SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ____________________
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-9057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
-------------------------------------
Indicate by check mark whether each of the registrants (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (August 1, 1998):
Wisconsin Energy Corporation Common stock, $.01 Par Value,
115,276,119 shares outstanding.
Wisconsin Electric Power Company Common stock, $10 Par Value,
33,289,327 shares outstanding.
Wisconsin Energy Corporation is the
sole holder of Wisconsin Electric
Power Company common stock.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Part I - Financial Information
------------------------------
1. Financial Statements:
Wisconsin Energy Corporation
Consolidated Condensed Income Statement. . . . . . . . . . . . . . 3
Consolidated Condensed Balance Sheet . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . 5
Wisconsin Electric Power Company
Condensed Income Statement . . . . . . . . . . . . . . . . . . . . 6
Condensed Balance Sheet. . . . . . . . . . . . . . . . . . . . . . 7
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements of
Wisconsin Energy Corporation and
Wisconsin Electric Power Company . . . . . . . . . . . . . . . . . 9
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for
Wisconsin Energy Corporation and
Wisconsin Electric Power Company . . . . . . . . . . . . . . . . . 11
3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . 19
Part II - Other Information
---------------------------
1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 20
5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 26
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
INTRODUCTION
Wisconsin Energy Corporation ("Wisconsin Energy") is a holding company whose
principal subsidiary is Wisconsin Electric Power Company ("Wisconsin
Electric"), an electric, gas and steam utility. Unless qualified by its
context, the term Wisconsin Energy refers to the holding company and all of
its subsidiaries when used in this combined Form 10-Q. The unaudited interim
financial statements presented in this combined Form 10-Q report include the
consolidated statements of Wisconsin Energy as well as separate statements for
Wisconsin Electric. The unaudited statements have been prepared by Wisconsin
Energy and Wisconsin Electric pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Wisconsin Energy and Wisconsin
Electric financial statements should be read in conjunction with the financial
statements and notes thereto included in the companies' combined Annual Report
on Form 10-K for the year ended December 31, 1997. This combined Form 10-Q is
separately filed by Wisconsin Energy and Wisconsin Electric. Information
contained herein relating to any individual registrant is filed by such
registrant on its own behalf.
<TABLE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues
Electric $ 408,737 $ 337,221 $ 792,377 $ 686,321
Gas 52,414 61,228 171,825 214,077
Steam 3,817 4,765 11,447 13,199
---------- ---------- ---------- ----------
Total Operating Revenues 464,968 403,214 975,649 913,597
Operating Expenses
Fuel 80,207 76,204 154,108 153,465
Purchased power 37,249 32,936 73,840 60,797
Cost of gas sold 31,105 39,141 103,406 142,435
Other operation expenses 124,260 106,705 234,298 209,104
Maintenance 46,504 38,347 87,322 69,814
Depreciation 57,215 57,068 119,488 114,733
Taxes other than income taxes 19,296 19,039 40,012 38,226
Federal income tax 11,273 (1,576) 31,166 16,343
State income tax 2,781 (130) 7,549 4,165
Deferred income taxes - net 1,198 4,886 4,341 9,405
Investment tax credit - net (1,178) (1,122) (2,350) (2,243)
---------- ---------- ---------- ----------
Total Operating Expenses 409,910 371,498 853,180 816,244
Operating Income 55,058 31,716 122,469 97,353
Other Income and Deductions
Interest income 6,332 5,329 13,067 11,687
Allowance for other funds used
during construction 877 1,216 1,592 2,357
Merger expenses (497) (30,684) (497) (30,684)
Miscellaneous - net (3,897) (1,874) (1,146) (1,933)
Income taxes 754 12,079 1,381 11,924
---------- ---------- ---------- ----------
Total Other Income and Deductions 3,569 (13,934) 14,397 (6,649)
Income Before Interest Charges and
Preferred Dividend 58,627 17,782 136,866 90,704
Interest Charges
Interest expense 31,430 29,866 62,318 59,257
Allowance for borrowed funds used
during construction (1,957) (1,752) (3,955) (3,591)
---------- ---------- ---------- ----------
Total Interest Charges 29,473 28,114 58,363 55,666
Preferred Dividend Requirement of Subsidiary 300 300 601 601
---------- ---------- ---------- ----------
Net Income (Loss) $ 28,854 $ (10,632) $ 77,902 $ 34,437
========== ========== ========== ==========
Average Number of Shares of Common
Stock Outstanding (Thousands) 113,687 112,577 113,279 112,270
========== ========== ========== ==========
Earnings (Loss) Per Share of Common
Stock (Basic and Diluted) $ 0.25 $ (0.09) $ 0.69 $ 0.31
========== ========== ========== ==========
Dividends Per Share of Common Stock $ 0.390 $ 0.385 $ 0.775 $ 0.765
========== ========== ========== ==========
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
June 30, 1998 December 31, 1997
---------------- -----------------
(Thousands of Dollars)
Assets
--------------
<S> <C> <C>
Utility Plant
Electric $ 4,835,511 $ 4,690,347
Gas 500,651 492,271
Steam 62,550 61,921
Common 343,852 330,761
Accumulated provision for depreciation (2,877,984) (2,700,839)
------------- -------------
2,864,580 2,874,461
Construction work in progress 132,102 81,612
Leased facilities - net 135,846 138,687
Nuclear fuel - net 65,628 90,219
------------- -------------
Net Utility Plant 3,198,156 3,184,979
Other Property and Investments 935,898 825,357
Current Assets
Cash and cash equivalents 14,102 19,607
Accounts receivable 158,629 145,737
Accrued utility revenues 104,539 141,273
Materials, supplies and fossil fuel 187,672 197,204
Prepayments and other assets 81,864 69,496
------------- -------------
Total Current Assets 546,806 573,317
Deferred Charges and Other Assets
Accumulated deferred income taxes 185,457 172,546
Other 247,343 281,485
------------- -------------
Total Deferred Charges and Other Assets 432,800 454,031
------------- -------------
Total Assets $ 5,113,660 $ 5,037,684
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 750,138 $ 730,783
Retained earnings 1,123,788 1,132,149
------------- -------------
Total Common Stock Equity 1,873,926 1,862,932
Preferred stock 30,450 30,450
Long-term debt 1,725,317 1,532,405
------------- -------------
Total Capitalization 3,629,693 3,425,787
Current Liabilities
Long-term debt due currently 88,249 90,004
Short-term debt 160,551 319,953
Accounts payable 144,258 148,588
Accrued liabilities 83,916 87,221
Other 70,780 63,832
------------- -------------
Total Current Liabilities 547,754 709,598
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 549,939 525,666
Other 386,274 376,633
------------- -------------
Total Deferred Credits and Other Liabilities 936,213 902,299
------------- -------------
Total Capitalization and Liabilities $ 5,113,660 $ 5,037,684
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
</TABLE>
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended June 30
-------------------------------------
1998 1997
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 77,902 $ 34,437
Reconciliation to cash
Depreciation 119,488 114,733
Nuclear fuel expense - amortization 6,465 1,494
Conservation expense - amortization 11,249 11,249
Debt premium, discount & expense - amortization 2,266 4,559
Deferred income taxes - net 4,341 9,405
Investment tax credit - net (2,350) (2,243)
Allowance for other funds used during construction (1,592) (2,357)
Write-off of merger costs 497 30,684
Change in - Accounts receivable (8,085) 15,671
Inventories 10,819 24,686
Accounts payable (7,193) (18,981)
Other current assets 26,837 33,192
Other current liabilities 1,395 627
Other 12,647 (27,070)
---------- ----------
Cash Provided by Operating Activities 254,686 230,086
Investing Activities
Construction expenditures (170,703) (142,377)
Allowance for borrowed funds used during construction (3,955) (3,591)
Nuclear fuel 20,283 (5,811)
Nuclear decommissioning trust (17,912) (13,165)
Other (2,634) 32,057
---------- ----------
Cash Used in Investing Activities (174,921) (132,887)
Financing Activities
Sale of common stock 61 29,586
Sale of long-term debt 184,687 -
Retirement of long-term debt (16,198) (17,376)
Change in short-term debt (166,349) 33,628
Dividends on common stock (87,471) (85,808)
---------- ----------
Cash Used in Financing Activities (85,270) (39,970)
---------- ----------
Change in Cash and Cash Equivalents $ (5,505) $ 57,229
========== ==========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $ 64,778 $ 51,170
Income taxes 49,213 49,806
<FN>
The accompanying notes as they relate to Wisconsin Energy Corporation are an integral part of these
financial statements.
