ML20151E512
| ML20151E512 | |
| Person / Time | |
|---|---|
| Site: | Point Beach  |
| Issue date: | 04/11/1988 |
| From: | Fleissner J WISCONSIN ELECTRIC POWER CO. |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 8804150278 | |
| Download: ML20151E512 (25) | |
Text
._.-
s MSin 80ClftC poate COMPANY 231 W. MICHIGAN. P O. BOX 2046, MILWAUKE E.WI 53201 H14) 2212345 April 11, 1988 Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555 Gentlemen:
In accordance with 10 C.F.R. Section 50.71, enclosed is the Annual Report to Stockholders of Wisconsin Electric Power Company, which includes certified financial statements.
Such annual report is included as an appendix to the company's definitive information statement, which is being mailed to stockholders today.
Wisconsin Electric Power Company is the holder of Facility Operating License Nos. DPR-24 and DPR-27 issued by your Commission under Dnckets 50-2/6 and 50-301, respectively.
Sincerely,
' & lb5m W.
Fleissner Assistant Secretary bjs Enclosure cc:
Shaw, Pittman, Potts & Trowbridge Mr. Gerald Charnoff 1800 M.
Street N.W.
Washington, DC 20036 I
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o s
WISCONSIN ELECTRIC POWER COMPANY APPENDIX ACCOMPANYING INFORMATION STATEMENT 1987 ANNUAL REPORT TO STOCKHOLDERS TABLE OF CONTENTS ITEM PAGE Directors.......................................................... A-2 Officers........................................................... A-3 Busi' ness........................................................... A-4 Market for Comon Equity a n d Re l a t e d Ma t t e rs............................................. A.4 Selected Financial Data............................................ A-5 l
Qu a rt e rly Fi na nci a l Da t a........................................... A-5 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. A-6 i
Income Statement................................................... A-10 Statement of Changes in Financial Position......................... A-11 L
Balance Sheet...................................................... A-12 Capitalization Statement........................................... A-14 Comon S t oc k Equ i ty S t a t eme nt...................................... A-15 Notes to Financial Statements...................................... A-16 Report of Independent Accountants.................................. A.24 r
I Th 00 d A-1
(
o DIRECTORS JOHN F. BERGSTROM CHARLES S. McNEER
- President and Chief Executive Officer, Chairman of the Board and Chief Executive Bergstrom Enterprises (operator of Officer of Wisconsin Energy, Wisconsin hotels and General Motors Corporation Electric and Wisconsin Natural automobile dealerships)
JOHN L. MURRAY
- JOHN W. BOSTON Chairman and Chief Executive Officer, Senior Vice President of Wisconsin Universal Foods Corporation (manufac-Electric Power Company turer and importer of specialty and gourmet foods)
RUSSELL W. BRITT
- President and Chief Operating MORRIS W. REID
- Officer of Wisconsin Energy Chairman of the Board of Versa Tech-Corporation and its principal nologies, Inc. (manufacturer of fluid subsidiaries Wisconsin Electric power and silicone rubber products) and Wisconsin Natural Gas Company and corporate director; formerly Chairman of the Board of Directors
'nt0 MAS J. CASSIDY of J. I. Case Co. (manufacturer of l
Executive Vice President of construction and farm machinery)
Wisconsin Electric; Vice President of Wisconsin Natural FREDERICK P. STRATTON, JR.
- Chairman and Chief Executive Officer, GENEVA B. JOHNSON Briggs & Stratton Corporation (manu-President and Chief Executive Officer, facturer of small gasoline engines Family Service America (an organiza-and automotive locks) tion representing private agencies in the United States and Canada that JON G. UDELL provide humati service programs)
Irwin Maier Professor of Business, the University of Wisconsin. Madison; RENE H. MALES Chairman of the Board of Directors of Senier Vice President The Federal Home Loan Bank of Chicago of Wisconsin Electric
- Member of the executive committee of the Board of Directors A-2
0FFICERS CHARLESS.McNEER(61;37)
DAVID K. PORTER (44;18)
Chairman of the Board &
Vice President-Corporate Planning Chief Executive Officer JERRY G. REMMEL (56;32)
RUSSELLW.BRITT(61;39)
Vice President & Treasurer President & Chief Operating Officer RICHARD E. SK0GG (59;35)
THOMASJ.CASSIDY(62;41)
Vice President.0perating Services Executive Vice President JOHNE. SPEAKER (56;11)
RICHARD A. ABD00 (43;12)
Vice President-Communications Senior Vice President FREDA.TREBATOSKI(52;28)
JOHNW. BOSTON (54;5)
Vice President. Division Operations Senior Vice President KENNETH E. WOLTERS (62;37)
RENE H. MALES (55;1)
Vice President-System Operations Senior Vice President JOHN H. G0ETSCH (54;29)
ROBERT H."GORSKE (55;23)
Secretary Vice President & General Counsel RICHARD R. PILTZ (47;22)
CARLYLE W. FAY (61;21)
Controller Vice President. Nuclear Power JOHN W. FLEISSNER (63;17)
NANCY R. N0ESKE (50;8)
Assistant Secreta'ry Vice President. Consumer Affairs GORDON A. WILLIS (49;26)
HUBERT0 R. PLATZ (58;21)
Assistant Treasurer Vice President. Engineering & Const.
Figures in parentheses indicate age and years of service with Wisconsin Electric Power Company as of December 31, 1987.
