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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ___________________
| | | | | | | | | | | | | | |
Commission
File Number | | Registrant; State of Incorporation;
Address; and Telephone Number | | IRS Employer
Identification No. |
| 001-01245 | | WISCONSIN ELECTRIC POWER COMPANY | | 39-0476280 |
(A Wisconsin Corporation)
231 West Michigan Street
P.O. Box 2046
Milwaukee, WI 53201
(414) 221-2345
Securities registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
| | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Common Stock, $10 Par Value,
33,289,327 shares outstanding at
September 30, 2024
All of the common stock of Wisconsin Electric Power Company is held by WEC Energy Group, Inc.
WISCONSIN ELECTRIC POWER COMPANY
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2024
TABLE OF CONTENTS
| | | | | | | | |
| 09/30/2024 Form 10-Q | i | Wisconsin Electric Power Company |
GLOSSARY OF TERMS AND ABBREVIATIONS
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:
| | | | | | | | |
| Affiliates |
| ATC | | American Transmission Company LLC |
| We Power | | W.E. Power, LLC |
| WEC Energy Group | | WEC Energy Group, Inc. |
| WEPCo Environmental Trust | | WEPCo Environmental Trust Finance I, LLC |
| WPS | | Wisconsin Public Service Corporation |
| | |
| Federal and State Regulatory Agencies |
| CBP | | United States Customs and Border Protection Agency |
| DOC | | United States Department of Commerce |
| EPA | | United States Environmental Protection Agency |
| IRS | | United States Internal Revenue Service |
| PSCW | | Public Service Commission of Wisconsin |
| SEC | | United States Securities and Exchange Commission |
| USITC | | United States International Trade Commission |
| WDNR | | Wisconsin Department of Natural Resources |
| | |
| Accounting Terms |
| AFUDC | | Allowance for Funds Used During Construction |
| ARO | | Asset Retirement Obligation |
| ASU | | Accounting Standards Update |
| FASB | | Financial Accounting Standards Board |
| GAAP | | United States Generally Accepted Accounting Principles |
| OPEB | | Other Postretirement Employee Benefits |
| VIE | | Variable Interest Entity |
| | |
| Environmental Terms |
| BATW | | Bottom Ash Transport Water |
| BTA | | Best Technology Available |
| CASAC | | Clean Air Scientific Advisory Committee |
| CCR | | Coal Combustion Residuals |
CO2 | | Carbon Dioxide |
| CRL | | Combustine Residual Leachate |
| CWA | | Clean Water Act |
| ELG | | Steam Electric Effluent Limitation Guidelines |
| FGD | | Flue Gas Desulfurization |
| GHG | | Greenhouse Gas |
| MATS | | Mercury and Air Toxics Standards |
| NAAQS | | National Ambient Air Quality Standards |
| NOx | | Nitrogen Oxide |
| PM | | Particulate Matter |
| WPDES | | Wisconsin Pollutant Discharge Elimination System |
| | |
| Measurements |
| Bcf | | Billion Cubic Feet |
| Dth | | Dekatherm |
| lb/MMBtu | | Pound Per Million British Thermal Unit |
| MW | | Megawatt |
| MWh | | Megawatt-hours |
| µg/m3 | | Micrograms Per Cubic Meter |
| | |
| | |
| | |
| | | | | | | | |
| 09/30/2024 Form 10-Q | ii | Wisconsin Electric Power Company |
| | | | | | | | |
| Other Terms and Abbreviations |
| AD | | Antidumping |
| AMI | | Advanced Metering Infrastructure |
| Badger Hollow | | Badger Hollow Wind Energy Generation Facility |
| | |
| Chicago, IL-IN-WI | | Chicago, Illinois, Indiana, and Wisconsin |
| CVD | | Countervailing Duty |
| D.C. Circuit Court of Appeals | | United States Court of Appeals for the District of Columbia Circuit |
| Darien | | Darien Solar Park |
| DER | | Distributed Energy Resource |
| DRER | | Dedicated Renewable Energy Resource |
| | |
| | |
| ERGS | | Elm Road Generating Station |
| ESG Progress Plan | | WEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2025-2029 |
| ETB | | Environmental Trust Bond |
| EV | | Electric Vehicle |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
| FTR | | Financial Transmission Right |
| Good Oak | | Good Oak Solar Generation Facility |
| Gristmill | | Gristmill Solar Generation Facility |
| IRA | | Inflation Reduction Act |
| ITC | | Investment Tax Credit |
| Koshkonong | | Koshkonong Solar Park |
| LDC | | Local Natural Gas Distribution Company |
| LNG | | Liquefied Natural Gas |
| MISO | | Midcontinent Independent System Operator, Inc. |
| | |
| OCPP | | Oak Creek Power Plant |
| Paris | | Paris Solar-Battery Park |
| PPA | | Power Purchase Agreement |
| | |
| PTC | | Production Tax Credit |
| RICE | | Reciprocating Internal Combustion Engine |
| RNG | | Renewable Natural Gas |
| ROE | | Return on Equity |
| RTC | | Renewable Thermal Credit |
| S&P | | Standard & Poor's |
| Saratoga | | Saratoga Solar Electric Generation and BESS Facility |
| SIP | | State Implementation Plan |
| Supreme Court | | United States Supreme Court |
| Tax Legislation | | Tax Cuts and Jobs Act of 2017 |
| UFLPA | | Uyghur Forced Labor Prevention Act |
| Ursa | | Ursa Solar Electric Generation Facility |
| West Riverside | | West Riverside Energy Center |
| Whitetail | | Whitetail Wind Energy Generation Facility |
| Whitewater | | Whitewater Cogeneration Facility |
| WRO | | Withhold Release Order |
| | | | | | | | |
| 09/30/2024 Form 10-Q | iii | Wisconsin Electric Power Company |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
In this report, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. These statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by the use of terms such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goals," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "seeks," "should," "targets," "will," or variations of these terms.
Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of capital projects, sales and customer growth, rate actions and related filings with regulatory authorities, environmental and other regulations, including associated compliance costs, legal proceedings, effective tax rates, pension and OPEB plans, fuel costs, sources of electric energy supply, coal and natural gas deliveries, remediation costs, climate-related matters, the ESG Progress Plan, liquidity and capital resources, and other matters.
Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include those described in risk factors as set forth in our 2023 Annual Report on Form 10-K, and those identified below:
•Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, electric grid reliability, and electric transmission or natural gas pipeline system constraints;
•Factors affecting the demand for electricity and natural gas, including political or regulatory developments, varying, adverse, or unusually severe weather conditions, including those caused by climate change, changes in economic conditions, customer growth and declines, commodity prices, energy conservation efforts, and continued adoption of distributed generation by customers;
•The timing, resolution, and impact of rate cases and negotiations, including recovery of deferred and current costs and the ability to earn a reasonable return on investment, and other regulatory decisions impacting our regulated operations;
•The impact of federal, state, and local legislative and/or regulatory changes, including changes in rate-setting policies or procedures, the results of recent or upcoming rate orders, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, energy efficiency mandates, electrification initiatives and other efforts to reduce the use of natural gas, and tax laws, including those that affect our ability to use PTCs and ITCs, as well as changes in the interpretation and/or enforcement of any laws or regulations by regulatory agencies;
•Federal, state, and local legislative and regulatory changes relating to the environment, including climate change and other environmental regulations impacting generation facilities and renewable energy standards, the enforcement of these laws and regulations, changes in the interpretation of regulations or permit conditions by regulatory agencies, and the recovery of associated remediation and compliance costs;
•The ability to obtain and retain customers, including wholesale customers, due to increased competition in our electric and natural gas markets from retail choice and alternative electric suppliers, and continued industry consolidation;
•The timely completion of capital projects within budgets and the ability to recover the related costs through rates;
•The impact of changing expectations and demands of our customers, regulators, investors, and other stakeholders, including focus on environmental, social, and governance concerns;
•The risk of delays and shortages, and increased costs of equipment, materials, or other resources that are critical to our business operations and corporate strategy, as a result of supply chain disruptions (including disruptions from rail congestion), inflation, tariffs, and other factors;
•The impact of public health crises, including epidemics and pandemics, on our business functions, financial condition, liquidity, and results of operations;
| | | | | | | | |
| 09/30/2024 Form 10-Q | 1 | Wisconsin Electric Power Company |
•Factors affecting the implementation of WEC Energy Group's CO2 emission and/or methane emission reduction goals and opportunities and actions related to those goals, including related regulatory decisions, the cost of materials, supplies, and labor, technology advances, the feasibility of competing generation projects, and the ability to execute WEC Energy Group's capital plan;
•The financial and operational feasibility of taking more aggressive action to further reduce GHG emissions in order to limit future global temperature increases;
•The risks associated with inflation and changing commodity prices, including natural gas and electricity;
•The availability and cost of sources of natural gas and other fossil fuels, purchased power, materials needed to operate environmental controls at our electric generating facilities, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments;
•Any impacts on the global economy, including from sanctions, and impacts on supply chains and fuel prices, generally, from ongoing, expanding, or escalating regional conflicts, including those in Ukraine, Israel, and other parts of the Middle East;
•Changes in credit ratings, interest rates, and our ability to access the capital markets, caused by volatility in the global credit markets, our capitalization structure, and market perceptions of the utility industry or us;
•Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries;
•The direct or indirect effect on our business resulting from terrorist or other physical attacks and cybersecurity intrusions, as well as the threat of such incidents, including the failure to maintain the security of personally identifiable information, the associated costs to protect our utility assets, technology systems, and personal information, and the costs to notify affected persons to mitigate their information security concerns and to comply with state notification laws;
•The risk of financial loss, including increases in bad debt expense, associated with the inability of our customers, counterparties, and affiliates to meet their obligations;
•Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters;
•The investment performance of our employee benefit plan assets, as well as unanticipated changes in related actuarial assumptions, which could impact future funding requirements;
•Factors affecting the employee workforce, including loss of key personnel, internal restructuring, work stoppages, and collective bargaining agreements and negotiations with union employees;
•Advances in technology, and related legislation or regulation supporting the use of that technology, that result in competitive disadvantages and create the potential for impairment of existing assets;
•The risk associated with the value of long-lived assets, including intangible assets, and their possible impairment;
•Potential business strategies to acquire and dispose of assets, which cannot be assured to be completed timely or within budgets;
•The timing and outcome of any audits, disputes, and other proceedings related to taxes;
•The effect of accounting pronouncements issued periodically by standard-setting bodies; and
•Other considerations disclosed elsewhere herein and in other reports we file with the SEC or in other publicly disseminated written documents.
