SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
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 Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that each Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date ( May 5, 1999 ):
Wisconsin Energy Common Stock, $.01 Par Value,
Corporation 116,466,262 shares outstanding.
Wisconsin Electric Power Common Stock, $10 Par Value,
Company 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 MARCH 31, 1999
TABLE OF CONTENTS
Item Page
- ---- ----
Introduction
Part I - Financial Information
------------------------------
1. Financial Statements
Wisconsin Energy
Consolidated Condensed Income Statement
Consolidated Condensed Balance Sheet
Consolidated Statement of Cash Flows
Wisconsin Electric
Condensed Income Statement
Condensed Balance Sheet
Statement of Cash Flows
Notes to Financial Statements of
Wisconsin Energy and Wisconsin Electric
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for Wisconsin
Energy and Wisconsin Electric
3. Quantitative and Qualitative Disclosures
About Market Risk.
Part II - Other Information
---------------------------
1. Legal Proceedings
6. Exhibits and Reports on Form 8-K
Signatures
INTRODUCTION
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 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, 1998. 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.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENT
(Unaudited)
<CAPTION>
Three Months Ended March 31
---------------------------
1999 1998
---- ----
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C>
Operating Revenues
Electric $406,555 $383,640
Gas 121,983 119,411
Steam 8,182 7,630
-------- --------
Total Operating Revenues 536,720 510,681
Operating Expenses
Fuel 70,735 73,901
Purchased power 34,985 36,591
Cost of gas sold 68,860 72,301
Other operation expenses 125,217 110,038
Maintenance 44,095 40,818
Depreciation 65,268 62,273
Taxes other than income taxes 23,244 20,716
Federal income tax 26,127 19,893
State income tax 5,963 4,768
Deferred income taxes - net (2,793) 3,143
Investment tax credit - net (1,148) (1,172)
-------- --------
Total Operating Expenses 460,553 443,270
Operating Income 76,167 67,411
Other Income and Deductions
Interest income 8,349 6,735
Allowance for other funds used
during construction 984 715
Miscellaneous - net 446 2,751
Income taxes (240) 627
-------- -------
Total Other Income and Deductions 9,539 10,828
Income Before Interest Charges 85,706 78,239
Interest Charges
Interest expense 33,566 30,888
Allowance for borrowed funds used
during construction (1,900) (1,998)
-------- --------
Total Interest Charges 31,666 28,890
Distributions on Preferred Securities
of Subsidiary Trust 228 -
Preferred Dividend Requirement
of Subsidiary 301 301
-------- --------
Net Income $ 53,511 $ 49,048
======== ========
Average Number of Shares of Common
Stock Outstanding (Thousands) 115,926 112,866
======== ========
Earnings Per Share of Common Stock
(Basic and Diluted) $ 0.46 $ 0.43
======== ========
Dividends Per Share of Common Stock $ 0.39 $ 0.385
======== ========
<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>
March 31 December 31
1999 1998
-------- -----------
(Thousands of Dollars)
<S> <C> <C>
Assets
------
Utility Plant
Electric $ 4,941,302 $ 4,900,836
Gas 527,370 523,187
Steam 62,924 62,832
Common 425,383 420,750
Accumulated provision for depreciation (3,080,304) (3,007,735)
----------- -----------
2,876,675 2,899,870
Construction work in progress 135,338 117,848
Leased facilities - net 131,587 133,007
Nuclear fuel - net 89,091 87,660
----------- -----------
Net Utility Plant 3,232,691 3,238,385
Other Property and Investments 1,109,736 1,056,471
Current Assets
Cash and cash equivalents 118,882 16,603
Accounts receivable 208,464 190,103
Accrued utility revenues 96,255 130,518
Materials, supplies and fossil fuel 172,405 199,052
Prepayments and other assets 77,394 71,843
----------- -----------
Total Current Assets 673,400 608,119
Deferred Charges and Other Assets
Accumulated deferred income taxes 202,594 199,372
Other 276,017 259,410
----------- -----------
Total Deferred Charges and Other Assets 478,611 458,782
----------- -----------
Total Assets $ 5,494,438 $ 5,361,757
=========== ===========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 779,062 $ 760,351
Retained earnings 1,152,434 1,144,092
Unearned compensation - restricted stock award (1,195) (1,338)
----------- -----------
Total Common Stock Equity 1,930,301 1,903,105
Preferred stock 30,450 30,450
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 200,000 -
Long-term debt 1,766,379 1,749,024
----------- -----------
Total Capitalization 3,927,130 3,682,579
Current Liabilities
Long-term debt due currently 122,576 119,140
Short-term debt 166,940 286,859
Accounts payable 139,896 187,452
Accrued liabilities 120,852 88,510
Other 79,160 53,219
----------- -----------
Total Current Liabilities 629,424 735,180
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 575,889 570,750
Other 361,995 373,248
----------- -----------
Total Deferred Credits and Other Liabilities 937,884 943,998
----------- -----------
Total Capitalization and Liabilities $ 5,494,438 $ 5,361,757
=========== ===========
<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>
Three Months Ended March 31
---------------------------
1999 1998
---- ----
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 53,511 $ 49,048
Reconciliation to cash
Depreciation 65,268 62,273
Nuclear fuel expense - amortization 4,718 2,568
Conservation expense - amortization 5,625 5,625
Debt premium, discount &
expense - amortization 762 1,127
Deferred income taxes - net (2,793) 3,143
Investment tax credit - net (1,148) (1,172)
Allowance for other funds used
during construction (984) (715)
Change in - Accounts receivable (18,361) (20,937)
Inventories 26,647 25,733
Accounts payable (47,556) 13,411
Other current assets 28,712 (8,796)
Other current liabilities 58,283 28,195
Other (20,815) (418)
-------- ---------
Cash Provided by Operating Activities 151,869 159,085
Investing Activities
Construction expenditures (105,967) (77,784)
Allowance for borrowed funds used
during construction (1,900) (1,998)
Nuclear fuel (5,479) (662)
Nuclear decommissioning trust (8,163) (11,820)
Other (1,365) 6,366
-------- ---------
Cash Used in Investing Activities (122,874) (85,898)
Financing Activities
Sale of - Common stock 18,711 -
Long-term debt 31,482 -
Mandatorily redeemable trust
preferred securities 200,000 -
Retirement of long-term debt (11,821) (12,706)
