BUILDING A LEADER
IN THE ENERGY INDUSTRY
FOR DECADES TO COME
2014 Annual Report
•
•
•
•
customer service
Wisconsin Energy to acquire Integrys Energy Group for $9.1 billion in
cash, stock and assumed debt — creating a leading Midwest electric
and gas utility
Larger, more diverse regulated utility company with the financial strength and technical
depth to meet customers’ future energy needs; creates 8th largest natural gas
distribution company in America
Companies reiterate commitment to Integrys’ 5-year plan to invest up to $3.5 billion in
infrastructure and operational initiatives to maintain high levels of reliability and improve
Combined company will have majority ownership of American Transmission Company, LLC
Integrys shareholders to receive a 17.3 percent premium to Integrys’ closing price on
June 20, 2014, and a 22.8 percent premium to the volume-weighted average share
price over the past 30 trading days
Integrys to divest Integrys Energy Services
Positions Wisconsin Energy to deliver enhanced earnings growth; accretive to Wisconsin
Energy’s earnings per share in first full calendar year after closing
MILWAUKEE and CHICAGO – June 23, 2014 – Wisconsin Energy Corp. (NYSE: WEC) and
Integrys Energy Group Inc. (NYSE: TEG) today announced that they have entered into a
definitive agreement under which Wisconsin Energy will acquire Integrys in a transaction
valued at $9.1 billion. Upon completion of the transaction, the combined company will be
named WEC Energy Group, Inc.
The combination of Wisconsin Energy and Integrys brings together two strong utility
systems with the operational expertise, scale and financial resources to meet the
region’s future energy needs.
•
•
The combined entity is projected to have a regulated rate base of $16.8 billion in 2015,
serve more than 4.3 million total gas and electric customers across Wisconsin, Illinois,
Michigan and Minnesota, and operate nearly 71,000 miles of electric distribution lines and
more than 44,000 miles of gas transmission and distribution lines. The combination brings
together Wisconsin Energy’s top-performing electric and gas utility — We Energies — and
Integrys’ strong electric and gas utilities — Wisconsin Public Service, Peoples Gas, North
Shore Gas, Minnesota Energy Resources and Michigan Gas Utilities.
TOTAL SHAREHOLDER RETURN
Over the past decade, our total shareholder return has outperformed the investment returns of
the Dow Jones Industrials, the S&P 500, NASDAQ and all the major utility indexes.
TEN-YEAR PERFORMANCE (2005–2014)*
317.9%
WISCONSIN ENERGY
Dow Jones Utilities Average
Philadelphia Utility Index
S&P Electric Index
Dow Jones Industrial Average
S&P 500 Index
NASDAQ Composite Index
*Stock price appreciation plus reinvested dividends.
EARNINGS PER SHARE
DIVIDENDS PER SHAREb
$2.65a
$2.59
$2.51
$2.35
$1.20
$1.56
$1.445
FINANCIAL HIGHLIGHTS
YEAR-END
DEBT TO TOTAL CAPITALc
53.2%
52.5%
51.4%
'12
'13
'14
'14
'12
'13
'14
'12
'13
'14
a. Adjusted earnings per share. Excludes acquisition-related costs totaling 6 cents per share.
b. The quarterly dividend was increased from 39 cents per share to 42.25 cents per share in the first quarter of 2015.
c. Attributes $250 million of 2007 Series A Junior Subordinated Notes to common equity. A majority of the rating agencies currently
attribute at least 50% common equity to these securities. For further details, see page F-17.
2 0 1 4 A N N U A L R E P O R T | 1
GALE E. KLAPPA
Chairman and
Chief Executive Officer
TO OUR STOCKHOLDERS,
It was quite a year …
• We delivered record financial results.
• Our stock price rose by more than 27 percent,
setting 29 new all-time highs.
• Our total shareholder return was 32.1 percent —
surpassing the performance of all of the major
utility indexes.
• We raised our dividend payment by 8 percent.
• We were named the most reliable utility in the
Midwest again — extending our strong track record
of network reliability and customer satisfaction.
2 | W I S C O N S I N E N E R G Y C O R P O R A T I O N
• We achieved the safest year of operation in more
than 100 years of record keeping.
• We invested nearly $740 million in our core business,
with all major projects on time and on budget.
• We completed 2014 with the strongest balance
sheet in 17 years.
• And we were honored as one of the 100 best
corporate citizens in the United States.
In addition to these achievements, 2014 will stand out
as one of the most eventful and transformative years
4.3 million customers in Wisconsin, Illinois, Michigan,
and Minnesota and will become the 8th largest
natural gas distribution company in the United States.
Our customers will benefit from the efficiency that
comes with increased scale and geographic proximity.
And, over time, we will enhance the operations of the
seven utilities that will be part of our energy group by
incorporating best practices systemwide.
In addition, Integrys is one of the major owners of
American Transmission Company, with a 34.1 percent
interest. Wisconsin Energy is the second largest
owner with a 26.2 percent interest. The combined
entity will have a 60 percent stake in one of the
largest transmission companies in the country. We
welcome the opportunity to increase our commitment
to the transmission business.
2014 will stand out as one of the
most eventful and transformative
years in our history
As many of you know, we have consistently used three
criteria to evaluate any potential acquisition opportunity.
First, we would have to believe that the acquisition
would add to earnings per share in the first full
calendar year after closing. Second, it would need to
have a largely neutral impact on our credit ratings. And
finally, we would have to believe that the long-term
growth rate of any acquisition would be at least equal
to Wisconsin Energy’s stand-alone growth rate.
Our analysis shows that this combination meets or
exceeds all three criteria. We expect that the
combined company will be able to grow earnings per
share at 5 to 7 percent per year, faster than either one
of us is projecting on a stand-alone basis. And,
importantly, more than 99 percent of these earnings
would come from regulated businesses.
We expect that the combined
company will be able to grow earnings
per share at 5 to 7 percent per year
Of course, the transaction requires stockholder
approval and the approval of several regulatory
2 0 1 4 A N N U A L R E P O R T | 3
in our history for another important reason. On
June 23, we announced our plan to acquire Integrys
Energy Group in a cash and stock transaction valued
at $9.1 billion.
Combining Wisconsin Energy and Integrys — to form
the WEC Energy Group — will create a strong electric
and natural gas delivery company with deep
operational expertise, scale, and the financial
resources to meet the region’s future energy needs.
The combined company will serve more than
agencies. I’m pleased to report that we’re making
progress on all fronts.
continue to upgrade our aging distribution networks
and focus on delivering the future.
As you may recall, the stockholders of both
companies approved the acquisition on November 21
of last year. In addition, the U.S. Department of
Justice completed its review on October 24, with no
further action required by the company.
Wisconsin Energy’s capital budget calls for spending
$3.3 billion to $3.5 billion over the five-year period
2015 to 2019. Our rolling 10-year capital budget calls
for investing between $6.6 billion and $7.2 billion over
the period 2015 through 2024.
We expect rulings from the Federal Energy Regulatory
Commission and the commissions in Wisconsin,
Illinois, Michigan, and Minnesota between now and
early July. Following all necessary approvals, we plan
to close the transaction during the second half of 2015.
In a related development, we reached an important
settlement in January that will help resolve the electric
reliability issues in the Upper Peninsula of Michigan
and pave the way for approval of our acquisition by
Michigan state authorities. The settlement calls for the
sale of electric distribution assets in the Upper
Peninsula that are owned by both Integrys and
Wisconsin Energy. We would also transfer our Presque
Isle Power Plant to Upper Peninsula Power Company.
This arrangement will result in a larger, Michigan-
based electric utility that can better plan to meet the
longer-term needs of the Upper Peninsula.
DIVIDEND STRATEGY
At its January 2015 meeting, our board of directors
raised the quarterly dividend on Wisconsin Energy
common stock to 42.25 cents a share — an increase
of 8.3 percent over the dividend paid during 2014.
The new quarterly dividend is equivalent to an annual
rate of $1.69 a share. The board reaffirmed our
stand-alone dividend policy that targets a dividend
payout ratio of 65 to 70 percent of earnings in 2017 —
a level more competitive with our peers across the
regulated utility sector.
When we close the Integrys acquisition, we expect to
increase our dividend again — by 7 to 8 percent for
Wisconsin Energy stockholders — to reflect the
dividend policy of the combined company. Going
forward, the payout target for the combined company
is expected to be 65 to 70 percent of earnings.
IMPORTANT INFRASTRUCTURE
INVESTMENTS TO CONTINUE
Looking ahead, we see significant investment
opportunities in our existing core business as we
4 | W I S C O N S I N E N E R G Y C O R P O R A T I O N
And I’m pleased to report that we made excellent
progress on several major infrastructure projects
during 2014.
We see significant investment
opportunities in our existing
core business
West Central Gas Expansion Project Last July, we
received approval from the Wisconsin Public Service
Commission to build and operate a new natural gas
lateral in west central Wisconsin. The 85 miles of
pipeline and connected facilities will run from northern
Eau Claire County, in the far western part of Wisconsin,
to the city of Tomah, in the west central section of the
state. The project is the largest single expansion in the
history of our natural gas distribution business. It will
help meet the growing demand for natural gas by
customers who are converting from propane and also
help serve the sand mining industry in the region.
Field work began in October, and we expect to
complete the entire project in the fourth quarter of
this year at an estimated cost of $175 million to
$185 million.
The project is the largest single
expansion in the history of our
natural gas distribution business
Twin Falls At our Twin Falls hydroelectric plant on
the Menominee River between Wisconsin and
Michigan’s Upper Peninsula, we’re building a new
powerhouse and adding spillway capacity to meet
current federal standards. Built in 1912, Twin Falls
is one of 13 hydroelectric plants on our system. The
project is approximately 40 percent complete, and
we’re projecting commercial operation for the
Chairman and Chief Executive Gale Klappa and President Allen Leverett at Discovery World in Milwaukee.
summer of 2016. The total investment is budgeted
at $60 million to $65 million.
customers $25 million to $ 50 million a year,
depending on the blend.
Valley Power Plant Near downtown Milwaukee,
conversion of our Valley Power Plant from coal to
natural gas is progressing well. The two-unit plant
generates electricity, produces steam for more than
400 customers in the downtown Milwaukee business
center, and provides voltage support for the grid.
Converting Valley to natural gas will reduce our
operating costs and enhance the environmental
performance of the units.
Unit 1 achieved commercial operation burning natural
gas in November. Conversion of Unit 2 should be
completed later this year before the start of the winter
heating season. Total conversion costs are expected
to be $65 million to $70 million.
Oak Creek Expansion At our Oak Creek Expansion
units, we’re focused on our initiative to improve fuel
flexibility. The units were initially permitted to burn
bituminous coal, but given the current cost differential
between bituminous coal and Powder River Basin
coal — blending the two types of fuel could save our
We’re awaiting approval from the Wisconsin
Commission to make additional investments in plant
modifications, equipment, and storage capability to
support sustained operations with higher levels of
Powder River Basin coal. Together, these investments
could total $80 million and provide significant benefits
to our customers through lower fuel costs.
IN SUMMARY
Centuries ago, the philosopher Aristotle wrote that
excellence is not a single act ... but a habit.
Please know that our management team will continue
to pursue excellence in the year ahead as we build a
leader in the energy industry for decades to come.
Sincerely,
Gale E. Klappa
Chairman and Chief Executive Officer
March 4, 2015
2 0 1 4 A N N U A L R E P O R T | 5
IMPROVING RELIABILITY
A worker guides a 71-ton transformer into place at the Lincoln
Substation in Milwaukee. The substation was rebuilt last summer
to maintain a high level of reliability for nearly 25,000 customers,
including the major industrial and manufacturing companies on
Milwaukee’s west side.
6 | W I S C O N S I N E N E R G Y C O R P O R A T I O N
2 0 1 4 A N N U A L R E P O R T | 7
TWIN FALLS HYDROELECTRIC PLANT
At the Twin Falls hydroelectric plant on the Menominee River, the
company is replacing the original 1912 powerhouse and adding
spillway capacity to meet current federal standards. Construction
of the new powerhouse is scheduled to begin this spring with
commercial operation expected in the summer of 2016.
8 | W I S C O N S I N E N E R G Y C O R P O R A T I O N
2 0 1 4 A N N U A L R E P O R T | 9
PROUD TO BE
THE MOST
RELIABLE UTILITY
#1
in the
Midwest ...
again
BEST IN THE
MIDWEST … AGAIN
For the fourth year in a row, We Energies received
the ReliabilityOne™ Award in the Midwest for the
superior reliability of its electric system.
The award is a testament to our employees, who
focus every day on delivering outstanding
customer care. It also reflects the significant
investments we’ve made in recent years to
upgrade critical infrastructure and strengthen the
reliability of our network.
1 0 | W I S C O N S I N E N E R G Y C O R P O R A T I O N
2014 ANNUAL FINANCIAL STATEMENTS
AND REVIEW OF OPERATIONS
F-1
TABLE OF CONTENTS
Page
Definition of Abbreviations and Industry Terms .............................................................................................................. F-3
Cautionary Statement Regarding Forward Looking Information ..................................................................................... F-5
Business of the Company ............................................................................................................................................... F-7
Management’s Discussion and Analysis of Financial Condition and Results of Operations .......................................... F-8
Quantitative and Qualitative Disclosures About Market Risk .......................................................................................... F-36
Consolidated Financial Statements................................................................................................................................. F-37
Notes to Consolidated Financial Statements .................................................................................................................. F-43
Report of Independent Registered Public Accounting Firm ............................................................................................ F-71
Internal Control Over Financial Reporting ....................................................................................................................... F-73
Consolidated Selected Financial and Statistical Data..................................................................................................... F-74
Performance Graph ......................................................................................................................................................... F-75
Market for Our Common Equity and Related Stockholder Matters ................................................................................. F-77
Board of Directors ........................................................................................................................................................... F-78
Officers ............................................................................................................................................................................ F-79
Wisconsin Energy Corporation
F-2
2014 Annual Financial Statements
DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to
them below:
Primary Subsidiaries
We Power
Wisconsin Electric
Wisconsin Gas
Significant Assets
OC 1
OC 2
PIPP
PSGS
PWGS 1
PWGS 2
VAPP
W.E. Power, LLC
Wisconsin Electric Power Company
Wisconsin Gas LLC
Oak Creek expansion Unit 1
Oak Creek expansion Unit 2
Presque Isle Power Plant
Paris Generating Station
Port Washington Generating Station Unit 1
Port Washington Generating Station Unit 2
Valley Power Plant
Other Subsidiaries and Affiliates
ATC
ERGSS
WECC
Wispark
Wisvest
American Transmission Company LLC
Elm Road Generating Station Supercritical, LLC
Wisconsin Energy Capital Corporation
Wispark LLC
Wisvest LLC
Federal and State Regulatory Agencies
DOE
EPA
FERC
MDEQ
MPSC
PSCW
SEC
WDNR
United States Department of Energy
United States Environmental Protection Agency
Federal Energy Regulatory Commission
Michigan Department of Environmental Quality
Michigan Public Service Commission
Public Service Commission of Wisconsin
Securities and Exchange Commission
Wisconsin Department of Natural Resources
Environmental Terms
Act 141
BART
BTA
CAIR
CO2
CSAPR
EM
GHG
IM
MATS
NAAQS
NOx
PM2.5
SIP
SO2
WPDES
2005 Wisconsin Act 141
Best Available Retrofit Technology
Best Technology Available
Clean Air Interstate Rule
Carbon Dioxide
Cross-State Air Pollution Rule
Entrainment Mortality
Greenhouse Gas
Impingement Mortality
Mercury and Air Toxics Standards
National Ambient Air Quality Standards
Nitrogen Oxide
Fine Particulate Matter
State Implementation Plan
Sulfur Dioxide
Wisconsin Pollutant Discharge Elimination System
Wisconsin Energy Corporation
F-3
2014 Annual Financial Statements
DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to
them below:
Other Terms and Abbreviations
AQCS
ARRs
Bechtel
Compensation Committee
Exchange Act
Fitch
FTRs
GCRM
HSR Act
Integrys
Junior Notes
LMP
Merger Agreement
Air Quality Control System
Auction Revenue Rights
Bechtel Power Corporation
Compensation Committee of the Board of Directors
Securities Exchange Act of 1934, as amended
Fitch Ratings
Financial Transmission Rights
Gas Cost Recovery Mechanism
Hart-Scott-Rodino Antitrust Improvements Act of 1976
Integrys Energy Group, Inc.
Wisconsin Energy's 2007 Series A Junior Subordinated Notes due 2067
Locational Marginal Price
Agreement and Plan of Merger, dated as of June 22, 2014, between
MISO
MISO Energy Markets
Moody's
OTC
Point Beach
PTF
RCC
RTO
S&P
SSR
Treasury Grant
UPPCO
Measurements
Btu
Dth
kW
kWh
MW
MWh
Watt
Accounting Terms
AFUDC
ARO
ASU
CWIP
GAAP
OPEB
Integrys and Wisconsin Energy Corporation
Midcontinent Independent System Operator, Inc.
MISO Energy and Operating Reserves Market
Moody's Investor Service
Over-the-Counter
Point Beach Nuclear Power Plant
Power the Future
Replacement Capital Covenant dated May 11, 2007
Regional Transmission Organization
Standard & Poor's Ratings Services
System Support Resource
Section 1603 Renewable Energy Treasury Grant
Upper Peninsula Power Company
British Thermal Unit(s)
Dekatherm(s) (One Dth equals one million Btu)
Kilowatt(s) (One kW equals one thousand Watts)
Kilowatt-hour(s)
Megawatt(s) (One MW equals one million Watts)
Megawatt-hour(s)
A measure of power production or usage
Allowance for Funds Used During Construction
Asset Retirement Obligation
Accounting Standards Update
Construction Work in Progress
Generally Accepted Accounting Principles
Other Post-Retirement Employee Benefits
Wisconsin Energy Corporation
F-4
2014 Annual Financial Statements
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this report are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These
statements are based upon management's current expectations and are subject to risks and uncertainties that could
cause our actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place
undue reliance on these forward-looking statements. Forward-looking statements include, among other things, statements
concerning management's expectations and projections regarding earnings, completion of construction projects, retail
sales and customer growth, rate actions and related filings with the appropriate regulatory authorities, current and
proposed environmental regulations and other regulatory matters and related estimated expenditures, on-going legal
proceedings, dividend payout ratios, projections related to the pension and other post-retirement benefit plans, fuel costs,
sources of electric energy supply, coal and gas deliveries, remediation costs, capital expenditures, liquidity and capital
resources and other matters. In some cases, forward-looking statements may be identified by reference to a future period
or periods or by the use of forward-looking terminology such as "anticipates," "believes," "could," "estimates," "expects,"
"forecasts," "goals," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "seeks," "should,"
"targets," "will" or similar terms or variations of these terms.
Actual results may differ materially from those set forth in forward-looking statements. In addition to the assumptions and
other factors referred to specifically in connection with these statements, factors that could cause our actual results to
differ materially from those contemplated in any forward-looking statements or otherwise affect our future results of
operations and financial condition include, among others, the following:
• Factors affecting utility operations such as catastrophic weather-related damage; availability of electric generating
facilities; unscheduled generation outages, or unplanned maintenance or repairs; unanticipated events causing
scheduled generation outages to last longer than expected; unanticipated changes in fossil fuel, purchased power,
coal supply, gas supply or water supply costs or availability due to higher demand, shortages, transportation problems
or other developments; unanticipated changes in the cost or availability of materials needed to operate environmental
controls at our electric generating facilities or replace and/or repair our electric and gas distribution systems;
nonperformance by electric energy or natural gas suppliers under existing power purchase or gas supply contracts;
environmental incidents; electric transmission or gas pipeline system constraints; unanticipated organizational
structure or key personnel changes; or collective bargaining agreements with union employees or work stoppages.
• Factors affecting the demand for electricity and natural gas, including weather and other natural phenomena; general
economic conditions and, in particular, the economic climate in our service territories; customer growth and declines;
customer business conditions, including demand for their products and services; energy conservation efforts; and
customers moving to self-generation.
• Timing, resolution and impact of rate cases and negotiations.
• The impact across our service territories of the continued adoption of distributed generation by our electric customers.
•
Increased competition in our electric and gas markets, including retail choice and alternative electric suppliers, and
continued industry consolidation.
• The ability to control costs and avoid construction delays during the development and construction of new electric and
natural gas distribution systems, as well as upgrades to these systems and our electric generation fleet.
• The impact of recent and future federal, state and local legislative and regulatory changes, including any changes in
rate-setting policies or procedures; regulatory initiatives regarding deregulation and restructuring of the electric and/or
gas utility industry; transmission or distribution system operation and/or administration initiatives; any required
changes in facilities or operations to reduce the risks or impacts of potential terrorist activities or cyber security
threats; the regulatory approval process for new generation and transmission facilities and new pipeline construction;
adoption of new, or changes in existing, environmental, federal and state energy, tax and other laws and regulations to
which we are, or may become, subject; changes in allocation of energy assistance, including state public benefits
funds; changes in the application or enforcement of existing laws and regulations; and changes in the interpretation or
enforcement of permit conditions by the permitting agencies.
• Restrictions imposed by various financing arrangements and regulatory requirements on the ability of our subsidiaries
to transfer funds to us in the form of cash dividends, loans or advances.
Wisconsin Energy Corporation
F-5
2014 Annual Financial Statements
• Current and future litigation, regulatory investigations, proceedings or inquiries.
• Events in the global credit markets that may affect the availability and cost of capital.
• Other factors affecting our ability to access the capital markets, including general capital market conditions; our
capitalization structure; market perceptions of the utility industry, us or any of our subsidiaries; and our credit ratings.
• The direct or indirect effect on our business resulting from terrorist incidents and the threat of terrorist incidents,
including cyber intrusion.
•
Inflation rates.
• The investment performance of our pension and other post-retirement benefit trusts.
• The financial performance of American Transmission Company LLC (ATC) and its corresponding contribution to our
earnings, as well as the ability of ATC and the Duke-American Transmission Company to obtain the required
approvals for their transmission projects.
• The effect of accounting pronouncements issued periodically by standard setting bodies.
• Advances in technology that result in competitive disadvantages and create the potential for impairment of existing
assets.
• 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 ability to obtain and retain short- and long-term contracts with wholesale customers.
• The expected timing and likelihood of completion of the proposed acquisition of Integrys Energy Group, Inc.
(Integrys), including the timing, receipt and terms and conditions of any required governmental and regulatory
approvals of the proposed acquisition that could reduce anticipated benefits or cause the parties to abandon the
acquisition, the ability to successfully integrate the businesses, the ability to secure necessary financing on favorable
terms, and the risk that the credit ratings of the combined company or its subsidiaries may differ from what we expect.
•
Incidents affecting the U.S. electric grid or operation of generating facilities.
• The cyclical nature of property values that could affect our real estate investments.
• Changes to the legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects,
including the State of Wisconsin's public utility holding company law.
• Foreign governmental, economic, political and currency risks.
• Other factors discussed elsewhere in this report and that may be disclosed from time to time in our Securities and
Exchange Commission (SEC) filings 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.
Wisconsin Energy Corporation
F-6
2014 Annual Financial Statements
BUSINESS OF THE COMPANY
Wisconsin Energy Corporation was incorporated in the state of Wisconsin in 1981 and became a diversified holding
company in 1986. We maintain our principal executive offices in Milwaukee, Wisconsin. Unless qualified by their context
when used in this document, the terms Wisconsin Energy, the Company, our, us or we refer to the holding company and
all of its subsidiaries.
We conduct our operations primarily in two reportable segments: a utility energy segment and a non-utility energy
segment. Our primary subsidiaries are Wisconsin Electric Power Company (Wisconsin Electric), Wisconsin Gas LLC
(Wisconsin Gas) and W.E. Power, LLC (We Power).
Utility Energy Segment: Our utility energy segment consists of Wisconsin Electric and Wisconsin Gas, operating
together under the trade name of "We Energies." We Energies serves approximately 1,133,600 electric customers in
Wisconsin and the Upper Peninsula of Michigan. We Energies serves approximately 1,089,000 gas customers in
Wisconsin and approximately 440 steam customers in metropolitan Milwaukee, Wisconsin.
Non-Utility Energy Segment: Our non-utility energy segment consists primarily of We Power, which owns and leases to
Wisconsin Electric generation plants constructed as part of our Power the Future (PTF) strategy. Port Washington
Generating Station Unit 1 (PWGS 1) and Port Washington Generating Station Unit 2 (PWGS 2) are being leased to
Wisconsin Electric under long-term leases that run for 25 years. Oak Creek expansion Unit 1 (OC 1) and Oak Creek
expansion Unit 2 (OC 2) are being leased to Wisconsin Electric under long-term leases that run for 30 years.
For further financial information about our business segments, see Results of Operations in Management’s Discussion
and Analysis and Note O -- Segment Reporting in the Notes to Consolidated Financial Statements.
Proposed Acquisition: On June 22, 2014, we entered into an agreement to acquire Integrys. The proposed acquisition
is scheduled to close in the second half of 2015, and is subject to the receipt of various approvals. The combined
company will serve approximately 1.5 million electric customers, 2.8 million gas customers, and own approximately 60%
of ATC. For additional information on this acquisition, see Corporate Strategy in Management’s Discussion and Analysis
and Note D -- Proposed Acquisition in the Notes to Consolidated Financial Statements.
Wisconsin Energy Corporation
F-7
2014 Annual Financial Statements
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CORPORATE DEVELOPMENTS
AND STRATEGY
Acquisition: On June 22, 2014, we entered into an agreement to acquire Integrys. The proposed acquisition is
scheduled to close in the second half of 2015, and is subject to the receipt of various approvals. This acquisition is in
alignment with our corporate strategy to invest in regulated electric and gas businesses. We expect the acquisition to:
• Add approximately $6.6 billion of regulated fixed assets;
• Add 0.5 million electric customers;
• Add 1.7 million gas customers; and
• Increase our ownership of ATC to 60% from 26.2%.
For additional information on this acquisition, see Note D -- Proposed Acquisition in the Notes to Consolidated Financial
Statements.
Additional Investment Opportunities: Our primary investment opportunities are in three areas: our regulated utility
business; our investment in ATC; and our generation plants within our non-utility energy segment.
Our regulated utility business primarily consists of electric generation assets and the electric and gas distribution assets
that serve our electric and gas customers under the trade name of We Energies. We Energies operates under a traditional
rate regulated cost of service environment. During 2014, our regulated utility earned $770.2 million of operating income.
Over the next five years, we currently expect to invest between $3.2 billion and $3.4 billion in this business.
We have a 26.2% ownership interest in ATC, a Midcontinent Independent System Operator, Inc. (MISO) member
company regulated by Federal Energy Regulatory Commission (FERC). Our investment in ATC totaled $424.1 million as
of December 31, 2014, and our 2014 pre-tax earnings from ATC totaled $66.0 million. Over the next five years, in addition
to any potential investment through our undistributed earnings in ATC, on a stand-alone basis we expect to make capital
contributions of approximately $130 million in ATC as it continues to invest in transmission projects.
Our non-utility energy segment consists primarily of the four generation plants constructed as part of our PTF strategy. All
four plants have been placed in service and are being leased to Wisconsin Electric under long-term leases that run for 25
years (PWGS 1 and PWGS 2) and 30 years (OC 1 and OC 2). We recognize revenues on a levelized basis over the life of
the leases. Our operating income from our non-utility business totaled $368.2 million during 2014. Over the next five
years, we expect to invest approximately $130 million in this segment. These investments should provide additional
earnings.
