Company Quick10K Filing
Wisconsin Electric Power
10-Q 2020-03-31 Filed 2020-05-07
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-06
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-02-26
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-10-31
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-02
10-K 2013-12-31 Filed 2014-02-27
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-02
10-K 2012-12-31 Filed 2013-02-27
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-03
10-K 2011-12-31 Filed 2012-02-28
10-Q 2011-09-30 Filed 2011-11-01
10-Q 2011-06-30 Filed 2011-08-02
10-Q 2011-03-31 Filed 2011-05-05
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-10-27
10-Q 2010-06-30 Filed 2010-07-30
10-Q 2010-03-31 Filed 2010-05-06
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-04-30
8-K 2019-12-03
8-K 2019-08-22
8-K 2019-04-25
8-K 2019-01-29
8-K 2018-10-01
8-K 2018-04-26

WEP 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - General Information
Note 2 - Operating Revenues
Note 3 - Credit Losses
Note 4 - Regulatory Assets and Liabilities
Note 5 - Common Equity
Note 6 - Short - Term Debt and Lines of Credit
Note 7 - Materials, Supplies, and Inventories
Note 8 - Income Taxes
Note 9 - Fair Value Measurements
Note 10 - Derivative Instruments
Note 11 - Guarantees
Note 12 - Employee Benefits
Note 13 - Segment Information
Note 14 - Variable Interest Entities
Note 15 - Commitments and Contingencies
Note 16 - Supplemental Cash Flow Information
Note 17 - Regulatory Environment
Note 18 - New Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 a2020q1we10qexhibit311.htm
EX-31.2 a2020q1we10qexhibit312.htm
EX-32.1 a2020q1we10qexhibit321.htm
EX-32.2 a2020q1we10qexhibit322.htm

Wisconsin Electric Power Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
151296302012201420172020
Assets, Equity
1.31.00.80.50.30.02012201420172020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32012201420172020
Ops, Inv, Fin

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 March 31, 2020

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
March 31, 2020

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 March 31, 2020
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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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
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
PSCW
 
Public Service Commission of Wisconsin
SEC
 
United States Securities and Exchange Commission
 
 
 
Accounting Terms
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
CO2
 
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
CDC
 
Centers for Disease Control and Prevention
COVID-19
 
Coronavirus Disease – 2019
D.C. Circuit Court of Appeals
 
United States Court of Appeals for the District of Columbia Circuit
ERGS
 
Elm Road Generating Station
Exchange Act
 
Securities Exchange Act of 1934, as amended
FTR
 
Financial Transmission Right
LIBOR
 
London Interbank Offered Rate
LNG
 
Liquefied Natural Gas
MISO
 
Midcontinent Independent System Operator, Inc.
OCPP
 
Oak Creek Power Plant

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Wisconsin Electric Power Company


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
ROE
 
Return on Equity
SSR
 
System Support Resource
Tax Legislation
 
Tax Cuts and Jobs Act of 2017
Tilden
 
Tilden Mining Company
WHO
 
World Health Organization


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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 2019 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 impact of the COVID-19 outbreak on our business functions, financial condition, liquidity, and results of operations;

The impact of recent and future 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, including the Tax Legislation as well as those that affect our ability to use production tax credits and investment tax credits;

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;

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;

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;

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 changing commodity prices, particularly natural gas and electricity, and the availability 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;

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Wisconsin Electric Power Company



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;

Changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rate;

Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries;

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 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;

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 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.


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Wisconsin Electric Power Company


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WISCONSIN ELECTRIC POWER COMPANY

CONDENSED INCOME STATEMENTS (Unaudited)
 
Three Months Ended
 
March 31
(in millions)
 
2020
 
2019
Operating revenues
 
$
871.0

 
$
960.8

 
 
 
 
 
Operating expenses
 
 
 
 
Cost of sales
 
289.2

 
357.2

Other operation and maintenance
 
204.6

 
258.9

Depreciation and amortization
 
104.5

 
96.0

Property and revenue taxes
 
25.7

 
25.8

Total operating expenses
 
624.0

 
737.9

 
 
 
 
 
Operating income
 
247.0

 
222.9

 
 
 
 
 
Other income, net
 
5.3

 
5.5

Interest expense
 
118.6

 
119.9

Other expense
 
(113.3
)
 
(114.4
)
 
 
 
 
 
Income before income taxes
 
133.7

 
108.5

Income tax expense (benefit)
 
14.7

 
(6.5
)
Net income
 
119.0

 
115.0

 
 
 
 
 
Preferred stock dividend requirements
 
0.3

 
0.3

Net income attributed to common shareholder
 
$
118.7

 
$
114.7


The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.


