to its approval of the Transaction, that
WEC and NSP divest their gas utility properties and possibly certain non-
utility ventures within a reasonable time after the Transaction is
consummated. In a few cases, the SEC has allowed the retention of such
properties or deferred the question of divestiture for a substantial period of
- 42 -
<PAGE> 43
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Mergers - (cont'd)
time. In those cases in which divestiture has taken place, the SEC has
usually allowed enough time to complete the divestiture so as to allow the
applicant to avoid a "fire sale" of the divested assets. WEC and NSP believe
strong policy reasons and prior SEC decisions exist which support their
retaining their existing gas utility properties and non-utility ventures, or,
alternatively, which support deferring the question of divestiture for a
substantial period of time; accordingly, WEC and NSP will request in their
merger application with the SEC that WEC and NSP be allowed to retain, or, in
the alternative, that the question of divestiture be deferred with respect to,
WEC's and NSP's existing gas utility properties and non-utility ventures.
Regulatory authorities may also require the restructuring of transmission
system operations or administration. WEC and NSP currently cannot determine
if such restructuring will be required. In addition, Wisconsin State law
limits the total assets of non-utility affiliates of Primergy, which could
affect the amount of non-regulated operations.
Electric Revenues, Gross Margins and Sales
1995 Compared to 1994: Despite an annualized $16 million or 1.3% Wisconsin
retail electric fuel adjustment rate decrease that became effective on
August 4, 1994, total Electric Operating Revenues increased by 2.4% from
$1,404 million in 1994 to $1,437 million in 1995 due to increased 1995
electric sales. The gross margin on Electric Operating Revenues (Electric
Operating Revenues less Fuel and Purchased Power expenses) increased by 1.6%
from $1,075 million in 1994 to $1,092 million in 1995. The gross margin grew
because the increased electric sales were primarily to Residential and Small
Commercial/Industrial customers who contribute higher margins to earnings than
other customer classes.
==============================================================================
Electric Gross Margin ($000) 1995 1994 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $1,437,480 $1,403,562 2.4
Fuel & Purchased Power 345,387 328,485 5.1
---------- ----------
Gross Margin $1,092,093 $1,075,077 1.6
==============================================================================
Total electric sales, detailed below by customer class, increased by 1.4% to
approximately 27,284,000 megawatt-hours in 1995 compared to 26,911,000
megawatt-hours in 1994. Electric sales were positively impacted by
substantially warmer summer weather conditions during 1995, resulting in
increased use of electricity for air conditioning and other cooling purposes.
As measured by cooling degree days, the 1995 cooling season (June through
August) was 27.7% warmer than the same period in 1994. During the summer of
1995, WE experienced eight days of electric peak demands greater than the
previous record which had been set in June 1994. The increase in electric
sales also reflects colder winter weather during the fourth quarter of 1995
and a moderate increase in economic activity in WE's service area.
- 43 -
<PAGE> 44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Electric Revenues, Gross Margins and Sales - (cont'd)
==============================================================================
Electric Sales (Megawatt-hours) 1995 1994 % Change
- ------------------------------- ---------- ---------- --------
Residential 7,042,691 6,670,081 5.6
Small Commercial/Industrial 7,047,277 6,699,073 5.2
Large Commercial/Industrial 10,639,782 10,471,869 1.6
Other 1,550,937 1,603,741 (3.3)
---------- ----------
Total Retail and Municipal 26,280,687 25,444,764 3.3
Resale-Utilities 1,003,182 1,466,599 (31.6)
---------- ----------
Total Sales 27,283,869 26,911,363 1.4
==============================================================================
The warmer 1995 summer weather increased sales primarily to Residential and
Small Commercial/Industrial customers. These customers are more sensitive to
weather variations than other customer classes. The average number of
customers in the Residential and Small Commercial/Industrial customer classes
grew by 1.3% and 1.8% or from 846,745 and 88,765, respectively, in 1994 to
857,924 and 90,386 in 1995.
Electric energy sales to the Empire and Tilden iron ore mines, WE's two
largest customers, decreased by 0.5% to 2,296,000 megawatt-hours in 1995
compared to 2,308,000 megawatt-hours in 1994. Excluding the mines, sales to
Large Commercial/Industrial customers increased 2.2%.
The 3.3% reduction in 1995 sales to the Other customer class is largely the
result of reductions in sales to WPPI, WE's largest municipal power agency
customer. WPPI has been reducing its purchases from WE subsequent to
acquiring generating capacity in 1990, 1993 and 1996. Since that time, WPPI
has expanded the use of its existing generating facilities and has installed
additional capacity, further reducing its reliance on energy purchases from
WE. These sales reductions did not have a significant effect on earnings.
The market for electric wholesale customers (included in the Other customer
class) is increasingly competitive. WE is in the process of renegotiating or
has renegotiated long-term power sales contracts with most of its municipal
wholesale customers. While WE anticipates retaining most of these customers
over the long-term, WE expects that municipal wholesale revenues will begin to
decline starting in 1996 as a result of lower margins included in the
renegotiated contracts. WE is actively seeking to obtain new municipal
wholesale customers to increase sales in this customer class.
Resale of energy to other utilities declined 31.6% in 1995. This decline can
in part be attributed to unplanned or longer than expected outages at two of
WE's least cost generating facilities during 1995 and to increased retail
customer load as a result of the warmer summer weather, both of which reduced
the opportunity to sell electric energy to other utilities. Additionally,
Upper Peninsula Power Company has permanently reduced the amount of energy
that it is purchasing from WE for resale. These sales reductions did not have
a significant effect on earnings.
1993 Through 1995: Total Electric Operating Revenues increased at a compound
annual growth rate of 3.3% or from approximately $1,348 million in 1993 to
- 44 -
<PAGE> 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Electric Revenues, Gross Margins and Sales - (cont'd)
$1,437 million in 1995 due to increased electric sales. Total electric sales
grew from 25,685,000 megawatt-hours in 1993 to 27,284,000 megawatt-hours in
1995, a compound annual increase of 3.1%. These increases reflect, among
other things, more favorable weather conditions in 1995 and a moderate
increase in economic activity in WE's service area. The gross margin on
Electric Operating Revenues increased at a compound annual rate of 3.0% from
approximately $1,030 million in 1993 to $1,092 million in 1995. This was due
to increased electric sales to Residential and Small Commercial/Industrial
customers who contribute higher margins to earnings than other customer
classes.
From 1993 through 1995, sales to Residential and Small Commercial/Industrial
customers increased at compound annual rates of 3.7% and 5.3% or from
6,551,000 and 6,358,000 megawatt-hours, respectively, in 1993 to 7,043,000 and
7,047,000 megawatt-hours in 1995. This increase was due primarily to warm
summer weather in 1994 and 1995. The average number of Residential and Small
Commercial/Industrial customers has increased at compound annual rates of 1.3%
and 1.7%, respectively, during this period.
Large Commercial/Industrial sales increased from 9,771,000 megawatt-hours in
1993 to 10,640,000 megawatt-hours in 1995, a compound annual increase of 4.3%
attributable in part to a five-week long mine strike during the third quarter
of 1993 which reduced 1993 sales. WE's contracts with the mines require the
payment of a demand charge regardless of power usage which partially offset
the impact on 1993 revenues of lost sales. Sales to the mines represented
8.4%, 8.6% and 7.8% of total electric sales during 1995, 1994 and 1993,
respectively.
For the three year period ending with 1995, sales to the Other customer class
declined from 1,776,000 megawatt-hours in 1993 to 1,551,000 megawatt-hours in
1995, a compound annual decrease of 6.6% resulting from the decreased sales to
WPPI noted above. Sales for Resale to other utilities declined from 1,229,000
megawatt-hours in 1993 to 1,003,000 megawatt-hours in 1995, a compound annual
decrease of 9.7% resulting from the decreased opportunity sales and the
reduction in purchases by Upper Peninsula Power Company described above.
In addition to the results of higher total electric sales, the compound annual
increase in Electric Operating Revenues since 1993 includes the impacts of
rate changes which were effective during 1993 and 1994 as shown below in
"Rates and Regulatory Matters."
Gas Revenues, Gross Margins and Sales
1995 Compared to 1994: Despite an increase in 1995 total gas deliveries,
total Gas Operating Revenues decreased by 1.9% or from $324 million in 1994 to
$318 million in 1995 as a result of a reduction in the cost of gas which is
recovered through the purchased gas adjustment clause. The gross margin on
Gas Operating Revenues (Gas Operating Revenues less Cost of Gas Sold)
increased by 3.7% or from $125 million in 1994 to $129 million in 1995. The
gross margin grew because of increased therm sales to Residential and
Commercial customers who contribute higher margins to earnings than other
customer classes.
- 45 -
<PAGE> 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Gas Revenues, Gross Margins and Sales - (cont'd)
==============================================================================
Gas Gross Margin ($000) 1995 1994 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 318,262 $ 324,349 (1.9)
Cost of Gas Sold 188,764 199,511 (5.4)
---------- ----------
Gross Margin $ 129,498 $ 124,838 3.7
==============================================================================
Total natural gas therms delivered, detailed below by customer class,
increased by 9.3% or from 811,219 thousand therms in 1994 to 886,729 thousand
therms in 1995, due in part to the effects of weather. Colder weather during
the fourth quarter of 1995 contributed to net increased deliveries for the
year. As measured by heating degree days, the fourth quarter was 43.1% colder
than the same period in 1994. The increase in therms delivered also reflects
the warmer summer weather conditions noted above, which increased therm
deliveries to electric peak generating stations described below, and a
moderate increase in economic activity in WE's service area.
==============================================================================
Therms Delivered - Thousands 1995 1994 % Change
- ---------------------------- ---------- ---------- --------
Residential 345,140 323,913 6.6
Commercial/Industrial 207,358 199,206 4.1
Interruptible 50,646 47,467 6.7
---------- ----------
Total Sales 603,144 570,586 5.7
Transported Customer Owned Gas 283,585 240,633 17.8
---------- ----------
Total Gas Delivered 886,729 811,219 9.3
==============================================================================
The colder fourth quarter of 1995 weather increased sales to Residential and
Commercial customers. These customers are more sensitive to weather
variations as a result of heating requirements than other customer classes.
The average number of Residential and Commercial/Industrial customers
increased by 3.3% and 2.7% or from 311,288 and 28,506, respectively, in 1994
to 321,643 and 29,287 in 1995.
During 1995, therm deliveries to Interruptible and Transportation customers
increased by 6.7% and 17.8%, respectively. WE attributes these increases in
part to increased electric generation peaking requirements of its Concord
("Concord") and Paris ("Paris") Generating Stations, especially given the
warmer weather during the summer of 1995. All of the gas fired generating
units at Concord and Paris were in operation by the end of the second quarter
of 1995 while only the generating units at Concord were in operation by the
end of the second quarter of 1994. Deliveries to the Concord and Paris
peaking power plants are at rates approved by the PSCW.
WE transports gas for customers who purchase gas directly from other
suppliers. Rates charged for transportation services are designed to recover
the same margin as natural gas sold directly by WE.
- 46 -
<PAGE> 47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Gas Revenues, Gross Margins and Sales - (cont'd)
WE arranges for its own gas supply under contracts with terms of various
lengths. Changes in the cost of natural gas purchased at market prices are
passed through to customers via WE's purchased gas adjustment clause.
1993 Through 1995: While total Gas Operating Revenues decreased at a compound
annual rate of 2.0% or from $331 million in 1993 to $318 million in 1995, the
gross margin on Gas Operating Revenues increased at a compound annual rate of
5.1% or from $117 million in 1993 to $129 million in 1995. Total therms
delivered increased from 809,348 thousand therms in 1993 to 886,729 thousand
therms in 1995, or at a compound annual rate of 4.7%. Despite an annualized
$9 million or 3.3% rate increase that became effective September 2, 1993 and
the increased therm deliveries, Gas Operating Revenues declined due to a
reduction in the cost of gas which is passed through to customers via the
purchased gas adjustment clause. Gross margin grew as a result of increased
therm sales to Residential and Commercial customers who contribute higher
margins to earnings than other customer classes. Total therm deliveries
increased in part due to favorable weather conditions and moderate economic
growth in WE's service territory from 1993 through 1995.
From 1993 through 1995, therm sales to Residential and Commercial/Industrial
customers increased at compound annual rates of 3.5% and 1.2% or from 322,444
thousand and 202,549 thousand therms, respectively, in 1993 to 345,140
thousand and 207,358 thousand therms in 1995. The average number of
Residential and Commercial/Industrial customers increased at compound annual
rates of 3.1% and 2.5%, respectively, during this period. Therm deliveries to
Interruptible and to Transportation customers increased at compound annual
rates of 21.0% and 6.6% or from 34,608 thousand and 249,747 thousand therms,
respectively, in 1993 to 50,646 thousand and 283,585 thousand therms in 1995.
These gas deliveries increased in part due to the increased electric
generation peaking requirements of Paris and Concord noted above. Therms of
Transported Customer Owned Gas accounted for 32.0%, 29.7% and 30.9% of WE's
total therms delivered during 1995, 1994 and 1993, respectively.
Operating Expenses
1995 Compared to 1994: Excluding Depreciation expense, total operating income
taxes and the nonrecurring 1994 Revitalization charge, total Operating
Expenses decreased 0.9% in 1995, reflecting a reduction of approximately $16
million or 3.1% in Other Operation and Maintenance expenses attributable to
payroll-related savings and efficiencies gained through WE's Revitalization
program. Such reductions were partially offset by higher costs related to
increased generation, the availability of Paris and unscheduled or longer than
expected outages at two of WE's most efficient power plants.
Fuel expense increased by approximately $18 million or 6.2% while Purchased
Power expense declined approximately $1 million or 1.9% in 1995. Fuel expense
rose as a result of higher electric sales. Purchased Power expense fell as a
result of decreased marginal generating costs at three of WE's fossil plants
and the newly installed peaking capacity at Paris. Lower generating costs at
the fossil plants were due to decreased per unit fuel costs and the benefits
of Revitalization, allowing WE to substitute generation for power purchases.
The addition of Paris in 1995 allowed WE to eliminate firm power purchase
contracts that contained fixed demand charges. The unscheduled or
- 47 -
<PAGE> 48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Operating Expenses - (cont'd)
longer than expected outages in 1995 noted above, however, offset most of the
decrease in Purchased Power expense as WE purchased nonfirm replacement energy
on the spot market.
Despite the increase in therm deliveries during 1995 noted above, Cost of Gas
Sold decreased by approximately $11 million or 5.4% in 1995 as a result of a
decrease in the average cost per therm sold.
From 1994 to 1995, total operating income taxes increased $41 million or 41.4%
due to lower taxable income in 1994 caused by the nonrecurring Revitalization
charge. Deferred Income Taxes - Net increased $22 million or 88.7% primarily
due to tax matters related to the timing of payments made in connection with
WE's Revitalization program.
1993 Through 1995: Since 1993, total Operating Expenses excluding
Depreciation expense, total operating income taxes and the nonrecurring 1994
Revitalization charge have decreased at a compound annual rate of 2.1% or from
$1,088 million in 1993 to $1,042 million in 1995. Other Operation and
Maintenance expenses decreased from $555 million in 1993 to approximately $508
million in 1995, a compound annual decrease of 4.4% largely due to the
Revitalization related work force reductions and efficiency gains referred to
above as well as to lower expenditures made in connection with power plant
renovation work as certain major maintenance programs were completed in 1994.
These decreases have been partially offset by expenses associated with the
implementation of Revitalization and increases in conservation-related
expenses associated with improving the efficiency of customers' energy usage.
Fuel expense increased at a compound annual rate of 7.4% or from $263 million
in 1993 to approximately $304 million in 1995, primarily due to increased
electric sales. Purchased Power expense decreased at a compound annual rate
of 12.7% or from $55 million in 1993 to approximately $42 million in 1995 due
to the decreased marginal generating costs at three of WE's fossil plants
noted above and to additional peak generating capacity placed in service at
Concord and Paris in 1994 and 1995, respectively. A 6.1% compound annual
decrease in the Cost of Gas Sold from $214 million in 1993 to approximately
$189 million in 1995 is attributable to a decrease in the average cost per
therm sold. Depreciation expense has increased at a compound annual rate of
4.9% from $167 million in 1993 to $184 million in 1995 as a result of higher
depreciable plant balances. During this period, total operating income taxes
and Deferred Income Taxes-Net have been affected by tax matters related to
Revitalization as noted above and by a prior period reclassification between
current and deferred income taxes.
Other Items
Other Interest Charges increased by $5 million between 1995 and 1994 and by $5
million between 1994 and 1993, reflecting increased average short-term debt
balances, primarily at WE.
New Pronouncements: In 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets ("FAS 121") and Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS 123"). FAS 121 requires that long-lived assets be reviewed
- 48 -
<PAGE> 49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Other Items - (cont'd)
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. FAS 123 establishes
reporting standards and an optional accounting method for stock-based employee
compensation plans. The Company will adopt both standards prospectively in
1996. It is anticipated that adoption will not have a material effect on the
Company's net income or financial position.
In February 1996, FASB released for comment an exposure draft of a Proposed
Statement of Financial Accounting Standards ("FAS"), Accounting for Certain
Liabilities Related to Closure or Removal of Long-Lived Assets. The proposed
FAS, if issued, would require WE to recognize as a liability the present value
of the estimated future total costs associated with closure or removal of
certain long-lived assets and to correspondingly capitalize those costs. The
capitalized costs would be depreciated to expense over the useful life of the
asset. The proposed statement would become effective in 1997. This proposed
FAS would apply to decommissioning costs for Point Beach Nuclear Plant ("Point
Beach") and would result in WE recording a decommissioning liability and
corresponding asset as required by the pronouncement. Currently, nuclear
decommissioning costs are accrued as depreciation expense over the expected
service lives of the two units at Point Beach based on an external sinking
fund method. Any changes in depreciation expense due to differing assumptions
between the proposed FAS and those currently required by the PSCW are not
expected to be material and would most likely be deferrable and recoverable in
rates. For additional information on the costs of decommissioning Point
Beach, see Note F - "Nuclear Operations" in the NOTES TO FINANCIAL STATEMENTS.
Effects of Inflation: With expectations of low-to-moderate inflation, the
Company does not believe the impact of inflation will have a material effect
on its future results of operations.
Electric Sales and Gas Deliveries Outlook
Assuming moderate growth in the economy of its service territory and normal
weather, WE presently anticipates total electric kilowatt-hour sales to grow
at a compound annual rate of approximately 1.1% over the five-year period
ending December 31, 2000. WE forecasts total therm deliveries of natural gas
to grow at a compound annual rate of approximately 2.1% over the same five-
year period. These forecasts are subject to a number of variables, including
among others the economy, weather and the restructuring of the electric and
gas utility industries, which may affect the actual growth in sales. These
estimates do not reflect the operations of NSP, which will become a part of
Primergy after consummation of the Transaction. See "RESULTS OF OPERATIONS -
Mergers" above.
Rates and Regulatory Matters
The table below summarizes the projected annual revenue impact of recent rate
changes authorized by regulatory commissions for the electric, natural gas and
steam utilities of the Company based on the sales projections utilized by
those commissions in setting rates. The PSCW regulates Wisconsin retail
electric, steam and natural gas rates, while the FERC regulates wholesale
power and electric transmission and gas transportation service rates. The
Michigan Public Service Commission ("MPSC") regulates retail electric rates in
Michigan. The PSCW has discontinued the practice of conducting annual rate
- 49 -
<PAGE> 50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Rates and Regulatory Matters - (cont'd)
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, WE did not seek an increase in rates for 1994 or
1995.
==============================================================================
Revenue Percent
Increase Change in Effective
Service (Decrease) Rates Date
- ------------------------- ------------ --------- ---------
(Thousands)
Retail electric, WI $ (33,383) (2.8) 01/01/96
Retail electric, MI (1,128) (3.3) 01/01/96
Retail gas (8,298) (2.6) 01/01/96
Steam heating (790) (5.1) 01/01/96
Fuel electric, WI (16,179)* (1.3) 08/04/94
Fuel electric, WI (8,596)** (0.9) 11/05/93
Retail gas 9,172 3.3 09/02/93
Retail electric, MI 1,366 4.3 07/09/93
Wholesale electric 6,000 10.6 06/09/93
Retail electric, WI 26,655 2.3 02/17/93
Steam heating 505 3.5 02/17/93
==============================================================================
* The 8/4/94 fuel credit was eliminated 1/1/96 by PSCW Order.
** The 11/5/93 fuel credit was eliminated 1/1/94 by PSCW Order.
Under the Wisconsin retail electric fuel cost adjustment procedure, retail
electric rates may be adjusted, on a prospective basis, if cumulative fuel and
purchased power costs, when compared to the costs projected in the retail
electric rate proceeding, deviate from a prescribed range and are expected to
continue to be above or below that range. WE believes that it has the ability
to maintain low fuel costs through efficient management of its power supply
system and fuel procurement practices. Therefore, WE has proposed the
elimination of the retail electric fuel cost adjustment procedure in its 1997
Test Year filing with the PSCW. On December 15, 1995, the MPSC approved the
suspension of the Power Supply Cost Recovery Clause (fuel adjustment
procedure) for a five-year period for Michigan retail electric customers. In
the case of natural gas costs, differences between the test year estimate and
the actual cost of purchased gas are accounted for through a purchased gas
adjustment clause.
1996 Test Year: In a letter order dated September 11, 1995, the PSCW directed
WE to implement rate decreases for Wisconsin retail electric, gas and steam
customers of $33.383 million or 2.75%, $8.298 million or 2.6% and $0.790
million or 5.1%, respectively, on an annualized basis effective January 1,
1996. The decrease is based on a regulatory return on common equity of 11.3%,
down from 12.3% authorized since 1993. Also effective January 1, 1996, the
MPSC authorized WE to implement a rate decrease for Michigan non-mine retail
electric customers of $1.128 million or 3.3% on an annualized basis.
- 50 -
<PAGE> 51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Rates and Regulatory Matters - (cont'd)
1997 Test Year: On January 16, 1996, WE filed specific financial data with
the PSCW related to the 1997 test year showing an $82.2 million revenue
deficiency for its utility operations. The dollar impacts and percentage
increases requested for Wisconsin retail electric, gas and steam customers are
$77.0 million or 6.2%, $4.3 million or 1.4% and $0.9 million or 6.4%,
respectively, on an annualized basis. On March 15, 1996, WE filed testimony
and exhibits with the PSCW related to the 1997 test year. The PSCW had
determined that it required a special full review of WE's rates for the 1997
test year in connection with consideration of the application for approval of
the proposed merger of WEC and NSP.
Neither the 1996 nor 1997 Test Year changes reflect the proposed retail
electric and gas rate reductions and freezes nor the wholesale rate reductions
and freezes related to the proposed merger with NSP. See "RESULTS OF
OPERATIONS - Mergers" above for a separate discussion of rate actions related
to the proposed Transaction.
