ML20084S541

Wisconsin Electric Power Co Annual Rept 1983 & Annual Financial Statement

ML20084S541
Person / Time
Site:	Point Beach
Issue date:	12/31/1983
From:	Britt R WISCONSIN ELECTRIC POWER CO.
To:	NRC
References
NUDOCS 8405250196
Download: ML20084S541 (51)

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f Wisconsin Electric Power Comp ny Syst;m Energyin Transition

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The past 10 years have been a time of transition ing our power plant construction for the 1980s for the electric and gas utility industry. In the by $1.5 billion.The result has been increased years following the Oil Embargo, the economics of earnings for stockholders and lower rates the electric utility business turned completely for customers.

around. No longer was bigger necessarily better, The period between now and the year 2000 nor was unrestricted growth the best course for will again be one of transition for Wisconsin Electric.

utilities. The old rules had changed. With the major part of our construction program Our nation's concern with energy, the envi- behind us,we look forward to stability in financial ronment and consumer issues in the 1970s had matters and energy rates.We believe it will be a a significant effect on utility companies. Changing time to try new ideas, perfect the innovative meth-lifestyles and a recession slowed the demand for ods developed in the past decade, work to further service. And the cost of doing business, fueled by improve customer service and help develop the high inflation, increased sharply. communities we servo.

Wisconsin Electric moved quickly to incorporate The future is already being addressed at these new realities into our business philosophy. Wisconsin Electric, and our efforts are embodied We established programs to control peak demand in the theme of this annual report, Energy for electricity and pioneered in load management in Transition.

efforts. We aggressively promoted conservation and Annual Meeting took the lead in establishing innovative time-of-The annual meeting of Wisconsin Electric Power Co.

use electric rates in an effort to reduce the need stockholders will be held at 2 p.m. on May 9,

' for expensive new power plants.

1984 at the Red Carpet Hotel,4747 S. Howell Ave.,

It was a time of change and those years were Milwaukee, Wis. In order to ensure your partic-difficult ones. i ation in the annual meeting, we encourage you Today,the decade of transition following the to vote, sign and return your proxy promptly.

0;l Embargo is complete.Our program to control peak electric demand has been successful, reduc-

1 Highlights Per Cent 1983 1982 (oec 7as'e$

Earnings per Share of Common Stock $3.97 $3.60 10.3 Dividenas per Share of Common Stock $2.06 $1.902 8.3 Total Operating Revenues $1,417,564,000 $1,302,910,000 8.8 Earnings Available for Common Stockholdeis $ 134,870,000 $ 116,558,000 15.7 Average Number of Common Shares Outstanding 33,939,000 32,402,000 4.7 Electric Sales to Retail, Municipal and Cooperative Customers (thousand KWH) 17,629,418 17,059,317 3.3 Gas Sales (thousand therms) 609,013 632,326 (3.7)

Retail, Municipal and Cooperative Customers (year-end)

Electric 822,112 818,843 0.4 ,

Gas 221,197 217,983 1.5 j l

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Wisconsin Electric Power Company System 2 Report to Stodholders By just about every measure,1983 was another circumstances change. That concept is part of year of sound progress for Wisconsin Electric Wisconsin Electric's conservative approach to Power Co. The company's financial performance financial and accounting matters, and our innovative was strong as revenues, earnings and dividends load management, conservation and rate programs.

all increased,while at the same time the market Wisconsin Electric is recognized as one of price of our common stock continued to climb. the nation's leading utilities, a position that was Revenues in 1983 were up 9 percent over enhanced in early 1984 with the announcement 1982, and earnings per share of common stock by Moody's investor Service that the company's rose from $3.60 a share in 1982 to $3.97 in 1983. first mortgage bonds had been upgraded to a It was the third year in a row of solid earnings Triple-A rating.

improvement. The manageable size of our construction Common stock dividend payments were in- program is one of the factors which sets Wisconsin creased for the 23rd consecutive year, from $1.90 Electric apart from most of the nation's utilities l a share in 1982 to $2.06 in 1983. Common and enhances the company's future prospects.

l dividend payments have risen 40 percent in the Similarly, the favorable fuel mix used to generate past five years. electricity has allowed Wisconsin Electric to keep i lt has long been management's belief that rates among the lowest of the nation's major investors should carefully examine '

• a utility's metropolitan areas.

performance and basic financial sin onths. All util- Last year 96 percent of the electricity gener-it.es are not alike, and differences in manage- ated by the company came from coal and nuclear ment philosophy, construction needs,long-term plants, with higher priced oil and natural gas ,

strategy and regulatory environment should used only at times of peak demand.We expect to 1 be evaluated carefully. continue to rely on this favorable generation mix.

In the utility business today, we believe it is it is noteworthy that, along with our outstanding important to maintain the flexibility to change as financial performance, Wisconsin Electric was able

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dk E D:3 Y2-"~1 E jY EQFT7 Ehtm M[# J E i U M ' C h E flD h O C , J l k GE~~ MHf to reduce electric rates in 1984 for the first time While energy production will always be the foun-in 18 years. Because of the moderate size of dation of our business, the needs and expecta-our construction program and lower inflation, we - tions of society demand a greater dimension for expect both gas and electric rates to remain the successful utility in the years ahead. We will relatively stable during the next few years. continue to pioneer and expand energy services to Among other highlights of1983 were: customers. We will capitalize on our inherent tech-e Our efforts to form a holding company, nological expertise and marketing capabilities in which we believe will be beneficial to stockholders the field of energy. We will continue to improve and customers alike, gained momentum in 1983 our operations for the benefit of stockholders, and will continue in 1984. customers and the communities we serve.

e in its first year, our economic development We face the future with confidt - e, believing program " Wisconsin Business is in a Fine State"- we can contribute to, and benefit from, the years of succeeded in creating or retaining more than Energyin Transition.

1,500 service areajobs. l e Wisconsin Electric'sindustryleadershipin y[

-'-W -j-I consumer matters was reaffirmed in 1983 with the introduction of several new energy assistance Charles S. McNeer programs for low-income fami!ies, older adults Chairman of the Board and and customers with disabilities. Chief Executive Officer e We launched a new series of programs l aimed at helping customers make more efficient W ,

use of energy.

RussellW. Britt Because of our pragmatic approach,we enter President and the new era of Energyin Transiflon financially chief operating officer healthy and optimistic about the future.- March 16,1984

-- - - - . . -l Wisconsin Electnc Power Company Systera 4 Looking to the h,ilure  :

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u4 Wisconsin Electric moved forward on many fronts present subsidiaries, Wisconsin Natural Gas Co.

In 1983 to develop new strategies and programs and Badger Service Co. In addition three nor necessary to operate successfully in the changing utility subsidiaries would be ready to move ahead energy climate of the future. with investments to help keep businesses in our Our load control programs and innovative rate service area,with production and marketing of new structure-strategies considered controversial technologies developed in Wisconsin, and with when they were first introduced-have been highly commercial and industrial development parks near company installations.

successful, contributing significantly to the company's performance in the past few years. These powerful concepts comprise an idea we Now we are proposing another element in believe will provide a strong boost to our service . ,

our plan to move forward in the new era of Energy area's drive for economic recovery.

in Transition. In 1983,we filed a restructuring The holding company formation would benefit plan with the Public Service Commission of Wisconsin stockholders, customers and the entire area we which would establish a new holding company serve. Stockholders would have an opportunity with non-utility subsidiaries.This organization holds for an improved return on their investment, and the great promise for the company's future develop- people in our area would benefit from businesses ment and success, and jobs created by the non-utility subsidiaries. In ]' ~

The proposed holding company would become addition, state and local governments would bene- g fit from taxes paid by new or expanding firms. '

r-the parent company of Wisconsin Electric and its Legislation to permit utility holding companies fell one vote short of floor action during a special session of the Wkconsin Legislature in October 1983. .L lt is encouraging that the plan continues to receive Gh

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broad support, including backing of the governor, Stringent cost controls have also been effec- l lieutenant governor, leaders of both political parties tive at Wisconsin Natural. Despite price increases in both houses of the legislature, PSCW commis- from the pipeline supplier, only three rate increases sioners and major newspapers and television were necessary since 1976 to cover other oper-stations. If acceptable approvals are received, ating cxpenses. A request for a modest increase in stockholders will have a chance to vote on the gas rates for 1984 has been filed with the holding company idea before we proceed with the PSCW and a decision is expected later this year.

restructuring plan. In another project aimed at improving operat-Another initiative that came to fruition for our ing efficiency, construction began in December l Wisconsin retail customers at the beginning of 1984 on an annex and parking structure adjacent to our was an electric rate decrease. Cost cutting efforts, headquarters office in Milwaukee. The 415,000 lower than expected inflation and an improved square-foot addition will allow consolidation of the economy made the $19 million reducticn possible. 1,800 employes now located in six downtown Even with this rate decrease, the company's 'inancial buildings. Completion of the project is planned for position remains strong, which will allow us to 1986. The company's existirig corporate office continue our program of steady and increasing building was completed in 1905.

dividends to stockholders.

With the price reduction, Wisconsin Electric's already low rates will compare even more favorably with other areas of the country where many utilities have major rate requests pending.This factor is expected to further improve our ability to attract and retain business through our economic develop-ment program.

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' The task of rejuvenating a sluggish economy in businesses related to the forest products industry.

Wisconsin and the Upper Peninsula of Michigan A major effort has been directed toward trade '

hrs presented a major challenge for business, with Scandinavian countries.

government and laborleaders. In both Wisconsin and Michigan,we are able to i Responding to that challenge, Wisconsin Electric point to ample, low-cost energy. Our industrial

{ launched an expanded economic development effort electric rates are lower than surrounding states and l in late 1982 with the therne," Wisconsin Busi- more than competitive with the Sun Belt. Our

} ness Is in a Fine State" We also took the lead in residential electric rates are among the lowest of l a similar activity in our Upper Michigan service area. the country's largest metropolitan areas, and we i The Wisconsin campaign stresses the positive exptict to see an even greater advantage in electric changes made in the state's tax laws in the 1970s, rates in the years ahead.

highlights Wisconsin's higher-than-average labor pro. Advertising in regional and national publications ductivity and cites the advantages of working and has led to more than 450 contacts from firms living in the Midwest's vacationland. In Upper considering expansion or relocation of their business

! Michigan, our economic development staff is work- operations.These contacts have resulted in a ing closely with service area groups to attract number of new businesses in our service area.

These successes didn'tjust happen.They followed intensive efforts by Wisconsin Electric, i

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y WtRONuN BUSINESS 15 IN A FINE STATL wb along with local development of ficials, business park is being developed by representatives of organizations, colleges and universities, and other Wisconsin Electric, local businesses, the Fox Cities utilities. Chamber of Commerce and Industry and FVTI.

We are working closely with the Southeastern The land-use plan willinclude a research and Wisconsin Regional Planning Commission to develop development center, an " incubator" mall for small community and regional profiles, and analyze the businesses, training headquarters for industries and need for additionalindustrial sites in the region. a demonstration marketing center.

These studies include recommended sites The success of our company is tied closely to for future industrial parks, such as one in the the economic health of Wisconsin and the Upper planning stage adjacent to our Pleasant Prairie Peninsula of Michigan.We are pleased to be a part Power Plant in Kenosha County. Land is being of a large cooperative effort involving business, acquired at this site which will allow the company labor, government and education to bring more to provide steam or heat to new industrial firms and business to the area we serve.

improve the power plant's efficiency.