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A.3
BUSINESS i
Wisconsin Electric Power Company ("Wisconsin Electric") is an operating public utility organized under the laws of the State of Wisconsin.
Its operations are conducted in two business segments, the primary operations of which are as follows:
Business Segment Operations Electric Operations Wisconsin Electric generates, transmits, distributes and sells electric energy in a territory of approximately 12,600 square miles with a population estimated at over 2,000,000 in southeastern (including the Milwaukee area), east central and northern i
Wisconsin and in the Upper Peninsula of Michigan.
Steam Operations Wisconsin Electric distributes and sells steam supplied by certain of its electric generating plants to space heating and processing customers in downtown Milwaukee.
For financial information about industry segments, see Note N to the Financial Statements.
Wisconsin Electric is a subsidiary of Wisconsin Energy Corporation ("Wisconsin Energy"), which owns all of Wisconsin Electric's Common Stock.
MARKET FOR COMMON EQUITY AND RELATED MATTERS The amount of cash dividends on Wisconsin Electric's Common Stock during the two most recent fiscal years are set forth below.
i Quarter Total Dividend l
1986 1
$20,639,000 2
$22,304,000 3
$22,304,000 4
$22,304,000 l
1987 1
$20,305,000 2
$21,805,000 1
3
$21,805,000 l
4
$21,805,000 Dividends paid by Wisconsin Electric in 1986 were paid prior to the corporate restructuring and were paid to public stockholcers. Dividends paid in 1987 were paid after the restructuring to Wisconsin Electric's sole common stockholder, Wisconsin Energy.
A.4
O SELECTED FINANCIAL DATA FINANCIAL 1987 1986 1985 1964 1983 (3housands of Dollars)
Earnings available for common stockholder
$ 165,508
$ 148,614
$ 142,561
$ 137,231
$ 123,909 Operating revenues:
Electric
$1,120,682
$1,121,267
$1,086,192
$1,091,473
$1,070,405 Steam 10,508 11,895 12,062 11,937 10,653 Zotal operating revenues
$1,131,190
$1,133,162
$1,098,254
$1,103,410 51,081,058 Total assets (A)
$ 2,490,099
$2,272,421
$2,117,711
$2,077,879
$2,109,545 Long tern debt and preferred stock-redemption required (A)
$ 855,483
$ 854,259
$ 693;206
$ 625,373
$ 707,627 SAIES AND CUS7tMERS 1987 1986 1985 1984 1983 Electric Megewstt-hours sold 20,134,824 18,952,796 18,744,323 18,612.449 17,776,847 Oustomers (End of year) 859,449 847,761 858,851 830,648 822,119 Staan Founds (sillions) sold 1,657 1,941 2,004 2,023 1,909 Oustomers (End of year) 510
$10 517 529 540 QUARIERLY FINANCIAL DATA Three Months knoed March June 1987 1986 1987 1986 (thousands of Dollars)
Total operating revenues
$276,077 $287,633
$279,066 $269,213 Operating income
$ $7,956 $ 56,464
$ 57,976 $ 48,976 Earnings available for common stockholder
$ 38,759 $ 41,742
$ 40,310 $ 35,5S4 Three Months Ended l
September December 1987 1986 1987 1986 (Thousands of Dollars)
Total operating revenues
$297,207 $290,165
$278,540 $ 286,151 Operating income
$ 68,513 $ 52,909
$ 55,108 $ 47,687 Earnings available for common stockholder
$ 50,613 $ 53.852
$ 35,626 $ 32,426 l
Because of seasonal factors which affect the utility business the quarterly l
results of operations are not directly comparable.
i Earnings and dividends per share are not provided as all Wisconsin Electric's r-Stock is held by Wisconsin Energy, Note (A) - See Note D to the Financial Statements.
A5 l
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Earnings for Wisconsin Electric increased to $165,308,000 in 1987 from
$148,614,000 in 1986. Earnings increased 3rimarily because of warmer.
6 nan. normal temperatures during May throug1 August 1987, which had a favorable effect on electric sales and because of the close control of operating expenses.
Electric kilowatt-hour sales to retail, municipal, and cooperative wholesale customers rose 4.4% in 1987 compared to a 1.5% increase in 1986, reflecting 's both the warmer weather and improved economic activity in Wisconsin Electric service territory. Total kilowatt-hour sales, including sales to public utilities increased 6.2% in 1987.
In spite of the increases in sales, electric revenues for 1987 were flat due
' in part to a Wisconsin retail electric rate decrease of $28.9 million, or 2.8% on an annual basis, which became effective January 1,1987.
Electric revenaes were also affected by a Wisconsin retail electric fuel cost adjustment credit of $14.3 million on an annual basis which became effective in August 1987 for Wisconsin retail electric customers.
For the three years ended December 31, 1987, kilowatt. hour sales of electricity increased at a compound annual rate of 2.7%.
Electric revenues for the same pericd increased at a compound annual rate of 0.9%. The cost of fuel and purchased power declined 22.6% over this three-year period due principally to a decrease in the delivered cost of coal. Other electric operating expenses, excluding income taxes and depreciation, increased at a compound annual rate of 3.7%.
Wisconsin Electric's results for 1987 were affected by lower Taxes Other Than Income Taxes, resulting from a $17.3 million refund from the State of Wisconsin received as settlement of Wisconsin state ad valorem tax claims.
