ML20235K791

Forwards Util Guarantee of Payment of Retrospective Premiums for Units 1 & 2.Certified Util Annual Financial Statements for Yr Ending 881231 & Certified Cash Flow Projection for 1989 Encl

ML20235K791
Person / Time
Site:	Point Beach
Issue date:	02/15/1989
From:	Remmel J WISCONSIN ELECTRIC POWER CO.
To:	Murley T Office of Nuclear Reactor Regulation
References
NUDOCS 8902270244
Download: ML20235K791 (19)

Text

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Wisconsin Electnc POWER COMPANY 231 W Michigon. RO. Box 2046. Milwaukee. WI 53201 (414)221-2345 if February 15, 1989 Dr. Thomas E. Murley

. Director of Nuclear Reactor Regulation

'U.

S. Nuclear Regulatory Commission Washington, D. C.

20555

Dear Dr. Murley:

Pursuant to 10 C.F.R. Section 140.21, we are enclosing the following documents as WJ.sconsin Electric's guarantee (through a showing of adequate caah flow) of payment of retrospective premiums for Point Beach Nuclear Plant Units 1 and 2:

1. Certified Wisconsin Electric Power Company annual financial statements for the year ended December 31, 1988.

2. Certified Cash Flow Projection for year 1989.

Sincerely,

. G. Remmel Senior Vice President Enclosures l

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E WISCONSIN ELECTRIC F0WER COMPANY.

INCOME STATEMENT Year Ended December 31 s

1988 1987 1986 (Thousands of Dollars)

Operating Revenues Electric

$1,275,396

$1,120,682

$1,12A,267 Steam 12,363 10,508 11,895 Total Operating Revenues 1,287,759 1,131,190 1,133,162 Operating Expenses Fuel (Note C) 303,962 227,112 276,663 Purchased power 29,182 22,914 25,627 Other operation expenses (Note D) 273,801 238,604 214,561 Maintenance 165,930 133,361 116,422 Taxes other than income taxes 62,243 36,091 51,738 Depreciation (Note E)

Straight line 118,078 114,106 110,531 Deferred income taxes (Note F) 14,854 12,521 20,056 Federal income tax (Note F) 67,039 91,989 96,315 investment tax credit adjustments -

net (Note F)

(5,744)

(6,793)

(4,237)

State income tax (Note F) 17,012 21,729 19,450 Total Operating Expenses 1,046,357 891,634 927,126 Operating Income 241,402 239,556 206,036 Other Income and Deductions Interest Income 15,139 14,704 9,485 Allowance for other funds used during construction (Note G) 3,073 2,197 3,744 Miscellaneous - net (3,521)

(7,394)

(711)

Federal income tax (Note F) 159 1,125 (2,662)

State income tax (Note F)

(579)

(493)

(701)

Total Other Income and Deductions 14,271 10,139 9,155 Income Before Interest Charges 255,673 249,695 215,191 Interest Charges Long term debt 76,614 61,297 58,216 Other interest 1,766 18,555 2,883 Allowance for borrowed funds used during construction (Note G)

(1,656)

(1,0 34)

(1,682)

Total Interest Charges

~~

76,724 78,818 59,417 Net Income 178,949 170,877 155,774 Preferred Stock Dividend Requirement 5,928 5,569 7,160 Earnings Available for Common S tockholder

$ 173,021

$ 165,308

$ 148,614 Note: Earnings and dividends per share of common stock are not applicable because all of the company's common stock is owned by Wisconsin Energy Corporation.

See Notes to Financial Statements.

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1 WiiCONSIN ELECTRIC POWER COMPANY a

STATEMENT OF CASH FLOWS

' YEAR ENDED DECEMBER 31 1988 lE 1986

\\

(Thousands of Dollars) i Operating Activities g

Net income 178,949

$ 170,877

'S 155,774 Reconciliation to cash:

Depreciation - Straight line 118,078 114,106 110,531

- Deferred income tax 14,854 12,521 20,056 Deferred investment tax credits (5,744)

(6,793)

(4,237)

Nuclear fuel expense - amortization 25,826 26,875 28,900 Allowance for other funds used l

during construction (3,073)

(2,197)

(3, 744) j Tax refunds 60,937 1,422 17,350 Change in: Accounts receivable (13,068) 7,368 (4,417)

Inventories (3,719)

