ML20042E207
| ML20042E207 | |
| Person / Time | |
|---|---|
| Site: | Point Beach  |
| Issue date: | 12/31/1989 |
| From: | Brady A WISCONSIN ELECTRIC POWER CO. |
| To: | Office of Nuclear Reactor Regulation |
| References | |
| NUDOCS 9004200413 | |
| Download: ML20042E207 (33) | |
Text
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Wisconson Electnc
. POWER COMPANY 231 W Michig71 Po Ikw 2046, MAnoukee. Wl 53201 (414)221-2345 April 11, 1990 Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555 Ladies and Gentlemen,:
In accordance with 10 C.F.R.-Section 50.71,. enclosed is the 1989 annual report to stockholders of Wisconsin Electric Power-Company, which includes certified financial statements. Such -i 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 N,oA. DPR-24 anJd.PR-27 issued by your-Commies on nder chets 5p 2 W and 50-301, respectively.
Ve r 9 yo ,
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i An Marie Brady '
l Assistant Secret JBF/bjm .}
Enclosure -4 amiann rpt.we y cc: Mr. Gerald Charnoff Shaw, Pittman, Potts &-Trowbridge-1800 M Street, N.W.
Washington,-DC 20036
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'I 9004200413 891231 PDR ADOCK 05000266 PNV -
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A suAsWhy ofIIistwuin Dx'y Cor;>ot;,ti>o
, a-O Wisconsin Electnc POWER COMPANY i
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231 West Michigan Street P.O; Box 2046 Milwaukee, Wisconsin 53201 i
( INFORMATION STATEMENT I
l and ANNUAL REPORT TO STOCKilOLDERS . i l
INFORMATION STATEMENT
., ;a April 11,1990 ,
This statement is furnished in connection with the annual meeting of stockholders of the company to be hekt on May 1,1990, at the principal office of the company at the Public Service Building,231 West Michigan Street,' I Milwaukee, Wisconsin, and all adjournments thereof, for the purposes listed in the 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 i
As of March 13, 1990, the company had outstanding 44,508 shares of Six Per Cent. Preferred Stock; 960,000 - !
shares of Serial Preferred Stock ($t00 par value), consisting of 260,000 shares of 3.60% Series and 700,000 shares of 6.75% Seriest 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 13,1990 will be entitled to vote at the meeting.
All of the company's outstanding common stock, representing 97% of its voting securities, is owned beneficially '
by its parent company, Wisconsin Energy Corporation.
l 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 meeting to make any statement they may consider appropriate and to respond to questions which may be directed to them.
MEETINGS OF THE' BOARD OF DIRECTORS .
l The board of directors ordinarily meets monthly. In 1989 the board held twelve regular meetings. None of l the directors attended less than 77% of the aggregate number of meetings of the board and the committees on i
which they served.
The executive committee, which did not meet in 1989, 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, 1
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. INFORMATION CONCERNING NOMINEES AND OTHER DIRECTORS .
At the 1990 annual meeting, there will be an election of four Class III directors to hold office until the annual meeting of stockholders in 1993 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.
The Bylaws of the company provide 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 vote of a majority of the remaining di:cetors, 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 vote of stockholders.
The board of directors amended the company's Bylaws, effective June 1,1989, to increase the board from twelve to fourteen members, thereby creating two director vacancies. The board elected David K. Porter and Jerry G.
Remmel to fill those vacancies. Rene 11. Males resigned as an officer and director of the company effective September 30,1989 and Thomas J. Cassidy retired as a director of the company on February 1,1990. The board did not fill the resulting vacancies and therefore amended the company's Bylaws to decrease the board to twelve members.
l 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 nominces will become unavailable for any reason. If that should occur before the meeting, another nomince or nominces will be selected by the company's board of directors.
The informulon relating to occupations, business experience, directorships and ownership of equity securitics is based on data obtained from the directors, nominces and officers. Ages of directors are shown as of December 31,1989 NOMINEE FOR CLASS I DIRECTOR FOR TERM EXPIRING IN 1991 DAVID K. PORTER,46, has been a senior vice president and a vice president, respectively, of Wisconsin Energy _,
Corporation's principal subsidiaries, Wisconsin Electric Power Company and Wisconsin Natural Gas Company, l since June 1989. At Wisconsin Electric, he had been vice president corporate planning since 1986, was an assistant vice president from 1985 to 1986 and was director Jcorporate planning from 1984 to 1985. Ile has been - .[ '
a director of the company since June 1989 and is an alternate member of its executive committee, tie is also i
a director of Wisconsin Natural. Mr. Porter, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 3,733 shares of Wisconsin Energy's common stock.
NOMINEES FOR CLASS Ill DIRECTORS FOR TERM EXPIRING IN 1993 ,
i RUSSELL W. HRITT,63, has been chairman of the board of the company since June 1989 and was its chief ;
executive officer from June 1989 to January 1990. He has been president and chief operating officer. of j Wisconsin Encrpy since 1987 and was a vice president from 1981 to 1987 tie has been chairman of the boari and chief executive officer of Wisconsin Natural since June 1989. He had served as president and chief operatir g officer of the company and Wisconsin Natural since 1982. lie has been a director of the company since 19'S
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l and is a member of its executive committee. lie has been a director of Wisconsin Energy since 1981 and is also '
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' owns beneficially 10,120 shares of Wisconsin Energy's common stock.
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MORRIS W. RE1D 64, has been vice chairman of the board since April 1989, and president and chief operating 3
officer since October 1989, of Versa Technologies, Inc., a manufacturer of fluid power and silicone rubber I products. He had been chairman of the board of Versa Technologies from 1982 to April 1989. Since 1978 he - 3 has also been an independent management consultant nnd corporate director. He was, from 1972 to 1978, l chairman of the board of directors of J,I. Case Co., a manufacturer of construction and farm machinery. Mr. _
Reid has been a director of Wisconsin Electric since 1979 and is an alternate member ofits executive committee, lie has been a director of Wisconsin Energy since 1987. He is also a director of Danc One Wisconsin 1
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 ' l of Wisconsin Energy's common stock.
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. - JERRY G. REMMEL,58, has been a senior vice president of the company and vice president - fin;nce of-Wisconsin Natural since January 1989. Ile has been treasurer of Wisconsin Energy since 1981. He had been
- vice president and treasurer of the company since 1983 and treasurer of Wisconsin Natural since 1974. He has ;
been a director of the company since June 1989 and is an ahernate member ofits executive committee. He is also a director of Wisconsin Natural. Mr. Remmel, who resides in Milwaukee, Wisconsin, does not own any of -
the company's stock, but owns beneficially 4,273 shares of Wisconsin Energy's common stock.
JON G. UDELL,54, 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. From 1982 through 1989 he was chairman.
of the board of directors of the Federal Home Loan Bank of Chicago. He is a director of Research Products Corporation and Versa Technologies, Inc. Mr. Udell, who resides in Madison, Wisconsin, does not own any q of the company's stock, but he and members of his family are the beneficial owners of 3,503 shares of Wisconsin Energy's common stock. .Mr. Udell disclaims beneficial ownership of 2,007 of such shares.
CLASS I DIRECTORS CONTINUING IN OFFICE (TERM EXPIRES IN 1991)
RICHARD A. ABDOO,45, has been president and chief executive officer of the company and executive vice-president of Wisconsin Energy since January 1990. He had been president and chief operating officer of the company since June 1989. Mr. Abdoo had served as executive vice president of the company from January to -
, June 1989 and as a senior vice president from 1984 to 1989. He had been a vice president of Wisconsin Energy since 1987. He has been a director of the company since January 1989 and is an alternate member of its-executive committee. He has been a director of Wisconsin Energy since 1988 and is also a director of Wisconsin Natural and M&l Marshall & Ilsley Bank Mr. Abdoo, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but is the beneficial owner of 1,498 shares of Wisconsin Energy's common stock.
