Commission File Number | Registrant; State of Incorporation; Address; and Telephone Number | IRS Employer Identification No. | ||
1-3016 | WISCONSIN PUBLIC SERVICE CORPORATION | 39-0715160 | ||
(A Wisconsin Corporation) | ||||
700 North Adams Street | ||||
P.O. Box 19001 | ||||
Green Bay, WI 54307-9001 | ||||
800-450-7260 |
Large accelerated filer [ ] | Accelerated filer [ ] | ||
Non-accelerated filer [X] (Do not check if a smaller reporting company) | Smaller reporting company [ ] | ||
Emerging growth company [ ] |
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06/30/2018 Form 10-Q | i | Wisconsin Public Service Corporation |
Subsidiaries and Affiliates | ||
ATC | American Transmission Company LLC | |
Bluewater | Bluewater Natural Gas Holding, LLC | |
Integrys | Integrys Holding, Inc. | |
UMERC | Upper Michigan Energy Resources Corporation | |
WBS | WEC Business Services LLC | |
WEC Energy Group | WEC Energy Group, Inc. | |
WE | Wisconsin Electric Power Company | |
WG | Wisconsin Gas LLC | |
WPSI | WPS Investments, LLC | |
WRPC | Wisconsin River Power Company | |
Federal and State Regulatory Agencies | ||
EPA | United States Environmental Protection Agency | |
FERC | Federal Energy Regulatory Commission | |
PSCW | Public Service Commission of Wisconsin | |
SEC | United States Securities and Exchange Commission | |
WDNR | Wisconsin Department of Natural Resources | |
Accounting Terms | ||
AFUDC | Allowance for Funds Used During Construction | |
ASU | Accounting Standards Update | |
FASB | Financial Accounting Standards Board | |
GAAP | United States Generally Accepted Accounting Principles | |
OPEB | Other Postretirement Employee Benefits | |
Environmental Terms | ||
CAA | Clean Air Act | |
CO2 | Carbon Dioxide | |
CPP | Clean Power Plan | |
GHG | Greenhouse Gas | |
NOV | Notice of Violation | |
WPDES | Wisconsin Pollution Discharge Elimination System | |
Measurements | ||
Dth | Dekatherm | |
MW | Megawatt | |
MWh | Megawatt-hour | |
Other Terms and Abbreviations | ||
D.C. Circuit Court of Appeals | United States Court of Appeals for the District of Columbia Circuit | |
Exchange Act | Securities Exchange Act of 1934, as amended | |
FTRs | Financial Transmission Rights | |
MISO | Midcontinent Independent System Operator, Inc. | |
MISO Energy Markets | MISO Energy and Operating Reserves Markets | |
ROE | Return on Equity | |
SMRP | System Modernization and Reliability Project | |
Supreme Court | United States Supreme Court | |
Tax Legislation | Tax Cuts and Jobs Act of 2017 |
06/30/2018 Form 10-Q | ii | Wisconsin Public Service Corporation |
• | Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, and electric transmission or natural gas pipeline system constraints; |
• | Factors affecting the demand for electricity and natural gas, including political developments, unusual weather, changes in economic conditions, customer growth and declines, commodity prices, energy conservation efforts, and continued adoption of distributed generation by customers; |
• | The timing, resolution, and impact of rate cases and negotiations, including recovery of deferred and current costs and the ability to earn a reasonable return on investment, and other regulatory decisions impacting our regulated operations; |
• | The ability to obtain and retain customers, including wholesale customers, due to increased competition in our electric and natural gas markets from retail choice and alternative electric suppliers, and continued industry consolidation; |
• | The timely completion of capital projects within budgets, as well as the recovery of the related costs through rates; |
• | The impact of federal, state, and local legislative and regulatory changes, including changes in rate-setting policies or procedures, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, and energy efficiency mandates; |
• | The uncertainty surrounding the recently enacted Tax Legislation, including implementing regulations and IRS interpretations, the amount to be returned to our ratepayers, and its impact, if any, on our credit ratings; |
• | Federal and state legislative and regulatory changes relating to the environment, including climate change and other environmental regulations impacting generation facilities and renewable energy standards, the enforcement of these laws and regulations, changes in the interpretation of regulations or permit conditions by regulatory agencies, and the recovery of associated remediation and compliance costs; |
• | Factors affecting the implementation of WEC Energy Group's generation reshaping plan, including related regulatory decisions, the cost of materials, supplies, and labor, and the feasibility of competing projects; |
• | Increased pressure on us by investors and other stakeholder groups to take more aggressive action to reduce future GHG emissions in order to limit future global temperature increases; |
• | The risks associated with changing commodity prices, particularly natural gas and electricity, and the availability of sources of fossil fuel, natural gas, purchased power, materials needed to operate environmental controls at our electric generating facilities, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments; |
06/30/2018 Form 10-Q | 1 | Wisconsin Public Service Corporation |
• | Changes in credit ratings, interest rates, and our ability to access the capital markets, caused by volatility in the global credit markets, our capitalization structure, and market perceptions of the utility industry or us; |
• | Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries; |
• | The risk of financial loss, including increases in bad debt expense, associated with the inability of our customers, counterparties, and affiliates to meet their obligations; |
• | Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters; |
• | The direct or indirect effect on our business resulting from terrorist attacks and cyber security intrusions, as well as the threat of such incidents, including the failure to maintain the security of personally identifiable information, the associated costs to protect our utility assets, technology systems, and personal information, and the costs to notify affected persons to mitigate their information security concerns; |
• | The investment performance of our employee benefit plan assets, as well as unanticipated changes in related actuarial assumptions, which could impact future funding requirements; |
• | Factors affecting the employee workforce, including loss of key personnel, internal restructuring, work stoppages, and collective bargaining agreements and negotiations with union employees; |
• | Advances in technology that result in competitive disadvantages and create the potential for impairment of existing assets; |
• | The timing, costs, and anticipated benefits associated with the remaining integration efforts relating to WEC Energy Group's acquisition of Integrys; |
• | Potential business strategies to acquire and dispose of assets or businesses, which cannot be assured to be completed timely or within budgets; |
• | The timing and outcome of any audits, disputes, and other proceedings related to taxes; |
• | The ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act, while both integrating and continuing to consolidate WEC Energy Group's enterprise systems with those of its other utilities; |
• | The effect of accounting pronouncements issued periodically by standard-setting bodies; and |
• | Other considerations disclosed elsewhere herein and in other reports we file with the SEC or in other publicly disseminated written documents. |
06/30/2018 Form 10-Q | 2 | Wisconsin Public Service Corporation |
CONDENSED CONSOLIDATED INCOME STATEMENTS (Unaudited) | Three Months Ended | Six Months Ended | ||||||||||||||
June 30 | June 30 | |||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Operating revenues | $ | 350.1 | $ | 341.6 | $ | 743.7 | $ | 731.2 | ||||||||
Operating expenses | ||||||||||||||||
Cost of sales | 128.6 | 130.5 | 304.4 | 295.4 | ||||||||||||
Other operation and maintenance | 105.4 | 108.8 | 208.1 | 216.0 | ||||||||||||
Depreciation and amortization | 33.6 | 34.4 | 69.5 | 68.8 | ||||||||||||
Property and revenue taxes | 10.1 | 9.8 | 20.1 | 19.9 | ||||||||||||
Total operating expenses | 277.7 | 283.5 | 602.1 | 600.1 | ||||||||||||
Operating income | 72.4 | 58.1 | 141.6 | 131.1 | ||||||||||||
Other income, net | 8.8 | 5.9 | 18.1 | 11.6 | ||||||||||||
Interest expense | 13.2 | 13.6 | 26.0 | 27.5 | ||||||||||||
Other expense | (4.4 | ) | (7.7 | ) | (7.9 | ) | (15.9 | ) | ||||||||
Income before income taxes | 68.0 | 50.4 | 133.7 | 115.2 | ||||||||||||
Income tax expense | 25.3 | 19.7 | 41.2 | 45.2 | ||||||||||||
Net income | $ | 42.7 | $ | 30.7 | $ | 92.5 | $ | 70.0 |
06/30/2018 Form 10-Q | 3 | Wisconsin Public Service Corporation |
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | June 30, | December 31, | ||||||
(in millions, except share and per share amounts) | 2018 | 2017 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 1.8 | $ | 7.9 | ||||
Accounts receivable and unbilled revenues, net of reserves of $4.0 | 186.6 | 205.0 | ||||||
Receivables from related parties | 17.2 | 4.4 | ||||||
Materials, supplies, and inventories | 108.8 | 107.0 | ||||||
Prepaid taxes | 38.8 | 52.7 | ||||||
Other | 12.2 | 13.0 | ||||||
Current assets | 365.4 | 390.0 | ||||||
Long-term assets | ||||||||
Property, plant, and equipment, net of accumulated depreciation of $1,740.1 and $1,633.3, respectively | 4,022.1 | 3,823.0 | ||||||
Regulatory assets | 362.1 | 382.8 | ||||||
Goodwill | 36.4 | 36.4 | ||||||
Pension and OPEB assets | 70.2 | 62.0 | ||||||
Other | 64.0 | 54.5 | ||||||
Long-term assets | 4,554.8 | 4,358.7 | ||||||
Total assets | $ | 4,920.2 | $ | 4,748.7 | ||||
Liabilities and Shareholder's Equity | ||||||||
Current liabilities | ||||||||
Short-term debt | $ | 317.2 | $ | 293.1 | ||||
Current portion of long-term debt | 250.0 | 250.0 | ||||||
Accounts payable | 122.8 | 130.4 | ||||||
Payables to related parties | 59.7 | 30.0 | ||||||
Other | 65.7 | 66.4 | ||||||
Current liabilities | 815.4 | 769.9 | ||||||
Long-term liabilities | ||||||||
Long-term debt | 916.6 | 916.2 | ||||||
Deferred income taxes | 521.1 | 512.7 | ||||||
Deferred investment tax credits | 6.5 | 6.7 | ||||||
Regulatory liabilities | 699.2 | 689.3 | ||||||
Environmental remediation liabilities | 99.4 | 99.6 | ||||||
Pension and OPEB obligations | 24.1 | 24.0 | ||||||
Payables to related parties | 3.2 | 3.5 | ||||||
Other | 115.2 | 109.5 | ||||||
Long-term liabilities | 2,385.3 | 2,361.5 | ||||||
Commitments and contingencies (Note 16) | ||||||||
Shareholder's equity | ||||||||
Common stock – $4 par value; 32,000,000 shares authorized; 23,896,962 shares issued and outstanding | 95.6 | 95.6 | ||||||
Additional paid in capital | 1,065.8 | 996.1 | ||||||
Retained earnings | 558.1 | 525.6 | ||||||
Shareholder's equity | 1,719.5 | 1,617.3 | ||||||
Total liabilities and shareholder's equity | $ | 4,920.2 | $ | 4,748.7 |
06/30/2018 Form 10-Q | 4 | Wisconsin Public Service Corporation |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | Six Months Ended | |||||||
June 30 | ||||||||
(in millions) | 2018 | 2017 | ||||||
Operating Activities | ||||||||
Net income | $ | 92.5 | $ | 70.0 | ||||
Reconciliation to cash provided by operating activities | ||||||||
Depreciation and amortization | 69.5 | 68.8 | ||||||
Deferred income taxes and investment tax credits, net | 15.7 | 18.2 | ||||||
Contributions and payments related to pension and OPEB plans | (0.4 | ) | (66.2 | ) | ||||
Cash received for pension plan assets transferred | — | 161.9 | ||||||
Change in – | ||||||||
Accounts receivable and unbilled revenues | 5.6 | 10.6 | ||||||
Materials, supplies, and inventories | (1.5 | ) | 13.3 | |||||
Prepaid taxes | 13.9 | 10.9 | ||||||
Other current assets | 7.7 | (2.5 | ) | |||||
Accounts payable | 50.0 | (14.6 | ) | |||||
Other current liabilities | 1.0 | 0.3 | ||||||
Other, net | (1.6 | ) | 9.7 | |||||
Net cash provided by operating activities | 252.4 | 280.4 | ||||||
Investing Activities | ||||||||
Capital expenditures | (193.4 | ) | (144.3 | ) | ||||
Acquisition of Forward Wind Energy Center | (77.1 | ) | — | |||||
Payments for assets transferred from WBS | (23.7 | ) | (9.2 | ) | ||||
Other, net | 1.6 | 1.4 | ||||||
Net cash used in investing activities | (292.6 | ) | (152.1 | ) | ||||
Financing Activities | ||||||||
Change in short-term debt | 24.1 | (44.8 | ) | |||||
Payment of dividends to parent | (60.0 | ) | (135.0 | ) | ||||
Equity contribution from parent | 70.0 | 75.0 | ||||||
Net cash provided by (used in) financing activities | 34.1 | (104.8 | ) | |||||
Net change in cash and cash equivalents | (6.1 | ) | 23.5 | |||||
Cash and cash equivalents at beginning of period | 7.9 | 3.1 | ||||||
Cash and cash equivalents at end of period | $ | 1.8 | $ | 26.6 |
