Wisconsin Electric Power Earnings 2019-06-30
WEP 10Q Quarterly Report
Document
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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 June 30, 2019
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.
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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
June 30, 2019
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 June 30, 2019
TABLE OF CONTENTS
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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:
Subsidiaries and Affiliates
ATC
American Transmission Company LLC
Bostco
Bostco LLC
UMERC
Upper Michigan Energy Resources Corporation
We Power
W.E. Power, LLC
WEC Energy Group
WEC Energy Group, Inc.
WG
Wisconsin Gas LLC
Federal and State Regulatory Agencies
EPA
United States Environmental Protection Agency
FERC
Federal Energy Regulatory Commission
IRS
United States Internal Revenue Service
MDEQ
Michigan Department of Environmental Quality
PSCW
Public Service Commission of Wisconsin
SEC
United States Securities and Exchange Commission
Accounting Terms
AFUDC
Allowance for Funds Used During Construction
ASU
Accounting Standards Update
FASB
Financial Accounting Standards Board
GAAP
United States Generally Accepted Accounting Principles
OPEB
Other Postretirement Employee Benefits
Environmental Terms
ACE
Affordable Clean Energy
BATW
Bottom Ash Transport Water
BSER
Best System of Emission Reduction
BTA
Best Technology Available
CAA
Clean Air Act
CO 2
Carbon Dioxide
ELG
Steam Electric Effluent Limitation Guidelines
FGD
Flue Gas Desulfurization
GHG
Greenhouse Gas
MATS
Mercury and Air Toxics Standards
RTR
Risk and Technology Review
Measurements
Dth
Dekatherm
MW
Megawatt
MWh
Megawatt-hour
Other Terms and Abbreviations
AMI
Advanced Metering Infrastructure
Badger Hollow II
Badger Hollow Solar Farm II
ERGS
Elm Road Generating Station
ER 1
Elm Road Generating Station Unit 1
ER 2
Elm Road Generating Station Unit 2
Exchange Act
Securities Exchange Act of 1934, as amended
FTR
Financial Transmission Right
06/30/2019 Form 10-Q
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Wisconsin Electric Power Company
MISO
Midcontinent Independent System Operator, Inc.
OCPP
Oak Creek Power Plant
OC 5
Oak Creek Power Plant Unit 5
OC 6
Oak Creek Power Plant Unit 6
OC 7
Oak Creek Power Plant Unit 7
OC 8
Oak Creek Power Plant Unit 8
PIPP
Presque Isle Power Plant
PWGS
Port Washington Generating Station
PWGS 1
Port Washington Generating Station Unit 1
PWGS 2
Port Washington Generating Station Unit 2
ROE
Return on Equity
SSR
System Support Resource
Tax Legislation
Tax Cuts and Jobs Act of 2017
Tilden
Tilden Mining Company
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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 and 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, environmental matters, 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 this report and our 2018 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, and electric transmission or natural gas pipeline system constraints;
•
Factors affecting the demand for electricity and natural gas, including political developments, unusual weather, 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 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, as well as the recovery of the related costs through rates;
•
The impact of federal, state, and local legislative and/or regulatory changes, including changes in rate-setting policies or procedures, 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, and tax laws that affect our ability to use production tax credits and investment tax credits;
•
The remaining uncertainty surrounding the Tax Legislation enacted in December 2017, including implementing regulations and IRS interpretations, the amount to be returned to our ratepayers, and its impact, if any, on our credit ratings;
•
Federal and state 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;
•
Factors affecting the implementation of WEC Energy Group's generation reshaping plan, including related regulatory decisions, the cost of materials, supplies, and labor, and the feasibility of competing projects;
•
Increased pressure on WEC Energy Group and us by investors and other stakeholder groups to take more aggressive action to reduce future GHG emissions in order to limit future global temperature increases;
•
The risks associated with changing commodity prices, particularly natural gas and electricity, and the availability of sources of fossil fuel, natural gas, purchased power, materials needed to operate environmental controls at our electric generating facilities,
06/30/2019 Form 10-Q
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Wisconsin Electric Power Company
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;
•
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 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 direct or indirect effect on our business resulting from terrorist attacks and cyber security 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 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;
•
Potential business strategies to acquire and dispose of assets or businesses, which cannot be assured to be completed timely, if at all, or within budgets;
•
The timing and outcome of any audits, disputes, and other proceedings related to taxes;
•
The ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act, while both integrating and continuing to consolidate WEC Energy Group's enterprise systems with those of its other utilities;
•
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.
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.
