Company Quick10K Filing
Quick10K
Wisconsin Public Service
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-29 Other Events
8-K 2018-11-19 Other Events, Exhibits
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WPS 2018-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1-General Information
Note 2-Acquisition
Note 3-Operating Revenues
Note 4-Regulatory Assets and Liabilities
Note 5-Property, Plant, and Equipment
Note 6-Common Equity
Note 7-Short-Term Debt and Lines of Credit
Note 8-Materials, Supplies, and Inventories
Note 9-Income Taxes
Note 10-Fair Value Measurements
Note 11-Derivative Instruments
Note 12-Guarantees
Note 13-Employee Benefits
Note 14-Goodwill and Other Intangible Assets
Note 15-Segment Information
Note 16-Related Parties
Note 17-Commitments and Contingencies
Note 18-Supplemental Cash Flow Information
Note 19-Regulatory Environment
Note 20-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 a2018q3wps10qexhibit311.htm
EX-31.2 a2018q3wps10qexhibit312.htm
EX-32.1 a2018q3wps10qexhibit321.htm
EX-32.2 a2018q3wps10qexhibit322.htm

Wisconsin Public Service Earnings 2018-09-30

WPS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2018q3wps10q.htm WISCONSIN PUBLIC SERVICE SEPTEMBER 30, 2018 FORM 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
Commission File Number
 
Registrant; State of Incorporation;
Address; and Telephone Number
 
IRS Employer
Identification No.
1-3016
 
WISCONSIN PUBLIC SERVICE CORPORATION
 
39-0715160
 
 
(A Wisconsin Corporation)
 
 
 
 
700 North Adams Street
 
 
 
 
P.O. Box 19001
 
 
 
 
Green Bay, WI 54307-9001
 
 
 
 
800-450-7260
 
 

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 [X]    No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes [X]    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 [X] (Do not check if a smaller reporting company)
 
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 [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $4 Par Value,
23,896,962 shares outstanding at
September 30, 2018

All of the common stock of Wisconsin Public Service Corporation is owned by Integrys Holding, Inc., a wholly owned subsidiary of WEC Energy Group, Inc.
 



WISCONSIN PUBLIC SERVICE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2018
TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


09/30/2018 Form 10-Q
i
Wisconsin Public Service Corporation


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
Bluewater
 
Bluewater Natural Gas Holding, LLC
Integrys
 
Integrys Holding, Inc.
UMERC
 
Upper Michigan Energy Resources Corporation
WBS
 
WEC Business Services LLC
WEC Energy Group
 
WEC Energy Group, Inc.
WE
 
Wisconsin Electric Power Company
WG
 
Wisconsin Gas LLC
WPSI
 
WPS Investments, LLC
WRPC
 
Wisconsin River Power Company
 
 
 
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
WDNR
 
Wisconsin Department of Natural Resources
 
 
 
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
CAA
 
Clean Air Act
CO2
 
Carbon Dioxide
CPP
 
Clean Power Plan
GHG
 
Greenhouse Gas
NOV
 
Notice of Violation
WPDES
 
Wisconsin Pollutant Discharge Elimination System
 
 
 
Measurements
Dth
 
Dekatherm
MW
 
Megawatt
MWh
 
Megawatt-hour
 
 
 
Other Terms and Abbreviations
D.C. Circuit Court of Appeals
 
United States Court of Appeals for the District of Columbia Circuit
Exchange Act
 
Securities Exchange Act of 1934, as amended
FTRs
 
Financial Transmission Rights
MISO
 
Midcontinent Independent System Operator, Inc.
MISO Energy Markets
 
MISO Energy and Operating Reserves Markets
ROE
 
Return on Equity
SMRP
 
System Modernization and Reliability Project
Supreme Court
 
United States Supreme Court
Tax Legislation
 
Tax Cuts and Jobs Act of 2017

09/30/2018 Form 10-Q
ii
Wisconsin Public Service Corporation


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 2017 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 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, and energy efficiency mandates;

The uncertainty surrounding the recently enacted Tax Legislation, 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 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, 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;

09/30/2018 Form 10-Q
1
Wisconsin Public Service Corporation



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;

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 that result in competitive disadvantages and create the potential for impairment of existing assets;

The timing, costs, and anticipated benefits associated with the remaining integration efforts relating to WEC Energy Group's acquisition of Integrys;

Potential business strategies to acquire and dispose of assets or businesses, 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.


09/30/2018 Form 10-Q
2
Wisconsin Public Service Corporation


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
 
September 30
 
September 30
(in millions)
 
2018
 
2017
 
2018
 
2017
Operating revenues
 
$
379.2

 
$
380.7

 
$
1,122.9

 
$
1,111.9

 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
Cost of sales
 
132.5

 
125.1

 
436.9

 
420.5

Other operation and maintenance
 
114.6

 
102.4

 
322.7

 
318.4

Depreciation and amortization
 
35.7

 
35.1

 
105.2

 
103.9

Property and revenue taxes
 
10.0

 
9.9

 
30.1

 
29.8

Total operating expenses
 
292.8

 
272.5

 
894.9

 
872.6

 
 
 
 
 
 
 
 
 
Operating income
 
86.4

 
108.2

 
228.0

 
239.3

 
 
 
 
 
 
 
 
 
Other income, net
 
8.9

 
5.5

 
27.0

 
17.1

Interest expense
 
13.4

 
13.7

 
39.4

 
41.2

Other expense
 
(4.5
)
 
(8.2
)
 
(12.4
)
 