Another cooperative vc iture is taking place in the Appleton area next to the Fox Valley Technical Institute, where a land-use plan for an industrial

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5 Plentiful supplies of energy were available electncity demand. Almost 92,000 of these control  ;

for Wisconsin Electric and Wisconsin Natural units have been installed on the water heaters of customers in 1983, and we anticipate no change residential and farm customers. Participation [

in that outlook for the future. in this load control program is voluntary and those -

Extremely hot weather dunng the summer who take part receive a monthly credit on their -

climaxed with a 99 degree reading in Milwaukee eiectric viis.  :

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July 21. That day brought a record system demand Another important facet of load management  ;

for electricity of 3,555,000 kilowatts, surpassing is a time-of-use pricing structure which encourages the previous record of 3.452.000 kilowatts estab- the shifting of energy use to off-peak time. More lished in 197 7. than half of the electricity sold by the company in i Similarly, unseasonably cold weather in Decem- 1983 was billed on time-of-use rates.

ber 1983 led to near record demand for natural Combined with customer conservation, load .

gas from our subsidiary, Wisconsin Natural Gas Co. control programs have been successfulin reducing -

All 'irm customer demands were met without cur- the need for expensive new power plants. By tailment of service. deferring the costs of financing and building these Electric load control programs played an impor- plants, stockholders benefit because lower costs l

tant role during the summer heat wave.One maintain the financial strengtn of the company and l

program, which allows us to remotely and selectively improve earnings poteritial. Customers also benefit turn off customers' water heaters for short penods, because rates can be held at lower levels.

was utilized throughout the year to control peaks in As a result of these programs to control growth in peak use of electricity, demand on the WE System is expected to increase at a modest rate of about 2 percent a year for the remainder of the century. The only additional power plant units

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planned for operation before the late 1990s are tubes in Unit 2 at Point Beach where corrosion the 580.000 kilowatt Unit 2 at our Pleasant Prairie has been less severe. Unit 2 was cited during the Power Plant and a 25 percent share of a 380,000 year as the nation's most reliable nuclear unit over kilowatt facility being built by another utility. the previous three years. The tube repair should Both are scheduled to begin produci7g electricity ensure that the unit maintains its outstanding in 1985. operating record.

With these two units on IIne, more than half East Wells Power Plant, which was retired at of our generating capability will be less than 15 the end of 1982, has been donated to the Milwau-years old. We plan to continue to use coal and kee Repertory Theater-Milwaukee Redevelopment uranium -our most economical and available Corp. joint venture to be the cornerstone of a newly fuels for more than 95 percent of our formed theater district in downtown Milwaukee.

generating output during the next 20 years. East Wells is e national engineering landmark where To improve our nuclear generation, new steam the use of pulverized coal was successfully tested generators are being installed in Unit 1 at the in 1919.

Point Beach Nuclear Plant. The equipment will correct Another pioneer of the electric utility industrv, a corrosion problem that has limited the unit to the 310.000-kilowatt Lakeside Power Plant, was 75 percent of its capacity. When the unit is returned retired in the autumn of 1983. When it began to operation at full capacity in spring of 1984,it operation in 1921. Lakeside was called the world's will provide an additional 900 million kilowatt-hours power plant laboratory because of the many innova-of low-cost electricity annually for WE customers tions it pioneered. It was the first power plant and a rapid pay-back on the ad .J investment. in the world to burn pulverized coal exclusively.

Earlier in 1983, the company completed successful repah of a portion of the steam generator

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k Our responsibility as a good corporate citizen gram. Older adults and customers with disabilities goes hand in hand with our responsibility as are referred to a compr.ny employe who becomes E an energy supplier. While our first and foremost a personal energy advisor to provide help with goal is to provide dependable energy services at energy-related questions or concerns. _

reasonable prices, we also feel a strong commit- e A telecommunicatinns device for hearing -

ment to be good negnoors to those we serve. impaired customers. They may obtain billing service Our companies continue to develop innovative pro-i and customer information from Wisconsin Elec- r grams to irnprove service to our customers. tric by using telephone teletype equipment in their During 1983, Wisconsin Electric launched the homes or at social service agencies to communicate i Good Neighbor Energy Program which provides with the company. The service makes communi-spe .alized company services for older adults, cation easier for the thousands of hearing-impaired customers with disabilities and customers experi- customers in our service territory.

encing financial difficulties. The program includes: Wisconsin Electric was among 74 utilities recog-e The Gooo Neighbor Energy Fund for cus- nized in 1983 for establishing privately funded tomers with energy bill problems. programs to help low income and elderly cus-e Assignment of a companyliaison for cus. tomers pay their energy bills. Charles McNeer, tomers enrolled in the Good Neighbor Energy Pro. chairman of the board, was one of six utility execu-tives who described their programs at a White House ceremony in Washington D.C. in late 1983.

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ga g C G The Wisconsin Electric Good Neighbor Fund consin Natural energy specialists conducted a began in February 1983 with a $100,000 company total of 26,400 home energy checkups to bring to contribution. The fund grew to $268,000 with more than 100,000 the number of surveys per-pledges from 12,000 customers and 1,200 em- formed since the program began six years ago.

ployes. Designated commur.ity organizations identify Energy checkup specialists make recommen-people in need and administer the distribution dations on insulation, storm windows and doors, of assistance.

weatherstripping, caulking, thermostat settings, Dialague between the company and its timing devices and appliance efficiency.

customers continued in 1983 through our Con- Other company programs include the Energy sumer Advisory Council. Council members and Facts P:.one featuring coriservation messages, company officials meet monthly to exchange views weatherization services, a " Wrap-up, Seal-up" and discuss energy-related issues. The 19-member program for electric water heating customers, and council repn ants a wide range of consumer promotion of energy conservation through media groups, including labor, commercial and industrial advertising, booklets and community presentations.

consumers, minority groups, farmers, elderly, handicapped, education, environmental and ad-vocacy organizations.

Energy conservation continues to be an impor-tant element in helping customers use our services effectively. During 1983 Wisconsin Electric and Wis.

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As Wisconsin Electric moves forward in an era of dependence upon limited oil and LP gas supplies.

modest load growth, we are looking beyond our Energy cost savings of up to 33 percent have been load management and conservation programs realized by customers using electric coil heaters, which have been instrumentalin controlling the along with existing oil or LP gas furnaces, during peak demand for electricity. Wisconsin Electric and penods when lower cost time of use rates are Wisconsin Natural are committed to conservation in effect. This program is expected to be extended and the wise use of energy. We are, howeser. to other parts of our service area in 1984.

pursuing creative programs designed to retain Wisconsin Electric also is cooperating with our natural gas loads and encourage selective use equipment distnbutors to promote the use of of electnc equipment which will reduce customers' electric heat pumps which provide air conditioning total energy bills. in summer and lower cost heating in winter.

Activities have been started that will give cus WE research on heat pumps in the Wisconsin tomers cost saving alternatives in heating and area shows that annual savings range between I cooling, and at the same time nnke more officient $50 to $150 depending on the type of fuel replaced i use of our generating capacity and improve revenues- and the size of the home. It is expected that l A pilot program to encourage the installation even greater savings will result as the cost of home of dual f uel heating systems was made available to heating fuel rises.

l om customms in Wisconsin's Fox Valley area in Conservation is the key word in Wisconsin 1981 The program was initiated to reduce cus- Natural's program to promote high. efficiency gas tomers' total annual heating costs and to reduce appliances. Through educational sessions with dealers and customers.WN representatives point out the advantages of these energy sasing appli ances which give more value to the customer while retaining natural gas sales for the company.

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$W A comprehensive residential electric rate study Alternate fuels for vehicles are being tested by

. _ began in September 1983, which will measure the both Wisconsin Electric and Wisconsin Natural.

impact of 11 different rates. The two-year study WE is studying whether developments in electric i involves approximately 1.400 participants, chosen vehicles have made their use practicalin Wiscon-randomly from among WE's more than 740,000 sin's winter driving conditions and traffic.

residenual customers. Customer groups are carefully Wisconsin Natural is iesting vehicles running monitored to determine what effect different rate 90 percent of the time on compressed natural structures have on electricity use. The study is also gas. Fuel efficiency, maintenance requirements measuring how company communications influ-and engine exhaust emissions are being checked.

ence customer energy use. A successful test of the system could lead to The concept for the rate design study conversion of manyof the WN vehicles in the originated with WE's Consumer Advisory Council, near future, whose members represent a wide range of con- Wisconsin Electric is part of a consortium of sumer interests.

30 utilities which is funding the research of a newly Wisconsin Electric also is involved in research formed company called the Electric Vehicle on alternative energy systems. Four wind generators Development Corp., hea<iquartered in suburbar and three photovoltait systems have been installed Milwaukee. A company vice president, John McLean, anti are now operating adjacent to company retired at the end of 1983 to become president facilities. Equipment from various manufacturers is of this organization.The firm hopes to bring being used to demonstrate the feasibility of electric vehicles into commercial production by wind and solar power under varying conditions. the end of the 1980s.

The data collected from these installations is shared with customers and utility research groups. l l

o Wisconsin Electric Power Company System 14 DOLLARS BOOKVALUE AND MARKET PRICE

, Management's $g 400 OF COMMON STOCK DOLLARS Discussion = " ~ ~

M MARKET PRICE and Analysis of Financial Condition and Results of Operations 6 -

EARNINGS PER SHARE OF COMMON STOCK 3m M RETAINED EARNINGS y C DIVIDENDS 20 15

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10 1 00 5

0 00 0 Results of Operations 1983 and continued conservation by customers.

Earnings per share of common stock increased Electric kilowatt-hour sales to large commercial to $3.97 in 1983 from $3.60 in 1982, due principally and industrial customers increased 2.8 percent in to increased revenue and continued close control 1983 over 1982. Gas therm sales to large of operating expenses. Rate increases totaling $38 commercial and industrial customers declined million, on an annual basis,were granted in 1983. 1 percent.

The company estimates that of this amount For the three years ended Dec. 31,1983, approximately 87 percent, or $33 million,was in- sales of electricity increased at a compound annual cluded in 1983 revenues.This high percentage rate of three-tenths of 1 percent, while the cost reflects the fact that the company's major rate of fuel and purchased power grew at a compound orders have been issued by the Public Service annual rate of 6 percent. Other electric operating Commission of Wisconsin near the beginning of expenses, excluding income taxes and straight the electric and gas test years, substantially line depreciation, increased at a compound annual reducing regulatory lag. rate of 11.6 percent. General rate increases Electric sales to retail and municipal cus- accounted for approximately 80 percent of the t<_ mers increased by 3.3 percent in 1983 from 1982, increase in electric revenues during this period.

principally the result of unusually hot summer The balance primarily reflects the recovery of weather and improving economic activity in the increases in fuel and purchased power costs.

company's service area. Despite abnormally cold Legislation enacted in Wisconsin, applicable to weather in December 1983, gas therm sales electric utilities, will result in the elimination declined by 3.7 percent from 1982 levels, primarily or the existing Wisconsin retail electric fuel and because of the mild weather at the beginning of purchased power adjustment clause, effective with the company's next rate order. In the future, pro-jected changes in the cost of fuel and purchased power will be included in base rates.