06/30/2018 Form 10-Q | 5 | Wisconsin Public Service Corporation |
(in millions) | ||||
Current assets | $ | 0.2 | ||
Net property, plant, and equipment | 76.9 | |||
Total purchase price | $ | 77.1 |
06/30/2018 Form 10-Q | 6 | Wisconsin Public Service Corporation |
• | We elected to exclude from the transaction price any amounts collected from customers for all sales taxes and other similar taxes. |
• | When applicable, we elected to apply the standard to a portfolio of contracts with similar characteristics, primarily our tariff-based contracts, as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts. |
• | We elected to recognize revenue in the amount we have the right to invoice for performance obligations satisfied over time when the consideration received from a customer corresponds directly with the value provided to the customer during the same period. |
• | We elected to not disclose the remaining performance obligations of a contract that has an original expected duration of one year or less. |
• | We elected to apply this standard only to contracts that are not completed as of the date of initial application. |
Wisconsin Public Service Consolidated | ||||||||
(in millions) | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||
Electric utility | $ | 292.5 | $ | 574.6 | ||||
Natural gas utility | 56.9 | 167.5 | ||||||
Total revenues from contracts with customers | 349.4 | 742.1 | ||||||
Other operating revenues | 0.7 | 1.6 | ||||||
Total operating revenues | $ | 350.1 | $ | 743.7 |
Electric Utility Operating Revenues | ||||||||
(in millions) | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||
Residential | $ | 90.9 | $ | 185.1 | ||||
Small commercial and industrial | 88.4 | 177.2 | ||||||
Large commercial and industrial | 64.9 | 115.9 | ||||||
Other | 2.2 | 4.3 | ||||||
Total retail revenues | 246.4 | 482.5 | ||||||
Wholesale | 35.3 | 68.9 | ||||||
Resale | 8.0 | 18.1 | ||||||
Other utility revenues | 2.8 | 5.1 | ||||||
Total electric utility revenues | $ | 292.5 | $ | 574.6 |
06/30/2018 Form 10-Q | 7 | Wisconsin Public Service Corporation |
Natural Gas Utility Operations | ||||||||
(in millions) | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||
Residential | $ | 26.5 | $ | 97.2 | ||||
Commercial and industrial | 15.3 | 59.3 | ||||||
Total retail revenues | 41.8 | 156.5 | ||||||
Transport | 4.0 | 12.0 | ||||||
Other utility revenues * | 11.1 | (1.0 | ) | |||||
Total natural gas utility operating revenues | $ | 56.9 | $ | 167.5 |
* | Includes amounts collected from (refunded to) customers for purchased gas adjustment costs. |
06/30/2018 Form 10-Q | 8 | Wisconsin Public Service Corporation |
(in millions) | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | ||||||
Late payment charges | $ | 0.8 | $ | 1.7 | ||||
Leases | 0.1 | 0.1 | ||||||
Alternative revenues * | (0.2 | ) | (0.2 | ) | ||||
Total other operating revenues | $ | 0.7 | $ | 1.6 |
* | Negative amounts can result from alternative revenues being reversed to revenues from contracts with customers as the customer is billed for these alternative revenues. Negative amounts can also result from revenues to be refunded to customers subject to wholesale true-ups, as discussed below. |
06/30/2018 Form 10-Q | 9 | Wisconsin Public Service Corporation |
(in millions, except percentages) | June 30, 2018 | December 31, 2017 | ||||||
Commercial paper | ||||||||
Amount outstanding | $ | 317.2 | $ | 293.1 | ||||
Weighted-average interest rate on amounts outstanding | 2.31 | % | 1.72 | % |
(in millions) | Maturity | June 30, 2018 | ||||
Revolving credit facility | October 2022 | $ | 400.0 | |||
Less: | ||||||
Letters of credit issued inside credit facility | $ | 1.3 | ||||
Commercial paper outstanding | 317.2 | |||||
Available capacity under existing agreement | $ | 81.5 |
06/30/2018 Form 10-Q | 10 | Wisconsin Public Service Corporation |
(in millions) | June 30, 2018 | December 31, 2017 | ||||||
Fossil fuel | $ | 46.5 | $ | 43.8 | ||||
Materials and supplies | 48.2 | 40.8 | ||||||
Natural gas in storage | 14.1 | 22.4 | ||||||
Total | $ | 108.8 | $ | 107.0 |
06/30/2018 Form 10-Q | 11 | Wisconsin Public Service Corporation |
June 30, 2018 | ||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Derivative assets | ||||||||||||||||
Natural gas contracts | $ | 1.4 | $ | — | $ | — | $ | 1.4 | ||||||||
Petroleum product contracts | 0.1 | — | — | 0.1 | ||||||||||||
FTRs | — | — | 8.0 | 8.0 | ||||||||||||
Coal contracts | — | 0.1 | — | 0.1 | ||||||||||||
Total derivative assets | $ | 1.5 | $ | 0.1 | $ | 8.0 | $ | 9.6 | ||||||||
Derivative liabilities | ||||||||||||||||
Natural gas contracts | $ | 0.5 | $ | — | $ | — | $ | 0.5 | ||||||||
Coal contracts | — | 0.3 | — | 0.3 | ||||||||||||
Total derivative liabilities | $ | 0.5 | $ | 0.3 | $ | — | $ | 0.8 |
December 31, 2017 | ||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Derivative assets | ||||||||||||||||
Natural gas contracts | $ | 0.8 | $ | — | $ | — | $ | 0.8 | ||||||||
Petroleum product contracts | 0.3 | — | — | 0.3 | ||||||||||||
FTRs | — | — | 2.0 | 2.0 | ||||||||||||
Coal contracts | — | 0.4 | — | 0.4 | ||||||||||||
Total derivative assets | $ | 1.1 | $ | 0.4 | $ | 2.0 | $ | 3.5 | ||||||||
Derivative liabilities | ||||||||||||||||
Natural gas contracts | $ | 2.3 | $ | — | $ | — | $ | 2.3 | ||||||||
Coal contracts | — | 0.5 | — | 0.5 | ||||||||||||
Total derivative liabilities | $ | 2.3 | $ | 0.5 | $ | — | $ | 2.8 |
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Balance at the beginning of period | $ | 0.7 | $ | 0.6 | $ | 2.0 | $ | 2.0 | ||||||||
Purchases | 9.0 | 6.9 | 9.0 | 6.9 | ||||||||||||
Settlements | (1.7 | ) | (1.7 | ) | (3.0 | ) | (3.1 | ) | ||||||||
Balance at the end of period | $ | 8.0 | $ | 5.8 | $ | 8.0 | $ | 5.8 |
06/30/2018 Form 10-Q | 12 | Wisconsin Public Service Corporation |
June 30, 2018 | December 31, 2017 | |||||||||||||||
(in millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Long-term debt, including current portion | $ | 1,166.6 | $ | 1,232.2 | $ | 1,166.2 | $ | 1,302.4 |
June 30, 2018 | December 31, 2017 | |||||||||||||||
(in millions) | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||
Other current | ||||||||||||||||
Natural gas contracts | $ | 1.3 | $ | 0.4 | $ | 0.8 | $ | 1.9 | ||||||||
Petroleum products contracts | 0.1 | — | 0.3 | — | ||||||||||||
FTRs | 8.0 | — | 2.0 | — | ||||||||||||
Coal contracts | — | 0.3 | — | 0.5 | ||||||||||||
Total other current * | $ | 9.4 | $ | 0.7 | $ | 3.1 | $ | 2.4 | ||||||||
Other long-term | ||||||||||||||||
Natural gas contracts | $ | 0.1 | $ | 0.1 | $ | — | $ | 0.4 | ||||||||
Coal contracts | 0.1 | — | 0.4 | — | ||||||||||||
Total other long-term * | $ | 0.2 | $ | 0.1 | $ | 0.4 | $ | 0.4 | ||||||||
Total | $ | 9.6 | $ | 0.8 | $ | 3.5 | $ | 2.8 |
* | On our balance sheets, we classify derivative assets and liabilities as other current or other long-term based on the maturities of the underlying contracts. |
Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 | |||||||||||
(in millions) | Volumes | Gains (Losses) | Volumes | Gains | ||||||||
Natural gas contracts | 8.3 Dth | $ | (0.3 | ) | — Dth | $ | — | |||||
Petroleum products contracts | 0.6 gallons | 0.1 | — gallons | — | ||||||||
FTRs | 2.0 MWh | 3.0 | 2.1 MWh | 0.2 | ||||||||
Total | $ | 2.8 | $ | 0.2 |
06/30/2018 Form 10-Q | 13 | Wisconsin Public Service Corporation |
Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 | |||||||||||
(in millions) | Volumes | Gains (Losses) | Volumes | Gains (Losses) | ||||||||
Natural gas contracts | 21.3 Dth | $ | (2.0 | ) | 5.1 Dth | $ | (0.5 | ) | ||||
Petroleum products contracts | 1.3 gallons | 0.2 | — gallons | — | ||||||||
FTRs | 4.4 MWh | 5.9 | 4.3 MWh | 0.7 | ||||||||
Total | $ | 4.1 | $ | 0.2 |
June 30, 2018 | December 31, 2017 | ||||||||||||||||
(in millions) | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||
Gross amount recognized on the balance sheet | $ | 9.6 | $ | 0.8 | $ | 3.5 | $ | 2.8 | |||||||||
Gross amount not offset on the balance sheet | (0.5 | ) | (0.5 | ) | (1.1 | ) | (2.3 | ) | * | ||||||||
Net amount | $ | 9.1 | $ | 0.3 | $ | 2.4 | $ | 0.5 |
* | Includes cash collateral posted of $1.2 million. |
Pension Costs | ||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Service cost | $ | 2.6 | $ | 1.9 | $ | 5.2 | $ | 4.5 | ||||||||
Interest cost | 6.5 | 6.6 | 13.0 | 13.4 | ||||||||||||
Expected return on plan assets | (11.9 | ) | (11.7 | ) | (24.1 | ) | (23.2 | ) | ||||||||
Amortization of net actuarial loss | 5.5 | 4.3 | 10.5 | 8.6 | ||||||||||||
Net periodic benefit cost | $ | 2.7 | $ | 1.1 | $ | 4.6 | $ | 3.3 |
06/30/2018 Form 10-Q | 14 | Wisconsin Public Service Corporation |
OPEB Costs | ||||||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Service cost | $ | 1.5 | $ | 1.5 | $ | 3.1 | $ | 3.1 | ||||||||
Interest cost | 2.1 | 2.3 | 4.1 | 4.7 | ||||||||||||
Expected return on plan assets | (4.5 | ) | (4.1 | ) | (8.9 | ) | (8.2 | ) | ||||||||
Amortization of prior service credit | (2.9 | ) | (2.3 | ) | (5.7 | ) | (4.6 | ) | ||||||||
Amortization of net actuarial loss | 0.6 | 0.6 | 1.2 | 1.2 | ||||||||||||
Net periodic benefit credit | $ | (3.2 | ) | $ | (2.0 | ) | $ | (6.2 | ) | $ | (3.8 | ) |
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Non-service credit components | $ | (3.8 | ) | $ | (2.9 | ) | $ | (8.3 | ) | $ | (5.7 | ) |
June 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
(in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Amortized intangible assets * | $ | 8.3 | $ | (6.2 | ) | $ | 2.1 | $ | 8.3 | $ | (5.6 | ) | $ | 2.7 | ||||||||||
Unamortized intangible assets | 0.4 | — | 0.4 | 0.4 | — | 0.4 | ||||||||||||||||||
Total intangible assets | $ | 8.7 | $ | (6.2 | ) | $ | 2.5 | $ | 8.7 | $ | (5.6 | ) | $ | 3.1 |
* | Represents contractual service agreements that provide for major maintenance and protection against unforeseen maintenance costs related to the combustion turbine generators at the Fox Energy Center. The remaining amortization period at June 30, 2018 was approximately two years. |
06/30/2018 Form 10-Q | 15 | Wisconsin Public Service Corporation |
(in millions) | Utility | Other | Wisconsin Public Service Corporation Consolidated | |||||||||
Three Months Ended June 30, 2018 | ||||||||||||
Operating revenues | $ | 350.1 | $ | — | $ | 350.1 | ||||||
Other operation and maintenance | 105.2 | 0.2 | 105.4 | |||||||||
Depreciation and amortization | 33.6 | — | 33.6 | |||||||||
Operating income (loss) | 72.6 | (0.2 | ) | 72.4 | ||||||||
Other income, net | 7.9 | 0.9 | 8.8 | |||||||||
Interest expense | 13.2 | — | 13.2 |
(in millions) | Utility | Other | Wisconsin Public Service Corporation Consolidated | |||||||||
Three Months Ended June 30, 2017 | ||||||||||||
Operating revenues | $ | 341.6 | $ | — | $ | 341.6 | ||||||
Other operation and maintenance * | 108.5 | 0.3 | 108.8 | |||||||||
Depreciation and amortization | 34.5 | (0.1 | ) | 34.4 | ||||||||
Operating income (loss) * | 58.3 | (0.2 | ) | 58.1 | ||||||||
Other income, net * | 4.5 | 1.4 | 5.9 | |||||||||
Interest expense | 13.6 | — | 13.6 |
(in millions) | Utility | Other | Wisconsin Public Service Corporation Consolidated | |||||||||
Six Months Ended June 30, 2018 | ||||||||||||
Operating revenues | $ | 743.7 | $ | — | $ | 743.7 | ||||||
Other operation and maintenance | 207.9 | 0.2 | 208.1 | |||||||||
Depreciation and amortization | 69.5 | — | 69.5 | |||||||||
Operating income (loss) | 141.9 | (0.3 | ) | 141.6 | ||||||||
Other income, net | 16.8 | 1.3 | 18.1 | |||||||||
Interest expense | 26.0 | — | 26.0 |
06/30/2018 Form 10-Q | 16 | Wisconsin Public Service Corporation |
(in millions) | Utility | Other | Wisconsin Public Service Corporation Consolidated | |||||||||
Six Months Ended June 30, 2017 | ||||||||||||
Operating revenues | $ | 731.2 | $ | — | $ | 731.2 | ||||||
Other operation and maintenance * | 215.5 | 0.5 | 216.0 | |||||||||
Depreciation and amortization | 68.9 | (0.1 | ) | 68.8 | ||||||||
Operating income (loss) * | 131.5 | (0.4 | ) | 131.1 | ||||||||
Other income, net * | 9.8 | 1.8 | 11.6 | |||||||||
Interest expense | 27.5 | — | 27.5 |
* | Includes the retroactive restatement impacts of the implementation of ASU 2017-07. See Note 12, Employee Benefits, for more information on this new standard. |
(in millions) | June 30, 2018 | December 31, 2017 | ||||||
Accounts receivable | ||||||||
Services provided to ATC | $ | 0.5 | $ | 0.7 | ||||
Accounts payable | ||||||||
Network transmission services from ATC | 8.8 | 9.0 | ||||||
Liability related to income tax allocation | ||||||||
Integrys | 3.8 | 4.1 |
06/30/2018 Form 10-Q | 17 | Wisconsin Public Service Corporation |
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
(in millions) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Transactions with WE (1) | ||||||||||||||||
Billings to WE | $ | 1.9 | $ | 1.1 | $ | 5.1 | $ | 2.2 | ||||||||
