UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 2008
|
Commission |
Registrant; State of Incorporation |
IRS Employer |
|
|
File Number |
Address; and Telephone Number |
Identification No. |
|
|
001-09057 |
WISCONSIN ENERGY CORPORATION |
39-1391525 |
|
|
(A Wisconsin Corporation) |
|||
|
231 West Michigan Street |
|||
|
P.O. Box 1331 |
|||
|
Milwaukee, WI 53201 |
|||
|
(414) 221-2345 |
|||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not Smaller reporting company [ ]
check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (March 31, 2008):
|
Common Stock, $.01 Par Value, |
116,927,953 shares outstanding. |
|
WISCONSIN ENERGY CORPORATION |
|||||
|
|
|||||
|
FORM 10-Q REPORT FOR THE QUARTER ENDED MARCH 31, 2008 |
|||||
|
TABLE OF CONTENTS |
|||||
|
Item |
Page |
||||
|
Introduction ....................................................................................................................... |
7 |
||||
|
Part I -- Financial Information |
|||||
|
1. |
Financial Statements |
||||
|
Consolidated Condensed Income Statements ................................................................... |
8 |
||||
|
Consolidated Condensed Balance Sheets ......................................................................... |
9 |
||||
|
Consolidated Condensed Statements of Cash Flows ........................................................ |
10 |
||||
|
Notes to Consolidated Condensed Financial Statements .................................................. |
11 |
||||
|
2. |
Management's Discussion and Analysis of |
||||
|
Financial Condition and Results of Operations ................................................................. |
23 |
||||
|
3. |
Quantitative and Qualitative Disclosures About Market Risk .............................................. |
37 |
|||
|
4. |
Controls and Procedures ........................................................................................................ |
37 |
|||
|
Part II -- Other Information |
|||||
|
1. |
Legal Proceedings .................................................................................................................. |
37 |
|||
|
1A. |
Risk Factors .......................................................................................................................... |
38 |
|||
|
2. |
Unregistered Sales of Equity Securities and Use of Proceeds ............................................... |
38 |
|||
|
5. |
Other Information..................................................................................................................... |
38 |
|||
|
6. |
Exhibits ................................................................................................................................... |
39 |
|||
|
|
|
|
|||
|
Signatures ............................................................................................................................... |
40 |
||||
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.
Junior Notes
Wisconsin Energy's 2007 Series A Junior Subordinated Notes due 2067 issued in May 2007
LSEs
Load Serving Entities
MISO
Midwest Independent Transmission System Operator, Inc.
MISO Energy Markets
MISO bid-based energy markets
OTC
Over-the-Counter
Point Beach
Point Beach Nuclear Power Plant
PTF
Power the Future
PSEG
Public Service Enterprise Group
RSG
Revenue Sufficiency Guarantee
Measurements
MW
Megawatt(s) (One MW equals one million Watts)
MWh
Megawatt-hour(s)
Watt
A measure of power production or usage
Accounting Terms
CWIP
Construction Work in Progress
FASB
Financial Accounting Standards Board
FIN
FASB Interpretation
FSP
FASB Staff Position
GAAP
Generally Accepted Accounting Principles
OPEB
Other Post-Retirement Employee Benefits
SFAS
Statement of Financial Accounting Standards
Accounting Pronouncements
FIN 46
Consolidation of Variable Interest Entities
FSP SFAS 157-b
Determination of Impairment for Nonfinancial Assets and Nonfinancial Liabilities
SFAS 71
Accounting for the Effects of Certain Types of Regulation
SFAS 123R
Share-Based Payment (Revised 2004)
SFAS 133
Accounting for Derivative Instruments and Hedging Activities
SFAS 149
Amendment of SFAS 133 on Derivative Instruments and Hedging Activities
SFAS 157
Fair Value Measurements
SFAS 159
The Fair Value Option for Financial Assets and Financial Liabilities
SFAS 161
Disclosures about Derivative Instruments and Hedging Activities
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. 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, regulatory matters, fuel costs, sources of electric energy supply, coal and gas deliveries, remediation costs, environmental and other 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," "estimates," "expects," "forecasts," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects" 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:
Wisconsin Energy Corporation expressly disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
INTRODUCTION
Wisconsin Energy Corporation is a diversified holding company which conducts its operations primarily in two operating segments: a utility energy segment and a non-utility energy segment. 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. Our primary subsidiaries are Wisconsin Electric, Wisconsin Gas, We Power and Edison Sault.
Utility Energy Segment: Our utility energy segment consists of: Wisconsin Electric, which serves electric customers in Wisconsin and the Upper Peninsula of Michigan, gas customers in Wisconsin and steam customers in metropolitan Milwaukee, Wisconsin; Wisconsin Gas, which serves gas customers in Wisconsin and water customers in suburban Milwaukee, Wisconsin; and Edison Sault, which serves electric customers in the Upper Peninsula of Michigan. Wisconsin Electric and Wisconsin Gas operate under the trade name of "We Energies".
Non-Utility Energy Segment: Our non-utility energy segment consists primarily of We Power. We Power was formed in 2001 to design, construct, own and lease to Wisconsin Electric the new generating capacity included in our PTF strategy. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2007 Annual Report on Form 10-K for more information on PTF.
We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC. We have condensed or omitted some information and note disclosures normally included in financial statements prepared in accordance with GAAP pursuant to these rules and regulations. This Form 10-Q, including the financial statements contained herein, should be read in conjunction with our 2007 Annual Report on Form 10-K, including the financial statements and notes therein.
WISCONSIN ENERGY CORPORATION
(Unaudited)
1 -- GENERAL INFORMATION
Our accompanying unaudited consolidated condensed financial statements should be read in conjunction with Item 8, Financial Statements and Supplementary Data, in our 2007 Annual Report on Form 10-K. In the opinion of management, we have included all adjustments, normal and recurring in nature, necessary to a fair presentation of the results of operations, cash flows and financial position in the accompanying income statements, statements of cash flows and balance sheets. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results which may be expected for the entire fiscal year 2008 because of seasonal and other factors.
Modifications to Prior Statements: We have modified certain cash flow presentations. Prior year financial statement amounts have been reclassified to conform to their current year presentation. These reporting changes had no impact on cash provided by, or used in, operating, investing or financing activities.
2 -- NEW ACCOUNTING PRONOUNCEMENTS
Fair Value Measurements: In September 2006, the FASB issued SFAS 157. SFAS 157 provides guidance for using fair value to measure assets and liabilities, defines fair value, provides a framework for measuring fair value and expands disclosures related to fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We partially adopted the provisions of SFAS 157 effective January 1, 2008. In accordance with FSP SFAS 157-b, we have not applied the provisions of Statement 157 to pension assets, goodwill or asset retirement obligations. The partial adoption of SFAS 157 did not have a significant financial impact on our consolidated financial statements. See Note 6 -- Fair Value Measurements for further information on SFAS 157.
Fair Value Option : In February 2007, the FASB issued SFAS 159. SFAS 159 permits an entity to measure certain financial assets and financial liabilities at fair value and also establishes presentation and disclosure requirements. SFAS 159 is effective as of the beginning of an entity's first fiscal year beginning after November 15, 2007. We adopted the provisions of SFAS 159 effective January 1, 2008. We did not elect to record any financial assets or liabilities at fair value under SFAS 159.
Disclosures about Derivative Instruments and Hedging Activities : In March 2008, the FASB issued SFAS 161. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We are currently evaluating the provisions of SFAS 161, and we expect to adopt it on January 1, 2009.
3 -- Accounting and Reporting for Power the Future Generating Units
Background:
As part of our PTF strategy, our non-utility subsidiary, We Power, is building four new generating units (PWGS 1 and 2 and OC 1 and 2) that will be leased to our utility subsidiary, Wisconsin Electric, under long-term leases that have been approved by the PSCW, our primary regulator. The
leases are designed to recover the capital costs of the plant, including a return. PWGS 1 was placed in service in July 2005 and is being leased to Wisconsin Electric. Wisconsin Electric will be responsible for all of the operating costs, including fuel, of the PTF units once they are placed in service and we anticipate that we will recover the operating costs of these plants in rates. The accompanying consolidated financial statements eliminate all intercompany transactions between We Power and Wisconsin Electric and reflect the cash inflows from Wisconsin Electric customers and the cash outflows to our vendors and suppliers.
During Construction: Under the terms of each lease, we collect in current rates amounts representing our pre-tax cost of capital (debt and equity) associated with capital expenditures for our PTF units. Our pre-tax cost of capital is approximately 14%. The carrying costs that we collect in rates are recorded as deferred revenue, and they will be amortized to revenue over the term of each lease once the respective unit is placed into service. During the construction of our PTF units, we capitalize interest costs at an overall weighted-average pre-tax cost of interest of approximately 6%. Capitalized interest is included in the total cost of the PTF units.
Cash Flows: The following table identifies key pre-tax cash outflows and inflows for the three months ended March 31 related to the construction of our PTF units as compared to Wisconsin Energy overall:
Capital Expenditures (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
WEC
2008
$ -
$22.6
$70.3
$81.9
$174.8
$348.2
2007
$ -
$25.7
$110.6
$35.4
$171.7
$290.2
Capitalized Interest (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
WEC
2008
$ -
$4.5
$11.4
$5.2
$21.1
$22.2
2007
$ -
$3.2
$8.2
$2.6
$14.0
$14.4
Deferred Revenue (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
WEC
2008
$ -
$10.6
$27.5
$12.8
$50.9
$50.9
2007
$ -
$7.5
$19.2
$6.2
$32.9
$32.9
Balance Sheet:
CWIP - Cash Expenditures (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
March 31, 2008
$ -
$307.4
$808.1
$402.2
$1,517.7
December 31, 2007
$ -
$286.4
$738.6
$314.7
$1,339.7
Total CWIP (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
WEC
March 31, 2008
$ -
$338.9
$881.3
$432.4
$1,652.6
$2,009.8
December 31, 2007
$ -
$313.3
$800.4
$339.9
$1,453.6
$1,764.1
Net Plant in Service (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
WEC
March 31, 2008
$343.8
$ -
$170.5
$ -
$514.3
$5,821.4
December 31, 2007
$345.8
$ -
$171.2
$ -
$517.0
$5,835.2
Deferred Revenue (Millions of Dollars)
Total
PWGS 1
PWGS 2
OC 1
OC 2
PTF
WEC
March 31, 2008
$64.8
$72.9
$189.7
$70.3
$397.7
$397.7
December 31, 2007
$65.5
$62.2
$162.4
$57.6
$347.7
$347.7
Income Statement: Once the PTF units are placed in service, we expect to recover in rates the lease costs which reflect the authorized cash construction costs of the units plus a return. The authorized cash costs are established by the PSCW. The authorized cash costs exclude capitalized interest since carrying costs are recovered during the construction of the units. The lease payments are expected to be levelized, except that OC 1 and OC 2 will be recovered on a levelized basis that has a one time 10.6% escalation after the first five years of the leases. The leases established a set return on equity component of 12.7% after tax. The interest component of the return is determined up to 180 days prior to the date that the units are placed in service.
We recognize revenues related to the lease payments that are included in our rates. In addition, our revenues include the amortization of the deferred revenues that reflect the carrying costs that are collected during construction. The deferred revenue is amortized on a straight line basis over the lease term. We depreciate the units on a straight line basis over their expected service life.
In July 2005, PWGS 1 was placed in service. This asset had a cost of approximately $364.3 million which included approximately $31.1 million of capitalized interest. The asset is being depreciated over its estimated useful life of approximately 37 years. The cost of the plant, plus a return, is expected to be recovered through Wisconsin Electric's rates over a 25 year period at an annual amount of approximately $48 million.
In November 2007, the coal handling system for Oak Creek was placed into service. This asset had a cost of approximately $171.2 million. This asset is being depreciated over its estimated useful life of approximately 40 years. The cost of the system, plus a return, is expected to be recovered through Wisconsin Electric's rates over a 32 year period at an annual amount of approximately $24 million.
4 -- COMMON EQUITY
Share-Based Compensation Expense:
For a description of share-based compensation, including stock options, restricted stock and performance units, see Note J -- Common Equity in our 2007 Annual Report on Form 10-K. Effective January 1, 2006, we adopted SFAS 123R using the modified prospective
method. We utilize the straight-line attribution method for recognizing share-based compensation expense under SFAS 123R. 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 outstanding stock options during the period. Shares purchased on the open market by our independent agents are currently used to satisfy share based awards.
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 for the three months ended March 31:
2008
2007
(Millions of Dollars)
Stock options
$ 3.0
$ 4.7
Performance units
1.2
0.1
Restricted stock
0.3
0.3
Share-based compensation expense
$4.5
$5.1
Related tax benefit
$1.8
$2.0
Stock Option Activity: During the first three months of 2008, the Compensation Committee granted 1,362,160 options that had an estimated fair value of $9.93 per share. During the first three months of 2007, the Compensation Committee granted 1,371,590 options that had an estimated fair value of $8.72 per share. The following assumptions were used to value the options using a binomial option pricing model:
2008
2007
Risk free interest rate
2.9% -3.9%
4.7% - 5.1%
Dividend yield
2.1%
2.2%
Expected volatility
20.0%
13.0% - 20.0%
Expected forfeiture rate
2.0%
2.0%
Expected life (years)
6.7
6.0
The risk-free interest rate is based on the U.S. Treasury interest rate whose term is consistent with the expected life of the stock options. Dividend yield, expected volatility, expected forfeiture rate and expected life assumptions are based on our historical experience.
The following is a summary of our stock option activity through the three months ended March 31, 2008:
Stock Options
Number of Options
Weighted-Average Exercise Price
Weighted-Average Remaining Contractual Life (Years)
Outstanding as of January 1, 2008
7,694,239
$34.30
Granted
1,362,160
$48.04
Exercised
(111,372)
$26.64
Forfeited
(8,290)
$44.99
Outstanding as of March 31, 2008
8,936,737
$36.48
6.8
$77.8
Exercisable as of March 31, 2008
5,320,420
$30.46
5.4
$72.8
The intrinsic value of options exercised was $2.1 million and $16.7 million for the three months ended March 31, 2008 and 2007, respectively. Cash received from options exercised was $2.7 million and $20.9 million for the three months ended March 31, 2008 and 2007, respectively. The related tax benefit for the same periods was approximately $0.7 million and $6.3 million, respectively.
Stock options to purchase 1,366,625 and 1,359,410 shares of common stock at $47.76 and $48.04 per share, respectively, were outstanding during the first quarter of 2008 but were not included in the computation of diluted earnings per share because the stock options' exercise price was greater than the average market price of our common stock during the quarter.
The following table summarizes information about stock options outstanding as of March 31, 2008:
Aggregate Intrinsic Value (Millions)
Options Outstanding
Options Exercisable
Weighted-Average
Weighted-Average
Range of Exercise Prices
Number of Options
Exercise Price
Remaining Contractual Life (Years)
Number of Options
Exercise Price
Remaining Contractual Life (Years)
$12.79 to $23.05
966,514
$21.67
3.3
966,514
$21.67
3.3
$25.31 to $31.07
1,437,271
$26.98
4.6
1,437,271
$26.98
4.6
$33.44 to $48.04
6,532,952
$40.75
7.8
2,916,635
$35.08
6.5
8,936,737
$36.48
6.8
5,320,420
$30.46
5.4
The following table summarizes information about our non-vested options during the three months ended March 31, 2008:
Weighted-
Non-Vested Stock Options
Number of Options
Average
Non-vested as of January 1
3,466,243
$8.21
Granted
1,362,160
$9.93
Vested
(1,203,796)
$8.35
Forfeited
(8,290)
$8.72
Non-vested as of March 31
3,616,317
$8.81
Fair Value
As of March 31, 2008, total compensation costs related to non-vested stock options not yet recognized was approximately $18.4 million, which is expected to be recognized over the next 25 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 the three months ended March 31, 2008:
Restricted Shares
Number of Shares
Weighted-Average Grant Date Fair Value
Outstanding as of January 1, 2008
146,306
Granted
14,058
$47.61
Released / Forfeited
(21,360)
$29.89
Outstanding as of March 31, 2008
139,004
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 $1.0 million for the three months ended March 31, 2008. The intrinsic value for the same period in 2007 was $1.9 million. The related tax benefit was $0.1 million for the three months ended March 31, 2008 and $0.7 million for the same period in 2007.
As of March 31, 2008, total compensation cost related to restricted stock not yet recognized was approximately $2.4 million, which is expected to be recognized over the next 40 months on a weighted-average basis.
Performance Units:
In January 2008 and 2007, the Compensation Committee granted 133,855 and 136,905 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. We are accruing compensation costs over the three year period based on our estimate of the final expected value of the award. Performance units earned as of December 31, 2007 vested and were distributed during the first quarter of 2008, and had a total intrinsic value of $5.2 million. The tax benefit realized due to the distribution of performance units was approximately $1.8 million. As of March 31, 2008, total compensation cost related to performance units not yet recognized was
approximately $9.9 million, which is expected to be recognized over the next 26 months on a weighted-average basis.
Restrictions: Wisconsin Energy's ability as a holding company to pay common dividends primarily depends on the availability of funds received from its principal utility subsidiaries, Wisconsin Electric and Wisconsin Gas. Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our principal utility subsidiaries to transfer funds to us 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. See Note J --Common Equity in our 2007 Annual Report on Form 10-K for additional information on these and other restrictions.
We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.
Comprehensive Income: Comprehensive income includes all changes in equity during a period except those resulting from investments by and distributions to owners. We recorded the following total comprehensive income during the three months ended March 31:
Comprehensive Income
2008
2007
(Millions of Dollars)
Net Income
$123.2
$100.9
Other Comprehensive Income
Hedging
0.1
0.1
Total Other Comprehensive Income
0.1
0.1
Total Comprehensive Income
$123.3
$101.0
5 -- LONG-TERM DEBT
Wisconsin Electric is the obligor under two series of insured tax-exempt bonds in outstanding principal amount of $147 million. The bonds bore interest at an "auction rate". In March 2008, because of substantial market disruptions that occurred in the auction rate bond market, Wisconsin Electric purchased (in lieu of redemption) these bonds at a purchase price of par plus accrued interest to the date of purchase. As of March 31, 2008, the repurchased bonds were still outstanding, but were reported as a reduction in long-term debt. Subject to market conditions, Wisconsin Electric may change the method used to determine the interest rate on the bonds and have them remarketed to third parties.
6 -- FAIR VALUE MEASUREMENTS
We adopted SFAS 157 as of January 1, 2008, which among other things, requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. SFAS 157 establishes a hierarchal disclosure framework which prioritizes and ranks the level of observable inputs used in measuring fair value. At each balance sheet date, we perform an analysis of all instruments subject to SFAS 157.
As defined in SFAS 157, 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 established under SFAS 157 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories.
Level 1 -- Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Instruments in this category consist of financial instruments such as exchange-traded derivatives.
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 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 SFAS 157 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.
The following table summarizes our financial assets and liabilities by level within the fair value hierarchy as of March 31, 2008:
|
Recurring Fair Value Measures |
||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
||||||||
|
Assets: |
||||||||
|
Derivatives |
$24.2 |
$3.1 |
$4.5 |
$31.8 |
||||
|
|
|
|
|
|
|
|
|
|
|
Total |
$24.2 |
$3.1 |
$4.5 |
$31.8 |
||||
|
Liabilities: |
||||||||
|
Derivatives |
$ - |
$16.0 |
$ - |
$16.0 |
||||
|
|
|
|
|
|
|
|
|
|
|
Total |
$ - |
$16.0 |
$ - |
$16.0 |
||||
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 fair value of derivatives classified as Level 3 in the fair value hierarchy.
2008
(Millions of Dollars)
Balance as of January 1
$13.0
Realized and unrealized gains (losses)
-
Settlements
(8.5)
Transfers in and/or out of Level 3
-
Balance as of March 31
$4.5
Change in unrealized gains (losses) relating to instruments still held as of March 31
$ -
Changes in fair value for Level 3 recurring items are recorded on our balance sheet in accordance with SFAS 71. See Note 7 -- Derivative Instruments, for further information on the offset to regulatory assets and liabilities.
7 -- DERIVATIVE INSTRUMENTS
We follow SFAS 133, as amended by SFAS 149, which requires that every derivative instrument be recorded on the balance sheet as an asset or liability measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. For most energy related physical and financial contracts in our regulated operations that qualify as derivatives under SFAS 133, the PSCW allows the effects of the fair market value accounting to be offset to regulatory assets and liabilities. We do not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivatives executed with the same counterparty under the same master netting arrangement. As of March 31, 2008, we recognized $16.0 million in regulatory assets and $34.2 million in regulatory liabilities related to derivatives.
The components of our net periodic pension and OPEB costs for the three months ended March 31 were as follows:
|
|
|
|
|
OPEB |
||||
|
|
|
|
|
|
|
|
|
|
|
Benefit Plan Cost Components |
2008 |
2007 |
2008 |
2007 |
||||
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
||||||||
|
Net Periodic Benefit Cost |
||||||||
|
Service cost |
$4.7 |
$7.9 |
$2.7 |
$3.1 |
||||
|
Interest cost |
17.3 |
17.8 |
5.2 |
4.7 |
||||
|
Expected return on plan assets |
(21.4) |
(21.3) |
(4.4) |
(3.8) |
||||
|
Amortization of: |
||||||||
|
Transition obligation |
- |
- |
0.1 |
0.1 |
||||
|
Prior service cost (credit) |
0.6 |
1.3 |
(3.1) |
(3.4) |
||||
|
Actuarial loss |
3.7 |
4.7 |
1.7 |
1.8 |
||||
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost |
$4.9 |
$10.4 |
$2.2 |
$2.5 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 -- GUARANTEES
We enter into various guarantees to provide financial and performance assurance to third parties on behalf of our affiliates. As of March 31, 2008, we had the following guarantees:
|
|
|
Maximum Potential Future Payments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
||||
|
Wisconsin Energy |
|
|
|
|
|
|
|
Non-Utility Energy |
|
$ - |
|
$ - |
|
$ - |
|
Other |
|
2.5 |
|
2.5 |
|
- |
|
|
|
|
|
|
|
|
|
Wisconsin Electric |
|
2.8 |
|
0.1 |
|
- |
|
Subsidiary |
|
6.1 |
|
6.1 |
|
0.9 |
|
|
|
|
|
|
|
|
|
Total |
|
$11.4 |
|
$8.7 |
|
$0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A non-utility energy segment guarantee in support of Wisvest-Connecticut, which we sold in December 2002 to PSEG, provides financial assurance for potential obligations relating to environmental remediation under the original purchase agreement for Wisvest-Connecticut with The United Illuminating Company. The potential obligations for environmental remediation, which are unlimited, are reimbursable by PSEG under the terms of the sale agreement in the event that we are required to perform under the guarantee.
Other guarantees support obligations of our affiliates to third parties under loan agreements and surety bonds. In the event our affiliates fail to perform, we would be responsible for the obligations.