PSCW Electric Utility Industry Investigation: The PSCW has conducted an
investigation into the electric utility industry in Wisconsin, particularly
its institutional structure and regulatory regime, in order to evaluate what
changes would be beneficial for Wisconsin. The PSCW stated that this
investigation may result in profound and fundamental changes to the nature and
regulation of the electric utility industry in Wisconsin. In January 1995,
the PSCW established an advisory committee, including WE, to examine all
aspects of the electric utility industry and to suggest which functions should
be performed in a competitive market. The PSCW decided on December 12, 1995
the general direction of utility regulation in Wisconsin. This proposed
restructuring of the industry would permit all consumers to choose their
electricity provider by the year 2001 and it would establish a competitive
generation business. The transmission and distribution functions would remain
regulated. In a February 22, 1996 Report to the Wisconsin Legislature, the
PSCW identified a 32 step workplan that it would follow for Electric Utility
Restructuring in Wisconsin. In the plan, the PSCW indicated that during 1996
it will begin activities on 12 of these steps, some of which would seek
changes in applicable administrative rules under its jurisdiction, including
affiliated interest standards and quality of service standards. The PSCW
expects to present an electric utility restructuring proposal to the Wisconsin
State Legislature in 1997. In its February 22, 1996 report, the PSCW stated
that the implementation timetable for its plan is subject to change depending
on the pace of resolution of the specific restructuring steps and on external
events.
PSCW Natural Gas Utility Industry Investigation: The PSCW also continued a
generic investigation of the natural gas industry in Wisconsin and addressed
the extent to which traditional regulation should be replaced with a different
approach. In conjunction with this generic investigation, the PSCW staff is
reviewing the use of the current purchased gas adjustment ("PGA") mechanism
which is designed to pass on to gas customers increases or decreases in the
cost of natural gas purchased for resale. A separate docket has been
established to review the PGA. WE is participating in these PSCW
investigations.
In June 1995, WE filed with the PSCW a proposal to replace the current PGA
mechanism with a new market-based pricing mechanism. The proposed gas pricing
- 51 -
<PAGE> 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Rates and Regulatory Matters - (cont'd)
mechanism would link gas commodity prices to market indices and incorporate
all other gas supply costs such as transportation and storage, under a price
cap. The price cap would be designed to provide balanced financial incentives
and risks for WE based upon performance standards, while ensuring a reliable
gas supply for consumers. In July 1995, the PSCW decided to analyze and
review this proposal as part of the generic docket established to review the
PGA. The matter is pending.
FERC Open Access Transmission NOPR: In March 1995, the FERC issued a Notice
of Proposed Rulemaking ("NOPR") on Open Access Non-Discriminatory Transmission
Services by Public Utilities. The NOPR's goal is to create a more competitive
wholesale electric power market. In the proposed rulemaking, FERC would
require all electric utilities that own or control transmission facilities to
file non-discriminatory open access transmission tariffs available to
wholesale sellers and buyers of electric energy, to take service under the
tariffs for their own wholesale sales and purchases of electric energy and to
provide utilities the opportunity to recover legitimate and verifiable
stranded costs on the federal and state levels. WE advocates open access to
transmission facilities as a necessary step in the competitive restructuring
of the electric utility industry and does not believe that the issuance of a
final rule by FERC will have a negative material impact on the Company's
financial position or results of operations. WE expects FERC to finalize and
issue its open access transmission rules in the second quarter of 1996.
Regulatory Accounting: WEC's principal subsidiary, WE, operates under
electric utility rates which are subject to the approval of the PSCW, MPSC and
FERC, and natural gas and steam utility rates that are subject to the approval
of the PSCW (see "Rates and Regulatory Matters" above). Such rates are
designed to recover the cost of service and provide a reasonable return to
investors. Developing competitive pressures in the utility industry may
result in future utility rates which are based upon factors other than the
traditional original cost of investment. In such a situation, continued
deferral of certain regulatory asset and liability amounts on the utility's
books may no longer be appropriate as allowed under Statement of Financial
Accounting Standards No. 71, Accounting for the Effects of Certain Types of
Regulation. At this time, WEC is unable to predict whether any adjustments to
regulatory assets and liabilities will occur in the future. See Note A -
"Summary of Significant Accounting Policies" in the NOTES TO FINANCIAL
STATEMENTS.
LIQUIDITY AND CAPITAL RESOURCES
Investing Activities
WEC invested $1.111 billion in its businesses during the three years ended
December 31, 1995. The investments made during this three-year period include
construction expenditures for new or improved facilities totaling $932
million, purchases of nuclear fuel of $70 million, net capitalized
conservation expenditures of $54 million and payments to an external trust for
the eventual decommissioning of WE's Point Beach Nuclear Plant totaling $32
million.
- 52 -
<PAGE> 53
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Investing Activities - (cont'd)
Paris Generating Station: During 1995, WE placed in service four units, or
approximately 300 megawatts of capacity, at its Paris Generating Station.
This natural gas-fired combustion turbine facility, located near Union Grove,
Wisconsin, is designed to meet peak demand requirements. Capital expenditures
of $10 million, $54 million and $28 million were made during 1995, 1994 and
1993, respectively, for construction of this facility. The capital costs of
the Paris facility will total approximately $105 million.
Concord Generating Station: During 1994, WE placed in service the last two
units, or approximately 150 megawatts of capacity, at its Concord Generating
Station. This four unit 300 megawatt natural gas-fired combustion turbine
facility, located near Watertown, Wisconsin, is designed to meet peak demand
requirements. The first two units were completed in 1993. Capital
expenditures of $3 million, $6 million and $35 million were made during 1995,
1994 and 1993, respectively, for construction of this facility. The capital
costs of the Concord facility will total approximately $107 million.
Port Washington Power Plant Renovation: Additionally during 1994, WE
completed the $107 million renovation project at its Port Washington Power
Plant. The renovation work, which began in September 1991, included the
installation of additional emission control equipment. Expenditures totaling
$12 million and $36 million were made during 1994 and 1993, respectively.
Cash Provided by Operating and Financing Activities
During the three years ended December 31, 1995, cash provided by operating
activities totaled $1.248 billion. During this period, internal sources of
funds, after the payment of dividends, provided approximately 72% of the
Company's capital requirements.
Financing activities during the three-year period ended December 31, 1995
included the issuance of $646 million of long-term debt, principally to
refinance higher coupon debt, the addition of $164 million of common equity
from the issuance of new shares through the Company's stock plans and the
purchase or redemption of $71 million of preferred stock. No preferred stock
was issued during this period. Additionally, during the three-year period
ended December 31, 1995, the Company retired a total of $503 million of long-
term debt and increased short-term debt by $35 million. Dividends on the
Company's common stock were $160 million, $151 million, and $141 million,
during 1995, 1994 and 1993, respectively.
In December 1995, WE issued $100 million of unsecured One Hundred Year 6 7/8%
Debentures due 2095. Proceeds of the issue were added to WE's general funds
and were applied to the repayment of short-term borrowings.
In August 1995, WE called for optional redemption $98.35 million aggregate
principal amount of fixed rate tax exempt bonds issued by three political
jurisdictions on WE's behalf that were secured by issues of WE's First
Mortgage Bonds with terms corresponding to the tax exempt bonds called for
redemption. During September and October 1995, the three political
jurisdictions issued $98.35 million aggregate principal amount of new tax
exempt bonds on behalf of WE, collateralized by unsecured variable rate
promissory notes issued by WE, maturing between March 1, 2006 and
- 53 -
<PAGE> 54
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Cash Provided by Operating and Financing Activities - (cont'd)
September 1, 2030, with terms corresponding to the respective issues of the
refunding tax exempt bonds. The proceeds were used to finance the optional
redemptions. The WE First Mortgage Bonds, which collateralized the redeemed
tax exempt bonds, have been canceled.
During 1993, WE issued five new series of First Mortgage Bonds aggregating
$350 million in principal amount, the proceeds of which were used to redeem
$284.3 million principal amount of four outstanding series of First Mortgage
Bonds and 626,500 shares of WE's 6.75% Series Preferred Stock. These
refunding transactions are expected to result in significant savings over the
lives of the new debt issues. Depending on market conditions and other
factors, additional debt refundings may occur.
The Merger Agreement, entered into by WEC and NSP, provides for restrictions
on certain transactions by both the Company and NSP, including the issuance of
debt and equity securities. While WEC does not currently plan to enter into
transactions that would not comply with these restrictions, circumstances may
arise to make such transactions necessary. Under such circumstances, NSP
would need to agree to consent to any such change in the Merger Agreement.
See Note A - "Summary of Significant Accounting Policies" in the NOTES TO
FINANCIAL STATEMENTS for a discussion of various limitations on the ability of
the Company's utility subsidiary to transfer funds to WEC.
Capital Structure
The Company's capitalization at December 31 was as follows:
==============================================================================
1995 1994
------ ------
Common Equity 53.8% 52.2%
Preferred Stock 0.9 0.9
Long-Term Debt
(including current maturities) 40.8 39.4
Short-Term Debt 4.5 7.5
------ ------
100.0% 100.0%
==============================================================================
Compared to the utility industry in general, 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 and internal cash generation has provided, and should
continue to provide, the Company with access to the capital markets when
necessary to finance the anticipated growth in the Company's utility business.
WE currently has senior secured debt ratings of AA+ by Standard & Poor's
Corporation ("S&P"), Duff & Phelps Inc. and Fitch Investors Service Inc.
("Fitch") and Aa2 by Moody's Investors Service ("Moody's").
Following announcement of the Transaction, on May 1, 1995 S&P reported that it
was placing on CreditWatch with negative implications its AA+ senior secured
debt and AA+ preferred stock ratings of WE and its AA senior unsecured debt
rating of Wisconsin Michigan Investment Corporation, a non-utility subsidiary
- 54 -
<PAGE> 55
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Structure - (cont'd)
of WEC. S&P stated that if the Transaction is completed, the likely credit
rating for the senior secured debt of WE is expected to be AA or AA-. As part
of its rating process, S&P intends to review the financial and operating plans
of the merged utilities. Also on May 1, 1995, citing WE's continued operation
as a separate utility subsidiary after the Transaction, its strength within
its rating category and its strong capital structure, Moody's confirmed its
Aa2 first mortgage bond rating of WE. On December 5, 1995, Fitch changed WE's
credit trend from "stable" to "declining" based upon its analysis of cash flow
trends versus its standards for an AA+ rating.
At year-end 1995, WEC had $157 million of unused lines of bank credit and $24
million of cash and cash equivalents.
Capital Requirements 1996-2000
The estimated capital requirements for the Company's utility subsidiary for
the years 1996-2000 are outlined in the table below. Compared to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994, the
table below no longer reflects conservation expenditures. Effective
January 1, 1995, WE began expensing conservation expenditures currently.
Through 1995, capitalized conservation investments were amortized to Operating
Expense over a ten-year amortization period. Effective
January 1, 1996, WE began amortizing the remaining capitalized conservation
investment to operating expense over a five-year amortization period.
The capital requirements table below does not reflect the impact of the
proposed Transaction with NSP. See "RESULTS OF OPERATIONS - Mergers" above.
==============================================================================
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(Millions of Dollars)
Construction $228 $189 $181 $183 $215
Bond Maturities and
Refinancings 30 166 61 93 2
Changes in Fuel
Inventories 3 13 4 (5) 11
Decommissioning Trust
Payments 31 33 35 38 40
---- ---- ---- ---- ----
Total $292 $401 $281 $309 $268
==============================================================================
LS Power Generation Facility: In 1993, a competitive bidding process
conducted by the PSCW resulted in the selection of a proposal submitted by an
unaffiliated independent power producer, LSP-Whitewater L.P. ("LS Power"), to
construct a generation facility to meet a portion of WE's anticipated increase
in system supply needs. WE subsequently signed a long-term agreement to
purchase electricity from the proposed facility. The agreement is contingent
upon the facility being completed and placed into operation, which at this
time is planned for mid-1997.
- 55 -
<PAGE> 56
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000 - (cont'd)
PSCW Advance Plan 7: In January 1994, a coordinated state-wide plan for
meeting future electricity needs of Wisconsin customers was filed with the
PSCW in the Advance Plan 7 Docket. In the Advance Plan process, WE, in
conjunction with the other regulated electric utilities located in Wisconsin,
files long-term forecasts of resource requirements, such as the need for
generation and transmission facilities, along with plans to meet those
requirements, including the use of energy management and conservation. The
PSCW approved WE's Advance Plan 7 filing in December 1995.
In order to reliably meet its forecasted growth in demand, WE employs a least-
cost integrated planning process which includes renovation of existing power
plants, promotion of cost-effective conservation and load management options,
development of renewable energy sources, purchases of power and construction
of new company-owned generation facilities.
Investments in demand-side management programs have reduced and delayed the
need to add new generating capacity but have not eliminated the need entirely.
Purchases of power from other utilities and transmission system upgrades will
also combine to help delay the need to install some new generating capacity in
the future.
Finally, WE's Advance Plan 7 filing indicated a need for additional peaking
capacity after the turn of the century, along with an anticipated need for
additional intermediate-load capacity during the 2000 to 2010 time period. WE
does not anticipate needing additional base load generation until after 2010.
The addition of new generating units requires approval of the PSCW following a
two-stage bidding process, which could influence whether WE would construct
such facilities or purchase the required power. The United States
Environmental Protection Agency and the Wisconsin Department of Natural
Resources ("DNR") also must approve new generating units. All generating
facilities proposed by WE will meet or exceed the applicable federal and state
environmental requirements.
Kimberly Cogeneration Facility: Prior to the 1993 selection of the LS Power
generation facility by the PSCW, WE had proposed to construct its own 220
megawatt cogeneration facility in Kimberly, Wisconsin, which was intended to
provide process steam to Repap Wisconsin, Inc. ("Repap") starting in mid-1994.
In the PSCW Order, the WE project was selected as the second place conditional
project if the LS Power project did not proceed. WE had made expenditures for
the Kimberly facility of approximately $65.8 million associated with the
procurement of three combustion turbines, one steam turbine and three heat
recovery boilers in order to achieve the in-service dates as agreed to in a
steam service contract with Repap.
The Company is currently reviewing its options regarding its Kimberly
Cogeneration Facility equipment (the "Equipment"). The Equipment is of a
technology of natural gas-fired combined cycle generation equipment that is
marketed worldwide. The Company is investigating opportunities to sell the
Equipment or to use it in another power project and is currently evaluating
potential sales opportunities and/or power projects involving the Equipment.
At this time, the Company does not believe that disposition of the Equipment
will have a material adverse effect on its financial condition. However,
there is a possibility that WE may need to recognize an impairment of the
- 56 -
<PAGE> 57
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000 - (cont'd)
Equipment in the future should the projects noted above not occur and should
no other viable sales opportunities and/or power projects involving the
Equipment be identified.
Point Beach Unit 2 Steam Generators and Dry Cask Storage Facility: WE
operates two 500 megawatt generating units at Point Beach. During 1995, Point
Beach accounted for 26.9% of WE's net electric generation. The current
operating licenses for the two units at Point Beach expire in 2010 and 2013
for Units 1 and 2, respectively.
In October 1992, WE filed an application with the PSCW for replacement of the
Point Beach Unit 2 steam generators. As a result of degradation of some of
the tubes within the Unit 2 steam generators, the unit has been operating at
approximately 90% of its capacity since its return to service after its annual
refueling outage in the fall of 1995. In February 1995, the PSCW deferred a
decision on the replacement of the steam generators in part to gather more
information during the fall 1995 refueling outage. An evaluation of
information gathered during this outage was included in a Supplemental
Environmental Impact Statement ("SEIS") prepared by the PSCW that shows the
replacement of the Unit 2 steam generators to be the most cost-effective
option when compared to all credible alternatives. Considering the rate of
tube degradation in the steam generators, there is a likelihood that WE would
not be able to restart Unit 2 following the fall 1996 outage without
replacement of the steam generators. In its SEIS, the PSCW estimates that
failure to replace the Unit 2 steam generators would cost WE customers up to
$494 million over the next 25 years to replace lost generation when compared
to the current estimated cost of replacement of $96 million.
In a related matter, WE received a Certificate of Authority from the PSCW in
February 1995 to construct and operate an Independent Spent Fuel Storage
Installation ("ISFSI"). The ISFSI will provide interim dry cask storage of
spent fuel from Point Beach using a system that was certified by the NRC after
a four-year technical review. Construction was completed in June 1995 with
associated capital costs of $8.5 million. WE loaded the first cask with spent
fuel in December 1995. On December 22, 1995, the Dane County Circuit Court
("Court") issued a decision vacating and remanding the February 1995 order of
the PSCW on procedural grounds, stating that the Environmental Impact
Statement prepared by the PSCW for this project was inadequate in two
respects. Transfer of additional spent fuel to the ISFSI has been temporarily
suspended by WE pending the PSCW's further action.
The PSCW has issued two SEIS's which address steam generator issues and the
inadequacies found by the Court with the original Environmental Impact
Statement for the ISFSI project. The PSCW held related hearings on these
matters in February and March 1996. WE anticipates that the PSCW will issue a
combined final order on replacement of the Unit 2 steam generators and the
remanded dry cask storage matters in May 1996. Failure by the PSCW to approve
the steam generator replacement and resolve the remanded issues could
jeopardize the continued operation of Point Beach and materially affect WE's
financial position and results of operations. WE would likely seek regulatory
relief to minimize the replacement power costs resulting from lost generating
capacity.
- 57 -
<PAGE> 58
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Capital Requirements 1996-2000 - (cont'd)
The ISFSI was necessary because the spent fuel pool inside the plant is
nearly full. The dry storage facility will be used until the United States
Department of Energy ("DOE") takes ownership of and removes the spent fuel.
While WE as well as other operators of nuclear power facilities in the United
States have a contract mandated by federal law that calls for the DOE to begin
accepting fuel in 1998, the DOE is not in a position to meet its commitment.
If this commitment is not met, WE will need to construct additional casks and
will seek PSCW approval to do so.
Milwaukee County Power Plant: In December 1995, WE signed an agreement with
Milwaukee County to purchase the Milwaukee County Power Plant located in
Wauwatosa, Wisconsin. The 11 megawatt power plant provides steam, chilled
water and electricity for the Milwaukee Regional Medical Center and several
other large customers located on the Milwaukee County grounds. WE had
previously obtained approval from the PSCW for the purchase of the electric
generation and distribution facilities and acquired them in December 1995 with
a capital expenditure of $7 million. WE will integrate the electric
facilities into its current electric utility operations. In February 1996, WE
filed an application with the PSCW for a Certificate of Authority to acquire
and place in operation the steam production and distribution facilities.
Capital costs for the steam facilities will be $20 million. WE anticipates
PSCW approval of the acquisition by mid-1996 and will integrate the steam
facilities into its current steam utility operations. WEC will acquire and
operate the chilled water facility as a non-regulated business. The chilled
water production and distribution facility will be acquired with a capital
cost of $18 million in conjunction with the steam facility acquisition
anticipated in mid-1996. Purchase of the steam and chilled water portions of
the plant is contingent upon PSCW approval to acquire the steam facilities and
upon the five major customers signing ten-year steam and chilled water service
agreements.
Capital Resources
During the five-year period ending December 31, 2000, WE expects internal
sources of funds from operations, after dividends to WEC, to provide about 87%
of the utility capital requirements. The remaining utility cash requirements
are expected to be met through short-term borrowings and the issuance of
intermediate or long-term debt. The specific form, amount and timing of debt
securities which may be issued have not yet been determined and will depend,
to a large extent, on market conditions and other factors. The anticipated
capital resources during this period do not reflect the impact of the proposed
merger with NSP. See "RESULTS OF OPERATIONS - Mergers" above.
On June 1, 1992, WEC began issuing new shares of common stock through the
Company's stock plans. Previously, WEC had purchased shares required for the
plans on the open market. Cash investments and reinvested dividends
aggregating $52.4 million were used to purchase 1,879,568 new issue shares
during 1995. Effective January 1, 1996, WEC resumed purchasing shares
required for the plans on the open market.
Environmental Issues
Clean Air Act: The 1990 Amendments to the Clean Air Act mandate significant
nation-wide reductions in SO2 and NOx emissions to address acid rain and
ground level ozone control requirements.
- 58 -
<PAGE> 59
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Environmental Issues - (cont'd)
In 1994, WE completed the installation of continuous emission monitors at all
of its facilities and installed low NOx burners on one boiler at its Oak Creek
Power Plant and two boilers at its Valley Power Plant. These actions, along
with the burning of low sulfur coal and the installation of low NOx burners on
other boilers at Oak Creek and Valley Power Plants in early 1995, meet the
requirements that became effective January 1, 1995. To date, approximately
$45.3 million has been spent on compliance with the 1990 amendments to the
Clean Air Act.
WE elected to voluntarily bring the Valley and Port Washington Power Plants
under jurisdiction of the NOx and SO2 requirements of the Clean Air Act
amendments of 1990, five years earlier than mandated. This was possible
because these units meet the more stringent phase II emissions standards
today.
WE projects a surplus of SO2 emission allowances and is seeking additional
allowances available as a result of energy conservation programs. As an
integral component of its least-cost plan, WE is active in SO2 allowance
trading. Revenue from the sale of allowances is being used to offset future
potential rate increases.
Additional fuel switching and the installation of NOx controls at various
power plants will be required to meet the second phase of reduction
requirements that become effective January 1, 2000. These costs, along with
additional operating expenses, are not expected to exceed $40.3 million based
on today's costs.
Manufactured Gas Plant Sites: WE's natural gas business unit is investigating
the remediation of a number of former manufactured gas plant ("MGP") sites.
Operations at these MGP sites ceased over 40 years ago. Limited remediation
activities occurred at a number of these sites during the 1980's, with removal
of waste materials known to be present at that time. In 1995, WE presented a
plan to investigate and further remediate sites to the DNR. During 1995, WE
conducted site investigations at four sites and partial remediation activities
were conducted at one site. Approximately $1.6 million has been spent through
December 31, 1995 for such activities. Remediation costs to be incurred
through the year 2000 have been estimated to be $12 million, but the total
costs are uncertain pending the results of further site specific
investigations and the selection of site specific remedial actions. In its
September 11, 1995 letter order, the PSCW allowed WE to defer MGP site
remediation costs with final rate treatment of such costs to be determined in
future rate cases. As of December 31, 1995, WE has recorded an accrued
liability of $1.6 million for MGP site remediation and a related deferred
regulatory asset of $3.2 million. WE expects to accrue additional MGP site
remediation liabilities during 1996 as site specific investigations are
completed and site specific remedial actions are identified. WE will seek
rate recovery for these costs and does not anticipate that there will be a
material adverse effect on its net income or financial position.