Wisconsin Energy Corporation
F-8
2014 Annual Financial Statements
RESULTS OF OPERATIONS
CONSOLIDATED EARNINGS
The following table compares our operating income by business segment and our net income for 2014, 2013 and 2012:
Wisconsin Energy Corporation
2014
2013
(Millions of Dollars)
2012
Utility Energy
Non-Utility Energy
Corporate and Other (a)
Total Operating Income
Equity in Earnings of Transmission Affiliate
Other Income and Deductions, net
Interest Expense, net
Income Before Income Taxes
Income Tax Expense
Net Income
Diluted Earnings Per Share
$
$
$
770.2 $
368.2
(26.3)
1,112.1
66.0
13.4
241.5
950.0
361.7
588.3 $
719.4 $
367.1
(6.4)
1,080.1
68.5
18.8
252.1
915.3
337.9
577.4 $
647.7
358.8
(6.2)
1,000.3
65.7
34.8
248.2
852.6
306.3
546.3
2.59 $
2.51 $
2.35
(a) External costs related to the proposed acquisition of Integrys reduced our 2014 earnings by $0.06 per share.
An analysis of contributions to operating income by segment and a more detailed analysis of results follows.
UTILITY ENERGY SEGMENT CONTRIBUTION TO OPERATING INCOME
The following table summarizes our utility energy segment's operating income during 2014, 2013 and 2012:
Utility Energy Segment
2014
2013
(Millions of Dollars)
2012
Operating Revenues
Electric
Gas
Other
Total Operating Revenues
Operating Expenses
Fuel and Purchased Power
Cost of Gas Sold
Other Operation and Maintenance
Depreciation and Amortization
Property and Revenue Taxes
Total Operating Expenses
Treasury Grant
Operating Income
$
$
3,401.1 $
1,496.1
44.1
4,941.3
1,228.1
1,036.1
1,462.7
340.6
121.0
4,188.5
17.4
770.2 $
3,308.7 $
1,113.7
39.6
4,462.0
1,158.1
674.1
1,522.0
320.2
116.2
3,790.6
48.0
719.4 $
3,193.9
962.6
34.3
4,190.8
1,103.8
545.8
1,476.5
296.4
120.6
3,543.1
—
647.7
An analysis of the utility energy segment follows.
Wisconsin Energy Corporation
F-9
2014 Annual Financial Statements
Electric Utility Gross Margin
The following table compares our electric utility gross margin during 2014 with similar information for 2013 and 2012,
including a summary of electric operating revenues and electric sales by customer class:
Electric Utility Operations
Customer Class
Residential
Small Commercial/Industrial
Large Commercial/Industrial
Other - Retail
Total Retail
Wholesale - Other
Resale - Utilities
Other Operating Revenues
Total
Electric Customer Choice (a)
Total, including electric customer choice
Fuel and Purchased Power
Fuel
Purchased Power
Total Fuel and Purchased Power
Total Electric Gross Margin
Weather - Degree Days (b)
Heating (6,601 Normal)
Cooling (732 Normal)
Electric Revenues and Gross Margin
2013
(Millions of Dollars)
2012
2014
$ 1,199.3 $ 1,208.6 $ 1,163.9
1,013.6
744.3
22.8
2,944.6
144.4
53.4
51.5
3,193.9
—
3,193.9
1,048.0
711.9
23.4
2,991.9
143.7
143.2
28.4
3,307.2
1.5
3,308.7
1,052.9
637.0
23.0
2,912.2
131.9
264.1
87.8
3,396.0
5.1
3,401.1
656.6
557.4
1,214.0
541.6
548.7
1,090.3
$ 2,187.1 $ 2,164.2 $ 2,103.6
611.1
533.4
1,144.5
2014
MWh Sales
2013
(Thousands)
2012
7,946.3
8,805.1
7,393.3
148.7
24,293.4
1,852.8
6,497.9
—
32,644.1
2,440.0
8,141.9
8,860.4
8,673.4
152.3
25,828.0
1,953.5
4,382.7
—
32,164.2
813.0
8,317.7
8,860.0
9,710.7
154.8
27,043.2
1,566.6
1,642.4
—
30,252.2
—
7,616
464
7,233
688
5,704
1,041
(a) Represents distribution sales for customers who have purchased power from an alternative electric supplier in Michigan.
(b) As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a 20-year
moving average.
Electric Utility Revenues and Sales
2014 vs. 2013: Our electric utility operating revenues increased by $92.4 million, or 2.8%, when compared to 2013. The
most significant factors that caused a change in revenues were:
• A $120.9 million increase in sales for resale because of increased sales into the MISO Energy Markets as a result of
Michigan's alternative electric supplier program and increased availability of our generating units. The margin on these
sales is used to reduce fuel costs for our retail customers.
• A $78.4 million decrease in large commercial/industrial sales because of the two iron ore mines switching to an
alternative electric supplier in September 2013. See Factors Affecting Results, Liquidity and Capital Resources --
Industry Restructuring and Competition -- Michigan Business, for a discussion of the impact of industry restructuring in
Michigan on our electric sales.
• A $59.4 million increase in other operating revenues, primarily driven by the recognition of $56.4 million related to
revenues under the System Support Resource (SSR) agreement with MISO. See Factors Affecting Results, Liquidity
and Capital Resources -- Industry Restructuring and Competition -- Michigan Business -- SSR Payments for further
discussion.
• Wisconsin net retail pricing increases of $38.3 million, which are primarily related to our 2013 Wisconsin Rate Case.
• Unseasonably cool summer weather which decreased electric revenues by an estimated $45.8 million.
Wisconsin Energy Corporation
F-10
2014 Annual Financial Statements
As measured by cooling degree days, 2014 was 36.6% cooler than normal, and 32.6% cooler than 2013 due to mild
second and third quarters. The unfavorable impact of the cool summer weather was partially offset by the cold winter
weather. Residential sales decreased by 2.4%, primarily due to the weather. Sales to our large commercial/industrial
customers decreased by 14.8% primarily because of the loss of the two iron ore mines in Michigan. If the mines are
excluded, sales to our large commercial/industrial customers decreased 1.1%. The two iron ore mines, which we served
on an interruptible tariff rate, switched to an alternative electric supplier effective September 1, 2013. In addition, other
smaller retail customers switched to an alternative electric supplier.
Effective February 1, 2015, the two mines returned as retail customers. We expect to defer the net revenue from those
sales and apply these amounts for the benefit of Wisconsin retail electric customers in future rate proceedings. Michigan
state law allows the mines to switch to an alternative electric supplier after sufficient notice.
2013 vs. 2012: Our electric utility operating revenues increased by $114.8 million, or 3.6%, when compared to 2012. The
most significant factors that caused a change in revenues were:
• Wisconsin net retail pricing increases of $115.6 million ($177.7 million less $62.1 million related to Section 1603
Renewable Energy Treasury Grant (Treasury Grant) bill credits), which are primarily related to our 2013 Wisconsin
Rate Case. For information on the Treasury Grant and the rate order in the 2013 rate case, see Factors Affecting
Results, Liquidity and Capital Resources -- Accounting Developments and -- Utility Rates and Regulatory Matters,
respectively.
• An $89.8 million increase in sales for resale due to increased sales into the MISO Energy Markets as a result of
increased availability of our generating units.
• A $48.0 million decrease in large commercial/industrial sales due to the two iron ore mines that switched to an
alternative electric supplier effective September 1, 2013.
• A $23.1 million decrease in other operating revenues, primarily driven by the amortization of $25.9 million in 2012
related to proceeds we received as part of a settlement with the United States Department of Energy (DOE) regarding
the DOE's failure to remove spent nuclear fuel from Point Beach Nuclear Power Plant (Point Beach).
• A return to more normal summer weather as compared to 2012 that decreased electric revenues by an estimated
$17.7 million.
As measured by cooling degree days, 2013 was 5.8% cooler than normal, and 33.9% cooler than 2012. Residential sales
decreased by 2.1%, primarily due to the weather. Sales to our large commercial/industrial customers decreased by 10.7%
primarily because of the loss of the two iron ore mines in Michigan. If the mines are excluded, sales to our large
commercial/industrial customers decreased 3.0%. Wholesale - Other sales increased 24.7% primarily due to increased
off-peak energy sales which generate lower incremental revenue because the majority of our wholesale revenue is tied to
demand.
Electric Fuel and Purchased Power Expenses
2014 vs. 2013: Our electric fuel and purchased power costs increased by $69.5 million, or approximately 6.1%, when
compared to 2013. This increase was primarily caused by a 1.5% increase in total MWh sales and higher generating costs
driven by an increase in natural gas prices.
2013 vs. 2012: Our electric fuel and purchased power costs increased by $54.2 million, or approximately 5.0%, when
compared to 2012. This increase was primarily caused by a 6.3% increase in total MWh sales, partially offset by a
decrease in our average cost of fuel because of outage timing and a decrease in coal costs.
Wisconsin Energy Corporation
F-11
2014 Annual Financial Statements
Gas Utility Revenues, Gross Margin and Therm Deliveries
The following table compares our total gas utility operating revenues and gross margin (total gas utility operating revenues
less cost of gas sold) during 2014, 2013 and 2012.
Gas Utility Operations
2014
2013
(Millions of Dollars)
2012
Operating Revenues
Cost of Gas Sold
Gross Margin
$
$
1,496.1 $
1,036.1
460.0 $
1,113.7 $
674.1
439.6 $
962.6
545.8
416.8
We believe gross margin is a better performance indicator than revenues because changes in the cost of gas sold flow
through to revenue under Gas Cost Recovery Mechanisms (GCRMs). Our average cost of gas per therm during 2014,
2013 and 2012 was $0.70, $0.48 and $0.50, respectively. The following table compares our gas utility gross margin and
therm deliveries by customer class during 2014, 2013 and 2012:
Gas Utility Operations
2014
Gross Margin
2013
(Millions of Dollars)
2012
2014
Therm Deliveries
2013
(Millions)
2012
Customer Class
Residential
Commercial/Industrial
Interruptible
Total Retail
Transported Gas
Other Operating
Total
Weather - Degree Days (a)
Heating (6,601 Normal)
$
$
291.8 $
104.6
1.9
398.3
55.1
6.6
460.0 $
284.2 $
96.5
1.8
382.5
51.7
5.4
439.6 $
267.9
88.8
1.7
358.4
52.9
5.5
416.8
911.5
553.1
18.6
1,483.2
1,087.5
—
2,570.7
872.0
499.9
18.1
1,390.0
1,052.8
—
2,442.8
676.4
390.6
14.6
1,081.6
1,140.4
—
2,222.0
7,616
7,233
5,704
(a) As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a 20-year moving
average.
2014 vs. 2013: Our total retail gas margin increased by $15.8 million, or approximately 4.1%, when compared to 2013,
primarily because of colder winter weather in 2014. We estimate that colder winter weather increased gas margins by
approximately $11.2 million. As measured by heating degree days, 2014 was 5.3% colder than 2013 and 15.4% colder
than normal.
2013 vs. 2012: Our total retail gas margin increased by $24.1 million, or approximately 6.7%, when compared to 2012.
We estimate that colder winter weather increased gas margins by approximately $56.9 million. As measured by heating
degree days, 2013 was 26.8% colder than 2012 and 9.9% colder than normal. Gas margins were reduced by $42.3
million because of lower gas rates that became effective January 1, 2013.
Other Operation and Maintenance Expense
2014 vs. 2013: Our other operation and maintenance expense decreased by $59.3 million, or approximately 3.9%, when
compared to 2013. This decrease was primarily driven by lower benefit costs related to pensions and medical costs.
Our utility operation and maintenance expenses are influenced by, among other things, labor costs, employee benefit
costs, plant outages and amortization of regulatory assets.
Wisconsin Energy Corporation
F-12
2014 Annual Financial Statements
2013 vs. 2012: Our other operation and maintenance expense increased by $45.5 million, or approximately 3.1%, when
compared to 2012. This increase was primarily driven by the reinstatement of $148.0 million of regulatory amortizations,
offset in part by a $50.1 million reduction in bad debt expense related to our natural gas customers and continued cost
control efforts across our utilities. For additional information on the regulatory amortizations, see Factors Affecting Results,
Liquidity and Capital Resources -- Utility Rates and Regulatory Matters -- 2012 Wisconsin Rate Case.
Depreciation and Amortization Expense
2014 vs. 2013: Depreciation and Amortization expense increased by $20.4 million, or approximately 6.4%, when
compared to 2013. This increase was primarily because of an overall increase in utility plant in service as a result of the
biomass plant that went into service in November 2013. For additional information on the biomass facility, see Factors
Affecting Results, Liquidity and Capital Resources -- Utility Rates and Regulatory Matters -- Renewables, Efficiency, and
Conservation.
2013 vs. 2012: Depreciation and Amortization expense increased by $23.8 million, or approximately 8.0%, when
compared to 2012. This increase was primarily because of an overall increase in utility plant in service. In addition to the
biomass facility that went into service in November 2013, the emission control equipment for units 5 and 6 of the Oak
Creek Air Quality Control System (AQCS) project went into service in March 2012, and for units 7 and 8 in September
2012.
Treasury Grant
During 2014, we recognized $17.4 million of income related to a Treasury Grant associated with the completion of the
biomass plant, compared to $48.0 million in 2013. The lower grant income corresponds to the lower bill credits provided to
our retail electric customers in Wisconsin in 2014. For additional information on the Treasury Grant, see Factors Affecting
Results, Liquidity and Capital Resources -- Accounting Developments.
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO OPERATING INCOME
Our non-utility energy segment consists primarily of our PTF units (PWGS 1, PWGS 2, OC 1 and OC 2).
This segment reflects the lease revenues on the PTF units as well as the depreciation expense. Operating and
maintenance costs and limited management fees associated with the plants are the responsibility of Wisconsin Electric
and are recorded in the utility segment.
2014
2013
(Millions of Dollars)
2012
Operating Revenues
Operation and Maintenance Expense
Depreciation Expense
Operating Income
$
$
447.1 $
11.4
67.5
368.2 $
446.7 $
12.5
67.1
367.1 $
439.9
14.0
67.1
358.8
2014 vs. 2013: Non-utility energy segment operating income increased $1.1 million, or approximately 0.3%, when
compared to 2013.
2013 vs. 2012: Non-utility energy segment operating income increased $8.3 million, or approximately 2.3%, when
compared to 2012. The increase primarily relates to the increase in operating revenues related to the final approved
construction costs for the Oak Creek expansion as part of the 2013 Wisconsin Rate Case.
Wisconsin Energy Corporation
F-13
2014 Annual Financial Statements
CORPORATE AND OTHER CONTRIBUTION TO OPERATING INCOME
2014 vs. 2013: Corporate and other affiliates had an operating loss of $26.3 million in 2014 compared with an operating
loss of $6.4 million in 2013. The increase in operating loss is primarily attributable to approximately $14.6 million, or $0.06
per share, of external costs related to the proposed acquisition of Integrys.
2013 vs. 2012: Corporate and other affiliates had an operating loss of $6.4 million in 2013 compared with an operating
loss of $6.2 million in 2012.
CONSOLIDATED OTHER INCOME AND DEDUCTIONS, NET
Other Income and Deductions, net
2014
2013
(Millions of Dollars)
2012
AFUDC - Equity
Gain on Property Sales
Other, net
Total Other Income and Deductions, net
$
$
5.6 $
7.5
0.3
13.4 $
18.3 $
0.8
(0.3 )
18.8 $
35.3
2.7
(3.2 )
34.8
2014 vs. 2013: Other income and deductions, net decreased by approximately $5.4 million, or 28.7%, when compared
to 2013. This decrease primarily relates to lower AFUDC - Equity related to the biomass plant going into service in
November 2013, partially offset by an increased gain on property sales.
2013 vs. 2012: Other income and deductions, net decreased by approximately $16.0 million, or 46.0%, when compared
to 2012. This decrease primarily relates to lower AFUDC - Equity related to the Oak Creek AQCS project which emission
control equipment went into service in March 2012 for units 5 and 6 and September 2012 for units 7 and 8, partially offset
by the biomass plant which went into service in November 2013.
CONSOLIDATED INTEREST EXPENSE, NET
Interest Expense, net
2014
2013
(Millions of Dollars)
2012
Gross Interest Costs
Less: Capitalized Interest
Interest Expense, net
$
$
244.5 $
3.0
241.5 $
261.5 $
9.4
252.1 $
264.1
15.9
248.2
2014 vs. 2013: Our net interest expense decreased by $10.6 million, or 4.2%, as compared to 2013 primarily because of
lower debt levels and lower average interest rates on long-term debt. Our capitalized interest decreased by $6.4 million
primarily because of lower construction work in progress as the biomass plant went into service in November 2013.
2013 vs. 2012: Our net interest expense increased by $3.9 million, or 1.6%, as compared to 2012 primarily because of
lower capitalized interest. Our capitalized interest decreased by $6.5 million primarily because of lower construction work
in progress.
CONSOLIDATED INCOME TAX EXPENSE
2014 vs. 2013: Our effective tax rate applicable to continuing operations was 38.1% in 2014 compared to 36.9% in 2013.
This increase in our effective tax rate was due to reduced tax benefits associated with Treasury Grant income, decreased
AFUDC - Equity and non-deductible acquisition related expenses. For further information, see Note G -- Income Taxes in
the Notes to Consolidated Financial Statements. We expect our 2015 annual effective tax rate to be between 37.0% and
38.0%.
Wisconsin Energy Corporation
F-14
2014 Annual Financial Statements
2013 vs. 2012: Our effective tax rate applicable to continuing operations was 36.9% in 2013 compared to 35.9% in 2012.
This increase in our effective tax rate was due to reduced domestic production activities deductions and AFUDC - Equity.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following table summarizes our cash flows during 2014, 2013 and 2012:
Cash Provided by (Used in)
Operating Activities
Investing Activities
Financing Activities
Operating Activities
2014
2013
(Millions of Dollars)
2012
$
$
$
1,197.7 $
(756.8 ) $
(405.0 ) $
1,231.0 $
(745.8 ) $
(494.8 ) $
1,173.9
(729.6 )
(422.8 )
2014 vs. 2013: Cash provided by operating activities was $1,197.7 million during 2014, which was a decrease of $33.3
million when compared to 2013. During 2014, we experienced higher net income, depreciation expense and favorable
cash flows from accounts receivable, primarily because of the timing of the Treasury Grant. More than offsetting these
favorable items were increases in working capital related to natural gas in storage and increases in regulatory assets.
2013 vs. 2012: Cash provided by operating activities was $1,231.0 million during 2013, which was an increase of $57.1
million over 2012. The increase is primarily because of lower contributions to our qualified benefit plans and higher non-
cash charges to earnings. During 2013, we made no contributions to our qualified benefit plans, compared to contributions
of $100 million during 2012. In addition, we had higher net income, depreciation expense and amortization expense.
Included in the higher amortization expense is a $77.9 million increase in the amortization of regulatory items. Partially
offsetting these items is an increase in accounts receivable and accrued revenues of $201.2 million because of colder
winter weather and the Treasury Grant.
Investing Activities
2014 vs. 2013: Cash used in investing activities was $756.8 million during 2014, which was $11.0 million higher than
2013. This increase was driven by an increase of $48.7 million in capital expenditures, primarily because of starting the
conversion of the fuel source for Valley Power Plant (VAPP) from coal to natural gas. This increase in cash used in
investing activities was partially offset by an increase in proceeds received from asset sales and a decrease of cost of
removal, net of salvage.
The following table identifies capital expenditures by year:
Capital Expenditures
2014
2013
(Millions of Dollars)
2012
Utility
We Power
Other
Total Capital Expenditures
$
$
689.9 $
41.1
5.1
736.1 $
657.9 $
26.1
3.4
687.4 $
697.3
5.5
4.2
707.0
2013 vs. 2012: Cash used in investing activities was $745.8 million during 2013, which was $16.2 million higher than
2012. Our change in restricted cash decreased by $40.1 million, which is related to the 2012 release of restricted cash
through bill credits and the reimbursement of costs associated with the proceeds we received from the settlement with the
DOE. Our capital expenditures decreased by $19.6 million during 2013 as compared to 2012, primarily because of
decreased spending as the Oak Creek AQCS project went into service in 2012.
Wisconsin Energy Corporation
F-15
2014 Annual Financial Statements
Financing Activities
The following table summarizes our cash flows from financing activities:
2014
2013
(Millions of Dollars)
2012
Dividends on Common Stock
Common Stock Repurchased, Net
Net Increase (Decrease) in Debt
Other
Cash Used in Financing
$
$
(352.0 ) $
(72.9)
5.9
14.0
(405.0 ) $
(328.9 ) $
(174.9)
(3.4)
12.4
(494.8 ) $
(276.3 )
(103.4)
(43.8)
0.7
(422.8 )
2014 vs. 2013: Cash used in financing activities was $405.0 million during 2014, compared to $494.8 million during
2013. The decrease in cash used in financing activities was primarily driven by a decrease in common stock repurchased
as a result of our Board of Directors terminating our share repurchase program in connection with the proposed
acquisition of Integrys. During 2014, we repurchased $18.6 million of common stock as compared to $126.0 million in
2013 as part of the share repurchase program. See Note H -- Common Equity for additional information on share
repurchases. Our dividends paid on common stock increased by $23.1 million during 2014 as compared to 2013, as a
result of increases in the quarterly common stock dividend of 12.5% and 2.0% in the third quarter of 2013 and first quarter
of 2014, respectively.
2013 vs. 2012: Cash used in financing activities was $494.8 million during 2013, compared to $422.8 million during
2012. Our dividends paid on common stock increased by $52.6 million during 2013 as compared to 2012, as a result of
increases in the quarterly common stock dividend of 13.3% and 12.5% in the first and third quarter, respectively. In 2013,
we repurchased approximately 3.0 million shares in the open market at a total cost of $126.0 million, compared to 1.5
million shares at a cost of $51.8 million in 2012 pursuant to a share repurchase program that expired at the end of 2013.
No new shares of Wisconsin Energy's common stock were issued in 2014, 2013 or 2012. During these years, our
independent plan agents purchased, in the open market, 2.3 million shares at a cost of $104.6 million, 2.4 million shares
at a cost of $97.4 million and 2.8 million shares at a cost of $101.4 million, respectively, to fulfill exercised stock options
and restricted stock awards. In 2014, 2013 and 2012, we received proceeds of $50.3 million, $48.5 million and
$49.8 million, respectively, related to the exercise of stock options. In addition, we instructed our independent agents to
purchase shares of our common stock in the open market to satisfy our obligations under our stock purchase and
dividend reinvestment plan and various employee benefit plans.
CAPITAL RESOURCES AND REQUIREMENTS
Working Capital
As of December 31, 2014, our current liabilities exceeded our current assets by approximately $133.3 million. We do not
expect this to have any impact on our liquidity because we believe we have adequate back-up lines of credit in place for
ongoing operations. We also have access to the capital markets to finance our construction program and to refinance
current maturities of long-term debt if necessary.
Liquidity
We anticipate meeting our capital requirements for our existing operations through internally generated funds and short-
term borrowings, supplemented by the issuance of intermediate or long-term debt securities.
For our existing business, we currently have access to the capital markets and have been able to generate funds
internally and externally to meet our capital requirements. Our ability to attract the necessary financial capital at
reasonable terms is critical to our overall strategic plan. We currently believe that we have adequate capacity to fund our
operations for the foreseeable future through our existing borrowing arrangements, access to capital markets and
internally generated cash.
Wisconsin Energy Corporation
F-16
2014 Annual Financial Statements
Wisconsin Energy, Wisconsin Electric and Wisconsin Gas maintain bank back-up credit facilities, which provide liquidity
support for each company's obligations with respect to commercial paper and for general corporate purposes.
As of December 31, 2014, we had approximately $1.2 billion of available, undrawn lines under our bank back-up credit
facilities. As of December 31, 2014, we had approximately $617.6 million of commercial paper outstanding on a
consolidated basis that was supported by the available lines of credit. During 2014, our maximum commercial paper
outstanding was $721.4 million with a weighted-average interest rate of 0.18%. For additional information regarding our
commercial paper balances during 2014, see Note K -- Short-Term Debt in the Notes to Consolidated Financial
Statements.
We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit
facilities to support our operations. The following table summarizes such facilities as of December 31, 2014:
Company
Total Facility
Letters of Credit Credit Available
(Millions of Dollars)
Facility
Expiration
Wisconsin Energy
Wisconsin Electric
Wisconsin Gas
$
$
$
400.0 $
500.0 $
350.0 $
— $
5.1 $
— $
400.0 December 2019
494.9 December 2019
350.0 December 2019
In December 2014, we amended each of our credit facilities to extend their expirations from December 2017 to December
2019.
Each of these facilities has a renewal provision for two one-year extensions, subject to lender approval.
The following table shows our capitalization structure as of December 31, 2014 and 2013, as well as an adjusted
capitalization structure that we believe is consistent with the manner in which the rating agencies currently view Wisconsin
Energy's 2007 Series A Junior Subordinated Notes due 2067 (Junior Notes):
Capitalization Structure
Actual
Adjusted
Actual
Adjusted
2014
2013
(Millions of Dollars)
Common Equity
Preferred Stock of Subsidiary
Long-Term Debt (including current maturities)
Short-Term Debt
Total Capitalization
Total Debt
$
$
$
4,419.7
30.4
4,610.5
617.6
9,678.2
$
$
4,669.7
30.4
4,360.5
617.6
9,678.2
$
$
4,233.0
30.4
4,705.4
537.4
9,506.2
$
$
4,483.0
30.4
4,455.4
537.4
9,506.2
5,228.1
$
4,978.1
$
5,242.8
$
4,992.8
Ratio of Debt to Total Capitalization
54.0%
51.4 %
55.2 %
52.5 %
For a summary of the interest rate, maturity and amount outstanding of each series of our long-term debt on a
consolidated basis, see the Consolidated Statements of Capitalization.
Included in Long-Term Debt on our Consolidated Balance Sheets as of December 31, 2014 and 2013 is $500 million
aggregate principal amount of the Junior Notes. The adjusted presentation attributes $250 million of the Junior Notes to
Common Equity and $250 million to Long-Term Debt. We believe this presentation is consistent with the 50% or greater
equity credit the majority of rating agencies currently attribute to the Junior Notes.
Wisconsin Energy Corporation
F-17
2014 Annual Financial Statements
The adjusted presentation of our consolidated capitalization structure is presented as a complement to our capitalization
structure presented in accordance with GAAP. Management evaluates and manages Wisconsin Energy's capitalization
structure, including its total debt to total capitalization ratio, using the GAAP calculation as adjusted by the rating agency
treatment of the Junior Notes. Therefore, we believe the non-GAAP adjusted presentation reflecting this treatment is
useful and relevant to investors in understanding how management and the rating agencies evaluate our capitalization
structure.
As described in Note H -- Common Equity, in the Notes to Consolidated Financial Statements, certain restrictions exist on
the ability of our subsidiaries to transfer funds to us. We do not expect these restrictions to have any material effect on our
operations or ability to meet our cash obligations.
Wisconsin Electric is the obligor under two series of tax exempt pollution control refunding bonds in outstanding principal
amounts of $147 million. In August 2009, Wisconsin Electric terminated letters of credit that provided credit and liquidity
support for the bonds, which resulted in a mandatory tender of the bonds. Wisconsin Electric issued commercial paper to
fund the purchase of the bonds. As of December 31, 2014, the repurchased bonds were still outstanding, but were not
reported as long-term debt or included on our Consolidated Statements of Capitalization because they are held by
Wisconsin Electric. Depending on market conditions and other factors, Wisconsin Electric may change the method used
to determine the interest rate on the bonds and have them remarketed to third parties.
Bonus Depreciation Provisions
The Tax Increase Prevention Act of 2014 was signed into law on December 19, 2014, which extended the 50% bonus
depreciation rules to include assets placed in service in 2014. As a result of the increased federal tax depreciation for
2014 and prior years, we did not make federal income tax payments for 2013 and 2014.