Change in short-term debt (119,919) (16,093)
Dividends on stock - Common (45,169) (43,454)
--------- ---------
Cash Provided by (Used in) Financing Activities 73,284 (72,253)
--------- ---------
Change in Cash and Cash Equivalents $ 102,279 $ 934
========= =========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $ 25,383 $ 27,253
Income taxes 14,649 11,062
<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 March 31
---------------------------
1999 1998
---- ----
(Thousands of Dollars)
<S> <C> <C>
Operating Revenues
Electric $397,674 $383,640
Gas 121,983 119,411
Steam 8,182 7,630
-------- --------
Total Operating Revenues 527,839 510,681
Operating Expenses
Fuel 70,735 73,901
Purchased power 31,053 36,591
Cost of gas sold 68,860 72,301
Other operation expenses 123,807 110,038
Maintenance 43,655 40,818
Depreciation 64,450 62,273
Taxes other than income taxes 22,821 20,716
Federal income tax 25,669 19,893
State income tax 5,963 4,768
Deferred income taxes - net (2,801) 3,143
Investment tax credit - net (1,132) (1,172)
-------- --------
Total Operating Expenses 453,080 443,270
Operating Income 74,759 67,411
Other Income and Deductions
Interest income 5,672 5,458
Allowance for other funds used
during construction 984 715
Miscellaneous - net 5,524 5,378
Income taxes (3,062) (929)
-------- --------
Total Other Income
and Deductions 9,118 10,622
Income Before Interest Charges 83,877 78,033
Interest Charges
Interest expense 28,397 28,112
Allowance for borrowed funds used
during construction (481) (375)
-------- --------
Total Interest Charges 27,916 27,737
-------- --------
Net Income 55,961 50,296
Preferred Stock Dividend Requirement 301 301
-------- --------
Earnings Available for Common
Stockholder $ 55,660 $ 49,995
======== ========
<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>
March 31, December 31,
1999 1998
--------- ------------
(Thousands of Dollars)
<S> <C> <C>
Assets
------
Utility Plant
Electric $ 4,860,704 $ 4,820,239
Gas 527,370 523,187
Steam 62,924 62,832
Common 425,383 420,750
Accumulated provision for depreciation (3,044,749) (2,973,007)
----------- -----------
2,831,632 2,854,001
Construction work in progress 126,010 109,412
Leased facilities - net 131,587 133,007
Nuclear fuel - net 89,091 87,660
----------- -----------
Net Utility Plant 3,178,320 3,184,080
Other Property and Investments 608,545 578,628
Current Assets
Cash and cash equivalents 6,824 14,183
Accounts receivable 189,404 166,648
Accrued utility revenues 95,271 129,463
Materials, supplies and fossil fuel 171,366 198,015
Prepayments and other assets 61,912 59,813
----------- -----------
Total Current Assets 524,777 568,122
Deferred Charges and Other Assets
Accumulated deferred income taxes 193,312 190,114
Other 257,607 247,998
----------- -----------
Total Deferred Charges and Other Assets 450,919 438,112
----------- -----------
Total Assets $ 4,762,561 $ 4,768,942
=========== ===========
Capitalization and Liabilities
------------------------------
Capitalization
Common stock $ 713,582 $ 713,582
Retained earnings 995,664 984,896
----------- -----------
Total Common Stock Equity 1,709,246 1,698,478
Preferred stock 30,450 30,450
Long-term debt 1,529,492 1,512,531
----------- -----------
Total Capitalization 3,269,188 3,241,459
Current Liabilities
Long-term debt due currently 118,753 112,454
Short-term debt 166,470 219,289
Accounts payable 127,094 169,503
Accrued liabilities 113,262 80,908
Other 73,239 46,574
----------- -----------
Total Current Liabilities 598,818 628,728
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 564,684 559,574
Other 329,871 339,181
----------- -----------
Total Deferred Credits and Other
Liabilities 894,555 898,755
----------- -----------
Total Capitalization and Liabilities $ 4,762,561 $ 4,768,942
=========== ===========
<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>
Three Months Ended March 31
---------------------------
1999 1998
---- ----
(Thousands of Dollars)
<S> <C> <C>
Operating Activities
Net income $ 55,961 $ 50,296
Reconciliation to cash
Depreciation 64,450 62,273
Nuclear fuel expense - amortization 4,718 2,568
Conservation expense - amortization 5,625 5,625
Debt premium, discount &
expense - amortization 656 1,028
Deferred income taxes - net (2,801) 3,143
Investment tax credit - net (1,132) (1,172)
Allowance for other funds used
during construction (984) (715)
Change in - Accounts receivable (22,756) (19,263)
Inventories 26,649 25,733
Accounts payable (42,409) 11,224
Other current assets 32,093 (3,213)
Other current liabilities 59,019 28,117
Other (10,794) 394
--------- ---------
Cash Provided by Operating Activities 168,295 166,038
Investing Activities
Construction expenditures (81,432) (66,894)
Allowance for borrowed funds used
during construction (481) (375)
Nuclear fuel (5,479) (662)
Nuclear decommissioning trust (8,163) (11,820)
Other (4,283) (260)
-------- --------
Cash Used in Investing Activities (99,838) (80,011)
Financing Activities
Sale of long-term debt 29,444 -
Retirement of long-term debt (7,247) (4,611)
Change in short-term debt (52,819) (33,355)
Dividends on stock - Common (44,893) (44,322)
Preferred (301) (301)
-------- --------
Cash Used in Financing Activities (75,816) (82,589)
-------- --------
Change in Cash and Cash Equivalents $ (7,359) $ 3,438
======== ========
Supplemental Information - Cash Paid For
Interest (net of amount capitalized) $ 26,027 $ 27,807
Income taxes 11,334 10,687
<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 and the unaudited financial
statements for Wisconsin Electric Power Company should be read in
conjunction with the companies' combined 1998 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 three months ended March 31, 1999 are not, however,
necessarily indicative of the results which may be expected for
the year 1999 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. 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. 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 March 1999, WEC Capital Trust I, a Delaware business trust
of which Wisconsin Energy owns all of the outstanding common
securities, issued $200 million of 6.85% trust preferred
securities to the public. The sole asset of WEC Capital Trust I
is $206 million of 6.85% junior subordinated debentures due
March 31, 2039, issued by Wisconsin Energy. The terms and
interest payments on these debentures correspond to the terms and
distributions on the trust preferred securities. WEC Capital
Trust I has been consolidated into Wisconsin Energy's financial
statements.