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues
Electric $ 405,540 $ 337,221 $ 789,180 $ 686,321
Gas 52,414 61,228 171,825 214,077
Steam 3,817 4,765 11,447 13,199
---------- ---------- ---------- ----------
Total Operating Revenues 461,771 403,214 972,452 913,597
Operating Expenses
Fuel 80,201 76,204 154,102 153,465
Purchased power 35,799 32,936 72,390 60,797
Cost of gas sold 31,105 39,141 103,406 142,435
Other operation expenses 123,630 106,705 233,668 209,104
Maintenance 46,310 38,347 87,128 69,814
Depreciation 56,970 57,068 119,243 114,733
Taxes other than income taxes 19,156 19,039 39,872 38,226
Federal income tax 11,153 (1,576) 31,046 16,343
State income tax 2,781 (130) 7,549 4,165
Deferred income taxes - net 1,216 4,886 4,359 9,405
Investment tax credit - net (1,173) (1,122) (2,345) (2,243)
---------- ---------- ---------- ----------
Total Operating Expenses 407,148 371,498 850,418 816,244
Operating Income 54,623 31,716 122,034 97,353
Other Income and Deductions
Interest income 5,562 3,472 11,020 8,575
Allowance for other funds used
during construction 877 1,216 1,592 2,357
Merger expenses - (21,881) - (21,881)
Miscellaneous - net (1,245) (1,281) 4,133 (1,526)
Income taxes (1,052) 8,966 (1,981) 8,698
---------- ---------- ---------- ----------
Total Other Income and Deductions 4,142 (9,508) 14,764 (3,777)
Income Before Interest Charges 58,765 22,208 136,798 93,576
Interest Charges
Interest expense 27,840 28,898 55,952 57,194
Allowance for borrowed funds used
during construction (446) (637) (821) (1,252)
---------- ---------- ---------- ----------
Total Interest Charges 27,394 28,261 55,131 55,942
---------- ---------- ---------- ----------
Net Income (Loss) 31,371 (6,053) 81,667 37,634
Preferred Stock Dividend Requirement 300 300 601 601
---------- ---------- ---------- ----------
Earnings Available for Common Stockholder $ 31,071 $ (6,353) $ 81,066 $ 37,033
========== ========== ========== ==========
<FN>
Note - Earnings and dividends per share of common stock are not applicable because all of Wisconsin
Electric Power Company's common stock is owned by Wisconsin Energy Corporation.
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of
these financial statements.
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEET
(Unaudited)
<CAPTION>
June 30, 1998 December 31, 1997
--------------- -----------------
(Thousands of Dollars)
Assets
--------------
<S> <C> <C>
Utility Plant
Electric $ 4,757,713 $ 4,690,347
Gas 500,651 492,271
Steam 62,550 61,921
Common 343,852 330,761
Accumulated provision for depreciation (2,844,016) (2,700,839)
------------- -------------
2,820,750 2,874,461
Construction work in progress 126,861 81,612
Leased facilities - net 135,846 138,687
Nuclear fuel - net 65,628 90,219
------------- -------------
Net Utility Plant 3,149,085 3,184,979
Other Property and Investments 533,267 488,463
Current Assets
Cash and cash equivalents 8,287 10,100
Accounts receivable 144,672 140,111
Accrued utility revenues 103,614 141,273
Materials, supplies and fossil fuel 186,350 197,204
Prepayments and other assets 65,549 62,227
------------- -------------
Total Current Assets 508,472 550,915
Deferred Charges and Other Assets
Accumulated deferred income taxes 174,132 169,306
Other 240,634 274,177
------------- -------------
Total Deferred Charges and Other Assets 414,766 443,483
------------- -------------
Total Assets $ 4,605,590 $ 4,667,840
============= =============
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 713,582 $ 713,582
Retained earnings 972,778 980,926
------------- -------------
Total Common Stock Equity 1,686,360 1,694,508
Preferred stock 30,450 30,450
Long-term debt 1,589,704 1,448,558
------------- -------------
Total Capitalization 3,306,514 3,173,516
Current Liabilities
Long-term debt due currently 83,029 81,389
Short-term debt 37,472 242,633
Accounts payable 137,173 142,797
Accrued liabilities 78,883 83,879
Other 65,756 57,871
------------- -------------
Total Current Liabilities 402,313 608,569
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 538,980 521,429
Other 357,783 364,326
------------- -------------
Total Deferred Credits and Other Liabilities 896,763 885,755
------------- -------------
Total Capitalization and Liabilities $ 4,605,590 $ 4,667,840
============= =============
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of
these financial statements.
</TABLE>
<TABLE>
WISCONSIN ELECTRIC POWER COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended June 30
-------------------------------------
1998 1997
---------- ----------
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 81,667 $ 37,634
Reconciliation to cash
Depreciation 119,243 114,733
Nuclear fuel expense - amortization 6,465 1,494
Conservation expense - amortization 11,249 11,249
Debt premium, discount & expense - amortization 2,066 4,378
Deferred income taxes - net 4,359 9,405
Investment tax credit - net (2,345) (2,243)
Allowance for other funds used during construction (1,592) (2,357)
Write-off of merger costs - 21,881
Change in - Accounts receivable (4,561) 10,336
Inventories 10,854 24,686
Accounts payable (5,624) (14,942)
Other current assets 34,337 37,828
Other current liabilities 2,889 3,305
Other 40,087 (29,868)
---------- ----------
Cash Provided by Operating Activities 299,094 227,519
Investing Activities
Construction expenditures (148,058) (111,616)
Allowance for borrowed funds used during construction (821) (1,252)
Nuclear fuel 20,283 (5,811)
Nuclear decommissioning trust (17,912) (13,165)
Other (180) (2,225)
---------- ----------
Cash Used in Investing Activities (146,688) (134,069)
Financing Activities
Sale of long-term debt 147,903 -
Retirement of long-term debt (7,145) (15,806)
Change in short-term debt (205,161) 57,002
Dividends on - Common stock (89,215) (125,048)
Preferred stock (601) (601)
---------- ----------
Cash Used in Financing Activities (154,219) (84,453)
---------- ----------
Change in Cash and Cash Equivalents $ (1,813) $ 8,997
========== ==========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $ 61,716 $ 51,457
Income taxes 48,273 47,308
<FN>
The accompanying notes as they relate to Wisconsin Electric Power Company are an integral part of
these financial statements.
</TABLE>
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements for
Wisconsin Energy Corporation ("Wisconsin Energy") and the unaudited
financial statements for Wisconsin Electric Power Company ("Wisconsin
Electric") should be read in conjunction with the companies' combined
1997 Annual Report on Form 10-K. In the opinion of management, all
adjustments, normal and recurring in nature, necessary to a fair
statement of the results of operations and financial position of
Wisconsin Energy and Wisconsin Electric have been included in the
accompanying income statements and balance sheets. The results of
operations for the six months ended June 30, 1998 are not, however,
necessarily indicative of the results which may be expected for the year
1998 because of seasonal and other factors.
2. Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO")
in a tax-free reorganization accounted for as a pooling of interests. In
connection with the acquisition, Wisconsin Energy issued 2,407,275 shares
of common stock, with fractional interests paid in cash, based upon an
exchange ratio of 1.5114 shares of Wisconsin Energy common stock for each
outstanding share of ESELCO common stock. Due to the immaterial nature
of the transaction, Wisconsin Energy has not restated any historical
financial or statistical information. Instead, Wisconsin Energy combined
ESELCO's May 31, 1998 balance sheet with Wisconsin Energy's, including a
$1.2 million credit to retained earnings of which $888,000 represents
ESELCO's consolidated net income during the first five months of 1998.
For additional information, see Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part I of
this report.
3. In June 1998, Wisconsin Electric issued $150 million of 6-1/2% Debentures
due 2028. Proceeds from the issue were added to Wisconsin Electric's
general funds and were used to reduce short-term borrowings and are being
used for other general corporate purposes. In April 1998, Wisconsin
Michigan Investment Corporation, a non-utility subsidiary of Wisconsin
Energy, issued $25.4 million of 6.48% medium-term notes due 2008.
Proceeds from the issue were added to Wisconsin Michigan Investment
Corporation's general funds and were used to finance non-utility
projects. During the first six months of 1998, WISPARK Corporation,
another non-utility subsidiary of Wisconsin Energy, issued $11.3 million
of secured adjustable rate notes due 2000-2008. Proceeds from the issues
were used to finance the construction or purchase of various facilities.
4. Wisconsin Electric completed a scheduled refueling of Point Beach Nuclear
Plant ("Point Beach") Unit 1 and returned the generating unit to service
in late June 1998. See Item 5. Other Information - "Nuclear Matters" in
Part II of this report for additional information regarding Point Beach.
5. During the second quarter of 1998, WISVEST Corporation, a non-utility
subsidiary of Wisconsin Energy, purchased the $36.4 million of Kimberly
Cogeneration Equipment from Wisconsin Electric and contributed the
equipment to a joint independent power project, the Androscoggin
Cogeneration Center. For additional information, see Item 5. Other
Information - "Kimberly Cogeneration Equipment" in Part II of this
report.
6. Effective January 1, 1998, Wisconsin Energy and Wisconsin Electric
adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components.
Wisconsin Energy and Wisconsin Electric currently have no items of other
comprehensive income.
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is
effective January 1, 2000 for Wisconsin Energy and for Wisconsin
Electric. FAS 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or in other
comprehensive income depending upon how the derivative is designated.
Based upon the current limited use of derivative instruments at Wisconsin
Energy and at Wisconsin Electric, the adoption of FAS 133 would not have
a significant effect on their results of operations or financial
position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation ("Wisconsin Energy" or the "Company") is a
holding company whose principal subsidiary is Wisconsin Electric Power Company
("Wisconsin Electric"), an electric, gas and steam utility. Unless qualified
by their context, the terms 'Wisconsin Energy' or 'the Company' refer to the
holding company and all of its subsidiaries when used in this document. As of
June 30, 1998, approximately 90% of Wisconsin Energy's consolidated total
assets were attributable to Wisconsin Electric. The following discussion and
analysis of financial condition and results of operations includes both
Wisconsin Energy and Wisconsin Electric unless otherwise stated.
ACQUISITION OF ESELCO, INC.: Effective May 31, 1998, Wisconsin Energy
acquired ESELCO, Inc. ("ESELCO") in a tax-free reorganization accounted for as
a pooling of interests. In connection with the acquisition, Wisconsin Energy
issued 2,407,275 shares of common stock, with fractional interests paid in
cash, based upon an exchange ratio of 1.5114 shares of Wisconsin Energy common
stock for each outstanding share of ESELCO common stock.
Due to the immaterial nature of the transaction, Wisconsin Energy has not
restated any historical financial or statistical information. Instead,
Wisconsin Energy combined ESELCO's May 31, 1998 balance sheet with Wisconsin
Energy's, including a $1.2 million credit to retained earnings of which
$888,000 represents ESELCO's consolidated net income during the first five
months of 1998.