Except as may be required by law, we expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 2 | Wisconsin Electric Power Company |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ELECTRIC POWER COMPANY
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) | | Three Months Ended | | Nine Months Ended |
| September 30 | | September 30 |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Operating revenues | | $ | 1,079.3 | | | $ | 1,103.1 | | | $ | 3,020.1 | | | $ | 3,095.3 | |
| | | | | | | | |
| Operating expenses | | | | | | | | |
| Cost of sales | | 353.9 | | | 394.3 | | | 986.0 | | | 1,131.3 | |
| Other operation and maintenance | | 241.6 | | | 236.6 | | | 720.6 | | | 674.9 | |
| Depreciation and amortization | | 145.5 | | | 132.8 | | | 427.1 | | | 389.9 | |
| Property and revenue taxes | | 17.0 | | | 28.5 | | | 77.1 | | | 86.8 | |
| Total operating expenses | | 758.0 | | | 792.2 | | | 2,210.8 | | | 2,282.9 | |
| | | | | | | | |
| Operating income | | 321.3 | | | 310.9 | | | 809.3 | | | 812.4 | |
| | | | | | | | |
| Other income, net | | 19.5 | | | 17.9 | | | 52.0 | | | 52.0 | |
| Interest expense | | 123.3 | | | 115.3 | | | 364.5 | | | 350.0 | |
| Other expense | | (103.8) | | | (97.4) | | | (312.5) | | | (298.0) | |
| | | | | | | | |
| Income before income taxes | | 217.5 | | | 213.5 | | | 496.8 | | | 514.4 | |
| Income tax expense | | 47.8 | | | 49.7 | | | 107.2 | | | 116.7 | |
| Net income | | 169.7 | | | 163.8 | | | 389.6 | | | 397.7 | |
| | | | | | | | |
| Preferred stock dividend requirements | | 0.3 | | | 0.3 | | | 0.9 | | | 0.9 | |
| Net income attributed to common shareholder | | $ | 169.4 | | | $ | 163.5 | | | $ | 388.7 | | | $ | 396.8 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 3 | Wisconsin Electric Power Company |
WISCONSIN ELECTRIC POWER COMPANY
| | | | | | | | | | | | | | |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share and per share amounts) | | September 30, 2024 | | December 31, 2023 |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 253.4 | | | $ | 6.1 | |
Accounts receivable and unbilled revenues, net of reserves of $40.8 and $44.5, respectively | | 558.0 | | | 573.0 | |
| Accounts receivable from related parties | | 101.3 | | | 143.9 | |
| Materials, supplies, and inventories | | 313.8 | | | 310.6 | |
| Prepaid taxes | | 82.0 | | | 112.7 | |
| Other prepayments | | 16.0 | | | 26.7 | |
| | | | |
| Other | | 25.4 | | | 32.3 | |
| Current assets | | 1,349.9 | | | 1,205.3 | |
| | | | |
| Long-term assets | | | | |
Property, plant, and equipment, net of accumulated depreciation and amortization of $5,857.6 and $5,779.2, respectively | | 12,385.8 | | | 11,585.5 | |
Regulatory assets (September 30, 2024 and December 31, 2023 include $79.1 and $85.9, respectively, related to WEPCo Environmental Trust) | | 2,945.2 | | | 2,860.7 | |
| Pension and OPEB assets | | 74.7 | | | 71.0 | |
| Other | | 91.6 | | | 118.9 | |
| Long-term assets | | 15,497.3 | | | 14,636.1 | |
| Total assets | | $ | 16,847.2 | | | $ | 15,841.4 | |
| | | | |
| Liabilities and Equity | | | | |
| Current liabilities | | | | |
| Short-term debt | | $ | — | | | $ | 360.8 | |
Current portion of long-term debt (September 30, 2024 and December 31, 2023 include $9.1 and $9.0, respectively, related to WEPCo Environmental Trust) | | 559.1 | | | 309.0 | |
| Current portion of finance lease obligations | | 96.4 | | | 87.8 | |
| Accounts payable | | 349.9 | | | 332.1 | |
| Accounts payable to related parties | | 189.2 | | | 193.8 | |
| | | | |
| | | | |
| | | | |
| Other | | 201.7 | | | 201.4 | |
| Current liabilities | | 1,396.3 | | | 1,484.9 | |
| | | | |
| Long-term liabilities | | | | |
Long-term debt (September 30, 2024 and December 31, 2023 include $80.9 and $85.3, respectively, related to WEPCo Environmental Trust) | | 3,732.1 | | | 3,045.4 | |
| Finance lease obligations | | 2,776.0 | | | 2,752.2 | |
| Deferred income taxes | | 1,592.4 | | | 1,513.5 | |
| Regulatory liabilities | | 1,703.0 | | | 1,631.4 | |
| | | | |
| Other | | 354.7 | | | 330.5 | |
| Long-term liabilities | | 10,158.2 | | | 9,273.0 | |
| | | | |
| Commitments and contingencies (Note 21) | | | | |
| | | | |
| Common shareholder's equity | | | | |
Common stock – $10 par value; 65,000,000 shares authorized; 33,289,327 shares outstanding | | 332.9 | | | 332.9 | |
| Additional paid in capital | | 2,552.9 | | | 2,552.4 | |
| Retained earnings | | 2,376.5 | | | 2,167.8 | |
| Common shareholder's equity | | 5,262.3 | | | 5,053.1 | |
| | | | |
| Preferred stock | | 30.4 | | | 30.4 | |
| Total liabilities and equity | | $ | 16,847.2 | | | $ | 15,841.4 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 4 | Wisconsin Electric Power Company |
WISCONSIN ELECTRIC POWER COMPANY
| | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | | Nine Months Ended |
| | September 30 |
| (in millions) | | 2024 | | 2023 |
| Operating activities | | | | |
| Net income | | $ | 389.6 | | | $ | 397.7 | |
| Reconciliation to cash provided by operating activities | | | | |
| Depreciation and amortization | | 427.1 | | | 389.9 | |
| Deferred income taxes and ITCs, net | | 60.7 | | | 22.7 | |
| | | | |
| | | | |
| Change in – | | | | |
| Accounts receivable and unbilled revenues, net | | 52.1 | | | 52.3 | |
| Materials, supplies, and inventories | | (3.2) | | | 22.7 | |
| Prepaid taxes | | 30.7 | | | 32.7 | |
| | | | |
| | | | |
| | | | |
| Other current assets | | 22.1 | | | 12.2 | |
| Accounts payable | | (22.1) | | | (77.3) | |
| | | | |
| | | | |
| Accrued interest | | 31.3 | | | 34.5 | |
| | | | |
| Other current liabilities | | (5.4) | | | (25.3) | |
| Other, net | | 21.2 | | | (53.1) | |
| Net cash provided by operating activities | | 1,004.1 | | | 809.0 | |
| | | | |
| Investing activities | | | | |
| Capital expenditures | | (988.0) | | | (741.3) | |
| Acquisition of West Riverside | | (97.9) | | | (95.3) | |
| Acquisition of Whitewater | | — | | | (38.0) | |
| Proceeds from the sale of assets | | 1.2 | | | 24.3 | |
| Reimbursement for ATC's construction costs | | 6.2 | | | — | |
| Payments for ATC's construction costs that will be reimbursed | | (0.6) | | | (16.2) | |
| | | | |
| | | | |
| | | | |
| Other, net | | (2.7) | | | (7.4) | |