The interest payments, which are tax deductible by Wisconsin
Energy, are reflected as distributions on preferred securities
of subsidiary trust in Wisconsin Energy's Consolidated
Condensed Income Statement. Wisconsin Energy may elect to
defer interest payments on the debentures for up to 20
consecutive quarters, causing corresponding distributions on
the trust preferred securities to also be deferred. In case
of a deferral, interest and distributions will continue to
accrue, along with quarterly compounding interest on the
deferred amounts.
Wisconsin Energy may redeem all or a portion of the debentures
after March 25, 2004, requiring an equal amount of trust
preferred securities to be redeemed at face value plus accrued
and unpaid distributions. Wisconsin Energy has entered into a
limited guarantee of payment of distributions, redemption
payments and payments in liquidation with respect to the trust
preferred securities. This guarantee, when considered
together with Wisconsin Energy's obligations under the related
debentures and indenture and the applicable declaration of
trust, provide a full and unconditional guarantee by Wisconsin
Energy of amounts due on the outstanding trust preferred
securities.
4.In April 1999, Wisvest Connecticut, LLC, a wholly-owned
subsidiary of Wisvest Corporation which is in turn a wholly owned
subsidiary of Wisconsin Energy, acquired two fossil-fueled power
plants for $272 million from The United Illuminating Company, an
unaffiliated investor-owned utility in New Haven, Connecticut.
Pursuant to the agreement, Wisvest Connecticut, LLC purchased the
Bridgeport Harbor Station, which has an active generating
capacity of 590 megawatts, as well as the New Haven Harbor
Station, which has a generating capacity of 466 megawatts.
Wisvest Connecticut, LLC financed the acquisition through the
issuance of $195 million of long-term, nonrecourse notes; an
equity contribution of $105 million from Wisconsin Energy;
$30 million of working capital arrangements and a $25 million
letter of credit facility.
5.Wisconsin Energy, a holding company with subsidiaries in
utility and non-utility businesses, has organized its operating
segments according to how its principal subsidiary, Wisconsin
Electric, is currently regulated. Operating segments are defined
as components of an enterprise about which separate financial
information is available that is evaluated regularly in deciding
how to allocate resources or in assessing performance. Wisconsin
Energy's and Wisconsin Electric's reportable operating segments
include electric, gas and steam utility segments.
The following table summarizes the reportable operating
segments of Wisconsin Energy and of Wisconsin Electric.
<TABLE>
<CAPTION>
Reportable Operating Segments
-----------------------------
Electric Gas Steam Total
-------- --- ----- -----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
WISCONSIN ENERGY:
Three Months Ended March 31, 1999
Total Operating Revenues (a) $406,555 $121,983 $8,182 $536,720
Operating Income (b) 56,480 17,839 1,848 76,167
Three Months Ended March 31, 1998
Total Operating Revenues (a) $383,640 $119,411 $7,630 $510,681
Operating Income (b) 49,491 15,766 2,154 67,411
WISCONSIN ELECTRIC:
Three Months Ended March 31, 1999
Total Operating Revenues (a) $397,674 $121,983 $8,182 $527,839
Operating Income (b) 55,072 17,839 1,848 74,759
Three Months Ended March 31, 1998
Total Operating Revenues (a) $383,640 $119,411 $7,630 $510,681
Operating Income (b) 49,491 15,766 2,154 67,411
<FN>
(a)Wisconsin Electric accounts for intersegment revenues at tariff
rates established by the Public Service Commission of Wisconsin.
Intersegment revenues are not material.
(b)Interest income and expense are not allocated to the segments to
determine segment operating income.
</TABLE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Wisconsin Energy Corporation is a holding company whose principal
subsidiary is Wisconsin Electric Power Company, 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
March 31, 1999, approximately 87% 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 in a tax-free reorganization accounted for
as a pooling of interests. Due to the immaterial nature of the
transaction, Wisconsin Energy has not restated any historical
financial or statistical information. For additional
information, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" in Part II of Wisconsin Energy's
and Wisconsin Electric's combined Annual Report on Form 10-K for
the year ended December 31, 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 as well as financial or statistical information of
Wisconsin Energy include Edison Sault's operations since June 1,
1998.
CAUTIONARY FACTORS: A number of forward-looking statements are
included in this document. When used, the terms "anticipate,"
"believe," "estimate," "expect," "objective," "plan," "possible,"
"potential," "project" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
are subject to certain risks, uncertainties and assumptions which
could cause actual results to differ materially from those that
are described, including the factors that are noted in
"Cautionary Factors" below.
RESULTS OF OPERATIONS
1999 FIRST QUARTER
Earnings
During the first quarter of 1999, Wisconsin Energy's consolidated
net income and earnings per share of common stock were
approximately $54 million and $0.46, respectively, compared to
$49 million and $0.43, respectively, during the first quarter of
1998. For the same periods, Wisconsin Electric's earnings
increased to approximately $56 million during 1999 compared to
$50 million during 1998. As described in further detail below,
1999 first quarter earnings increased compared to 1998 primarily
due to (1) an increase in total 1999 electric kilowatt-hour
sales, (2) an increase in total 1999 natural gas therm
deliveries, (3) higher gross margins on 1999 electric and gas
operating revenues, and (4) a retail electric rate increase
effective May 1, 1998 at Wisconsin Electric. The increased
earnings were partially offset by increases in other operations
and maintenance, depreciation, taxes other than income tax, and
interest expenses as well as by an increase in expenses at
Wisvest Corporation.
Electric Revenues, Gross Margins and Sales
WISCONSIN ENERGY: Primarily due to an increase in total 1999
electric kilowatt-hour sales and, to a lesser extent, a Wisconsin
Electric retail electric increase effective May 1, 1998 in the
Wisconsin jurisdiction, total electric operating revenues
increased by $23 million or 6.0% during the first quarter of 1999
compared to the first quarter of 1998. The gross margin on electric
operating revenues (electric operating revenues less fuel and purchased
power expenses) increased by approximately $28 million or 10.1%.
The following table summarizes Wisconsin Energy's total electric
operating revenues, gross margin and electric kilowatt-hour sales
during the first quarters of 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------
Electric Operations - Wisconsin Energy 1999 1998 % Change
- -------------------------------------- ---- ---- --------
<S> <C> <C> <C>
Electric Gross Margin ($000)
Electric Operating Revenues $ 406,555 $ 383,640 6.0%
Fuel & Purchased Power 105,720 110,492 (4.3%)
--------- ---------
Gross Margin $ 300,835 $ 273,148 10.1%
========= =========
Total Electric Sales (Megawatt-hours) 7,393,205 6,957,434 6.3%
</TABLE>
The discussion that follows reflects Wisconsin Electric's
contribution to Wisconsin Energy's first quarter electric
revenues, gross margin and sales.