Ash Landfill Sites: WE aggressively seeks environmentally acceptable,
beneficial uses of its combustion byproducts. However, ash materials have
been, and to some degree, continue to be disposed in company-owned, licensed
landfills. Some early designed and constructed landfills may allow the
release of low levels of constituents resulting in the need for various levels
- 59 -
<PAGE> 60
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (cont'd)
Environmental Issues - (cont'd)
of remediation. Where WE has become aware of these conditions, efforts have
been expended to define the nature and extent of any release, and work has
been performed to address these conditions. These costs are included in the
environmental operating and maintenance costs of WE.
Non-Utility Investments
WEC's non-utility assets amounted to approximately $242 million at December
31, 1995. WEC currently anticipates making additional non-utility investments
from time to time. For additional information, see Note L - "Information by
Segments of Business" in the NOTES TO FINANCIAL STATEMENTS.
Minergy Glass Aggregate Plant: Minergy Corp. ("Minergy"), a non-regulated WEC
subsidiary, plans to place into operation in 1997 a $45 million facility in
Neenah, Wisconsin that would recycle paper sludge from area paper mills into
two usable products: glass aggregate and steam. The glass aggregate will be
sold into existing construction and aggregate markets and the steam will be
sold to a local paper mill. The plant will result in substantial
environmental and economic benefits to the area by providing an alternative to
landfilling paper sludge. Minergy has received the necessary approvals from
the City of Neenah for construction of the facility and is awaiting the
issuance of necessary permits by the DNR. The project is expected to be
financed during construction through short-term borrowings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The "Consolidated Quarterly Financial Data" in SELECTED FINANCIAL DATA is
incorporated herein by reference.
- 60 -
<PAGE> 61
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - (cont'd)
WISCONSIN ENERGY CORPORATION
CONSOLIDATED INCOME STATEMENT
Year Ended December 31
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues
Electric $1,437,480 $1,403,562 $1,347,844
Gas 318,262 324,349 331,301
Steam 14,742 14,281 14,090
---------- ---------- ----------
Total Operating Revenues 1,770,484 1,742,192 1,693,235
Operating Expenses
Fuel (Note F) 303,553 285,862 263,385
Purchased power 41,834 42,623 54,880
Cost of gas sold 188,764 199,511 214,132
Other operation expenses 395,242 399,011 399,135
Maintenance 112,400 124,602 156,085
Revitalization (Note K) - 73,900 -
Depreciation (Note C) 183,876 177,614 167,066
Taxes other than income taxes 74,765 76,035 74,653
Federal income tax (Note D) 119,939 104,725 74,463
State income tax (Note D) 28,405 24,756 15,530
Deferred income taxes - net (Note D) (2,833) (25,095) 13,096
Investment tax credit - net (Note D) (4,482) (4,625) (4,626)
---------- ---------- ----------
Total Operating Expenses 1,441,463 1,478,919 1,427,799
Operating Income 329,021 263,273 265,436
Other Income and Deductions
Interest income 17,143 17,484 18,809
Allowance for other funds used during
construction (Note E) 3,650 4,985 8,457
Miscellaneous - net (6,497) 3,318 4,564
Federal income tax (Note D) 2,882 2,118 994
State income tax (Note D) (357) (940) (751)
---------- ---------- ----------
Total Other Income and Deductions 16,821 26,965 32,073
Income Before Interest Charges
and Preferred Dividend 345,842 290,238 297,509
Interest Charges
Long-term debt 101,806 103,897 104,859
Other interest 14,002 9,206 4,356
Allowance for borrowed funds used
during construction (Note E) (5,203) (5,084) (6,218)
---------- ---------- ----------
Total Interest Charges 110,605 108,019 102,997
Preferred Dividend Requirement
of Subsidiary 1,203 1,351 4,377
---------- ---------- ----------
Net Income $ 234,034 $ 180,868 $ 190,135
========== ========== ==========
Average Number of Shares of
Common Stock Outstanding (Thousands) 109,850 108,025 105,878
========== ========== ==========
Earnings Per Share of Common Stock $2.13 $1.67 $1.80
========== ========== ==========
<FN>
The notes are an integral part of the financial statements.
- 61 -
</TABLE>
<PAGE> 62
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31
<CAPTION>
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Activities
Net income $234,034 $180,868 $190,135
Reconciliation to cash
Depreciation 183,876 177,614 167,066
Nuclear fuel expense - amortization 22,324 21,437 21,366
Conservation expense - amortization 21,870 20,910 15,254
Debt premium, discount & expense - amortization 12,690 14,405 13,647
Revitalization - net (5,404) 43,860 -
Deferred income taxes - net (2,833) (25,095) 13,096
Investment tax credit - net (4,482) (4,625) (4,626)
Allowance for other funds used
during construction (3,650) (4,985) (8,457)
Change in - Accounts receivable (35,492) 11,912 (22,691)
Inventories 5,233 11,455 (11,186)
Accounts payable 16,713 (21,343) 9,543
Other current assets (7,652) (9,897) 985
Other current liabilities 20,769 9,509 19,184
Other (31,104) (9,715) 1,970
-------- -------- --------
Cash Provided by Operating Activities 426,892 416,310 405,286
Investing Activities
Construction expenditures (271,688) (295,769) (364,810)
Allowance for borrowed funds used
during construction (5,203) (5,084) (6,218)
Nuclear fuel (23,454) (26,351) (20,016)
Nuclear decommissioning trust (10,861) (10,138) (11,371)
Conservation investments - net 2,130 (20,823) (35,252)
Other (581) (6,519) 865
-------- -------- --------
Cash Used in Investing Activities (309,657) (364,684) (436,802)
Financing Activities
Sale of - Common stock 52,353 50,494 61,460
Long-term debt 234,453 32,474 378,649
Retirement of - Preferred stock - (5,250) (65,504)
Long-term debt (134,567) (35,434) (333,192)
Change in short-term debt (95,136) 44,769 85,079
Dividends on stock - common (159,688) (150,708) (140,876)
-------- -------- --------
Cash Used in Financing Activities (102,585) (63,655) (14,384)
-------- -------- --------
Change in Cash and Cash Equivalents $ 14,650 $(12,029) $(45,900)
======== ======== ========
Supplemental Information
Cash Paid For
Interest (net of amount capitalized) $ 99,924 $ 94,324 $ 85,717
Income taxes 146,979 145,883 99,437
<FN>
The notes are an integral part of the financial statements.
- 62 -
</TABLE>
<PAGE> 63
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
December 31
ASSETS
<CAPTION>
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Utility Plant
Electric $4,531,404 $4,304,925
Gas 489,739 467,732
Steam 40,078 40,103
---------- ----------
5,061,221 4,812,760
Accumulated provision for depreciation (2,288,080) (2,134,469)
---------- ----------
2,773,141 2,678,291
Construction work in progress 78,153 205,835
Nuclear fuel - net (Note F) 59,260 56,606
---------- ----------
Net Utility Plant 2,910,554 2,940,732
Other Property and Investments
Nuclear decommissioning trust fund (Note F) 275,125 226,805
Conservation investments 115,523 138,489
Non-utility property - net 115,392 94,799
Other 131,918 136,626
---------- ----------
Total Other Property and Investments 637,958 596,719
Current Assets
Cash and cash equivalents 23,626 8,976
Accounts receivable, net of allowance for
doubtful accounts - $13,400 and $12,078 150,149 114,657
Accrued utility revenues 140,201 128,107
Fossil fuel (at average cost) 83,366 88,587
Materials and supplies (at average cost) 70,347 70,359
Prepayments 58,739 61,232
Other 5,091 7,040
---------- ----------
Total Current Assets 531,519 478,958
Deferred Charges and Other Assets
Accumulated deferred income taxes (Note D) 140,844 139,927
Deferred regulatory assets (Note A) 193,757 197,103
Other 146,103 54,820
---------- ----------
Total Deferred Charges and Other Assets 480,704 391,850
---------- ----------
Total Assets $4,560,735 $4,408,259
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 63 -
</TABLE>
<PAGE> 64
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
December 31
CAPITALIZATION and LIABILITIES
<CAPTION>
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Capitalization (See Capitalization Statement)
Common stock equity $1,871,265 $1,744,566
Preferred stock 30,451 30,451
Long-term debt (Note H) 1,367,644 1,283,686
---------- ----------
Total Capitalization 3,269,360 3,058,703
Current Liabilities
Long-term debt due currently (Note H) 51,854 32,531
Notes payable (Note I) 156,919 252,055
Accounts payable 108,508 91,795
Payroll and vacation accrued 26,699 26,507
Taxes accrued - income and other 20,072 18,250
Interest accrued 21,863 23,477
Other 50,191 29,822
---------- ----------
Total Current Liabilities 436,106 474,437
Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note D) 483,410 475,541
Accumulated deferred investment tax credits 89,672 94,154
Deferred regulatory liabilities (Note A) 167,483 171,599
Other 114,704 133,825
---------- ----------
Total Deferred Credits and Other
Liabilities 855,269 875,119
Commitments and Contingencies (Note M)
---------- ----------
Total Capitalization and Liabilities $4,560,735 $4,408,259
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 64 -
</TABLE>
<PAGE> 65
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CAPITALIZATION STATEMENT
December 31
<CAPTION>
1995 1994
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Common Stock Equity (See Common Stock Equity Statement)
Common stock - $.01 par value; authorized 750,000,000 and 325,000,000 shares;
outstanding - 110,819,337 and 108,939,769 shares $ 1,108 $ 1,089
Other paid in capital 676,909 624,568
Retained earnings 1,193,248 1,118,909
---------- ----------
Total Common Stock Equity 1,871,265 1,744,566
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 2,286,500 and 2,360,000 shares;
outstanding - 3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock (Note G) 30,451 30,451
Long-Term Debt
First mortgage bonds
Series Due 1995 1994 Series Due 1995 1994
------ --- -------- ------- ------ --- ------- -------
Wisconsin Electric Power Company 7-1/4% 2004 140,000 140,000
5-5/8% 1995 $ - $ 10,000 6.45 % 2006 - 4,000
4-1/2% 1996 30,000 30,000 6.50 % 2007-2009 - 10,000
5-7/8% 1997 130,000 130,000 9-3/4% 2015 - 46,350
6-5/8% 1997 10,000 10,000 7-1/8% 2016 100,000 100,000
5-1/8% 1998 60,000 60,000 6.85 % 2021 9,000 9,000
6.10 % 1999-2008 - 25,000 7-3/4% 2023 100,000 100,000
6.25 % 1999-2008 - 1,000 7.05 % 2024 60,000 60,000
6-1/2% 1999 40,000 40,000 9-1/8% 2024 3,443 3,443
6-5/8% 1999 51,000 51,000 8-3/8% 2026 100,000 100,000
6.45 % 2004 - 12,000 7.70 % 2027 200,000 200,000
1,033,443 1,141,793
Debentures (unsecured)
Wisconsin Electric Power 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 7,000
8-1/4% Series due 2022 25,000 25,000
6-7/8% Series due 2095 100,000 -
Notes (unsecured)
Wisconsin Electric Power Company - Variable rate due 2006 1,000 -
Variable rate due 2015 17,350 -
Variable rate due 2016 67,000 67,000
Variable rate due 2030 80,000 -
Wisconsin Michigan Investment Corporation - 6.83% due 1997 5,000 5,000
5.80% due 1998 7,000 7,000
6.49% due 2000 7,000 -
6.66% due 2003 10,600 10,600
6.85% due 2005 10,000 -
WMF Corp. - 9.1% due 2001 3,310 3,705
Obligations under capital lease - Wisconsin Electric Power Company (Note F) 43,924 43,696
Unamortized discount - net (23,129) (21,867)
Long-term debt due currently (51,854) (32,531)
---------- ----------
Total Long-Term Debt (Note H) 1,367,644 1,283,686
---------- ----------
Total Capitalization $3,269,360 $3,058,703
========== ==========
<FN>
The notes are an integral part of the financial statements.
- 65 -
</TABLE>
<PAGE> 66
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED COMMON STOCK EQUITY STATEMENT
<CAPTION>
- -------------------------------------------------- ----------------------------------------------------------
Common Stock Common Stock Other Paid Retained
Shares $.01 Par Value In Capital Earnings Total
- -------------------------------------------------- ----------------------------------------------------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
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 G) (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
Net Income 234,034 234,034
Common stock cash dividends
$1.455 per share (159,688) (159,688)
Sale of common stock 1,879,568 19 52,341 (7) 52,353
- -------------------------------------------------- ----------------------------------------------------------
Balance - December 31, 1995 110,819,337 $1,108 $676,909 $1,193,248 $1,871,265
================================================== ==========================================================
<FN>
The notes are an integral part of the financial statements.
- 66 -
</TABLE>
<PAGE> 67
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"), its utility subsidiary,
Wisconsin Electric Power Company ("WE"), and its non-utility subsidiaries,
Wisconsin Michigan Investment Corporation, Badger Service Company, Wispark
Corporation, Wisvest Corporation, Witech Corporation and other non-utility
companies.
The accounting records of the Company's utility subsidiary are kept as
prescribed by the Federal Energy Regulatory Commission ("FERC"), modified for
requirements of the Public Service Commission of Wisconsin ("PSCW").
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenues: Utility revenues are recognized on the accrual basis and include
estimated amounts for service rendered but not billed.
Fuel: The cost of fuel is expensed in the period consumed.
Property: Property is recorded at cost. Additions to and significant
replacements of utility property are charged to utility plant at cost; minor
items are charged to maintenance expense. Cost includes material, labor and
allowance for funds used during construction (see Note E). The cost of
depreciable utility property, together with removal cost less salvage, is
charged to accumulated provision for depreciation when property is retired.
Deferred Regulatory Assets and Liabilities: Pursuant to Statement of
Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation, WE capitalizes, as deferred regulatory assets, incurred
costs which are expected to be recovered in future utility rates. WE also
records, as deferred regulatory liabilities, the current recovery in utility
rates of costs which are expected to be paid in the future. A significant
portion of WE's deferred regulatory assets and liabilities relate to the
amounts recorded due to the adoption of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("FAS 109"). (See Note D.)
Statement of Cash Flows: Cash and cash equivalents include marketable debt
securities acquired three months or less from maturity.
Conservation Investments: WE directs a variety of demand-side management
programs to help foster energy conservation by its customers. As authorized
by the PSCW, WE capitalized certain conservation program costs prior to 1995.
Utility rates approved by the PSCW provide for a current return on these
conservation investments. Through 1995, conservation investments were charged
to operating expense over a ten-year amortization period. Beginning in 1996,
the capitalized conservation balance will be charged to operating expense on a
straight line basis over a five-year amortization period.
- 67 -
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS - (cont'd)
A - Summary of Significant Accounting Policies - (cont'd)
Restrictions: Various financing arrangements and regulatory requirements
impose certain restrictions on the ability of WEC's utility subsidiary to
transfer funds to WEC in the form of cash dividends, loans or advances. Under
Wisconsin law, WE is prohibited from loaning funds, either directly or
indirectly, to WEC. The Company does not believe that such restrictions will
affect its operations.
New Pronouncements: In 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets ("FAS 121") and Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("FAS
123"). FAS 121 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. FAS 123 established reporting standards
and an optional accounting method for stock-based employee compensation plans.
The Company will adopt both standards prospectively in 1996. It is
anticipated that adoption will not have a material effect on net income or
financial position.
B - Mergers
Wisconsin Natural Gas Company: Effective January 1, 1996, the Company merged
its natural gas utility subsidiary, Wisconsin Natural Gas Company ("WN") into
WE. The accounting treatment for this merger was similar to that which would
result from a pooling of interests. Where applicable, references herein to WE
include WN prior to their merger.
Wisconsin Southern Gas Company, Inc.: Effective January 1, 1994, WEC acquired
all of the outstanding common stock of Wisconsin Southern Gas Company, Inc.
("WSG") through a statutory merger of WSG into WN in which all of WSG's common
stock was converted into common stock of WEC. WSG was a gas utility engaged
in the purchase, distribution, transportation and sale of natural gas
primarily in a section of southeastern Wisconsin which was contiguous to WN's
service territory. WSG was merged into WN using the pooling of interests
method of accounting. Accordingly, prior years' financial and statistical
information was restated to include WSG at historical values.
Northern States Power Company: On April 28, 1995, WEC and Northern States
Power Company, a Minnesota corporation ("NSP"), entered into an Agreement and
Plan of Merger, which was amended and restated as of July 26, 1995 ("Merger
Agreement"). The Merger Agreement provides for a strategic business
combination involving WEC and NSP in a "merger-of-equals" transaction
("Transaction"). As a result, WEC will become a registered public utility
holding company under the Public Utility Holding Company Act of 1935, as
amended, and will change its name to Primergy Corporation ("Primergy").
Primergy will be the parent company of WE (which will be renamed Wisconsin
Energy Company), of NSP (which, for regulatory reasons, will reincorporate in
Wisconsin ("New NSP")), and of the other subsidiaries of WEC and NSP. The
Transaction is intended to be tax-free for income tax purposes and to be
accounted for as a pooling of interests. On September 13, 1995, stockholders
of WEC and NSP voted to approve the Transaction. The Merger Agreement is
subject to various conditions, including the approval of various regulatory
agencies. Subject to obtaining all requisite approvals, WEC and NSP
anticipate completing the Transaction by January 1, 1997.
- 68 -
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS - (cont'd)
B - Mergers - (cont'd)
In connection with the Transaction, Northern States Power Company, a Wisconsin
corporation ("NSP-WI"), currently a subsidiary of NSP, will be merged into
Wisconsin Energy Company. Prior to the merger of NSP-WI into Wisconsin Energy
Company, New NSP will acquire from NSP-WI certain gas utility assets in
LaCrosse and Hudson, Wisconsin.
The following summarized Primergy unaudited pro forma financial information
combines historical balance sheet and income statement information of WEC and
NSP to give effect to the Transaction and should be read in conjunction with
the historical consolidated financial statements and related notes thereto of
WEC and NSP. A $141 million pro forma adjustment has been made to conform the
presentation of noncurrent deferred income taxes in the summarized unaudited
pro forma combined balance sheet information as a net liability. The
allocation between WEC and NSP and their customers of the estimated cost
savings resulting from the Transaction, net of costs incurred to achieve such
savings, will be subject to regulatory review and approval. None of the
estimated cost savings, the costs to achieve such savings, nor transaction
costs are reflected in the unaudited pro forma financial information. All
other financial statement presentation and accounting policy differences are
immaterial and have not been adjusted in the unaudited pro forma financial
information. The unaudited pro forma combined earnings per common share
reflect pro forma adjustments to average NSP common shares outstanding in
accordance with the provisions of the Merger Agreement, whereby each
outstanding share of NSP common stock will be converted into 1.626 shares of
Primergy common stock. In the Transaction, each outstanding share of WEC
common stock will remain outstanding as a share of Primergy common stock.
The unaudited pro forma balance sheet information gives effect to the
Transaction as if it had occurred at December 31, 1995. The unaudited pro
forma income statement information gives effect to the Transaction as if it
had occurred at January 1, 1995. The following information is not necessarily
indicative of the financial position or operating results that would have
occurred had the Transaction been consummated on the date or at the beginning
of the period for which the Transaction is being given effect nor is it
necessarily indicative of future operating results or financial position.
- 69 -
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS - (cont'd)
B - Mergers - (cont'd)
==============================================================================
Primergy Corporation: Unaudited
WEC NSP Pro Forma
(As Reported) (As Reported) Combined
------------- ------------- -------------
(Millions, except per share amounts)
As of December 31, 1995:
Utility plant-net $ 2,911 $ 4,310 $ 7,221
Current assets 531 705 1,236
Other assets * 1,119 1,214 2,192
----------- ----------- -----------
Total Assets $ 4,561 $ 6,229 $ 10,649
=========== =========== ===========
Common stockholder's equity $ 1,871 $ 2,028 $ 3,899
Preferred stock and premium 30 240 270
Long-term debt 1,368 1,542 2,910
----------- ----------- -----------
Total Capitalization 3,269 3,810 7,079
Current liabilities 436 992 1,428
Other liabilities * 856 1,427 2,142
----------- ----------- -----------
Total Equity & Liabilities $ 4,561 $ 6,229 $ 10,649
=========== =========== ===========
For the Year Ended
December 31, 1995:
Utility Operating Revenues $ 1,770 $ 2,569 $ 4,339
Utility Operating Income $ 329 $ 346 $ 675
Net Income, after Preferred
Dividend Requirements $ 234 $ 263 $ 497
Earnings per Common Share:
As Reported $ 2.13 $ 3.91 -
Primergy Shares - - $ 2.27
==============================================================================
* Includes a $141 million pro forma adjustment to conform the presentation of
noncurrent deferred taxes as a net liability.
C - Depreciation
Depreciation expense is accrued at straight line rates over the estimated
useful lives of the assets. These rates are certified by the PSCW and include
estimates for salvage and removal costs. Depreciation as a percent of average
depreciable utility plant was 3.8% in 1995 and 3.9% in 1994 and 1993. Nuclear
plant decommissioning is accrued as depreciation expense (see Note F).
D - Income Taxes
Comprehensive interperiod income tax allocation is used for federal and state
temporary differences. The federal investment tax credit is accounted for on
the deferred basis and is reflected in income ratably over the life of the
related property.
- 70 -
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS - (cont'd)
D - 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:
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Current tax expense $145,819 $128,303 $ 89,750
Investment tax credit-net (4,482) (4,625) (4,626)
Deferred tax expense (2,833) (25,095) 13,096
-------- -------- --------
Total Tax Expense $138,504 $ 98,583 $ 98,220
======== ======== ========
Income Before Income Taxes
and Preferred Dividend $373,741 $280,802 $292,732
======== ======== ========
Expected tax at federal
statutory rate $130,809 $ 98,281 $102,456
State income tax net of
federal tax reduction 18,934 14,382 12,024
Investment tax credit
restored (4,482) (4,625) (5,241)
Other (no item over
5% of expected tax) (6,757) (9,455) (11,019)
-------- -------- --------
Total Tax Expense $138,504 $ 98,583 $ 98,220
======== ======== ========
==============================================================================
FAS 109 requires the recording of deferred assets and liabilities to recognize
the expected future tax consequences of events that have been reflected in the
Company's financial statements or tax returns and the adjustment of deferred
tax balances to reflect tax rate changes. Following is a summary of deferred
income taxes under FAS 109:
==============================================================================
December 31
1995 1994
-------- --------
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $ 43,759 $ 42,685
Construction advances 43,052 40,839
Other 54,033 56,403
-------- --------
Total Deferred Income Tax Assets $140,844 $139,927
======== ========
Deferred Income Tax Liabilities
Property related $449,244 $430,740
Conservation investments 25,775 27,564
Other 8,391 17,237
-------- --------
Total Deferred Income Tax Liabilities $483,410 $475,541
======== ========
==============================================================================
- 71 -
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS - (cont'd)
D - Income Taxes - (cont'd)
WE also has recorded the following deferred regulatory assets and liabilities
representing the future expected impact of deferred taxes on utility revenues:
==============================================================================
December 31
1995 1994
-------- --------
(Thousands of Dollars)
Deferred Regulatory Assets $155,944 $158,912
Deferred Regulatory Liabilities 163,676 171,599
==============================================================================
E - Allowance for Funds Used During Construction ("AFUDC")
AFUDC is included in utility plant accounts and represents the cost of
borrowed funds used during plant construction and a return on stockholders'
capital used for construction purposes. Allowance for borrowed funds also
includes interest capitalized on qualifying assets of non-utility
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
1995, 1994 and 1993, as approved by the PSCW.