(10,879) 492 Accounts payable 22,040 (11,548) 12,165 other current assets (23,997) 4,291 (10,571)

Other current liabilities (16,958) 8,428 (21,792)

Other 21,51{

(8.134)

{34,360)

Cash Provided by Operating Activities 375,637 306,337 266,147 investing Activities:

Construction expenditures (127,143)

(352,549)

(115,086)

Allowance for borrowed funds used during construction (1,656)

(1,034)

(1,682)

Nuclear fuel (22,375)

(25,809)

(18,943)

Nuclear decommissioning trust (14,555)

(15,308)

(100,124)

Conservation rebates and loans - net (30,273)

(20,230)

Change in: Construction funds held by trustee 926 14,454 (79,618)

Loans to associate 1 companies 6,700 16,245 other 6.675 4.966 527 Cash Used in Investing Activities (188,401)

(388,810)

(298,681)

Financing Activities:

Sale of: Preferred stock 69,388 Long term debt 218,908 23,955 209,754 Retirement of: Preferred stock (72,134)

Long term debt (48,272)

(76,338)

(102,659)

Change in short term debt:

Presque Isle acquisition (198,693) 198,693 Other (25,000) 767 Stockholder contribution 45,000 Dividends on stock common (95,207)

(85,720)

(113,596) preferred (5.928)

(5.672)

(7.160)

Cash Provided(Used) by Financing Activities (129,192) 72,172 (12,894)

Change in Cash and Temporary Cash Investments S

58,044 S (10,301)

$ (45,428)

==

See Notes to Financial Statements.

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WISCONSIN ELECTRZC POWER COMPANY BALANCE SHEET DECEMBER 31

,1 ASSETS 1988 1987 (Thousands of Dollars)

' Utility Plant Electric

$3,227,046

$3,176,526 Steam 27,073 26,315 3,254,119 3,202,841 Accumulated provision for depreciation (1,519,798)

(1,438,309) 1,734,321 1,764,532 Construction work in progress 51,582 35,651 Nuclear fuel - net (Note C) 66,436 73,210 Net Utility Plant 1,852,339 1.973,393 Other Property and Investments Nuclear decommissioning trust fund (Note E) 129,987 115,432 Construction funds held by trustee 74,917 75,843 Other 51,192 23,115 Total Other Property and Investments 256,096 214,390 Current Assets Cash 2,477 3,688 Temporary cash investments 89,255 30,000 Accounts receivable, net of allowance for doubtful accounts - $6,346 and $7,121 68,073 55,005 Accrued utility revenues 87,607 83,352 Fossil fuel (at average cost) 68,059 64,946 Materials and supplies (at average cost) 61,272 60,666 Prepayments 56,836 42,137 Other assets 12,657 7,614 Total Current Assets 446,236 347,408 Deferred Charges and Other Assets 21,809 54,908

$2,576,480

$2,490,099

==

=

See Notes to Financial Statements.

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WISCONSEN.ELECTRlC POWER COMPANY BALANCE SHEET

. DECEMBER 31

. LIABILITIES-1988 1987 (Thousands of Dollars) i Capitalization (See Capitalization Statement)

Common stock equity

$1,122,866

$1,045,052 Preferred stock - Redemption not required 30,451 30,451 Preferred. stock - Redemption required 70,000 70,000

.Long term debt 980,339 785,483 Total Capitalization 2,203,656 1,930,986 Current Liabilities Long term debt due currently.(Note J) 21,835 45,900 198,693 Notes payable (Note K)

Accounts payable 79,729 57,689 Payroll and vacation accrued 20,073' 20,594 Taxes accrued - income and other 12,374 29,059 Interest accrued 18,808 14,111 Other

.8,526-6,729 Total Current Liabilities 161,345 372,775 Deferred Credits and Other Liabilities Accumulated deferred investment tax credits 115,737 123,946 Other 59,009 26,044 Total Deferred Credits and Other

. Liabilities 174,746 149,990 Contributions in Aid of Construction 36,733 36,348 Commitments and Contingencies (Note L)

$2,576,480

$2,490,099

==

l LSee Notes to Financial Statements.