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Wisconsin Electric Power Company


WISCONSIN ELECTRIC POWER COMPANY

CONDENSED BALANCE SHEETS (Unaudited)
(in millions, except share and per share amounts)
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
1.3

 
$
19.1

Accounts receivable and unbilled revenues, net of reserves of $39.8 and $38.1, respectively
 
444.8

 
434.6

Accounts receivable from related parties
 
47.0

 
86.5

Materials, supplies, and inventories
 
209.4

 
229.8

Prepaid taxes
 
76.2

 
104.4

Other
 
26.6

 
33.6

Current assets
 
805.3

 
908.0

 
 
 
 
 
Long-term assets
 
 
 
 
Property, plant, and equipment, net of accumulated depreciation and amortization of $4,648.4 and $4,564.0, respectively
 
9,593.1

 
9,586.7

Regulatory assets
 
2,778.3

 
2,755.2

Other
 
109.9

 
110.9

Long-term assets
 
12,481.3

 
12,452.8

Total assets
 
$
13,286.6

 
$
13,360.8

 
 
 
 
 
Liabilities and Equity
 
 
 
 
Current liabilities
 
 
 
 
Short-term debt
 
$
75.0

 
$
115.5

Current portion of finance lease obligations
 
59.9

 
57.8

Accounts payable
 
196.3

 
267.6

Accounts payable to related parties
 
144.7

 
184.5

Accrued payroll and benefits
 
37.4

 
51.3

Accrued taxes
 
35.7

 
12.3

Accrued interest
 
39.6

 
14.3

Other
 
90.5

 
91.3

Current liabilities
 
679.1

 
794.6

 
 
 
 
 
Long-term liabilities
 
 
 
 
Long-term debt
 
2,759.5

 
2,759.2

Finance lease obligations
 
2,777.7

 
2,783.1

Deferred income taxes
 
1,352.3

 
1,347.4

Regulatory liabilities
 
1,736.9

 
1,744.2

Pension and OPEB obligations
 
54.5

 
59.8

Other
 
275.9

 
281.0

Long-term liabilities
 
8,956.8

 
8,974.7

 
 
 
 
 
Commitments and contingencies (Note 15)
 

 

 
 
 
 
 
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
 
930.0

 
929.5

Retained earnings
 
2,357.4

 
2,298.7

Common shareholder's equity
 
3,620.3

 
3,561.1

 
 
 
 
 
Preferred stock
 
30.4

 
30.4

Total liabilities and equity
 
$
13,286.6

 
$
13,360.8


The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.


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Wisconsin Electric Power Company


WISCONSIN ELECTRIC POWER COMPANY

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
 
 
March 31
(in millions)
 
2020
 
2019
Operating activities
 
 
 
 
Net income
 
$
119.0

 
$
115.0

Reconciliation to cash provided by operating activities
 
 
 
 
Depreciation and amortization
 
104.5

 
96.0

Deferred income taxes and investment tax credits, net
 
(14.6
)
 
(52.6
)
Change in –
 
 
 
 
Accounts receivable and unbilled revenues
 
29.3

 
16.5

Materials, supplies, and inventories
 
20.4

 
49.6

Prepaid taxes
 
28.2

 
55.4

Other current assets
 
6.0

 
0.9

Accounts payable
 
(99.1
)
 
(54.0
)
Accrued taxes
 
23.4

 
13.0

Other current liabilities
 
10.6

 
17.9

Other, net
 
19.5

 
43.5

Net cash provided by operating activities
 
247.2

 
301.2

 
 
 
 
 
Investing activities
 
 
 
