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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PERSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
IRS Employer
Commission Registrant; State of Incorporation Identification
File Number Address; and Telephone Number No.
----------- ---------------------------------- --------------
1-9057 WISCONSIN ENERGY CORPORATION 39-1391525
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2949
Milwaukee, WI 53201
(414) 221-2345
1-1245 WISCONSIN ELECTRIC POWER COMPANY 39-0476280
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Indicate by check mark whether each Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
each Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 each Registrant's knowledge, in definitive Proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the common stock of Wisconsin Energy
Corporation held by non-affiliates is approximately $3,054,459,000 based
upon the reported last sale price of such securities as of March 5, 1999.
All of the common stock of Wisconsin Electric Power Company is held by
Wisconsin Energy Corporation.
-------------------------------
Name of Each Exchange
Registrant / Title of Each Class on Which Registered
-------------------------------- -------------------
Securities Registered Pursuant to Section 12(b) of the Act:
Wisconsin Energy Corporation
Common Stock, $.01 Par Value New York Stock Exchange
Wisconsin Electric Power Company
None N/A
Securities Registered pursuant to Section 12(g) of the Act:
Wisconsin Energy Corporation
None
Wisconsin Electric Power Company
Serial Preferred Stock, 3.60% Series, $100 N/A
Par Value
Six Per Cent. Preferred Stock, $100 Par N/A
Value
-------------------------------
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date (March 8, 1999):
Wisconsin Energy Corporation Common Stock, $.01 Par Value,
116,241,667 shares outstanding.
Wisconsin Electric Power Company Common Stock, $10 Par Value,
33,289,327 shares outstanding.
Wisconsin Energy Corporation is the
sole holder of Wisconsin Electric
Power Company Common Stock
--------------------------------
Documents Incorporated by Reference
-----------------------------------
Portions of Wisconsin Energy Corporation's definitive Proxy Statement for
its Annual Meeting of Stockholders, to be held on June 2, 1999, are
incorporated by reference into Part III hereof.
Portions of Wisconsin Electric Power Company's definitive Information
Statement for its Annual Meeting of Stockholders, to be held on May 26,
1999, are incorporated by reference into Part III hereof.
-------------------------------
This combined Form 10-K is separately filed by Wisconsin Energy Corporation
and by Wisconsin Electric Power Company. Information contained herein
relating to any individual Registrant is filed by such Registrant on its
own behalf.
WISCONSIN ENERGY CORPORATION
WISCONSIN ELECTRIC POWER COMPANY
FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
------
1. Business..............................................................
Electric Operations................................................
Electric Sales..................................................
Sources of Electric Energy......................................
Coal-Fired Generation...........................................
Nuclear Generation..............................................
Hydroelectric Generation........................................
Natural Gas-Fired Generation....................................
Oil-Fired Generation............................................
Purchased Power Commitments.....................................
Interconnections with Other Utilities...........................
Gas Operations.....................................................
Gas Deliveries..................................................
Gas Supply......................................................
Steam Operations...................................................
Non-Utility Operations.............................................
Non-Utility Subsidiaries........................................
Non-Utility Restrictions........................................
Regulation.........................................................
Rate Matters.......................................................
Energy Efficiency..................................................
Environmental Compliance...........................................
Solid Waste Landfills...........................................
Ash Landfills...................................................
Manufactured Gas Plant Sites....................................
Air Quality.....................................................
Other..............................................................
2. Properties............................................................
3. Legal Proceedings.....................................................
Environmental Matters...........................................
Rate Matters....................................................
Other Matters...................................................
4. Submission of Matters to a Vote of Security Holders...................
Executive Officers of the Registrants.................................
PART II
-------
5. Market for Registrants' Common Equity and Related
Stockholder Matters...................................................
Number of Common Stockholders......................................
Common Stock Listing and Trading...................................
Dividends and Common Stock Prices..................................
6. Selected Financial Data...............................................
Wisconsin Energy Corporation.......................................
Wisconsin Electric Power Company...................................
7. Management's Discussion and Analysis of Financial.....................
Condition and Results of Operations................................
Results of Operations..............................................
Earnings........................................................
Electric Revenues, Gross Margins and Sales......................
Gas Revenues, Gross Margins and Therm Deliveries................
Operating Expenses..............................................
Other Items.....................................................
Factors Affecting Results of Operations............................
Mergers.........................................................
Nuclear Matters.................................................
Electric System Reliability Matters.............................
Industry Restructuring and Competition..........................
Rates and Regulatory Matters....................................
Year 2000 Technology Issues.....................................
Environmental Matters...........................................
Coal Supply and Transportation Matters..........................
Outlook.........................................................
Effects of Weather..............................................
Effects of Inflation............................................
Market Risks....................................................
Accounting Matters..............................................
Liquidity and Capital Resources....................................
Investing Activities............................................
Cash Provided by Operating and Financing Activities.............
Capital Structure...............................................
Capital Requirements............................................
Capital Resources...............................................
Cautionary Factors.................................................
7A. Quantitative and Qualitative Disclosures About Market Risk............
8. Financial Statements and Supplementary Data...........................
Index to 1998 Financial Statements.................................
Wisconsin Energy Corporation.......................................
Wisconsin Electric Power Company...................................
9. Changes in and 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
Schedule 1 - Condensed Parent Company Financial Statements
Consents of Independent Accountants...................................
Signatures............................................................
Exhibit Index.........................................................
DEFINITIONS
Abbreviations and Acronyms used in the text are defined below.
Abbreviations and Acronyms Term
-------------------------- ----
APB 25......................... Accounting Principles Board
Opinion No. 25, Accounting for
Stock Issued to Employees
AFUDC.......................... Allowance for Funds Used During Construction
Cogentrix...................... Cogentrix Energy Inc., an
independent power producer and
parent company of LS Power
Company........................ Wisconsin Energy Corporation and subsidiaries
Court.......................... United States Court of Appeals
for the District of Columbia circuit
D&D Fund....................... Uranium Enrichment Decontamination and
Decommissioning Fund
D&P............................ Duff & Phelps Inc.
DOE............................ United States Department of Energy
Edison Sault................... Edison Sault Electric Company
EITF 98-10..................... Emerging Issues Task Force
Consensus Number 98-10,
Accounting for Energy Trading
and Risk Management Activities
EPA............................. United States Environmental Protection Agency
Equipment....................... Kimberly Cogeneration Facility
Project equipment
ESELCO.......................... ESELCO, Inc., former parent
company of Edison Sault;
acquired by Wisconsin Energy
effective May 31, 1998
FAS............................. Statement of Financial Accounting Standards
FASB............................ Financial Accounting Standards Board
FAS 71.......................... Accounting for the Effects of
Certain Types of Regulation
FAS 109......................... FAS No. 109, Accounting for Income Taxes
FAS 121......................... FAS No. 121, Accounting for
the Impairment of Long-Lived Assets
FAS 123......................... FAS No. 123, Accounting for
Stock-Based Compensation
FAS 133......................... FAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
FERC............................ Federal Energy Regulatory Commission
Fitch........................... Fitch Investors Service, Inc.
Fund............................ Nuclear Decommission Trust Fund
GCRM............................ Gas Cost Recovery Mechanism
ISFSI........................... Independent Spent Fuel Storage Installation
ISO............................. Independent System Operator (transmission)
LS Power........................ LSP-Whitewater, Limited
Partnership, an unaffiliated
independent power producer and
owner of the Whitewater Cogeneration Facility
MAIN............................ Mid-America Interconnected Network, Inc.
MDNR............................ Michigan Department of Natural Resources
Midwest ISO..................... Midwest Independent Transmission System
Operator, Inc.
Minergy......................... Minergy Corp.
Moody's......................... Moody's Investors Service
MPSC............................ Michigan Public Service Commission
Mwh............................. Megawatt-hour
NEIL............................ Nuclear Electric Insurance Limited
NOx2............................ Nitrogen Oxide
NRC............................. United States Nuclear Regulatory Commission
NSP............................. Northern States Power Company,
a Minnesota corporation
OSIP............................ Omnibus Stock Incentive Plan
PCB............................. Polychlorinated Biphenly (environmental)
Point Beach..................... Point Beach Nuclear Plant
Proposed FAS.................... Proposed FAS, Accounting for
Obligations Associated with
the Retirement of Long-Lived Assets
PRP............................. Potentially Responsible Party
(environmental)
PSCW............................ Public Service Commission of Wisconsin
S&P............................. Standard & Poor's Corporation
SO2............................. Sulfur Dioxide
Trust........................... Wisconsin Electric Fuel Trust (nuclear)
Waste Act....................... Nuclear Waste Policy Act of 1982
Waukesha........................ City of Waukesha, Wisconsin
WDNR............................ Wisconsin Department of Natural Resources
WIEP............................ Wisconsin International Electric Power, Ltd
Wisconsin Electric.............. Wisconsin Electric Power Company
Wisconsin Energy................ Wisconsin Energy Corporation
and subsidiaries
Wispark......................... WISPARK Corporation
Wisvest......................... WISVEST Corporation
Witech.......................... WITECH Corporation
WRAO............................ Wisconsin Reliability
Assessment Organization
WSSA............................ Wilderness Shores Settlement Agreement
Yellowcake...................... Uranium Concentrates (nuclear)
PART I
------
ITEM 1. BUSINESS
Wisconsin Energy Corporation was incorporated in the State of Wisconsin in
1981 and became a holding company in 1986. Unless qualified by the context
used in this document, the terms "Wisconsin Energy" or the "Company" refer
to the holding company and all of its subsidiaries. Wisconsin Energy's
principal subsidiary at December 31, 1998 was Wisconsin Electric Power
Company ("Wisconsin Electric"), an electric, gas and steam utility
which was incorporated in the State of Wisconsin in 1896. The
following discussion includes both Wisconsin Energy and Wisconsin Electric
unless otherwise stated.