ESELCO was the parent company of Edison Sault Electric Company ("Edison
Sault"), an electric utility which serves approximately 21,000 residential,
commercial and industrial customers in Michigan's eastern Upper Peninsula.
Where appropriate, discussions of Wisconsin Energy include Edison Sault's
operations since June 1, 1998. Wisconsin Energy is operating Wisconsin
Electric and Edison Sault as separate utility subsidiaries within their
existing historical service territories. Wisconsin Electric and Edison Sault
will continue to be separately regulated by their respective states.
For additional information concerning ESELCO and Edison Sault, see ESELCO's
Annual Report on Form 10-K for the year ended December 31, 1997 as well as
ESELCO's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
CAUTIONARY FACTORS: A number of forward-looking statements are included in
this document. When used, the terms "anticipate", "believe", "estimate",
"expect", "objective", "plan", "project" and similar expressions are intended
to identify forward-looking statements. Forward-looking statements are
subject to certain risks, uncertainties and assumptions which could cause
actual results to differ materially from those that are described, including
the factors that are described in Item 5. Other Information - "Cautionary
Factors" in Part II of this report.
RESULTS OF OPERATIONS
1998 SECOND QUARTER
Earnings
During the second quarter of 1998, Wisconsin Energy's consolidated net income
and earnings per share of common stock were $28.9 million and $0.25,
respectively, compared to a consolidated net loss and loss per share of
$10.6 million and $0.09, respectively, during the second quarter of 1997.
During the second quarter of 1998, Wisconsin Electric's earnings increased to
$31.1 million compared to a loss of $6.4 million during the second three
months of 1997. As described below, 1998 earnings increased primarily because
increased revenues from interim and permanent 1998 Wisconsin retail rate
increases at Wisconsin Electric and from an increase in total 1998 electric
kilowatt-hour sales more than offset the effects of a weather related
reduction in natural gas therm deliveries as well as the effects of increased
operating expenses during the second quarter of 1998. Also contributing to
increased comparative earnings during 1998, earnings in the second quarter of
1997 were negatively impacted by (1) a one-time charge of $30.7 million at
Wisconsin Energy (of which $21.9 million was attributable to Wisconsin
Electric) for the write-off of deferred costs related to Wisconsin Energy's
terminated merger agreement with Northern States Power Company, and
(2) increased costs beyond those included in electric rates associated with
buying replacement power for both generating units at Point Beach Nuclear
Plant ("Point Beach"), which were out of service for repairs during the entire
second quarter of 1997.
Electric Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to Wisconsin Electric's interim and
permanent Wisconsin retail electric rate increases during 1998 and to an
increase in total 1998 electric kilowatt-hour sales, total electric operating
revenues increased by $71.5 million or 21.2% during the second quarter of 1998
compared to the second quarter of 1997. Between the comparative periods, the
gross margin on electric operating revenues (electric operating revenues less
fuel and purchased power expenses) increased by $63.2 million or 27.7%.
WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues
increased by $68.3 million or 20.3% during the second quarter of 1998 compared
to the second quarter of 1997 and the gross margin on electric operating
revenues increased by $61.5 million or 27.0%. Wisconsin Electric attributes
these increases to an interim Wisconsin retail electric rate increase,
effective January 1, 1998 through April 30, 1998, of $134.9 million on an
annualized basis, to a permanent Wisconsin retail electric rate increase,
effective May 1, 1998, of $160.2 million or 12.7% on an annualized basis, and
to an increase in total 1998 second quarter electric kilowatt-hour sales.
==============================================================================
Three Months Ended June 30
--------------------------
Electric Gross Margin ($000) 1998 1997 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $ 405,540 $ 337,221 20.3%
Fuel & Purchased Power 116,000 109,140 6.3%
---------- ----------
Gross Margin $ 289,540 $ 228,081 27.0%
========== ==========
==============================================================================
Due to increased electric kilowatt-hour sales during 1998, fuel and purchased
power expenses increased by $6.9 million or 6.3% during the three months ended
June 30, 1998 compared to the same period in 1997. Availability of lower cost
per kilowatt-hour generating capacity at Point Beach during the second quarter
of 1998, however, allowed Wisconsin Electric to generate 14.1% more
electricity during the second quarter of 1998 while only increasing fuel costs
by 5.2%. Despite a 21.2% decrease in power purchases during the second
quarter of 1998, purchased power costs increased 8.7% between the comparative
periods as a result of 37.9% higher per unit purchased power costs during
1998.
==============================================================================
Three Months Ended June 30
--------------------------
Electric Sales (Megawatt-hours) 1998 1997 % Change
- ------------------------------- ---------- ---------- --------
Residential 1,666,559 1,586,421 5.1%
Small Commercial/Industrial 1,898,768 1,798,886 5.6%
Large Commercial/Industrial 2,825,904 2,773,689 1.9%
Other-Retail/Municipal 324,390 330,708 (1.9%)
Resale-Utilities 432,002 227,173 90.2%
---------- ----------
Total Electric Sales 7,147,623 6,716,877 6.4%
========== ==========
==============================================================================
During the second quarter of 1998 compared to the second quarter of 1997,
growth in the number of residential and small commercial/industrial customers,
combined with increased use per customer by residential, small
commercial/industrial and large commercial/industrial customers, contributed
to an increase in total electric sales of 6.4%. Warmer weather during the
second quarter of 1998 increased 1998 sales, especially influencing the 5.1%
and 5.6% increases in sales to residential and to small commercial/industrial
customers, respectively. As measured by cooling degree days, the second
quarter of 1998 was 102% warmer than the same period during 1997 and 31%
warmer than normal. Electric energy sales to the Empire and Tilden ore mines,
Wisconsin Electric's two largest electric retail customers, increased 2.9%
during the second quarter of 1998 compared to the second quarter of 1997.
Excluding the Empire and Tilden ore mines, total electric sales increased 6.8%
and sales to the remaining large commercial/industrial customers increased
1.6%. During the three months ended June 30, 1998, sales in the other-
retail/municipal customer class decreased 1.9% primarily due to reduced
contractual requirements nominations by Wisconsin Public Power Inc. effective
May 1997. Sales for resale to other utilities, the resale-utilities customer
class, increased 90.2% in 1998 compared to 1997 primarily due to higher
opportunity sales.
Gas Revenues, Gross Margins and Sales
Despite an interim retail gas rate increase, effective January 1, 1998 through
April 30, 1998, of $18.5 million on an annualized basis, and a permanent
retail gas rate increase, effective May 1, 1998, of $18.5 million or 5.4% on
an annualized basis, total gas operating revenues decreased by $8.8 million or
14.4% and the gross margin on gas operating revenues (gas operating revenues
less cost of gas sold) decreased by $0.8 million or 3.5% during the second
quarter of 1998 compared to the second quarter of 1997.
==============================================================================
Three Months Ended June 30
--------------------------
Gas Gross Margin ($000) 1998 1997 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 52,414 $ 61,228 (14.4%)
Cost of Gas Sold 31,105 39,141 (20.5%)
---------- ----------
Gross Margin $ 21,309 $ 22,087 (3.5%)
========== ==========
==============================================================================
Total gas operating revenues and gross margin declined in the second quarter
of 1998 primarily due to a decrease in therm deliveries, especially to
residential and commercial/industrial customers who both contribute higher
margins to earnings than other customers. Between the comparative periods,
the cost of gas sold decreased by $8.0 million or 20.5% due to decreased gas
sales and to a lower per unit cost of purchased gas. Changes in the cost of
natural gas purchased at market prices are included in customer rates through
the purchased gas adjustment mechanism and do not affect gross margin.
==============================================================================
Three Months Ended June 30
--------------------------
Therms Delivered - Thousands 1998 1997 % Change
- ---------------------------- ---------- ---------- --------
Residential 38,331 50,282 (23.8%)
Commercial/Industrial 28,634 34,604 (17.3%)
Interruptible 4,798 5,354 (10.4%)
Interdepartmental 133 235 (43.4%)
---------- ----------
Total Gas Sales 71,896 90,475 (20.5%)
Transported Customer Owned Gas 82,991 72,802 14.0%
Transported - Interdepartmental 26,529 27,090 (2.1%)
---------- ----------
Total Gas Delivered 181,416 190,367 (4.7%)
========== ==========
==============================================================================
Compared to the same period in 1997, total natural gas therm deliveries
decreased 4.7% during the second quarter of 1998 primarily due to
significantly lower therm use per residential and commercial/industrial
customer. While the number of residential and commercial/industrial customers
increased between the comparative periods, residential and
commercial/industrial therm deliveries decreased 23.8% and 17.3%,
respectively, in part due to the warm spring weather noted above in "Electric
Revenues, Gross Margins and Sales". During the second quarter of 1998, therm
deliveries to the Whitewater Cogeneration Facility, owned by LSP-Whitewater
Limited Partnership, an unaffiliated independent power producer, contributed
to a 14.0% increase in transported customer owned gas. The Whitewater
Cogeneration Facility, a gas-fired electric cogeneration facility, went into
commercial operation in September 1997. Wisconsin Electric purchases the
majority of the electricity generated by the Whitewater Cogeneration Facility
under a long-term power purchase contract.
Operating Expenses
During the second quarter of 1998, Wisconsin Energy's other operation and
maintenance expenses increased by $25.7 million or 17.7% compared to the same
period during 1997, including a $19.3 million increase in Wisconsin Electric's
nuclear non-fuel expenses and a $3.7 million increase in Wisconsin Electric's
non-nuclear, non-fuel power generation expenses. Nuclear non-fuel expenses
increased during 1998 primarily due to efforts by Wisconsin Electric to
continue to strengthen overall performance at Point Beach Nuclear Plant. Non-
nuclear, non-fuel power generation expenses increased primarily due to a
scheduled maintenance outage at Wisconsin Electric's Oak Creek Power Plant and
to other reliability improvement efforts.