Credit Rating Risk
We do not have any credit agreements that would require material changes in payment schedules or terminations as a
result of a credit rating downgrade. We do have certain agreements in the form of commodity contracts and employee
benefit plans that could require collateral or a termination payment in the event of a credit rating change to below BBB- at
Standard & Poor's Ratings Services (S&P) and/or Baa3 at Moody's Investor Service (Moody's). As of December 31, 2014,
we estimate that the collateral or the termination payments required under these agreements totaled approximately
$198.0 million. Generally, collateral may be provided by a Wisconsin Energy guaranty, letter of credit or cash. We also
have other commodity contracts that in the event of a credit rating downgrade could result in a reduction of our unsecured
credit granted by counterparties.
In addition, access to capital markets at a reasonable cost is determined in large part by credit quality. Any credit ratings
downgrade could impact our ability to access capital markets.
In December 2014, Moody's affirmed the ratings of Wisconsin Electric (senior unsecured, A1; commercial paper, P-1) and
Wisconsin Gas (senior unsecured, A1; commercial paper, P-1). Moody's affirmed the stable ratings outlook for Wisconsin
Electric and Wisconsin Gas. In June 2014, Moody's affirmed the ratings of Wisconsin Energy (senior unsecured, A2; junior
subordinated, A3; commercial paper, P-1), Elm Road Generating Station Supercritical, LLC (ERGSS) (senior notes, A1)
and Wisconsin Energy Capital Corporation (WECC) (senior unsecured, A2). Moody's also affirmed the stable ratings
outlook for ERGSS, and revised the ratings outlook for Wisconsin Energy and WECC from stable to negative.
In August 2014, Fitch Ratings (Fitch) affirmed the ratings of Wisconsin Electric (commercial paper, F1; senior unsecured,
A+), Wisconsin Gas (commercial paper, F1; senior unsecured, A) and ERGSS (senior notes, A+). Fitch also affirmed the
stable ratings outlook for these companies. In June 2014, Fitch placed the ratings of Wisconsin Energy and WECC on
Rating Watch Negative.
In June 2014, S&P affirmed the ratings of Wisconsin Energy (commercial paper, A-2; senior unsecured, BBB+; junior
subordinated, BBB), Wisconsin Electric (commercial paper, A-2; senior unsecured, A-), Wisconsin Gas (commercial paper,
A-1; senior unsecured, A) and WECC (senior unsecured, A-). S&P affirmed the stable ratings outlook for Wisconsin
Electric and Wisconsin Gas, and revised the ratings outlook from stable to negative for Wisconsin Energy and WECC.
The change in outlooks for Wisconsin Energy and WECC relates to the proposed acquisition of Integrys.
Wisconsin Energy Corporation
F-18
2014 Annual Financial Statements
Subject to other factors affecting the credit markets as a whole, we believe our current ratings should provide a significant
degree of flexibility in obtaining funds on competitive terms. However, these security ratings reflect the views of the rating
agencies only. An explanation of the significance of these ratings may be obtained from each rating agency. Such ratings
are not a recommendation to buy, sell or hold securities. Any rating can be revised upward or downward or withdrawn at
any time by a rating agency.
Capital Requirements
Acquisition of Integrys: On June 22, 2014, we entered into an agreement to acquire Integrys. We expect the
transaction to close in the second half of 2015. Under the terms of the Merger Agreement, for each share of Integrys
common stock, Integrys shareholders will receive 1.128 shares of Wisconsin Energy common stock and $18.58 in cash.
We expect to finance the acquisition through the issuance of approximately 91 million shares of Wisconsin Energy
common stock to Integrys shareholders and through the issuance of $1.5 billion of debt. We will also assume all of
Integrys' outstanding debt, which had an estimated fair value of $3.3 billion.
Capital Expenditures: For our existing business, our estimated capital expenditures for the next three years are as
follows:
Capital Expenditures
2015
2016
(Millions of Dollars)
2017
Utility
We Power
Other
Total
$
$
765.5 $
48.3
13.9
827.7 $
627.6 $
28.7
5.5
661.8 $
657.5
6.6
0.2
664.3
The majority of spending consists of upgrading our electric and gas distribution systems. Our actual future long-term
capital requirements may vary from these estimates because of changing environmental and other regulations such as air
quality standards, renewable energy standards and electric reliability initiatives that impact our utility energy segment.
Common Stock Matters: In December 2013, our Board of Directors authorized a share repurchase program for up to
$300 million of our common stock from January 1, 2014 through the end of 2017. Through December 31, 2014, we
acquired approximately 0.4 million shares in the open market at a cost of $18.6 million pursuant to this program. All of
these shares were purchased during the first quarter of 2014. On June 22, 2014, in connection with the proposed
acquisition of Integrys, the Board of Directors terminated this share repurchase program.
In addition, on January 15, 2015, our Board of Directors increased our quarterly common stock dividend to $0.4225 per
share, up approximately 8.3%, from $0.39 per share, effective with the first quarter 2015 dividend payment. This equates
to an annual dividend of $1.69 per share. The Board of Directors reaffirmed a policy that targets a dividend payout ratio
that trends to 65-70% of earnings in 2017.
Upon consummation of the proposed acquisition of Integrys, we expect to increase the dividend 7-8% for our
shareholders to reflect the dividend policy of the combined company. The projected payout target for the combined
company in future years after closing the acquisition is 65-70% of earnings.
Investments in Outside Trusts: We use outside trusts to fund our pension and certain other post-retirement
obligations. These trusts had investments of approximately $1.8 billion as of December 31, 2014. These trusts hold
investments that are subject to the volatility of the stock market and interest rates.
During 2014 and 2013, we made no contributions to our qualified pension plans or our qualified Other Post-Retirement
Employee Benefit (OPEB) plans. In January 2015, we contributed $100 million to our qualified pension plans. Future
contributions to the plans will be dependent upon many factors, including the performance of existing plan assets and
long-term discount rates. For additional information, see Note N -- Benefits in the Notes to Consolidated Financial
Statements.
Wisconsin Energy Corporation
F-19
2014 Annual Financial Statements
Off-Balance Sheet Arrangements: We are a party to various financial instruments with off-balance sheet risk as a part
of our normal course of business, including financial guarantees and letters of credit which support construction projects,
commodity contracts and other payment obligations. We believe that these agreements do not have, and are not
reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our investors. For
additional information, see Note F -- Variable Interest Entities in the Notes to Consolidated Financial Statements in this
report.
Contractual Obligations/Commercial Commitments: We have the following contractual obligations and other
commercial commitments as of December 31, 2014:
Contractual Obligations (a)
Total
Payments Due by Period
Less than
1 year
1-3 years 3-5 years
More than
5 years
(Millions of Dollars)
Long-Term Debt Obligations (b)
Capital Lease Obligations (c)
Operating Lease Obligations (d)
Purchase Obligations (e)
Other Long-Term Liabilities
Total Contractual Obligations
$ 8,716.4 $
932.2 $ 6,683.1
41.3
21.5
8,424.8
491.8
$ 21,646.0 $ 1,542.0 $ 2,176.8 $ 2,264.7 $ 15,662.5
592.2 $
59.0
7.1
1,310.3
208.2
508.9 $
43.5
5.2
879.5
104.9
174.0
38.1
11,707.9
1,009.6
30.2
4.3
1,093.3
204.7
(a) The amounts included in the table are calculated using current market prices, forward curves and other estimates.
(b) Principal and interest payments on Long-Term Debt (excluding capital lease obligations).
(c) Capital Lease Obligations of Wisconsin Electric for power purchase commitments. This amount does not include We Power
leases to Wisconsin Electric which are eliminated upon consolidation.
(d) Operating Lease Obligations for power purchase commitments and rail car leases.
(e) Purchase Obligations under various contracts for the procurement of fuel, power, gas supply and associated transportation
related to utility operations and for construction, information technology and other services for utility and We Power operations.
This includes the power purchase agreement for Point Beach.
The table above does not include liabilities related to the accounting treatment for uncertainty in income taxes because we
are not able to make a reasonably reliable estimate as to the amount and period of related future payments at this time.
For additional information regarding these liabilities, refer to Note G -- Income Taxes in the Notes to Consolidated
Financial Statements in this report.
Obligations for utility operations have historically been included as part of the rate-making process and therefore are
generally recoverable from customers.
Wisconsin Energy Corporation
F-20
2014 Annual Financial Statements
FACTORS AFFECTING RESULTS, LIQUIDITY AND CAPITAL RESOURCES
MARKET RISKS AND OTHER SIGNIFICANT RISKS
We are exposed to market and other significant risks as a result of the nature of our businesses and the environment in
which those businesses operate. These risks, described in further detail below, include but are not limited to:
Regulatory Recovery: Our utility energy segment accounts for its regulated operations in accordance with accounting
guidance for regulated entities. Our rates are determined by regulatory authorities. Our primary regulator is the Public
Service Commission of Wisconsin (PSCW). Regulated entities are allowed to defer certain costs that would otherwise be
charged to expense, if the regulated entity believes the recovery of these costs is probable. We record regulatory assets
pursuant to specific orders or by a generic order issued by our regulators, and recovery of these deferred costs in future
rates is subject to the review and approval of those regulators. We assume the risks and benefits of ultimate recovery of
these items in future rates. If the recovery of these costs is not approved by our regulators, the costs are charged to
income in the current period. In general, regulatory assets are recovered in a period between one to eight years.
Regulatory assets associated with pension and OPEB expenses are amortized as a component of pension and OPEB
expense. Regulators can impose liabilities on a prospective basis for amounts previously collected from customers and for
amounts that are expected to be refunded to customers. We record these items as regulatory liabilities. As of
December 31, 2014, our regulatory assets totaled $1,271.2 million and our regulatory liabilities totaled $830.6 million.
Commodity Prices: In the normal course of providing energy, we are subject to market fluctuations of the costs of coal,
natural gas, purchased power and fuel oil used in the delivery of coal. We manage our fuel and gas supply costs through
a portfolio of short and long-term procurement contracts with various suppliers for the purchase of coal, natural gas and
fuel oil. In addition, we manage the risk of price volatility by utilizing gas and electric hedging programs.
Wisconsin's retail electric fuel cost adjustment procedure mitigates some of Wisconsin Electric's risk of electric fuel cost
fluctuation. The fuel rules allow for a deferral of prudently incurred fuel costs that fall outside of a symmetrical band (plus
or minus 2%). Under the rules, any over or under-collection of fuel costs deferred at the end of the year would be
incorporated into fuel cost recovery rates in future years. For information regarding the fuel rules, see Utility Rates and
Regulatory Matters -- Wisconsin Fuel Proceedings.
Natural Gas Costs: Higher natural gas costs could increase our working capital requirements and result in higher gross
receipts taxes in the state of Wisconsin. Higher natural gas costs combined with slower economic conditions also expose
us to greater risks of accounts receivable write-offs as more customers are unable to pay their bills. Higher natural gas
costs may also lead to increased energy efficiency investments by our customers to reduce utility usage and/or fuel
substitution.
As part of its December 2014 rate order, the PSCW authorized continued use of the escrow method of accounting for bad
debt costs. The escrow method of accounting for bad debt costs allows for deferral of Wisconsin residential bad debt
expense that exceeds or is less than amounts allowed in rates.
As a result of GCRMs, our gas utility operations receive dollar for dollar recovery on the cost of natural gas. However,
increased natural gas costs increase the risk that customers will switch to alternative fuel sources, which could reduce
future gas margins. For information concerning the natural gas utilities' GCRMs, see Utility Rates and Regulatory Matters.
Weather: Our Wisconsin utility rates are set by the PSCW based upon estimated temperatures which approximate 20-
year averages. Wisconsin Electric's electric revenues and sales are unfavorably sensitive to below normal temperatures
during the summer cooling season, and to some extent, to above normal temperatures during the winter heating season.
Our gas revenues and sales are unfavorably sensitive to above normal temperatures during the winter heating season. A
summary of actual weather information in the utility segment's service territory during 2014, 2013 and 2012, as measured
by degree days, may be found above in Results of Operations.
Interest Rate: We have various short-term borrowing arrangements to provide working capital and general corporate
funds. We also have variable rate long-term debt outstanding as of December 31, 2014. Borrowing levels under these
arrangements vary from period to period depending on capital investments and other factors. Future short-term interest
expense and payments will reflect both future short-term interest rates and borrowing levels.
We performed an interest rate sensitivity analysis as of December 31, 2014 of our outstanding portfolio of commercial
paper and variable rate long-term debt. As of December 31, 2014, we had $617.6 million of commercial paper outstanding
Wisconsin Energy Corporation
F-21
2014 Annual Financial Statements
with a weighted average interest rate of 0.22%. A one-percentage point change in interest rates would cause our annual
interest expense to increase or decrease by approximately $6.2 million.
Marketable Securities Return: We use various trusts to fund our pension and OPEB obligations. These trusts invest in
debt and equity securities. Changes in the market prices of these assets can affect future pension and OPEB expenses.
Additionally, future contributions can also be affected by the investment returns on trust fund assets. We believe that the
financial risks associated with investment returns would be partially mitigated through future rate actions by our various
utility regulators.
The fair value of our trust fund assets and expected long-term returns were approximately:
As of
December 31, 2014
(Millions of Dollars)
Expected Return on
Assets in 2015
Pension trust funds
Other post-retirement benefits trust funds
$
$
1,444.6
333.5
7.00 %
7.25 %
Fiduciary oversight of the pension and OPEB trust fund investments is the responsibility of an Investment Trust Policy
Committee. The Committee works with external actuaries and investment consultants on an ongoing basis to establish
and monitor investment strategies and target asset allocations. Forecasted cash flows for plan liabilities are regularly
updated based on annual valuation results. Target asset allocations are determined utilizing projected benefit payment
cash flows and risk analyses of appropriate investments. The targeted asset allocations are intended to reduce risk,
provide long-term financial stability for the plans and maintain funded levels which meet long-term plan obligations while
preserving sufficient liquidity for near-term benefit payments. Investment strategies utilize a wide diversification of asset
types and qualified external investment managers.
We consult with our investment advisors on an annual basis to help us forecast expected long-term returns on plan assets
by reviewing actual historical returns and calculating expected total trust returns using the weighted-average of long-term
market returns for each of the major target asset categories utilized in the fund.
Economic Conditions: Our service territory is within the state of Wisconsin and the Upper Peninsula of Michigan. We
are exposed to market risks in the regional midwest economy. In addition, any economic downturn or disruption of
national or international markets could adversely affect the financial condition of our customers and demand for their
products, which could affect their demand for our products.
Inflation: We continue to monitor the impact of inflation, especially with respect to the costs of medical plans, fuel,
transmission access, construction costs, and regulatory and environmental compliance in order to minimize its effects in
future years through pricing strategies, productivity improvements and cost reductions. We do not believe the impact of
general inflation will have a material impact on our future results of operations.
For additional information concerning risk factors, including market risks, see the Cautionary Statement Regarding
Forward-Looking Information at the beginning of this report.
Wisconsin Energy Corporation
F-22
2014 Annual Financial Statements
POWER THE FUTURE
All of the PTF units have been placed into service and are positioned to provide a significant portion of our future
generation needs. The PTF units include PWGS 1, PWGS 2, OC 1 and OC 2.
As part of our 2013 Wisconsin Rate Case, the PSCW determined that 100% of the construction costs for our Oak Creek
expansion units were prudently incurred, and approved the recovery in rates of more than 99.5% of these costs.
We are recovering our costs in these units, including subsequent capital additions, through lease payments associated
with PWGS 1, PWGS 2, OC 1 and OC 2 that are billed from We Power to Wisconsin Electric and then recovered in
Wisconsin Electric's rates as authorized by the PSCW, the Michigan Public Service Commission (MPSC) and FERC.
Under the lease terms, our return is calculated using a 12.7% return on equity and the equity ratio is assumed to be 53%
for the PWGS Units and 55% for the Oak Creek Units.
Wisconsin Electric operates the PTF units and is authorized by the PSCW to fully recover prudently incurred operating
and maintenance costs in its Wisconsin electric rates. As the operator of the units, Wisconsin Electric may request We
Power make capital improvements to or further investments in the units. Under the lease terms, we would expect the
costs of any capital improvements or further investments to be added to the lease payments, and ultimately to be
recovered in Wisconsin Electric's rates.
We Power assigned its warranty rights to Wisconsin Electric upon turnover of each of the Oak Creek expansion units. The
warranty claim for costs incurred to repair steam turbine corrosion damage identified on both units was scheduled to go to
arbitration in October 2013, but we entered into a settlement agreement with Bechtel Power Corporation (Bechtel) in
June 2013 resolving the claim, as well as several other warranty claims. This settlement did not have a material impact to
our financial statements. All warranty claims between the Company and Bechtel have now been resolved, none of which
had a material impact on our financial statements.
UTILITY RATES AND REGULATORY MATTERS
The PSCW regulates our retail electric, natural gas and steam rates in the state of Wisconsin, while FERC regulates our
wholesale power, electric transmission and interstate gas transportation service rates. The MPSC regulates our retail
electric rates in the state of Michigan. Within our regulated segment, for the year ended December 31, 2014, we estimate
that approximately 85% of our electric revenues were regulated by the PSCW, 2% were regulated by the MPSC and the
balance of our electric revenues was regulated by FERC. In Wisconsin, a general rate case is typically filed every two
years. All of our natural gas and steam revenues are regulated by the PSCW. Orders from the PSCW can be viewed at
http://psc.wi.gov/ and orders from the MPSC can be viewed at www.michigan.gov/mpsc/.
General Rate Proceedings
2015 Wisconsin Rate Case: In May 2014, Wisconsin Electric and Wisconsin Gas applied to the PSCW for a biennial
review of costs and rates. On December 23, 2014, the PSCW approved the following rate adjustments:
• A net bill increase related to non-fuel costs for Wisconsin Electric's Wisconsin retail electric customers of
approximately $2.7 million (0.1%) in 2015. This amount reflects Wisconsin Electric's receipt of SSR payments from
MISO that are higher than Wisconsin Electric anticipated when it filed its rate request in May 2014, as well as an
offset of $26.6 million related to a refund of prior fuel costs and the remainder of the proceeds from the Treasury Grant
Wisconsin Electric received in connection with its biomass facility. This $26.6 million is being returned to customers in
the form of bill credits.
• An electric rate increase for Wisconsin Electric's Wisconsin retail electric customers of $26.6 million (0.9%) for 2016,
related to the expiration of the bill credits provided to customers in 2015.
• A rate decrease of $13.9 million (-0.5%) in 2015 related to a forecasted decrease in fuel costs. Wisconsin Electric will
make an annual fuel cost filing, as required, for 2016.
• A rate decrease of $10.7 million (-2.4%) for Wisconsin Electric's natural gas customers in 2015, with no rate
adjustment in 2016.
• Rate increases of $17.1 million (2.6%) in 2015 and $21.4 million (3.2%) in 2016 for Wisconsin Gas' natural gas
customers.
• An increase of approximately $0.5 million (2.0%) for Wisconsin Electric's Downtown Milwaukee (Valley) steam utility
customers for 2015, with no rate adjustment in 2016.
Wisconsin Energy Corporation
F-23
2014 Annual Financial Statements
• An increase of $1.2 million (7.3%) for Wisconsin Electric's Milwaukee County steam utility customers for 2015, with no
rate adjustment in 2016.
These rate adjustments were effective January 1, 2015. The electric rates reflect an increased allocation to fixed charges
from 7.8% to 13.6% of total electric revenue requirements to more closely reflect our cost structure. In addition, the
authorized return on equity for Wisconsin Electric and Wisconsin Gas was set at 10.2% and 10.3%, respectively. The
PSCW also authorized an increase in Wisconsin Gas' financial common equity component to an average of 49.5%
compared to the current 47.5%, while Wisconsin Electric's equity component will remain the same. The PSCW's order
also allowed for escrow accounting treatment for SSR revenue from MISO.
In January 2015, certain parties appealed a portion of the PSCW's final decision adopting the Company's specific rate
design changes, including new charges for customer owned generation within its service territory. We believe the appeal
is without merit.
2013 Wisconsin Rate Case: In March 2012, Wisconsin Electric and Wisconsin Gas initiated rate proceedings with the
PSCW. In December 2012, the PSCW approved the following rate adjustments:
• A net bill increase related to non-fuel costs for Wisconsin Electric's Wisconsin retail electric customers of
approximately $70 million (2.6%) for 2013. This amount reflected an offset of approximately $63 million (2.3%) of bill
credits related to the proceeds of the Treasury Grant, including related tax benefits. Absent this offset, the retail
electric rate increase for non-fuel costs was approximately $133 million (4.8%) for 2013.
• An electric rate increase for Wisconsin Electric's Wisconsin retail electric customers of approximately $28 million
(1.0%) for 2014, and a $45 million (1.6%) reduction in bill credits.
• Recovery of a forecasted increase in fuel costs of approximately $44 million (1.6%) for 2013.
• A rate decrease of approximately $8 million (-1.9%) for Wisconsin Electric's natural gas customers for 2013, with no
rate adjustment in 2014. The Wisconsin Electric rates reflected a $6.4 million reduction in bad debt expense.
• A rate decrease of approximately $34 million (-5.5%) for Wisconsin Gas' natural gas customers for 2013, with no rate
adjustment in 2014. The Wisconsin Gas rates reflected a $43.8 million reduction in bad debt expense.
• An increase of approximately $1.3 million (6.0%) for Wisconsin Electric's Downtown Milwaukee (Valley) steam utility
customers for 2013 and another $1.3 million (6.0%) in 2014.
• An increase of approximately $1 million (7.0%) in 2013 and $1 million (6.0%) in 2014 for Wisconsin Electric's
Milwaukee County steam utility customers.
These rate adjustments were effective January 1, 2013. In addition, Wisconsin Electric's and Wisconsin Gas' allowed
return on equity remained at 10.4% and 10.5%, respectively. The PSCW also approved escrow accounting treatment
for the Treasury Grant.
2012 Wisconsin Rate Case: In May 2011, Wisconsin Electric and Wisconsin Gas filed an application with the PSCW to
initiate rate proceedings. In lieu of a traditional rate proceeding, we requested an alternative approach, which resulted in
no increase in 2012 base rates for our customers. In order for us to proceed under this alternative approach, Wisconsin
Electric and Wisconsin Gas requested that the PSCW issue an order that, among other things:
• Authorized Wisconsin Electric to suspend the amortization of $148 million of regulatory costs during 2012, with
amortization to begin again in 2013.
• Authorized $148 million of carrying costs and depreciation on previously approved air quality and renewable energy
projects, effective January 1, 2012.
• Authorized the refund of $26 million of net proceeds from Wisconsin Electric's settlement of the spent nuclear fuel
litigation with the DOE.
We received a final written order from the PSCW in November 2011.
Wisconsin Energy Corporation
F-24
2014 Annual Financial Statements
2012 and 2010 Michigan Rate Cases: In July 2011, Wisconsin Electric filed a $17.5 million rate increase request with
the MPSC, primarily to recover the costs of environmental upgrades and OC 2. Pursuant to Michigan law, we self-
implemented a $5.7 million interim electric base rate increase in January 2012. This increase was partially offset by a
refund of $2.7 million of net proceeds from Wisconsin Electric's settlement of the spent nuclear fuel litigation with the
DOE, resulting in a net $3.0 million rate increase. In addition, approximately $2.0 million of renewable costs were included
in our Michigan fuel recovery rate effective January 1, 2012. The MPSC approved a total increase in electric base rates of
$9.2 million annually, effective June 27, 2012, and authorized a 10.1% return on equity.
In July 2009, Wisconsin Electric filed a $42 million rate increase request with the MPSC, primarily to recover the costs of
PTF projects. In July 2010, the MPSC issued its final order, approving a total increase of $23.5 million annually, or 14.2%.
In August 2010, our largest customers, two iron ore mines, filed an appeal with the MPSC regarding this rate order. In
October 2010, the MPSC ruled on the mines' appeal and reduced the rate increase by approximately $0.3 million
annually. In November 2010, the mines filed a Claim of Appeal of the October 2010 order with the Michigan Court of
Appeals. In May 2014, the Court of Appeals issued its decision affirming the MPSC orders in both the 2010 and 2012 rate
cases. In August 2014, the mines filed an Application for Leave to Appeal with the Michigan Supreme Court, which
Application was denied on February 3, 2015.
Michigan SSR Proceeding: On February 10, 2015, the MPSC issued an Order and Notice of Hearing related to the
ongoing operation of Presque Isle Power Plant (PIPP) and the need for us to receive SSR payments with the return of the
mines as our retail customers on February 1, 2015. We are unable to predict the resolution of this matter at this time.
For additional information relating to the SSR payments we are receiving, see Industry Restructuring and Competition
below.
Wisconsin Fuel Proceedings
Embedded within Wisconsin Electric's electric rates is an amount to recover fuel costs. The Wisconsin retail fuel rules
require the Company to defer, for subsequent rate recovery or refund, any under-collection or over-collection of fuel costs
that are outside of the utility's symmetrical fuel cost tolerance, which the PSCW set at plus or minus 2% of the utility's
approved fuel cost plan. The deferred fuel costs are subject to an excess revenues test.
Other Utility Rate Matters
Electric Transmission Cost Recovery: Wisconsin Electric divested its transmission assets with the formation of ATC in
January 2001. We procure transmission service from ATC at FERC approved tariff rates. In connection with the formation
of ATC, our transmission costs escalated due to the allocation of costs over ATC's footprint and increased transmission
infrastructure requirements in Wisconsin. In 2002, in connection with the increased costs experienced by our customers,
the PSCW issued an order which allowed us to use escrow accounting whereby we deferred transmission costs that
exceeded amounts embedded in our rates. We were allowed to earn a return on the unrecovered transmission costs at
our weighted-average cost of capital. Our 2008 and 2010 PSCW rate orders discontinued escrow accounting for
prospective transmission charges and provided for recovery of those costs as incurred. In our 2013 Wisconsin rate case,
the PSCW reauthorized escrow accounting for future transmission costs whereby we defer prospective costs that exceed
amounts in rates, and we are allowed to earn a return on the incremental unrecovered transmission costs at the short-
term debt rate. As of December 31, 2014, we had $32 million of unrecovered transmission costs related to deferrals
subsequent to 2012 that earn a return at the short-term debt rate. In addition, as of December 31, 2014, we had $114
million of unrecovered transmission costs related to deferrals prior to 2008 that earn a return at the weighted-average cost
of capital. In our 2015 Wisconsin rate case, the PSCW order reaffirmed our deferral of transmission costs.
Gas Cost Recovery Mechanism: Our natural gas operations operate under GCRMs as approved by the PSCW.
Generally, the GCRMs allow for a dollar for dollar recovery of gas costs. The GCRMs use a modified one for one method
that measures commodity purchase costs against a monthly benchmark which includes a 2% tolerance. Costs in excess
of this monthly benchmark are subject to additional review by the PSCW before they can be passed through to our
customers.