Wisconsin Electric is subject to the potential retrospective premiums that could be assessed under its insurance program.
Subsidiary guarantees support loan obligations and surety bonds between our affiliates and third parties. In the event our affiliates fail to perform, our subsidiary would be responsible for the obligations.
Postemployment benefits: Postemployment benefits provided to former or inactive employees are recognized when an event occurs. The estimated liability, excluding severance benefits, for such benefits was $14.5 million as of March 31, 2008 and $13.9 million as of December 31, 2007.
Summarized financial information concerning our reportable operating segments for the three month periods ended March 31, 2008 and 2007 is shown in the following table:
|
Corporate & |
|||||||||
|
Reportable Operating Segments |
Other (a) & |
||||||||
|
Energy |
Reconciling |
Total |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
Wisconsin Energy Corporation |
Utility |
Non-Utility |
Items |
Consolidated |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
|||||||||
|
Three Months Ended |
|||||||||
|
March 31, 2008 |
|||||||||
|
Operating Revenues (b) |
$1,433.2 |
$19.7 |
($21.1) |
$1,431.8 |
|||||
|
Operating Income (Loss) |
|
$206.6 |
|
$14.2 |
|
($2.9) |
|
$217.9 |
|
|
Interest Expense, net |
$28.3 |
$1.8 |
$9.1 |
$39.2 |
|||||
|
Income Tax Expense (Benefit) |
$77.4 |
$5.0 |
($4.8) |
$77.6 |
|||||
|
Net Income (Loss) |
$121.5 |
$7.4 |
($5.7) |
$123.2 |
|||||
|
Capital Expenditures |
$173.0 |
$175.2 |
$ - |
$348.2 |
|||||
|
Total Assets (c) |
$10,018.6 |
$2,160.9 |
($501.4) |
$11,678.1 |
|||||
|
March 31, 2007 |
|||||||||
|
Operating Revenues (b) |
$1,300.6 |
$14.5 |
($14.0) |
$1,301.1 |
|||||
|
Operating Income (Loss) |
|
$177.5 |
|
$9.7 |
|
($2.7) |
|
$184.5 |
|
|
Interest Expense, net |
$29.1 |
$1.9 |
$11.7 |
$42.7 |
|||||
|
Income Tax Expense (Benefit) |
$66.1 |
$3.3 |
($4.8) |
$64.6 |
|||||
|
Income (Loss) from Discontinued
|
|
|
|
|
|||||
|
Net Income (Loss) |
$103.2 |
$4.6 |
($6.9) |
$100.9 |
|||||
|
Capital Expenditures |
$114.3 |
$174.1 |
$1.8 |
$290.2 |
|||||
|
Total Assets (c) |
$10,105.3 |
$1,450.0 |
($321.3) |
$11,234.0 |
|||||
|
(a) |
Other includes all other non-utility activities, primarily non-utility real estate investment and development by Wispark and non-utility investment in renewable energy and recycling technology by Minergy, as well as interest on corporate debt. |
|
(b) |
An elimination for intersegment revenues of $19.8 million and $14.7 million is included in Operating Revenues for the three months ended March 31, 2008 and 2007, respectively. This elimination is primarily between We Power and Wisconsin Electric. |
|
(c) |
An elimination for the PWGS 1 lease and the Oak Creek coal handling system between We Power and Wisconsin Electric is included in Total Assets of $460.8 million and $313.8 million at March 31, 2008 and 2007, respectively. |
11 -- COMMITMENTS AND CONTINGENCIES
Environmental Matters: We periodically review our exposure for remediation costs as evidence becomes available indicating that our liability has changed. Given current information, 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.
Divestitures: Over the past several years, we have sold various businesses and assets. In connection with these sales, we have agreed to provide the respective buyers with customary indemnification provisions including, but not limited to, certain environmental, asbestos and product liability matters. In addition, pursuant to the sale of Point Beach, we have agreed to indemnification provisions customary to transactions involving the sale of nuclear assets. We have established reserves as deemed appropriate for these indemnification provisions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2008
The following table compares our operating income by business segment and our net income for the first quarter of 2008 with the first quarter of 2007 including favorable (better (B)) or unfavorable (worse (W)) variances.
|
|
Three Months Ended March 31 |
|||||||
|
|
|
|
|
|
|
|||
|
|
2008 |
|
B (W) |
|
2007 |
|||
|
|
|
|
|
|
|
|||
|
|
(Millions of Dollars) |
|||||||
|
|
|
|
|
|
|
|||
|
Utility Energy Segment |
$206.6 |
|
$29.1 |
|
$177.5 |
|||
|
Non-Utility Energy Segment |
14.2 |
|
4.5 |
|
9.7 |
|||
|
Corporate and Other |
(2.9) |
|
(0.2) |
|
(2.7) |
|||
|
|
|
|
|
|
|
|||
|
Total Operating Income |
217.9 |
|
33.4 |
|
184.5 |
|||
|
Equity in Earnings of Transmission Affiliate |
11.5 |
|
0.8 |
|
10.7 |
|||
|
Other Income, net |
10.6 |
|
(2.6) |
|
13.2 |
|||
|
Interest Expense, net |
39.2 |
|
3.5 |
|
42.7 |
|||
|
|
|
|
|
|
|
|||
|
Income From Continuing Operations Before Income Taxes |
200.8 |
|
35.1 |
|
165.7 |
|||
|
Income Taxes |
77.6 |
|
(13.0) |
|
64.6 |
|||
|
|
|
|
|
|
|
|||
|
Income From Continuing Operations |
123.2 |
|
22.1 |
|
101.1 |
|||
|
Income (Loss) From Discontinued Operations, Net of Tax |
- |
|
0.2 |
|
(0.2) |
|||
|
|
|
|
|
|
|
|||
|
Net Income |
$123.2 |
|
$22.3 |
|
$100.9 |
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
|
Diluted Earnings Per Share |
$1.04 |
|
$0.19 |
|
$0.85 |
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
UTILITY ENERGY SEGMENT CONTRIBUTION TO OPERATING INCOME
Our utility energy segment contributed $206.6 million of operating income during the first quarter of 2008, an increase of $29.1 million, or 16.4%, compared with the first quarter of 2007. The following table summarizes the operating income of this segment between the comparative quarters.
|
Three Months Ended March 31 |
||||||
|
|
|
|
|
|
|
|
|
Utility Energy Segment |
2008 |
B (W) |
2007 |
|||
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
||||||
|
Operating Revenues |
|
|
|
|
|
|
|
Electric |
$667.2 |
$24.6 |
$642.6 |
|||
|
Gas |
749.9 |
105.1 |
644.8 |
|||
|
Other |
16.1 |
2.9 |
13.2 |
|||
|
|
|
|
|
|
|
|
|
Total Operating Revenues |
1,433.2 |
132.6 |
1,300.6 |
|||
|
Fuel and Purchased Power (a) |
339.2 |
(108.6) |
230.6 |
|||
|
Cost of Gas Sold |
560.3 |
(86.5) |
473.8 |
|||
|
|
|
|
|
|
|
|
|
Gross Margin |
533.7 |
(62.5) |
596.2 |
|||
|
Other Operating Expenses |
||||||
|
Other Operation and Maintenance (a) |
385.4 |
(73.6) |
311.8 |
|||
|
Depreciation, Decommissioning |
||||||
|
and Amortization (a) |
73.6 |
81.1 |
||||
|
Property and Revenue Taxes |
27.1 |
(1.3) |
25.8 |
|||
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
1,385.6 |
(262.5) |
1,123.1 |
|||
|
Amortization of Gain |
159.0 |
159.0 |
- |
|||
|
|
|
|
|
|
|
|
|
Operating Income |
$206.6 |
$29.1 |
$177.5 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
In September 2007, we sold Point Beach and commenced purchasing power from the new owner under a power purchase agreement. As a result of the sale and the power purchase agreement, our 2008 earnings reflect higher fuel and purchased power costs as compared to 2007. In addition, our 2008 operating income reflects lower other operation and maintenance costs and lower depreciation, decommissioning and amortization costs as we no longer own Point Beach . |
In January 2008, Wisconsin Electric received a rate order from the PSCW that authorized a 17.2% increase in electric rates to recover increased costs associated with transmission expenses, our PTF program, environmental expenditures, continued investment in renewable and efficiency programs and recovery of previously deferred regulatory assets. The PSCW allowed us to issue bill credits to our customers from the proceeds of the net gain and excess decommissioning funds associated with the sale of Point Beach to mitigate this increase. The PSCW also determined that $85.0 million of Point Beach proceeds should be immediately applied to offset certain regulatory assets. As a result of these bill credits, we estimate that the January 2008 PSCW rate order will result in a net 3.2% increase in electric rates paid by our Wisconsin customers and another net increase of 3.2% in 2009. The bill credits that we issue to our customers and the proceeds immediately applied to regulatory assets are reflected on our income statement in the amortization of the gain on the sale of Point Beach. As we issue the bill credits, we transfer the cash from a restricted account to an unrestricted account to match the bill credits issued on an after-tax basis.
The following table compares electric utility operating revenues and MWh sales by customer class during the three months ended March 31:
|
Electric Revenues |
MWh Sales |
|||||||||||
|
|
|
|
|
|
||||||||
|
Electric Utility Operations |
2008 |
B (W) |
2007 |
2008 |
B (W) |
2007 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
(Thousands) |
|||||||||||
|
Operating Revenues |
||||||||||||
|
Residential |
$247.5 |
$14.9 |
$232.6 |
2,208.7 |
59.2 |
2,149.5 |
||||||
|
Small Commercial/Industrial |
|
210.7 |
|
2.4 |
|
208.3 |
|
2,332.7 |
|
30.7 |
|
2,302.0 |
|
Large Commercial/Industrial |
|
155.9 |
|
(3.5) |
|
159.4 |
|
2,725.5 |
|
55.2 |
|
2,670.3 |
|
Other-Retail |
5.5 |
0.3 |
5.2 |
44.6 |
1.0 |
43.6 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail |
619.6 |
14.1 |
605.5 |
7,311.5 |
146.1 |
7,165.4 |
||||||
|
Wholesale - Other |
33.7 |
10.7 |
23.0 |
621.8 |
94.3 |
527.5 |
||||||
|
Resale - Utilities |
5.4 |
- |
5.4 |
196.2 |
73.2 |
123.0 |
||||||
|
Other Operating Revenues |
|
8.5 |
|
(0.2) |
|
8.7 |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$667.2 |
|
$24.6 |
|
$642.6 |
|
8,129.5 |
|
313.6 |
|
7,815.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weather -- Degree Days (a) |
||||||||||||
|
Heating (3,280 Normal) |
3,553 |
282 |
3,271 |
|||||||||
|
(a) |
As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a twenty-year moving average. |
Our electric utility operating revenues increased by $24.6 million, or 3.8%, when compared to the first quarter of 2007. We estimate that our first quarter 2008 revenues were $7.8 million higher than the first quarter of 2007 due to pricing increases that we received in the January 2008 PSCW rate order and a wholesale rate increase effective in May 2007. For more information on the pricing increase, see Utility Rates and Regulatory Matters in Factors Affecting Results, Liquidity and Capital Resources below.
We estimate that colder than normal winter weather positively impacted electric sales by $7.4 million during the first quarter of 2008 as compared to the first quarter of 2007. As measured by heating degree days, the first quarter of 2008 was 8.6% colder than the same period in 2007 and 8.3% colder than normal.
Our fuel and purchased power costs increased by $108.6 million, or 47.1%, when compared to the first quarter of 2007. The largest factor related to this increase was the power purchase agreement we entered into in connection with the sale of Point Beach, which increased costs by approximately $64.1 million. In addition, in connection with the January 2008 PSCW rate order, we recorded a $41.2 million one-time amortization of deferred fuel costs in the first quarter of 2008. The remaining increase was $3.3 million, or 1.4%. Increased costs related to increased sales and the impacts of higher gas and purchased power prices were offset by higher MWh output of lower-cost coal units. In addition to the continued impact of the Point Beach power purchase agreement, we expect the impact of higher natural gas and fuel oil prices will increase our overall fuel and purchase power costs for the remainder of 2008.
For further information on the 2008 rate order, see Factors Affecting Results, Liquidity and Capital Resources - Utility Rates and Regulatory Matters below.
Gas Utility Revenues, Gross Margin and Therm Deliveries
A comparison follows of gas utility operating revenues, gross margin and gas deliveries during the first quarter of 2008 with similar information for the first quarter of 2007. 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. Between the comparative periods, total gas revenues increased by $105.1 million, or 16.3%, primarily reflecting pricing increases we received in the January 2008 PSCW rate order, increased cost of gas and colder winter weather.
Three Months Ended March 31
Gas Utility Operations
2008
B (W)
2007
(Millions of Dollars)
Gas Operating Revenues
$749.9
$105.1
$644.8
Cost of Gas Sold
560.3
(86.5)
473.8
Gross Margin
$189.6
$18.6
$171.0
The following table compares our gas utility gross margin and therm deliveries by customer class during the three months ended March 31:
Gross Margin
Therm Deliveries
Gas Utility Operations
2008
B (W)
2007
2008
B (W)
2007
(Millions of Dollars)
(Millions)
Customer Class
Residential
$121.6
$10.5
$111.1
408.8
27.8
381.0
Commercial/Industrial
48.3
7.0
41.3
240.4
20.2
220.2
Interruptible
0.8
0.2
0.6
8.4
1.1
7.3
Total Retail Gas Sales
170.7
17.7
153.0
657.6
49.1
608.5
Transported Gas
16.2
0.7
15.5
294.7
11.0
283.7
Other
2.7
0.2
2.5
-
-
-
Total
$189.6
$18.6
$171.0
952.3
60.1
892.2
Weather -- Degree Days (a)
Heating (3,280 Normal)
3,553
282
3,271
|
(a) |
As measured at Mitchell International Airport in Milwaukee, Wisconsin. Normal degree days are based upon a twenty-year moving average. |
Our gas margins increased by $18.6 million, or approximately 10.9%, when compared to the first quarter of 2007. We estimate that our first quarter 2008 revenues were $7.1 million higher than the first quarter of 2007 reflecting pricing increases that we received in the January 2008 PSCW rate order. In addition, we estimate that colder than normal winter weather positively impacted gas sales by $6.5 million during the first quarter of 2008 as compared to the first quarter of 2007. As measured by heating degree days, the first quarter of 2008 was 8.6% colder than the same period in 2007 and 8.3% colder than normal.
Other Operation and Maintenance Expense
Our other operation and maintenance expense increased by $73.6 million, or approximately 23.6%, when compared to the first quarter of 2007. As discussed above, we received pricing increases in January 2008 to cover the increased costs. In connection with the January 2008 PSCW rate order, we recorded a $43.8 million one-time amortization of deferred bad debt costs in the first quarter of 2008. In addition, the January 2008 PSCW rate order allowed for increased transmission costs, increased PTF lease costs and other deferred costs totaling approximately $58.9 million. These increases were partially offset
by an estimated $37.9 million reduction in nuclear operation and maintenance expense related to the sale of Point Beach as we no longer own the plant.
Depreciation, Decommissioning and Amortization Expense
Our depreciation, decommissioning and amortization expense decreased by $7.5 million, or approximately 9.2%, when compared to the first quarter of 2007. This decrease is primarily the result of the sale of Point Beach. This decrease was partially offset by normal plant additions.
Amortization of Gain
In connection with the September 2007 sale of Point Beach, we reached agreements with our respective regulators to allow for the net gain on the sale of approximately $902.2 million to be used for the benefit of our customers, primarily in the form of bill credits. The net gain was originally recorded as a regulatory liability, and it is being amortized to the income statement as we issue bill credits to our customers. During the first quarter of 2008, we issued approximately $74.0 million of bill credits to our customers. In addition, pursuant to the January 2008 PSCW rate order, we recorded an $85.0 million one-time amortization of a portion of the gain to reflect the recovery of the amortization of $85.0 million of regulatory assets ($41.2 million related to deferred fuel costs and $43.8 million related to deferred bad debt costs)
.
NON-UTILITY ENERGY SEGMENT CONTRIBUTION TO OPERATING INCOME
Our non-utility energy segment contributed $14.2 million of operating income for the first quarter of 2008 as compared to $9.7 million for the first quarter of 2007. The increase primarily relates to lease income from the coal handling system for Oak Creek which was placed into service during November 2007.
CONSOLIDATED OTHER INCOME, NET
Other income, net decreased by $2.6 million, or approximately 19.7%, when compared to the first quarter of 2007. This decline primarily relates to lower carrying charges on regulatory assets. In 2007, we accrued carrying charges on regulatory assets. In connection with the January 2008 PSCW rate order, we stopped accruing carrying charges on those regulatory assets as we are now allowed a current return on them.
CONSOLIDATED INTEREST EXPENSE, NET
|
|
|
Three Months Ended March 31 |
|||
|
|
|
|
|
|
|
|
Interest Expense |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars) |
|||
|
|
|
|
|
|
|
|
Gross Interest Costs |
|
$61.4 |
|
$57.0 |
|
|
Less: Capitalized Interest |
|
22.2 |
|
14.3 |
|
|
|
|
|
|
|
|
|
Interest Expense, Net |
|
$39.2 |
|
$42.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our gross interest costs increased by $4.4 million primarily due to increased debt levels as a result of our PTF construction program. However, in connection with the PTF construction program we capitalize interest during construction. Our capitalized interest increased by $7.9 million due to higher levels of construction in progress at our PTF plants. As a result, our net interest expense declined by $3.5 million, or 8.2%, as compared to the first quarter of 2007.
CONSOLIDATED INCOME TAXES
For the first quarter of 2008, our effective tax rate applicable to continuing operations was 38.6% compared to 39.0% for the first quarter of 2007. We expect our 2008 annual effective tax rate to be between 36% and 38%.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following summarizes our cash flows from continuing operations during the three months ended March 31:
|
Wisconsin Energy Corporation |
2008 |
2007 |
||
|
|
|
|
|
|
|
(Millions of Dollars) |
||||
|
Cash Provided by (Used in) |
||||
|
Operating Activities |
$343.8 |
$362.9 |
||
|
Investing Activities |
($270.9) |
($304.3) |
||
|
Financing Activities |
($76.1) |
($71.5) |
||
Operating Activities
Cash provided by operating activities was $343.8 million during 2008, which was $19.1 million lower than 2007. During the first quarter of 2008, we experienced an increase in net income because of favorable weather; however, there were two significant items that reduced operating cash flows as compared to 2007. In the first quarter of 2008, we contributed a $48.4 million to our pension plans. There were no comparable contributions to the plans in the first quarter of 2007. In addition, we experienced an increase in working capital requirements in 2008 that reduced operating cash flows. The increase in working capital was primarily related to an increase in accounts receivable and unbilled revenues caused by higher natural gas prices and colder weather.
Investing Activities
Cash used in investing activities was $270.9 million during the three months ended March 31, 2008, which was $33.4 million lower than the same period in 2007. This decline reflects positive cash flows from the release of restricted cash, partially offset by increased capital expenditures.
During the first quarter of 2008, we saw an increase in cash flows from investing activities as we realized $88.3 million of restricted cash. As background, in September 2007, we sold Point Beach and placed approximately $924 million of cash in restricted accounts to be used for the payment of taxes and for the benefit of our customers. We release the restricted cash on an after-tax basis as we issue bill credits to our customers, which is reflected as an amortization of the gain on our income statement.
During the first quarter of 2008, our capital expenditures increased$58.0 million primarily due to our PTF construction program and payments related to our wind generation project.
Financing Activities
Cash used in financing activities during the three months ended March 31, 2008 was $76.1 million, which is slightly higher than the same period in 2007. During the first quarter of 2008, we paid approximately $31.6 million in cash dividends and reduced our debt levels by a net amount of approximately $42.3 million.
During the first three months of 2008, we received proceeds of $2.7 million related to the exercise of stock options, compared with $20.9 million during the same period in 2007. Instead of issuing new shares for these stock options, we instructed our plan agent to purchase common stock in the open market at a cost of $5.5 million, compared with $38.0 million in the first quarter of 2007. This cost is included in Purchase of common stock on our Consolidated Condensed Statements of Cash Flows.
CAPITAL RESOURCES AND REQUIREMENTS
Capital Resources
We anticipate meeting our capital requirements during the remaining nine months of 2008 primarily through internally generated funds and short-term borrowings supplemented by the issuance of intermediate or long-term debt securities depending on market conditions and other factors. Beyond 2008, we anticipate meeting our capital requirements through internally generated funds supplemented, when required, by short-term borrowings and the issuance of debt securities.
We 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 believe that we have adequate capacity to fund our operations for the foreseeable future through our borrowing arrangements, access to capital markets and internally generated cash.
Wisconsin Energy, Wisconsin Electric and Wisconsin Gas credit agreements provide liquidity support for each company's obligations with respect to commercial paper and for general corporate purposes.
As of March 31, 2008, we had approximately $1.8 billion of available, undrawn lines under our bank back-up credit facilities on a consolidated basis. Of that amount, approximately $1.0 billion was providing liquidity support for an equivalent amount of consolidated short-term debt outstanding on that date.
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 March 31, 2008.
(Millions of Dollars)
Wisconsin Energy
$900.0
$1.5
$898.5
April 2011
5 year
Wisconsin Electric
$500.0
$4.9
$495.1
March 2011
5 year
Wisconsin Electric
$100.0
$ -
$100.0
September 2008
6 month
Wisconsin Gas
$300.0
$ -
$300.0
March 2011
5 year
Company
Total Facility
Letters of
Credit
Credit Available
Facility
Expiration
Facility
Term
|
(1) |
On March 3, 2008, Wisconsin Electric entered into an unsecured six month $100 million bank back-up credit facility. This new facility will expire in September 2008. |
The following table shows our capitalization structure as of March 31, 2008, as well as an adjusted capitalization structure that we believe is consistent with the manner in which the rating agencies currently view the Junior Notes:
|
Capitalization Structure |
Actual |
Adjusted |
||||||
|
|
|
|
|
|
|
|
|
|
|
Common Equity |
$3,191.5 |
42.0% |
$3,441.5 |
45.2% |
||||
|
Preferred Stock of Subsidiary |
30.4 |
0.4% |
30.4 |
0.4% |
||||
|
Long-Term Debt (including current maturities) |
3,377.4 |
44.4% |
3,127.4 |
41.1% |
||||
|
Short-Term Debt |
1,006.4 |
13.2% |
1,006.4 |
13.2% |
||||
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization |
$7,605.7 |
100.0% |
$7,605.7 |
100.0% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt |
$4,383.8 |
$4,133.8 |
||||||
|
Ratio of Debt to Total Capitalization |
57.6% |
54.4% |
||||||
Included in Long-Term Debt on our Consolidated Condensed Balance Sheet as of March 31, 2008 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% equity credit the majority of rating agencies currently attribute to the Junior Notes.
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.
