ML20244D585
| ML20244D585 | |
| Person / Time | |
|---|---|
| Site: | Point Beach  |
| Issue date: | 04/10/1989 |
| From: | Fleissner J WISCONSIN ELECTRIC POWER CO. |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 8904240018 | |
| Download: ML20244D585 (33) | |
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. Wisconsin Electnc POWER COMPANY 231 W. Michigan. Po. Box 2046. Milwaukee. WI 53201 (414) 221-2345 April 10, 1989 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 accompanies Wisconsin Electric'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 Dockets 50-226 and 50-301, respectively.
Sincerely, 6
f '; =
m J.
. F eissner Assistant Secretary bjs Enclosure cc:
Shaw, Pittman, Potts & Trowbridge Mr. Gerald Charnoff 1800 M' Street N.W.
Washington, DC 20036 8904240018 89041ie g
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Wisconsin Electnc POWER COMPANY 231 W M>cnigan PO Bor 2046,Mdwoukee.WI53201 April 10,1989
Dear Stockholder:
Wisconsin Electric Power Company will hold its annual meeting of stockholders at 9:00 a.m. on Wednesday, May 3,1989 at the Public Service Building, 231 West Michigan Street, Milwaukee, Wisconsin We are not soliciting proxies for this meeting, as about 97% of Wisconsin Electric's voting stock is owned and will be voted by the parent company, Wisconsin Energy Corporation. You may,if you wish, attend the meeting and vote your shares of preferred stock; however, it will be a short business meeting only.
I would like to extend my invitation to you to attend the Wisconsin Energy annual meeting of stockholders to be held Thursday, May 4,1989 at 2:00 p.m. In the Grand Ballroom (second floor) of the Milwaukee Exposition & Convention Center & Arena (M ECCA),535 West Kilbourn Avenue,in downtown Milwaukee, Wisconsin. When you arrive at the meeting, you will be asked to register before entering the Grand Ballroom. Although you cannot vote your Wisconsin Electric preferred stock at the Wisconsin Energy meeting, you should find the program to be interesting and informative.
The annual report to stockholders again accompanies this information statement. For your information, you may request a Wisconsin Energy Corporation annuaireport by writing to the Stock Transfer Office at the above address or calling one of the telephone numbers listed below.
Sincerely, Charles S. McNeer Chairman of the Board and Chief Executive Officer if you have any questions, please call our toll-free Stockholder Hotline at:
221-2100 in Metro Milwaukee 1-800-242-9686 in Wisconsin 1-800-558-9663 outside Wisconsin j
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS April 10,1989 To the Stockholders of Wisconsin Electric Power Company:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Wisconsin Electric Power Company will be held at the Public Service Building,231 West Michigan Street, Milwaukee, Wisconsin, on Wednesday, May 3,1989, at 9:00 a.m., for the following purposes:
- 1. to elect one Class i director to hold office until the annual meeting of stockholders in 1991 and until his successor is duly elected and qualified,
- 2. to elect four Class 11 directors to hold office until the annual meeting of stockholders in 1992 and until their respective successors are duly elected and qualified, and
- 3. to transact such other business as may properly come before the meeting, or any adjournment or adjournments thereof.
Stockholders of record at the close of business on March 15,1989 will be entitled to vote at the meeting.
By Order of the Board of Directors John H. Goetsch Vice President and Secretary AVAILABILITY OF FORM 10-K The Wisconsin Electric Form 10 K report for 1988 to the Securities and Exchange Commission is available at no cost by writing to the vice president and secretary, John H. Goetsch,231 West Michigan Street, P.O. Box 2046, Milwaukee, Wisconsin 53201.
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WISCONSIN ELECTRIC POWER COMPANY 231 West Michigan Street P. O. Box 2046 Milwaukee, Wisconsin 53201 INFORMATION STATEMENT and ANNUAL REPORT TO STOCKHOLDERS INFORMATION STATEMENT April 10,1989 This statement is furnished in connection with the annual meeting of stockholders of the company to be held on May 3,1989, at the principal office of the company at the Public Service Building,231 West Michigan Street, Milwaukee, Wisconsin, and all adjournments thereof, for the purposes listed in the preceding notice of annual meeting of stockholders. The company's annual report to stockholders accompanies this information statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
However, you may vote your shares of preferred stock at the meeting.
VOTING SECURITIES As of March 15,1989, the company had outstanding 44,508 shares of Six Per Cent. Preferred Stock; 960,000 shares of Serial Prefen ed Stock ($100 par value), consisting of 260,000 shares of 3.60% Series and 700,000 shares of 6.75% Series; and 33,289,327 shares of common stock. Each outstanding share of each class is entitled to one vote. Stockholders of record at the close of business on March 15,1989 will be entitled to vote at the meeting.
All of the company's outstanding common stock, representing 97% of its voting securities, is owned 1
beneficially by its parent company, Wiscortsin Energy Corporation.
i RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
. Price Waterhouse has acted as independent public accountants for the company or its predecessor continuously since 1932, and was appointed by the company's board of directors upon recommendation of Wisconsin Energy's board of directors to serve as such during the current year. Representatives of the firm will not attend the annual meeting of the company, but will be present at Wisconsin Energy's annual j
meeting to make any statement they may consider appropriate and to respond to questions which may j
be directed to them.
MEETINGS OF THE ROARD OF DIRECTORS The board of directors ordinarily meets monthly.In 1988 the board held twelve regular meetings and two special meetings. None of the directors attended less than 85% of the aggregate number of meetings of the board and the committees on which they served.
]
The executive committee, which did not meet in 1988, may exercise all of the powers vested in the board during periods between board meetings except action regarding dividends to stockholders, election of officers, or the filling of vacancies on the board or its committees. The company does not have audit, nominating or compensation committees.
INFORMATION CONCERNING NOMINEES AND OTHER DIRECTORS At the 1989 annual meeting, there will be an election of four Class ll directors to hold office until the annual meeting ot stockholders in 1992 and until their respective successors have been duly elected and qualified. in addition, there will be a separate election of one Class i director to hold office until the annual meeting of stockholders in 1991 and until his successor has been duly elected and qualified.
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L=_
c Tha Bylaws of tha company provida that any vacancy which occurs among the directors, including a vacancy created by an increase in the number of directors, may be filled by the affirmative vota of a l
majority of the remaining directors, and that any director so elected shall hold office until the next annual meeting of stockholders. Any remaining portion of the term is to be filled by a vo',e of stockholders.