Total operating income taxes at both Wisconsin Energy and Wisconsin Electric
increased by $12.0 million during the second quarter of 1998 as a result of
higher taxable income.
Other Items
During the second quarter of 1997, Wisconsin Energy recorded a charge of
$30.7 million ($18.8 million net of tax) to write off deferred merger costs
related to the terminated merger agreement with Northern States Power Company,
of which $21.9 million was attributable to Wisconsin Electric. The write-off
of these merger expenses appears in other income and deductions on Wisconsin
Energy's and Wisconsin Electric's income statements.
1998 YEAR-TO-DATE
Earnings
During the first half of 1998, Wisconsin Energy's consolidated net income and
earnings per share of common stock were $77.9 million and $0.69, respectively,
compared to $34.4 million and $0.31, respectively, during the first half of
1997. During the first six months of 1998, Wisconsin Electric's earnings
increased to $81.1 million compared to $37.0 million during the first six
months of 1997. As described below, 1998 earnings increased primarily because
increased revenues from interim and permanent 1998 Wisconsin retail rate
increases at Wisconsin Electric and from an increase in total 1998 electric
kilowatt-hour sales more than offset the effects of a weather related
reduction in natural gas therm deliveries as well as the effects of increased
operating expenses during the first half of 1998. Also contributing to
increased comparative earnings during 1998, earnings during the first half of
1997 were negatively impacted by (1) a one-time charge of $30.7 million at
Wisconsin Energy in the second quarter of 1997 (of which $21.9 million was
attributable to Wisconsin Electric) for the write-off of deferred costs
related to Wisconsin Energy's terminated merger agreement with Northern States
Power Company, and (2) increased costs beyond those included in electric rates
associated with buying replacement power for both generating units at Point
Beach, which were out of service for repairs during most of the first six
months of 1997.
Electric Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to Wisconsin Electric's interim and
permanent Wisconsin retail electric rate increases during 1998 and to an
increase in total 1998 electric kilowatt-hour sales, total electric operating
revenues increased by $106.1 million or 15.5% during the first six months of
1998 compared to the first six months of 1997. Between the comparative
periods, the gross margin on electric operating revenues increased by
$92.4 million or 19.6%.
WISCONSIN ELECTRIC: Wisconsin Electric's total electric operating revenues
increased by $102.9 million or 15.0% during the first half of 1998 compared to
the first half of 1997 and the gross margin on electric operating revenues
increased by $90.6 million or 19.2%. Wisconsin Electric attributes these
increases to an interim Wisconsin retail electric rate increase, effective
from January 1, 1998 through April 30, 1998, of $134.9 million on an
annualized basis, to a permanent Wisconsin retail electric rate increase,
effective May 1, 1998, of $160.2 million or 12.7% on an annualized basis, and
to increased total electric kilowatt-hour sales during the spring and early
summer of 1998.
==============================================================================
Six Months Ended June 30
------------------------
Electric Gross Margin ($000) 1998 1997 % Change
- ---------------------------- ---------- ---------- --------
Electric Operating Revenues $ 789,180 $ 686,321 15.0%
Fuel & Purchased Power 226,492 214,262 5.7%
---------- ----------
Gross Margin $ 562,688 $ 472,059 19.2%
========== ==========
==============================================================================
Due to increased electric kilowatt-hour sales during the first six months of
1998, fuel and purchased power expenses increased by $12.2 million or 5.7%
during the six months ended June 30, 1998 compared to the same period in 1997.
Availability of lower cost per kilowatt-hour generating capacity at Point
Beach during the first half of 1998, however, allowed Wisconsin Electric to
generate 6.1% more electricity during the first six months of 1998 while only
increasing fuel costs by 0.4%. Despite a 11.5% decrease in power purchases
during the first half of 1998, purchased power costs increased 19.1% between
the comparative periods as a result of 34.5% higher per unit purchased power
costs during 1998.
==============================================================================
Six Months Ended June 30
------------------------
Electric Sales (Megawatt-hours) 1998 1997 % Change
- ------------------------------- ---------- ---------- --------
Residential 3,475,279 3,413,457 1.8%
Small Commercial/Industrial 3,744,137 3,635,949 3.0%
Large Commercial/Industrial 5,515,395 5,419,293 1.8%
Other-Retail/Municipal 651,112 725,096 (10.2%)
Resale-Utilities 719,134 482,019 49.2%
---------- ----------
Total Electric Sales 14,105,057 13,675,814 3.1%
========== ==========
==============================================================================
During the first half of 1998 compared to the first half of 1997, growth in
the number of residential and the small commercial/industrial customer
classes, combined with increased use per customer by residential, small
commercial/industrial and large commercial/industrial customers, contributed
to an increase in total electric sales of 3.1%. Electric energy sales to the
Empire and Tilden ore mines increased 0.5% during the first six months of 1998
compared to the first six months of 1997. Excluding the Empire and Tilden ore
mines, total electric sales increased 3.4% and sales to the remaining large
commercial/industrial customers increased 2.1%. During the six months ended
June 30, 1998, sales in the other-retail/municipal customer class decreased
10.2% primarily due to reduced contractual requirements nominations by
Wisconsin Public Power Inc. effective May 1997. Sales for resale to other
utilities, the resale-utilities customer class, increased 49.2% in 1998
compared to 1997 primarily due to higher opportunity sales.
Gas Revenues, Gross Margins and Sales
Despite an interim retail gas rate increase, effective from January 1, 1998
through April 30, 1998, of $18.5 million on an annualized basis, and a
permanent retail gas rate increase, effective May 1, 1998, of $18.5 million or
5.4% on an annualized basis, total gas operating revenues decreased by
$42.3 million or 19.7% and the gross margin on gas operating revenues
decreased by $3.2 million or 4.5% during the first half of 1998 compared to
the first half of 1997.
==============================================================================
Six Months Ended June 30
------------------------
Gas Gross Margin ($000) 1998 1997 % Change
- ----------------------- ---------- ---------- --------
Gas Operating Revenues $ 171,825 $ 214,077 (19.7%)
Cost of Gas Sold 103,406 142,435 (27.4%)
---------- ----------
Gross Margin $ 68,419 $ 71,642 (4.5%)
========== ==========
==============================================================================
Total gas operating revenues and gross margin declined in the first six months
of 1998 primarily due to a decrease in therm deliveries, especially to
residential and commercial/industrial customers who both contribute higher
margins to earnings than other customers. Between the comparative periods,
the cost of gas sold decreased by $39.0 million or 27.4% due to decreased gas
sales and to a lower per unit cost of purchased gas. Changes in the cost of
natural gas purchased at market prices are included in customer rates through
the purchased gas adjustment mechanism and do not affect gross margin.
==============================================================================
Six Months Ended June 30
------------------------
Therms Delivered - Thousands 1998 1997 % Change
- ---------------------------- ---------- ---------- --------
Residential 172,160 211,218 (18.5%)
Commercial/Industrial 112,449 133,940 (16.0%)
Interruptible 12,509 14,841 (15.7%)
Interdepartmental 314 9,312 (96.6%)
---------- ----------
Total Gas Sales 297,432 369,311 (19.5%)
Transported Customer Owned Gas 182,187 159,301 14.4%
Transported - Interdepartmental 34,840 45,386 (23.2%)
---------- ----------
Total Gas Delivered 514,459 573,998 (10.4%)
========== ==========
==============================================================================
Compared to the same period in 1997, total natural gas therm deliveries
decreased 10.4% during the first half of 1998 primarily due to significantly
lower therm use per residential and commercial/industrial customer. While the
number of residential and commercial/industrial customers increased between
the comparative periods, residential and commercial/industrial therm
deliveries decreased 18.5% and 16.1%, respectively, primarily due to warmer
weather during the first six months of 1998. As measured by heating degree
days, the first six months of 1998 were 16% warmer than the same period during
1997 and 14% warmer than normal. During the first half of 1998, therm
deliveries to the Whitewater Cogeneration Facility contributed to a 14.4%
increase in transported customer owned gas. During the first six months of
1998, natural gas therm deliveries to the other-interdepartmental customer
class decreased 35.7% primarily due to increased availability of Wisconsin
Electric's Point Beach Nuclear Plant, allowing Wisconsin Electric to reduce
generation at its Concord and Paris Generating Stations, natural gas-fired
peaking generating plants. Therm deliveries to these Wisconsin Electric
facilities are at rates approved by the Public Service Commission of Wisconsin
("PSCW"). Excluding the other-interdepartmental customer class, total therm
deliveries during the six months ended June 30, 1998 decreased 7.7% compared
to the same period in 1997.
Operating Expenses
During the first half of 1998, Wisconsin Energy's other operation and
maintenance expenses increased by $42.7 million or 15.3% compared to the same
period during 1997, including a $33.8 million increase in Wisconsin Electric's
nuclear non-fuel expenses and a $7.5 million increase in Wisconsin Electric's
non-nuclear, non-fuel power generation expenses. As noted above, nuclear non-
fuel expenses increased during 1998 primarily due to efforts by Wisconsin
Electric to continue to strengthen overall performance at Point Beach. Non-
nuclear, non-fuel power generation expenses increased primarily due to a
scheduled maintenance outage at Wisconsin Electric's Oak Creek Power Plant and
to other reliability improvement efforts.