Wisconsin Electric is the obligor under two series of insured tax-exempt pollution control refunding bonds in outstanding principal amount of $147 million that were issued in 2004 (the 2004 Bonds). Since the 2004 Bonds were issued, they have borne interest at an "auction rate." Because of substantial disruptions in the auction rate bond market that occurred in early to mid-February 2008, after giving notice on February 15, 2008 of the exercise of its option to purchase all of the 2004 Bonds (in lieu of redemption), in March 2008 Wisconsin Electric purchased the 2004 Bonds at a purchase price of par plus accrued interest to the date of purchase. Wisconsin Electric issued commercial paper to fund the purchase of the 2004 Bonds. Wisconsin Electric currently holds the 2004 Bonds. Depending on market
conditions and other factors, Wisconsin Electric may change the method used to determine the interest rate on the 2004 Bonds and have them remarketed to third parties.
Capital Requirements
Capital requirements during the remainder of 2008 are expected to be principally for capital expenditures and long-term debt maturities. Our 2008 annual consolidated capital expenditure budget is approximately $1.2 billion.
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 continue to 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 further information, see Note 9 -- Guarantees in the Notes to Consolidated Condensed Financial Statements in this report.
We have identified three tolling and purchased power agreements with third parties but have been unable to determine if we are the primary beneficiary of any of these three variable interest entities as defined by FIN 46. As a result, we do not consolidate these entities. Instead, we account for one of these contracts as a capital lease and for the other two contracts as operating leases. For additional information, see Note G -- Variable Interest Entities in our 2007 Annual Report on Form 10-K. We have included our contractual obligations under all three of these contracts in our evaluation of Contractual Obligations/Commercial Commitments discussed below.
Contractual Obligations/Commercial Commitments: Our total contractual obligations and other commercial commitments are approximately $20.9 billion as of March 31, 2008 compared with $21.4 billion as of December 31, 2007. Our total contractual obligations and other commercial commitments as of March 31, 2008 decreased compared with December 31, 2007 primarily due to periodic payments related to these types of obligations which were greater than new commitments made in the ordinary course of business during the quarter.
FACTORS AFFECTING RESULTS, LIQUDITY AND CAPITAL RESOURCES
The following is a discussion of certain factors that may affect our results of operations, liquidity and capital resources. The following discussion should be read together with the information under the heading "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 of our 2007 Annual Report on Form 10-K, which provides a more complete discussion of factors affecting us, including market risks and other significant risks, our PTF strategy, utility rates and regulatory matters, electric system reliability, environmental matters, legal matters, industry restructuring and competition and other matters.
POWER THE FUTURE
Under our PTF
strategy, we expect to meet a significant portion of our future generation needs through the construction of the PWGS and the Oak Creek expansion by We Power. We Power will lease the new units to Wisconsin Electric under long-term leases, and we expect Wisconsin Electric to recover the lease
payments in its electric rates. See Factors Affecting Results, Liquidity and Capital Resources -- Power the Future in Item 7 of our 2007 Annual Report on Form 10-K for additional information on PTF.
Port Washington: Construction of PWGS 2 is essentially complete. Final testing of the unit is in progress. The unit is expected to begin commercial operation during the second quarter of 2008.
Oak Creek Expansion: Construction commenced in June 2005. Adverse weather during the 2007-2008 winter season presented difficulties for the construction contractor; however, the contractor continues to forecast that the units will be completed on schedule. At this time we cannot predict what impact there will be on the project.
A contested case hearing for the WPDES permit was held in March 2006. The ALJ upheld the issuance of the permit in a decision issued in July 2006. In August 2006, the opponents filed in Dane County Circuit Court for judicial review of the ALJ's decision upholding the issuance of the permit. In March 2007, the Dane County Circuit Court affirmed in part the decision by the ALJ to uphold the WDNR's issuance of the permit. The Court also remanded certain aspects of the ALJ's decision for further consideration based on the January 2007 decision by the Federal Court of Appeals for the Second Circuit concerning the federal rule on cooling water intake systems for existing facilities (the Phase II rule) (Riverkeeper, Inc. v. EPA, Nos. 04-6692-ag(L) (2d Cir. 2007)). The Second Circuit found certain portions of the rule impermissible and remanded several parts of the rule to the EPA for further consideration or potential rulemaking. In March 2007, the EPA announced its intention to suspend the Phase II rule in its entirety and directed states to use their "best professional judgment" in evaluating intake systems. Consistent with its announcement in March, in July 2007, the EPA formally suspended the Phase II rule in its entirety and directed states to use their "best professional judgment" in evaluating intake systems for existing facilities.
In November 2007, the ALJ determined that the two additional coal-fired units, OC 1 and OC 2, are new facilities under Section 316(b) of the Clean Water Act. The ALJ did not vacate the WPDES permit or any other permit necessary to continue construction of the two units, pointing out that, based upon the present record, the water intake system currently under construction as part of the Oak Creek expansion may be permittable under the standards that apply to new facilities.
The ALJ remanded the WPDES permit to the WDNR and directed the WDNR to reissue or modify the permit to reflect "best technology available" to comply with the standards applicable to new facilities under Wisconsin state law. As part of the decision, the ALJ restated his prior opinion that the water intake system currently under construction may not be operated until the Wisconsin Division of Hearings and Appeals hears any challenge to a reissued or modified permit.
We believe that there are alternatives under the EPA rule for new facilities that would permit the use of the once-through cooling system under construction rather than the use of cooling towers. We have requested that the WDNR issue a modified permit that authorizes the use of the once-through cooling system under the Phase I rule and have submitted information in support of that request. We anticipate that the WDNR will issue a draft modified permit in the second quarter of 2008. At this time, we cannot predict what the WDNR's decision will be. A re-issued or modified permit will be subject to a public comment period and can be challenged in a hearing before the Wisconsin Division of Hearings and Appeals or through judicial review. While the process for modifying the WPDES permit proceeds, we are continuing construction of OC 1 and OC 2 on the current schedule.
In addition, we filed in Milwaukee County Circuit Court a petition for judicial review of the ALJ's decision. We took this action, even though we did not believe that the ALJ's decision was a "final order" that is reviewable, to ensure that we did not lose our right to appeal. The City of Oak Creek and the WDNR also filed petitions for judicial review, and the petitions were consolidated into a single case. At
the time that we filed our petition for review, we also filed a motion requesting a determination from the court that the ALJ order was not final and, therefore, not subject to judicial review at this time. On February 11, 2008, the Court granted our motion dismissing the three petitions for review on the grounds that the ALJ's decision was not a final order and further ruled that all issues decided by the ALJ may be judicially reviewed when there is a final agency decision.
UTILITY RATES AND REGULATORY MATTERS
2008 Pricing : During 2007, Wisconsin Electric and Wisconsin Gas initiated rate proceedings. Wisconsin Electric asked the PSCW to approve a comprehensive plan which would result in price increases of $648.6 million for its electric customers in Wisconsin. This price increase would be reduced by expected bill credits resulting from the sale of Point Beach. The initial rate filing estimated bill credits of $371.0 million in 2008 and $187.5 million in 2009, resulting in net pricing increases of 7.5% in 2008 and 7.5% in 2009. In addition, Wisconsin Electric requested a 1.8% price increase in 2008 for its gas customers and an approximately 16.0% price increase in 2008 for all steam customers in Milwaukee. Wisconsin Gas filed for a 4.1% price increase in 2008 for its gas customers.
Electric pricing increases were needed to allow us to continue progress on previously approved initiatives, including: costs associated with our new PTF plants; recovery of costs associated with transmission; compliance with environmental regulations; continuation of investment in renewable and efficiency programs, including the new wind facilities approved by the PSCW in February 2007; and scheduled recovery of regulatory assets.
On January 17, 2008, the PSCW approved pricing increases for Wisconsin Electric and Wisconsin Gas as follows:
In addition, the PSCW lowered the return on equity for Wisconsin Electric and Wisconsin Gas from 11.2% to 10.75%. The PSCW also determined that $85.0 million of the Point Beach proceeds should be immediately applied to offset certain regulatory assets.
Wisconsin Electric expects to provide a total of approximately $669.7 million of bill credits to its Wisconsin customers over the three year period ending 2010.
Michigan Price Increase Request : On January 31, 2008, Wisconsin Electric filed a rate increase request with the MPSC. This request represents an increase in electric rates of 14.7%, or $22.0 million, to support the growing demand for electricity, continued investment in renewable programs, compliance with environmental regulations, addition of distribution infrastructure and increased operational expenses. This filing also includes a request for immediate rate relief of 5.6%, or approximately $8.4 million. We expect an order from the MPSC during the fourth quarter of 2008.
2008 Fuel Recovery Request:
On March 13, 2008, Wisconsin Electric filed a rate increase request with the PSCW to recover forecasted increases in fuel and purchased power costs. The increase in fuel costs is being driven primarily by increases in the price of natural gas and the higher cost of transporting coal by rail. On April 11, 2008, the PSCW approved an annual increase of $76.9 million (3.3%) in Wisconsin
retail electric rates on an interim basis. The increased rates were effective April 15, 2008. The revenues that we collect are subject to refund with interest at a rate of 10.75%, pending PSCW review and final approval.
See Factors Affecting Results, Liquidity and Capital Resources -- Utility Rates and Regulatory Matters in Item 7 of our 2007 Annual Report on Form 10-K for additional information regarding our utility rates and other regulatory matters.
ELECTRIC TRANSMISSION AND ENERGY MARKETS
MISO: In MISO, base transmission costs are currently being paid by LSEs located in the service territories of each MISO transmission owner. In February 2008, FERC issued several orders confirming that the current transmission cost allocation methodology is just and reasonable and should continue in the future. These orders are subject to rehearings or appeals.
In April 2006, FERC issued an order determining that MISO had not applied its energy markets tariff correctly in the assessment of RSG charges. FERC ordered MISO to resettle all affected transactions retroactive to April 1, 2005. In October 2006 and March 2007, we received additional rulings from FERC on these issues. FERC's rulings have been challenged by MISO and numerous other market participants. MISO commenced with the resettlement of the market in accordance with the orders in July 2007. The resettlement was completed in January 2008 and resulted in a net cost increase of $7.8 million to us. Several entities filed formal complaints with FERC on the assessment of these charges. We filed in support of these complaints.
In November 2007, FERC issued another RSG order related to the rehearing requests previously filed. This order provided a clarification that was contrary to how MISO implemented the last resettlement. Once again, several parties, including Wisconsin Electric, filed for rehearing and/or clarification with FERC.
In addition, FERC ruled on the formal complaints filed by other entities in August 2007. FERC ruled that the current RSG cost allocation methodology may be unjust and unreasonable and established a refund effective date of August 10, 2007. MISO was ordered to file a new cost allocation methodology by March 2008. MISO filed new tariff language which indicated the new cost allocation methodology cannot be applied retroactively. We extended our previous rehearing/clarification request to include the timeframe from the established refund date through March 2008. At this time, we are unable to determine the resulting financial impact, if any, associated with this proceeding.
MISO is in the process of developing a market for two ancillary services, regulation reserves and contingency reserves. In February 2007, MISO filed tariff revisions to include ancillary services. The MISO ancillary services market is expected to begin in September 2008. We currently self-provide both regulation reserves and contingency reserves. In the MISO ancillary services market, we expect that we will buy/sell regulation and contingency reserves from/to the market. The MISO ancillary services market is expected to reduce overall ancillary services costs in the MISO footprint. The MISO ancillary services market is also expected to enable MISO to assume significant balancing area responsibilities such as frequency control and disturbance control .
See Factors Affecting Results, Liquidity and Capital Resources -- Industry Restructuring and Competition -- Electric Transmission and Energy Markets in Item 7 of our 2007 Annual Report on Form 10-K for additional information regarding MISO.
ENVIRONMENTAL MATTERS
National Ambient Air Quality Standards: In 2000 and 2001, Michigan and Wisconsin finalized state rules implementing phased emission reductions required to meet the NAAQS for 1-hour ozone. In 2004, the EPA began implementing NAAQS for 8-hour ozone and PM 2.5 . In December 2006, the EPA further revised the PM 2.5 standard, and in March 2008, the EPA announced its decision to further lower the 8-hour ozone standard.
8-hour Ozone Standard: In April 2004, the EPA designated 10 counties in southeastern Wisconsin as nonattainment areas for the 8-hour ozone NAAQS. States were required to develop and submit SIP to the EPA by June 2007 to demonstrate how they intend to comply with the 8-hour ozone NAAQS. Instead of submitting a SIP, Wisconsin submitted a request to redesignate all counties in southeastern Wisconsin to be in attainment with the standard. In addition to the request for redesignation, Wisconsin also adopted a rule that applies to emissions from our power plants in the affected areas of Wisconsin. The required reductions will be accomplished through implementation of the CAIR. (See below for further information regarding CAIR.) We believe compliance with the NO x emission reduction requirements under the Consent Decree will substantially mitigate costs to comply with the EPA's 8-hour ozone NAAQS. In March 2008, the EPA issued a determination that the state of Wisconsin had failed to submit a SIP. We do not anticipate any further requirements to reduce emissions as a result of this finding, but we are unable to predict that outcome until Wisconsin responds to this finding and EPA subsequently takes a final approval action. In March 2008, the EPA announced its decision to further lower the 8-hour standard. Although additional counties may be designated as non-attainment areas under the revised standard, until those designations become final and until any potential additional rules are adopted, we are unable to predict the impact on the operation of our existing coal-fired generation facilities.
Clean Air Interstate Rule: The EPA issued the final CAIR in March 2005 to facilitate the states in meeting the 8-hour ozone and PM 2.5 standards by addressing the regional transport of SO 2 and NO x . CAIR requires NO x and SO 2 emission reductions in two phases from electric generating units located in a 28-state region within the eastern United States. Wisconsin and Michigan are affected states under CAIR. The phase 1 compliance deadline is January 1, 2009 for NO x and January 1, 2010 for SO 2 , and the phase 2 compliance deadline is January 1, 2015 for both NO x and SO 2 . Overall, CAIR is expected to result in a 70% reduction in SO 2 emissions and a 65% reduction in NO x emissions from 2002 emission levels. The states were required to develop and submit implementation plans by no later than March 2007. A final CAIR rule has been adopted in Wisconsin and Michigan. We believe that compliance with the NO x and SO 2 emission reductions requirements under the Consent Decree will substantially mitigate costs to comply with the CAIR rule. The CAIR rule is currently being litigated.
Clean Air Mercury Rule : The EPA issued the final CAMR in March 2005, following the agency's 2000 regulatory determination that utility mercury emissions should be regulated. CAMR would limit mercury emissions from new and existing coal-fired power plants, and cap utility mercury emissions in two phases, applicable in 2010 and 2018. The caps would limit emissions at approximately 20% and ultimately 70% below today's utility mercury levels.
The federal rule was challenged by a number of states including Wisconsin and Michigan. In February 2008, the U.S. Court of Appeals for the District of Columbia Circuit vacated CAMR and sent the rule back to EPA for re-consideration. At this time, we cannot predict the timing or impact on our operations of a future federal rule.
In October 2004, the WDNR issued mercury emission control rules that affect electric utilities in Wisconsin. The Wisconsin rules explicitly recognize an underlying state statutory restriction that state regulations cannot be more stringent than those included in any federal program and require that the WDNR must adopt state rule changes within 18 months of publication of any federal rules. In March 2007, the WDNR proposed changes to this rule to include an implementation plan for CAMR, along with a proposal for more stringent state-only rules. WDNR did not take any final action on the March 2007 rule proposal. The 2004 state rule will continue to apply to our Wisconsin facilities, unless and until it is revised in the future. This rule requires mercury emission reductions from existing coal-fueled units in three phases, beginning with an emission cap in 2008, and followed by a 40% reduction requirement by 2010 and a 75% reduction requirement by 2015.
In March 2008, the WDNR once again proposed changes to the existing state-only mercury rule. The new proposal would require 90% emission reductions from utilities by 2015, or, under a multi-emission option, 70% reductions by 2015, 80% by 2018 and 90% by 2021, provided utilities meet stringent NO x and SO 2 emission reduction requirements by 2015. The proposed rule would eliminate the 2008-09 emission cap, but retain the 40% emission reduction requirement for the period 2010-2014. Our plan is to maximize mercury reductions from our initial emission control investments. Enhanced mercury reductions from refinements to SO 2 and NO x controls are expected to be developed over the next several years. Because control technology is under development, it is difficult to estimate what the cost would be to comply with the Wisconsin requirements. We believe the range of possible expenditures could be approximately $50 million to $200 million.
As of January 2008, the MDEQ has also proposed a rule to both implement CAMR and impose state-only requirements for achieving 90% emission reductions in 2015. The MDEQ has withdrawn the draft rule to remove the requirements related to the now vacated CAMR, but intends to proceed with the remainder of the state-only rule as proposed. As part of a new technology demonstration which we undertook in partnership with the DOE, technology for the control of mercury has been installed at Presque Isle Power Plant. We plan to continue the operation of that equipment beyond the test period. We anticipate that this equipment will be sufficient to comply with reductions that would be required under the state-only rule.
Clean Air Visibility Rule: The EPA issued the CAVR in June 2005 to address regional haze, or regionally-impaired visibility caused by multiple sources over a wide area. The rule defines BART requirements for electric generating units and how BART will be addressed in the 28 states subject to EPA's CAIR. Under CAVR, states are required to identify certain industrial facilities and power plants that affect visibility in the nation's 156 Class I protected areas. States are then required to determine the types of emission controls that those facilities must use to control their emissions. The pollutants from power plants that reduce visibility include particulate matter or compounds that contribute to fine particulate formation, NO x , SO 2 and ammonia. States were required to submit plans to implement CAVR to the EPA by December 2007. The reductions associated with the state plans are scheduled to begin to take effect in 2014, with full implementation before 2018. Wisconsin is in the final phase of promulgating rules which cover one aspect of the regulations. We do not believe that these rules, if adopted in their current form, will have a material impact on our costs. Michigan has issued a draft rule. Until the rules are final, we are unable to predict their impact on our system.
See Factors Affecting Results, Liquidity and Capital Resources -- Environmental Matters in Item 7 of our 2007 Annual Report on Form 10-K for additional information regarding environmental matters affecting our operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information concerning market risk exposures at Wisconsin Energy Corporation, see Item 7. 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 Part II of our 2007 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures: Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective (i) in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting: There has not been any change in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following should be read in conjunction with Item 3. Legal Proceedings in Part I of our 2007 Annual Report on Form 10-K.
In addition to those legal proceedings discussed in our reports to the SEC, we are currently, and from time to time, subject to claims and suits arising in the ordinary course of business. Although the results of these legal proceedings cannot be predicted with certainty, we believe, after consultation with legal counsel, that the ultimate resolution of these proceedings will not have a material adverse effect on our financial statements.
UTILITY RATES AND REGULATORY MATTERS
See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Results, Liquidity and Capital Resources -- Utility Rates and Regulatory Matters in Part I of this report for information concerning rate matters in the jurisdictions where Wisconsin Electric, Wisconsin Gas and Edison Sault do business.
PART II -- OTHER INFORMATION -- (Cont'd)
Power the Future: See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Factors Affecting Results, Liquidity and Capital Resources -- Power the Future in Part I of this report for information concerning our PTF strategy.
ITEM 1A. RISK FACTORS
See Item 1A. Risk Factors in our 2007 Annual Report on Form 10-K for a discussion of certain risk factors applicable to us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information regarding the purchases of our equity securities made by or on behalf of us or any affiliated purchaser (as defined in Exchange Act Rule 10b-18) during the threemonths ended March 31, 2008.
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(Millions of Dollars)
January 1-
-
-
February 1-
379
$46.73
-
March 1-
-
$ -
Total
379
$46.73
-
$ -
2008
Total Number of Shares
Purchased (a)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
January 31
-
$ -
February 29
$ -
March 31
-
$ -
|
(a) |
This table does not include shares purchased by independent agents to satisfy obligations under our employee benefit plans and stock purchase and dividend reinvestment plan. All shares reported during the quarter were surrendered by employees to satisfy tax withholding obligations upon vesting of restricted stock. |
ITEM 5. OTHER INFORMATION
Director John F. Ahearne did not stand for re-election at the 2008 Annual Meeting of Stockholders of Wisconsin Energy held on May 1, 2008, at which time his term expired. Director Ahearne has served on the Boards of Directors of Wisconsin Energy and Wisconsin Electric since 1994 and on the Board of Directors of Wisconsin Gas since 2000. In consideration of his exemplary service to these Boards of Directors, on May 1, 2008, the Compensation Committee of the Board of Directors of Wisconsin Energy approved the acceleration of vesting of all unvested restricted stock awarded to Director Ahearne consisting of 4,914 shares of restricted stock.
PART II -- OTHER INFORMATION -- (Cont'd)
ITEM 6. EXHIBITS
Exhibit No.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
WISCONSIN ENERGY CORPORATION |
|
|
(Registrant) |
|
|
/s/STEPHEN P. DICKSON |
|
|
Date: May 1, 2008 |
Stephen P. Dickson, Vice President and Controller, Principal Accounting Officer and duly authorized officer |
Exhibit 10.1
POINT BEACH NUCLEAR PLANT
POWER PURCHASE AGREEMENT
BETWEEN
FPL ENERGY POINT BEACH, LLC
AND
WISCONSIN ELECTRIC POWER COMPANY
DATED AS OF DECEMBER 19, 2006
POWER PURCHASE AGREEMENT
TABLE OF CONTENTS
ARTICLE I: DEFINITIONS ....................................................................................................................................................1
1.1.
Defined Terms ......................................................................................................................................................11.2.
Rules of Interpretation .........................................................................................................................................131.3.
Accounting Terms ...............................................................................................................................................141.4.
Legal Representation ..........................................................................................................................................14ARTICLE II:
PURCHASE OF CAPACITY, ENERGY, AND ANCILLARY SERVICES ...........................................................................................................................................................................142.1.
Capacity Sale and Purchase .............................................................................................................................142.2.
Energy Sale and Purchase ................................................................................................................................142.3.
Ancillary Services ............................................................................................................................................152.4.
Replacement Energy and Replacement Capacity ...............................................................................................162.5.
Financial Transmission Rights ...........................................................................................................................172.6.
Title and Risk of Loss ......................................................................................................................................182.7.
Delivery Point ..................................................................................................................................................182.8.
Capacity Accreditation .....................................................................................................................................182.9.
Uprates ............................................................................................................................................................182.10.
Right of First Offer ..........................................................................................................................................202.11.
Reactive Power ...............................................................................................................................................202.12.
Station Service ................................................................................................................................................212.13.
CT Capacity ....................................................................................................................................................21ARTICLE III:
PAYMENTS ...................................................................................................................................................... 213.1.
Purchase Payments .............................................................................................................................................213.2.
Peak Adjustment Payment ..................................................................................................................................22ARTICLE IV:
SCHEDULING .................................................................................................................................................. 224.1.
Scheduling ..........................................................................................................................................................224.2.