The board of directors amended the company's Bylaws, effective January 1,1987, to increase the board from eleven to twelve members, thereby creating a director vacancy. The bot rd elected Richard A.
Abdoo to fill that vacancy.
The nominees named below have consented to being nominated and to serve if elected. The board of directors does not expect that any of the nominees will become unavailable for any reason. lf that should occur before the meeting, another nominee or nominees will be selected by the board of directors of the company.
The information relating to occupations, business experience, directorships and ownership of equity securities is based on data obtained from the directors, nominees and officers. Ages of directors are shown as of December 31,1988.
NOMINEE FOR CLASS 1 DIRECTOR FOR TERM EXPlRING IN 1991 RICHARD A. ABDOO,44, has been an executive vice president of Wisconsin Electric, a principal subsidiary of Wisconsin Energy Corporation, since January 1989. He had been a senior vice president of tne company since 1984 and was a vice president from 1981 to 1984. He has been vice president of Wisconsin Energy since 1987 and a director since January 1988. He has served as a director of the company since January 1989 and is an alternate member of the executive committee. Mr. Abdoo, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 1,416 shares of Wisconsin Energy's common stock.
NOMINEES FOR CLASS ll DIRECTORS FOR TERM EXPIRING IN 1992 JOHN W. BOSTON,55, has been a senior vice president of the company since 1982. He has been a director of the company since January 1988 and is an alternate member ofits executive committee.
Mr. Boston, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 822 shares of Wisconsin Energy's common stock.
CHARLES S. McNEER,62, has been chairman of the board and chief executive officer of the company and of Wisconsin Natural Gas Company, also a principal subsidiary of Wisconsin Energy Corporation, since 1982. He has been chairman of the board and chief executive officer of Wisconsin Energy since 1E87 and had served as its president and chief executive officer since 1981. Mr. McNeer has been a director of Wisconsin Electric since 1970 and is a member of its executive committee. He has been a director of Wisconsin Energy since 1981. He also serves as a director of Wisconsin Natural, Universal Foods Corporation and the Federal Reserve Bank of Chicago. Mr. McNeer, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 29,027 shares of Wisconsin Energy's common stock.
JOHN L. MURRAY,61,is chairman of the board of Universal Foods Corporation, a manufacturer and marketer of food ingredients and selected consumer food items. He has been chairman of Universal Foods since 1984 and was chief executive officer from 1979 to October 1988. He had been president from 1976 to 1984. He has been a director of Wisconsin Electric since 1983 and is a member of its executive committee. He has been a director of Wisconsin Energy since 1987. He is also a director of Universal Foods Corporation, Firstar Corporation, First Wisconsin National Bank of Milwaukee, Marcus Corporation and Twin Disc, Inc. Mr. M urray, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 2,000 shares of Wisconsin Energy's common stock.
FREDERICK P.STRATTON,JR.,49, has been chairman and chief executive officer of Briggs & Stratton Corporation, a manufacturer of small gasoline engines and automotive locks, since 1986. He had served as president and chief executive officer of Briggs & Stratton since 1977. He has been a director of Wisconsin Electric since 1986 and is an alternate member of its executive committee. He has been a director of Wisconsin Energy since 1987. Ma is also a director of Briggs & Stratton Corporation, Banc One Corporation, Banc One Wisconsin Corporation, Midwest Express Airlines, Inc. and Weyenberg Shoe Manufacturing Company. Mr. Stratton, who resides in Milwaukee, Wisconsin, does not own any of de compny's stock, but owns beneficially 1,800 shares of Wisconsin Energy's common stock.
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CLASS I DIRECTORS CONTINUING IN OFFICE (TERM EXPlRES IN 1991)
JOHN F. BERGSTROM,42, has been president and chief executive officer of Bergstrom Enterprises,an operator of' hotels and General Motors Corporation automobile dealerships, since 1974. He has been a director of Wisconsin Electric since 1985 and is a member of the executive committee. He has been a director of Wisconsin Energy since 1987. He is also a director of Kimberly-Clark Corporation, Midwest Express Airlines, Inc. and First National Bank of Menasha. Mr. Bergstrom, who resides in Neenah, Wisconsin, does not own any stock of the company, but owns beneficially 2,000 shares of Wisconsin Energy's common stock.
THOMAS J. CASSIDY,63, has been an executive vice president of the company since 1985 and a vice president of Wisconsin Natural since 1984. He had been a senior vice president of Wisconsin Electric since 1975. He has been a director of the company since January 1988 and is an alternate member of its executive committee. He is also a director of Wisconsin Natural. Mr. Cassidy, who resides in Milwaukee, Wisconsin, does not own any stock of the company, but owns beneficially 7,759 shares of Wisconsin Energy's common stock.
GENEVA B. JOHNSON,59,has been president and chief executive officer of Family Service America,an organization representing private agencies in the United States and Canada that provide human service programs, since 1983. She had been senior vice president of the United Way of America, a human services organization, since 1978, where she was responsible for strategic long-range planning and public policy. Mrs. Johnson has been a director of Wisconsin Electric since January 1988 and is an alternate member of its executive committee. She is also a director of Wisconsin Energy. Mrs. Johnson, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 203 shares of Wisconsin Energy's common stock.
CLASS Ill DIRECTORS CONTINUING IN O /FICE (TERM EXPIRES IN 1990)
RUSSELL W. BRITT,62, has been president and chief operating officer of the company and Wisconsin Natural since 1982, and of Wisconsin Energy since N87. He had served as vice president of Wisconsin Energy since 1981. He has been a director of Wisconsin Electric since 1975 and is a member of its executive committee. He has been a director of Wisconsin Energy since 1981. He also serves as a director of Wisconsin Natural, Bank One Wisconsin Trust Company, N.A. and Stokely USA,Inc. Mr. Britt, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but is the beneficial owner of 10,213 shares of Wisconsin Energy's common stock.
RENE H. MALES,56, has been a senior vice president of the company since 1987. He had been a principal and senior vice president of Decision Focus,Inc., a consulting firm specializing in operations research techniques, since 1986, where he concentrated in research and development and environ-mental and strategic planning. From 1976 to 1986 he was vice president and director of the energy analysis and environment division of the Electric Power Research Institute, a research and development organization funded by the electric utility industry. Mr. Males has been a director of the company since January 1988 and is an alternate member of its executive committee. Mr. Males, who resides in Milwaukee, Wisconsin, does not own any stock of the company, but owns beneficially 3,111 shares of Wisconsin Energy's common stock.