Wisconsin Energy Corporation
F-25
2014 Annual Financial Statements
Renewables, Efficiency and Conservation: In March 2006, Wisconsin revised the requirements for renewable energy
generation by enacting 2005 Wisconsin Act 141 (Act 141). Act 141 defines "baseline renewable percentage" as the
average of an energy provider's renewable energy percentage for 2001, 2002 and 2003. A utility's renewable energy
percentage is equal to the amount of its total retail energy sales that are provided by renewable sources. Wisconsin
Electric's baseline renewable energy percentage is 2.27%. Under Act 141, Wisconsin Electric was required to increase its
renewable energy percentage at least two percentage points to a level of 4.27% for the years 2010-2014. As of
December 31, 2014, we are in compliance with the Wisconsin renewable energy percentage of 4.27%. Act 141 further
requires that for the year 2015 and beyond, the renewable energy percentage must increase at least six percentage
points above the baseline to a level of 8.27%. Act 141 established a goal that 10% of all electricity consumed in Wisconsin
be generated by renewable resources by December 31, 2015. To comply with increasing requirements, Wisconsin Electric
has constructed and contracted for several hundred megawatts of wind generation and constructed a 50 MW biomass
facility at Domtar Corporation's Rothschild, Wisconsin paper mill site that went into commercial operation in November
2013. Wood waste and wood shavings are used to produce renewable electricity and the plant also supports Domtar's
sustainable papermaking operations. The final cost of completing this project was $268.9 million, excluding AFUDC. We
also own four wind sites, consisting of 200 turbines with an installed capacity of 338 MW and a dependable capability of
66 MW.
We expect to be in compliance with Act 141's 2015 standard, and have entered into agreements for renewable energy
credits which should allow us to remain in compliance with Act 141 through 2022. If market conditions are favorable, we
may purchase more renewable energy credits.
Act 141 allows the PSCW to delay a utility's implementation of the renewable portfolio standard if it finds that achieving
the renewable requirement would result in unreasonable rate increases or would lessen reliability, or that new renewable
projects could not be permitted on a timely basis or could not be served by adequate transmission facilities. Act 141
provides that if a utility is in compliance with the renewable energy and energy efficiency requirements as determined by
the PSCW, then the utility may not be ordered to achieve additional energy conservation or efficiency.
Act 141 also redirects the administration of energy efficiency, conservation and renewable programs from the Wisconsin
Department of Administration back to the PSCW and/or contracted third parties. In addition, Act 141 required that 1.2% of
utilities' annual operating revenues be used to fund these programs in 2014. The funding required by Act 141 for 2015 is
also 1.2% of annual operating revenues.
Public Act 295 enacted in Michigan requires 10% of the state's energy to come from renewables by 2015 and energy
optimization (efficiency) targets up to 1% annually by 2015. We are currently in compliance with this requirement. Public
Act 295 specifically calls for current recovery of costs incurred to meet the standards and provides for ongoing review and
revision to assure the measures taken are cost-effective.
ELECTRIC SYSTEM RELIABILITY
We continue to upgrade our electric distribution system, including substations, transformers and lines. We had adequate
capacity to meet the MISO calculated planning reserve margin during 2014 and 2013. All of our generating plants
performed as expected during the warmest periods of the summer and all power purchase commitments under firm
contract were received. During this period, public appeals for conservation were not required and we did not interrupt or
curtail service to non-firm customers who participate in load management programs. We expect to have adequate
capacity to meet the planning reserve margin requirements during 2015. However, extremely hot weather, unexpected
equipment failure or unavailability across the 15-state MISO market footprint could require us to call upon load
management procedures.
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ENVIRONMENTAL MATTERS
Overview
Consistent with other companies in the energy industry, we face significant ongoing environmental compliance and
remediation obligations related to current and past operations. Specific environmental issues affecting our utility and non-
utility energy segments include but are not limited to current and future regulation of: (1) air emissions such as Sulfur
Dioxide (SO2), Nitrogen Oxide (NOx), fine particulates, mercury and greenhouse gases; (2) water discharges; (3) disposal
of coal combustion by-products such as fly ash; and (4) remediation of impacted properties, including former
manufactured gas plant sites.
We have continued to pursue a proactive strategy to manage our environmental compliance obligations, including: (1) the
development of additional sources of renewable electric energy supply; (2) the review of water quality matters such as
discharge limits and cooling water requirements and implementing improvements to our cooling water intake systems as
needed; (3) the addition of emission control equipment to existing facilities to comply with new ambient air quality
standards and federal clean air rules; (4) the conversion of the fuel source for VAPP from coal to natural gas; (5) the
beneficial use of ash and other solid products from coal-fired generating units; and (6) the clean-up of former
manufactured gas plant sites.
Air Quality
EPA - Consent Decree: In April 2003, Wisconsin Electric reached a Consent Decree with the United States
Environmental Protection Agency (EPA), in which it agreed to significantly reduce air emissions from its coal-fired
generating facilities. In July 2003, the Consent Decree was amended to include the state of Michigan, and in October
2007, the U.S. District Court for the Eastern District of Wisconsin approved and entered the amended Consent Decree.
The Consent Decree was further amended in January 2012 to change the point of air monitoring at the Oak Creek Power
Plant to accommodate the AQCS that began service in 2012. In September 2014, the Consent Decree was amended a
third time to update some provisions related to the conversion of VAPP from coal to natural gas. In order to achieve the
reductions agreed to in the Consent Decree, over the past 11 years we have installed new pollution control equipment,
including the Oak Creek AQCS, upgraded existing equipment and retired certain older coal units at a cost of
approximately $1.2 billion. We do not expect future costs to have a material impact on our consolidated financial
statements.
National Ambient Air Quality Standards (NAAQS)
8-hour Ozone Standards: In 2008, the EPA issued a more stringent 8-hour ozone standard, and made final attainment
designations for this revised standard in 2012. Sheboygan County and the eastern portion of Kenosha County were
designated as non-attainment areas. As a result, construction permitting for all of our Wisconsin power plants, except the
Pleasant Prairie Power Plant, is expected to be subject to less stringent permitting requirements. In addition, modifications
to these facilities should not be required to obtain emission offsets. So long as eastern Kenosha County remains an ozone
non-attainment area, the Pleasant Prairie Power Plant will continue to be subject to more stringent permitting
requirements and offset provisions.
In April 2014, the U.S. District Court for the Northern District of California adopted a petition from environmental groups to
require the EPA to propose a new ozone standard by 2014, and to finalize the standard by October 2015. On November
25, 2014, the EPA proposed to lower the 8-hour ozone standard from its current level of 75 parts per billion. As part of its
proposal, the EPA requested comment on values from 60-70 parts per billion. The impact, if any, of a revised standard will
depend on how much it is lowered, but could result in widespread areas of the country not being able to meet the new
standard.
Fine Particulate Standard: In 2009, the EPA designated three counties in southeast Wisconsin (Milwaukee, Waukesha
and Racine) as not meeting the daily standard for Fine Particulate Matter (PM2.5). In April 2012, the EPA proposed to
determine that these three counties meet the PM2.5 standard, and proposed to suspend the requirement that the state
submit a State Implementation Plan (SIP) including reasonably available control technology regulations. In February 2014,
the EPA re-proposed this determination, and in April 2014, the EPA took action to redesignate the three counties to
attainment. Our generating facilities in the counties are now subject to less stringent construction permitting requirements
and emission offset provisions are no longer required for modifications to these facilities. In addition, in December 2012,
the EPA issued a revised and more stringent annual PM2.5 standard. On December 18, 2014, the EPA determined that all
areas of Wisconsin and Michigan's Upper Peninsula meet the revised standard and designated them as attainment areas.
Therefore, we do not currently expect the lower standard to impose any additional requirements on our operations.
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Sulfur Dioxide Standard: The EPA issued a new 1-Hour SO2 NAAQS that became effective in August 2010. This
standard represents a significant change from the previous SO2 standard, and NAAQS in general, since attainment
designations were to be based primarily on modeling rather than monitoring. Typically, attainment designations are based
on monitored data. In May 2014, the EPA issued the proposed Data Requirements Rule that would establish procedures
and timelines for implementation of the standard. The proposed rule describes the EPA's plans for allowing the states to
use either monitoring or modeling to make designations.
We filed comments on the proposed rule with the EPA in July 2014, and proposed a special reliability exclusion for PIPP
that would recognize our request to retire the facility, and would exclude it from further modeling or monitoring
requirements and subsequent emission reductions. As proposed, the rule affords state agencies latitude in rule
implementation. States would have the option of modeling or monitoring to show attainment (subject to EPA approval for
this selection). If the state chooses modeling and the sources in an area do not make reductions by 2017, and as a
consequence the area is classified as non-attainment, then they would have to make emission reductions by 2023.
Alternatively, if a state opted out of modeling and instead chose monitoring, and subsequently monitored non-attainment,
then it would face a 2026 compliance date. A non-attainment designation could have negative impacts for a localized
geographic area, including permitting constraints for the subject source and for other new or existing sources in the area.
We believe our fleet (with the exception of PIPP) is well positioned to meet this regulation once it is finalized. If PIPP is still
operating in the 2021-2022 timeframe, it will likely need additional SO2 reductions in order to comply with the standard.
Nitrogen Dioxide Standard: In January 2010, the EPA announced a new hourly Nitrogen Dioxide standard, which
became effective in April 2010. In February 2012, all areas of Wisconsin and Michigan were designated as unclassifiable.
Until these areas are classified as attainment or non-attainment and any potential rules are adopted, we are unable to
predict the impact on the operation of our generation facilities.
Mercury and Other Hazardous Air Pollutants: In December 2011, the EPA issued the final Mercury and Air Toxics
Standards (MATS) rule, which imposes stringent limitations on numerous hazardous air pollutants, including mercury, from
coal and oil-fired electric generating units. We currently anticipate that only PIPP will require modifications, and are
planning for the addition of a dry sorbent injection system for further control of mercury and acid gases at the plant to
comply with MATS. In April 2013, we received a one year MATS compliance extension through April 16, 2016 from the
Michigan Department of Environmental Quality (MDEQ).
In addition, both Wisconsin and Michigan have mercury rules that require a 90% reduction of mercury, and compliance
with those rules will no longer be required after the compliance date for MATS.
In January 2013, the EPA issued the National Emission Standards for Hazardous Air Pollutants for Major Sources:
Industrial, Commercial, and Institutional Boilers and Process Heaters (Industrial Boiler MACT Rule). The Industrial
Boiler MACT rule imposes stringent limitations on numerous hazardous air pollutants from large boilers that do not
meet the definition of electric generating units. The compliance date set forth in the rule is January 31, 2016, but a one
year extension of that deadline may be available where emission controls cannot be installed and operational by the
compliance date. Along with some smaller gas fired boilers in our fleet, the three coal fired boilers at the Milwaukee
County Power Plant are subject to this rule. We are currently evaluating compliance options for these boilers.
Cross-State Air Pollution Rule: In August 2011, the EPA issued Cross-State Air Pollution Rule (CSAPR), formerly
known as the Clean Air Transport Rule. This rule was proposed to replace the Clean Air Interstate Rule (CAIR), which had
been remanded to the EPA in 2008. The stated purpose of the CSAPR is to limit the interstate transport of emissions of
NOX and SO2 that contribute to fine particulate matter and ozone non-attainment in downwind states through a proposed
allocation plan. In February 2012, the EPA issued final technical revisions to the rule and issued a draft final rule which
together delay the implementation date for certain penalty provisions that could potentially impact the PIPP and increase
the number of allowances issued to the states of Michigan and Wisconsin. We and a number of other parties sought
judicial review of the rule. In April 2014, the United States Supreme Court issued a decision largely upholding the rule and
remanding it for further proceedings consistent with the Court's order. Briefing on further challenges to the rule allowed by
the U.S. Supreme Court decision is ongoing. On October 23, 2014, the U.S. Court of Appeals for the D.C. Circuit issued a
decision that cleared the way for the EPA to begin implementing CSAPR on January 1, 2015. We expect that there will be
sufficient allowances available for PIPP to meet its obligations to operate and provide stability to the transmission system
in the Upper Peninsula of Michigan. We also expect to have excess allowances available to sell from our Wisconsin
power plants. In light of these developments, we withdrew our challenge to CSAPR.
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Clean Air Visibility Rule: The EPA issued the Clean Air Visibility Rule in June 2005 to address Regional Haze, or
regionally-impaired visibility caused by multiple sources over a wide area. The rule defines Best Available Retrofit
Technology (BART) requirements for electric generating units and how BART will be addressed in the 28 states subject to
the EPA's CAIR. The pollutants from power plants that reduce visibility include PM2.5 or compounds that contribute to fine
particulate formation, NOx, SO2 and ammonia.
In June 2012, the EPA promulgated a Federal Implementation Plan that approves reliance on the CSAPR to satisfy
electric generating unit BART requirements for NOx and SO2. In December 2012, the EPA approved Michigan's regional
haze SIP. In August 2012, the EPA approved Wisconsin's regional haze SIP, which also relies on the CSAPR to satisfy
electric generating unit BART requirements for NOx and SO2. We believe we are well positioned to meet the requirements
of the Clean Air Visibility rule based on air quality control system additions that are already in place or planned for our
generating facilities.
Climate Change: We continue to take measures to reduce our emissions of Greenhouse Gas (GHG). We support
flexible, market-based strategies to curb GHG emissions, including emissions trading, emission offset projects and credit
for early actions. We support an approach that encourages technology development and transfer and includes all sectors
of the economy and all significant global emitters. We have taken, and continue to take, several steps to reduce our
emissions of GHG, including:
• Repowered the Port Washington Power Plant from coal to natural gas-fired combined cycle units.
• Added coal-fired units as part of the Oak Creek expansion that are the most thermally efficient coal units in our
system.
Increased our investment in energy efficiency and conservation.
•
• Added renewable capacity.
• Converting the fuel source at the VAPP from coal to natural gas, scheduled for completion in 2015.
• Retired coal units 1-4 at PIPP.
Federal, state, regional and international authorities have undertaken efforts to limit GHG emissions. The regulation of
GHG emissions continues to be a top priority for the President's administration.
In accordance with instructions from the President, the EPA is pursuing regulation of GHG emissions using its existing
authority under the Clean Air Act. In September 2013, the EPA issued new proposed New Source Performance Standards
with GHG limits for new fossil fueled power plants. The rule would not apply to certain natural gas fueled peaking plants,
biomass units or oil fueled stationary combustion turbines. Based upon currently available technology and the emission
limits in the proposed rule, we believe that this rule effectively prohibits new conventional coal-fired power plants.
In addition, the EPA issued proposed guidelines relating to GHG emissions from existing generating units in June 2014,
and has announced plans to issue final rules by mid-summer 2015. The EPA also published proposed performance
standards for modified and reconstructed generating units. The proposed guidelines for existing fossil generating units
seek to attain state-specific GHG rate reductions by 2030, and require states to submit plans as early as June 30,
2016. Single states requesting a one year extension would be required to submit plans by June 30, 2017, and states that
are part of a multi-state plan that request a two year extension would be required to submit plans by June 30, 2018. The
EPA is seeking GHG rate reductions in Wisconsin of 34% and in Michigan of 31% by 2030, with interim reduction goals
beginning in 2020 of 30% and 27% respectively, with interim goal compliance determined by averaging reductions over
the ten year period of 2020 to 2029. The proposed program consists of building blocks that include a combination of
power plant efficiency improvements, increased reliance on combined cycle gas units, adding new renewable energy
resources, and increased demand side management. We are in the process of reviewing the proposed guidelines to
determine the potential impacts to our operations, but the guidelines as currently proposed could result in significant
additional compliance costs, including capital expenditures, impact how we operate our existing fossil fueled power plants
and biomass facility, and could have a material adverse impact on our operating costs.
In June 2014, the U.S. Supreme Court struck down a portion of the EPA’s program for permitting GHG emissions under
the Prevention of Significant Deterioration (PSD) and Title V programs. The Court held that a facility’s GHG emissions
alone cannot trigger a requirement to obtain a permit and that the EPA did not have the authority to “tailor” the statutory
permitting thresholds. The Court also upheld those portions of the EPA’s program that provide for implementation of GHG
emissions limits based on the application of BART for facilities already subject to PSD or Title V permitting requirements
for other pollutants. We do not expect that this decision will have a material impact on our facilities.
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We are required to report our Carbon Dioxide (CO2) equivalent emissions from our electric generating facilities under the
EPA Greenhouse Gases Reporting Program. For 2013, we reported CO2 equivalent emissions of approximately
21.9 million metric tonnes to the EPA, compared with approximately 18.1 million metric tonnes for 2012. Based upon our
preliminary analysis of the data, we estimate that we will report CO2 equivalent emissions of approximately 23.3 million
metric tonnes to the EPA for 2014. The level of CO2 and other greenhouse gas emissions vary from year to year and are
dependent on the level of electric generation and mix of fuel sources, which is determined primarily by demand, the
availability of the generating units, the unit cost of fuel consumed and how our units are dispatched by MISO.
We are also required to report CO2 equivalent amounts related to the natural gas our gas utility distributes and sells. For
2013, we reported approximately 10.4 million metric tonnes of CO2 equivalent to the EPA related to our distribution and
sale of natural gas, compared with approximately 8.4 million metric tonnes for 2012. Based upon our preliminary analysis
of the monitoring data, we estimate that we will report CO2 emissions of approximately 10.8 million metric tonnes to the
EPA for 2014.
Valley Power Plant Conversion: In August 2012, we announced plans to convert the fuel source for VAPP from coal to
natural gas. We currently expect the cost of this conversion to be between $65 million and $70 million, excluding AFUDC.
We received PSCW approval for this project in March 2014. Construction related to the conversion of the first two boilers
was completed in November 2014, and the remaining two boilers are scheduled for completion in 2015.
For further information, see Note Q -- Commitments and Contingencies in the Notes to Consolidated Financial
Statements.
Water Quality
Clean Water Act: Section 316(b) of the Clean Water Act requires that the location, design, construction and capacity of
cooling water intake structures reflect the Best Technology Available (BTA) for minimizing adverse environmental impacts.
The EPA finalized rules for new facilities (Phase I) in 2001. The EPA issued a final Phase II rule that became effective on
October 14, 2014. The new rule applies to all of our existing generating facilities with cooling water intake structures,
except for the Oak Creek expansion units, which were permitted under the Phase I rules.
The new Phase II rule allows facility owners to select from seven options available to meet the impingement mortality (IM)
reduction standard. BTA determinations will be made over the next several years by the Wisconsin Department of Natural
Resources (WDNR) and MDEQ, subject to EPA oversight, when facility permits are reissued. Based upon our
assessment, we believe that the existing technologies at our generating facilities will allow us to demonstrate that, other
than VAPP, all of our facilities satisfy the IM BTA standard. During 2015 and 2016, we plan to install fish protection
screens at VAPP that will meet the IM BTA standard.
The BTA determinations for entrainment mortality (EM) reduction will be made by the WDNR and MDEQ on a case-by-
case basis. The new rule requires state permitting agencies to determine EM BTA on a site-specific basis taking into
consideration several factors. We have received an EM BTA determination by the WDNR, with EPA concurrence, for our
proposed intake modification at VAPP. We cannot yet determine what, if any, intake structure or operational modifications
will be required to meet the new requirements for our other generating facilities.
The WDNR issued a new Wisconsin Pollutant Discharge Elimination System (WPDES) permit for VAPP that became
effective on January 1, 2013 that contains several additional requirements. Effluent toxicity testing and monitoring for
additional parameters (phosphorous, mercury and ammonia-nitrogen), and a new heat addition limit from the cooling
water discharges all took effect immediately. Longer term compliance requirements include thermal discharge studies,
phosphorous evaluation and feasibility for reduction, mercury minimization planning and a compliance schedule for the
installation of the new cooling water intake fish protection screens.
On November 10, 2014, the WDNR reissued the WPDES permit for the Paris Generating Station (PSGS). We believe that
the WDNR imposed unreasonable permit conditions with respect to temperature monitoring, the control of water treatment
additive and phosphorus discharges.
To address these permit conditions, we filed a petition for a contested case hearing with the WDNR on January 9, 2015.
On the same day, we also filed a request to be covered by the statewide phosphorus variance to address one of our
concerns with the permit. We are working with the WDNR to determine if a settlement is possible. A decision on the
phosphorus variance request is pending.
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Steam Electric Effluent Guidelines: These guidelines regulate waste water discharges from our power plant
processes. In June 2013, the EPA issued a proposed rule for comment to modify these guidelines. We submitted
comments primarily addressing potential effects to our wastewater treatment facilities and coal combustion residuals
effluent management activities. The rules are expected to be finalized by September 2015. After promulgation of the final
rules, the WDNR and MDEQ will need to modify state rules accordingly and then incorporate new requirements into our
facility permits. The rule compliance deadline is as soon as possible after July 1, 2017 with full compliance expected by
July 1, 2022. We already meet many of the proposed requirements defined by the EPA, and as a result believe we will be
well positioned to comply with the proposed guidelines. There are several available options outlined in the proposed rule.
The amount of additional costs we may need to incur to comply with the new guidelines, if any, will depend on which
option(s) the EPA selects to incorporate into the final guidelines. Until the rules are finalized, we are unable to determine
the impact on our facilities.
Land Quality
New Coal Combustion Products Regulation: We currently have a program of beneficial utilization for substantially all
of our coal combustion products, including fly ash, bottom ash and gypsum, which minimizes the need for disposal in
specially-designed landfills. Both Wisconsin and Michigan have regulations governing the use and disposal of these
materials. In 2010, the EPA issued draft rules for public comment proposing two alternative rules for regulating coal
combustion products, one of which would classify the materials as hazardous waste. The EPA issued the final rule on
December 22, 2014, under which coal combustion residuals will be regulated as a non-hazardous waste. The rule is self-
implementing which means that affected facilities must comply with the rules regardless of whether a state adopts the
rule. We have been meeting the state requirements and have plans in place to implement the additional federal rule
requirements.
In the preamble to the final rule, the EPA referenced reports it received with respect to the molybdenum concerns raised in
southeastern Wisconsin, and indicated it will continue to evaluate the beneficial use of coal ash in unencapsulated
construction.
Manufactured Gas Plant Sites: We continue to voluntarily review and address environmental conditions at a number of
former manufactured gas plant sites. For further information, see Note Q -- Commitments and Contingencies in the Notes
to Consolidated Financial Statements.
Ash Landfill Sites: We seek environmentally acceptable, beneficial uses for our combustion byproducts. For further
information, see Note Q -- Commitments and Contingencies in the Notes to Consolidated Financial Statements.
LEGAL MATTERS
Stray Voltage: On July 11, 1996, the PSCW issued a final order regarding the stray voltage policies of Wisconsin's
investor-owned utilities. The order clarified the definition of stray voltage, affirmed the level at which utility action is
required, and placed some of the responsibility for this issue in the hands of the customer. Additionally, the order
established a uniform stray voltage tariff which delineates utility responsibility and provides for the recovery of costs
associated with unnecessary customer demanded services.
Dairy farmers have made claims against Wisconsin Electric for loss of milk production and other damages to livestock
allegedly caused by stray voltage and ground currents resulting from the operation of its electrical system, even though
that electrical system has been operated within the parameters of the PSCW's order. The Wisconsin Supreme Court has
rejected the arguments that, if a utility company's measurement of stray voltage is below the PSCW "level of concern,"
that utility could not be found negligent in stray voltage cases. Additionally, the Court has held that the PSCW regulations
regarding stray voltage were only minimum standards to be considered by a jury in stray voltage litigation. As a result of
these rulings, claims by dairy farmers for livestock damage have been based upon ground currents with levels measuring
less than the PSCW "level of concern." We continue to evaluate various options and strategies to mitigate this risk.
On September 9, 2014, a new stray voltage case was filed against Wisconsin Electric in Sheboygan County, Wisconsin.
We do not believe this lawsuit has any merit and intend to defend the case vigorously. This lawsuit is not expected to have
a material adverse effect on our financial statements.
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INDUSTRY RESTRUCTURING AND COMPETITION
Electric Utility Industry
The regulated energy industry continues to experience significant changes. FERC continues to support large Regional
Pricing Organizations (RTOs), which affects the structure of the wholesale market. To this end, MISO implemented the
MISO Energy Markets, including the use of Locational Marginal Price (LMP) to value electric transmission congestion and
losses. The MISO Energy Markets commenced operation in April 2005 for energy distribution and in January 2009 for
operating reserves. Increased competition in the retail and wholesale markets, which may result from restructuring efforts,
could have a significant and adverse financial impact on us. It is uncertain when retail access might be implemented, if at
all, in Wisconsin; however, Michigan has adopted retail choice.
Restructuring in Wisconsin: Electric utility revenues in Wisconsin are regulated by the PSCW. The PSCW has been
focused on electric reliability infrastructure issues for the state of Wisconsin in recent years. The PSCW continues to
maintain the position that the question of whether to implement electric retail competition in Wisconsin should ultimately
be decided by the Wisconsin legislature. No such legislation has been introduced in Wisconsin to date.
Michigan Business
Michigan Settlement: On January 12, 2015, Wisconsin Energy and Wisconsin Electric entered into an agreement with
the Governor of the State of Michigan, the Attorney General of the State of Michigan, the Staff of the MPSC, and Tilden
Mining Company and Empire Iron Mining Partnership, owners of the two mines in the Upper Peninsula of Michigan, to
resolve all objections these parties raised at the FERC and the MPSC related to Wisconsin Energy’s proposed acquisition
of Integrys. The agreement forms the basis for a settlement agreement between the parties and includes the following
provisions which directly impact Wisconsin Energy and Wisconsin Electric:
• The Governor, the Attorney General and the owners of the mines will each file a letter with FERC stating that they do
not have any objection to FERC’s approval of our acquisition of Integrys, and will refrain from taking any action at
FERC seeking to oppose, otherwise condition or delay consummation of the transaction. These letters have been filed
with FERC.
• The settlement agreement will request that the MPSC order approving our acquisition of Integrys be subject to the
following conditions: (i) the closing of the sale of Wisconsin Electric’s Michigan electric distribution assets and PIPP to
Upper Peninsula Power Company (UPPCO) contemporaneously with the closing of the acquisition of Integrys; (ii) the
closing of the sale of Wisconsin Public Service Corporation’s Michigan electric distribution assets to UPPCO
contemporaneously with the closing of the acquisition; and (iii) termination of the PIPP SSR agreement between
MISO and Wisconsin Electric no later than the closing date of the acquisition. To this end, Wisconsin Electric has
entered into a non-binding term sheet to sell these assets to UPPCO, which is described in more detail below. The
Attorney General, the MPSC Staff and the owners of the mines will not seek or support any other conditions on
granting of MPSC approval of our acquisition of Integrys. Wisconsin Public Service Corporation is a subsidiary of
Integrys.
The settlement agreements entered into by these parties, as well as two other intervenors in the MPSC proceedings, were
filed with the MPSC on January 30, 2015.
SSR Payments: Under Michigan law, our retail customers may choose an alternative electric supplier to provide power
supply service. The law limits customer choice to 10% of our Michigan retail load. The two iron ore mines are excluded
from this cap. When a customer switches to an alternative electric supplier, we continue to provide distribution and
customer service functions for the customer.
In August 2013, the mines, which were served on an interruptible tariff, notified us that they intended to switch to an
alternative electric supplier. In September 2013, the switch was made. In addition, other smaller retail customers have
switched to an alternative electric supplier. Following that decision, we initiated discussions with MISO to compensate
Wisconsin Electric for the continued short-term operation of the plant through 2014.
In August 2013, we filed a request with MISO to suspend the operation of all five units at PIPP. In October 2013, MISO
informed us that the operation of all units is necessary to maintain reliability in the Upper Peninsula of Michigan.
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In January 2014, we entered into an SSR agreement (Suspension) with MISO to recover costs for operating and
maintaining the units. The agreement was effective February 1, 2014, had a one year term, and specified monthly
payments to Wisconsin Electric of $4.4 million to cover fixed costs. The agreement also provided for the payment of our
variable costs to operate and maintain the plant. MISO filed the SSR agreement with FERC, and on April 1, 2014, FERC
conditionally accepted the agreement as filed, subject to further review and FERC order. We began receiving SSR
payments from MISO in the second quarter of 2014 retroactive to the agreement's effective date of February 1, 2014.
In addition, we issued a request for proposals regarding the potential purchase of PIPP in January 2014. We did not
receive any valid proposals by the March 3, 2014 deadline. Based upon our evaluation and the lack of interest to
purchase the plant, in April 2014, we filed a request with MISO to retire PIPP effective October 15, 2014. In May 2014,
MISO informed us that they had determined the operation of all five units at PIPP was necessary for reliability purposes;
therefore, the units would continue to be designated as SSR units.