Effective May 31, 1998, Wisconsin Energy acquired ESELCO, Inc. ("ESELCO"),
a holding company whose principal subsidiary was Edison Sault Electric
Company ("Edison Sault"), in a tax free reorganization accounted for as a
pooling of interests. Due to the immaterial nature of this transaction,
Wisconsin Energy has not restated any historical financial or statistical
information contained in this document. Wisconsin Energy is operating
Wisconsin Electric and Edison Sault, an electric utility, as separate
subsidiaries within their historical service territories. Unless otherwise
noted, the discussion that follows includes Edison Sault's activity since
June 1, 1998. For additional information concerning Wisconsin Energy's
acquisition of ESELCO, see "Factors Affecting Results of Operations -
Mergers" in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Wisconsin Energy also has certain subsidiaries engaged in various non-
utility businesses. The operations of the Company and its subsidiaries are
conducted in the following four areas of business.
ELECTRIC OPERATIONS: Wisconsin Electric's electric operations generate,
transmit, distribute and sell 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. Edison
Sault generates, transmits, distributes and sells electric energy in a
territory of approximately 2,000 square miles with a population of
approximately 55,000 in the eastern Upper Peninsula of Michigan.
GAS OPERATIONS: Wisconsin Electric's gas operations purchase, distribute
and sell natural gas to retail customers and transport customer-owned gas
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. The gas service
territory has an estimated population of approximately 1,200,000.
STEAM OPERATIONS: Wisconsin Electric's steam operations generate,
distribute and sell steam supplied by its Valley and Milwaukee County Power
Plants. Steam is used by customers for space heating and processing in the
metropolitan Milwaukee area.
NON-UTILITY OPERATIONS: Wisconsin Energy's non-utility operations seek to
grow shareholder value by leveraging on the Company's core competencies.
Wisconsin Energy's non-utility subsidiaries are involved in various
activities, among which are development, ownership and operation of
electric generating facilities; waste/energy by-product utilization; and
real estate development. For information about the non-utility
subsidiaries, see "Non-Utility Operations" below.
For additional financial information about Wisconsin Energy's and Wisconsin
Electric's business segments, see "Note K - Segment Reporting" in Wisconsin
Energy's and Wisconsin Electric's Notes to Financial Statements in Item 8.
Financial Statements and Supplementary Data.
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 the factors
described in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ELECTRIC OPERATIONS
ELECTRIC SALES
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Results of Operations - Electric Revenues, Gross
Margins and Sales" for selected electric operating information for
Wisconsin Energy and additional selected electric operating information by
customer class for Wisconsin Electric.
WISCONSIN ELECTRIC: 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 in 1998 to all classes of
customers totaled approximately 29.5 billion kilowatt-hours, a 6.5%
increase over 1997. There were approximately 989,000 electric customers at
December 31, 1998, an increase of 1.0% since December 31, 1997.
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 5,468 megawatts on July 21, 1998. During the years 1999
through 2003, Wisconsin Electric currently estimates that electric peak
demand obligation will grow at an annualized rate of 1.0% to
5,746 megawatts by the year 2003.
EDISON SAULT: Edison Sault is authorized to provide retail electric
service in certain territories in the State of Michigan pursuant to
franchises granted by municipalities. Edison Sault also provides wholesale
electric service under contract with one rural cooperative.
During the seven months ended December 31, 1998 following Wisconsin
Energy's acquisition of Edison Sault, electric energy sales by Edison Sault
to all classes of customers totaled approximately 465 million kilowatt-
hours. There were approximately 21,000 electric customers at December 31,
1998.
Edison Sault, a winter peaking utility as a result of heating load, reached
its all-time peak electric demand of 138 megawatts on January 14, 1999.
Edison Sault's peak load growth during the past five years has averaged
between 1% and 2% per year, and Edison Sault expects this level of growth
to continue into the foreseeable future.
SALES TO LARGE RETAIL ELECTRIC CUSTOMERS: Wisconsin Electric provides
electric utility service to a diversified base of industrial customers.
Major industries served by Wisconsin Electric include iron ore mining,
paper, machinery production, foundry and food products. The Empire and
Tilden iron ore mines located in the Upper Peninsula of Michigan, the two
largest retail electric customers of Wisconsin Electric, accounted for 4.3%
and 3.9%, respectively, of total electric kilowatt-hour sales during 1998.
Sales to the Empire and Tilden iron ore mines were 7.4% higher in 1998
compared to 1997 due to a two month outage at the Tilden mine during 1997.
Edison Sault provides electric service to large industrial accounts in the
paper, crude oil pipeline and limestone quarry industries as well as to
several state and federal government facilities.
SALES TO WHOLESALE CUSTOMERS: During 1998, Wisconsin Electric sold
wholesale electric energy to five municipally owned systems, three 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 47 other public utilities and power
marketers throughout the region under rates approved by the Federal Energy
Regulatory Commission ("FERC"). Wholesale sales accounted for
approximately 10% of Wisconsin Electric's total electric energy sales and
6% of total electric operating revenues in 1998 compared to 8% of total
electric energy sales and 5% of total electric operating revenues in 1997.
On January 1, 1998, Upper Peninsula Power Company began taking service from
Wisconsin Electric under a capacity exchange agreement. This agreement
allows for elections to receive 30 to 65 megawatts of power, and runs
through December 31, 2007. Upper Peninsula Power Company elected to
receive 65 megawatts for calendar year 1999. Oconto Electric Cooperative
ceased taking power from Wisconsin Electric for its system on May 1, 1998
when a partial requirements contract of approximately 8 megawatts expired.
Wisconsin Public Power Inc. began taking service May 1, 1998 under a new
three-year contract. This contract allows Wisconsin Public Power Inc. to
choose power demand in amounts up to 100 megawatts by the year 2000.
Initially, Wisconsin Public Power Inc. elected to receive 45 megawatts
under its new contract.
Wisconsin Electric's existing FERC tariffs also provide for transmission
service to its wholesale customers. During 1998, Wisconsin Electric had 19
customers taking transmission service.
COMPETITION: Driven by a combination of market forces, regulatory and
legislative initiatives and technological changes, the electric utility
industry continues a trend towards restructuring and increased competition.
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Factors Affecting Results of Operations - Industry
Restructuring and Competition" for a description of competition issues and
electric industry restructuring initiatives that are underway in regulatory
jurisdictions where Wisconsin Electric and Edison Sault currently do
business.
FERC OPEN ACCESS TRANSMISSION RULING: As a result of the Energy Policy
Act of 1992, the FERC issued two orders in April 1996 and March 1997
relating to open access transmission service, stranded costs, standards of
conduct and open access same-time information systems. On November 25,
1997, these orders were reaffirmed with little change by the FERC on
rehearing. The ruling is intended to create a more competitive wholesale
electric power market. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Factors Affecting Results
of Operations - Industry Restructuring and Competition" for additional
information.
ELECTRIC UTILITY INDUSTRY INVESTIGATIONS: See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Factors Affecting Results of Operations - Industry Restructuring and
Competition" for information regarding the Public Service Commission of
Wisconsin's ("PSCW") and Michigan Public Service Commission's ("MPSC")
separate investigations into the structure of the electric industry in the
States of Wisconsin and Michigan, respectively.
ELECTRIC SYSTEM RELIABILITY MATTERS: While Wisconsin Electric had
adequate capacity to meet all of its firm load obligations during the
summer of 1998, it was required to appeal for conservation on two occasions
during 1998 when weather-induced demand and capacity conditions strained
the regional electric network in the midwest. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Factors Affecting Results of Operations - Electric System Reliability
Matters" for information concerning ongoing actions in which Wisconsin
Electric is currently involved to improve electric reliability in the
midwest region.
SOURCES OF ELECTRIC ENERGY
The table below indicates Wisconsin Energy's and Wisconsin Electric's
sources of electric energy supply for their control areas, including net
generation by fuel type, for the following years ended December 31.
1996 1997(a) 1998(b) 1999(c)
------ ------- ------- -------
Wisconsin Energy
Coal 67.2% 71.8% 63.0% 61.0%
Nuclear 23.9 5.6 18.2 21.7
Hydroelectric 1.6 1.6 1.6 1.9
Natural gas 1.0 1.9 1.8 0.7
Oil (d) 0.3 0.2 0.2 0.0
------ ------ ------ ------
Net Generation 94.0 81.1 84.8 85.3
Power Purchases (e) 6.0 18.9 15.2 14.7
------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
Wisconsin Electric
Coal 67.2% 71.8% 63.8% 62.8%
Nuclear 23.9 5.6 18.5 22.3
Hydroelectric 1.6 1.6 1.0 1.4
Natural gas 1.0 1.9 1.8 0.7
Oil 0.3 0.2 0.2 0.0
------ ------ ------ ------
Net Generation 94.0 81.1 85.3 87.2
Power Purchases 6.0 18.9 14.7 12.8
------ ------ ------ ------
Total 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
(a) The mix of electric energy supply during 1997 reflects extended
outages of Units 1 and 2 at Wisconsin Electric's Point Beach Nuclear
Plant ("Point Beach"). See "Electric Operations - Nuclear Generation"
below for discussion of matters related to Point Beach.
(b) Wisconsin Energy's information includes Edison Sault for the period
June through December 1998.
(c) Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs of Wisconsin Energy's generating or
electric transmission facilities. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - "Cautionary
Factors."
(d) Includes generation by Edison Sault's 4.8 megawatt diesel-fired
peaking power plant.
(e) Excludes purchases by Edison Sault of power supplied by Wisconsin
Electric.