MORRIS W. RElD,63,is an independent management consultant and corporate director. He has been chairman of the board of directors of Versa Technologies, Inc., a manufacturer of fluid power and silicone rubber products, since 1982. He was, from 1972 to 1978, chairman of the board of directors of J. l. Case Co., a manufacturer of construction and farm machinery. Mr. Reid has been a director of Wisconsin Electric dince 1979 and is a member of its executive committee. He has been e director of Wisconsin Energy since 1987. He is also a director of Banc One Wisconsin Corporation, Stolper Industries,Inc., A&E Manufacturing Company and Versa Technologies, Inc. Mr. Reid, who resides in Racine, Wisconsin, does not own any of the company's stock, but owns beneficially 2,182 shares of Wisconsin Energy's common stock.
JON G. UDELL,53, has been Irwin Maier Professor of Business at the University of Wisconsin-Madison since 1975. Mr. Udell has been a director of Wisconsin Electric since 1977 and is an alternate member of its executive committee. He has been a director of Wisconsin Energy since 1987. He is also chairman of the board of directors of the Federal Hcne Loan Bank of Chicago and a director of Research Products Corporation. Mr. Udell, who resides in Madison, Wisconsin, does not own any of the company's stock, but he and members of his family are the beneficial owners of 3,239 shares of Wisconsin Energy's common stock. Mr. Udell disclaims beneficial ownership of 1,545 of such shares.
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OFFICERS (Figures in parentheses indicate age and years of service with Wisconsin Electric Power Conipany as of December 31,1988.)
CHARLES S. McNEER (62,38) CARLYLE W. FAY (62,22)
FRED A. TREBATOSKI(53,29)
Chairman of the Board &
Vice President-Vice President-Chief Executive Officer Nuclear Power Division Operations RUSSELL W. BRITT (62,40)
JOHN H. GOETSCH (55,30)
KENNETH E. WOLTERS (63,38)
President & Chief Vice President & Secretary Vice President-Operating Officer NANCY R. NOESKE (51,9)
System Operations RICHARD A. ABDOO (44,13)
Vice President-GORDON A. WILLIS (50,27)
Executive Vice President Consumer Relations Treasurer q
THOMAS J. CASSIDY (63,42)
HUBERTO R. PLATZ (59,22)
RICHARD R. PILTZ (48,23)
Executive Vice President Vice President-Engineering Controller JOHN W. BOSTON (55,6)
& Construction DENNIS M. LAWLER (44,18)
Senior Vice President DAVID K. PORTER (45,19)
Assistant Vice President-Vice President-Human Resources RENE H. MALES (56,1)
Senior Vice President Corporate Planning JAMES B. BAILLON (45,20)
JERRY G. REMMEL (57,33)
RICHARD E. SKOGG (60,36)
Assistant Secretary Senior Vice President Vice President-ANN MARIE BRADY (36,1)
Operating Services Assistant Secretary ROBERT H. GORSKE (56,24)
Vice President &
JOHN E. SPEAKER (57,12)
JOHN W. FLEISSNER (64,18)
General Counsel Vice President-Assistant Secretary mnonicadons SALLY A. NEWTON (39,15)
Assistant Treasurer The directors and officers of the company as a group (30 persons) do not own any of the company's stock, but beneficially own 134,166 sharet of common stock of its parent company, Wisconsin Energy Corporation (0.20% of such class). Shares indicated in this information statement as beneficially owned by the individual nominees or directors and the directors and officers as a group are stated as of February 28,1989, and include, in accordance with applicable Securities and Exchange Commission rules, any shares as to which each individual directly or indirectly has or shares voting pcwer and/or investment power and any shares as to which the individual has the right to acquire beneficial ownership in the future. Also included are any shares owned by the respective individual's spouse, minor children or any other relative sharing the same residence, as well as any shares held by the respective individual in a fiduciary capacity or held for his or her account in Wisconsin Energy's Tax Reduction Act Stock Ownership Plan,its Automatic Dividend Reinvestment and Stock Purchase Plan or its Customer Stock Ownership Plan. Shares are so included whether or not the director or officer disclaims actual beneficial ownership of any of them.
OTHER MATTERS The board of directors is not aware of any other matters which are proper subjects for action by security holders which may come before the meeting.
COMPENSATION DIRECTORS' COMPENSATION Effective November 1,1988, directors' fees are $1,250 per month retainer fee plus $800 for each board or committee meeting attended, or $300 for each signed, written unanimous consent in lieu of a meeting. In addition, a per diem fee of $800 will be paid for travel on company business for each day on which a board or committee meeting is not held. Although certain of the directors of the company also serve on Wisconsin Energy's board, only a single meeting fee for meetings of such boards of directors held on the same day, a single per diem fee and a single retainer are paid. Employee directors receive no directors' fees. Nonemployee directors may defer fees so long as they serve on the board of the company and/or its affiliates.
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EXECUTIVE OFFICERS' COMPENSATION The following table contains information on total cash compensation paid by the company, for services in all capacities to the company in 1988, to each of the five most highly compensated executive officers and to all executive officers as a group:
Name of Individual or Number of Persons in Total Cash Group and Capacities in Which They Served (1)
Compensation (2)
CHARLES S. McNEER (62,38)
$332,167 chairman of the board and chief executive officer of the cornpany RUSSELL W. BRITT (62,40)
$217,833 president and chief operating officer of the company JOHN W. BOSTON (55,6)
$153,800 senior vice president of the company THOMAS J. CASSIDY (63,42)
$149,167 executive vice president of the company RENE H. MALES (56,1)
$143,667 senior vice president of the company All executive officers as a group (18 persons)
TOTAL
$2,353,557 (1) The figures shown in the parentheses after each name indicate, respectively, the age and years of service as of December 31,1988 for each individual (credited years of service for certain individuals under the management employee retirement plan may be fewer than those listed).
(2) includes amounts del erred under the company's Management Employee Savings Plan.
INFORMATION ABOUT PLANS The company maintains certain additional group health, dental and vision care insurance coverage for its executive officers which is not generally available to all salaried employees. In 1988,the net cost of the premiums for such benefits for Messrs. McNeer, Britt, Boston, Cassidy and Males was $2,745, $2,809,
$3,520, $3,228 and $3,524, respectively, and $54,932 for all executive officers as a group.