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WISCONSIN ELECTRIC POWER COMPANY:

CAPZIALIZATION STATEMENT DECEMBER 31 1988 1987 (Thousands of Dollars)'

COMMON STOCK EQUITY (See Common Stock Equity Statement)

Common stock ($10 par value; authorized 65,000,000 shares; outstanding - 33,289,327 shares)

$ 332,893

$ 332,893 Other paid in capital 142,462 142,462 Retained earnings 647,511 569,697 Total Common Stock Equity (Note B) 1,122,866 1,045,052 PREFERRED STOCK - Cumulative Six per cent. preferred stock - $100 par value; authorized 45,000 shares; outstanding - 44,508 shares 4,451 4,451 Serial preferred stock - $100 par value; authorized 2,360,000 shares; outstanding -

3.60% series - 260,000 shares-26,000 26,000

- Total Preferred Stock - Redemption Not Required (Note II 30,451 30,451 6.75% series - 700,000 shares 70,000 70,000 Total Preferred Stock - Redemption Required (Note I) 70,000 70,000 LONG TERM DEBT First mortgage bonds Series Duc 4-1/8%

1988 20,929 5

1990 26,605 26,605 4-3/4%

1991 3,525 3,570 4-1/2%

1993 4,985 4,985 5-7/8%

1996 36,807 36,807 6-1/2%

1997 11,291 11,341 6-7/B%

1997 37,580 37,580 6-5/8%

1998 9,772 9,772 6-7/8%

1998 33,360 33,360 6.10 %

1999-2008 25,000 25,000 6.25 %

1999-2008 1,000 1,000 7-1/4%

1999 38,929 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 8-7/8%-

2008 79,934 79,934 9-3/4%

2015 46,350 46,350 11-1/2%

2015 68,700 68,700 8-1/2%

2016 100,000 100,000 9-5/8%

2018 100,000 9.85%

2023 100,000 860,643 681,667 Debentures (unsecured) 7% Series due 1993 26,360 27,076 Note (unsecured)

Variable rate duo 2016 75,000 75,000 Obligations under capital lease (Note C) 46,910 51,439 Unamortized discount net (6,739)

(3,799)

Long term debt due currently (21,835)

(45,900)

Total Long Term Debt (Note J) 980,339 785,483 Total Capitalization

$2,203,656

$1,930,986 i

see Notes to Financial Statements.

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WISCONSIN ELECTRIC POWER COMPANY COMMON STOCK EQUIIY STATEMENT Common Stock Common Stock Other Paid Retained Shares

$10 Par Value In Capital Earnings Total (Thousands of Dollars)

Balance - December 31, 1985 33,289,327

' $332,893

$99,532

$463,819

$896,244 Net income 155,774 155,774 Cash dividends Common stock Preferred stock (113,596)

(113,596)

(7,160).

(7,160)

Non cash dividend (7,087)

(7,087)

Balance - December 31, 1986 33,289,327.

332,893 99,532 491,750 924,175 Net income 170,877 170,877 Stockholder contribution (Note H) 45,000 45,000 Cash dividends Common stock Preferred stock.

(85,720)

(85,720)

(5,672)

(5,672)

Purchase of Preferred Stock (Note I)

(2,070)

(54)

(2,124)

Sale of Preferred Stock (Note I)

(791)

(791)

Non cash dividend (693)

(693)

Balance - December 31, 1987 33,289,327 332,693 142,462 569,697 1,045,052 Net income 178,949 178,949 Cash dividends Common ntock Preferred stock (95,207)

(95,207)

(5,928)

(5,928)

Balance - December 31, 1988 33,289,327

$332,893

$142,462

$647,511

$1,122,866 See Notes to Financial Statements.

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WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS A - Summarv of Significant Accountina Policies General The accounting records of the company are kept as prescribed by the Federal Energy Regulatory Commission, modified for requirements of the Public Service Commission of Wisconsin (PSCW).

Revenues Meters are read and accounts are billed monthly.

Utility rev-enues are recognized on the accrual basis and include estimated amounts for service rendered but not billed.

Fuel 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 Electric utility p5operty is recorded at original

cost, and steam utility and nonutility property is recorded at cost.

Ad-ditions 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 G).

Replacements of minor items of property are charged to mainte-nance expense.

The cost of depreciable utility property, to-gether with removal cost less salvage, is charged to accumulated provision for depreciation when the property is retired.

Income Taxes Deferred federal income tax accounting is practiced in respect to significant timing differences.

Pursuant to a PSCW

order, deferred state income tax resulting from the use of accelerated depreciation is not recorded (see Note F).

The federal investment tax credit is accounted for on the de-ferred basis and is reflected in income ratably over the life of the related property.