(24.1
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
81.9

 
100.0

 
215.6

 
215.2

Income tax expense
 
24.9

 
39.1

 
66.1

 
84.3

Net income
 
$
57.0

 
$
60.9

 
$
149.5

 
$
130.9


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


09/30/2018 Form 10-Q
3
Wisconsin Public Service Corporation


WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
September 30,
 
December 31,
(in millions, except share and per share amounts)
 
2018
 
2017
Assets
 
 

 
 

Current assets
 
 
 
 
Cash and cash equivalents
 
$
4.0

 
$
7.9

Accounts receivable and unbilled revenues, net of reserves of $4.0
 
184.8

 
205.0

Accounts receivable from related parties
 
18.9

 
4.4

Materials, supplies, and inventories
 
113.9

 
107.0

Prepaid taxes
 
29.6

 
52.7

Other
 
15.6

 
13.0

Current assets
 
366.8

 
390.0

 
 
 
 
 
Long-term assets
 
 
 
 
Property, plant, and equipment, net of accumulated depreciation of $1,736.0 and $1,633.3, respectively
 
4,109.0

 
3,823.0

Regulatory assets
 
366.6

 
382.8

Goodwill
 
36.4

 
36.4

Pension and OPEB assets
 
74.4

 
62.0

Other
 
53.5

 
54.5

Long-term assets
 
4,639.9

 
4,358.7

Total assets
 
$
5,006.7

 
$
4,748.7

 
 
 
 
 
Liabilities and Equity
 
 

 
 
Current liabilities
 
 
 
 
Short-term debt
 
$
308.8

 
$
293.1

Current portion of long-term debt
 
250.0

 
250.0

Accounts payable
 
122.9

 
130.4

Accounts payable to related parties
 
45.4

 
30.0

Other
 
81.4

 
66.4

Current liabilities
 
808.5

 
769.9

 
 
 
 
 
Long-term liabilities
 
 
 
 
Long-term debt
 
916.9

 
916.2

Deferred income taxes
 
527.8

 
512.7

Deferred investment tax credits
 
6.4

 
6.7

Regulatory liabilities
 
705.4

 
689.3

Environmental remediation liabilities
 
99.6

 
99.6

Pension and OPEB obligations
 
24.2

 
24.0

Payables to related parties
 
3.0

 
3.5

Other
 
118.0

 
109.5

Long-term liabilities
 
2,401.3

 
2,361.5

 
 
 
 
 
Commitments and contingencies (Note 17)
 


 


 
 
 
 
 
Common shareholder's equity
 
 
 
 
Common stock – $4 par value; 32,000,000 shares authorized; 23,896,962 shares issued and outstanding
 
95.6

 
95.6

Additional paid in capital
 
1,116.2

 
996.1

Retained earnings
 
585.1

 
525.6

Common shareholder's equity
 
1,796.9

 
1,617.3

Total liabilities and equity
 
$
5,006.7

 
$
4,748.7


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

09/30/2018 Form 10-Q
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Wisconsin Public Service Corporation


WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended
 
 
September 30
(in millions)
 
2018
 
2017
Operating Activities
 
 

 
 

Net income
 
$
149.5

 
$
130.9

Reconciliation to cash provided by operating activities
 
 

 
 

Depreciation and amortization
 
105.2

 
103.9

Deferred income taxes and investment tax credits, net
 
26.9

 
30.0

Contributions and payments related to pension and OPEB plans
 
(0.6
)
 
(66.5
)
Cash received for pension plan assets transferred
 

 
157.8

Change in –
 
 

 
 
Accounts receivable and unbilled revenues
 
5.4

 
16.3

Materials, supplies, and inventories
 
(6.6
)
 
(4.1
)
Prepaid taxes
 
23.1

 
28.2

Other current assets
 
1.5

 
(2.8
)
Accounts payable
 
34.8

 
(24.5
)
Other current liabilities
 
16.8

 
11.5

Other, net
 
12.1

 
11.3

Net cash provided by operating activities
 
368.1

 
392.0

 
 
 
 
 
Investing Activities
 
 

 
 

Capital expenditures
 
(312.5
)
 
(237.9
)
Acquisition of Forward Wind Energy Center
 
(77.1
)
 

Payments for assets transferred from WBS
 
(30.0
)
 
(10.0
)
Other, net
 
2.0

 
1.9

Net cash used in investing activities
 
(417.6
)
 
(246.0
)
 
 
 
 
 
Financing Activities
 
 

 
 

Change in short-term debt
 
15.7

 
(56.0
)
Payment of dividends to parent
 
(90.0
)
 
(165.0
)
Equity contribution from parent
 
120.0

 
75.0

Other, net
 
(0.1
)
 

Net cash provided by (used in) financing activities
 
45.6

 
(146.0
)
 
 
 
 
 
Net change in cash and cash equivalents
 
(3.9
)
 

Cash and cash equivalents at beginning of period
 
7.9

 
3.1

Cash and cash equivalents at end of period
 
$
4.0

 
$
3.1


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


09/30/2018 Form 10-Q
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Wisconsin Public Service Corporation


WISCONSIN PUBLIC SERVICE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2018

NOTE 1—GENERAL INFORMATION

As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, balance sheets, and statements of cash flows, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Public Service Corporation.

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, 2017. 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, 2018 are not necessarily indicative of expected results for 2018 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—ACQUISITION

Acquisition of a Wind Energy Generation Facility in Wisconsin

On April 2, 2018, we, along with two unaffiliated utilities, completed the purchase of Forward Wind Energy Center, which consists of 86 wind turbines located in Wisconsin with a total capacity of 129 MW. The aggregate purchase price was $172.9 million of which our proportionate share was 44.6%, or $77.1 million. Since 2008 and up until the acquisition, we purchased 44.6% of the facility’s energy output under a power purchase agreement.

