MILWAUKEE, July 10, 2002 — Wisconsin Energy Corp. announced Tuesday that it has signed a memorandum of understanding with the Customers First! Coalition (CFC), Wisconsin Industrial Energy Group (WIEG), Wisconsin Initiative Seeking Energy Reform (WIser) and the Citizens’ Utility Board (CUB) covering key financial and capital structure issues regarding WEC’s Power the Future proposal.
The MOU will be filed with the Public Service Commission of Wisconsin (PSCW) as part of the material that will be considered by the PSCW during the application review procedure.
The significant milestone in the discussions, which have been ongoing for more than a year among WEC and customer, business and industrial groups, highlights the growing urgency that these groups see in addressing Wisconsin’s energy needs.
The MOU covers the Power the Future plan’s two proposed natural gas-fueled units (1,000 megawatts) and two of the three proposed coal-fueled units (1,200 of the 1,800 megawatts of proposed new generation). The financial terms for the third, 600-megawatt coal unit proposed to be operational in 2011 are not covered by the agreement and may be discussed at a later date. The agreement does not address environmental issues, coal technology proposals or plant selections.
“Following this significant agreement, we look forward to working with the Public Service Commission of Wisconsin and are hopeful of timely approval for our applications to build new generation under our Power the Future plan,” said Richard A. Abdoo, WEC chairman, president and chief executive officer.
“While these changes represent a significant change in the financial terms, developing consensus support continues to be a critical key to success in obtaining the approvals we need for these projects. Further, we believe we can still finance these massive projects. This agreement removes some of the barriers to speedy approval of our application, which is important because we need to begin construction on our first gas-fueled unit at the earliest possible time in 2003 so we can have it in service before the summer of 2005.”
The MOU covers the following areas:
* The parties agree to support a Return on Equity (ROE) for WEC of 12.9 percent in the lease payments for the gas and coal units. A return of 13.9 percent was originally proposed by WEC.
* The parties agree to support a capital structure for the proposed new generation of 55 percent equity and 45 percent debt for the gas-fueled units and 58 percent equity and 42 percent debt for the coal-fueled units.
* The tax benefits are allocated between the plant owner and the customers, with benefits associated with depreciation remaining with the owners, and customers retaining others that can be flowed without penalty.
* The initial lease term for each gas-fueled unit is extended to 25 years from the 20 years originally proposed by WEC, and the lease term for each coal-fueled unit is extended to 30 years from the 25 proposed by WEC.
* The interests of customers are protected far into the future by specifying ownership requirements and transfer restrictions for the new generation. The generation must meet specified performance standards and a process for evaluating the performance, which includes PSCW involvement, will be established to protect customer interests.
Under the Power the Future plan filed with the PSCW, WEC created a new subsidiary to build and own new electric power generation facilities in Wisconsin. It was proposed that this subsidiary, We Power, would lease the plants to WEC’s regulated utility, We Energies. We Energies personnel would operate and maintain the new plants as part of the lease agreement.
At the end of the lease agreement, We Energies would have the right to renegotiate and continue the lease or acquire the plants outright at market value. The PSCW would review and approve the lease terms to ensure reliable and quality electric power is supplied to customers at reasonable prices. Existing plants would remain with We Energies, and the regulatory status of the existing plants would be unchanged.
“Our Power the Future plan will save customers money over the lifetime of the new generation units, when compared to a natural gas-only building program, while assuring long-term reliability of power supply,” said Abdoo. “This also will be the largest construction project in the history of the state of Wisconsin.”
WEC first announced the PTF proposal in September 2000, and an enhanced plan in February 2001 following meetings with a diverse group of consumer, industry and labor groups. The $7 billion plan proposes building 2,800 megawatts of new, in-state generation, making improvements to existing power plants and upgrading the electric distribution system in Wisconsin.
Wisconsin Energy Corporation is a Milwaukee-based holding company with subsidiaries in utility and non-utility businesses. The company serves more than one million electric customers in Wisconsin and Michigan’s Upper Peninsula and 970,000 natural gas customers in Wisconsin through its utility subsidiaries — We Energies and Edison Sault Electric. Its non-utility subsidiaries include energy development, pump manufacturing, recycling and renewable energy, and real estate businesses. Visit the company’s Web site at www.WisconsinEnergy.com .