WISCONSIN ELECTRIC: Wisconsin Electric's total electric
operating revenues increased by $14 million or 3.7% during the
first quarter of 1999 compared to the first quarter of 1998, and
the gross margin on electric operating revenues increased by
$23 million or 8.3%. Wisconsin Electric attributes these
increases to a 3.9% increase in total electric kilowatt-hour
sales during the first quarter of 1999 and, to a lesser extent, a
retail electric rate increase, effective May 1, 1998 in the
Wisconsin jurisdiction, of 12.7% or $160 million on an annualized
basis. In an interim action effective January 1, 1998 through
April 30, 1998, the Public Service Commission of Wisconsin
("PSCW") had authorized Wisconsin Electric to increase retail
electric rates by 10.7% or $135 million on an annualized basis,
an increase that was less than rates included in the final rate
order that became effective May 1, 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
Electric Operations - Wisconsin Electric 1999 1998 % Change
- ---------------------------------------- ---- ---- --------
<S> <C> <C> <C>
Electric Gross Margin ($000)
Electric Operating Revenues $ 397,674 $ 383,640 3.7%
Fuel & Purchased Power 101,788 110,492 (7.9%)
--------- ---------
Gross Margin $ 295,886 $ 273,148 8.3%
========= =========
</TABLE>
Despite increased electric sales during the three months ended
March 31, 1999, total fuel and purchased power expenses decreased
by $9 million or 7.9% compared to the same period in 1998. While
megawatt-hours of net generation increased by approximately 12%
during the first quarter of 1999, fuel expense decreased 4.3%
primarily due to lower per unit costs of coal burned. In
addition, increased availability of low cost generating capacity
at Point Beach Nuclear Plant allowed Wisconsin Electric to reduce
higher cost power purchases by 24% as well as purchased power
expense by 15.1% during the first quarter of 1999.
The following table summarizes Wisconsin Electric's comparative
electric sales during the three months ended March 31, 1999 and
1998.
<TABLE>
<CAPTION>
Three Months Ended March 31
------------------------------
Electric Operations - Wisconsin Electric 1999 1998 % Change
---- ---- --------
<S> <C> <C> <C>
Electric Sales (Megawatt-hours)
Residential 1,792,252 1,808,720 (0.9%)
Small Commercial/Industrial 1,948,435 1,845,369 5.6%
Large Commercial/Industrial 2,760,640 2,689,491 2.6%
Other-Retail/Municipal 309,240 326,722 (5.4%)
Resale-Utilities 415,499 287,132 44.7%
--------- ---------
Total Electric Sales 7,226,066 6,957,434 3.9%
========= =========
</TABLE>
Electric energy sales to the Empire and Tilden ore mines,
Wisconsin Electric's two largest electric retail customers,
increased 7.8% during the first quarter of 1999 compared to the
first quarter of 1998. Excluding the Empire and Tilden ore
mines, total electric sales increased 3.5% and sales to the
remaining large commercial/industrial customers increased 1.3%.
Sales for resale to other utilities, the resale-utilities
customer class, increased 44.7% in 1999 compared to 1998 due in
part to a new three-year contract with Wisconsin Public Power
Inc. that became effective May 1, 1998 and to higher opportunity
sales.
Gas Revenues, Gross Margins and Sales
Total gas operating revenues increased by approximately
$3 million or 2.2% during the first quarter of 1999 compared to
the first quarter of 1998, and the gross margin on gas operating
revenues (gas operating revenues less cost of gas sold) increased
by $6 million or 12.8%. Wisconsin Electric attributes these
increases primarily to a 9.7% increase in total natural gas therm
deliveries during the first quarter of 1999.
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
Gas Operations - Wisconsin Electric 1999 1998 % Change
- ----------------------------------- ---- ---- --------
<S> <C> <C> <C>
Gas Gross Margin ($000)
Gas Operating Revenues $ 121,983 $ 119,411 2.2%
Cost of Gas Sold 68,860 72,301 (4.8%)
--------- ---------
Gross Margin $ 53,123 $ 47,110 12.8%
========= =========
</TABLE>
Despite an increase in total gas sales, the cost of gas sold
decreased by $3 million or 4.8% during the first quarter of 1999
due to a decrease in the per unit cost of purchased gas. Because
changes in the cost of natural gas purchased at market prices are
included in customer rates through the purchased gas adjustment
mechanism, gas operating revenues change at the same rate as the
cost of gas sold and gross margin is unaffected by such changes.
The following table summarizes Wisconsin Electric's comparative
gas therm deliveries during the three months ended March 31, 1999
and 1998.
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
Gas Operations - Wisconsin Electric 1999 1998 % Change
- ----------------------------------- ---- ---- --------
<S> <C> <C> <C>
Gas Deliveries (000's of Therms)
Residential 151,734 133,829 13.4%
Commercial/Industrial 94,233 83,815 12.4%
Interruptible 6,613 7,711 (14.2%)
------- -------
Total Gas Sales 252,580 225,355 12.1%
Transported Customer Owned Gas 108,200 99,196 9.1%
Other - Interdepartmental 4,486 8,492 (47.2%)
------- -------
Total Gas Deliveries 365,266 333,043 9.7%
======= =======
</TABLE>
Compared to the same period in 1998, total natural gas therm
deliveries increased during the first quarter of 1999 primarily
due to colder winter weather. As measured by heating degree
days, the first three months of 1999 were 10.8% colder than the
same period in 1998. However, the first three months of 1999
were still 4.1% warmer than normal. Increased therm deliveries
during the first quarter of 1999 were primarily to residential
and commercial customers, who are more sensitive to weather
variations and who contribute higher margins to earnings than
other customer classes. During the first quarter of 1999, therm
deliveries to the Whitewater Cogeneration Facility, owned by an
unaffiliated independent power producer, contributed to about
half of the 9.1% increase in transported customer owned gas
deliveries. The Whitewater Cogeneration Facility, a gas-fired
electric cogeneration plant, 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. During the first
three months of 1999, natural gas therm deliveries to the other-
interdepartmental customer class decreased 47.2% primarily due to
increased availability of Wisconsin Electric's Point Beach
Nuclear Plant, allowing Wisconsin Electric to change its
generation mix during the first quarter of 1999 away from higher
cost, company-owned, gas-fired generating facilities. Excluding
the other-interdepartmental customer class, total therm
deliveries increased 11.2% during the three months ended
March 31, 1999 compared to the same period in 1998.