F - Nuclear Operations
Point Beach Nuclear Plant: WE operates two 500 megawatt generating units at
its Point Beach Nuclear Plant ("Point Beach"). During 1995, Point Beach
accounted for 26.9% of WE's net electric generation. The current operating
licenses for the two units at Point Beach expire in 2010 and 2013 for Units 1
and 2, respectively.
WE has filed an application with the PSCW for replacement of the Point Beach
Unit 2 steam generators. As a result of degradation of some of the tubes
within the Unit 2 steam generators, the unit has been operating at
approximately 90% of its capacity since its return to service after its annual
refueling outage in the fall of 1995. Considering the rate of tube
degradation in the steam generators, there is a likelihood that WE would not
be able to restart Unit 2 following the fall 1996 outage without replacement
of the steam generators.
- 72 -
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS - (cont'd)
F - Nuclear Operations - (cont'd)
In a related matter, WE completed construction of an Independent Spent Fuel
Storage Installation ("ISFSI") in June 1995. The ISFSI will provide interim
dry cask storage of spent fuel from Point Beach, which is necessary because
the spent fuel pool inside the plant is nearly full. WE loaded the first cask
with spent fuel in December 1995. On December 22, 1995, the Dane County
Circuit Court ("Court") issued a decision vacating and remanding the February
1995 PSCW approval of the ISFSI on procedural grounds, stating that the
Environmental Impact Statement prepared by the PSCW for this project was
inadequate in two respects. Transfer of additional spent fuel to the ISFSI
has been temporarily suspended by WE pending the PSCW's further action.
The PSCW has issued two Supplemental Environmental Impact Statements which
address steam generator issues and the inadequacies found by the Court with
the original Environmental Impact Statement for the ISFSI project. The PSCW
held related hearings on these matters in February and March 1996. WE
anticipates that the PSCW will issue a combined final order on the replacement
of the Unit 2 steam generators and the remanded dry cask storage matters in
May 1996. Failure by the PSCW to approve steam generator replacement and
resolve the remanded issues could jeopardize the continued operation of Point
Beach and materially affect WE's financial position and results of operations.
WE would likely seek regulatory relief to minimize the replacement power costs
resulting from lost generating capacity.
Nuclear Fuel: WE has a nuclear fuel leasing arrangement with Wisconsin
Electric Fuel Trust ("Trust"), which is treated as a capital lease. The
nuclear fuel is leased for a period of 60 months or until the removal of the
fuel from the reactor, if earlier. Lease payments include charges for the
cost of fuel burned, financing costs and a management fee. In the event WE or
the Trust terminates the lease, the Trust would recover its unamortized cost
of nuclear fuel from WE. Under the lease terms, WE is in effect the ultimate
guarantor of the Trust's commercial paper and line of credit borrowings
financing the investment in nuclear fuel.
Provided below is a summary of nuclear fuel investment at December 31 and
interest expense for the respective years on the nuclear fuel lease:
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $ 89,840 $ 89,705
Accumulated provision for amortization (50,532) (50,983)
In process/stock 19,952 17,884
-------- --------
Total Nuclear Fuel $ 59,260 $ 56,606
======== ========
Interest Expense on Nuclear Fuel Lease $ 2,401 $ 1,896 $ 1,697
==============================================================================
The future minimum lease payments under the capital lease and the present
value of the net minimum lease payments as of December 31, 1995 are as
follows:
- 73 -
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS - (cont'd)
F - Nuclear Operations - (cont'd)
============================================================================
(Thousands of Dollars)
1996 $ 22,446
1997 14,747
1998 6,960
1999 2,443
2000 490
--------
Total Minimum Lease Payments 47,086
Less: Interest (3,162)
--------
Present Value of Net Minimum Lease Payments $ 43,924
========
==============================================================================
The estimated cost of disposal of spent fuel based on a contract with the U.S.
Department of Energy ("DOE") is included in nuclear fuel expense. The Energy
Policy Act of 1992 establishes a Uranium Enrichment Decontamination and
Decommissioning Fund ("D&D Fund") for the DOE's nuclear fuel enrichment
facilities. Deposits to the D&D Fund are derived in part from special
assessments to utilities. As of December 31, 1995, WE has on its books a
remaining estimated liability equal to the projected special assessments of
$29.5 million. A corresponding deferred regulatory asset will be amortized to
nuclear fuel expense and included in utility rates over the next 12 years.
Nuclear Insurance: The Price-Anderson Act ("Act") provides an aggregate
limitation of $8.9 billion on public liability claims arising out of a nuclear
incident. WE has $200 million of liability insurance from commercial sources.
The Act also establishes an industry-wide retrospective rating plan under
which nuclear reactor owners could be assessed up to $79 million per reactor
(WE owns two), but not more than $10 million in any one year for each reactor,
in the event of a nuclear incident.
An industry-wide insurance program, with an aggregate limit of $200 million,
has been established to cover radiation injury claims of nuclear workers first
employed after 1987. If claims in excess of the available funds develop, WE
could be assessed a maximum of approximately $3.0 million per reactor.
WE has property damage, decontamination and decommissioning insurance totaling
$1.5 billion for loss from damage at Point Beach with Nuclear Mutual Limited
("NML") and Nuclear Electric Insurance Limited ("NEIL"). Under the NML and
NEIL policies, WE has a potential maximum retrospective premium liability per
loss of $5.6 million and $9.8 million, respectively.
WE also maintains additional insurance with NEIL covering extra expenses of
obtaining replacement power during a prolonged accidental outage (in excess of
21 weeks) at Point Beach. This insurance coverage provides weekly indemnities
of $3.5 million per unit for outages during the first year, declining to 80%
of the amounts during the second and third years. Under the policy, WE's
maximum retrospective premium liability is approximately $7.7 million.
It should not be assumed that, in the event of a major nuclear incident, any
insurance or statutory limitation of liability would protect WE from material
adverse impact.
- 74 -
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS - (cont'd)
F - Nuclear Operations - (cont'd)
Nuclear Decommissioning: Subject to approval by the PSCW of the Point Beach
Unit 2 steam generator replacements and resolution of the remanded ISFSI
matters described above, WE expects to operate the two units at Point Beach to
the expiration of their current operating licenses. The estimated cost to
decommission the plant in 1995 dollars is $356 million based upon a site
specific decommissioning cost study completed in 1994. Assuming plant
shutdown at the expiration of the current operating licenses, prompt
dismantlement and annual escalation of costs at specific inflation factors
established by the PSCW, it is projected that approximately $1.6 billion will
be spent over a twenty-year period, beginning in 2010, to decommission the
plant.
Nuclear decommissioning costs are accrued as depreciation expense over the
expected service lives of the two units based upon an external sinking fund
method. In 1996, WE has increased its funding levels based on a site specific
estimate as required by the PSCW. It is expected that the annual payments to
the Nuclear Decommissioning Trust Fund ("Fund") along with the earnings on the
Fund will provide sufficient funds at the time of decommissioning. WE
believes it is probable that any shortfall in funding would be recoverable in
utility rates.
As required by Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("FAS 115"), WE's debt
and equity security investments in the Fund are classified as available for
sale. Gains and losses on the Fund were determined on the basis of specific
identification; net unrealized holding gains on the Fund were recorded as part
of accumulated provision for depreciation.
Following is a summary of decommissioning costs and earnings charged to
depreciation expense and the Fund balance included in accumulated provision
for depreciation at December 31. The Fund balance is stated at fair value:
==============================================================================
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Decommissioning costs $ 3,456 $ 3,456 $ 3,456
Earnings 7,405 6,682 7,915
-------- -------- --------
Depreciation Expense $ 10,861 $ 10,138 $ 11,371
======== ======== ========
Total costs accrued to date $235,420 $224,559
Unrealized gain 39,705 2,246
-------- --------
Accumulated Provision for Depreciation $275,125 $226,805
======== ========
==============================================================================
G - Preferred Stock
Preferred stock authorized but unissued is: WEC, $.01 par value, 15,000,000
shares and WE, cumulative, $25 par value, 5,000,000 shares.
- 75 -
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS - (cont'd)
G - Preferred Stock - (cont'd)
The 3.60% Series Preferred Stock is redeemable in whole or in part at the
option of WE at $101 per share plus any accrued dividends.
In 1994, WE called for redemption all of its 52,500 outstanding shares of
6.75% Series Preferred Stock at a redemption price of par. In 1993, WE called
for redemption 626,500 shares at a purchase price of $104.05 per share plus
accrued dividends to the redemption date.
H - Long-Term Debt
The maturities and sinking fund requirements through 2000 for the aggregate
amount of long-term debt outstanding (excluding obligations under capital
lease, see Note F) at December 31, 1995 are shown below:
==============================================================================
(Thousands of Dollars)
1996 $ 30,435
1997 171,175
1998 68,220
1999 92,270
2000 8,325
==============================================================================
Sinking fund requirements for the years 1996 through 2000, included in the
table above, are $5.4 million. Substantially all utility plant is subject to
the applicable mortgage.
Long-term debt premium or discount and expense of issuance are amortized by
the straight line method over the lives of the debt issues and included as
interest expense. Unamortized amounts pertaining to reacquired debt are
written off currently, when acquired for sinking fund purposes, or amortized
in accordance with PSCW orders, when acquired for early retirement.
The fair value of the Company's long-term debt was $1.5 billion and $1.2
billion at December 31, 1995 and 1994, respectively. The fair value of WE's
first mortgage bonds and debentures is estimated based upon the market value
of the same or similar issues. Book value approximates fair value for the
Company's unsecured notes. The fair value of WE's obligations under capital
lease is the market value of the Wisconsin Electric Fuel Trust's commercial
paper.
In September and October 1995, WE issued $98.35 million of unsecured variable
rate promissory notes maturing between March 1, 2006 and September 1, 2030.
These notes were issued as a revenue and collateral source for an equal
principal amount of tax exempt Refunding Revenue Bonds issued on WE's behalf
to refund $98.35 million of previously issued tax exempt bonds called for
optional redemption that were secured by WE's First Mortgage Bonds.
In December 1995, WE issued $100 million of unsecured One Hundred Year 6 7/8%
Debentures due 2095. Proceeds of the issue were added to WE's general funds
and were applied to the repayment of short-term borrowings.
- 76 -
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS - (cont'd)
H - Long-Term Debt - (cont'd)
At December 31, 1995, the interest rate for the $67 million variable rate note
due 2016 was 5.00% and the interest rate for the $98.35 million variable rate
notes due 2006-2030 was 5.10%.
I - Notes Payable
Short-term notes payable balances and their corresponding weighted average
interest rates consist of:
==============================================================================
December 31
1995 1994
-------------------- ----------------------
Interest Interest
Balance Rate Balance Rate
-------- -------- -------- --------
(Thousands of Dollars)
Banks $107,110 5.80% $ 96,949 6.06%
Commercial paper 49,809 5.88% 155,106 6.04%
-------- --------
$156,919 $252,055
======== ========
==============================================================================
Unused lines of credit for short-term borrowing amounted to $157.4 million at
December 31, 1995. 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.
J - Pension Plans
Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions ("FAS 87"), for
ratemaking.
WE has several defined benefit noncontributory pension plans covering all
eligible employees. Pension benefits are based on years of service and the
employee's compensation. The majority of the plans' assets are equity
securities; other assets include corporate and government bonds and real
estate. The plans are funded to meet the requirements of the Employee
Retirement Income Security Act of 1974.
In the opinion of the Company, current pension trust assets and amounts which
are expected to be paid to the trusts in the future will be adequate to meet
future pension payment obligations to current and future retirees.
- 77 -
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS - (cont'd)
J - Pension Plans - (cont'd)
==============================================================================
Pension Cost calculated per FAS 87 1995 1994 1993
- ---------------------------------- -------- -------- --------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 8,985 $ 10,933 $ 10,842
Interest cost on projected benefit
obligation 41,586 38,736 36,335
Actual (return) loss on plan assets (136,243) 7,634 (43,226)
Net amortization and deferral 88,493 (52,180) 1,067
-------- -------- --------
Total pension cost calculated
under FAS 87 $ 2,821 $ 5,123 $ 5,018
======== ======== ========
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $543,371 $427,847
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 12,651 9,963
-------- --------
Total obligation $556,022 $437,810
======== ========
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $637,529 $527,182
Projected benefit obligation
at present value (584,785) (513,166)
Unrecognized transition asset (22,034) (24,628)
Unrecognized prior service cost 23,194 19,567
Unrecognized net gain (54,780) (17,569)
-------- --------
Projected status of plans $ (876) $ (8,614)
======== ========
Rates used for calculations (%) -
Discount rate-interest rate used to
adjust for the time value of money 7.25 8.25 7.5
Assumed rate of increase in
compensation levels 4.75 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0
==============================================================================
K - Benefits Other Than Pensions
Postretirement Benefits: Effective in 1993, the Company adopted prospectively
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions ("FAS 106") and elected the 20
year option for amortization of the previously unrecognized accumulated
postretirement benefit obligation. The PSCW has issued an order recognizing
FAS 106 for ratemaking; therefore adoption has no material impact on net
income.
- 78 -
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS - (cont'd)
K - Benefits Other Than Pensions - (cont'd)
WE sponsors defined benefit postretirement plans that cover both salaried and
nonsalaried employees who retire at age 55 or older with at least 10 years of
credited service. The postretirement medical plan provides coverage to
retirees and their dependents. Retirees contribute to the medical plan. The
group life insurance benefit is based on employee compensation and is reduced
upon retirement.
Employees' Benefit Trusts ("Trusts") are used to fund a major portion of
postretirement benefits. The funding policy for the Trusts is to maximize tax
deductibility. The majority of the Trusts' assets are mutual funds.
==============================================================================
Postretirement Benefit Cost
calculated per FAS 106 1995 1994 1993
- ------------------------------------------- -------- -------- --------
(Thousands of Dollars)
Components of Net Periodic Postretirement
Benefit Cost, Year Ended December 31 -
Cost of postretirement benefits
earned by employees $ 2,276 $ 2,653 $ 3,105
Interest cost on projected
benefit obligation 10,458 10,148 10,395
Actual return on plan assets (12,598) (3,893) (2,388)
Net amortization and deferral 13,951 5,648 5,082
-------- -------- --------
Total postretirement benefit cost
calculated under FAS 106 $ 14,087 $ 14,556 $ 16,194
======== ======== ========
Funded Status of Plans: Postretirement
Obligations and Assets at December 31 -
Accumulated Postretirement Benefit
Obligation at December 31 -
Retirees $(92,746) $(83,670)
Fully eligible active plan participants (10,304) (7,223)
Other active plan participants (41,732) (37,255)
-------- --------
Total obligation (144,782) (128,148)
Postretirement assets at
fair market value 45,086 37,919
-------- --------
Accumulated postretirement benefit
obligation in excess of plan assets (99,696) (90,229)
Unrecognized transition obligation 83,268 90,302
Unrecognized prior service cost (1,279) (1,169)
Unrecognized net gain (6,102) (16,484)
-------- --------
Accrued Postretirement Benefit Obligation $(23,809) $(17,580)
======== ========
==============================================================================
- 79 -
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS - (cont'd)
K - Benefits Other Than Pensions - (cont'd)
==============================================================================
Postretirement Benefit Cost
calculated per FAS 106 (cont'd) 1995 1994 1993
- ------------------------------------------- -------- -------- --------
Rates used for calculations (%) -
Discount rate-interest rate used to
adjust for the time value of money 7.25 8.25 7.5
Assumed rate of increase in
compensation levels 4.75 5.0 5.0
Expected long-term rate of return
on postretirement assets 9.0 9.0 9.0
Health care cost trend rate 11.0 declining to
5.0 in year 2002
==============================================================================
Changes in health care cost trend rates will affect the amounts reported. For
example, a 1% increase in rates would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $9.5 million and the aggregate
of the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $1 million.
Revitalization: In the first quarter of 1994, WE recorded a $73.9 million
charge related to its revitalization program. This charge included $37.5
million for Early Retirement Incentive Packages ("ERIP") and $25 million for
Severance Packages ("SP"). These plans were used to reduce employee staffing
levels. ERIP provided for a monthly income supplement ("ERIP supplement"),
medical benefits and waiver of an early retirement pension reduction. The SP
included a severance payment, medical/dental insurance, outplacement services,
personal financial planning and tuition support. Availability of these plans
to various bargaining units was based upon agreements made between WE and the
bargaining units. These plans were available to most management employees but
not to elected officers.
Under ERIP, 403 employees elected to retire in 1994. Under SP, 651 and 75
employees enrolled in 1994 and 1995, respectively. ERIP supplement costs are
paid from pension plan trusts and medical/dental benefits from employee
benefit trusts. Remaining ERIP and SP costs are paid from general corporate
funds. The ultimate timing of cash flows for ERIP supplement costs depends
upon the funding limitations of WE's pension plans. With the exception of
ERIP supplement costs, approximately $35.4 million have been paid against the
revitalization liability through December 31, 1995, and a liability of $0.9
million remains outstanding at December 31, 1995.
Omnibus Stock Incentive Plan: A stockholder approved Omnibus Stock Incentive
Plan ("Plan") enables the Company to provide a long-term incentive, through
equity interests in WEC, to selected officers and key employees. 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 ten
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 the grant date and options may
not be exercised within six months of the grant date.
- 80 -
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS - (cont'd)
K - Benefits Other Than Pensions - (cont'd)
As of December 31, 1995, 1994 and 1993, options for 335,500, 145,500 and
64,250 shares, respectively, were outstanding. These options are exercisable
four years after the grant date at per share prices of between $26.813 and
$30.188. Each stock option includes performance units based on contingent
dividends for four years from the date of grant. Payment of these dividends
depends on the achievement of certain performance goals. The earliest year in
which any of the options can be exercised is 1997. No SARS or stock awards
have been granted and no performance units have been earned to date.
L - Information By Segments of Business
WEC is a holding company with subsidiaries in utility and non-utility
businesses. The Company's principal business segments include electric, gas
and steam utility operations. The electric utility generates, transmits,
distributes and sells electric energy in southeastern (including metropolitan
Milwaukee), east central and northern Wisconsin and in the Upper Peninsula of
Michigan. The gas utility purchases, distributes and sells natural gas to
retail customers and transports customer-owned gas in three service areas in
southeastern, east central and western Wisconsin that are largely within the
electric service area. The steam utility produces, distributes and sells
steam to space heating and processing customers in downtown and the near south
side of Milwaukee. Principal non-utility lines of business include real
estate investment and development in the State of Wisconsin as well as venture
capital investments in Wisconsin and the Upper Peninsula of Michigan. The
following summarizes the business segments of the Company:
==============================================================================
Year ended December 31 1995 1994 1993
- ---------------------- ---------- ---------- ----------
(Thousands of Dollars)
Electric Operations
Operating revenues $1,437,480 $1,403,562 $1,347,844
Operating income before income taxes 419,271 329,216 329,727
Depreciation 164,789 159,414 149,646
Construction expenditures 223,723 244,718 305,467
Gas Operations
Operating revenues 318,262 324,349 331,301
Operating income before income taxes 47,022 30,993 31,025
Depreciation 17,722 16,856 16,235
Construction expenditures 24,851 25,481 24,419
Steam Operations
Operating revenues 14,742 14,281 14,090
Operating income before income taxes 3,757 2,825 3,147
Depreciation 1,365 1,344 1,185
Construction expenditures 206 1,213 4,940
Consolidated
Operating revenues 1,770,484 1,742,192 1,693,235
Operating income before income taxes 470,050 363,034 363,899
Depreciation 183,876 177,614 167,066
Construction expenditures
(including non-utility) 271,688 295,769 364,810
==============================================================================
- 81 -
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS - (cont'd)
L - Information By Segments of Business - (cont'd)
==============================================================================
Year ended December 31 1995 1994 1993
- ---------------------- ---------- ---------- ----------
(Thousands of Dollars)
Other Information
Non-utility Net Income
Real estate activities $ 3,583 $ 2,768 $ 2,211
Venture capital and other (9,013) (2,303) 220
At December 31
- --------------
Net Identifiable Assets
Electric $3,906,552 $3,800,377 $3,668,151
Gas 387,016 376,494 385,460
Steam 25,214 25,315 25,119
Non-utility
Real estate activities 175,746 148,401 134,669
Venture capital and other 66,207 57,672 57,193
---------- ---------- ----------
Total Consolidated Assets $4,560,735 $4,408,259 $4,270,592
========== ========== ==========
==============================================================================
M - Commitments and Contingencies
Kimberly Cogeneration Facility: In 1993, a competitive bidding process
conducted by the PSCW resulted in selection of a proposal submitted by an
unaffiliated independent power producer, LSP-Whitewater L.P. ("LS Power"), to
construct a generation facility to meet a portion of WE's anticipated increase
in system supply needs. WE subsequently signed a long-term agreement to
purchase electricity from the proposed facility. The agreement is contingent
upon the facility being completed and going into operation, which at this time
is planned for mid-1997.
Prior to the 1993 selection of the LS Power generation facility by the PSCW,
WE had proposed to construct its own 220 megawatt cogeneration facility in
Kimberly, Wisconsin, which was intended to provide process steam to Repap
Wisconsin, Inc. ("Repap") starting in mid-1994. In the PSCW Order, the WE
project was selected as the second place conditional project if the LS Power
project did not proceed. WE had made expenditures for the Kimberly facility
of approximately $65.8 million associated with the procurement of three
combustion turbines, one steam turbine and three heat recovery boilers in
order to achieve the in-service dates as agreed to in a steam service contract
with Repap.
The Company is currently reviewing other options for use or sale of its
Kimberly Cogeneration Facility equipment (the "Equipment"). The Equipment is
of a technology of natural gas-fired combined cycle generation equipment that
is marketed worldwide. The Company is investigating opportunities to sell the
Equipment or to use it in another power project and is currently evaluating
potential sales opportunities and/or power projects involving the Equipment.