 
Capital expenditures
 
(153.3
)
 
(102.4
)
Other, net
 
3.1

 
1.1

Net cash used in investing activities
 
(150.2
)
 
(101.3
)
 
 
 
 
 
Financing activities
 
 
 
 
Change in short-term debt
 
(40.5
)
 
(59.4
)
Payments for finance lease obligations
 
(13.8
)
 
(5.7
)
Payment of dividends to parent
 
(60.0
)
 
(150.0
)
Other, net
 
(0.5
)
 
(0.4
)
Net cash used in financing activities
 
(114.8
)
 
(215.5
)
 
 
 
 
 
Net change in cash and cash equivalents
 
(17.8
)
 
(15.6
)
Cash and cash equivalents at beginning of period
 
19.1

 
20.2

Cash and cash equivalents at end of period
 
$
1.3

 
$
4.6


The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.


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Wisconsin Electric Power Company


WISCONSIN ELECTRIC POWER COMPANY

CONDENSED 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, 2019
 
$
332.9

 
$
929.5

 
$
2,298.7

 
$
3,561.1

 
$
30.4

 
$
3,591.5

Net income attributed to common shareholder
 

 

 
118.7

 
118.7

 

 
118.7

Payment of dividends to parent
 

 

 
(60.0
)
 
(60.0
)
 

 
(60.0
)
Stock-based compensation and other
 

 
0.5

 

 
0.5

 

 
0.5

Balance at March 31, 2020
 
$
332.9

 
$
930.0

 
$
2,357.4

 
$
3,620.3

 
$
30.4

 
$
3,650.7


 
 
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, 2018
 
$
332.9

 
$
831.3

 
$
2,296.6

 
$
3,460.8

 
$
30.4

 
$
3,491.2

Net income attributed to common shareholder
 

 

 
114.7

 
114.7

 

 
114.7

Payment of dividends to parent
 

 

 
(150.0
)
 
(150.0
)
 

 
(150.0
)
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


The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.


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Wisconsin Electric Power Company


WISCONSIN ELECTRIC POWER COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
March 31, 2020

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 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.

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, 2019. 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 months ended March 31, 2020 are not necessarily indicative of expected results for 2020 due to seasonal variations and other factors, including the potential effects from the COVID-19 pandemic.

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 operating revenues, see Note 1(d), Operating Revenues, in our 2019 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 have different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.
 
 
Wisconsin Electric Power Company
 
 
Three Months Ended March 31
(in millions)
 
2020
 
2019
Electric utility
 
$
729.0

 
$
778.8

Natural gas utility
 
139.0

 
177.9

Total revenues from contracts with customers
 
868.0

 
956.7

Other operating revenues
 
3.0

 
4.1

Total operating revenues
 
$
871.0

 
$
960.8




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Wisconsin Electric Power Company


Revenues from Contracts with Customers

Electric Utility Operating Revenues

The following table disaggregates electric utility operating revenues into customer class:
 
 
Electric Utility Operating Revenues
 
 
Three Months Ended March 31
(in millions)
 
2020
 
2019
Residential
 
$
295.0

 
$
302.6

Small commercial and industrial
 
236.0

 
245.1

Large commercial and industrial
 
122.9

 
156.0

Other
 
5.1

 
5.6

Total retail revenues
 
659.0

 
709.3

Wholesale
 
19.7

 
28.9

Resale
 
39.2

 
31.3

Steam
 
8.4

 
10.1

Other utility revenues
 
2.7

 
(0.8
)
Total electric utility operating revenues
 
$
729.0

 
$
778.8



Natural Gas Utility Operating Revenues

The following table disaggregates natural gas utility operating revenues into customer class:
 
 
Natural Gas Utility Operating Revenues
 
 
Three Months Ended March 31
(in millions)
 
2020
 
2019
Residential
 
$
99.5

 
$
125.6

Commercial and industrial
 
44.3

 
60.9

Total retail revenues
 
143.8

 
186.5

Transport
 
5.0

 
4.2

Other utility revenues *
 
(9.8
)
 
(12.8
)
Total natural gas utility operating revenues
 
$
139.0

 
$
177.9


*
Includes amounts refunded to customers for purchased gas adjustment costs.

