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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
Commission Registrant; State of Incorporation IRS Employer
File Number Address; and Telephone Number Identification No.
----------- ---------------------------------- ------------------
001-01245 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 the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in the definitive Information Statement incorporated
by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
All of the common stock of Wisconsin Electric Power Company is
held by Wisconsin Energy Corporation.
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None N/A
Securities Registered Pursuant to Section 12(g) of the Act:
Serial Preferred Stock, 3.60% Series, $100 Par Value
Six Per Cent. Preferred Stock, $100 Par Value
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date (February 28, 2001):
Common Stock, $10 Par Value, 33,289,327 shares outstanding.
Wisconsin Energy Corporation is the sole holder of
Wisconsin Electric Power Company's Common Stock.
Documents Incorporated by Reference
-----------------------------------
Portions of Wisconsin Electric Power Company's definitive
Information Statement for its Annual Meeting of Stockholders, to
be held on April 27, 2001, are incorporated by reference into
Part III hereof.
WISCONSIN ELECTRIC POWER COMPANY
FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
-------------------------
Item Page
- ---- ----
Part I
------
1. Business...................................................................
Introduction.............................................................
Utility Operations.......................................................
Electric Utility Operations............................................
Electric Sales.......................................................
Competition..........................................................
Electric Supply......................................................
Coal-Fired Generation................................................
Nuclear Generation...................................................
Hydroelectric Generation.............................................
Natural Gas-Fired Generation.........................................
Oil-Fired Generation.................................................
Purchase Power Commitments...........................................
Electric Transmission................................................
Renewable Electric Energy............................................
Gas Utility Operations.................................................
Gas Deliveries.......................................................
Competition..........................................................
Gas Supply, Pipeline Capacity and Storage............................
Steam Utility Operations...............................................
Utility Rate Matters...................................................
Regulation...............................................................
Environmental Compliance.................................................
Environmental Expenditures.............................................
Solid Waste Landfills..................................................
Coal-Ash Landfills.....................................................
Manufactured Gas Plant Sites...........................................
Air Quality............................................................
Other....................................................................
2. Properties.................................................................
3. Legal Proceedings..........................................................
Environmental Matters....................................................
Utility Rate Matters.....................................................
Other Matters............................................................
4. Submission of Matters to a Vote of Security Holders........................
Executive Officers of the Registrant.......................................
Part II
-------
5. Market for Registrants' Common Equity and Related Stockholders Matter......
6. Selected Financial Data....................................................
Selected Financial and Statistical Data..................................
Selected Quarterly Financial Data........................................
Selected Operating Data..................................................
7. Management's Discussion & Analysis of Financial Condition &
Results of Operations....................................................
Results of Operations..................................................
Earnings.............................................................
Electric Utility Revenues, Gross Margins and Sales.................
Gas Utility Revenues, Gross Margins and Therm Deliveries...........
Other Items........................................................
Liquidity and Capital Resources........................................
Cash Flows...........................................................
Operating Activities...............................................
Investing Activities...............................................
Financing Activities...............................................
Capital Resources and Requirements...................................
Capital Resources..................................................
Capital Requirements...............................................
Factors Affecting Results, Liquidity and Capital Resources.............
Outlook..............................................................
Forecasts..........................................................
Factors Affecting Forecasts........................................
Investments, Mergers, and Asset Transfers............................
Electric Generation................................................
Energy Distribution................................................
Rates and Regulatory Matters.........................................
Wisconsin Jurisdiction.............................................
Michigan Jurisdiction..............................................
Industry Restructuring and Competition...............................
Electric Utility Industry..........................................
Natural Gas Utility Industry.......................................
Electric System Reliability..........................................
Nuclear Operations...................................................
Legal Matters........................................................
Environmental Matters................................................
Market Risks.........................................................
Accounting Developments..............................................
Cautionary Factors...................................................
Operating, Financial & Industry Factors............................
Business Combination Factors.......................................
7A. Quantitative and Qualitative Disclosures About Market Risk.................
8. Financial Statements and Supplementary Data................................
Income Statement.........................................................
Statement of Cash Flows..................................................
Balance Sheet............................................................
Capitalization Statement.................................................
Statement of Common Equity...............................................
Notes to Financial Statements............................................
Note A - Summary of Significant Accounting Policies....................
Note B - American Transmission Company.................................
Note C - Non-Recurring Charges.........................................
Note D - Income Taxes..................................................
Note E - Nuclear Operations............................................
Note F - Long-Term Debt................................................
Note G - Short-Term Debt...............................................
Note H - Fair Value of Financial Instruments...........................
Note I - Benefits......................................................
Note J - Segment Reporting.............................................
Note K - Commitments and Contingencies.................................
Note L - Transactions with Associated Companies........................
Report of Independent Accountants........................................
9. Changes in & Disagreements with Accountants
on Accounting and Financial Disclosure...................................
Part III
--------
10. Directors and Executive Officers of the Registrant.........................
11. Executive Compensation.....................................................
12. Security Ownership of Certain Beneficial Owners and Management.............
13. Certain Relationships and Related Transactions.............................
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........
Consents of Independent Accountants........................................
Signatures.................................................................
Exhibit Index..............................................................
PART I
------
ITEM 1. BUSINESS
INTRODUCTION
Wisconsin Electric Power Company ("Wisconsin Electric" or the
"Company"), a wholly-owned subsidiary of Wisconsin Energy
Corporation ("Wisconsin Energy"), was incorporated in the state
of Wisconsin in 1896. Wisconsin Electric is an electric, gas and
steam utility which serves over 1,000,000 electric customers in
Wisconsin and the Upper Peninsula of Michigan, over 400,000 gas
customers in Wisconsin and about 450 steam customers in metro
Milwaukee. It maintains its principal executive offices in
Milwaukee, Wisconsin.
For further financial information about Wisconsin Electric's
business segments, see "Results of Operations" in Item 7 and
"Note J - Segment Reporting" in the Notes to Financial Statements
in Item 8 of this report.
ACQUISITION OF WICOR, INC.: On April 26, 2000, Wisconsin Energy
acquired WICOR, Inc. ("WICOR"), the parent of Wisconsin Gas
Company ("Wisconsin Gas"), and is presently seeking authority
from the Public Service Commission of Wisconsin ("PSCW") to
transfer Wisconsin Electric's gas utility assets, together with
certain associated liabilities, to Wisconsin Gas in a tax free
exchange for an equity ownership by Wisconsin Electric in
Wisconsin Gas. For additional information, see "Factors
Affecting Results, Liquidity and Capital Resources" in Item 7 of
this report.
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 such 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 factors described
throughout this document and in "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
UTILITY OPERATIONS
ELECTRIC UTILITY OPERATIONS
The Company's electric utility operations consists of the
electric operations of Wisconsin Electric. Wisconsin Electric,
which is the largest electric utility in the state of Wisconsin,
generates, distributes and sells electric energy in a territory
of approximately 12,000 square miles with a population estimated
at 2,300,000 in southeastern (including the metropolitan
Milwaukee area), east central and northern Wisconsin and in the
Upper Peninsula of Michigan.
Electric Sales
See "Selected Operating Data" in Item 6 of this report for
certain electric utility operating information by customer class
during the periods 1996 through 2000.
Wisconsin Electric is authorized to provide retail electric
service in designated territories in the state of Wisconsin, as
established by indeterminate permits, certificates of public
convenience and necessity, or boundary agreements with other
utilities, and in certain territories in the state of Michigan
pursuant to franchises granted by municipalities. Wisconsin
Electric also sells wholesale electric power.
Electric energy sales by Wisconsin Electric to all classes of
customers totaled approximately 31.4 million megawatt hours
during 2000, a 2.5% increase over 1999. Approximately
0.2 million of megawatt-hour sales during 2000 were to Edison
Sault Electric Company ("Edison Sault"), an affiliated electric
utility serving retail and wholesale customers in the Upper
Peninsula of Michigan. There were approximately 1,027,000
electric customers at December 31, 2000, an increase of 2.1%
since December 31, 1999.
Electric energy sales are impacted by seasonal factors and
varying weather conditions from year-to-year. Wisconsin
Electric, a summer peaking utility as a result of cooling load,
reached its all-time electric peak demand obligation of
5,974 megawatts on July 29, 1999. During the years 2001 through
2005, Wisconsin Electric currently estimates that electric peak
demand obligation will grow at an annualized rate of 1.8% to
approximately 6,400 megawatts by the year 2005.
SALES TO LARGE ELECTRIC RETAIL CUSTOMERS: Wisconsin Electric
provides electric utility service to a diversified base of
customers in such industries as mining, paper, foundry, food
products, machinery production as well as to large retail chains.
Cleveland-Cliffs, Inc. manages the Company's two largest retail
electric customers, the Empire and Tilden iron ore mines located
in the Upper Peninsula of Michigan. Wisconsin Electric currently
has special negotiated power-sales contracts with the mines that
expire in 2007. The combined electric energy sales to the two
mines accounted for 7.8%, 7.1% and 8.2% of the Company's total
electric utility energy sales during 2000, 1999 and 1998,
respectively.
SALES TO WHOLESALE CUSTOMERS: During 2000, Wisconsin Electric
sold wholesale electric energy to five municipally owned systems,
two rural cooperatives and two municipal joint action agencies
located in the states of Wisconsin, Michigan and Illinois.
Wholesale electric energy sales by Wisconsin Electric were also
made to 43 other public utilities and power marketers throughout
the region under rates approved by the Federal Energy Regulatory
Commission. Wholesale sales accounted for approximately 12.2% of
the Company's total electric energy sales and 7.2% of total
electric operating revenues during 2000 compared with 12.2% of
total electric energy sales and 6.9% of total electric operating
revenues during 1999.
ELECTRIC SYSTEM RELIABILITY MATTERS: In spite of continued
tight regional electric supply, especially during episodes of hot
and humid weather, the Company had adequate capacity to meet all
of its firm electric load obligations during 2000 and expects to
have adequate capacity to meet all of its firm obligations during
2001. However, the Company anticipates that the regional
electric energy supply will remain tight during 2001. For
additional information, see "Factors Affecting Results, Liquidity
and Capital Resources" in Item 7 of this report.
"POWER THE FUTURE" STRATEGY: Demand for electricity in the
state of Wisconsin is currently expected to outstrip supply by
4,000 megawatts by 2010. Wisconsin Electric's electric load is
currently growing at approximately 100 to 150 megawatts per year.