The table below shows the allocation of the purchase price to the assets acquired at the date of the acquisition, which are included in rate base.
(in millions)
 
 
Current assets
 
$
0.2

Net property, plant, and equipment
 
76.9

Total purchase price
 
$
77.1


Under a joint ownership agreement with the two other utilities, we are entitled to our share of generating capability and output of the facility equal to our ownership interest. We are also paying our ownership share of additional capital expenditures and operating expenses.

NOTE 3—OPERATING REVENUES

Adoption of ASU 2014-09, Revenues from Contracts with Customers

On January 1, 2018, we adopted ASU 2014-09, Revenues from Contracts with Customers, and the related amendments. In accordance with the guidance, we recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. These revenues include unbilled revenues, which are estimated using the amount of energy delivered to our customers but not billed until after the end of the period.

We adopted this standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018, are presented under the new standard. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the standard did not result in an adjustment to our opening retained earnings balance as of January 1, 2018, and we do not expect the adoption of the standard to have a material impact on our net income in future periods.

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Wisconsin Public Service Corporation



We adopted the following practical expedients and optional exemptions for the implementation of this standard:

We elected to exclude from the transaction price any amounts collected from customers for all sales taxes and other similar taxes.
When applicable, we elected to apply the standard to a portfolio of contracts with similar characteristics, primarily our tariff-based contracts, as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts.
We elected to recognize revenue in the amount we have the right to invoice for performance obligations satisfied over time when the consideration received from a customer corresponds directly with the value provided to the customer during the same period.
We elected to not disclose the remaining performance obligations of a contract that has an original expected duration of one year or less.
We elected to apply this standard only to contracts that are not completed as of the date of initial application.

Disaggregation of Operating Revenues

The following tables present our operating revenues disaggregated by revenue source. We only have revenues associated with 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 revenue 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.

Comparable amounts have not been presented for the three and nine months ended September 30, 2017, due to our adoption of this standard under the modified retrospective method.
 
 
Wisconsin Public Service Corporation Consolidated
(in millions)
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Electric utility
 
$
334.1

 
$
908.7

Natural gas utility
 
44.3

 
211.8

Total revenues from contracts with customers
 
378.4

 
1,120.5

Other operating revenues
 
0.8

 
2.4

Total operating revenues
 
$
379.2

 
$
1,122.9


Revenues from Contracts with Customers

Electric Utility Operating Revenues

The following table disaggregates electric utility operating revenues into customer class:
 
 
Electric Utility Operating Revenues
(in millions)
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Residential
 
$
104.1

 
$
289.2

Small commercial and industrial
 
107.1

 
284.3

Large commercial and industrial
 
67.5

 
183.4

Other
 
2.0

 
6.3

Total retail revenues
 
280.7

 
763.2

Wholesale
 
40.1

 
109.0

Resale
 
9.7

 
27.8

Other utility revenues
 
3.6

 
8.7

Total electric utility operating revenues
 
$
334.1

 
$
908.7


Electricity sales to residential and commercial and industrial customers are generally accomplished through requirements contracts, which provide for the delivery of as much electricity as the customer needs. These contracts represent discrete deliveries of

09/30/2018 Form 10-Q
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Wisconsin Public Service Corporation


electricity and consist of one distinct performance obligation satisfied over time, as the electricity is delivered and consumed by the customer simultaneously. For our residential and commercial and industrial customers, our performance obligation is bundled to consist of both the sale and the delivery of the electric commodity. The rates, charges, terms, and conditions of service for sales to these customers are included in tariffs that have been approved by state regulators. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on the quantity of electricity delivered each month.

Wholesale customers who resell power can choose to either bundle capacity and electricity services together under one contract with a supplier or purchase capacity and electricity separately from multiple suppliers. Furthermore, wholesale customers can choose to have us provide generation to match the customer's load, similar to requirements contracts, or they can purchase specified quantities of electricity and capacity. The rates, charges, terms and conditions of service for sales to wholesale customers are included in tariffs that have been approved by the FERC. Contracts with wholesale customers that include capacity bundled with the delivery of electricity contain two performance obligations, as capacity and electricity are often transacted separately in the marketplace at the wholesale level. When recognizing revenue associated with these contracts, the transaction price is allocated to each performance obligation based on its relative standalone selling price. Revenue is recognized as control of each individual component is transferred to the customer. Electricity is the primary product sold by our electric operations and represents a single performance obligation satisfied over time through discrete deliveries to a customer. Revenue from electricity sales is generally recognized as units are produced and delivered to the customer within the production month. Capacity represents the reservation of an electric generating facility and conveys the ability to call on a plant to produce electricity when needed by the customer. The nature of our performance obligation as it relates to capacity is to stand ready to deliver power. This represents a single performance obligation transferred over time, which generally represents a monthly obligation. Accordingly, capacity revenue is recognized on a monthly basis.

We are an active participant in the MISO Energy Markets, where we bid our generation into the Day Ahead and Real Time markets and procure electricity for our retail and wholesale customers at prices determined by the MISO Energy Markets. Purchase and sale transactions are recorded using settlement information provided by MISO. These purchase and sale transactions are accounted for on a net hourly position. Net purchases in a single hour are recorded as purchased power in cost of sales and net sales in a single hour are recorded as resale revenues. For resale revenues, our performance obligation is created only when electricity is sold into the MISO Energy Markets.