In addition, 1987 results reflect the lower federal income tax rate, modifications to the accelerated cost recovery system and elimination of the investment tax credit pursuant to the provisions of the Tax Rtform Act of 1986. The increase in other interest charges in 1987 compares to 1986 reflects a $17.9 million one-time interest charge associated with certain tax settlements.
In 1987, the Financial Accounting Standards Board issued a new accounting standard for income taxes. Adoption of the new standard is required no later than 1989 and will require the adjustment of deferred income tax balances.
Wisconsin Electric has not quantified the effect that adoption of the standard will have on its results of operations or financial position, but believes that any effect will not be material.
Assuming moderate growth in the local economy and normal weather, Wisconsin Electric projects that electric kilowatt-hour sales, including sales of approximately 2.5 billion kilowatt-hours to new customers which result from the Presque Isle Power Plant acquisition, will increase approximately 11% in 1988 over 1987.
A-6
~
MANAGEMENT'S DISCUSSION - Results of Operations (Cont'd)
For additional infomation concerning the effect of the Pre.que Isle acquisition on Wisconsin Electric's operations, see Note C to the Financial Statements. During the three-year period after 1988, electric kilowatt-hour sales are expected to grow at a compound annual rate of approximately 1.7%.
In December 1987, the PSCW approved a 0.9%, or $8.7 million, electric rate increase effective January 1,1988 for retail electric customers in Wisconsin. This increase was based on a 1988 test year with a 13.0% rate of return on comon equity, as determined for ratemaking purposes, and the estimated impact of the Presque Isle acquisition. A steam rate increase of
$800,000 became effective for Wisconsin Electric's steam customers on July 1, 1987 and a further $300,000 increase became effective January 1, 1988.
In other rate decisions, Wisconsin Electric's wholesale electric rates were lowered $900,000, or 1.5%, effective January 1,1987. A subsequent order provided for a further 1.3%, $800,000 rate decrease for wholesale electric customers, effective September 1,1987, and an additional reduction of $1.2 million, or 2.0%, effective January 1, 1988. A 2.9%. $600,000 decrease for Michigan retail electric customers became effective July 1,1987.
Liquidity and Capital Resources Wisconsin Electric's capital requirements for the three years ended December 31, 1987 totaled $1.329 billion, including $590 million for the construction of new or improved facilities and the acquisition of the Presque Isle Power Plant. and $289 million for the retirement of long-term debt. Also included were $100 million for payments to an external trust for the eventual decommissioning of Wisconsin Electric's Point Beach Nuclear Plant, $89 million for net deposits with trustees under certain industrial revenue bond financing arrangements, and $71 million for acquisition of nuclear fuel.
In addition, a total of $142 million was applied to the purchase of capital stock and $48 million was for increases in working capital and other itens.
Internal sources of funds, including depreciation accruals, normalization of investment tax credits and retained earnings, provided $615 million of Wisconsin Electric's capital requirements. Of the remaining $714 million of Wisconsin Electric's capital requirements during this three year period, $403 million was supplied from the issuance of long-term debt, $69 million from a new series of preferred stock, and $242 million from short-term borrowings and other sources, including the short-term borrowings for the purchase of the Presque Isle Power Plant referred to below.
Included in Wisconsin Electric's capital requirements for this three-year period was $283.7 million for the acquisition of the Presque Isle Power Plant, and related facilicies and inventories, which was completed by kisconsin Electric on December 31, 1987. The cost of the Presque Isle acquisition was i
l ir.itially funded by Wisconsin Electric through $200 million of short-term borrowings, a $45 millien copital centribution from Wisconsin Energy, and the balance from internal sources, principally the reduction of temporary cash investments.
Capitalized conservation expenditures totaling $20 million in 1987 are included in Other Property and Investment: - Other. Additional capitalized conservation expenditures of 453 million are expected in 1988.
A-7
MANAGEMENT'S DISCUSSION - Liquidity and Capital Resources (Cont'd)
During the three years ended 1987, $125 million was used to purchase 1,300,000 shares of Wisconsin Electric's $100 par value serial preferred stock and $17 million to purchase 536,700 shares of common stock.
Wisconsin Electric continued efforts to reduce its overall cost of capital in 1987.
In April 1987 Wisconsin Electric redeemed all outstanding shares of its 8.90% Series, 7.75% Series, and 8.80% Series $100 par value serial preferred stock, using the proceeds from the sale of 700,000 shares of 6.75%
Series serial preferred stock of the same class. Also, in February 1987, Wisconsin Electric purchased $31.3 million of its 111/2% Series First Mortgage Bonds.
At December 31, 1987, Wisconsin Electric's capitalization, including short-tenn debt and long-tem debt due currently, consisted of 47 percent debt, 5 percent preferred stock and 48 percent connon equity.
Short-tenn indebtedness at December 31, 1987 included approximately $200 million for the purchase of Presque Isle and $46 million of long-term debt due within 12 months. At year end, Wisconsin Electric had $212 million of unused lines of bank credit, $30 million of short-term investments, and $76 million of construction funds held by trustees.
In January 1988, Wisconsin Electric issued $100 million principal amount of First Mortgage Bonds, 9 5/8% Series due 2018, the proceeds of which were applied to the repayment of a portion of the short-term debt dncurred in connection with the Presque Isle acquisition.
Upon the issuance of the Bonds, the unused lines of bank credit were reduced to.5102 million.