The company's parent, Wisconsin Energy Corporation, has a qualified Tax Reduction Act Stock Ownership Plan (TRASOP)in which substantially all employees of the company with more than one year of service participate. Under the TRASOP, annual employer contributions were made to a trustee and used to purchase shares of Wisconsin Energy's common stock for the accounts of the participants.
Initially, employer contributions were based solely or partially on investment tax credits and employee contributions were permitted. In recent years, the contributions were based on the %%-of-payroll employee stock ownership credit available to the company under the internal Revenue Code. Such contributions were then allocated among the participants' accounts under a formula based on compensation, and were vested when made. Under the Tax Reform Act of 1986, the payroll-based employee stock ownership credit expired December 31,1986, and, therefore, the last year in which regular employer contributions were made to the TRASOP was 1987. A moderate amount of additional investment tax credit-based allocations became available following the closing of certain open tax years in 1988. In addition, an employer discretionary contribution was made to the TRASOP in December 1988 for allocation to the accounts of all eligible participants under a formula based on compensation, and were vested when made. According to present plans, the shares in a participant's account will remain in the TRASOP and dividends will continue to be reinvested on a tax-deferred basis. A participant will automatically receive the shares in his or her account after retirement or termination of employment. A participant also has the option to receive the shares in his or her account when (i) the participant reaches age 59-%, (ii) the shares have been held in the account for at least 84 months or (iii) the participant reaches age 55 and has been in the TRASOP for at least ten years (limited to 25% of the qualifying shares acquired after 1986). In 1988, the company's contributions under the TRASOP for Messrs. McNeer, Britt, Boston, Cassidy and Males were $7,013, $4,608, $3,271, $3,170 and $3,058, respectively, and $50,097 for all executive officers as a group.
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The company has a qualified Management Employee Savings Plan (M ESP)in which allits executive and management employees are eligible to participate. Under the MESP a participant may elect to have the employer contribute to a trustee for the employee's account,in lieu of paying as salary, up to 15% (except for restrictions which may apply in certain cases) of annual base salary determined without giving effect to such election. Due to changes in the Internal Revenue Code, in 1988 a participant's elective contribution to the M ESP was limited to $7,313.This limit may be changed from time to time pursuant to the Code. The company contributes additional funds to match 25% of the first 6% of annual base salary contributed. The contributions, which are vested when made, are invested by the trustee in one or more investment funds as selected by the participant from a group of four funds. Account balances are distributed upon retirement or termination of employment, subject to earlier withdrawalin certain events of financial hardship. The MESP meets the requirements under Section 401(k) of the Internal Revenue Code and accordingly participants are not subject to federal income tax at the time salary or matching amounts are contributed, or on earnings on the invested funds, but instead are subject to tax at or following the time of distributions and withdrawals. In 1988, the company's matching contributions under the MESP for Messrs. McNeer, Britt, Boston, Cassidy and Males were $1,424, $1,457, $1,826,
$1,675 and $1,828, respectively, and $26,651 for all executive officers as a group.
Effective January 1,1989, Wisconsin Energy established the Executive Incentive Compensation Plan (EICP) to improve the financial and operational performance of Wisconsin Electric Power Company and Wisconsin Natural Gas Company by providing designated elected officers of Wisconsin Energy and its utility subsidiaries with a financial incentive opportunity which reinforces and recognizes company, organizational and individual performance and to enhance the ability of such companies to attract and retain talented exocutives. Messrs. Boston and Males and fourteen additional executive officers of the company have been designated to participate in the EICP in 1989. The Wisconsin Energy board and its compensation committee approve the long-and short-term performance goals which apply in each calendar year, and also approve individual incentive awards,if any, to be made early the following year based on attainment of those goals. Awards under the ElCP may not exceed 20% of a participant's base salary, and are payable in the following manner: 25% of an individual's award will be paid in cash and 75% will be converted to share equivalents, in an unfunded bookkeeping account, based on the calendar year-end closing price of Wisconsin Energy's common stock. Such account will be held for three years, during which time dividend equivalents will be earned and also converted to share equivalents. Atthe end of a three-year period the value of the accumulated share equivalents will be paid in cash, such payment to be based upon the year-end closing price of the common stock at the time. A participant may elect to defer receipt of all or a portion of either or both the cash or share equivalent portions of any incentive award through the Executive Deferred Compensation Plan described below.
No amounts were awarded or accrued under this EICP in 1988.
Wisconsin Energy has also established, effective January 1,1989,the Executive Deferred Compensation Plan (EDCP) to provide designated elected officers and other executives of Wisconsin Energy and its utility subsidiaries the opportunity to defer income until retirement. Subject to the approval of the Wiscorsin Energy board of directors, participants in the EDCP are designated by Wisconsin Energy's chief executive officer. Messrs. McNeer, Britt, Boston, Cassidy and Males and fourteen additional executive officers of the company have been designated to participate in the EDCP in 1989.Through the EDCP a participant may defer, until termination of employment, up to 30% of monthly base salary and up to 100% of any incentive awards made under the ElCP described above. Interest at the prime rate will accrue on the average balance in a participant's account and will be adjusted and credited semi-annually. Since, under the company's management employee retirement plan, base salary deferred through the EDCP or incentive awards are not included in the compensation base for calculating a participant's retirement income, a "make whole" benefit relative to such amounts will be paid as a pension supplement through the EDCP out of general corporate assets. In addition, a special contribution will be made to a participant's EDCP account to "make whole" any MESP employer matching contributions lost through deferrals elacted under the EDCP or because of other limitations imposed by the Internal Revenue Code on p ;,articipant's leve; of participation in the M ESP. No amounts were deferred or accrued under this EDCP in 1988.
The management employee retirement plan of the company covers approximately 1,420 employees, including officers. Compensation, for purposes of such plan, means all wage payments from the company, including payments for such absences as holidays, vacations, sickness and other excused absences, but excluding any payments for overtime. The cash compensation for the individuals named in the table shown on page 7 and compensation for purposes of the management employee retirement plan are substantially identical. The benefit payable is based on a formula for the plan which provides a Social Security integrated benefit based on 55% of a participant's plan wages (highest 36 consecutive months average) for participants with 30 years of credited service, with such oenefit reduced by 50% of 8
the Primary Social Security Benefit payable to the participant. Participants receive an additional.75% of plan wages for each year of credited service over 30 years up to a maximum of 7.5%. The benefit is prorated,for participants with less than 30 years of credited service.