We entered into a new SSR agreement (Retirement) with MISO, effective October 15, 2014, that covered the operating
costs of PIPP through December 2015. The new SSR agreement also included, among other things, costs to comply with
the MATS rule and a return on and of our investment in the plant. The new agreement is based on projected costs and is
subject to a true-up mechanism. The estimated monthly payments under this agreement are approximately $8.1 million.
On November 10, 2014, FERC accepted the new SSR agreement, but it is subject to further action.
MISO is responsible for allocating the SSR costs to various market participants within the MISO footprint consistent with
FERC approved tariffs. Several interested parties, including the PSCW and the MPSC, filed complaints with the FERC
regarding the allocation among the different jurisdictions of the SSR costs associated with the continued operation of
PIPP. On February 19, 2015, FERC acted on the jurisdictional allocation of the SSR costs, reaffirming that it is unjust and
unreasonable to allocate SSR costs pro rata to all market participants and that SSR costs must be allocated to the load-
serving entities that require the operation of SSR units for reliability purposes. FERC directed MISO to file a new study
method to identify the entities that benefit from the operation of SSR units within 60 days of the decision date and to
allocate the costs directly to these entities.
On February 17, 2015, we entered into an agreement with the owners of the two iron ore mines whereby we agreed to
request termination of the SSR agreement effective February 1, 2015, and the two mines agreed to remain full
requirements customers until the earlier of the sale of PIPP and July 31, 2015. On the same date, we requested MISO to
terminate the SSR agreement, and on February 18, 2015, MISO filed a request with FERC to have the SSR terminated
effective February 1, 2015. We do not expect the termination of the SSR agreement to have a material impact on our
financial condition or results of operations.
Effective February 1, 2015, the mines returned as retail customers. We expect to defer the net revenue from those sales
and will apply these amounts for the benefit of Wisconsin retail electric customers in future rate proceedings. Michigan
state law allows the mines to switch to an alternative electric supplier after sufficient notice.
Sale of Michigan Assets: In January 2015, we entered into a non-binding term sheet to sell our Michigan electric
distribution assets and PIPP to UPPCO. We currently expect to enter into a definitive agreement by the end of March
2015. The ultimate sale of these assets would have to be approved by several state and federal regulatory bodies,
including the MPSC, PSCW and FERC. If the sale is consummated on terms commensurate with the non-binding term
sheet, consistent with the treatment that would be applied to a generating unit retirement we will seek recovery of
approximately $190 million of net unrecovered plant costs.
We believe that the sale of these assets is in the best interest of our customers because of the costs associated with the
next best solution, which includes operating PIPP for at least five more years. These costs would include ongoing
operating costs, decommissioning and dismantling costs and any increased costs for additional transmission capacity in
the Upper Peninsula.
Electric Transmission, Capacity and Energy Markets
In connection with its status as a FERC approved RTO, MISO developed bid-based energy markets, which were
implemented on April 1, 2005. In January 2009, MISO commenced the Energy and Operating Reserves Markets, which
includes the bid-based energy markets and an ancillary services market. We previously self-provided both regulation
reserves and contingency reserves. In the MISO ancillary services market, we buy/sell regulation and contingency
reserves from/to the market. The MISO ancillary services market has been able to reduce overall ancillary services costs
in the MISO footprint. The MISO ancillary services market has enabled MISO to assume significant balancing area
responsibilities such as frequency control and disturbance control.
Wisconsin Energy Corporation
F-33
2014 Annual Financial Statements
In MISO, base transmission costs are currently being paid by load-serving entities located in the service territories of each
MISO transmission owner. FERC has previously confirmed the use of the current transmission cost allocation
methodology. Certain additional costs for new transmission projects are allocated throughout the MISO footprint.
We, along with others, have sought rehearing and/or appeal of the FERC's various Revenue Sufficiency Guarantee orders
related to the determination that MISO had applied its energy markets tariff correctly in the assessment of the charges.
The net effects of any final determination by FERC or the courts are uncertain at this time.
As part of MISO, a market-based platform was developed for valuing transmission congestion premised upon the LMP
system that has been implemented in certain northeastern and mid-Atlantic states. The LMP system includes the ability to
mitigate or eliminate congestion costs through Auction Revenue Rights (ARRs) and Financial Transmission Rights (FTRs).
ARRs are allocated to market participants by MISO and FTRs are purchased through auctions. A new allocation and
auction were completed for the period of June 1, 2014 through May 31, 2015. The resulting ARR valuation and the
secured FTRs are expected to mitigate our transmission congestion risk for that period.
Beginning June 1, 2013, MISO instituted an annual zonal resource adequacy requirement to ensure there is sufficient
generation capacity to serve the MISO market. To meet this requirement, capacity resources could be acquired through
MISO's annual capacity auction, bilateral contracts for capacity, or provided from generating or demand response
resources. Our capacity requirements during 2014 were fulfilled using our own capacity resources.
Natural Gas Utility Industry
Restructuring in Wisconsin: The PSCW previously instituted generic proceedings to consider how its regulation of gas
distribution utilities should change to reflect a competitive environment in the natural gas industry. To date, the PSCW has
made a policy decision to deregulate the sale of natural gas in customer segments with workably competitive market
choices and has adopted standards for transactions between a utility and its gas marketing affiliates. However, work on
deregulation of the gas distribution industry by the PSCW continues to be on hold. Currently, we are unable to predict the
impact of potential future deregulation on our results of operations or financial position.
OTHER MATTERS
Paris Generating Station Units 1 and 4 Temporary Outage: Between 2000 and 2002, we replaced the blades on the
four PSGS combustion turbine generators with blades that were approximately 7% more efficient. The work was
performed as routine maintenance that we did not believe required a construction permit at the time and the plant has not
been operated to use the potential additional capacity; however, in January 2013, the WDNR indicated that it considered
this maintenance to be a modification requiring a construction permit. This matter has since been settled. In December
2013, Act 91 was signed into law in Wisconsin, creating a process by which the EPA and WDNR were able to revise the
regulations and emissions rates applicable to Units 1 and 4, allowing those units to restart. We received an “after the fact”
permit from the WDNR, and the Units are now available for service. On October 24, 2014, the Sierra Club filed for a
contested case hearing with the WDNR challenging this permit.
In February 2013, the Sierra Club filed for a contested case hearing with the WDNR in connection with the administration
order issued in this matter, which was granted. However, a hearing has not yet been scheduled.
ACCOUNTING DEVELOPMENTS
New Pronouncements: See Note B -- Recent Accounting Pronouncements in the Notes to Consolidated Financial
Statements in this report for information on new accounting pronouncements.
Treasury Grant: In December 2013, we filed an application with the United States Treasury for a Treasury Grant related
to the construction of our biomass facility, which was placed into service in November 2013. In December 2013, we
recognized income related to the Treasury Grant and we deferred as a regulatory liability the grant proceeds that would be
returned to customers subsequent to December 31, 2013. In connection with our Wisconsin retail electric rates that
became effective January 1, 2013, our Wisconsin retail electric customers began receiving bill credits for the expected
grant proceeds plus the related tax benefits.
Wisconsin Energy Corporation
F-34
2014 Annual Financial Statements
In June 2014, we received approximately $76.2 million related to the Treasury Grant. The PSCW approved escrow
accounting for the Treasury Grant and the proceeds we received that exceeded the amounts originally included in rates
are being returned to customers in the form of bill credits.
As noted above, our Wisconsin retail electric customers are currently receiving bill credits related to the Treasury Grant
plus related tax benefits. During 2014, we recognized Treasury Grant income to match the bill credits related to the grant
that our Wisconsin retail electric customers received.
CRITICAL ACCOUNTING ESTIMATES
Preparation of financial statements and related disclosures in compliance with GAAP requires the application of
appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies
necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and
regulatory challenges and anticipated recovery of costs. These judgments, in and of themselves, could materially impact
the financial statements and disclosures based on varying assumptions. In addition, the financial and operating
environment may also have a significant effect, not only on the operation of our business, but on our results reported
through the application of accounting measures used in preparing the financial statements and related disclosures, even if
the nature of the accounting policies applied have not changed.
The following is a list of accounting policies that are most significant to the portrayal of our financial condition and results
of operations and that require management's most difficult, subjective or complex judgments:
Regulatory Accounting: Our utility subsidiaries operate under rates established by state and federal regulatory
commissions which are designed to recover the cost of service and provide a reasonable return to investors. The actions
of our regulators may allow us to defer costs that non-regulated entities would expense and accrue liabilities that non-
regulated companies would not. As of December 31, 2014, we had $1,271.2 million in regulatory assets and $830.6
million in regulatory liabilities. In the future, if we move to market based rates, or if the actions of our regulators change,
we may conclude that we are unable to follow regulatory accounting. In this situation, we would record the regulatory
assets related to unrecognized pension and OPEB costs as a reduction of equity, after tax. The balance of our regulatory
assets net of regulatory liabilities would be recorded as an extraordinary after-tax non-cash charge to earnings. We
continually review the applicability of regulatory accounting and have determined that it is currently appropriate to continue
following it. In addition, each quarter we perform a review of our regulatory assets and our regulatory environment and we
evaluate whether we believe that it is probable that we will recover the regulatory assets in future rates. See Note C --
Regulatory Assets and Liabilities in the Notes to Consolidated Financial Statements for additional information.
Pension and OPEB: Our reported costs of providing non-contributory defined pension benefits (described in Note N --
Benefits in the Notes to Consolidated Financial Statements) are dependent upon numerous factors resulting from actual
plan experience and assumptions of future experience. Pension costs are impacted by actual employee demographics
(including age, compensation levels and employment periods), the level of contributions made to plans and earnings on
plan assets. Changes made to the provisions of the plans may also impact current and future pension costs. Pension
costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on
plan assets, mortality and the discount rates used in determining the projected benefit obligation and pension costs.
Changes in pension obligations associated with these factors may not be immediately recognized as pension costs on the
income statement, but generally are recognized in future years over the remaining average service period of plan
participants. As such, significant portions of pension costs recorded in any period may not reflect the actual level of cash
benefits provided to plan participants.
The following table reflects pension plan sensitivities associated with changes in certain actuarial assumptions by the
indicated percentage. Each sensitivity reflects a change to the given assumption, holding all other assumptions constant.
Pension Plan
Actuarial Assumption
Impact on
Annual Cost
(Millions of Dollars)
0.5% decrease in discount rate and lump sum conversion rate
0.5% decrease in expected rate of return on plan assets
$
$
5.5
6.8
Wisconsin Energy Corporation
F-35
2014 Annual Financial Statements
In addition to pension plans, we maintain OPEB plans which provide health and life insurance benefits for retired
employees (described in Note N -- Benefits in the Notes to Consolidated Financial Statements). Our reported costs of
providing these post-retirement benefits are dependent upon numerous factors resulting from actual plan experience
including employee age and other demographics, our contributions to the plans, earnings on plan assets and health care
cost trends. Changes made to the provisions of the plans may also impact current and future OPEB costs. OPEB costs
may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan
assets, mortality and the discount rates used in determining the OPEB and post-retirement costs. Our OPEB plan assets
are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns, as well as
changes in general interest rates, may result in increased or decreased other post-retirement costs in future periods.
Similar to accounting for pension plans, the regulators of our utility segment have adopted accounting guidance for
compensation related to retirement benefits for rate-making purposes.
The following table reflects OPEB plan sensitivities associated with changes in certain actuarial assumptions by the
indicated percentage. Each sensitivity reflects a change to the given assumption, holding all other assumptions constant.
OPEB Plan
Actuarial Assumption
Impact on
Annual Cost
(Millions of Dollars)
0.5% decrease in discount rate
0.5% decrease in health care cost trend rate in all future years
0.5% decrease in expected rate of return on plan assets
$
$
$
0.6
(3.0 )
1.6
In October 2014, the Society of Actuaries released a new set of mortality tables (RP-2014) and an accompanying mortality
improvement scale (MP-2014), which incorporates increasing life expectancy experience in the United States. Based on
our initial review of the proposed tables, we believe our pension and OPEB obligations would increase by approximately
6% if we adopted these tables. We will continue to evaluate the mortality assumptions in the future, as necessary, to
conform to our experience.
Unbilled Revenues: We record utility operating revenues when energy is delivered to our customers. However, the
determination of energy sales to individual customers is based upon the reading of their meters, which occurs on a
systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the
date of their last meter reading are estimated and corresponding unbilled revenues are calculated. This unbilled revenue
is estimated each month based upon actual generation and throughput volumes, recorded sales, estimated customer
usage by class, weather factors, estimated line losses and applicable customer rates. Significant fluctuations in energy
demand for the unbilled period or changes in the composition of customer classes could impact the accuracy of the
unbilled revenue estimate. Total utility operating revenues during 2014 of approximately $4.9 billion included accrued
utility revenues of $291.3 million as of December 31, 2014.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Results,
Liquidity and Capital Resources -- Market Risks and Other Significant Risks in this report, as well as Note L -- Derivative
Instruments and Note M -- Fair Value Measurements in the Notes to Consolidated Financial Statements, for information
concerning potential market risks to which Wisconsin Energy and its subsidiaries are exposed.
Wisconsin Energy Corporation
F-36
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED INCOME STATEMENTS
Year Ended December 31
2014
2013
(Millions of Dollars, Except Per Share Amounts)
2012
Operating Revenues
Operating Expenses
Fuel and purchased power
Cost of gas sold
Other operation and maintenance
Depreciation and amortization
Property and revenue taxes
Total Operating Expenses
Treasury Grant
Operating Income
Equity in Earnings of Transmission Affiliate
Other Income and Deductions, net
Interest Expense, net
Income Before Income Taxes
Income Tax Expense
Net Income
Earnings Per Share
Basic
Diluted
Weighted Average Common Shares Outstanding (Millions)
Basic
Diluted
$
4,997.1 $
4,519.0 $
4,246.4
1,223.3
1,036.1
1,112.4
408.8
121.8
3,902.4
17.4
1,153.0
674.1
1,155.0
388.1
116.7
3,486.9
48.0
1,098.6
545.8
1,116.1
364.2
121.4
3,246.1
—
1,112.1
1,080.1
1,000.3
66.0
13.4
241.5
950.0
68.5
18.8
252.1
915.3
361.7
588.3 $
337.9
577.4 $
2.61 $
2.59 $
2.54 $
2.51 $
225.6
227.5
227.6
229.7
65.7
34.8
248.2
852.6
306.3
546.3
2.37
2.35
230.2
232.8
$
$
$
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Wisconsin Energy Corporation
F-37
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS
Property, Plant and Equipment
In service
Accumulated depreciation
Construction work in progress
Leased facilities, net
Net Property, Plant and Equipment
Investments
Equity investment in transmission affiliate
Other
Total Investments
Current Assets
Cash and cash equivalents
Accounts receivable, net of allowance for
doubtful accounts of $74.5 and $61.0
Accrued revenues
Materials, supplies and inventories
Current deferred tax asset, net
Prepayments
Other
Total Current Assets
Deferred Charges and Other Assets
Regulatory assets
Goodwill
Other
Total Deferred Charges and Other Assets
Total Assets
$
2014
2013
(Millions of Dollars)
15,509.0 $
(4,485.1)
11,023.9
191.8
42.0
11,257.7
424.1
32.8
456.9
14,966.3
(4,257.1)
10,709.2
149.6
47.8
10,906.6
402.7
36.1
438.8
61.9
26.0
352.1
291.3
400.6
242.7
148.2
38.6
1,535.4
1,271.2
441.9
200.3
1,913.4
406.0
321.1
329.4
310.0
145.7
12.9
1,551.1
1,108.5
441.9
322.5
1,872.9
$
15,163.4 $
14,769.4
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Wisconsin Energy Corporation
F-38
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31
CAPITALIZATION AND LIABILITIES
Capitalization
Common equity
Preferred stock of subsidiary
Long-term debt
Total Capitalization
Current Liabilities
Long-term debt due currently
Short-term debt
Accounts payable
Accrued payroll and benefits
Other
Total Current Liabilities
Deferred Credits and Other Liabilities
Regulatory liabilities
Deferred income taxes - long-term
Deferred revenue, net
Pension and other benefit obligations
Other long-term liabilities
Total Deferred Credits and Other Liabilities
Commitments and Contingencies (Note Q)
Total Capitalization and Liabilities
2014
2013
(Millions of Dollars)
$
4,419.7 $
30.4
4,186.4
8,636.5
424.1
617.6
363.3
95.1
168.6
1,668.7
830.6
2,906.7
614.1
203.8
303.0
4,858.2
4,233.0
30.4
4,363.2
8,626.6
342.2
537.4
342.6
96.9
177.3
1,496.4
879.1
2,634.0
664.2
173.2
295.9
4,646.4
$
15,163.4 $
14,769.4
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Wisconsin Energy Corporation
F-39
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
Operating Activities
Net income
Reconciliation to cash
Depreciation and amortization
Deferred income taxes and investment tax credits, net
Contributions to qualified benefit plans
Change in - Accounts receivable and accrued revenues
Inventories
Other current assets
Accounts payable
Accrued income taxes, net
Deferred costs, net
Other current liabilities
Other, net
Cash Provided by Operating Activities
Investing Activities
Capital expenditures
Investment in transmission affiliate
Proceeds from asset sales
Change in restricted cash
Cost of removal, net of salvage
Other, net
Cash Used in Investing Activities
Financing Activities
Exercise of stock options
Purchase of common stock
Dividends paid on common stock
Issuance of long-term debt
Retirement of long-term debt
Change in short-term debt
Other, net
Cash Used in Financing Activities
Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
2014
2013
2012
(Millions of Dollars)
$
588.3 $
577.4 $
546.3
419.4
328.1
—
80.7
(71.2)
(13.9)
23.7
(11.4)
(15.1)
(18.8)
(112.1)
1,197.7
(736.1)
(13.1)
13.9
—
(25.1)
3.6
(756.8)
50.3
(123.2)
(352.0)
250.0
(324.3)
80.2
14.0
(405.0)
35.9
26.0
400.2
312.7
—
(162.9)
31.3
2.8
(14.8)
36.6
(8.7)
7.2
49.2
1,231.0
(687.4)
(10.5)
2.5
2.7
(37.8)
(15.3)
(745.8)
48.5
(223.4)
(328.9)
251.0
(397.2)
142.8
12.4
(494.8)
(9.6)
35.6
371.7
293.2
(100.0)
38.3
21.3
12.1
43.8
116.9
9.2
(14.9)
(164.0)
1,173.9
(707.0)
(15.7)
8.7
42.8
(38.3)
(20.1)
(729.6)
49.8
(153.2)
(276.3)
251.8
(20.3)
(275.3)
0.7
(422.8)
21.5
14.1
35.6
Cash and Cash Equivalents at End of Year
$
61.9 $
26.0 $
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Wisconsin Energy Corporation
F-40
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMMON EQUITY
Balance - December 31, 2011
Net income
Common stock cash
dividends of $1.20 per share
Exercise of stock options
Purchase of common stock
Stock-based compensation and other
Balance - December 31, 2012
Net income
Common stock cash
dividends of $1.445 per share
Exercise of stock options
Purchase of common stock
Tax benefit from share based compensation
Stock-based compensation and other
Balance - December 31, 2013
Net income
Common stock cash
dividends of $1.56 per share
Exercise of stock options
Purchase of common stock
Common
Stock
Other Paid
In Capital
Retained
Earnings
Total
(Millions of Dollars)
$
2.3 $
598.5 $
3,362.5 $
546.3
3,963.3
546.3
2.3
2.3
49.8
(153.2)
5.2
500.3
48.5
(223.4)
18.1
6.2
349.7
50.3
(123.2)
16.8
6.5
300.1 $
(276.3)
3,632.5
577.4
(328.9)
3,881.0
588.3
(352.0)
4,117.3 $
(276.3)
49.8
(153.2)
5.2
4,135.1
577.4
(328.9)
48.5
(223.4)
18.1
6.2
4,233.0
588.3
(352.0)
50.3
(123.2)
16.8
6.5
4,419.7
Tax benefit from share based compensation
Stock-based compensation and other
Balance - December 31, 2014
$
2.3 $
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Wisconsin Energy Corporation
F-41
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31
Common Equity (see accompanying statement)
Preferred Stock of Subsidiary (Note I)
Long-Term Debt
Wisconsin Energy Notes (unsecured)
6.20% due 2033
6.25% Junior Notes due 2067
Wisconsin Electric Debentures (unsecured)
Wisconsin Gas Debentures (unsecured)
We Power Subsidiary Notes (secured, nonrecourse)
WECC Notes (unsecured)
Other Notes (secured, nonrecourse)
Obligations under capital leases
Unamortized discount, net and other
Long-term debt and capital lease obligations due currently
Total Long-Term Debt
Total Long-Term Capitalization
6.00% due 2014
6.25% due 2015
1.70% due 2018
4.25% due 2019
2.95% due 2021
6-1/2% due 2028
5.625% due 2033
5.70% due 2036
3.65% due 2042
4.25% due 2044
6-7/8% due 2095
5.20% due 2015
5.90% due 2035
4.91% due 2014-2030 (a)
5.209% due 2014-2030 (b)
4.673% due 2014-2031 (b)
6.00% due 2014-2033 (a)
6.09% due 2030-2040 (b)
5.848% due 2031-2041 (b)
6.94% due 2028
6.00% due 2021
4.81% effective rate due 2030
2013
2014
(Millions of Dollars)
$
4,419.7 $
30.4
4,233.0
30.4
200.0
500.0
—
250.0
250.0
250.0
300.0
150.0
335.0
300.0
250.0
250.0
100.0
125.0
90.0
117.2
223.9
184.7
134.6
275.0
215.0
50.0
—
2.0
84.5
(26.4 )
(424.1 )
4,186.4
8,636.5 $
200.0
500.0
300.0
250.0
250.0
250.0
300.0
150.0
335.0
300.0
250.0
—
100.0
125.0
90.0
122.1
231.5
190.9
138.4
275.0
215.0
50.0
1.8
2.0
104.3
(25.6)
(342.2)
4,363.2
8,626.6
$
(a) Senior notes are secured by a collateral assignment of the leases between PWGS and Wisconsin Electric related to PWGS 1
and 2.
(b) Senior notes are secured by a collateral assignment of the leases between ERGSS and Wisconsin Electric related to OC 1
and 2.
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Wisconsin Energy Corporation
F-42
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: Our consolidated financial statements include the accounts of Wisconsin Energy Corporation (Wisconsin
Energy, the Company, our, we or us), a diversified holding company, as well as our subsidiaries in the following reportable
segments:
• Utility Energy Segment -- Consisting of Wisconsin Electric and Wisconsin Gas, engaged primarily in the
generation of electricity and the distribution of electricity and natural gas; and
• Non-Utility Energy Segment -- Consisting primarily of We Power, engaged principally in the ownership of electric
power generating facilities for long-term lease to Wisconsin Electric.
Our Corporate and Other segment includes Wispark, which develops and invests in real estate. We have also eliminated
all intercompany transactions from the consolidated financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of certain assets and
liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenues: We recognize energy revenues on the accrual basis and include estimated amounts for services rendered
but not billed.
Our retail electric rates in Wisconsin are established by the PSCW and include base amounts for fuel and purchased
power costs. The electric fuel rules in Wisconsin allow us to defer, for subsequent rate recovery or refund, any under-
collection or over-collection of fuel costs that are outside of the symmetrical fuel cost tolerance, which the PSCW set at
plus or minus 2% of the approved fuel cost plan. The deferred under-collected amounts are subject to an excess revenues
test.
Our retail gas rates include monthly adjustments which permit the recovery or refund of actual purchased gas costs. We
defer any difference between actual gas costs incurred (adjusted for a sharing mechanism) and costs recovered through
rates as a current asset or liability. The deferred balance is returned to or recovered from customers at intervals
throughout the year.
We recognize We Power revenues (consisting of the lease payments included in rates and the amortization of the
deferred revenue) on a levelized basis over the term of the lease.
Accounting for MISO Energy Transactions: The MISO Energy Markets operate under both day-ahead and real-time
markets. We record energy transactions in the MISO Energy Markets on a net basis for each hour.
Other Income and Deductions, Net: We recorded the following items in Other Income and Deductions, net for the
years ended December 31:
Other Income and Deductions, net
2014
2013
(Millions of Dollars)
2012
AFUDC - Equity
Gain on Property Sales
Other, net
Total Other Income and Deductions, net
$
$
5.6 $
7.5
0.3
13.4 $
18.3 $
0.8
(0.3 )
18.8 $
35.3
2.7
(3.2 )
34.8
Wisconsin Energy Corporation
F-43
2014 Annual Financial Statements
Property and Depreciation: We record property, plant and equipment at cost. Cost includes material, labor, overheads
and capitalized interest. Utility property also includes AFUDC - Equity. Additions to and significant replacements of
property are charged to property, plant and equipment at cost; minor items are charged to maintenance expense. The cost
of depreciable utility property less salvage value is charged to accumulated depreciation when property is retired.
We recorded the following property in service by segment as of December 31:
Property In Service
2014
2013
(Millions of Dollars)
Utility Energy
Non-Utility Energy
Other
Total
$
$
12,290.7 $
3,127.8
90.5
15,509.0 $
11,779.8
3,091.3
95.2
14,966.3
Our utility depreciation rates are certified by the PSCW and MPSC and include estimates for salvage value and removal
costs. Depreciation as a percent of average depreciable utility plant was 2.9% in 2014, 2013 and 2012.
We depreciate our We Power assets over the estimated useful life of the various property components. The components
have useful lives of between 10 to 45 years for PWGS 1 and PWGS 2, and 10 to 55 years for OC 1 and OC 2.
Our regulated utilities collect in their rates amounts representing future removal costs for many assets that do not have an
associated Asset Retirement Obligation (ARO). We record a regulatory liability on our balance sheet for the estimated
amounts we have collected in rates for future removal costs less amounts we have spent in removal activities. This
regulatory liability was $741.1 million as of December 31, 2014 and $724.5 million as of December 31, 2013.
We recorded the following Construction Work in Progress (CWIP) by segment as of December 31:
CWIP
2014
2013
(Millions of Dollars)
Utility Energy
Non-Utility Energy
Other
Total
$
$
170.1 $
21.1
0.6
191.8 $
132.7
16.5
0.4
149.6
Allowance For Funds Used During Construction - Regulated: AFUDC is included in utility plant accounts and
represents the cost of borrowed funds (AFUDC - Debt) used during plant construction, and a return on stockholders'
capital (AFUDC - Equity) used for construction purposes. AFUDC - Debt is recorded as a reduction of interest expense,
and AFUDC - Equity is recorded in Other Income and Deductions, net.
Our regulated utility segment recorded the following AFUDC for the years ended December 31:
2014
2013
(Millions of Dollars)
2012
AFUDC - Debt
AFUDC - Equity
$
$
2.3 $
5.6 $
7.7 $
18.3 $
14.7
35.3
Deferred Revenue: As part of the construction of the PTF electric generating units, we capitalized interest during
construction. As allowed under the lease agreements, we were able to collect the carrying costs during the construction of
the PTF generating units from our utility customers. The carrying costs that we collected during construction have been
recorded as deferred revenue on our balance sheet and we are amortizing the deferred carrying costs to revenue over the
individual lease terms.
Wisconsin Energy Corporation
F-44
2014 Annual Financial Statements
Earnings per Common Share: We compute basic earnings per common share by dividing our net income attributed to
common shareholders by the weighted-average number of common shares outstanding during the period. Diluted
earnings per common share is computed by dividing net income attributed to common shareholders by the weighted
average number of common shares outstanding during the period, adjusted for the exercise and/or conversion of all
potentially dilutive securities. Such dilutive securities include in-the-money stock options. All stock options outstanding
during 2014, 2013 and 2012 were included in the computation of diluted earnings per share. Anti-dilutive shares are
excluded from the calculation.