WISCONSIN ELECTRIC: Wisconsin Electric's net generation totaled
26 million megawatt-hours during 1998 compared to 24 million megawatt-hours
during 1997 and 27 million megawatt-hours during 1996. Net generation was
down during 1997 primarily due to extended outages at Point Beach. During
1998, Wisconsin Electric's generation was supplemented with 4.5 million
megawatt-hours of power purchases from neighboring utilities; from LSP-
Whitewater Limited Partnership ("LS Power"), an independent power producer
with whom Wisconsin Electric has a long-term power purchase contract; and,
to a minor extent, from other sources. Wisconsin Electric purchased
5.5 million megawatt-hours and 1.8 million megawatt-hours of electric
energy during 1997 and 1996, respectively. The dependable capability of
Wisconsin Electric's generating stations was 5,652 megawatts in August 1998
as more fully described in Item 2. Properties.
Wisconsin Electric's average total fuel costs per million British thermal
units by fuel type for the years ended December 31 are shown below.
1996 1997 1998
---- ---- ----
Coal $1.16 $1.22 $1.17
Nuclear 0.46 0.49 0.53
Natural Gas 3.60 2.79 2.74
Oil 4.22 4.70 3.70
EDISON SAULT: During 1998, Edison Sault generated 20% of its total
electric energy requirements with its hydroelectric plant and purchased the
remaining 80% of such requirements. Edison Sault's total average
generating capability is 34.6 megawatts as more fully described in Item 2.
Properties.
COAL-FIRED GENERATION
Wisconsin Electric diversifies coal sources 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. Following are
the periods and annual tonnage amounts for Wisconsin Electric's principal
coal contracts.
Contract Period Annual Tonnage
--------------- --------------
Jan. 1980 to Dec. 2006 2,000,000
Jul. 1983 to Dec. 2002 1,000,000
Jan. 1992 to Dec. 2005 2,200,000
Oct. 1992 to Dec. 2001 500,000
Sep. 1994 to Aug. 1999 600,000
Sep. 1995 to Dec. 1999 600,000
Jan. 1996 to Dec. 1999 100,000
Jan. 1998 to Dec. 2002 900,000
For information regarding emission restrictions, see Item 1. Business -
"Environmental Compliance."
Approximately 75% of Wisconsin Electric's 1999 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 Colorado, 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 is transported via rail to
Superior, Wisconsin, placed in dock storage and reloaded into lake vessels
for plant delivery. The Presque Isle central Appalachian origin and
Colorado origin coal is shipped via rail to Lake Erie and Lake Michigan
(Chicago) coal transfer docks, respectively, for lake vessel delivery to
the plant. Wisconsin Electric's 1999 coal requirements, projected to be
11.3 million tons, will be 89% under contract. Wisconsin Electric does not
anticipate any problem in procuring its remaining 1999 coal requirements
through short-term or spot purchases and inventory adjustments. For
information concerning coal delivery problems during 1997 with the Union
Pacific Railroad as well as coal inventory contingency plans related to the
Year 2000, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Factors Affecting Results of
Operations - Coal Supply and Transportation Matters."
PLEASANT PRAIRIE POWER PLANT: All of the estimated 1999 coal requirements
for this plant are presently under contract.
OAK CREEK POWER PLANT: All of the estimated 1999 coal requirements for
this plant are presently under contract.
PRESQUE ISLE POWER PLANT: All of the estimated 1999 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 Wisconsin Power and Light
Company, a non-affiliated investor owned utility, which is the majority
owner of the facility.
VALLEY AND PORT WASHINGTON POWER PLANTS: Coal requirements for these
plants will be supplied in 1999 by 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.
NUCLEAR GENERATION
Wisconsin Electric purchases uranium concentrates ("Yellowcake") and
contracts for its conversion, enrichment and fabrication. Wisconsin
Electric maintains title to the nuclear fuel until the fabricated fuel
assemblies are 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 H - Long-Term Debt" in the
Notes to Financial Statements in Item 8. Financial Statements and
Supplementary Data.
POINT BEACH NUCLEAR PLANT: Wisconsin Electric owns and operates two
approximately 500 megawatt electric generating units at Point Beach in Two
Rivers, Wisconsin. During the summer of 1997, Wisconsin Electric replaced
two low pressure turbines in Unit 1, which increased its maximum dependable
generating capability from 500 to approximately 510 megawatts. During the
winter of 1998-1999, Wisconsin Electric replaced Unit 2's low pressure
turbine rotors, which is expected to also increase the maximum dependable
generating capability of Unit 2 from 500 to approximately 510 megawatts.
Due to extended outages during 1997, Point Beach provided approximately 6%
of Wisconsin Electric's net electric energy supply during 1997 compared to
18% and 24% during 1998 and 1996, respectively. 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 Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Factors Affecting Results of Operations - Nuclear Matters" and "Note F -
Nuclear Operations" in the Notes to Financial Statements in Item 8.
Financial Statements and Supplementary Data.
URANIUM REQUIREMENTS: Wisconsin Electric requires approximately
400,000 pounds of Yellowcake to refuel a generating unit at Point Beach.
During 1998, Wisconsin Electric implemented 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, which provides between 60% to 100% of annual
requirements under these staggered, extended fuel cycles. Wisconsin
Electric may exercise flexibility available in this contract and purchase
certain quantities of uranium on the spot market, should the market
conditions prove favorable. Negotiations for the supply of the quantity of
uranium not covered by the long-term contract beyond 1998 will be ongoing
during 1999.
CONVERSION: Wisconsin Electric has a long-term contract with a provider
of uranium conversion services to supply 100% of the conversion
requirements for the Point Beach reactors from 1996 through 1999. For the
years 2000 through 2004, this same contract will provide 75% of Wisconsin
Electric's annual conversion requirements. During 1997, an additional long-
term conversion contract was executed to supply the remaining 25% of
Wisconsin Electric's annual conversion requirements.
ENRICHMENT: During 1998, a long-term contract for the supply of enriched
uranium was executed capable of providing up to 100% of Wisconsin
Electric's enriched uranium requirements through 2006. As a result,
Wisconsin Electric currently has two long-term contracts for the supply of
enrichment services. The combination of the contracts provides for 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 license.
During 1995, an agreement was reached between Wisconsin Electric and
Westinghouse to supply Wisconsin Electric with a new fuel design beginning
in the fall of 1997. The 1995 agreement was modified in November 1996 due
to delayed licensing of a new analysis method desired for the use of the
new fuel design. Current plans now assume initial use of the new fuel
design in the fall of the year 2000. 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.
SPENT FUEL STORAGE AND DISPOSAL: Wisconsin Electric currently has the
capacity to store limited amounts of spent nuclear fuel in the spent fuel
pool at Point Beach. In addition, Wisconsin Electric completed
construction of an Independent Spent Fuel Storage Installation in 1995 for
the temporary dry storage of spent fuel at Point Beach. For information
concerning spent fuel storage and disposal issues, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Factors Affecting Results of Operations - Nuclear Matters."
DECOMMISSIONING FUND: 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, 1998 to
approximately $519 million. For additional information regarding
decommissioning, see "Note F - Nuclear Operations" in the Notes to
Financial Statements in Item 8. Financial Statements and Supplementary
Data.
NUCLEAR PLANT INSURANCE: For information regarding matters pertaining to
nuclear plant insurance, see "Note F - Nuclear Operations" in the Notes to
Financial Statements in Item 8. Financial Statements and Supplementary
Data.
HYDROELECTRIC GENERATION
WISCONSIN ELECTRIC: Wisconsin Electric's hydroelectric generating system
consists of fifteen operating plants. Of these fifteen plants, five plants
with a total installed generating capacity of approximately 26 megawatts
have long-term licenses with the FERC, and a sixth plant with an installed
generating capacity of approximately 2 megawatts does not require a FERC
license. Wisconsin Electric is in the process of selling to an independent
party one plant with an installed generating capacity of approximately
1 megawatt.
Wisconsin Electric is seeking renewal of the remaining eight operating
licenses from the FERC for licenses that expired or expire during the
period 1998 to 2001. Key issues concerning relicensing of these eight
plants were covered by the Wilderness Shores Settlement Agreement ("WSSA"),
signed in February 1997. The WSSA was the culmination of more than two
years of negotiations between Wisconsin Electric and representatives of the
Wisconsin Department of Natural Resources, the Michigan Department of
Environmental Quality, the Michigan Department of Natural Resources, the
U.S. Fish and Wildlife Service, the Wisconsin Department of Administration,
the National Park Service and two river/recreational organizations: the
Michigan Hydro Relicensing Coalition and the River Alliance of Wisconsin.
Wisconsin Electric expects the WSSA to assure the continued profitable
operation of its hydroelectric system in the Upper Menominee River Basin as
well as the protection of associated land and water resources for 40 years
following license renewal by the FERC.
Wisconsin Electric's hydroelectric facilities covered by the WSSA are the
Big Quinnesec Falls, Kingsford, Michigamme Falls, Twin Falls, Lower Paint
Dam, Peavy Falls, Hemlock Falls and Way Dam Projects, representing a total
of 59 megawatts of installed capacity. Wisconsin Electric is in the
process of completing an applicant-prepared environmental assessment and a
FERC license application. These, along with the WSSA, will be filed with
the FERC by October 1999.
For additional information concerning Wisconsin Electric's hydroelectric
generating facilities, see Item 2. Properties.