At this time, the Company does not believe that disposition of the Equipment
will have a material adverse effect on its financial condition. However,
- 82 -
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS - (cont'd)
M - Commitments and Contingencies - (cont'd)
there is a possibility that WE may need to recognize an impairment of the
Equipment in the future should the projects noted above not occur and should
no other viable sales opportunities and/or power projects involving the
Equipment be identified.
Manufactured Gas Plant Sites: WE's natural gas business unit is investigating
the remediation of a number of former manufactured gas plant ("MGP") sites.
Operations at these MGP sites ceased over 40 years ago. Limited remediation
activities occurred at a number of these sites during the 1980's, with removal
of waste materials known to be present at that time. In 1995, WE presented a
plan to investigate and remediate sites to the Wisconsin Department of Natural
Resources ("DNR"). During 1995, WE conducted site investigations at four
sites and partial remediation activities were conducted at one site.
Approximately $1.6 million has been spent through December 31, 1995 for such
activities. Remediation costs to be incurred through the year 2000 have been
estimated to be $12 million, but the total costs are uncertain pending the
results of further site specific investigations and the selection of site
specific remedial actions. In a September 11, 1995 letter order, the PSCW
allowed WE to defer MGP site remediation costs with final rate treatment of
such costs to be determined in future rate cases. As of December 31, 1995, WE
has recorded an accrued liability of $1.6 million for MGP site remediation and
a related deferred regulatory asset of $3.2 million. WE expects to accrue
additional MGP site remediation liabilities during 1996 as site specific
investigations are completed and site specific remedial actions are
identified. WE will seek rate recovery for these costs and does not
anticipate that there will be a material adverse effect on its net income or
financial position.
Plans for the construction and financing of future additions to utility plant
can be found elsewhere in this report in MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL
RESOURCES - Capital Requirements 1996-2000."
- 83 -
<PAGE> 84
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) appearing on page 86 of this report present fairly, in all
material respects, the financial position of Wisconsin Energy Corporation and
its subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 31, 1996
- 84 -
<PAGE> 85
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 "Proposal 1: Election of Directors" and "The Board of Directors and
Corporate Governance - Composition of the Board of Directors" in Wisconsin
Energy Corporation's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held May 22, 1996 (the "1996 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 "The Board of Directors and Corporate Governance - Compensation of the
Board of Directors", "Executive Officers' Compensation" and "Retirement Plans"
in the 1996 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 1996 Annual Meeting Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- 85 -
<PAGE> 86
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, 1995
Consolidated Statement of Cash Flows for the three years
ended December 31, 1995
Consolidated Balance Sheet at December 31, 1995 and 1994
Consolidated Capitalization Statement at December 31, 1995
and 1994
Consolidated Common Stock Equity Statement for the three
years ended December 31, 1995
Notes to Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules Included in Part IV of this
report:
Schedule I Condensed Parent Company Financial
Statements for the three years ended
December 31, 1995
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.
* * * * *
The following Primergy Corporation Unaudited Pro Forma Combined
Condensed Financial Information is contained herein after this
Item 14:
Unaudited Pro Forma Combined Condensed Balance Sheet at
December 31, 1995
Unaudited Pro Forma Combined Condensed Statements of Income
for the 12 months ended December 31, 1995, 1994 and 1993
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements
- 86 -
<PAGE> 87
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
3. Exhibits
The following Exhibits are filed with this report:
Exhibit No.
(10)-1 Supplemental Executive Retirement Plan of Wisconsin
Energy Corporation ("WEC") (as amended and restated
as of January 1, 1996). *
(10)-2 Amended Non-Qualified Trust Agreement by and between
WEC and Firstar Trust Company dated January 26, 1996,
regarding trust established to provide a source of
funds to assist in meeting of the liabilities under
various nonqualified deferred compensation plans made
between WEC or its subsidiaries and various plan
participants. *
(10)-3 Executive Deferred Compensation Plan of WEC, effective
January 1, 1989, as amended and restated as of
January 1, 1996. *
(10)-4 Directors' Deferred Compensation Plan of WEC,
effective January 1, 1987, and as restated as of
January 1, 1996. *
(10)-5 Forms of Stock Option Agreements under 1993 Omnibus
Stock Incentive Plan. *
(10)-6 Form of Amendment to Stock Option Agreements under
1993 Omnibus Stock Incentive Plan to waive NSP
Transaction as a change in control thereunder. *
(10)-7 Supplemental Benefits Agreement between WEC and Calvin
H. Baker dated November 21, 1994. *
(10)-8 Form of Amendment to Supplemental Benefits Agreements
to waive NSP Transaction as a change in control
thereunder. *
(10)-9 Form of Consent under the Executive Deferred
Compensation Plan to waive NSP Transaction as a change
in control thereunder. *
(21)-1 Subsidiaries of WEC.
(23)-1 Price Waterhouse LLP - Milwaukee, WI Consent of
Independent Accountants appearing on page 96 of this
Annual Report on Form 10-K for the year ended
December 31, 1995.
(23)-2 Consent of Price Waterhouse LLP - Minneapolis, MN,
Northern States Power Company's ("NSP") Independent
Accountants.
(23)-3 Consent of Deloitte & Touche LLP - Minneapolis, MN,
NSP's Independent Auditors prior to 1995.
- 87 -
<PAGE> 88
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
(27)-1 WEC Financial Data Schedule for the fiscal year ended
December 31, 1995.
(99)-1 Information furnished in lieu of the Form 11-K
Annual Report for Management Employee Savings
Plan for the year ended December 31, 1995. (To be
filed by amendment.)
(99)-2 Information furnished in lieu of the Form 11-K
Annual Report for Represented Employee Savings
Plan for the year ended December 31, 1995. (To be
filed by amendment.)
In addition to those Exhibits shown above, which are filed herewith, WEC
hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12b-
32 and Regulation Section 201.24 by reference to the filings set forth below:
(2)-1 Amended and Restated Agreement and Plan of Merger, dated as of
April 28, 1995, as amended and restated as of July 26, 1995, by and
among NSP, WEC, Northern Power Wisconsin Corp. ("New NSP") and WEC
Sub Corp. (Exhibit (2)-1 to WEC's Registration Statement on Form S-4
filed on August 7, 1995, Registration No. 33-61619 ("Form S-4,
No. 33-61619"); other related documents are also filed as exhibits
to such Registration Statement.)
(2)-2 WEC Stock Option Agreement, dated as of April 28, 1995, by and among
NSP and WEC. (Exhibit (2)-2 to Form S-4, No. 33-61619.)
(2)-3 NSP Stock Option Agreement, dated as of April 28, 1995, by and among
WEC and NSP. (Exhibit (2)-3 to Form S-4, No. 33-61619.)
(2)-4 Committees of the Board of Directors of Primergy Corporation
("Primergy"). (Exhibit (2)-4 to Form S-4, No. 33-61619.)
(2)-5 Form of Employment Agreement between Primergy and James J. Howard.
(Exhibit (2)-5 to Form S-4, No. 33-61619.)
(2)-6 Form of Employment Agreement between Primergy and Richard A. Abdoo.
(Exhibit (2)-6 to Form S-4, No. 33-61619.)
(2)-7 Form of Amended and Restated Articles of Incorporation of New NSP.
(Exhibit 3-3 (b) to Form S-4, No. 33-61619.)
(2)-8 Letter Agreement, dated January 17, 1995, between NSP and WEC.
(Exhibit (2)-8 to WEC's Schedule 13D dated May 4, 1995 with respect
to the NSP Stock Option Agreement.)
(2)-9 Letter Agreement, dated April 26, 1995, between NSP and WEC amending
Letter Agreement dated January 17, 1995. (Exhibit (2)-9 to WEC's
Schedule 13D dated May 4, 1995 with respect to the NSP Stock Option
Agreement.)
(3)-1 Restated Articles of Incorporation of WEC, as amended and restated
effective June 12, 1995. (Exhibit (3)-1 to WEC's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, File No. 1-9057 ("WEC's
6/30/95 10-Q").)
- 88 -
<PAGE> 89
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
(3)-2 Bylaws of WEC, as amended and restated July 26, 1995. (Exhibit (3)-2
to Form S-4, No. 33-61619.)
(4)-1 Reference is made to Article III of the Restated Articles of
Incorporation of WEC. (Exhibit (3)-1 herein.)
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution 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-I 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
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)
- 89 -
<PAGE> 90
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
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)
41 Fortieth WE 1/01/96 (4)-1 1-1245 (1/1/96
WE Form 8-K)
42 Indenture for WE 12/01/95 (4)-1 1-1245 (12/31/95
Debt Securities WE Form 10-K)
(the "Indenture")
43 Securities WE 12/05/95 (4)-2 1-1245 (12/31/95
Resolution No. WE Form 10-K)
1 under the
Indenture
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)-10 Supplemental Benefits Agreement between WEC and Richard A. Abdoo dated
November 21, 1994, and April 26, 1995 letter agreement.
(Exhibit (10)-1 to WEC's 6/30/95 10-Q.) *
(10)-11 WEC Senior Executive Severance Policy, as adopted effective
April 28, 1995 and amended on July 26, 1995. (Exhibit (10)-3 to
WEC's 6/30/95 10-Q.) *
(10)-12 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 WEC to officers and other
key employees. (Exhibit 10-1 to WEC's 1993 Form 10-K in File
No. 1-9057.) *
- 90 -
<PAGE> 91
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K - (cont'd)
(10)-13 Agreement between WEC, WITECH Corporation and employee Francis
Brzezinski dated November 30, 1992, naming him a participant in the
WEC Supplemental Executive Retirement Plan retroactive to
September 1, 1990. (Exhibit 10-1 to WEC's 1992 Form 10-K in File
No. 1-9057.) *
(10)-14 Short-Term Performance Plan of WEC effective January 1, 1992.
(Exhibit 10-3 to WEC's 1991 Form 10-K in File No. 1-9057.) *
(10)-15 Service Agreement dated January 1, 1987, between WE, WEC and other
non-utility affiliated companies. (Exhibit (10)-(a) to WE's Current
Report on Form 8-K dated January 2, 1987 in File No. 1-1245.)
(99)-3 Audited Financial Statements of NSP. (Item 8 of NSP's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, File
No. 1-3034):
Report of Independent Accountants.
Independent Auditor's Report for years prior to 1995.
Consolidated Statements of Income for the three years ended
December 31, 1995.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995.
Consolidated Balance Sheets at December 31, 1995 and 1994.
Consolidated Statements of Common Stockholders' Equity for the three
years ended December 31, 1995.
Consolidated Statements of Capitalization at December 31, 1995
and 1994.
Notes to Financial Statements.
- ----------------------------
* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 1995.
- 91 -
<PAGE> 92
WISCONSIN ENERGY CORPORATION
INCOME STATEMENT
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
----------------------
1995 1994 1993
-------- -------- --------
(Thousands of Dollars)
Miscellaneous Income $ 645 $ 373 $ 411
Nonoperating Expense 363 423 250
-------- -------- --------
282 (50) 161
Income Taxes 122 (20) 17
-------- -------- --------
160 (30) 144
Equity in Subsidiaries' Earnings 233,874 180,898 189,991
-------- -------- --------
Net Income $234,034 $180,868 $190,135
======== ======== ========
See Notes on Page 95.
(continued on next page)
- 92 -
<PAGE> 93
WISCONSIN ENERGY CORPORATION
STATEMENT OF CASH FLOWS
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
Year Ended December 31
----------------------
1995 1994 1993
--------- --------- ---------
(Thousands of Dollars)
Operating Activities:
Net Income $ 234,034 $ 180,868 $ 190,135
Reconciliation to cash:
Equity in subsidiaries' earnings (233,874) (180,898) (189,991)
Dividends from subsidiaries 159,576 150,951 74,654
Other (8,131) 235 109
--------- --------- ---------
Cash Provided by Operating Activities 151,605 151,156 74,907
Investing Activities:
Equity investment in subsidiaries - net (36,641) (19,500) (23,500)
Change in notes receivable -
associated companies (6,490) (17,535) 13,330
Other (1,128) (870) (8)
--------- --------- ---------
Cash Used in Investing Activities (44,259) (37,905) (10,178)
Financing Activities:
Sale of common stock 52,353 50,494 61,442
Dividends on common stock (159,688) (150,708) (140,876)
Change in notes payable -
associated companies - (13,100) 13,100
--------- --------- ---------
Cash Used in Financing Activities (107,335) (113,314) (66,334)
--------- --------- ---------
Change in Cash and Cash Equivalents $ 11 $ (63) $ (1,605)
========= ========= =========
Cash Paid for-
Interest $ - $ 62 $ -
Income Taxes 246 (15) (3)
See Notes on Page 95.
(continued on next page)
- 93 -
<PAGE> 94
WISCONSIN ENERGY CORPORATION
BALANCE SHEET
(Parent Company Only)
SCHEDULE I - CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS
December 31
----------------------
1995 1994
---------- ----------
(Thousands of Dollars)
Assets
------
Current Assets
Cash and cash equivalents $ 14 $ 3
Accounts and notes receivable
from associated companies 24,728 17,909
Other 580 297
---------- ----------
Total Current Assets 25,322 18,209
Property and Investments
Investment in subsidiary companies 1,839,993 1,729,052
Other 1,534 885
---------- ----------
Total Property and Investments 1,841,527 1,729,937
Deferred Charges 16,431 7,585
---------- ----------
$1,883,280 $1,755,731
========== ==========
Liabilities
-----------
Current Liabilities
Accounts payable $ 216 $ 41
Accounts and notes payable
to associated companies 108 132
Other 21 (61)
---------- ----------
Total Current Liabilities 345 112
Deferred Credits 8,881 8,264
Stockholders' Equity
Common stock 680,807 628,446
Retained earnings 116,227 116,187
Undistributed subsidiaries' earnings 1,077,020 1,002,722
---------- ----------
Total Stockholders' Equity 1,874,054 1,747,355
---------- ----------
$1,883,280 $1,755,731
========== ==========
See Notes on Page 95.
(continued on next page)
- 94 -
<PAGE> 95
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 61-83 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
subsidiary to transfer funds to Wisconsin Energy Corporation ("WEC") in
the form of cash dividends, loans, or advances. Under Wisconsin law,
Wisconsin Electric Power Company ("WE") is prohibited from loaning funds,
either directly or indirectly, to WEC. WEC does not believe that such
restrictions will affect its operations.
- 95 -
<PAGE> 96
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 31, 1996 appearing in this Form 10-K.
1. Registration Statement on Form S-3 (Registration No. 33-57765) -
Stock Plus Investment Plan
2. Registration Statements on Form S-8 (Registration Nos. 33-34656 and
33-62159) - Represented Employee Savings Plan
3. Registration Statements on Form S-8 (Registration Nos. 33-34657 and
33-62157) - Management Employee Savings Plan
4. Registration Statement on Form S-8 (Registration No. 33-65225) -
1993 Omnibus Stock Incentive Plan
/s/Price Waterhouse LLP
- -----------------------
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 28, 1996
- 96 -
<PAGE> 97
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On April 28, 1995, Wisconsin Energy Corporation ("WEC") entered into an
Agreement and Plan of Merger with Northern States Power Company ("NSP"), which
was amended and restated as of July 26, 1995 (the "Merger Agreement"). The
Merger Agreement provides for a strategic business combination involving the
two companies in a "merger-of-equals" transaction (the "Transaction"), as
previously reported in WEC's Current Reports on Form 8-K dated as of April 28,
1995 and as of September 13, 1995 and in its Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995
("WEC's 3/31/95, 6/30/95 and 9/30/95 10-Q's"). Detailed information with
respect to the Merger Agreement and the proposed Transaction is contained in
the Joint Proxy Statement/Prospectus dated August 7, 1995 (contained in WEC's
Registration Statement on Form S-4, Registration No. 33-61619) relating to the
meetings of the stockholders of WEC and NSP to vote on the Merger Agreement
and related matters.
Further information concerning the Merger Agreement and the proposed
Transaction is included in Item 1. BUSINESS - "MERGER AGREEMENT WITH NORTHERN
STATES POWER COMPANY", in Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS - "DIVIDEND POLICY OF PRIMERGY", in Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "RESULTS OF OPERATIONS - Mergers" and in Note B - "Mergers" in
the NOTES TO FINANCIAL STATEMENTS in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA in this report.
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of WEC and NSP
after giving effect to the proposed Transaction to form Primergy Corporation
("Primergy"). The unaudited pro forma combined condensed balance sheet
information at December 31, 1995 gives effect to the Transaction as if it had
occurred at December 31, 1995. The unaudited pro forma combined condensed
statements of income for each of the three years in the period ended
December 31, 1995 give effect to the Transaction as if it had occurred at
January 1, 1993. This financial information is prepared on the basis of
accounting for the Transaction as a pooling of interests.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the historical consolidated
financial statements and related notes thereto of WEC and NSP. The following
information is not necessarily indicative of the financial position or
operating results that would have occurred had the Transaction been
consummated on the date, or at the beginning of the period for which the
Transaction is being given effect nor is it necessarily indicative of future
operating results or financial position.
- 97 -
<PAGE> 98
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1995
(In thousands)
<CAPTION>
NSP WEC Pro Forma Pro Forma
Pro Forma Balance Sheet (As Reported) (As Reported) Adjustments Combined
------------------------------------------ ------------ ------------ ------------ ------------
Assets
<S> <C> <C> <C> <C>
Utility Plant
Electric $ 6,553,383 $ 4,608,120 $ - $ 11,161,503
Gas 710,035 491,176 - 1,201,211
Other 299,585 40,078 - 339,663
------------ ------------ ------------ ------------
Total 7,563,003 5,139,374 - 12,702,377
Accumulated provision for depreciation (3,343,760) (2,288,080) - (5,631,840)
Nuclear fuel - net 91,098 59,260 - 150,358
------------ ------------ ------------ ------------
Net Utility Plant 4,310,341 2,910,554 - 7,220,895
Current Assets
Cash and cash equivalents 28,794 23,626 - 52,420
Accounts receivable - net 360,577 150,149 - 510,726
Accrued utility revenues 112,650 140,201 - 252,851
Fossil fuel inventories 43,941 83,366 - 127,307
Material & supplies inventories 100,607 70,347 - 170,954
Prepayments and other 57,894 63,830 - 121,724
------------ ------------ ------------ ------------
Total Current Assets 704,463 531,519 - 1,235,982
Other Assets
Regulatory assets 374,212 309,280 - 683,492
External decommissioning fund 203,625 275,125 - 478,750
Investments in non-regulated projects
and other investments 289,495 110,145 - 399,640
Non-regulated property - net 177,598 115,392 - 292,990
Intangible assets and other (Note 4) 168,851 308,720 (140,844) 336,727
------------ ------------ ------------ ------------
Total Other Assets 1,213,781 1,118,662 (140,844) 2,191,599
------------ ------------ ------------ ------------
Total Assets $ 6,228,585 $ 4,560,735 $ (140,844) $ 10,648,476
============ ============ ============ ============
Liabilities and Equity
Capitalization
Common stock equity:
Common stock (Note 1) $ 170,440 $ 1,108 $ (169,331) $ 2,217
Other stockholders' equity (Note 1) 1,856,951 1,870,157 169,331 3,896,439
------------ ------------ ------------ ------------
Total Common Stock Equity 2,027,391 1,871,265 - 3,898,656
Cumulative preferred stock and premium 240,469 30,451 - 270,920
Long-term debt 1,542,286 1,367,644 - 2,909,930
------------ ------------ ------------ ------------
Total Capitalization 3,810,146 3,269,360 - 7,079,506
Current Liabilities
Current portion of long-term debt 167,360 51,854 - 219,214
Short-term debt 216,194 156,919 - 373,113
Accounts payable 246,051 108,508 - 354,559
Taxes accrued 202,777 20,072 - 222,849
Other accrued liabilities 158,991 98,753 - 257,744
------------ ------------ ------------ ------------
Total Current Liabilities 991,373 436,106 - 1,427,479
Other Liabilities
Deferred income taxes (Note 4) 841,153 483,410 (140,844) 1,183,719
Deferred investment tax credits 161,513 89,672 - 251,185
Regulatory liabilities 242,787 167,483 - 410,270
Other liabilities and deferred credits 181,613 114,704 - 296,317
------------ ------------ ------------ ------------
Total Other Liabilities 1,427,066 855,269 (140,844) 2,141,491
------------ ------------ ------------ ------------
Total Capitalization and Liabilities $ 6,228,585 $ 4,560,735 $ (140,844) $ 10,648,476
============ ============ ============ ============
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
- 98 -
</TABLE>
<PAGE> 99
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
12 Months Ended December 31, 1995
(In thousands, except per share amounts)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $2,142,770 $1,437,480 $ - $3,580,250
Gas 425,814 318,262 - 744,076
Steam - 14,742 - 14,742
---------- ---------- ----------- ----------
Total Operating Revenues 2,568,584 1,770,484 - 4,339,068
Utility Operating Expenses
Electric production-fuel and purchased power 570,245 345,387 - 915,632
Cost of gas sold & transported 256,758 188,764 - 445,522
Other operation 560,734 395,242 - 955,976
Maintenance 158,203 112,400 - 270,603
Depreciation and amortization 290,184 183,876 - 474,060
Taxes other than income taxes 239,433 74,765 - 314,198
Income taxes 147,148 141,029 - 288,177
---------- ---------- ----------- ----------
Total Operating Expenses 2,222,705 1,441,463 - 3,664,168
---------- ---------- ----------- ----------
Utility Operating Income 345,879 329,021 - 674,900
Other Income (Expense)
Equity earnings of unconsolidated investees 59,067 - - 59,067
Other income and deductions - net (6,261) 16,821 - 10,560
---------- ---------- ----------- ----------
Total Other Income (Expense) 52,806 16,821 - 69,627
---------- ---------- ----------- ----------
Income Before Interest Charges
and Preferred Dividends 398,685 345,842 - 744,527
Interest Charges 122,890 110,605 - 233,495
Preferred Dividends of Subsidiaries 12,449 1,203 - 13,652
---------- ---------- ----------- ----------
Net Income $ 263,346 $ 234,034 $ - $ 497,380
========== ========== =========== ==========
Average Common Shares Outstanding (Note 1) 67,416 109,850 42,202 219,468
Earnings Per Common Share $ 3.91 $ 2.13 $ 2.27
========== ========== ==========
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
- 99 -
</TABLE>
<PAGE> 100
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
12 Months Ended December 31, 1994
(In thousands, except per share amounts)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
----------- ----------- ----------- -----------
(Note 5)
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $2,066,644 $1,403,562 $ - $3,470,206
Gas 419,903 324,349 - 744,252
Steam - 14,281 - 14,281
---------- ---------- ---------- ----------
Total Operating Revenues 2,486,547 1,742,192 - 4,228,739
Utility Operating Expenses
Electric production-fuel and purchased power 570,880 328,485 - 899,365
Cost of gas sold & transported 263,905 199,511 - 463,416
Other operation 535,706 399,011 - 934,717
Maintenance 170,145 124,602 - 294,747
Depreciation and amortization 273,801 177,614 - 451,415
Taxes other than income taxes 234,564 76,035 - 310,599
Revitalization charges - 73,900 - 73,900
Income taxes 129,228 99,761 - 228,989
---------- ---------- ---------- ----------
Total Operating Expenses 2,178,229 1,478,919 - 3,657,148
---------- ---------- ---------- ----------
Utility Operating Income 308,318 263,273 - 571,591
Other Income (Expense)
Equity earnings of unconsolidated investees 41,709 - - 41,709
Other income and deductions - net 663 26,965 - 27,628
---------- ---------- ---------- ----------
Total Other Income (Expense) 42,372 26,965 - 69,337
---------- ---------- ---------- ----------
Income Before Interest Charges
and Preferred Dividends 350,690 290,238 - 640,928
Interest Charges 107,215 108,019 - 215,234
Preferred Dividends of Subsidiaries 12,364 1,351 - 13,715
---------- ---------- ---------- ----------
Net Income $ 231,111 $ 180,868 $ - $ 411,979
========== ========== ========== ==========
Average Common Shares Outstanding (Note 1) 66,845 108,025 41,845 216,715
Earnings Per Common Share $ 3.46 $ 1.67 $ 1.90
========== ========== ==========
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
- 100 -
</TABLE>
<PAGE> 101
<TABLE>
PRIMERGY CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
12 Months Ended December 31, 1993
(In thousands, except per share amounts)
<CAPTION>
NSP WEC Pro Forma Pro Forma
(As Reported) (As Reported) Adjustments Combined
---------- ---------- ----------- ----------
(Note 5)
<S> <C> <C> <C> <C>
Utility Operating Revenues
Electric $1,974,916 $1,347,844 $ - $3,322,760
Gas 429,076 331,301 - 760,377
Steam - 14,090 - 14,090
---------- ---------- ----------- ----------
Total Operating Revenues 2,403,992 1,693,235 - 4,097,227
Utility Operating Expenses
Electric production-fuel and purchased power 524,126 318,265 - 842,391
Cost of gas sold & transported 282,036 214,132 - 496,168
Other operation 516,560 399,135 - 915,695
Maintenance 161,413 156,085 - 317,498
Depreciation and amortization 264,517 167,066 - 431,583
Taxes other than income taxes 223,108 74,653 - 297,761
Income taxes 128,346 98,463 - 226,809
---------- ---------- ----------- ----------
Total Operating Expenses 2,100,106 1,427,799 - 3,527,905
---------- ---------- ----------- ----------
Utility Operating Income 303,886 265,436 - 569,322
Other Income (Expense)
Equity earnings of unconsolidated investees 3,030 - - 3,030
Other income and deductions - net 12,916 32,073 - 44,989
---------- ---------- ----------- ----------
Total Other Income (Expense) 15,946 32,073 - 48,019
---------- ---------- ----------- ----------
Income Before Interest Charges
and Preferred Dividends 319,832 297,509 - 617,341
Interest Charges 108,092 102,997 - 211,089
Preferred Dividends of Subsidiaries 14,580 4,377 - 18,957
---------- ---------- ----------- ----------
Net Income $ 197,160 $ 190,135 $ - $ 387,295
========== ========== =========== ==========
Average Common Shares Outstanding (Note 1) 65,211 105,878 40,822 211,911
Earnings Per Common Share $ 3.02 $ 1.80 $ 1.83
========== ========== ==========
<FN>
See accompanying notes to unaudited pro forma combined condensed financial statements.