Materials, Supplies and Inventories: Our inventory as of December 31 consists of:
Materials, Supplies and Inventories
Fossil Fuel
Materials and Supplies
Natural Gas in Storage
Total
2014
2013
(Millions of Dollars)
$
$
125.6 $
150.2
124.8
400.6 $
117.7
133.9
77.8
329.4
Substantially all fossil fuel, materials and supplies, and natural gas in storage inventories are recorded using the
weighted-average cost method of accounting.
Regulatory Accounting: The economic effects of regulation can result in regulated companies recording costs that
have been or are expected to be allowed in the rate-making process in a period different from the period in which the
costs would be charged to expense by an unregulated enterprise. When this occurs, costs are deferred as regulatory
assets on the balance sheet and expensed in the periods when they are reflected in rates. We defer regulatory assets
pursuant to specific or generic orders issued by our regulators. Additionally, regulators can impose regulatory liabilities
upon a regulated company for amounts previously collected from customers and for amounts that are expected to be
refunded to customers. In general, regulatory assets are recovered in a period between one to eight years. For further
information, see Note C.
Asset Retirement Obligations: We record a liability for a legal ARO in the period in which it is incurred. When a new
legal obligation is recorded, we capitalize the costs of the liability by increasing the carrying amount of the related long-
lived asset. We accrete the liability to its present value each period and depreciate the capitalized cost over the useful life
of the related asset. At the end of the asset's useful life, we settle the obligation for its recorded amount or incur a gain or
loss. As it relates to our regulated operations, we apply regulatory accounting guidance and recognize regulatory assets
or liabilities for the timing differences between when we recover legal AROs in rates and when we would recognize these
costs. For further information, see Note E.
Derivative Financial Instruments: We have derivative physical and financial instruments which we report at fair value.
For further information, see Note L.
Cash and Cash Equivalents: Cash and cash equivalents include marketable debt securities acquired three months or
less from maturity.
Margin Accounts: Cash deposited in brokerage accounts for margin requirements is recorded in Other Current Assets
on our Consolidated Balance Sheets.
Goodwill: Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets
acquired. As of December 31, 2014 and 2013, we had $441.9 million of goodwill recorded at the utility energy segment,
which related to our acquisition of Wisconsin Gas in 2000.
Goodwill is not subject to amortization. However, it is subject to fair value-based rules for measuring impairment, and
resulting write-downs, if any, are to be reflected in operating expense. Fair value is assessed by considering future
discounted cash flows, a comparison of fair value based on public company trading multiples, and merger and acquisition
transaction multiples for similar companies. This evaluation utilizes the information available under the circumstances,
including reasonable and supportable assumptions and projections. We perform our annual impairment test as of
August 31. There was no impairment to the recorded goodwill balance as of our annual 2014 impairment test date.
Wisconsin Energy Corporation
F-45
2014 Annual Financial Statements
Impairment or Disposal of Long Lived Assets: We carry property, equipment and goodwill related to businesses held
for sale at the lower of cost or estimated fair value less cost to sell. As of December 31, 2014, we had no assets classified
as Held for Sale. Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate
that their carrying value may not be recoverable from the use and eventual disposition of the asset based on the
remaining useful life. An impairment loss is recognized when the carrying amount of an asset is not recoverable and
exceeds the fair value of the asset. The carrying amount of an asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is
measured as the excess of the carrying amount of the asset in comparison to the fair value of the asset.
Investments: We account for investments in other affiliated companies in which we do not maintain control using the
equity method of accounting. We had a total ownership interest of approximately 26.2% in ATC as of December 31, 2014
and 2013. We are represented by one out of ten ATC board members, each of whom has one vote. Due to the voting
requirements, no individual member has more than 10% of the voting control. For further information regarding such
investments, see Note P.
Income Taxes: We follow the liability method in accounting for income taxes. Accounting guidance for income taxes
requires the recording of deferred assets and liabilities to recognize the expected future tax consequences of events that
have been reflected in our financial statements or tax returns and the adjustment of deferred tax balances to reflect tax
rate changes. We are required to assess the likelihood that our deferred tax assets would expire before being realized. If
we conclude that certain deferred tax assets are likely to expire before being realized, a valuation allowance would be
established against those assets. GAAP requires that, if we conclude in a future period that it is more likely than not that
some or all of the deferred tax assets would be realized before expiration, we reverse the related valuation allowance in
that period. Any change to the allowance, as a result of a change in judgment about the realization of deferred tax assets,
is reported in income tax expense.
Investment tax credits associated with regulated operations are deferred and amortized over the life of the assets. We file
a consolidated Federal income tax return. Accordingly, we allocate Federal current tax expense benefits and credits to our
subsidiaries based on their separate tax computations. For further information, see Note G.
We recognize interest and penalties accrued related to unrecognized tax benefits in Income Taxes in our Consolidated
Income Statements, as well as Regulatory Assets or Regulatory Liabilities in our Consolidated Balance Sheets.
We collect sales and use taxes from our customers and remit these taxes to governmental authorities. These taxes are
recorded in our Consolidated Income Statements on a net basis.
Stock Options: We estimate the fair value of stock options using the binomial pricing model. We report unearned stock-
based compensation associated with non-vested restricted stock and performance share awards activity within Other Paid
in Capital in our Consolidated Statements of Common Equity. We report excess tax benefits as a financing cash inflow.
Historically, all stock options have been granted with an exercise price equal to the fair market value of the common stock
on the date of grant and expire no later than 10 years from grant date. For a discussion of the impacts to our Consolidated
Financial Statements, see Note H.
The fair value of our stock options was calculated using a binomial option-pricing model using the following weighted-
average assumptions:
Risk-free interest rate
Dividend yield
Expected volatility
Expected life (years)
Expected forfeiture rate
Weighted-average fair value
of our stock options granted
2014
0.1% - 3.0%
3.8%
18.0%
5.8
2.0%
2013
2012
0.1% - 1.9%
0.1% - 2.0%
3.7%
18.0%
5.9
2.0%
3.9%
19.0%
5.9
2.0%
$4.18
$3.45
$3.34
Wisconsin Energy Corporation
F-46
2014 Annual Financial Statements
Treasury Grant: In December 2013, we filed an application with the United States Treasury for a Section 1603
renewable energy grant related to the construction of our biomass facility in Rothschild, Wisconsin. The PSCW anticipated
the recognition of this grant as income when it set rates for the two years beginning January 1, 2013. We provided bill
credits to our customers in 2013 and 2014. For the years ended December 31, 2014 and December 31, 2013, $17.4
million and $48.0 million, respectively, was recognized as income, which reflects the amount that was returned to
customers in the form of bill credits during the year. The accounting reflects the regulatory treatment of the grant.
In June 2014, we received approximately $76.2 million related to the Treasury Grant. The PSCW approved escrow
accounting for the Treasury Grant and the proceeds we received that exceeded the amounts originally included in rates
are being returned to customers in the form of bill credits.
B -- RECENT ACCOUNTING PRONOUNCEMENTS
Revenue Recognition: In May 2014, the Financial Accounting Standards Board and the International Accounting
Standards Board issued their joint revenue recognition standard, Accounting Standards Update 2014-09, Revenue from
Contracts with Customers. This guidance is effective for fiscal years and interim periods beginning after December 15,
2016, and can either be applied retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are
currently assessing the effects this guidance may have on our consolidated financial statements.
C -- REGULATORY ASSETS AND LIABILITIES
Our primary regulator, the PSCW, considers our regulatory assets and liabilities in two categories, escrowed and deferred.
In escrow accounting we expense amounts that are included in rates. If actual costs exceed or are less than the amounts
that are allowed in rates, the difference in cost is escrowed on the balance sheet as a regulatory asset or regulatory
liability and the escrowed balance is considered in setting future rates. Under deferred cost accounting, we defer amounts
to our balance sheet based upon orders or correspondence with our regulators. These deferred costs will be considered in
future rate setting proceedings. As of December 31, 2014, we had $12.8 million of regulatory assets not earning a return
and $115.1 million of regulatory assets earning a return based on short-term interest rates.
In December 2014, the PSCW issued a rate order effective January 1, 2015 that, among other things, reaffirmed our
accounting for the regulatory assets and liabilities identified below.
Our regulatory assets and liabilities as of December 31 consist of:
Regulatory Assets
Deferred unrecognized pension costs
Deferred income tax related
Escrowed electric transmission costs
Escrowed PTF
Escrowed conservation
Deferred plant related -- capital lease
Deferred environmental costs
Other, net
Total regulatory assets
Regulatory Liabilities
Deferred cost of removal obligations
Escrowed bad debt costs
Other, net
Total regulatory liabilities
2014
2013
(Millions of Dollars)
629.5 $
176.0
146.0
66.6
58.0
42.3
45.9
106.9
1,271.2 $
741.1 $
30.1
59.4
830.6 $
537.6
169.5
126.8
49.3
66.9
56.5
47.0
54.9
1,108.5
724.5
64.6
90.0
879.1
$
$
$
$
Wisconsin Energy Corporation
F-47
2014 Annual Financial Statements
D -- PROPOSED ACQUISITION
On June 22, 2014, Wisconsin Energy and Integrys entered into an agreement and plan of merger (Merger Agreement)
under which Wisconsin Energy will acquire Integrys. Integrys’ shareholders will receive 1.128 shares of Wisconsin Energy
common stock and $18.58 in cash per Integrys share of common stock. We expect to finance the acquisition through the
issuance of approximately 91 million shares of Wisconsin Energy common stock to Integrys shareholders and through the
issuance of approximately $1.5 billion of debt. We will also assume all of Integrys' outstanding debt. The combined
company will be named WEC Energy Group, Inc.
The acquisition is subject to several conditions, including, among others, approval of the shareholders of both Wisconsin
Energy and Integrys, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR Act), and the receipt of approvals from various government agencies, including FERC,
Federal Communications Commission, PSCW, Illinois Commerce Commission, MPSC and Minnesota Public Utilities
Commission. The status of these matters as of December 31, 2014 is as follows:
• On August 6, 2014, we filed applications for approval with the PSCW, Illinois Commerce Commission, MPSC and
Minnesota Public Utilities Commission.
• On August 15, 2014, we filed an application with the FERC. The initial public comment period closed on
October 17, 2014. We subsequently submitted additional information to respond to FERC questions on
December 18, 2014. That comment period is now closed.
• On September 24, 2014, we submitted our HSR Act filings, and on October 24, 2014, the United States Department of
Justice closed its review of the transaction with no further action required. In addition, on October 24, 2014, the
Federal Trade Commission granted early termination of the 30-day waiting period required by the HSR Act.
• On November 21, 2014, the shareholders of Wisconsin Energy voted to approve the issuance of common stock as
contemplated by the Merger Agreement, as well as to amend the restated articles of incorporation to change the
name of Wisconsin Energy from Wisconsin Energy Corporation to WEC Energy Group, Inc. The shareholders of
Integrys approved the adoption of the Merger Agreement at its shareholder meeting held on November 21, 2014.
We anticipate the transaction closing in the second half of 2015.
E -- ASSET RETIREMENT OBLIGATIONS
AROs have been recorded for asbestos abatement at certain generation and substation facilities, and for obligations
associated with the removal and dismantlement of generation facilities. AROs are recorded in other long-term liabilities on
the Consolidated Balance Sheets. The following table presents the change in our AROs during 2014 and 2013:
Balance as of January 1
Liabilities Settled
Accretion
Balance as of December 31
2014
2013
(Millions of Dollars)
$
$
42.3 $
(1.1 )
2.4
43.6 $
44.3
(4.4 )
2.4
42.3
Wisconsin Energy Corporation
F-48
2014 Annual Financial Statements
F -- VARIABLE INTEREST ENTITIES
The primary beneficiary of a variable interest entity must consolidate the related assets and liabilities. Certain disclosures
are required by sponsors, significant interest holders in variable interest entities and potential variable interest entities.
We assess our relationships with potential variable interest entities such as our coal suppliers, natural gas suppliers, coal
and gas transporters, and other counterparties in power purchase agreements and joint ventures. In making this
assessment, we consider the potential that our contracts or other arrangements provide subordinated financial support,
the potential for us to absorb losses or rights to residual returns of the entity, the ability to directly or indirectly make
decisions about the entities' activities and other factors.
We have identified a purchased power agreement which represents a variable interest. This agreement is for 236 MW of
firm capacity from a gas-fired cogeneration facility and we account for it as a capital lease. The agreement includes no
minimum energy requirements over the remaining term of approximately eight years. We have examined the risks of the
entity including operations and maintenance, dispatch, financing, fuel costs and other factors, and have determined that
we are not the primary beneficiary of the entity. We do not hold an equity or debt interest in the entity and there is no
residual guarantee associated with the purchased power agreement.
We have approximately $174.0 million of required payments over the remaining term of this agreement. We believe that
the required lease payments under this contract will continue to be recoverable in rates. Total capacity and lease
payments under contracts considered variable interests in 2014, 2013 and 2012 were $53.0 million, $50.3 million and
$45.8 million, respectively. Our maximum exposure to loss is limited to the capacity payments under the contract.
G -- INCOME TAXES
The following table is a summary of income tax expense for each of the years ended December 31:
Income Taxes
2014
2013
(Millions of Dollars)
2012
Current tax expense
Deferred income taxes, net
Investment tax credit, net
Total Income Tax Expense
$
$
33.6 $
329.2
(1.1 )
361.7 $
25.2 $
313.8
(1.1 )
337.9 $
13.1
294.4
(1.2 )
306.3
The provision for income taxes for each of the years ended December 31 differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate to income before income taxes as a result of
the following:
Income Tax Expense
2014
2013
2012
Amount
Effective
Tax Rate Amount
Effective
Tax Rate Amount
Effective
Tax Rate
$
Expected tax at statutory federal tax rates
State income taxes net of federal tax benefit
Production tax credits
Treasury Grant
AFUDC - Equity
Investment tax credit restored
Domestic production activities deduction
Other, net
Total Income Tax Expense
$
(Millions of Dollars)
332.5
50.5
(17.4 )
(3.8 )
(1.9 )
(1.1 )
—
2.9
361.7
35.0 % $
5.3 %
(1.8 )%
(0.4 )%
(0.2 )%
(0.1 )%
— %
0.3 %
38.1 % $
320.3
49.0
(16.7 )
(7.4 )
(6.4 )
(1.1 )
—
0.2
337.9
35.0 % $
5.3 %
(1.8 )%
(0.8 )%
(0.7 )%
(0.1 )%
— %
— %
36.9 % $
298.4
43.3
(15.9 )
—
(12.3 )
(1.2 )
(12.6 )
6.6
306.3
35.0 %
5.1 %
(1.9 )%
— %
(1.4 )%
(0.1 )%
(1.5 )%
0.7 %
35.9 %
Wisconsin Energy Corporation
F-49
2014 Annual Financial Statements
The components of deferred income taxes classified as net current assets and net long-term liabilities as of December 31
are as follows:
Deferred Tax Assets
2014
2013
(Millions of Dollars)
Current
Future federal tax benefits
Employee benefits and compensation
Other
Total Current Deferred Tax Assets
Non-current
Deferred revenues
Employee benefits and compensation
Future federal tax benefits
Property-related
Construction advances
Other
Total Non-Current Deferred Tax Assets
Total Deferred Tax Assets
Deferred Tax Liabilities
Current
Prepaid items
Total Current Deferred Tax Liabilities
Non-current
Property-related
Employee benefits and compensation
Investment in transmission affiliate
Deferred transmission costs
Other
Total Non-current Deferred Tax Liabilities
Total Deferred Tax Liabilities
Consolidated Balance Sheet Presentation
Current Deferred Tax Asset
Non-Current Deferred Tax Liability
$
$
$
$
$
$
221.7 $
13.7
47.7
283.1
221.3
98.2
—
28.8
18.9
51.8
419.0
702.1 $
309.7
13.8
56.0
379.5
237.0
95.6
32.5
28.2
18.3
62.9
474.5
854.0
2014
2013
(Millions of Dollars)
40.4 $
40.4
69.5
69.5
2,750.4
242.5
188.6
58.5
85.7
3,325.7
3,366.1 $
2,574.4
238.5
169.9
50.8
74.9
3,108.5
3,178.0
2014
2013
242.7 $
2,906.7 $
310.0
2,634.0
Consistent with rate-making treatment, deferred taxes are offset in the above table for temporary differences which have
related regulatory assets or liabilities.
As of December 31, 2014, we had approximately $416.2 million and $76.0 million of net operating loss and tax credit
carryforwards resulting in deferred tax assets of $145.7 million and $76.0 million, respectively. As of December 31, 2013,
we had approximately $810.3 million and $58.6 million of net operating loss and tax credit carryforwards resulting in
deferred tax assets of $283.6 million and $58.6 million, respectively. The tax credit and net operating loss carryforwards
begin to expire in 2029. We anticipate that we will have future taxable income sufficient to utilize these deferred tax
assets.
Wisconsin Energy Corporation
F-50
2014 Annual Financial Statements
We previously adopted accounting guidance related to uncertainty in income taxes. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows:
Balance as of January 1
Reductions for tax positions of prior years
Balance as of December 31
2014
2013
(Millions of Dollars)
$
$
8.4 $
(1.2 )
7.2 $
11.3
(2.9 )
8.4
The amount of unrecognized tax benefits as of December 31, 2014 and 2013 excludes deferred tax assets related to
uncertainty in income taxes of $7.2 million and $8.4 million, respectively. As of December 31, 2014 and 2013, there were
no unrecognized tax benefits that, if recognized, would impact the effective tax rate for continuing operations.
We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense.
For the years ended December 31, 2014, 2013 and 2012, we recognized approximately $0.3 million, $0.2 million and $0.2
million, respectively, of accrued interest in the Consolidated Income Statements. For the years ended December 31, 2014,
2013 and 2012, we recognized no penalties in the Consolidated Income Statements. We had approximately $0.7 million
and $0.4 million of interest accrued and no penalties accrued on the Consolidated Balance Sheets as of December 31,
2014 and 2013, respectively.
We do not anticipate any significant increases or decreases in the total amounts of unrecognized tax benefits within the
next 12 months.
Our primary tax jurisdictions include the United States and the state of Wisconsin. Currently, the tax years of 2011 through
2014 are subject to Federal examination, and the tax years 2010 through 2014 are subject to examination by the state of
Wisconsin.
H -- COMMON EQUITY
As of December 31, 2014 and 2013, we had 325,000,000 shares of common stock, one cent par value, authorized under
our charter, of which 225,517,339 and 225,962,959 common shares, respectively, were outstanding. All share-based
compensation is currently fulfilled by purchases on the open market by our independent agents and do not dilute
shareholders' ownership.
Acquisition of Integrys: On June 22, 2014, we entered into an agreement to acquire Integrys. Integrys shareholders will
receive 1.128 shares of Wisconsin Energy common stock and $18.58 in cash per share of Integrys common stock. The
proposed acquisition is scheduled to close in the second half of 2015. We expect to finance the acquisition through the
issuance of approximately $1.5 billion of debt and approximately 91 million shares of Wisconsin Energy common stock.
Share-Based Compensation Plans: We have a plan that was approved by stockholders that enables us to provide a
long-term incentive through equity interests in Wisconsin Energy to outside directors, selected officers and key employees
of the Company. The plan provides for the granting of stock options, stock appreciation rights, restricted stock awards and
performance shares. Awards may be paid in common stock, cash or a combination thereof. We utilize the straight-line
attribution method for recognizing share-based compensation expense. Accordingly, for employee awards, equity
classified share-based compensation cost is measured at the grant date based on the fair value of the award, and is
recognized as expense over the requisite service period. There were no modifications to the terms of outstanding stock
options during the period.
Wisconsin Energy Corporation
F-51
2014 Annual Financial Statements
The following table summarizes recorded pre-tax share-based compensation expense and the related tax benefit for
share-based awards made to our employees and directors as of December 31:
2014
2013
(Millions of Dollars)
2012
Performance units
Stock options
Restricted stock
Share-based compensation expense
Related Tax Benefit
$
$
$
15.4 $
3.7
2.8
21.9 $
8.8 $
12.7 $
3.9
2.4
19.0 $
7.6 $
16.3
2.7
3.0
22.0
8.8
Stock Options: The exercise price of a stock option under the plan is to be no less than 100% of the common stock's
fair market value on the grant date and options may not be exercised within six months of the grant date except in the
event of a change in control. Option grants consist of non-qualified stock options that vest on a cliff-basis after a three
year period. Options expire no later than 10 years from the date of grant. For further information regarding stock-based
compensation and the valuation of our stock options, see Note A.
We expect that substantially all of the outstanding options as of December 31, 2014 will be exercised.
The following is a summary of our stock option activity during 2014:
Stock Options
Outstanding as of January 1, 2014
Granted
Exercised
Forfeited
Outstanding as of December 31, 2014
Exercisable as of December 31, 2014
Number of
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic Value
(Millions)
8,089,710 $
899,500 $
(2,201,821 ) $
(17,195 ) $
6,770,194 $
3,890,339 $
26.84
41.03
22.85
37.42
29.99
24.10
5.7
3.9
$
$
154.0
111.4
In January 2015, the Compensation Committee of the Board of Directors (Compensation Committee) awarded 516,475
non-qualified stock options with an exercise price of $52.895 to our officers and other key employees under its normal
schedule of awarding long-term incentive compensation.
The intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $50.5 million,
$44.5 million and $47.5 million, respectively. Cash received from options exercised during the years ended December 31,
2014, 2013 and 2012 was $50.3 million, $48.5 million and $49.8 million, respectively. The actual tax benefit realized for
the tax deductions from option exercises for the same periods was approximately $19.9 million, $17.8 million and zero,
respectively.
The following table summarizes information about stock options outstanding as of December 31, 2014:
Range of Exercise Prices
$17.10 to $21.11
$23.88 to $29.35
$34.88 to $41.03
Options Outstanding
Weighted-Average
Options Exercisable
Weighted-Average
Number of
Options
1,498,071 $
2,153,513 $
3,118,610 $
6,770,194 $
Exercise
Price
20.86
25.06
37.79
29.99
Remaining
Contractual
Life (Years)
3.5
3.7
8.0
5.7
Number of
Options
1,498,071 $
2,153,513 $
238,755 $
3,890,339 $
Exercise
Price
20.86
25.06
35.88
24.10
Remaining
Contractual
Life (Years)
3.5
3.7
7.4
3.9
Wisconsin Energy Corporation
F-52
2014 Annual Financial Statements
The following table summarizes information about our non-vested options during 2014:
Non-Vested Stock Options
Non-Vested as of January 1, 2014
Granted
Vested
Forfeited
Non-Vested as of December 31, 2014
Number of
Options
Weighted-
Average Fair
Value
2,380,790 $
899,500 $
(383,240) $
(17,195) $
2,879,855 $
3.38
4.18
3.26
3.56
3.65
As of December 31, 2014, total compensation costs related to non-vested stock options not yet recognized was
approximately $2.1 million, which is expected to be recognized over the next 19 months on a weighted-average basis.
Restricted Shares: The Compensation Committee has also approved restricted stock grants to certain key employees
and directors. The following restricted stock activity occurred during 2014:
Restricted Shares
Outstanding as of January 1, 2014
Granted
Released
Forfeited
Outstanding as of December 31, 2014
Number of
Shares
Weighted-
Average
Market Price
150,698
71,504 $
(63,509) $
(3,214) $
155,479
40.96
33.02
38.47
In January 2015, the Compensation Committee awarded 60,164 restricted shares to our directors, officers and other key
employees under its normal schedule of awarding long-term incentive compensation. These awards have a three-year
vesting period, and generally, one-third of the award vests on each anniversary of the grant date. During the vesting
period, restricted share recipients also have voting rights and are entitled to dividends in the same manner as other
shareholders.
We record the market value of the restricted stock awards on the date of grant and then we charge their value to expense
over the vesting period of the awards. The intrinsic value of restricted stock vesting was $2.7 million, $4.0 million and $3.5
million for the years ended December 31, 2014, 2013, and 2012, respectively. The actual tax benefit realized for the tax
deductions from released restricted shares for the same years was $1.0 million, $1.3 million and zero, respectively.
As of December 31, 2014, total compensation cost related to restricted stock not yet recognized was approximately $2.8
million, which is expected to be recognized over the next 20 months on a weighted-average basis.
Performance Units: In January 2014, 2013 and 2012, the Compensation Committee awarded 233,735, 239,120 and
346,570 performance units, respectively, to officers and other key employees under the Wisconsin Energy Performance
Unit Plan. Under the grants, the ultimate number of units that will be awarded is dependent upon the achievement of
certain financial performance of our stock over a three-year period. Under the terms of the award, participants may earn
between 0% and 175% of the base performance unit award. All grants are settled in cash. We are accruing compensation
costs over the three-year performance period based on our estimate of the final expected value of the awards.
Performance units earned as of December 31, 2014, 2013 and 2012 vested and were settled during the first quarter of
2015, 2014 and 2013, and had a total intrinsic value of $13.2 million, $14.8 million and $19.3 million, respectively. The
actual tax benefit realized for the tax deductions from the distribution of performance units was approximately $4.8 million,
$5.3 million and $7.0 million, respectively.
In January 2015, the Compensation Committee awarded 195,365 performance units to our officers and other key
employees under its normal schedule of awarding long-term incentive compensation.
As of December 31, 2014, total compensation cost related to performance units not yet recognized was approximately
$12.6 million, which is expected to be recognized over the next 20 months on a weighted-average basis.
Wisconsin Energy Corporation
F-53
2014 Annual Financial Statements
Restrictions: Wisconsin Energy's ability as a holding company to pay common dividends primarily depends on the
availability of funds received from its non-utility subsidiary, We Power, and its utility subsidiaries.
Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our subsidiaries
to transfer funds to Wisconsin Energy in the form of cash dividends, loans or advances. In addition, under Wisconsin law,
Wisconsin Electric and Wisconsin Gas are prohibited from loaning funds, either directly or indirectly, to Wisconsin Energy.
Wisconsin Electric and Wisconsin Gas are required to maintain capital structures that differ from GAAP as they reflect
regulatory adjustments. The 2013 PSCW rate case order required Wisconsin Electric to maintain a common equity ratio
range of between 48.5% and 53.5%, and Wisconsin Gas to maintain a capital structure which had a common equity range
of between 45.0% and 50.0%. The 2015 PSCW rate case requires Wisconsin Electric to maintain a common equity ratio
range of between 48.5% and 53.5%, and Wisconsin Gas to maintain a capital structure which has a common equity range
of between 47.0% and 52.0%. Each company is in compliance with its respective common equity range as outlined within
the 2013 PSCW rate case. Wisconsin Electric and Wisconsin Gas must obtain PSCW approval if they pay dividends
above the test year levels that would cause either company to fall below the authorized levels of common equity.
Wisconsin Electric may not pay common dividends to Wisconsin Energy under Wisconsin Electric's Restated Articles of
Incorporation if any dividends on Wisconsin Electric's outstanding preferred stock have not been paid. In addition,
pursuant to the terms of Wisconsin Electric's 3.60% Serial Preferred Stock, Wisconsin Electric's ability to declare common
dividends would be limited to 75% or 50% of net income during a twelve month period if Wisconsin Electric's common
stock equity to total capitalization, as defined in the preferred stock designation, is less than 25% and 20%, respectively.
We have the option to defer interest payments on the Junior Notes, from time to time, for one or more periods of up to 10
consecutive years per period. During any period in which we defer interest payments, we may not declare or pay any
dividends or distributions on, or redeem, repurchase or acquire, our common stock.