| Net cash used in investing activities | | (1,081.8) | | | (873.9) | |
| | | | |
| Financing activities | | | | |
| Change in short-term debt | | (360.8) | | | (424.7) | |
| Issuance of long-term debt | | 947.4 | | | — | |
| Retirement of long-term debt | | (4.5) | | | (4.4) | |
| Payments for finance lease obligations | | (64.9) | | | (56.8) | |
| Equity contribution from parent | | — | | | 775.0 | |
| Payment of dividends to parent | | (180.0) | | | (260.0) | |
| Other, net | | (10.0) | | | (0.9) | |
| Net cash provided by financing activities | | 327.2 | | | 28.2 | |
| | | | |
| Net change in cash, cash equivalents, and restricted cash | | 249.5 | | | (36.7) | |
| Cash, cash equivalents, and restricted cash at beginning of period | | 7.5 | | | 47.7 | |
| Cash, cash equivalents, and restricted cash at end of period | | $ | 257.0 | | | $ | 11.0 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 5 | Wisconsin Electric Power Company |
WISCONSIN ELECTRIC POWER COMPANY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) | | | | | | |
| | | | | | | | | | | | |
| | Wisconsin Electric Power Company Common Shareholder's Equity | | | | |
| (in millions) | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Total Common Shareholder's Equity | | Preferred Stock | | Total Equity |
| Balance at December 31, 2023 | | $ | 332.9 | | | $ | 2,552.4 | | | $ | 2,167.8 | | | $ | 5,053.1 | | | $ | 30.4 | | | $ | 5,083.5 | |
| Net income attributed to common shareholder | | — | | | — | | | 134.0 | | | 134.0 | | | — | | | 134.0 | |
| Payment of dividends to parent | | — | | | — | | | (60.0) | | | (60.0) | | | — | | | (60.0) | |
| | | | | | | | | | | | |
| Stock-based compensation and other | | — | | | 0.5 | | | (0.1) | | | 0.4 | | | — | | | 0.4 | |
| Balance at March 31, 2024 | | $ | 332.9 | | | $ | 2,552.9 | | | $ | 2,241.7 | | | $ | 5,127.5 | | | $ | 30.4 | | | $ | 5,157.9 | |
| Net income attributed to common shareholder | | — | | | — | | | 85.3 | | | 85.3 | | | — | | | 85.3 | |
| Payment of dividends to parent | | — | | | — | | | (60.0) | | | (60.0) | | | — | | | (60.0) | |
| Stock-based compensation and other | | — | | | — | | | 0.1 | | | 0.1 | | | — | | | 0.1 | |
| Balance at June 30, 2024 | | $ | 332.9 | | | $ | 2,552.9 | | | $ | 2,267.1 | | | $ | 5,152.9 | | | $ | 30.4 | | | $ | 5,183.3 | |
| Net income attributed to common shareholder | | — | | | — | | | 169.4 | | | 169.4 | | | — | | | 169.4 | |
| Payment of dividends to parent | | — | | | — | | | (60.0) | | | (60.0) | | | — | | | (60.0) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Balance at September 30, 2024 | | $ | 332.9 | | | $ | 2,552.9 | | | $ | 2,376.5 | | | $ | 5,262.3 | | | $ | 30.4 | | | $ | 5,292.7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Wisconsin Electric Power Company Common Shareholder's Equity | | | | |
| (in millions) | | Common Stock | | Additional Paid In Capital | | Retained Earnings | | Total Common Shareholder's Equity | | Preferred Stock | | Total Equity |
| Balance at December 31, 2022 | | $ | 332.9 | | | $ | 1,746.8 | | | $ | 2,057.1 | | | $ | 4,136.8 | | | $ | 30.4 | | | $ | 4,167.2 | |
| Net income attributed to common shareholder | | — | | | — | | | 121.7 | | | 121.7 | | | — | | | 121.7 | |
| Payment of dividends to parent | | — | | | — | | | (60.0) | | | (60.0) | | | — | | | (60.0) | |
| Equity contribution from parent | | — | | | 415.0 | | | — | | | 415.0 | | | — | | | 415.0 | |
| Stock-based compensation and other | | — | | | 0.5 | | | 0.1 | | | 0.6 | | | — | | | 0.6 | |
| Balance at March 31, 2023 | | $ | 332.9 | | | $ | 2,162.3 | | | $ | 2,118.9 | | | $ | 4,614.1 | | | $ | 30.4 | | | $ | 4,644.5 | |
| Net income attributed to common shareholder | | — | | | — | | | 111.6 | | | 111.6 | | | — | | | 111.6 | |
| Payment of dividends to parent | | — | | | — | | | (60.0) | | | (60.0) | | | — | | | (60.0) | |
| Equity contribution from parent | | — | | | 290.0 | | | — | | | 290.0 | | | — | | | 290.0 | |
| Balance at June 30, 2023 | | $ | 332.9 | | | $ | 2,452.3 | | | $ | 2,170.5 | | | $ | 4,955.7 | | | $ | 30.4 | | | $ | 4,986.1 | |
| Net income attributed to common shareholder | | — | | | — | | | 163.5 | | | 163.5 | | | — | | | 163.5 | |
| Payment of dividends to parent | | — | | | — | | | (140.0) | | | (140.0) | | | — | | | (140.0) | |
| Equity contribution from parent | | — | | | 70.0 | | | — | | | 70.0 | | | — | | | 70.0 | |
| Stock-based compensation and other | | — | | | 0.1 | | | (0.1) | | | — | | | — | | | — | |
| Balance at September 30, 2023 | | $ | 332.9 | | | $ | 2,522.4 | | | $ | 2,193.9 | | | $ | 5,049.2 | | | $ | 30.4 | | | $ | 5,079.6 | |
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 6 | Wisconsin Electric Power Company |
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2024
NOTE 1—GENERAL INFORMATION
Wisconsin Electric Power Company serves approximately 1.2 million electric customers and 0.5 million natural gas customers.
As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Electric Power Company and its subsidiary.
On our financial statements, we consolidate VIEs of which we are the primary beneficiary.
We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2023. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of expected results for 2024 due to seasonal variations and other factors.
In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results.
NOTE 2—ACQUISITIONS
In accordance with Topic 805: Clarifying the Definition of a Business (ASU 2017-01), transactions are evaluated and are accounted for as acquisitions of assets or businesses, and transaction costs are capitalized in asset acquisitions. It was determined that all of the below acquisitions met the criteria of asset acquisitions.
Acquisitions of Electric Generation Facilities in Wisconsin
In May 2024, we completed the acquisition of 100 MWs of West Riverside's nameplate capacity for $97.9 million. West Riverside is a commercially operational dual fueled combined cycle generation facility in Beloit, Wisconsin. Prior to the acquisition, WPS received approval to transfer its ownership interest rights to us. Including this acquisition, we own 200 MWs, or 27.5%, of West Riverside at a total cost of $193.2 million.