EDISON SAULT: Edison Sault's primary source of generation is its
30 megawatt hydroelectric generating plant located on the St. Marys River
in Sault Ste. Marie, Michigan. The water for this facility is leased under
a contract with the United States Corps of Engineers with tenure to
December 31, 2050. However, the Secretary of the Army has the right to
terminate the contract subsequent to December 2025 by providing at least a
five-year termination notice. No such notice can be given prior to
December 31, 2020. Edison Sault pays for all water taken from the
St. Marys River at predetermined rates with a minimum annual payment
of $100,000 per year. The total flow of water taken out of Lake Superior,
which in effect is the flow of water in the St. Marys River, is under the
direction and control of the International Joint Commission, created by the
Boundary Water Treaty of 1909 between the United States and Great Britain,
now represented by Canada.
Water elevation levels on Lake Superior in the second half of 1998 and into
1999 have been at their lowest levels since the year 1926. As a result,
the International Joint Commission has placed limitations on the flow of
water from Lake Superior that limits Edison Sault's amount of hydroelectric
generation. During any limited flow months, it is necessary for Edison
Sault to purchase additional power from other sources and increase the use
of Edison Sault's diesel generation.
Hydroelectric generation is also purchased by Edison Sault under contract
from the United States Corps of Engineers' hydroelectric generating plant
located within the Soo Locks complex on the St. Marys River in Sault Ste.
Marie, Michigan. This 17 megawatt contract has a tenure to November 1,
2040, and cannot be terminated by the United States government prior to
November 1, 2030.
During 1998, hydroelectric energy provided 38% of Edison Sault's total
energy requirements, of which 20% was generated by Edison Sault's facility
and 18% was purchased from the United States Corps of Engineers.
NATURAL GAS-FIRED GENERATION
The Concord and Paris Combustion Turbine Power Plants and the Oak Creek
combustion turbine use natural gas as their primary fuel, with fuel oil as
backup. 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.
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 boiler ignition and flame stabilization purposes for the
Pleasant Prairie, Oak Creek and Valley Power Plants is purchased under an
agency agreement with a gas marketing company. The agent purchases natural
gas and arranges for interstate pipeline transportation to the local gas
distribution utility. The local gas distribution utilities then transport
Wisconsin Electric's gas to each plant under interruptible tariffs.
Wisconsin Electric's gas operations is the distribution utility for
Pleasant Prairie and Oak Creek Power Plants. Wisconsin Gas Company, an
unaffiliated company, is the distribution utility for the Valley Power
Plant.
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, four existing generating units at
the Germantown Power Plant will be converted, one unit per year from 2000 to
2003, to dual fuel (natural gas and oil). A fifth dual fuel combustion
turbine is planned to begin commercial operation at Germantown Power Plant
in 2000. For further information about these Germantown Power Plant
projects, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Factors Affecting Results of
Operations - Electric System Reliability Matters."
PURCHASE POWER COMMITMENTS
WISCONSIN ELECTRIC: To meet a portion of Wisconsin Electric's anticipated
increase in future electric energy supply needs, Wisconsin Electric has
entered into long-term power purchase contracts with LS Power and with SEI-
Wisconsin, a subsidiary of the Southern Company, an unaffiliated investor
owned utility.
The contract with LS Power, for 236 megawatts of firm capacity from LS
Power's gas-fired cogeneration facility located in Whitewater, Wisconsin,
includes no minimum energy requirements. Wisconsin Electric treats this
power purchase contract as a capital lease. See "Note H - Long-Term Debt"
in the Notes to Financial Statements in Item 8. Financial Statements and
Supplementary Data for additional information about Wisconsin Electric's
long-term power purchase agreement with LS Power.
In March 1998, LS Power's parent company signed an agreement with Cogentrix
Energy Inc. ("Cogentrix"), an independent power producer unrelated to LS
Power or Wisconsin Electric, to sell a majority interest in LS Power to
Cogentrix. Wisconsin Electric's long-term purchase power contract with LS
Power is expected to remain effective under the ownership of Cogentrix.
On August 28, 1998, Wisconsin Electric entered into a power purchase
agreement with SEI -Wisconsin for SEI-Wisconsin to design, construct, own
and operate a 300 megawatt gas turbine peaking facility in the town of
Neenah, Wisconsin and to provide the output of this facility to Wisconsin
Electric for eight years. The facility is scheduled for commercial
operation by June 2000. 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 takes away electric power. Wisconsin Electric pays SEI-
Wisconsin a "toll" to convert Wisconsin Electric's fuel into the electric
energy. The entire output of the facility is available for Wisconsin
Electric to dispatch during the eight year term of the agreement. The
purchase power agreement with SEI-Wisconsin is the culmination of a request
for proposal process that Wisconsin Electric initiated in November 1997 to
fulfill a new capacity need and to comply with a PSCW order and with
Wisconsin Act 204. For additional information concerning the purchase
power agreement with SEI-Wisconsin, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Electric System Reliability Matters."
For further information regarding Wisconsin Act 204, see "Regulation" below
in Item 1. Business.
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.
EDISON SAULT: To meet 80% of its energy requirements, Edison Sault
purchased the following megawatt-hours from the following sources under
firm contracts during the seven months ended December 31, 1998.
Megawatt-hours
--------------
Consumers Energy Company 218,078
Wisconsin Electric 98,437
U.S. Corps of Engineers - Hydro 92,119
Cloverland Electric Cooperative 119
Upper Peninsula Power Company 2
--------
Total 408,755
========
Edison Sault purchases power from Consumers Energy Company under a
wholesale power sales agreement that expires in 2020, or 2010 under an
early termination provision. Rates under the agreement, approved by the
FERC, provide for capacity and energy charges. Effective January 1, 1997
under this agreement, Edison Sault began purchasing 35 megawatts of firm
power and a variable amount of interruptible power. This contract contains
a reorganization provision under which Edison Sault's obligation to
purchase firm power will change to 30 megawatts in 2000, 25 megawatts in
2001 and 20 megawatts in 2002 and thereafter. The interruptible service
provisions of the contract expire on January 1, 2000.
Effective January 1, 1998, Edison Sault began purchasing 20 megawatts of
firm power from Wisconsin Electric under the terms of a ten-year agreement.
As discussed above under "Hydroelectric Generation", Edison Sault purchases
all available hydroelectric generation or approximately 17.4 megawatts from
the United States Corps of Engineers' St. Marys River plant under a long-
term purchase power contract. Annual payments under the contract are
subject to renegotiation every five years with the current terms having
been implemented in November 1996.
INTERCONNECTIONS WITH OTHER UTILITIES
WISCONSIN ELECTRIC: Wisconsin Electric's system is interconnected at
various locations with the systems of Commonwealth Edison Company, Madison
Gas and Electric Company, Northern States Power Company, Upper Peninsula
Power Company, Wisconsin Power and Light Company, Wisconsin Public Service
Corporation and the Marquette, Michigan Board of Light and Power. These
interconnections provide for interchange of power to assure system
reliability as well as facilitating access to generating capacity and the
transfer of energy for economic purposes.
Wisconsin Electric is a member of Mid-America Interconnected Network, Inc.
("MAIN"), which is one of ten regional members of the North American
Electric Reliability Council. Membership in these groups permits better
utilization of reserve generating capacity and coordination of long-range
system planning and day-to-day operations.
In February 1996, Wisconsin Electric and five other Midwest utilities
announced that they had agreed to pursue the development of an independent
organization, the Midwest Independent Transmission System Operator, Inc.
("Midwest ISO"), which would be responsible for ensuring nondiscriminatory
open electric transmission access and the planning and security of the
combined bulk electric transmission systems of the utilities. The group
has grown to include nine utilities. All transmission owners of the East
Central Area Reliability Council and MAIN have participated in the
development of the Midwest ISO. An order conditionally approving of the
Midwest ISO was issued by the FERC on September 16, 1998.
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Factors Affecting Results of Operations - Electric
System Reliability Matters" for additional information regarding certain
electric transmission projects and the Midwest ISO.
EDISON SAULT: Edison Sault's electric transmission system is directly
interconnected with the systems of Consumers Energy Company and Cloverland
Electric Cooperative. With completion of the Central Upper Peninsula
Transmission Project in the spring of 2000, Edison Sault will also be
interconnected with the electric transmission system of Wisconsin Electric.
Edison Sault is currently a member of the East Central Area Reliability
Council, another regional member of the North American Electric Reliability
Council.
GAS OPERATIONS
GAS DELIVERIES
Wisconsin Electric is authorized to provide gas service in designated
territories in the State of Wisconsin, as established by indeterminate
permits, certificates of public convenience and necessity, or boundary
agreements with other utilities.
Total gas therms delivered by Wisconsin Electric, including customer-owned
transported gas, were approximately 923 million therms in 1998, a 6%
decrease compared to 1997. At December 31, 1998, Wisconsin Electric was
transporting gas for approximately 310 customers who choose to purchase gas
directly from other suppliers. Transported gas accounted for approximately
46% of total therms delivered during 1998, 40% during 1997 and 31% during
1996. There were approximately 388,000 natural gas customers at
December 31, 1998, an increase of approximately 3.1% since December 31,
1997.
Wisconsin Electric's maximum daily send-out during 1998 was
619,578 dekatherms on January 13, 1998. A dekatherm is equivalent to ten
therms or one million British thermal units . Sales of gas fluctuate with
the heating cycle of the year and are also impacted by varying weather
conditions from year-to-year.
For further gas operating information by customer class, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Results of Operations - Gas Revenues, Gross Margins and
Therm Deliveries."
Wisconsin Electric's gas operations delivers natural gas to Wisconsin
Electric's Concord, Paris and Oak Creek Power Plants. Deliveries to these
facilities are at rates approved by the PSCW. See "Electric Operations -
Natural Gas-Fired Generation" above.
For information concerning Wisconsin Electric's expansion of natural gas
service to more than 4,500 potential customers in northeastern Wisconsin,
see Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Factors Affecting Results of Operations -
Outlook."