Depending on market conditions and other factors Wisconsin Electric presently anticipates issuing up to an additional $100 million principal amount of its First Mortgage Bonds during 1988.
The proceeds from any such issuance are expected to be applied primarily to the reduction of short-term indebtedness.
Wisconsin Electric estimates that for tne four years 1988 through 1991, the capital requirements will total $1.0 bOlion, of which approximately 79 percent will be required for constructior projects.
Major renovations are planned for the four largest units at the Oak Creek Power Plant and the five units at the Port Washington Power Plar,t. Due to economic factors and the Presque Isle acquisition, Wisconsin Electric canceled plans to convert the four oldest units at Oak Creek to atmospheric fluidized-bed combustion and now plans to retire these units. Two of the units were taken out of service in 1986.
The other two units are expected to be removed from service in the early 1990s. Wisconsin Electric has no new power plants under construction at the present time.
However, peak generating capacity is expected to be needed in the early 1990s and preliminary expenditures associated with the addition of such capacity are reflected in the forecast for the four years 1988 through 1991.
The remaining estimated utility construction expenditures during the four-year period through 1991 are primarily for additions and improvements to distribution and transmission systems, energy conservation programs, new service centers and other buildings, and equipment and improvements at existing power plants.
A-8
' MANAGEMENT'S DISCUSSION - Liquidity and Capital Resources (Cont'd)
The balance of utility capital requirements during this period is principally for sinking fund requirements and maturities of long-term debt, changes in fuel inventories, and payments to a trust for the eventual decommissioning of the Point Beach Nuclear Plant.
During 1988 and 1989, after giving effect to the repayment of the balance of Presque Isle short-term borrowings through the anticipated bond financing referred to above, Wisconsin Electric expects internal sources of funds from operations to provide approximately 85 percent of its capital requirements which are projected at $528 million, including $405 million for construction.
The rtmaining capital requirements for this period are expected to be met principally through reductions of existing cash investments and construction funds on deposit with trustees and from additional borrowings.
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i A-9 1
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WISCONSIN ELECTRIC POWER COMPANY INCOME STATEMENT Year Ended December 31 1987 1986 1985 (Thousands of Dollars)
Operating Revenues Electric
$1,120,682
$1,121,267
$1,086,192 Steam 10,508 11,895 12,062 Total Operating Revenues 1,131,190 1,133,162 1,098,254 Operating Erpenses Fuel (Note D) 227,112 276,663 276,055 Purchased power 22,914 25,627 23,494 Other operation expenses (Note E) 238,604 214,561 200,775 Maintenance 133,361 116,422 116,406 Taasa other than incoes taxes 36,091 51,738 34,524
, N reciation (Note T)
Straight line 114,106 110,53'i 116,951 Deferred income taxes (Note C) 12,521 20,056 11,287 Tederal income tax (Nete C) 91,989 96,315 94,623 Investment can credit adjustments -
not (Note C)
(6.793)
(4,237) 5,692 State income taa (Note C) 21,729 19,450 19,843 Total Operating Espenses 891,634 927,126 899,650 Operating Income 239,556 206,036 198,604 Other Income and Deductions Interest Income 14,704 9,465 6,565 Allowance for other funds used during construction (Note H) 2,197 3,744 4,873 Miscellaneous - not (7,394)
(711)
(4,321)
Toderal income tax (Note C) 1,125 (2,662)
(636)
State income taa (Note C)
(493)
(701)
(190)
Total Other Income and Deductions 10,139 9,15 5 6,291 Income Before Interest Charges 249,695 215,191 204,895 Interest Charges Long ters debt 61,297 58,216 53,253 Other interest 18,555 2,883 1,984 Allowance for borrowed funds used during construction (Note H)
(1,0 54)
(1,682)
(1,991)
Total Interest Charges 78,818 59,417 53,246 Net Income 170,877 155,774 151,649 Preferred Stock Dividend Requirement 5,569
...... 160 9,088 7
Earnings Availatte for Common Stockholder
$ 165,308
$ 148,614
$ 142,541 Notes Earnings and dividends per share of conson stock are not applicable because all of the coorar.y's common stock is owned by Wisconsin Energy Corporation.
See Notes to Tinancial Statements.
1 A 10
WISCONSIN ELECTRIC POWER COMPANY STATDENT OF CHANCES IN FINANCIAL POSITION Year Ended December 31 1987 1986 1985 (Thousands of Dollars)
Finaarial Resources Provided Operations Net income
$170,877
$155,774
$151,649 Depreciation - straight line 114 106 110,531 116,951 deferred income cases 12,521 20,056 11,247
- nuclear decommissioning (12,934)
Accumulated deferred investment can credits (6.796)
(5,151) 4,444 Nuclear fuel sapense 26,856 30,618 31,563 Allowance for funda used during construction (3,231)
(5,426)
(6,8 64)
Total from operations 301,399 306,402 309,050 Preferred stock 69,388 Long ters debt 23,955 209.754 169,682 Short ters borrowings 173,693 767 19,973 Contributions.end advances in aid of construction 1,901 1.556 3,110 Stockholder contribution 45,000 Deferred charges / credits and other (7,518)
(11,786) 14
.... 38 6
$607,818
$506,693
$$16.181 Financial Resources Used Construction sapenditures
$352,$av
$115,086
$122,019 Nuclear decommissioning trust fund 100,095 Nuclear fuel 29,008 18,943 22,998 Dividends 92,085 127,643 82,195 Retirement of long tera debt 76,703 102,659 109,985 Purchase of company capital stock 72,134 69,582 30,185 St<nt nuclear fuel disposal 79,617 9,069 Construction funds held by trustees Increase (decrease) in working capital (other dian short term borrowings and long term debt due currently)
(14,661)
(37,550) 70,148
$607,818
$506.693
$516,181 increase (Decrease) in Components of Working Capital Cash and toeporan cash investments
$(10,301)
$(45,428)
$ 6,677 Accounts receivable and accrued utility revenues (9,637) 3,450 (1,498)
Fossil fuel 2,487.