Over the same three-year period, gas therm l

15 CAPITAllZATION un uoNs SOURCE MituoNs sHORT TERM DEBT DC Rs OF REVENUE Dott$Rs M LONG TERM DEBT STEAM 1.4m PREFERRED STOCK OAS EFM!EE COMMON EQUITY M oTHER ELECTRIC 1.,00 M INDUSTRIAL ELECTRIC gg g M COMMERCIAL ELECTRIC Q RESIDENTIAL ELECTRIC W

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N a 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 3 74 1975 1976 1977 1978 1979 1980 1981 1982 1983 sales decreased 12.2 percent,while the cost approximately 2 percent over the four years ending of gas purchased for resale grew at a compound Dec. 31,1987. That rate assumes continued annual rate of 11.4 percent. Other gas operating conservation by customers, a practice endorsed expenses, excluding income taxes and straight line by the company. The company expects that therm depreciation, increased at a compound annual rate sales of natural gas over the next four years of 13.6 percent.The increase in the cost of pur- will grow at a compound annual rate of 1 percent.

chased gas is due primarily to the higher cost On Dec. 22,1983 the PSCW approved a rate of natural gas from the company's pipeline supplier. deciaase of approximately 2 percent for the Virtually all of the increase in the cost of gas company's Wisconsin retail electric customers, based purchased for resale was recovered through gas on a 1984 test year effective Jan.1,1984.

adjustment clauses.This recovery accounted for The company may from time to time request rate approximately 80 percent of the increase in gas increases to meet rising costs for materials, taxes, revenues during the period. The balance primarily wages and capital and to recover costs of fuel, reflects rate increases, which offset lower purchased power and purchased gas. For supple-therm sales. mentary information concerning the effects of Changes in the relative cost of natural gas and inflation, see Note N to the Financial Statements.

fuel oil may result in erosion of gas sales to large commercial and industrial customers,if some of Liquidity and Capital Resources those customers with alternate fuel capabilities The company's capital requirements for the switch to fuel oil. A special rate has been established three years ended Dec. 31,1983 totaled $701 in order to attempt to retain such large-volume million. Sixty-two percent of this amount was for stomers. Construction of new or improved facilities,11 Assuming a further improvement in the percent for acquisition of nuclear fuel,10 percent economy, the company expects that sales of elec-tricity will grow at a compound annual rate of

16 Wisconsin Flectric Power Company System _

Management's Discussion Continued MitgoNs PEAK DEMAND AND CAPABILITY CONSTRUCTION RESERVE

~

'000 CAPABIUTY 2s0 M PEAK DEMAND ,

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[ PROACTED 150 2o00 100 1000 50 1914 19 75 1976191F 1978 19r's 19HO 1%1 1W 19Mi 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 for reduction of short-term debt,10 percent for was 'ess than 4 percent and 3 percent, respectively, retirement of long-term debt, and 7 percent for of capitalization.The company also had $89 million increases in working capital. The company acquired of short-term investments and $100 million in lines

$536 million, or approximately three-fourths, of of bank credit available at the end of the year, its capital requirements during this period through which could be used to finance a portion of the internal sources of cash. Such internal sources company's anticipated capital requirements.

of cash primarily consisted of depreciation accruals, The company has a nuclear fuel lease with a normalization of investment tax credits and re- trust which issues commercial paper backed by taincd earnings. The remaining $165 million was a line of revolving bank credit of $75 million.The supplied principally through the issue of $84 line of revolving bank credit would be generally i

million of additional common stock and the sale available to finance the trust's ownership of the and leaseback of $78 million of nuclear fuel. All nuclear fuel for a period of three yearsif the sales of additional common stock during the period trust were unable to sell its commercial paper.The were made through either the company's Automatic company is in effect the ultimate guarantor of Divide i Reinvestment and Stock Purchase Plan the commercial paper and the revolving bank credit.

or its Tax Reduction Act Stock Ownership Plan. At Dec. 31,1983, the trust had $63 million At Dec. 31,1983, the company's capitalization of commercial paper outstanding.

consisted of 40 percent long-term debt,10 percent The company estimates that for the four preferred stock and 50 percent common equity. years 1984 through 1987 its capital requirements The company's short-term indebtedness at Dec. will total $886 million, of which 69 percent will be 31,1983 consisted of $5 million of notes payable required for construction expenditures. Construction and $43 million of long-term debt due within 12 expenditures are primarily for improvements to months. Leased nuclear fuel and shcrt-term debt existing power plants, for additions to and replace-ment of portions of the distribution and trans-mission systems, for new service centers and for

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17 DOLLARS PER MILLION PERCENT BTU SOURCES OF ELECTRIC ENERGY UNIT COSTS OF FUEL 7 C 5 i  %

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, _ s54 P MM, NUCLEAR COAL GAS Oil other buildings and equipment. Estimated con- stock plans. Stock required for the operation of struction expenditures for new power plants during these plans will,in ordinary course, be purchased this period include $48 million for completion by the trustees of the plans on the open market, of the 580-megawatt Unit 2 at Pleasant Prairie No common stock financings are planned during Power Plant and $15 million for the company's 25 this period.

percent interest in the 380-megawatt Edgawater Beginning in 1984 and extending through Power Plant Unit 5 which is being constructed by 1987, the aggregate $150 million principal amount Wisconsin Power and Light Co. In addition, approxi- of debt issued in 1980,which bears interest at mately $48 million will be required for the expan- substantially higher rates than other debt securities sion of the company's corporate headquarters of the company,will be retired through sinking and related parking structure. This project is fund provisions. Consequently, the company expects expected to be completed in 1986.The balance of the percentage of debt to total capitalization will capital requirements during this period is princi- decline from its current level during this period.

pally for sinking funds and maturities of long-term To maintain a balanced capital structure, the com-debt, and acquisition of fuel supplies. pany intends to take steps to counter this decline.

The company expects to provide 84 percent These steps mayinclude the repurchase of chares of its capital requirements during the four years of its common stock and could entail issuance ending Dec. 31,1987 through internal sources. of additionallong-term debt. Definitive plans con-The remaining 16 percent of the company's capital cerning changes in the company's capital structure requirements during this period are expected to have not been finalized, pending action required be met principally through a combination of the for the formation of a new holding company, and sale of nuclear fuel and through short-term are not reflected in the company's projected borrowings. During this four-year period, the capital requirements described above.

company does not anticipate receiving any pro-ceeds from the sale of common stock through its

Wisconsin Electric Power Company System 18 Incoma St:t: mint . Year ended December 31 (Thousands of Dollars) nweeum.smmmmmam emmum.,xm weamwmmms~wemwwwrwerwme mr mm+mmm wam*=

1983 1982 1981 Operating Revenues Electric $1,070,405 $ 974,788 $ 869,977 Gas 336,506 317,225 273,065 Steam 10,653 10,897 9,341 Total Operating Revenues 1,417,564 1,302,910 1,152,383 Operating Expenses Fuel (Nnte A) 285,077 261,992 256,045 Purchased power 55,081 37,310 30,509 Gas purchased for resale 263,495 253,070 224,651 Other operation expenses (Note B) 209,703 200,091 172,120 Maintenance 110,541 103,805 85,664 Taxes other than income taxes 50,329 49,099 44,576 Depreciation (Note C)

• Straight line 109,518 85,010 78,600 Deferred income taxes (Note D) (1,183) 17,027 29,192 Federal income tax (Note D) 94,911 72,464 33,676 Investment tax credit adjustments-net (Note D) 12,441 10,557 15,581 State income tax (Note D) 22,133 15,404 9,601 Total Operating Expenses 1,212,046 1,105,829 980,215 Operating income 205,518 197,081 172,168 Other income and Deductions Interest income 7,206 9,305 7,156 Allowance for other funds used during construction (Note E) 9,142 4,588 3,155 Miscellaneous-net (4,721) (7,196) (151)

Federalincome tax (Note D) (810) (811) (2,852)

State income tax (Note D) (219) (208) (515)

Total Other income and Deductions 10,598 5,678 6,793 Income Before Interest Charges 216,116 202,759 178,961 Interest Charges Long term debt 59,750 64,341 65,344 Allowance for borrowed funds used during construction (Note E) (4,fl84) (2,812) (3,557)

Other 10,493 9,585 11,672 Total interest Charges 66,159 71,114 73,459 Net income 149,957 131,645 105,502 Preferred Stock Dividend Requirement 15,087 15,087 15,087 Earnings Available for Common Stockholders $ 134,870 $ 116,558 $ 90,415

~~n- =_n _,=- =

Average Number of Shares of Common Stock Outstanding (Thousands) 33,939 32,402 30,894 Eamings Per Share of Common Stock $3,97 $3.60 $2.93 The notes on pages 24 through 29 are an integral part of the financial statements.

Wisconsin Electric Power Company System 19 Statement of Changes in Financial Position Year ended December 31 rmm .ww mom _mm m,wm.m.c.-,,., . mmm_,mm__,,1Thousand,s of Dollars) ,

1983 1982 1981 Financial Resources Provided Operations Net income $149,957 $131,645 $105,502 Depreciation-straight line 109,518 85,010 78,600

-deferred income taxes (1,183) 17,027 29,132 Accumulated deferred investment tax credits 11,298 8,442 12,954 Nuclear fuel expense 10,504 11,165 7,573 Amortization of precertification expenditures 4,100 9,137 8,358 Write-off of additional construction costs - 5,000 -

Allowance for funds used during construction (13,226) (7,400) (6,712)

Total from operations 270,968 260,026 235,467 Common stock 28,169 30,152 25,260 Long term debt - 6,904 -

Sale of nuclear fuel 27,804 27.112 23,042 Contributions and advances in aid of construction 4,755 3,741 3,282 Deferred charges / credits and other (5,152) (306) (9,760)

$326,544 $327,629 $277,291 Financial Resources Used Construction expenditures $139,164 $139,621 $154,814 Nuclear fuel 24,027 22,617 32,813 Dividends 84,848 76,521 69,262 Retirement of long term debt 1,708 60,425 3,675 Reduction of short term borrowings -

14,983 55,062 Construction funds held by trustees -

6,923 -

Increase (decrease) in working capital (other than short term borrowings and long term debt due currently) 76,797 6,539 (38,335)

$326,544 $327,629 $277,291 r - -m- ,em---

Increase (Dacrease)in Components of Working Capital Cash and temporary cash investments $ 80,674 $ (28,894) $ 39,027 Accounts receivable and accrued utility revenues 40,650 1,588 14,078 Fossil fuel (19,019) 21,626 (16,283)

Accounts payable and accrued liabilities (30,661) 10,439 (70,892)

Other 5,145 1,780 (4,265)

$ 76,797 $ 6,539 $ (38,335)

The notes on pages 24 through 29 are an integral part of the financial statements.

Wisconsin Electric Power Company System 20 Balanca Sheet . December 31 v m m m m <w n ~ ~ ~ v a n - - . m an n n n - - ~ ~ a n a w n S N ",' "?L2 W 8 1]

Assets 1983 1982 Utility Plant Electric $2,177,627 $2.155,979 Gas 234,265 219.091 Steam 20,430 19,259 2,432,322 2,394.329 Accumulated provision for depreciation (1,076,970) (1,001,867) 1,355,352 1.392,462 ConstrJClion Work in progress 397,390 332,271 Nuclear fuel (Note A) 42,523 46,300 Net Utility Plant 1,795.265 1,771,033 r Nonutility Property 12,528 8,999 Accumulated provision for depreciation (2,795) (2,037)

Net Nonutility Property 9,733 6,962 Current Asets Cash 7,239 7,210 Temporary cash investments 88,815 8,170 Accounts receivable (Note F) 66,533 54,533 Accrued utility revenues 135,503 106.845 Fossil fuel (at average cost) 86,053 105,072 Materials and supplies (at average cost) 44,742 42,001 Prepayments and other assets 8,104 5,700 Total Current Assets 436,989 329,531 Deferred Charges and Other Assets 20,545 23,772

$2.262,532 $2,131,298 The notes on pages 24 through 29 are an integral part of the financial statements.