SALES TO LARGE GAS CUSTOMERS: Wisconsin Electric provides gas utility
service to a diversified base of industrial customers who are largely
within its electric service territory. Major industries served by
Wisconsin Electric's gas operations include the paper, food products and
fabricated metal products industries. During 1998, Wisconsin Electric's
electric operations took delivery of 8.5% of total therm deliveries
compared to 8.8% during 1997. See "Electric Operations - Sources of
Electric Energy" above for information about anticipated gas-fired electric
generation by Wisconsin Electric during 1999. No single retail customer of
the gas utility accounted for more than 2.8% of total gas therms sold and
transported during 1998.
COMPETITION: Competition in the natural gas industry is increasing,
driven by a combination of market forces and regulatory initiatives.
Natural gas companies are now operating in a competitive environment at the
wholesale level, and regulators in Wisconsin continue to evaluate
competition at the retail level. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Industry Restructuring and Competition"
for information regarding the PSCW's ongoing generic investigation into the
structure of the retail natural gas industry in the State of Wisconsin.
GAS SUPPLY
Wisconsin Electric's gas operations has entered into more than 60 gas
service contracts for supply, pipeline capacity, underground storage and
balancing services. Contracts vary in term from less than one year to ten
years. Gas supply contracts contain pricing options that allow pricing at
market rates or the ability to fix future prices for varying terms which
Wisconsin Electric can exercise to mitigate substantial market price
fluctuations. The gas from these contracts is used to meet customer
requirements on a daily basis and to fill storage during the warm months to
be withdrawn from storage during the heating season in order to meet system
gas demands.
The use of storage increases the load factor of supply contracts and allows
Wisconsin Electric to take advantage of seasonal price differentials.
Wisconsin Electric's gas operations has six firm gas storage agreements
with pipelines that allow daily withdrawals of 320,511 dekatherms and an
annual capacity of 19.5 million dekatherms. The initial terms of these
contracts vary with the last one expiring in May 2006. Gas stored at these
facilities is purchased by Wisconsin Electric from a number of suppliers.
Wisconsin Electric has 25 transportation contracts, the last of which
expires in 2006, that it uses to meet daily customer requirements and to
inject and withdraw from gas storage. In each case, subject to certain
provisions, Wisconsin Electric's gas operations can extend the terms of
these contracts at the time the agreements would otherwise expire.
Wisconsin Electric also has three contracts for salt dome storage that
provide seasonal gas supply backup in the event of well freeze-off or other
loss of supply.
STEAM OPERATIONS
Wisconsin Electric operates a district steam system in downtown Milwaukee
and the near south side of downtown Milwaukee. Steam is supplied to the
system from Wisconsin Electric's Valley Power Plant, a coal-fired
cogeneration facility. In November 1996, Wisconsin Electric acquired from
Milwaukee County the steam production and distribution facilities of the
Milwaukee County Power Plant located on the Milwaukee County Grounds in
Wauwatosa, Wisconsin. Wisconsin Electric operates these facilities as part
of its steam utility operations.
Annual sales of steam fluctuate from year to year based upon system growth
and variations in weather conditions. Primarily due to a warmer than
normal heating season, steam sales decreased 12% during 1998. At
December 31, 1998, steam was used by 454 customers for processing, space
heating, domestic hot water and humidification.
NON-UTILITY OPERATIONS
See "Note K - Segment Reporting" in Wisconsin Energy's Notes to Financial
Statements in Item 8. Financial Statements and Supplementary Data for
information concerning non-utility net income, net identifiable assets and
construction expenditures during each of the three years ended December 31,
1998.
NON-UTILITY SUBSIDIARIES
Wisconsin Energy's non utility subsidiaries include:
WISPARK CORPORATION: WISPARK Corporation ("Wispark") develops and invests
in real estate. While Wispark's core geographic area is southeastern
Wisconsin, it is currently developing properties in metropolitan
Minneapolis/St. Paul, Minnesota; Chicago, Illinois; and Sacramento,
California. Wispark's initial development, LakeView Corporate Park, a
1,500-acre business park located near Kenosha, Wisconsin, has developed 689
acres with over 6,500,000 square feet of buildings for 60 companies during
its first ten years of existence. Wispark is also developing or has
developed business parks such as those in the following locations:
* Westridge Business Park - New Berlin, Wisconsin;
* RidgeView Corporate Park - Pewaukee, Wisconsin;
* GrandView Business Park - Racine, Wisconsin;
* Business Park of Kenosha - Kenosha, Wisconsin:
* Grand Oak Business Park - Eagan, Minnesota;
* NorthWest Corporation Park - Elgin, Illinois; and
* White Oak Business Park - Aurora, Illinois.
In addition to developing business parks, Wispark has established itself as
one of southeastern Wisconsin's largest developers of industrial buildings.
In the last five years, Wispark has developed 2,700,000 square feet of
buildings on a build-to-suit basis, and just over 1,700,000 square feet of
other building space. Wispark has also developed mixed-use projects such
as Gaslight Pointe in Racine, Wisconsin. Wispark constructed a 120-room
Radisson Hotel and Conference Center in LakeView Corporate Park.
WISVEST CORPORATION: WISVEST Corporation ("Wisvest") invests in energy-
related entities and develops energy-related projects. Wisvest owns and
manages the chilled water production and distribution facilities that are
part of the Milwaukee County Power Plant on the Milwaukee County Grounds in
Wauwatosa, Wisconsin. Wisvest is also an investor in other energy-related
entities such as a strategic energy management services company with a
focus on natural gas management, a natural gas marketer, a company that
designs, builds and operates landfill gas recovery systems and a
cogeneration facility in the State of Maine, the Androscoggin Cogeneration
Center. Wisvest's subsidiary, Griffin Energy Marketing, L.L.C. markets
energy related services and trades electricity. See "Liquidity and Capital
Resources - Investing Activities" in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
information concerning the acquisition of the Milwaukee County Power Plant.
See "Note L - Commitments and Contingencies" in Wisconsin Energy's Notes to
Financial Statements in Item 8. Financial Statements and Supplementary Data
for information concerning the Androscoggin Cogeneration Center.
In October 1998, WISVEST Connecticut, LLC, a wholly owned subsidiary of
Wisvest, entered into an agreement to purchase two fossil-fueled power
plants in the State of Connecticut that is expected to be consummated in
the second quarter of 1999. See Item 1. Business - "Environmental
Compliance", Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Analysis - "Liquidity and Capital Resources -
Capital Requirements" and "Note L - Commitments and Contingencies" in
Wisconsin Energy's Notes to Financial Statements in Item 8. Financial
Statements and Supplementary Data for further information.
WISCONSIN ENERGY CAPITAL CORPORATION: Wisconsin Energy Capital
Corporation, formerly Wisconsin Michigan Investment Corporation, engages in
investing and financing activities. Activities include advances to
affiliated companies and investments in financial instruments and in
partnerships developing low-and moderate-income housing projects. Other
investments may be made from time to time. Wisconsin Energy Capital
Corporation's subsidiary, WMF Corp., engages in financing activities. Any
funds obtained by WMF Corp. through financing arrangements are advanced to
Wisconsin Energy Capital Corporation.
MINERGY CORP.: Minergy Corp. ("Minergy") is engaged in the business of
developing and marketing proprietary technologies designed to convert high
volume industrial and municipal wastes into value-added products. In 1998,
Minergy completed construction of and placed into commercial operation in
Neenah, Wisconsin a facility that recycles paper sludge from area paper
mills into two usable and salable products: glass aggregate and steam.
The plant also provides substantial environmental and economic benefits to
the area by providing a beneficial alternative to landfilling paper sludge.
For additional information related to the Minergy glass aggregate plant,
see Item 3. Legal Proceedings - "Other Matters" and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Liquidity and Capital Resources - Investing Activities."
WEC INTERNATIONAL, INC.: WEC International Inc. serves as Wisconsin
Energy's international investment vehicle. WEC International, Inc. has
investments in two joint ventures in the Netherlands. One joint venture
owns and operates a by-product utilization plant. The other joint venture
is in the process of renovating a waste treatment facility.
WITECH CORPORATION: WITECH Corporation ("Witech") is a venture capital
company operating in the State of Wisconsin. At December 31, 1998, Witech
had investments in eleven companies and three funds totaling more than
$34 million. Among others, the companies include an operator of a
nationwide data communications network for the agriculture industry, a
manufacturer of electronic components and a manufacturer of motor drives.
WEC NUCLEAR CORP.: WEC Nuclear Corp., formerly WEC Sub Corp., has an
ownership interest in Nuclear Management Company L.L.C.. Formed during the
first quarter of 1999, it is intended that Nuclear Management Company
L.L.C. will provide services to Wisconsin Electric in connection with Point
Beach Nuclear Plant as well as to other unaffiliated companies with nuclear
generating facilities. For additional information, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Factors Affecting Results of Operations - Nuclear Matters."
NORTHERN TREE SERVICE, INC.: Northern Tree Service, Inc., a former
subsidiary of ESELCO, is engaged in tree trimming in the State of
Michigan's eastern Upper Peninsula.
BADGER SERVICE COMPANY: Badger Service Company holds coal rights in
Indiana. Estimates indicate that 40 million tons of coal could be
recovered from this property with conventional mining techniques. However,
there are no current plans to develop the property. Badger Service Company
may sell or develop these rights in the future as conditions warrant.
NON-UTILITY RESTRICTIONS
For information concerning certain restrictions which limit diversification
of Wisconsin Energy in non-utility activities, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Rates and Regulatory Matters."
For information concerning restrictions on the ability of Wisconsin
Electric to transfer funds to Wisconsin Energy, see "Note A - Summary of
Significant Accounting Policies" in Wisconsin Energy's Notes to Financial
Statements in Item 8. Financial Statements and Supplementary Data.