Billings from WE | 4.3 | 5.2 | 7.3 | 7.7 | ||||||||||||
Transactions with WBS (1) | ||||||||||||||||
Billings to WBS (2) | 0.3 | 4.2 | 0.5 | 168.3 | ||||||||||||
Billings from WBS (3) | 32.5 | 35.3 | 85.0 | 68.2 | ||||||||||||
Transactions with UMERC | ||||||||||||||||
Electric sales to UMERC | 4.0 | 4.0 | 7.7 | 8.1 | ||||||||||||
Natural gas sales to UMERC | 0.3 | 0.5 | 1.5 | 1.6 | ||||||||||||
Transactions with Bluewater (4) | ||||||||||||||||
Storage service fees | 1.5 | — | 1.7 | — | ||||||||||||
Transactions related to ATC | ||||||||||||||||
Charges to ATC for services and construction | 1.5 | 1.4 | 3.0 | 2.8 | ||||||||||||
Charges from ATC for network transmission services | 26.5 | 26.9 | 53.0 | 53.9 | ||||||||||||
Refund from ATC related to a FERC audit | 6.6 | — | 6.6 | — | ||||||||||||
Refund from ATC per FERC ROE order | — | — | — | 8.9 | ||||||||||||
Transactions with WRPC | ||||||||||||||||
Rental payments to WRPC (5) | 0.4 | 0.4 | 0.7 | 0.5 | ||||||||||||
Purchases of energy from WRPC (5) | — | — | — | 0.5 | ||||||||||||
Charges from WRPC for services | 0.6 | 0.6 | 1.2 | 0.8 | ||||||||||||
Charges to WRPC for operations | 0.2 | 0.3 | 0.4 | 0.5 |
(1) | Includes amounts billed for services, pass through costs, and other items in accordance with approved affiliated interest agreements. |
(2) | The six months ended June 30, 2017 included $161.9 million of cash received related to our transfer of pension trust assets in conjunction with the Integrys pension plan split. Effective January 1, 2017, the Integrys Energy Group Retirement Plan was split into six separate plans. As a result, we now have our own pension plan. While the split did not impact our pension benefit obligation, federal regulations required a different allocation of assets among the new plans. Assets were transferred out of our plan in January 2017. There were no transfers of assets to WBS for the three and six months ended June 30, 2018, or for the three months ended June 30, 2017. |
(3) | Includes $5.8 million and $29.1 million for the transfer of certain software assets from WBS for the three and six months ended June 30, 2018, respectively. The three and six months ended June 30, 2017 included $9.2 million for the transfer of certain software assets to us. |
(4) | WEC Energy Group's acquisition of Bluewater was completed June 30, 2017. See below for more information. |
(5) | In March 2017, we terminated our power purchase agreement with WRPC and entered into an agreement with WRPC to rent 50% of its hydroelectric power generation facilities. |
06/30/2018 Form 10-Q | 18 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 19 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 20 | Wisconsin Public Service Corporation |
(in millions) | June 30, 2018 | December 31, 2017 | ||||||
Regulatory assets | $ | 114.8 | $ | 116.0 | ||||
Reserves for future remediation | 99.4 | 99.6 |
06/30/2018 Form 10-Q | 21 | Wisconsin Public Service Corporation |
Six Months Ended June 30 | ||||||||
(in millions) | 2018 | 2017 | ||||||
Cash (paid) for interest, net of amount capitalized | $ | (26.1 | ) | $ | (27.5 | ) | ||
Cash (paid) for income taxes, net | (8.6 | ) | (18.5 | ) | ||||
Significant noncash transactions: | ||||||||
Accounts payable related to construction costs | 13.0 | 33.4 | ||||||
Accounts payable related to assets transferred from affiliates | 5.5 | — | ||||||
Transfer of ownership in WPSI to another subsidiary of Integrys * | — | 67.2 | ||||||
Transfer of net assets to UMERC * | — | 21.1 |
* | See Note 15, Related Parties, for more information on these transactions. |
06/30/2018 Form 10-Q | 22 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 23 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 24 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 25 | Wisconsin Public Service Corporation |
Three Months Ended June 30 | ||||||||||||||||||||
(in millions) | 2018 | 2017 | B (W) | Change Related to Tax Legislation | Remaining Change B (W) | |||||||||||||||
Operating revenues | $ | 350.1 | $ | 341.6 | $ | 8.5 | $ | (1.2 | ) | $ | 9.7 | |||||||||
Cost of sales | 128.6 | 130.5 | 1.9 | — | 1.9 | |||||||||||||||
Other operation and maintenance | 105.4 | 108.8 | 3.4 | — | 3.4 | |||||||||||||||
Depreciation and amortization | 33.6 | 34.4 | 0.8 | 2.7 | (1.9 | ) | ||||||||||||||
Property and revenue taxes | 10.1 | 9.8 | (0.3 | ) | — | (0.3 | ) | |||||||||||||
Operating income | 72.4 | 58.1 | 14.3 | 1.5 | 12.8 | |||||||||||||||
Other income, net | 8.8 | 5.9 | 2.9 | — | 2.9 | |||||||||||||||
Interest expense | 13.2 | 13.6 | 0.4 | — | 0.4 | |||||||||||||||
Income before income taxes | 68.0 | 50.4 | 17.6 | 1.5 | 16.1 | |||||||||||||||
Income tax expense | 25.3 | 19.7 | (5.6 | ) | (1.5 | ) | (4.1 | ) | ||||||||||||
Net income | $ | 42.7 | $ | 30.7 | $ | 12.0 | $ | — | $ | 12.0 |
06/30/2018 Form 10-Q | 26 | Wisconsin Public Service Corporation |
Three Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Electric revenues | $ | 292.9 | $ | 289.6 | $ | 3.3 | ||||||
Fuel and purchased power | 98.2 | 105.3 | 7.1 | |||||||||
Total electric margins | 194.7 | 184.3 | 10.4 | |||||||||
Natural gas revenues | 57.2 | 52.0 | 5.2 | |||||||||
Cost of natural gas sold | 30.4 | 25.2 | (5.2 | ) | ||||||||
Total natural gas margins | 26.8 | 26.8 | — | |||||||||
Total electric and natural gas margins | 221.5 | 211.1 | 10.4 | |||||||||
Other operation and maintenance | 105.2 | 108.5 | 3.3 | |||||||||
Depreciation and amortization | 33.6 | 34.5 | 0.9 | |||||||||
Property and revenue taxes | 10.1 | 9.8 | (0.3 | ) | ||||||||
Operating income | $ | 72.6 | $ | 58.3 | $ | 14.3 |
Three Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Operation and maintenance not included in line items below | $ | 60.6 | $ | 63.1 | $ | 2.5 | ||||||
Transmission (1) | 36.6 | 37.2 | 0.6 | |||||||||
Regulatory amortizations and other pass through expenses (2) | 8.0 | 8.2 | 0.2 | |||||||||
Total other operation and maintenance | $ | 105.2 | $ | 108.5 | $ | 3.3 |
(1) | The PSCW has approved escrow accounting for our ATC and MISO network transmission expenses. As a result, we defer as a regulatory asset or liability the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate |
06/30/2018 Form 10-Q | 27 | Wisconsin Public Service Corporation |
(2) | Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on operating income. |
Three Months Ended June 30 | |||||||||
MWh (in thousands) | |||||||||
Electric Sales Volumes | 2018 | 2017 | B (W) | ||||||
Customer class | |||||||||
Residential | 658.8 | 605.4 | 53.4 | ||||||
Small commercial and industrial | 1,009.8 | 965.5 | 44.3 | ||||||
Large commercial and industrial | 1,022.5 | 1,012.4 | 10.1 | ||||||
Other | 5.5 | 5.5 | — | ||||||
Total retail | 2,696.6 | 2,588.8 | 107.8 | ||||||
Wholesale | 633.4 | 674.6 | (41.2 | ) | |||||
Resale | 232.8 | 176.0 | 56.8 | ||||||
Total sales in MWh | 3,562.8 | 3,439.4 | 123.4 |
Three Months Ended June 30 | |||||||||
Therms (in millions) | |||||||||
Natural Gas Sales Volumes | 2018 | 2017 | B (W) | ||||||
Customer class | |||||||||
Residential | 38.6 | 32.2 | 6.4 | ||||||
Commercial and industrial | 39.2 | 25.1 | 14.1 | ||||||
Total retail | 77.8 | 57.3 | 20.5 | ||||||
Transport | 99.6 | 96.2 | 3.4 | ||||||
Total sales in therms | 177.4 | 153.5 | 23.9 |
Three Months Ended June 30 | |||||||||
Degree Days | |||||||||
Weather * | 2018 | 2017 | B (W) | ||||||
Heating (937 normal) | 1,081 | 834 | 29.6 | % | |||||
Cooling (133 normal) | 215 | 125 | 72.0 | % |
* | Normal degree days are based on a 20-year moving average of monthly temperatures from the Green Bay, Wisconsin weather station. |
• | A $6.6 million increase related to higher retail sales volumes during the second quarter of 2018, primarily driven by favorable weather and higher overall use per retail customer. A colder than normal April and a warmer start to summer in 2018 contributed to the increase. As measured by heating degree days, the second quarter of 2018 was 29.6% colder than the same quarter in 2017. A measured by cooling degree days, the second quarter of 2018 was 72.0% warmer than the same quarter in 2017. |
• | A $5.9 million quarter-over-quarter positive impact from collections of fuel and purchased power costs compared with costs approved in rates. Under the Wisconsin fuel rules, our electric margins are impacted by under- or over-collections of certain fuel and purchased power costs that are less than a 2% price variance from the costs included in rates, and the remaining variance that exceeds the 2% variance is deferred. |
06/30/2018 Form 10-Q | 28 | Wisconsin Public Service Corporation |
• | A $3.5 million decrease in electric and natural gas distribution expenses, primarily related to lower expenses incurred related to storm damage during the second quarter of 2018. |
• | A $1.6 million decrease in expenses at our plants, primarily related to the winding down of operations in anticipation of expected plant retirements later this year. This resulted in lower maintenance and labor costs during the second quarter of 2018. See Note 4, Property, Plant, and Equipment, for more information on the plant retirements. |
Three Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Operating loss | $ | (0.2 | ) | $ | (0.2 | ) | $ | — |
Three Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
AFUDC – Equity | $ | 1.1 | $ | 1.2 | $ | (0.1 | ) | |||||
Other, net | 7.7 | 4.7 | 3.0 | |||||||||
Other income, net | $ | 8.8 | $ | 5.9 | $ | 2.9 |
Three Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Interest expense | $ | 13.2 | $ | 13.6 | $ | 0.4 |
06/30/2018 Form 10-Q | 29 | Wisconsin Public Service Corporation |
Three Months Ended June 30 | |||||||||
2018 | 2017 | B (W) | |||||||
Effective tax rate | 37.2 | % | 39.1 | % | 1.9 | % |
Six Months Ended June 30 | ||||||||||||||||||||
(in millions) | 2018 | 2017 | B (W) | Change Related to Tax Legislation | Remaining Change B (W) | |||||||||||||||
Operating revenues | $ | 743.7 | $ | 731.2 | $ | 12.5 | $ | (10.6 | ) | $ | 23.1 | |||||||||
Cost of sales | 304.4 | 295.4 | (9.0 | ) | — | (9.0 | ) | |||||||||||||
Other operation and maintenance | 208.1 | 216.0 | 7.9 | — | 7.9 | |||||||||||||||
Depreciation and amortization | 69.5 | 68.8 | (0.7 | ) | 2.7 | (3.4 | ) | |||||||||||||
Property and revenue taxes | 20.1 | 19.9 | (0.2 | ) | — | (0.2 | ) | |||||||||||||
Operating income | 141.6 | 131.1 | 10.5 | (7.9 | ) | 18.4 | ||||||||||||||
Other income, net | 18.1 | 11.6 | 6.5 | — | 6.5 | |||||||||||||||
Interest expense | 26.0 | 27.5 | 1.5 | — | 1.5 | |||||||||||||||
Income before income taxes | 133.7 | 115.2 | 18.5 | (7.9 | ) | 26.4 | ||||||||||||||
Income tax expense | 41.2 | 45.2 | 4.0 | 7.9 | (3.9 | ) | ||||||||||||||
Net income | $ | 92.5 | $ | 70.0 | $ | 22.5 | $ | — | $ | 22.5 |
06/30/2018 Form 10-Q | 30 | Wisconsin Public Service Corporation |
Six Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Electric revenues | $ | 575.6 | $ | 577.2 | $ | (1.6 | ) | |||||
Fuel and purchased power | 199.5 | 204.8 | 5.3 | |||||||||
Total electric margins | 376.1 | 372.4 | 3.7 | |||||||||
Natural gas revenues | 168.1 | 154.0 | 14.1 | |||||||||
Cost of natural gas sold | 104.9 | 90.6 | (14.3 | ) | ||||||||
Total natural gas margins | 63.2 | 63.4 | (0.2 | ) | ||||||||
Total electric and natural gas margins | 439.3 | 435.8 | 3.5 | |||||||||
Other operation and maintenance | 207.9 | 215.5 | 7.6 | |||||||||
Depreciation and amortization | 69.5 | 68.9 | (0.6 | ) | ||||||||
Property and revenue taxes | 20.0 | 19.9 | (0.1 | ) | ||||||||
Operating income | $ | 141.9 | $ | 131.5 | $ | 10.4 |
Six Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Operation and maintenance not included in line items below | $ | 118.0 | $ | 124.9 | $ | 6.9 | ||||||
Transmission (1) | 73.5 | 73.1 | (0.4 | ) | ||||||||
Regulatory amortizations and other pass through expenses (2) | 16.4 | 17.5 | 1.1 | |||||||||
Total other operation and maintenance | $ | 207.9 | $ | 215.5 | $ | 7.6 |
(1) | The PSCW has approved escrow accounting for our ATC and MISO network transmission expenses. As a result, we defer as a regulatory asset or liability the difference between actual transmission costs and those included in rates until recovery or refund is authorized in a future rate proceeding. During the six months ended June 30, 2018 and 2017, $67.6 million and $64.3 million, respectively, of costs were billed to us by transmission providers. |
(2) | Regulatory amortizations and other pass through expenses are substantially offset in margins and therefore do not have a significant impact on operating income. |
Six Months Ended June 30 | |||||||||
MWh (in thousands) | |||||||||
Electric Sales Volumes | 2018 | 2017 | B (W) | ||||||
Customer class | |||||||||
Residential | 1,402.2 | 1,319.6 | 82.6 | ||||||
Small commercial and industrial | 1,976.3 | 1,915.2 | 61.1 | ||||||
Large commercial and industrial | 1,997.6 | 1,992.2 | 5.4 | ||||||