For all of our customers, consistent with the timing of when we recognize revenue, customer billings generally occur on a monthly basis, with payments typically due in full within 30 days. For the majority of our wholesale customers, the price billed for energy and capacity is a formula-based rate. Formula-based rates initially set a customer's current year rates based on the previous year’s expenses. This is a predetermined formula derived from the utility's costs and a reasonable rate of return. Because these rates are eventually trued up to reflect actual current year costs, they represent a form of variable consideration in certain circumstances. The variable consideration is estimated and recognized over time as wholesale customers receive and consume the capacity and electricity services.

Natural Gas Utility Operating Revenues

The following table disaggregates natural gas utility operating revenues into customer class:
 
 
Natural Gas Utility Operating Revenues
(in millions)
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Residential
 
$
17.2

 
$
114.4

Commercial and industrial
 
10.0

 
69.3

Total retail revenues
 
27.2

 
183.7

Transport
 
3.0

 
15.0

Other utility revenues *
 
14.1

 
13.1

Total natural gas utility operating revenues
 
$
44.3

 
$
211.8


*
Includes amounts collected from customers for purchased gas adjustment costs.

09/30/2018 Form 10-Q
8
Wisconsin Public Service Corporation



We recognize natural gas utility operating revenues under requirements contracts with residential, commercial and industrial, and transportation customers served under our tariffs. Tariffs provide our customers with the standard terms and conditions, including rates, related to the services offered. Requirements contracts provide for the delivery of as much natural gas as the customer needs. These requirements contracts represent discrete deliveries of natural gas and constitute a single performance obligation satisfied over time. Our performance obligation is both created and satisfied with the transfer of control of natural gas upon delivery to the customer. For most of our customers, natural gas is delivered and consumed by the customer simultaneously. A performance obligation can be bundled to consist of both the sale and the delivery of the natural gas commodity. In certain of our territories, customers can purchase the commodity from a third party. In this case, the performance obligation only includes the delivery of the natural gas to the customer.

The transaction price of the performance obligations is valued using rates in our tariffs, which have been approved by the PSCW. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on natural gas delivered each month.

Consistent with the timing of when we recognize revenue, customer billings generally occur on a monthly basis, with payments typically due in full within 30 days.

Other Operating Revenues

Other operating revenues consist primarily of the following:
(in millions)
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Late payment charges
 
$
0.6

 
$
2.3

Leases
 
0.1

 
0.2

Alternative revenues *
 
0.1

 
(0.1
)
Total other operating revenues
 
$
0.8

 
$
2.4


*
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 customers subject to wholesale true-ups, as discussed below.

Alternative Revenues

Alternative revenues are created from programs authorized by regulators that allow us to record additional revenues by adjusting rates in the future, usually as a surcharge applied to future billings, in response to past activities or completed events. We record alternative revenues when the regulator-specified conditions for recognition have been met. We reverse these alternative revenues as the customer is billed, at which time this revenue is presented as revenues from contracts with customers.

Our only alternative revenue program relates to the wholesale electric service that we provide to customers under market-based rates and FERC formula rates. The customer is charged a base rate each year based upon a formula using prior year actual costs and customer demand. A true-up is calculated based on the difference between the amount billed to customers for the demand component of their rates and what the actual cost of service was for the year. The true-up can result in an amount that we will recover from or refund to the customer. We consider the true-up portion of the wholesale electric revenues to be alternative revenues.


09/30/2018 Form 10-Q
9
Wisconsin Public Service Corporation


NOTE 4—REGULATORY ASSETS AND LIABILITIES

The following regulatory assets were reflected on our balance sheets at September 30, 2018 and December 31, 2017. For more information on our regulatory assets, see Note 4, Regulatory Assets and Liabilities, in our 2017 Annual Report on Form 10-K.
(in millions)
 
September 30, 2018
 
December 31, 2017
Regulatory assets (1)
 
 
 
 
Unrecognized pension and OPEB costs
 
$
149.2

 
$
161.3

Environmental remediation costs
 
117.2

 
116.0

Termination of a tolling agreement with Fox Energy Company LLC
 
23.1

 
27.2

Plant retirements (2)
 
17.3

 
8.3

Asset retirement obligations
 
12.1

 
9.7

De Pere Energy Center
 
11.1

 
14.0

Income tax
 
8.5

 
8.2

Crane Creek wind project production tax credits (3)
 
3.4

 
22.8

Other, net
 
30.1

 
15.3

Total regulatory assets
 
$
372.0

 
$
382.8

 
 
 
 
 
Balance Sheet Presentation
 
 
 
 
Current assets
 
$
5.4

 
$

Regulatory assets
 
366.6

 
382.8

Total regulatory assets
 
$
372.0

 
$
382.8


(1) 
Based on prior and current rate treatment, we believe it is probable that we will continue to recover from customers the regulatory assets in this table.

(2) 
For information on the retirement of our older and less efficient fossil fuel generating units, see Note 5, Property, Plant, and Equipment.

(3) 
In May 2018, the PSCW issued an order requiring us to use a portion of our tax benefits from the Tax Legislation that was signed into law in December 2017 to reduce the regulatory assets related to our Crane Creek wind project production tax credits. See Note 19, Regulatory Environment, for more information.

