01—Abstract
Summary
Summary of the 10-K filed February 28, 2008. Cited figures are marked; the original filing is the authoritative source.
Wisconsin Energy Corporation, now WEC Energy Group, Inc., reported 2007 income from continuing operations of $336.5 milliona, or $2.84 diluted EPS, up from $312.5 million and $2.64 in 2006.
Total operating revenues were $4,237.8 millionb and total assets were $11,720.3 million at December 31, 2007. The company's results were driven by its utility energy segment, which contributed $586.0 million of operating income, compared with $532.8 million in 2006. The sale of Point Beach to an affiliate of FPL for approximately $924 million on September 28, 2007 is a major event: the company retained about $506 million of proceeds, deferred an approximately $418 million net gain as a regulatory liability, and expects that gain to be returned to customers largely through bill credits.
The company's main growth driver is its Power the Future (PTF) strategy, under which We Power is building generating units leased to Wisconsin Electric. Construction work in progress for PTF units was about $1,453 millionc at year-end 2007, and capital expenditures were $1,211.5 million in 2007, with estimated capital expenditures of $1,183.4 million in 2008. The PSCW approved January 2008 electric price increases of $389.1 million (17.2%) for Wisconsin Electric, partly offset by bill credits, and lowered the return on equity from 11.2% to 10.75%.
Wisconsin Electric also filed a Michigan rate increase request in January 2008. The filing also highlights risks investors should weigh: cash from operations fell to $532.5 milliond from $730.0 million, largely due to higher tax payments, and the company's debt to total capitalization ratio was 58.6%.
The Oak Creek expansion faces a WPDES permit challenge, and the company reports $1.7 billion of unused bank back-up credit facilities. The Board raised the quarterly dividend 8.0% to $0.27 per share in January 2008, an annual rate of $1.08.
02—Key points
Key Highlights
- Income from continuing operations rose to $336.5 million ($2.84 diluted EPS) in 2007 from $312.5 million ($2.64) in 2006.
- Total operating revenues were $4,237.8 million in 2007, up from $3,996.4 million in 2006; utility energy segment operating income was $586.0 million versus $532.8 million.
- Point Beach was sold to an FPL affiliate for approximately $924 million on September 28, 2007; a net gain of approximately $902.2 million was recorded and largely deferred for customer benefit.
- Power the Future construction continues: PWGS 2 expected in service in Q2 2008, and Oak Creek units OC 1 and OC 2 expected in 2009 and 2010; approximately $2.0 billion of the approximately $2.6 billion estimated cost was spent through December 31, 2007.
- January 2008 PSCW order approved a 17.2% electric increase ($389.1 million) for Wisconsin Electric, offset by bill credits, and reduced the authorized return on equity to 10.75% from 11.2%.
- Operating cash flow declined to $532.5 million from $730.0 million, mainly due to higher tax payments and lower fuel recoveries; capital expenditures rose to $1,211.5 million.
- Quarterly dividend was increased 8.0% to $0.27 per share in January 2008, an annual rate of $1.08; debt to total capitalization was 58.6% at December 31, 2007.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 28, 2008Financial Statements
| Operating Income | $627.20M |
| Interest Expense | $167.60M |
| Net Income | $335.60M |
| EPS (Basic) | $2.87 |
| EPS (Diluted) | $2.83 |
| Shares Outstanding (Basic) | 116.90M |
| Shares Outstanding (Diluted) | 118.50M |
05—Questions
Frequently Asked Questions
What drove the increase in 2007 earnings?
Income from continuing operations rose to $336.5 million from $312.5 million. The filing attributes the utility segment's higher operating income mainly to more favorable weather, customer growth, and a settlement of a billing dispute with two iron ore mines, partly offset by higher fuel and purchased power expenses.
What happened with the Point Beach nuclear plant?
Wisconsin Electric sold Point Beach to an affiliate of FPL for approximately $924 million on September 28, 2007. Wisconsin Electric retained about $506 million of proceeds, deferred an approximately $418 million net gain as a regulatory liability, and placed about $552 million of liquidated decommissioning trust cash in a restricted account for customer benefit. It now buys all of the plant's energy under a power purchase agreement extending through 2030 and 2033.
What is the Power the Future strategy and what is its status?
PTF is a strategy to add about 2,120 MW of natural gas-fired and coal-fired capacity at existing sites, at an estimated cost of about $2.6 billion. We Power builds the units and leases them to Wisconsin Electric. PWGS 1 went into service in July 2005, PWGS 2 is expected in the second quarter of 2008, and the Oak Creek units are expected in 2009 and 2010.
What rate changes affect future earnings?
The PSCW approved a January 17, 2008 increase of $389.1 million (17.2%) in Wisconsin Electric electric rates, offset by $315.9 million of bill credits in 2008 and $240.7 million in 2009, for net increases of $73.2 million and $75.2 million. The authorized return on equity was lowered to 10.75% from 11.2%. The filing also notes a January 31, 2008 Michigan rate request of 14.7%, or $22.0 million.
What are the key risks highlighted in the filing?
Key risks include construction risk and cost overruns on the PTF units, the WPDES permit challenge for the Oak Creek expansion, environmental regulation including greenhouse gas and CAIR/CAMR rules, higher natural gas and coal costs, weather sensitivity, access to capital markets, and dependence on subsidiary dividends because the company is a holding company.
06—Continue