06/30/2019 Form 10-Q
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Wisconsin Electric Power Company
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ELECTRIC POWER COMPANY
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CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
Three Months Ended
Six Months Ended
June 30
June 30
(in millions)
2019
2018
2019
2018
Operating revenues
$
791.7
$
856.2
$
1,752.5
$
1,797.7
Operating expenses
Cost of sales
253.5
270.9
610.7
627.9
Other operation and maintenance
234.3
366.6
493.2
702.2
Depreciation and amortization
95.2
86.9
191.2
172.2
Property and revenue taxes
26.1
27.3
51.9
54.5
Total operating expenses
609.1
751.7
1,347.0
1,556.8
Operating income
182.6
104.5
405.5
240.9
Other income, net
5.9
15.3
11.4
11.1
Interest expense
119.6
29.2
239.5
58.9
Other expense
(113.7
)
(13.9
)
(228.1
)
(47.8
)
Income before income taxes
68.9
90.6
177.4
193.1
Income tax benefit
(16.3
)
(2.5
)
(22.8
)
(6.1
)
Net income
85.2
93.1
200.2
199.2
Preferred stock dividend requirements
0.3
0.3
0.6
0.6
Net income attributed to common shareholder
$
84.9
$
92.8
$
199.6
$
198.6
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
06/30/2019 Form 10-Q
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Wisconsin Electric Power Company
WISCONSIN ELECTRIC POWER COMPANY
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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions, except share and per share amounts)
June 30, 2019
December 31, 2018
Assets
Current assets
Cash and cash equivalents
$
4.6
$
20.2
Accounts receivable and unbilled revenues, net of reserves of $37.6 and $40.9, respectively
403.5
472.3
Accounts receivable from related parties
65.0
112.4
Materials, supplies, and inventories
228.0
241.4
Prepayments
138.6
163.7
Other
16.6
6.3
Current assets
856.3
1,016.3
Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $4,447.2 and $4,505.5, respectively
9,383.5
9,528.9
Regulatory assets
3,126.9
2,902.2
Other
112.6
90.9
Long-term assets
12,623.0
12,522.0
Total assets
$
13,479.3
$
13,538.3
Liabilities and Equity
Current liabilities
Short-term debt
$
39.5
$
134.9
Current portion of long-term debt
250.0
250.0
Current portion of finance and capital lease obligations
53.8
49.9
Accounts payable
207.4
248.9
Accounts payable to related parties
161.5
226.0
Accrued payroll and benefits
44.8
50.4
Other
112.9
116.8
Current liabilities
869.9
1,076.9
Long-term liabilities
Long-term debt
2,460.4
2,459.6
Finance and capital lease obligations
2,804.6
2,807.2
Deferred income taxes
1,345.6
1,298.3
Regulatory liabilities
2,026.2
2,002.3
Pension and OPEB obligations
106.9
118.5
Other
287.0
284.3
Long-term liabilities
9,030.7
8,970.2
Commitments and contingencies (Note 16)
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
929.2
831.3
Retained earnings
2,286.2
2,296.6
Common shareholder's equity
3,548.3
3,460.8
Preferred stock
30.4
30.4
Total liabilities and equity
$
13,479.3
$
13,538.3
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
06/30/2019 Form 10-Q
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Wisconsin Electric Power Company
WISCONSIN ELECTRIC POWER COMPANY
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30
(in millions)
2019
2018
Operating Activities
Net income
$
200.2
$
199.2
Reconciliation to cash provided by operating activities
Depreciation and amortization
191.2
172.2
Deferred income taxes and investment tax credits, net
(42.6
)
(39.5
)
Contributions and payments related to pension and OPEB plans
(3.2
)
(3.8
)
Change in –
Accounts receivable and unbilled revenues
112.9
57.9
Materials, supplies, and inventories
13.4
14.0
Prepayments
25.1
23.5
Other current assets
(9.2
)
4.9
Accounts payable
(98.5
)
(36.2
)
Accrued taxes
(0.3
)
19.0
Other current liabilities
(16.8
)
(18.1
)
Other, net
63.2
138.5
Net cash provided by operating activities
435.4
531.6
Investing Activities
Capital expenditures
(230.4
)
(287.0
)
Payments for assets transferred from affiliates
—
(50.1
)
Other, net
5.1
6.0
Net cash used in investing activities
(225.3
)
(331.1
)
Financing Activities
Change in short-term debt
(95.4
)
130.9
Retirement of long-term debt
—
(250.0
)
Payments for finance lease obligations
(24.4
)
—
Equity contribution from parent
105.0
28.0
Payment of dividends to parent
(210.0
)
(120.0
)
Other, net
(0.9
)
(0.6
)
Net cash used in financing activities
(225.7
)
(211.7
)
Net change in cash and cash equivalents
(15.6
)
(11.2
)
Cash and cash equivalents at beginning of period