The following regulatory liabilities were reflected on our balance sheets at September 30, 2018 and December 31, 2017. For more information on our regulatory liabilities, see Note 4, Regulatory Assets and Liabilities, in our 2017 Annual Report on Form 10-K.
(in millions)
 
September 30, 2018
 
December 31, 2017
Regulatory liabilities
 
 
 
 
Income tax (1)
 
$
395.0

 
$
393.8

Removal costs
 
238.8

 
238.9

Unrecognized pension and OPEB costs
 
29.0

 
30.2

Electric transmission costs
 
9.9

 
6.0

Earnings sharing mechanism (2)
 
8.5

 

Energy costs refundable through rate adjustments
 
6.2

 
8.2

Other, net
 
18.0

 
20.1

Total regulatory liabilities
 
$
705.4

 
$
697.2

 
 
 
 
 
Balance Sheet Presentation
 
 
 
 
Current liabilities
 
$

 
$
7.9

Regulatory liabilities
 
705.4

 
689.3

Total regulatory liabilities
 
$
705.4

 
$
697.2


(1) 
For information on the regulatory treatment of the Tax Legislation, see Note 19, Regulatory Environment.

(2) 
For information on our earnings sharing mechanism, see Note 19, Regulatory Environment.


09/30/2018 Form 10-Q
10
Wisconsin Public Service Corporation


NOTE 5—PROPERTY, PLANT, AND EQUIPMENT

Utility Segment Plant to be Retired

We have evaluated future plans for our older and less efficient fossil fuel generating units and have retired the plants identified below. In addition, a severance liability in the amount of $3.6 million was recorded in other current liabilities related to these announced plant retirements at December 31, 2017.

Pulliam Power Plant

In connection with a MISO ruling, we retired Pulliam Units 7 and 8 effective October 21, 2018. The carrying value of the Pulliam units was $40.8 million at September 30, 2018. This amount included the net book value of $61.1 million, which was classified as plant to be retired within property, plant, and equipment on our balance sheet. In addition, a $20.3 million cost of removal reserve related to the Pulliam units was classified as a regulatory liability at September 30, 2018. The net book value was reclassified as a regulatory asset on our balance sheet in the fourth quarter as a result of the retirement of the generating units. We continue to amortize this regulatory asset on a straight-line basis using the composite depreciation rates approved by the PSCW before these generating units were retired. See Note 17, Commitments and Contingencies, for more information.
 
Edgewater Unit 4

The Edgewater 4 generating unit was retired effective September 28, 2018. The carrying value of the generating unit was $8.3 million at September 30, 2018. This amount included the net book value of our ownership share of this generating unit of $10.2 million, which was reclassified as a regulatory asset on our balance sheet in the third quarter as a result of the retirement of the generating unit. In addition, a $1.9 million cost of removal reserve related to the Edgewater 4 generating unit was classified as a regulatory liability at September 30, 2018. We continue to amortize this regulatory asset on a straight-line basis using the composite depreciation rates approved by the PSCW before this generating unit was retired. Amortization is included in depreciation and amortization in the income statement. See Note 17, Commitments and Contingencies, for more information.

NOTE 6—COMMON EQUITY

Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to the sole holder of our common stock, Integrys, 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, Integrys, or their subsidiaries. See Note 9, Common Equity, in our 2017 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 7—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)
 
September 30, 2018
 
December 31, 2017
Commercial paper
 
 
 
 
Amount outstanding
 
$
308.8

 
$
293.1

Weighted-average interest rate on amounts outstanding
 
2.31
%
 
1.72
%

Our average amount of commercial paper borrowings based on daily outstanding balances during the nine months ended September 30, 2018, was $292.2 million with a weighted-average interest rate during the period of 2.16%.

09/30/2018 Form 10-Q
11
Wisconsin Public Service Corporation



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, 2018
Revolving credit facility
 
October 2022
 
$
400.0

 
 
 
 
 
Less:
 
 
 
 
Letters of credit issued inside credit facility
 
 
 
$
1.3

Commercial paper outstanding
 
 
 
308.8

Available capacity under existing agreement
 
 
 
$
89.9


NOTE 8—MATERIALS, SUPPLIES, AND INVENTORIES

Our inventory consisted of:
(in millions)
 
September 30, 2018
 
December 31, 2017
Fossil fuel
 
$
34.9

 
$
43.8

Materials and supplies
 
48.8

 
40.8

Natural gas in storage
 
30.2

 
22.4

Total
 
$
113.9

 
$
107.0


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

NOTE 9—INCOME TAXES

The effective tax rates of 30.4% and 30.7% for the three and nine months ended September 30, 2018, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the accounting treatment of the PSCW's order regarding the benefits associated with the Tax Legislation, in addition to state income taxes. See Note 19, Regulatory Environment, for more information on the Tax Legislation.

On December 22, 2017, the SEC staff issued guidance in Staff Accounting Bulletin 118 (SAB 118), Income Tax Accounting Implications of the Tax Legislation, which provides for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. Due to the complex and comprehensive nature of the enacted tax law changes, and their application under GAAP, certain amounts related to bonus depreciation and future tax benefit utilization recorded in the financial statements as a result of the Tax Legislation are to be considered "provisional" as discussed in SAB 118 and subject to revision. We are awaiting additional guidance from industry and income tax authorities in order to finalize our accounting.

NOTE 10—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.

09/30/2018 Form 10-Q
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Wisconsin Public Service Corporation



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 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 are categorized in Level 3 due to the significance of unobservable or internally-developed inputs.

We recognize transfers between levels of the fair value hierarchy at their value as of the end of the reporting period.