In response, Wisconsin Energy announced an enhanced 10-year,
$7 billion strategy in February 2001 to improve the supply and
reliability of electricity in Wisconsin. For additional
information, see "Factors Affecting Results, Liquidity and
Capital Resources" in Item 7 of this report. As part of its
enhanced "Power the Future" strategy, Wisconsin Energy expects to
create a new non-utility energy subsidiary that would construct
and own 2,800 megawatts of new natural gas-fired and coal-fired
generating capacity in Wisconsin and that would be leased back to
Wisconsin Electric under 20- to 25-year contracts approved by the
PSCW. Wisconsin Electric would operate and maintain the new
plants and would have the right to renegotiate the leases or
acquire the associated plants outright at market value at the end
of the lease contracts. Implementation of the "Power the Future"
strategy is subject to a number of state and federal regulatory
approvals as well as the amendment of several state laws in
Wisconsin.
Competition
Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the nation's
electric utility industry continues a trend towards restructuring
and increased competition. However, given the current status of
restructuring initiatives in regulatory jurisdictions where the
Company primarily does business, the Company cannot predict the
ultimate timing or impact of a restructured electric industry on
its financial position or results of operations. For additional
information, see "Factors Affecting Results, Liquidity and
Capital Resources" in Item 7 of this report.
Electric Supply
The table below indicates the Company's sources of electric
energy supply, including net generation by fuel type, for the
following years ended December 31.
2001 (a) 2000 1999 1998
-------- ---- ---- ----
Coal 63.2% 64.2% 63.6% 63.4%
Nuclear 24.5 23.3 22.0 18.3
Hydroelectric 1.3 1.1 1.2 1.0
Natural Gas 0.7 1.0 1.3 1.8
Oil and Other(b) 0.1 0.2 0.2 0.2
----- ----- ----- -----
Net Generation 89.8 89.8 88.3 84.7
Power Purchases 10.2 10.2 11.7 15.3
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
(a) Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs of the Company's generating
facilities or of regional electric transmission facilities. See
"Factors Affecting Results, Liquidity and Capital Resources -
Cautionary Factors" in Item 7 of this report.
(b) Includes generation by alternative renewable sources.
The Company's net generation totaled 29.6 million megawatt-hours
during 2000 compared with 28.4 million megawatt hours during 1999
and 26.3 million megawatt hours during 1998. Net generation has
increased in each of the past two years in large part due to
higher availability of Wisconsin Electric's Point Beach
Nuclear Plant.
Wisconsin Electric's average total fuel costs per million British
thermal units by fuel type for the years ended December 31 are
shown below. As described in further detail in "Factors
Affecting Results, Liquidity and Capital Resources" in Item 7 of
this report, the price of natural gas (as well as oil) increased
significantly during 2000 as fuel supplies failed to keep up with
growing demand.
2000 1999 1998
---- ---- ----
Coal $1.11 $1.10 $1.17
Nuclear 0.53 0.55 0.53
Natural Gas 5.08 2.82 2.74
Oil 5.27 3.57 3.70
Coal-Fired Generation
COAL SUPPLY: Wisconsin Electric diversifies the coal supply for
its power plants in the states of Wisconsin and Michigan by
purchasing from mines in northern and central Appalachia as well
as from various western mines. During 2001, 99% of Wisconsin
Electric's projected coal requirements of 12.2 million tons will
be under contract. Wisconsin Electric does not anticipate any
problem in procuring its remaining 2001 coal requirements through
short-term or spot purchases and inventory adjustments.
Following is a summary of the annual tonnage amounts for
Wisconsin Electric's principal long-term coal contracts by the
month and year in which the contracts expire.
Contract Expiration Date Annual Tonnage
------------------------ --------------
Dec. 2002 4,900,000
Dec. 2003 500,000
Dec. 2005 3,200,000
Dec. 2006 2,000,000
As of the beginning of 2001, Wisconsin Electric had approximately
a 107-day supply of coal in inventory at its coal-fired
facilities. The following summarizes the status of coal supply
for each of the coal-fired facilities that supply electricity to
Wisconsin Electric:
PLEASANT PRAIRIE POWER PLANT: All of the estimated 2001 coal
requirements for this plant are presently under contract.
OAK CREEK POWER PLANT: All of the estimated 2001 coal
requirements for this plant are presently under contract or
agreed upon in principle.
PRESQUE ISLE POWER PLANT: Approximately 99% of the estimated
2001 coal requirements for this plant are presently under
contract.
EDGEWATER 5 GENERATING UNIT: Coal for this unit, in which
Wisconsin Electric has a 25% interest, is purchased by the
majority owner of the facility, Wisconsin Power and Light
Company, a subsidiary of Alliant Energy Resources.
VALLEY AND PORT WASHINGTON POWER PLANTS: Coal requirements for
these plants will be supplied in 2001 under existing contracts or
contracts that have been agreed upon in principle.
MILWAUKEE COUNTY POWER PLANT: Coal for this facility is
purchased by Wisconsin Electric through annual spot purchases.
COAL DELIVERIES: Approximately 80% of Wisconsin Electric's 2001
coal requirements are expected to be delivered by Wisconsin
Electric-owned unit trains. The unit trains will transport coal
for the Oak Creek and Pleasant Prairie Power Plants from
Pennsylvania, New Mexico and Wyoming mines. Coal from
Pennsylvania and Colorado mines is also transported via rail to
Lake Erie or Lake Michigan transfer docks and delivered to the
Valley and Port Washington Power Plants by lake vessels. Coal
from central Appalachia is shipped via rail to Lake Erie transfer
docks and delivered to the Milwaukee County Power Plant by truck
once it arrives by lake vessel in Milwaukee. Montana and Wyoming
coal for Presque Isle Power Plant is transported via rail to
Superior, Wisconsin, placed in dock storage and reloaded into
lake vessels for plant delivery. Central Appalachian and
Colorado coal bound for Presque Isle Power Plant is shipped via
rail to Lake Erie and Lake Michigan (Chicago) coal transfer
docks, respectively, for lake vessel delivery to the plant.
ENVIRONMENTAL MATTERS: For information regarding emission
restrictions, especially as they relate to coal-fired generating
facilities, see "Environmental Compliance" below.
Nuclear Generation
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns two 510-
megawatt electric generating units at Point Beach Nuclear Plant
in Two Rivers, Wisconsin. The United States Nuclear Regulatory
Commission operating licenses for Point Beach expire in October
2010 for Unit 1 and in March 2013 for Unit 2. For additional
information concerning Point Beach, see "Factors Affecting
Results, Liquidity and Capital Resources" in Item 7 and "Note E -
Nuclear Operations" in Item 8 of this report.
NUCLEAR MANAGEMENT COMPANY: In August 2000, the Nuclear
Management Company, LLC assumed operating responsibility for
Point Beach with the transfer of operating authority under its
operating licenses. During 1999, the Company and the affiliates
of three other unaffiliated investor-owned utilities in the
region formed the Nuclear Management Company, which manages seven
nuclear generating units in the Midwest as of December 31, 2000.
Wisconsin Electric continues to own Point Beach and retains
exclusive rights to the energy generated by the plant as well as
financial responsibility for the safe operation, maintenance and
decommissioning of Point Beach. For further information, see
"Factors Affecting Results, Liquidity and Capital Resources" in
Item 7 of this report.
NUCLEAR FUEL SUPPLY: Wisconsin Electric purchases uranium
concentrates ("Yellowcake") and contracts for its conversion,
enrichment and fabrication. Wisconsin Electric maintains title
to the nuclear fuel until fabricated fuel assemblies are
delivered to Point Beach, whereupon it is sold to and leased back
from the Wisconsin Electric Fuel Trust. For further information
concerning this nuclear fuel lease, see "Note F - Long-Term Debt"
in Item 8 of this report.
URANIUM REQUIREMENTS: Wisconsin Electric requires approximately
400,000 pounds of Yellowcake to refuel a generating unit at Point
Beach. During 1998, Wisconsin Electric initiated staggered,
extended fuel cycles that are expected to average approximately
18 months in duration. The supply of Yellowcake for these
refuelings is currently provided through one long-term contract,
amended in 2000, which supplies 100% of annual requirements under
these staggered, extended fuel cycles through 2007.
CONVERSION: Wisconsin Electric has a long-term contract with a
provider of uranium conversion services to supply 75% of the
conversion requirements for the Point Beach reactors through
2004. Wisconsin Electric has an additional long-term conversion
contract with a second conversion supplier to supply the
remaining 25% of Wisconsin Electric's annual conversion
requirements through 2004.
ENRICHMENT: Wisconsin Electric effectively has one long-term
contract that provides for 100% of the required enrichment
services for the Point Beach reactors through the year 2006.
FABRICATION: Fabrication of fuel assemblies from enriched
uranium for Point Beach is covered under a contract with
Westinghouse Electric Corporation for the balance of the plant's
current operating licenses. During its fall 2000 refueling
outage, the first reload region of a new fuel design from
Westinghouse was loaded into Point Beach Unit 2. The first
reload of the new fuel design in Unit 1 is scheduled for the
spring of 2001. The new fuel design is expected to provide
additional safety margin and cost savings and to reduce the
number of discharged spent fuel assemblies over the remaining
operating license.
USED FUEL STORAGE & DISPOSAL: For information concerning used
fuel storage and disposal issues, see "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
NUCLEAR DECOMMISSIONING: Wisconsin Electric provides for costs
associated with the eventual decommissioning of Point Beach
through the use of an external trust fund. Payments to this
fund, together with investment earnings, brought the balance in
the trust fund at December 31, 2000 to approximately $613 million
compared with an estimated cost to decommission Point Beach of
$586 million in current dollars. For additional information
regarding decommissioning, see "Note E - Nuclear Operations" in
Item 8 of this report.
NUCLEAR PLANT INSURANCE: For information regarding nuclear
plant insurance, see "Note E - Nuclear Operations" in Item 8 of
this report.
Hydroelectric Generation
Wisconsin Electric's hydroelectric generating system consists of
fourteen operating plants with a total installed capacity of
approximately 89 megawatts and a dependable capability of
approximately 65 megawatts. Of these fourteen plants, thirteen
are licensed by the Federal Energy Regulatory Commission. The
fourteenth plant, with an installed generating capacity of
approximately 2 megawatts, does not require a license. Of the
thirteen licensed plants, twelve plants, representing a total of
85 megawatts of installed capacity, have long-term licenses from
the Federal Energy Regulatory Commission, and one plant, the
Sturgeon project, will not be relicensed and is intended to be
removed. In December of 2000, Wisconsin Electric sold a
fifteenth plant, with an installed generating capacity of
approximately 1 megawatt, to an independent party.
Natural Gas-Fired Generation
The Concord and Paris Combustion Turbine Power Plants, Germantown
Unit 5 and the Oak Creek combustion turbine use natural gas as
their primary fuel, with fuel oil as backup. Natural gas is also
used for boiler ignition and flame stabilization purposes at the
Pleasant Prairie and Oak Creek Power Plants. Gas for these
plants is purchased on the spot market from gas marketers and/or
producers and delivered on the local distribution system of
Wisconsin Electric's gas operations.