Failure to Schedule ..............................................................................................................................................23ARTICLE V:
MAINTENANCE AND OPERATION .............................................................................................................. 235.1.
Scheduled Maintenance .......................................................................................................................................235.2.
Derate Notices ....................................................................................................................................................245.3.
Operation ............................................................................................................................................................25ARTICLE VI:
METERING ........................................................................................................................................................ 286.1.
Metering ..............................................................................................................................................................28ARTICLE VII:
BILLING AND PAYMENT ................................................................................................................................ 297.1.
Billing and Payment ..............................................................................................................................................29ARTICLE VIII:
PERFORMANCE SECURITY ....................................................................................................................... 308.1.
Seller Performance Security ..................................................................................................................................308.2.
Buyer Performance Security ..................................................................................................................................30
8.3.
8.4.
Reporting ..............................................................................................................................................................31ARTICLE IX:
FORCE MAJEURE ............................................................................................................................................. 319.1.
Conditions of Excuse for Seller ..............................................................................................................................319.2.
Conditions of Excuse for Buyer ..............................................................................................................................319.3.
Burden of Proof .....................................................................................................................................................329.4.
Payment and Security Obligations Not Excused ........................................................................................................................................................................329.5.
Time Limits .............................................................................................................................................................329.6.
Deadline Extended ..................................................................................................................................................32ARTICLE X:
EVENTS OF DEFAULT; REMEDIES .................................................................................................................. 3310.1.
List of Events of Default .........................................................................................................................................3310.2.
Remedies ...............................................................................................................................................................3410.3.
Rights of Specific Performance ................................................................................................................................3510.4.
Limitation of Liability ...............................................................................................................................................3510.5.
Disclaimer of Warranties .........................................................................................................................................35ARTICLE XI:
REPRESENTATIONS, WARRANTIES AND COVENANTS ............................................................................ 3611.1.
Representations and Warranties of Buyer .................................................................................................................3611.2.
Representations and Warranties of Seller ..................................................................................................................3711.3.
Covenants of Seller ..................................................................................................................................................38ARTICLE XII:
INDEMNITY ........................................................................................................................................................... 3812.1.
By Seller ..................................................................................................................................................................3812.2.
Indemnification by Buyer ...........................................................................................................................................3912.3.
Joint Negligence .......................................................................................................................................................3912.4.
Responsibility for Employees ....................................................................................................................................3912.5.
Notice and Participation ...........................................................................................................................................3912.6.
Payment of Indemnification Claims ............................................................................................................................4012.7.
Survival of Obligation ...............................................................................................................................................40ARTICLE XIII:
TERM ..................................................................................................................................................................... 4013.1.
Term ........................................................................................................................................................................4013.2.
Termination ..............................................................................................................................................................4113.3.
Effect of Termination .................................................................................................................................................41ARTICLE XIV:
ADMINISTRATIVE COMMITTEE ..................................................................................................................................................................................... 4114.1.
Purpose .....................................................................................................................................................................4114.2.
Membership ..............................................................................................................................................................4114.3.
Meetings ...................................................................................................................................................................4114.4.
Functions ..................................................................................................................................................................4214.5.
Expenses ..................................................................................................................................................................42ARTICLE XV:
NOTICES .................................................................................................................................................................. 4215.1.
Notices in Writing ......................................................................................................................................................4215.2.
Date of Notification ...................................................................................................................................................43
15.3.
ARTICLE XVI:
CONFIDENTIALITY .............................................................................................................................................. 4316.1.
Non-Disclosure to Third Parties .................................................................................................................................4316.2.
Definition of Proprietary Information ...........................................................................................................................4416.3.
Limitations on Required Disclosure .............................................................................................................................4416.4.
Remedies ...................................................................................................................................................................4416.5.
Survival of Confidentiality ............................................................................................................................................45ARTICLE XVII:
INSURANCE ........................................................................................................................................................... 4517.1.
Coverage and Amounts of Seller .................................................................................................................................4517.2.
Insurance Certificates ..................................................................................................................................................4617.3.
Coverage For Full Term ..............................................................................................................................................47ARTICLE XVIII:
ASSIGNMENT ...................................................................................................................................................... 4718.1.
Binding Effect ..............................................................................................................................................................4718.2.
Assignment ..................................................................................................................................................................4718.3.
Change in Control ........................................................................................................................................................48ARTICLE XIX:
DISPUTE RESOLUTION ......................................................................................................................................... 4819.1.
General Provisions .......................................................................................................................................................4819.2.
Negotiation ..................................................................................................................................................................4819.3.
Binding Upon Parties ....................................................................................................................................................4919.4.
Continued Performance ................................................................................................................................................49ARTICLE XX:
COMPLIANCE WITH LAWS; TAXES ..................................................................................................................... 4920.1.
Compliance with Laws ..................................................................................................................................................4920.2.
Mobile-Sierra ...............................................................................................................................................................4920.3.
Taxes and Other Charges ..............................................................................................................................................49ARTICLE XXI:
CHANGE IN LAW ...................................................................................................................................................... 5021.1.
Change in Law ...............................................................................................................................................................5021.2.
Future Attributes ............................................................................................................................................................5021.3.
MISO Changes ..............................................................................................................................................................51ARTICLE XXII:
MISCELLANEOUS .................................................................................................................................................... 5122.1.
Recording Telephone Conversations ...............................................................................................................................5122.2.
Governing Law ...............................................................................................................................................................5122.3.
Entire Agreement; Amendment ........................................................................................................................................5222.4.
No Implied Waiver .........................................................................................................................................................5222.5.
Severability .....................................................................................................................................................................5222.6.
No Exclusivity/Dedication of Assets .................................................................................................................................5322.7.
Expenses .........................................................................................................................................................................5322.8.
Counterparts ...................................................................................................................................................................5322.9.
Survival ...........................................................................................................................................................................5322.10.
Individual Responsibility .................................................................................................................................................5322.11.
No Duty To Third Parties ...............................................................................................................................................53
22.12.
22.13.
Press Releases ...............................................................................................................................................................54Exhibits
Exhibit A Delivered Energy Charges
Exhibit B Buyer's Capacity Amount
Exhibit C Delivered Energy Charge Shaping Factor
Exhibit D Diagram of Metering Devices
Exhibit E Form of Seller's Guaranty
Exhibit F Form of Letter of Credit
Exhibit G Peak Adjustment Payment
Exhibit H Scheduling Provisions
Exhibit I MAIN Guide No. 3A Standards
POWER PURCHASE AGREEMENT
This POWER PURCHASE AGREEMENT is made and entered into as of December 19, 2006, by and between FPL ENERGY POINT BEACH, LLC, a Wisconsin limited liability company ("Seller"), and WISCONSIN ELECTRIC POWER COMPANY, a Wisconsin corporation ("Buyer") (hereinafter the parties hereto are sometimes referred to collectively as the "Parties," or individually as a "Party").
W I T N E S S E T H :
WHEREAS, Buyer is a public utility which operates a system for generation and distribution of electric power in the States of Wisconsin and Michigan; and
WHEREAS, Buyer intends to transfer to Seller all of its rights, title, and interests in and to the Point Beach Nuclear Plant, a nuclear-powered electric generating facility consisting of two generating units and facilities, equipment, supplies and improvements (including the CT) located in Two Rivers, Wisconsin, NRC Operating License Nos. Unit 1 - DPR 24 and Unit 2 - DPR 27, as more specifically described in the Asset Sale Agreement ("Point Beach"); and
WHEREAS, in order to continue serving its customers following transfer of Buyer's interests in the Facilities to Seller, Buyer desires to purchase, and Seller desires to sell, Capacity, Energy, and all associated Ancillary Services on the terms, and subject to the conditions, set forth below.
NOW, THEREFORE, in consideration of the recitals and the mutual promises, covenants and agreements contained herein and in the Asset Sale Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto hereby agree as follows:
ARTICLE I: DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
" Accredited Capacity " means Capacity or Replacement Capacity that (a) meets the resource adequacy requirements in Module E of the Transmission Provider Tariff ("Module E") for Buyer's Network Load, a portion of which may include Capacity or Replacement Capacity that satisfies the requirement for a Local Capacity Resource for Buyer's Network Load and (b) is measured in accordance with the MAIN Guide No. 3A standards; provided , however , that if either or both requirements in (a) or (b) is inapplicable, then Accredited Capacity means Capacity or Replacement Capacity that meets the applicable requirements for Capacity (the "Effective Capacity Requirements") of any Governing Authority having jurisdiction over Buyer, including any Capacity from the Facilities that may be deemed available under the Effective Capacity Requirements even if the Facilities are not operating.
" Administrative Committee " has the meaning set forth in Article XIV .
" Affiliate " has the meaning given such term in Rule 12b-2 under the Securities Exchange Act of 1934.
" Agreement " means this Power Purchase Agreement entered into by Seller and Buyer.
" Ancillary Services " means those services that during the Term are necessary to support the transmission of electric capacity and energy, or support the generation or transmission of Energy from the Facilities or Replacement Capacity, as applicable, while maintaining reliable operation of the transmission system, associated with or otherwise corresponding to the Capacity of the Facilities or Replacement Capacity, as applicable, and/or output of Energy at such time, which Ancillary Services shall include reactive power and frequency response service.
" Asset Sale Agreement " means that certain Asset Sale Agreement between Buyer and Seller, dated as of the date hereof.
" Associate " means, with respect to any Party, any officer, director, trustee, fiduciary, employee, agent, representative, contractor or subcontractor of such Party and any shareholder, partner, member or other owner of such Party.
" ATC " means the American Transmission Company LLC.
" Authorization " means any license, permit, approval, consent, filing, waiver, exemption, variance, clearance, entitlement, allowance, franchise or other authorization, whether corporate, governmental, regulatory or otherwise.
" Balancing Authority Function " means the operating authority that maintains the load resource balancing and reliability for the balancing authority area in which the Facilities are located.
" Billing Cycle " means each calendar month during the Term and any partial calendar month at the beginning or end of the Term.
" Business Day " means any day other than Saturday, Sunday, or any NERC holiday or any other day on which commercial banks in Milwaukee, Wisconsin are required to be closed.
" Buyer " has the meaning set forth in the preamble hereto.
" Buyer Performance Security " means any performance security that may be required to be posted by Buyer pursuant to Section 8.2 .
" Buyer's Capacity Amount " means, for any given time, the applicable amount set forth in Exhibit B . The Capacity of the Facilities, and the associated amounts in the column in Exhibit B entitled "Capacity of the Facilities," shall be revised during the Term upon written notice from Seller to Buyer providing the results of any Performance Testing of the Facilities conducted in accordance with the MAIN Guide No. 3A Standards (or with the Effective Capacity Requirements, if applicable).
" Buyer's Energy Amount " means, for any period of time, an aggregate amount of Energy (including Replacement Energy) associated with the Buyer's Capacity Amount (excluding the CT Capacity) for such period of time.
" Buyer's Guarantor " means a Person that, at the time of the execution and delivery of any guaranty issued pursuant to Section 8.2 , is a direct or indirect owner of Buyer and (a) has an Investment Grade Credit Rating and a consolidated Net Worth of at least five hundred million dollars ($500,000,000.00); or (b) is reasonably acceptable to Seller as having a verifiable creditworthiness and Net Worth sufficient to secure Buyer's Guarantor's obligations under any guaranty issued pursuant to Section 8.2 .
" Calculation Reconstitution Program " means the specific project to validate and integrate calculations and setpoints at Point Beach described in that certain Point Beach Nuclear Plant Calculation Review and Reconstruction Project Plan, CRR-PB-PP, Revision 3, dated January 27, 2006.
" Calendar Year " means a twelve-month period beginning January 1 and ending December 31.
" Capacity " means, on or as of any date of determination, a power generation unit's capability to generate a specific amount of electrical energy at a given point in time.
"Change in Control " means any one or more of the following events that occurs with respect to Seller, or with respect to any Person which is a direct or indirect owner of a majority of the ownership interests in Seller: (i) a transfer of a majority of the ownership interests in Seller or such Person; (ii) a change in the general partner of any such Person; (iii) any consolidation or merger of Seller or any such Person in which Seller or such Person, as the case may be, is not the continuing or surviving entity, other than a consolidation or merger of a Person in which the holders of such Person's ownership interests immediately before the consolidation or merger shall, upon consummation of the consolidation or merger, own at least 50% of the equity of the surviving entity; or (iv) any other event or circumstance in which "control" (as defined in Rule 12b-2 under the Securities Exchange Act of 1934) of Seller or of any such Person is transferred to another Person.
" Change in Law " has the meaning set forth in Section 21.1 .
" Claims " means all third party claims or actions, threatened or filed and, whether groundless, false, fraudulent or otherwise, that directly or indirectly relate to the subject matter of an indemnity, and the resulting losses, damages, expenses, reasonable attorneys' fees and court costs.
" Communications Protocol " has the meaning set forth in Section 5.3(b)(i) .
" CPNode " means the commercial pricing nodes established by the Transmission Provider for both Unit 1 and Unit 2 (as of the Effective Date, such nodes are WEC.PTBHGB1 (for Unit 1) and WEC.PTBHGB2 (for Unit 2)); provided , that if this Agreement only applies to one Unit, then the CPNode shall be the applicable commercial pricing node for such Unit.
" CPT " or " Central Prevailing Time " means, with respect to any particular time in question, Central Standard Time or Central Daylight Time in effect at such time.
" Credit Rating " means, with respect to an entity, the rating assigned to such entity's unsecured, senior long-term debt obligations (not supported by third party credit enhancements) by Moody's or S&P or, in the event such rating is not assigned, then the issuer rating assigned by S&P or Moody's with respect to such entity.
" CT " means the existing No. 2 fuel oil-fired combustion turbine generator located at the Facilities site.
" Delivered Energy " means, for any period of time, the sum of the Net Energy Output plus Replacement Energy delivered to the Delivery Point and confirmed by Buyer in accordance with the scheduling provisions in Exhibit H, part (b)(iii).
" Delivered Energy Charge " has the meaning set forth in Section 3.1(a) .
" Delivered Energy Payment " has the meaning set forth in Section 3.1(a) .
" Delivery Point " has the meaning set forth in Section 2.7 .
" Derate " means an event or condition which causes the Net Energy Output to be less than ninety-five percent (95%) of the associated Buyer's Capacity Amount (excluding the CT Capacity), or causes the MISO FinSched to be less than ninety-five percent (95%) of the associated Buyer's Capacity Amount (excluding the CT Capacity), unless such event or condition resulting in a reduction in the MISO FinSched was agreed to by Buyer, excluding any ramp up or ramp down of the Facilities associated with Seller's nuclear fuel management procedures scheduled in accordance with Section 5.1 .
"Derate Notice" has the meaning set forth in Section 5.2 .
" Designated Network Resource " or " DNR " means a resource deliverable to the Buyer's Network Load designated as a "Network Resource" as defined under the applicable Transmission Provider Tariff and related documents. The term DNR shall apply to the Facilities and to the resource selected by Seller, and accepted by MISO as a WEPCO Designated Network Resource, and accepted by the applicable regional reliability council, to provide Replacement Capacity for Buyer in accordance with the terms and conditions of this Agreement.
" Dispatch Authority Function " means the Buyer's Trading and Operations Group in its Wholesale Energy & Fuels department.
" Dispute " means any controversy, claim or dispute of whatsoever nature, arising out of or relating to this Agreement or the making, validity, execution, performance, discharge, termination, or breach hereof.
" Dispute Resolution Procedures " means the dispute resolution procedures for Disputes set forth in Article XIX .
" Early Termination Date " has the meaning set forth in Section 10.2 .
" Effective Capacity Requirements " has the meaning set forth in the definition of Accredited Capacity.
" Effective Date " means the Closing Date, as defined in the Asset Sale Agreement.
" Electric Reliability Organization " or " ERO " has the meaning set forth in 18 C.F.R. S 39.1.
" Energy " means electric energy expressed in MWh.
" Event of Default " has the meaning set forth in Section 10.1 .
" Facilities " means Point Beach excluding any Uprate not accepted by Buyer pursuant to Section 2.9(a) ; provided , that after the Unit 1 Termination Date (if not the same as the Unit 2 Termination Date), the term "Facilities" shall exclude Unit 1 for the remainder of the Term of this Agreement; provided , further , that if for any reason this Agreement terminates earlier with respect to Unit 2, but not Unit 1, then after the Unit 2 Termination Date, the term "Facilities" shall exclude Unit 2 for the remainder of the Term of this Agreement.
" FASB " means the Financial Accounting Standards Board.
" FERC " means the Federal Energy Regulatory Commission.
" Financial Bilateral Transaction " has the meaning ascribed to such term by the Transmission Provider in the applicable Transmission Provider Tariff or related documents, as such relevant meaning or relevant term may be modified from time to time.
"
Force Majeure
" means any cause or occurrence beyond the reasonable control of and without the fault or negligence of the Party claiming Force Majeure which causes the Party to be unable to, or otherwise materially impairs its ability to, perform its obligations hereunder and which by the exercise of reasonable foresight such Party could not have been reasonably expected to avoid and could not have been prevented or avoided by such Party through the exercise of reasonable diligence. Subject to the foregoing, such causes or occurrences may include any acts of God; acts of the public enemy; wars; blockades; insurrections; riots; epidemics; landslides; lightning; earthquakes; fires; storms; floods; washouts; civil disturbances; strikes, lockouts, work stoppages or other labor actions that affect the U.S. electric generation or utility industry as a whole, including operation of the Facilities; shutdowns or reductions in the Facilities' output or capabilities required, caused by, or related to directives, orders or requirements of the NRC or any other Governing Authority that affect the U.S. nuclear generation industry as a whole; shutdowns or reductions in the Facilities' output directly related to the Calculation Reconstitution Program, but only if such shutdown or reduction occurs 12 months after the Effective Date; and any other cause, whether of the kind herein enumerated or otherwise, which, despite all reasonable efforts of such Party to prevent or mitigate its effects, prevents or delays the performance of a Party, or prevents the obtaining of the benefits of performance by the other Party, and is not within the control of the Party claiming excuse. The following acts, events
or causes shall in no event constitute an event of Force Majeure: (i) any lack of profitability to a Party or any losses incurred by a Party or any other financial consideration of a Party; (ii) unavailability of funds or financing; (iii) an event caused by conditions of national or local economics or markets; (iv) any failure of equipment which is not itself directly caused by an event which would otherwise independently constitute a Force Majeure; (v) strikes, lockouts, work stoppages or other labor actions that affect the operation of the Facilities but do not affect the U.S. electric generation or utility industry as a whole; (vi) changes in market conditions that affect the cost or availability of equipment, materials, supplies or services, including the Facilities' fuel supply or the cost of power from resources other than the Facilities; (vii) failures of third parties, unless such failures are caused by an event which would otherwise constitute a Force Majeure event hereunder, if experienced by a Party and the Party claiming Force Majeure is relying on such third party in order to discharge any of such Party's duties or obligations hereunder; (viii) climatic temperature and humidity conditions; and (ix) shutdowns or reductions in the Facilities output or capabilities required, caused by, or related to, directives, orders or requirements of the NRC or any other Governing Authority that do not apply to the U.S. nuclear electric generation industry as a whole. The curtailment, unavailability or interruption of transmission service shall not constitute a Force Majeure event unless the Transmission Provider directs the curtailment or interruption of transmission service over all, or substantially all, of the transmission system owned and/or controlled by the Transmission Owner in the State of Wisconsin.
" GAAP " means generally accepted accounting principles in the United States, as in effect from time to time, consistently applied, except as to consistency for mandated changes imposed by appropriate accountancy administrative bodies (including the FASB) or regulatory authorities.
" Generation Offer " has the meaning ascribed to such term by MISO in the applicable Transmission Provider Tariff or related documents, as such relevant meaning or relevant term may be modified from time to time.
" Governing Authority " means the federal government of the United States, and any state, county or local government, and any regulatory department, body, political subdivision, commission, bureau, administration, agency, instrumentality, ministry, court, judicial or administrative body, taxing authority, or other authority of any of the foregoing (including, without limitation, any corporation or other entity owned or controlled by any of the foregoing), MISO, ERO, NRC, any other regional reliability council, the Transmission Provider and any other regional transmission organization, in each case having jurisdiction over any or all of the Parties, the Facilities or the Transmission Provider's transmission system, whether acting under express or delegated authority.
"Gross Receipts Tax" means the tax imposed by the State of Wisconsin pursuant to Sections 76.28 and 76.29 of the Wisconsin Statutes as amended.
"Gross Receipts Tax Payment" has the meaning set forth in Section 20.3(d) .
" Indemnified Person " has the meaning set forth in Section 12.5 .
" Indemnifying Person " has the meaning set forth in Section 12.5 .
" Insufficient Credit Status " means, as to Buyer or Seller, or if Buyer is providing collateral in the form of a guaranty, the Buyer's Guarantor, or if Seller is providing collateral in the form of a guaranty, Seller's Guarantor, that: (a) such Person does not have a Credit Rating or such Person's Credit Rating is not Investment Grade or is determined by either Moody's or S&P to not be Investment Grade; or (b) the maturity of any indebtedness of such Person which in the aggregate exceeds one hundred million dollars ($100,000,000) or five percent of the shareholders' equity of such Person, whichever is less, is accelerated by the holder or holders thereof as a result of a default thereunder, or such holders have the right to accelerate such indebtedness (without regard to any requirements relating to notice, the passage of time or both) as a result of a payment default or a default with respect to a failure by Buyer or Seller (or Buyer's Guarantor or Seller's Guarantor), as applicable, to comply with a financial covenant.
" Interconnection Agreement " means the Generation Transmission Interconnection Agreement by and between Buyer and ATC dated as of November 1, 2000, as revised by the Second Revision issued on January 2, 2002.
" Investment Grade " means a Credit Rating of at least BBB- by S&P and Baa3 by Moody's; provided , that if an entity is rated by only S&P or Moody's, as applicable, then such Credit Rating shall be at least the rating stated above by S&P or Moody's, as applicable. In the event that a Credit Rating from one of S&P or Moody's is at or above Investment Grade and the Credit Rating from the other rating agency is below Investment Grade with respect to a Person or its obligations, then such Person and its obligations shall be considered to not have an Investment Grade Credit Rating.
" Law " means any federal, state and local laws, statutes, regulations, rules, codes, orders, judgments, decrees or ordinances enacted, adopted, issued or promulgated by any Governing Authority, including any Authorizations issued to a Party or by which a Party or the Facilities may be bound (including any of the foregoing pertaining to electrical, building, zoning, environmental and occupational safety and health requirements) or any published directive, guideline, requirement or other governmental restriction which has the force of law or any determination by, or interpretation of, any of the foregoing by any Governing Authority, binding on a given Person in a relevant jurisdiction.
" Letter of Credit " means an irrevocable standby letter of credit, substantially in the form attached hereto as Exhibit F and which (i) is issued by a U.S. commercial bank or the U.S. branch of a foreign bank with total assets of at least ten billion U.S. dollars ($10,000,000,000) having a Credit Rating of A- or higher by S&P or A3 or higher by Moody's; and (ii) permits presentation for drawing at a bank located in Milwaukee, Wisconsin.