Other | 13.3 | 13.4 | (0.1 | ) | |||||
Total retail | 5,389.4 | 5,240.4 | 149.0 | ||||||
Wholesale | 1,238.8 | 1,334.4 | (95.6 | ) | |||||
Resale | 485.0 | 320.7 | 164.3 | ||||||
Total sales in MWh | 7,113.2 | 6,895.5 | 217.7 |
06/30/2018 Form 10-Q | 31 | Wisconsin Public Service Corporation |
Six Months Ended June 30 | |||||||||
Therms (in millions) | |||||||||
Natural Gas Sales Volumes | 2018 | 2017 | B (W) | ||||||
Customer Class | |||||||||
Residential | 155.4 | 138.7 | 16.7 | ||||||
Commercial and industrial | 121.0 | 97.0 | 24.0 | ||||||
Total retail | 276.4 | 235.7 | 40.7 | ||||||
Transport | 231.8 | 223.5 | 8.3 | ||||||
Total sales in therms | 508.2 | 459.2 | 49.0 |
Six Months Ended June 30 | |||||||||
Degree Days | |||||||||
Weather * | 2018 | 2017 | B (W) | ||||||
Heating (4,561 normal) | 4,717 | 4,107 | 14.9 | % | |||||
Cooling (133 normal) | 215 | 125 | 72.0 | % |
* | Normal degree days are based on a 20-year moving average of monthly temperatures from the Green Bay, Wisconsin weather station. |
• | A $10.9 million increase related to higher retail sales volumes during the six months ended June 30, 2018, primarily driven by favorable weather and higher overall use per retail customer. Colder winter weather and a warmer start to summer in 2018 contributed to the increase. As measured by heating degree days, the six months ended June 30, 2018, were 14.9% colder than the same period in 2017. As measured by cooling degree days, the six months ended June 30, 2018, were 72.0% warmer than the same period in 2017. |
• | A $7.9 million period-over-period positive impact from collections of fuel and purchased power costs compared with costs approved in rates. Under the Wisconsin fuel rules, our electric margins are impacted by under or over-collections of certain fuel and purchased power costs that are less than a 2% price variance from the costs included in rates, and the remaining variance that exceeds the 2% variance is deferred. |
• | A $7.4 million decrease in margins related to amounts expected to be refunded to customers through refunds and bill credits, driven by the Tax Legislation. See Note 8, Income Taxes, and Note 18, Regulatory Environment, for more information. |
• | A $4.6 million decrease in wholesale margins driven both by lower sales volumes and reduced capacity rates reflecting the Tax Legislation. |
06/30/2018 Form 10-Q | 32 | Wisconsin Public Service Corporation |
Six Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Operating loss | $ | (0.3 | ) | $ | (0.4 | ) | $ | 0.1 |
Six Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
AFUDC – Equity | $ | 2.2 | $ | 2.1 | $ | 0.1 | ||||||
Other, net | 15.9 | 9.5 | 6.4 | |||||||||
Other income, net | $ | 18.1 | $ | 11.6 | $ | 6.5 |
Six Months Ended June 30 | ||||||||||||
(in millions) | 2018 | 2017 | B (W) | |||||||||
Interest expense | $ | 26.0 | $ | 27.5 | $ | 1.5 |
Six Months Ended June 30 | |||||||||
2018 | 2017 | B (W) | |||||||
Effective tax rate | 30.8 | % | 39.2 | % | 8.4 | % |
06/30/2018 Form 10-Q | 33 | Wisconsin Public Service Corporation |
(in millions) | 2018 | 2017 | Change in 2018 Over 2017 | |||||||||
Cash provided by (used in): | ||||||||||||
Operating activities | $ | 252.4 | $ | 280.4 | $ | (28.0 | ) | |||||
Investing activities | (292.6 | ) | (152.1 | ) | (140.5 | ) | ||||||
Financing activities | 34.1 | (104.8 | ) | 138.9 |
• | A $65.8 million decrease in contributions and payments to our pension and OPEB plans during the six months ended June 30, 2018, compared with the same period in 2017. |
• | A $49.8 million increase in cash from lower payments for other operation and maintenance costs. During the six months ended June 30, 2018, our payments were lower for accounts payable to related parties as well as for electric and natural gas distribution costs. |
• | A $20.5 million increase in cash related to higher overall collections from customers, primarily due to favorable weather during the six months ended June 30, 2018, compared with the same period in 2017. |
• | The acquisition of Forward Wind Energy Center during April 2018 for $77.1 million. See Note 2, Acquisition, for more information. |
• | A $49.1 million increase in cash paid for capital expenditures during the six months ended June 30, 2018, compared with the same period in 2017, which is discussed in more detail below. |
• | A $14.5 million increase in cash paid for software assets received from WBS during the six months ended June 30, 2018, compared with the same period in 2017. |
(in millions) | 2018 | 2017 | Change in 2018 Over 2017 | |||||||||
Capital expenditures | $ | 193.4 | $ | 144.3 | $ | 49.1 |
06/30/2018 Form 10-Q | 34 | Wisconsin Public Service Corporation |
• | A $75.0 million decrease in dividends paid to our parent during the six months ended June 30, 2018. We paid a special dividend to our parent to balance our capital structure during the first quarter of 2017, driven by cash received for assets transferred out of our pension plan in January 2017. |
• | A $68.9 million net increase in cash due to $24.1 million of net borrowings of commercial paper during the six months ended June 30, 2018, compared with $44.8 million of net repayments of commercial paper during the same period in 2017. |
06/30/2018 Form 10-Q | 35 | Wisconsin Public Service Corporation |
(in millions) | ||||
2018 | $ | 463.0 | ||
2019 | 391.5 | |||
2020 | 838.1 | |||
Total | $ | 1,692.6 |
06/30/2018 Form 10-Q | 36 | Wisconsin Public Service Corporation |
• | In June 2016, the PSCW approved the deferral of costs related to our ReACT™ project above the originally authorized $275.0 million level through 2017. The total cost of the ReACT™ project, excluding $51 million of AFUDC, is currently estimated to be $342 million. In September 2017, the PSCW approved an extension of this deferral through 2019 as part of a settlement agreement. See Note 18, Regulatory Environment, for more information. We will be required to obtain a separate approval for collection of these deferred costs in a future rate case. |
• | Prior to its acquisition by WEC Energy Group, Integrys initiated an information technology project with the goal of improving the customer experience at its subsidiaries, including us. Specifically, the project is expected to provide functional and technological benefits to the billing, call center, and credit collection functions. As of June 30, 2018, we had not received any significant disallowances of the costs incurred for this project. We will be required to obtain approval for the recovery of additional costs incurred through the completion of this long-term project. |
06/30/2018 Form 10-Q | 37 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 38 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 39 | Wisconsin Public Service Corporation |
06/30/2018 Form 10-Q | 40 | Wisconsin Public Service Corporation |
Number | Exhibit | ||
12 | Statements re Computation of Ratios | ||
31 | Rule 13a-14(a) / 15d-14(a) Certifications | ||
32 | Section 1350 Certifications | ||
101 | Interactive Data File |
06/30/2018 Form 10-Q | 41 | Wisconsin Public Service Corporation |
WISCONSIN PUBLIC SERVICE CORPORATION | ||
(Registrant) | ||
/s/ WILLIAM J. GUC | ||
Date: | August 3, 2018 | William J. Guc |
Vice President and Controller | ||
(Duly Authorized Officer and Chief Accounting Officer) |
06/30/2018 Form 10-Q | 42 | Wisconsin Public Service Corporation |
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) | Six Months Ended June 30, 2018 | Twelve Months Ended December 31 | ||||||||||||||||||||||
(in millions, except ratios) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
EARNINGS | ||||||||||||||||||||||||
Pre-tax income * | $ | 133.7 | $ | 253.6 | $ | 243.5 | $ | 198.7 | $ | 224.0 | $ | 217.7 | ||||||||||||
FIXED CHARGES | ||||||||||||||||||||||||
Interest expense | 26.0 | 54.2 | 48.1 | 53.5 | 57.4 | 43.7 | ||||||||||||||||||
Capitalized interest | 0.9 | 1.6 | 8.1 | 6.1 | 4.6 | 3.8 | ||||||||||||||||||
Estimated interest component of rentals | 0.6 | 2.2 | 1.9 | 1.2 | 1.5 | 1.4 | ||||||||||||||||||
Total fixed charges as defined | 27.5 | 58.0 | 58.1 | 60.8 | 63.5 | 48.9 | ||||||||||||||||||
Total earnings as defined | $ | 161.2 | $ | 311.6 | $ | 301.6 | $ | 259.5 | $ | 287.5 | $ | 266.6 | ||||||||||||
RATIO OF EARNINGS TO FIXED CHARGES | 5.9x | 5.4x | 5.2x | 4.3x | 4.5x | 5.5x |
* | Pre-tax income consists of income before income taxes less undistributed earnings of equity investees. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Wisconsin Public Service 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: | August 3, 2018 | |
/s/ GALE E. KLAPPA | ||
Gale E. Klappa | ||
Chairman of the Board and Chief Executive Officer | ||
(Principal Executive Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Wisconsin Public Service 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: | August 3, 2018 | |
/s/ SCOTT J. LAUBER | ||
Scott J. Lauber | ||
Executive Vice President and Chief Financial Officer | ||
(Principal Financial Officer) |
(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 | |
Gale E. Klappa | |
Chairman of the Board and Chief Executive Officer | |
August 3, 2018 |
(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/ SCOTT J. LAUBER | |
Scott J. Lauber | |
Executive Vice President and Chief Financial Officer | |
August 3, 2018 |
DOCUMENT AND ENTITY INFORMATION |
6 Months Ended |
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Jun. 30, 2018
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Document Entity Information [Abstract] | |
Entity registrant name | WISCONSIN PUBLIC SERVICE CORP |
Entity central index key | 0000107833 |
Document type | 10-Q |
Document period end date | Jun. 30, 2018 |
Amendment flag | false |
Current fiscal year end date | --12-31 |
Entity filer category | Non-accelerated Filer |
Entity common stock, shares outstanding | 23,896,962 |
Document fiscal year focus | 2018 |
Document fiscal period focus | Q2 |
CONDENSED CONSOLIDATED INCOME STATEMENTS - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
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Income Statement [Abstract] | ||||
Operating revenues | $ 350.1 | $ 341.6 | $ 743.7 | $ 731.2 |
Operating expenses | ||||
Cost of sales | 128.6 | 130.5 | 304.4 | 295.4 |
Other operation and maintenance | 105.4 | 108.8 | 208.1 | 216.0 |
Depreciation and amortization | 33.6 | 34.4 | 69.5 | 68.8 |
Property and revenue taxes | 10.1 | 9.8 | 20.1 | 19.9 |
Total operating expenses | 277.7 | 283.5 | 602.1 | 600.1 |
Operating income | 72.4 | 58.1 | 141.6 | 131.1 |
Other income, net | 8.8 | 5.9 | 18.1 | 11.6 |
Interest expense | 13.2 | 13.6 | 26.0 | 27.5 |
Other expense | (4.4) | (7.7) | (7.9) | (15.9) |
Income before income taxes | 68.0 | 50.4 | 133.7 | 115.2 |
Income tax expense | 25.3 | 19.7 | 41.2 | 45.2 |
Net income | $ 42.7 | $ 30.7 | $ 92.5 | $ 70.0 |
CONDENSED CONSOLIDATED BALANCE SHEETS (PARENTHETICAL) - USD ($) $ in Millions |
Jun. 30, 2018 |
Dec. 31, 2017 |
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Statement of Financial Position [Abstract] | ||
Accounts receivable, reserves (in dollars) | $ 4.0 | $ 4.0 |
Property, plant, and equipment, accumulated depreciation (in dollars) | $ 1,740.1 | $ 1,633.3 |
Common stock, par value (in dollars per share) | $ 4 | |
Common stock, shares authorized | 32,000,000 | |
Common stock, shares, issued | 23,896,962 | |
Common stock, shares outstanding | 23,896,962 |
GENERAL INFORMATION |
6 Months Ended |
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Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
GENERAL INFORMATION | GENERAL INFORMATION As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, balance sheets, and statements of cash flows, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Public Service Corporation. We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2017. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and six months ended June 30, 2018, are not necessarily indicative of expected results for 2018 due to seasonal variations and other factors. In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results. |
ACQUISITION |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||
ACQUISITION | ACQUISITION Acquisition of a Wind Energy Generation Facility in Wisconsin On April 2, 2018, we, along with two other unaffiliated utilities, completed the purchase of Forward Wind Energy Center, which consists of 86 wind turbines located in Wisconsin with a total capacity of 129 MW. The aggregate purchase price was $172.9 million of which our proportionate share was 44.6%, or $77.1 million. Since 2008 and up until the acquisition, we purchased 44.6% of the facility’s energy output under a power purchase agreement. The table below shows the allocation of the purchase price to the assets acquired at the date of the acquisition, which are included in rate base.