(5,123)
(2,592)
Notes receivable from associatti companies (6,700)
(16,395) 5,457 Prepayments 3,141 1,854 33,202 Accounts payable and accrued liabilities 3,120 9,627 22,880
.... 465 6,022 14 Other 3,229
$(14,661)
$(37,550)
$ 70,148 See Notes to Financial Statements.
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A*11
WISCONSIN ELECTRIC POWER COMPANY 8ALANCE SHEET DECEMBER 31 ASSETS 1987 1986 (ThousandsofDollars)
Utility Plant Electric (NoteC)
$3,176,526
$2,855,073 Steam 26,315 26,011 3,202,841 2,881,084 Accumulated provision for depreciation (1,438,309)
(1,326,282) 1,764,532 1,554,802 Construction work in progress 35,651 24,745 Nuclear fuel - net (Note 0) 73,210 71,167 Net Utility Plant 1,873,393 1,650,714 Other Property and Investments Nucleardecommissioningtrustfund(NoteF) 115.432 100,124 Construction funds held by trustees 75,843 90,297 Other 23,115 3,815 Total Other Property and Investments 214.390 194,236 Current Assets Cash 3,688 5,989 Temporary cash investments 30,000 38,000 Accounts receivable, net of allowance for doubtful accounts - $7,121 and $5,573 55,005 62,373 Accrued utility revenues 83,352 85,621 Notes receivable from associated companies (Note I) 6,700 i
Fossil fuel (at average cost) 64,946 62,459 Materials and supplies (at average cost) 60,666 52,274 Prepayments 42,137 38,996 Other asssts 7,614 12,777 Total Current Assets 347,408 365,189 Deferred Charges and Other Assets 54,908 62,282
$2,490,099
$2,272,421 See Notes to Financial Statements.
A.12
WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET DECEMBER 31 LIABILITIES 1987 1986 l
(Thousands of Dollars)
Capitalization (SeeCapitalizationStatement)
Common stock equity
$1,045,052 5 924,175 Preferred stock. Redemption not required 30,451 100,461 Preferred stock. Redemption required 70,000 Long term debt 785,483 854,259 Total Capitalization 1,930,986 1,878,895 Current Liabilities Long' term debt due currently (Note K) 45,900 22.616 Notes payable (Note L) 198,693 25,000 Accounts payable 57,689 69,237 Payroll and vacation accrued 20,594 18.921 Taxes accrued. income and othet-29,059 24,826 Interest accrued 14,111 14,720 Other 6,729 3,598 i
Total Current Liabilities 372,775 178,918 Deferred Credits and Other Liabilities Accumulated deferred investment tax credits 123,946 130,742 Other 26,044 48,461 Total Deferred Credits and Other Liabilities
-149,990 179,203 Contributions in Aid of Construction 36,348 35,405 f
Comitments and Contingencies (Note M)
$2,490,099
$2,272,421 See Notes to Financial Statements.
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i A.13 j
WISCONSIN ELECTRIC P0bTR COMPANY CAPITALIZATION STATEMENT DECEMBER 31 1987 1984 (Thousands of Dollars)
Copts>N STOCK EQUITY (See Common 5tock Equity Statonent)
Common stock ($10 par values authorized 65,000,000 shareeg outstanding - 33,289,327 shares)
$ 332,893
$ 332,893 Other paid in capital 142,462 99,532 Retained earnings 569,697 491,750 Total Common Stock Equity (Note B) 1,045,052 924,175 PREFEReE STOCK - Coulative Six per cent. preferred stock - $100 par values authorized 45,000 shers ;
outstanding - 44,508 shares 4,451 4,451 Serial preferred stock - $100 par value authorized 2,360,000 sharess outstanding -
3.60% series - 260,000 shares 26,000 26,000 8.90% series
- 333,325 shares in 1986 33,332 7.75% series - 225,810 shares in 1986 22,581 8.80% series - 140,967 shares in 1986 14,097 Total Preferred Stock - Redemption Not Required (Note J) 20,451 100,461 6.75% series - 700,000 shares in 1987 70,000 Total Preferred Stock - Redemption Required (Note J) 70,000 LONG TERM DEBT First mortgage bonds Series Due 4 1/8%
1988 20,929 20,929 5
1990 26,605 25,605 4 3/4%
1991 3,570 3,570 4 1/2%
1993 4,985 4,985 5 7/8%
1996 36,807 16,942 6 1/2%
1997 11,341 11,146 6 7/p%
1997 37,560 37,629 6 5/8%
1998 9,772 9,772 6-7/p%
1998 33,360 33,394 6.10 %
1999 2008 25,000 25,000 6.25 %
1999 2008 1,000 1,000 7 1/4%
1999 38,913 38,929 8 3/8%
1999 39,230 39,230 8*1/2%
1999 11,678 11,678 6.45 %
2004 12,000 12,000 8 3/4%
2006 59,897 59,897 6.45 %
2006 4,000 4,000 6.50 %
2007 2009 10,000 10,000 8 7/P4 2008 79,934 79,934 9 3/4%
2015 46,350 46,350 11 1/2%
2015 68,700 100,000
' 2/2%
2016
,,,99999 199,999 1
681,667 713.230 Debentures (unsecured) 7% Series due 1993 27,076 27,994 Note (unscrured)
Variable rate due 2016 75,000 85,000 i
Obligations under capital lease (Note D) 51,439 54,661 r
Unemortised discount - net (3,799)
(4,010)
Long torn debt due currently (45,900)
(22,616)
I Total Long Ters Debt (Note K) 785,483 854,259 Total Capitalisation
$1.9 30,986
$1.878,8f*
j See Notes to Financial Statements.