- 101 -
</TABLE>
<PAGE> 102
PRIMERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The pro forma combined condensed financial statements reflect the
conversion of each share of NSP Common Stock ($2.50 par value) outstanding
into 1.626 shares of Primergy Common Stock ($.01 par value) and the
continuation of each share of WEC Common Stock ($.01 par value)
outstanding as one share of Primergy Common Stock, as provided in the
Merger Agreement. The pro forma combined condensed financial statements
are presented as if the companies were combined during all periods
included therein.
2. The allocation between NSP and WEC and their customers of the estimated
cost savings resulting from the Transaction, net of the costs incurred to
achieve such savings, will be subject to regulatory review and approval.
Cost savings resulting from the Transaction are estimated to be
approximately $2 billion over a 10-year period, net of transaction costs
(including fees for financial advisors, attorneys, accountants,
consultants, filings and printing) and costs to achieve the savings of
approximately $30 million and $122 million, respectively. None of these
estimated cost savings, the costs to achieve such savings, or the
transaction costs have been reflected in the pro forma combined condensed
financial statements.
3. Intercompany transactions (including purchased and exchanged power
transactions) between NSP and WEC during the periods presented were not
material and, accordingly, no pro forma adjustments were made to
eliminate such transactions.
4. A pro forma adjustment has been made to conform the presentation of
noncurrent deferred income taxes in the pro forma combined condensed
balance sheet into one net amount. All other financial statement
presentation and accounting policy differences are immaterial and have not
been adjusted in the pro forma combined condensed financial statements.
5. Certain reclassifications have been made to the 1994 and 1993 NSP
financial statements to conform with the 1995 presentation. These
reclassifications had no effect on net income or earnings per share.
- 102 -
<PAGE> 103
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 28, 1996 (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 28, 1996
(R. A. Abdoo, Chairman of the Board, President
and Chief Executive Officer and Director
- Principal Executive Officer)
/s/R. R. Grigg, Jr.
- --------------------------------------------------- March 28, 1996
(R. R. Grigg, Jr., Vice President and Director)
/s/C. H. Baker
- --------------------------------------------------- March 28, 1996
(C. H. Baker, Treasurer and Chief Financial
Officer - Principal Financial Officer)
/s/A. K. Klisurich
- --------------------------------------------------- March 28, 1996
(A. K. Klisurich, Controller
- Principal Accounting Officer)
/s/J. F. Ahearne
- ---------------------------------------------------- March 28, 1996
(J. F. Ahearne, Director)
/s/J. F. Bergstrom
- ---------------------------------------------------- March 28, 1996
(J. F. Bergstrom, Director)
- 103 -
<PAGE> 104
Signature and Title Date
/s/R. A. Cornog
- ---------------------------------------------------- March 28, 1996
(R. A. Cornog, Director)
/s/G. B. Johnson
- ---------------------------------------------------- March 28, 1996
(G. B. Johnson, Director)
/s/F. P. Stratton
- ---------------------------------------------------- March 28, 1996
(F. P. Stratton, Jr., Director)
/s/J. G. Udell
- ---------------------------------------------------- March 28, 1996
(J. G. Udell, Director)
- 104 -
<PAGE> 105
Wisconsin Energy Corporation
EXHIBIT INDEX
-------------
1995 Annual Report on Form 10-K
For the Year Ended December 31, 1995
Exhibit
Number
- -------
The following Exhibits are filed with this report:
(10)-1 Supplemental Executive Retirement Plan of Wisconsin Energy Corporation
("WEC") (as amended and restated as of January 1, 1996). *
(10)-2 Amended Non-Qualified Trust Agreement by and between WEC and Firstar
Trust Company dated January 26, 1996, regarding trust established to
provide a source of funds to assist in meeting of the liabilities
under various nonqualified deferred compensation plans made between
WEC or its subsidiaries and various plan participants. *
(10)-3 Executive Deferred Compensation Plan of WEC, effective January 1,
1989, as amended and restated as of January 1, 1996. *
(10)-4 Directors' Deferred Compensation Plan of WEC, effective January 1,
1987, and as restated as of January 1, 1996. *
(10)-5 Forms of Stock Option Agreements under 1993 Omnibus Stock Incentive
Plan. *
(10)-6 Form of Amendment to Stock Option Agreements under 1993 Omnibus Stock
Incentive Plan to waive NSP Transaction as a change in control
thereunder. *
(10)-7 Supplemental Benefits Agreement between WEC and Calvin H. Baker dated
November 21, 1994. *
(10)-8 Form of Amendment to Supplemental Benefits Agreements to waive NSP
Transaction as a change in control thereunder. *
(10)-9 Form of Consent under the Executive Deferred Compensation Plan to
waive NSP Transaction as a change in control thereunder. *
(21)-1 Subsidiaries of WEC.
(23)-1 Price Waterhouse LLP - Milwaukee, WI Consent of Independent
Accountants appearing on page 96 of this Annual Report on Form 10-K
for the year ended December 31, 1995.
(23)-2 Consent of Price Waterhouse LLP - Minneapolis, MN, Northern States
Power Company's ("NSP") Independent Accountants.
(23)-3 Consent of Deloitte & Touche LLP - Minneapolis, MN, NSP's Independent
Auditors prior to 1995.
(27)-1 WEC Financial Data Schedule for the fiscal year ended December 31,
1995.
- 105 -
<PAGE> 106
Exhibit
Number
- -------
(99)-1 Information furnished in lieu of the Form 11-K Annual Report for
Management Employee Savings Plan for the year ended December 31, 1995.
(To be filed by amendment.)
(99)-2 Information furnished in lieu of the Form 11-K Annual Report for
Represented Employee Savings Plan for the year ended December 31,
1995. (To be filed by amendment.)
- --------------------
* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
In addition to those Exhibits shown above, which are filed herewith, WEC
hereby incorporates the following Exhibits pursuant to Exchange Act Rule 12b-
32 and Regulation Section 201.24 by reference to the filings set forth below:
(2)-1 Amended and Restated Agreement and Plan of Merger, dated as of
April 28, 1995, as amended and restated as of July 26, 1995, by and
among NSP, WEC, Northern Power Wisconsin Corp. ("New NSP") and WEC
Sub Corp. (Exhibit (2)-1 to WEC's Registration Statement on Form S-4
filed on August 7, 1995, Registration No. 33-61619 ("Form S-4,
No. 33-61619"); other related documents are also filed as exhibits
to such Registration Statement.)
(2)-2 WEC Stock Option Agreement, dated as of April 28, 1995, by and among
NSP and WEC. (Exhibit (2)-2 to Form S-4, No. 33-61619.)
(2)-3 NSP Stock Option Agreement, dated as of April 28, 1995, by and among
WEC and NSP. (Exhibit (2)-3 to Form S-4, No. 33-61619.)
(2)-4 Committees of the Board of Directors of Primergy Corporation
("Primergy"). (Exhibit (2)-4 to Form S-4, No. 33-61619.)
(2)-5 Form of Employment Agreement between Primergy and James J. Howard.
(Exhibit (2)-5 to Form S-4, No. 33-61619.)
(2)-6 Form of Employment Agreement between Primergy and Richard A. Abdoo.
(Exhibit (2)-6 to Form S-4, No. 33-61619.)
(2)-7 Form of Amended and Restated Articles of Incorporation of New NSP.
(Exhibit 3-3 (b) to Form S-4, No. 33-61619.)
(2)-8 Letter Agreement, dated January 17, 1995, between NSP and WEC.
(Exhibit (2)-8 to WEC's Schedule 13D dated May 4, 1995 with respect
to the NSP Stock Option Agreement.)
(2)-9 Letter Agreement, dated April 26, 1995, between NSP and WEC amending
Letter Agreement dated January 17, 1995. (Exhibit (2)-9 to WEC's
Schedule 13D dated May 4, 1995 with respect to the NSP Stock Option
Agreement.)
(3)-1 Restated Articles of Incorporation of WEC, as amended and restated
effective June 12, 1995. (Exhibit (3)-1 to WEC's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, File No. 1-9057 ("WEC's
6/30/95 10-Q").)
- 106 -
<PAGE> 107
Exhibit
Number
- -------
(3)-2 Bylaws of WEC, as amended and restated July 26, 1995. (Exhibit (3)-2
to Form S-4, No. 33-61619.)
(4)-1 Reference is made to Article III of the Restated Articles of
Incorporation of WEC. (Exhibit (3)-1 herein.)
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution 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-I 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
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)
- 107 -
<PAGE> 108
Mortgage, Indenture,
Supplemental Indenture
or Securities
Resolution Company Date Exhibit # Under File No.
- ------------------------------------------------------------------------------
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)
41 Fortieth WE 1/01/96 (4)-1 1-1245 (1/1/96
WE Form 8-K)
42 Indenture for WE 12/01/95 (4)-1 1-1245 (12/31/95
Debt Securities WE Form 10-K)
(the "Indenture")
43 Securities WE 12/05/95 (4)-2 1-1245 (12/31/95
Resolution No. WE Form 10-K)
1 under the
Indenture
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)-10 Supplemental Benefits Agreement between WEC and Richard A. Abdoo dated
November 21, 1994, and April 26, 1995 letter agreement.
(Exhibit (10)-1 to WEC's 6/30/95 10-Q.) *
(10)-11 WEC Senior Executive Severance Policy, as adopted effective
April 28, 1995 and amended on July 26, 1995. (Exhibit (10)-3 to
WEC's 6/30/95 10-Q.) *
(10)-12 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 WEC to officers and other
key employees. (Exhibit 10-1 to WEC's 1993 Form 10-K in File
No. 1-9057.) *
- 108 -
<PAGE> 109
Exhibit
Number
- -------
(10)-13 Agreement between WEC, WITECH Corporation and employee Francis
Brzezinski dated November 30, 1992, naming him a participant in the
WEC Supplemental Executive Retirement Plan retroactive to
September 1, 1990. (Exhibit 10-1 to WEC's 1992 Form 10-K in File
No. 1-9057.) *
(10)-14 Short-Term Performance Plan of WEC effective January 1, 1992.
(Exhibit 10-3 to WEC's 1991 Form 10-K in File No. 1-9057.) *
(10)-15 Service Agreement dated January 1, 1987, between WE, WEC and other
non-utility affiliated companies. (Exhibit (10)-(a) to WE's Current
Report on Form 8-K dated January 2, 1987 in File No. 1-1245.)
(99)-3 Audited Financial Statements of NSP. (Item 8 of NSP's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, File
No. 1-3034):
Report of Independent Accountants.
Independent Auditor's Report for years prior to 1995.
Consolidated Statements of Income for the three years ended
December 31, 1995.
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995.
Consolidated Balance Sheets at December 31, 1995 and 1994.
Consolidated Statements of Common Stockholders' Equity for the three
years ended December 31, 1995.
Consolidated Statements of Capitalization at December 31, 1995
and 1994.
Notes to Financial Statements.
- -------------------------
* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
- 109 -
<PAGE> 1
EXHIBIT (10)-1
WISCONSIN ENERGY CORPORATION
----------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(As amended effective January 1, 1996)
<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 was effective as of
January 1, 1994; it was subsequently amended effective April 26, 1995. All
the provisions of this amended and restated Plan, as subsequently amended,
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.
<PAGE> 3
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 ad-
ministered 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.
(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
- 2 -
<PAGE> 4
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 in Mr. R. A. Abdoo's case, age 58, and if his
actual retirement occurs at or after age 58 but prior to age
60, he shall be deemed to be age 60 for purposes of all
calculations respecting Monthly Benefits A and B hereof) or
later, or
(b) prior to age 60 (or in Mr. R. A. Abdoo's case, age 58)
subject to approval by the Chief Executive Officer of
Wisconsin Energy Corporation with 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
- 3 -
<PAGE> 5
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 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
- 4 -
<PAGE> 6
because of deferral elections made by the Participant under a savings or
other deferred compensation 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
- 5 -
<PAGE> 7
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). However, if
the Participant elects the Single Sum Equivalent form under the
qualified defined benefit retirement plan, the Participant must choose
another form of payment for Monthly Benefits A, B and C that is
available under the qualified defined benefit retirement plan. 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
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
- 6 -
<PAGE> 8
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,
- 7 -
<PAGE> 9
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;
- 8 -
<PAGE> 10
(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 -
<PAGE> 11
Notwithstanding any other provision of this paragraph 8, none of the
transactions contemplated by the Agreement and Plan of Merger by and
among Northern States Power Company, Wisconsin Energy Corporation,
Northern Power Wisconsin Corp., and WEC Sub Corp., dated as of April 28,
1995, shall constitute a "Change in Control" for purposes of this Plan.
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.
- 10 -
<PAGE> 12
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
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.
- 11 -
<PAGE> 13
(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
- 12 -
<PAGE> 14
shall not be overturned unless proven to be arbitrary and
capricious upon the evidence considered by the Company at
the time of such determination.
- 13 -
<PAGE> 15
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
- 14 -
<PAGE> 1
EXHIBIT (10)-2
WISCONSIN ENERGY CORPORATION
AMENDED NON-QUALIFIED TRUST
THIS AMENDED AGREEMENT made this 26th day of January 1996, by and
between WISCONSIN ENERGY CORPORATION ("Company") and FIRSTAR TRUST COMPANY
("Trustee");
WHEREAS, Company has adopted the nonqualified deferred compensation
Plan(s) as listed in Appendix A;
WHEREAS, Company and certain of its subsidiaries have incurred or expect
to incur liability under the terms of such Plan(s) with respect to the
individuals participating in such Plan(s);
WHEREAS, Company has previously established a trust (hereinafter called
"Trust") and contributed to the Trust assets to be held therein, subject to
the claims of the creditors of the Company and all contributing subsidiaries,
in the event of Insolvency of the Company or any contributing subsidiary, as
herein defined, until paid to Plan participants and their beneficiaries in
such manner and at such times as specified in the Plan(s);
WHEREAS, Company wishes to amend the Trust to permit Trust assets to be
invested in Company stock and to make certain other Trust changes;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plan(s) as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of
1974;
WHEREAS, it is the intention of Company and certain of its subsidiaries
to make contributions to the Trust to provide a source of funds to assist in
the meeting of the liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby amend the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
Section 1. ESTABLISHMENT OF TRUST
(a) Company has previously contributed amounts to the Trust to be
held, administered and disposed of by Trustee as provided in this Trust
Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company or any of its subsidiaries and
shall be used exclusively for the uses and purposes of Plan participants and
general creditors as herein set forth. Plan participants and their
beneficiaries shall have no preferred claim on, or any beneficial ownership
<PAGE> 2
interest in, any assets of the Trust. Any rights created under the Plan(s)
and this Trust Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against Company. Any assets held by the
Trust will be subject to the claims of general creditors of the Company and
any contributing subsidiary under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in Trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee
as provided in this Trust Agreement. Neither Trustee nor any plan participant
or beneficiary shall have any right to compel such additional deposits.
(f) Upon a Change of Control Company shall, as soon as possible, but
in no event longer than 60 days following the Change of Control, as defined
herein, make an irrevocable contribution to the Trust in an amount that is
sufficient to pay each plan participant or beneficiary the benefits to which
plan participants or their beneficiaries would be entitled pursuant to the
terms of the plan(s) as of the date on which the Change of Control occurred.
Section 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or available under
the Plan(s)), and the time of commencement for payment of such amounts.
Except as otherwise provided herein, Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
Trustee shall make provision for the reporting and withholding of any federal,
state or local taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Plan(s) and shall pay amounts
withheld to the appropriate taxing authorities or determine that such amounts
have been reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plan(s) shall be determined by Company or such party as
it shall designate under the Plan(s), and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan(s).
(c) Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan(s).
Company shall notify Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with
the terms of the Plan, Company shall make the balance of each such payment as
it falls due. Trustee shall notify Company where principal and earnings are
not sufficient.
Section 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST BENEFICIARY
WHEN COMPANY IS INSOLVENT.
(a) Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if Company or any contributing subsidiary is Insolvent.
Whenever the term "Company" is used in this Section 3, it shall also be deemed
- 2 -
<PAGE> 3
to mean any contributing subsidiary of the Company. Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such determination,
Trustee shall discontinue payment of benefits to Plan participants or
their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency,
or has received notice from Company or a person claiming to be a
creditor alleging that Company is Insolvent, Trustee shall have no duty
to inquire whether Company is Insolvent. Trustee may in all events rely
on such evidence concerning Company's solvency as may be furnished to
Trustee and that provides Trustee with a reasonable basis for making a
determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan participants or
their beneficiaries and shall hold the assets of the Trust for the
benefit of Company's general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of Plan participants or their bene-
ficiaries to pursue their rights as general creditors of Company with
respect to benefits due under the Plan(s) or otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after Trustee has determined that Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made
to Plan participants or their beneficiaries by Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return
to Company or to divert to others any of the Trust assets before all payment
of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plan(s).
- 3 -
<PAGE> 4
Section 5. INVESTMENT AUTHORITY.
(a) Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by Company. All rights associated with
assets of the Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with plan
participants.
Company shall have the right at anytime, and from time to time in its sole
discretion, to substitute assets of equal fair market value for any asset held
by the Trust. This right is exercisable by Company in a nonfiduciary capacity
without the approval or consent of any person in a fiduciary capacity.
(b) Subject to (a) above, Trustee shall invest and reinvest the
principal and income of the Trust fund in any and all common stocks, preferred
stocks, bonds, notes, debentures, mortgages, equipment trust certificates,
investment trust certificates, common, collective or group trust investments
or mutual fund investments (including any such trusts or funds as may be
established by Trustee or any of its affiliates), real and personal property
wherever situated, and in such other property, investments and securities of
any kind, class or character as Trustee may deem suitable for the Trust.
Trustee shall have the power, in its sole discretion, to do all such acts,
execute all such instruments, take all such proceedings and exercise all
rights and privileges with respect to any property or asset constituting a
part of the Trust fund as if Trustee were the absolute owner thereof.
(c) Notwithstanding any other provision of this Trust, Company, by
action of its Board or Executive Committee, may from time to time appoint one
or more independent professional investment advisors (each of which is
hereinafter called an "Investment Advisor") with respect to the total or any
portion of the Trust fund. Trustee shall not be required to be a party to any
agreement appointing an Investment Advisor except in the case where Company
requests Trustee to enter into an agency and custody agreement with an
Investment Advisor which will also be the depository and custodian of the
Trust fund assets allocated to its management; provided further that the terms
and conditions of appointment, authority, retention and removal of Investment
Advisor shall be the sole responsibility of Company. Investment Advisor shall
have and exercise all of the investment powers reserved to Trustee under this
Trust Agreement during the period of such appointment. Upon receipt of
written notice from Company of the appointment of such Investment Advisor,
Trustee shall perform such custodial and ministerial acts relating to
investments as may be required to carry out the directions of Investment
Advisor and the administration of such portion of the Trust fund for which an
advisor is appointed, but shall be relieved of all responsibility for
investment or failure to invest in accordance with this Trust Agreement for
such portion of the Trust fund during the period of such appointment, except
that Trustee may invest and reinvest income and principal cash in
U.S. treasury bills, commercial paper, or other short-term investments,
including in interests in any common, collective or group trust fund or mutual
fund that is created and maintained by Trustee or any of its affiliates from
time to time for the collective short-term investment of Trust cash reserves,
pending receipt of directions as to the investment or disposition of such
cash.