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21 9

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Llabilities 1983 1982 Capitalization (See Capitalization Statement)

Common Stock Equity (Note G) $ 868,406 $ 775,173 Preferred Stock-Redemption Not Required (Note H) 160,451 160,451 Preferred Stock-Redemption Required (Note I) 25,000 25,000 Long Term Debt (Note J) 692,272 737,720 Total Capitalization 1,746,129 1,698.344 Current Liabilities Long term debt due currently (Note J) 43,405 -

Notes payable to banks (Note K) 4,999 4,999 Accounts payable 107,143 93,390 Payroll and vacation accrued 17,725 15,977 Taxes accrued-inconie and other 74,784 74,252 Interest accrued 33,298 24,398 Other 13,252 7,524 Total Current Liabilities 294,606 220,540 Deferred Credits and Other Liabilities Accumulated deferred investment tax credits 133,579 122,281 Nuclear fuel costs accrued 30,623 30,891 Unamortized accrued utility revenues 12,667 16,889 Other 6,211 7,139 Total Deferred Credits and Other Liabilities 183,080 177,200 Contributions in Aid of Construction 38,717 35,214 Commitments and Contingencies (Note M)

$2.262,532 $2.131.298 The notes on pages 24 through 29 are an integral part of the financial staternents.

i Wisconsin Electric Power Company System 22 Cipitalization Statement . December 31 (Thousands of Dollars)

,v ww s-w wm m-n.:n - -,,.m smna m m.c nw n vn n . . :~ v. emw..m an s n 1983 1982 Common Stock Equity (Note G)

Common Stock ($10 par value; authorized 41,000,000 shares; 34,477,827 and 33,216,164 shares issued) $ 344,778 $ 332,162 Premium on Capital Stock 95,467 79,914 Retained Earnings 428,161 363,097 Total Common Stock Equity 868,406 775,173 Prtferred Stock-Wisconsin Electric Power Company, Cumulative Six Per Cent, Preferred Stuck-$100 par value; authorized 45,000 shares; 44,508 shares issued 4,451 4,451 Serial Preferred Stock-$25 par value; authorized 5,000,000 shares; unissued Serial Preferred Stock-$100 par value; authorized 2,360,000 shares 3.60% Series-260,000 shares issued 26,000 26,000 8.90% Series-400,000 shares issued 40,000 40,000 7.75% Series-300,000 shares issued 30,000 30,000 8.80% Series-600,000 shares issued 60,000 60,000 T2tal Preferred Stock-Redemption Not Required (Note H) 160,451 160,451 10.875% Series-250,000 shares issued 25,000 25,000 Total Preferred Stock-Redemption Required (Note 1) 25,000 25,000 Long Term Debt (Note J)

First Mortgage Bonds Series Due 1983 1982 Series Due 1983 1982 Wisconsin Electric Power Company 34%-1984 $16,738 $16,848 6%%-1998 $ 33,447 $ 33,621 34%-1986 20,907 21,207 6.10%-1999-2008 25,000 25,000 134%-1986 80,000 80.000 6.25%-1999-2008 1,000 1,000 11.40% -1987 70,000 70,000 7M%-1999 38,973 38,973 4%% -1988 21,867 22,191 8%%-1999 39,491 39,537 5%-1990 26,701 26,701 84%-1999 11,711 11,729 44%-1991 3,620 3,620 6.45%-2004 12,000 12,000 4b%-1993 4,991 5,016 8%%-2006 59,980 59,990 54% -1996 37,152 37,188 6.45b2006 4,000 4,000 6%%-1997 11,433 11,507 6.50%-2007-2009 10,000 10,000 6%% -1997 37,696 37,790 84 U 1008 80,000 80,000 6%%-1998 9,812 9,822 656,ti19 657,740 Wisconsin Natural Gas Company 4h h 1986 3,631 3.631 6%h1992 9,246 9.312 4% % 1987 4,453 4,478 8h b l994 9,569 9,598 44 b l990 6,428 6,488 8% b i996 9,724 9,738 43,051 43,245 699,570 700,985 Debentures (Unsecured)

Wisconsin Electric Power Company-7% Senes due 1993 30,364 31,165 Note (Unsecured)

Wisconsin Electnc Power Company-7M% duc 1985 7,000 7,000 Unamortized Discount-r.et (1,257) (1,430)

Long Term Debt Due Currently (43,405)

Totti Long Term Debt 692,272 737,720 Tot:1 Capitalization $1,746,129 $1,698,344 wwwn.,,m.memmm The notes on pages 24 through 29 are an integral part of the financial statements.

Wisconsin Electric Power Company Syst:m

. 23 Retained Eaming) Statement . Year ended December 31

_ e - - -- u;~;.-,.__ _._~~-_ -=- ~ ____uz _.m,~fere.m eammrewames--= --mas.mmasman-um,.ds (Thousan of Dollars) mmes w seas 1983 1982 1981 Balance, January 1 $363,097 $308,262 $272,043 Additions N;t income 149,957 131,645 105,502 513,054 439,907 377,545 Deductions Dividends-Cash Preferred stock 15,087 15,087 15,087 Common stock-$2.06, $1.902 and

$1.76 per share 69,761 61,434 54,175 84,848 76,521 69,262 Cost of issuing capital stock 45 289 21 84,893 76,810 69,283 Balance, December 31 $428,161 $363,097 $308,262

. _ . - . = . _ . _ ,

The notes on pages 24 through 29 are an integral part of the financial statements.

Wisconsin Electric Power Company System 24 Nstes to Financial Statements

- - - m_m .. . . m = = --,_-,_,m,------.--mmm Summary of Significant Accounting Policies income Taxes Deferred income tax accounting is practiced in respect to Gsneral The accounting records of the company and its utility significant timing differences. The federal investment tax subsidiary we kept as prescribed by the Federal Energy credit is accounted for on the deferred basis and is reflected Regulatory Commission, modified for requirements of the in income ratably over the life of the related property.

Public Service Commission of Wisconsin (PSCW). The Debt Premium, Discount and Expense consolidated financial statements include the accounts of Long term debt premium or discount and expense of the company and its subsidiaries, Wisconsin Natural Gas issuance are amortized by the straight line method over the Company and Badger Service Company.

I ves of the debt issues. Unamortized amounts pertaining to Ravenues debt reacquired for sinking fund purposes are written off Meters are read and accounts are billed monthly. Since currently.

January 1,1977 utility revenues have been recognized on A . Rental Expense the accrual basis and include estimated amounts for service Total rental expense was $37,846,000 in 1983, rendered but not billed. Accrued utility revenue of $52 million

$39,895,000 in 1982 and $33,092.000 in 1981.This includes at December 31,1976 is being recorded as revenue in equal charges of $35,196.000 in 1983, $36,948.000 in 1982 and amounts over a ten year period as prescribed by the PSCW.

$30,442,000 in 1981 relating to the company's nuclear fuel Fuel le sing arrangement with Wisconsin Electric Fuel Trust (Trust).

The cost of fossil and nuclear fuel is expensed in the The nuclear fuelis leased for a period of 60 months or until period consumed. Nuclear fuel expense includes the esti- the removal of the fuel from the reactor, if earlier. Lease mated cost for disposal of spent fuel. p yments include charges for the cost of fuel burned, In 1983, the company entered into a contract with the U.S. financing costs and a management fee, in the event the Department of Energy for the disposal of spent nuclear fuel company or the Trust terminates the lease, the Trust would in accordance with the Nuclear Waste Policy Act of 1982. recover its unamortized cost of nuclear fuel from the company.

The disposal costs accrued cover substantially all disposal Under the lease terms,the company is in effect the ultimate costs expected to be incurred for nuclear generation through guarantor of the Trust's commercial paper and line of credit December 31,1983. borrowings financing the investment in nuclear fuel.

The nuclear fuel lease has been treated as an operating Gas Purchased for Resale lease in the financial statements and by the PSCW in The cost of purchased gas sold is expensed in the period determining revenue requirements.The value of the leased the gas is received from the pipeline supplier. fuel is not included in the company's rate base. Had the lease been accounted for as a capital lease, an asset and Property corresponding liability equal to the unamortized cost of the Electric and gas utility property is recorded at original leased nuclear fuel would have been recorded at December cost, and steam utility ard nonutility property is recorded at 31in the amounts of $53,069,000 in 1983 and $53,036,000 cost. Additions to utility property and significant replacements in 1982.

are charged to utility plant at cost. Cost includes material, labor and allowance for funds used during construction (see Note E). Replacements of minor items of property are charged to maintenance expense.The cost of depreciable property, together with removal cost less salvage, is charged to accumulated provision for depreciation when property is retired.

25

_- - 1

0. Pension Plans D . Income Tax Expense Several noncontributory pension plans cover all eligible Below is a summary of income tax expense and a employes. Normal employe pension cost is accrued and reconciliation of total income tax expense with the tax funded currently, Unfunded prior service liability is amortized expected at the federal statutory rate.

o/er periods from ten to thirty years. Pension expense was

$14,591,000 in 1983, $15,113,000 in 1982 and $11,414,000 (Thousands of Dollars) 1983 1982 1981 in 1981. Current tax expense $118.073 $ 88.887 $ 46.644 A comparison of accumulated plan benefits and plan net investment tax credit assets available for benefits is shown below. adjustments-net 12,441 10.557 15,581 December 31 Deferred taxes charged to d pr ci ti n expense (1,183) 17.027 29,192 (Thousands of Dollars) 1983 1982 1981 __

Actuarial present value of accumulated plan benefits: Income before income taxes $279,288 $248,116 $196,919 Vested benefits $167,581 $150,067 $135,817 Nonvested benefits 7,913 10,050 7,554 Expected tax at federal statutory ram M28,U2 W,m $ W.%3

$175,494 $160,117 $143,371 Allowance for funds used Net plan assets $222,317 $182,083 $137,037 during construction (6,084) (3,404) (3,088)

State income tax net of The weighted average rate of return used in determining federal tax reduction 12,118 10,800 7.785 the actuarial present value of accumulated plan benefits investment tax credit restored (5,780) (5,561) (4,952) was M. Other (no item over 5% of expected tax) 605 503 1,089 C . Depreciation Total tax expense _ $129.331 $116,471 $ 91,417 Depreciation expense is accrued at straight line rates, Deferred income tax expense in 1983 reflects that the certified by the PSCW, which include estimates of salvage nuclear plant decommissioning cost accrual increased and plant removal costs. In 1982 and 1981 the nuclear plant substantially (see Note C) and is not deductible currently for depreciation rates provided an amount for the estimated income tax return purposes.

current cost of decommissioning. Effective January 1983, The aggregate amount of deferred income taxes included the nuclear plant depreciation rates certified by the PSCW in the accumulated provision for depreciation at December provide for decommissioning costs stated in estimated future 31 was $228,761,000 in 1983 and $223,265,000 in 1982.

dollars of the projected year of decommissioning. . ._ __ _

Additional depreciation is accrued,in accordance with the E . Allowance for Funds Used During Construction ( AFDC)

PSCW requirements, which is equal to the tax effects of AFDC is included in utility plant accounts and represents timing differences related to property and nuclear fuel the cost of borrowed funds used during plant construction including principally the use for tax purposes of accelerated and a rate of return on stockholders' capital used for depreciation metnods (see Note D). construction purposes. On the income statement the cost Straight line depreciation as a percent of average depre- of borrowed funds (before income taxes) is a reduction of ciable utility plant was 4.8% in 1983,3.8% in 1982 and 3.6% interest expense and the return on stockholders' capital is in 1981. an item of noncash other income.

The company has been limited by the PSCW to capitalizing AFDC only on construction work in progress exceeding 10%

of its net investment rate base in 1983 and 1981 and 12.5%

of its net investment rate base in 1982. Revenues granted by the PSCW in rate orders include the equivalent of a return on investment in construction work in progress below this limit. AFDC was capitalized in 1983,1982 and 1981 at a rate of 7% approved by the PSCW.