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, 2018
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Derivative assets
 
 

 
 

 
 

 
 

Natural gas contracts
 
$
1.6

 
$

 
$

 
$
1.6

FTRs
 

 

 
5.1

 
5.1

Coal contracts
 

 
0.6

 

 
0.6

Total derivative assets
 
$
1.6

 
$
0.6

 
$
5.1

 
$
7.3

 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 

 
 

 
 

 
 

Natural gas contracts
 
$
0.6

 
$

 
$

 
$
0.6


 
 
December 31, 2017
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Derivative assets
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
0.8

 
$

 
$

 
$
0.8

Petroleum product contracts
 
0.3

 

 

 
0.3

FTRs
 

 

 
2.0

 
2.0

Coal contracts
 

 
0.4

 

 
0.4

Total derivative assets
 
$
1.1

 
$
0.4

 
$
2.0

 
$
3.5

 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
2.3

 
$

 
$

 
$
2.3

Coal contracts
 

 
0.5

 

 
0.5

Total derivative liabilities
 
$
2.3

 
$
0.5

 
$

 
$
2.8


The derivative assets and liabilities listed in the tables above include options, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices. They also include FTRs, which are used to manage electric transmission congestion costs in the MISO Energy Markets.

The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(in millions)
 
2018
 
2017
 
2018
 
2017
Balance at the beginning of period
 
$
8.0

 
$
5.8

 
$
2.0

 
$
2.0

Purchases
 

 

 
9.0

 
6.9

Settlements
 
(2.9
)
 
(2.2
)
 
(5.9
)
 
(5.3
)
Balance at the end of period
 
$
5.1

 
$
3.6

 
$
5.1

 
$
3.6



09/30/2018 Form 10-Q
13
Wisconsin Public Service Corporation


Fair Value of Financial Instruments

The following table shows the financial instruments included on our balance sheets that are not recorded at fair value:
 
 
September 30, 2018
 
December 31, 2017
(in millions)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt, including current portion
 
$
1,166.9

 
$
1,214.1

 
$
1,166.2

 
$
1,302.4


The fair values of long-term debt are categorized within Level 2 of the fair value hierarchy.

NOTE 11—DERIVATIVE INSTRUMENTS

We use derivatives as part of our risk management program to manage the risks associated with the price volatility of purchased power, generation, and natural gas costs for the benefit of our customers. Our approach is non-speculative and designed to mitigate risk. Our regulated hedging programs are approved by the PSCW.

We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception, and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities.

The following table shows our derivative assets and derivative liabilities:
 
 
September 30, 2018
 
December 31, 2017
(in millions)
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
Other current
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
1.6

 
$
0.5

 
$
0.8

 
$
1.9

Petroleum products contracts
 

 

 
0.3

 

FTRs
 
5.1

 

 
2.0

 

Coal contracts
 
0.2

 

 

 
0.5

Total other current *
 
$
6.9

 
$
0.5

 
$
3.1

 
$
2.4

 
 
 
 
 
 
 
 
 
Other long-term
 
 
 
 
 
 
 
 
Natural gas contracts
 
$

 
$
0.1

 
$

 
$
0.4

Coal contracts
 
0.4

 

 
0.4

 

Total other long-term *
 
$
0.4

 
$
0.1

 
$
0.4

 
$
0.4

Total
 
$
7.3

 
$
0.6

 
$
3.5

 
$
2.8


*
On our balance sheets, we classify derivative assets and liabilities as other current or other long-term based on the maturities of the underlying contracts.

Realized gains (losses) on derivative instruments are primarily included in cost of sales on the income statements. Our estimated notional sales volumes and realized gains (losses) were as follows:
 
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2017
(in millions)
 
Volumes
 
Gains
 
Volumes
 
Gains (Losses)
Natural gas contracts
 
7.5 Dth
 
$
0.1

 
4.0 Dth
 
$
(0.6
)
Petroleum products contracts
 
0.4 gallons
 
0.2

 
0.3 gallons
 

FTRs
 
2.5 MWh
 
5.7

 
2.5 MWh
 
1.8

Total
 
 
 
$
6.0

 
 
 
$
1.2



09/30/2018 Form 10-Q
14
Wisconsin Public Service Corporation


 
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
(in millions)
 
Volumes
 
Gains (Losses)
 
Volumes
 
Gains (Losses)
Natural gas contracts
 
28.8 Dth
 
$
(1.9
)
 
9.1 Dth
 
$
(1.1
)
Petroleum products contracts
 
1.7 gallons
 
0.4

 
0.3 gallons
 

FTRs
 
6.9 MWh
 
11.6

 
6.8 MWh
 
2.5

Total
 
 
 
$
10.1

 
 
 
$
1.4


On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At September 30, 2018 and December 31, 2017, we had posted cash collateral of $1.0 million and $4.9 million, respectively, in our margin accounts. These amounts were recorded on our balance sheets in other current assets.

The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
 
 
September 30, 2018
 
December 31, 2017
 
(in millions)
 
Derivative Assets
 
Derivative Liabilities
 
Derivative Assets
 
Derivative Liabilities
 
Gross amount recognized on the balance sheet
 
$
7.3

 
$
0.6

 
$
3.5

 
$
2.8

 
Gross amount not offset on the balance sheet
 
(0.6
)
 
(0.6
)
 
(1.1
)
 
(2.3
)
*
Net amount
 
$
6.7

 
$

 
$
2.4

 
$
0.5

 

*
Includes cash collateral posted of $1.2 million.

NOTE 12—GUARANTEES

As of September 30, 2018, we had $20.6 million of standby letters of credit issued by financial institutions for the benefit of third parties that extended credit to us which automatically renew each year unless proper termination notice is given. These amounts are not reflected on our balance sheets.

NOTE 13—EMPLOYEE BENEFITS

Through December 31, 2016, we participated in the Integrys Energy Group Retirement Plan, a noncontributory, qualified pension plan sponsored by WBS. We were responsible for our share of the plan assets and obligations. Effective January 1, 2017, the Integrys Energy Group Retirement Plan was split into six separate plans. As a result, we now have our own pension plan. While the split did not impact our pension benefit obligation, federal regulations required a different allocation of assets among the new plans. As a result, assets were transferred out of our plan in January 2017. See Note 16, Related Parties, for more information.