JOHN F. HERGSTROM, 43, has been president and chief executive officer of Bergstrom Enterprises, an - i 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.
GENEVA H. JOllNSON,60, has been president and chief executive officer of Family Service America, an organization representing private agenciesin the United States and Canada that provide human senice programs, since 1983. She had been senior vice president of the United Way of America, a human senices 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 1988 and is a member of its executive committee. She has been a director -
of Wisconsin Energy since 1988. Mrs. Johnson, who resides in Milwaukee, Wisconsin, does not own any of the -
company's stock, but owns beneficially 615 shares of Wisconsin Energy's common stock.
CLASS II DIRECTORS CONTINUING IN OFFICE (TERM EXPIRES IN 1992)
JOIIN W. HOSTON,56, has been executive vice president and chief operating officer of the company since January 1990. He had been a senior vice president of the company since 1982. He has been a director of the company since 1988 and is an alternate member of its executive committee. Mr. Boston,' who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 1,041 shares of Wisconsin Energy's common stock.
CilARLES S. McNEER,63, has been chairman of the board and chief executive officer of Wisconsin Energy' since 1987 and had served as president and chief executive officer since 198L He was chairman of the board and chief executive officer of the company and Wisconsin Natural from 1982 to June 1989. Mr. McNeer has been a director of the company 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 and Universal Foods Corporation and is deputy chairman of 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 30,716 shares of Wisconsin Energy's common stock.
JOIIN L. MURRAY,62,is chairman of the board of Universal Foods Corporation, a manufacturer and marketer of fmxi ingredients and selected consumer food items. He has announced his retirement as chairman of Universal Foods effective June 1,1990. He has been chairman of Universal Foods since 1984 and was chief executive officer from 1979 to 1988. He has been a director of Wisconsin Electric since 1983 and is an alternate 3
member of its executive committee. - He has been a director of Wisconsin Energy since 1987. He is also a ,
director of Universal Foods Corporation, Briggs & Stratton Corporation, Firstar Corporation, First Wisconsin National Bank of Milwaukee, Marcus Corporation and Twin Disc, Inc. Mr. Murray, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but owns beneficially 2,000 shares'of Wisconsin Energ/s common stock.
FREDERICK P. STRATI'ON, JR.,50, has been chairman and chief executive officer of Briggs & Stratton Corporation, a manufacturer of small gasolinc engines and automotive locks, since 1986.' He had served as president and chicf executive officer of Briggs & Stratton since 1977. He has been a director of Wisconsin .
Electric since 1986 and is a member of its executive committee. He has been a director of Wisconsin Energy ,
since 1987. lie 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 the company's stock, but owns beneficially 2,200 shares of Wisconsin Energy's common stock.
OFFICERS (Figures in parentheses indicate age and years of service with Wisconsin Electric Powcr Company as of December 31, 1989 ) .
RUSSELL W. BRITI' (63, 41) ROBERT H. GORSKE (57,25) FRED A. TREBATOSKI (54,30) l chairman of the board vice president & general vice president-division j counsel operations !
RICHARD A. ABDOO (45,14) {
president & chief DENNIS M. LAWLER (45,19) KENNETH E. WOLTERS (64,39) executive officer vice president-human vice president system 3
resources operations
- I JOllN W. BOSTON (56,7) . .
executive vice president NANCY R. NOESKE (52,10) GORDON A. WILLIS (51,28) !
& chief operating officer - vice president consumer . treasurer -
relations ;j DAVID K. PORTER (46,20) RICHARD R. PILTZ (49,24) j senior vice president HUBERTO R. PLATZ (60,23) controller , '
vice president-engineering ..
JERRY G. REMMEL (58. 34) & construction, = RICHARD R. GRIGG,JR. (41,19) i senior vice president assistant vice president RICHARD E. SKOGG (61,37) a' CARLYLE W. FAY (63,23) vice president-operating ANN MARIE BRADY (37,1) vice president-nuclear power services assistant secretary
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. JOHN H. GOETSCH (56,31) JOHN E. SPEAKER (58,13)- SALLY A. NEWTON (40,16) vice president & secretary vice president communications assistant treasurer The directors and officers of the company as a group (27 persons) do not own any of the company's stock, but beneficially own 123,359 shares of common stock of its parent company, Wisconsin Energy Corporation (0.18%
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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,-1990, and iriclude, in :
accordance with applicable Securitics and Exchange Commission rules, any shares as to which each individual directly or indirectly has or shares voting power 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 q respective individuaPs spouse, minor children or any other relative sharing the same residence, as well as any 'l shares held by the respective individual in a fiduciary capacity or held for his or her account in Wisconsin i 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. i 4
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Ie OTIMR 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 1,1989, directors' fees are $1,500 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 orj committee meeting is not held. Although certain 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 afGliates.
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 1989, to each of the five most highly compensated executive ofGcers and to all-executive officers as a group:
Total Cash Name of Individual and Principal Capacities Served Compensation (1)(2) .
RUSSELL W. BR11T $289,085 president and chief operating officer of the company until June 1989; chairman of the board and chief executive officer thereafter 1
RICIIARD A. ABDOO $218,697 executive vice president of the company until June 1989; '
president and chief operating officer thereafter JOi!N W BOSTON .
$200,029 senior vice president of the company i
CilARLES S. McNEER $198,823 !'
chairman of the board and chief executive officer of the company until June 1989 ROBERT 11. GORSKE $160,564 vice president and general counsel of the company i
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'1 All executive officers as a group (20 persons) TOTAL $2,843,695 -
(1) Total cash compensation is salaries plus any bonuses and Executive incentive Compensation Plan (EICP) awards, whether deferred or paid, and any "make whole" payments with respect to Management Employee Savings Plan (MESP) employer matching contributions. The EICP, the MESP and other compensation plans !
are described in the following pages. Other compensation, not described in this information statement, to each ;
named executive officer and to all executive officers as a group does not exeecd the lesser of $25,000 per person i or 10% of their aggregate cash compensation.
i (2) The compensation reported is for that portion of 1989 during which the respective individuals served as j executive officers of the company.
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INf'ORMATION ABOUT PLANS - ,
The company maintains certain group health, dental and vision care insurance coverage for its executive officers which is not generally available to all salaried employees. In 1989, the net cost to the company of the premiums for such additional benefits for Messrs. Britt, Abdoo, Boston, McNect and Gorske was $2,736, $3,188, $3,603,
$1,173 and $3,177, respectively, and $56,906 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. Prior to plan year 1987, annual employer contributions were made toward the purchase of Wisconsin Energy common stock for participants due to the availability of certain tax credits under the Internal Revenue Code. The Tax Reform Act of 1986 removed the last of the available tax credits. Therefore, the last plan year for which regular employer contributions were made to the TRASOP was 1986. The TRASOP was amended -
in 1988 to allow, from time to time, employer discretionary contributious to the plan. In 1989, there were no such employer contributions. Dividends from the shares in a participant's account are reinvested on a tax-deferred basis. A partidpant 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 59-1/2,(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 varying amounts of qualifying shares under specific circumstances).
The company has' a qualified hianagement Employee Savings Plan (h1 ESP) in which all its 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 employce'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 cicction, in 1989, a participant's elective contribution to the MESP was limited to $7,627 by the Internal Revenue Code. 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 carlier -
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 1989, the company's matching contributions under the MESP for Messrs. Britt, Abdoo, Boston, McNect and Gorske were $1,429, $1,716, $1,903, $1,488 and $1,678, respectively, and $30,493 for all executive officers as a group.
Effective January 1,1989, Wisconsin Energy established the Executive incentive Compensation Plan (EICP).