" LMP " means the "Locational Marginal Price" at the relevant CPNode for the relevant hour(s) and day(s) for the MISO Day-Ahead Market or MISO Real-Time Market, as applicable, as posted by the Transmission Provider.
" Local Capacity Resource " has the meaning set forth in the Transmission Provider Tariff.
" MAIN Guide No. 3A Standards " means the standards attached as Exhibit I .
" Maintenance Schedule " has the meaning set forth in Section 5.1(a) .
" Metering Devices " has the meaning set forth in Section 6.1(a) .
" MISO " means the Midwest Independent Transmission System Operator, Inc.
" MISO Day-Ahead Market " means the Day-Ahead Market as defined in the applicable Transmission Provider Tariff.
" MISO FinSched " means a Financial Bilateral Transaction for a given Operating Day that is subsequently settled in the MISO Day Ahead Market with a source point, delivery point and sink point at the CPNode.
" MISO FinSched Energy " means the quantity of MWh Scheduled on MISO FinScheds for a given Operating Day.
" MISO Market " means the MISO Real-Time Market or the MISO Day-Ahead Market.
" MISO Market Time " means Eastern Standard Time or as otherwise set forth in the Transmission Provider Tariff.
" MISO Real-Time Market " means the Real-Time Market as defined in the applicable Transmission Provider Tariff.
" Module E " has the meaning set forth in the definition of Accredited Capacity.
" Moody's " means Moody's Investor Services, Inc.
" MW " means a megawatt.
" MWh " means megawatt-hours.
" NEIL " means Nuclear Electric Insurance Limited.
" NERC " means the North American Electric Reliability Council.
"
Net Energy Output
" means, for any hour during a Billing Cycle and with respect to the Facilities (excluding the CT), (a) if the Facilities (excluding the CT) are operating, total Energy output of the Facilities (excluding the CT) as measured at the Delivery Point, less Station Service Load (provided such Station Service Load is netted as provided in
Section 2.12
), which amounts shall be calculated at the applicable Metering Devices, multiplied by a fraction, the numerator of which is the Capacity of the Facilities (excluding the CT) and the denominator of which is the sum of (i) the Capacity of the Facilities (excluding the CT) and (ii) the Capacity of any Uprate not accepted by Buyer pursuant to
Section 2.9(a)
(provided that Net Energy Output can in no event be less than zero), or (b) if the Facilities (excluding
the CT) are not operating, zero. For the avoidance of doubt, all Energy generated by the Units must first satisfy Buyer's Energy Amount before any Energy from the Units is made available to third parties.
" Net Worth " means the dollar value calculated by subtracting liabilities from total assets (excluding goodwill and other intangible assets described in FASB Statement 142) as such terms are determined in accordance with GAAP.
" Network Load " has the meaning set forth in the Transmission Provider Tariff.
" Non-Defaulting Party " has the meaning set forth in Section 10.2 .
" Notice Time " means the time no later than two (2) hours prior to the deadline for submission to the Transmission Provider of Generation Offers for the next Operating Day.
" NRC " means the United States Nuclear Regulatory Commission.
" Off-Peak " means all hours that are not On-Peak hours.
" Offer " has the meaning given such term in Section 2.10 .
" On-Peak " means hour ending 0700 CPT through hour ending 2200 CPT, Monday through Friday, excluding NERC holidays.
" Operating Contact " has the meaning set forth in Section 14.2 .
" Operating Day " has the meaning ascribed to such term by MISO in the applicable Transmission Provider Tariff or related documents, as such relevant meaning or relevant term may be modified from time to time.
" Party " has the meaning set forth in the preamble hereto.
" Peak Adjustment Payment " has the meaning set forth in Section 3.2 .
" Peak Period " has the meaning set forth in Exhibit G .
" Performance Test " has the meaning set forth in Section 5.3(d)(ii) .
" Permitted Assignee " has the meaning set forth in Section 18.2 .
" Person " means any legal or natural person, including any individual, corporation, partnership, limited liability company, joint stock company, association, joint venture, trust, Governing Authority or international body or agency, or other entity.
"
Planned Uprate
" means the extended power uprate, based on licensing and engineering evaluations completed by Westinghouse Electric Company (nuclear steam supply system supplier for Point Beach), Stone & Webster Engineering Corporation, and Siemens-Westinghouse (turbine-generator original equipment manufacturer), designed to
increase the reactor thermal output of each Unit by approximately 8.6% (or approximately 45 MWe per Unit).
" Point Beach " has the meaning given such term in the second recital to this Agreement.
" Prime Rate" means, for any period, the rate per annum expressed as a daily percentage, in effect on the first day of such period, as published from time to time in the money rates section of The Wall Street Journal representing the base rate on corporate loans posted by at least seventy-five percent (75%) of the nation's thirty (30) largest banks. If for any reason such rate is not available, "Prime Rate" means the rate per annum which JPMorgan Chase Bank announces in New York from time-to-time as its prime or base lending rate for corporate customers.
" Proprietary Information " has the meaning set forth in Section 16.2 .
" Prudent Utility Practice " means any applicable practices, methods and acts engaged in or approved by a significant portion of (a) as to Seller, the nuclear power electric generating industry in the United States of America, or (b) as to Buyer, the electric utility industry in the United States of America, during the relevant time period, or the practices, methods and acts which, in the exercise of reasonable judgment by a prudent nuclear operator (or prudent utility operator, if applicable to Buyer) in light of the facts known or which should reasonably have been known at the time the decision was made, could have been expected to accomplish the desired result consistent with good business practices, reliability, safety, expedition and the requirements of any Governing Authority having jurisdiction. "Prudent Utility Practice" is not intended to be limited to the optimum practice, method or act to the exclusion of all others, but rather to the acceptable practices, methods or acts generally accepted (a) as to Seller, by the nuclear power electric generating industry in the United States of America or (b) as to Buyer, by the electric utility industry in the United States of America.
" PSCW " means the Public Service Commission of Wisconsin.
" Reactive Power " means the reactive power capability of the Facilities as set forth in the Interconnection Agreement.
" Related Entity " has the meaning set forth in Section 18.2(c) .
" Replacement Capacity " means, at any time, Accredited Capacity supplied to Buyer by Seller from any DNR (other than the Facilities) or from any other generation resource satisfying the requirements of a Local Capacity Resource associated with Buyer's Network Load (other than the Facilities) to fulfill, in whole or in part, Seller's obligation to supply Accredited Capacity under this Agreement. Replacement Capacity, when combined with Accredited Capacity from the Facilities, shall not exceed the Buyer's Capacity Amount. In addition, Replacement Capacity shall (a) not be committed for sale to any third party, and (b) be accredited at all times to serve Buyer's Capacity requirements.
"
Replacement Energy
"
means, at any time, Energy supplied to Buyer by Seller from any resource other than the Facilities to fulfill, in part or in whole, Seller's obligation hereunder
to deliver Energy which, when combined with the Net Energy Output of the Facilities, shall not exceed the Buyer's Energy Amount applicable to Buyer at such time under this Agreement.
" S&P " means Standard & Poor's Ratings Group (A Division of The McGraw-Hill Companies).
" SCADA " means supervisory, control and data acquisition technology and equipment.
" Schedule ", " Scheduled " or " Scheduling " means the actions of Seller, Buyer and/or their designated representatives, of notifying, requesting and confirming to each other and to any third party the quantity and type of Energy to be delivered on any Operating Day (a) submitted to MISO by Seller as Seller's Generation Offer from the Facilities for a relevant Operating Day during the Term pursuant to this Agreement, or (b) submitted to MISO by Seller and accepted by Buyer as a Financial Bilateral Transaction for a relevant Operating Day during the Term pursuant to this Agreement.
" Scheduled Maintenance Outage " has the meaning set forth in Section 5.1(a) .
" Seller " has the meaning set forth in the preamble hereto.
" Seller Performance Security " means the performance security required to be posted by Seller pursuant to Section 8.1 .
" Seller's Guarantor " means a Person that, at the time of the execution and delivery of the Seller's Guaranty, is a direct or indirect owner of Seller and (a) has an Investment Grade Credit Rating and a consolidated Net Worth of at least five hundred million dollars ($500,000,000.00); or (b) is reasonably acceptable to Buyer as having a verifiable creditworthiness and Net Worth sufficient to secure Seller's Guarantor's obligations under the Seller's Guaranty.
" Seller's Guaranty " has the meaning set forth in Section 8.1 .
" Senior Executives " has the meaning set forth in Section 19.2 .
" Senior Financial Officer " means an officer of Seller or of an Affiliate of Seller having financial and accounting expertise reasonably satisfactory to Buyer.
" Station Service Load " means all electric service requirements used in connection with the operation and maintenance of the Facilities and any improvements thereto, including auxiliary, stand-by, supplemental, back-up maintenance and interruptible power.
" Target Capacity Factor " means 0.9700.
"
Tax
" means (i) any tax (including but not limited to franchise tax), charge, fee, levy or other assessment imposed by any Governing Authority and based on or measured with respect to net income or profits, including any interest, penalties or additions attributable or imposed with respect thereto, and (ii) any other tax, charge, levy, fee or other assessment
imposed by any Governing Authority, including any transfer, gross receipts, sales, use, service, occupation, ad valorem, property, payroll, personal property, excise, severance, premium, stamp, documentary, license, registration, social security, employment, unemployment, disability, environmental (including but not limited to taxes under Section 59A of the Internal Revenue Code of 1986), add-on, value added, withholding (whether payable directly or by withholding and whether or not requiring the filing of a tax return therefor), commercial rent and occupancy tax, and (iii) any estimated tax, deficiency assessment, interest, penalties and additions to tax or additional amounts in connection with any of the foregoing, imposed by any Governing Authority;
provided
, that "Tax" does not include any Gross Receipts Tax.
" Term " means the period from and after the Effective Date to and including the date and time of the later of the Unit 1 Termination Date or the Unit 2 Termination Date.
" Transferee " has the meaning set forth in Section 16.1 .
" Transferor " has the meaning set forth in Section 16.1 .
" Transmission Owner " means ATC.
" Transmission Provider " means MISO with respect to its function as the regional transmission organization and/or with respect to its function as market operator of the MISO Market, as applicable; in the event either of such functions is performed by a separate entity, "Transmission Provider" shall refer to such entity as and where applicable in this Agreement.
" Transmission Provider Tariff " means the "Open Access Transmission and Energy Market Tariff for the Midwest Independent Transmission System Operator, Inc.," or any tariff of a successor to the MISO, and any related procedures or rules published by the Transmission Provider, including the "Business Practice Manual" related thereto.
" Unit " means Unit 1 or Unit 2.
" Unit 1 " means Point Beach Nuclear Plant Unit 1 and related facilities as more specifically described in the Asset Sale Agreement.
" Unit 1 Termination Date " has the meaning set forth in Section 13.1 .
" Unit 2 " means Point Beach Nuclear Plant Unit 2 and related facilities as more specifically described in the Asset Sale Agreement.
" Unit 2 Termination Date " has the meaning set forth in Section 13.1 .
" Unscheduled Outage " means any Derate of the Facilities other than a Scheduled Maintenance Outage.
" Uprate " means, with respect to each Unit, an increase in the maximum thermal power level at which such Unit may operate under its NRC license as such license may be amended after the date hereof.
" VAR " or " VARs " means Volt-Amps-Reactive, a measure of reactive power.
" Variable Interest Entity " or " VIE " has the meaning set forth in the FASB Interpretation No. 46 (Revised December 2003) as issued and amended from time to time by FASB.
" Weekly Schedule " has the meaning set forth in Section 2.4(a) .
" Wisconsin Energy Group " means the collective group of companies identified as affiliates in the most recent Form 10-K filed at the U.S. Securities and Exchange Commission by Wisconsin Energy Corporation.
" Worker's Compensation Laws " means all Laws relating to employment-related accidents and diseases and the benefits, insurance and other compensation required in relation thereto.
1.2. Rules of InterpretationIn this Agreement and in any Appendices, Exhibits or Schedules attached hereto, except to the extent that the context requires otherwise:
All accounting terms used herein shall be construed in accordance with GAAP unless the context or use requires a different interpretation.
1.4 Legal RepresentationThis Agreement was negotiated and prepared by both Parties with the advice of counsel to the extent deemed necessary by each Party; the Parties have agreed to the wording of this Agreement; and none of the provisions hereof shall be construed against one Party on the ground that such Party is the author or drafter of this Agreement or any part hereof.
ARTICLE II: PURCHASE OF CAPACITY, ENERGY, AND
ANCILLARY SERVICES
Subject to the terms and conditions of this Agreement, Seller agrees to sell and supply to Buyer, and Buyer agrees to accept and purchase from Seller, all Accredited Capacity (i) from the Facilities for the duration of the Term and (ii) associated with Replacement Capacity that Seller supplies to Buyer pursuant to the terms of this Agreement. Furthermore, except as otherwise specifically provided for herein, Seller shall not sell or commit to sell the Capacity of the Facilities during the Term to any party other than Buyer.
2.2 Energy Sale and Purchase
If the event or condition constituting the Derate is an Unscheduled Outage, Seller shall telephonically notify the Dispatch Authority Function of Seller's election in accordance with Section 2.4(a)(iii) below (to provide or not to provide Replacement Energy) as soon as practicable but no later than the Notice Time on the day following the day the Derate commenced with confirmation (by email or facsimile) within 24 hours. Seller's election shall be effective based on a "Weekly Schedule", which means seven consecutive days beginning at 00:00 MISO Market Time on any day of the week following the appropriate Notice Time and ending at 23:59 MISO Market Time on the seventh day. Seller shall provide Buyer notice of its intent to continue or discontinue its Replacement Energy election no later than two (2) Business Days prior to the commencement of the applicable Weekly Schedule.
If the event or condition constituting the Derate is a Scheduled Maintenance Outage, Seller shall telephonically notify the Dispatch Authority Function of Seller's election in accordance with Section 2.4(a)(iii) below to provide or not to provide Replacement Energy no later than two (2) Business Days prior to the scheduled commencement of such Scheduled Maintenance Outage with confirmation (by email or facsimile) within 24 hours. Seller's election shall be effective based on a Weekly Schedule. Seller shall provide Buyer notice of its intent to continue or discontinue its Replacement Energy election no later than two (2) Business Days prior to the commencement of the applicable Weekly Schedule.
Any Replacement Energy Scheduled hereunder shall be Scheduled in accordance with Article IV , subject to the following: Replacement Energy may only be Scheduled and delivered on a continuous basis in either (A) a single, fixed quantity or (B) a quantity varied to reflect expected changes in the Net Energy Output (e.g., changes in output or ramp rates or expected resolution of outages with respect to the Facilities) such that the aggregate of such Replacement Energy and the Net Energy Output will result in a single, fixed quantity.
Buyer shall be entitled to all financial transmission rights and all other rights and benefits with and from the Transmission Provider associated with the Capacity, Energy and Ancillary Services being purchased from the Facilities. Seller shall cooperate in good faith with Buyer to ensure that such financial transmission rights and other rights and benefits are effectively assigned and transferred to Buyer at no additional cost to Buyer. Further, Seller hereby assigns and delegates to Buyer all rights and obligations Seller may have to reach
agreement with the Transmission Provider as to the appropriate entitlement of such financial transmission rights under the applicable Transmission Provider Tariff.
Title to and risk of loss related to the Capacity, Energy and Ancillary Services being purchased hereunder shall transfer from Seller to Buyer at the Delivery Point. Seller warrants that it will deliver to Buyer such Capacity, Energy and Ancillary Services free and clear of all liens, security interests, claims and encumbrances or any interest therein or thereto by any Person.
2.7 Delivery PointThe "Delivery Point" for Energy (including Replacement Energy) delivered pursuant to this Agreement is the CPNode.
2.8 Capacity AccreditationSeller shall, at its sole cost and expense, take all reasonable actions required to cause the Buyer's Capacity Amount and any Replacement Capacity to be Accredited Capacity, including the satisfaction of all applicable requirements to establish and maintain the DNR status (as defined under the applicable Transmission Provider Tariff and acceptable to the applicable regional reliability council and the Transmission Provider, as applicable), and including Local Capacity Resource status in relation to Buyer's Network Load, of the Facilities or the source of the Replacement Capacity for Buyer.
2.9 Uprates(a) (i) Seller shall use its commercially reasonable efforts to complete the Planned Uprate by June 1, 2012; provided , however , that Seller shall have the right, consistent with Prudent Utility Practice, to change the date for the completion of the Planned Uprate so long as Seller provides Buyer with advance written notice of such change no later than June 1, 2010 and at least two years prior to the expected completion date of the Planned Uprate. Upon completion of the Planned Uprate the actual Capacity increase associated with the Planned Uprate, as determined by Performance Tests pursuant to Section 5.3(d)(ii) , shall become a part of the Buyer's Capacity Amount, and Exhibit B shall be adjusted to include the increase in Capacity related to such Planned Uprate. The procedures for Uprates described in Section 2.9(b) shall not apply to the Planned Uprate. The Planned Uprate shall not be included in Delivered Energy until the transmission upgrades, if any, required for the Planned Uprate have been completed in accordance with the applicable transmission studies performed by ATC and/or MISO.
(ii) Any transmission upgrade costs to be assessed upon Seller as a direct result of the Capacity increase of the Planned Uprate (the "Planned Uprate Transmission Upgrade Costs") shall be reimbursed by Buyer. Buyer's payment therefor shall be due within 10 days after Seller's actual payment of such costs and the receipt by Buyer of an invoice for such payment together
with documentation setting forth such Planned Uprate Transmission Upgrade Costs in reasonable detail.
(iii) Notwithstanding subsection (ii), Buyer may, in its discretion, by written notice to Seller, within 120 days after receipt of notification of the amount of such Planned Uprate Transmission Upgrade Costs to be assessed upon Seller, decline to accept the Capacity, Energy and Ancillary Services of the Planned Uprate under this Agreement, in which case Buyer shall not be obligated to purchase any of such products associated with the Planned Uprate or to reimburse Seller for any such Planned Upgrade Transmission Upgrade Costs. In the event that Buyer declines the Planned Uprate as provided above, Seller shall have the right to sell to any third party the incremental Capacity, Energy and associated Ancillary Services generated at the Facilities as a direct result of the Planned Uprate; provided , that all Energy generated by the Units must first satisfy Buyer's Energy Amount before any Energy from the Units is made available to third parties.
(iv) In the event of any Uprate project proposed by Seller that consists both of the Planned Uprate and any other Uprate, Seller shall cause one or more transmission studies to be performed that separately identify the transmission requirements and associated costs for the Planned Uprate and any such other Uprate proposed by Seller. The transmission costs associated with the Planned Uprate shall be determined based on a transmission study that assumes no other Uprate has been or will be completed.
(b) Seller agrees to sell and Buyer agrees to purchase any Capacity, Energy and Ancillary Services related to any Uprate (other than the Planned Uprate) upon the same terms and conditions as provided in this Agreement, effective upon the completion of any such Uprate;
provided
,
however
, Buyer may, by written notice to Seller, within 120 days after receipt of notification of the amount of such transmission costs to be assessed upon Seller, decline to purchase the Capacity, Energy and Ancillary Services of any such Uprate that Buyer determines, in its discretion, would either (1) cause transmission disruptions or impose incremental transmission costs on the Buyer or (2) materially diminish the capacity factor of the Facilities, in which case Buyer shall not be obligated to purchase any such products from such Uprate. Unless Buyer declines such Uprate as provided above, the Parties shall promptly adjust the Buyer's Capacity Amount on
Exhibit B
to account for the Capacity of such Uprate, as determined pursuant to Performance Tests pursuant to
Section 5.3(d)(ii)
, to take effect upon the completion of such Uprate. An Uprate (other than the Planned Uprate) shall not be included as Delivered Energy until the transmission upgrades, if any, required for such Uprate have been completed in accordance with the applicable transmission studies performed by ATC and/or MISO. In the event that Buyer declines any Uprate as provided above, Seller shall have the right to sell to any third party the incremental Capacity, Energy and associated Ancillary Services generated at the Facilities as a direct result of such Uprate not accepted by the Buyer;
provided
, that all Energy generated by the Units
must first satisfy Buyer's Energy Amount before any Energy from the Units is made available to third parties.
(c) Notwithstanding anything to the contrary in this Agreement, changes to the Buyer's Capacity Amount resulting from the Planned Uprate or any other Uprate shall be conditioned upon the receipt of all requisite regulatory approvals, applicable to such Planned Uprate or any other Uprate, by the Party to whom such regulatory approvals apply.
(d) In the event any Uprate is not accepted by Buyer, then Net Energy Output shall be provided as follows: (i) Buyer shall first receive Buyer's Energy Amount; (ii) Seller shall receive an amount of Energy associated with any unaccepted Uprate second; and (iii) if any of the Net Energy Output exceeds the sum of (i) and (ii) above, such additional Energy shall be prorated as provided in the definition of Net Energy Output.
2.10. Right of First OfferExcept as otherwise specifically provided for in this Agreement, during the Term, Seller shall not have the right to sell or otherwise transfer any Capacity, Energy or Ancillary Services from the Facilities to another Person (whether by way of a power purchase agreement or otherwise) without first offering (the "Offer"), subject to all requisite regulatory approvals, such Capacity, Energy or Ancillary Services to the Buyer at least 18 months prior to the Unit 1 Termination Date and at least 18 months prior to the Unit 2 Termination Date. Such Offer shall be for the full output of the Unit (including any Uprate affected during the Term), made in the form of a proposed contract to the Buyer and shall be open for acceptance to the Buyer for a period of ninety (90) days. In the event the Buyer accepts such Offer, the Seller and Buyer shall proceed to the execution of such proposed contract in an expeditious manner; provided , Buyer must procure all of its requisite regulatory approvals at least six (6) months prior to the Unit 1 Termination Date or Unit 2 Termination Date, as applicable, or such Offer shall be deemed to have expired.
2.11. Reactive PowerWithout limiting the general application of Section 2.3 :
During any period in which any Unit is operating, Seller shall be permitted to satisfy the Station Service Load using Energy generated by any such Unit. If Seller is not able to self-supply Energy to satisfy Station Service Load, Seller shall compensate Buyer for Energy to serve the Station Service Load at the MISO Real-Time Market LMP for the appropriate CPNode, including any transmission or settlement charges associated with such Energy, during any period of time in which the Facilities are not operating or are not generating sufficient Energy to meet the Station Service Load of the Facilities. In the event that any fees, damages, penalties or transmission charges are assessed against Buyer by any Governing Authority in connection with the Station Service Load or any Energy obtained to serve the Station Service Load, Seller shall reimburse Buyer for such fees, damages, penalties or transmission charges within 10 Business Days of invoice receipt therefor. Any invoice submitted by Buyer to Seller pursuant to this Section 2.12 shall include a written statement explaining in reasonable detail the calculation of the amount due from Seller. As of the date of execution of this Agreement, the Station Service Load related to each Unit is calculated as approximately five MW. In the event such amount is materially changed for any reason, Seller shall give Buyer prompt written notice of such change.