Operating Expenses
OTHER OPERATIONS AND MAINTENANCE: During the first quarter of
1999, Wisconsin Energy's other operation and maintenance expenses
increased by $18 million or 12% compared to the same period
during 1998, including approximately a $10 million increase in
Wisconsin Electric's administrative and general expenses and a
$4 million increase in Wisconsin Electric's nuclear non-fuel
expenses. Administrative and general expenses increased during
1999 primarily due to (1) efforts to prepare for Year 2000
technology issues, (2) various other corporate technology
improvement efforts, and (3) increased staffing and higher
employee pension and benefit expenses. For further information,
see "Year 2000 Technology Issues" below in "Factors Affecting
Results of Operations." Nuclear non-fuel expenses increased
during 1999 primarily due to continuing efforts by Wisconsin
Electric to improve the overall performance at Point Beach. Also
influencing the 1999 increase in nuclear non-fuel expenses,
Wisconsin Electric deferred $18 million of nuclear non-fuel
operation and maintenance costs during 1997 and began amortizing
these costs to expense in the second quarter of 1998 on a five-
year straight line basis.
DEPRECIATION: Depreciation expense increased by $3 million or
4.8% during the first three months of 1999 compared to the first
three months of 1998 primarily due to the net of increased
depreciable plant at Wisconsin Electric during 1999, increased
amortizable software during 1999 at Wisconsin Electric, partially
offset by a decrease in decommissioning expenses at Wisconsin
Electric as a result of lower decommissioning trust fund earnings
during 1999.
TAXES OTHER THAN INCOME TAXES: Between the comparative periods,
taxes other than income taxes increased by approximately
$3 million or 12.2% primarily due to higher gross receipts and
payroll taxes during the first quarter of 1999.
Other Items
MISCELLANEOUS NET OTHER INCOME AND DEDUCTIONS: Primarily due to
additional expenses at Wisvest Corporation in anticipation of the
April 1999 acquisition of two fossil-fueled power plants and for
the evaluation of additional potential investments, miscellaneous
net other income and deductions decreased by $2 million during
the first quarter of 1999 compared to the first quarter of 1998.
INTEREST EXPENSE: Wisconsin Energy's interest expense increased
by approximately $3 million between the comparative periods
primarily due to higher long-term debt balances outstanding
during the first quarter of 1999.
FACTORS AFFECTING RESULTS OF OPERATIONS
NUCLEAR MATTERS
POINT BEACH NUCLEAR PLANT: On April 28, 1999, the United States
Nuclear Regulatory Commission issued a Notice of Violation
related to the status of certain safety related equipment at
Point Beach Nuclear Plant in late December 1998 and early January
1999. While the violation constituted an escalated enforcement
action, the Nuclear Regulatory Commission elected not to levy a
civil penalty, acknowledging the corrective actions implemented
and the management attention given to the matter by Wisconsin
Electric following identification of the problem.
ELECTRIC SYSTEM RELIABILITY MATTERS
WISCONSIN INTERFACE RELIABILITY ENHANCEMENT STUDY: The
Wisconsin Reliability Assessment Organization was formed in early
1998 to coordinate activities relating to generation and
transmission reliability issues in the State of Wisconsin.
Wisconsin Electric is an active participant in the Wisconsin
Reliability Assessment Organization, whose members include all of
the state's other investor owned utilities, staff from the PSCW,
several municipal utilities and cooperatives, and utilities from
surrounding states.
Under direction of the Wisconsin Reliability Assessment
Organization, the Wisconsin Interface Reliability Study group is
conducting an ongoing study which examines numerous options for
improving the reliability of the state's electric system by
strengthening its connections with the interstate transmission
grid. An assessment of the strengths and weaknesses of various
reliability improvement options was completed in April 1999. The
Wisconsin Reliability Assessment Organization will combine this
information with the results of an environmental screening
process and other relevant information to recommend a preferred
expansion plan to the PSCW by June 1999. In a related matter,
Minnesota Power and Light Company and Wisconsin Public Service
Corporation, two unaffiliated investor owned utilities, announced
in April 1999 their intent to build, subject to requisite
regulatory approvals, a new 345 kilovolt transmission line from
Duluth, Minnesota to the middle of the State of Wisconsin, with
an expected service date in the year 2003.
MIDWEST ISO: Wisconsin Electric is currently participating in
the formation of a regional independent electric transmission
system operator to promote reliability in the Midwest (the
"Midwest ISO"). In June 1998, the PSCW completed a review of
independent electric transmission system operators and issued an
order that laid out new independent system operator guidelines.
In its order, the PSCW stated that the Midwest ISO did not
entirely meet the guidelines of its June 1998 order. As a result
of changes implemented at the request of the Federal Energy
Regulatory Commission since September 1998, Wisconsin Electric
believes that the Midwest ISO now complies with the PSCW's June
1998 guidelines. In April 1999, Wisconsin Electric applied to
the PSCW for authority to transfer control of its electric
transmission system to the Midwest ISO. The matter is pending.
YEAR 2000 TECHNOLOGY ISSUES
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.
YEAR 2000 PROJECT: During 1997, the Company created Year 2000
program teams, overseen by executives of the Company, to address
its Year 2000 issues. The teams, comprised of representatives
with subject matter expertise, are addressing business
applications, voice and data infrastructure, process control and
embedded systems, and supplier readiness.
The Year 2000 teams are following a structured process of
inventorying and assessing potential Year 2000 problems, of
remediating, testing, and certifying Year 2000 readiness and of
developing and implementing Year 2000 risk management contingency
plans. Although additional systems or processes may be
identified as the program moves forward, the Company has
substantially completed an initial inventory of potential
Year 2000 problems across all operating areas and completed its
assessment of critical areas in the fourth quarter of 1998. The
remediation and testing phases are currently in progress and
contacts with critical third party suppliers are ongoing. Based
upon an initial assessment of critical supplier Year 2000
readiness that was completed in the third quarter of 1998, the
Company is currently initiating additional supplier risk
mitigation actions. Wisconsin Energy expects to evaluate its
significant customers during the remainder of 1999.
The Company has structured its Year 2000 program to identify,
prioritize and address critical business functions within the
Company. With the exception of those projects that are dependent
upon activities such as vendor delivery of upgrades or scheduled
power plant maintenance outages later in 1999, the Company
currently expects its core, critical business functions to be
"Year 2000 Ready" by June 30, 1999. However, additional
refinements and testing may continue through the end of 1999.