Wisconsin El ctric Power Company Syst:m 26 Notes to Financial Statements continued n - a, w- - w . n, -=v_, . . . ,s .< e n , enn . a. ne m F . Accounts Receivable i Preferred Stock-Redemption Required Accounts receivable are shown on the balance sheet af ter The redemption at $100 par value of 6,250 shares of deducting an accumulated provision for doubtful accounts Serial Preferred Stock,10.875% Series is required annually in the amount of $3,034,000 for 1983 and $2,571,000 for on each September 1, from 1990 through 2009 with 1982. Uncollectible account write-offs net of recoveries were redemption of the remaining shares required on September

$6,066,000 for 1983, $5,281,000 in 1982 and $3,451,000 1,2010. In addition to the mandatory redemption, the com-in 1981. pany may at its option redeem the stock at $109.75 to September 1,1984 and at declining amounts thereafter to

0. Common Stock and Premium or* Capital Stock $100 after September 1,2009. In the event of default in the Sales of common stock under the company's Automatic payment of dividends or in the mandatory redemption Dividend Reinvestment and Stock Purchase Plan ( ADRSPP) requirements, no dividends or other distribution shall be and Tax Reduction Act Stock Ownership Plan (TRASOP) are declared on junior stock. In addition, no dividend shall be summarized below. declared on any preferred stock class and series except ratably on all preferred shares according to their respective 1983 1982 1981 dividend rates.

Shares issued ADRSPP 1,093.395 1.291,058 1,257,908 J . Long Term Debt TRASOP 168.268 198.838 372,883 The maturities and sinking fund requirements through Proceeds from sales 1988 for the aggregate amount of iong term debt out-ADRSPP $24213.000 $25.819,000 $19,199,000 standing at December 31,1983 are shown below. Of the TRASOP $ 3,956,000 $ 4,333,000 $ 6,061,000 annual sinking fund requirements, $3.990,000 may be Proceeds from sales over the $10 par value of common satisfied by certifying additional mortgaged property.

stock sold are reflected as premium on capital stock.

In July 1982 the company executed a 3-for-2 stock split 1984 $49,571,000 and issued 10,808,826 additional common shares pursuant 1985 62,960,000 1986 79,926,000 thereto.The parvalue of the common stock was not changed as a result of the stock split, and accordingly common stock 1 h, ,h00 was increased and premium on common stock was decreased

$108,088,000. In addition, $131,000 was paid to stock- Future sinking fund requirements have been anticipated holders in lieu of fractional shares equivalent to 6,192 full by advance purchases of bonds to the extent of $2,420,000 shares. and certification of propertyin the amount of $3,990,000.

Substantially all utility plant and nonutility property is sub-H e Preferred Stock-Redemption Not Required ject to the lien of the applicable mortgage.

The Serial Preferred Stock is redeemable in whole or in . _

part at the option of the company at the following redemption K . Notes Payable and Commercial Paper prices plus any accrued dividends. Unused lines of credit for short term borrowing amounted Redemption Price Per Share to $100,350,0C0 at December 31,1983. In support of Series v rious informal knes of credit from banks, the companies 3.60% $101 have agreed to maintain unrestricted compensating balances.

8.90% $104 to December 1,1985 and $101 thereafter 7.75% $104 to November 1,1986 ar d $101 thereafter With the exception of funds required for daily operations, the 8.80% $105.87 to January 1,1989; $102.94 to January 1,1994 cash balance shown on the balance sheet at December 31, and $101 thereaf ter 1983 as well as $180,000 of non-interest bearing cer- 1 tificates of deposit included in temporary cash investments I represent compensating balances. '

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27 L . Information by Segments of Business tThousands of DMars)

Year Ended December 31 1983 1982 1981 Electric Operations Revenue from unaffiliated customers $1,070,405 $ 974,788 $ 839,977 Intersegment sales -

108 129 Operating revenues 1,070,405 974,896 870,106 Operating income before income taxes 305,621 285,690 244,166 Depreciation-straight line 100,030 76,225 70,239 Construction expenditures 118,931 121,471 140,899 Gas Operations Revenue from unaffiliated customers 336,506 317,225 273,065 Intersegment sales 4,928 10,476 11,878 Operating revenues 341,434 327,701 284,943 Operating income before income taxes 26,220 24,268 14,272 Depreciation-straight line 8,863 8,207 7,802 Construction expenditures 16,818 16,713 13,250 Steam Operations Operating revenues (unaffiliated) 10,653 10,897 9,341 Operating income before income taxes 1,979 2,575 1,780 Depreciation-straight line 625 578 559 Ccnstruction expenditures 974 1,405 665 Consolidated Operating revenues (excluding intersegment sales eliminated in consolidation) 1,417,564 1,302,910 1.152,383 Operating income before income taxes 333,820 312.533 260,218 Depreciation-straight line 109,518 85,010 78,600 Construction expenditures (including nonutility) _

139,164 139,621 154,814 At December 31 Net identifiable Assets l Electric $2,010,184 $1,906.446 $1,899,843 l Gas 229,173 204,763 196,843 Steam and nonutility _ . __

23,175 _ 2_0,089 _ , _ 19,384 _ _

Total Consolidated Assets _

$2,262,532 $2,131,298 $2,116,070 Intersegment sales consist principally of gas sold by Wisconsin Natural to the company at rates approved by the PSCW.

Wisconsin Electric Power Company System 28 Notss to Fin ncial Statemtnts continued M . Commitments and Contingencies Statement of Income Adjusted for Changing Prices Plans for the construction and financing of future additions to utility plant can be found elsewhere in this report in Year Ended December 31 1983

" Management's Discuccion and Ana!ysis of Ananciel Condi- Average 1983 Dollars tion and Results of Operations!' At December 31,1983, Adjusted Adjusted construction work in progress includes $54,802s000 of As Reported for for company-financed expenditures relating to the company's in Financial General Current 25% share in the 380 megawatt Edgewater Unit 5 coal-fired musons of Donars) Statements Price Level Cost generating station which is being constructed by Wisconsin Operating Revenues $1.418 $1,418 $1,418 Power and Light Co. Operating Expenses Depreciation-Straight line 110 219 244 N . Supplementary Informatlon Concerning the Effects of Oth e P "$ $

e axes 8 Changing Prices (Unaudited)

Total Operating Expenses 1.212 1,321 1,346 The following supplementary information provides certain data about the effects of changing prices in accordance Operating income 206 97 72 with Financial Accounting Standards Board (FASB) require. Other income and ments. This information should be viewed as estimates of Interest Charges and the possible effects of inflation rather than as precise Preferred Stock measures. Dividends (81) (81) (81)

Amounts adjusted for general price level represent historical Earnings Available costs stated in terms of dollars of equal purchasing power for Common Stockholders through use of the Consumer Price Index for All Urban (excluding adjustment of Consumers. Current cost amounts represent changes in specific prices and differ from amounts adjusted for general cov b e ost)(Note) $ 135 $ 2C $ 1 price level to the extent that specific prices have increased Earnings Per Share more or less rapidly than prices in general. Current cost of Common Stock $ 3.97 $ 0.77 $ 0.03 represents an estimated cost of replacing existing plant and The current cost of net utility plant at December 31,1983 was was determined by indexing the nriginal cost of plant by the $4.3 billion. The increase in the current cost of property and the Handy-Whitman Index of Public Utility Construction Costs. adjustment to net recoverable cost was $234 million and $(18)

The provisions for depreciation stated in general price million in 1983.

level and current cost were determined by applying the Note-Earnings after adjustment of net utility plant to net recover-able cost would have been $60 r.sillion in 1983 adjusted for company's certified depreciation rates to the average indexed general price level.

plant amounts. Fuel expense has not been restated because rate regulation ellows the recovery of actual costs through Under the ratemaking prescribed by the regulatory com-fuel adjustment tariffs on a current basis. Income tax expense missions to which the company is subject, only historical has not been adjusted because the effects of inflation are cost of plant is recoverable in rates.The impact of this rate-not recognized for tax purposes. Other items of expense making is mitigated to the extent that plant is financed with have not been restated in accordance with FASB State, debt which can be repaid with dollars of reduced purchas-ment No. 33. ing power.

29 l

Selected Supplementary Financial Data Adjusted for Effects of Changing Prices Year Ended December 31 ( All amounts are stated in average 1983 dollars)

(Mdlions of dollars except for per share amounts) 1983 1982 _

1981 1980 1979 General Price Level Information Earnings (loss) available for common stockholders (Note a) 26 7 (5) (12) 15 Earnings (loss) per share of common stock (Note a) $0.77 $0.23 $(0.18) $(0.41) $0.54 Current Cost Information Earnings (loss) available for common stockholders (Note a) 1 (19) (33) (42) (48)

Earnings (loss) per share of common stock (Note a) $0.03 $(0.58) $(1.06) $(1.44) $(1.72)

Increase in general price level over (under) increase in current cost of property after adjustment to net recoverable cost (59) (62) 47 125 122 General Information Unrealized gain from decline in purchasing power of debt and preferred stock 44 49 117 164 169 Common stock equity at year-end 854 791 732 726 761 Operating revenues $1,418 * $1,345 $1,262 $1,218 $1.191 Cash dividends per share of common stock $2.06 * $1.96 $1.93 $2.00 $2.15 Market price per share of common stock at year-end $27.04 $23.22 $19.26 $17.13 $19.79 Consumer Price Index-average for year 298.4 289.1 272.4 246.8 217.4

• Actual 1983 dollars.

Note a-Excluding adjustment to net recoverable cost R: port of Independent Accountants _ __

To the Board of Directors and the Stockholders of Wisconsin Electric Power Company In our opinion, the accompanying consolidated balance sheet and statement of capitalization and the related consolidated statements of income, retained earnings, and changes in financial positio;. present fairly the financial position of Wisconsin Electric Power Company and its subsidiaries at December 31,1983 and 1982, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31, 1983, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing i standards and accordingly included such tests of the accounting records and such other auditin cedu s as we considered necessary in the circumstances. l

' /gf[_ l wLkk. 22" -

Milwaukee, Wisconsin January 25,1984 l

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Wisconsin Electric Power Company Syst:m 30 Selected Financial Data mww r u~ m z ou, -c-m. -mm m . m m,a g usandspf dollag except for per ha e,amogt]s 1983 1982 1981 1980 1979 Financial N;t income 149,957 131,645 105,502 82,488 82,532 Preferred stock dividend requirement (15,087) (15,087) (15,087) (13,520) (12,368)

Earnings available for common stock 134,870 116,558 90,415 68,968 70,164 Eamings per share of common stock ($) 3.97 3.60 2.93 2.35 2.50 Dividends declared per share of common stock ($) 2.06 1.902 1.76 1.657 1.563 Operating revenues:

Electric 1,070,405 974,788 869,977 761,051 667,757 Gas 336,506 317,225 273,065 237,932 191,238 Steam 10,653 10,897 9,341 8,162 8,570 Total operating revenues 1,417,564 1,302,910 1,152,383 1,007,145 867,565 Total assets 2,262,532 2,131,298 2,116,070 2,030,241 1,830,664 Long term debt and preferred stock-redemption required 717,272 762,720 757,631 818,905 649,227 c - - _ - .__

Sales and Customers Electric Megawatt-hours sold 17,776,847 17,279,680 17,792,080 17,729,184 17,670,612 Customers (End of year) 822,119 818,850 812,841 806,329 795,670 Gas Therms (thousands) sold 609,013 632,326 652,171 693,675 706,101 Customers (End of year) 221,197 217,983 215,520 212,279 206,032 Steam Pounds (millions) sold 1,909 2,041 1,924 1,941 2,188 Customers (End of year) 540 543 549 561 585 Quarterly Financial Data (Thousands of dollars except for per share amounts)

Three Months Ended March June September _

December 1983 1982 1983 1982 1983 1982 1983 1982 Total operating revenues $381,764 $389,670 $317,887 $288,365 $331,090 $286,433 $386,823 $338,442 Operating income 54,888 61,109 43,357 41,408 57,221 50,881 50,052 43,683 Not income 41,118 42,097 29,451 25,825 43,870 35,639 35,518 28,084 Earnings per share of common stock $1.12 $1.20 $0.76 $0.69 $1.17 $0.98 $0.92 $0.74 Because of seasonal factors which affect the utility business and differences between summer and winter electnc rates, the quarterly results of operations are not directly comparable.

