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Wisconsin Energy Relies on Core Gas, Electric Utilities
Milwaukee-based Wisconsin Energy Corp. (WEC) is relying on its core gas and electric utility divisions to pull it through, while the company continues to take its lumps in asset sales and its non-utility energy business.
The company is looking to continue the sale of non-utility assets in 2003 to bolster its balance sheet, but like many energy companies it is currently between a rock and a hard place — it can sell at a loss or it can continue to chalk up operating losses from unprofitable units.
Company officials, during an earnings conference call Monday, said they were continuing to study the situation. Wisconsin Energy had particularly bad luck last year in divesting its Wisvest-Connecticut LLC subsidiary consisting of two coal-fired plants in New England which generate more than 1,000 MW. It had originally agreed to sell the units it acquired from Connecticut utility United Illuminating Co. in 1999 for $350 million in the fall of 2000 . The sale would have meant a sizeable profit.
That state utility commission, however, did not approve the sale, and “the non-utility sector fell almost overnight,” a Wisconsin executive said. The company finally concluded the sale — at a loss — last December for $220 million, plus $60 million in reimbursements for capital expenditures, inventory and tax benefits. It has sold more than $1 billion in assets since 2000, realizing a net loss of 10/cents a share.
Currently, Wisconsin Energy is eyeing the possible sale of $250 million of additional asset, including a 315 MW natural gas peaking unit in Cook County, IL, its 49.5% interest in the Androscoggin Energy Center — a 160 MW cogeneration facility in Maine, and several Siemens turbines. Company officials, however, are weighing the reduced price it would likely get from these sales versus the continuing drag on earnings from their operation.
The company reported fourth quarter 2002 net earnings of $74 million, or $0.63 per share, compared with $37 million or $0.31 per share recorded in 2001, crediting favorable weather conditions, improved recovery of fuel and purchased power costs and lower net interest costs in 2002, as well as a $0.21 per share valuation charge taken in 2001 for the increase.
Full year net income, however, was off due to special charges. WEC reported 2002 net income of $167 million and net earnings per share of $1.44 compared with net income of $219 million and net earnings of $1.86 per share for 2001. The company’s reported 2002 earnings include a $0.79 per share impairment charge taken in the first quarter and a non-recurring $0.09 per share charge. Excluding those items, adjusted earnings per share for 2002 were $2.32, within the range the company had forecast for the year. This compares with adjusted earnings of $2.11 per share for 2001.
“We are very pleased with the performance of our core businesses in 2002,” said Richard A. Abdoo, Wisconsin Energy’s chairman. “Our results show that our growth strategy remains on track. Over the last two years, we have strengthened our utility and pump manufacturing businesses, made substantial progress in our Power the Future plan and divested about $1 billion in non-core assets to reduce debt and improve our balance sheet. The net effect is that going into 2003 we are a stronger, better focused company positioned for continued growth.”
WEC’s utility segment recorded adjusted net earnings of $306 million or $2.63 per share compared with $281 million, or $2.38 per share in 2001. The increased adjusted earnings were driven by favorable weather conditions, good plant performance and lower interest expense. Those items were partially offset by increased nuclear power plant operating expenses and increased benefit costs. The non-utility energy segment recorded a loss of $13 million in 2002 compared to a $1 million gain in 2001.
Electric utility revenues for 2002 totaled $1.9 billion, an increase of $44 million from the prior year. The improvement resulted from several factors, including favorable summer weather, the full-year impact of an increase in electric prices implemented during 2001 to cover increased fuel and purchased power costs and a surcharge to recover increased costs for the startup of American Transmission Company. As measured by cooling degree days, 2002 was 26% warmer than 2001 and 28% warmer than normal. Electric margins increased by $65 million compared to the prior year, as a result of the surcharges and favorable weather, combined with lower fuel and purchased power expenses.
For 2002, natural gas utility revenues totaled $918 million, $157 million lower than the $1.1 billion posted in 2001. The drop in revenues resulted from a $177 million decline in natural gas costs, which was partially offset by an increase in volume of $20 million due to a return to more normal weather conditions in the second half of 2002. Natural gas margins were $343 million in 2002, a $20 million increase over 2001 levels, due to favorable weather.
WEC officials said they had made substantial progress in executing the Power the Future plan in 2002, and achieved a number of milestones in the fourth quarter. Chief among these accomplishments was the approval in December by the Public Service Commission of Wisconsin (PSCW) of the company’s application to build two gas- fueled 545 MW generating units at its Port Washington, Wisconsin, Power Plant site. Site preparation work is underway; the plant is scheduled to be on line in time to meet peak summer demand in 2005. In November, the PSCW ruled that it had enough information to begin reviewing Wisconsin Energy’s proposal to build three 600 MW coal-fueled plants at its Elm Road Generating Station. Extensive public hearings on the proposed coal plants are scheduled, and the review process is expected to be completed by the end of 2003.
Wisconsin Energy confirms the guidance it previously issued for 2003, which anticipates earnings to be in the $2.20 to $2.40 per share range.
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