The objectives of the plan are to improve the financial and operational performance of Wisconsin Energy and its utility subsidiaries by providing designated elected officers of such companies 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 executives. 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 EICP may not exceed 20% of a partMpant's base salary, and are payable in the following manner: 25% of an individual's award will be paid in cwh and 75% will be converted to share '
equivalents, in an unfunded bookkeeping account, based on the prior 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. At the 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 prior 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. Messrs. Abdoo, Boston and Gorske and fourteen additional executive officers of the company were designated as participants in the 1989 ElCP, Incentive awards made to executive officers of the company in 1990 for performance during 1989 are included in the cash compensation table on page 5.~
Messrs. Britt and McNeer, as well as T. J. Cassidy, an executive vice president, who, with board approval, elected not to participate in the 1989 EICP, received special cash awards in 1990 in recognition of their outstanding performance during 1989. Such awards are included in the cash compensation table on page 5.
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L Wisconsin Energy has Clso established, effective Rnuary 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 Wisconsin Energy board of directors, participants in the EDCP are designated by Wisconsin Energy's chief executive officer.-
Messrs. Britt, Abdoo, Boston, McNecr and Gorske and fifteen additional executive officers of the company were -
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 semiannually. Since, under the company's management employee retirement plan, base.
salary deferred through the EDCP and incentive and special awards carned are not included in the compensation -
base for calculating a participant's retirement income, a *make whole* benefit relative to such amounts (calculated -
without repard to any limitations imposed by the Internal Revenue Code on pension benefits or covered compensation) will be paid as a supplement through the EDCP out of general corporate assets. The plan was recently amended to provide the above "make whole" benefit regarding special awards. 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 elected under the EDCP or because of other limitations imposed by the-Internal Revenue Code on a participant's level of participation in the MESP The distribution options available to participants are (i) single lump sum,(ii) ten year payout or (iii) five-year payout, Compensation deferred and any 'make whole" payments made under the EDCP with respect to MESP employer matching contributions -
during 1989 are included in the cash compensation table on page 5.
Wisconsin Electric entered into an agreement with R. H. Males, effective upon his resignation as an officer and director of the company September 30,1989, which provides salary continuation over a certain period as follows:
(i) 12 equal monthly installments of $13,500 commencing October 10,1989,.(ii) 12 equal monthly installments of $6/i67 commencing October 10,1990, (iii) 12 equal monthly installments of $3,333 commenemg October 10, 1991 and (iv) equal monthly installments of $1,250 commencing October 10, 1992 and continuing through September 1997. The agreement also provides Mr. Males coverage for a specified period under the company's health care plan for executive officers, for which he pays the same premium in effect for the other executive officers. The company will also provide him with term life insurance up to September 30,1990, and has provided him with outplacement senices.
The management employee retirement plan of the company covers approximately 1,450 employees, including officers. The cash compensation for the individuals named in the table on page 5 and compensation for purposes of the management employee retirement plcn plus various supplemental plans described herein are substantially identical. The estimated credited years of se vice under the management employee retirement plan for Messrs.
Ilritt, Abdoo, Boston, McNect and Gorske are 40 years,13 years,6 years,38 years and 20 years, respectively.
During 1989, the benefit formula of the retirement plan was modified in response to Internal Revenue Service regulations concerning integration of pension benefits with Social Security benefits. The formula was changed from an offset formula to a step rate formula which provides a Social Security integrated benefit based upon percentages of a participant's plan wages (highest 36 consecutive months average) for up to 30 years of credited I senice with additional (lower) percentages of plan wages for credited service in excess of 30 years up to a j maximum of 10 years. The retirement plan was further modified by climinating the provision for a disability - ,
benefit. A new long term disability benefit plan has been adopted which provides such benefit coverage. [
Federal laws place certain limitations on pensions which may be paid and the amount of compensation which may be taken into account in calculating benefits to be paid from federalincome tax qualified plans. Pension -j amounts which exceed such limitations will be paid as an operating expense through the Wisconsin Energy .i Corporation EDCP and Supplemental Executive Retirement Plan (SERP), as appropriate, on the same basis j as if they were paid out of the retirement plan. The annual retirement benefits payable for the life annuity form '
of pension for an individual retiring at age 65 in 1990 for specified remunerations and years of service are shown - !
in the following table. Such amounts are not subject to any deduction for Social Security benefits. The indicated j benefits are calculated without regard to Internal Revenue Senice limitations affecting benefits from tax qualified l pension plans. Such benefit amounts not paid under the management employee retirement plan will be paid under the EDCP and SERP, as appropriate.
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L A* nual Retirenum Benefus et c -
Auumed Retinment Age ofi.5 Years
' Anumed Average ' Years of Credited Service Aher Annual Compensation Completion of One Year of Service liased on linghest 36 Consecutive Month: 20 Years 30 Years 40 Years 4 5 $ $
$0,000 15 /4 2 23,403 27,865 110,000 36,302 $4,453 64,765 170,000 57,002 85,503 10?/45 230,000 77,702 116,553 138,565 290/K)0 98,402 147,603 175,465 350,000 119,102- 178,653 212,365 in 1989 the SERP (described below) was modified to provide designated participants a "make whole" benefit -
equal to any decrease in pension resulting from adoption of the new step rate pension formula. Such *make whole" benefit will be phid as a pension supplement out of general corporate assets.
For many years Wisconsin Energy, and previously Wisconsin Electric, has had the plan now titled the Supplemental Executive Retirement Plan (SERP), Messrs. Britt, Abdoo, Boston, McNect and Gorske and fifteen other executive officers of the company participated in the plan during 1989, In addition to the previously described benefit payments which relate to the management employee retirement plan, the SERP provides for .
- monthly payments of benefits for a period of ten years to the participant after retirement or to his or her
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bencliciaries in the event of the participant's death, equal to 12,5% (25% upon the death of the participant) of the average of the participant's highest 36 consecutive months of compensation (such compensation includes the i 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 defarrals 1 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, i I
The company has entered into agreements with Messrs Abdoo, Boston and Gorske, as well as 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 {,
wisich will make their total retirement benefits at age 60 or older from such companies, including benefits under 2 such plans, and which may take into account any vested benefits payable from nrevious employers, substantially the same as those payable to employees who are in the sW remuneration bra.h and who became participants in such plans at the age of 25, i
AVAllAlllLilY OF FORM 10-K The Wisconsin Electric Form 10 K report for 1989 to the Securities and Exchange Commission is available at-no cost by writing to the vice president und secretary, John 11. Goetsch,231 West Michigan Street, P.O. Hox 2016, Milwaukee, Wisconsin 53201.
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WISCONSIN-ELECTRIC POWER COM'PANYJ 1989 ANNUAL REPORT TO STOCKHOLDERS-ACCOMPANYING INFORMATION STATEMENT-l TABLE OF CONTENTS i
ITEM PAGE
- Business ... . . ... . . . ... .-. . . . . . . . .-. . . . A-2' Market for Common Equity :
and Rel ated Matters .. . . . . . . . . .. . . . . . : . . . . A-2 . .
Selected Financial Data . . . . . . . . . ... . . . . . ... A-3 q 1
Quarterly Financial Data .. . . . . . . . . .. . . . . . . A-3 i Management's Discussion and Analysis of Financial a Condition and Results of Operations . . . . . . . -. -. . A 4 Income Statement .................... A-10 Statement of Cash Flows . . . . . . . . . . . . . . . . . . A-ll Bal ance Sheet . . . . . . . . . . . . . . . . . . . . . -. j. , A- 12 j Capitalization Statement . . .............. .A-14 Common Stock Equity Statement . . . . . . . . . ... . . . A-15 )
i Notes to financial Statements . . . , . . . . . . . . . . A-16 Directors . . . . . . . . . . . . . . . . . . . . . , . . A-23 !