Wisconsin Energy's depreciation expense increased by $4.8 million or 4.1%
during the first six months of 1998 compared to the first six months of 1997
primarily due to increased nuclear decommissioning expenses at Wisconsin
Electric. Total operating income taxes at both Wisconsin Energy and at
Wisconsin Electric increased by $13.0 million during the first half of 1998 as
a result of higher taxable income.
Other Items
During the second quarter of 1997, Wisconsin Energy recorded a charge of
$30.7 million ($18.8 million net of tax) to write off deferred merger costs
related to the terminated merger agreement with Northern States Power Company,
of which $21.9 million was attributable to Wisconsin Electric. The write-off
of these merger expenses appears in other income and deductions on Wisconsin
Energy's and Wisconsin Electric's income statements. Wisconsin Electric's
miscellaneous-net other income and deductions increased by $5.7 million during
the first half of 1998 compared to the first half of 1997 primarily due to
realized gains on investments in the Nuclear Decommissioning Trust Fund.
FACTORS AFFECTING RESULTS OF OPERATIONS
YEAR 2000 COMPUTER SOFTWARE AND HARDWARE ISSUES
Like many other businesses, the Company is working to resolve the potential
impact of the Year 2000 on its ability to operate critical systems and to
accurately process information that may be date sensitive. If not addressed
in a timely manner, the Year 2000 problem could have a material impact on the
operations of the Company.
Wisconsin Electric, Edison Sault and the non-utility subsidiaries utilize a
number of computer systems, including embedded systems, across their
operations. Wisconsin Electric and Edison Sault have completed an initial
assessment of their critical applications and expect to complete assessments
of embedded systems and other hardware in the fourth quarter of 1998. The
non-utility subsidiaries have completed an assessment of most of their
critical applications, embedded systems and other hardware and also expect to
complete their assessments in the fourth quarter of 1998. Wisconsin Electric,
Edison Sault and the non-utility subsidiaries have all begun work to mitigate
the Year 2000 problem where necessary.
The Company's Year 2000 programs include a process to assess the readiness of
key suppliers. Initial contacts with key suppliers are underway, with
completion of initial assessments expected by the end of the third quarter of
1998 at Wisconsin Electric. Additional actions will be initiated based upon
the assessments of supplier readiness. Contingency planning for all critical
business functions is also addressed in the current Year 2000 program at
Wisconsin Electric. Edison Sault and the non-utility subsidiaries will
address contingency planning for all critical business functions in 1999.
In its May 1998 rate order from the PSCW, Wisconsin Electric received approval
for recovery in rates of approximately $13 million per year in the Wisconsin
jurisdiction during the 1998-1999 biennial period, based upon total projected
Year 2000 program costs of approximately $30 million to be expensed during
1998 and 1999. Approximately $0.2 million has been budgeted in 1998 at Edison
Sault for its Year 2000 program. Edison Sault's 1999 budget has not yet been
determined. The Company does not expect the cost of Year 2000 compliance
efforts to be significant at the non-utility subsidiaries.
The Year 2000 problem has many elements and potential consequences, some of
which may not be reasonably foreseeable. There can be no assurance that
unforeseen consequences will not arise.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by Wisconsin Energy's consolidated operating activities totaled
$255 million during the six months ended June 30, 1998 compared to
$230 million provided during the same period in 1997. Cash provided by
Wisconsin Electric's operating activities totaled $299 million during the six
months ended June 30, 1998 compared to $228 million provided during the same
period in 1997. Cash provided by Wisconsin Electric's operating activities
reflect the sale of the Kimberly Cogeneration Equipment in April 1998 to
WISVEST Corporation. The $36.4 million sale of this equipment was eliminated
in Wisconsin Energy's consolidated statement of cash flows. For additional
information concerning the Kimberly Cogeneration Equipment, see Item 5. Other
Information in Part II of this report.
Wisconsin Energy's consolidated net investing activities totaled $175 million
for the six months ended June 30, 1998 compared to $133 million during the
same period in 1997. Investments during the first half of 1998 included
$171 million for the construction of new or improved facilities of which
$148 million was for investments in utility plant at Wisconsin Electric.
During the first six months of 1998, Wisconsin Electric recorded $18 million
of payments to and earnings of the Nuclear Decommissioning Trust Fund for the
eventual decommissioning of Point Beach and sold $22 million of nuclear fuel.
Compared to the same period in 1997, Wisconsin Energy's investing activities-
other for the six months ended June 30, 1998 includes a $31 million decrease
in net cash proceeds from the sale of buildings and other capital
distributions from investments by WISPARK Corporation.
In April 1998, Wisconsin Michigan Investment Corporation issued $25.4 million
of 6.48% medium-term notes due in 2008. Proceeds from the issue were added
to Wisconsin Michigan Investment Corporation's general funds and were used to
finance non-utility projects. During 1998, WISPARK Corporation issued
$11.3 million of secured adjustable rate notes due 2000-2008. Proceeds from
the issues were used to finance the construction or purchase of various
facilities. In June 1998, Wisconsin Electric issued $150 million of 6-1/2%
debentures due 2028. Proceeds from the issue were used to reduce short-term
borrowings and are being used for other general corporate purposes. During
the first half of 1998, Wisconsin Electric decreased its short-term debt by
$205 million while Wisconsin Energy decreased its consolidated short-term debt
by $166 million. Financing activities during the first six months of 1998
included a $7 million payment of principal on the maturity of 5.80% Wisconsin
Michigan Investment Corporation medium-term notes due 1998.
Capital requirements for the remainder of 1998 are expected to be principally
for construction expenditures, for long-term debt maturity and for payments to
the Nuclear Decommissioning Trust Fund for the eventual decommissioning of
Point Beach. These cash requirements are expected to be met primarily through
internal sources of funds from operations and short-term borrowings.
On August 12, 1998, Wisconsin Energy entered into a $100 million 364-day
revolving credit agreement and a $150 million five-year revolving credit
agreement to provide backup credit support of a commercial paper program.
Wisconsin Energy intends to begin issuing commercial paper under this program
later in 1998. Proceeds from the sale of Wisconsin Energy commercial paper
will be added to working capital and applied to reduce certain existing non-
utility borrowings as well as for future non-utility investments.
For certain other information which may impact Wisconsin Energy's or Wisconsin
Electric's future financial condition or results of operations, see
Item 1.Financial Statements - "Notes to Financial Statements" in Part I of
this report as well as Item 1. Legal Proceedings and Item 5. Other Information
in Part II of this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information concerning Wisconsin Energy's and Wisconsin Electric's market
risk exposures, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Factors Affecting Results of Operations
- - Market Risks" in Part II of Wisconsin Energy's and Wisconsin Electric's
combined Annual Report on Form 10-K for the year ended December 31, 1997.
Griffin Energy Marketing LLC ("Griffin"), a subsidiary of WISVEST Corporation,
began marketing energy related services and limited trading of electricity in
January 1998. Griffin's activities during the first half of 1998 were
financially insignificant. WISVEST Corporation is a non-utility subsidiary of
Wisconsin Energy.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
OTHER MATTERS
MINERGY GLASS AGGREGATE PLANT SUIT: In 1996, three individuals and two
environmental organizations filed an action in Circuit Court for Winnebago
County against Minergy Corp., a non-utility subsidiary of Wisconsin Energy,
the City of Neenah, Wisconsin and a paper company, challenging the legality of
the City of Neenah's lease of certain land to Minergy Corp. for construction
and operation of a $45 million facility that recycles paper sludge from area
paper mills into glass aggregate and steam. The plaintiffs alleged that the
lease violated the public trust doctrine under Wisconsin law and requested
that the court declare the lease a public nuisance and grant a permanent
injunction against construction of the facility. The court dismissed the
plaintiffs' complaint and Minergy Corp. completed construction of the
facility, placing it into commercial operation in April 1998. The plaintiffs
appealed the circuit court decision to the Wisconsin Court of Appeals which
certified the case to the Wisconsin Supreme Court. On July 2, 1998, the
Wisconsin Supreme Court reversed the decision of the circuit court, holding
that the plaintiffs may bring suit under a Wisconsin statute to abate a public
nuisance. The case was remanded to the circuit court where the matter is
pending.
For further information concerning the Minergy Glass Aggregate Plant, see
Item 5. Other Information -"Minergy Glass Aggregate Plant" in Part II of
Wisconsin Energy's and Wisconsin Electric's combined Quarterly Report on Form
10-Q for the quarter ended March 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
WISCONSIN ENERGY CORPORATION
At Wisconsin Energy's 1998 Annual Meeting of Stockholders held on May 19,
1998, the board of directors' nominees named below were elected as directors
by the indicated votes and percentages cast for and withheld with respect to
each nominee. Directors are elected by a plurality of the votes cast by the
shares entitled to vote. Any shares not voted, whether by withheld authority,
broker non-votes or otherwise, have no effect in the election of directors.
There was no solicitation in opposition to the nominees proposed in the Proxy
Statement.
==============================================================================
Election of Directors for Terms Expiring in 2001:
- -------------------------------------------------
Name of Nominee For Withheld
--------------- --- --------
Robert A. Cornog 91,412,020 (97.7%) 2,123,437 (2.3%)
Richard R. Grigg 91,442,907 (97.8%) 2,092,550 (2.2%)
Frederick P. Stratton, Jr. 90,922,349 (97.2%) 2,613,108 (2.8%)
Election of Director for Terms Expiring in 2000:
- -------------------------------------------------
Name of Nominee For Withheld
--------------- --- --------
John N. MacDonough 91,203,534 (97.5%) 2,331,923 (2.5%)
=============================================================================
The appointment of Price Waterhouse LLP (now PricewaterhouseCoopers LLP) as
independent public accountant for 1998 was approved by the stockholders by a
vote of 92,412,175 votes for (98.8% of votes cast) and 529,856 votes against
(0.6% of votes cast) such approval. There were 593,426 abstentions and no
broker non-votes with respect to such approval.
