ACQUISITION OF FOX ENERGY CENTER

9 Months Ended

Sep. 30, 2013

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

ACQUISITION OF FOX ENERGY CENTER

In March 2013, we acquired all of the equity interests in Fox Energy Company LLC for $391.6 million. Fox Energy Company LLC was dissolved immediately after the purchase.

The purchase included the Fox Energy Center, a 593-megawatt combined-cycle electric generating facility located in Wisconsin, along with associated contracts. Fox Energy Center is a dual-fuel facility, equipped to use fuel oil, but expected to run primarily on natural gas. This plant gives us a more balanced mix of owned electric generation, including coal, natural gas, hydroelectric, wind, and other renewable sources. In giving its approval for the purchase, the PSCW stated that the purchase price was reasonable and will benefit ratepayers.

The purchase price was allocated based on the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition, as follows:

(Millions)
Assets acquired (1)
Inventories - materials and supplies	$	3.0
Other current assets	0.4
Property, plant, and equipment	374.4
Other long-term assets (2)	15.6
Total assets acquired	$	393.4
Liabilities assumed
Accounts payable	$	1.8
Total liabilities assumed	$	1.8

⁽¹⁾  Relates to the electric utility segment.

⁽²⁾  Intangible assets recorded for contractual services agreements. See Note 5, "Goodwill and Other Intangible Assets," for more information.

Prior to the purchase, we supplied natural gas for the facility and purchased 500 megawatts of capacity and the associated energy output under a tolling arrangement. We paid $50.0 million for the early termination of the tolling arrangement. This amount was recorded as a regulatory asset, as we are authorized recovery by the PSCW. In the current rate case, we proposed amortizing the regulatory asset over a nine-year period, beginning January 1, 2014. This has not been challenged, and we expect PSCW approval in the final decision in this rate case.

The purchase was financed with a combination of short-term debt, cash provided by operations, and an equity contribution from our parent, Integrys Energy Group, Inc. We intend to replace the short-term debt in the fourth quarter of 2013 with long-term financing.

We received regulatory approval to defer incremental costs associated with the purchase of the facility. Operating costs for the Fox Energy Center subsequent to the date of acquisition are included in our income statement. Due to regulatory deferral, these costs had no impact on net income. Pro forma adjustments to our revenues and earnings prior to the date of acquisition would not be meaningful or material. Prior to the acquisition, the Fox Energy Center was a nonregulated plant and sold all of its output to third parties, with most of the output purchased by us. The plant is now part of our regulated fleet, used to serve our customers.