Officers ........................ A-23 l
Report of Independent Accountants . . . . . . . . . . . .- A-24 i
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i A-1 I
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l BUSINESS 4 -a T
i Wisconsin Electric Power Company (" Wisconsin Electric")-is anL operating' public utility incorporated in the State of Wisconsin in 1896.- Its operations are-conducted in two business segments, the primary operations of which are as follows:
Businesa Segment- Operations Electric' Operations Wisconsin Electric generates, transmits, l distributes and sells electric energy in a territory of approximately 12,600 square . .
miles with a population estimated _at over-2,000,000 in southeastern (including-the-Milwaukee area), east central and northern Wisconsin and'in'the Upper Peninsula of-Michigan. .
Steam Operations Wisconsin Electric distributes and: sells . -
i steam supplied by its Valley Power Plant
~ i to' space-heating and proc'essing customers- j in downtown Milwaukee.
For financial information about industry segments, see Note L to the Financial Statements.
Wisconsin Electric is a subsidiary of Wisconsin _ Energy Corporation (" Wisconsin Energy"), which owns all of Wisconsin Electric's Common Stock.
i 1
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. g Quarter Tntal Dividend 1988 1 $21,804,509 2 $24,467,655 3 $24,467,655 l 4 $24,467,655 !
1989 1 $38,467,654 2 $26,132,122 3 $26,132,122 4 $26,132,122 A !
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s e
i wey
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SELECTED FINANCIAL DATAz FINANCIAL .. . . . .
1989- 1988 .1987 1986 , 1985'
[r .... ...... .
-(Thousands of Dollars)- ,
s - Earnings available for common.
- stockholder- $ -.184,354 '$1-173,021
- $ 165,308 $ 148,614 $ '142,561 Operating revenues e
-Electric ~, $1. 24 5,701 $1.275,396' $1,120,682 $1'121.267L . $1,086',192 112,363- '10,508 Steam. . 12.292-11,895-
, . g12.062
-Totel' operating- . .
.. .. .- - .~
,. revenues.. .$1',257,993- ,$1,287,759 <$1,131,190, ~$1,'133,162: $1,098,254 , ,
- Total assets , - '$2.661,629.' -$2,576,480 '$2,490,099 -$2,272,421; $2,117,711 1 '
Long term debt and 3 preferred stock-4
~
'redemptton ~
required $1,016,197 - -$1,050,339 $--855,483 $ :854.259= $ 693,206 f
. SALES AND CUSTOMERS .j 1989 1988 L1987 - 1986/ 1985 1 Electric ,
Megawatt-hours . . -- . . . .' . .'
, f
,i sold 24,293,356 24.050,862-' ~2 0.134,824: 18,952,796 18,744,323f
' Customers (End. .
s ofyear)' 882.883- 870,780 859,449 ?B47.761 838,851
. Steam Pounds (millions) sold 2,160 1,079 1,657.- 1,941. '2,004 Customers (End '
of. year) 482 194 510 510' 517 QUARTERLY FINANCIAL DATA Three Months Ended -
March June 1989 ,1988: -1989- 1988; (Thousandsof'Dolla )' .
'l Total operating revenues $321,694':$321,581 $297,556. $306,491 'i' -
Operating tricame .$ 63,312 $ 70,729: $ 53,412 $ 63,867.
Earnings available for comon stockholder $ 47,813 $ 54,132 $ 39,398' $ 45,822 1
Three Months Ended'
+
September December 1989 1988 1989 1988 q
(Thousands of Dollars) j Total operating revenues $322.711 $340,023 $316,032 $319,664 i
- 0perating income $ 69,911 $ 73.870 $ 59,110 $-32,936 ';
. Earnings available . :i for comon stockholder $ 55,937 $ 57,737 $ 41,206 $ 15.330 ;
............................................................................. r The quarterly results of operations are not directly comparable because of *
' seasonal and other factors, see Management's Discussion and Analysis for '
i further discussion, j
i
-l Earnings and dividends per share are not provided as all Wisconsin Electric's !
Common Stock is held by Wisconsin Energy. ,
A3
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MANAGEMENT'S DISCUSSION AND' ANALYSIS OF FINANCIAL ~ m. .
[,. . e...............................................
CONDITION.AND RESULTS OF OPERATIONS RESULTS OF 0PERATIONS Earnings-Earnings for Wisconsin Electric increased to $184,354,000 inJ1989' compared'to * -
$173,021,000 in 1988 primarily_due to a reduction in operation and maintenance expenses during 1989. t As more fully described below, operation and maintenance expenses.were impacted during the last quarter ofL1988 when several projects originally scheduled for . future years.were accelerated -into 1988 and an Employees' Benefit Trust was established to fund a major: portion of- retiree-life insurance benefits.
Electric Sales'and-Revenues Total electric sales for 1989, ~ detailed below by customer class, rose 1% in 1989 compared to'1988. This increase reflects' greater- sales to th( : emercial and industrial sector during 1989, partially offset by the impact on ules of a cooler summer in 1989 compared to abnormally hot weather during.1988. ;
Electric Sales - Megawatt Hours 1989 1988 % Change Residential -
6,088,234 6,196,442 (l.7)
Small Commercial and Industrial 5,779,111 5,634,893' 2.6 Large Commercial and -Industrial 9,487,029 9,469,222 0.2 Other 1,995,379- 1,897,441 5.2-Total Retail and Municipal 23,349,753 23,197,998 0'. 7 -I Resale-Utilitles 943,603_ 852,864 10.6-Total Sales 24,293,356 24,050,862 1.0 .j Approximately 10% of total 1989 and 1988 electric sales were to the Empire and Tilden iron ore mines. The mines became the two largest customers of Wisconsin Electric in connection with its acquisition of the;Presque Isle 1 Power Plart on December 31, 1987.
Electric revenues decreased 2.3 percent during 1989 reflecting- a ' decrease in Wisconsin retail electric rates of $28.8 million, or 2.8 percent, on an annual basis and milder weather described above, i
For the three years ended December 31, 1989, total kilowatt-hour -sales of ;
electricity increased at a compound annual rate of 8.6 percent. Electric revenues for the same three-year period. increased at a compound annual rate of 3.6 percent. Excluding the effect of the Presque Isle acquisition, kilowatt- j hour sales increased at a compound annual rate of 4.1 percent and revenues :
increased at a compound annual rate of 0.8 percent for this three-year period. }
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MANAGEMENT'S DISCUSSION - RESULTS OF OPERATIONS (Cont'd)
Electric Operation and Maintenance Expenses While the delivered unit cost of coal decreased over the._three years _ ended December 31, 1989, the total cost of fuel and purchased power increased at a compound annual: rate of 2.1 percent over this period principally due to higher electric kilowatt-hour sales. 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 rates ini 1989 by $8 million on an annual basis and $14 million on an annual basisjin 1987. No adjustment was made in=1988.
Oti.er electric operating expenses, excluding income taxes and depreciation, increased at a compound- annual rate of 6.6 percent during this three-year period, reflecting additional expenses of- $25 million and $28 million during 1989 and 1988, respectively, resulting from the acquisition of the Presque Isle Power Plant. In addition, other electric operating expenses in'1988' included approximately $16 million of maintenance projects accelerated from future years and a $16.9 million payment to an Employees' Benefit Trust to fund a major portion of retiree life insurance benefits.
Other Items The increase in straight line depreciation during 1989 is primarily the result of $7.7 million of' removal costs associated with the retirement of Wisconsin Electric's Oak Creek Units 1-4 and higher depreciable plant balances.