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i A - Summary of Significant Accountina Policies (Cont'd)

Debt Premium, Discount and Exoense 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 interest expense.

Unamortized amounts pertaining to debt reacquired for sinking fund purposes are written off currently.

Statement of Cash Flows During 1988 the company adopted Statement of Financial Accounting Standards No.

95, Statement of Cash Flows.

Prior years information is presented to conform to this reporting format.

For purposes of the Statement of Cash

Flows, the company considers temporary cash investments to be cash.

Generally, this includes marketable debt securities acquired less than three months from maturity.

Supplemental Information Disclosures:

(Thousands of Dollars)

Cash Paid For -

1988 1987 1986 Interest (net of amount capitalized)

$ 79,455

$ 64,859

$102,954 Income Taxes

$108,563

$112,600

$153,844 B - Coroorate 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) common stock and common shareholders of WE became common shareholders of WEC on a share for share basis.

As part of the restructuring, WE transferred the common stock of Wisconsin Natural Gas Company (WN),

Badger Service

Company, Wisconsin Michigan Investment Corporation, Wispark Corporation, Witech Corporation and Wisvest Corporation to WEC.

The accompanying financial statements give effect to the re-structuring for all periods presented.

The company's capital contributions to subsidiaries in the amount of

$7,087,000 in property and cash in the amount of $44,254,000 in 1986 have been classified as dividends. - _ _ _ _ - _ _ -_ - __ ___ -_

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C - Rental Excense Total rental expense was $2,447,000 in 1988,

$2,898,000 in-1987 and $2,825,000 in 1986..

This does not include amounts relating-to the company's nuclear fuel leasing arrangement with Wisconsin Electric Fuel. Trust (Trust),

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,.

fi--

nancing 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 fi-nancing the investment in nuclear fuel.

The amount of nuclear fuel under capital lease and the accumu-lated provision for amortization at December 31 was

$90,768,000 and

$49,094,000 for 1988 and $69,869,000 and

$24,297,000 for

1987, respectively.

Interest expense on the nuclear fuel lease was

$3,654,000 in 1988,

$3,986,000 in 1987 and

$4,746,000 in 1986.

The-future minimum lease payments under capital lease and the present value of the net minimum lease payments'as of December 31, 1988 are as'follows:

(Thousands of Dollars) 1989

$24,516 1990 16,103 1991 8,572 1992 2,411 1993 454 Total Minimum Lease Payments 52,056 Less: Interest (5,146)

Present Value of Net Minimum Lease Payments

$46,910

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f D - Pension Plans and Other Post Retirement Benefits l

I In the opinion of'the company, current pension trust assets and amounts which are expected to be paid to the trusts in the fu-ture will be adequate to meet future pension payment obligations to current and future retirees.

The plans are funded to meet the requirements of the Employee Retirement. Income Security Act of 1974.

The PSCW recognizes funded amounts.for ratemaking, which' amounts are. charged to expense as paid.

~ Pension-expense was

$4,285,000 in 1988 (including a portion for the early retirement incentive program described below), $3,807,000 in 1987 and $3,400,000 in 1986.

The-following information has been provided in accordance with Statement of Financial Accounting Standards No.

87, Employers' Accounting for Pensions (FAS 87),

and No.

88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.

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 majority of the plans' assets are equity securities; other assets include corporate and government

bonds, guaranteed investment contracts and real estate.

In 1988 the company completed an early retirement incentive program for employees (excluding officers) who met specific age and years of service criteria.

The program eliminated the early retirement discount and includes payments to'those employees not yet eligible for Social Security; 365 employees retired under this program.

The total estimated cost of the program is $20.3 million. l

D - Pension Plans and Other Post Retirement Benefits (cont'd) 5 1988 1987 Components of Net Periodic Pension Cost, Year Ended December 31 -

Cost of pension benefits earned by employees 5,695 9,018 Interest cost on projected benefits to ultimately be paid to employees 23,297 21,906 Actual return on plan assets Net amortization and deferral (40,975)

(12,675) 9,672 (17,602)

Total pension cost calculated under FAS 87 $ (2,311) 647

==

Actuarial Present Value of Accumulated Benefit Obligation, at December 31 -

Vested benefits-employees' right to receive benefit no longer contingent upon continued employment

$222,870

$200,118 Non-vested benefits-employees' right to receive benefit contingent upon continued employment 4,552 4,452 Total obligation