In January 2023, we, along with WPS, completed the acquisition of Whitewater, a commercially operational 236.5 MW dual fueled (natural gas and low sulfur fuel oil) combined cycle electric generation facility in Whitewater, Wisconsin. Our share of the cost of this facility was $38.0 million for 50% of the capacity.
NOTE 3—DISPOSITION
Sale of Real Estate
In June 2023, we sold approximately 192 acres of real estate at our former Pleasant Prairie power plant site that was no longer being utilized in our operations, for $23.0 million, which is net of closing costs. As a result of the sale, a pre-tax gain in the amount of $22.2 million was recorded within other operation and maintenance expense on our income statement. The book value of the real estate included in the sale was not material and, therefore, was not presented as held for sale.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 7 | Wisconsin Electric Power Company |
NOTE 4—OPERATING REVENUES
For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 2023 Annual Report on Form 10-K.
Disaggregation of Operating Revenues
The following tables present our operating revenues disaggregated by revenue source for our utility segment. We do not have any revenues associated with our other segment. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations has different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Wisconsin Electric Power Company | | | | | | | | |
| Electric utility | | $ | 1,028.6 | | | $ | 1,052.5 | | | $ | 2,706.2 | | | $ | 2,721.3 | |
| Natural gas utility | | 48.2 | | | 47.8 | | | 302.6 | | | 362.1 | |
| Total revenues from contracts with customers | | 1,076.8 | | | 1,100.3 | | | 3,008.8 | | | 3,083.4 | |
| Other operating revenues | | 2.5 | | | 2.8 | | | 11.3 | | | 11.9 | |
| Total operating revenues | | $ | 1,079.3 | | | $ | 1,103.1 | | | $ | 3,020.1 | | | $ | 3,095.3 | |
| | | | | | | | |
Revenues from Contracts with Customers
Electric Utility Operating Revenues
The following table disaggregates electric utility operating revenues into customer class:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Residential | | $ | 454.7 | | | $ | 445.9 | | | $ | 1,162.6 | | | $ | 1,141.6 | |
| Small commercial and industrial | | 331.2 | | | 327.7 | | | 900.9 | | | 899.8 | |
| Large commercial and industrial | | 186.8 | | | 189.5 | | | 466.2 | | | 480.2 | |
| Other | | 4.9 | | | 4.9 | | | 15.4 | | | 15.4 | |
| Total retail revenues | | 977.6 | | | 968.0 | | | 2,545.1 | | | 2,537.0 | |
| Wholesale | | 11.1 | | | 10.4 | | | 35.8 | | | 32.4 | |
| Resale | | 35.8 | | | 70.0 | | | 104.6 | | | 130.0 | |
| Steam | | 2.5 | | | 2.5 | | | 17.3 | | | 18.2 | |
| Other utility revenues | | 1.6 | | | 1.6 | | | 3.4 | | | 3.7 | |
| Total electric utility operating revenues | | $ | 1,028.6 | | | $ | 1,052.5 | | | $ | 2,706.2 | | | $ | 2,721.3 | |
| | | | | | | | |
Natural Gas Utility Operating Revenues
The following table disaggregates natural gas utility operating revenues into customer class:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Residential | | $ | 24.4 | | | $ | 26.9 | | | $ | 198.3 | | | $ | 241.2 | |
| Commercial and industrial | | 7.9 | | | 9.2 | | | 82.9 | | | 110.1 | |
| Total retail revenues | | 32.3 | | | 36.1 | | | 281.2 | | | 351.3 | |
| Transportation | | 4.8 | | | 4.2 | | | 17.5 | | | 15.6 | |
Other utility revenues (1) | | 11.1 | | | 7.5 | | | 3.9 | | | (4.8) | |
| Total natural gas utility operating revenues | | $ | 48.2 | | | $ | 47.8 | | | $ | 302.6 | | | $ | 362.1 | |
(1)Includes the revenues subject to our purchased gas recovery mechanism, which fluctuate based on actual natural gas costs incurred, compared with the recovery of natural gas costs that were anticipated in rates.
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| 09/30/2024 Form 10-Q | 8 | Wisconsin Electric Power Company |
Other Operating Revenues
Other operating revenues consist primarily of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30 | | Nine Months Ended September 30 |
| (in millions) | | 2024 | | 2023 | | 2024 | | 2023 |
| Late payment charges | | $ | 2.4 | | | $ | 2.6 | | | $ | 8.8 | | | $ | 9.6 | |
| Rental revenues | | 0.2 | | | 0.5 | | | 2.3 | | | 2.2 | |
Alternative revenues (1) | | (0.1) | | | (0.3) | | | 0.2 | | | 0.1 | |
| Total other operating revenues | | $ | 2.5 | | | $ | 2.8 | | | $ | 11.3 | | | $ | 11.9 | |
(1)Negative amounts can result from alternative revenues being reversed to revenues from contracts with customers as the customer is billed for these alternative revenues. Negative amounts can also result from revenues to be refunded to wholesale customers subject to true-ups. For more information about our alternative revenues, see Note 1(d), Operating Revenues, in our 2023 Annual Report on Form 10-K.
NOTE 5—CREDIT LOSSES
Our exposure to credit losses is related to our accounts receivable and unbilled revenue balances, which are generated from the sale of electricity and natural gas by our regulated utility operations. Our regulated utility operations are included in our utility segment. No accounts receivable and unbilled revenue balances were reported in the other segment at September 30, 2024 and December 31, 2023.
We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. For some of our larger customers and also in circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for credit losses against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we use the accounts receivable aging method to calculate an allowance for credit losses. Using this method, we classify accounts receivable into different aging buckets and calculate a reserve percentage for each aging bucket based upon historical loss rates. The calculated reserve percentages are updated on at least an annual basis, in order to ensure recent macroeconomic, political, and regulatory trends are captured in the calculation, to the extent possible. Risks identified that we do not believe are reflected in the calculated reserve percentages, are assessed on a quarterly basis to determine whether further adjustments are required.