l A 14
WISCON$1N ELEC21 TIC POWER COMPANY CG000N STOCK EQUIIT STAfDENT Common $tock Cosmon $tock Other Paid heteined Shares
$10 Par Value In Capital Earnin8.s Total (thousands of Dollars)
Salance - December 31, itM 33,826,027
$3M,260
$93,555
$404.567
$4M,342 Net inecos 151,H9 151,H9 Cash dividends Common stock (72,673)
(72,673)
Preferred stock (9,522)
(9,522)
Purchase of common stock (536,700)
(5,367)
(1,481)
(10,202)
(17,050)
Purchase of preferred stock (Note J)
... 458 7
.... 458 7
Salance - December 31, 1985 33,289,327 332,493 99,532 463,819 896,2 4 Net incces 155,774 155,774 Cash dividends ccanon stock (113,596)
(113,596)
Preferred stock (7,160)
(7,160)
Non cash dividend (7,087)
(7,047)
Relance - December 31, 1966 33,289,327 332,893 99,532 491,750 924,175 Net income 170,877 170,877 Stockholder contribution (Note 1) 45,000 45,000 Cash dividends Connon stock (85,720)
(85,720)
Preferred stock (5,672)
(5,672)
Purchase of Preferred Stock (Note J)
(2,070)
(54)
(2,124)
Sale of Preferred Stock (Note J)
(791)
(791)
Non cash dividend (693)
(693)
Salance - December 31, 1987 33,289,327
$332,893
$142,462
$ 569,697
$1,045,052 See Notes to Financial Statements.
A*15
WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS P
A. Sumary of Significant Accounting Policies The accounting records of the company are kept as prescribed by the Federal Energy Regulatory Comission, modified for requirements of the Public Service j
Comission of Wisconsin (PSCW).
J Revenues Meters are read and accou'1ts are. billed monthly. Utility revenues are recognized on the accrual basis and include estimated amounts for service rendered but not billed.
Fuel' j
The cost of fuel is expensed in the period consumed.
Nuclear fuel expense includes the estimated cost for disposal of spent fuel based on a contract with the U.S. Department of Energy.
Property j
l Electric utility property is recorded at original cost, and steam utility and nonutility property is recorded at cost. Additions to utility proparty and significant replacements are charged to uti11ty plant at cost. Cost includes material, labor and allowance for funds and during construction (see Note H).
Replacements of minor items of pro '
, are charged to maintenance expense.
1 The cost of depreciable utilit"
,,,,trty, together with removal cost less-salvage, is charged to accumuiated provision for depreciation when the i
property is retired.
Income Taxes l
Deferred federal income tax accounting is practiced in respect to significant timing differences.
Pursuant to a PSCW order effective January 1985, deferred l
state income tax resulting from the use of accelerated depreciation is not recorded (see Note G).
l The federal investment tax credit is accounted for on the deferred basis and l
is reflected in income ratably over the life of the related property.
Debt Premium, Discount and Expense Long term debt premium or discount and expense of issuance are amortized by the straight line method over the lives of the debt issues and included as i
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interest expense. Unamortized amounts pertaining to debt reacquired for sinking fund purposes are written off currently.
B - Corporate Restructuring Pursuant to a corporate restructuring plan effective at midnight December 31, 1986. Wisconsin Energy Corporation (WEC) became the sole holder of Wisconsin Electric (WE) connon stock and connon shareholders of WE became connon shareholders of WEC on a share for share basis. As part of the restructuring WE transferred the common stock of Wisconsin Natural Gas Company, Badger Service Company, Wisconsin Michigan Investment Corporation, Wispark Corpora-tion, Witech Corporation and Wisvest Corporation to WEC.
The accompanying financial statements give effect to the restructuring for all periods presented. As a result, equity in subsidiary earnings and investment in subsidiary companies have been eliminated. The company's capital contri-butions of cash in the amount of $44,257,000 and property in the amount of
$7,087,000 to subsidiaries during 1984 1986 have been classified as dividends.
C e Power Plant Purchase On December 31, 1987 the company purchased the 592 megawatt, 9 unit, coal-fired Presque Isle Power Plant (Marquette Michigan) and associated inventories and transmission facilities from Cleveland. Cliffs Iron Company and Upper Peninsula Power company for $283,684,000. The acquisition was accounted for as a purchase of property.