Under a joint ownership agreement with the two other utilities, we are entitled to our share of generating capability and output of the facility equal to our ownership interest. We are also paying our ownership share of additional construction costs and operating expenses. |
OPERATING REVENUES |
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Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING REVENUES | OPERATING REVENUES Adoption of ASU 2014-09, Revenues from Contracts with Customers On January 1, 2018, we adopted ASU 2014-09, Revenues from Contracts with Customers, and the related amendments. In accordance with the guidance, we recognize revenues when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. These revenues include unbilled revenues, which are estimated using the amount of energy delivered to our customers but not billed until after the end of the period. We adopted this standard using the modified retrospective method. Results for reporting periods beginning after January 1, 2018, are presented under the new standard. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Adoption of the standard did not result in an adjustment to our opening retained earnings balance as of January 1, 2018, and we do not expect the adoption of the standard to have a material impact on our net income in future periods. We adopted the following practical expedients and optional exemptions for the implementation of this standard:
Disaggregation of Operating Revenues The following tables present our operating revenues disaggregated by revenue source. We only have revenues associated with our utility segment. We do not have any revenues associated with our other segment. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. For our utility segment, revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and are impacted by regulatory activities within their jurisdictions. Comparable amounts have not been presented for the three and six months ended June 30, 2017, due to our adoption of this standard under the modified retrospective method.
Revenues from Contracts with Customers Electric Utility Operating Revenues The following table disaggregates electric utility operating revenues into customer class:
Electricity sales to residential and commercial and industrial customers are generally accomplished through requirements contracts, which provide for the delivery of as much electricity as the customer needs. These contracts represent discrete deliveries of electricity and consist of one distinct performance obligation satisfied over time, as the electricity is delivered and consumed by the customer simultaneously. For our residential and commercial and industrial customers, our performance obligation is bundled to consist of both the sale and the delivery of the electric commodity. The rates, charges, terms, and conditions of service for sales to these customers are included in tariffs that have been approved by state regulators. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on the quantity of electricity delivered each month. Wholesale customers who resell power can choose to either bundle capacity and electricity services together under one contract with a supplier or purchase capacity and electricity separately from multiple suppliers. Furthermore, wholesale customers can choose to have us provide generation to match the customer's load, similar to requirements contracts, or they can purchase specified quantities of electricity and capacity. The rates, charges, terms and conditions of service for sales to wholesale customers are included in tariffs that have been approved by the FERC. Contracts with wholesale customers that include capacity bundled with the delivery of electricity contain two performance obligations, as capacity and electricity are often transacted separately in the marketplace at the wholesale level. When recognizing revenue associated with these contracts, the transaction price is allocated to each performance obligation based on its relative standalone selling price. Revenue is recognized as control of each individual component is transferred to the customer. Electricity is the primary product sold by our electric operations and represents a single performance obligation satisfied over time through discrete deliveries to a customer. Revenue from electricity sales is generally recognized as units are produced and delivered to the customer within the production month. Capacity represents the reservation of an electric generating facility and conveys the ability to call on a plant to produce electricity when needed by the customer. The nature of our performance obligation as it relates to capacity is to stand ready to deliver power. This represents a single performance obligation transferred over time, which generally represents a monthly obligation. Accordingly, capacity revenue is recognized on a monthly basis. We are an active participant in the MISO Energy Markets, where we bid our generation into the Day Ahead and Real Time markets and procure electricity for our retail and wholesale customers at prices determined by the MISO Energy Markets. Purchase and sale transactions are recorded using settlement information provided by MISO. These purchase and sale transactions are accounted for on a net hourly position. Net purchases in a single hour are recorded as purchased power in cost of sales and net sales in a single hour are recorded as resale revenues. For resale revenues, our performance obligation is created only when electricity is sold into the MISO Energy Markets. For all of our customers, consistent with the timing of when we recognize revenue, customer billings generally occur on a monthly basis, with payments typically due in full within 30 days. For the majority of our wholesale customers, the price billed for energy and capacity is a formula-based rate. Formula-based rates initially set a customer's current year rates based on the previous year’s expenses. This is a predetermined formula derived from the utility's costs and a reasonable rate of return. Because these rates are eventually trued up to reflect actual current year costs, they represent a form of variable consideration in certain circumstances. The variable consideration is estimated and recognized over time as wholesale customers receive and consume the capacity and electricity services. Natural Gas Utility Operating Revenues The following table disaggregates natural gas utility operating revenues into customer class:
We recognize natural gas utility operating revenues under requirements contracts with residential, commercial and industrial, and transportation customers served under our tariffs. Tariffs provide our customers with the standard terms and conditions, including rates, related to the services offered. Requirements contracts provide for the delivery of as much natural gas as the customer needs. These requirements contracts represent discrete deliveries of natural gas and constitute a single performance obligation satisfied over time. Our performance obligation is both created and satisfied with the transfer of control of natural gas upon delivery to the customer. For most of our customers, natural gas is delivered and consumed by the customer simultaneously. A performance obligation can be bundled to consist of both the sale and the delivery of the natural gas commodity. In certain of our territories, customers can purchase the commodity from a third party. In this case, the performance obligation only includes the delivery of the natural gas to the customer. The transaction price of the performance obligations is valued using rates in our tariffs, which have been approved by the PSCW. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on natural gas delivered each month. Consistent with the timing of when we recognize revenue, customer billings generally occur on a monthly basis, with payments typically due in full within 30 days. Other Operating Revenues Other operating revenues consist primarily of the following:
Alternative Revenues Alternative revenues are created from programs authorized by regulators that allow us to record additional revenues by adjusting rates in the future, usually as a surcharge applied to future billings, in response to past activities or completed events. We record alternative revenues when the regulator-specified conditions for recognition have been met. We reverse these alternative revenues as the customer is billed, at which time this revenue is presented as revenues from contracts with customers. Our only alternative revenue program relates to the wholesale electric service that we provide to customers under market-based rates and FERC formula rates. The customer is charged a base rate each year based upon a formula using prior year actual costs and customer demand. A true-up is calculated based on the difference between the amount billed to customers for the demand component of their rates and what the actual cost of service was for the year. The true-up can result in an amount that we will recover from or refund to the customer. We consider the true-up portion of the wholesale electric revenues to be alternative revenues. |
PROPERTY, PLANT, AND EQUIPMENT |
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Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY, PLANT, AND EQUIPMENT | PROPERTY, PLANT, AND EQUIPMENT Utility Segment Plant to be Retired We have evaluated future plans for our older and less efficient fossil fuel generating units and have announced the retirement of the plants identified below. In addition, a severance liability in the amount of $3.6 million was recorded in other current liabilities on our balance sheets related to these announced plant retirements. Pulliam Power Plant In connection with the MISO ruling received in June 2018, Pulliam Units 7 and 8 will be retired on or before October 31, 2018. Retirement of the Pulliam generating units remained probable at June 30, 2018. The carrying value of the Pulliam units was $42.3 million at June 30, 2018. This amount included the net book value of $62.1 million, which was classified as plant to be retired within property, plant, and equipment on our balance sheet. In addition, a $19.8 million cost of removal reserve related to the Pulliam units was recorded as a regulatory liability at June 30, 2018. These units are included in rate base, and we continue to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW. See Note 16, Commitments and Contingencies, for more information. Edgewater Unit 4 As a result of the continued implementation of the Consent Decree related to the jointly owned Columbia and Edgewater plants, retirement of the Edgewater 4 generating unit remained probable at June 30, 2018. The plant must be retired by September 30, 2018. The carrying value of the Edgewater 4 generating unit was $12.3 million at June 30, 2018. This amount included the net book value of our ownership share of this generating unit of $14.2 million, which was classified as plant to be retired within property, plant, and equipment on our balance sheet. In addition, a $1.9 million cost of removal reserve related to the Edgewater 4 generating unit was recorded as a regulatory liability at June 30, 2018. This unit is included in rate base, and we continue to depreciate it on a straight-line basis using the composite depreciation rates approved by the PSCW. See Note 16, Commitments and Contingencies, for more information regarding the Consent Decree. |
COMMON EQUITY |
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Jun. 30, 2018 | |
Equity [Abstract] | |
COMMON EQUITY | COMMON EQUITY Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to the sole holder of our common stock, Integrys, in the form of cash dividends, loans, or advances. In addition, Wisconsin law prohibits us from making loans to or guaranteeing obligations of WEC Energy Group, Integrys, or their subsidiaries. See Note 9, Common Equity, in our 2017 Annual Report on Form 10-K for additional information on these and other restrictions. We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future. |
SHORT-TERM DEBT AND LINES OF CREDIT |
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Short-term Debt [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHORT-TERM DEBT AND LINES OF CREDIT | SHORT-TERM DEBT AND LINES OF CREDIT The following table shows our short-term borrowings and their corresponding weighted-average interest rates:
Our average amount of commercial paper borrowings based on daily outstanding balances during the six months ended June 30, 2018, was $278.6 million with a weighted-average interest rate during the period of 2.07%. The information in the table below relates to our revolving credit facility used to support our commercial paper borrowing program, including available capacity under this facility:
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MATERIALS, SUPPLIES, AND INVENTORIES |
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MATERIALS, SUPPLIES, AND INVENTORIES | MATERIALS, SUPPLIES, AND INVENTORIES Our inventory consisted of:
Substantially all fossil fuel, materials and supplies, and natural gas in storage inventories are recorded using the weighted-average cost method of accounting. |
INCOME TAXES |
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Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | INCOME TAXES The effective tax rates of 37.2% and 30.8% for the three and six months ended June 30, 2018, respectively, differ from the United States statutory federal income tax rate of 21%, primarily due to the accounting treatment of the PSCW's order regarding the benefits associated with the Tax Legislation, in addition to state income taxes. See Note 18, Regulatory Environment, for more information on the Tax Legislation. On December 22, 2017, the SEC staff issued guidance in Staff Accounting Bulletin 118 (SAB 118), Income Tax Accounting Implications of the Tax Legislation, which provides for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. Due to the complex and comprehensive nature of the enacted tax law changes, and their application under GAAP, certain amounts related to bonus depreciation and future tax benefit utilization recorded in the financial statements as a result of the Tax Legislation are to be considered "provisional" as discussed in SAB 118 and subject to revision. We are awaiting additional guidance from industry and income tax authorities in order to finalize our accounting. |
FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs. We recognize transfers between levels of the fair value hierarchy at their value as of the end of the reporting period. The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
The derivative assets and liabilities listed in the tables above include options, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices. They also include FTRs, which are used to manage electric transmission congestion costs in the MISO Energy Markets. The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
Fair Value of Financial Instruments The following table shows the financial instruments included on our balance sheets that are not recorded at fair value:
The fair values of long-term debt are categorized within Level 2 of the fair value hierarchy. |
DERIVATIVE INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS We use derivatives as part of our risk management program to manage the risks associated with the price volatility of purchased power, generation, and natural gas costs for the benefit of our customers. Our approach is non-speculative and designed to mitigate risk. Our regulated hedging programs are approved by the PSCW. We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception, and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities. The following table shows our derivative assets and derivative liabilities:
Realized gains (losses) on derivative instruments are primarily included in cost of sales on the income statements. Our estimated notional sales volumes and realized gains (losses) were as follows:
On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At June 30, 2018 and December 31, 2017, we had posted cash collateral of $0.8 million and $4.9 million, respectively, in our margin accounts. These amounts were recorded on our balance sheets in other current assets. The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
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GUARANTEES |
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Jun. 30, 2018 | |
Guarantees [Abstract] | |
GUARANTEES | GUARANTEES As of June 30, 2018, we had $20.6 million of standby letters of credit issued by financial institutions for the benefit of third parties that extended credit to us which automatically renew each year unless proper termination notice is given. These amounts are not reflected on our balance sheets. |
EMPLOYEE BENEFITS |
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Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EMPLOYEE BENEFITS | EMPLOYEE BENEFITS Through December 31, 2016, we participated in the Integrys Energy Group Retirement Plan, a noncontributory, qualified pension plan sponsored by WBS. We were responsible for our share of the plan assets and obligations. Effective January 1, 2017, the Integrys Energy Group Retirement Plan was split into six separate plans. As a result, we now have our own pension plan. While the split did not impact our pension benefit obligation, federal regulations required a different allocation of assets among the new plans. As a result, assets were transferred out of our plan in January 2017. See Note 15, Related Parties, for more information. The following tables show the components of net periodic pension and OPEB costs for our benefit plans:
During the six months ended June 30, 2018, we made contributions and payments of $0.3 million related to our pension plans and $0.1 million related to our OPEB plans. We expect to make contributions and payments of $0.4 million related to our pension plans and $0.1 million related to our OPEB plans during the remainder of 2018, dependent upon various factors affecting us, including our liquidity position and the effects of the new Tax Legislation. Effective January 1, 2018, we adopted ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which modifies certain aspects of the accounting for employee benefit costs. Under the new guidance, only the service cost component can be included in total operating expenses. The remaining components of net periodic benefit cost are required to be presented in the income statement separately from the service cost component, outside of operating income. As required, this change was applied retrospectively to all prior periods presented. Accordingly, for the three and six months ended June 30, 2018 and 2017, we have presented the service cost component of our retirement benefit plans in other operation and maintenance on the income statements, while presenting the non-service components in other income, net. The following table shows the non-service credit components of net benefit costs:
For the three and six months ended June 30, 2017, the net credits from the non-service components of net benefit cost were reclassified from other operation and maintenance to other income, net, on our income statements. Under ASU 2017-07, only the service cost component of net periodic benefit cost is eligible for capitalization to property, plant, and equipment. In prior periods, a portion of all net benefit cost components was capitalized to property, plant, and equipment. As required, this amendment was applied prospectively, beginning January 1, 2018. As a result of the application of accounting principles for rate regulated entities, the non-service cost components of the net benefit cost that are no longer eligible for capitalization under this standard, but are capitalized under the regulatory framework, are presented as regulatory assets or liabilities rather than property, plant, and equipment. |
GOODWILL AND OTHER INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable net assets acquired. We had no changes to the carrying amount of goodwill during the six months ended June 30, 2018 and 2017. The identifiable intangible assets other than goodwill listed below are classified as other long-term assets on our balance sheets.