$227,422

$204,570

==

Funded Status of Plans: Pension Assets and Obligations at December 31 -

Pension assets at fair market value

$350,721

$319,745 Projected benefit obligation at present value (269,303)

(252,777)

Unrecognized transition asset being amortized over remaining service period of employees (37,701)

(40,141)

Unrecognized net gain (53,781)

(23,399)

Projected status of plans

$(10,064) 3,428

==

Rates used for calculations (%) -

Discount Rate-interest rate used to adjust for the time value of money 9.0 9.0 Assumed rate of increase in compensation levels 5.5 5.5 Expected long term rate of return on pension assets 9.0 9.0 I _

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i D - Pension Plans and Other Post Retirement Benefits (cont'd).

The company provides life insurance for. retirees and medical insurance benefits for retired employees and their dependents.

The cost of retiree benefits is expensed currently and was approximately

$21,014,000 in

1988,

$1,445,000 in 1987 and

$1,586,000 in 1986.

The 1988 amount includes $16,900,000 which was contributed to a Voluntary Employees' Benefit Association trust to fund a major portion of life insurance benefits for company retirees.

E - Depreciation Depreciation expense is accrued at straight line rates, certi-fled by the PSCW, which include estimates of salvage and plant removal costs.

Nuclear plant decommissioning is accrued as depreciation expense based on 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.

Company contributions to the fund were $12,170,000 and

$12,934,000 in 1988 and 1987, respectively.

Additional depreciation is accrued, in accordance with the PSCW requirements, which is equal to the federal tax effects of tim-ing differences related to property and nuclear fuel including principally the use of accelerated depreciation methods (see Note F).

Straight line depreciation as a percent of average depreciable utility plant was 3.9% in 1988, 4.1% in 1987 and 4.2% in 1986.

'F - Income Tax Expense Below is a summary of income tax expense and a reconciliation of s

total ' income tax expense with the tax expected at the federal statutory rate.

1988 1987 1986 (Thousands of Dollars)

Current tax expense

$ 84,471

$113,086

$119,128 Investment tax credit adjustments-net (5,744)

(6,793)

(4,237)

Deferred taxes charged to depreciation expense 14,854 12,521 20,056 Total tax expense

$ 93,581

$118,814

$134,947

==

Income before income taxes

$272,530

$289,691

$290,721

==

Expected tax at federal statutory rate

$ 92,660

$115,876

$133,731 State income tax net of federal tax reduction 10,543 12,209 9,832 Investment tax credit restored (6,714)

(7,965)

(8,233)

Other (no item over 5% of expected tax)

(2,908)

(1,306)

(383)

Total tax expense

$ 93,581

$118,814

$134,947

==

The aggregate amount of deferred income taxes included in the accumulated provision for depreciation at December 31 was

$288,170,000 in 1988 and $271,494,000 in 1987.

For regulated companies, the change in tax rates applied to accumulated de-ferred income taxes may not be immediately recognized in operat-ing 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, 1988 the cumulative amount of timing differences for which deferred income taxes have not been provided was approximately $61 mi: lion for federal tax pur-poses and $262 million for state tax purposes.

Any tax effect of these amounts is expected to be recovared through future utility rates. __

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G - Allowance for Funds Used Durina 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 in-Come.

AFDC was capitalized at a rate of.11.29% in 1988, 11.30% in 1987 and 11.79% in 1986, as approved by the PSCW.

H - Transactions with Associated Companies Manager.ial, financial, accounting, legal, data processing and other borvices may be rendered between associated companies and are bli?ed in accordance with service agreements approved by the PSCW.

The company also buys gas from WN for electric generation at rat 2s approved by the PSCW.

The company made loans during 1987 and 1986 to WN at an interest rate approximating the cost to the company.

In December 1987, the company received a

$4S,000,000 capital contribution from WEC.

I - Preferr3d Stock Serial Preferred Stock authorized but unissued is cumulative,

$25 par value, 5,000,000 shares.

Redemotion Not Reauired -

In 1987 the company redeemed a total of 140,967 shares of 8.80%

Series, 333,325 shares of 8.T49 Series and 225,810 shares of' 7.75%

Series,

$100 par value derial Preferred Stock at an ag-gregate cost of $72,134,000.

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.

Redemption Reauired -

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 required annually on each June 1 beginning i

in 1993 (with a noncumulative option to redeem up to 31,500 ad-ditional 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 thereaf-ter to $100 on or after June 1, 2002.