Presque Isle Power Plant's operations will be included in the income statement beginning January 1, 1988. Shown below is supplemental information illustrating the results of operations as though the company acquired Presque Isle at the beginning of 1987.
Pro forma 1987 (ThousandsofDollars)
Total Operating Revenues
$1,238,264 Net income
$176,727 D. Rental Expense Total rental expense was $2.898,000 in 1987, $2.825,000 in 1986 and $3,069,000 1
leasing arrangement with Wisconsin Electric Fuel Trust (Trust)y's nuclear fuel in 1985. This does not include amounts relating to the compan
, which is treated as a capital lease.
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 a:J 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 guarantar of the Trust's commercial paper and line of credit borrowings financing the investment in nuclear fuel.
The nuclear fuel lease was capitalized in i
January 1987 and affected prior period statements are restated. The capitalization did not impact earnings.
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The amount of nuclear fuel under capital lease and the accumulated provision for amortization at December 31, 1987 was $69,869,000 and $24,297,000, respectively.
The future minimum lease payments under capital leases and the present value of the net minimum lease payments as of December 31, 1987 are as follows:
(Thousands of Dollars) 1988
$ 27,537 1989 17,747 1990 8,959 1991 2,268 1992 Total Minimum Lease Payments 56,511 Less:
Interest (5,072)
Present Value of Net Minimum Lease Payments
$ 51,439 E3335353 E - Pension Plans In the opinion of the company, current pension trust assets and amounts which are expected to be paid to the trusts in the future will be adequate to meet l
future pension payment obligations to current and future retirees.
1 The following information has been prce.ded in accordance with Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions l
(FAS 87), which became effective on January 1, 1987. The company has several noncontributory pension plans covering all eligible employees.
Pension benefits are based on years of service and the employee's compensation. The l
plans are funded to meet the requirements of the Employee Retirement Income 3ecurity Act of 1974, which amounts are charged to expense currently.
Pension expense was $3,807,000 in 1987, $3,400,000 in 1986 and $6,567,000 in 1985. The majority of the plans' assets are equity securities; other assets include corporate and government bonds, guaranteed investment contracts and real estate.
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1987 (Thousands of Dollars)
Components of Net Periodic Pension Cost, Year Ended December 31 -
Cost of pension benefits earned by. employees S 9,018 Interest cost on projected benefits'to ultimately be p. aid to employees 21,906 Less: Actual return on plan assets 12,675 Less: Net amortization and deferral 17,602 Total pension cost calculated under FAS 87 647 assanssa Actuarial Present Value of Accumulated Benefit Obligation, at December 31 -
Vested benefits - employees' right to receive benefit no longer contingent upon continued employment
$200,118 Non vested benefits - employees' right to receive benefit contingent upon continued employment 4,452 Total obligation
$204,570
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Funded Status of Plans:
Pension Assets and Obligations, at December 31 -
I Pension assets at fair market value
$319,745 l
less:
Projected benefit obligation at present value 252,777 Less: Unrecognized transition asset and unrecognized gain being amortized over remaining service l
period of employees 63,540
(
$ 3,428 Net Pension Asset massassa f
Rates used for calculations (%) -
l Discount rate - interest rate used to adjust for 9.0 the time value of money I
Assumed rate of increase in compensation levels 5.5 9.0 l
Expected long term rate of return on pension assets In December,1987 the company advieed eligible employees of an early retirement program which will be offered to employees (excluding officers) age 57 and older with 10 years of vesting service and age 55 and older with 35 The program will eliminate the early retirement years of credited service, discount and include a payment to those employees not yet eligible for Social Security.
No costs for this program were included in the 1987 financial i
statements.
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. F - Depreciation Depreciation expense is accrued at straight line rates, certified by the PSCW, which include estimates of salvage and plant removal costs.
Nuclear plant decommissioning is accrued as depreciation expense.
In December 1985 the PSCW issued an order changing the accounting and funding methods for nuclear power plant decommissioning.
In 1986 the company changed from a straight line negative salvage method with internal funding to an external sinking fund method.
In December 1986, the company placed $100,095,000 which is equal to the December 31, 1986 accumulated provision for the eventual decommissioning, in an external trust fund.
Additional depreciation is accrued, in accordance with the PSCW requirements, which is equal to the federal tax effects of timing differences related to property and nuclear fuel including principally the use of accelerated depreciation methods (see Note G).
Straight line depreciation as a percent of average depreciable utility plant was 4.1% in 1987, 4.2% in 1986 and 4.8% in 1985.
G'- 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.
1987 1986' 1985 (Thousands of Dollars)
Current tax expense
$113,086
$119,128
$115,292 Investment tax credit adjustments -
net (6,793)
(4,237) 5,692 Deferred taxes charged to depreciation expense 12,521 20,056 11,287 Total tax expense
$118,814
$134,947
$132,271 355333E3 EEEEEEEE EEEEEEES Income before income taxes
$289,691
$290,721
$283,920 35EEEEEE E535233E 53555553 Expected tax at federal statutory rate
$115,876
$133,731
$130,603 State income tax net of federal tax reduction 12,209 9,832 9,763 Investment tax credit restored (7,965)
(8,233)
(7,455)
Other (no item over 5% of expected tax)
(1,306)
(383)
(640)
Total tax expense
$118,814
$134,947
$132,271 33333333 EEEEEEER ESSESSEE A-20
[heaggregateamountofdeferredincometaxesincludedintheaccumulated provision for depreciation at December 31 was $271,494,000 in 1987 and
$258,369,000 in 1986.