2.13. CT CapacityThe CT Capacity shall be provided by the Seller to the Buyer under this Agreement as part of the Accredited Capacity delivered from the Facilities. Seller shall be responsible for all costs associated with the CT in Seller's operation and maintenance of the Facilities as provided herein, and the operation and maintenance of the CT and the provision to Buyer of the Accredited Capacity therefrom will not result in any additional cost to the Buyer. Seller shall use commercially reasonable efforts to ensure that the Accredited Capacity associated with the CT shall be at least fifteen (15) MW during the Peak Period. Seller is responsible for all payments to (and is entitled to all revenue from) Transmission Provider associated with the dispatch of Energy from the CT. The Seller shall not replace or retire the CT without first giving to Buyer at least two (2) years prior written notice.
ARTICLE III: PAYMENTS
3.1. Purchase PaymentsThe amounts to be paid to the Seller by the Buyer for purchases of Capacity, Energy and Ancillary Services under this Agreement shall be determined as follows:
If applicable, Seller shall make a payment to Buyer as determined in accordance with Exhibit G (each, a "Peak Adjustment Payment").
ARTICLE IV: SCHEDULING
4.1. Scheduling
Seller shall submit its Generation Offers and Financial Bilateral Transactions in accordance with applicable Transmission Provider rules and procedures and must offer Unit 1 and Unit 2 in the MISO Day-Ahead Market and the MISO Real-Time Market for dispatch as must run generation units with a dispatch minimum for each hour equal to no less than the full expected Net Energy Output of Unit 1 and Unit 2 (consistent with the Transmission Provider Tariff). Notwithstanding the foregoing, Seller shall have the option to not Schedule Energy from Unit 1 and/or Unit 2 in the MISO Day-Ahead Market in instances when Unit 1 and Unit 2 are being ramped up to return to service following a Scheduled Maintenance Outage or an Unscheduled Outage;
provided
,
however
, that Seller shall hold harmless, defend and indemnify Buyer from and against any charges or fees, including Revenue Sufficiency Guaranty (as defined in the Transmission Provider Tariff) charges, levied on Buyer as a result of Seller's Scheduling in the MISO Real-Time Market. Seller shall offer the CT in the MISO Day-Ahead Market and the MISO Real-Time Market in
accordance with the Transmission Provider Tariff.
Exhibit H
includes other scheduling provisions applicable to this Agreement.
ARTICLE V: MAINTENANCE AND OPERATION
Subject to subsection (b) below, Seller shall submit to Buyer a schedule of maintenance of the Facilities (each, a "Maintenance Schedule" and each item thereon a "Scheduled Maintenance Outage") for each Calendar Year and a projection of scheduled outages for the following four years thereafter no later than twelve (12) months before the beginning of any year (or not later than three (3) months prior to the deadline for submittal of any such schedule to the Transmission Provider or any other applicable Governing Authority, if earlier); except that within thirty (30) days following the Effective Date, Seller shall submit to Buyer a Maintenance Schedule for the remainder of the Calendar Year in which the Effective Date occurs and for the following Calendar Year. Each Maintenance Schedule shall meet the requirements set forth in Section 5.1(b) .
Within thirty (30) days of receipt of such Maintenance Schedule, Buyer may request reasonable modifications therein to the extent the requested modifications are not contrary to Prudent Utility Practice. Subject to subsection (b) below, Buyer and Seller shall work together to schedule Scheduled Maintenance Outages to meet their mutual requirements and the requirements of the Transmission Provider and/or Transmission Owner, it being understood that Buyer shall consider, among other things, its reserve requirements, energy delivery commitments, costs of replacement power and other generating resources and expected loads in requesting such reasonable modifications; provided , that in the event of a disagreement, such scheduling shall be resolved by the Administrative Committee. All Scheduled Maintenance Outages shall be of a duration that is no longer than that reasonably necessary to carry out the required maintenance activities. Seller shall provide notice to Buyer as soon as practicable but in any event no later than forty-eight (48) hours prior to the expected cessation of maintenance activities and shall promptly inform Buyer of the completion of such activities.
Scheduled Maintenance Outages for the subsequent three (3) year period of the Maintenance Schedule may only be rescheduled within a period of time from 30 days prior to the projected start of such Scheduled Maintenance Outage to 30 days after the projected end of such Scheduled Maintenance Outage; provided , however , that no Scheduled Maintenance Outage in such subsequent three (3) year period may be rescheduled so that all or any portion of such Scheduled Maintenance Outage falls within a different Calendar Year; and provided , further , that if Seller experiences an extended Unscheduled Outage and desires to move a Scheduled Maintenance Outage into a prior or subsequent Calendar Year, any such rescheduling shall require the consent of Buyer, not to be unreasonably withheld.
Scheduled Maintenance Outages may not occur during the Peak Period.
5.2. Derate NoticesIn the event of any Derate, Seller must notify the Dispatch Authority Function and the Balancing Authority Function telephonically of such Derate as soon as practicable after Seller becomes aware of the necessity or occurrence thereof (each, a "Derate Notice"), with written confirmation within 24 hours of such oral notice. During any ongoing Derate, Seller shall provide updates as often as practicable, but no less than daily, to the Dispatch Authority Function of the nature and expected duration of such Derate as well as the magnitude and timing of actual and expected output changes of the Facilities and such other information as may assist Buyer in assessing the reliability and expected quantity of output from the Facilities, and Seller shall provide the Dispatch Authority Function with oral notice (confirmed promptly by email or facsimile) as much prior notice as practicable of when the Derate is expected to be remedied.
Seller shall manage, control, operate and maintain all parts of the Facilities in a manner consistent with Prudent Utility Practice and the terms and conditions of this Agreement and the Interconnection Agreement. As between the Parties, Seller shall bear the sole responsibility for complying with all applicable Laws associated with operating the Facilities, including all environmental, permitting and zoning requirements in effect during the Term of this Agreement.
Seller shall, at its own expense, acquire and maintain, comply with and, as necessary, renew and modify from time to time, any and all permits, licenses, approvals and other Authorizations of any Governing Authority required for the lawful operation and maintenance of the Facilities. Copies of said Authorizations shall be made available to Buyer for review upon Buyer's written request. Buyer shall not be liable for any violation by Seller of any Authorization required to be obtained by Seller pursuant to this Section 5.3(c).
Seller shall notify Buyer in writing at least thirty (30) days prior to the expected date of any Performance Test or any other testing of the net capability of the Facilities (including for any Uprate); provided , that Seller may postpone any such test until such test is able to be performed with prior written notice to Buyer of such postponement and of the date and time such test is actually to be performed. Buyer may have a representative present at the time of each Performance Test, although the failure to have such a representative present shall not invalidate the result of the applicable test; provided , that the above required notices were given.
Seller shall perform (A) a performance test each year, on a date mutually agreed by the Parties, at Seller's expense, which shall measure the net capability of the Facilities (including the CT and any Uprate) and (B) a performance test as soon as practicable, consistent with the MAIN Guide No. 3A Standards, (I) prior to the outage during which an Uprate is performed but prior to any coastdown and (II) following start-up from an outage during which an Uprate is performed (each, a "Performance Test"). In addition to the required Performance Test, either Party may request a Performance Test at any reasonable time, at the expense of the Party requesting such test. All Performance Tests shall be conducted in accordance with testing procedures (A) to confirm the Accredited Capacity constituting Buyer's Capacity Amount (pursuant to Transmission Provider requirements) or (B) as otherwise mutually agreed by the Parties. For the avoidance of doubt, as of the execution of this Agreement the current Performance Test standards are the MAIN Guide No. 3A Standards.
Seller shall provide Buyer with the following real-time telemetered data (scanned no less frequently than once every four seconds) for the duration of the Term: (A) net Unit output (MW and VARs), (B) status (i.e., open or closed) of generator breakers and generator disconnect switches, (C) MW and VARs at each metering point, and (D) transformer neutral currents. Seller shall provide Buyer with copies of any scheduling notices or requests submitted to the Transmission Provider concurrently with the submission thereof. In addition, Seller shall provide Buyer with any other information Buyer may reasonably request regarding the operation of the Facilities in order to allow Buyer to maintain reliability for Buyer's Network Load.
Seller shall provide and make available to Buyer, on a real-time basis, all data generated by the SCADA system at the Facilities, including all four-second meter data.
All Energy delivered hereunder shall be three-phase, 60 Hertz (plus or minus variations as may be required or allowed by the Transmission Provider), alternating current, at a voltage acceptable to the Transmission Provider, or shall otherwise comply with such other specifications of the Transmission Provider, regional reliability council or other authority responsible for the safety and reliability of the electric grid with authority over the Delivery Point as may be in effect at the time of delivery.
Seller shall provide Buyer with the right to enter Seller's premises at the Facilities during normal business hours to (i) review records maintained pursuant to this Agreement, (ii) obtain information regarding operation of the Facilities, (iii) visually inspect the Facilities, (iv) observe the testing, operation and maintenance of the Facilities and (v) undertake any other activities reasonably necessary for Buyer to fulfill its rights and obligations hereunder. Buyer shall provide prior written notice to Seller of the date and time of such proposed entry and the identity of all Persons conducting such entry, which prior written notice shall in no event be provided less than three Business Days prior to the date of such entry. Seller shall schedule Buyer's entries upon Seller's premises at the Facilities so as to minimize any disruption of the operation of the Facilities due to such entries or to any activities carried out by Buyer at the Facilities during any such entry. Each such Person conducting any such entry shall observe and comply with all of Seller's applicable safety and security rules at all times during such entry, as such rules shall have been presented to such Person by Seller or by any operator on behalf of Seller prior to or at the time of such visit.
Seller shall maintain at the Facilities site for a period of not less than five (5) years from the date of preparation thereof: (i) all measurements by Metering Devices of Energy delivered from the Facilities pursuant to this Agreement; (ii) all data and information necessary to calculate payments as provided in this Agreement, including invoices, receipts, charts, printouts, electronic media, magnetic tapes and other materials and documents; and (iii) an accurate and up-to-date operating log at the Facilities with records of: real and reactive power production from the Facilities for each hour, changes in operating status of the Facilities and scheduled outages of the Facilities. Buyer shall be permitted to inspect such operating log upon prior written request during normal business hours and copies of such log shall be provided, if requested, at Buyer's expense, within ten (10) days of such request.
As between the Parties, Seller shall be responsible to maintain and operate Seller's electric interconnection facilities in accordance with the Interconnection Agreement. Seller shall not permit any action or inaction under the Interconnection Agreement that could adversely affect Buyer's rights, benefits, liability or obligations under this Agreement and shall not consent to (unless required by a Governing Authority) any modification of the Interconnection Agreement that would adversely affect Buyer's rights hereunder without Buyer's prior written consent, such consent not to be unreasonably withheld. Furthermore, subject to any prohibitions of a Governing Authority, Seller shall:
(A) promptly advise Buyer of all communications and notices to be made by or to Seller under the Interconnection Agreement; and
(B) use commercially reasonable efforts to ensure that the Transmission Owner's and/or Transmission Provider's planned maintenance schedules for the transmission system are coordinated with the Scheduled Maintenance Outages for the Facilities.
ARTICLE VI: METERING
6.1. MeteringARTICLE VII: BILLING AND PAYMENT
7.1. Billing and PaymentARTICLE VIII: PERFORMANCE SECURITY
If at any time Seller (or Seller's Guarantor) has Insufficient Credit Status, Seller shall deliver to Buyer within two (2) Business Days following the commencement of such Insufficient Credit Status either (a) a Letter of Credit; (b) a guaranty from a Seller's Guarantor (substantially in the form attached hereto as Exhibit E ) (so long as such Insufficient Credit Status is not with respect to such Seller's Guarantor) or (c) other collateral in form and substance reasonably acceptable to Buyer, in each case in an amount equal to $100,000,000, which amount shall escalate at 3% per annum on January 1, 2024 and on January 1 st of each year thereafter until the end of the Term; provided , that if Seller has Insufficient Credit Status as of the date of execution of this Agreement, then Seller shall be obligated to provide Seller Performance Security as of the date of execution of this Agreement. Costs of a Letter of Credit posted hereunder shall be borne by the applicant for such Letter of Credit.
8.2. Buyer Performance SecurityIf at any time Buyer (or Buyer's Guarantor) has Insufficient Credit Status, Buyer shall deliver to Seller within two (2) Business Days following the commencement of such Insufficient Credit Status either (a) a Letter of Credit; (b) a guaranty from a Buyer's Guarantor (substantially in the form attached hereto as Exhibit E ) (so long as such Insufficient Credit Status is not with respect to such Buyer's Guarantor) or (c) other collateral in form and substance reasonably acceptable to Seller, in each case in the same amount as the Seller Performance Security; provided , that if Buyer has Insufficient Credit Status as of the date of execution of this Agreement, then Buyer shall be obligated to provide Buyer Performance Security as of the date of execution of this Agreement. Costs of a Letter of Credit posted hereunder shall be borne by the applicant for such Letter of Credit.
8.3. Draws; ReplenishmentsA Non-Defaulting Party may draw upon the Buyer Performance Security or Seller Performance Security, as applicable, following the occurrence of an Event of Default by such other Party or pursuant to the other provisions of this Agreement in order to recover any damages to which such Non-Defaulting Party is entitled under this Agreement. In the event of such a draw on the Buyer Performance Security or Seller Performance Security, as applicable, then, except in the circumstance when the Non-Defaulting Party establishes an Early Termination Date pursuant to Section 10.2 or this Agreement otherwise terminates, the Defaulting Party shall within two (2) Business Days replenish the Seller Performance Security or Buyer Performance Security, as applicable, to the full amount required by Sections 8.1 or 8.2 , as applicable.
ARTICLE IX: FORCE MAJEURE
If, as a result of an event of Force Majeure, Seller is rendered wholly or partly unable to perform its obligations under this Agreement, Seller shall be excused except as specifically provided elsewhere in this Agreement, from only that portion of its performance that is prevented by such Force Majeure event to the extent so prevented; provided , that:
If, as a result of an event of Force Majeure, Buyer is rendered wholly or partly unable to perform its obligations under this Agreement, Buyer shall be excused except as specifically provided elsewhere in this Agreement, from only that portion of its performance that is prevented by such Force Majeure event to the extent so prevented, provided that:
The burden of proof as to whether a Force Majeure has occurred shall be upon the Party claiming Force Majeure.
9.4. Payment and Security Obligations Not ExcusedNotwithstanding anything in this Agreement to the contrary, no payment obligation arising under this Agreement prior to the date of an event of Force Majeure, and no obligation to provide Buyer Performance Security or Seller Performance Security, as applicable, shall be excused by such event of Force Majeure.
Whenever either Party is required to commence or complete any action within a specified period, the performance of which action is excused under the terms of this Agreement by reasons of an event of Force Majeure, such period shall be extended by an amount equal to the duration of the period such performance was excused by such event of Force Majeure occurring or continuing during such period; provided , however , that the Term shall not be extended.
ARTICLE X: EVENTS OF DEFAULT; REMEDIES
10.1. List of Events of DefaultEach of the following events, unless and to the extent expressly excused under the terms of this Agreement, shall constitute an "Event of Default" of the defaulting party ("Defaulting Party"), the other Party being the non-defaulting party ("Non-Defaulting Party"):
If an Event of Default occurs at any time during the Term, the Non-Defaulting Party may, for so long as the Event of Default is continuing, subject to the provisions of Article XIX , take one or more of the following actions: (i) establish a date (which date shall be no more than ten (10) Business Days after the Non-Defaulting Party delivers written notice of such date to the Defaulting Party) on which this Agreement shall terminate (the "Early Termination Date"), (ii) proceed by appropriate proceedings in accordance with this Agreement at law, in equity or otherwise, to protect and enforce its right to damages (actual or liquidated) or, where the Event of Default is one other than the failure to pay money, equitable relief, including specific performance, and (iii) immediately cease performance or withhold any payments, or both, due in respect of this Agreement. For avoidance of doubt, in the event the Non-Defaulting Party ceases performance or withholds payment as provided in (iii) above, the Defaulting Party shall continue to be obligated to pay damages relating to the Defaulting Party's failure to perform during such cessation or period of withholding.
Notwithstanding anything to the contrary in this Agreement, if an Event of Default under Section 10.1(a) with respect to Buyer has occurred and is continuing, Seller may offer and sell Energy and Ancillary Services from the Facilities to any third party until such time as the Buyer can resume performance under this Agreement. The proceeds of any such sale shall be applied as an offset to amounts otherwise owed by Buyer to Seller under this Agreement.
10.3. Rights of Specific PerformanceIn the case of an Event of Default, the Parties recognize that any remedy at law may be inadequate because this Agreement is unique and/or because the actual damages of the Non-Defaulting Party may be difficult to reasonably ascertain and/or may exceed the amount of any guaranty or other collateral available to the Non-Defaulting Party. Therefore, the Parties agree that the Non-Defaulting Party shall be entitled to pursue an action for specific performance, and the Defaulting Party waives all of its rights to assert as a defense to such action that the Non-Defaulting Party's remedy at law is adequate.
10.4. Limitation of LiabilityTHE PARTIES CONFIRM THAT THE EXPRESS REMEDIES AND MEASURES OF DAMAGES PROVIDED IN THIS AGREEMENT SATISFY THE ESSENTIAL PURPOSES HEREOF FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED. UNLESS EXPRESSLY HEREIN OTHERWISE PROVIDED, AND EXCEPT FOR THE PAYMENT OF LIQUIDATED DAMAGES SPECIFIED HEREIN, NEITHER PARTY NOR THEIR AFFILIATES SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS (WHICH DOES NOT INCLUDE RECOVERY FOR ACCRUED DELIVERED ENERGY PAYMENTS) OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT; PROVIDED , HOWEVER , THAT THIS SENTENCE SHALL NOT APPLY (A) TO LIMIT THE LIABILITY OF A PARTY WHOSE ACTIONS GIVING RISE TO SUCH LIABILITY CONSTITUTE WILLFUL MISCONDUCT OR (B) TO ANY INDEMNITY OBLIGATION PROVIDED HEREIN. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE ACTUAL DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT, AND THE LIQUIDATED DAMAGES DO NOT CONSTITUTE A PENALTY AND ARE A REASONABLE ADVANCE APPROXIMATION OF THE HARM OR LOSS. THE PARTIES FURTHER EXPRESSLY AGREE THAT NEITHER SHALL HAVE THE RIGHT, AND EACH WAIVES ALL RIGHTS, TO BRING AN ACTION AGAINST THE OTHER (INCLUDING ANY AFFILIATE OF THE OTHER) IN TORT OR STRICT LIABILITY FOR ANY ACT(S) OR OMISSIONS CONSTITUTING A BREACH OR ALLEGED BREACH OF CONTRACT.
10.5. Disclaimer of Warranties
NEITHER PARTY TO THIS AGREEMENT MAKES ANY REPRESENTATION, WARRANTY OR INDEMNITY, EXPRESS OR IMPLIED, TO THE OTHER PARTY TO
THIS AGREEMENT EXCEPT FOR THE REPRESENTATIONS, WARRANTIES AND INDEMNITIES EXPRESSLY SET FORTH IN THIS AGREEMENT.
ARTICLE XI: REPRESENTATIONS, WARRANTIES AND COVENANTS
11.1. Representations and Warranties of BuyerBuyer makes the following representations and warranties to Seller, each of which is true and correct as of the Effective Date:
Seller makes the following representations and warranties to Buyer as of the Effective Date:
Seller hereby covenants and agrees that throughout the Term:
ARTICLE XII: INDEMNITY
Buyer shall defend, indemnify and hold harmless Seller and its officers, directors, employees and agents from and against all loss, damage, expense, costs and liability, including reasonable attorneys' fees, resulting from or arising out of any Claims arising from the failure of Buyer to fulfill its obligations under this Agreement.
12.3. Joint NegligenceIn the case of joint or concurring negligence or other fault of the Parties giving rise to a loss or Claim against either one or both of them, each shall have rights of contribution against the other Party in proportion to their comparative negligence as determined by the court trying the matter in dispute. Each Party shall promptly notify the other Party of the assertion of any Claim against which such other Party may be required to provide indemnity hereunder and shall give the other Party an opportunity to defend such Claim. These indemnification provisions are for the protection of the Parties hereto only and shall not establish, of themselves, any liability to third parties.
12.4. Responsibility for EmployeesThe Parties agree that, as between themselves, each Party shall be responsible for the acts and omissions of, and any Claims by, its employees and agents, irrespective of any limitation on the amount or type of damages, compensation or benefits payable by or for such Party under Workers' Compensation Laws, disability benefit acts or other employee benefit acts; provided , however , that the foregoing is not intended to create third party beneficiary rights in any party not a Party to this Agreement. Each Party shall indemnify the other Party from and against all liabilities, Claims, damages, suits, fines or judgments for injury or death to any third party and damage to or destruction of property of any third party, to the extent caused by such Party's employees' or agents' negligence or willful misconduct.
12.5. Notice and Participation
If any Party entitled to indemnification hereunder (the "Indemnified Party") intends to seek indemnification under this
Article XII
from any other Party (the "Indemnifying Party") with respect to any Claim, the Indemnified Party shall give the Indemnifying Party notice of such Claim upon the receipt of actual knowledge or information by the Indemnified Party of any possible Claim or of the commencement of such Claim, which period shall in no event be later than the lesser of (i) fifteen (15) Business Days prior to the last day for responding to such Claim or (ii) one-half of the period allowed for responding to such Claim. The Indemnifying Party shall have no liability under this
Article XII
for any Claim for which such notice is not provided, to the extent that the failure to give such notice prejudices the Indemnifying Party. The Indemnifying Party shall have the right to assume the defense of any such Claim, at its sole cost and expense, with counsel designated by the Indemnifying Party and reasonably satisfactory to the Indemnified Party;
provided
,
however
, that if the defendants in any such Claim include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it which are different from or additional to those available to the Indemnifying Party, the Indemnified Party shall have the right to select separate counsel, at the Indemnifying Party's expense, to assert such legal defenses and to otherwise participate
in the defense of such Claim on behalf of such Indemnified Party. Should any Indemnified Party be entitled to indemnification under this
Section 12.5
as a result of a Claim, and should the Indemnifying Party fail to assume the defense of such Claim, the Indemnified Party may, at the expense of the Indemnifying Party, contest (or, with or without the prior consent of the Indemnifying Party, settle) such Claim. Except to the extent expressly provided herein, no Indemnified Party shall settle any Claim with respect to which it has sought or intends to seek indemnification pursuant to this Section without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. Except to the extent expressly provided herein, no Indemnifying Party shall settle any Claim with respect to which it may be liable to provide indemnification pursuant to this Section without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld;
provided
,
however
, that if the Indemnifying Party has reached a bona fide monetary settlement agreement with the plaintiff(s) in any such Claim and the Indemnified Party does not consent to such settlement agreement, then the dollar amount specified in the settlement agreement, plus the Indemnified Party's legal fees and other costs related to the defense of the Claim prior to the date of such settlement agreement, shall act as an absolute maximum limit on the indemnification obligation of the Indemnifying Party.