We monitor our ongoing credit exposure through active review of counterparty accounts receivable balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. To the extent possible, we work with customers with past due balances to negotiate payment plans, but will disconnect customers for non-payment as allowed by the PSCW, if necessary, and employ collection agencies and legal counsel to pursue recovery of defaulted receivables. For our larger customers, detailed credit review procedures may be performed in advance of any sales being made. We sometimes require letters of credit, parental guarantees, prepayments or other forms of credit assurance from our larger customers to mitigate credit risk.
We have included a table below that shows our gross third-party receivable balances and related allowance for credit losses.
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2024 | | December 31, 2023 |
| Accounts receivable and unbilled revenues | | $ | 598.8 | | | $ | 617.5 | |
| Allowance for credit losses | | 40.8 | | | 44.5 | |
Accounts receivable and unbilled revenues, net (1) | | $ | 558.0 | | | $ | 573.0 | |
| | | | |
Total accounts receivable, net – past due greater than 90 days (1) | | $ | 32.2 | | | $ | 37.2 | |
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1) | | 94.0 | % | | 94.1 | % |
(1)Our exposure to credit losses for certain regulated utility customers is mitigated by a regulatory mechanism we have in place. Specifically, our residential tariffs include a mechanism for cost recovery or refund of uncollectible expense based on the difference between actual uncollectible write-offs and the amounts recovered in rates. As a result, at September 30, 2024, $306.3 million, or 54.9%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses.
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| 09/30/2024 Form 10-Q | 9 | Wisconsin Electric Power Company |
A rollforward of the allowance for credit losses is included below:
| | | | | | | | | | | | | | |
| | Three Months Ended September 30 |
| (in millions) | | 2024 | | 2023 |
| Balance at July 1 | | $ | 42.0 | | | $ | 45.1 | |
| Provision for credit losses | | 8.4 | | | 5.4 | |
| Provision for credit losses deferred for future recovery or refund | | 7.9 | | | 11.5 | |
| Write-offs charged against the allowance | | (23.7) | | | (24.1) | |
| Recoveries of amounts previously written off | | 6.2 | | | 4.4 | |
| Balance at September 30 | | $ | 40.8 | | | $ | 42.3 | |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30 |
| (in millions) | | 2024 | | 2023 |
| Balance at January 1 | | $ | 44.5 | | | $ | 49.7 | |
| Provision for credit losses | | 23.6 | | | 16.7 | |
| Provision for credit losses deferred for future recovery or refund | | 28.6 | | | 27.0 | |
| Write-offs charged against the allowance | | (75.2) | | | (65.7) | |
| Recoveries of amounts previously written off | | 19.3 | | | 14.6 | |
| Balance at September 30 | | $ | 40.8 | | | $ | 42.3 | |
There was a $3.7 million decrease in the allowance for credit losses at September 30, 2024, compared to January 1, 2024, largely driven by customer write-offs related to the winter moratorium months ending. After a customer is disconnected for a period of time without payment on their account, we will write off that customer balance. The winter moratorium begins on November 1 and ends on April 15. Also contributing to the decrease in the allowance for credit losses, we have seen lower required reserve percentages as a result of an improvement in loss rates. We also believe that the lower energy costs that customers were seeing, which were driven by warmer than normal weather conditions in the first half of 2024 and low average natural gas prices, contributed to a reduction in past due accounts receivable balances and a related decrease in the allowance for credit losses.
There was a $7.4 million decrease in the allowance for credit losses at September 30, 2023, compared to January 1, 2023, driven by customer write-offs related to the end of the winter moratorium. In addition, lower energy costs driven by lower natural gas prices contributed to a reduction in past due accounts receivable balances and a related decrease in the allowance for credit losses.
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| 09/30/2024 Form 10-Q | 10 | Wisconsin Electric Power Company |
NOTE 6—REGULATORY ASSETS AND LIABILITIES
The following regulatory assets and liabilities were reflected on our balance sheets at September 30, 2024 and December 31, 2023. For more information on our regulatory assets and liabilities, see Note 7, Regulatory Assets and Liabilities, in our 2023 Annual Report on Form 10-K.
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2024 | | December 31, 2023 |
| Regulatory assets | | | | |
| We Power finance leases | | $ | 1,132.7 | | | $ | 1,109.7 | |
Plant retirement related items (1) | | 666.1 | | | 595.5 | |
| Income tax related items | | 364.3 | | | 373.1 | |
| Pension and OPEB costs | | 353.7 | | | 348.9 | |
| System support resource | | 105.5 | | | 113.2 | |
| Uncollectible expense | | 90.9 | | | 62.1 | |
| Securitization | | 79.1 | | | 85.9 | |
| AROs | | 51.6 | | | 41.2 | |
| Bluewater Natural Gas Holding, LLC | | 20.1 | | | 17.2 | |
| Energy efficiency programs | | 17.9 | | | 23.3 | |
| Environmental remediation costs | | 10.7 | | | 12.2 | |
| Derivatives | | 7.4 | | | 45.2 | |
| Other, net | | 45.2 | | | 33.2 | |
| Total regulatory assets | | $ | 2,945.2 | | | $ | 2,860.7 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
(1) At September 30, 2024, plant retirement related items included $20.5 million of capitalized retirement costs related to the new EPA CCR Rule that was enacted in April 2024. See Note 21, Commitments and Contingencies, for more information.
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2024 | | December 31, 2023 |
| Regulatory liabilities | | | | |
| Removal costs | | $ | 799.0 | | | $ | 758.9 | |
| Income tax related items | | 657.5 | | | 683.5 | |
| Pension and OPEB benefits | | 126.0 | | | 124.0 | |
| Energy costs refundable through rate adjustments | | 27.0 | | | 5.5 | |
Paris (1) | | 26.7 | | | — | |
| Electric transmission costs | | 19.4 | | | 23.9 | |
| Other, net | | 48.9 | | | 40.9 | |
| Total regulatory liabilities | | $ | 1,704.5 | | | $ | 1,636.7 | |
| | | | |
| Balance sheet presentation | | | | |
| Other current liabilities | | $ | 1.5 | | | $ | 5.3 | |
| Regulatory liabilities | | 1,703.0 | | | 1,631.4 | |
| Total regulatory liabilities | | $ | 1,704.5 | | | $ | 1,636.7 | |
(1)In accordance with our rate order approved by the PSCW in December 2023, we are deferring to a future rate proceeding the incremental revenue requirement impact associated with the change to the in-service date of Paris.