As of December 31, 2014, the restricted net assets of consolidated and unconsolidated subsidiaries and our equity in
undistributed earnings of 50% or less owned investees accounted for by the equity method total approximately $3.7
billion. This amount exceeds 25% of our consolidated net assets as of December 31, 2014.
See Note K for discussion of certain financial covenants related to the bank back-up credit facilities of Wisconsin Energy,
Wisconsin Electric and Wisconsin Gas.
We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the
foreseeable future.
Share Repurchase Program: We do not expect to issue new shares under our various employee benefit plans and our
dividend reinvestment and share purchase plan; rather, we instruct independent plan agents to purchase the shares in the
open market. In that regard, no new shares of common stock were issued in 2014, 2013 or 2012.
In December 2013, our Board of Directors authorized a share repurchase program for the purchase of up to $300.0 million
of our common stock through open market purchases or privately negotiated transactions from January 1, 2014 through
the end of 2017. On June 22, 2014, in connection with the proposed acquisition of Integrys, the Board of Directors
terminated this share repurchase program. For the twelve months ended December 31, 2014, we repurchased
$18.6 million of our common stock pursuant to the terminated program at an average cost of $43.66 per share. All of
these shares were purchased during the first quarter of 2014. A previous share repurchase program authorized by our
Board of Directors expired at the end of 2013. In addition, we have instructed our independent agents to purchase shares
on the open market to fulfill exercised stock options and restricted stock awards. The following table identifies the shares
purchased by the Company for the year ending December 31:
2014
2013
2012
Shares
Cost
Shares
Cost
Shares
Cost
(In Millions)
Under share repurchase programs
To fulfill exercised stock options and restricted
stock awards
Total
0.4 $
18.6
3.0 $
126.0
1.5 $
51.8
2.3
2.7 $
104.6
123.2
2.4
5.4 $
97.4
223.4
2.8
4.3 $
101.4
153.2
Wisconsin Energy Corporation
F-54
2014 Annual Financial Statements
I -- PREFERRED STOCK
The following table shows preferred stock authorized and outstanding at December 31, 2014 and 2013:
Shares
Authorized
Shares
Outstanding
Redemption
Price Per Share
Total
(In Millions)
Wisconsin Energy
$.01 par value Preferred Stock
15,000,000
—
— $
—
Wisconsin Electric
$100 par value, Six Per Cent. Preferred Stock
$100 par value, Serial Preferred Stock
3.60% Series
$25 par value, Serial Preferred Stock
Total preferred stock of subsidiary
45,000
2,286,500
5,000,000
44,498
260,000 $
—
— $
101
—
$
4.4
26.0
—
30.4
J -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Debentures and Notes: As of December 31, 2014, the maturities and sinking fund requirements of our long-term debt
outstanding (excluding obligations under capital leases) were as follows:
2015
2016
2017
2018
2019
Thereafter
Total
(Millions of Dollars)
$
$
399.5
27.4
29.5
281.1
282.7
3,532.2
4,552.4
We amortize debt premiums, discounts and debt issuance costs over the lives of the debt and we include the costs in
interest expense.
Wisconsin Electric is the obligor under two series of tax-exempt pollution control refunding bonds in outstanding principal
amount of $147 million. In August 2009, Wisconsin Electric terminated letters of credit that provided credit and liquidity
support for the bonds, which resulted in a mandatory tender of the bonds. Wisconsin Electric purchased the bonds at par
plus accrued interest to the date of purchase. As of December 31, 2014 and 2013, the repurchased bonds were still
outstanding, but were not reported in our consolidated long-term debt or included on our Consolidated Statements of
Capitalization because they are held by Wisconsin Electric. Depending on market conditions and other factors, Wisconsin
Electric may change the method used to determine the interest rate on the bonds and have them remarketed to third
parties.
In connection with our outstanding Junior Notes, we executed the Replacement Capital Covenant dated May 11, 2007
(RCC) for the benefit of persons that buy, hold or sell a specified series of long-term indebtedness (covered debt). Our
6.20% Senior Notes due April 1, 2033 have been designated as the covered debt under the RCC. The RCC provides that
we may not redeem, defease or purchase and our subsidiaries may not purchase any Junior Notes on or before
May 15, 2037, unless, subject to certain limitations described in the RCC, during the 180 days prior to the date of
redemption, defeasance or purchase, we have received a specified amount of proceeds from the sale of qualifying
securities.
Effective May 2017, the $500 million of Junior Notes will bear interest at the three-month LIBOR Rate plus 211.25 basis
points and will reset quarterly.
Wisconsin Energy Corporation
F-55
2014 Annual Financial Statements
Obligations Under Capital Leases: In 1997, Wisconsin Electric entered into a 25-year power purchase contract with an
unaffiliated independent power producer. The contract, for 236 MW of firm capacity from a gas-fired cogeneration facility,
includes no minimum energy requirements. When the contract expires in 2022, Wisconsin Electric may, at its option and
with proper notice, renew for another ten years or purchase the generating facility at fair value or allow the contract to
expire. We account for this contract as a capital lease and recorded the leased facility and corresponding obligation under
the capital lease at the estimated fair value of the plant's electric generating facilities. We are amortizing the leased facility
on a straight-line basis over the original 25-year term of the contract.
We treat the long-term power purchase contract as an operating lease for rate-making purposes and we record our
minimum lease payments as purchased power expense on the Consolidated Income Statements. We paid a total of $34.9
million and $33.7 million in lease payments during 2014 and 2013, respectively. We record the difference between the
minimum lease payments and the sum of imputed interest and amortization costs calculated under capital lease
accounting as a deferred regulatory asset on our Consolidated Balance Sheets (see Regulatory Assets - Deferred plant
related -- capital lease in Note C). Due to the timing and the amounts of the minimum lease payments, the regulatory
asset increased to approximately $78.5 million during 2009, at which time the regulatory asset began to be reduced to
zero over the remaining life of the contract. The total obligation under the capital lease was $84.5 million as of
December 31, 2014, and will decrease to zero over the remaining life of the contract.
The following is a summary of our capitalized leased facilities as of December 31:
Capital Lease Assets
2014
2013
(Millions of Dollars)
Leased Facilities
Long-term power purchase commitment
Accumulated amortization
Total Leased Facilities
$
$
140.3 $
(98.3)
42.0 $
140.3
(92.5)
47.8
Future minimum lease payments under our capital lease and the present value of our net minimum lease payments as of
December 31, 2014 are as follows:
2015
2016
2017
2018
2019
Thereafter
Total Minimum Lease Payments
Less: Estimated Executory Costs
Net Minimum Lease Payments
Less: Interest
Present Value of Net
Minimum Lease Payments
Less: Due Currently
$
(Millions of Dollars)
43.5
45.1
13.9
14.7
15.5
41.3
174.0
(54.7 )
119.3
(34.8 )
84.5
(24.6 )
59.9
$
Wisconsin Energy Corporation
F-56
2014 Annual Financial Statements
K -- SHORT-TERM DEBT
Short-term notes payable balances and their corresponding weighted-average interest rates as of December 31 consist
of:
Short-Term Debt
Balance
2014
2013
Interest
Rate
Balance
Interest
Rate
(Millions of Dollars, except for percentages)
Commercial paper
$
617.6
0.22 % $
537.4
0.20 %
The following information relates to commercial paper for the years ended December 31:
2014
2013
(Millions of Dollars, except for percentages)
Maximum Short-Term Debt Outstanding
Average Short-Term Debt Outstanding
Weighted-Average Interest Rate
$
$
721.4
468.1
$
$
0.18%
594.5
359.1
0.25 %
Wisconsin Energy, Wisconsin Electric and Wisconsin Gas have entered into bank back-up credit facilities to maintain
short-term credit liquidity which, among other terms, require the companies to maintain, subject to certain exclusions, a
minimum total funded debt to capitalization ratio of less than 70%, 65% and 65%, respectively.
As of December 31, 2014, we had approximately $1.2 billion of available undrawn lines under our bank back-up credit
facilities and $617.6 million of commercial paper outstanding that was supported by the available lines of credit. In
December 2014, we amended each of our credit facilities to extend their expirations from December 2017 to December
2019.
The Wisconsin Energy, Wisconsin Electric and Wisconsin Gas bank back-up credit facilities contain customary covenants,
including certain limitations on the respective companies' ability to sell assets. The credit facilities also contain customary
events of default, including payment defaults, material inaccuracy of representations and warranties, covenant defaults,
bankruptcy proceedings, certain judgments, Employee Retirement Income Security Act of 1974 defaults and change of
control. In addition, pursuant to the terms of Wisconsin Energy's credit agreement, Wisconsin Energy must ensure that
certain of its subsidiaries comply with several of the covenants contained therein.
As of December 31, 2014, we were in compliance with all financial covenants.
Wisconsin Energy Corporation
F-57
2014 Annual Financial Statements
L -- DERIVATIVE INSTRUMENTS
We utilize derivatives as part of our risk management program to manage the volatility and costs of purchased power,
generation and natural gas purchases for the benefit of our customers and shareholders. Our approach is non-speculative
and designed to mitigate risk and protect against price volatility. Regulated hedging programs require prior approval by the
PSCW.
We record derivative instruments on the balance sheet as an asset or liability measured at its fair value, and 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 the fair market value accounting to be offset to
regulatory assets and liabilities. As of December 31, 2014, we recognized $14.7 million in regulatory assets and $14.2
million in regulatory liabilities related to derivatives in comparison to $0.3 million in regulatory assets and $9.6 million in
regulatory liabilities as of December 31, 2013.
We record our current derivative assets on the balance sheet in other current assets and the current portion of the
liabilities in other current liabilities. The long-term portion of our derivative assets of $0.6 million is recorded in other
deferred charges and other assets, and the long-term portion of our derivative liabilities of $0.8 million is recorded in other
deferred credit and other liabilities. Our Consolidated Balance Sheets as of December 31, 2014 and 2013 include:
December 31, 2014
December 31, 2013
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
$
Natural Gas
Fuel Oil
FTRs
Coal
Total
$
(Millions of Dollars)
5.0 $
—
7.0
3.3
15.3 $
12.3 $
—
—
0.2
12.5 $
5.6 $
0.6
3.5
2.1
11.8 $
0.1
—
—
0.2
0.3
Our Consolidated Income Statements include gains (losses) on derivative instruments used in our risk management
strategies under fuel and purchased power for those commodities supporting our electric operations and under cost of gas
sold for the natural gas sold to our customers. Our estimated notional volumes and gains (losses) for the years ended
December 31 were as follows:
2014
2013
Volume
Gains
(Millions of Dollars)
Volume
Gains (Losses)
(Millions of Dollars)
Natural Gas
Fuel Oil
FTRs
Total
40.5 million Dth $
9.2 million gallons
26.1 million MWh
$
7.3
0.5
12.7
20.5
48.6 million Dth $
8.6 million gallons
25.3 million MWh
$
(8.5 )
0.5
14.9
6.9
As of December 31, 2014 and 2013, we posted collateral of $11.2 million and zero, respectively, in our margin accounts.
These amounts are recorded on the balance sheets in other current assets.
Wisconsin Energy Corporation
F-58
2014 Annual Financial Statements
The fair value 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. The table below shows derivative assets and derivative liabilities if derivative
instruments by counterparty were presented net on the balance sheet as of December 31, 2014 and 2013.
2014
2013
Derivative
Asset
Derivative
Liability
Derivative
Asset
Derivative
Liability
(Millions of Dollars)
Gross Amount Recognized on the Balance Sheet
Gross Amount Not Offset on Balance Sheet (a)
Net Amount
$
$
15.3 $
(0.4 )
14.9 $
12.5 $
(11.5 )
1.0 $
11.8 $
—
11.8 $
0.3
—
0.3
(a)
Gross Amount Not Offset on Balance Sheet includes cash collateral posted of $10.3 million and zero as of December 31, 2014
and 2013, respectively.
M -- FAIR VALUE MEASUREMENTS
Fair value measurements require enhanced disclosures about assets and liabilities that are measured and reported at fair
value and establish a hierarchal disclosure framework which prioritizes and ranks the level of observable inputs used in
measuring fair value.
Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (exit price). We primarily apply the market approach for
recurring fair value measurements and attempt to utilize the best available information. Accordingly, we also utilize
valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are
able to classify fair value balances based on the observability of those inputs. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3).
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 -- Pricing inputs are unadjusted quoted prices 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. Instruments in this category consist of financial instruments
such as exchange-traded derivatives, cash equivalents and restricted cash investments.
Level 2 -- Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as
of the reporting date, and fair value is determined through the use of models or other valuation methodologies.
Instruments in this category include non-exchange-traded derivatives such as Over-the-Counter (OTC) forwards and
options.
Level 3 -- Pricing inputs include significant inputs that are generally less observable from objective sources. The inputs in
the determination of fair value require significant management judgment or estimation. At each balance sheet date, we
perform an analysis of all instruments subject to fair value reporting and include in Level 3 all instruments whose fair value
is based on significant unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair
value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the instrument.
Wisconsin Energy Corporation
F-59
2014 Annual Financial Statements
The following tables summarize our financial assets and liabilities by level within the fair value hierarchy:
Recurring Fair Value Measures
As of December 31, 2014
Assets:
Derivatives
Total
Liabilities:
Derivatives
Total
Recurring Fair Value Measures
Assets:
Derivatives
Total
Liabilities:
Derivatives
Total
Level 1
Level 2
Level 3
Total
(Millions of Dollars)
1.1 $
1.1 $
11.5 $
11.5 $
7.2 $
7.2 $
1.0 $
1.0 $
7.0
7.0 $
— $
— $
As of December 31, 2013
Level 1
Level 2
Level 3
Total
(Millions of Dollars)
5.7 $
5.7 $
— $
— $
2.6 $
2.6 $
0.3 $
0.3 $
3.5 $
3.5 $
— $
— $
15.3
15.3
12.5
12.5
11.8
11.8
0.3
0.3
$
$
$
$
$
$
$
$
Derivatives reflect positions we hold in exchange-traded derivative contracts and OTC derivative contracts. Exchange-
traded derivative contracts, which include futures and exchange-traded options, are generally based on unadjusted
quoted prices in active markets and are classified within Level 1. Some OTC derivative contracts are valued using broker
or dealer quotations, or market transactions in either the listed or OTC markets utilizing a mid-market pricing convention
(the mid-point between bid and ask prices), as appropriate. In such cases, these derivatives are classified within Level 2.
Certain OTC derivatives may utilize models to measure fair value. Generally, we use a similar model to value similar
instruments. Valuation models utilize various inputs which include quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for
the asset or liability, and market-corroborated inputs (i.e., inputs derived principally from or corroborated by observable
market data by correlation or other means). Where observable inputs are available for substantially the full term of the
asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives are in less active markets with a lower
availability of pricing information which might not be observable in or corroborated by the market. When such inputs have
a significant impact on the measurement of fair value, the instrument is categorized in Level 3.
The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
Balance as of January 1
Realized and unrealized gains (losses)
Purchases
Issuances
Settlements
Transfers in and/or out of Level 3
Balance as of December 31
2014
2013
(Millions of Dollars)
3.5 $
—
15.6
—
(12.1 )
—
7.0 $
4.7
—
10.6
—
(11.8 )
—
3.5
$
$
Derivative instruments reflected in Level 3 of the hierarchy include MISO FTRs that are measured at fair value each
reporting period using monthly or annual auction shadow prices from relevant auctions. Changes in fair value for Level 3
recurring items are recorded on our balance sheet. See Note L -- Derivative Instruments, for further information on the
offset to regulatory assets and liabilities.
Wisconsin Energy Corporation
F-60
2014 Annual Financial Statements
The carrying amount and estimated fair value of certain of our recorded financial instruments as of December 31 are as
follows:
Financial Instruments
2014
2013
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(Millions of Dollars)
Preferred stock, no redemption required
Long-term debt including current portion
$
$
30.4 $
4,552.4 $
27.1 $
5,126.0 $
30.4 $
4,626.7 $
26.0
4,911.8
The carrying value of net accounts receivable, accounts payable and short-term borrowings approximates fair value due
to the short-term nature of these instruments. The fair value of our preferred stock is estimated based upon the quoted
market value for the same or similar issues. The fair value of our long-term debt, including the current portion of long-term
debt, but excluding capitalized leases and unamortized discount on debt, is estimated based upon quoted market value
for the same or similar issues or upon the quoted market prices of U.S. Treasury issues having a similar term to maturity,
adjusted for the issuing company's bond rating and the present value of future cash flows.
N -- BENEFITS
Pensions and Other Post-retirement Benefits: We have defined benefit pension plans that cover substantially all of
our employees. Generally, employees who started with the Company after 1995 receive a benefit based on a percentage
of their annual salary plus an interest credit, while employees who started before 1996 receive a benefit based upon years
of service and final average salary. Approximately half of our projected benefit obligation relates to benefits based upon
years of service and final average salary. New management employees hired after December 31, 2014 will receive a 6%
annual Company contribution to their 401(k) plan instead of being enrolled in the defined benefit plans.
We also have OPEB plans covering substantially all of our employees. The health care plans are contributory with
participants' contributions adjusted annually; the life insurance plans are noncontributory. The accounting for the health
care plans anticipates future cost-sharing changes to the written plans that are consistent with our expressed intent to
maintain the current cost sharing levels. The post-retirement health care plans include a limit on our share of costs for
recent and future retirees.
We use a year-end measurement date to measure the funded status of all of our pension and OPEB plans. Due to the
regulated nature of our business, we have concluded that substantially all of the unrecognized costs resulting from the
recognition of the funded status of our pension and OPEB plans qualify as a regulatory asset.
Wisconsin Energy Corporation
F-61
2014 Annual Financial Statements
The following table presents details about our pension and OPEB plans:
Change in Benefit Obligation
Benefit Obligation at January 1
$
Service cost
Interest cost
Participants' contributions
Plan amendments
Actuarial loss (gain)
Gross benefits paid
Federal subsidy on benefits paid
Benefit Obligation at December 31
Change in Plan Assets
Fair Value at January 1
Actual earnings on plan assets
Employer contributions
Participants' contributions
Gross benefits paid
Fair Value at December 31
Net liability (asset)
$
$
$
$
Pension
OPEB
2014
2013
2014
2013
(Millions of Dollars)
1,410.2 $
10.1
68.1
—
—
120.4
(103.3 )
N/A
1,505.5 $
1,451.0 $
88.5
8.4
—
(103.3 )
1,444.6 $
1,508.5 $
14.6
60.4
—
(1.0 )
(81.9 )
(90.4 )
N/A
1,410.2 $
1,385.4 $
147.3
8.7
—
(90.4 )
1,451.0 $
60.9 $
(40.8 ) $
362.7 $
8.5
17.8
9.1
(4.6 )
29.4
(26.4 )
1.2
397.7 $
327.6 $
17.7
5.5
9.1
(26.4 )
333.5 $
64.2 $
381.2
10.0
15.6
8.9
—
(27.7)
(26.3)
1.0
362.7
285.4
45.5
14.1
8.9
(26.3)
327.6
35.1
Amounts recognized in our Consolidated Balance Sheets as of December 31 related to the funded status of the benefit
plans consisted of:
Pension
OPEB
2014
2013
2014
2013
(Millions of Dollars)
Other long-term assets
Other long-term liabilities
Net liability (asset)
$
$
39.2 $
100.1
60.9 $
138.7 $
97.9
(40.8 ) $
39.5 $
103.7
64.2 $
40.2
75.3
35.1
The accumulated benefit obligation for all defined pension plans was $1,504.6 million and $1,409.5 million as of
December 31, 2014, and 2013, respectively.
The following table shows the amounts that have not yet been recognized in our net periodic benefit cost as of
December 31 and are recorded as a regulatory asset on our balance sheet:
Pension
OPEB
2014
2013
2014
2013
(Millions of Dollars)
Net actuarial loss
Prior service costs (credits)
Total - Regulatory Assets
$
$
622.7 $
6.8
629.5 $
528.8 $
8.8
537.6 $
44.1 $
(4.6 )
39.5 $
9.8
(1.7 )
8.1
We estimate that 2015 periodic pension and OPEB costs will include the amortization of previously unrecognized benefit
costs referred to above of $48.3 million and $0.9 million, respectively.
Wisconsin Energy Corporation
F-62
2014 Annual Financial Statements
The components of net periodic pension and OPEB costs for the years ended December 31 are as follows:
2014
Pension
2013
2012
2014
(Millions of Dollars)
OPEB
2013
2012
Net Periodic Benefit Cost
Service cost
Interest cost
Expected return on plan assets
$
10.1 $
68.1
(98.6 )
14.6 $
60.4
(95.8 )
21.7 $
65.5
(89.6 )
8.5 $
17.8
(23.7 )
10.0 $
15.6
(21.3 )
Amortization of:
Transition obligation
Prior service cost (credit)
Actuarial loss
Settlement charge
Other
Net Periodic Benefit Cost
—
2.1
36.7
—
—
18.4 $
—
2.3
54.5
2.5
—
38.5 $
—
2.2
41.0
—
0.4
41.2 $
—
(1.8 )
1.2
—
—
2.0 $
—
(2.0 )
3.7
—
—
6.0 $
$
10.3
20.3
(19.0)
0.3
(1.9)
7.3
—
—
17.3
2014
Pension
2013
2012
2014
OPEB
2013
2012
Weighted-Average assumptions used to
determine benefit obligations as of Dec. 31
Discount rate
Rate of compensation increase
4.15%
4.0%
5.00%
4.0%
4.10%
4.0%
4.20%
N/A
4.95%
N/A
4.15%
N/A
Weighted-Average assumptions used to
determine net cost for year ended Dec. 31
Discount rate
Expected return on plan assets
Rate of compensation increase
5.00%
7.25%
4.0%
4.10%
7.25%
4.0%
5.05%
7.25%
4.0%
4.95%
7.50%
N/A
4.15%
7.50%
N/A
5.20%
7.50%
N/A
Assumed health care cost trend rates as of Dec. 31
2014
2013
2012
Health care cost trend rate assumed for next year (Pre 65 / Post 65)
7.5%/7.5%
7.5%/7.5%
7.5%/7.5%
Rate that the cost trend rate gradually adjusts to
Year that the rate reaches the rate it is assumed to remain at (Pre 65 / Post 65) 2021/2021
5.0%
5.0%
5.0%
2021/2021
2017/2017
The expected long-term rate of return on pension and OPEB plan assets was 7.25% and 7.50%, respectively, in 2014,
2013 and 2012. We consult with our investment advisors on an annual basis to help us forecast expected long-term
returns on plan assets by reviewing historical returns as well as calculating expected total trust returns using the weighted-
average of long-term market returns for each of the major target asset categories utilized in the fund.
A one-percentage-point change in assumed health care cost trend rates would have the following effects:
Effect on
Post-retirement benefit obligation
$
Total of service and interest cost components $
30.2 $
3.1 $
(25.4 )
(2.5 )
1% Increase
1% Decrease
(Millions of Dollars)
We use various Employees' Benefit Trusts to fund a major portion of OPEB. The majority of the trusts' assets are mutual
funds.
Wisconsin Energy Corporation
F-63
2014 Annual Financial Statements
Plan Assets: Current pension trust assets and amounts which are expected to be contributed to the trusts in the future
are expected to be adequate to meet pension payment obligations to current and future retirees.
The Investment Trust Policy Committee oversees investment matters related to all of our funded benefit plans. The
Committee works with external actuaries and investment consultants on an on-going basis to establish and monitor
investment strategies and target asset allocations. Forecasted cash flows for plan liabilities are regularly updated based
on annual valuation results. Target allocations are determined utilizing projected benefit payment cash flows and risk
analyses of appropriate investments. They are intended to reduce risk, provide long-term financial stability for the plans
and maintain funded levels which meet long-term plan obligations while preserving sufficient liquidity for near-term benefit
payments.
Previously, our pension plan target allocation was 45% equity investments and 55% fixed income investments. In late
2014, we began transitioning to a target asset allocation of 35% equity investments, 55% fixed income investments and
10% private equity and real estate investments. The current OPEB target asset allocation is 60% equity investments and
40% fixed income investments. Equity securities include investments in large-cap, mid-cap and small-cap companies
primarily located in the United States. Fixed income securities include corporate bonds of companies from diversified
industries, mortgage and other asset backed securities, commercial paper, and U.S. Treasuries.
The following table summarizes the fair value of our pension plan assets by asset category within the fair value hierarchy
(for further level information, see Note M):
Asset Category - Pension
Level 1
As of December 31, 2014
Level 3
Level 2
(Millions of Dollars)
Total
Cash and Cash Equivalents
Equities:
U.S. Equity
International Equity
Fixed Income
$
6.4 $
— $
— $
6.4
503.8
128.6
—
29.8
—
—
503.8
158.4
Short, Intermediate and Long-term Bonds (a)
U.S. Bonds
International Bonds
Private Equity and Real Estate
Total
42.5
79.3
—
760.6 $
599.3
43.3
—
672.4 $
—
—
11.6
11.6 $
641.8
122.6
11.6
1,444.6
$
Asset Category - Pension
Level 1
As of December 31, 2013
Level 3
Level 2
(Millions of Dollars)
Total
Cash and Cash Equivalents
Equities:
U.S. Equity
International Equity
Fixed Income
$
21.0 $
— $
— $
21.0
519.5
146.2
—
35.7
—
—
519.5
181.9
Short, Intermediate and Long-term Bonds (a)
U.S. Bonds
International Bonds
Total
108.4
78.1
873.2 $
505.2
36.9
577.8 $
$
—
—
— $
613.6
115.0
1,451.0
(a) This category represents investment grade bonds of U.S. and foreign issuers denominated in U.S. dollars from diverse
industries.
Wisconsin Energy Corporation
F-64
2014 Annual Financial Statements
The following table summarizes the fair value of our OPEB plan assets by asset category within the fair value hierarchy:
Asset Category - OPEB
Level 1
As of December 31, 2014
Level 3
Level 2
(Millions of Dollars)
Total
Cash and Cash Equivalents
Equities:
U.S. Equity
International Equity
Fixed Income:
$
1.4 $
— $
— $
1.4
146.0
42.2
—
2.5
Short, Intermediate and Long-term Bonds (a)
U.S. Bonds
International Bonds
Private Equity and Real Estate
Total
3.5
17.5
—
210.6 $
112.4
7.0
—
121.9 $
$
Asset Category - OPEB
Level 1
As of December 31, 2013
Level 3
Level 2
(Millions of Dollars)
Total
Cash and Cash Equivalents
Equities:
U.S. Equity
International Equity
Fixed Income:
$
2.6 $
— $
— $
2.6
148.0
46.9
—
2.8
Short, Intermediate and Long-term Bonds (a)
U.S. Bonds
International Bonds
Total
8.4
16.8
222.7 $
96.3
5.8
104.9 $
$
—
—
—
—
1.0
1.0 $
146.0
44.7
115.9
24.5
1.0
333.5
—
—
—
—
— $
148.0
49.7
104.7
22.6
327.6
(a) This category represents investment grade bonds of U.S. and foreign issuers denominated in U.S. dollars from diverse
industries.
In December 2014, our pension and OPEB plans began investing in private equity funds which are a Level 3 investment.
Cash Flows:
Historical employer contributions:
Year
Qualified
Non-Qualified
(Millions of Dollars)
OPEB
Pension
2012
2013
2014
$
$
$
95.6 $
— $
— $
7.1 $
8.7 $
8.4 $
17.7
14.1
5.5
In January 2015, we contributed $100.0 million to the qualified pension plan. Future contributions to the plans will be
dependent upon many factors, including the performance of plan assets, long-term discount rates and mortality rates.