Other Operating Revenues

Other operating revenues consist primarily of the following:
 
 
Three Months Ended March 31
(in millions)
 
2020
 
2019
Late payment charges
 
$
2.7

 
$
2.7

Rental revenues
 
0.7

 
0.7

Alternative revenues *
 
(0.4
)
 
0.7

Total other operating revenues
 
$
3.0

 
$
4.1


*
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-up, as discussed in Note 1(d), Operating Revenues, in our 2019 Annual Report on Form 10-K.

NOTE 3—CREDIT LOSSES

Effective January 1, 2020, we adopted FASB ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables.

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Wisconsin Electric Power Company


The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of loss. The cumulative effect of adopting this standard was not significant to our financial statements.

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 March 31, 2020.

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. The increase recorded to our allowance for credit losses at March 31, 2020, specific to the economic risks associated with the COVID-19 pandemic, was not significant. We will continue to monitor the economic impacts of COVID-19 and the resulting effects that these impacts may have on the ability of our customers to pay their energy bills.

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 our regulators 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. See Note 17, Regulatory Environment, for information on certain regulatory actions that are being taken for the purpose of ensuring that essential utility services are available to our customers during the COVID-19 pandemic.

We have included a table below that shows our gross third-party receivable balances and related allowance for credit losses.
(in millions)
 
March 31, 2020
Accounts receivable and unbilled revenues
 
$
484.6

Allowance for credit losses
 
39.8

Accounts receivable and unbilled revenues, net
 
$
444.8

 
 
 
Total accounts receivable, net – past due greater than 90 days*
 
$
34.6

Past due greater than 90 days – collection risk mitigated by regulatory mechanisms*
 
97.8
%

*
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 March 31, 2020, $207.7 million, or 46.7%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses. In addition, in its March 24, 2020 order, the PSCW authorized the deferral of credit losses for our commercial and industrial customers, to the extent these losses exceed the amount included in rates, as a result of the COVID-19 pandemic and the related actions we have been required to take to ensure essential utility services are available to customers during this public health emergency. As a result, our exposure to credit losses related to certain commercial and industrial accounts receivable and unbilled revenue balances were also mitigated by regulatory protections at March 31, 2020, but are not included in the percentages in the above table or this note as we continue to assess the impacts of the order. See Note 17, Regulatory Environment, for more information.


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Wisconsin Electric Power Company


A rollforward of the allowance for credit losses is included below:
(in millions)
 
Three Months Ended March 31, 2020
Balance at December 31, 2019
 
$
38.1

Provision for credit losses
 
6.9

Provision for credit losses deferred for future recovery or refund
 
(0.2
)
Write-offs charged against the allowance
 
(10.9
)
Recoveries of amounts previously written off
 
5.9

Balance at March 31, 2020
 
$
39.8



NOTE 4—REGULATORY ASSETS AND LIABILITIES

The following regulatory assets and liabilities were reflected on our balance sheets at March 31, 2020 and December 31, 2019. For more information on our regulatory assets and liabilities, see Note 5, Regulatory Assets and Liabilities, in our 2019 Annual Report on Form 10-K.
(in millions)
 
March 31, 2020
 
December 31, 2019
Regulatory assets
 
 
 
 
Finance leases
 
$
944.8

 
$
930.5

Plant retirements
 
782.3

 
788.8

Pension and OPEB costs
 
450.0

 
459.4

Income tax related items
 
399.5

 
403.2

SSR
 
140.5

 
151.5

Other, net
 
61.2

 
21.8

Total regulatory assets
 
$
2,778.3

 
$
2,755.2



(in millions)
 
March 31, 2020
 
December 31, 2019
Regulatory liabilities
 
 
 
 
Income tax related items
 
$
867.7

 
$
888.1

Removal costs
 
660.8

 
654.7

Pension and OPEB benefits
 
118.8

 
120.4

Electric transmission costs
 
44.4

 
38.6

Uncollectible expense
 
29.0

 
28.8

Energy costs refundable through rate adjustments
 
26.9

 
12.3

Other, net
 
10.2

 
13.3

Total regulatory liabilities
 
$
1,757.8

 
$
1,756.2

 
 
 
 
 
Balance sheet presentation
 
 
 
 
Other current liabilities
 
$
20.9

 
$
12.0

Regulatory liabilities
 
1,736.9

 
1,744.2

Total regulatory liabilities
 
$
1,757.8

 
$
1,756.2



NOTE 5—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 8, Common Equity, in our 2019 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.