In the event of default in the payment of preferred dividends or in the mendatory redemption requirements, no dividends or other distribution may be paid on the company's common stock.

J - Lona Term Debt The maturities and sinking fund requirements through 1993 for the aggregate amount of long term debt outstanding (excluding obligations under capital lease) at December 31, 1988 are shown below.

Of the annual sinking fund requirements, $3,690,000 may be satisfied by certifying additional mortgaged property.

1989 4,890,000 1990 31,495,000 1991 8,115,000 1992 4,550,000 1993 32,675,000 Future sinking fund requirements have been anticipated by ad-vance purchases of bonds to the extent of $25,667,000.

Substantially all utility plant is subject to the lien of the applicable mortgage.

K - Notes Payable Short term notes payable consisted of

$198,693,000 of commercial paper at December 31, 1987.

Unused lines of credit for short term borrowing amounted to $101,600,000 at December 31, 1988.

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, 1988 represents compensating balances.

L - Commitments and Contingencies The Price-Anderson Act (Act),

which provides for the payment of funds for public liability claims arising out of a

nuclear

incident, was amended in August 1988.

The Act provides an industry wide retrospective rating plan, under which nuclear reactor owners could be assessed up to $63 million per reactor (WE owns two), but not more than $10 million in any one year for each reactor, in the event of any nuclear incident.

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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M-INFOPMAff0N BY SEGMENTS OF BUSINESS Year ended December 31 1988 1987 1986 (Thousands of Dollars)

Electric Operations Operating revenues

$1,275,396 $1,120,682 S1,121,267 Operating income before income taxes 332,732 357,913 335,754 Depreciation straight line 117,161 113,257 109,819 Construction expenditures 126,613 350,364 109,919-Steam Operatlons Operating revenues 12,363 10,508 11,895 Operating income before income taxes 1,832 1,089 1,866 Depreciation-straight line 917 849 712 construction expenditures 512 2,085 3,867 Total Operating revenues 1,287,759 1,131,190 1,133,162 Operating income before income taxes 334,564 359,002 337,620 Depreciation straight line 118,078 114,106 110,531 Construction expenditures (including nonutility) 127,143 352,549 115,086 At December 31 Net Identifiable Assets Electric

$2,556,335 $2,470,649

$2,253,169 Steam 17,439 17,032 16,663 Nonutility 2,706 2,418 2,589 Total Assets

$2,576,480 $2,490,099 52,272,421 355535355 555333333 335355555 e-

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ggggej reiennome si4 27s osca:

34 Price Haterhouse REPORT OF INDEPENDENT ACCOUNTANTS

January 25, 1989 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 of cash flows present fairly, in all material respects, the financial position of Wisconsin Electric Power Company'at December-31, 1988 and 1987, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1988, in conformity with generally

- accepted accounting principles.

These financial statements are the responsibility of the' Company's management; our responsibility is to express an opinion.on these financial s

statements based on our audits.

We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain-reasonable assurance about whether the financial statements are free'of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evalusting the overall financial statement presentation.

We believe'that our audits provide a reasonable basis for the opinion expressed above.

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t

-WISCONSIN ELECTRIC POWER COMPANY 1989 Internal Cash Flow Projection

'f for Point Beach Nuclear Power Station I

(Dollars in Millions)

Actual Projected 1988-1989 Net Income After Taxes and Preferred Dividends 1

$173

'$160 Less:

Common Dividends Paid 115)

(117)

Retained Earnings

'78 43 Adjustments:

Depreciation and Amortization 118 129-Deferred Income Taxes and Investment Tax Credits 7

4 Allowance for Funds Used During Construction

_11)

(7)

Total Adjustments 120 lag Internal Cash Flow

$1RR

$liR Average Quarter Cash Flow *

$ 50

$_12 Percentage Ownership in all Unit No. 1 100%

Operating Nuclear Units Unit No. 2 100%

4 Maximum Total Contingent Liability

$20 million per year

• If it becomes necessary to curtail capital expenditures to ensure meeting a retrospective premium call, we would anticipate reducing contitruction activities to the extent necessary.

CERTIFICATION:

The Cash Flow Projections detailed above are based on the most current information available to us and represent our best estimates as of this date.

Dated I

b By

/

Sdrior Vice President mes\\ flow.mem

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