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SEGMENT INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION | SEGMENT INFORMATION We use operating income to measure segment profitability and to allocate resources to our businesses. At June 30, 2018, we reported two segments, which are described below. Our utility segment includes our electric and natural gas utility operations. Our electric utility operations are engaged in the generation, distribution, and sale of electricity in northeastern Wisconsin. Our natural gas utility operations are engaged in the purchase, distribution, and sale of natural gas to retail customers and the transportation of customer-owned natural gas in northeastern Wisconsin. The other segment includes non-utility activities, as well as equity earnings from our investment in WRPC. The following tables show summarized financial information for the three and six months ended June 30, 2018 and 2017, related to our reportable segments:
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RELATED PARTIES |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RELATED PARTIES | RELATED PARTIES We routinely enter into transactions with related parties, including WEC Energy Group, its other subsidiaries, ATC, and other affiliated entities. We provide and receive services, property, and other items of value to and from our ultimate parent, WEC Energy Group, and other subsidiaries of WEC Energy Group. Prior to January 1, 2017, we held a 10.37% investment in WPSI which held an approximate 34% interest in ATC, a for-profit, electric transmission company regulated by the FERC and certain state regulatory commissions. Effective January 1, 2017, based upon input we received from the PSCW, we transferred our $67.2 million ownership interest in WPSI to another subsidiary of Integrys. In addition, during 2017 we transferred $41.9 million of related deferred income tax liabilities. These transactions were non-cash equity transfers recorded to additional paid in capital between entities under common control, and therefore, did not result in the recognition of a gain or loss. We pay ATC for transmission and other related services it provides. In addition, we provide a variety of operational, maintenance, and project management work for ATC, which is reimbursed by ATC. Services are billed to and from ATC under agreements approved by the PSCW, at each of our fully allocated costs. We provide services to WRPC under an operating agreement approved by the PSCW. We are also a party to a service agreement with WRPC where we are billed for services provided by WRPC. Services are billed to and from WRPC under these agreements at a fully allocated cost. Our balance sheets included the following receivables and payables related to transactions entered into with certain related parties:
The following table shows activity associated with our related party transactions:
Upper Michigan Energy Resources Corporation In December 2016, both the Michigan Public Service Commission and the PSCW approved the operation of UMERC as a stand-alone utility in the Upper Peninsula of Michigan. UMERC, a subsidiary of WEC Energy Group, became operational effective January 1, 2017, and we transferred customers and property, plant, and equipment as of that date. We transferred approximately 9,000 retail electric customers and 5,300 natural gas customers to UMERC, along with approximately 600 miles of electric distribution lines and approximately 100 miles of natural gas distribution mains. We also transferred related electric distribution substations in the Upper Peninsula of Michigan and all property rights for the distribution assets to UMERC. The book value of the net assets (including the related deferred income tax liabilities) transferred to UMERC from us in 2017 was $20.6 million. This transaction was a non-cash equity transfer recorded to additional paid in capital between entities under common control, and therefore, did not result in the recognition of a gain or loss. UMERC currently meets its market obligations through power purchase agreements with us and WE. WEC Energy Group's Acquisition of Natural Gas Storage Facilities in Michigan On June 30, 2017, WEC Energy Group completed the acquisition of Bluewater for $226.0 million. Bluewater owns natural gas storage facilities in Michigan that provide a portion of the current storage needs for our natural gas utility operations. In September 2017, we finalized a long-term service agreement with a wholly owned subsidiary of Bluewater to take the allocated storage, which was then approved by the PSCW in November 2017. |
COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES We have significant commitments and contingencies arising from our operations, including those related to unconditional purchase obligations, environmental matters, and enforcement and litigation matters. Unconditional Purchase Obligations We have obligations to distribute and sell electricity and natural gas to our customers and expect to recover costs related to these obligations in future customer rates. In order to meet these obligations, we routinely enter into long-term purchase and sale commitments for various quantities and lengths of time. Our minimum future commitments related to these purchase obligations as of June 30, 2018, were $854.6 million. Environmental Matters Consistent with other companies in the energy industry, we face significant ongoing environmental compliance and remediation obligations related to current and past operations. Specific environmental issues affecting us include, but are not limited to, current and future regulation of air emissions such as sulfur dioxide, nitrogen oxide, fine particulates, mercury, and GHGs; water intake and discharges; disposal of coal combustion products such as fly ash; and remediation of impacted properties, including former manufactured gas plant sites. Air Quality 8-Hour Ozone National Ambient Air Quality Standards After completing its review of the 2008 ozone standard, the EPA released a final rule in October 2015, which lowered the limit for ground-level ozone, creating a more stringent standard than the 2008 National Ambient Air Quality Standards. The EPA issued final nonattainment area designations on May 1, 2018. The following counties within our service territory were designated as partial nonattainment: Door, Manitowoc, and Sheboygan shorelines. The state of Wisconsin will need to develop a state implementation plan to bring these areas back into attainment. We will be required to comply with this state implementation plan no earlier than 2020. We believe we are well positioned to meet the requirements associated with the ozone standard and do not expect to incur significant costs to comply. Climate Change In 2015, the EPA issued a final rule regulating GHG emissions from existing generating units, referred to as the Clean Power Plan, and final performance standards for modified and reconstructed generating units and new fossil-fueled power plants. In October 2015, following publication of the CPP, numerous states (including Wisconsin) and other parties filed lawsuits challenging the final rule, including a request to stay the implementation of the final rule pending the outcome of these legal challenges. In February 2016, the Supreme Court stayed the effectiveness of the CPP until disposition of the litigation in the D.C. Circuit Court of Appeals and, to the extent that further appellate review is sought, at the Supreme Court. In April 2017, pursuant to motions made by the EPA, the D.C. Circuit Court of Appeals ordered the challenges to the CPP, as well as related performance standards for new, reconstructed, and modified fossil-fueled power plants, to be held in abeyance, which remains the case. In March 2017, President Trump issued an executive order that, among other things, specifically directed the EPA to review the CPP and related GHG regulations for new, reconstructed, or modified fossil-fueled power plants. In October 2017, the EPA issued a proposed rulemaking to repeal the CPP. In December 2017, the EPA issued an advanced notice of proposed rulemaking to solicit input on whether it is appropriate to replace the CPP. The EPA is expected to issue a proposed CPP replacement rule, or decide to rescind the CPP without replacing it, during the third quarter of 2018. Notwithstanding the uncertain future of the CPP, and given current fuel and technology markets, we continue to evaluate opportunities and actions that preserve fuel diversity, lower costs for our customers, and contribute towards long-term GHG reductions. WEC Energy Group's plan, which includes us, is to work with its industry partners, environmental groups, and the State of Wisconsin, with a goal of reducing CO2 emissions by approximately 40% below 2005 levels by 2030. In addition, WEC Energy Group's new long-term goal is to reduce CO2 emissions by approximately 80% below 2005 levels by 2050. We have implemented and continue to evaluate numerous options in order to meet WEC Energy Group's CO2 reduction goals. Options considered include increased use of existing natural gas combined cycle units, co-firing or switching to natural gas in existing coal-fired units, reduced operation or retirement of existing coal-fired units, addition of new renewable energy resources (wind, solar), and consideration of supply and demand-side energy efficiency and distributed generation. As a result of WEC Energy Group's generation reshaping plan, we expect to retire 308 MW of coal generation by 2020, including Pulliam power plant and the jointly-owned Edgewater Unit 4 generation units. See Note 4, Property, Plant, and Equipment, for more information. In addition, we are evaluating our goals, and possible subsequent actions, with respect to national and international efforts to reduce future GHG emissions in order to limit future global temperature increases to less than two degrees Celsius. Water Quality Clean Water Act Cooling Water Intake Structure Rule In August 2014, the EPA issued a final regulation under Section 316(b) of the Clean Water Act, which requires that the location, design, construction, and capacity of cooling water intake structures at existing power plants reflect the Best Technology Available (BTA) for minimizing adverse environmental impacts from both impingement (entrapping organisms on water intake screens) and entrainment (drawing organisms into water intake). The rule became effective in October 2014 and applies to all of our existing generating facilities with cooling water intake structures. Facility owners must select from seven compliance options available to meet the impingement mortality (IM) reduction standard. The rule requires state permitting agencies to make BTA determinations, subject to EPA oversight, for IM reduction over the next several years as facility permits are reissued. Based on our assessment, we believe that existing technologies at our generating facilities, except for Pulliam Units 7 and 8, satisfy the IM BTA requirements. We will retire Pulliam Units 7 and 8 on or before October 31, 2018. See Note 4, Property, Plant, and Equipment, for more information. Therefore, the WPDES permit reissued by the WDNR on June 29, 2018, will not require us to make alterations to the existing water intake at Pulliam Units 7 and 8. Based on the reissued WPDES permit for Weston, the WDNR will not require physical modifications to the Weston Unit 2 intake structure to meet the IM BTA requirements based on low capacity use of the unit. BTA determinations must also be made by the WDNR to address entrainment mortality (EM) reduction on a site-specific basis taking into consideration several factors. There has been an interim EM BTA determination made by the WDNR as part of the reissued WPDES permit for Weston Units 3 and 4, and we intend to extrapolate these results to assess Weston Unit 2. The entrainment study and other technical information will be used by the WDNR to make a final 316(b) determination during the next five year WPDES permit term. At this time, we expect that the WDNR will conclude that the existing cooling tower systems for Weston Units 3 and 4 are BTA for both impingement and entrainment reduction. In addition, the WDNR has initially indicated that based on the low capacity utilization of Weston Unit 2, impingement mortality reduction technology will not be required and further entrainment reduction will not be necessary. Due to our plans to retire Pulliam Units 7 and 8, we do not believe that BTA determinations for EM will be necessary for these units. We have also provided information to the WDNR about planned unit retirements. For Pulliam Units 7 and 8, in light of the pending facility retirement, the reissued WPDES permit included an interim BTA determination for the existing barrier net system. We will not be required to conduct monitoring for IM or EM or to submit additional 316(b) information until the next permit renewal application in December 2022. We believe our fleet overall is well positioned to meet the new regulation and do not expect to incur significant costs to comply with this regulation. Steam Electric Effluent Limitation Guidelines The EPA's final steam electric effluent limitation guidelines (ELG) rule took effect in January 2016. Various petitions challenging the rule were consolidated and are pending in the United States Fifth Circuit Court of Appeals. In April 2017, the EPA issued an administrative stay of certain compliance deadlines while further reviewing the rule. In September 2017, the EPA issued a final rule (Postponement Rule) to postpone the earliest compliance dates for the bottom ash transport water and wet flue gas desulfurization wastewater requirements. This rule applies to wastewater discharges from our power plant processes in Wisconsin. In February 2018, the Center for Biological Diversity (CBD) filed suit in the U.S. District Court of Arizona challenging the Postponement Rule. In April 2018, the Utility Water Act Group filed a motion to dismiss the CBD suit for lack of subject matter jurisdiction. While the ELG compliance deadlines are postponed, the WDNR has indicated that it will refrain from incorporating certain new requirements into any reissued discharge permits between 2018 and 2023. After a final rule is back in effect, the WDNR has indicated that it will modify the state rules as necessary and incorporate the new requirements into our facility permits, which are renewed every five years. Our power plant facilities already have advanced wastewater treatment technologies installed that meet many of the discharge limits established by this rule. However, as currently constructed, the ELG rule will require additional wastewater treatment retrofits as well as installation of other equipment to minimize process water use. The final rule would require dry fly ash handling, which is already in place at all of our power plants. Dry bottom ash transport systems are required by the new rule, and modifications would be required at Weston Unit 3. We are beginning preliminary engineering for compliance with the rule and estimate approximately $20 million would be required to design and install a dry bottom ash transport system for Weston Unit 3. This estimate reflects the planned retirements of certain of our generation plants as a result of WEC Energy Group's generation reshaping plan discussed in Climate Change above. Land Quality Manufactured Gas Plant Remediation We have identified sites at which we or a predecessor company owned or operated a manufactured gas plant or stored manufactured gas. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. We are responsible for the environmental remediation of these sites, some of which are in the EPA Superfund Alternative Approach Program. We are also working with various state jurisdictions in our investigation and remediation planning. These sites are at various stages of investigation, monitoring, remediation, and closure. In addition, we are coordinating the investigation and cleanup of some of these sites subject to the jurisdiction of the EPA under what is called a "multisite" program. This program involves prioritizing the work to be done at the sites, preparation and approval of documents common to all of the sites, and use of a consistent approach in selecting remedies. At this time, we cannot estimate future remediation costs associated with these sites beyond those described below. The future costs for detailed site investigation, future remediation, and monitoring are dependent upon several variables including, among other things, the extent of remediation, changes in technology, and changes in regulation. Historically, our regulators have allowed us to recover incurred costs, net of insurance recoveries and recoveries from potentially responsible parties, associated with the remediation of manufactured gas plant sites. Accordingly, we have established regulatory assets for costs associated with these sites. We have established the following regulatory assets and reserves related to manufactured gas plant sites:
Consent Decrees Weston and Pulliam Power Plants Consent Decree In November 2009, the EPA issued an NOV to us, which alleged violations of the CAA's New Source Review requirements relating to certain projects completed at the Weston and Pulliam plants from 1994 to 2009. We entered into a Consent Decree with the EPA resolving this NOV. This Consent Decree was entered by the United States District Court for the Eastern District of Wisconsin in March 2013. We will retire Pulliam Units 7 and 8 on or before October 31, 2018. See Note 4, Property, Plant, and Equipment, for more information about the retirement. Joint Ownership Power Plants Consent Decree – Columbia and Edgewater In December 2009, the EPA issued an NOV to Wisconsin Power and Light, the operator of the Columbia and Edgewater plants, and the other joint owners of these plants, including Madison Gas and Electric, WE (former co-owner of an Edgewater unit), and us. The NOV alleged violations of the CAA's New Source Review requirements related to certain projects completed at those plants. We, along with Wisconsin Power and Light, Madison Gas and Electric, and WE, entered into a Consent Decree with the EPA resolving this NOV. This Consent Decree was entered by the United States District Court for the Western District of Wisconsin in June 2013. As a result of the continued implementation of the Consent Decree related to the jointly owned Columbia and Edgewater plants, the Edgewater 4 generating unit must be retired by September 30, 2018. See Note 4, Property, Plant, and Equipment, for more information about the retirement. Enforcement and Litigation Matters We are involved in legal and administrative proceedings before various courts and agencies with respect to matters arising in the ordinary course of business. Although we are unable to predict the outcome of these matters, management believes that appropriate reserves have been established and that final settlement of these actions will not have a material effect on our financial condition or results of operations. |