The annual retirement benefit payable under the company's management employee retirement plan for the life annuity form of pension (optional forms of pension are available under the plan) at an assumed retirement age of 65 for specified remunerations and years of service is shown in the following table.The amounts shown would be reduced to reflect the Social Security offset.
Annual Retirement Benefit at an Assumed Retirement Age of 65 Years Assumed Average Years of Credited Service After Annual Compensation Completion of One Year of Service Based on Highest 36 Consecutive Months 25 Yrs 30 Yrs 35 Yrs 40 Yrs S
80,000 36,665 44,000 47,000 50,000 160,000 73,330 88,000 94,000 100,000 240,000 109,995 132,000 141,000 150,000 320,000 146,660 176,000 188,000 200,000 400,000 183,326 220,000 235,000 250,000 Federal laws place certain limitations on pensions that may be paid under federal income tax qualified plans. Pension amounts v hich exceed such limitations will be paid as an operating expense through the Wisconsin Energy Corporation Supplemental Executive Retirement Plan, described below, on the same basis as if they were paid out of the retirement plans.
Under the management employee retirement plan, any eligible management employee, who has attained age 62 and has accumu!ated 30 or more years of credited service or who has attained age 60 and has accumulated 35 years of credited service, at his or her option may elect to retire on the basis of the retirement benefit accrued to the date of retirement without any early retirement reductlon.
The company has entered into agreements with Messrs. Boston and Males, as well as R. H. Gorske, vice president and general counsel, and J. E. Speaker, a vice president, all of whom could not accumulate by normal retirement age the maximum number of years of credited service under the management employee retirement plans of the company and/or Wisconsin Natural. According to these agreements, such companies will provide such officers with supplemental retirement payments which will make their total retirement benefits at age 60 or older from such companies, including benefits under such plans, taking into account any vested benefits payable from previous employers, substantially the same as those payable to employees who are in the same remuneration bracket and who became participants in such plans at the age of 25.
Wisconsin Energy has a Supplemental Executive Retirement Plan (formerly titled the Executive Deferred Compensation Plan) in which Messrs. McNeer, Britt, Boston, Cassidy and Males and thirteen other executive officers of the company participated during 1988. One additional executive officer of the company has been designated to participate in the plan in 1989. In addition to the benefit payments described in the paragraph following the management employee retirement plan's benefit table, the plan provides for monthly payments of benefits for a period of ten years to the participant after retirement or to his beneficiaries in the event of his death, equal to 12.5% (25% upon the death of the participant) of the average of the participant's 36 highest consecutive months of compensation (such compensation includes the monthly average of any incentive payments awarded during such 36-month period and any base salary or other compensation that would have been paid during such 36-month period but was not paid due to elective deferrals made by the participant under a savings or other deferred compensation plan). No such payments are made until after the retirement or death of the participant.
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t WISCONSIN ELECTRIC POWER COMPANY 1988 ANNUAL REPORT TO STOCKHOLDERS s
ACCOMPANYING INFORMATION STATEMENT TABLE OF CONTENTS 1
ITEM PAGE Business........................................................ A-2 Market for Common Equity I
a n d Rel a t ed Ma t t e rs........................................... A-2 1
Selected Financial Data......................................... A-3 Qu a rt e rly Fi na nc i al Da t a........................................ A-3 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... A-4 Income Statement................................................ A-9 Statement of Cash Flows......................................... A-10 Balance Sheet................................................... A-11 Capitalization Statement........................................ A-13 Common Stock Equity Statement................................... A-14 Notes to Financial Statements................................... A-15 Directors....................................................... A-22 Officers........................................................ A-22 Report of Independent Accountant s............................... A-23 A-1 L__..
BUSINESS 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 estinated at over 2,000,000 in southeastern (including the Milwaukee area), east central and northern Wisconsin and in the Upper Peninsula of k
Steam Operations Wisconsin Electric distributes and sells steam supplied by its Valley Power Plant to space heating and processing customers in downtown Milwaukee.
For financial information about industry segments, see Note M 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 REGISTRANT'S 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.
Dividends were paid to Wisconsin Electric's sole common stockholder, Wisconsin Energy.
Quarter Total Dividend 1987 1
$20,306,489 2
$21,804,509 3
$21,804,509 4
$21,804,509 1988 1
$21,804,509 2
$24,467,655 3
$24,467,655 4
$24,467,655 t-A-2 I
SELECTED FINANCIAL DATA FINANCIAL 1988 1987 1986 1985 1984 (Thousands of Dollars)
Earnings available for common stockholder
$ 173,021
$ 165,308
$ 148,614
$ 142,561
$ 137,231 Operating revenues Electric
$1,275,396
$1,120,682
$1,121,267
$1,086,192
$1,091,473 Steam 12,363 10,508 11,895 12,062 11,937 Total operating revenues
$1,287,759
$1,131,190
$1,133,162
$1,098,254
$1,103,410 Total assets
$2,576,480
$2,490,099
$2,272,421
$2,117,711
$2,077,879 Long term debt and preferred stock-(
redemption required
$1,050,339
$ 855,483
$ 854,259
$ 693,206
$ 625,373 s
SALES AND CUSTOMERS 1988 1987 1986 1985 1984 Electric Megawat t-hours sold 24,050,862 20,134,824 18,952,796 18,744,323 18,612,449 Customers (End of year) 870,780 859,449 847,761 838,851 830,648 Steam Pounds (millions) sold 1,879 1,657 1,941 2,004 2,023 Customers (End of year) 494 510 510 517 529 QUARTERLY FINANCIAL DATA Three Months Ended March June 1988 1987 1988 1987 (Thousands of Dollars)
Total operating revenues
$321,581 $276,077
$306,491 $279,066 Operating income
$ 70,729 $ 57,959
$ 63,867 $ 57,976 Earnings available for common stockholder
$ 54,132 $ 38,759
$ 45,822 $ 40,310 Three Months Ended September December l
19B8 1987 1988 1987 (Thousands of Dollars)
Total operating revenues
$340,023 $297,207
$ 319,664 $278,840 Operating income
$ 73,870 $ 68,513
$ 32,936 $ 55,108 Earnings available for common stockholder
$ 57,737 $ 50,613
$ 15,330 $ 35,626 The quarterly results of operations are not directly comparable because of seasonal and other factors. See Managenent's Discussion and Analysis for further discussion.