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 various other matters. Wisconsin Electric and Edison
Sault are subject to the regulation of the MPSC 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 FERC. Wisconsin Electric and Edison Sault
are subject to regulation of the FERC with respect to wholesale power
service, electric transmission, and accounting. Operation and construction
relating to Wisconsin Electric's Point Beach facilities are subject to
regulation by the United States Nuclear Regulatory Commission. Total flow
of water to Edison Sault's hydroelectric generating plant is under the
control of the International Joint Commission, created by the Boundary
Water Treaty of 1909 between the United States and Great Britain, now
represented by Canada. Wisconsin Electric's and Edison Sault's operations
are also subject to regulations, where applicable, of the United States
Environmental Protection Agency ("EPA"), the Wisconsin Department of
Natural Resources ("WDNR"), the Michigan Department of Natural Resources
("MDNR") and the Michigan Department of Environmental Quality.
The PSCW is authorized to direct expenditures for promoting conservation if
it determines that the programs are in the public interest. For
information concerning evolving conservation requirements for utilities in
the State of Wisconsin, see "Energy Efficiency" below.
Wisconsin Energy is an exempt holding company by order of the United States
Securities and Exchange Commission under Section 3(a)(1) of the Public
Utility Holding Company Act of 1935 and, accordingly, is exempt from the
law's provisions other than with respect to certain acquisitions of
securities of a public utility.
In 1997, the Wisconsin State Legislature passed and the Governor of
Wisconsin signed into law Wisconsin Act 204, intended to address concerns
with electric reliability in the State of Wisconsin. Among other things,
Act 204 required the PSCW to replace the Advance Plan process with a new
Strategic Energy Assessment process. In January 1999, the PSCW issued its
final Advance Plan order, Advance Plan 8, approving Wisconsin Electric's
generation and transmission expansion plans essentially as filed. In
response to Act 204, the PSCW has replaced the Advance Plan process with a
non-binding Strategic Energy Assessment performed by the PSCW every two
years beginning in July 2000.
Wisconsin Act 204 includes new requirements concerning market power which
utilities and their affiliates must meet in order to construct generating
facilities. The requirements would 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. For additional
information concerning the PSCW's current utility affiliate rule making
efforts, see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Factors Affecting Results of
Operations - Industry Restructuring and Competition."
In 1994, the PSCW ordered the state's utilities to competitively bid all
new generation needs in excess of 12 megawatts to be built in the State of
Wisconsin. The two-stage process established by the PSCW consists of
(1) an all-parties (including utilities) bidding procedure for fossil-fueled
and renewable generation projects; and (2) the conventional Certificate of
Public Convenience and Necessity procedure for the winner or winners. In
the first quarter of 1997, the PSCW extended this to include repowering or
upgrades of existing generation in excess of 12 megawatts.
RATE MATTERS
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations- "Factors Affecting Results of Operations - Rates and
Regulatory Matters" for a discussion of rate matters, including recent rate
changes and a discussion of the tariffs and procedures with respect to
recovery of changes in the costs of fuel, purchased power and gas purchased
for resale.
ENERGY EFFICIENCY
The PSCW continues to mandate electric and natural gas energy efficiency
goals for Wisconsin Electric's residential, small commercial, and low
income customers. Goals for large commercial and industrial customers were
eliminated in 1997. During 1998, the PSCW continued its policy of moving
the accomplishment of small customer energy efficiency goals from utility
to non-utility providers. Wisconsin Electric supports this policy of using
a bidding process to hire non-utility providers to accomplish its goals.
Currently, Wisconsin Electric has contracts for 100% of its 1999
residential and small commercial energy efficiency goals. Wisconsin
Electric works cooperatively with state weatherization operators and
community organizations in achieving its low income energy efficiency
goals.
As noted above, Wisconsin Electric supports the move away from mandated
utility energy efficiency goals by the PSCW. However, as part of its
commitment to customer service Wisconsin Electric will continue to provide
its customers information on how to control their energy costs.
In a related matter, the Wisconsin State Legislature formed a committee to
study ways of preserving and enhancing various public benefits in a
restructured utility environment. Among other things, public benefits
include efforts to help develop the competitive market for energy
efficiency in the State of Wisconsin and the funding of energy efficiency
services for low income customers. The committee is using the PSCW's
Enunciation of Policy and Principles, as stated in Docket 05-BU-100, as the
foundation piece for its work, although the committee is expected to
recommend some changes. The general concept of the committee is that a
statewide entity would be charged with preserving public benefits. The
responsibility for achieving energy efficiency goals would shift from the
utility to this new entity. The goal of the new entity would be to have
energy efficiency improvements occur through the competitive market place.
It is likely legislation creating such an entity will be submitted in the
current legislative session.
Wisconsin Electric will continue to offer programs which provide customers
the incentive to move their energy use to times when Wisconsin Electric
facilities are less utilized. Interruptible and curtailable rates, along
with an energy cooperative-managed load curtailment program, are offered to
certain industrial customers to control peak demand. Direct load control
of central air conditioners is offered to most residential customers. Time-
of-use rates continue to be available to most customers. Real-time pricing
programs are also being offered to some customers.
ENVIRONMENTAL COMPLIANCE
Compliance with federal, state and local environmental protection
requirements resulted in capital expenditures by Wisconsin Electric of
approximately $23 million in 1998. Expenditures incurred during 1998
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 $4 million during 1999,
$54 million during 2000 and $118 million during 2001. The significant
increases in 2000 and 2001 are attributable to final ozone transport rules
that were issued by the EPA in October 1998.
Operation, maintenance and depreciation expenses for Wisconsin Electric's
fly ash removal equipment and other environmental protection systems are
estimated to have been approximately $37 million during 1998, $30 million
during 1997 and $32 million during 1996.
As noted above under "Non-Utility Operations," WISVEST Connecticut, LLC, a
wholly owned subsidiary of Wisvest, agreed to purchase two fossil-fueled
power plants in the State of Connecticut in a deal that is expected to be
consummated in the second quarter of 1999. As a result of this purchase,
WISVEST Connecticut, LLC will also be affected by the final ozone transport
rules that were issued by the EPA in October 1998. These rules will
require WISVEST Connecticut, LLC to reduce nitrogen oxide ("NOx") emissions
from the acquired plants by approximately 25% compared to historical
levels. Engineering and economic studies are currently underway to develop
alternative capital expenditure programs which would provide compliance
with the regulations at the lowest life cycle cost. These studies are
expected to be completed by December 31, 1999. Depending upon the form of
Nox reduction strategy that is implemented, WISVEST Connecticut, LLC
currently estimates that efforts to implement this strategy would cost
between $20 million and $35 million prior to May 2003.
Sub-surface, non-aqueous petroleum liquids have been identified at both
power plant sites that are being acquired by WISVEST Connecticut, LLC.
Based upon recent, preliminary environmental studies, the Company currently
estimates that it will incur approximately $2.7 million during the three
years ending December 31, 2001 to treat and remediate these sites. These
expenditures are expected to bring the two sites into compliance with
applicable standards in the State of Connecticut.
Expenditures for environmental compliance and remediation issues noted
above are included in anticipated construction expenditures described in
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Analysis - "Liquidity and Capital Resources - Capital
Requirements."
For discussion of additional environmental issues, see Item 3. Legal
Proceedings - "Environmental Matters." For further information concerning
the EPA's final ozone transport rules, see "Factors Affecting Results of
Operations - Environmental Matters" in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations. For further
information concerning WISVEST Connecticut, LLC's acquisition of the two
Connecticut power plants, see Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Analysis - "Liquidity and Capital
Resources - Capital Requirements" and "Note L - Commitments and
Contingencies" in Wisconsin Energy's Notes to Financial Statements in
Item 8. Financial Statements and Supplementary Data.
SOLID WASTE LANDFILLS
Wisconsin Electric and Edison Sault provide for the disposal of non-ash
related solid wastes and hazardous wastes through licensed independent
contractors, but federal statutory provisions impose joint and several
liability on the generators of waste for certain cleanup costs.
Remediation-related activity pertaining to specific sites is discussed
below.
ETSM PROPERTY/CITY OF WEST ALLIS: See Item 3. Legal Proceedings -
"Environmental Matters" for information concerning iron cyanide-bearing
wastes found at two sites in West Allis, Wisconsin.
MANISTIQUE RIVER/HARBOR AREA: In 1993, Wisconsin Electric and Edison
Sault received independent notifications from the EPA that they were being
named Potentially Responsible Parties ("PRPs") at the Manistique River /
Harbor Area of Concern in Manistique, Michigan. The EPA, with the MDNR,
had identified the Manistique River and Harbor as an Area of Concern due to
polychlorinated biphenyl (more commonly known as "PCB") contamination that
had been found in the area.
In 1993 and again in 1995, Wisconsin Electric responded to information
requests from the EPA concerning Wisconsin Electric's PCB and oil filled
equipment management in the Manistique River drainage basin. Wisconsin
Electric has no reason to believe that it is responsible in total or in
part for the PCB contamination in the Manistique River/Harbor Area of
Concern. Wisconsin Electric has not heard anything from the EPA regarding
this site since 1995.
Edison Sault submitted an Environmental/Cost Analysis to the EPA that
provided an analysis of six alternative methods of remediation and
ultimately recommended a remediation method of in-place capping. Edison
Sault believed this to be the most prudent course of action. During 1995
and 1996, the EPA agreed to allow active PRP's to remediate the harbor
through in-place capping at a cost of $6.4 million, with Edison Sault's
portion costing $3.2 million. Through further negotiations, the EPA and
the active PRP's agreed to a cash-out settlement under which the active
PRP's would pay to the EPA the $6.4 million cost of capping for the right
to be absolved from any future legal actions concerning PCB contamination.