Oak Creek Power Plant Units 5-6
In May 2024, OCPP Units 5 and 6 were retired. Due to the retirement of these units and the determination that recovery was probable, their net book value of $76.8 million at September 30, 2024 was classified as a regulatory asset. In addition, a $43.8 million cost of removal reserve related to the units continued to be classified as a regulatory liability at September 30, 2024. Not included in these amounts was $9.0 million of deferred tax liabilities previously recorded for the retired units. Effective with our rate order issued by the PSCW in December 2022, we received approval to collect a return of and on the entire net book value of OCPP Units 5 and 6 and, as a result, will continue to amortize the regulatory asset on a straight-line basis, using the composite depreciation rates approved by the PSCW before the units were retired. The amortization is included in depreciation and amortization on the income statement. We also intend to request FERC approval to continue to collect the net book value of OCPP Units 5 and 6 using the approved composite depreciation rates, in addition to a return on the remaining net book value.
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| 09/30/2024 Form 10-Q | 11 | Wisconsin Electric Power Company |
NOTE 7—PROPERTY, PLANT, AND EQUIPMENT
Plant to be Retired
Oak Creek Power Plant Units 7-8
As a result of a PSCW approval in December 2022 for the acquisition and construction of Darien, the retirement of OCPP Units 7 and 8 became probable. Subsequently, we have received PSCW approval for Koshkonong, and have also acquired additional projects. See Note 2, Acquisitions, for more information on the acquisitions. OCPP Units 7 and 8 are expected to be retired by late 2025. The total net book value of our ownership share of OCPP Units 7 and 8 was $666.7 million at September 30, 2024, which does not include deferred taxes. This amount was classified as plant to be retired within property, plant, and equipment on our balance sheet. These units are included in rate base, and we continue to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW.
NOTE 8—ASSET RETIREMENT OBLIGATIONS
We have recorded AROs primarily for asbestos abatement at certain generation and substation facilities; the removal and dismantlement of a biomass generation facility; the dismantling of wind and solar generation projects; and the closure of CCR landfills at certain generation facilities. We establish regulatory assets and liabilities to record the differences between ongoing expense recognition under the ARO accounting rules and the ratemaking practices for retirement costs authorized by the PSCW.
On our balance sheets, AROs are recorded within other long-term liabilities. The following table shows changes to our AROs:
| | | | | | | | | | | | | | |
| (in millions) | | 2024 | | 2023 |
| Balance at January 1 | | $ | 73.1 | | | $ | 71.7 | |
| Accretion | | 2.0 | | | 1.4 | |
| Additions | | 34.0 | | (1) | — | |
| | | | |
| | | | |
| Balance at September 30 | | $ | 109.1 | | | $ | 73.1 | |
(1) AROs increased primarily as a result of AROs being recorded related to the new EPA CCR Rule that was enacted in April 2024. See Note 21, Commitments and Contingencies, for more information.
NOTE 9—COMMON EQUITY
Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to WEC Energy Group in the form of cash dividends, loans, or advances. In addition, Wisconsin law prohibits us from making loans to or guaranteeing obligations of WEC Energy Group or its subsidiaries. See Note 11, Common Equity, in our 2023 Annual Report on Form 10-K for additional information on these and other restrictions.
We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.
NOTE 10—SHORT-TERM DEBT AND LINES OF CREDIT
The following table shows our short-term borrowings and their corresponding weighted-average interest rates as of December 31, 2023. We did not have any short-term borrowings at September 30, 2024.
| | | | | | | | | | | | | | |
| (in millions, except percentages) | | September 30, 2024 | | December 31, 2023 |
| Commercial paper | | | | |
| Amount outstanding | | $ | — | | | $ | 360.8 | |
| Weighted-average interest rate on amounts outstanding | | — | % | | 5.48 | % |
Our average amount of commercial paper borrowings based on daily outstanding balances during the nine months ended September 30, 2024 was $210.4 million with a weighted-average interest rate during the period of 5.46%.
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| 09/30/2024 Form 10-Q | 12 | Wisconsin Electric Power Company |
The information in the table below relates to our revolving credit facility used to support our commercial paper borrowing program, including available capacity under this facility:
| | | | | | | | | | | | | | |
| (in millions) | | Maturity | | September 30, 2024 |
| Revolving credit facility | | September 2026 | | $ | 500.0 | |
| | | | |
| Less: | | | | |
| Letters of credit issued inside credit facility | | | | 1.0 | |
| Commercial paper outstanding | | | | — | |
| Available capacity under existing credit facility | | | | $ | 499.0 | |
NOTE 11—LONG-TERM DEBT
In May 2024, we issued $350.0 million of 5.00% Debentures, due May 15, 2029, and used the net proceeds to repay short-term debt and for other general corporate purposes.
In September 2024, we issued $300.0 million of 4.60% Debentures due October 1, 2034 and $300.0 million of 5.05% Debentures due October 1, 2054, and used the net proceeds to repay short-term debt and for other general corporate purposes.
NOTE 12—LEASES
In July 2024, we, along with WPS, partnered with an unaffiliated utility to acquire and construct Koshkonong, a utility-scale solar-powered electric generating facility located in Dane County, Wisconsin. Commercial operation of the project is targeted at the end of 2026. Related to our investment in Koshkonong, we, WPS, and our unaffiliated utility partner, entered into several land leases that commenced in the third quarter of 2024. Each lease has an initial construction term that ends upon achieving commercial operation, then automatically extends for 25 years with an option for an additional 25-year extension. We expect the optional extension to be exercised, and, as a result, these land leases are being amortized over the extended term of the leases. Once Koshkonong achieves commercial operation, the lease liability will be remeasured to reflect the final total acres being leased. We expect to recover the lease payments through rates.
Our total obligation under the land-related finance leases for Koshkonong was $84.8 million at September 30, 2024, and was included in finance lease obligations on our balance sheet. Our finance lease right of use asset related to Koshkonong was $83.7 million as of September 30, 2024, and was included in property, plant, and equipment on our balance sheet. Our weighted-average discount rate for the Koshkonong finance leases was 6.05%. We used an estimate of the fully collateralized incremental borrowing rate based upon information available for similarly rated companies in determining the present value of lease payments.