Earnings and dividends per share are not provided as all Wisconsin Electric's Common Stock is held by Wisconsin Energy.
A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIu.3 RESULTS OF OPERATIONS Earnings Earnings for Wisconsin Electric increased to $173,021,000 in 1988 compared to
$165,308,000 in 1987 primarily due to increased electric kilowatt _ hour sales. During 1988, operating and maintenance expenses rose significantly, reflecting the increased sales levels, the addition of the Presque Isle Power Plant acquired by Wisconsin Electric on December 31, 1987, a contribution to a voluntary Employees' Benefit Trust, and the acceleration into 1988 of power plant and distribution maintenance expenditures from future years.
Electric Sales and Revenues Electric sales for 1988, detailed below by customer class, increased significantly over 1987 levels reflecting the addition of the Empire and Tilden iron ore mines as the two largest customers of Wisconsin Electric through the acquisition of the Presque Isle Power Plant on December 31, 1987, warmer than normal temperatures during the summer of 1988, and increased economic activity.
Electric Sales - Megawatt Hours 1988 1987
% Change Residential 6,196,442 5,869,195 5,6 Small Commercial and ?ndustrial 5,634,893 5,313,948 6.0 Large Commercial and Industrial 9,469,222 6,669,965 42.0 Other 1,897,441 1,710,556 10.9 Total Retail and Municipal 23,197,998 19,563,664 18.6 Resale 852,864 571,160 49.3 Total Sales 24,050,862 20,134,824 19.4 Excluding sales to the iron ore mines, sales to large commercial and industrial customers increased 7.0 percent in 1988 compared to 1987.
Electric revenues increased 13.8 percent during 1988 reflecting the increase in kilowatt _ hour sales and an increase in Wisconsin retail electric rates of
$8.7 million, or 0.9 percent, on an annual basis, effective January 1,1988.
This increase followed three rate reductions for Wisconsin retail customers in the previous two years.
For the three years ended December 31, 1988, total kilowatt-hour sales of electricity increased at a compound annual rate of 8.7 percent.
Electric revenues for the same three-year period increased at a compound annual rate of 5.5 percent.
Excluding the effect of the Presque Isle acquisition, kilowatt _ hour sales increased at a compound annual rate of 4.2 percent and revenues increased at a compound annual rate of 2.8 percent for this three-year period.
A-4
MANAGEMENT'S DISCUSSION - Results of Operations (Cont'.d)
Electric Operations and Maintenance Expenses The cost of fuel and purchased power increased at a compound annual rate of 3.6 percent over the three years ended December 31, 1988, principally due to higher electric kilowatt-hour sales, which offset a decrease in the delivered cost of coal over this period. Under the Wisconsin retail electric fuel adjustment procedure, Wisconsin retail electric rates may be adjusted if cumulative fuel costs are above or below a prescribed range and are expected to continue to be above or below the authorized annual range.
Under this fuel adjustment procedure, Wisconsin Electric reduced its retail electric J
rates in 1987 by $14 million, on an annual basis, and $17 million, on an annual basis in 1986.
Other electric operating expenses, excluding income taxes and depreciation, increased at a compound annual rate of 12.6 percent during this three-year period, reflecting additional expenses of $28 million in 1988 resulting from the acquisition of the Presque Isle Plant, and approximately $16 million from the acceleration into 1988 of certain maintenance projects from future years.
The increase in other electric operating expenses also reflects a $16.9 million contribution to a voluntary Employees' Benefit Trust in December 1988 to fund a major portion of retiree life insurance benefits and the impact in 1986 of the change in Wisconsin public utility taxation from an ad valorem to a gross receipts basis.
Other Items Operations for 1988 and 1987 reflect the lower federal income tax rates, modifications to the accelerated cost recovery system and elimination of the investment tax credit pursuant to provisions of the Tax Reform Act of 1986.
The increase in long-term debt expense in 1988 reflects the issuance of $200 million principal amount of First Mortgage Bonds, the proceeds of which were used to retire the short-term debt issued in connection with the purchase of the Presque Isle Power Plant.
Other interest for 1987 includes the amortization of $17.9 million in one-time interest charges associated with certain tax settlements.
Taxes Other Than Income Taxes in 1987 reflect a
$17.3 million refund from the State of Wisconsin received as settlement of various Wisconsin state ad valorem tax claims.
Rates and Regulatory Matters The table below shows the projected annual revenue impact of recent rate changes authorized by regulatory commissions.
The PSCW regulates Wisconsin retail electric and steam rates, while the Federal Energy Regulatory Commission regulates wholesale electric rates.
The Michigan Public Service Commission regulates retail electric rates in Michigan.
Revenue Increase
% Changes in Effective Service (Decrease)
Base Rates Date Retail electric, Wis.
$8,744,000 0.9%
01/01/88 Steam heating 322,000 2.4 al/01/88 Wholesale electric (1,230,000)
(2.0) bl/01/88 Retail electric, Wis.
(28,791,000)
(2.8) 01/01/89 Steam heating (713,000)
(5.3) 01/01/89 A-5
MANAGEMENT'S DISCUSSION - Results of Operations (cont'd)
New Accounting Standard In 1987 the Financial Accounting Standards Board issued a new standard for accounting for income taxes. The accounting standard requires an asset and liability approach to account for income taxes.
Wisconsin Electric believes adoption of the new standard will not have a material effect on its results of operations.
However, the new standard will require the adjustment of deferred income tax balances to reflect income tax rate changes, recognition of previously unrecorded deferred taxes, and reclassification of deferred taxes, currently netted against certain assets and liabilities.
(See Note F to the Financial Statements.) Although Wisconsin Electric has not quantified all the effects of adopting the new standard, which is required by 1990, it is expected that any additional deferred income tax and liability will be offset primarily by regulatory assets and liabilities representing the expected future revenue impact of these adjustments.
Wisconsin Electric intends to apply the new standard prospectively.
Electric Sales Outlook Assuming moderate growth in the economy and normal weather, Wisconsin Electric projects that electric kilowatt-hour sales will grow at a compound annual rate of approximately 1.1 percent over the five-year period ending December 31, 1993.
The forecast is subject to a number of variables, including the economy and weather, which may affect the actual growth in sales.