Wisconsin Electric also has a power purchase agreement with
Mirant (formerly Southern Energy, Inc.) where Wisconsin Electric
delivers fuel to their Neenah Power Plant and receives the
electric power produced, as discussed in "Purchase Power
Commitments" below. This plant uses natural gas as its primary
fuel, with fuel oil as backup. Wisconsin Electric supplies fuel
to Mirant's Neenah Power Plant utilizing the same procedures and
agreements that are used for Wisconsin Electric's facilities.
An interruptible balancing and storage agreement with ANR
Pipeline is intended to facilitate the variable gas usage pattern
of the combustion turbine plants.
Natural gas for the gas-fired boiler at the Milwaukee County
Power Plant and for boiler ignition and flame stabilization at
the Valley Power Plant is purchased under an agency agreement
with a gas marketing company. The agent purchases natural gas
and arranges for interstate pipeline transportation to the local
gas distribution utility. The local gas distribution utility
then transports Wisconsin Electric's gas to each plant under
interruptible tariffs.
Wisconsin Electric is the gas distribution utility for Concord,
Paris, Pleasant Prairie and Oak Creek Power Plants. Wisconsin
Gas is the gas distribution utility for the Valley and Milwaukee
County Power Plants. Both the Germantown Power Plant and
Mirant's Neenah Power Plant are directly connected to ANR
Pipeline, with no gas distribution utility involvement.
Firm gas transportation has been contracted for during the peak
summer period between the Joliet gas trading hub south of
Chicago, Illinois and Wisconsin Electric's power plant
interconnects. A portion of Wisconsin Electric's gas
requirements will be purchased at the Joliet hub.
Oil-Fired Generation
Fuel oil is used for the combustion turbines at the Point Beach,
Germantown and Port Washington Power Plants. It is also used for
boiler ignition and flame stabilization at the Presque Isle Power
Plant, as backup for ignition at the Pleasant Prairie Power Plant
and as a backup fuel for the natural gas-fired gas turbines
discussed above. Fuel oil requirements are purchased under
partnering agreements with suppliers that assist Wisconsin
Electric with inventory tracking and oil market price trends.
Subject to various regulatory approvals, the four original
generating units at the Germantown Power Plant will be converted,
one unit per year from 2001 to 2004, to dual fuel (natural gas
and oil). A fifth dual fuel combustion turbine began commercial
operation at Germantown Power Plant in 2000.
Purchase Power Commitments
To meet a portion of its anticipated increase in future electric
energy supply needs, Wisconsin Electric had entered into separate
long-term power purchase contracts with subsidiaries of
Cogentrix, Inc. and Southern Energy, Inc., now Mirant. In
addition, in December 2000, Wisconsin Electric executed a power
purchase agreement with a subsidiary of the Calpine Corporation
for new capacity beginning in 2002.
The contract with LSP-Whitewater, LP, a subsidiary of Cogentrix,
Inc., for 236 megawatts of firm capacity from a gas-fired
cogeneration facility located in Whitewater, Wisconsin, does not
include any minimum energy requirements. Wisconsin Electric
treats this power purchase contract as a capital lease. For
additional information, see "Note F - Long-Term Debt" in Item 8
of this report.
Mirant's Neenah Power Plant began commercial operations in May
2000. The Neenah plant is a 300-megawatt gas turbine peaking
facility in the town of Neenah, Wisconsin. The purchase power
agreement is similar in structure to arrangements commonly
referred to in the electric industry as a "tolling arrangement."
That is, Wisconsin Electric delivers fuel to the facility and
receives electric power. Wisconsin Electric pays Mirant a "toll"
to convert Wisconsin Electric's fuel into the electric energy.
The output of the facility will be available for Wisconsin
Electric to dispatch during the eight-year term of the agreement
which ends in May 2008.
Wisconsin Electric's agreement with the Calpine Corporation calls
for new generating capacity to be constructed by a Calpine
subsidiary, with electric generating units in both northern
Illinois and in central Wisconsin, to supply power to Wisconsin
Electric. Two 150-megawatt natural gas-fired turbine peaking
units will be constructed, one each in 2002 and 2003, and one
225-megawatt natural gas-fired combined cycle facility is to be
constructed in 2004. The agreement remains contingent for both
parties upon certain site related issues that are anticipated to
be resolved in 2001. This power purchase agreement also is a
tolling agreement. The output of each unit will be committed to
Wisconsin Electric for ten years from its start of commercial
operation.
Wisconsin Electric currently expects to utilize a combination of
new generating capacity identified in its "Power the Future"
proposal and purchase power commitments similar to the agreements
with Mirant and Calpine to meet its electric demand load growth.
In the normal course of business, Wisconsin Electric utilizes
contracts of various duration for the forward purchase of
electricity to meet load requirements in an economic manner and
when the anticipated market price for electric energy is below
Wisconsin Electric's expected incremental cost of generation.
Contracts of this nature are one of the power supply resources
Wisconsin Electric uses to meet its reliability requirements.
Electric Transmission
AMERICAN TRANSMISSION COMPANY: Effective January 1, 2001,
Wisconsin Energy transferred all of the electric utility
transmission assets of Wisconsin Electric and Edison Sault to the
American Transmission Company LLC in exchange for equity
interests in this new company. Joining the American Transmission
Company is consistent with the Federal Energy Regulatory
Commission's Order No. 2000, designed to foster competition,
efficiency and reliability in the electric industry.
The American Transmission Company is owned and governed by the
utilities that contributed facilities or capital in accordance
with 1999 Wisconsin Act 9. Governance of the company also
includes outside directors not associated with the energy
business. Stock of the corporate manager of the American
Transmission Company eventually may be offered for public
ownership.
The American Transmission Company's sole business is to provide
reliable, economic transmission service to all customers in a
fair and equitable manner. Specifically, the American
Transmission Company plans, constructs, operates, maintains and
expands transmission facilities it owns to provide for adequate
and reliable transmission of electric power. It is expected to
provide comparable service to all customers, including Wisconsin
Electric and Edison Sault, and to support effective competition
in energy markets without favoring any market participant. The
American Transmission Company is regulated by the Federal Energy
Regulatory Commission for all rate terms and conditions of
service and is a transmission-owning member of the Midwest ISO.
Wisconsin Electric has contracted to provide, at cost, services
required by the American Transmission Company and which the
American Transmission Company is not able to provide itself at
the time of start-up. Services include transmission line and
substation operation and maintenance, engineering, project, real
estate, environmental, supply chain, control center, accounting
and miscellaneous services. The annual cost of the services is
estimated to be about $67 million in the first year of operation
declining to less than $3 million after three years.
For further information, see "Factors Affecting Results,
Liquidity and Capital Resources" in Item 7 of this report.
Renewable Electric Energy
A renewable portfolio standard that will require retail energy
providers in the state of Wisconsin, like Wisconsin Electric, to
obtain an increasing percentage of their energy supply from
renewable resources is also included under the provisions of 1999
Wisconsin Act 9. Beginning in 2001, retail energy providers must
provide 0.5% of their Wisconsin retail electric sales from
renewable energy, with the percentage increasing to 2.2% by the
year 2011. The Company's "Power the Future" proposal includes a
commitment to significantly increase the amount of renewable
generation utilized by the Company beyond that required by
Wisconsin law.
In May 1999, the PSCW approved Wisconsin Electric's request to
expand its "energy for tomorrowT" renewable energy program to
allow participation of virtually all of its firm load customers
in Wisconsin. In November 1999, the Michigan Public Service
Commission approved Wisconsin Electric's request to offer the
"energy for tomorrow" renewable energy program to all of its
firm load customers in the state of Michigan. The program
currently has over 11,000 participants.
GAS UTILITY OPERATIONS
The Company's gas utility operations consists of the gas
operations of Wisconsin Electric, which is authorized to provide
retail gas distribution service in designated territories in the
state of Wisconsin, as established by indeterminate permits,
certificates of public convenience and necessity, or boundary
agreements with other utilities. Wisconsin Electric also
transports customer-owned gas. Wisconsin Electric's gas utility
operates in four distinct service areas of about 3,800 square
miles in Wisconsin: west and south of the city of Milwaukee, the
Appleton area, the Prairie du Chien area and areas within Iron
and Vilas Counties with an estimated population of
approximately 1,200,000.
COMBINATION OF GAS UTILITY OPERATIONS: On November 1, 2000,
Wisconsin Electric and Wisconsin Gas filed a joint application
with the PSCW for authority to transfer the physical gas utility
assets of Wisconsin Electric together with certain liabilities
associated with such assets, with a net book value of
approximately $365 million as of December 31, 2000, to Wisconsin
Gas in return for stock in Wisconsin Gas in a tax free
transaction. Wisconsin Energy expects that the combined gas
operation will result in improved customer service and greater
synergies as a result of the WICOR acquisition. The combined gas
operations would retain the name Wisconsin Gas Company and become
the 9th largest gas distribution company in the United States as
measured by delivery volumes. Assuming that the PSCW approves
the transaction described above, Wisconsin Electric and Wisconsin
Gas expect to make a second filing in 2001 seeking authorization
to combine tariffs and rates. This transaction is also subject
to the approval of the Securities and Exchange Commission under
the Public Utility Holding Act of 1935.
Gas Deliveries
The Company's gas utility business is highly seasonal,
particularly as to residential and commercial sales for space
heating purposes, with a substantial portion of its gas
deliveries occurring during the winter heating months. Sales of
gas are also impacted by varying weather conditions from
year-to-year.
See "Selected Operating Data" in Item 6 of this report for
selected gas utility operating information by customer class
during the period 1996 through 2000.
Total gas therms delivered by Wisconsin Electric, including
customer-owned transported gas, were approximately 944.9 million
therms during 2000, a 0.1% increase compared with 1999. At
December 31, 2000, Wisconsin Electric was transporting gas for
approximately 445 customers who choose to purchase gas directly
from other suppliers. Transported gas accounted for
approximately 41% of total therms delivered by Wisconsin Electric
during 2000, 43% during 1999 and 46% during 1998. Wisconsin
Electric had approximately 407,800 gas customers at December 31,
2000, an increase of approximately 2.3% since December 31, 1999.
Wisconsin Electric's maximum daily send-out during 2000 was
706,810 dekatherms on December 5, 2000. A dekatherm is
equivalent to ten therms or one million British thermal units.
SALES TO LARGE GAS CUSTOMERS: The Company provides gas utility
service to a diversified base of industrial customers who are
largely within its electric service territory. Major industries
served include the paper, food products and fabricated metal
products industries. The electric utility operations of
Wisconsin Electric is the Company's largest single gas customer.