The Indemnifying Party shall pay any amount due pursuant to this Article XII within ten (10) Business Days after the determination of the amount of any such indemnification, to the extent that the existence and entitlement to indemnification is not disputed by the Indemnifying Party, or within ten (10) Business Days after the conclusion of any Dispute Resolution Procedures, to the extent that the existence or entitlement to indemnification is disputed by the Indemnifying Party and is established pursuant to such Dispute Resolution Procedures.
12.7. Survival of ObligationThe duty to indemnify under this Article XII shall continue in full force and effect notwithstanding the expiration or termination of this Agreement, with respect to any loss, liability, damage, claim or other expense based on facts or conditions which occurred prior to such termination.
ARTICLE XIII: TERM
13.1. TermSubject to the terms and conditions of this Agreement, this Agreement shall commence on the Effective Date and, unless terminated earlier as expressly provided herein, shall continue in effect until 11:59:59 p.m. (CPT) on the day before (a) with respect to Unit 1, October 5, 2030 (the "Unit 1 Termination Date") and (b) with respect to Unit 2, March 8, 2033 (the "Unit 2 Termination Date"); provided , however , that in the event that the Unit 1 Termination Date or Unit 2 Termination Date is scheduled to fall during any Peak Period, the Unit 1 Termination Date or Unit 2 Termination Date, as applicable, shall be extended until the day after the end of such Peak Period.
If the continued operation of a Unit pursuant to this Agreement has become materially adverse to Seller such that the continued operation of such Unit is no longer feasible, prudent or sustainable, Seller shall have the right to elect to permanently shut down such Unit upon written notice of termination of this Agreement in relation to such Unit effective on the later of (a) twenty-four (24) months after such notice and (b) the permanent shutdown of such Unit; provided , that this Agreement shall be in full force and effect and Seller shall continue to perform its obligations under this Agreement, and shall be liable for any failure to perform as provided herein, through such remaining effectiveness of this Agreement (as to such Unit and through the remainder of the Term as to the other Unit). Neither Party shall have any further liability upon the effectiveness of the termination provided above except for those obligations that by their express terms are to survive termination of this Agreement.
13.3. Effect of TerminationTermination of this Agreement shall not terminate the rights or duties of either Party hereunder with respect to any obligations due to be performed on or before the effective date of termination.
ARTICLE XIV: ADMINISTRATIVE COMMITTEE
14.1. PurposeFrom time to time various administrative and technical matters may arise in connection with the terms and conditions of this Agreement which will require the cooperation and consultation of the Parties and the exchange of information. As a means of providing for such cooperation, consultation and exchange, an Administrative Committee is hereby established with the functions described in Section 14.4 . However, the Administrative Committee shall not (a) have the authority to amend this Agreement or (b) diminish in any manner the authority or responsibility of either Party as set forth in the various sections of this Agreement.
14.2. MembershipThe Administrative Committee shall have two (2) members, each an "Operating Contact". Within sixty (60) days after execution of this Agreement, each Party shall designate its Operating Contact (and alternate) and shall promptly give written notice thereof to the other Party. Thereafter, each Party shall promptly give written notice to the other Party of any change in the designation of its Operating Contact. All actions taken by the Administrative Committee must be approved by both Operating Contacts.
14.3. MeetingsMeetings as are reasonably required may be called by either Operating Contact with as much advance notice as is practicable. Meetings may be attended by other representatives of the Parties.
The Administrative Committee shall have the following functions:
Each Party shall be responsible for the salary and out-of-pocket expenses of its Operating Contact and its other attendees. All other expenses incurred in connection with the performance by the Administrative Committee of its functions shall be allocated and paid as determined by the Administrative Committee.
ARTICLE XV: NOTICES
15.1. Notices in WritingAll notices or other communications which are required or permitted under this Agreement shall be effective if they are in writing and delivered personally or by certified mail (postage prepaid and return receipt requested), reputable overnight delivery service, or telecopy or other confirmable form of electronic delivery, to the following address (except as to notices which are required by this Agreement to be delivered to a Party's Operating Contact or to the Dispatch Authority Function or the Balancing Authority Function, which shall be delivered to such Party's Operating Contact or to the Dispatch Authority Function or the Balancing Authority Function, as the case may be):
FPL Energy Point Beach, LLC
700 Universe Boulevard
Juno Beach, FL 33408
Attention: Vice President, Business Management
Facsimile: 561-304-5161
FPL Energy, LLC
700 Universe Boulevard
Juno Beach, FL 33408
Attention: Managing Attorney
Facsimile: 561-691-7305
Wisconsin Electric Power Company
333 West Everett Street, Room A214
Milwaukee, Wisconsin 53203
Attention: Trading and Operations
Facsimile: 414-221-4210
or to such other person or address as the addressee may have specified in a notice duly given to the sender as provided herein.
15.2. Date of NotificationAll notices or communications duly delivered or mailed and postmarked to a Party hereto as provided in Section 15.1 shall be effective as of the date of receipt.
15.3. Oral Notice in EmergencyNotwithstanding the provisions of Section 15.1 , any notice required hereunder with respect to an occurrence or event requiring immediate attention may be made orally, by telephone or otherwise, provided such notice shall be confirmed in writing within 24 hours thereafter. Each Party shall make any such oral notice directly to the Operating Contact of the other Party.
ARTICLE XVI CONFIDENTIALITY
16.1. Non-Disclosure to Third Parties
Any Proprietary Information of a Party (the "Transferor") which is disclosed to or otherwise received or obtained by the other Party (the "Transferee") in connection with this Agreement is disclosed, and shall be held, in confidence, and the Transferee shall not publish or otherwise disclose any Proprietary Information to any Person for any reason or purpose whatsoever, or use any Proprietary Information for its own purposes (other than in connection with this Agreement) or for the benefit of any Person, without the prior written approval of the Transferor, which approval may be granted or withheld by the Transferor in its sole discretion;
provided
,
however
, that nothing herein shall limit the right of the Transferee to provide any Proprietary Information to any Governing Authority having jurisdiction over or asserting a right to obtain such information (including as part of the application for any Authorization);
provided
, that (i) such Governing Authority requests that such Proprietary Information be provided, and (ii) the Transferee promptly advises the Transferor of any request for such information by such Governing Authority and cooperates in giving the Transferor an opportunity to present objections, requests for limitation or a protective order, and/or requests for confidentiality or other restrictions on disclosure or
access, to such Governing Authority. Each Party's obligation to maintain Proprietary Information in confidence shall be deemed performed if such Party observes, with respect thereto, the same safeguards and precautions which such Party observes with respect to its own proprietary information of the same or similar kind.
The term "Proprietary Information" means all information, written or oral, which has been or is disclosed by the Transferor, or by any Affiliate or Associate of the Transferor, or which otherwise becomes known to the Transferee, or to any Affiliate, Associate or other party in a confidential relationship with, the Transferee, and which (x) relates to matters such as patents, trade secrets, research and development activities, draft or final contracts or other business arrangements, books and records, budgets, cost estimates, pro forma calculations, engineering work product, environmental compliance, vendor lists, suppliers, manufacturing processes, energy consumption, pricing information, private processes, and other similar information, as may exist from time to time, or (y) the Transferor expressly designates in writing to be confidential. However, Proprietary Information shall exclude information falling into any of the following categories:
Each Party agrees that it will make available Proprietary Information received from the other Party to its own Affiliates and Associates only on a need-to-know basis, and that all Persons to whom such Proprietary Information is made available will be made aware of the confidential nature of such Proprietary Information, and will be required to agree to hold such Proprietary Information in confidence under terms substantially identical to the terms hereof.
16.4. Remedies
In the event of a breach or threatened breach of the provisions of
Section 16.1
above by any Transferee, the Transferor shall be entitled to an injunction restraining such Party from such breach. Nothing contained in this Agreement (including
Section 10.4
) shall be construed as
prohibiting the Transferor from pursuing any other remedies available at law or in equity for such breach or threatened breach of this Agreement.
The provisions of this Article XVI shall survive the expiration or termination of this Agreement for a period of three (3) years.
ARTICLE XVII: INSURANCE
17.1 Coverage and Amounts of SellerDuring the Term, Seller shall procure, pay premiums for and maintain in full force and effect the insurance coverages described below.
(i) Facility Form
(ii) Secondary Financial Protection
(iii) Master Worker
(iv) Suppliers and Transporters
On the Effective Date, and thereafter from time to time at the request of Buyer, Seller shall provide certificates of insurance from insurance companies having a Best rating of A minus or better confirming that the insurance coverages required herein are maintained. Such certificates shall provide that Buyer be given thirty (30) days prior written notice by the insurer, or its authorized representative, of any cancellation and ten (10) days' prior written notice due to cancellation for non-payment of premiums for any required coverage provided by such insurer as evidenced by the certificates. In addition, Seller agrees to provide notice to Buyer of any material change in the insurance coverages or policies required hereby.
All required coverages shall remain in full force and effect during the Term. Seller's liability under this Agreement shall not be limited to or by the insurance coverages required by this Agreement.
ARTICLE XVIII: ASSIGNMENT
18.1 Binding EffectThis Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assignees.
18.2. AssignmentSeller covenants and agrees that without the express written consent of Buyer any Change in Control of Seller shall be prohibited; provided , however , that notwithstanding the foregoing, if the Person acquiring the control of Seller meets the requirements of a Permitted Assignee, Buyer's consent shall not be required.
ARTICLE XIX: DISPUTE RESOLUTION
19.1. General ProvisionsEvery Dispute between the Parties arising out of or in connection with this Agreement shall be resolved in accordance with this Article XIX , to the extent permitted by law.
19.2. Negotiation
In the event of a Dispute, the Parties shall in good faith attempt to resolve such Dispute by negotiations through the Administrative Committee. Either Operating Contact may request the other to meet within seven (7) days at a mutually agreed upon time and place. Such request must be in the form of a written notice that sets forth the nature of the controversy or claim. If the Dispute that gave rise to such controversy or claim is not resolved within thirty (30) days from the date of the first meeting of the Administrative Committee (or, if the Administrative Committee fails to meet within the applicable period required by this
Section 19.2
), the Administrative Committee shall refer the Dispute to senior executives, who shall have authority to settle the Dispute (the "Senior Executives"). Thereupon, each Operating Contact shall in no later than fifteen (15) days prepare and deliver to the Senior Executives and the other Operating Contact a memorandum stating the issues in dispute and their positions, summarizing any negotiations which have taken place and attaching relevant documents. The Senior Executives shall meet for negotiations within fifteen (15) days from the exchange of such memoranda, at a mutually agreed time and place. If the Dispute is not resolved under this
Section 19.2
within ten (10) days of the first meeting of the Senior
In the resolution of any Dispute pursuant to this Article XIX , each of the Parties, their Operating Contacts and Senior Executives shall give effect to this Article XIX .
19.4. Continued PerformanceSubject to the provisions of Section 10.2 , notwithstanding any Dispute between the Parties and pending the final decision of a Dispute, each Party shall continue to perform its respective obligations under this Agreement.
ARTICLE XX: COMPLIANCE WITH LAWS; TAXES
20.1. Compliance with LawsEach Party shall at all times comply with all applicable Laws relating to the performance of its obligations under this Agreement. Each Party shall give all required notices, shall procure and maintain all necessary Authorizations and inspections necessary for its performance of this Agreement, and shall pay all charges and fees in connection therewith.
20.2. Mobile-SierraIt is the intent of the Parties that the rates and all other terms and conditions of the services provided hereunder shall not be subject to change under Sections 205 or 206 of the Federal Power Act of 1935, 16 U.S.C. S 791 et seq., (or any successor legislation) without the consent of both Parties. Each of the Parties hereto agrees not to unilaterally file with the FERC a change in the rates, terms or conditions of this Agreement. Moreover, absent agreement of all Parties to a proposed change, the standard of review for changes to any rate, term or condition of this Agreement proposed by a non-Party or the FERC or any other Governing Authority acting sua sponte shall be the "public interest" standard of review set forth in United Gas Pipe Line Co. v. Mobile Gas Services Corp., 350 U.S. 332 (1956) and Federal Power Commission v. Sierra Pac Power Co., 350 U.S. 348 (1956). To the extent that the FERC adopts specific language that parties must incorporate into agreements in order to bind FERC, third parties and themselves to a public interest standard of review, the Parties hereby incorporate such language herein by reference.
20.3. Taxes and Other ChargesSeller is liable for and shall pay, or cause to be paid, or reimburse Buyer if Buyer has paid, all Taxes applicable to any transaction arising out of this Agreement at or prior to the Delivery Point on the sale of Energy, Capacity or Ancillary Services to Buyer. Seller shall indemnify, defend and hold harmless Buyer from any Claims for such Taxes applicable at or prior to the Delivery Point.
Buyer is liable for and shall pay, or cause to be paid, or reimburse Seller if Seller has paid, all Taxes applicable to any transaction arising out of this Agreement after the Delivery Point on the sale by Buyer of Energy, Capacity or Ancillary Services. Buyer shall indemnify, defend and hold harmless Seller from any Claims for such Taxes applicable after the Delivery Point.
Either Party, upon written request of the other, shall provide a certificate of exemption or other reasonably satisfactory evidence of exemption if either Party is exempt from Taxes.
ARTICLE XXI: CHANGE IN LAW
21.1. Change in LawIn the event there is a change or changes in any Laws or interpretations thereof, enacted or adopted after execution of this Agreement or any Law or interpretation thereof, enacted or adopted after the Effective Date results in the application of any Law to a new or different class of parties (a "Change in Law"), the Party affected by such Change in Law shall be responsible for the burden and, except as provided in Section 21.2 or elsewhere in this Agreement, shall be permitted to retain the benefits of such Change in Law. For the avoidance of doubt, except as specifically provided elsewhere in this Agreement, the terms and conditions of this Agreement shall not be subject to change due to a Change in Law.
21.2. Future AttributesIn the event that, at any time during the Term, a Change in Law occurs that causes any aspect of the Facilities as in existence on the date hereof to become a tradable attribute (e.g., emission credit, renewable energy credit, environmental credit, "Green" credit, etc.) or otherwise to have a market value, Buyer shall be entitled to 100% of such tradable attribute and the benefits of such attribute for the first seven Calendar Years following the Effective Date and thereafter 50% for the remainder of the Term (with the other 50% belonging to Seller), and the Parties shall in good faith negotiate to reflect such allocation to Buyer at no additional cost to Buyer. Seller agrees to execute a separate agreement to transfer to Buyer any revenue, or any other benefit received by Seller for such tradable attributes, and to execute all documents and agreements and take all steps necessary to permit Buyer to market Buyer's tradable attributes. Failing any such agreement, Seller agrees to credit to Buyer such revenues as provided in Section 3.1(b) until such time as an agreement is executed.
In the event that, at any time during the Term, the applicable Transmission Provider or Transmission Provider Tariff is changed or if an applicable regional reliability council issues a directive, rule or regulation that materially adversely affects Seller or Buyer so that the benefits and burdens of this Agreement are no longer as contemplated by the original intentions of the Parties, the Parties shall use their commercially reasonable efforts to reform this Agreement in order to give effect to the original intentions of the Parties regarding the appropriate allocation of benefits and burdens to each Party.
ARTICLE XXII: MISCELLANEOUS
22.1. Recording Telephone ConversationsEach Party agrees that the other Party or its representatives may record any or all telephone conversations between representatives of the two Parties pursuant to or relating to this Agreement. Each Party is hereby advised that telephone conversations with Buyer's personnel relating to Section 2.4 and Article IV are routinely recorded and each Party agrees to obtain any necessary consent of its personnel regarding such recording. Each Party further agrees that such recorded telephone conversations shall not be deemed inadmissible in any arbitration proceeding or court of law by virtue of the recorded nature of the conversations. Each Party hereby waives any objection to the introduction of such recorded telephone conversations as evidence in any court of law to the extent such objections are based on the recorded nature of such conversations.
22.2. Governing LawThis Agreement constitutes the entire agreement between the Parties pertaining to the subject matter of this Agreement, and supersedes and terminates any letters of intent and all prior and contemporaneous agreements, understandings, negotiations and discussions with the Parties, whether oral or written, regarding said subject matter, and there are no warranties, representations or other agreements between the Parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement. No amendment, supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision of this Agreement, whether or not similar, nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
22.4. No Implied WaiverThe failure or delay of any Party hereto to enforce at any time any of the provisions of this Agreement, or to require at any time performance of the other Party hereto of any of the provisions hereof, shall neither be construed to be a waiver of such provisions nor affect the validity of this Agreement or any part hereof or the right of such Party thereafter to enforce each and every such provision.
22.5. Severability
If any provision of this Agreement shall be determined to be unenforceable, void or otherwise contrary to any Law, such condition shall in no manner operate to render any other provision of this Agreement unenforceable, void or contrary to any Law, and this Agreement shall continue in force in accordance with the remaining terms and provisions hereof, unless such condition invalidates the purpose or intent of this Agreement. In the
This Agreement is not intended to be an exclusive arrangement between Buyer and Seller. No undertaking by a Party hereto to the other Party hereto under any provision of this Agreement shall constitute the dedication of that Party's assets or any portion thereof to the public.
22.7. ExpensesEach Party shall pay the fees and expenses of its respective counsel, accountants, brokers, consultants, investment bankers and other experts incident to the negotiation and preparation of this Agreement.
22.8. CounterpartsThis Agreement may be executed simultaneously in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
22.9. SurvivalThe applicable provisions of this Agreement shall continue in effect after the termination of this Agreement, to the extent necessary to provide for final billing and adjustment, and to make other appropriate settlements hereunder. Those provisions hereof that by their express terms are intended to survive this Agreement shall so survive for the periods indicated. Without limitation of the foregoing, Article VII , Article VIII , Article X , Article XII and Article XIX shall survive the termination of this Agreement.
22.10. Individual ResponsibilityThis Agreement shall not be construed to create or give rise to any partnership, joint venture, agency or other relationship between Seller and Buyer other than that of purchaser and seller. Each Party shall be solely and individually responsible for its own covenants, obligations and liabilities as herein provided, and the Parties do not intend to create any joint, several or joint and several obligations to any third party. Neither this Agreement, nor any grant, lease or license related thereto, shall create or be construed to create any new entity, such as a partnership, association or joint venture.
22.11. No Duty To Third Parties
This Agreement is for the sole benefit of the Parties hereto, and except as specifically provided herein nothing in this Agreement or any action taken hereunder shall be construed to create any duty, liability or standard of care to any Person not a party to this Agreement. Except as specifically provided herein, no Person shall have any rights or interest, direct or
The Parties acknowledge and agree that this Agreement, the transactions contemplated hereby, and any instrument(s) that may be provided by either Party hereunder (including any guaranty) shall each, and together, constitute one and the same "forward contract" within the meaning of the United States Bankruptcy Code, and Seller, Seller's Guarantor and Buyer shall each constitute a "forward contract merchant" under the United Stated Bankruptcy Code.
22.13. Press ReleasesNeither Buyer nor Seller shall, without the approval of the other, make any press release or other public announcement which describes the substantive terms of this Agreement; provided , that subject to Article XVI the foregoing shall not preclude communications or disclosures (i) necessary to implement the provisions of this Agreement, (ii) to comply with accounting and United States Securities and Exchange Commission disclosure obligations or (iii) in connection with the application for any Authorization.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement to be duly executed on its behalf by its duly authorized officer as of the date first set forth above.
FPL ENERGY POINT BEACH, LLC
By:
/s/ Michael O'Sullivan
Name: Michael O'Sullivan
Title: Vice-President
WISCONSIN ELECTRIC POWER COMPANY
By:
/s/ Frederick D. Kuester
Name: Frederick D. Kuester
Title: Executive Vice President and
Chief Operating Officer
EXHIBIT A
Delivered Energy Charges
|
Year |
Delivered Energy Charge (in
|
|
2007 |
31.37 |
|
2008 |
39.23 |
|
2009 |
40.40 |
|
2010 |
41.62 |
|
2011 |
42.87 |
|
2012 |
44.15 |
|
2013 |
44.59 |
|
2014 |
45.04 |
|
2015 |
45.49 |
|
2016 |
45.94 |
|
2017 |
46.40 |
|
2018 |
46.87 |
|
2019 |
49.68 |
|
2020 |
52.66 |
|
2021 |
55.82 |
|
2022 |
59.17 |
|
2023 |
62.72 |
|
2024 |
66.48 |
|
2025 |
70.47 |
|
2026 |
75.51 |
|
2027 |
80.91 |
|
2028 |
86.69 |
|
2029 |
92.89 |
|
2030 |
99.53 |
|
2031 |
106.65 |
|
2032 |
114.28 |
|
2033 |
122.45 |
For each month during the Term, the Delivered Energy Charge set forth above shall apply to all Capacity, Energy and Ancillary Services purchased by Buyer under the Power Purchase Agreement, including any Uprate accepted hereunder. The Delivered Energy Charge shall be adjusted by multiplying the amount of such charge by the Delivered Energy Charge Shaping Factor for such month as set forth on Exhibit C hereto.
EXHIBIT B
Buyer's Capacity Amount
For any given month during the Term, the Buyer's Capacity Amount shall be as set forth in the table below:
Column A
Column B
Column C
Month
Capacity of the Facilities (MW)
Unit 1
Unit 2
CT
Buyer's Capacity Amount
January
517
519
19
1055
February
517
519
18
1054
March
517
519
17
1053
April
517
519
16
1052
May
517
519
16
1052
June
517
519
15
1051
July
512
514
15
1041
August
512
514
15
1041
September
512
514
15
1041
October
517
519
16
1052
November
517
519
17
1053
December
517
519
18
1054
Column A - Depicts the month of the year.
Column B - Will be updated over the Term of this Agreement to reflect the Capacity of the Facilities (including the Planned Uprate, but excluding Capacity related to any Uprate not accepted by Buyer pursuant to Section 2.9(a) ), as determined in accordance with the MAIN Guide No. 3A Standards (or with the Effective Capacity Requirements, if applicable). CT Capacity will be included in Buyer's Capacity Amount only in the event that Buyer has documented to the reasonable satisfaction of the applicable regional reliability council and/or MISO, as applicable, that the CT is interconnected and available to provide Capacity and Energy to the Transmission Owner's system.
Column C - Shall be the sum of the subcolumns of Column B as those values may be revised during the Term of this Agreement.