Section 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
- 4 -
<PAGE> 5
Section 7. ACCOUNTING BY TRUSTEE.
With respect to the Trust fund and each Plan, Trustee shall keep or
cause to be maintained accurate and detailed accounts of all investments,
receipts and disbursements and other transactions hereunder, and all accounts,
books and records relating thereto shall be open to inspection and audit at
all reasonable times by any person or persons designated by Company. Trustee
shall file with Company annually or more frequently if requested a written
report setting forth all investments, receipts and disbursements, and other
transactions effected by them to the date covered by the report, and showing
all cash and other property held at the end of such period. At the request of
Company, Trustee shall establish and maintain separate records on
contributions made hereunder by Company and any contributing subsidiary. Such
funds may be commingled, invested and reinvested hereunder in all respects as
a commingled single fund, but Trustee, to the extent it is maintaining
separate records hereunder as to the contributing entity, shall always
maintain separate accounts within the Trust showing the value of the separate
interests of each contributing entity, on a pro rata basis.
Section 8. RESPONSIBILITY OF TRUSTEE.
(a) Trustee shall have no duty to review or recommend the sale,
retention or other disposition of any asset purchased or retained at the
direction of Investment Advisor, nor shall Trustee have any personal liability
or responsibility for any loss to or depreciation of such portion of the Trust
fund for which an advisor is appointed occasioned by reason of the purchase,
sale or retention of any asset in accordance with the direction of Investment
Advisor, or by reason of not having sold such asset so purchased or retained
in the absence of any direction from Investment Advisor to make such sale.
All directions given to Trustee by Investment Advisor, including broker's con-
firmations, shall be given in writing or given orally and immediately
confirmed in writing. Company shall indemnify and hold Trustee harmless from
and against any claim, loss or expense (including reasonable counsel fees)
arising out of anything done or omitted by Trustee in reliance on the
directions (or the absence of any directions) of Company or any Investment
Advisor appointed under Section 5(c) above.
(b) Trustee may consult with legal counsel, who may be counsel for
Company or in the employ of Company, in respect to any of its rights, duties
and obligations hereunder and shall be fully protected in acting or refraining
from acting in accordance with the advice of such counsel.
(c) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(d) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as a asset of the
Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
(e) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
- 5 -
<PAGE> 6
Section 9. COMPENSATION AND EXPENSES OF TRUSTEE.
Company shall pay all administrative and Trustee's fees and expenses as
shall be agreed to from time to time by Company. If not so paid, the fees and
expenses shall be paid from the Trust.
Section 10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 60 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 60 days' notice or upon
shorter notice accepted by Trustee.
(c) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 120 days after
receipt of notice of resignation removal or transfer, unless Company extends
the time limit.
(d) If Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this section. If no such appointment
has been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the Trust.
Section 11. APPOINTMENT OF SUCCESSOR.
If Trustee resigns or is removed in accordance with Section 10(a) or (b)
hereof, Company may appoint any third party, such as a bank trust department
or other party that may be granted corporate trustee powers under state law,
as a successor to replace Trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by Company or the successor
Trustee to evidence the transfer.
Section 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan(s) or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan(s). Upon termination of the Trust any
assets remaining in the Trust shall be returned to Company.
(c) Upon written approval of participants or beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan(s), Company may
terminate this Trust prior to the time all benefit payments under the Plan(s)
- 6 -
<PAGE> 7
have been made. All assets in the Trust at termination shall be returned to
Company.
Section 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or
in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Wisconsin and of the United States of America.
(d) For purposes of this Trust, Change of Control shall mean: the
occurrence of any of the following events, as a result of one transaction or a
series of transactions:
(1) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, but excluding Company,
its affiliates and any qualified or non-qualified plan maintained by
Company or its affiliates), becomes the "beneficial owner" (as defined
in Rule 13d-3 promulgated under such Act), directly or indirectly, of
securities of Company representing more than 20% of the combined voting
power of Company's then outstanding securities;
(2) 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;
(3) 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 Company;
(4) 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
(5) the Board determines in its sole and absolute discretion
that there has been a change in control of Company.
These "Change in Control" provisions shall apply to successive Changes
in Control on an individual transaction basis.
Notwithstanding any of the other provisions of this Trust, none of the
transactions contemplated by the Agreement and Plan of Merger by and among
Northern States Power Company, Wisconsin Energy Corporation, Northern Power
Wisconsin Corp., and WEC Subcorp., dated as of April 28, 1995 shall constitute
a Change in Control for purposes of the Trust.
- 7 -
<PAGE> 8
Section 14. EFFECTIVE DATE.
The effective date of this Amended Trust Agreement shall be January 26,
1996.
WISCONSIN ENERGY CORPORATION
By: /s/ Ann Marie Brady
-----------------------------
Ann Marie Brady
Assistant Secretary
Attest: /s/ Karen Kusserow
-----------------------------
Karen Kusserow
FIRSTAR TRUST COMPANY
By: /s/ Richard A. Whittow
-----------------------------
Richard A. Whittow
Vice President
Attest: /s/ Colleen K. Hauser
-----------------------------
Colleen K. Hauser
Asst. Secretary
- 8 -
<PAGE> 9
APPENDIX A
TO WISCONSIN ENERGY CORPORATION
EXECUTIVE NON-QUALIFIED TRUST
The nonqualified deferred compensation Plans referred to on page 1 of
the above Trust are identified as follows:
1. Wisconsin Energy Corporation Executive Deferred Compensation Plan.
2. Wisconsin Energy Corporation Supplemental Executive Retirement
Plan.
3. Wisconsin Energy Corporation Directors' Deferred Compensation
Plan.
4. Various individual supplemental benefit letter agreements more
particularly identified as follows:
a. Wisconsin Energy Corporation ("WEC") letter to Mr. R. A.
Abdoo, dated April 26, 1995.
b. Wisconsin Electric Power Company ("WE") letter to Mr. C. H.
Baker, dated November 21, 1994.
c. Wisconsin Natural Gas Company ("WN") letter to Mr. G. W.
Bomier, dated April 1, 1986.
d. WEC letter to Mr. J. W. Boston, dated June 15, 1995.
e. WE letter to Mr. D. S. Bott, dated November 21, 1994.
f. WE letter to Mr. Sol Burstein, dated April 29, 1976.
g. Release Agreement between WN and Mr. S. A. Erbe dated
February 2, 1994.
h. WN letter to Mr. R. K. Espe, dated December 14, 1990 and
Release Agreement between WN and Mr. Espe dated February 2,
1994.
i. WE letter to Mr. R. H. Gorske, dated December 14, 1990.
j. Special Employment, Retirement Benefit and Release Agreement
between WE and Ms. N. R. Noeske dated May 21, 1993.
k. Retirement Agreement between WE and Mr. H. R. Platz, dated
January 15, 1991.
l. Release Agreement between WN and M. E. Schulz dated
February 9, 1994.
m. WE letter to Mr. J. E. Speaker, dated November 21, 1994.
n. Retirement and Release Agreement between WE and
Mr. F. A. Trebatoski, dated December 17, 1991.
o. Release Agreement between WEC and Mr. Piltz, dated April 19,
1995.
<PAGE> 1
EXHIBIT (10)-3
WISCONSIN ENERGY CORPORATION
----------------------------
EXECUTIVE DEFERRED COMPENSATION PLAN
------------------------------------
Effective January 1, 1989
As Amended and Restated as of January 1, 1996
<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
in accordance with rules established by the Company. The deferral
election shall only be effective as to compensation earned from
<PAGE> 3
and after the first day of the month immediately following the
date the form is received by the Company.
(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 amend or revoke any deferral election regarding
base salary under (1) above at any time by giving written notice
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. EARNINGS 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) Each participant may elect to have the participant's account
invested in the Interest Rate Fund or WEC Stock Fund as described
below:
(i) Interest Rate Fund. Under this method, earnings shall be
credited on the average balance in each account 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 end of
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, 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
- 2 -
<PAGE> 4
other than June 30 or December 31, interest shall be
credited to the account as of such payment date. The rate
of interest shall be the prime commercial rate as published
by Firstar Bank, Milwaukee, N.A. in effect on the last day
of the period, except for any period in which any lump sum
amount or final distribution from an account is made as of a
date other than the end of the period, 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.
(ii) WEC Stock Fund. Under this method, earnings shall be
credited at a rate which reflects the performance of
Wisconsin Energy Corporation common stock ("WEC stock").
The value of the participant's account in the WEC Stock Fund
shall be determined by taking into account changes in the
value of WEC stock, dividends paid on WEC stock and any
changes in the capital structure of the Company affecting
the value of WEC stock.
(3) Investment of Deferrals
The participant's deferral election shall identify the Fund or Funds
in which the deferrals shall be invested and may be in 10% increments.
(4) Investment Transfer
In accordance with rules established by the Company, a Participant may
make a one-time election to transfer all or part of the Participant's
Account in the Interest Rate Fund to the WEC Stock Fund.
VII. VESTING
Participants are always 100% vested in amounts deferred to the Plan
plus earnings 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,
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<PAGE> 5
(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
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 "1/1Oth" 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,
- 4 -
<PAGE> 6
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
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;
- 5 -
<PAGE> 7
(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.
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.
Notwithstanding the foregoing, any amount credited to the WEC
Stock Fund for an "insider" subject to Section 16 of the
Securities Exchange Act of 1934 may not be distributed prior to
the Participant's death, retirement, disability or termination of
employment.
Notwithstanding any other provisions of the Plan, none of the
transactions contemplated by the Agreement and Plan of Merger by
and among Northern States Power Company, Wisconsin Energy
Corporation, Northern Power Wisconsin Corp., and WEC Subcorp.,
dated as of April 28, 1995 shall constitute a Change in Control
for purposes of the Plan.
(7) Cash Distributions
All distributions under the Plan shall be in cash.
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
- 6 -
<PAGE> 8
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.
(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,
- 7 -
<PAGE> 9
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
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. The
participant shall be eligible to direct the investment of any
special contributions hereunder in accordance with the rules
described in Article VII.
(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
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<PAGE> 10
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
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
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<PAGE> 11
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
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.
- 10 -
<PAGE> 12
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
- 11 -
<PAGE> 1
EXHIBIT (10)-4
WISCONSIN ENERGY CORPORATION
----------------------------
DIRECTORS' DEFERRED COMPENSATION PLAN
EFFECTIVE JANUARY 1, 1987
AND AS RESTATED AS OF JANUARY 1, 1996
<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") and its subsidiaries in attracting and retaining as members
of their Boards of Directors persons whose abilities, experience and
judgment can contribute to the continued progress of the Company and its
subsidiaries.
Effective January 1, 1996, the Wisconsin Electric Power Company
Directors' Deferred Compensation Plan has been merged and consolidated
with this Plan. The Company shall maintain records to separately
identify deferred fees that would have otherwise been paid by the
Company and its subsidiaries.
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 or a subsidiary
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 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. The fees which the Director has elected
to defer 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 such fees 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 the fees which the Director has elected to defer
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
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<PAGE> 3
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
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. EARNINGS ON DEFERRED COMPENSATION ACCOUNT
(A) Each Participant may elect to have the Participant's Account
invested in the Interest Rate Fund or WEC Stock Fund as described
below:
(1) Interest Rate Fund. Under this method, earnings shall be
credited on the average balance in each Account 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 end of 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, 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. The rate
of interest shall be the prime commercial rate as published
by Firstar Bank, Milwaukee, N.A. in effect on the last day
of the period, except for any period in which any lump sum
amount or final distribution from an Account is made as of a
date other than the end of the period, 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.
(2) WEC Stock Fund. Under this method, earnings shall be
credited at a rate which reflects the performance of
Wisconsin Energy Corporation common stock ("WEC stock").
The value of the Participant's Account in the WEC Stock Fund
shall be determined by taking into account changes in the
value of WEC stock, dividends paid on WEC stock and any
changes in the capital structure of the Company affecting
the value of WEC stock.
(B) Investment of Deferrals
The Participant's deferral election shall identify the Fund or Funds in
which the deferrals shall be invested and may be in 10% increments.
- 2 -
<PAGE> 4
(C) Investment Transfer
In accordance with rules established by the Company, a Participant may
make a one-time election to transfer all or part of the Participant's
Account in the Interest Rate Fund to the WEC Stock Fund.
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.
(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
- 3 -
<PAGE> 5
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.
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
- 4 -
<PAGE> 6
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
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.
(G) Cash Distributions
All Distributions under the Plan shall be in cash.
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
- 5 -
<PAGE> 7
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 Participant's
Account in the Interest Rate Fund 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. Any amount credited the
Participant's Account in the WEC Stock Fund shall be distributed in a
single lump sum immediately following the Participant's termination of
service.
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.
(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.
- 6 -
<PAGE> 8
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.
Notwithstanding any of the other provisions of this Plan, none of the
transactions contemplated by the Agreement and Plan of Merger by and among
Northern States Power Company, Wisconsin Energy Corporation, Northern Power
Wisconsin Corp., and WEC Subcorp., dated as of April 28, 1995 shall constitute
a Change in Control for purposes of the Plan.
- 7 -
<PAGE> 1
Exhibit (10)-5
WISCONSIN ENERGY CORPORATION
INCENTIVE STOCK OPTION
----------------------
THIS INCENTIVE STOCK OPTION, dated the ____ day of ________ 199_, is
granted by WISCONSIN ENERGY CORPORATION (the "Company"), to ___________ (the
"Employee") pursuant to the Company's 1993 Omnibus Stock Incentive Program
(the "Plan").
WHEREAS, the Company believes it to be in the best interests of the
Company, its subsidiaries and its stockholders for its officers and other key
employees to obtain or increase their stock ownership interest in the Company
in order that they will thus have a greater incentive to work for and manage
the Company's affairs in such a way that its shares may become more valuable;
and
WHEREAS, the Employee is employed by the Company or one of its
subsidiaries as an officer or key employee;
NOW, THEREFORE, in consideration of the premises and of the services to
be performed by the Employee, the Company hereby grants this stock option to
the Employee on the terms and conditions hereinafter expressed.
1. OPTION GRANT
------------
The Company hereby grants to the Employee an option to purchase a total
of ______ shares of Common Stock of the Company at an option price of $_______
per share, being not less than 100% of the fair market value of the stock on
the date hereof. This option is intended to qualify as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
<PAGE> 2
2. TIME OF EXERCISE
----------------
This option may be exercised (in the manner described in paragraph 3
hereof) in whole or in part, at any time and from time to time, subject to the
following limitations:
(a) This option may not be exercised to any extent until
_________________, at which time it will become fully exercisable. However,
in the event that the Employee's employment with the Company or a subsidiary
terminates by reason of retirement, permanent total disability or death prior
to _________________, then this option shall become fully exercisable upon
such termination. In addition, this option shall become fully exercisable
upon a Change of Control of the Company as defined in paragraph 11 of the
Plan.
(b) This option may not be exercised:
(i) more than three months after the termination of the
Employee's employment with the Company or a subsidiary
for any reason other than retirement, permanent total
disability or death; or
(ii) more than twelve months after termination of
employment by reason of permanent total disability or
death; or
(iii) more than three years after termination of employment
by retirement; or
(iv) more than ten years from the date hereof.
For these purposes retirement and permanent total disability shall
be determined in accordance with the established policies of the
Company applicable to officers and other key employees.
- 2 -
<PAGE> 3
3. METHOD OF EXERCISE
------------------
This option may be exercised only by appropriate notice in writing delivered
to the Secretary of the Company and accompanied by:
(a) a check payable to the order of the Company for the full
purchase price of the shares purchased, and
(b) such other documents or representations as the Company may
reasonably request in order to comply with securities, tax
or other laws then applicable to the exercise of the option.
Payment of the purchase price may be made in whole or in part by the delivery
of shares of Common Stock owned by the Employee (or by certification of the
Employee's ownership of such shares), valued at fair market value on the date
of exercise. Shares acquired in a prior option exercise may not be used for
this purpose until the shares have been held by the Employee for six months.
4. NON-TRANSFERABILITY; DEATH
--------------------------
This option is not transferable by the Employee otherwise than by
will or the laws of descent and distribution and is exercisable during the
Employee's lifetime only by the Employee. If the Employee dies during the
option period, this option may be exercised in whole or in part and from time
to time, in the manner described in paragraph 3 hereof, by the Employee's
estate or the person to whom the option passes by will or the laws of descent
and distribution, but only within a period of (a) twelve months after the
Employee's death or (b) ten years from the date hereof, whichever period is
shorter.
5. REGISTRATION
------------
If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option
- 3 -
<PAGE> 4
are required to be registered under the Securities Act of 1933 ("Act") or any
state securities laws, or that delivery of the shares must be accompanied or
preceded by a prospectus meeting the requirements of that Act or such state
securities laws, the Company will use its best efforts to effect the
registration or provide the prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until the registration is effected or the prospectus is
available. The Employee shall have no interest in shares covered by this
option until certificates for the shares are issued, or in lieu of
certificates, shares are credited to the Employee's account in the book-entry
form.
6. ADJUSTMENTS
-----------
If the Company shall at any time change the number of shares of
its Common Stock without new consideration to the Company (such as by stock
dividend, stock split or similar transaction), the total number of shares then
remaining subject to purchase hereunder shall be changed in proportion to the
change in issued shares and the option price per share shall be adjusted so
that the total consideration payable to the Company upon the purchase of all
shares not theretofore purchased shall not be changed. If during the term of
this option the Common Stock of the Company shall be changed into another kind
of stock or into securities of another corporation, cash, evidence of
indebtedness, other property or any combination thereof (the "Acquisition
Consideration"), whether as a result of reorganization, sale, merger,
consolidation, or other similar transaction, the Company shall cause adequate
provision to be made whereby the Employee shall thereafter be entitled to
receive upon the due exercise of this option the Acquisition Consideration the
Employee would have been entitled to receive for Common Stock acquired through
exercise of this option immediately prior to the effective date of such
transaction.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused the execution hereof by
its duly authorized officer and Employee has agreed to the terms and
conditions of this option, all as of the date first above written.
WISCONSIN ENERGY CORPORATION
By _____________________________________
Chairman
_____________________________________
Employee
- 5 -
<PAGE> 6
WISCONSIN ENERGY CORPORATION
NON-QUALIFIED STOCK OPTION
--------------------------
THIS NON-QUALIFIED STOCK OPTION, dated the ____ day of __________
199_, is granted by WISCONSIN ENERGY CORPORATION (the "Company"), to
________________ (the "Employee") pursuant to the Company's 1993 Omnibus Stock
Incentive Program (the "Plan").
WHEREAS, the Company believes it to be in the best interests of
the Company, its subsidiaries and its stockholders for its officers and other
key employees to obtain or increase their stock ownership interest in the
Company in order that they will thus have a greater incentive to work for and
manage the Company's affairs in such a way that its shares may become more
valuable; and
WHEREAS, the Employee is employed by the Company or one of its
subsidiaries as an officer or key employee;
NOW, THEREFORE, in consideration of the premises and of the
services to be performed by the Employee, the Company hereby grants this stock
option to the Employee on the terms and conditions hereinafter expressed.
1. OPTION GRANT
------------
The Company hereby grants to the Employee an option to purchase a
total of ______ shares of Common Stock of the Company at an option price of
$_____ per share, being not less than 100% of the fair market value of the
stock on the date hereof. This option is not intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
<PAGE> 7
2. TIME OF EXERCISE
----------------
This option may be exercised (in the manner described in paragraph
3 hereof) in whole or in part, at any time and from time to time, subject to
the following limitations:
(a) This option may not be exercised to any extent until
_________________, at which time it will become fully exercisable. However,
in the event that the Employee's employment with the Company or a subsidiary
terminates by reason of retirement, permanent total disability or death prior
to _________________, then this option shall become fully exercisable upon
such termination. In addition, this option shall become fully exercisable
upon a Change of Control of the Company as defined in paragraph 11 of the
Plan.
(b) This option may not be exercised:
(i) more than three months after the termination of the
Employee's employment with the Company or a subsidiary
for any reason other than retirement, permanent total
disability or death; or
(ii) more than twelve months after termination of
employment by reason of permanent total disability or
death; or
(iii) more than three years after termination of employment
by retirement; or
(iv) more than ten years from the date hereof.
For these purposes retirement and permanent total disability shall
be determined in accordance with the established policies of the
Company applicable to officers and other key employees.
- 2 -
<PAGE> 8
3. METHOD OF EXERCISE
------------------
This option may be exercised only by appropriate notice in writing
delivered to the Secretary of the Company and accompanied by:
(a) a check payable to the order of the Company for the
full purchase price of the shares purchased and any
required tax withholding, and
(b) such other documents or representations as the Company
may reasonably request in order to comply with
securities, tax or other laws then applicable to the
exercise of the option.
Payment of the purchase price may be made in whole or in part by the delivery
of shares of Common Stock owned by the Employee (or by certification of the
Employee's ownership of such shares), valued at fair market value on the date
of exercise. Shares acquired in a prior option exercise may not be used for
this purpose until the shares have been held by the Employee for six months.
The Employee may satisfy any tax withholding obligation in whole or in part by
electing to have the Company retain option shares having a fair market value
on the date of exercise equal to the amount required to be withheld.
4. NON-TRANSFERABILITY; DEATH
--------------------------
This option is not transferable by the Employee otherwise than by
will or the laws of descent and distribution and is exercisable during the
Employee's lifetime only by the Employee. If the Employee dies during the
option period, this option may be exercised in whole or in part and from time
to time, in the manner described in paragraph 3 hereof, by the Employee's
estate or the person to whom the option passes by will or the laws of descent
and distribution, but only within a period of (a) twelve months after the
- 3 -
<PAGE> 9
Employee's death or (b) ten years from the date hereof, whichever period is
shorter.
5. REGISTRATION
------------
If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933 ("Act") or any
state securities laws, or that delivery of the shares must be accompanied or
preceded by a prospectus meeting the requirements of that Act or such state
securities laws, the Company will use its best efforts to effect the
registration or provide the prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until the registration is effected or the prospectus is
available. The Employee shall have no interest in shares covered by this
option until certificates for the shares are issued, or in lieu of
certificates, shares are credited to the Employee's account in the book-entry
form.
6. ADJUSTMENTS
If the Company shall at any time change the number of shares of
its Common Stock without new consideration to the Company (such as by stock
dividend, stock split or similar transaction), the total number of shares then
remaining subject to purchase hereunder shall be changed in proportion to the
change in issued shares and the option price per share shall be adjusted so
that the total consideration payable to the Company upon the purchase of all
shares not theretofore purchased shall not be changed. If during the term of
this option the Common Stock of the Company shall be changed into another kind
of stock or into securities of another corporation, cash, evidence of
indebtedness, other property or any combination thereof (the "Acquisition
- 4 -
<PAGE> 10
Consideration"), whether as a result of reorganization, sale, merger,
consolidation, or other similar transaction, the Company shall cause adequate
provision to be made whereby the Employee shall thereafter be entitled to
receive upon the due exercise of this option the Acquisition Consideration the
Employee would have been entitled to receive for Common Stock acquired through
exercise of this option immediately prior to the effective date of such
transaction.