Competition
Competition in varying degrees exists between natural gas and
other forms of energy available to consumers. Many of the
Company's large commercial and industrial customers are dual-fuel
customers that are equipped to switch between natural gas and
alternate fuels. The Company offers lower-priced interruptible
rates and transportation services for these customers to enable
them to reduce their energy costs and use gas rather than other
fuels. Under gas transportation agreements, customers purchase
gas directly from gas marketers and arrange with interstate
pipelines and the Company to have the gas transported to the
facilities where it is used. The Company earns substantially the
same margin (difference between revenue and cost of gas), whether
it sells and transports gas to customers or only transports
their gas.
The Company's future ability to maintain its present share of the
industrial dual-fuel market (the market that is equipped to use
gas or other fuels) depends on the success of the Company and
third-party gas marketers in obtaining long-term and short-term
supplies of natural gas at marketable prices and their success in
arranging or facilitating competitively-priced transportation
service for those customers that desire to buy their own gas
supplies.
Federal and state regulators continue to implement policies to
bring more competition to the gas industry. For information
concerning proceedings by the PSCW to consider how its regulation
of gas distribution utilities should change to reflect the
changing competitive environment in the gas industry, see
"Factors Affecting Results, Liquidity and Capital Resources" in
Item 7 of this report. While the gas utility distribution
function is expected to remain a heavily regulated, monopoly
function, the sales of the natural gas commodity and related
services are expected to become increasingly subject to
competition from third parties. However, it remains uncertain if
and when the current economic disincentives for small customers
to choose an alternative gas commodity supplier may be removed
such that the Company begins to face competition for the sale of
gas to its smaller firm customers.
Gas Supply, Pipeline Capacity and Storage
The gas operations of Wisconsin Electric has been able to meet
its contractual obligations with both its suppliers and its
customers despite periods of severe cold and unseasonably warm
weather.
PIPELINE CAPACITY AND STORAGE: Interstate pipelines serving
Wisconsin originate in three major gas producing areas of North
America: the Oklahoma and Texas basins, the Gulf of Mexico and
western Canada. The Company has contracted for long-term firm
capacity from each of these areas. This strategy reflects
management's belief that overall supply security is enhanced by
geographic diversification of the supply portfolios and that
Canada represents an important long-term source of reliable,
competitively-priced gas.
Because of the daily and seasonal variations in gas usage in
Wisconsin, the Company has also contracted for substantial
underground storage capacity, primarily in Michigan. Storage
enables the Company to manage significant changes in daily demand
and to optimize its overall gas supply and capacity costs. In
summer, gas in excess of market demand is transported into the
storage fields, and in winter, gas is withdrawn from storage and
combined with gas purchased in or near the production areas
("flowing gas") to meet the increased winter market demand. As a
result, the Company can contract for less long-line pipeline
capacity than would otherwise be necessary, and can purchase gas
on a more uniform daily basis from suppliers year-round. Each of
these capabilities enables the Company to reduce its overall
costs.
The Company also maintains high deliverability storage in the mid-
continent and Southeast production areas, as well as in its
market area. This storage capacity is designed to deliver gas
when other supplies cannot be delivered during extremely cold
weather in the producing areas, which can reduce long-line
supply.
The Company holds firm daily transportation and storage capacity
entitlements from pipelines and other service providers under
long-term contracts.
TERM GAS SUPPLY: The gas operations of Wisconsin Electric has
contracts for firm supplies with terms in excess of 30 days with
more than 20 gas suppliers for gas produced in each of the three
producing areas discussed above. The term contracts have varying
duration so that only a portion of the Company's firm gas supply
expires in any year. Management believes that the volume of gas
under contract is sufficient to meet its forecasted firm peak day
demand.
SECONDARY MARKET TRANSACTIONS: Capacity release is a mechanism
by which pipeline long-line and storage capacity and gas supplies
under contract can be resold in the secondary market. Local
distribution companies, such as the gas operations of Wisconsin
Electric, must contract for capacity and supply sufficient to
meet the firm peak day demand of their customers. Peak or near
peak demand days generally occur only a few times each year.
Capacity release facilitates higher utilization of contracted
capacity and supply during those times when the full contracted
capacity and supply are not needed by the utility, helping to
mitigate the fixed costs associated with maintaining peak levels
of capacity and gas supply. Through pre-arranged agreements and
day-to-day electronic bulletin board postings, interested parties
can purchase this excess capacity and supply. The proceeds from
these transactions are passed through to ratepayers, subject to
the incentive gas cost mechanism pursuant to which the Company
has an opportunity to share in the cost savings. See "Factors
Affecting Results, Liquidity and Capital Resources - Rates and
Regulatory Matters" in Item 7 of this report for information on
the incentive gas cost recovery mechanism. During 2000, the
Company continued its active participation in the capacity
release market.
SPOT MARKET GAS SUPPLY: The gas operations of Wisconsin
Electric expects to continue to make gas purchases in the 30-day
spot market as price and other circumstances dictate. The
Company has supply relationships with a number of sellers from
whom it purchases spot gas.
GUARDIAN PIPELINE: In March 1999, WICOR announced the formation
of a joint venture, Guardian Pipeline, L.L.C., to construct the
Guardian interstate natural gas pipeline from the Joliet,
Illinois market hub to southeastern Wisconsin ("Guardian
Pipeline"). CMS Energy, a Dearborn, Michigan-based international
energy company, and a subsidiary of Xcel Energy, a Minneapolis-
based diversified energy company, are cosponsors of the project
with WICOR. The three partners will have equal ownership
interests in the project. On March 14, 2001, the Federal Energy
Regulatory Commission issued a certificate of public convenience
and necessity authorizing construction and operation of the
Guardian Pipeline. The pipeline is scheduled to be in service in
November 2002. The Guardian Pipeline is expected to serve
growing demand for natural gas in Wisconsin and Northern Illinois.
STEAM UTILITY OPERATIONS
Wisconsin Electric's steam utility generates, distributes and
sells steam supplied by its Valley and Milwaukee County Power
Plants. Wisconsin Electric operates a district steam system in
downtown Milwaukee and the near south side of Milwaukee. Steam
is supplied to this system from Wisconsin Electric's Valley Power
Plant, a coal-fired cogeneration facility. Wisconsin Electric
also operates the steam production and distribution facilities of
the Milwaukee County Power Plant located on the Milwaukee County
Grounds in Wauwatosa, Wisconsin.
Annual sales of steam fluctuate from year to year based upon
system growth and variations in weather conditions. During 2000,
the steam utility had $21.9 million of operating revenues from
the sale of 3,085 million pounds of steam compared with
$21.3 million of operating revenues from the sale of
2,914 million pounds of steam during 1999. As of December 31,
2000, steam was used by 451 customers for processing, space
heating, domestic hot water and humidification compared with 450
customers at December 31, 1999.
UTILITY RATE MATTERS
See "Factors Affecting Results, Liquidity and Capital Resources -
Rates and Regulatory Matters" in Item 7 of this report.
REGULATION
Wisconsin Electric is subject to the regulation of the PSCW as to
retail electric, gas and steam rates in the state of Wisconsin,
standards of service, issuance of securities, construction of new
facilities, transactions with affiliates, levels of short-term
debt obligations, billing practices and other various matters.
Wisconsin Electric is subject to the regulation of the Michigan
Public Service Commission as to the various matters associated
with retail electric service in the state of Michigan as noted
above except as to issuance of securities, construction of
certain new facilities, levels of short-term debt obligations and
advance approval of transactions with affiliates. Wisconsin
Electric's hydroelectric facilities are regulated by the Federal
Energy Regulatory Commission. Wisconsin Electric is also subject
to regulation of the Federal Energy Regulatory Commission with
respect to wholesale power service, and accounting.
The following table compares the source of the Company's
operating revenues by regulatory jurisdiction for each of the
three years in the period ended December 31, 2000.
2000 1999 1998
------------ ------------ ------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Millions of Dollars)
Public Service Commission of Wisconsin
Electric Utility - Retail $1,517.7 69.5% $1,465.7 72.7% $1,434.3 73.3%
Gas Utility - Retail 399.7 18.3% 306.8 15.2% 295.9 15.1%
Steam Utility - Retail 21.9 1.0% 21.3 1.1% 20.5 1.0%
-------- ------ -------- ------ -------- ------
Total 1,939.3 88.8% 1,793.8 89.0% 1,750.7 89.4%
Michigan Public Service Commission
Electric Utility - Retail 118.0 5.4% 106.6 5.3% 109.5 5.6%
Federal Energy Regulatory Commission
Electric Utility - Wholesale 127.7 5.8% 116.0 5.7% 97.6 5.0%
-------- ------ -------- ------ -------- ------
Total Utility Operating Revenues $2,185.0 100.0% $2,016.4 100.0% $1,957.8 100.0%
======== ====== ======== ====== ======== ======
For information concerning the pending implementation of full
electric retail competition in the state of Michigan effective
January 1, 2002, see "Factors Affecting Results, Liquidity and
Capital Resources" in Item 7 of this report.
Operation and construction relating to Wisconsin Electric's Point
Beach Nuclear Plant facilities are subject to regulation by the
United States Nuclear Regulatory Commission. Wisconsin
Electric's operations are also subject to regulations, where
applicable, of the United States Environmental Protection Agency
("EPA"), the Wisconsin Department of Natural Resources, the
Michigan Department of Natural Resources and the Michigan
Department of Environmental Quality.
ELECTRIC RELIABILITY LEGISLATION: In 1998, the Wisconsin State
Legislature passed and the Governor of Wisconsin signed into law
1997 Wisconsin Act 204, intended to address concerns with
electric reliability in the state of Wisconsin. The 1997
Wisconsin Act 204 included new requirements concerning market
power which utilities and their affiliates must meet in order to
construct generating facilities. The requirements apply to
utility facilities in excess of 100 megawatts. The PSCW is
currently engaged in a rule making proceeding involving the
applicability of Act 204 to utility affiliates seeking to
construct facilities in the state of Wisconsin.
PUBLIC BENEFITS: Public benefits legislation was also included
in 1999 Wisconsin Act 9. The law created new funding of
$44 million to be collected by utilities and remitted to the
Wisconsin Department of Administration. The law also required
utilities to continue to collect the funds at existing levels for
low-income, conservation and environmental research and
development programs and to begin transferring the funds for
these programs to the Department of Administration. The Company
implemented this change in October 2000. The utilities'
traditional role of providing these programs is being shifted to
the Department of Administration, which will administer the funds
for a statewide public benefits program. The new law also
requires utilities to provide a specified proportion of its
retail energy sales in programs such as Wisconsin Electric's
"energy for tomorrow" renewable energy program.
AFFILIATE INTEREST POLICIES DOCKET: From late 1998 through
early 2000, the PSCW reviewed the policies on standards of
conduct governing diversification of activities that can be
performed within the utility and utility affiliates. During
these proceedings, Wisconsin Electric took the position that
state policy should protect competition, not individual
competitors, and that customers should have the choice to use
either Wisconsin Electric or another vendor for these products
and services. In April 2000, the PSCW issued an order which
allows utilities to continue to provide and sell products and
services other than core utility products as long as the related
costs are fully allocated and not subsidized by ratepayers.
