Category Archives: Utilities: Gas and Electric

Top Competitors of World Fuel Services Corporation

The following companies are the major competitors of World Fuel Services Corporation

  • BBA Aviation plc Mercury
  • Air Group Inc Sun Coast
  • Resources Inc

Company View of WISCONSIN ENERGY

A statement by Gale E. Klappa, Chairman, President and Chief Executive Officer of Wisconsin Energy Corporation is given below. The statement has been taken from the company’s 2005 annual report.
In many ways, 2005 can best be described as a year of promise and performance for Wisconsin Energy.
Promisebecause a number of positive developments occurred that will allow us to move forward building the infrastructure Wisconsin needs to meet the state’s growing demand for energy.
Performancebecause we were able to deliver higher customer satisfaction, solid financial results, and real shareholder value.

Promise and Performance: Financial Highlights

Earnings from continuing operations totaled $304 million or $2.56 a share for 2005.
On a comparable basis in 2004, earnings were $220 million or $1.84 per share. Warm summer weather, lower debt levels, and six months of earnings from the new power plant we brought into service in July were key factors in our improved results.
I’m also pleased to report that Wisconsin Energy stock continued to gain in value last year, trading at an all-time high of $40.83 a share on October 4. The stock closed the year above $39 a share up more than 15 percent from year-end 2004. And over the past six years, Wisconsin Energy stock has outperformed the S&P 500 and our peer group of 30 utilities across the United States.
Our ratio of debt to total capital in the business remained essentially unchanged as we closed 2005. We accomplished this in the face of soaring prices for natural gas, two refueling outages and vessel head replacements on the reactors at our Point Beach Nuclear Plant, and the investment of nearly $750 million to improve our energy production and delivery system in Wisconsin and Michigan’s Upper Peninsula.
In January 2006, our board of directors voted to raise the dividend on our common stock by 4.5 percent. This is the third time in three years that we’ve been able to increase our dividend payments to you a reflection of the strong performance of our business and our confidence in our long-term business plan.
And as we turned the page on the new year, we were pleased to receive word that Forbes magazine named Wisconsin Energy one of the 10 best managed utilities in America.

Promise and Performance: Operational Highlights

As I mentioned earlier, we made significant progress on our Power the Future plan in 2005. In late June, the Supreme Court of Wisconsin reinstated an order from the Wisconsin Public Service Commission authorizing construction of two new coal-fired units at our site in Oak Creek, south of Milwaukee. With regulatory approvals secured, work began in earnest on this $2.2 billion project.
At our Port Washington site north of Milwaukee, the first of two new gas-fired units went into service on July 16 on time and on budget. This new power station, which was named best gas-fired project of the year by Power Engineering magazine, is a cornerstone of our promise to deliver reasonably priced energy and improved environmental performance for decades to come.
We’ll continue to move forward on the second unit at Port Washington this year. We expect to complete the project in time for the peak summer season in 2008.
Our nuclear units at Point Beach also achieved several milestones last year. In late December, the U.S. Nuclear Regulatory Commission extended the operating licenses for both units for an additional 20 years to 2030 and 2033, respectively. And Point Beach unit one set a plant record with 472 days of continuous operation before being taken out of service for normal refueling.

A Promising Economy

As we look back on the year, I believe it’s also important to note that nearly every sector of the Wisconsin economy posted gains during 2005. The state added some 37,700 jobs last year. In fact, according to the Bureau of Labor Statistics, Wisconsin added more jobs than nearly every neighboring state. Manufacturing and construction led the way, with the construction sector setting record employment levels during every month of 2005.
Our customer base and the demand for electricity and natural gas reflect this economic strength. We now serve 1.1 million electric customers in Wisconsin and upper Michigan and more than 1 million natural gas customers in Wisconsin. Our customers used 32.5 million megawatt hours of electricity last year underscoring the ongoing need for energy to power the region’s economy.
Promise and Performance: Customer Satisfaction and Reliability

Despite unprecedented volatility in the fuel markets that resulted in higher prices for electricity and natural gas, our customer satisfaction scores rose again in 2005. In the J.D. Power study of satisfaction among business customers, we ranked second in the Midwest and fifth out of 53 major electric utilities nationwide.
And in our own surveys, more customers were very satisfied with the company and with our services than in 2004.
We also maintained our status as one of the most reliable utilities in the country. In mid- September, one of the largest storms in the company’s history left nearly 128,000 of our customers without power. The response from our crews and those who traveled here to help was swift and effective. We restored power to 70 percent of those customers in 24 hours. And virtually all were back in service in a record time of less than 60 hours.
As part of our effort to become the industry leader in customer satisfaction, we also increased the number of follow-up calls we make to customers after a transaction or an outage. In addition, we expanded our Business Contact Center in 2005 to better serve the special needs of small businesses throughout our region.