Expenses related to the Oak Creek retirement are being amortized over a'six-year period. The increases in interest on long-term debt ~in 1989 and'1988:
reflect the issuance of $200 million ' principal amount of FirsttMortgage Bonds during 1988, the proceeds of which were used to retire short-term debt: issued in December of 1987 in connection-with the purchase of the Presque Isle Power Plant. Other Interest for 1987 includes $17.9 million in one-time 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 FERC regulates wholesale electric rates. The MPSC regulates retail electric rates in Michigan.
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MANAGEMENT'S DISCUSSION - RESULTS OF OPERATIONS (cont'd)
Revenue Increase % Changes in Effective Service: (Decrease) Base Rates. Date-
-Retail electric, Wis. $(28,791,000) (2.8)% 01/01/89 Steam heating (713,000) (5.3) 01/01/89 fuel electric, Wis. (8,415,000) (0.8) 07/31/89 Wholesale electric , -(2,768,000) .(4.0) 01/01/90 Retail electric, Wis. (29,685,000) (2,9) 01/12/90 Steam heating 147,000 1.2- 01/12/90 4;
.y PSCW Adoption of the FERC Uniform System of Accou'nts and FASB New Accountin'g Standard During.1989, the PSCW adopted the FERC Uniform System of Accounts'fori. _
privately owned electric and gas utilities, with minor modifications._ As'a',
result, beginning in 1990, certain balance sheet accounts of Wisconsin-Electric will be restated to reflect the FERC accounting practices. !Thi's' change will require the reclassification of approximately $300 million of-deferred income taxes currently included in the' accumulated- provision for depreciation, along with other smaller amounts included in various other-asset and liability accounts, to appropriate deferred accounts. In addition,.
effective with the next rate order, Wisconsin Electric plans to adopt th'e# full normalization method of accounting for. all timing differences, including;the deferral of state income taxes, in 1987 the Financial Accounting Standard Board (FASB) issued a new stan ard- i on accounting for income taxes. The accounting standard requires an. asset and l 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 and recognition' of:
previously unrecorded deferred taxes'(See Note E to the financial. Statements). 1 Although Wisconsin Electric-has not quantified all the effects of/ adopting the j new standard, which is required by 1992, _it is expected that'any additional deferred income tax 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.
1 Electric Sales Outlook Assuming moderate growth in the economy and normal weather, Wisconsin Electric presently anticipates that electric kilowatt-hour sales will grow at a I compound annual rate of approximately. l.5 percent over the five-year period. -l ending December 31, 1994. This forecast is subject to a number of variables,- 1 including the economy and weather, which may affect the actual growth in sales.
4 A-6 '
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MANAGEMENT'S DISCUSSION - LIQUIDITY AND CAPITAL RES0VRCES' ,
LIQUIDITY AND CAPITAL RESOURCES j Investing Activities .
Wisconsin Electric's investing activities for the three years ended December 31, 1989, totaled $821 million, this amount included capital expenditures of ,
$658 million for the construction and acquisition of new or improved ;
facilities of which $247.5 million was for the acquisition of the Presque Isle- O Power Plant. Also included was $77 million for capitalized conservation '
expenditures (net), $68 million for the acquisition of nuclear fuel, and' a net'
$18 million for other items including payments to an external trust for the eventual decommissioning of Wisconsin Electric's Point Beach Nuclear Plant, r Cash Provided by Operating and Financing Activities -;
Cash provided by operating activities totaled $1,066 million during the three - ;
year period ended December 31, 1989.. ,
Financing activities during the three-year period resulted in Wisconsin -
Electric receiving proceeds of $324 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. During the three-year period, short-term ,
borrowings decreased $25 million. ,
Wisconsin Electric continued efforts to reduce its overall cost of capital. !'
During 1989, Wisconsin Electric sold $60 million aggregate principal amount of 9-1/8% Series First Mortgage Bonds, the proceeds of which' were used t'o refund a major portion of its 11-1/2% Series First Mortgage Bonds. Wisconsin Electric's financing activities during the three years ended December 31, 1989, also included funding of the acquisition of the Presque Isle Power Plant located in Marquette, Michigan. The cost 'was initially funded primarily through short-term borrowings by Wisconsin Electric and a $45 million capital contribution from Wisconsin Energy. In 1988, Wisconsin Electric sold $200 million aggregate principal amount of First Mortgage Bonds - a' 9-5/8% Series and a 9.85% Series, the proceeds of which were used to repay short-term: debt i incurred in connection with the Presque Isle acquisition. .'
i During the three-year period, Wisconsin Electric retired $221 niillion of long-term debt (including $97 million of the 11-1/2% Series First Mortgage Bonds) and redeemed all of the outstanding shares of Wisconsin Electric's 8.90%
Series, 7.75% Series, and 8.80% Series Preferred Stock at:a cost of:$72
- million. Dividends on Wisconsin Electric's common and preferred stock totaled v
$315 million for the three years ended December 31,.1989. '
l A-7 i
.e D MANAGEMENT'S DISCUSSION . LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
Capital Structure Wisconsin Electric's capitalization at December 31 is shown below:
1989 1988 Common Equity 52.1% 50.5%
Preferred Stock 4.4 4.5 Long-Term Debt (including current maturities) 43.5 45.0 Total 100.0% 100.0%
At year end 1989. Wisconsin Electric had $102 million of unused lines of' bank credit, $103 million of cash, cash equivalents, and short-term investments, and $73 million of construction funds held by trustees. There were no short-term borrowings outstanding at year end 1989 and 1988.
Capital Requirements 1990 1994 The estimated capital requirements for Wisconsin Electric for the five years 1990 1994 are shown below:
1990 1991 1992 1993 -1994-(Millions of Dollars).
Construction Expenditures $186 $200 $259 $224 $252 Conservation Investments 35 40 42 51 46 Bond Maturities and Sinking Funds 28 5 -
31 2 Changes in fuel Inventories 3 2 6 13 11 Decommissioning Trust Payments 16 17 18 -19 20 Total $268 $264 $325 $338 $331 Construction expenditures during the five-year period are primarily for addition:; and improvements to distribution and transmission systems, equipment i and improvements at existing power plants, construction of gas combustion turbines described below and service centers and other buildings.
Wisconsin Electric has no new power plants under construction at the present
) time 2000.
and does not anticipate installing base load capacity before the year However, peak generating capacity is expected to be needed through the 1990s. Wisconsin Electric's a) plication to install gas combustion turbines during 1993.and 1994 to meet tie projected 300-megawatt requirement for
' peaking capacity at that time, is pending before the PSCW. Wisconsin' Electric has entered into purchase power contracts intended to maintain adequato ,
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MANAGEMENT'S DISCUSSION - LIQUIDITY AND CAPITAL RESOURCES (Cont'd) reserve margins prior to completion of construction of the gas combustion ,
turbines. ,
Port Washington Power Plant On January 19, 1990, the U.S. Court of Appeals for the 7th Circuit in Chicago issued its decision on Wisconsin Electric's petition to review the EPA's ;
determination regarding proposed renovation of the Port Washington Power ,
Plant. The EPA's determination would cause the five unit plant to be subject :
to federal emission standards historically applied only to new power plants.
The court upheld the EPA's position that the planned renovation of units one, four and five at the plant would trigger the New Source Performance Standard (NSPS) emission limitations as established by the Clean Air Act. The' planned renovation of units two and three is not affected by the NSPS provisions.
However, the court also ruled that the EPA did not properly support its e estimates of post renovation emissions calculated for the purpose of determining whether the entire plant would be subject to the agency's Prevention of Significant Deterioration program. Therefore, the court vacated and remanded that part of the agency's determination to the EPA for further ,
review. ;
On february 2, 1990, Wisconsin Electric filed a petition for rehearing regarding the applicability of the NSPS provisions to the proposed work.