SUPPLEMENTAL CASH FLOW INFORMATION |
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SUPPLEMENTAL CASH FLOW INFORMATION | SUPPLEMENTAL CASH FLOW INFORMATION
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REGULATORY ENVIRONMENT |
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Regulated Operations [Abstract] | |
REGULATORY ENVIRONMENT | REGULATORY ENVIRONMENT Tax Cuts and Jobs Act of 2017 We deferred for return to ratepayers, through future refunds, bill credits, or reductions in other regulatory assets, the estimated tax benefit of $444.7 million related to the Tax Legislation that was signed into law in December 2017. This tax benefit resulted from the revaluation of deferred taxes in December 2017. The current 2018 tax benefit related to the Tax Legislation, which reduced the corporate federal tax rate from a maximum of 35% to a 21% rate, effective January 1, 2018, is also being deferred for return to ratepayers. In May 2018, the PSCW issued an order regarding the benefits associated with the Tax Legislation. The PSCW order requires our electric utility operations to use 40% of the current 2018 and 2019 tax benefits to reduce certain regulatory assets. The remaining 60% is to be returned to electric customers in the form of bill credits. For our natural gas utility operations, the PSCW indicated that 100% of current 2018 and 2019 tax benefits should be returned to natural gas customers in the form of bill credits. Regarding the net tax benefit associated with the revaluation of deferred taxes, amortization required in accordance with normalization accounting is to be used to reduce certain regulatory assets for our electric utility operations and is being deferred for our natural gas utility operations. The timing and method of returning the remaining net tax benefit associated with the revaluation of deferred taxes for our electric and natural gas utility operations was not addressed and will be determined in a future rate proceeding. During the six months ended June 30, 2018, we reduced our regulatory assets by $13.0 million as a result of the PSCW order. 2018 and 2019 Wisconsin Rates During April 2017, we, along with WE and WG, filed an application with the PSCW for approval of a settlement agreement we made with several of our commercial and industrial customers regarding 2018 and 2019 base rates. In September 2017, the PSCW issued an order that approved the settlement agreement, which will freeze base rates through 2019 for electric and natural gas customers. Based on the PSCW order, our authorized ROE remains at 10.0%, and our current capital cost structure will remain unchanged through 2019. Various intervenors had filed requests for rehearing, all of which have been denied. In addition to freezing base rates, the settlement agreement extends and expands the electric real-time market pricing program options for large commercial and industrial customers. Additionally, the agreement allows us to extend, through 2019, the deferral for the revenue requirement of ReACT™ costs above the authorized $275.0 million level, and other deferrals related to our electric real-time market pricing program and network transmission expenses. The total cost of the ReACT™ project, excluding $51 million of AFUDC, is currently estimated to be $342 million. Pursuant to the settlement agreement, we also agreed to adopt, beginning in 2018, the earnings sharing mechanism that has been in place for WE and WG since January 2016, and agreed to keep the mechanism in place through 2019. Under this earnings sharing mechanism, if we earn above our authorized ROE, 50% of the first 50 basis points of additional utility earnings must be shared with customers. All utility earnings above the first 50 basis points must also be shared with customers. Proposed Solar Generation Projects On May 31, 2018, we, along with an unaffiliated utility, filed an application with the PSCW to acquire ownership interests in two proposed solar projects in Wisconsin. Badger Hollow Solar Farm will be located in Iowa County, Wisconsin, and Two Creeks Solar Project will be located in Manitowoc County, Wisconsin. We will own 100 MW of the output of each project for a total of 200 MW. Our share of the cost of both projects is estimated to be $260 million. |
NEW ACCOUNTING PRONOUCEMENTS |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
NEW ACCOUNTING PRONOUNCEMENTS | NEW ACCOUNTING PRONOUNCEMENTS Leases In February 2016, the FASB issued ASU 2016-02, Leases. This ASU was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Targeted Improvements. The main provision of ASU 2016-02 is that lessees will be required to recognize lease assets and lease liabilities for most leases, including those classified as operating leases under GAAP. In addition, this ASU expands the required quantitative and qualitative disclosures related to lease agreements. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. This guidance must be adopted using a modified retrospective approach and provides for a number of optional transition practical expedients. We expect to apply the package of practical expedients allowed by this ASU which, among other things, allows the carryforward of prior conclusions related to lease identification and classification. We have not yet determined whether we will elect any other practical expedients upon transition. We are currently assessing the effects this guidance may have on our financial statements. Financial Instruments Credit Losses In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This ASU introduces a new impairment model known as the current expected credit loss model. The ASU requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. Previously, recognition of the full amount of credit losses was generally delayed until the loss was probable of occurring. We are currently assessing the effects this guidance may have on our financial statements. |
GENERAL INFORMATION (Policies) |
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Accounting policies | |
Consolidation | As used in these notes, the term "financial statements" refers to the condensed consolidated financial statements. This includes the income statements, balance sheets, and statements of cash flows, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Public Service Corporation. |
Basis of Accounting | We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2017. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three and six months ended June 30, 2018, are not necessarily indicative of expected results for 2018 due to seasonal variations and other factors. In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results. |
Fair Value Measurement | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs. We recognize transfers between levels of the fair value hierarchy at their value as of the end of the reporting period. |
Derivative Instruments | We use derivatives as part of our risk management program to manage the risks associated with the price volatility of purchased power, generation, and natural gas costs for the benefit of our customers. Our approach is non-speculative and designed to mitigate risk. Our regulated hedging programs are approved by the PSCW. We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception, and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities. |
New Accounting Pronouncements | Leases In February 2016, the FASB issued ASU 2016-02, Leases. This ASU was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Targeted Improvements. The main provision of ASU 2016-02 is that lessees will be required to recognize lease assets and lease liabilities for most leases, including those classified as operating leases under GAAP. In addition, this ASU expands the required quantitative and qualitative disclosures related to lease agreements. This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. This guidance must be adopted using a modified retrospective approach and provides for a number of optional transition practical expedients. We expect to apply the package of practical expedients allowed by this ASU which, among other things, allows the carryforward of prior conclusions related to lease identification and classification. We have not yet determined whether we will elect any other practical expedients upon transition. We are currently assessing the effects this guidance may have on our financial statements. Financial Instruments Credit Losses In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This ASU introduces a new impairment model known as the current expected credit loss model. The ASU requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. Previously, recognition of the full amount of credit losses was generally delayed until the loss was probable of occurring. We are currently assessing the effects this guidance may have on our financial statements. |
Electric | |
Disaggregation of Operating Revenues | |
Revenue Recognition | Electricity sales to residential and commercial and industrial customers are generally accomplished through requirements contracts, which provide for the delivery of as much electricity as the customer needs. These contracts represent discrete deliveries of electricity and consist of one distinct performance obligation satisfied over time, as the electricity is delivered and consumed by the customer simultaneously. For our residential and commercial and industrial customers, our performance obligation is bundled to consist of both the sale and the delivery of the electric commodity. The rates, charges, terms, and conditions of service for sales to these customers are included in tariffs that have been approved by state regulators. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on the quantity of electricity delivered each month. Wholesale customers who resell power can choose to either bundle capacity and electricity services together under one contract with a supplier or purchase capacity and electricity separately from multiple suppliers. Furthermore, wholesale customers can choose to have us provide generation to match the customer's load, similar to requirements contracts, or they can purchase specified quantities of electricity and capacity. The rates, charges, terms and conditions of service for sales to wholesale customers are included in tariffs that have been approved by the FERC. Contracts with wholesale customers that include capacity bundled with the delivery of electricity contain two performance obligations, as capacity and electricity are often transacted separately in the marketplace at the wholesale level. When recognizing revenue associated with these contracts, the transaction price is allocated to each performance obligation based on its relative standalone selling price. Revenue is recognized as control of each individual component is transferred to the customer. Electricity is the primary product sold by our electric operations and represents a single performance obligation satisfied over time through discrete deliveries to a customer. Revenue from electricity sales is generally recognized as units are produced and delivered to the customer within the production month. Capacity represents the reservation of an electric generating facility and conveys the ability to call on a plant to produce electricity when needed by the customer. The nature of our performance obligation as it relates to capacity is to stand ready to deliver power. This represents a single performance obligation transferred over time, which generally represents a monthly obligation. Accordingly, capacity revenue is recognized on a monthly basis. We are an active participant in the MISO Energy Markets, where we bid our generation into the Day Ahead and Real Time markets and procure electricity for our retail and wholesale customers at prices determined by the MISO Energy Markets. Purchase and sale transactions are recorded using settlement information provided by MISO. These purchase and sale transactions are accounted for on a net hourly position. Net purchases in a single hour are recorded as purchased power in cost of sales and net sales in a single hour are recorded as resale revenues. For resale revenues, our performance obligation is created only when electricity is sold into the MISO Energy Markets. For all of our customers, consistent with the timing of when we recognize revenue, customer billings generally occur on a monthly basis, with payments typically due in full within 30 days. For the majority of our wholesale customers, the price billed for energy and capacity is a formula-based rate. Formula-based rates initially set a customer's current year rates based on the previous year’s expenses. This is a predetermined formula derived from the utility's costs and a reasonable rate of return. Because these rates are eventually trued up to reflect actual current year costs, they represent a form of variable consideration in certain circumstances. The variable consideration is estimated and recognized over time as wholesale customers receive and consume the capacity and electricity services. |
Natural gas | |
Disaggregation of Operating Revenues | |
Revenue Recognition | We recognize natural gas utility operating revenues under requirements contracts with residential, commercial and industrial, and transportation customers served under our tariffs. Tariffs provide our customers with the standard terms and conditions, including rates, related to the services offered. Requirements contracts provide for the delivery of as much natural gas as the customer needs. These requirements contracts represent discrete deliveries of natural gas and constitute a single performance obligation satisfied over time. Our performance obligation is both created and satisfied with the transfer of control of natural gas upon delivery to the customer. For most of our customers, natural gas is delivered and consumed by the customer simultaneously. A performance obligation can be bundled to consist of both the sale and the delivery of the natural gas commodity. In certain of our territories, customers can purchase the commodity from a third party. In this case, the performance obligation only includes the delivery of the natural gas to the customer. The transaction price of the performance obligations is valued using rates in our tariffs, which have been approved by the PSCW. These rates often have a fixed component customer charge and a usage-based variable component charge. We recognize revenue for the fixed component customer charge monthly using a time-based output method. We recognize revenue for the usage-based variable component charge using an output method based on natural gas delivered each month. Consistent with the timing of when we recognize revenue, customer billings generally occur on a monthly basis, with payments typically due in full within 30 days. |
Alternative revenues | |
Disaggregation of Operating Revenues | |
Revenue Recognition | Alternative Revenues Alternative revenues are created from programs authorized by regulators that allow us to record additional revenues by adjusting rates in the future, usually as a surcharge applied to future billings, in response to past activities or completed events. We record alternative revenues when the regulator-specified conditions for recognition have been met. We reverse these alternative revenues as the customer is billed, at which time this revenue is presented as revenues from contracts with customers. Our only alternative revenue program relates to the wholesale electric service that we provide to customers under market-based rates and FERC formula rates. The customer is charged a base rate each year based upon a formula using prior year actual costs and customer demand. A true-up is calculated based on the difference between the amount billed to customers for the demand component of their rates and what the actual cost of service was for the year. The true-up can result in an amount that we will recover from or refund to the customer. We consider the true-up portion of the wholesale electric revenues to be alternative revenues. |
ACQUISITION (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||
Allocation of purchase price | The table below shows the allocation of the purchase price to the assets acquired at the date of the acquisition, which are included in rate base.
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OPERATING REVENUES (Tables) - Utility segment |
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Disaggregation of Operating Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues disaggregated by revenue source | The following tables present our operating revenues disaggregated by revenue source. We only have revenues associated with our utility segment. We do not have any revenues associated with our other segment. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. For our utility segment, revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and are impacted by regulatory activities within their jurisdictions. Comparable amounts have not been presented for the three and six months ended June 30, 2017, due to our adoption of this standard under the modified retrospective method.