Stockholder Hotline if you have a question, comment or problem related to your You can even call when our offices are closed. If you call

, investment in the company, you can get answers or assstance in the evening, on a weekend or a holiday, leave a message quickly. Information on subjects such as dividends, dividend on our automatic answering equipment. We will return your

( call at a time convenient to you.

reinvestment, stock prices, transfer of shares, change of address procedure or company operations in generalis readily The Stockholder Hotline numbers are:

available by calling our toll-free telephone hotline. Stockholder In Milwaukee 277-2100 relations representatives are available to assist you from in Wisconsin 800-242-9686 8:00 a.m. to 4:30 p.m. (Central Time) every businets day. Outside Wisconsin 800-558-9663

Wisc:nsin Electric Power Company System 31 Stock and Dividend Information sewwms,mmmam.:aummcam xmw~---namumwmaeurm~- =-wrmmmewwuracmewcommwsme.ac~rmanossa Moc Trander Agents f Range of Common Stock Prices and Dividends Common Stock, Six Per Cent. Preferred Stock and $100 Par Value Serial Preferred,3.60% Series,8.90% Series,7.75% Series, n,y s* 7$E, rmrm nre sS[$E,' 2sg g 2s% d233 Manufacturers Hanover Trust Company E3 kJd P hi L-,

Post Office Box 24935 att Ii ; ]/ b bu U 22w Y

Church Street Station s2ou. p? .  ! s22 New York, New York 10249 j y k,ff Stock Registrars hh Common Stock l First Wisconsin Trust Company Number of Common Stockholders 777 East Wisconsin Avenue As of Dec. 31,1983, there were 54,754 Common Stock-Milwaukee, Wisconsin 53202 holders, based on the number of stockholder accounts.

Manufacturers Hanover Trust Company urch te Sta ion n s c ns on hmon hk New York, New York 10249 Wisconsin Electric has from time to time in issuing its securities entered into dividend restrictions.Those relating Six P r ent. Pref ed Sto k to various series of Bonds,in general, prohibit cash e ad dividends and certain other distributions on, and certa.in 770 North Water Street Milwaukee, Wisconsin 53202 acquisitions of, Common Stock during or after the year

$100 Par Value Serial Preferred Stock,3.60% Series o issuance of the particular series, except to the extent First Wisconsin Trust Company of reta,ned i earnings at the beginning of each year plus 777 East Wisconsin Avenue net income thereafter, as defined. A covenant relating to Milwaukee, Wisconsin 53202 the Debentures provides,in general, that if consolidated shareholders' equity is less than one-third or one-quarter

$100 Par Value Serial Preferred Stock,8.90% Series,7.75%

of consolidated capitalization, then dividends, distributions

&l a sha & I ey Bank and acquisitions of such nature may not exceed three-770 North Water Street quarters or one-half, respectively, of consolidated net Milwaukee, Wisconsin 53202 income available for Common Stock for a preceding 12-Manufacturers Hanover Trust Company month period. Similar or less restrictive covenants relate Post Office Box 24935 to other outstanding securities. (These restrictions do Church Street Station not currently, and it is not anticipated that they will in the New York, New York 10249 future, impair Wisconsin Electric's ability to maintain its

$100 Par Value Serial Preferred Stock,10.875% Series consistent record of dividend payments on its Preferred and M&l Marshall & lisley Bank Common Stock.)

770 North Water Street Milwaukee, Wisconsin 53202 Stock Listing and Trading Common Stock and $100 Par Value Serial Preferred Stock, 8.90% Series ond 7.75% Series are listed and ^.raded on the New York Stock Exchange.

The Company's trading symbol on the New York Stock Exchange is WPC.

Six Per Cent. Preferred Stock and $100 Par Value Serial Preferred Sto;k,3.60% Series and 8.80% Series are traded on an over-the-counter basis. i

$100 Par Value Serial Preferred Stock,10.875% Series was I sold through a private placement and is not registered for public )

trading. i l

l

Wisconsin Electric Power Company System 32 Dirzctors a Offictrs n_ _

_ =

DIRECTORS FREDERICK M. BELMORE DONALD K. MUNDT Corporate Director and Consultant. Formerly Executive Vice President.The Northwestern Chairman of the Board of Directors,Will Mutual Life Insurance Co.

Ross, Inc. (manufacturer and distributor of JOHN L MURRAY hospital and laboratory supplies and Chairman, President and Chief Executive equipment), subsidiary of G. D. Searle & Officer, Universal Foods Corporation Co., and Vice President, G. D. Searle & Co. (manufacturer and importer of specialty RUSSELL W. BRITT and gourmet foods).

President r.nd Chief Operating Officer MORRIS W. RElD of the Company. Chairman of the Board of Versa Tech-SOL BURSTEIN nologies. Inc. (manufacturer of fluid power Executive Vice President of the Company. and silicone rubber products) and Corporate RICHARD L JOHNSON Director. Formerly Chairman of the Board Chairman of the Board of the Menasha Corp. of Directors of J.1. Case Co. (manufacturer (manufacturer of paperboard, corrugated of construction and farm machinery),

containers and plastic prodJcts and subsidiary of Tenneco Corp.

manager of timber). JON G. UDELL CHARLES S. MC NEER Irwin Maier Professor of Business, the Chairman of the Board and Chief Executive University of Wisconsin in Madison, and Officer of the Company. Chairman of the Board of Directors of Federal Home Loan Bank of Chicago.

OFFICERS CHARLES S. MCNEER (57;33) JERRY G. REMMEL (52;28)

Chairman of the Board Vice President and Treasurer and Chief Executive Officer RICHARD E. SKOGG (55;31)

RUSSELL W. BRITT (57;35) Vice President-Operating Services President and Chief Operating Officer JOHN E. SPEAKER (52;7)

SOL BURSTEIN (61;18) Vice President-Communications Executive Vice President KENNETH E.WOLTERS (58;33)

JOHN W. BOSTON (50;1) Vice President-System Operations Senior Vice President JOHN H. GOETSCH (50;25)

THOMAS J. CASSIDY (58:37) Secretary Senior Vice President RICHARD R. PILTZ (43;18)

NICHOLAS A.RICCI(59;36) Controller Senior Vice President NANCY R. NOESKE (46;4)

ROBERT H. GORSKE (51:19) Assistant Vice President Vice President and General Counsel JOHN W. FLEISSNER (59;13)

RICHARD A. ABDOO (39;8) Assistant Secretary Vice President-Customer Relations GORDON A.WILLIS(45;22)

CARLYLE W. FAY (57;17) Assistant Treasurer Vice President-Nuclear Power GEORGE W. BOMIER (59;29)

RUSSELL A. NILES (60;35) Vice President and General Manager Vice President-Civision Operations Wisconsin Natural Gas Comoany HUBERTO R. PLATZ (54;17)

Vice President-Engineering and Figures in parentheses indicate age and Construction years of service.

Members of the Executive Committee Members of the Compensation Committee are directors McNeer, Britt, Mundt, Reid are directors Belmore, Johnson, Mundt, and Udell. All other directors are alternate Murray, Reid and Ude:'.

members. Members of the Nominating Committee Members of the Audit Committee are are directors Belmore, Johnson, Mundt directors Belmore, Johnson, Muadt Murray, and Murray.

Reid and Udell.

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The Business of the Company The company owns all the common stock of Wisconsin Electric Power Co. is engaged principally Wisconsin Natural Gas Co.,which purchases in the generation. transmission, distribution and sale natural gas from ANR Pipeline Co.,then distributes of electric energy in a territory consisting of and sells it in two service areas: west and south approximately 12,600 square miles in southeastern of Milwaukee,and in the Appleton area.The gas Wisconsin, including the metropolitan Milwaukee service territory which has an estimated popu-area, the east central and northern portions of lation of over 800,000 is mainly within the Wisconsin and the Upper Peninsula of Michigan. electric service area.

The operating area has an estimated population of The executive offices of the company are over 2 million. located at 231 W. Michigan St., P.O. Box 2046, Milwaukee,WI 53201, telephone (414) 277-2345.

Information Available Stock Held in Street Name F rm 10-K The company maintains a direct mailing list to The company will provide without charge to ensure that shareholders whose stock is held in

ny stockholder of record or beneficial owner broker accounts or by bank or trust company cf the company's stock, upon written request, a nominees may receive information on a timely basis.

copy of the company's annual report for the year if you would like your name added to th:s list, 1983 to the Securities and Exchange Commission please send your request to the company's Transfer cn Form 10-K. Such requests should be directed Agent at the address to the left.

t D the company's Secretary,231 W. Michigan St., io. Year Statistical Report P.O. Box 2046, Milwaukee, WI 53201.

A copy of Wisconsin Electric's 198310 Year

- Statistical Report also is available by writing the company's Secretary at the address to the left.

WISCONSIN ELECTRIC POWER COMPANY BULK Mall 231 West Michigan Street. P.O. Box 2046 U'S POSTAGE haukee.Vosconsin 53201 PAID (4143277 2345 Wis. Electnc Power Co.

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WISCONSIN ELECTRIC POWER COMPANY I

Financial Statements for the Year 1983

- . - * - w -,- -.-,- - , ..+. . .- .-p.. ..-.+.. .-p e p -

. s REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and the Stockholders of WISCONSIN ELECTRIC POWER COMPANY In our opinion, the accompanying balance sheet and statement of capi-talization and the related statements of income, retained earnings, undistributed subsidiary earnings, and changes in financial position present fairly .he financial position of Wisconsin Electric Power Company (parent company only) at December 31, 1983 and 1982, and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1983, in conformity with generally acecpted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

~-

PRICE WATERHOUSE Milwaukee, Wisconsin January 25, 1984 i

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1

WISCONSIN ELECTRIC POWER COMPANY INCOME STATEMENT Year Ended December 31 1983 1982 1981 (Thousands of Dollars)

Operating Revenues .

Electric $1,070,405 $974,896 $870,106 Steam 10,653 10,897 9,341 Total Operating Revenues 1,081,058 985,793 879,447 Operating Expenses Fuel (Notes A and G) 285,631 263,126 257,163 Purchased power 55,081 37,310 30,509 Other operation expenses (Note B) 179,893 175,767 152,103 Maintenance 106,564 99,951 82,366 Taxes other than income taxes 45,634 44,657 40,602 D:preciation (Note C)

Straight line 100,655 76,803 70,799 Deferred income taxes (Note D) (3,196) 15,625 28,061 Federal income tax (Note D) 88,341 66,668 31,558 Investment tax credit adjustments - net (Note D) 11,369 9,102 14,453 State income tax (Note D) 20,401 13,944 8,991 Total Operating Expenses 890,373 802,953 716,605 j Operating Income 190,685 182,840 162,842 Other Income and Deductions l Equity in earnings of subsidiaries 10,961 10,241 3,858 i Interest income 7,684 8,889 9,998 Allowance for other funds used during construction (Note E) 9,142 4,588 3,155 Miscellaneous - net (4,450) (6,935) (125)

Federal income tax (Note D) (1,124) (706) (4,064)

State income tax (Note D) (279) (184) (729)

Total Other Income and Deductions 21,934 15,893 12,093 Income Before Interest Charges 212,619 198,733 174,935 Interest Charges L:ng term debt 57,182 61,399 62,388 I, Allowance for borrowed funds used during l construction (Note E) (4,084) (2,812) (3,557).

Other 9,564 8,501 10,602.

Total Interest Charges 62,662 67,088 69,433 N;t Income $ 149,957 $131,645 $105,502 The :otes on pages 9 through 14 are an integral part of the financial statements.