Wisconsin Energy Corporation
F-65
2014 Annual Financial Statements
Estimated benefit payments:
Year
Pension
Gross OPEB
(Millions of Dollars)
2015
2016
2017
2018
2019
2020-2024
$
$
$
$
$
$
104.7 $
103.6 $
104.3 $
102.3 $
102.4 $
491.8 $
25.5
22.3
22.8
23.3
24.1
122.5
Savings Plans: We sponsor savings plans which allow employees to contribute a portion of their pre-tax and/or after-tax
income in accordance with plan-specified guidelines. Under these plans, we expensed matching contributions of $14.2
million, $14.2 million and $13.8 million during 2014, 2013 and 2012, respectively.
Postemployment Benefits: Postemployment benefits provided to former or inactive employees are recognized when an
event occurs. The estimated liability for such benefits was $3.3 million and $4.2 million as of December 31, 2014 and
2013, respectively.
O -- SEGMENT REPORTING
Our reportable segments as of December 31, 2014 include a utility energy segment and a non-utility energy segment. We
have organized our reportable segments based upon the regulatory environment in which our utility subsidiaries operate
and on how management makes decisions and measures performance. The segments are managed separately because
each business requires different technology and marketing strategies. The accounting policies of the reportable operating
segments are the same as those described in Note A.
Our utility energy segment primarily includes our electric and natural gas utility operations. Our electric utility operation
engages in the generation, distribution and sale of electric energy in southeastern (including metropolitan Milwaukee),
east central and northern Wisconsin and in the Upper Peninsula of Michigan. Our natural gas utility operation is engaged
in the purchase, distribution and sale of natural gas to retail customers and the transportation of customer-owned natural
gas throughout Wisconsin. Our non-utility energy segment derives its revenues primarily from the ownership of electric
power generating facilities for long-term lease to Wisconsin Electric.
Summarized financial information concerning our reportable segments for each of the three years ended December 31,
2014 is shown in the following table.
Year Ended
December 31, 2014
Reportable Segments
Energy
Utility
Non-Utility
Eliminations
Corporate & & Reconciling
Other (a)
(Millions of Dollars)
Items
Total
Consolidated
Operating Revenues (b)
Depreciation and Amortization
Operating Income (Loss)
Equity in Earnings of Unconsolidated Affiliates
Interest Expense, Net
Income Tax Expense (Benefit)
Net Income (Loss)
Capital Expenditures
Total Assets (c)
4,941.3 $
$
340.6 $
$
770.2 $
$
66.0 $
$
128.8 $
$
268.9 $
$
447.2 $
$
$
689.9 $
$ 14,912.8 $
447.1 $
67.5 $
368.2 $
— $
64.6 $
121.4 $
182.8 $
41.1 $
2,821.8 $
1.3 $
0.7 $
(26.3 ) $
(0.1 ) $
48.8 $
(28.6 ) $
588.0 $
5.1 $
4,880.3 $
(392.6 ) $
— $
— $
— $
(0.7 ) $
— $
(629.7 ) $
— $
(7,451.5 ) $
4,997.1
408.8
1,112.1
65.9
241.5
361.7
588.3
736.1
15,163.4
Wisconsin Energy Corporation
F-66
2014 Annual Financial Statements
Year Ended
Utility
Non-Utility Other (a)
Items
(Millions of Dollars)
Reportable Segments
Energy
Eliminations
Corporate & & Reconciling
Total
Consolidated
December 31, 2013
Operating Revenues (b)
Depreciation and Amortization
Operating Income (Loss)
Equity in Earnings of Unconsolidated Affiliates
Interest Expense, Net
Income Tax Expense (Benefit)
Net Income (Loss)
Capital Expenditures
Total Assets (c)
4,462.0 $
$
320.2 $
$
719.4 $
$
68.5 $
$
136.2 $
$
243.6 $
$
425.1 $
$
$
657.9 $
$ 14,460.4 $
446.7 $
67.1 $
367.1 $
— $
65.7 $
120.2 $
181.6 $
26.1 $
2,846.5 $
1.3 $
0.8 $
(6.4 ) $
(0.1 ) $
50.8 $
(25.9 ) $
577.2 $
3.4 $
4,719.5 $
December 31, 2012
Operating Revenues (b)
Depreciation and Amortization
Operating Income (Loss)
Equity in Earnings of Unconsolidated Affiliates
Interest Expense, Net
Income Tax Expense (Benefit)
Net Income (Loss)
Capital Expenditures
Total Assets (c)
4,190.8 $
$
296.4 $
$
647.7 $
$
65.7 $
$
129.4 $
$
214.9 $
$
400.6 $
$
$
697.3 $
$ 13,988.1 $
439.9 $
67.1 $
358.8 $
— $
66.7 $
116.6 $
175.9 $
5.5 $
2,903.5 $
1.2 $
0.7 $
(6.2 ) $
(0.2 ) $
52.5 $
(25.2 ) $
546.1 $
4.2 $
4,431.4 $
(391.0 ) $
— $
— $
— $
(0.6 ) $
— $
(606.5 ) $
— $
(7,257.0 ) $
(385.5 ) $
— $
— $
— $
(0.4 ) $
— $
(576.3 ) $
— $
(7,038.0 ) $
4,519.0
388.1
1,080.1
68.4
252.1
337.9
577.4
687.4
14,769.4
4,246.4
364.2
1,000.3
65.5
248.2
306.3
546.3
707.0
14,285.0
(a) Corporate & Other includes all other non-utility activities, primarily non-utility real estate investment and development by
Wispark as well as interest on corporate debt.
(b) An elimination for intersegment revenues is included in Operating Revenues. This elimination is primarily between We Power
and Wisconsin Electric.
(c) An elimination of $2,172.9 million, $2,231.2 million and $2,286.7 million is included in Total Assets as of December 31, 2014,
2013 and 2012, respectively, for all PTF-related activity between We Power and Wisconsin Electric.
Wisconsin Energy Corporation
F-67
2014 Annual Financial Statements
P -- RELATED PARTIES
We receive and/or provide certain services to other associated companies in which we have an equity investment.
American Transmission Company LLC: As of December 31, 2014, we have a 26.2% interest in ATC. 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 to us by ATC. We are required to pay the cost of needed
transmission infrastructure upgrades for new generation projects while projects are under construction. ATC reimburses
us for these costs when new generation is placed in service.
The following table summarizes material related party transactions with ATC during 2014, 2013 and 2012:
Equity Investee
2014
2013
(Millions of Dollars)
2012
Equity in Earnings
Distributions Received
Services Provided
Services Received
$
$
$
$
66.0 $
57.5 $
68.5 $
54.5 $
8.1 $
231.4 $
9.0 $
234.2 $
65.7
52.6
8.2
222.7
As of December 31, 2014 and 2013, our Consolidated Balance Sheets included receivable and payable balances with
ATC as follows:
Equity Investee
Accounts Receivable
Services provided
Accounts Payable
Services received
2014
2013
(Millions of Dollars)
0.6 $
0.6
19.3 $
19.5
$
$
Q -- COMMITMENTS AND CONTINGENCIES
Operating Leases: We enter into long-term purchase power contracts to meet a portion of our anticipated increase in
future electric energy supply needs. These contracts expire at various times through 2018. Certain of these contracts were
deemed to qualify as operating leases. In addition, we have various other operating leases including leases for coal cars.
Future minimum payments for the next five years and thereafter for our operating lease contracts are as follows:
2015
2016
2017
2018
2019
Thereafter
Total
$
(Millions of Dollars)
5.2
3.9
3.2
3.1
1.2
21.5
38.1
$
Divested Assets: We provided customary indemnifications to Wisconsin Power and Light Company, a subsidiary of
Alliant Energy Corp. in connection with the sale of our interest in Edgewater Generating Unit 5.
Wisconsin Energy Corporation
F-68
2014 Annual Financial Statements
Environmental Matters: We periodically review our exposure for environmental remediation costs as evidence
becomes available indicating that our liability has changed. Given current information, including the following, we believe
that future costs in excess of the amounts accrued and/or disclosed on all presently known and quantifiable environmental
contingencies will not be material to our financial position or results of operations.
We have a program of comprehensive environmental remediation planning for former manufactured gas plant sites and
coal combustion product disposal sites. We perform ongoing assessments of manufactured gas plant sites and related
disposal sites used by Wisconsin Electric and Wisconsin Gas, and coal combustion product disposal/landfill sites used by
Wisconsin Electric, as discussed below. We are working with the WDNR in our investigation and remediation planning. At
this time, we cannot estimate future remediation costs associated with these sites beyond those described below.
Manufactured Gas Plant Sites: We have identified several sites at which Wisconsin Electric, Wisconsin Gas, or a
predecessor company historically owned or operated a manufactured gas plant. These sites have been substantially
remediated or are at various stages of investigation, monitoring and remediation. We have also identified other sites that
may have been impacted by historical manufactured gas plant activities. Based upon on-going analysis, we estimate that
the future costs for detailed site investigation and future remediation costs may range from $15 million to $47 million over
the next ten years. This estimate is dependent upon several variables including, among other things, the extent of
remediation, changes in technology and changes in regulation. As of December 31, 2014 and 2013, we established
reserves of $32.6 million and $36.9 million, respectively, related to future remediation costs.
Historically, the PSCW has allowed Wisconsin utilities, including Wisconsin Electric and Wisconsin Gas, to defer the costs
spent on the remediation of manufactured gas plant sites, and has allowed for these costs to be recovered in rates over
five years. Accordingly, we have recorded a regulatory asset for remediation costs.
Coal Combustion Product Landfill Sites: Wisconsin Electric aggressively seeks environmentally acceptable, beneficial
uses for its coal combustion products. However, some coal combustion products have been, and to a small degree
continue to be, managed in company-owned, licensed landfills. Some early designed and constructed landfills have at
times required various levels of monitoring or remediation. Where Wisconsin Electric has become aware of these
conditions, efforts have been made to define the nature and extent of any release, and work has been performed to
address these conditions. During 2014, 2013 and 2012, Wisconsin Electric incurred $0.1 million, $0.1 million and $0.3
million respectively, in landfill remediation expenses. As of December 31, 2014, we have no reserves established related
to coal combustion product landfill sites.
Valley Power Plant Title V Air Permit: The WDNR renewed VAPP's Title V operating permit in February 2011. The term
of the permit is five years. In March 2011, the Sierra Club petitioned the EPA for additional reductions and monitoring for
particulate matter and revisions to certain applicable requirements. No timeline has been set by the EPA to respond to that
petition. In May 2012, the Sierra Club filed a notice of intent to bring suit to force the EPA to issue a response to that
petition. We believe that the permit was properly issued and that the plant is in compliance with all applicable regulations
and standards. However, if as a result of this proceeding the permit is remanded to the WDNR, the plant will continue to
operate under the previous operating permit.
R -- SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2014, we paid $241.1 million in interest, net of amounts capitalized, and paid
$22.0 million in income taxes, net of refunds. During the year ended December 31, 2013, we paid $250.4 million in
interest, net of amounts capitalized, and received $39.6 million in net refunds from income taxes. During the year ended
December 31, 2012, we paid $241.2 million in interest, net of amounts capitalized, and received $107.0 million in net
refunds from income taxes.
As of December 31, 2014, 2013 and 2012, the amount of accounts payable related to capital expenditures was
$1.8 million, $4.7 million and $15.7 million, respectively.
During the years ended December 31, 2014, 2013 and 2012, total amortization of deferred revenue was $55.7 million,
$56.5 million and $54.9 million, respectively.
Wisconsin Energy Corporation
F-69
2014 Annual Financial Statements
S -- SUBSEQUENT EVENT
On January 12, 2015, we entered into an agreement with the Governor of the State of Michigan, the Attorney General of
the State of Michigan, the Staff of the MPSC and the owners of two large mines in the Upper Peninsula of Michigan, to
resolve all objections these parties raised at the FERC and MPSC related to Wisconsin Energy’s proposed acquisition of
Integrys. We believe that this agreement is in the best interest of our customers. In connection with the agreement, we
entered into a non-binding term sheet to sell our Michigan electric distribution assets and the Presque Isle Power Plant to
a third party. The carrying value of these assets is approximately $292 million as of December 31, 2014.
We are working to achieve a definitive agreement for the sale of these assets by the end of March 2015. This agreement
would be subject to approval by several regulatory agencies including FERC, the PSCW and the MPSC. If we are able to
reach a definitive agreement consistent with the financial terms of the non-binding term sheet, we would seek the
recovery of approximately $190 million of net unrecovered plant costs from our remaining customers.
Wisconsin Energy Corporation
F-70
2014 Annual Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Wisconsin Energy Corporation:
We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of
Wisconsin Energy Corporation and subsidiaries (cid:11)the (cid:179)Company(cid:180)(cid:12) as of December (cid:22)1(cid:15) (cid:21)(cid:19)1(cid:23) and (cid:21)(cid:19)1(cid:22)(cid:15) and the related
consolidated income statements, statements of common equity, and statements of cash flows for each of the three years
in the period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company(cid:182)s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Wisconsin Energy Corporation and subsidiaries as of December 31, 2014 and 2013, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company(cid:182)s internal control over financial reporting as of December 31, 2014, based on the criteria
established in (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:178)(cid:44)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:11)(cid:21)(cid:19)(cid:20)(cid:22)(cid:12) issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 27, 2015 expressed an unqualified opinion on the Company(cid:182)s
internal control over financial reporting.
February 27, 2015
F-71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Wisconsin Energy Corporation:
We have audited the internal control over financial reporting of Wisconsin Energy Corporation and subsidiaries (the
(cid:179)Co(cid:80)pany(cid:180)(cid:12) as of Dece(cid:80)ber (cid:22)(cid:20)(cid:15) 2(cid:19)(cid:20)(cid:23)(cid:15) based on the criteria established in (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:178)(cid:44)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78) (2013)
issued by the Committee of Sponsoring Organizations of the Tread(cid:90)ay Commission(cid:17) The Company(cid:182)s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying (cid:48)anagement(cid:182)s (cid:53)eport on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company(cid:182)s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company(cid:182)s internal control over financial reporting is a process designed by, or under the supervision of, the company(cid:182)s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company(cid:182)s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company(cid:182)s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company(cid:182)s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2014, based on the criteria established in (cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:178)(cid:44)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:41)(cid:85)(cid:68)(cid:80)(cid:72)(cid:90)(cid:82)(cid:85)(cid:78) (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our
report dated February 27, 2015 expressed an unqualified opinion on those financial statements.
February 27, 2015
F-72
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of
our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of Wisconsin Energy Corporation's and subsidiaries' internal control over financial reporting based on the
framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its evaluation, our management concluded that Wisconsin Energy Corporation's and
subsidiaries' internal control over financial reporting was effective as of December 31, 2014.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of the effectiveness of internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Deloitte & Touche LLP, an independent registered public accounting firm, as auditors of our financial statements has
issued an attestation report on the effectiveness of Wisconsin Energy Corporation's and its subsidiaries' internal control
over financial reporting as of December 31, 2014. Deloitte & Touche LLP's report is included in this report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2014 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Wisconsin Energy Corporation
F-73
2014 Annual Financial Statements
WISCONSIN ENERGY CORPORATION
CONSOLIDATED SELECTED FINANCIAL AND STATISTICAL DATA
Financial
2014
2013
2012
2011
2010
Year Ended December 31
Net income - Continuing Operations (Millions)
Earnings per share - Continuing Operations
Basic
Diluted
Dividends per share of common stock
Operating revenues (Millions)
Utility energy
Non-utility energy
Eliminations and Other
Total operating revenues
As of December 31 (Millions)
Total assets
Long-term debt (including current maturities) and capital
lease obligations
Common Stock Closing Price
$
$
$
$
$
$
$
$
$
588.3 $
577.4 $
546.3 $
512.8 $
454.4
2.61 $
2.59 $
1.56 $
2.54 $
2.51 $
1.445 $
2.37 $
2.35 $
1.20 $
2.20 $
2.18 $
1.04 $
1.94
1.92
0.80
4,941.3 $
447.1
(391.3 )
4,997.1 $
4,462.0 $
446.7
(389.7 )
4,519.0 $
4,190.8 $
439.9
(384.3)
4,246.4 $
4,431.5 $
435.1
(380.2 )
4,486.4 $
4,165.3
320.2
(283.0)
4,202.5
15,163.4 $
14,769.4 $
14,285.0 $
13,862.1 $
13,059.8
4,610.5
$
52.74 $
4,705.4
$
41.34 $
4,865.9
$
36.85 $
4,646.9
$
34.96 $
4,405.4
29.43
CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA
Three Months Ended
Operating revenues
Operating income
Total net income
Earnings per share of common stock (b)
Basic
Diluted
Three Months Ended
Operating revenues
Operating income
Total net income
Earnings per share of common stock (b)
Basic
Diluted
(Millions of Dollars, Except Per Share Amounts) (a)
March
June
2014
2013
2014
2013
1,695.0 $
381.8 $
207.6 $
1,275.2 $
321.0 $
176.6 $
1,043.7 $
240.7 $
133.0 $
1,012.3
229.5
119.0
0.92 $
0.91 $
0.77 $
0.76 $
0.59 $
0.58 $
0.52
0.52
September
December
2014
2013
2014
2013
1,033.3 $
246.1 $
126.3 $
1,053.2 $
258.0 $
137.5 $
1,225.1 $
243.5 $
121.4 $
1,178.3
271.6
144.3
0.56 $
0.56 $
0.61 $
0.60 $
0.54 $
0.53 $
0.64
0.63
$
$
$
$
$
$
$
$
$
$
(a) Quarterly results of operations are not directly comparable because of seasonal and other factors. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(b) Quarterly earnings per share may not total to the amounts reported for the year because the computation is based on the weighted average
common shares outstanding during each quarter.
Wisconsin Energy Corporation
F-74
2014 Annual Financial Statements
PERFORMANCE GRAPH
The performance graph on the next page shows a comparison of the cumulative total return, assuming reinvestment of
dividends, over the last five years had $100 been invested at the close of business on December 31, 2009, in each of:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Wisconsin Energy common stock;
a Custom Peer Group Index;
a recomprised Custom Peer Group Index; and
the Standard & Poor’s 500 Index (“S&P 500”).
Custom Peer Group Index. We have used the Custom Peer Group Index for peer comparison purposes because we
believed the Index provided an accurate representation of our peers. The Custom Peer Group Index is a market-
capitalization-weighted index of companies, including Wisconsin Energy, that are similar to us in terms of business model
and long-term strategies.
In addition to Wisconsin Energy, the companies in the Custom Peer Group Index are Alliant Energy Corporation; Ameren
Corporation; American Electric Power Company, Inc.; Avista Corporation; CMS Energy Corporation, Consolidated
Edison, Inc.; DTE Energy Company; Duke Energy Corp.; Eversource Energy (formerly known as Northeast Utilities);
FirstEnergy Corp.; Great Plains Energy, Inc.; Integrys Energy Group, Inc.; NiSource Inc.; OGE Energy Corp.; Pepco
Holdings, Inc.; PG&E Corporation; Pinnacle West Capital Corporation; Portland General; SCANA Corporation; The
Southern Company; Westar Energy, Inc.; and Xcel Energy Inc.
Custom Peer Group Index – Recomprised. In April 2014 and June 2014, Exelon Corp. announced its acquisition of
Pepco Holdings and we announced our acquisition of Integrys, respectively. Therefore, beginning in 2015, we have
recomprised our custom peer group to remove PEPCO Holdings and Integrys as it is expected that these transactions will
be completed during 2015. We have also added TECO Energy, Inc. to our custom peer group. We believe the Custom
Peer Group Index, as recomprised, continues to be made up of companies that are similar to us in terms of business
model and long-term strategies.
Wisconsin Energy Corporation
F-75
2014 Annual Financial Statements
Value of Investment at Year-End
12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14
Wisconsin Energy Corporation
Custom Peer Group Index
Custom Peer Group Index - Recomprised
S&P 500
$100
$100
$100
$100
$122
$113
$113
$115
$150
$138
$137
$117
$163
$141
$140
$136
$189
$154
$153
$180
$250
$200
$198
$205
Wisconsin Energy Corporation
F-76
2014 Annual Financial Statements
MARKET FOR OUR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
NUMBER OF COMMON STOCKHOLDERS
As of December 31, 2014, based upon the number of Wisconsin Energy Corporation stockholder accounts (including
accounts in our dividend reinvestment and stock purchase plan), we had approximately 38,110 registered stockholders.
COMMON STOCK LISTING AND TRADING
Our common stock is listed on the New York Stock Exchange under the ticker symbol "WEC."
DIVIDENDS AND COMMON STOCK PRICES
Common Stock Dividends of Wisconsin Energy: Cash dividends on our common stock, as declared by the Board of
Directors, are normally paid on or about the first day of March, June, September and December of each year. We review
our dividend policy on a regular basis. Subject to any regulatory restrictions or other limitations on the payment of
dividends, future dividends will be at the discretion of the Board of Directors and will depend upon, among other factors,
earnings, financial condition and other requirements. For information regarding restrictions on the ability of our
subsidiaries to pay us dividends, see Note H -- Common Equity in the Notes to Consolidated Financial Statements.
On January 15, 2015, the Board of Directors increased the quarterly dividend to $0.4225 per share effective with the first
quarter of 2015 dividend payment, which would result in annual dividends of $1.69 per share. In addition, the Board
affirmed our dividend policy that targets a dividend payout ratio of 65-70% of earnings in 2017.
Range of Wisconsin Energy Common Stock Prices and Dividends:
Quarter
High
2014
Low
Dividend
High
2013
Low
Dividend
First
Second
Third
Fourth
Annual
$
$
$
$
$
46.76 $
49.21 $
47.02 $
55.39 $
55.39 $
40.17 $
44.03
41.90
43.01
40.17 $
0.39 $
0.39 $
0.39 $
0.39 $
1.56 $
42.95 $
45.00 $
44.01 $
43.00 $
45.00 $
37.03 $
39.04
39.52
39.83
37.03 $
0.3400
0.3400
0.3825
0.3825
1.4450
Wisconsin Energy Corporation
F-77
2014 Annual Financial Statements
BOARD OF DIRECTORS
John F. Bergstrom
Director since 1987.
Chairman and Chief Executive
Officer of Bergstrom Corporation,
which owns and operates
numerous automobile sales and
leasing companies.
Barbara L. Bowles
Director since 1998.
Retired Vice Chair of Profit
Investment Management and
Retired Chairman of The Kenwood
Group, Inc., investment advisory
firms. The Kenwood Group, Inc.
was merged into Profit Investment
Management in 2006.
Patricia W. Chadwick
Director since 2006.
President of Ravengate Partners,
LLC, which provides businesses
and not-for-profit institutions with
advice about the economy and the
financial markets.
Curt S. Culver
Director since 2004.
Non-Executive Chairman of the
Board of MGIC Investment
Corporation and Mortgage
Guaranty Insurance Corporation, a
private mortgage insurance
company.
Thomas J. Fischer
Director since 2005.
Principal of Fischer Financial
Consulting LLC, which provides
consulting on corporate financial,
accounting and governance
matters.
Gale E. Klappa
Director since 2003.
Chairman and Chief Executive
Officer of Wisconsin Energy
Corporation.
Henry W. Knueppel
Director since 2013.
Retired Chairman and Chief
Executive Officer of Regal Beloit
Corporation, a manufacturer of
electrical and mechanical motion
control products.
Ulice Payne, Jr.
Director since 2003.
Managing Member of Addison-
Clifton, LLC, which provides global
trade compliance advisory services.
Mary Ellen Stanek
Director since 2012.
Managing Director and Director of
Asset Management of Baird
Financial Group; Chief Investment
Officer, Baird Advisors; President,
Baird Funds, Inc. Baird Financial
Group provides wealth management,
capital markets, private equity and
asset management services to
clients worldwide.
Wisconsin Energy Corporation
F-78
2014 Annual Financial Statements
OFFICERS
The names and positions as of December 31, 2014 of Wisconsin Energy's officers are listed below.
Gale E. Klappa(1) – Chairman of the Board and Chief Executive Officer.
Allen L. Leverett(1) – President.
J. Patrick Keyes(1) – Executive Vice President and Chief Financial Officer.
Susan H. Martin(1) – Executive Vice President, General Counsel and Corporate Secretary.
Robert M. Garvin(1) – Senior Vice President – External Affairs.
Darnell K. DeMasters – Vice President – Federal Policy.
Stephen P. Dickson(1) – Vice President and Controller.
Walter J. Kunicki – Vice President.
Scott J. Lauber – Vice President and Treasurer.
Keith H. Ecke – Assistant Corporate Secretary.
David L. Hughes – Assistant Treasurer.
(1) Executive Officers of Wisconsin Energy Corporation as of December 31, 2014. Kevin Fletcher, Senior Vice President of
Wisconsin Electric Power Company and Wisconsin Gas LLC, is also an executive officer of Wisconsin Energy
Corporation.
Wisconsin Energy Corporation
F-79
2014 Annual Financial Statements
[THIS PAGE INTENTIONALLY LEFT BLANK]
STOCKHOLDER INFORMATION
DIVIDENDS
Dividends, as declared by the board of directors,
typically are payable on the first day of March, June,
September and December. Stockholders may have
their dividends deposited directly into their bank
accounts. Please contact Computershare to request
an authorization form.
INTERNET ACCESS HELPS REDUCE COSTS
You may access wisconsinenergy.com for the latest
information about Wisconsin Energy Corporation. The
site provides access to financial, corporate governance
and other information, including Securities and
Exchange Commission reports.
ANNUAL CERTIFICATIONS
Wisconsin Energy has filed the required certifications
of its Chief Executive Officer and Chief Financial Officer
under the Sarbanes-Oxley Act regarding the quality of
its public disclosures. These exhibits can be found in
the company’s Form 10-K for the year ended
Dec. 31, 2014. The certification of Wisconsin Energy’s
Chief Executive Officer regarding compliance with the
New York Stock Exchange (NYSE) corporate governance
listing standards will be filed with the NYSE following
the 2015 Annual Meeting of Stockholders. Last year,
we filed this certification on May 30, 2014.
CORPORATE SOCIAL RESPONSIBILITY
Wisconsin Energy is committed to corporate social
responsibility and sustainable business practices —
aligning our policies and practices with the needs of
key stakeholders, and managing risk while accounting
for the company’s economic, environmental and
social impacts. For additional information, visit
www.wisconsinenergy.com/csr.
ACCOUNT INFORMATION
• Visit www.computershare.com/investor. Wisconsin
Energy’s transfer agent, Computershare, provides
our registered stockholders with secure account
access. Stockholders can view share balances,
market value, tax documents and account
statements; review answers to frequently asked
questions; perform many transactions; and sign up
for eDelivery, the paperless communication program
from Computershare. eDelivery also provides
electronic delivery of your annual meeting materials.
• Write to:
Wisconsin Energy Corporation
c/o Computershare
P.O. Box 30170
College Station, TX 77842-3170
• If sending overnight correspondence, mail to:
Wisconsin Energy Corporation
c/o Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
• Call Computershare at 800-558-9663. Service
representatives are available from 7 a.m. to 7 p.m.
Central time on business days. An automated voice-
response system also provides information 24 hours
a day, seven days a week.
Securities analysts and institutional investors may
contact our Investor Relations Line at 414-221-2592.
Stockholders who hold Wisconsin Energy stock in
brokerage accounts should contact their brokerage
firm for account information.
STOCK PURCHASE PLAN
Wisconsin Energy’s Stock Plus Investment Plan
provides a convenient way to purchase our common
stock and reinvest dividends. To review the Prospectus
and enroll, go to wisconsinenergy.com and select the
Investors tab. You also may contact Computershare at
800-558-9663 to request an enrollment package.
This is not an offer to sell, or a solicitation of an offer
to buy, any securities. Any stock offering will be made
only by Prospectus.
231 W. MICHIGAN ST.
P.O. BOX 1331
MILWAUKEE, WI 53201
414-221-2345
wisconsinenergy.com