Wisconsin Electric intends to continue operating the plant at its present capability during the appeal process, following which an-evaluation will be made concerning Wisconsin Electric's options regarding the plant.
Capital Resources During the five year period ending December 31, 1994, Wisconsin Electric expects internal sources of funds after payment of dividends, to provide i approximately 66 percent of its capital requirements. The remaining capital requirements for this period are expected to.be met principally from the l issuance of long-term debt, the reduction of existing cash investments and construction funds on deposit with trustees, and through short term borrowings.
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WISCON$1N ELECTRIC POWER COMPANY l
^
INCOME $1ATEM[Ni Year inded December 31 ,
i 1989 1988 1987- ,
(thousandsofDollars) !
Operating Revenues .
l tiectric ' .81.245,701 $1.275,396 $1.!!0,682
$ team 12.292 12.363- 10.50ft 10 tai operating Revenues 1.257.993 1.287.759' !.131.190 t Operating [xpenses -
Fuel (Note 8) 290.074 303,962 227.112 ',
Purchased power 29,182
~
31.387 22.914 Otheroperattonexpenses(NoteC) -R$7.708 !?3,801 - 238.604 :
Maintenance .145,057 165.930 133.361 Taxes other than income taxes 60,977 62.243. 36.091 i Deprecletlon (Note 0) .
Straight line 129,344 !!8,078 114.1064 i 12,521' '
Deferred income taxes (Note () 11.189 14.854- ,
Federal income tax (Note () 74,065 67.039 91.989 :
Investment tax credit . not '(Note () (5.686) (5,744) (6.793) i State income tax (Note () 18.133 21.729- ^t
.. ...... ....'......17.012 .......... . 1 Total Operating ispenses 1,012.248- 1.046.357 891.634 ;
Operating income 245.745 241.402 239.656-f Other Income and Deducttons Interest income .
!!.114 15.139 - 14.704 -
Allowance for other fu'ds used during 'i construction (NoteF) .4.899 ~3,073 't.197 5 Miscellaneous not (1,6961' (3.521) - (7,394) i Federal income tax (Note () (252 1 159 H .1.125 ;
State income tax (Note () (1.049?. (579) s (493)
.......... .......... .......... {<
fotal Other income and Deducttone- 23,616 14.271 '10.139 '
income Before Interest Charges 269.36) 255,673 249.695
=i Interest Charges !
Long term debt 80,755 . 16.614 61.297 'j Other interest 737 1.766 18.5$5 ;
Allowance for borrowed funds used !
duringconstructton(NoteF) (2.413) (1,656)- (1,034)- l Total Interest Charges 19,0 } 76]!4 78]l ;
6 Net income 190.282 178,949 170,877' l
)
Preferred Stock Olvidend Requirement 5.928 5.928 5.569 t
.......... . . . . . . . . . . - ..........- i tarnings Available for Comon 6 Stockholder $ 184.354 $ 173.021 $ 165,308 Note: tarnings and dividends per share of comon stock are not applicable because all of the company's comon stock ts owned by Wisconsin [nergy Corporation..
] .
See Notes to Financial $tatements.
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A.10 i
- _ V!5 CON 5!N [LECTRIC PWEB COMPANY STATEM(NT OF CASH FLWS Year Ended December 31 L1989 1988 1987 (Thousands of Dollars)
Operating Activittes:
Net income $190.782 $178.949 $170.877 Reconclitation to cash:
Deprocletion . straight line . 129.344 118.078 114.106
. deferred income tax .11.189 14.854 12.521 '
investment tax credit . net (5.686) (5.744) (6.793)
Nuclear fuel expense . amorttration !!.950 25.826 26,875 Allowance for other funds used . .
during construction (4.899) (3.073)~ (2.197)
Tax refunds- 8.901 60,937 , 1.422 Change in: Accounts recel6able F4.114;I (13.068) '7.368 Inventorles , 1,6.291 -(3.719)
(10.879)
Accounts payable I 2.693 l !! . 040 -- (11. 548) ~.
Other current assets 15.039 l23.997) 4.291 -
Other current liabilitics 13.789 Ll6.958) 8.478 Other 16.462 21.512 (8,134)
Cash Provided by Operating Activities 384.!?3 -375.637 306.337 .5 Investing Activities:
Construction expenditures (178.087) (127.143) (352.549)
Allowance for borrowed funds used during constructton (2.413) (1.656:1 (1.034):
Nuclear fuel L19.337 '
1 22.375:. I t$.809 Nuclear decomissioning trust '
- 16.245 i 1 ,14.555: 1 1.15,308 Conservation rebates and loans . net 1,76.881J L30.273;I L20.230 Change int Construction funds held by trustee 1.883 926 14,454 Loans to associated companics .
6.700=
Other (2.410) 6.675 4.966 Cash Used in investing Activitles (t43.490) (188.401) (388.810)
Financing Activitles:
Sale of: Preferred stock . .
69.388 Long term debt 81.033 218.908 23.955 Rettroment of Preferred stock . .- 1 72.134 Long term debt (96,824) (48.272) >I,76.338, Change in short term debt:
Presque Isle acquisition .
(198.693)= 198.693 Other .-
Stockholder contetbution
(!$000).
45.000 '
Olvidends on stock . comon (116.865) (95.207) (85.720) -
. preferred (5.928) (5.928)- (5.672)
CashProvidedby(Usedin)FinancingActivities (138.584) (!!9.192) 72.172 Change in Cash and Cash (quivalents $ t.199 $ 58.044 $(10.301)
See Notes to Financial Statements.
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WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET l
DECEMBER _31-l ASSETS 1989 1988 (Thousands'of Dollars)
Utility Plant ._
Electric $3,307,414 $3,227,046 1 Steam 28,121 27,073 l
. . . . . . . . . . - ..........- 3 3,335,535. 3,254,119 >
Accumulated provision for depreciation (1,602,611) ~(1,519,798) :
1,732,924- 1,734,321 i Construction work in progress 88,629 51,582 ;
Nuclear fuel net (Note B) 62,587. 66,436 '
Net Utility P1 ant. 1,884,140 1,852,339 Other Property and Investments ..
Nuclear decommissioning trust fund (Note D) 146,232 129,987 :
Construction funds held by trestees '
73,034 74,917 Conservation investments '
68,654 46,970 i Other 4,019 4,222 ;
Total Other Property and Investments 291,939' 256,096 !
Current Assets .
)
Cash and cash equivalents -93,931 91,732' ;
Short term investments 8,999 -
Accounts receivable, net of allowance for -
doubtful accounts . $5,832 and $6,346 - 72,187 68,073 :
Accrued utility revenues 89,210: 87,607 Fossil fuel (at average cost). 68,099 68,059 !
Materials and supplies (at avera9e cost). 67,524 -61,272 ;
Prepayments 45,698 56,836 ;
Other assets 7,152 12,657 ,
Total Current Assets 452,800- (446,236 i i
Deferred Charges and Other Assets -32',750 -21,809 +
.......... . . . . . . . . . . . .e
$2,661,629
$2;576,480-
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. WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET DECEMBER 31 i
LIABILITIES 1989 ~1988 ~ l (Thousands of Dollars) ;
Capitalization (See Capitalization Statement) i Common stock equity $1,190,355 $1,122,866 !
l 30,451 30,451.-
L Preferred stock redemption not required l Preferred stock'- redemption required 70,000 70,000 ;
Long term debt'- 946,197; -980,339 j Total Capitalization h,hhh,bbh h hhh 65h .f
)
Current Liabilities . 1 Long term debt due currently 47,971: ,21,835' ;
Accounts payable 77,036 79,729- ,
Payroll and vacation accrued 21,495 20,073 :
Taxes accrued - income and other 17,519 12,374 >
Interest accrued 18,426 18,808 :
'Other 17,658 8,526 i Total Current Liabilities = 200,105' 161.345 i Deferred Credits,and Other Liabilities f Accumulated deferred investment tax credits 109,892- 115,737 l Other 75,727~ 59,009 :
Total Deferred Credits and Other Liabilities 185,619 174,746~ ;
Contributions in Aid of Construction 38,902 36,733-Commitments and Contingencies (Note K) .
l $2,661,629 .$2,576,480 f f
i See Notes to financial Statements. ;
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Wi$t0N51N ELECTRIC _ POWER COMPANY. . ,
CAPITAll!A110N $1AftMINT- ,
DECEMBER 31 1989 1988 Comon Stock (guity (See Comon Stock lautty Statement)
Comon stock ($10 par value authortred 65.000,000 shares:
outstandin9 33,tB9.3t? shares) $ 332.893 $ 332.893 Other paid in capital' ~142.462 ' 142,462 Retained earnin9s 715.000 647,611 Total Comon Stock (gutty 1,190,355 1.ltt,866 Preferred $took Cumulative.