Future minimum lease payments and the corresponding present value of our net minimum lease payments under the finance leases for Koshkonong as of September 30, 2024, were as follows:
| | | | | | | | |
| (in millions) | | |
| Three Months Ended December 31, 2024 | | $ | — | |
| 2025 | | 1.5 | |
| 2026 | | 1.1 | |
| 2027 | | 4.4 | |
| 2028 | | 4.5 | |
| 2029 | | 4.6 | |
| Thereafter | | 358.5 | |
| Total minimum lease payments | | 374.6 | |
| Less: Interest | | (289.8) | |
| Present value of minimum lease payments | | 84.8 | |
| Less: Short-term lease liabilities | | — | |
| Long-term lease liabilities | | $ | 84.8 | |
| | | | | | | | |
| 09/30/2024 Form 10-Q | 13 | Wisconsin Electric Power Company |
NOTE 13—MATERIALS, SUPPLIES, AND INVENTORIES
Our inventories consisted of:
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2024 | | December 31, 2023 |
| Materials and supplies | | $ | 218.2 | | | $ | 186.6 | |
| Fossil fuel | | 48.0 | | | 74.5 | |
| Natural gas in storage | | 47.6 | | | 49.5 | |
| Total | | $ | 313.8 | | | $ | 310.6 | |
Substantially all materials and supplies, fossil fuel, and natural gas in storage inventories are recorded using the weighted-average cost method of accounting.
NOTE 14—INCOME TAXES
The provision for income taxes differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2024 | | Three Months Ended September 30, 2023 |
| (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate |
| Statutory federal income tax | | $ | 45.6 | | | 21.0 | % | | $ | 44.7 | | | 21.0 | % |
| State income taxes net of federal tax benefit | | 13.2 | | | 6.1 | % | | 12.8 | | | 6.0 | % |
| Federal excess deferred tax amortization | | (6.9) | | | (3.2) | % | | (7.2) | | | (3.4) | % |
| PTCs, net | | (6.1) | | | (2.8) | % | | (2.7) | | | (1.3) | % |
| AFUDC-Equity | | (2.9) | | | (1.3) | % | | (3.0) | | | (1.4) | % |
| Domestic production activities deferral | | 2.1 | | | 1.0 | % | | 2.3 | | | 1.1 | % |
| | | | | | | | |
| Other, net | | 2.8 | | | 1.2 | % | | 2.8 | | | 1.3 | % |
| Total income tax expense | | $ | 47.8 | | | 22.0 | % | | $ | 49.7 | | | 23.3 | % |
| | | | | | | | |
| | Nine Months Ended September 30, 2024 | | Nine Months Ended September 30, 2023 |
| (in millions) | | Amount | | Effective Tax Rate | | Amount | | Effective Tax Rate |
| Statutory federal income tax | | $ | 104.1 | | | 21.0 | % | | $ | 107.8 | | | 21.0 | % |
| State income taxes net of federal tax benefit | | 29.7 | | | 6.0 | % | | 30.8 | | | 6.0 | % |
| | | | | | | | |
| Federal excess deferred tax amortization | | (16.1) | | | (3.2) | % | | (17.2) | | | (3.4) | % |
| PTCs, net | | (14.3) | | | (2.9) | % | | (9.6) | | | (1.9) | % |
| AFUDC-Equity | | (8.0) | | | (1.6) | % | | (7.1) | | | (1.4) | % |
| | | | | | | | |
| Domestic production activities deferral | | 4.9 | | | 1.0 | % | | 5.3 | | | 1.0 | % |
| Other, net | | 6.9 | | | 1.3 | % | | 6.7 | | | 1.4 | % |
| Total income tax expense | | $ | 107.2 | | | 21.6 | % | | $ | 116.7 | | | 22.7 | % |
The effective tax rates for the three and nine months ended September 30, 2024, do not materially differ from the United States statutory federal income tax rate of 21%. This is primarily due to the impact of the protected deferred tax benefits associated with the Tax Legislation, as discussed in more detail below, and PTCs, offset by state income taxes.
The effective tax rates for the three and nine months ended September 30, 2023, differ from the United States statutory federal income tax rate of 21%, primarily due to state income taxes. This item was partially offset by the impact of the protected deferred tax benefits associated with the Tax Legislation, as discussed in more detail below.
The Tax Legislation required us to remeasure the deferred income taxes at our utility segment, and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization lines above). See Note 24, Regulatory Environment, in our 2023 Annual Report on Form 10-K for more information about the impact of the Tax Legislation.
The IRA contains a tax credit transferability provision that allows us to sell PTCs produced after December 31, 2022, to third parties. In September 2023 and May 2024, under this transferability provision, WEC Energy Group entered into agreements to sell substantially all of the PTCs we generated in 2023 and substantially all of the PTCs expected to be generated in 2024 to third parties.
| | | | | | | | |
| 09/30/2024 Form 10-Q | 14 | Wisconsin Electric Power Company |
We elect to account for tax credits transferred under the scope of Accounting Standards Codification 740. We include the discount from the sale of tax credits as a component of income tax expense. We also include any expected proceeds from the sale of tax credits in the evaluation of the realizability of deferred tax assets related to PTCs. The sale of tax credits is presented in the operating activities section of the statements of cash flows consistent with the presentation of cash taxes paid.
In April 2023, the IRS issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized for tax purposes. We adopted the safe harbor method of accounting on our 2023 tax return which increased our deferred tax liabilities.
NOTE 15—FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives, such as FTRs, are categorized in Level 3 due to the significance of unobservable or internally-developed inputs. Our FTRs are valued using MISO auction prices.
The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total |
| Derivative assets | | | | | | | | |
| Natural gas contracts | | $ | 2.2 | | | $ | 0.9 | | | $ | — | | | $ | 3.1 | |
| FTRs | | — | | | — | | | 4.5 | | | 4.5 | |
| | | | | | | | |
| Total derivative assets | | $ | 2.2 | | | $ | 0.9 | | | $ | 4.5 | | | $ | 7.6 | |
| | | | | | | | |
| Derivative liabilities | | | | | | | | |
| Natural gas contracts | | $ | 4.9 | | | $ | 1.2 | | | $ | — | | | $ | 6.1 | |
| | | | | | | | |
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