Based upon the Nuclear Energy Institute's standard definition,
which has been adopted by Wisconsin Energy, "Year 2000 Ready"
systems or applications will be suitable for continued use into
the Year 2000 even though the system or application may not be
fully "Year 2000 Compliant."
Wisconsin Electric participates in monthly surveys conducted by
the North American Electric Reliability Council ("NERC"). As of
April 30, 1999, Wisconsin Electric reported to NERC a readiness
of 94% of those critical systems needed to support the
generation, transmission and distribution of electricity.
POTENTIAL RISKS AND CONTINGENCY PLANNING: The Company is
continuing an ongoing process of assessing potential Year 2000
risks and uncertainties. Internal and external risks are
included in the Company's assessment and identification of
mitigation strategies. Wisconsin Energy expects to successfully
mitigate its controllable internal Year 2000 problems.
For its core operation, Wisconsin Energy also relies upon third
parties such as (1) other power providers to and operators of the
integrated electric transmission and distribution grid, (2) fuel
suppliers, (3) producers of natural gas and suppliers of
interstate natural gas transportation services, and (4) providers
of external infrastructure such as telecommunications, municipal
sewer and water as well as emergency services. Failure of these
critical third parties to identify and remediate their Year 2000
problems could have a material impact on the Company's operation
and financial condition. The Company's Year 2000 program is
structured to identify, assess and mitigate these third party
risks where possible. At this time, Wisconsin Energy believes
that mitigation efforts will be successful.
As part of its normal business practice, the Company maintains
and periodically initiates various contingency plans to maintain
and restore its energy services during emergency circumstances,
some of which could arise from Year 2000 related problems.
During 1999, Wisconsin Energy intends to leverage this experience
in the development and implementation of Year 2000 related
contingency and business continuity plans. As part of this
effort, the Company is coordinating its Year 2000 readiness
program with various trade associations and industry groups and
is working with the Mid-America Interconnected Network, Inc.,
("MAIN"), NERC and the Wisconsin Reliability Assessment
Organization to develop and implement regional electric
reliability contingency plans. Wisconsin Electric is
participating with other utilities in MAIN to develop reasonably
likely worst case scenarios for the region. Scenarios that have
been jointly identified and assessed are:
* Loss or unavailability of some generation.
* Partial loss of system monitoring and control functions,
including data communication.
* Partial loss of voice communications.
* Loss of transmission facilities.
* Loss of load and/or uncharacteristic loads.
Wisconsin Electric agrees with MAIN's assessment that the
probability of these scenarios occurring due to Year 2000 is not
significantly in excess of normal expectations. The Company's
current operating and contingency plans are expected to
adequately handle the above scenarios. The Company is reviewing
its operating and contingency plans to identify further
enhancements or updates specifically addressing Year 2000 issues.
FINANCIAL IMPLICATIONS: Wisconsin Energy currently estimates
that it will incur $43 million of expenses during 1998 through
2000 for its Year 2000 program. Approximately $21 million has
been incurred as of March 31, 1999. In addition, the Company
expects to capitalize costs of approximately $20 million to
replace certain existing infrastructure and process control
systems of which approximately $13 million has been capitalized
as of March 31, 1999.
For additional information concerning Year 2000 Technology
Issues, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors
Affecting Results of Operations" in Part II of Wisconsin Energy's
and Wisconsin Electric's combined Annual Report on Form 10-K for
the year ended December 31, 1998.
The discussion above includes many forward looking statements
concerning potential schedules, plans, costs, risks and
uncertainties facing Wisconsin Energy as a result of the
Year 2000 problem. Based upon its activities to date, the
Company expects to successfully implement the changes necessary
to become "Year 2000 Ready" by the end of 1999. However, the
Year 2000 problem has many elements and potential consequences,
some of which may not be reasonably foreseeable, and there can be
no assurances that every Year 2000 problem will be identified and
addressed or that unforeseen consequences will not arise.
Unanticipated factors while implementing the changes necessary to
mitigate Year 2000 problems, including the ongoing availability
and costs of trained personnel, the ability to locate and correct
all relevant codes in computer and embedded systems, or the
failure of critical third parties to communicate about and to
mitigate their Year 2000 problems could result in unanticipated
interruptions in certain core business activities or operations
of Wisconsin Energy.
OUTLOOK
EARNINGS: Results during the first quarter of 1999 indicate
that the Company is on course to meet currently anticipated
earnings in the range of $1.85 to $2.05 per share during 1999.
This earnings forecast is a forward-looking statement subject to
certain risks, uncertainties and assumptions. Actual results may
materially vary. Factors that could cause actual results to
differ materially include, but are not limited to: business and
competitive conditions in the energy industry, in general, and in
the Company's utility service territories; availability of the
Company's generating facilities; changes in purchased power
costs; and the economy, weather, the restructuring of the
electric and gas utility industries, and unforeseen problems with
non-utility diversification efforts. See "Cautionary Factors"
below.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES: Cash provided by operating activities
totaled $152 million at Wisconsin Energy and $168 million at
Wisconsin Electric during the first three months of 1999. This
compares to $159 million at Wisconsin Energy and $166 million at
Wisconsin Electric during the same period in 1998.
INVESTING ACTIVITIES: Net investing activities totaled
$123 million at Wisconsin Energy and $100 million at Wisconsin
Electric during the first quarter of 1999 compared to $86 million
at Wisconsin Energy and $80 million at Wisconsin Electric during
the same period in 1998. Investments during the first quarter of
1999 included $106 million for the acquisition or construction of
new or improved facilities of which $81 million was for a number
of projects related to utility plant at Wisconsin Electric.
During the first three months of 1999, Wisconsin Electric
recorded $8 million of payments to and earnings of the Nuclear
Decommissioning Trust Fund for the eventual decommissioning of
Point Beach Nuclear Plant and $5 million for the acquisition of
nuclear fuel.
In April 1999, Wisvest Connecticut, LLC completed the acquisition
of two fossil-fueled power plants for $272 million from The
United Illuminating Company. For additional information, see the
"Notes To Financial Statements" above in Part I of this report.
FINANCING ACTIVITIES: During the first quarter of 1999,
Wisconsin Energy received a net of $73 million through financing
activities compared to using a net of $72 million for financing
activities during the first quarter of 1998.