20.2
12.3
Cash and cash equivalents at end of period
$
4.6
$
1.1
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
06/30/2019 Form 10-Q
5
Wisconsin Electric Power Company
WISCONSIN ELECTRIC POWER COMPANY
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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, 2018
$
332.9
$
831.3
$
2,296.6
$
3,460.8
$
30.4
$
3,491.2
Net income
—
—
115.0
115.0
—
115.0
Dividends
Common stock
—
—
(150.0
)
(150.0
)
—
(150.0
)
Preferred stock
—
—
(0.3
)
(0.3
)
—
(0.3
)
Stock-based compensation and other
—
0.2
—
0.2
—
0.2
Balance at March 31, 2019
$
332.9
$
831.5
$
2,261.3
$
3,425.7
$
30.4
$
3,456.1
Net income
—
—
85.2
85.2
—
85.2
Dividends
Common stock
—
—
(60.0
)
(60.0
)
—
(60.0
)
Preferred stock
—
—
(0.3
)
(0.3
)
—
(0.3
)
Equity contribution from parent
—
105.0
—
105.0
—
105.0
Transfer of net assets to UMERC
—
(7.3
)
—
(7.3
)
—
(7.3
)
Balance at June 30, 2019
$
332.9
$
929.2
$
2,286.2
$
3,548.3
$
30.4
$
3,578.7
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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, 2017
$
332.9
$
802.7
$
2,248.3
$
3,383.9
$
30.4
$
3,414.3
Net income
—
—
106.1
106.1
—
106.1
Dividends
Common stock
—
—
(60.0
)
(60.0
)
—
(60.0
)
Preferred stock
—
—
(0.3
)
(0.3
)
—
(0.3
)
Equity contribution from parent
—
28.0
—
28.0
—
28.0
Stock-based compensation and other
—
0.2
—
0.2
—
0.2
Balance at March 31, 2018
$
332.9
$
830.9
$
2,294.1
$
3,457.9
$
30.4
$
3,488.3
Net income
—
—
93.1
93.1
—
93.1
Dividends
Common stock
—
—
(60.0
)
(60.0
)
—
(60.0
)
Preferred stock
—
—
(0.3
)
(0.3
)
—
(0.3
)
Stock-based compensation and other
—
0.3
—
0.3
—
0.3
Balance at June 30, 2018
$
332.9
$
831.2
$
2,326.9
$
3,491.0
$
30.4
$
3,521.4
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.
06/30/2019 Form 10-Q
6
Wisconsin Electric Power Company
WISCONSIN ELECTRIC POWER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2019
NOTE 1— GENERAL INFORMATION
Wisconsin Electric Power Company serves approximately 1.1 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 former subsidiary, Bostco, which was dissolved in October 2018.
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, 2018 . 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 six months ended June 30 , 2019 are not necessarily indicative of expected results for 2019 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— OPERATING REVENUES
For more information about our significant accounting policies related to operating revenues, see Note 1(d), Operating Revenues, in our 2018 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. For our utility segment, 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 have different expectations of service, energy and demand requirements, and are impacted by regulatory activities within their jurisdictions.
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Wisconsin Electric Power Company Consolidated
Three Months Ended June 30
Six Months Ended June 30
(in millions)
2019
2018
2019
2018
Electric utility
$
723.7
$
784.6
$
1,502.5
$
1,564.2
Natural gas utility
64.7
68.6
242.6
229.4
Total revenues from contracts with customers
788.4
853.2
1,745.1
1,793.6
Other operating revenues
3.3
3.0
7.4
4.1
Total operating revenues
$
791.7
$
856.2
$
1,752.5
$
1,797.7
06/30/2019 Form 10-Q
7
Wisconsin Electric Power Company
Revenues from Contracts with Customers
Electric Utility Operating Revenues
The following table disaggregates electric utility operating revenues into customer class:
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Electric Utility Operating Revenues
Three Months Ended June 30
Six Months Ended June 30
(in millions)
2019
2018
2019
2018
Residential
$
266.5
$
295.0
$
569.1
$
576.4
Small commercial and industrial
241.9
260.6
487.0
498.3
Large commercial and industrial
139.4
172.4
295.4
321.3
Other
4.9
4.9
10.5
10.3
Total retail revenues
652.7
732.9
1,362.0
1,406.3
Wholesale
20.1
28.9
49.0
57.4
Resale
41.8
17.1
73.1
80.8
Steam
4.3
4.6
14.4
14.3
Other utility revenues
4.8
1.1
4.0
5.4
Total electric utility operating revenues
$
723.7
$
784.6
$
1,502.5
$
1,564.2
Natural Gas Utility Operating Revenues
The following table disaggregates natural gas utility operating revenues into customer class:
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Natural Gas Utility Operating Revenues
Three Months Ended June 30
Six Months Ended June 30
(in millions)
2019
2018
2019
2018
Residential
$
35.4
$
40.7
$
161.0
$
155.4
Commercial and industrial
14.1
18.2
75.0
73.8