Of 112,865,844 voting shares outstanding as of the March 12, 1998 record date
for the annual meeting, 93,535,457 shares (82.9% of the shares outstanding)
were represented at the meeting.
Further information concerning these matters, including the names of directors
whose term as a director continued after the meeting, is contained in
Wisconsin Energy's Proxy Statement dated April 3, 1998 with respect to the
1998 Annual Meeting of Stockholders.
WISCONSIN ELECTRIC POWER COMPANY
At Wisconsin Electric's 1998 Annual Meeting of Stockholders held on May 12,
1998, for which Wisconsin Electric did not solicit proxies, eight incumbent
directors and one additional director nominee, as listed in Wisconsin
Electric's Information Statement dated April 14, 1998, were elected for one
year terms. Each director received 33,289,327 votes (100% of the votes cast).
Directors are elected by a plurality of the votes cast by the shares entitled
to vote. Any share not voted, whether by withheld authority, broker non-votes
or otherwise, have no effect in the election of directors. There was no
solicitation in opposition to the nominees proposed in the Information
Statement.
Further information concerning these matters is contained in Wisconsin
Electric's Information Statement.
ITEM 5. OTHER INFORMATION
NUCLEAR MATTERS
Previous information concerning the status of Point Beach Nuclear Plant is
contained in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Factors Affecting Results of Operations
- - Nuclear Matters" in Wisconsin Energy's and Wisconsin Electric's combined
Annual Report on Form 10-K for the year ended December 31, 1997 and in Item 5.
Other Information - "Nuclear Matters" in Part II of Wisconsin Energy's and
Wisconsin Electric's combined Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998.
POINT BEACH NUCLEAR PLANT: Wisconsin Electric completed a scheduled
refueling of Point Beach Unit 1 and returned the unit to service in late June
1998. With completion of this outage, Wisconsin Electric has entered into its
first extended fuel cycle, allowing operation of Unit 1 for more than 12
months between refueling outages.
SPENT FUEL STORAGE AND DISPOSAL: Wisconsin Electric currently has
remaining space in the spent fuel pool at Point Beach to complete the
scheduled fall 1998 Unit 2 and fall 1999 Unit 1 refuelings. With completion
of the recent Unit 1 refueling outage in June 1998, however, Wisconsin
Electric no longer has the capability to unload a full core into the spent
fuel pool, which reduces to some extent the operational flexibility at Point
Beach.
In response to reduced spent fuel pool storage capacity, Wisconsin Electric
completed construction of an Independent Spent Fuel Storage Installation
("ISFSI") in 1995 for the temporary dry storage of spent nuclear fuel at Point
Beach. The PSCW has authorized Wisconsin Electric to load up to twelve casks
containing up to 288 total fuel assemblies with spent fuel and transfer the
casks to the ISFSI. To date, two VSC-24 casks containing 48 spent fuel
assemblies have been loaded. Wisconsin Electric currently has two additional
VSC-24 casks, designed by Sierra Nuclear Corporation, at Point Beach and
expects to receive four additional VSC-24 casks by year-end 1998.
As a result of the ignition of hydrogen gas during welding operations
associated with loading a third VSC-24 cask at Point Beach in May 1996,
Wisconsin Electric discontinued loading until the United States Nuclear
Regulatory Commission ("NRC") completed its review of Wisconsin Electric's
proposed corrective actions to avoid future hydrogen gas ignitions as well as
its review of proposed changes to lid welding and weld inspection processes.
In August 1998, the NRC completed its review and informed Wisconsin Electric
in a letter dated August 13, 1998 that Wisconsin Electric may resume loading
of VSC-24 casks at Point Beach. Wisconsin Electric anticipates that it will
resume loading in late summer 1998.
Wisconsin Electric has also initiated steps to purchase up to six alternative
model TN-32 dry storage casks from Transnuclear Corp.. The TN-32 casks have
been previously approved by the NRC for specific use at other nuclear
generating facilities in the United States. WE currently plans to obtain the
first two TN-32 casks in December 1999 and a third cask in the summer of the
year 2000. In August 1998, the PSCW denied a request for contested public
hearings on the use of TN-32 casks at Point Beach and issued an order
approving the substitution of up to six TN-32 casks for VSC-24 casks at Point
Beach in the event that this becomes necessary. Wisconsin Electric believes
that it should be able to obtain NRC approval for use of TN-32 casks at Point
Beach by early in the year 2000.
ELECTRIC SYSTEM RELIABILITY INITIATIVES & COMPETITION
For information concerning electric system reliability, structure and
competition matters, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors Affecting Results of
Operations - Electric System Reliability Matters" and "Industry Restructuring
and Competition" in Part II of Wisconsin Energy's and Wisconsin Electric's
combined Annual Report on Form 10-K for the year ended December 31, 1997 and
Item 5. Other Information - "Electric System Reliability, Structure, and
Competition Matters" in Part II of Wisconsin Energy's and Wisconsin Electric's
combined Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
Additional Generating Capacity
300 MEGAWATT FACILITY: As a result of responses to a request for proposal
for contracts for 250 megawatts of generation capacity to be built in eastern
Wisconsin, Wisconsin Electric and Atlanta-based Southern Energy, Inc., a
subsidiary of Southern Company, reached a preliminary agreement in July 1998
to build a 300-megawatt natural gas-fired power plant. The parties are in the
process of finalizing details for a formal power purchase agreement. This
preliminary agreement satisfies Wisconsin Electric's responsibility under
directives from the PSCW and 1997 Wisconsin Act 204.
The 300-megawatt facility will be owned by Southern Energy, Inc.. The terms
of the preliminary agreement call for Wisconsin Electric to purchase the
electricity from the power plant for eight years. Southern Company (NYSE:
SO), based in Atlanta, Georgia, is also the parent firm of Alabama Power,
Georgia Power, Gulf Power, Mississippi Power and Savannah Electric.
75 MEGAWATTS OF RENEWABLE ELECTRIC ENERGY: In early August 1998, Wisconsin
Electric issued a request for proposal soliciting bids for one or more
contracts totaling up to 75 megawatts of renewable electric generating
capacity. Renewable electric energy, also known as green energy, includes
power generated by wind, water, sun, biomass and other renewable resources.
The request for proposals is in response to the requirements of 1997 Wisconsin
Act 204 and supports Wisconsin Electric's "Energy for Tomorrow" renewable
energy program. The deadline for proposals is October 1, 1998.
1997 Wisconsin Act 204 calls for the investor-owned utilities in the eastern
part of the State of Wisconsin to add a combined total of 50 megawatts of
renewable electric generating capacity to their energy mix by the end of the
year 2000. Wisconsin Electric is responsible for 27 megawatts of this total.
Wisconsin Electric's "Energy for Tomorrow" program provides a voluntary
electric rate, commonly referred to as green pricing, that allows Wisconsin
Electric residential, farm and small commercial customers to purchase 25%, 50%
or 100% of their electric energy from renewable resources. Customers who sign
up for the "Energy for Tomorrow" program pay a premium on their electric rates
of an additional half-cent to an additional two cents per kilowatt-hour
depending upon the level of their participation. Wisconsin Electric plans to
request authority to extend availability of the "Energy for Tomorrow" program
to more of its Wisconsin customers and to its Michigan customers during 1998.
Midwest ISO
The PSCW completed its review of Independent Transmission System Operators
("ISOs") and issued an order in June 1998 that lays out new guidelines for
ISOs that are more consistent with ISO guidelines of the Federal Energy
Regulatory Commission ("FERC"). The PSCW also stated in its order that the
Midwest ISO did not currently meet the PSCW's guidelines. The FERC has not
yet ruled on the Midwest ISO application.
PSCW Rulemaking Proceedings
The PSCW has initiated proceedings on two matters associated with 1997
Wisconsin Act 204 including (1) the requirements and procedures under which an
affiliated interest of a regulated electric utility may build and operate
wholesale merchant electric generating plants and (2) the rules for the
ratemaking treatment for wholesale sales. In each case, the PSCW is required
to submit proposed rules to the Wisconsin Legislature no later than
November 1, 1998. No formal action has been taken in either proceeding. In
addition, 1997 Wisconsin Act 204 calls for the PSCW to:
* Replace the Advance Plan process with a new Strategic Energy Assessment
process. A notice of proposed rulemaking is expected in September 1998
with submittal of proposed rules to the Wisconsin Legislature in March
1999.
* Submit an analysis of electric system transmission constraints that limit
import capability into the State of Wisconsin by September 1, 1998. The
PSCW has hired a consultant and is working with a utility task force to
complete this evaluation.
The PSCW has also initiated the first phase of a proceeding to develop
standards of conduct governing the relationships between public utilities and
their affiliates. This phase, for which hearings begin in October 1998,
consists of developing policies on the extent to which diversification into
non-utility activities within the utility should be regulated, limited or
prohibited. In 1999, the second phase of the proceeding will establish rules
on utility and affiliate standards of conduct. A third phase, to run
concurrently with the other two, will identify statutory changes, if
necessary.
MPSC Electric Utility Industry Choice Schedule
Wisconsin Electric and other companies in the Upper Peninsula of Michigan are
currently discussing a proposal with the Michigan Public Service Commission
("MPSC") for providing choice to all electric retail customers beginning
January 1, 2002.
KIMBERLY COGENERATION EQUIPMENT
During the second quarter of 1998, WISVEST Corporation purchased the Kimberly
Cogeneration Equipment from Wisconsin Electric and contributed the equipment
to a joint independent power project, the Androscoggin Cogeneration Center.