On March 25, 1999, WEC Capital Trust I, a Delaware business trust
of which Wisconsin Energy owns all of the outstanding common
securities, issued $200 million of 6.85% Trust Preferred
Securities due March 31, 2039. WEC Capital Trust I used the
proceeds from the sale of the trust preferred securities to
purchase corresponding junior subordinated debentures due
March 31, 2039 from Wisconsin Energy. Wisconsin Energy used the
proceeds from the sale of its junior subordinated debentures to
fund a capital contribution of approximately $105 million to
Wisvest Connecticut, LLC for acquisition in April 1999 of the two
fossil-fueled power plants from The United Illuminating Company
and for repayment of short-term borrowings. During the first
quarter of 1999, Wisconsin Energy reduced its short-term debt by
$120 million. For additional information concerning the
acquisition of the The United Illuminating Company's electric
generating plants, see the "Notes To Financial Statements" above
in Part I of this report.
During the three months ended March 31, 1999, Wisconsin Energy
issued 714,967 new shares of common stock which were purchased by
participants in the Company's stock plans with cash investments
and reinvested dividends aggregating approximately $19 million.
CAPITAL REQUIREMENTS AND RESOURCES: Capital requirements for
the remainder of 1999 are expected to be principally for
construction expenditures, for long-term debt maturity and
sinking fund requirements and for payments to the Nuclear
Decommissioning Trust Fund for the eventual decommissioning of
Point Beach. These cash requirements are expected to be met
through a combination of several of the following resources:
internal sources of funds from operations, short-term borrowings,
the issuance of intermediate or long-term debt, the issuance of
additional trust preferred securities, and proceeds from the sale
of new issue common stock under Wisconsin Energy's stock plans.
Wisconsin Electric plans to issue up to $150 million of
debentures during the remainder of 1999.
Wisconsin Energy is reviewing additional non-utility growth
opportunities on an ongoing basis, primarily in the areas of
power generation development and acquisitions, waste to energy
recycling technologies and real estate investments. The Company
may make further investments and/or acquisitions from time to
time.
For certain other information which may impact Wisconsin Energy's
and Wisconsin Electric's future financial condition or results of
operations, see Item 1. Financial Statements - "Notes to
Financial Statements" in Part I of this report as well as Item 1.
Legal Proceedings in Part II of this report.
CAUTIONARY FACTORS
This report and other documents or oral presentations contain or
may contain forward-looking statements made by or on behalf of
Wisconsin 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 the forward-looking statements. When
used in written documents or oral presentations, the terms
"anticipate," "believe," "estimate," "expect," "objective,"
"plan," "possible," "potential," "project" and similar
expressions are intended to identify forward-looking statements.
In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that
could cause Wisconsin 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, Edison Sault's or Wisvest Connecticut,
LLC's generating facilities; 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.
* 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 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.
* Certain restrictions imposed by various financing
arrangements and regulatory requirements on the ability of
Wisconsin Electric or other subsidiaries to transfer funds to
Wisconsin Energy in the form of cash dividends, loans or
advances.
* Changes in social attitudes regarding the utility and power
industries.
* Customer business conditions including demand for their
products or services and supply of labor and material used in
creating their products and services.
* The cost and other effects of legal and administrative
proceedings, settlements, 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
atings.
* 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
regulation.
* 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 codes 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.
* Possible risks associated with non-utility diversification
such as competition; operating risks; dependence upon certain
suppliers and customers; the cyclical nature of property values
that could affect real estate investments; unanticipated changes
in environmental or energy regulations; timely regulatory
approval without onerous conditions of potential acquisitions;
and risks associated with minority investments, where there is a
limited ability to control the development, management or
operation of the project.
* Legislative or regulatory restrictions or caps on non-utility
acquisitions, investments or projects, including the State of
Wisconsin's Public Utility Holding Company Law, which could limit
the Company's diversification and growth opportunities or require
the Company to divest of certain existing non-utility assets.
* Factors affecting foreign non-utility operations including
foreign governmental actions; foreign economic and currency
risks; political instability; and unanticipated changes in
foreign environmental or 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 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, 1998.
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal
Proceedings in Part I of Wisconsin Energy's and Wisconsin
Electric's combined Annual Report on Form 10-K for the year ended
December 31, 1998.
RATE MATTERS
WISCONSIN RETAIL JURISDICTION
FUEL COST ADJUSTMENT PROCEDURE: As part of the PSCW's 1998 Rate
Order, Wisconsin Electric was required to file by October 1, 1998
its forecast of electric fuel costs for the 1999 calendar year.
Wisconsin Electric filed the forecast with the PSCW indicating no
change in fuel costs compared to 1998. Following subsequent
discussions, the PSCW issued an order effective May 1, 1999
authorizing Wisconsin Electric to implement a retail revenue fuel
credit of $.00033 per kilowatt-hour or approximately $7.8 million
on an annualized basis.
PURCHASED GAS ADJUSTMENT MECHANISM: Purchased gas adjustment
mechanisms have been evaluated as part of the PSCW's ongoing
generic investigation of the natural gas industry in the State of
Wisconsin. On July 1, 1997, Wisconsin Electric filed a modified
dollar for dollar gas cost recovery mechanism in accordance with
a November 1996 order from the PSCW. This filing was updated on
June 30, 1998 and was approved on March 23, 1999 for
implementation July 1, 1999. The new gas cost recovery mechanism
will include after the fact prudence reviews by the PSCW.
Wisconsin Electric does not expect that the major portion of gas
costs that are currently passed through to customers will be
subject to price risk under the new gas cost recovery mechanism.
MICHIGAN RETAIL JURISDICTION
1998 TEST YEAR: In November 1998, Wisconsin Electric filed
testimony and exhibits with the Michigan Public Service
Commission showing a $3.8 million annual revenue deficiency for
its electric utility operations in the State of Michigan. On
April 12, 1999, the Michigan Public Service Commission issued an
order authorizing Wisconsin Electric to implement retail electric
rate increases effective April 13, 1999 in the amount of
$2.1 million on an annualized basis. The increase was based upon
an authorized regulatory return on common equity of 11.0%.