ENVIRONMENTAL COMPLIANCE
Environmental Expenditures
Expenditures for environmental compliance and remediation issues
are included in anticipated capital expenditures described in
"Liquidity and Capital Resources" in Item 7 of this report. For
discussion of additional environmental issues, see "Environmental
Matters" in Item 3 of this report. For further information
concerning air quality standards and rulemaking initiated by the
EPA, including estimated costs of compliance, see "Factors
Affecting Results, Liquidity and Capital Resources" in Item 7 of
this report.
UTILITY ENERGY SEGMENT: Compliance with federal, state and
local environmental protection requirements resulted in capital
expenditures by Wisconsin Electric of approximately $37 million
in 2000 compared with $44 million in 1999. Expenditures incurred
during 2000 primarily included costs associated with the
installation of pollution abatement facilities at Wisconsin
Electric's power plants. Such expenditures at Wisconsin Electric
are budgeted at approximately $59 million during 2001, reflecting
nitrogen oxide ("NOx") control equipment needed to comply with
ozone non-attainment rules promulgated by the Environmental
Protection Agency.
Operation, maintenance and depreciation expenses for Wisconsin
Electric's fly ash removal equipment and other environmental
protection systems are estimated to have been approximately
$41 million during 2000 and $37 million during 1999 and 1998.
Solid Waste Landfills
The Company provides for the disposal of non-ash related solid
wastes and hazardous wastes through licensed independent
contractors, but federal statutory provisions impose joint and
several liability on the generators of waste for certain cleanup
costs. Remediation-related activity pertaining to specific sites
is discussed below.
GIDDINGS AND LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: In July
1999, a jury decided against Wisconsin Electric and awarded the
plaintiffs $4.5 million as actual damages and $100 million in
punitive damages in a lawsuit alleging that Wisconsin Electric
had placed contaminated wastes at two sites in the City of West
Allis, Wisconsin. Wisconsin Electric is appealing the case. For
additional information, see "Environmental Matters" in Item 3 and
"Note K - Commitments and Contingencies" in the Notes to
Financial Statements in Item 8 of this report.
MUSKEGO LANDFILL: On January 2, 2001, three individuals filed
an action in the circuit court of Milwaukee County against Waste
Management of Wisconsin, Inc., Wisconsin Electric and others
alleging environmental contamination emanating from the Muskego
landfill in Muskego, Wisconsin. The Muskego landfill was
operated by Waste Management and was classified as an EPA
Superfund Site. The plaintiffs, who are adjacent landowners to
the site, are alleging that the defendants are liable on various
theories for groundwater contamination. Plaintiffs are
requesting, inter alia, further remediation, damages for personal
injury, loss of property value and punitive damages. Wisconsin
Electric is investigating the matter but believes that in 1996 it
entered into a buyout agreement as a De Minimis party with Waste
Management and nine other potentially responsible parties
("PRP's") concerning groundwater contamination on this site and
that the PRP's must therefore indemnify and defend Wisconsin
Electric in this action.
WEST AVENUE LANDFILL: During 1996, Wisconsin Electric was
informed by the City of Waukesha that it has been identified as a
"responsible party" at a former Waukesha landfill which the city
will be remediating under Wisconsin state law. The City of
Waukesha invoked a new statutory negotiation procedure to attempt
to obtain consensual agreement regarding responsible parties and
remediation cost sharing and hired a private environmental
allocation consultant to apportion cost shares in an attempt to
promote voluntary settlement. The consultant issued a non-
binding final allocation report assigning a zero share of
responsibility to Wisconsin Electric. Wisconsin Electric was
offered and accepted a De Minimis Party Settlement Agreement
releasing and indemnifying Wisconsin Electric from claims for
site liabilities in exchange for a settlement payment of $3,500.
Coal-Ash Landfills
Some early designed and constructed coal-ash landfills may allow
the release of low levels of constituents resulting in the need
for various levels of remediation. Where Wisconsin Electric has
become aware of these conditions, efforts have been expended to
define the nature and extent of any release, and work has been
performed to address these conditions. For additional
information, see "Note K - Commitments and Contingencies" in the
Notes to Financial Statements in Item 8 of this report. Sites
currently undergoing remediation include:
HIGHWAY 59 LANDFILL: In 1989, a sulfate plume was detected in
the groundwater beneath a Wisconsin Electric-owned former ash
landfill located in the Town of Waukesha, Wisconsin. After
notifying the Wisconsin Department of Natural Resources,
Wisconsin Electric initiated a five-year expanded monitoring
program. In July 1995, Wisconsin Electric prepared an
environmental contamination assessment of the landfill and
submitted the report to the Wisconsin Department of Natural
Resources. Wisconsin Electric has petitioned the City of
Waukesha to extend city water service to residents of the Town of
Waukesha affected by contamination from the site. The City
Council has agreed to extend service at Wisconsin Electric's
cost. In addition to providing City water to affected residents,
Wisconsin Electric has completed excavation of saturated ash and
placement of a cap on the landfill, and will complete final
landscaping of the site in early 2001. Total remediation of this
site is estimated to be $6 million.
KANSAS AVE. LANDFILL: The Kansas Ave. site, located in the City
of St. Francis, Wisconsin, was a small landfill area used to
support the operations of Wisconsin Electric's former Lakeside
Power Plant. Wisconsin Electric has entered into an agreement
with the Wisconsin Department of Natural Resources to place a
cover over the former ash landfill site. Expenses associated
with a cover installation are expected to be minimal. No
groundwater treatment is planned at this time.
OAK CREEK NORTH LANDFILL: Groundwater impacts at this landfill,
located in the City of Oak Creek, Wisconsin, prompted Wisconsin
Electric to investigate, during 1998, the condition of the
existing cover and other conditions at the site. Surface water
drainage improvements were implemented at this site during 1999
and 2000, which are expected to eliminate ash contact with water
and remove unwanted ponding of water near monitoring systems.
Future financial impacts to Wisconsin Electric are projected to
be minimal.
LAKESIDE LANDFILL: During 2001, Wisconsin Electric expects to
begin investigation of property that was used primarily for coal
storage, fuel oil transport and coal ash disposal in support of
the former Lakeside Power Plant in St. Francis, Wisconsin. Until
the investigation work has been completed and a remedial plan
developed, Wisconsin Electric cannot estimate any related
remediation costs.
Manufactured Gas Plant Sites
The Company is reviewing and addressing environmental conditions
at a number of former manufactured gas plant sites. See
"Note K - Commitments and Contingencies" in the Notes to
Financial Statements in Item 8 of this report.
Air Quality
The 1990 amendments to the Federal Clean Air Act mandate
significant nationwide reductions in air emissions. The most
significant sections of this law applicable to the country's
electric utilities are the acid rain and nonattainment
provisions. The acid rain provisions limit SO2 and NOx emissions
in phases. Phase I became effective in 1995 and Phase II became
effective during the year 2000. The Company has met the
requirements of Phase I. The Phase II requirements of the 1990
amendments to the Federal Clean Air Act are expected to have
minimal future impacts on the Company's utilities because of
existing cost effective compliance strategies and previous
actions taken. Ozone nonattainment rules implemented by the
state of Wisconsin and ozone transport rules implemented by the
state of Michigan, both under authority of the Federal Clean Air
Act, will limit NOx emissions in phases over the next seven
years.
See "Factors Affecting Results, Liquidity and Capital Resources"
in Item 7 of this report for information concerning National
Ambient Air Quality Standards established during 1997 by the EPA
and ozone non-attainment rulemaking promulgated by the EPA
during 1998.
OTHER
RESEARCH AND DEVELOPMENT: Research and development expenditures
by Wisconsin Electric amounted to $6.8 million during 2000,
$8.0 million during 1999 and $7.5 million during 1998. Such
expenditures were primarily for improvement of service and
abatement of air and water pollution by the electric utility
operations. Research and development activities include work
done by employees, consultants and contractors, plus sponsorship
of research by industry associations.
EMPLOYEES: At December 31, 2000, Wisconsin Electric had 5,570
employees of which 5,402 were full time and 168 were part time.
As of December 31, 2000, 3,733 of Wisconsin Electric's employees
were represented under labor agreements.
ITEM 2. PROPERTIES
The principal properties of Wisconsin Electric are owned in fee
except that the major portion of electric utility distribution
lines, steam utility distribution mains and gas utility
distribution mains and services are located, for the most part,
on or in streets and highways and on land owned by others.
Substantially all of Wisconsin Electric's utility plant is
subject to a first mortgage lien.
Effective January 1, 2001, Wisconsin Electric exited the electric
transmission business by contributing all of its transmission
assets to the American Transmission Company LLC in exchange for
equity interests in this new company. For further information,
see "Factors Affecting Results, Liquidity and Capital Resources"
in Item 7 of this report.
Wisconsin Electric owns the following generating stations with
dependable capabilities as indicated.
Dependable Capability
In Megawatts (a)
No. of ---------------------
Generating August December
Name Fuel Units 2000 2000
---- ---- ----- ---- ----
Steam Plants
Point Beach Nuclear 2 1,012 1,022
Oak Creek Coal 4 1,135 1,139
Presque Isle Coal 9 617 617
Pleasant Prairie Coal 2 1,200 1,210
Port Washington Coal 4 320 320
Valley Coal 2 267 227
Edgewater 5 (b) Coal 1 102 102
Milwaukee County Coal 3 11 11
-- ----- -----
Total Steam Plants 27 4,664 4,648
Hydro Plants (14 in number) 37 63 67
Germantown Combustion Turbines (c) Gas/Oil 5 345 345
Concord Combustion Turbines Gas/Oil 4 376 376
Paris Combustion Turbines Gas/Oil 4 388 388
Other Combustion Turbines & Diesel Gas/Oil 6 55 62
-- ----- -----
Total System 83 5,891 5,886
== ===== =====
(a) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given month
in a given year. Changing seasonal conditions are responsible for the
different capabilities reported for the winter and summer periods in the
above table. The values were established by test and may change slightly
from year to year.
(b) Wisconsin Electric has a 25% interest in Edgewater 5 Generating Unit, which
is operated by Wisconsin Power and Light Company, an unaffiliated utility.
(c) During 2000, a fifth generating unit was added and inlet air coolers were
installed on existing generating units at Germantown Power Plant,
increasing the capacity of the plant and improving dependable capability
during hot summer months.
At December 31, 2000, Wisconsin Electric was operating
approximately 21,900 pole-miles of overhead distribution lines
and 17,800 miles of underground distribution cable as well as
approximately 350 distribution substations and 243,900 line
transformers.