LIQUIDITY AND CAPITAL RESOURCES Investing Activities Wisconsin Electric's investing activities for the three years ended December 31, 1988, totaled $876 million; this amount includes capital expenditures of
$595 million for the construction and acquisition of new or improved facilities of which $247.5 million was for the acquisition of the Presque Isle Power Plant. Also included was $130 million for payments to an external trust for the eventual decommissioning of Wisconsin Electric's Point Beach Nuclear Plant, $64 million for net deposits with trustees under certain industrial revenue bond financing arrangements, $51 million for capitalized conservation expenditures (net), and $36 million for acquisition of nuclear fuel and other items.
Capitalized conservation expenditures are included in Other Property and Investments - Other on the balance sheet.
1
=r A-6
~
MANAGEMENT'S DISCUSSION - Liquidity and Capital Resources (Cont'd)
Cash Provided by Operating and Financing Activities Cash provided from operating activities totaled $948 million during the three year period ended December 31, 1988.
Financing activities during the three-year period ending December 31, 1988, resulted in Wisconsin Electric receiving proceeds of $453 million from the issuance of long-term debt and $69 million from the issuance of the 6.75%
series of Wisconsin Electric's preferred stock.
Wisconsin Electric's financing activities during this period included funding of the acquisition of the Presque Isle Power Plant, a 592 megawatt coal-fired plant located in Marquette, Michigan. The cost was initially funded primarily through short-term borrowings by Wisconsin Electric and a $45 million equity contribution from Wisconsin Energy.
In 1988, Wisconsin Electric sold $200 million aggregate principal amount of First Mortgage Bonds - a 9 5/8% Series in January and a 9.85% Series in April, the proceeds of which were used to repay the short-term indebtedness incurred in connection with the Presque Isle acquisition.
During the three-year period, Wisconsin Electric retired $227 million of long-term debt and redeemed all of the outstanding shares of its 8.90% Series, 7.75% Series, and 8.80% Series Preferred Stock at a cost of $72 million.
Short-term borrowings decreased $24 million (net) during the three-year period.
Dividends on Wisconsin Electric's common and preferred stock totaled
$313 million for the three years ended December 31, 1988.
Capital Structure Wisconsin Electric's capitalization at December 31 is shown below:
1988 1987 Common Equity 50.5%
48.1%
Preferred Stock 4.5 4.6 Long-Term Debt (including current maturities) 45.0 38.2 Short-Term Debt 9.1 Total 100.0%
100.0%
At year end 1988, Wisconsin Electric had $102 million of unused lines of bank credit, $89 million of short-term investments, and $75 million of construction funds held by trustees.
/
/
'99D A-7
MANAGEMENT'S DISCUSSION - Liquidity and Capital Resources (Cont'd)
Capital Requirements 1989-1993 The estimated capital requirements for Wisconsin Electric for the five years 1989-1993 are shown below:
1989 1990 1991 1992 1993 (Millions of Dollars)
Construction Expenditures
$176
$163
$208
$249
$200 Bond Maturities and Sinking Funds 28 28 5
1 30 Changes in Fuel Inventories 3
1 4
7 12 Decommissioning Trust Payments 15 16 17 18 19 Total
$222
$208
$234
$275
$261 Construction expenditures during the five-year period are primarily for equipment and improvements at existing power plants, additions and improvements to distribution and transmission systems, capitalized conservation programs, and buildings.
Renovation plans for the Port Washington Power Plant, currently estimated at
$71 million, have been delayed.
The Environmental Protection Agency (EPA) has indicated that the renovation as proposed would cause the plant to be subject to the Clean Air Act requirements for new plants.
Wisconsin Electric has filed a petition with the U.S. Court of Appeals for the Seventh Circuit to review the EPA decision.
Until the court completes its review, Wisconsin Electric expects to operate the plant at its present capability.
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. Wisconsin Electric currently plans to install combustion turbine generators during 1993 and 1994 to meet the projected 300-megawatt requirement for peaking capacity at that time.
Wisconsin Electric does not anticipate installing base load capacity before the year 2000.
Capital Resources During the five-year period ending December 31, 1993, Wisconsin Electric l
expects internal sources of funds from operations after payment of dividends to provide approximately 71 percent of its capital requirements.
The remaining 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.
A-8
+
)
WISCONSIN ELECTRIC POWER COMPANY INCOME STATEMENT i
Year Ended December 31 1
1988
'1987 1986 I
l (Thousands of Dollars)
Operating Revenues Electric
$1,275,396
$1,120,682
$1,121,267 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 Purchesed power 29,182 22,914 25,627 1
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 118,078 114,106 110,532 -
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 I
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 C).
(1,656)
(1,034)
(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 Stockholder
$ 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.
A-9 i
WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASH FLOWS
=
Year Ended December 31 1988 1987 1986 (Thousands of Dollars)
Operating Activities:
Net income
$178,949
$170,877
$155,774 Reconciliation to cash:
Depreciation - straight line 118,078 114,106 110,531
- deferred income taxes 14,854 12,521 20,056 Investment tax credit adjustments - net (5,744)
(6,793)
(4,237)
Nuclear fuel expense - amortization 25,826 26,875 28,900 Allowance for other funds used during construction
'3,073)
(2,197)
(3,744)
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) 8,4 28 (21,792)
Other 21,512 (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)
(1,0 34)
(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 associated companies 6,700 16,245 Other 6,675 4,966 527 Cash Used in Investing Activities (188,401)
(388,810)
(298,681)
Financing Activities:
69,388 Sale oft Preferred stock Long term debt 218,908 23,955 209,754 (72,134)
Retirement oft Preferred stock Long term debt (48,272)
(76,338)
(102,659)
Change in short term debt:
Presque Isle acquisition (198,693) 198,693 (25,000) 767 Other Stockholder contribution 45,000 Dividends on stock - common (95,207)
(85,720)
(113,596) preferred (5,928)
(5,672)
(7,160)
Cash Provided by (Used in) Sinancing Activities (129,192) 72,172 (12,894)
Change in Cash and Tem;9tary Cash Investments S 58,044
$(10,301)
$(45,428)
See Notes to Financial Statements.
A-10
WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET DECEMBER 31 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 1,873,393 Other Property and Investments Nuclear decommissioning trust fund (Note E) 129,987 115,432 Construction funds held by trustee 74,917 75,843 Other 71,192 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.
A-11
WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET DECEM8ER 31 LIABILITIES 1988 1987 (Thousands of Dollars)
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
==
==
i See Notes to Financial Statements.