L l -- ___ _ _-___ -___-__ _

WISCONSIN ELECTRIC POWER COMPANY RETAINED EARNINGS STATEMENT Year Ended December 31 1983 1982 1981 t

(Thousands of Dollars)

Balance, January 1 $333,712 $283,598 $248,649 Additions Net income- 149,957 131,645 105,502 Equity in earnings of subsidiaries (10,961) (10,241) (3,858)

Dividends received from subsidiaries 5,520 5,520 2,588 478,228 410,522 352,881 D2 ductions Dividends - cash Preferred stock 15,087 15,087 15,087 Common stock - $2.06, $1.902 and

$1.76 per share 69,761 61,434 54,175-84,848 76,521 69,262 Cost of issuing capital stock- 45 289 21 84,893 76,810 69,283 Balance, December 31 $393,335 $333,712 $283,598 STATEMENT OF UNDISTRIBUTED SUBSIDIARY EARNINGS Year Ended December 31 1983 1982 1981 (Thousands of Dollars)

Balance, January 1 $29,385 $24,664 $23,394 Equity in earnings of subsidiaries 10,961 10,241- 3,858

- Dividends received from subsidiaries (5,520) (5,520) (2,588)

E21ance, December 31 $34,826 -$29,385 $24,664 Th2 notes on pages 9'through 14 are an integral part>of the financial statements.

. s WISCONSIN ELECTRIC POWER COMPAhT STATEMENT OF CHANGES IN FINANCIAL POSITION Year Ended December 31 1983 1982 1981 (Thousands of Dollars)

Fintncial Resources Provided Operations Net income $149,957 $131,645 $105,502 Depreciation - straight line 100,655 76,803 70,799

- deferred income taxes (3,196) 15,625 28,061 Accumulated deferred investment tax credits 10,308 7,215 12,008 Nuclear fuel expense 10,:04 11,165 7,573 Amortization of precertification expenditures 4,100 9,137 8,358 Write-off of additional construction costs -

5,000 -

Undistributed subsidiary earnings (5,441) (4,721) (1,270)

Allowance for funds used during construction (13,226) (7,400) (6,712)

Total from operations 253,661 244,469 224,319 Common stock 28,169 30,152 25,260 Long term debt -

6,904 -

Sale of nuclear fuel 27,804 27,112 23,042 Contributions and advances in aid of construction 4,489 3,543 2,494 Deferred charges / credits and other (3,944) 1,409 (8,035)

$310,179 $313,589 $267,080 Financial Resources Used Construction expenditures $122,349 $122,906 $141,558 Nuclear fuci 24,027 22,617 32,813 Dividends 84,848 76,521 69,262 Additional investment in subsidiaries - - 15,000 Retirement of long term debt . 1,566 60,374 3,556 Reduction of short term borrowings -

14,983 55,061 Construction funds held by trustees -

6,923 -

Increase (decrease) in working capital (other than short term borrowings and long term debt due currently) 77,389 9,265 (50,170)

$310,179 $313,589- $267,080 Increase (Decrease) in Components of Working Capital Cash and temporary cash investments $ 81,746 $(29,621) $ 41,772 )

Accounts receivable and accrued utility revenues 21,087 2,482 9,289 i Fossil fuel (19,063) 21,365 (16,400)

Notes receivable from subsidiaries 10,612 11,210 (25,893)

Accounts payable and accrued liabilities (21,843) 2,506 (55,100)

Other 4,850 1,323 (3,838)

$ 77,389 $ 9,265 $(50,170)

Th2 notes on pages 9 through 14 are an integral part of the financial statements.

L

. .s WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET DECEMBER 31 ASSETS 1983 _

1982 (Thousands of Dollars)

Utility Plant-Electric $2,177,627 $2,155,979 Steam 20,430 19,259 2,198,057 2,175,238 Accumulated provision for depreciation (998,832) (931,717) 1,199,225 1,243,521 Construction work in progress 395,637 328,959 Nuclear fuel (Note A) 42,523 46,300 Net Utility Plant 1,637,385 1,618,780 Other Property and Investments Nonutility property 7,730 4,921 Accumulated provision for depreciation (2,433) (2,037)

Net nonutility property 5,297 2,884 Investment in subsidiary companies (Note G) 76,334 70,892 Total Other Property and Investments 81,631 73,776 Ccnstruction Funds Held by Trustees 3,451 6,976 Current Assets Cash 6,886 6,993 Temporary cash investments 88.775 6,920 Accounts receivable (Note F) 53,786 44,676 Accrued utility revenues 80,907 68,930 Nstes receivable from subsidiary companies (Note G) 25,033 14,421 Fossil fuel (at average cost) 85,631 104,694 Materials and supplies (at average cost) 42,011 39,544 Prepayments and other assets 7,894 5,511' Total Current Assets 390,923 291,691 Deferred Charges and Other Assets 16,896 16,547

$2,130,286 $2,007,770 Th? notesfon pages 9 through 14 are an integral part of the financial statements.

o WISCONSIN ELECTRIC POWER COMPANY M BALANCE SHEET DECEMBER 31 LIABILITIES 1983 1982 (Thousands of Dollars)

Ctpitalization (See Capitalization Statement)

C:mmon Stock Equity (Note H) $ 868,406 $ 775,173 Preferred Stock - Redemption Not Required (Note I) 160,451 160,451 Preferred Stock - Redemption Required (Note J) 25,000 25,000 L ng Term Debt (Note K) 649,243 694,498 Total Capitalization 1,703,100 1,655,122 Current Liabilities Long~ term debt due currently (Note K) 43,405 -

Accounts payable 62,413 58,013 Accounts payable to subsidiary companies (Note G) 142 213 Payroll and vacation accrued 15,893 14,435 Texes~ accrued - income and other 64,263 63,249 Interest accrued 32,193 23,292 Other. 10,925 4,784 Total Current Liabilities 229,234 163,986 Deferred Credits and Other Liabilities Accumulated deferred investment tax credits 125,217 114,909 Nuclear fuel costs accrued 30,623 30,891 Unamortized accrued utility revenues 8,197 10,930 Other 4,919 6,439 Total Deferred Credits and Other Liabilities 168,956 163,169 Centributions in Aid of Construction 28,996 25,493 Ccamitments and Contingencies (Note M)

$2,130,286 $2,007,770 The notes on pages 9 through 14 are an integral part of the financial statements.

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WISCONSIN EI.ECTRIC POWER COMPANY CAPITALIZATION STATEMENT DECEMBER 31 1983 1982 (Thousands of Dollars)

COMMON STOCK EQUITY ~(Note H)

Common Stock ($10 par value; authorized 41,000,000 shares; issued 33,477,827 and 33,216,164 shares) $ 344,778 $ 332,162 Presirm on Capital Stock 95,467 79,914~

Retained Earnings 393,335 333,712 Undistributed Subsidiary Earnings 34,826 29,385 Total Comunon Stock Equity 868,406 775,173 PR'.FERRED STOCK - Cumulative Six Per Cent. Preferred Stock - $100 pa: value; authorized 45,000 shares; 44,508 shares issued 4,451 4,451 Serial Preferred Stock - $25 par value; authorized 5,000,000 shares; unissued -

Serial Preferred Stock - 5100 par value; authorized 2,360,000 shares 3.60% Series - 260,000 shares issued 26,000 26,000 8.90% Series - 400,000 shrres issued 40,000 40,000 7.75% Series - 300,000 shares issued 30,000 30,000 8.80% Series - 600,000 shares issued 60,000 60,000 Total Preferred Stock - Redeuption Not Required (Note 1)- 160,51 160,451 10.875% Series - 250,000 shares issued 25,000 25,000 Total Preferred Stock - Redemption Required (Note J) 25,000 25,000 LONG TERN DEBT (Note K)

First Mortgage Bonds Series Due 1984 16,738 16,848 3-1/8%

3-7/8% 1986 20,907 21,207 13-3/4% 1986 80,000 80,000 11.40% 1987 70,000 70,000 4-I/8% 1988 21.867 -22,191 5  % 1990 26,701 26,791 3,620 4-3/4% 1991' 3,620 4-l/2% 1993 4,991 5,016 5-7/8% 1996 37,152 37,188 6-l/2% 1997 11,433 11,507 6-7/8% 1997 37,696 37,790 6-5/8% 1998 9,812- 9,822 6-7/8% 1998 33,447 33,621 6.10 % 1999-2008 25,000 25,000 6.25 % 1999-2008 1,000 1,000 7-1/4% 1999 33,973 38,973 8-3/8% 1999 39,491 39,537 11,711 11,729 8-l/2% 1999 6.45 % 2004 12,000 12,000 8-3/4% 2006 59,980 59,990 6.45 % 2006 4,000 4,000 6.50 % 2007-2009 10,000- ,10.000 8-1/8% 2008 80,000 j d,000 656,519 657,740 Delientures (Unsecured) 30,364 31,165 7% Series due 1993 Note.(Unsecured) 7,000 7,000-7-1/41 due 1985 Untmortized Discount - net (1,235) -(1,407) 1ong Term Debt Due Currently d 43,405) -

Total f.ong Term Debt 649,243 694,498.

Total Capitatization {lT03,100 $1.655,122 The notes on pages 9 through 14 are an integral part of the financial statements.

e L WISCONSIN EI.ECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS i-Summary of Significant Accounting Policies General

- The accounting records of'the company and its utility subsidiary are 1 'kept as prescribed by the Federal Energy Regulatory Commission, modified for requirements of the Public Service Commission of Wisconsin (PSCW). The company owns all of the common stock of Wisconsin Natural Gas Company (Wisconsin Natural)'

and Badger Service Company. The company: carries its investments in subsidiaries in accordance with the-equity method of accounting.

I Revenues i

Meters are read and accounts are billed monthly. . Since January 1, 1977 utility revenues have been recognized on the accrual basis and include estimated -

+ amounts for service rendered but not billed. Accrued utility revenue.oi $32 million at December 31, 1976 is being recorded as revenue in equal' amounts over a ten year period as prescribed by the PSCW.

Fuel l

The cost of fossil and nuclear fuel is expensed in the period consumed.

Nuclear fuel expense. includes the estimated cost for disposal of spent fuel.

! In 1983, the company entered into a contract with the U.S. Department j of Energy for the disposal of spent nuclear fuel in accordance with the Nuclear j Waste Policy Act of 1982. The disposal costs accrued cover substantially all disposal costs expected to be incurred for-nuclear generation through December.

31, 1933.

Property

)

Electric utility property is recorded at original cost, and steam-l utility and nonutility property is recorded at cost. Additions to utility-property and significant replacements are charged to utility-plant at cost.

! Cost includes material, labor and allowance for funds used during construction

. (see Note E). Replacements of minor items of property are charged:to mainten-1 ance expense. The cost of depreciable property, together with removal cost less salvage, is charged to accumulated provision for depreciation when' property is retired.

l Income Taxes Deferred. income tax accounting is practiced in respect to significant i timing differences. . The federal investment-tax credit is accounted for on the i

deferred basis and is reflected ~in income ratably over the' life of the'related  ;

property.

1 Debt Premium, Discount and Expense ~ q i

Long term debt" premium ~or discount and expense of issuance are amortized .

. by the-straight line method over the lives of the debt issues. Unamortized  ;

amounts pertaining to debt reacquired for sinking fund purposes are written off i

currently.

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- w A -' Rental Expense Total rental expense was $37,651,000 in 1983, $39,918,000 in 1982 and

$33,116,000 in 1981. This includes charges of $35,196,000 in 1983, $36,948,000 in 1982.and $30,442,000 in 1981 relating to the company's nuclear fuel leasing arrangement with Wisconsin Electric Fuel Trust (Trust). The nuclear fuel is leased for a period of 60 months or until the removal of the fuel from the reactor, if earlier. Lease payments include charges for the cost of fuel burned, financing costs and a management fee. In the event the company or the Trust terminates the lease, the Trust would recover its unamortized cost of nuclear fuel from the company. Under the lease terms, the company is in effect the ultimate guarantor of the Trust's commercial paper and line of credit borrowings financing the investment in nuclear fuel.