As of December 31, 2000, Wisconsin Electric's gas distribution
system included approximately 8,200 miles of mains connected at
22 gate stations to the pipeline transmission systems of ANR
Pipeline Company, Natural Gas Pipeline Company of America,
Northern Natural Pipeline Company and Great Lakes Transmission
Company. Wisconsin Electric has a liquefied natural gas storage
plant which converts and stores in liquefied form natural gas
received during periods of low consumption. The liquefied
natural gas storage plant has a send-out capability of 70,000
dekatherms per day. Wisconsin Electric also has propane air
systems for peaking purposes. These propane air systems will
provide approximately 7,000 dekatherms per day of supply to the
system.
At December 31, 2000, the combined steam systems supplied by the
Valley and Milwaukee County Power Plants consisted of
approximately 43 miles of both high pressure and low pressure
steam piping, 8.8 miles of walkable tunnels and other pressure
regulating equipment.
Wisconsin Electric owns various office buildings and service
centers throughout its service area.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
Wisconsin Electric is subject to federal, state and certain local
laws and regulations governing the environmental aspects of its
operations. The Company believes that, perhaps with immaterial
exceptions, its existing facilities are in compliance with
applicable environmental requirements.
See "Environmental Compliance" in Item 1 of this report, which is
incorporated by reference herein, for a discussion of matters
related to certain solid waste and coal-ash landfills,
manufactured gas plant sites and air quality.
GIDDINGS & LEWIS, INC./CITY OF WEST ALLIS LAWSUIT: See
"Note K - Commitments and Contingencies" in the Notes to
Financial Statements in Item 8 of this report for matters related
to a July 1999 jury verdict against Wisconsin Electric in a
lawsuit alleging that Wisconsin Electric had placed contaminated
wastes at two sites in the City of West Allis, Wisconsin.
Two shareholders have brought separate derivative proceedings in
Milwaukee County Circuit Court for alleged damages resulting from
the Giddings & Lewis/City of West Allis Lawsuit. All of the
directors of Wisconsin Energy and Wisconsin Electric are named as
defendants in one of the derivative actions and a number of
individual employees, as well as the Chief Executive Officer of
Wisconsin Energy and Wisconsin Electric, are named as defendants
in the other. In accordance with Wisconsin law, a special
committee of independent directors of Wisconsin Energy, based
upon an investigation of the allegations contained in both
lawsuits, concluded that the maintenance of these actions is not
in the best interests of the Company. Accordingly Wisconsin
Energy has moved to dismiss the actions. The matter is pending.
UTILITY RATE MATTERS
See "Factors Affecting Results, Liquidity and Capital Resources"
in Item 7 of this report for information concerning rate matters
in the jurisdictions where Wisconsin Electric does business.
OTHER MATTERS
USED NUCLEAR FUEL STORAGE & REMOVAL: See "Factors Affecting
Results, Liquidity and Capital Resources" in Item 7 of this
report for information concerning the United States Department of
Energy's breach of a contract with Wisconsin Electric that
required the United States Department of Energy to begin
permanently removing spent nuclear fuel from Point Beach Nuclear
Plant by January 31, 1998.
STRAY VOLTAGE: On July 11, 1996, the PSCW issued its final
order regarding the stray voltage policies of Wisconsin's
investor-owned utilities. The order clarified the definition of
stray voltage, affirmed the level at which utility action is
required, and appropriately placed some of the responsibility for
this issue in the hands of the customer. Additionally, the order
established a uniform stray voltage tariff which delineates
utility responsibility and provides for the recovery of costs
associated with unnecessary customer demanded services. While
this action has been beneficial in Wisconsin Electric's efforts
to manage this controversial issue, it has not had a significant
impact on Wisconsin Electric's financial position or results of
operations.
In recent years, several actions by dairy farmers have been
commenced or claims made against Wisconsin Electric for loss of
milk production and other damages allegedly caused by stray
voltage resulting from the operation of its electrical system.
At the present time, four such actions are pending and one case
is on appeal. Wisconsin Electric does not believe that these or
any other claims thus far made or threatened against Wisconsin
Electric by reason of stray voltage will result in any
substantial liability on its part.
ELECTROMAGNETIC FIELDS: Claims have been made or threatened
against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by
exposure to electromagnetic fields associated with electric
transmission and distribution lines. Results of scientific
studies conducted to date have not established the existence of a
causal connection between electromagnetic fields and any adverse
health affects. Wisconsin Electric believes that its facilities
are constructed and operated in accordance with all applicable
legal requirements and standards. Currently, there are no cases
pending or threatened against Wisconsin Electric.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Wisconsin Electric's
security holders during the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages at December 31, 2000 and positions of the
executive officers of Wisconsin Electric are listed below along
with their business experience during the past five years. All
officers are appointed until they resign, die or are removed
pursuant to the Bylaws. There are no family relationships among
these officers, nor is there any agreement or understanding
between any officer and any other person pursuant to which the
officer was selected.
Richard A. Abdoo (56): Chairman of the Board, President and
Chief Executive Officer of Wisconsin
Energy since 1991. Chairman of the Board
and Chief Executive Officer of Wisconsin
Electric since 1990. Chairman of the
Board and Director of WICOR and Wisconsin
Gas since April 2000. Director of
Wisconsin Energy since 1988. Director of
Wisconsin Electric since 1989.
Charles R. Cole (54): Senior Vice President of Wisconsin
Electric since January 1, 2001. Vice
President - Distribution Operations of
Wisconsin Electric from August 1999 to
December 2000. Vice President - Customer
Services of Kansas City Power & Light
from 1995 to 1999.
Stephen P. Dickson Controller of Wisconsin Energy and
(40): Wisconsin Electric since April 2000.
Controller of Wisconsin Gas since June
1998. Director of Business Risk
Consulting Services of Arthur
Andersen LLP from 1997 to 1998. Senior
Manager of Arthur Andersen LLP from 1995
to 1997.
Paul Donovan (53): Senior Vice President and Chief Financial
Officer of Wisconsin Energy since August
1999, and of Wisconsin Electric and
Wisconsin Gas since July 2000. Executive
Vice President and Chief Financial
Officer of Sundstrand Corporation from
1990 and 1998, respectively, to 1999.
Richard R. Grigg (52): Senior Vice President of Wisconsin Energy
and WICOR since July 2000 and President
and Chief Operating Officer of Wisconsin
Electric since 1995. Vice President of
Wisconsin Energy from 1995 to June 2000.
Chief Nuclear Officer of Wisconsin
Electric from December 1996 to March
1998. Director of Wisconsin Energy since
1995. Director of Wisconsin Electric
since 1994.
Larry Salustro (53): Senior Vice President and General Counsel
of Wisconsin Energy, WICOR, Wisconsin
Electric and Wisconsin Gas since July
2000. Vice President of Wisconsin
Electric from 1997 through June 2000.
Regional Vice President - Law and
Governmental Affairs with AT&T from 1995
to 1997.
Thomas F. Schrader President of Wisconsin Gas since October
(51): 2000. Senior Vice President - Strategic
Process Integration of Wisconsin Electric
since April 2000. Senior Vice President
of WICOR since August 2000 and Director
of WICOR since 1988. Vice President of
WICOR from 1988 to 1997. President and
Chief Operating Officer of WICOR and Vice
Chairman of its subsidiaries from 1997 to
2000. President and Chief Executive
Officer of Wisconsin Gas from 1988 to
1997.
Georger E. Wardeberg Vice Chairman of the Board of Wisconsin
(65): Energy, WICOR, Wisconsin Electric and
Wisconsin Gas and Director of Wisconsin
Energy and Wisconsin Electric since April
2000. Director of WICOR and Wisconsin
Gas since 1992. Chairman of the Board
and Chief Executive Officer of WICOR from
1997 to April 2000.
Certain executive officers also hold offices in Wisconsin
Energy's non-utility subsidiaries.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Dividends declared on Wisconsin Electric Power Company's common
stock during the two most recent fiscal years are set forth
below. With the exception of the third quarter of 2000,
dividends were paid entirely in cash. Dividends were paid to
Wisconsin Electric's sole common stockholder, Wisconsin Energy
Corporation.
Quarter 2000 1999
------- ---- ----
First $44.9 $44.9
Second 44.9 44.9
Third 44.9 (a) 44.9
Fourth 44.9 44.9
------ ------
Total $179.6 $179.6
====== ======
(a) During the third quarter of 2000, the Board of Directors
approved that $1.0 million of the dividend be paid in a
property dividend with the balance paid in cash.
In February 2001, to meet additional future anticipated capital
requirements and to maintain an appropriate capital structure,
Wisconsin Electric's Board of Directors authorized a quarterly
cash dividend, payable to Wisconsin Energy on March 1, 2001, of
$32.5 million ($130.0 million on an annualized basis), which was
reduced from prior quarterly dividends paid during 2000 of
$44.9 million (or $179.6 million on an annualized basis).
Various financing arrangements and regulatory requirements impose
certain restrictions on the ability of Wisconsin Electric to
transfer funds to Wisconsin Energy in the form of cash dividends,
loans or advances. Under Wisconsin law, Wisconsin Electric is
prohibited from loaning funds, either directly or indirectly, to
Wisconsin Energy.
ITEM 6. SELECTED FINANCIAL DATA
WISCONSIN ELECTRIC POWER COMPANY
SELECTED FINANCIAL AND STATISTICAL DATA
Financial 2000 1999 1998 1997 1996
- --------- ---- ---- ---- ---- ----
Year Ended December 31
Earnings available for
common stockholder (Millions)(e) $163.5 (a) $211.9 (b) $183.0 $69.4 (c) $210.1
Operating revenues (Millions)
Electric $1,763.4 $1,688.3 $1,641.4 $1,412.1 $1,393.3
Gas 399.7 306.8 295.9 355.2 364.9
Steam 21.9 21.3 20.5 22.3 15.6
-------- -------- -------- -------- --------
Total operating revenues $2,185.0 $2,016.4 $1,957.8 $1,789.6 $1,773.8
======== ======== ======== ======== ========
At December 31 (Millions)
Total assets $5,025.1 $4,901.9 $4,608.9 $4,520.9 $4,384.2
Long-term debt $1,679.6 $1,677.6 $1,512.5 $1,448.6 $1,371.4
Utility Energy Statistics
-------------------------
Electric
Megawatt-hours sold (Thousands) 31,398.8 30,619.9 29,475.2 27,671.8 27,560.4
Customers (End of year) 1,026,691 1,006,013 988,929 978,835 968,735
Gas
Therms delivered (Millions) 944.9 944.1 922.8 980.7 936.9
Customers (End of year) 407,761 398,508 388,478 376,732 367,275
Steam
Pounds sold (Millions) 3,085.2 2,913.9 2,773.1 3,160.6 2,704.6
Customers (End of year) 451 450 454 474 465
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Millions of Dollars) (d)
---------------------------------------------------
March June
------------------- -------------------
Three Months Ended 2000 1999 2000 1999
- ------------------ ---- ---- ---- ----
Total operating revenues $540.8 $527.8 $496.9 $469.9
Operating income 121.4 106.2 91.4 98.9
Earnings available for
common stockholder (e) 58.5 55.7 39.9 48.1
September December
------------------- -------------------
Three Months Ended 2000 1999 2000 1999
- ------------------ ---- ---- ---- ----
Total operating revenues $532.7 $513.9 $614.6 $504.8
Operating income 122.6 123.5 58.5 118.5
Earnings available for
common stockholder (e) 56.6 62.0 8.5 (a) 46.1 (b)
(a) Includes net non-recurring costs, after tax, of $43.9 million related to
severance benefits and other items.