OTHER MATTERS
WISCONSIN INTERNATIONAL ELECTRIC POWER LITIGATION: On March 25,
1998, Wisconsin International Electric Power, Ltd. ("WIEP") filed
an action against Wisconsin Electric in Milwaukee County Circuit
Court alleging that WIEP and Wisconsin Electric were parties to a
joint venture to develop, build, operate and maintain an electric
generating plant at Subic Bay in the Philippines involving
certain equipment originally purchased by Wisconsin Electric for
a proposed cogeneration facility in Kimberly, Wisconsin. The
complaint in the action alleges that Wisconsin Electric breached
contractual duties allegedly owed to WIEP, causing damages to
WEIP in an amount claimed to be at least $100 million. On
April 15, 1998, Wisconsin Electric filed an answer to the
complaint denying liability. On March 1, 1999, Wisconsin
Electric filed a motion for summary judgment and supporting
papers on all but one count of the complaint. On April 19, 1999,
the court granted summary judgment dismissing one count which
alleged unjust enrichment. On April 30, 1999, Wisconsin Electric
received a copy of WIEP's amended complaint seeking additional
relief in the form of punitive damages in an amount to be
determined at trial. On May 3, 1999, the court issued a decision
and order granting summary judgment dismissing two counts of the
complaint which alleged that Wisconsin Electric breached a joint
venture agreement and a fiduciary duty arising out of such
relationship. The case is scheduled for trial in mid-May 1999 on
the remaining four counts of the complaint.
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; against the City of Neenah, Wisconsin; and
against a paper company, challenging the legality of the City's lease
of certain land to Minergy for construction and operations of a
facility that recyles paper sludge from area paper mills into glass
aggregate and steam. The plantiffs 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 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 Supreme Court reversed the decision of the circuit
court, holding that the plantiffs may bring suit under a Wisconsin
statute to abate a public nuisance. The case was remanded to the
circuit court which, on February 23, 1999, issued a decision dimissing
all claims against Minergy and the other defendants. On May 5, 1999,
the plantiffs again appealed the circuit court decision to the Court
of Appeals. The matter is pending.
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 CORPORATION EXHIBITS
(21)-1 Subsidiaries of Wisconsin Energy Corporation.
(27)-1 Wisconsin Energy Corporation Financial Data Schedule
for the three months ended March 31, 1999.
WISCONSIN ELECTRIC POWER COMPANY EXHIBITS
(12)-1 Wisconsin Electric Power Company Statement of
Computation of Ratios of Earnings to Fixed Charges
for the twelve months ended March 31, 1999.
(27)-2 Wisconsin Electric Power Company Financial Data
Schedule for the three months ended March 31, 1999.
(b) REPORTS ON FORM 8-K.
A Current Report on Form 8-K dated as of March 16, 1999 was
filed by Wisconsin Energy on March 24, 1999 to file the
opinion of Quarles & Brady LLP as to certain tax matters in
connection with Trust Preferred Securities sold pursuant to
Registration Statement No. 333-73137.
A Current Report on Form 8-K dated as of March 25, 1999 was
filed by Wisconsin Energy on April 9, 1999 to file certain
exhibits in connection with Trust Preferred Securities issued
on March 25, 1999 pursuant to Registration Statement No. 333-
73137.
No other reports on Form 8-K were filed by Wisconsin Energy or
by Wisconsin Electric during the quarter ended March 31, 1999.
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: May 14, 1999 Calvin H. Baker, Treasurer,
Chief Financial Officer
and duly authorized officer
WISCONSIN ELECTRIC POWER COMPANY
--------------------------------
(Registrant)
/s/ Calvin H. Baker
---------------------------------------
Date: May 14, 1999 Calvin H. Baker, Vice President-Finance,
Chief Financial Officer
and duly authorized officer
WISCONSIN ENERGY CORPORATION
----------------------------
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 1999
EXHIBIT INDEX
The following exhibits are filed with this report:
Exhibit No.
- -----------
(21)-1 Subsidiaries of Wisconsin Energy Corporation
(27)-1 Wisconsin Energy Corporation Financial Data Schedule for
the three months ended March 31, 1999.
Exhibit (21)-1
Wisconsin Energy Corporation
The following are subsidiaries of Wisconsin Energy Corporation
Badger Service Company
Edison Sault Electric Company
Minergy Corp., formerly Minergy Corporation
Northern Tree Service, Inc.
WEC International Inc.
WEC Nuclear Corp.*, formerly WEC Sub Corp.
Wisconsin Electric Power Company
Wisconsin Energy Capital Corporation, formerly Wisconsin
Michigan Investment Corporation
Wisconsin Michigan Corporation*
Wispark Corporation
Wisvest Corporation
Witech Corporation
* Non-operating companies.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS
OF WISCONSIN ENERGY CORPORATION FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<CURRENCY> U.S.DOLLARS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<PERIOD-TYPE> 3-MOS
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,232,691
<OTHER-PROPERTY-AND-INVEST> 1,109,736
<TOTAL-CURRENT-ASSETS> 673,400
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 478,611
<TOTAL-ASSETS> 5,494,438
<COMMON> 1,163
<CAPITAL-SURPLUS-PAID-IN> 777,899
<RETAINED-EARNINGS> <F1> 1,151,239
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,930,301
0
30,450
<LONG-TERM-DEBT-NET> 1,174,534
<SHORT-TERM-NOTES> 50,965
<LONG-TERM-NOTES-PAYABLE> 402,907
<COMMERCIAL-PAPER-OBLIGATIONS> 115,975
<LONG-TERM-DEBT-CURRENT-PORT> 96,728
0
<CAPITAL-LEASE-OBLIGATIONS> 188,938
<LEASES-CURRENT> 25,848
<OTHER-ITEMS-CAPITAL-AND-LIAB> <F2> 1,477,792
<TOT-CAPITALIZATION-AND-LIAB> 5,494,438
<GROSS-OPERATING-REVENUE> 536,720
<INCOME-TAX-EXPENSE> 28,149
<OTHER-OPERATING-EXPENSES> 432,404
<TOTAL-OPERATING-EXPENSES> 460,553
<OPERATING-INCOME-LOSS> 76,167
<OTHER-INCOME-NET> 9,539
<INCOME-BEFORE-INTEREST-EXPEN> 85,706
<TOTAL-INTEREST-EXPENSE> <F3> 31,894
<NET-INCOME> 53,812
301
<EARNINGS-AVAILABLE-FOR-COMM> 53,511
<COMMON-STOCK-DIVIDENDS> 45,169
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 151,869
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
<FN>
<F1> Retained earnings is net of $1,195 of unearned
compensation for restricted stock awards.
<F2> Other items-capital and liabilities includes $200,000 of
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company.
<F3> Total interest expense includes $228 of distributions on
preferred securities of subsidiary trust.
See financial statements and notes in the accompanying 10-Q.
</TABLE>