A-12
a'ISCONSIN ELECTRIC POWER COMPANY CAP:'ALIZATION SIATEMENT DECEFEER 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 l
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 I) 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 Due 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/B%
1999 39,230 39,230 8-1/2%
1999 11,678 11,678 6.05 %
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 due 2016 75,000 75,000 Obligations under capital lease (Note C) 46,910 51,439 Unamortized discount - net (6,739)
(3,799)
Leng 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 See Notes to Financial Statements.
A-13
o WISCONSIN ELECTRIC POWER COMPANY
~
COMMON STOCK EQUITY 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 (113,596)
(113,596)
Preferred stock (7,160)
(7,160)
Non cash dividend (7,087)
(7,087)
Balance - Deceinber 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 (85,720)
(85,720)
Preferred stock (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 33,289,327 332,893 142,462 569,697 1,045,052 Net income 178,949 178,949 Cash dividends Common stock (95,207)
(95,207)
Preferred stock (5,928)
(5,928)
Balance - December 31, 1988 33,289,327
$332,893
$142,462
$647,511
$1,122,866 l
l See Notes to Financial Statements.
A-14
L J
l l:
WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS I
I A - Summary of Significant Accounting Policies I
General l
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 i
Meters are read and accounts are billed monthly.
Utility revenues are recognized on the accrual basis and include estimated amounts for service rendered but not billed.
Fuel l
3 i
The cost of fuel is expensed in the period consumed.
Nuclear fuel expense i
includes the estimated cost for disposal of spent fuel based on a contract with the U.S. Department of Energy.
Property Electric utility property is recorded at original cost, and steam 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 G).
' Replacements of minor items of property are charged to maintenance expense.
The cost of depreciable utility property, together 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 deferred basis and is reflected in income ratably over the life of the related property.
A-15
o Debt Premium, Discount and Expense Long tern debt premium or discount and expense of issuance are amortized by the straight line methcd 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 L
During 1988 the company adopted Statement of Financial frcounting 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 three months or less from maturity.
Supplemental Information Disclosures:
(Thousands of Dollars) 1988 1987 1986 Cash Paid For -
Interest (net of amount capitalized)
$ 79,455
$ 64,859
$102,954 Income Taxes 108,563 112,600 153,844 v
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) 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 restructuring 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.
C _ Rental Expense p
Total rental expense was $2,447,000 in 1988, $2,898,000 in 1987 and $2,825,000 leasing arrangement with Wisconsin Electric Fuel Trust (Trust)y's nuclear fuel in 1986.
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 and a management fee. In the event the company er 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 A-16
o I
the Trust's commercial paper and line of' credit borrowings financing the '
l investment in nuclear fuel.
t The amount of nuclear fuel under capital lease and the accumulated 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.
l The future minimum lease payments under capital lease and the present value of i
the net minimum lease payments as of December 31, 1988 are as follows:
(ThousandsofDollars) 1989
$24,516 1990 16,103 1991 8,572 1992 2,411 199?
454 Total Minimum Lease Payments 52,056 Less: Interest (5,146)
Present Value of Net Minimum Lease Payments
$46,910
=
D - Pension Plans and Other Post Retirement Benefits 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 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 l
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.
l The following information has been provided in accordance with Statements 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.
l 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.
A-17 j
L 9
1988 1987 (ThousandsofDollars)
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 benefit obligation 23,297 21,906 Actual return on plan assets (40,975)
(12,675)
Net amortization and deferral 9,672 (17,602)
Total pension cost calculated under FAS 87 $ (2,311) 647
==
==
P 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
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==
Funded Status of Plan;: 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
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==
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 The company provides life insurance for retirees and medical insurance benefits for participating 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 Trust to fund a major portion of life insurance benefits for company retirees.
l l
A-18
E - 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 based on an external sinking fund method. Company payments, including reinvested earnings, to the external trust fund were $14,555,000 in 1988, $15,308,000 in 1987 and
$100,124,000 in 1986. The 1986 amount includes the December 31, 1986 accumulated provision for the eventual decommissioning.
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 F).
5 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 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
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==
==
Income before income taxes
$272,530
$289,691
$290,721
==
==
===t
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
==
==
==
l The aggregate amount of deferred income taxes included in the accumulated l
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 deferred income taxes may not be immediately recognized l
in operating results.
Changes to depreciation-related deferred income taxes l
l 1
l A-19 A
a 4
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 million for federal tax purposes and $262 million for state tax purposes.
Any tax effect of these amounts is expected to be recovered through future utility rates.
G - 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 11.29% in 1988, 11.30% in 1987 and 11.79% in 1986, as approved by the PSCW.
J H - 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 l
service agreements approved by the PSCW. The company also buys gas from WN for electric generation at rates 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 $45,000,000 capital contribution from WEC.
I - Preferred Stock Serial Preferred Stock authorized but unissued is cumulative, $25 par value, 5,000,000 shares.
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.
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 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 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 after June 1, 2002.
In the event of default in the ?dyment of preferred dividends or in the mandatory redemption requirements, no dividends or other distribution may be paid on the company's common stock.
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J - Long 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 advance 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 _ INFORMATION,BY SEGMENTS OF BUSINESS Year ended December 31 1988 1987 1986 (Thousands of Dollars)
Electric Operations Operating revenues
$1,275,396 $1,120,682
$1,121,267 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 Operations pr' Operating revenues 12,363 10,508 11,895 Operating income before income taxes 1,831 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 334,563 359,002 337,620 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
$2,272,421
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DIRECTORS The information in "Information Concerning Nominees and Other Directors,"
" Nominee for Class I Director," " Nominees for Class II Directors," " Class I Directors Continuing in Office" and " Class III Directors Continuing in Office," appearing on pages 3-5 of Wisconsin Electric's definitive Information Statement to be dated April 10, 1989 is incorporated herein by reference.
OFFICERS The information in " Officers" appearing on page 6 of Wisconsin Electric's definitive Information Statement to be dated April 10, 1989 is incorporated herein by reference.
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Tdephone 414 276 9500*, -
1 0 nk 0 P a Price Waterhouse l
REPORT OF INDEPENDENT ACCOUNTANTS January 25, 1989, yh To the Board of Directors and the Stockholde s 1
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 i
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
. 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 evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the
-opinion exp ssed above.
Eb-K i
l A-23
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