The nuclear fuel lease has been treated as an operating lease in the financial statements and by the PSCW in determining revenue requirements. The value of the leased fuel is not included in the company's tate base. Had the lease been accounted for as a capital lease, an asset and corresponding liability equal to the unamortized cost of the leased nuclear fuel would have been recorded at December 31 in the amounts of $53,069,000 in 1983 and $53,036,000 in 1982.

B - Pension Plans ,

i Several noncontributory pension plans cover all eligible employes. '

Normal employe pension cost is accrued and funded currently. Unfunded prior service liability is amortized over periods from ten to thirty yeers. Pension expense was $13,093,000 in 1983, $13,622,000 in 1982 and $10,383,000 in 1981.

A comparison of accumulated plan benefits and plan net assets available for benefits is shown below.

December 31 1983 1982 1981 (Thousands of Dollars)

Actuarial present value of accumulated plan benefits:

Vested benefits $152,598 $137,345 $124,568 Nonvested benefits 7,311 9,386 7,059

$159,909 $146,731 $131,627 Net plan assets $202,633 $166,155 $125,295 ,

1 The weighted average rate of return used in determining the actuarial  !

present v:lue of accumulated plan benefits was 7.0%. (

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d  %

C - Depreciation Depreciation expense is accrued at straight line rates, certified by the PSCW, which include estimates of salvage and plant removal costs. In 1982 and 1981 the nuclear plant depreciation rates provided an amount for the esti-mated current cost of decommissioning. Effective January 1983, the nuclear plant depreciation rates certified by the PSCW provide for decommissioning costs stated in estimated future dollars of the projected year of decommissioning.

Additional depreciation is accrued, in accordance with the PSCW requirements, which is equal to the tax effects of timing differences related to property and nuclear fuel including principally the use for tax purposes of accelerated depreciation methods (see Note D).

Straight line depreciation as a percent of average depreciable utility plant was 4.8% in 1983, 3.8% in 1982 and 3.6% in 1981.

D - Income Tax Expense Below is a summary of income tax expense and a reconciliation of total income tax expense with the tax expected at the federal statutory rate.

1983 1982 1981 (Thousands of Dollars)

Current tax expense $110,145 $ 81,502 $ 45,342 Investment tax credit adjustments -

net 11,369 9,102 14,453 Deferred taxes charged to depreciation expense (3,196) 15,625 28,061 Total tax expense 1118,318 $106,229 $ 87,856 Income before income taxes ,$268,275 $237,874 $193,358 Expected tax at federal statutory rate $123,407 $109,422 $ 88,945 Allowance for funds used during construction (6,084) (3,403) (3,088)

Equity in earnings of subsidiaries (5,042) (4,711) (1,775)

State income tax net of federal tax reduction 11,057 9,842 7,476 Investment tax credit restored (5,404) (5,276) (4,698)

Other (no item'over 5% of expected tax) 384 355 996 Total tax expense $118,318 $106,229 $ 87,856 Deferred income tax expense in 1983 reflects that the nuclear plant decommissioning cost accrual increased substantially (see Note C) and is not deductible currently for income tax return purposes.

The aggregate amount of deferred income taxes included in the accumu-lated provision for depreciation at December 31 was $214,910,000 in 1983 and

$211,427,000 in 1982.

s I v

l E - Allowance for Funds Used During Construction (AFDC)

AFDC is included in utility plant accounts and represents the cost of borrowed funds used during plant construction and a rate of return on stock-holders' capital used for construction purposes. On the income statement the cost of borrowed fuods (before income taxes) is a reduction of interest expense and the return on stockholders' capital is an item of noncash other income.

The company has been limited by the PSCW to capitalizing AFDC only on construction work in progress exceeding 10% of its net investment rate base in 1983 and 1981 and 12.5% of its net investment rate base in 1982. Revenues granted by the PSCW in rate orders include the equivalent of a return on invest-ment in construction work in progress below this limit. AFDC was capitalized in 1983,1982 and 1981 at a rate of 7% approved by the PSCW.

F - Accounts Receivable Accounts receivable are shown on the balance sheet after deducting an accumulated provision for doubtful accounts in the amount of $1,979,000 for 1983 and $2,151,000 for 1982. Unco 11ectible account write-offs net of recoveries were $3,963,000 in 1983, $4,236,000 in 1982 and $2,865,000 in 1981.

G - Transactions with Subsidiary Companies The company renders menagerial, financial, accounting, legal, data proces-sing and other services to Wisconsin Natural, which in turn renders to the company certain accounting and other services. These services are billed at cost by the respective companies. The company also purchased gas in the amount of $4,928,000 in 1983, $10,451,000 in 1982, and $11,854,000 in 1981 from Wisconsin  :

Natural for electric generation at rates approved by the PSCW. To take advantage of the company's access to short term funds at a lower cost than that available to Wisconsin Natural, the company makes loans to the subsidiary at an interest rate approximating the cost to the company.

In December 1981 the company contributed capital of $15,000,000 to Wisconsin Natural; this amount is classified as an investment in subsidiary companies.

H - Common Stock and Premium on Capital Stock Sales of common stock under the company's Automatic Dividend Reinvest-ment and Stock Purchase Plan (ADRSPP) and Tax Reduction Act Stock Ownership Plan (TRASOP) are summarized below.

1983 1982 1981 Shares issued ADRSPP 1,093,395 1,291,058 1,257,908 TRAS0P 168,268 198,838 372,881 <

Proceeds from sales ADRSPP $24,213,000 $25,819,000 $19,199,000 TRAS0P $ 3,956,000 $ 4,333,000 $ 6,061,000 Proceeds froe sales over the $10 par value of common stock sold are ,

ref' acted as premium on capital stock. j

, In July 1982 the company executed a 3-for-2 stock split and issued 10,808,826 additional common shares pursuant thereto. The par value of the common stock was not changed as a result of the stock split, and accordingly common stock was

, increased and premium on common stock was decreased $108,088,000. In addition,

$131,000 was paid to stockholders in' lieu of fractional shares equivalent to 6,192 full shares. l

- _w I - Preferred Stock - Redemption Not Required i The Serial Preferred Stock is redeemable in whole or in part at the option of the company at the following redemption prices plus any accrued I dividends.

Series Redemption Price Per Share 3.60% $101 8.90% $104 to December 1, 1985 and $101 thereafter 7.75% $104 to November 1, 1986 and $101 thereafter 8.80% $105.87 to January 1, 1989; $102.94 to January 1, 1994 and $101 thereafter J - Preferred Stock - Redemption ~ Required The redemption at $100 par value of 6,250 shares of Serial Preferred Stock, 10.875% Series is required annually on each September 1, from 1990 through 2009'with redemption of the remaining shares required on September 1, 2010. In addition to the mandatory redemption, the company may at its option redeem the stock at $109.75 to September 1, 1984 and at declining amounts _there-after to $100 after September 1, 2009. - In the event of default in the payment of dividends or in the mandatory redemption requirements, no dividends or other ,

distribution shall be declared on junicr stock. In addition, no dividend shall {

be declared on any preferred stock class and series except ratably on all pre-ferred shares according to their respective dividend rates.

K - Long Term Debt The maturities and sinking fund requirements through 19E3 for the aggregate amount of long term debt outstanding at December 31, 1983 are shown below. Of the annual sinking fund requirements, $3,690,000 may be satisfied by certifying additional mortgaged property.

1984 $49,101,000 1985 62,490,000 1986 75,825,000 1987 28,524,000 1988 25,888,000-Future sinking-fund requirements have been anticipated by advance purchases of bonds to the extent of $2,221,000 and certification of property in the amount of $3,690,000,-

Substantially all utility plant and nonutility property is subject-to-the lien of the applicable mortgage.

o 3

'L - Notes Payable and Commercial Paper Unused lines of credit for short term borrowing amounted to $87,350,000 at December 31, 1983. In support of various informal lines of credit from banks, the company has agreed to maintain unrestricted compensating balances.

-With the exception of funds required for daily operations, the cash balance shown on the balance sheet at December 31, 1983 as well as $140,000 of non-interest bearing certificates of deposit included in temporary cash investments represent compensating balances.

M - Commitments and Continsencies Construction expenditures for 1984 through 1987 are estimated to be

$557 million. Estimated construction expenditures for this four year period include $48 million for completion of the 580-megawatt Unit 2 coal-fired generat-ing station at the Pleasant Prairie Power Plant.and $15 million for the 25%

share in the 380-megawatt Edgewater Unit 5 coal-fired generating station which is being constructed by Wisconsin Power and Light Company. At December 31, 1983 construction work in progress includes $54,802,000 of company-financed expendi-tures relating to Edgewater Unit 5. In addition, approximately $48 million will be required for the expansion of the company's corporate headquarters and related parking structure. This project is expected to be completed in 1986.

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WISCONSIN ELECTRIC POWER COMPANY DIRECTORS Frederick M. Belmore

• Charles S. McNeer

• Russell W. Britt

• Donald K. Mundt Sol Burstein John L. Murray Richard L. Johnson

• Morris W. Reid

• Jon G. Udell

(*) Member of Executive Committee; all other directors are alternate members OFFICERS Charles S. McNeer .... Chairman of the Board and Chief Executive Officer Russell W. Britt . . . . . . . . . . . . . . . . . President and Chief Operating Of ficer Sol Burstein ................................... Executive Vice President John W. Boston .................................. . Senior Vice President Thoma s J. Cas sidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior Vice President Nichola s A. Ricci . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior Vice President Robert H. Gorske . . . . . . . . . . . . . . . . . . . . .Vice President and General Counsel Richard A. Abdoo ....................Vice President - Customer Relations Ca rlyle W. Fay . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President - Nuclea r Power Russell A. Niles ...................Vice President - Division Operations Huberto R. Platz...........Vice President - Engineering and Construction Jerry G. Remmel ............................Vice President and Treasurer Richard E. Skogg ....................Vice President - Operating Services John E. Speaker .........................Vice President - Communications Kenneth E. Wolters . . . . . . . . . . . . . . . . . . Vice President - System Operations John H. Goetsch ............................................... Secretary Richard R. Piltz ............................................. Controller Nancy R. Noeske ................................ Assistant Vice President John W. Fleissner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As sistant Secreta ry Gordon A. Willis..................................... Assistant Treasurer GENERAL OFFICES 231 West Michigan Street, P. O. Box 2046, Milwaukee, Wisconsin 53201 i

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Wisconsin Electnc powm couem 231 W. MICHIGAN, P.O. BOX 2046, MllWAUKEE, WI 53201 May 17, 1984 Nuclear Regulatory Commission Washington, D.C. 20555 Gentlemen:

In accordance with the regulations of your Commission, there is enclosed a copy of each of the following:

1. Annual Report of Wisconsin Electric Power Company which includes certified financial statements of the Company and its subsidiaries (consolidated);

2. Certified finaicial statements of Wisconsin Electric Power Company (corporate) .

The abovementioned reports are being filed with your Commission pursuant to 10CFR, Section 50.71 of the Nuclear Regulatory Commission Regulations as Wisconsin Electric Power Company is the holder of Facility Operating License Nos. DPR-24 and DPR-27 issued by your Commission under Dockets 50-266 and 50-301, respectively.

Very truly yours, J. H. Goetsch ecretary J

Enclosures cc: Shaw, Pittman, Potts & Trowbridge Mr. Gerald Charnoff 1800 M Street N.W.

Washington, D.C. 20036 o