Six per cent, preferred stock - $100 par values authorized 45,000 shares:
outstandin9 44.508 shares 4,451- 4,451 '
5erial preferred stock $100 par value; authortred 2,360,000 shares ,
outstandin9 -
3.60% sortes
- 260,000 shares 26.000. 26,000:
Tota) Preferred Stock
- Redemption hot Required (Note H) 30.451 30,451-6.75% serles - 700,000 shares 70.000 ~ 70,000 Total Preferred Stock - Redemption Required (Note H) 70.000 '70.000 Long lerm Debt first mort 9a9e bonds '
Settes Due 5 % 1990 '
26.605 26.605 4 3/4% 1991 3.575 3.525 -
4 1/tX 1993 4,985 4,985s 5 7/8% 1996 36,807' 36,807 6 1/tX 1997 11.191 6-7/8% 1997 11.291
'37,580 37,580 6 5/8% 1998 9,772 6 7/8%
9.757 1998 33,360 6.10 X 33.360 1999 2008 25,000 25,000 6.25 % 1999 2008 1.000 1,000 7 1/4% 1999 38,929 8 3/8%= 1999 38.929 39,230- 39,230 8*l/tX -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 6,50 % 4,000-2007 2009 10,000 8 7/8% 10.000-2008 79,934 79.934 9 3/4% 2015 46,350 46,35D 11-1/t% 2015 2,876 68,700 8 1/t% 2016 100,000- -100,000 9 5/8% 2018 100.000 '100,000 9.85 % 2023 100,000 9 1/8% t024 100.000 60.000 ++
854,706 860,643 Debentures (unsecured) 7% 5eries due 1993 25,560 26.360 Note (unsecured)
Variable rate due 2016 75.000 75,000 Obitgattons under capital lease (Note 8) 45,673 46,910 Unamortired discount - net (6.771 Long term debt due currently .- (6.739 (47,971) ) (21,835
' lotal Long Term Debt (Note I) 946,197 980,339 Total Capitaltration $2.237,003 $2.203,656 See Notes to Financial Statements.
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- ' W $ CON $1N [LtCTRIC POWit COMPAkV
. COMMON $TOCK (QUITY $ FAT (MENT Camon $tock Common $tock Other Paid . Retained theres $10 Par value in Capital ternings Total-(ThousandsofDollars)
' Balance . Decenter 31,1986 33,789,327 $342,893 $ 99,632 ' $491,7$0 $'924,176
'het incoan -.170,877 - 170,877
$tockholder contribution (Note 6) 45,000 45.000:
Cash dividends -
Connon stock - '
(86,720; I T(85.720)?
Preferred stock J s ($,672;i (5.672)
Purchase of preferred stock (Note H) (2,070) (64) (2,124) L
$ ale of preferred stock (Note H) (791)' (791)
Non cash dividend (693) (893)
Balance December M 1987 33,289.327 332,893 142,462 669,697 1.046,062 het income 178.949 - 178.949 Cash dividehds '
Connon stock (95,207) (96,207)-
Preferred stock -(5.928)' (5.928)1 Balance December 31, 19B8 33,789.327 332,893: 142,462 647,511' .1,122,866 het income 190.282 190,282 ,
Cash dividends Connon stock - (116,865)- (116,665)
Preferred stock '
(6,928) (5,928)
Balance . December 31, 1989 33,289,327 $332,893 $142,462- $715,000 $1.190,355t See hotes to Financial $tatements. ,
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WISCONSIN ELECTRIC POWER COMPANY NOTES 10 flNANCIAL STATEMENTS A Summary of Significant Accounting Policies General The accounting' records of the company are kept.as prescribed by the rederal Energy Regulatory Commission, modified for requirements of the Public Service.
Commission of Wisconsin (PSCW).
Revenues Utilityrevenuesarerecognizedontheaccrualbasisandincludeestimated "
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 Property is recorded at cost. Additions to and significant' replacements of utility property are charged to utility plant at cost; minor items are charged to maintenance expense. Cost includes material, labor and allowance for funds used during construction (see Note F). The cost of depreciable utility property, together with removal cost less salvage, is charged to accumulated provision for depreciation when 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.
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.
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I ?!.[!$$$'.II$$$.I".IS!"I$
long term debt premium or. discount and expense of issuance are amortized by the straight line method over the lives of the debt issues and included as interest expense. Unamortized amounts pertaining to reacquired debt are written off currently, when acquired for sinking fund purposes, or amortized in accordance with PSCW orders, when acquired for early retirement.
Statement of Cash flows Cash and cash equivalents includes marketable debt securities acquired three months or less from maturity.
Supplemental Information Disclosures:
(Thousands of Dollars) 1989 1988 1987-Cash Paid for .
Interest (net of amount capitalized) $ 76,725 $ 79,455 5 64,859 income taxes 71,970 108,563 112,600 B . Nuclear fuel The company has a 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, financing costs and a management fee. In the' event the company or Trust terminates the lease, the Trust would recover its unamortized cost of nuclear fuel from the company. Under the lease terms, the company is in effect the ultimate guarantor of the Trust's commercial paper and line of credit borrowings financing the investment in nuclear fuel.
The amount of nuclear fuel under capital lease and the accumulated provision for amortization at December 31 was $91,050,000 and $50,416,000 for 1989 and
$90,768,000 and $49,094,000 for 1988, respectively. Interest expense on the nuclear fuel lease was $3,926,000 in 1989, $3,654,000 in 1988 and $3,986,000 in 1987.
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The future minimum lease payments under the capital lease and the present value of the net minimum lease payments as of December 31, 1989 are as follows:
(Thousands of Dollars) 1990 $24,681 1991 15,449 1992 7,810 1993 2,623 1994 372 Total Minimum Lease Payments 50,935 I tess: Interest (5,262)
Present Value of Net Minimum Lease Payments $45,673 l C Pension Plans- and Other Post Retirement Benefits
.................................................... f 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 ;
ratemaking, which amounts are charged to expense as paid. Pension expense was *
$1,536,000 in 1989 and $4,285,000 in 1988, including a portion for the early retirement incentive program described below, and $3,807,000 in 1987L ,
i 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 l 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 investmer.t contracts and real i estate.