(b) Includes non-recurring charges, after tax, of $10.8 million for the
settlement of litigation.
(c) Includes non-recurring charges, after tax, of $13.1 million related to the
terminated merger agreement with Northern States Power Company and
$18.0 million related to the write-down of equipment.
(d) Quarterly results of operations are not directly comparable because of
seasonal and other factors. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(e) Earnings and dividends per share are not provided as all of Wisconsin
Electric's common stock is held by Wisconsin Energy Corporation.
WISCONSIN ELECTRIC POWER COMPANY
SELECTED OPERATING DATA
Year Ended December 31 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Electric Utility
----------------
Operating Revenues (Millions)
Residential $597.2 $574.8 $571.4 $487.2 $494.1
Small Commercial/Industrial 534.7 510.1 487.6 430.2 421.5
Large Commercial/Industrial 464.9 451.2 450.1 402.7 383.1
Other - Retail/Municipal 58.3 51.2 51.2 55.3 56.3
Resale - Utilities 84.0 79.1 60.9 24.5 26.4
Other Operating Revenues 24.3 21.9 20.2 12.2 11.9
-------- -------- -------- -------- --------
Total Operating Revenues $1,763.4 $1,688.3 $1,641.4 $1,412.1 $1,393.3
======== ======== ======== ======== ========
Megawatt-hour Sales (Thousands)
Residential 7,477.6 7,346.8 7,327.0 6,863.6 6,998.8
Small Commercial/Industrial 8,287.5 8,028.2 7,612.4 7,433.1 7,204.7
Large Commercial/Industrial 11,626.2 11,333.6 11,392.0 11,021.5 10,785.5
Other - Retail/Municipal 1,527.3 1,314.0 1,287.2 1,412.6 1,477.0
Resale - Utilities 2,480.2 2,597.3 1,856.6 941.0 1,094.4
-------- -------- -------- -------- --------
Total Sales 31,398.8 30,619.9 29,475.2 27,671.8 27,560.4
======== ======== ======== ======== ========
Number of Customers (Average)
Residential 916,028 897,333 886,635 876,776 867,917
Small Commercial/Industrial 98,277 95,964 94,675 93,259 91,565
Large Commercial/Industrial 712 716 720 714 706
Other 2,283 1,938 1,855 1,844 1,832
--------- ------- ------- ------- ---------
Total Customers 1,017,300 995,951 983,885 972,593 962,020
========= ======= ======= ======= =========
Gas Utility
-----------
Operating Revenues (Millions)
Residential $244.3 $193.8 $176.5 $222.0 $218.8
Commercial/Industrial 132.0 95.1 87.9 113.6 108.1
Interruptible 5.3 5.3 7.1 9.0 11.5
------ ------ ------ ------ ------
Total Retail Gas Sales 381.6 294.2 271.5 344.6 338.4
Transported Customer-Owned Gas 17.4 14.6 12.0 13.4 11.7
Transported - Interdepartmental 1.5 1.8 2.5 3.1 3.1
Other Operating Revenues (0.8) (3.8) 9.9 (5.9) 11.7
------ ------ ------ ------ ------
Total Operating Revenues $399.7 $306.8 $295.9 $355.2 $364.9
====== ====== ====== ====== ======
Therms Delivered (Millions)
Residential 335.7 329.0 289.5 347.9 372.0
Commercial/Industrial 206.2 195.3 182.0 211.5 225.2
Interruptible 12.0 16.3 23.3 24.5 35.9
----- ----- ----- ----- -----
Total Retail Gas Sales 553.9 540.6 494.8 583.9 633.1
Transported Customer-Owned Gas 349.9 347.9 349.4 387.2 292.6
Transported - Interdepartmental 41.1 55.6 78.6 9.6 11.2
----- ----- ----- ----- -----
Total Therms Delivered 944.9 944.1 922.8 980.7 936.9
===== ===== ===== ===== =====
Number of Customers (Average)
Residential 369,210 360,084 347,747 339,002 330,153
Commercial/Industrial 33,275 32,594 31,586 30,594 29,936
Interruptible 33 89 146 170 190
Transported Customer-Owned Gas 383 328 271 254 230
Transported - Interdepartmental 6 6 6 7 8
------- ------- ------- ------- -------
Total Customers 402,907 393,101 379,756 370,027 360,517
======= ======= ======= ======= =======
Degree Days (a)
---------------
Heating (6,887 Normal) 6,716 6,318 5,848 7,101 7,469
Cooling (681 Normal) 566 753 800 407 608
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin.
Normal degree days are based upon a twenty-year moving average.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Wisconsin Electric Power Company ("Wisconsin Electric" or the
"Company"), a wholly-owned subsidiary of Wisconsin Energy
Corporation ("Wisconsin Energy"), is engaged primarily in the
business of generating electricity and distributing electricity
and natural gas with operations in the states of Wisconsin and
Michigan. During 2000, Wisconsin Energy performed a
comprehensive review of its portfolio of businesses and began
implementing, among others, the following general strategies that
will affect Wisconsin Electric over the next decade:
* ELECTRIC GENERATION: Improve the supply of reasonably
priced electric power in Wisconsin through the "Power the Future"
strategy.
* ENERGY DISTRIBUTION: Upgrade the Company's electric and
gas utility distribution systems to increase reliability and
enable economic expansion in Wisconsin through the "Power the
Future" strategy and combine the gas operations and the customer
service functions of its gas utilities to realize synergy savings
and increase customer satisfaction.
For information concerning the "Power the Future" strategy, see
"Factors Affecting Results, Liquidity and Capital Resources"
below.
ACQUISITION OF WICOR, INC.: On April 26, 2000, Wisconsin Energy
acquired WICOR, Inc. ("WICOR"), the parent of Wisconsin Gas
Company ("Wisconsin Gas"), and is presently seeking authority
from the Public Service Commission of Wisconsin ("PSCW") to
transfer Wisconsin Electric's gas utility assets, together with
certain associated liabilities, to Wisconsin Gas in a tax free
exchange for an equity ownership by Wisconsin Electric in
Wisconsin Gas. For additional information, see "Factors
Affecting Results, Liquidity and Capital Resources" below.
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 mentioned throughout this
document and below in "Cautionary Factors."
RESULTS OF OPERATIONS
EARNINGS
Earnings declined by $48.4 million during 2000 when compared with
1999 due in large part to non-recurring charges primarily
associated with the WICOR merger. In December 2000, Wisconsin
Electric recorded non-recurring charges totaling $43.9 million,
after tax, including $34.3 million related to severance benefits
and other items and a one-time contribution of $9.6 million,
after tax, to the Wisconsin Energy Foundation to assist it in
becoming self-funded. During 2000, Wisconsin Electric's earnings
before non-recurring items declined by $15.3 million due in large
part to higher fuel and purchased power expenses and cool summer
weather during 2000.
During 1999, earnings increased by $28.9 million when compared
with 1998 due in large part to increases in electric and gas
utility gross margins offset in part by a one time charge during
1999 related to the settlement of litigation.
Earnings Available
for Common Stockholder 2000 1999 1998
---------------------- ---- ---- ----
(Millions of Dollars)
Earnings Before Non-Recurring Items $207.4 $222.7 $183.0
Non-Recurring Items (43.9) (10.8) -
------ ------ ------
Net Earnings $163.5 $211.9 $183.0
====== ====== ======
The following table summarizes Wisconsin Electric's earnings
during 2000, 1999 and 1998.
Wisconsin Electric Power Company 2000 1999 1998
- ---------------------------------- ---- ---- ----
(Millions of Dollars)
Gross Margin
Electric (See below) $1,271.9 $1,249.4 $1,196.8
Gas (See below) 141.0 132.8 120.4
Steam 15.7 15.2 15.1
-------- -------- --------
Gross Margin 1,428.6 1,397.4 1,332.3
Other Operating Expenses
Other Operation and Maintenance 696.1 649.5 662.1
Depreciation, Decommissioning
and Amortization 272.7 234.2 225.7
Property and Revenue Taxes 65.9 66.6 60.9
-------- -------- --------
Operating Income 393.9 447.1 383.6
Other Income (Deductions) (9.8) (4.9) 8.0
Financing Costs 116.2 112.9 110.7
-------- -------- --------
Income Before Income Taxes 267.9 329.3 280.9
Income Taxes 103.2 116.2 96.7
Preferred Stock Dividend Requirement 1.2 1.2 1.2
-------- -------- --------
Earnings Available for Common Stockholder $163.5 $211.9 $183.0
======== ======== ========
Electric Utility Revenues, Gross Margins and Sales
The following table compares Wisconsin Electric's electric
utility operating revenues and gross margin (total electric
utility operating revenues less fuel and purchased power
expenses) during 2000 with similar information for 1999 and 1998.
Electric Utility Operations 2000 1999 1998
- --------------------------- ---- ---- ----
(Millions of Dollars)
Electric Operating Revenues $1,763.4 $1,688.3 $1,641.4
Fuel and Purchased Power
Fuel 325.3 299.1 303.0
Purchased Power 166.2 139.8 141.6
-------- -------- --------
Total Fuel and Purchased Power 491.5 438.9 444.6
-------- -------- --------
Gross Margin $1,271.9 $1,249.4 $1,196.8
======== ======== ========
During 2000, Wisconsin Electric's total electric utility
operating revenues increased by $75.1 million or 4.4% compared
with 1999. Wisconsin Electric attributes this growth mostly to
higher electric energy sales and rate increases during 2000.
Interim and final electric rate increases, that became effective
in early April 2000 and on August 30, 2000, respectively,
contributed approximately $22.1 million to the increase in
electric operating revenues. For additional information
concerning these rate increases, see "Factors Affecting Results,
Liquidity and Capital Resources" below. Fuel and purchased power
expenses increased by $52.6 million or 12.0% during 2000,
reflecting increased generation and significantly higher natural
gas prices. Purchased power expenses also grew due to higher
fixed costs during 2000 associated with long-term purchased power
contracts. To a certain extent, Wisconsin Electric was able to
limit the increase in fuel and purchased power costs during 2000
by changing its electric supply mix away from higher cost natural
gas-fired generation and power purchases to lower cost nuclear
and coal-fired generation.