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Revenues from contracts with customers | Electric | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Operating Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues disaggregated by revenue source | Electric Utility Operating Revenues The following table disaggregates electric utility operating revenues into customer class:
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Revenues from contracts with customers | Natural gas | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Operating Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues disaggregated by revenue source | Natural Gas Utility Operating Revenues The following table disaggregates natural gas utility operating revenues into customer class:
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Disaggregation of Operating Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating revenues disaggregated by revenue source | Other Operating Revenues Other operating revenues consist primarily of the following:
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SHORT-TERM DEBT AND LINES OF CREDIT (Tables) |
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Short-term Debt [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of short-term borrowings and weighted-average interest rates | The following table shows our short-term borrowings and their corresponding weighted-average interest rates:
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Schedule of revolving credit facilities and remaining available capacity | The information in the table below relates to our revolving credit facility used to support our commercial paper borrowing program, including available capacity under this facility:
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MATERIALS, SUPPLIES, AND INVENTORIES (Tables) |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory | Our inventory consisted of:
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FAIR VALUE MEASUREMENTS (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of assets and liabilities measured on a recurring basis, categorized by level within the fair value hierarchy | The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
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Reconciliation of changes in the fair value of items categorized as Level 3 measurements | The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
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Schedule of carrying value and estimated fair value of financial instruments not recorded at fair value | The following table shows the financial instruments included on our balance sheets that are not recorded at fair value:
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DERIVATIVE INSTRUMENTS (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets and derivative liabilities | The following table shows our derivative assets and derivative liabilities:
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Estimated notional volumes and realized gain (losses) | Our estimated notional sales volumes and realized gains (losses) were as follows:
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Offsetting Assets and Liabilities | The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
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EMPLOYEE BENEFITS (Tables) |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of net benefit costs | The following tables show the components of net periodic pension and OPEB costs for our benefit plans:
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Schedule of non-service components of net benefit costs [Table Text Block] | The following table shows the non-service credit components of net benefit costs:
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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of identifiable intangible assets other than goodwill | The identifiable intangible assets other than goodwill listed below are classified as other long-term assets on our balance sheets.
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SEGMENT INFORMATION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of information related to reportable segments | The following tables show summarized financial information for the three and six months ended June 30, 2018 and 2017, related to our reportable segments:
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RELATED PARTIES (Tables) |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of related party transactions balance sheet information | Our balance sheets included the following receivables and payables related to transactions entered into with certain related parties:
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Schedule of activity associated with related party transactions | The following table shows activity associated with our related party transactions:
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COMMITMENTS AND CONTINGENCIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of regulatory assets and reserves related to manufactured gas plant sites | We have established the following regulatory assets and reserves related to manufactured gas plant sites:
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SUPPLEMENTAL CASH FLOW INFORMATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of supplemental cash flow information |
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ACQUISITION CONSIDERATION TRANSFERRED (Details) - Forward Wind Energy Center Acquisition $ in Millions |
1 Months Ended | |
---|---|---|
Apr. 30, 2018
USD ($)
utility
|
Apr. 02, 2018
wind_turbines
MW
|
|
Business Acquisition [Line Items] | ||
Number of utilities along with WPS that entered in an agreement to purchase Forward Wind Energy Center | utility | 2 | |
Number of wind turbines at Forward Wind Energy Center | wind_turbines | 86 | |
Capacity of Foward Wind Energy Center | MW | 129 | |
Purchase price | $ 172.9 | |
WPS | ||
Business Acquisition [Line Items] | ||
Purchase price | $ 77.1 | |
WPS's share of Forward Wind Energy Center's purchase price | 44.60% | |
Percentage of Forward Wind Energy Center's output purchased by WPS | 44.60% |
ACQUISITION - PURCHASE PRICE ALLOCATION (Details) - Forward Wind Energy Center Acquisition - USD ($) $ in Millions |
1 Months Ended | |
---|---|---|
Apr. 30, 2018 |
Apr. 02, 2018 |
|
Business Acquisition [Line Items] | ||
Purchase price | $ 172.9 | |
WPS | ||
Business Acquisition [Line Items] | ||
Current assets | $ 0.2 | |
Net property, plant, and equipment | $ 76.9 | |
Purchase price | $ 77.1 |
OPERATING REVENUES (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Disaggregation of Operating Revenues | ||||
Operating revenues | $ 350.1 | $ 341.6 | $ 743.7 | $ 731.2 |
Utility segment | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 350.1 | 743.7 | ||
Utility segment | Other operating revenues | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 0.7 | 1.6 | ||
Utility segment | Transferred over time | Revenues from contracts with customers | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 349.4 | 742.1 | ||
Utility segment | Electric | Transferred over time | Revenues from contracts with customers | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 292.5 | 574.6 | ||
Utility segment | Natural gas | Transferred over time | Revenues from contracts with customers | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | $ 56.9 | $ 167.5 |
OPERATING REVENUES OTHER OPERATING REVENUES (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Disaggregation of Operating Revenues | ||||
Operating revenues | $ 350.1 | $ 341.6 | $ 743.7 | $ 731.2 |
Utility segment | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 350.1 | 743.7 | ||
Utility segment | Other operating revenues | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 0.7 | 1.6 | ||
Utility segment | Other operating revenues | Late payment charges | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 0.8 | 1.7 | ||
Utility segment | Other operating revenues | Leases | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | 0.1 | 0.1 | ||
Utility segment | Other operating revenues | Alternative revenues | ||||
Disaggregation of Operating Revenues | ||||
Operating revenues | $ (0.2) | $ (0.2) |
PROPERTY, PLANT, AND EQUIPMENT (Details) $ in Millions |
Jun. 30, 2018
USD ($)
|
---|---|
Edgewater Unit 4 | |
Property, Plant and Equipment [Line Items] | |
Property, plant, and equipment, at carrying value | $ 12.3 |
Plant to be retired, net | 14.2 |
Cost of removal reserve | 1.9 |
Pulliam power plant | |
Property, Plant and Equipment [Line Items] | |
Property, plant, and equipment, at carrying value | 42.3 |
Plant to be retired, net | 62.1 |
Cost of removal reserve | 19.8 |
Utility segment | |
Property, Plant and Equipment [Line Items] | |
Severance liability | $ 3.6 |
SHORT-TERM DEBT AND LINES OF CREDIT - SHORT-TERM BORROWINGS (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Short-term borrowings | ||
Commercial paper outstanding | $ 317.2 | $ 293.1 |
Commercial paper | ||
Short-term borrowings | ||
Weighted-average interest rate on amounts outstanding | 2.31% | 1.72% |
Average amount outstanding during the period | $ 278.6 | |
Weighted-average interest rate during the period | 2.07% |
SHORT-TERM DEBT AND LINES OF CREDIT - REVOLVING CREDIT FACILITIES (Details) - USD ($) $ in Millions |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Revolving credit facility | ||
Letters of credit issued inside credit facility | $ 1.3 | |
Commercial paper outstanding | 317.2 | $ 293.1 |
Available capacity under existing agreement | 81.5 | |
Credit facility maturing during October 2022 | ||
Revolving credit facility | ||
Revolving credit facility | $ 400.0 |
MATERIALS, SUPPLIES, AND INVENTORIES (Details) - USD ($) $ in Millions |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Fossil fuel | $ 46.5 | $ 43.8 |
Materials and supplies | 48.2 | 40.8 |
Natural gas in storage | 14.1 | 22.4 |
Total | $ 108.8 | $ 107.0 |
INCOME TAXES (Details) |
1 Months Ended | 3 Months Ended | 6 Months Ended | |
---|---|---|---|---|
Dec. 31, 2017 |
Jun. 30, 2018 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Effective Income Tax Rate Reconciliation, Percent | ||||
Statutory federal income tax, percentage | 21.00% | 35.00% | ||
Total income tax expense, percentage | 37.20% | 30.80% | ||
Measurement period to complete accounting related to Tax Cuts and Jobs Act | 1 year |
FAIR VALUE MEASUREMENTS - LEVEL 3 RECONCILIATION (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Fair Value Disclosures [Abstract] | ||||
Balance at the beginning of period | $ 0.7 | $ 0.6 | $ 2.0 | $ 2.0 |
Purchases | 9.0 | 6.9 | 9.0 | 6.9 |
Settlements | (1.7) | (1.7) | (3.0) | (3.1) |
Balance at the end of the period | $ 8.0 | $ 5.8 | $ 8.0 | $ 5.8 |
FAIR VALUE MEASUREMENTS - FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Millions |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Carrying Amount | ||
Carrying value and estimated fair value of financial instruments | ||
Long-term debt, including current portion | $ 1,166.6 | $ 1,166.2 |
Fair Value | ||
Carrying value and estimated fair value of financial instruments | ||
Long-term debt, including current portion | $ 1,232.2 | $ 1,302.4 |
DERIVATIVE INSTRUMENTS - NOTIONAL VOLUMES and GAINS (LOSSES) (Details) gal in Millions, MWh in Millions, MMBTU in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018
USD ($)
MWh
MMBTU
gal
|
Jun. 30, 2017
USD ($)
MWh
MMBTU
gal
|
Jun. 30, 2018
USD ($)
MWh
MMBTU
gal
|
Jun. 30, 2017
USD ($)
MWh
MMBTU
gal
|
|
Realized Gain (Loss) | ||||
Gain (Loss) | $ 2.8 | $ 0.2 | $ 4.1 | $ 0.2 |
Natural gas contracts | ||||
Realized Gain (Loss) | ||||
Gain (Loss) | $ (0.3) | $ 0.0 | $ (2.0) | $ (0.5) |
Notional Volumes | ||||
Notional sales volumes | MMBTU | 8.3 | 0.0 | 21.3 | 5.1 |
Petroleum products contracts | ||||
Realized Gain (Loss) | ||||
Gain (Loss) | $ 0.1 | $ 0.0 | $ 0.2 | $ 0.0 |
Notional Volumes | ||||
Notional sales volumes (gallons) | gal | 0.6 | 0.0 | 1.3 | 0.0 |
FTRs | ||||
Realized Gain (Loss) | ||||
Gain (Loss) | $ 3.0 | $ 0.2 | $ 5.9 | $ 0.7 |
Notional Volumes | ||||
Notional sales volumes | MWh | 2.0 | 2.1 | 4.4 | 4.3 |
DERIVATIVE INSTRUMENTS - NETTING ARRANGEMENTS AND CASH COLLATERAL (Details) - USD ($) $ in Millions |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Cash collateral | ||
Cash collateral in margin accounts | $ 0.8 | $ 4.9 |
Assets | ||
Gross amount recognized on the balance sheet | 9.6 | 3.5 |
Gross amount not offset on the balance sheet | (0.5) | (1.1) |
Net amount | 9.1 | 2.4 |
Liabilities | ||
Gross amount recognized on balance sheet | 0.8 | 2.8 |
Gross amount not offset on balance sheet | (0.5) | (2.3) |
Net amount | $ 0.3 | 0.5 |
Cash collateral posted | $ 1.2 |
GUARANTEES (Details) $ in Millions |
Jun. 30, 2018
USD ($)
|
---|---|
Standby letters of credit | |
Guarantees | |
Guarantees with expiration over 3 years | $ 20.6 |
EMPLOYEE BENEFITS-IMPACT OF ADOPTION OF ASU 2017-07 (Details) - Accounting Standards Update 2017-07 - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Non-service credit components of net benefit cost | $ (3.8) | $ (8.3) | ||
Impact of ASU 2017-07 | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Non-service credit components of net benefit cost | $ (2.9) | $ (5.7) |
GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Millions |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Goodwill and other intangible assets | |||
Changes to the carrying amount of goodwill | $ 0.0 | $ 0.0 | |
Intangible assets other than goodwill | |||
Amortized intangible assets, accumulated amortization | (6.2) | $ (5.6) | |
Unamortized intangible assets, carrying amount | 0.4 | 0.4 | |
Total intangible assets, gross carrying amount | 8.7 | 8.7 | |
Total intangible assets, net carrying amount | 2.5 | 3.1 | |
Contractual service agreements | |||
Intangible assets other than goodwill | |||
Amortized intangible assets, gross carrying amount | 8.3 | 8.3 | |
Amortized intangible assets, accumulated amortization | (6.2) | (5.6) | |
Amortized intangible assets, net carrying amount | $ 2.1 | $ 2.7 | |
Remaining amortization period | 2 years |
RELATED PARTIES - OTHER TRANSACTIONS (Details) - USD ($) $ in Millions |
12 Months Ended | |||
---|---|---|---|---|
Jan. 01, 2017 |
Dec. 31, 2017 |
Jun. 30, 2018 |
Dec. 31, 2016 |
|
Integrys | ||||
Related parties | ||||
Liability related to income tax allocation | $ 4.1 | $ 3.8 | ||
WPS Investments, LLC | ||||
Related parties | ||||
Equity method investment, ownership percentage | 10.37% | |||
ATC | ||||
Related parties | ||||
Equity method investment, ownership percentage | 34.00% | |||
Transfer of ownership in WPSI to another subsidiary of Integrys | $ 67.2 | |||
Transfer of deferred income tax related to ATC to affiliated company | 41.9 | |||
Accounts receivable for services provided to ATC | 0.7 | $ 0.5 | ||
Accounts payable to ATC for network transmission services | $ 9.0 | $ 8.8 |
RELATED PARTIES - UMERC (Details) - UMERC transfer $ in Millions |
12 Months Ended | |
---|---|---|
Dec. 31, 2017
USD ($)
|
Jan. 01, 2017
mile
customer
|
|
Related parties | ||
Miles of electric distribution lines | mile | 600 | |
Miles of natural gas distribution mains | mile | 100 | |
Transfer of net assets to UMERC | $ | $ 20.6 | |
Electric utility | ||
Related parties | ||
Number of customers | customer | 9,000 | |
Natural gas utility segment | ||
Related parties | ||
Number of customers | customer | 5,300 |
COMMITMENTS AND CONTINGENCIES - UNCONDITIONAL PURCHASE OBLIGATIONS (Details) $ in Millions |
Jun. 30, 2018
USD ($)
|
---|---|
Minimum future commitments for purchase obligations | |
Purchase obligations | $ 854.6 |
SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Supplemental Cash Flow Information [Abstract] | ||
Cash (paid) for interest, net of amount capitalized | $ (26.1) | $ (27.5) |
Cash (paid) for income taxes, net | (8.6) | (18.5) |
Significant noncash transactions | ||
Accounts payable related to construction costs | 13.0 | 33.4 |
Transfer of assets from affiliates | ||
Significant noncash transactions | ||
Accounts payable related to assets transferred from affiliates | 5.5 | 0.0 |
WPSI | ||
Significant noncash transactions | ||
Transfer of ownership in WPSI to another subsidiary of Integrys | 0.0 | 67.2 |
UMERC | ||
Significant noncash transactions | ||
Transfer of net assets to UMERC | $ 0.0 | $ 21.1 |
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