The Androscoggin Cogeneration Center, scheduled for commercial operation in
the third quarter of 1999, will be a 160 megawatt merchant plant in Jay,
Maine. Part of the electric output and most of the steam produced by the
facility will be supplied to International Paper Company for use in its paper
making process. WISVEST Corporation joined subsidiaries of International
Paper Company and Polsky Energy Corporation to form Androscoggin Energy LLC,
which will own and operate the Androscoggin Cogeneration Center. For
additional information concerning the Kimberly Cogeneration Equipment, see
"Note M - Commitments and Contingencies" in the Notes to Financial Statements
in Wisconsin Energy's and Wisconsin Electric's combined Annual Report on
Form 10-K for the year ended December 31, 1997.
DEADLINES FOR SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-5(e) under the Securities Exchange Act of 1934, as
amended effective June 29, 1998:
* The deadline for submitting shareholder proposals for inclusion in
Wisconsin Energy's proxy statement and form of proxy for Wisconsin Energy's
1999 Annual Meeting of Stockholders ("Annual Meeting") pursuant to Rule
14a-8 is December 4, 1998.
* The date after which notice of a shareholder proposal submitted outside of
the processes of Rule 14a-8 is considered untimely is March 24, 1999.
Under Wisconsin Energy's advance notice bylaw, such a proposal must be
received no earlier than February 22, 1999 (100 days before the June 2,
1999 date of the scheduled Annual Meeting) and no later than March 24, 1999
(70 days before such scheduled date).
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or may contain
forward-looking statements made by or on behalf of Wisconsin Energy or
Wisconsin Electric. Such statements are based upon management's current
expectations and are subject to risks and uncertainties that could cause
Wisconsin Energy's or Wisconsin Electric's actual results to differ materially
from those contemplated in the statements. Readers are cautioned not to place
undue reliance on these forward-looking statements. When used in written
documents or oral presentations, the terms "anticipate", "believe",
"estimate", "expect", "objective", "plan", "project" and similar expressions
are intended to identify forward-looking statements. In addition to the
assumptions and other factors referred to specifically in connection with such
statements, factors that could cause Wisconsin Energy's or Wisconsin
Electric's actual results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
* Factors affecting utility operations such as unusual weather conditions;
catastrophic weather-related damage; availability of Wisconsin Electric's
generating facilities including Point Beach Nuclear Plant; unscheduled
generation outages, maintenance or repairs; unanticipated changes in fossil
fuel, nuclear fuel, purchased power, gas supply or water supply costs or
availability due to higher demand, shortages, transportation problems or
other developments; nonperformance by electric energy or natural gas
suppliers under existing power purchase or gas supply contracts; nuclear or
environmental incidents; resolution of spent nuclear fuel storage and
disposal issues; electric transmission or gas pipeline system constraints;
unanticipated organizational structure or key personnel changes; collective
bargaining agreements with union employees or work stoppages; inflation
rates; or demographic and economic factors affecting utility service
territories or operating environment.
* The rapidly changing and increasingly competitive electric and gas utility
environment as market-based forces replace strict industry regulation and
other competitors enter the electric and gas markets resulting in increased
wholesale and retail competition.
* Consolidation of the industry as a result of the combination and
acquisition of utilities in the midwest, nationally and globally.
* Customer business conditions including demand for their products or
services and supply of labor and materials used in creating their products
and services.
* Regulatory factors such as unanticipated changes in rate-setting policies
or procedures; unanticipated changes in regulatory accounting policies and
practices; industry restructuring initiatives; transmission system
operation and/or administration initiatives; recovery of costs of previous
investments made under traditional regulation; required approvals for new
construction; changes in the United States Nuclear Regulatory Commission's
regulations related to Point Beach Nuclear Plant; changes in the United
States Environmental Protection Agency's as well as the Wisconsin or
Michigan Department of Natural Resources' regulations related to emissions
from fossil-fuel-fired power plants; or the siting approval process for new
generation and transmission facilities.
* The cost and other effects of legal and administrative proceedings,
settlements, and investigations, claims and changes in those matters.
* Factors affecting the availability or cost of capital such as changes in
interest rates; market perceptions of the utility industry, the Company or
any of its subsidiaries; or security ratings.
* Federal, state or local legislative factors such as changes in tax laws or
rates; changes in trade, monetary and fiscal policies, laws and
regulations; electric and gas industry restructuring initiatives; or
changes in environmental laws and regulations.
* Certain restrictions imposed by various financing arrangements and
regulatory requirements on the ability of Wisconsin Electric to transfer
funds to Wisconsin Energy in the form of cash dividends, loans or advances.
* Authoritative generally accepted accounting principle or policy changes
from such standard setting bodies as the Financial Accounting Standards
Board and the Securities and Exchange Commission.
* Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of existing assets.
* Unanticipated developments while implementing the modifications necessary
to mitigate Year 2000 compliance problems, including the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer code in computer and embedded systems, the indirect
impacts of third parties with whom the company does business and who do not
mitigate their Year 2000 compliance problems, and similar uncertainties.
* Changes in social attitudes regarding the utility and power industries.
* Possible risks associated with non-utility diversification such as
competition; operating risks; dependence upon certain suppliers and
customers; or environmental and energy regulations.
* Other business or investment considerations that may be disclosed from time
to time in Wisconsin Energy's or Wisconsin Electric's Securities and
Exchange Commission filings or in other publicly disseminated written
documents.
Wisconsin Energy and Wisconsin Electric undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following Exhibits are filed with the applicable Form 10-Q report:
Exhibit No.
Wisconsin Energy Exhibits
(4)-1 Securities Resolution No. 3 of Wisconsin Electric, dated
May 27, 1998, under the Indenture for Debt Securities of
Wisconsin Electric, dated December 1, 1995.
(27)-1 Wisconsin Energy Corporation Financial Data Schedule for the
six months ended June 30, 1998.
Wisconsin Electric Exhibits
(4)-1 Securities Resolution No. 3 of Wisconsin Electric, dated
May 27, 1998, under the Indenture for Debt Securities of
Wisconsin Electric, dated December 1, 1995.
(27)-2 Wisconsin Electric Power Company Financial Data Schedule for
the six months ended June 30, 1998.
(b) Reports on Form 8-K.
Current reports on Form 8-K dated as of April 28, 1998 were filed by
Wisconsin Energy and Wisconsin Electric on May 6, 1998 to report
authorization by the PSCW of Wisconsin Electric's permanent electric,
gas and City of Milwaukee steam rate increases effective May 1, 1998.
A current report on Form 8-K dated as of May 28, 1998 was filed by
Wisconsin Electric on May 28, 1998 to file Wisconsin Electric's
Statement of Computation of Ratios of Earnings to Fixed Charges.
No other reports on Form 8-K were filed by Wisconsin Energy nor by
Wisconsin Electric during the quarter ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WISCONSIN ENERGY CORPORATION
----------------------------
(Registrant)
/s/ Calvin H. Baker
-------------------------------
Date: August 14, 1998 Calvin H. Baker, Treasurer,
Chief Financial Officer and
duly authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
(Registrant)
/s/ Calvin H. Baker
------------------------------------
Date: August 14, 1998 Calvin H. Baker, Vice President -
Finance, Chief Financial Officer
and duly authorized officer
WISCONSIN ENERGY CORPORATION
----------------------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 1998
EXHIBIT INDEX
Exhibit No.
- -----------
The following Exhibits are filed with this report:
(4)-1 Securities Resolution No. 3 of Wisconsin Electric, dated May 27,
1998, under the Indenture for Debt Securities of Wisconsin Electric,
dated December 1, 1995.
(27)-1 Wisconsin Energy Corporation Financial Data Schedule for the six
months ended June 30, 1998.
Exhibit (4)-1
Closing Document No. 4(e)
CERTIFIED COPY
OF
SECURITIES RESOLUTION NO. 3
OF
WISCONSIN ELECTRIC POWER COMPANY
I, THOMAS H. FEHRING, Corporate Secretary of WISCONSIN
ELECTRIC POWER COMPANY, do hereby certify that the attached is a
true and correct copy of Securities Resolution No. 3 duly adopted
by the Vice President-Finance of the Company pursuant to
authorization delegated to him by the Finance Committee of the
Board of Directors of said company at a meeting duly called and
held on the 18th day of May, 1998; that a quorum of said Board
Committee was present at said meeting and voted throughout; and I
do further certify that said resolution has not been rescinded and
remains in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
the corporate seal of said WISCONSIN ELECTRIC POWER COMPANY this
1st day of June, 1998.
/s/Thomas H. Fehring
----------------------
Thomas H. Fehring
Corporate Secretary
(CORPORATE SEAL)
6-1/2% DEBENTURES DUE JUNE 1, 2028
SECURITIES RESOLUTION NO. 3
OF
WISCONSIN ELECTRIC POWER COMPANY
The actions described below are taken by the Board (as defined in the
Indenture referred to below) of WISCONSIN ELECTRIC POWER COMPANY (the
"Company"), or by an Officer or committee of Officers pursuant to Board
delegation, pursuant to resolutions adopted by the Board of Directors of the
Company as of July 26, 1995, October 25, 1995, and July 30, 1997, resolutions
adopted by the Finance Committee of the Board of Directors as of May 18, 1998,
and Section 2.01 of the Indenture dated as of December 1, 1995 (the
"Indenture") between the Company and Firstar Trust Company, as trustee. Terms
used herein and not defined have the same meaning as in the Indenture.
RESOLVED, that a new series of Securities is authorized as follows:
1. The title of the series is 6-1/2% Debentures due June 1, 2028
("6-1/2% Debentures").
2. The form of the 6-1/2% Debentures shall be substantially in the form
of Exhibit 1 hereto.