To effect this settlement, all parties executed an Administrative Order on
Consent in December 1996, with payments made to the EPA prior to year-end
1996.
Edison Sault incurred a total cost of $3.6 million related to this matter.
Edison Sault has retained legal assistance to initiate a process of
recovering these costs from several insurance entities. Although four of
seven named insurers have settled to date with Edison Sault and legal
actions continue against the remaining insurers, Edison Sault can not
predict the certainty and magnitude of total insurance recoveries at this
time.
MARINA CLIFFS BARREL DUMP SITE: Wisconsin Electric received a special
notice letter and information request on March 25, 1994 from the WDNR. The
letter described a release of hazardous substances at a former barrel
reclamation facility and landfill site, and requested information on any
business dealings Wisconsin Electric may have had with this former
operation. Wisconsin Electric responded to this request in April 1994. An
additional request for information, or PRP letter, was received on
March 24, 1995. Wisconsin Electric responded to this request in April 1995.
Since that time a number of follow-up contacts have been made with the EPA.
Wisconsin Electric has no reason to believe that it is responsible for the
contamination problems at this site, but the EPA has identified Wisconsin
Electric as a De Minimis Party. The EPA has undertaken remediation
activities at the site. The first phase of such remediation has been
substantially completed. Recently, local residents have voiced concern
regarding use of the site. This publicity has led to additional fencing at
the site and may affect the remediation time table.
Wisconsin Electric has received an executed Buyout Agreement from major
participants at this site. Under the agreement, those participants have
assumed responsibility to complete the clean-up required by the EPA at this
site in return for Wisconsin Electric's payment of $30,000.
TRINITY CHEMICALS SITE: In late 1997, Edison Sault was notified by the
EPA that investigations were being conducted at the Trinity Chemicals site
in Kansas City, Missouri, to which Edison Sault may have shipped PCB-
related materials during the 1980's under legal, appropriate and accepted
industry standards. Edison Sault has answered various EPA interrogatories
which showed that Edison Sault appeared to have been a very minor
contributor to this site and has signed an Administrative Order of Consent,
paid a minimal and final assessment and has been released by the EPA from
future activities related to this site.
WEST AVENUE LANDFILL: Wisconsin Electric has been informed by the City of
Waukesha ("Waukesha") that it has been identified as a "responsible party"
at a former Waukesha landfill which Waukesha will be remediating under
Wisconsin state law. Waukesha has further indicated that it intends to
invoke a new statutory negotiation procedure to attempt to obtain
consensual agreement regarding responsible parties and cost sharing for the
remediation. Waukesha has hired a private environmental allocation
consultant to apportion cost shares in an attempt to promote voluntary
settlement. The consultant has issued a preliminary allocation report in
which assignment of a zero share was given to Wisconsin Electric. The
matter is pending.
ASH LANDFILLS
Wisconsin Electric aggressively seeks environmentally acceptable,
beneficial uses for its combustion products. However, combustion products
have been, and to some degree continue to be, disposed of in company-owned,
licensed landfills. Some 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. The costs of these efforts are
included in the environmental operating and maintenance costs for Wisconsin
Electric. Sites currently undergoing remediation include:
CEDAR SAUK LANDFILL: During 1997, Wisconsin Electric completed
installation of an upgraded cover to the closed Cedar-Sauk landfill,
located in the Town of Cedarburg, Wisconsin. In addition to a new cover,
the existing groundwater pumping system was removed from service. The
project was completed below the projected cost estimate of $4.5 million.
Future expenses at the site are expected to be minimal.
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 WDNR, 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 WDNR. Wisconsin Electric has
petitioned the City of Waukesha to extend city water service to residents
of the Town of Waukesha affected by contamination from site. The City
Council has agreed to extend service at Wisconsin Electric's cost. In
addition to providing city water to the nine affected residents, Wisconsin
Electric anticipates excavating saturated ash from and capping the
landfill. Total remediation cost for the site is anticipated 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 WDNR 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. Wisconsin Electric and the WDNR are currently
evaluating the results of this investigation. Cover upgrades, leachate
collection (if required) and possible site development will most likely
take place in the year 2000 at the earliest. No cost estimates for this
site will be developed until a work scope is finalized as a result of the
ongoing investigation.
PLEASANT PRAIRIE LANDFILL: A groundwater investigation at this site was
completed in 1997, and Wisconsin Electric is designing an alternative
system for surface water drainage and implementing modification to the
operations of the landfill, located in the Village of Pleasant Prairie,
Wisconsin, to address an isolated area of groundwater contamination.
Financial impacts to Wisconsin Electric are projected to be minimal.
MANUFACTURED GAS PLANT SITES
Wisconsin Electric is reviewing and addressing environmental conditions at
a number of former manufactured gas plant sites. See "Note L - Commitments
and Contingencies" in the Notes to Financial Statements in Item 8.
Financial Statements and Supplementary Data.
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 to the country's electric utilities are the acid rain and ozone
nonattainment provisions The acid rain provisions are scheduled to limit
sulfur dioxide and nitrogen oxide emissions in phases. Phase I became
effective in 1995 and Phase II will take effect in 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.
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Factors Affecting Results of Operations -
Environment Matters" for information concerning National Ambient Air
Quality Standards established during 1997 by the EPA and final ozone
transport rules promulgated by the EPA during 1998.
OTHER
YEAR 2000 TECHNOLOGY ISSUES: See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Year 2000 Technology Issues" for
information concerning the Company's efforts to examine and modify existing
software application and operational programs and hardware that are date
sensitive and may not be "Year 2000 Ready."
RESEARCH AND DEVELOPMENT: Research and development expenditures by
Wisconsin Electric amounted to $7.5 million in 1998, $8.5 million in 1997
and $5.7 million in 1996. Such expenditures were primarily for improvement
of service and abatement of air and water pollution. Research and
development activities include work done by employees, consultants and
contractors, plus sponsorship of research by industry associations.
EMPLOYEES: As of December 31, 1998, the Company added approximately 650
employees compared to December 31, 1997, including approximately 600 new
employees at Wisconsin Electric. About half of the new employees at
Wisconsin Electric replaced existing contract employees, including 210 from
Upper Peninsula Power Company, an unaffiliated investor owned utility which
operated Presque Isle Power Plant under contract since Wisconsin Electric
acquired the plant in 1987. Wisconsin Electric added additional employees
during 1998 to fill vacant positions that occurred while Wisconsin Energy
was pursuing a merger with Northern States Power Company and to support key
areas such as nuclear operations as well as customer and information
services. The acquisition of Edison Sault during 1998 added approximately
70 employees who did not work for the Company during 1997. At December 31,
1998, the following number of individuals were employed by Wisconsin Energy
and its subsidiaries.
Full Time Part Time Total
--------- --------- -----
Utility
Wisconsin Electric 5,111 151 5,262
Edison Sault 68 3 71
----- ----- -----
Total Utility 5,179 154 5,333
Non-Utility 68 3 71
----- ----- -----
Total Employees 5,247 157 5,404
===== ===== =====
Of these employees, the following number of individuals were represented
under labor agreements with the following bargaining units as of
December 31, 1998.
Expiration Date of Current
Number of Employees Labor Agreement
-------------------- --------------------------
Wisconsin Electric
Local 2150 of International
Brotherhood of Electrical Workers 2,564 August 15, 2001
Local 317 of International
Union of Operating Engineers 501 January 1, 2000
Local 12005 of United
Steel Workers of America 193 November 3, 2001
Local 7-0111 of Paper, Allied-
Industrial Chemical & Energy
Workers International Union 67 November 3, 2001
Local 510 of International
Brotherhood of Electrical Workers 158 May 1, 2000
-----
Total Wisconsin Electric 3,483
Edison Sault
Local 13457 of United
Steel Workers of America 49 October 31, 2001
Non-Utility -
-----
Total Employees 3,532
=====
For anticipated employee additions during 1999, see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Factors Affecting Results of Operations - Outlook."
ITEM 2. PROPERTIES
The principal properties of Wisconsin Energy and its subsidiaries are owned
in fee except that the major portion of utility electric transmission and
distribution lines and steam distribution mains and gas distribution mains
and services are located, for the most part, on or in streets and highways
and on land owned by others. Substantially all utility plant is subject to
first mortgage liens.
WISCONSIN ELECTRIC: Wisconsin Electric owns the following generating
stations with 1998 capabilities as indicated.
Dependable Capability
No. of In Megawatts (a)
Generating August December
Name Fuel Units 1998 1998
- ---- ------- ---------- ------ --------
Steam Plants
Point Beach (b) Nuclear 2 1,000 1,010
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 4 326 327
Valley Coal 2 267 227
Edgewater (c) Coal 1 98 98
Milwaukee County Coal 3 11 11
-- ----- -----
Total Steam Plants 27 4,654 4,639
Hydro Plants (15 in number) 37 63 67
Germantown Combustion Turbines Oil 4 212 252
Concord Combustion Turbines Gas/Oil 4 332 376
Paris Combustion Turbines Gas/Oil 4 332 376
Other Combustion Turbines & Diesel Gas/Oil 6 59 75
-- ----- -----
Total System 82 5,652 5,785
== ===== =====
(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) During an outage that began in December 1998, Wisconsin Electric
replaced Unit 2's low pressure turbine rotors which is expected
to increase its maximum dependable capability from 500 to
approximately 510 megawatts. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Nuclear Matters."
(c) Wisconsin Electric has a 25% interest in Edgewater 5 Generating Unit,
which is operated by Wisconsin Power and Light Company, an
unaffiliated utility.