In 1988 the company completed an early retirement -incentive program for . i' employees (excluding officer.s) who met specific. age and years of service criteria. The program eliminated the early retirement discount and includes L payments to those employees not yet eligible for Social Security; 365.
employees retired under thir program. The total estimated cost of the program' ,
is $20.3 million, which is recognized in expense as funded, o A-18
1989 1988 1987 Components of Net PAriodic Pension Cost, Year Ended December 31 -
Cost of pension benefits earned by _
employees $ 5,770- $ _ 5,695 $ 9,018 Interest cost on projected benefit obligation 23,892- 23,297 21,906' Actual return on plan assets
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(67,725) (40,975) (12,675)
Net amortization and deferral 33,281 9,672 (17.602)
Total pension cost _ calculated under FAS 87 $ (4,782) $ (2,311) $ 647 Actuarial Present Value of Accumulated Benefit Obligation,: at December 31 -
Vested. benefits-employees' richt to receive benefit no longer co.lingent upon continued employment $245,909 $222,870 Non vested benefits employees' right to receive benefit contingent upon .
continued employment 4,759 4,552 Total. obligation $250,668 $227_,422 Funded Status of Plans: Pension Assets and Obligations at December 31 -
Pension assets at fair market value $399,936 $350,721 Projected benefit obligation at present value (305,641) (269,303)
Unrecognized transition asset (35,259) (37,701)
Unrecognized prior service cost 12,442 --
Unrecognized net gain (75,230) (53,781)
Projected status of plans $(3,752): $(10,064)
Rates used for calculations (%) -
Discount Rate-interest rate used to adjust for the time.value of money 8.5 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 $4,827,000. in 1989, $21,014,000 in 1988, and $1,445,000 in 1987, The 1989 and 1988 amounts include $1,578,000 and $16,900,000 respectively, which were paid to an Employees' Benefit Trust to fund a major portion of post retirement life insurance benefits.
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1 0 - Depreciation i Depreciation expense is accrued at straight line rates, certified by the PSCW, which include estimates for salvage and removal costs.
Nuclear plant decommissioning is accrued as depreciation expense based on an external sinking fund method. Total decommissioning is estimated at
$235,000,000 in 1989 dollars.
Additional depreciation is accrued, in accordance with the PSCW requirements, which is equal to t'ne federal tax effects of timing differences related to property and nuclear fuel including principally the use of accelerated i depreciation methods (see Nute E). :
1 Straight line depreciat16n as a percent of average depreciable utility plant was 4.1% in 1989 and 1987 and 3.9% in 1988. <
E - Income Tax Expense l
I 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. >
1989 1988 1987-(ThousandsofDollars)
Current tax expense $ 93,499 $ 84,47) $113,086 Investment tax credit. net _ (5,686) (5,744) 1 (6,793)
Deferred taxes charged to depreciation expense 11,189 14,854 12,521 Total tax expense 5'hh.hb2 h'h3hh5 h555,554-Income befor_e income taxes $289,284 $272,530 $289,691; Expected tax at federal statutory rate $ 98,356 $ 92,660 $115,876 State income tax net of federal tax reduction 11,445 10,543 12.209 Investment tax credit restored (5,928)
(6,714) (7,965)
Other (no item over 5% of expected tax) (4,871)- (2,908) (1,306) ,
Total tax expense $ 99,002 $ 93,581- $118,814' The aggregate amount of deferred income taxes included'in 'the accumulated' l
l provision for. depreciation at December 31 was $299,169,000 in 1989 and--
$288,170,000 in 1988. For regulated companies, the effect of tax rate changes on accumulated deferred income taxes will be included in income ratably over the remaining life of the related property.-
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~At December 31, 1989 the cumulative amount of timing differences .for which deferred income taxes have not been provided was approximately $52 million for federal tax purposes and $309 million for state tax purposes. Any tax effect' of these amounts is expected to be recovered through future utility rates.
F . 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 11.41% in 1989, 11.29% in 1988, and 11.30%
in 1987, as approved by the PSCW. -l l
G - Transactions with Associated Companies Managerial, financial, accounting, legal, data processing and other services may be rendered between associated companies and are billed in accordanc~e with service agreements approved by the PSCW. The company also buys gas from Wisconsin Natural (WN), another subsidiary of Wisconsin Energy Corporation, '
for electric generation at rates approved by the PSCW. The company made loans during 1987 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. .
b H Preferred Stock Serial Preferred Stock authorized but unissued is cumulative, $25 par value, !
i 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 ar.nually) with redemption of the remaining shares required on June l', 2026. In addition to the mandatory redemption, the company may at its option redeem the stock at $106.75 per share plus any accrued dividends prior-to June 1, 1992 and at declining amounts thereafter to $100 per share plus any accrued dividends, on or after June 1, 2002.
In the event'of default in the payment of preferred dividends or in the ;
mandatory redemption requirements, no dividends or other distribution may be l paid on the company's common stock.
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- o. o I . Long Term Debt '
The maturities and sinking fund requirements through 1994 for the aggregate amount of long term debt outstanding (excluding obligations under capital lease, see Note B) at December 31, 1989 are shown below.
1990 $ 31,495,000 1991 8,115,000 1992 4,550,000 1993 32,675,000 1994 3,690,000 Sinking fund requirements for the years 1990 through 1994, included in the table above, are $21,410,000 of which $17,509,000 has been anticipated by the advance purchase of bonds and $2,200,000 may be satisfied by certifying additional mortgaged property. Substantially, all utility plant is subject to the applicable mortgage.
J Lines of Credit Unused lines of credit for short term borrowing amounted to $101,600,000 at December 31, 1989. In support of various informal lines of credit from banks, the company has agreed to maintain unrestricted compensating balances or to pay commitment fees; neither the compensating balances nor the commitment fees are significant.
K - Commitments and Contingencies The Price-Anderson Act (Act) provides for the payment of funds for public liability claims arising out of a nuclear incident. 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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L - Information by Segments of Business Year ended December 31 '1989 1988 1987 (Thousands of Dollars)
Electric Operations Operating. revenues $1,245,701. $1,275,396 $1,120,682 Operating income before income taxes 341,333 332,732 ~ 357,913 Depreciation-straight line 128,397 117,161 113,257 Construction expenditures 176,327 126,613 350,364 Steam Operations Operating revenues .
12,292 12,363 10,508 Operating income before. income taxes 2,113 1,831 1,089
. Depreciation-straight line 947. 917 849 Construction expenditures 1,669 512 2,085 Total . .
Operating revenues 1,257,993 1,287,759' 1,131,190 Operating income before income taxes 343,446~ 334,563 359,002 Depreciation-straight line 129,344 118,078 114,106 Construction expenditures (including nonutility) 178,087 127,143 , 352,549 At December 31 Net Identifiable Assets Electric $2,640,690 $2,556,335 $2,470,649 Steam 18,442 17,439 17,032 Nonutility 2,497 2,706 2,418 Total Assets $2,661,629 $2,576,480 $2,490,099 DIRECTORS The information in "Information Concerning Nominees and Other Directors,"
" Nominee for Class 1 Director," " Nominees for Class 111 Directors," " Class 1 Directors Continuing in Office" and " Class 11 Directors Continuing .in Office,"
appearing on pages 2-4 of Wisconsin Electric's definitive Information Statement dated April 11, 1990, attached hereto, is incorporated herein by reference.
0FFICERS t
The information in " Officers" appearing on page 4 of. Wisconsin Electric's .)
definitive Information Statement dated April 11, 1990, attached hereto, is )
incorporated herein by reference. '
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3 Wlly0;892 ' * * " " "***** ~l Or- ;
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i REPORT OF INDEPENDENT ACCOUNTANTS i
o To the Board of Directors and Stockholders of Wisconsin Electric Power Company In our opinion, the accompanying balance sheet and statement i of capitalization and the related statements of income, of ;
- common stock equity.and of cash flows present fairly, in all i 4
material respects, the financial position of Wisconsin Electric Power Company at December 31, 1989 and 1988, and the results of its operations-and its cash flows for each of the three years in the period ended December 31, 1989,'in conformity with generally accepted accounting principles. '
These financial statements are the responsibility of the
- Company's managements our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these stataments 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 i
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 expressed above.
NGCh 9A @b s January 24, 1990 A-24