EXHIBIT C
Delivered Energy Charge Shaping Factor
|
Month |
On-Peak Hours |
Off-Peak Hours |
|
January |
1.19 |
0.67 |
|
February |
1.19 |
0.67 |
|
March |
0.95 |
0.61 |
|
April |
0.95 |
0.61 |
|
May |
1.42 |
0.71 |
|
June |
1.66 |
0.74 |
|
July |
2.14 |
0.77 |
|
August |
2.14 |
0.77 |
|
September |
1.66 |
0.74 |
|
October |
0.95 |
0.61 |
|
November |
0.95 |
0.61 |
|
December |
1.19 |
0.67 |
EXHIBIT D
diagram of metering devices
[DIAGRAM OF METERING DEVICES]
The Metering Devices identified above as numbers 3, 4, 7 and 8 are revenue quality meters.
EXHIBIT E
FORM OF SELLER'S GUARANTY
GUARANTY AGREEMENT
THIS GUARANTY made as of the ____ day of December, 2006 (the " Guaranty "), from FPL GROUP CAPITAL INC., a corporation organized and existing under the laws of the State of Florida and having its principal place of business in 700 Juno Universe Boulevard, Juno Beach, FL 33408 being hereinafter referred to as the "Guarantor," to Wisconsin Electric Power Company, a Wisconsin corporation with a principal place of business in Milwaukee, Wisconsin ("WEPCO").
WITNESSETH :
WHEREAS, WEPCO and FPL ENERGY POINT BEACH, LLC, a limited liability company organized under the laws of Wisconsin ("Seller") have entered into a Power Purchase Agreement dated as of the date hereof (the "PPA"); and
WHEREAS , Seller is an affiliate of the Guarantor and the Guarantor will benefit from the transactions contemplated by the PPA; and
WHEREAS, WEPCO has agreed to sign the PPA on the condition, among others, that the Guarantor executes and delivers this Guaranty; and
NOW, THEREFORE, to induce WEPCO to sign the PPA and consummate the transactions contemplated thereby and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Guarantor does hereby warrant to and covenant and agree with WEPCO as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions . Unless otherwise defined in this Guaranty, capitalized terms have the meanings specified or referred to in the PPA.
ARTICLE 2 - GUARANTY
2.1
Guaranty
. Subject to the provisions of Section 2.3(c) hereof, Guarantor hereby unconditionally and irrevocably guarantees to WEPCO and its successors and permitted assigns, the prompt and full payment and performance of any and all obligations of the Seller to WEPCO when due, whether by acceleration or otherwise, with such interest as may accrue thereon, under the PPA or under any other documents or instruments now or hereafter evidencing, securing or otherwise relating to the PPA (the "Guaranteed Obligations");
provided
,
however
, that Guarantor's liability under this Guaranty, and the maximum recovery from the Guarantor pursuant to this Guaranty, shall in no event exceed one hundred million U.S. dollars
2.2 Guaranty Absolute . (a) Subject to the provisions hereof, the Guarantor absolutely guarantees that the Guaranteed Obligations will be paid and performed strictly in accordance with the terms of the PPA, regardless of any law or regulation now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of WEPCO with respect thereto. This Guaranty constitutes a guarantee of payment and performance and not of collection. The obligations of the Guarantor hereunder are several from the Seller or any other person, and are primary obligations concerning which the Guarantor is the principal obligor. The liability of Guarantor under this Guaranty shall be direct and immediate and not conditional or contingent upon the pursuit of any remedies against the Seller or any other person, nor against securities or liens available to WEPCO, its successors or permitted assigns. Subject to the provisions hereof, the liability of the Guarantor under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to, any or all of:
(i) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other amendment, modification or waiver of, or any consent to departure from, the terms of such Guaranteed Obligations;
(ii) any change, restructuring or termination of the corporate structure or existence of the Seller or any of its subsidiaries;
(iii) any lack of validity or enforceability of the PPA or any agreement or instrument relating thereto;
(iv) any failure of WEPCO to disclose to either the Seller or the Guarantor any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of either the Seller or any of its subsidiaries now or hereafter known to WEPCO (the Guarantor waiving any duty on the part of WEPCO to disclose such information);
(v) any lack of due diligence by WEPCO in the collection or protection of or realization upon any collateral securing the Guaranteed Obligations; or
(vi) any circumstance whatsoever or any act of WEPCO or any existence of or reliance on any representation by WEPCO that might otherwise constitute
This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by WEPCO or any other Person upon the insolvency, bankruptcy, or reorganization of the Seller or otherwise, all as though such payment had not been made.
(b) No action which WEPCO shall take or fail to take in connection with the Guaranteed Obligations, or any security for the payment or performance of any of the Guaranteed Obligations, nor any course of dealing with Seller or any other person, shall release Guarantor's obligations hereunder, affect this Guaranty in any way, or afford Guarantor any recourse against WEPCO.
(c) In the case of an Event of Default under the PPA or with regard to any of the Guaranteed Obligations, Guarantor hereby consents and agrees that WEPCO shall have the right to enforce its rights, powers, and remedies thereunder or hereunder or under any other instrument now or hereafter evidencing, securing, or otherwise relating to the Guaranteed Obligations, and apply any payments or credits received by the Seller or Guarantor or realized from any security, in any manner and in any order as WEPCO, in its sole discretion, shall see fit, and all rights, powers, and remedies available to WEPCO in such event shall be nonexclusive and cumulative of all other rights, powers, and remedies provided thereunder or hereunder or by law or in equity. If the Guaranteed Obligations are partially paid by reason of the election of WEPCO, its successors or assigns, to pursue any of the remedies available to WEPCO, or if such indebtedness is otherwise partially paid, this Guaranty shall nevertheless remain in full force and effect, and Guarantor shall ,subject to the Maximum Recovery Amount, remain liable for the entire balance of the Guaranteed Obligations even though any rights which Guarantor may have against the Seller may be destroyed or diminished by the exercise of any such remedy.
2.3 Waivers and Acknowledgments . (a) Guarantor hereby waives promptness, diligence, presentment, demand of payment, acceptance, notice of acceptance, protest, notice of dishonor and any other notices with respect to any of the Guaranteed Obligations and this Guaranty.
(b) The Guarantor hereby unconditionally and irrevocably waives any right to revoke this Guaranty and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future, subject however to the limit of the Maximum Recovery Amount; provided, however, that this Guaranty shall automatically terminate upon receipt by WEPCO of replacement Seller Performance Security meeting the requirements of Section 8.1 of the PPA. The provisions of this Guaranty shall extend and be applicable to all renewals, amendments, extensions, consolidations, and modifications of the PPA.
(c) The Guarantor hereby unconditionally and irrevocably waives any defense based on any right of set-off or counterclaim against or in respect of the obligations of the Guarantor hereunder;
provided
,
however
, that Guarantor shall have, and expressly reserves to itself, the
2.4 Subrogation. Notwithstanding any payment or payments or performance made by the Guarantor hereunder, the Guarantor hereby irrevocably waives any and all rights of subrogation to the rights of WEPCO against the Seller and any and all rights of reimbursement, assignment, indemnification or implied contract or any similar rights (including without limitation any statutory rights of subrogation under Section 509 of the Bankruptcy Code, 11 U.S.C. S 509) against the Seller or against any other guarantor of all or any part of the Guaranteed Obligations until such time as the Guaranteed Obligations have been indefeasibly paid or performed in full. If, notwithstanding the foregoing, any amount shall be paid to the Guarantor on account of such subrogation or similar rights at any time when all of the Guaranteed Obligations shall not have been indefeasibly paid in full, such amount shall be held by the Guarantor in trust for WEPCO and shall be turned over to WEPCO in the exact form received by the Guarantor, to be applied against the Guaranteed Obligations in such order as WEPCO may determine in its sole discretion.
2.5 Reporting . Guarantor shall promptly notify WEPCO of any Insufficient Credit Status relating to Guarantor or any circumstance that results in Seller's failure to be in compliance with the Seller Performance Security requirements of Article VIII of the PPA. From time to time, at WEPCO's written request, Guarantor shall provide WEPCO promptly with such evidence as WEPCO may reasonably request that this Guaranty is in full compliance with the PPA.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
The Guarantor hereby represents and warrants as follows:
3.1 Organization . The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the state of Florida.
3.2 Authorization; No Conflict . The execution and delivery by the Guarantor of this Guaranty, and the performance by the Guarantor of its obligations hereunder (i) are within the Guarantor's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene its Articles of Incorporation or any law or regulation applicable to or binding on the Guarantor or any of its properties and (iv) do not require the consent or approval of any person which has not already been obtained or the satisfaction or waiver of any conditions precedent to the effectiveness of this Guaranty that have not been satisfied or waived.
3.3 Enforceability . This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, dissolution, reorganization, moratorium, liquidation or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
3.4 No Bankruptcy Proceedings . There are no bankruptcy proceedings pending or being contemplated by Guarantor or, to its knowledge, threatened against it.
3.5 No Legal Proceedings . There are no legal proceedings pending against the Guarantor that would be reasonably likely to materially adversely affect the legality, validity or enforceability of this Guaranty.
ARTICLE 4 - MISCELLANEOUS
4.1 Continuing Guaranty; Assignment . This Guaranty is a continuing guaranty and shall (i) remain in full force and effect until all of the Guaranteed Obligations have been satisfied, (ii) consistent with the terms hereof, apply to all Guaranteed Obligations whenever arising, (iii) be binding upon the Guarantor, its successors and assigns, and (iv) inure to the benefit of, and be enforceable by, WEPCO and its permitted assignees hereunder. The WEPCO may not assign or delegate its rights or obligations under this Guaranty without the prior written consent of the Guarantor, which consent shall not be unreasonably delayed or withheld. The Guarantor may not assign or delegate its rights or obligations under this Guaranty without (x) the prior written consent of WEPCO, which consent may be withheld in WEPCO's sole discretion, and (y) a written assignment and assumption agreement in form and substance reasonably acceptable to WEPCO. Without prejudice to the survival of any of the other agreements of the Guarantor under this Guaranty, the agreements and obligations of the Guarantor contained in Section 4.4 (with respect to enforcement expenses) and the last sentence of Section 2.2(a) shall survive the payment in full of the Guaranteed Obligations and all of the other amounts payable under this Guaranty.
4.2 Notices . All notices, requests, demands and other communications which are required or may be given under this Guaranty shall be in writing and shall be deemed to have been duly given when actually received if (a) personally delivered; (b) transmitted by facsimile, electronic or digital transmission method; or (c) if sent by certified or registered mail, return receipt requested. In each case notice shall be sent:
(i) if to WEPCO:
Wisconsin Electric Power Company
333 West Everett Street, Room A214
Milwaukee, Wisconsin 53203
Attention: Treasurer
(ii) if to the Guarantor:
FPL Group Capital Inc
700 Universe Boulevard
Juno Beach, FL 33408
Attention: Treasurer
or to such other place and with such other copies as WEPCO or the Guarantor may designate as to itself by written notice to the other pursuant to this Section 4.2. Delivery by facsimile of an executed counterpart of a signature page to any amendment or waiver of any provision of this Guaranty shall be effective as delivery of an original executed counterpart thereof.
4.3 Delay and Waiver . No failure on the part of WEPCO to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
4.4 Expenses . The Guarantor agrees to pay or reimburse WEPCO and any permitted assignees of WEPCO on demand for its reasonable costs, charges and expenses (including reasonable fees and expenses of counsel) incurred in connection with the enforcement of this Guaranty or occasioned by any breach by the Guarantor of any of its obligations under this Guaranty should Guarantor be required to pay under this Guaranty.
4.5 Entire Agreement; Amendments . This Guaranty and any agreement, document or instrument attached hereto or referred to herein integrate all the terms and conditions mentioned herein or incidental hereto and supersede all oral negotiations and prior writings in respect to the subject matter hereof. In the event of any conflict between the terms, conditions and provisions of this Guaranty and any such agreement, document or instrument, the terms, conditions and provisions of this Guaranty shall prevail. This Guaranty may only be amended or modified by an instrument in writing signed by each of the Guarantor and WEPCO and any permitted assignees of WEPCO.
4.6 Headings . The headings of the various Sections of this Guaranty are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof.
4.7 Governing Law; Consent to Jurisdiction . (a) This Guaranty shall be construed and interpreted, and the rights of the parties determined, in accordance with the law of the State of Wisconsin, without giving effect to principles of conflicts of law that would require the application of the laws of another jurisdiction.
(b) Each party hereto irrevocably and unconditionally agrees to the exclusive jurisdiction of the United States District Court for the Eastern District of Wisconsin or, in the event that jurisdiction for any matter cannot be established in the United States District Court for the Eastern District of Wisconsin, in the Circuit Court for Manitowoc County, solely in respect of the interpretation and enforcement of the provisions of this Guaranty and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courtsor that the venue thereof may not be appropriate or that this Guaranty may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in
(c) THE GUARANTOR AND, BY ITS ACCEPTANCE OF THIS GUARANTY, WEPCO, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO, THIS GUARANTY, OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
4.8 Severability . Any provision of this Guaranty that shall be prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized representative as of the day and year first above written.
FPL Group Capital Inc.
By:
Name:
James L. Robo
Title:
Vice President
WEPCO EXHIBIT F
FORM OF LETTER OF CREDIT
IRREVOCABLE STANDBY LETTER OF CREDIT No. ________
[Date]
[Credit No.]
[Name and Address
of Beneficiary]
Dear Sirs:
We hereby establish in your favor, for the account of [NAME OF ACCOUNT PARTY] ("Account Party"), with respect to the Power Purchase Agreement dated as of [________] between [Account Party] and you ("Beneficiary") (the "PPA"), our irrevocable standby letter of credit no. (the "Standby Letter of Credit") whereby we hereby irrevocably authorize you to draw on us, in accordance with the terms and conditions hereinafter set forth, by your draft or drafts at sight, in the aggregate in an amount not to exceed ________________________ United States Dollars (U.S. $_________).
Funds against this Standby Letter of Credit are available to you against your sight draft(s) drawn on us, referring thereon to the number and date of this Standby Letter of Credit, accompanied by a written and completed certificate executed by you in the form attached as Annex 1 hereto, with appropriate insertions. Multiple, partial drafts may be drawn hereunder. Such available funds shall not directly or indirectly constitute funds or collateral deposited with or for the bank account by the [Account Party], or pledged with or for the bank's account by the [Account Party].
Presentation of such drafts, and such certificates shall be made on any day which is a business day for us at or prior to 5:00 p.m. (CPT) at our office located at Milwaukee, Wisconsin, or at any other office in the United States of America which may be designated by us in a written notice delivered to you. If such sight draft and such certificate are received at any such office, all in strict conformity with the terms and conditions of this Standby Letter of Credit, on or prior to the expiration date hereof, we hereby agree with you that we will duly honor the same within three (3) business days of such presentation. Notwithstanding the foregoing, Beneficiary may demand payment under this Standby Letter of Credit by telecopy or e-mail when promptly confirmed by written demand; however, actual disbursement of funds pursuant to a demand presented by telecopy or e-mail shall not occur until we are presented with the original Standby Letter of Credit.
This Standby Letter of Credit is effective immediately and expires at 5:00 p.m. (CPT) on _______, 20__. It is a condition of this Standby Letter of Credit that it will be deemed automatically extended for successive periods of one year each from the present or any future expiration date under clause (b) above (but in no event later than _______, 20__), unless we notify you, in writing, by certified or registered mail at your respective addresses, not less than ninety (90) days prior to any such date, that we have elected not to extend such expiration date for such additional period. Notwithstanding Article 16 of the UCP (as such term is defined below), any notice of our election not to extend the expiration date of this Standby Letter of Credit shall be effective only upon actual receipt by you and no such notice shall have any effect absent such actual receipt. In the event that the expiration date of this Standby Letter of Credit occurs at such time as the events described in Article 17 of the UCP (as such term is defined below) are occurring, said expiration date shall be automatically extended by a period of time equal to the duration of such events.
We hereby undertake that we will not modify, revoke or terminate this Standby Letter of Credit without your written consent. Except as stated herein, payment of drafts drawn under this Standby Letter of Credit is not subject to any condition or qualification. This Standby Letter of Credit sets forth in full the terms of our undertaking, and such undertaking shall not be modified, annulled or amplified by reference to any other document, instrument or agreement referred to herein or in which the Standby Letter of Credit is referred or to which the Standby Letter of Credit relates, and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement. Our obligations hereunder are primary obligations that shall not be affected by the performance or non-performance by [Account Party] of any obligations under any loan agreement or under any agreement between [Account Party] and you or between [Account Party] and us or between [Account Party] and its agents.
We hereby waive any right to set off and apply any and all deposits (general or special, time or demand, provisional or final) or collateral at any time held and other indebtedness at any time owing by us to or for the credit of or the account of Account Party against any and all of the obligations of Account Party now or hereafter existing to reimburse us for our disbursements under this Standby Letter of Credit; provided , however , that each such right shall be reinstated if it is determined that such right would not lead to our being released, prevented or restrained from or delayed in, honoring any draft presented in accordance with this Standby Letter of Credit. The foregoing waiver is intended to defeat any possible claim that honor of this Standby Letter of Credit, or of any draft presented hereunder, may constitute a preferential transfer of the bankrupt account party's property securing our right of reimbursement. Nothing herein shall be construed to support the validity of any such claim, to support any delay in our obligation to honor this Standby Letter of Credit or to detract from the independence of our obligation to honor this Standby Letter of Credit at the times and in accordance with the terms stated and incorporated by reference herein.
This Standby Letter of Credit is transferable in its entirety (but not in part). Each letter of credit issued upon any such transfer and assignment may be successively transferred and assigned. Transfer of this Standby Letter of Credit to any transferee shall be effected by the presentation to us of this Standby Letter of Credit accompanied by a certificate in the form attached as Annex 2 hereto, with appropriate insertions. Upon such presentation we shall forthwith issue an irrevocable
To the extent not contrary to the express terms hereof, this Standby Letter of Credit shall be governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 (herein referred to as the "UCP"), or by subsequent Uniform Customs and Practice fixed by subsequent Congresses of the International Chamber of Commerce. This Standby Letter of Credit shall be deemed to be a contract made under the laws of the State of Wisconsin and shall, as to matters not governed by the UCP, be governed by and construed in accordance with the laws of the State of Wisconsin.
Yours very truly,
[ISSUING BANK]
ANNEX 1
CERTIFICATE
Re: Point Beach Nuclear Plant Power Purchase Agreement dated _________, 20__ between [Name of Account Party] ("[Account Party]") and [Name of Beneficiary] ("[Beneficiary]") (the "PPA").
The undersigned, each a duly authorized officer of [Beneficiary], hereby certify to [ISSUING BANK] (the "Bank") with reference to irrevocable standby letter of credit no. (the "Standby Letter of Credit"), issued by the Bank for the account of [Account Party] in favor of [Beneficiary] that:
(1) (Insert one of the following, as applicable)
Pursuant to the provisions of the PPA, an event has occurred under the PPA that entitles Beneficiary to draw on the Standby Letter of Credit in the amount of the sight draft (after giving effect to all applicable periods of grace and notice), which event remains uncured or unwaived as of the date of this Certificate (an example of such an event includes, without limitation, an Event of Default described in the PPA).
or
[Beneficiary] has received written notice from the Bank in accordance with the terms of the Standby Letter of Credit that the Bank has elected not to extend the expiration date of the Standby Letter of Credit for an additional period past its then-expiration date and the Account Party has failed to replace this Standby Letter of Credit with other [ Seller Performance Security ][ Buyer Performance Security ] meeting the requirements of the PPA at least thirty (30) days prior to the then-expiration date of the Standby Letter of Credit.
(2) The undersigned are each a duly elected and incumbent officer of [Beneficiary] and are authorized to execute and deliver this certificate and to draw upon the Standby Letter of Credit.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Certificate as of this day of , 20 .
[BENEFICIARY]
By:
Title:
By:
Title:
ANNEX 2
INSTRUCTION TO ASSIGN IN ENTIRETY
____________, 20
___________________________
Re: Irrevocable Standby Letter of Credit No.
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably assigns to:
(Name of Assignee)
(Address)
all rights of the undersigned beneficiary to draw under the above Standby Letter of Credit in its entirety.
By this assignment, all rights of the undersigned beneficiary in such Standby Letter of Credit are transferred to the assignee and the assignee shall hereafter have the sole rights as beneficiary thereof.
The Standby Letter of Credit is returned herewith and in accordance therewith we ask you to issue a new irrevocable Standby Letter of Credit in favor of the assignee with provisions consistent with the Standby Letter of Credit.
Very truly yours
[Beneficiary]
By:
Title:
By:
EXHIBIT G
PEAK ADJUSTMENT PAYMENT
During each month of June, July and August for each Calendar Year of the Term (the "Peak Period"), Seller must achieve the Target Capacity Factor for the Facilities as set forth in this Exhibit G . If Seller fails to achieve such Target Capacity Factor for any such month, Seller shall be responsible for a payment to Buyer (the "Peak Adjustment Payment") calculated in accordance with the following formula:
(TEM - DEM) x $20/MWh (in 2007 dollars escalating by three percent (3%) for each year of the Term)
where
TEM = Targeted Energy for the month, which shall be the product of: (i) the applicable Buyer's Capacity Amount for the month (excluding the CT Capacity); (ii) the number of hours in the month; and (iii) the Target Capacity Factor.
DEM = Delivered Energy for the month.
If the resulting product of the above formula is positive, then such positive amount shall equal the Peak Adjustment Payment for the month in question and Seller shall pay that Peak Adjustment Payment in accordance with this Exhibit G . If the resulting product is zero or negative, then neither Seller nor Buyer shall owe a Peak Adjustment Payment for the month.
If it is determined that Seller owes Buyer a Peak Adjustment Payment for a particular month, Buyer shall have the right to either (a) demand payment of that Peak Adjustment Payment in writing, in which case Seller shall make such payment to Buyer within five (5) Business Days after the written demand for payment is received, or (b) include the Peak Adjustment Payment on the invoices for such Billing Cycle pursuant to Section 7.1(a) .
EXHIBIT H
SCHEDULING PROVISIONS
EXHIBIT I
MAIN GUIDE NO. 3A STANDARDS
(as attached)
Exhibit 31.1
Certification Pursuant to
Rule 13a-14(a) or 15d-14(a),
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Gale E. Klappa, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wisconsin Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 1, 2008
/s/GALE E. KLAPPA
Gale E. Klappa
Chief Executive Officer
Exhibit 31.2
Certification Pursuant to
Rule 13a-14(a) or 15d-14(a),
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Allen L. Leverett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wisconsin Energy Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 1, 2008
/s/ALLEN L. LEVERETT
Allen L. Leverett
Chief Financial Officer
Exhibit 32.1
Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Wisconsin Energy Corporation (the "Company") on Form 10-Q for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on May 1, 2008 (the "Report"), I, Gale E. Klappa, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Gale E. Klappa
Exhibit 32.2
Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Wisconsin Energy Corporation (the "Company") on Form 10-Q for the period ended March 31, 2008, as filed with the Securities and Exchange Commission on May 1, 2008 (the "Report"), I, Allen L. Leverett, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Allen L. Leverett