The following tables show the components of net periodic pension and OPEB costs for our benefit plans:
 
 
Pension Costs
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(in millions)
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
2.6

 
$
2.2

 
$
7.8

 
$
6.7

Interest cost
 
6.5

 
6.6

 
19.5

 
20.0

Expected return on plan assets
 
(12.1
)
 
(11.6
)
 
(36.2
)
 
(34.8
)
Amortization of net actuarial loss
 
5.3

 
4.4

 
15.8

 
13.0

Net periodic benefit cost
 
$
2.3

 
$
1.6

 
$
6.9

 
$
4.9



09/30/2018 Form 10-Q
15
Wisconsin Public Service Corporation


 
 
OPEB Costs
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(in millions)
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
1.5

 
$
1.5

 
$
4.6

 
$
4.6

Interest cost
 
2.0

 
2.3

 
6.1

 
7.0

Expected return on plan assets
 
(4.4
)
 
(4.1
)
 
(13.3
)
 
(12.3
)
Amortization of prior service credit
 
(2.8
)
 
(2.3
)
 
(8.5
)
 
(6.9
)
Amortization of net actuarial loss
 
0.7

 
0.7

 
1.9

 
1.9

Net periodic benefit credit
 
$
(3.0
)
 
$
(1.9
)
 
$
(9.2
)
 
$
(5.7
)

During the nine months ended September 30, 2018, we made contributions and payments of $0.5 million related to our pension plans and $0.1 million related to our OPEB plans. We expect to make contributions and payments of $0.2 million related to our pension plans and $0.1 million related to our OPEB plans during the remainder of 2018, dependent upon various factors affecting us, including our liquidity position and the effects of the new Tax Legislation.

Effective January 1, 2018, we adopted ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which modifies certain aspects of the accounting for employee benefit costs. Under the new guidance, only the service cost component can be included in total operating expenses. The remaining components of net periodic benefit cost (credit) are required to be presented in the income statement separately from the service cost component, outside of operating income. As required, this change was applied retrospectively to all prior periods presented. Accordingly, for the three and nine months ended September 30, 2018 and 2017, we have presented the service cost component of our retirement benefit plans in other operation and maintenance on the income statements, while presenting the non-service components in other income, net.

The following table shows the non-service credit components of net benefit costs:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
(in millions)
 
2018
 
2017
 
2018
 
2017
Non-service credit components
 
$
(4.3
)
 
$
(2.5
)
 
$
(12.6
)
 
$
(8.2
)

For the three and nine months ended September 30, 2017, the net credits from the non-service components of net benefit cost (credit) were reclassified from other operation and maintenance to other income, net, on our income statements.

Under ASU 2017-07, only the service cost component of net periodic benefit cost is eligible for capitalization to property, plant, and equipment. In prior periods, a portion of all net benefit cost components was capitalized to property, plant, and equipment. As required, this amendment was applied prospectively, beginning January 1, 2018. As a result of the application of accounting principles for rate regulated entities, the non-service cost (credit) components of the net benefit cost (credit) that are no longer eligible for capitalization under this standard, but are capitalized under the regulatory framework, are presented as regulatory assets or liabilities rather than property, plant, and equipment.

NOTE 14—GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired. We had no changes to the carrying amount of goodwill during the nine months ended September 30, 2018 and 2017.

The identifiable intangible assets other than goodwill listed below are classified as other long-term assets on our balance sheets.
 
 
September 30, 2018
 
December 31, 2017
(in millions)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortized intangible assets *
 
$
8.3

 
$
(6.5
)
 
$
1.8

 
$
8.3

 
$
(5.6
)
 
$
2.7

Unamortized intangible assets
 
0.4

 

 
0.4

 
0.4

 

 
0.4

Total intangible assets
 
$
8.7

 
$
(6.5
)
 
$
2.2

 
$
8.7

 
$
(5.6
)
 
$
3.1


*
Represents a contractual service agreement that provides for major maintenance and protection against unforeseen maintenance costs related to the combustion turbine generators at the Fox Energy Center. The remaining amortization period at September 30, 2018 was approximately two years.


09/30/2018 Form 10-Q
16
Wisconsin Public Service Corporation


NOTE 15—SEGMENT INFORMATION

We use operating income to measure segment profitability and to allocate resources to our businesses. At September 30, 2018, we reported two segments, which are described below.

Our utility segment includes our electric and natural gas utility operations. Our electric utility operations are engaged in the generation, distribution, and sale of electricity in northeastern Wisconsin. Our natural gas utility operations are engaged in the purchase, distribution, and sale of natural gas to retail customers and the transportation of customer-owned natural gas in northeastern Wisconsin.

The other segment includes non-utility activities, as well as equity earnings from our investment in WRPC.