Primarily due to an increase in total electric energy sales
during 1999, Wisconsin Energy's total electric utility operating
revenues increased by $46.9 million or 2.9% and gross margin
increased by $52.6 million or 4.4% when compared with 1998.
Operating Revenues Megawatt-Hour Sales
------------------------------- -------------------------------
Electric Utility Operations 2000 1999 1998 2000 1999 1998
- ------------------------------- ---- ---- ---- ---- ---- ----
(Millions of Dollars) (Thousands)
Customer Class
Residential $597.2 $574.8 $571.4 7,477.6 7,346.8 7,327.0
Small Commercial/Industrial 534.7 510.1 487.6 8,287.5 8,028.2 7,612.4
Large Commercial/Industrial 464.9 451.2 450.1 11,626.2 11,333.6 11,392.0
Other-Retail/Municipal 58.3 51.2 51.2 1,527.3 1,314.0 1,287.2
Resale-Utilities 84.0 79.1 60.9 2,480.2 2,597.3 1,856.6
Other Operating Revenues 24.3 21.9 20.2 - - -
-------- -------- -------- -------- -------- --------
Total $1,763.4 $1,688.3 $1,641.4 31,398.8 30,619.9 29,475.2
======== ======== ======== ======== ======== ========
Weather - Degree Days (a)
Heating (6,887 Normal) 6,716 6,318 5,848
Cooling (681 Normal) 566 753 800
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin,
normal degree days are based upon a twenty-year moving average.
During 2000, total electric energy sales increased by
778.9 thousand megawatt-hours or 2.5% compared with 1999, mostly
reflecting growth in the average number of residential, small
commercial/industrial and other retail/municipal customers and a
13.1% increase in sales to the Empire and Tilden iron ore mines,
Wisconsin Electric's two largest retail customers. Excluding the
Empire and Tilden mines, total electric sales increased by 1.7%
and sales to the remaining large commercial/industrial customers
increased by 0.1% between the comparative periods. Growth in the
average number of customers partially offset the effects of
cooler weather during the 2000 cooling season on total electric
energy sales and operating revenues. As measured by cooling
degree days, 2000 was 24.8% cooler than 1999 and 16.9% cooler
than normal.
From August through mid-October 1999, the Empire and Tilden iron
ore mines were temporarily shut down. As a result, electric
energy sales to the mines decreased 9.8% during 1999 compared to
1998. Excluding the Empire and Tilden iron ore mines, total
electric energy sales increased by 5.1% during 1999 and sales to
the remaining large commercial/industrial customers increased by
2.0% when compared with 1998. Sales for resale to other
utilities increased by 39.9% during 1999 primarily due to higher
opportunity sales. When comparing 1999 electric sales with 1998,
summer cooling load due to weather was not a significant factor.
As measured by cooling degree days, 1999 was 5.9% cooler than
1998. However, 1999 and 1998 were 10.6% and 17.5% warmer than
normal, respectively.
Gas Utility Revenues, Gross Margins and Therm Deliveries
The following table compares Wisconsin Electric's gas utility
operating revenues and its gross margin (total gas utility
operating revenues less cost of gas sold) during 2000 with
similar information for 1999 and 1998. Gross margin is a better
performance indicator than revenues because changes in the cost
of gas sold flow through to revenue under gas cost recovery
mechanisms that do not impact gross margin.
Gas Utility Operations 2000 1999 1998
- --------------------------- ---- ---- ----
(Millions of Dollars)
Gas Operating Revenues $399.7 $306.8 $295.9
Cost of Gas Sold 258.7 174.0 175.5
------ ------ ------
Gross Margin $141.0 $132.8 $120.4
====== ====== ======
During 2000, Wisconsin Electric's total gas utility operating
revenues increased by $92.9 million or 30.3% while gross margin
increased by $8.2 million or 6.2% when compared with 1999.
Significantly higher natural gas prices mostly contributed to the
increase in total gas utility operating revenues. Because
changes in the cost of natural gas purchased at market prices
were included in customer rates through the gas cost recovery
mechanism, gas operating revenues changed by approximately the
same amount as the cost of gas sold and gross margin was
unaffected by such changes. Interim and final retail gas rate
increases, that became effective in early April 2000 and on
August 30, 2000, respectively, along with a weather-related
increase in higher margin residential and commercial/industrial
retail gas sales during the fourth quarter of 2000, contributed
to the increase in operating revenues and gross margin during
2000. For additional information concerning the rate increases,
see "Factors Affecting Results, Liquidity and Capital Resources"
below. A decrease in revenues from interdepartmental therm
deliveries to Wisconsin Electric's natural gas-fired electric
generating facilities during 2000 partially offset the increases
in gas utility operating revenues and gross margin noted above.
Due in large part to increased retail gas sales during 1999,
especially to higher margin residential and commercial/industrial
customers, Wisconsin Electric's gross margin increased by
$12.4 million or 10.3% compared with 1998. In spite of the
increase in retail gas sales, however, the cost of gas sold
decreased by 0.9% during 1999 due to a decrease in the price of
purchased gas.
Operating Revenues Therm Deliveries
------------------------------ -----------------------------
Gas Utility Operations 2000 1999 1998 2000 1999 1998
- ------------------------------- ---- ---- ---- ---- ---- ----
(Millions of Dollars) (Millions)
Customer Class
Residential $244.3 $193.8 $176.5 335.7 329.0 289.5
Commercial/Industrial 132.0 95.1 87.9 206.2 195.3 182.0
Interruptible 5.3 5.3 7.1 12.0 16.3 23.3
------ ------ ------ ----- ----- -----
Total Retail Gas Sales 381.6 294.2 271.5 553.9 540.6 494.8
Transported Customer-Owned Gas 17.4 14.6 12.0 349.9 347.9 349.4
Transported-Interdepartmental 1.5 1.8 2.5 41.1 55.6 78.6
Other Operating Revenues (0.8) (3.8) 9.9 - - -
------ ------ ------ ----- ----- -----
Total $399.7 $306.8 $295.9 944.9 944.1 922.8
====== ====== ====== ===== ===== =====
Weather - Degree Days (a)
Heating (6,887 Normal) 6,716 6,318 5,848
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin,
normal degree days are based upon a twenty-year moving average.
Other Items
OTHER OPERATION AND MAINTENANCE EXPENSES: Other operation and
maintenance expenses increased by $46.6 million during 2000 when
compared with 1999. The most significant change in other
operation and maintenance expenses between the comparative
periods resulted from $52.7 million of pre-tax non-recurring
charges associated with the WICOR merger including severance,
benefits and other items. Increased other operation and
maintenance expenses during 2000 were also attributable to
$14.8 million of higher non-fuel fossil generation expenses and
$9.0 million of higher electric distribution expenses offset in
part by an $8.8 million decline in nuclear non-fuel expenses and
a $9.9 million decline in customer service expenses.
Non-fuel fossil generation expenses increased during 2000
primarily due to differences in the scope and timing of scheduled
maintenance outages for various generating facilities. Electric
distribution expenses were higher due in large part to increased
forestry and maintenance activity. During 2000, nuclear non-fuel
expenses were lower as a result of continued progress on various
performance improvement initiatives. Between the comparative
periods, customer service expenses were lower primarily due to a
change in the period over which conservation expenses are being
amortized.
During 1999, other operation and maintenance expenses decreased
by $12.6 million when compared with 1998. The most significant
changes in other operation and maintenance expenses between the
comparative periods include a $28.0 million decrease in nuclear
non-fuel expenses partially offset by a $4.9 million increase in
administrative and general expenses, a $2.9 million increase in
electric transmission expenses, a $2.2 million increase in
payroll taxes and a $2.1 million increase in non-fuel fossil
generation expenses. Nuclear non-fuel expenses decreased as a
result of progress on various performance improvement
initiatives, while administrative and general expenses increased
mostly due to higher employee benefits paid and to increased
staffing, which also increased payroll taxes. Electric
transmission expenses increased primarily due to higher purchased
power transmission fees during 1999, and non-fuel fossil
generation expenses increased as a result of an increase in the
number of maintenance outages early in 1999 at Wisconsin
Electric's fossil-fuel power plants in anticipation of higher
electric demand during the summer of 1999.
DEPRECIATION, DECOMMISSIONING AND AMORTIZATION EXPENSES:
Depreciation, decommissioning and amortization expenses were
$38.5 million higher during 2000 compared with 1999. Pursuant to
a 1998 rate order for the 1998/1999 test year, Wisconsin Electric
was amortizing pre-1991 contributions in aid of construction.
This amortization, which was completed as of December 31, 1999,
had the effect of reducing depreciation expense by $22.8 million
during 1999. Higher average depreciable property during 2000
also contributed to an increase in depreciation expense.
Primarily due to an increase in average depreciable property,
Wisconsin Electric's depreciation, decommissioning and
amortization expenses increased by $8.5 million during 1999 when
compared with 1998.
OTHER INCOME AND DEDUCTIONS: Other income and deductions was
$4.9 million lower when comparing 2000 with 1999 and
$12.9 million lower when comparing 1999 with 1998. The change
during 2000 primarily reflects increased contributions to the
Wisconsin Energy Foundation during the fourth quarter of 2000.
In 1999, Wisconsin Electric made a one-time $18.0 million pre-tax
litigation settlement payment that was offset in part by a
$6.1 million gain on the sale of certain properties.
INCOME TAXES: The effective income tax rate increased during
2000 due in large part to the end of amortization of pre-1991
contributions in aid of construction as described above.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following table summarizes Wisconsin Electric's cash flows
during 2000, 1999 and 1998:
Wisconsin Electric Power Company 2000 1999 1998
- -------------------------------- ---- ---- ----
(Millions of Dollars)
Cash Provided by (Used in):
Operating Activities $572.7 $335.3 $481.8
Investing Activities (419.3) (393.1) (364.8)
Financing Activities (192.7) 93.5 (112.9)
Operating Activities
During 2000, cash provided by operating activities increased by
$237.4 million compared with 1999, reflecting a $110 million
contested liability payment made during the fourth quarter of
1999 in the Giddings & Lewis Inc./City of West Allis lawsuit,
changes in working capital requirements and reduced tax payments
during 2000 as well as increased non-cash charges for
depreciation and amortization offset in part by decreased non-
cash charges for net deferred income taxes.
Cash provided by operating activities decreased by $146.5 million
during 1999 compared with 1998, reflecting the $110 million
contested liability payment in the Giddings & Lewis Inc./City of
West Allis lawsuit noted above and changes in working capital
requirements, offset in part by increased non-cash charges for
depreciation and amortization and for net deferred income taxes.
During 2000, cash from operations provided for approximately 163%
and 112% of the Company's capital expenditure requirements before
and after the payment of common dividends, respectively, compared
with 97% and 45%, respectively, during 1999 and 147% and 92%,
respectively, during 1998. During 1999 and