At December 31, 1998, Wisconsin Electric's electric transmission and
distribution system had 2,855 miles of transmission circuits, of which
639 miles were operating at 345 kilovolts, 123 miles at 230 kilovolts,
1,704 miles at 138 kilovolts, and 394 miles at voltage levels less than 138
kilovolts. At December 31, 1998, Wisconsin Electric was operating 21,927
pole miles of overhead distribution lines and 16,295 miles of underground
distribution cable, as well as 350 distribution substations and 233,726
line transformers.
As of December 31, 1998, the gas distribution system included approximately
7,895 miles of mains connected at 21 gate stations to the pipeline
transmission systems of ANR Pipeline Company, Natural Gas Pipeline Company
of America and Northern Natural Pipeline 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 tanks for peaking purposes.
These tanks will provide approximately 7,000 dekatherms of supply to the
system.
At December 31, 1998, 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.
EDISON SAULT: Edison Sault's major source of electric energy is its
29.8 megawatt hydroelectric generating plant on the St. Marys River in
Sault Ste. Marie, Michigan. In addition, Edison Sault owns and operates a
4.8 megawatt diesel-fired peaking power plant.
Edison Sault owns two 138 kilovolt submarine transmission cable circuits
which interconnects with Consumers Power Company in the Lower Peninsula of
Michigan, as well as two 138 kilovolt substations which interconnect with a
46 mile, 138 kilovolt transmission line owned and operated by Cloverland
Electric Cooperative. In total, Edison Sault had 282 miles of transmission
line in service as of December 31, 1998 and maintained 792 miles of
primary distribution lines. Edison Sault renders service to its customers
through approximately 8,600 line transformers.
NON-UTILITY: Wispark properties include the following commercial and
industrial parks in the State of Wisconsin: LakeView, located near
Kenosha; GrandView in Racine County, RidgeView in Pewaukee; and Westridge
in New Berlin. Wispark also owns Gaslight Pointe, a residential and
commercial complex located in Racine, the Radisson Hotel and Conference
Center in Kenosha plus other properties located in Wisconsin Electric's
service territories that are held for future development. Wispark is also
developing other real estate property located in the States of California,
Illinois and Minnesota.
Wisvest owns a chilled water production and distribution facility located
in Milwaukee County, Wisconsin; Minergy owns a glass aggregate facility
located in Neenah, Wisconsin; and Badger Service Company holds rights to
coal in an area of 8,568 acres in Knox County, Indiana.
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and certain local laws and
regulations governing the environmental aspects of its operations. The
Company believes that, with immaterial exceptions, its existing facilities
are in compliance with applicable environmental requirements.
See Item 1. Business - "Environmental Compliance", which is incorporated by
reference herein, for a discussion of matters related to certain solid
waste and ash landfills, manufactured gas plant sites, and air quality.
ETSM PROPERTY/CITY OF WEST ALLIS: Iron cyanide-bearing wastes, believed
to be manufactured gas plant process wastes, were found at two sites in
West Allis, Wisconsin. One site is on property formerly owned by Kearney
and Trecker, which was sold to others (including Wisconsin Electric) prior
to the discovery of the wastes, and the other is the "Greenfield Avenue"
site, owned by the City of West Allis. Several years ago, materials were
removed from the "Kearney & Trecker" site, with Wisconsin Electric and the
other current owners paying for disposal of materials found on their
respective portions of the site.
On July 25, 1996, Giddings & Lewis, Kearney & Trecker and the City of West
Allis filed an action for damages in the Milwaukee County Circuit Court
against Wisconsin Electric, alleging that Wisconsin Electric was
responsible for the deposition of the material and liable to the
plaintiffs. Investigations into the potential source of the waste lead
Wisconsin Electric to believe that it was not the source of this waste.
Wisconsin Electric has joined Wisconsin Gas Company, an unaffiliated
natural gas utility which had extensive gas manufacturing operations in the
Milwaukee area, as a third party defendant. Trial in this matter is
scheduled for June 1999.
Wisconsin Electric has been named a defendant in a second action relating
to the waste material at the "Kearny and Trecker" site. That action is a
contract action brought by an environmental remediation contractor for
payment for investigative work for Giddings and Lewis. Giddings and Lewis
counterclaimed because of the non-discovery of the material. The
contractor joined Wisconsin Electric on a contribution theory. The court
has issued a decision in this matter which denies Giddings & Lewis any
substantial recovery from the remediation contract or the counterclaim by
Giddings and Lewis. That decision is on appeal. If upheld, Wisconsin
Electric will have no liability in this proceeding.
RATE MATTERS
WISCONSIN RETAIL JURISDICTION: See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Rates and Regulatory Matters" for
information concerning (1) rate orders issued by the PSCW for the 1996,
1997 and 1998 test years, (2) an interim rate order issued by the PSCW for
the 1998 test year, (3) Wisconsin's fuel cost adjustment procedure, (4) a
fuel surcharge approved by the PSCW during 1997, (5) approval by the PSCW
during 1997 for Wisconsin Electric to defer certain excess non-fuel nuclear
operation and maintenance costs, and (6) Wisconsin's purchase gas
adjustment mechanism.
MICHIGAN RETAIL ELECTRIC JURISDICTION: See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"Factors Affecting Results of Operations - Rates and Regulatory Matters"
for information concerning (1) 1998 test year information filed by
Wisconsin Electric with the MPSC, (2) a Wisconsin Electric rate order
issued by the MPSC for the 1996 test year, (3) Edison Sault's temporary
price cap approved by the MPSC, and (4) Michigan's Power Supply Cost
Recovery Clause.
WHOLESALE ELECTRIC JURISDICTION: Some customers served under Wisconsin
Electric's and Edison Sault's wholesale rates are subject to automatic fuel
adjustment or purchased power pass through provisions to reflect varying
fuel and purchased power costs.
OTHER MATTERS
MINERGY GLASS AGGREGATE PLANT SUIT: In 1996, three individuals and two
environmental organizations filed an action in Circuit Court for Winnebago
County against Minergy Corp., a non-utility subsidiary of Wisconsin Energy;
the City of Neenah, Wisconsin; and a paper company, challenging the
legality of the City's lease of certain land to Minergy for construction
and operation of a facility that recycles paper sludge from area paper
mills into glass aggregate and steam. The plaintiffs alleged that the
lease violated the public trust doctrine under Wisconsin law and requested
that the court declare the lease a public nuisance and grant a permanent
injunction against construction of the facility. The court dismissed the
plaintiffs' complaint and Minergy completed construction of the facility,
placing it into commercial operation in April 1998. The plaintiffs
appealed the circuit court decision to the Wisconsin Court of Appeals which
certified the case to the Wisconsin Supreme Court. On July 2, 1998, the
Supreme Court reversed the decision of the circuit court, holding that the
plaintiffs may bring suit under a Wisconsin statute to abate a public
nuisance. The case was remanded to the circuit court which, on
February 23, 1999, issued a decision dismissing all claims against Minergy
and the other defendants.
PITTSBURG & MIDWAY CASE: In a matter brought before the FERC, Wisconsin
Electric filed an initial brief in July 1993 supporting its right to retain
coal reclamation costs collected through the wholesale fuel adjustment
clause in 1986 that it believes were prudently incurred in a settlement
with the Pittsburg & Midway Coal Mining Company. Of the total costs
involved, the portion recovered through the wholesale fuel clause amounts
to approximately $750,000. This filing was made in response to a FERC
audit staff determination that Wisconsin Electric should have applied for a
waiver for the FERC's fuel clause regulations in order to attempt to pass
through the wholesale portion of the settlement costs. On December 13,
1995, the administrative law judge issued an initial decision that
Wisconsin Electric was required to refund the portion of such cost
collected from its wholesale customers The administrative law judge's
initial decision found in favor of Wisconsin Electric with respect to the
prudence of the administration of the coal contracts. The matter is
pending before the full commission.
In November 1993, the FERC rejected Wisconsin Electric's request to be
allowed to recover, in wholesale rates in the future, the amount which may
have to be refunded to customers in the event of an unfavorable ruling in
the pending fuel adjustment clause proceeding concerning the Pittsburg &
Midway reclamation charges. In January 1994, Wisconsin Electric filed an
appeal with the U.S. Court of Appeals for the District of Columbia Circuit
regarding this rejection . The matter is pending.
POINT BEACH NUCLEAR PLANT: See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "Factors
Affecting Results of Operations - Nuclear Matters" 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 by
January 31, 1998.
URANIUM ENRICHMENT CHARGES: On October 11, 1996, Wisconsin Electric and
six other utilities filed an action in the U.S. Court of Federal Claims
appealing a final October 1995 decision by the United States Department of
Energy's contracting officer, which denied claims of the utilities for
damages by reason of overcharges for uranium enrichment services provided
under Utility Services Contracts between October 1, 1992 and June 30, 1993.
The damages sought by Wisconsin Electric total $1.3 million. On
December 1, 1997, the government filed a motion for judgment on the
pleadings based upon a prior decision of the U.S. Court of Appeals for the
Federal Circuit in a related matter. On August 12, 1998, the U.S. Court of
Federal Claims granted the government's motion for summary judgment,
dismissing the utilities' complaint. On October 9, 1998, Wisconsin
Electric and the other utilities filed an appeal with the U.S. Court of
Appeals for the Federal Circuit. The matter is pending.
WISCONSIN INTERNATIONAL ELECTRIC POWER LITIGATION: On March 25, 1998,
Wisconsin International Electric Power, Ltd. ("WIEP") filed an action
against Wisconsin Electric in Milwaukee County Circuit Court alleging that
WIEP and Wisconsin Electric were parties to a joint venture to develop,
build, operate and maintain an electric generating plant at Subic Bay in
the Philippines involving certain equipment ori