The following tables show summarized financial information for the three and nine months ended September 30, 2018 and 2017, related to our reportable segments:
(in millions)
 
Utility
 
Other
 
Wisconsin Public Service Corporation Consolidated
Three Months Ended September 30, 2018
 
 
 
 
 
 
Operating revenues
 
$
379.2

 
$

 
$
379.2

Other operation and maintenance
 
114.5

 
0.1

 
114.6

Depreciation and amortization
 
35.7

 

 
35.7

Operating income (loss)
 
86.6

 
(0.2
)
 
86.4

Other income, net
 
8.7

 
0.2

 
8.9

Interest expense
 
13.4

 

 
13.4


(in millions)
 
Utility
 
Other
 
Wisconsin Public Service Corporation Consolidated
Three Months Ended September 30, 2017
 
 

 
 

 
 

Operating revenues
 
$
380.7

 
$

 
$
380.7

Other operation and maintenance *
 
102.5

 
(0.1
)
 
102.4

Depreciation and amortization
 
35.0

 
0.1

 
35.1

Operating income *
 
108.2

 

 
108.2

Other income, net *
 
5.4

 
0.1

 
5.5

Interest expense
 
13.7

 

 
13.7


*
Includes the retroactive restatement impacts of the implementation of ASU 2017-07. See Note 13, Employee Benefits, for more information on this new standard.
(in millions)
 
Utility
 
Other
 
Wisconsin Public Service Corporation Consolidated
Nine Months Ended September 30, 2018
 
 
 
 
 
 
Operating revenues
 
$
1,122.9

 
$

 
$
1,122.9

Other operation and maintenance
 
322.4

 
0.3

 
322.7

Depreciation and amortization
 
105.2

 

 
105.2

Operating income (loss)
 
228.5

 
(0.5
)
 
228.0

Other income, net
 
25.5

 
1.5

 
27.0

Interest expense
 
39.4

 

 
39.4



09/30/2018 Form 10-Q
17
Wisconsin Public Service Corporation


(in millions)
 
Utility
 
Other
 
Wisconsin Public Service Corporation Consolidated
Nine Months Ended September 30, 2017
 
 

 
 

 
 

Operating revenues
 
$
1,111.9

 
$

 
$
1,111.9

Other operation and maintenance *
 
318.0

 
0.4

 
318.4

Depreciation and amortization
 
103.9

 

 
103.9

Operating income (loss) *
 
239.7

 
(0.4
)
 
239.3

Other income, net *
 
15.2

 
1.9

 
17.1

Interest expense
 
41.2

 

 
41.2


*
Includes the retroactive restatement impacts of the implementation of ASU 2017-07. See Note 13, Employee Benefits, for more information on this new standard.

NOTE 16—RELATED PARTIES

We routinely enter into transactions with related parties, including WEC Energy Group, its other subsidiaries, ATC, and other affiliated entities.

We provide and receive services, property, and other items of value to and from our ultimate parent, WEC Energy Group, and other subsidiaries of WEC Energy Group.

Prior to January 1, 2017, we held a 10.37% investment in WPSI which held an approximate 34% interest in ATC, a for-profit, electric transmission company regulated by the FERC and certain state regulatory commissions. Effective January 1, 2017, based upon input we received from the PSCW, we transferred our $67.2 million ownership interest in WPSI to another subsidiary of Integrys. In addition, during 2017 we transferred $41.9 million of related deferred income tax liabilities. These transactions were non-cash equity transfers recorded to additional paid in capital between entities under common control, and therefore, did not result in the recognition of a gain or loss.

We pay ATC for transmission and other related services it provides. In addition, we provide a variety of operational, maintenance, and project management work for ATC, which is reimbursed by ATC. Services are billed to and from ATC under agreements approved by the PSCW, at each of our fully allocated costs.

We provide services to WRPC under an operating agreement approved by the PSCW. We are also a party to a service agreement with WRPC where we are billed for services provided by WRPC. Services are billed to and from WRPC under these agreements at a fully allocated cost.

Our balance sheets included the following receivables and payables related to transactions entered into with certain related parties:
(in millions)
 
September 30, 2018
 
December 31, 2017
Accounts receivable
 
 
 
 
Services provided to ATC
 
$
0.5

 
$
0.7

Accounts payable
 
 
 
 

Network transmission services from ATC
 
8.8

 
9.0

Liability related to income tax allocation
 
 
 
 

Integrys
 
3.6

 
4.1



09/30/2018 Form 10-Q
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Wisconsin Public Service Corporation


The following table shows activity associated with our related party transactions:
 
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
(in millions)
 
2018
 
2017
 
2018
 
2017
 
Transactions with WE
 
 
 
 
 
 
 
 
 
Natural gas sales to WE
 
$
0.6

 
$
0.8

 
$
1.6

 
$
1.3

 
Billings to WE (1)
 
1.5

 
1.4

 
6.6

 
3.6

 
Billings from WE (1)
 
3.9

 
6.4

 
11.2

 
14.1

 
Transactions with WBS
 
 
 
 
 
 
 
 
 
Net cash (paid) received for transfer of pension assets
 

 
(4.1
)
(2) 

 
157.8

(2) 
Billings to WBS (1)
 
0.2

 
2.9

 
0.7

 
13.4

 
Billings from WBS (1) (3)
 
31.8

 
26.1

 
116.8

 
94.3

 
Transactions with UMERC
 
 
 
 
 
 
 
 
 
Electric sales to UMERC
 
3.9

 
4.1

 
11.6

 
12.2

 
Natural gas sales to UMERC
 
0.3

 
0.1

 
1.8

 
1.7

 
Transactions with Bluewater (4)
 
 
 
 
 
 
 
 
 
Storage service fees
 
1.5

 
0.2

 
3.2

 
0.2

 
Transactions related to ATC
 
 
 
 

 
 
 
 

 
Charges to ATC for services and construction
 
1.3

 
1.4

 
4.3

 
4.2

 
Charges from ATC for network transmission services
 
26.6

 
27.0

 
79.6

 
80.9

 
Refund from ATC related to a FERC audit
 

 

 
6.6

 

 
Refund from ATC per FERC ROE order
 

 

 

 
8.9

 
Transactions with WRPC
 
 
 
 
 
 
 
 
 
Rental payments to WRPC (5)