3. The 6-1/2% Debentures shall have the terms set forth in Exhibit 1.
4. The 6-1/2% Debentures shall have such other terms as are set forth in
Exhibit 2 hereto.
5. The 6-1/2% Debentures shall be sold to the underwriter(s) named in
the Prospectus Supplement dated May 27, 1998 on the following terms:
Price to Public: 99.477%
Underwriting Discount: .875%
Closing Date: June 1, 1998
This Securities Resolution shall be effective as of May 27, 1998.
EXHIBIT 1
No. _____________ $_____________
WISCONSIN ELECTRIC POWER COMPANY
6-1/2% Debentures due June 1, 2028
WISCONSIN ELECTRIC POWER COMPANY
promises to pay to ______________________________________________
or registered assigns
the principal sum of ____________________________________________ Dollars
on June 1, 2028
Interest Payment Dates: June 1 and December 1
Record Dates: May 15 and November 15
Dated:
FIRSTAR TRUST COMPANY WISCONSIN ELECTRIC POWER COMPANY
Transfer Agent and Paying Agent
by
______________________________
Authenticated: [Title of Authorized Officer]
FIRSTAR TRUST COMPANY (CORPORATE SEAL)
Registrar, by
______________________________ ______________________________
Authorized Signature [Assistant] Secretary
WISCONSIN ELECTRIC POWER COMPANY
6-1/2% Debentures due June 1, 2028
1. Interest.
Wisconsin Electric Power Company (the "Company"), a Wisconsin
corporation, promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay
interest semiannually on June 1 and December 1 of each year commencing
December 1, 1998. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been
paid, from June 1, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment.
The Company will pay interest on the Securities to the persons who are
registered holders of Securities at the close of business on the record
date for the next interest payment date, except as otherwise provided in
the Indenture. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Company may pay
principal and interest by check payable in such money. It may mail an
interest check to a holder's registered address.
3. Securities Agents.
Initially, Firstar Trust Company will act as Paying Agent, Transfer
Agent and Registrar. The Company may change any Paying Agent or
Transfer Agent without notice. The Company or any Affiliate may act in
any such capacity. Subject to certain conditions, the Company may
change the Trustee.
4. Indenture.
The Company issued the securities of this series (the "Securities")
under an Indenture dated as of December 1, 1995 (the "Indenture")
between the Company and Firstar Trust Company (the "Trustee"). The
terms of the Securities include those stated in the Indenture and in the
Securities Resolution establishing the Securities and those made part of
the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb). Securityholders are referred to the Indenture, the
Securities Resolution and such Act for a statement of such terms.
5. Redemption.
The Securities will not be redeemable prior to maturity.
6. Denominations, Transfer, Exchange.
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. The transfer of Securities may
be registered and Securities may be exchanged as provided in the
Indenture. The Transfer Agent may require a holder, among other things,
to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or the Indenture. The Transfer Agent
need not exchange or register the transfer of any Security or portion of
a Security selected for redemption. Also, it need not exchange or
register the transfer of any Securities for a period of 15 days before a
selection of Securities to be redeemed.
7. Persons Deemed Owners.
The registered holder of a Security may be treated as its owner for all
purposes.
8. Amendments and Waivers.
Subject to certain exceptions, the Indenture or the Securities may be
amended with the consent of the holders of a majority in principal
amount of the securities of all series affected by the amendment.
Subject to certain exceptions, a default on a series may be waived with
the consent of the holders of a majority in principal amount of the
series.
Without the consent of any Securityholder, the Indenture or the
Securities may be amended, among other things, to cure any ambiguity,
omission, defect or inconsistency; to provide for assumption of Company
obligations to Securityholders; or to make any change that does not
materially adversely affect the rights of any Securityholder.
9. Restrictive Covenants.
The Securities are unsecured general obligations of the Company limited
to $150,000,000 principal amount. The Indenture does not limit other
unsecured debt. Section 4.07 of the Indenture, which if applicable
limits certain mortgages and other liens, will apply with respect to the
Securities. The limitations are subject to a number of important
qualifications and exceptions.
10. Successors.
When a successor assumes all the obligations of the Company under the
Securities and the Indenture, the Company will be released from those
obligations.
11. Defeasance Prior to Redemption or Maturity.
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if
the Company deposits with the Trustee money or U.S. Government
Obligations for the payment of principal and interest on the Securities
to redemption or maturity. U.S. Government Obligations are securities
backed by the full faith and credit of the United States of America or
certificates representing an ownership interest in such Obligations.
12. Defaults and Remedies.
An Event of Default includes: default for 60 days in payment of interest
on the Securities; default in payment of principal on the Securities;
default for 60 days in the payment of any sinking fund obligation;
default by the Company for a specified period after notice to it in the
performance of any of its other agreements applicable to the Securities;
certain events of bankruptcy or insolvency; and any other Event of
Default provided for in the series. If an Event of Default occurs and
is continuing, the Trustee or the holders of at least 25% in principal
amount of the Securities may declare the principal of all the Securities
to be due and payable immediately.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders notice of
any continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with Company.
Firstar Trust Company, the Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Company or its Affiliates, and may
otherwise deal with those persons, as if it were not Trustee.
14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Securityholder
by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the
Securities.
15. Authentication.
This Security shall not be valid until authenticated by a manual
signature of the Registrar.
16. Abbreviations.
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as: TEN COM (=tenants in common), TEN ENT (=tenants by
the entirety), JT TEN (=joint tenants with right of survivorship and not
as tenants in common), CUST (=custodian), U/G/M/A (=Uniform Gifts to
Minors Act), and U/T/M/A (=Uniform Transfers to Minors Act).
The Company will furnish to any Securityholder upon written request and
without charge a copy of the Indenture and the Securities Resolution, which
contains the text of this Security in larger type. Requests may be made to:
Corporate Secretary, Wisconsin Electric Power Company, 231 West Michigan
Street, P.O. Box 2046, Milwaukee, WI 53201.
EXHIBIT 2
6-1/2% Debentures
Supplemental Terms
In addition to the terms set forth in Exhibit 1 to Securities Resolution
No. 3, the 6-1/2% Debentures shall have the following terms:
Section 1. Definitions. Capitalized terms used and not defined herein
shall have the meaning given such terms in the Indenture. The following is an
additional definition applicable to the 6-1/2% Debentures:
"Depositary" means, with respect to the 6-1/2% Debentures issued as a
global Security, The Depository Trust Company, New York, New York, or
any successor thereto registered under the Securities Exchange Act of
1934 or other applicable statute or regulation.
Section 2. Securities Issuable as Global Securities.
(a) The 6-1/2% Debentures shall be issued in the form of one or more
permanent global Securities and shall, except as otherwise provided in this
Section 2, be registered only in the name of the Depositary or its nominee.
Each global Security shall bear a legend substantially to the following
effect:
"Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the
Company or its agent for registration of transfer, exchange, or payment,
and any certificate issued is registered in the name of Cede & Co. or in
such other name as is requested by an authorized representative of DTC
(and any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE,
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein."
(b) If at any time (i) the Depositary with respect to the 6-1/2%
Debentures notifies the Company that it is unwilling or unable to continue as
Depositary for such global Security or (ii) the Depositary for the 6-1/2%
Debentures shall no longer be eligible or in good standing under the
Securities Exchange Act of 1934 or other applicable statute or regulation, the
Company
shall appoint a successor Depositary with respect to such global Security. If
a successor Depositary for such global Security is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, the Transfer Agent shall register the exchange of such
global Security for an equal principal amount of Registered Securities in the
manner provided in Section 2.07 of the Indenture.
(c) The Transfer Agent shall register the transfer or exchange of a
global Security for Registered Securities pursuant to Section 2.07 of the
Indenture if (i) a Default or Event of Default shall have occurred and be
continuing with respect to the 6-1/2% Debentures or (ii) the Company
determines that the 6-1/2% Debentures shall no longer be represented by global
Securities.
(d) In any exchange provided for in the preceding paragraphs (b) or
(c), the Company will execute and the Registrar will authenticate and deliver
Registered Securities. Registered Securities issued in exchange for a global
Security shall be in such names and denominations as the Depositary for such
global Security shall instruct the Registrar. The Registrar shall deliver
such Registered Securities to the persons in whose names such Securities are
so registered.
(e) The 6-1/2% Debentures will trade in the Depositary's Same-Day
Funds Settlement System. All payments of principal and interest on global
Securities will be made by the Company in immediately available funds.
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<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED FINANCIAL STATEMENTS OF WISCONSIN ENERGY
CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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<TOTAL-NET-UTILITY-PLANT> 3,198,156
<OTHER-PROPERTY-AND-INVEST> 935,898
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<TOTAL-ASSETS> 5,113,660
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<RETAINED-EARNINGS> 1,123,788
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,873,926
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<LONG-TERM-DEBT-NET> 1,265,667
<SHORT-TERM-NOTES> 155,574
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<CAPITAL-LEASE-OBLIGATIONS> 157,360
<LEASES-CURRENT> 21,123
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<GROSS-OPERATING-REVENUE> 975,649
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<OTHER-OPERATING-EXPENSES> 812,474
<TOTAL-OPERATING-EXPENSES> 853,180
<OPERATING-INCOME-LOSS> 122,469
<OTHER-INCOME-NET> 14,397
<INCOME-BEFORE-INTEREST-EXPEN> 136,866
<TOTAL-INTEREST-EXPENSE> 58,363
<NET-INCOME> 78,503
601
<EARNINGS-AVAILABLE-FOR-COMM> 77,902
<COMMON-STOCK-DIVIDENDS> 87,471
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 254,686
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<FN>
See financial statements and footnotes in accompanying 10-Q.
</TABLE>