For regulated companies, the change in tax rates applied to accumulated deferred income taxes may not be immediately recognized in operating results. Changes to depreciation-related deferred income taxes will continue to be recorded in accordance with the Tax Reform Act of 1986. At December 31, 1987, the cumulative amount of timing dif.
ferences for which deferred income taxes have not been provided was approxi.
mately $71 million for federal tax purposes, and $216 million for state tax purposes. Any tax effect of this amount is expected to be recovered through future utility rates.
H _ 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 stockholders' capital used for construction purposes.
On the income statement the cost of borrowed funds (before income taxes) is a reduction of interest expense and the return on stockholders' capital is an item of noncash other income.
AFDC was capitalized at a rate of 11.30% in 1987,11.79% in 1986 and 11.15% in 1985, as approved by the PSCW.
I Transactions with Associated Companies Managerial, financial, accounting, legal, data processing and other services may be rendered between associated companies and are billed in accordance with service agreements approved by the PSCW.
The company also buys gas 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 made loans to Wisconsin Natural at an interest rate approximating the cost to the company. In December 1987, the company received a $45,000,000 capital contribution from WEC.
J _ Preferred Stock Serial Preferred Stocks authorized but unissued are cumulative, $25 par value,
- 5,000,000 shares.
In the event of default in the payment of preferred dividends or in the mandatory redemption requirements, no dividends or other distribution may be paid on the company's common stock.
Redemption Not Required In 1987 the company redeemed a total of 140,967 shares of 8.80% Series, 333,325 shares of 8.90% Series and 225,810 shares of 7.75% Series, $100 par value Serial Preferred Stock at an aggregate cost of $72,134,000.
In 1985 the company purchased and retired a total of 459,033 shares of 8.80% Series, 66,675 shares of 8.90% Series and 74,190 shares of 7.75% Series, $100 par value Serial Preferred Stock at an aggregate cost of $52,532,000.
The 3.60%
Serial Preferred Stock is redeemable in whole or in part at the option of the company at $101 per share plus any accrued dividends.
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Redemption Required In 1987 the company issued 700,000 shares of 6.75% Series, $100 par value Serial Preferred Stock.
The redemption at par value of 21,000 shares is 4
required annually on each June 1 beginning in 1993 (with a noncumulative option to redeem up to 31,500 additional shares annually) with redemption of the remaining shares required on June 1, 2026.
In addition to the mandatory redemption, the company may at its option redeem the stock at $106.75 prior to June 1,1992 and at declining amounts thereafter to $100 on or c#ter June 1, 2002.
K - Long Term Debt The maturities and sinking fund requirements through 1992 for the aggregate amount of long term debt outstanding (excluding obligations under capital lease) at December 31, 1987 are shown below. Of the annual sinking fund requirements, $3,690,000 may be satisfied by certifying additional mortgaged property.
~
1988
$25,819,000 1989 4,890,000 1990 31,495,000 1991 8,160,000 1992 4,550,000 Future sinking fund requirements have been anticipated by advance purchases of bonds to the extent of $29,306,000.
Substantially all utility plant and nonutility property is subject to the lien of the applicable mortgage.
I In January 1988, the company sold $100 million of 9 5/8 percent First Mortgage Bonds.
L - Notes Payable Short term notes payable consisted of $198,693,000 of commercial paper at December 31, 1987 and a $25,000,000 note with an investment company at December 31, 1986. Unused lines of credit for short term borrowing amounted to $211,600,000 at December 31, 1987.
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, 1987 represents compensating balances.
M - Commitments and Contingencies Plans for the construction and financing of future additions to utility plant can be found elsewhere in this report in "Management's Discussion and Analysis of Financial Condition and Results of Operations".
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N - Information by Segments of Business 1987 1986 1985 Year ended December 31 (Thousands of Dollars)
Electric Operations Operating revenues
$1,120,682 $1,121,267 $1,086,192 Operating income before income taxes 357,913 335,754 328,003 Depreciation - straight line 113,257 109,819 116,289 Construction expenditures 350,364 109,919 118,171 Steam Operations Operating revenues 10,508 11,895 12,062 Operating income before income taxes 1,089 1,866 2,046 Depreciation - straight line 849 712 662 Construction expenditures 2,085 3,867 1,604 Total Operating revenues 1,131,190 1,133,162 1,098,254 Operating income before income taxes 359,002 337,620 330,049 Depreciation - straight line 114,106 110,531 116,951 Construction expenditures (including nonutility) 352,549 115,086 122,019 At December 31 Net Identifiable Assets Electric
$2,470,649 $2,253,169 $2,094,799 Steam 17,032 16,663 14,040 Nonutility 2,418 2,589 8,872 Total Assets
$2,490,099 $2,272,421 $2,117,711 1
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1500 Manne Plaa TeepNne 414 276 9500 M,!*aukte Wl53202 a
g Price Uhierhouse Q
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 capitalization and the related statements of income, common stock equity and changes in financial position present fa!rly the financial position of Wisconsin Electric Power Compr.1y at December 31, 1987 and 1986, 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, 1987, in conformity with generally accepted 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 otner auditing procedures as we considered necessary in the circumstances.
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..m Miluaukee, Wisconsin January 27, 1988 I
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