IN WITNESS WHEREOF, the Company has caused the execution hereof by
its duly authorized officer and Employee has agreed to the terms and
conditions of this option, all as of the date first above written.
WISCONSIN ENERGY CORPORATION
By_________________________________
Chairman
_________________________________
Employee
- 5 -
<PAGE> 11
WISCONSIN ENERGY CORPORATION
INCENTIVE STOCK OPTION AND CONTINGENT DIVIDEND AWARD
----------------------------------------------------
THIS INCENTIVE STOCK OPTION, dated the 20th day of December 1995,
is granted by WISCONSIN ENERGY CORPORATION (the "Company"), to ___________
(the "Employee") pursuant to the Company's 1993 Omnibus Stock Incentive
Program (the "Plan").
WHEREAS, the Company believes it to be in the best interests of
the Company, its subsidiaries and its stockholders for its officers and other
key employees to obtain or increase their stock ownership interest in the
Company in order that they will thus have a greater incentive to work for and
manage the Company's affairs in such a way that its shares may become more
valuable; and
WHEREAS, the Employee is employed by the Company or one of its
subsidiaries as an officer or key employee;
NOW, THEREFORE, in consideration of the premises and of the
services to be performed by the Employee, the Company hereby grants this stock
option to the Employee on the terms and conditions hereinafter expressed.
1. OPTION GRANT
------------
The Company hereby grants to the Employee an option to purchase a
total of ______ shares of Common Stock of the Company at an option price of
$30.188 per share, being not less than 100% of the fair market value of the
stock on the date hereof. This option is intended to qualify as an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended.
<PAGE> 12
2. TIME OF EXERCISE
----------------
This option may be exercised (in the manner described in paragraph
3 hereof) in whole or in part, at any time and from time to time, subject to
the following limitations:
(a) This option may not be exercised to any extent until
December 20, 1999, at which time it will become fully exercisable. However,
in the event that the Employee's employment with the Company or a subsidiary
terminates by reason of retirement, permanent total disability or death prior
to December 20, 1999, then this option shall become fully exercisable upon
such termination. In addition, this option shall become fully exercisable
upon a Change of Control of the Company as defined in paragraph 11 of the Plan
except notwithstanding any other provisions of the Plan, none of the
transactions contemplated by the Amended and Restated Agreement and Plan of
Merger, dated as of April 28, 1995, as amended and restated as of July 26,
1995 by and among Northern States Power Company, Wisconsin Energy Corporation,
Northern Power Wisconsin Corp., and WEC Sub Corp., shall constitute a Change
in Control for purposes of the Plan.
(b) This option may not be exercised:
(i) more than three months after the termination of the
Employee's employment with the Company or a subsidiary
for any reason other than retirement, permanent total
disability or death; or
(ii) more than twelve months after termination of
employment by reason of permanent total disability or
death; or
(iii) more than three years after termination of employment
by retirement; or
- 2 -
<PAGE> 13
(iv) more than ten years from the date hereof.
For these purposes retirement and permanent total disability shall
be determined in accordance with the established policies of the
Company applicable to officers and other key employees.
3. METHOD OF EXERCISE
------------------
This option may be exercised only by appropriate notice in writing delivered
to the Secretary of the Company and accompanied by:
(a) a check payable to the order of the Company for the full
purchase price of the shares purchased, and
(b) such other documents or representations as the Company may
reasonably request in order to comply with securities, tax
or other laws then applicable to the exercise of the option.
Payment of the purchase price may be made in whole or in part by the delivery
of shares of Common Stock owned by the Employee (or by certification of the
Employee's ownership of such shares), valued at fair market value on the date
of exercise. Shares acquired in a prior option exercise may not be used for
this purpose until the shares have been held by the Employee for six months.
4. NON-TRANSFERABILITY; DEATH
--------------------------
This option is not transferable by the Employee otherwise than by
will or the laws of descent and distribution and is exercisable during the
Employee's lifetime only by the Employee. If the Employee dies during the
option period, this option may be exercised in whole or in part and from time
to time, in the manner described in paragraph 3 hereof, by the Employee's
estate or the person to whom the option passes by will or the laws of descent
- 3 -
<PAGE> 14
and distribution, but only within a period of (a) twelve months after the
Employee's death or (b) ten years from the date hereof, whichever period is
shorter.
5. REGISTRATION
------------
If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933 ("Act") or any
state securities laws, or that delivery of the shares must be accompanied or
preceded by a prospectus meeting the requirements of that Act or such state
securities laws, the Company will use its best efforts to effect the
registration or provide the prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until the registration is effected or the prospectus is
available. The Employee shall have no interest in shares covered by this
option until certificates for the shares are issued, or in lieu of
certificates, shares are credited to the Employee's account in the book-entry
form.
6. ADJUSTMENTS
-----------
If the Company shall at any time change the number of shares of
its Common Stock without new consideration to the Company (such as by stock
dividend, stock split or similar transaction), the total number of shares then
remaining subject to purchase hereunder shall be changed in proportion to the
change in issued shares and the option price per share shall be adjusted so
that the total consideration payable to the Company upon the purchase of all
shares not theretofore purchased shall not be changed. If during the term of
this option the Common Stock of the Company shall be changed into another kind
of stock or into securities of another corporation, cash, evidence of
- 4 -
<PAGE> 15
indebtedness, other property or any combination thereof (the "Acquisition
Consideration"), whether as a result of reorganization, sale, merger,
consolidation, or other similar transaction, the Company shall cause adequate
provision to be made whereby the Employee shall thereafter be entitled to
receive upon the due exercise of this option the Acquisition Consideration the
Employee would have been entitled to receive for Common Stock acquired through
exercise of this option immediately prior to the effective date of such
transaction.
7. CONTINGENT DIVIDEND AWARD
-------------------------
The company hereby grants to the Employee a contingent dividend
award on a number of shares equal to the number of shares covered by this
option agreement, entitling the Employee to receive the equivalent of the cash
dividends that would have been paid over a four-year period commencing
December 20, 1995 (the Performance Period) on such shares, providing the
conditions set forth herein are satisfied.
A contingent dividend award will only be payable if the Company
achieves a total shareholder return over the Performance Period that is equal
to or exceeds the median return earned by the companies in the Company's
industry peer group, except that there will be no payout if the Company's
total shareholder return is negative over the Performance Period. No interest
is payable on amounts accumulated with respect to the contingent dividend
award prior to payment. The contingent dividend award will be forfeited if
the Employee does not remain in the employ of the Company or a subsidiary
through the end of the Performance Period.
- 5 -
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused the execution hereof by
its duly authorized officer and Employee has agreed to the terms and
conditions of this option, all as of the date first above written.
WISCONSIN ENERGY CORPORATION
By
---------------------------------
Assistant Secretary
---------------------------------
Employee
- 6 -
<PAGE> 17
WISCONSIN ENERGY CORPORATION
NON-QUALIFIED STOCK OPTION AND CONTINGENT DIVIDEND AWARD
--------------------------------------------------------
THIS NON-QUALIFIED STOCK OPTION, dated the 20th day of December
1995, is granted by WISCONSIN ENERGY CORPORATION (the "Company"), to
________________ (the "Employee") pursuant to the Company's 1993 Omnibus Stock
Incentive Program (the "Plan").
WHEREAS, the Company believes it to be in the best interests of
the Company, its subsidiaries and its stockholders for its officers and other
key employees to obtain or increase their stock ownership interest in the
Company in order that they will thus have a greater incentive to work for and
manage the Company's affairs in such a way that its shares may become more
valuable; and
WHEREAS, the Employee is employed by the Company or one of its
subsidiaries as an officer or key employee;
NOW, THEREFORE, in consideration of the premises and of the
services to be performed by the Employee, the Company hereby grants this stock
option to the Employee on the terms and conditions hereinafter expressed.
1. OPTION GRANT
------------
The Company hereby grants to the Employee an option to purchase a
total of ____ shares of Common Stock of the Company at an option price of
$_____ per share, being not less than 100% of the fair market value of the
stock on the date hereof. This option is not intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
<PAGE> 18
2. TIME OF EXERCISE
----------------
This option may be exercised (in the manner described in paragraph
3 hereof) in whole or in part, at any time and from time to time, subject to
the following limitations:
(a) This option may not be exercised to any extent until
December 20, 1999, at which time it will become fully exercisable. However,
in the event that the Employee's employment with the Company or a subsidiary
terminates by reason of retirement, permanent total disability or death prior
to December 20, 1999, then this option shall become fully exercisable upon
such termination. In addition, this option shall become fully exercisable
upon a Change of Control of the Company as defined in paragraph 11 of the Plan
except notwithstanding any other provisions of the Plan, none of the
transactions contemplated by the Amended and Restated Agreement and Plan of
Merger, dated as of April 28, 1995, as amended and restated as of July 26,
1995 by and among Northern States Power Company, Wisconsin Energy Corporation,
Northern Power Wisconsin Corp., and WEC Sub Corp., shall constitute a Change
in Control for purposes of the Plan.
(b) This option may not be exercised:
(i) more than three months after the termination of the
Employee's employment with the Company or a subsidiary
for any reason other than retirement, permanent total
disability or death; or
(ii) more than twelve months after termination of
employment by reason of permanent total disability or
death; or
(iii) more than three years after termination of employment
by retirement; or
- 2 -
<PAGE> 19
(iv) more than ten years from the date hereof.
For these purposes retirement and permanent total disability shall
be determined in accordance with the established policies of the
Company applicable to officers and other key employees.
3. METHOD OF EXERCISE
------------------
This option may be exercised only by appropriate notice in writing
delivered to the Secretary of the Company and accompanied by:
(a) a check payable to the order of the Company for the full
purchase price of the shares purchased and any required tax
withholding, and
(b) such other documents or representations as the Company may
reasonably request in order to comply with securities, tax
or other laws then applicable to the exercise of the option.
Payment of the purchase price may be made in whole or in part by the delivery
of shares of Common Stock owned by the Employee (or by certification of the
Employee's ownership of such shares), valued at fair market value on the date
of exercise. Shares acquired in a prior option exercise may not be used for
this purpose until the shares have been held by the Employee for six months.
The Employee may satisfy any tax withholding obligation in whole or in part by
electing to have the Company retain option shares having a fair market value
on the date of exercise equal to the amount required to be withheld.
4. NON-TRANSFERABILITY; DEATH
--------------------------
This option is not transferable by the Employee otherwise than by
will or the laws of descent and distribution and is exercisable during the
Employee's lifetime only by the Employee. If the Employee dies during the
option period, this option may be exercised in whole or in part and from time
- 3 -
<PAGE> 20
to time, in the manner described in paragraph 3 hereof, by the Employee's
estate or the person to whom the option passes by will or the laws of descent
and distribution, but only within a period of (a) twelve months after the
Employee's death or (b) ten years from the date hereof, whichever period is
shorter.
5. REGISTRATION
------------
If at any time during the option period the Company shall be
advised by its counsel that shares deliverable upon exercise of the option are
required to be registered under the Securities Act of 1933 ("Act") or any
state securities laws, or that delivery of the shares must be accompanied or
preceded by a prospectus meeting the requirements of that Act or such state
securities laws, the Company will use its best efforts to effect the
registration or provide the prospectus not later than a reasonable time
following each exercise of this option, but delivery of shares by the Company
may be deferred until the registration is effected or the prospectus is
available. The Employee shall have no interest in shares covered by this
option until certificates for the shares are issued, or in lieu of
certificates, shares are credited to the Employee's account in the book-entry
form.
6. ADJUSTMENTS
If the Company shall at any time change the number of shares of
its Common Stock without new consideration to the Company (such as by stock
dividend, stock split or similar transaction), the total number of shares then
remaining subject to purchase hereunder shall be changed in proportion to the
change in issued shares and the option price per share shall be adjusted so
that the total consideration payable to the Company upon the purchase of all
shares not theretofore purchased shall not be changed. If during the term of
this option the Common Stock of the Company shall be changed into another kind
- 4 -
<PAGE> 21
of stock or into securities of another corporation, cash, evidence of
indebtedness, other property or any combination thereof (the "Acquisition
Consideration"), whether as a result of reorganization, sale, merger,
consolidation, or other similar transaction, the Company shall cause adequate
provision to be made whereby the Employee shall thereafter be entitled to
receive upon the due exercise of this option the Acquisition Consideration the
Employee would have been entitled to receive for Common Stock acquired through
exercise of this option immediately prior to the effective date of such
transaction.
7. CONTINGENT DIVIDEND AWARD
-------------------------
The company hereby grants to the Employee a contingent dividend
award on a number of shares equal to the number of shares covered by this
option agreement, entitling the Employee to receive the equivalent of the cash
dividends that would have been paid over a four-year period commencing
December 20, 1995 (the Performance Period) on such shares, providing the
conditions set forth herein are satisfied.
A contingent dividend award will only be payable if the Company
achieves a total shareholder return over the Performance Period that is equal
to or exceeds the median return earned by the companies in the Company's
industry peer group, except that there will be no payout if the Company's
total shareholder return is negative over the Performance Period. No interest
is payable on amounts accumulated with respect to the contingent dividend
award prior to payment. The contingent dividend award will be forfeited if
the Employee does not remain in the employ of the Company or a subsidiary
through the end of the Performance Period.
- 5 -
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused the execution hereof by
its duly authorized officer and Employee has agreed to the terms and
conditions of this option, all as of the date first above written.
WISCONSIN ENERGY CORPORATION
By________________________________
Assistant Secretary
________________________________
Employee
- 6 -
<PAGE> 1
Exhibit (10)-6
AMENDMENT TO CERTAIN
STOCK OPTION AGREEMENTS BETWEEN
WISCONSIN ENERGY CORPORATION ("COMPANY")
AND _________________________
The Company and ___________________ are parties to the following stock
option agreements ("Option Agreements"):
Date of Grant Incentive Stock Options Non-Qualified Stock Options
- ------------- ----------------------- ---------------------------
The parties to the Option Agreements hereby amend each to add the
following new paragraph 7:
7. SPECIAL PROVISION
-----------------
The Company has entered into an agreement and plan of merger by
and among Northern States Power Company, Wisconsin Energy Corporation,
Northern Power Wisconsin Corp., and WEC Sub Corp., dated as of April 28,
1995 (the "Merger Agreement"). Notwithstanding any other provision of
any of the Option Agreements or the Plan, none of the transactions
contemplated by the Merger Agreement shall constitute a Change In Control
for purposes of this option and the related contingent performance
dividend units.
IN WITNESS WHEREOF, the parties have signed this Amendment, as of the
date set forth below.
WISCONSIN ENERGY CORPORATION
Dated: _________________________ By: ______________________________
Richard A. Abdoo
Chairman, President and
Chief Executive Officer
Dated: _________________________ By: ______________________________
<PAGE> 1
[WE LETTERHEAD]
November 21, 1994
Mr. Calvin H. Baker
1660 N. Prospect Ave., Apt 312
Milwaukee, WI 53202
Dear Cal:
RE: SUPPLEMENTAL BENEFITS
---------------------
This letter agreement replaces in its entirety the letter agreement between us
dated September 3, 1991 and signed by you on September 3, 1991.
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 under defined benefit plans from
previous employers 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.
<PAGE> 2
Mr. Calvin H. Baker
November 21, 1994
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 Company, the Company
will pay to your surviving spouse (if any) 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 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 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 upon your
termination of employment with the Company for any other reasons.
<PAGE> 3
Mr. Calvin H. Baker
November 21, 1994
Page 3
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
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/ Richard A. Abdoo
----------------------------
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
Mr. Calvin H. Baker
November 21, 1994
Page 4
I understand, accept and agree to all the provisions and conditions contained
in the above Agreement.
/s/ Calvin H. Baker
- ---------------------------
Calvin H. Baker
November 26, 1994
- ---------------------------
Date
<PAGE> 5
Mr. Calvin H. Baker
November 21, 1994
Page 5
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)-8
[WEC Letterhead]
_____________________, 1995
[Addressee]
RE: SUPPLEMENTAL BENEFITS LETTER DATED ______________________
WISCONSIN ENERGY CORPORATION EXECUTIVE DEFERRED COMPENSATION PLAN (EDCP)
Dear ____________________:
As we have discussed, under the terms of the agreement and plan of merger by
and among Northern States Power Company, Wisconsin Energy Corporation,
Northern Power Wisconsin Corp., and WEC Sub Corp., dated as of April 28, 1995
(the "Merger Agreement"), we are asking for your consent to the following
additional provision to the Letter Agreement:
Notwithstanding any other provision of this
letter, none of the transactions contemplated
by the Merger Agreement shall constitute a
Change In Control for purposes of this letter.
We are also asking for your consent to the following terms as applicable to
any and all benefits that you have presently accrued or might accrue in the
future under the EDCP:
Notwithstanding any other provision of the
EDCP, none of the transactions contemplated
by the Merger Agreement shall constitute a
Change in Control for purposes of any and all
benefits that I have now accrued or may accrue
in the future under the EDCP.
<PAGE> 2
_______________________
_________________, ____
Page 2
If you consent to these additional provisions, please so indicate below.
Sincerely,
WISCONSIN ENERGY CORPORATION
By: ____________________________
Richard A. Abdoo
Chairman, President and
Chief Executive Officer
I understand and consent to the additional provisions referred to above.
Date: ________________________ Signature: __________________________
<PAGE> 1
[WEC LETTERHEAD]
___________________, 1995
[Addressee]
RE: WISCONSIN ENERGY CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN ("EDCP")
Dear _______________:
As we have discussed, under the terms of the agreement and plan of merger by
and among Northern States Power Company, Wisconsin Energy Corporation,
Northern Power Wisconsin Corp., and WEC Sub Corp., dated as of April 28, 1995
(the "Merger Agreement"), we are asking for your consent to the following
terms as applicable to any and all benefits that you have presently accrued or
might accrue in the future under the EDCP:
"Notwithstanding any other provisions of the EDCP,
none of the transactions contemplated by the Merger
Agreement shall constitute a Change in Control for
purposes of any and all benefits that I have now
accrued or may accrue in the future under the EDCP."
If you consent to this additional provision, please so indicate below.
Very truly yours,
WISCONSIN ENERGY CORPORATION
By: _______________________________
Richard A. Abdoo
Chairman, President and
Chief Executive Officer
pb
I understand and consent to the additional provision referred to above.
Date: ______________________ Name: _____________________________
<PAGE> 1
EXHIBIT (21)-1
WISCONSIN ENERGY CORPORATION
----------------------------
The following are subsidiaries of Wisconsin Energy Corporation
Badger Service Company
Minergy Corp.
WEC Sub Corp.*
WEC Generation International Inc.*
Wisconsin Electric Power Company
Wisconsin Michigan Investment Corporation
WISPARK Corporation
WISVEST Corporation
WITECH Corporation
* Non-operating companies.
- 1 -
<PAGE> 1
Exhibit (23)-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements and Prospectuses constituting part of or relating to the
Registration Statements listed below of Wisconsin Energy Corporation of our
report dated February 5, 1996, relating to the consolidated financial
statements of Northern States Power Company, a Minnesota Corporation ("NSP"),
appearing in NSP's Form 10-K for the year ended December 31, 1995, which is
incorporated by reference in this Form 10-K.
1. Registration Statement on Form S-3 (Registration No. 33-57765) - Stock
Plus Investment Plan
2. Registration Statements on Form S-8 (Registration Nos. 33-34656 and
33-62159) - Represented Employee Savings Plan
3. Registration Statements on Form S-8 (Registration Nos. 33-34657 and
33-62157) - Management Employee Savings Plan
4. Registration Statement on Form S-8 (Registration No. 33-65225) - 1993
Omnibus Stock Investment Plan
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Minneapolis, Minnesota
March 28, 1996
<PAGE> 1
Exhibit (23)-3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
and related Prospectuses of Wisconsin Energy Corporation, listed below, of our
report dated February 8, 1995, which expresses an unqualified opinion and
includes an explanatory paragraph relating to Northern States Power Company's
change in method of accounting for certain postretirement health care costs in
1993, appearing in Item 8 of the Annual Report on Form 10-K of Northern States
Power Company (Minnesota) (File No. 1-3034) for the year ended December 31,
1995.
1. Registration Statement on Form S-3 (Registration No. 33-57765) -
Stock Plus Investment Plan
2. Registration Statements on Form S-8 (Registration Nos. 33-34656 and
33-62159) - Represented Employee Savings Plan
3. Registration Statements on Form S-8 (Registration Nos. 33-34657 and
33-62157) - Management Employee Savings Plan
4. Registration Statement on Form S-8 (Registration No. 33-65225) -
1993 Omnibus Stock Incentive Plan
/s/Deloitte & Touche LLP
- ------------------------
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY
CORPORATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,910,554
<OTHER-PROPERTY-AND-INVEST> 637,958
<TOTAL-CURRENT-ASSETS> 531,519
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 480,704
<TOTAL-ASSETS> 4,560,735
<COMMON> 1,108
<CAPITAL-SURPLUS-PAID-IN> 676,909
<RETAINED-EARNINGS> 1,193,248
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,871,265
0
30,451
<LONG-TERM-DEBT-NET> 1,137,314
<SHORT-TERM-NOTES> 107,110
<LONG-TERM-NOTES-PAYABLE> 207,825
<COMMERCIAL-PAPER-OBLIGATIONS> 49,809
<LONG-TERM-DEBT-CURRENT-PORT> 30,435
0
<CAPITAL-LEASE-OBLIGATIONS> 22,505
<LEASES-CURRENT> 21,419
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,082,602
<TOT-CAPITALIZATION-AND-LIAB> 4,560,735
<GROSS-OPERATING-REVENUE> 1,770,484
<INCOME-TAX-EXPENSE> 141,029
<OTHER-OPERATING-EXPENSES> 1,300,434
<TOTAL-OPERATING-EXPENSES> 1,441,463
<OPERATING-INCOME-LOSS> 329,021
<OTHER-INCOME-NET> 16,821
<INCOME-BEFORE-INTEREST-EXPEN> 345,842
<TOTAL-INTEREST-EXPENSE> 110,605
<NET-INCOME> 235,237
1,203
<EARNINGS-AVAILABLE-FOR-COMM> 234,034
<COMMON-STOCK-DIVIDENDS> 159,688
<TOTAL-INTEREST-ON-BONDS> 99,727
<CASH-FLOW-OPERATIONS> 426,892
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
<FN>
See financial statements and footnotes in accompanying 10-K.
</TABLE>