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Wisconsin Electric Power Company


NOTE 6—SHORT-TERM DEBT AND LINES OF CREDIT

The following table shows our short-term borrowings and their corresponding weighted-average interest rates:
(in millions, except percentages)
 
March 31, 2020
 
December 31, 2019
Commercial paper
 
 
 
 
Amount outstanding
 
$
75.0

 
$
115.5

Weighted-average interest rate on amounts outstanding
 
2.83
%
 
2.03
%


Our average amount of commercial paper borrowings based on daily outstanding balances during the three months ended March 31, 2020 was $104.7 million with a weighted-average interest rate during the period of 1.97%.

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
 
March 31, 2020
Revolving credit facility
 
October 2022
 
$
500.0

 
 
 
 
 
Less:
 
 
 
 
Letters of credit issued inside credit facility
 
 
 
$
1.0

Commercial paper outstanding
 
 
 
75.0

Available capacity under existing credit facility
 
 
 
$
424.0



NOTE 7—MATERIALS, SUPPLIES, AND INVENTORIES

Our inventory consisted of:
(in millions)
 
March 31, 2020
 
December 31, 2019
Materials and supplies
 
$
147.6

 
$
148.3

Fossil fuel
 
53.7

 
51.1

Natural gas in storage
 
8.1

 
30.4

Total
 
$
209.4

 
$
229.8



Substantially all materials and supplies, fossil fuel inventories, and natural gas in storage are recorded using the weighted-average cost method of accounting.

NOTE 8—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 March 31, 2020
 
Three Months Ended March 31, 2019
(in millions)
 
Amount
 
Effective Tax Rate
 
Amount
 
Effective Tax Rate
Statutory federal income tax
 
$
28.0

 
21.0
 %
 
$
22.7

 
21.0
 %
State income taxes net of federal tax benefit
 
8.6

 
6.4
 %
 
7.1

 
6.6
 %
Tax repairs
 
1.3

 
1.0
 %
 
(29.6
)
 
(27.3
)%
Federal excess deferred tax amortization – Wisconsin unprotected
 
(13.5
)
 
(10.1
)%
 

 
 %
Federal excess deferred tax amortization
 
(7.3
)
 
(5.5
)%
 
(6.2
)
 
(5.7
)%
Wind production tax credits
 
(3.3
)
 
(2.5
)%
 
(2.8
)
 
(2.6
)%
Other
 
0.9

 
0.7
 %
 
2.3

 
2.0
 %
Total income tax expense (benefit)
 
$
14.7

 
11.0
 %
 
$
(6.5
)
 
(6.0
)%

The effective tax rate of 11.0% for the first quarter of 2020 differs from the United States statutory federal income tax rate of 21%, primarily due to the recognition of certain deferred tax benefits created as a result of the Tax Legislation. In accordance with the rate order received from the PSCW in December 2019, we are amortizing the unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to our customers. In addition, as discussed in more detail below, the

03/31/2020 Form 10-Q
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Wisconsin Electric Power Company


impact of the benefits associated with the Tax Legislation and wind production tax credits drove a decrease in the effective tax rate, which was partially offset by state income taxes.

The effective tax rate of (6.0)% for the first quarter of 2019 differs from the United States statutory federal income tax rate of 21%, primarily due to the flow through of tax repairs in connection with the 2017 Wisconsin rate settlement, the impact of the benefits associated with the Tax Legislation, as discussed in more detail below, and wind production tax credits, partially offset by state income taxes.

The Tax Legislation, signed into law in December 2017, required us to remeasure the deferred income taxes at our utility segment and we began to amortize the resulting excess deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization line above).

See Note 17, Regulatory Environment, for more information.

NOTE 9—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 deriv