A Promise for the Future

We know from the lessons of history and the success of great businesses that financial discipline, a solid growth plan, and a relentless focus on customer satisfaction lead to greater shareholder value. Our focus will be to make this enterprise even more valuable to our customers and stockholders in the year ahead. Thank you for your confidence and support

Locations and Subsidiaries of WISCONSIN ENERGY

Head Office
Wisconsin Energy
231 West Michigan Street
Milwaukee
WI 53203
United States
P: 1 414 221 2345
F: 1 414 221 2554
www.wisconsinenergy.com

Other Locations and Subsidiaries

Edison Sault Electric Company

725 East Portage Avenue

Sault Ste. Marie

MI 49783

United States

P: 1 906 632 2221

www.edisonsault.com

Northern Tree Service

2220 East 3 Mile Road

Sault Ste. Marie

MI 49783

United States

P: 1 906 635 9444

Minergy Corporation 1512 S. Commercial Street Neenah

Wisconsin 54956 United States

We Energies

231 West Michigan Street

Milwaukee

WI 53203

United States

Wispark Corporation 10411 Corporate Drive Suite 100 Pleasant Prairie WI 53158 United States P: 1 262 857 4661 F: 1 262 857 4669 www.wispark.com

Wivest Corporation Stone Ridge Drive Suite 100 Waukesha WI 53188 United States P: 1 414 225 6181 F: 1 414 225 6188 www.wivest.com

Top Competitors of WISCONSIN ENERGY

The following companies are the major competitors of Wisconsin Energy:

  • Ameren Corporation
  • American Electric Power Company, Inc.
  • Cinergy Corp.
  • CMS Energy Corporation
  • DTE Energy Company
  • MidAmerican Energy Holdings Company
  • Northeast Utilities
  • Alliant Energy Corp.
  • WPS Resources
  • Xcel Energy
  • Duke Energy Corporation

SWOT Analysis of WISCONSIN ENERGY

Wisconsin Energy Corporation is a diversified holding company engaged in electric generation; electric, natural gas, steam and water distribution; and other non utility businesses. The company’s strong retail presence, and diversified customer base reduces its business risk. However, the increasing coal and natural gas prices could reduce the operating margins of the company.

Strengths

Weaknesses

Diversified customer base Clean power generation assets Improving revenues

Declining profitability Decreasing cash from operations

Opportunities

Threats

Power the Future plan Increasing focus on renewable energy Projected increase in the demand for electricity Rate increases

Rising coal and natural gas prices Rising US interest rates Environmental regulations

Strengths

Diversified customer base

WEC serves about 1.1 million electric customers and about one million natural gas customers in Wisconsin. Wisconsin Electric provides electric utility service to a diversified base of customers in such industries as mining, paper, foundry, food products and machinery production, as well as to large retail chains. Edison Sault provides electric service to industrial accounts in the paper, crude oil pipeline and limestone quarry industries, as well as to several state and federal government facilities.
In fiscal 2005, retail electricity sales accounted for more than 90% of the total electric utility sales of 32.4 million megawatt hours. Furthermore, residential sales increased by about 6% in 2005, compared to 2004. The customer base of the company is well diversified, with no segment accounting for a high share of electricity sales. In fiscal 2005, the commercial/industrial customers accounted for 64.3% of total electricity

sales, while residential customers accounted for 26.4%. Commercial segment and others accounted for the remaining retail electricity sales. Strong retail sales partially insulates the company from the volatility in the wholesale segment.

Clean power generation assets

WEC has significant clean power generation assets. Nuclear power accounted for about 20% of its generation capacity in 2005, while natural gas accounted for about 3% of total generation capacity. Hydro power accounted for 2% of total generation capacity. In addition, the company has made recent investments in wind energy facilities. WEC would leverage its strong clean power generation assets to derive a cost advantage and improve its brand image.

Improving revenues

The company witnessed a double digit growth in revenues in fiscal 2005. Its revenues increased by about 12% in 2005, as compared to 2004. In addition, the utility segment’s revenues increased by 12.4% and the revenues of non utility segment more than doubled in fiscal 2005. Moreover, this would enable the company to increase its capital spending which was 4.1% during 2001-2005, higher than the industry average of 3.1%. Improving revenues would provide financial stability as well as enhance the company’s market position.

Weaknesses

Declining profitability

WEC’s profit margins have witnessed a marginal decline in recent years. The company’s operating profit margin decreased from 15.6% in 2004 to 14.7% in 2005, while its net profit margin decreased from 9% to 8.1%. In addition, the company’s margins also lagged behind the industry averages. Moreover, the company’s operating profit margin of 14.7% in 2005 was also significantly lower than that of its key competitors such as Duke Energy (21.6%), PPL Corporation (21.6%), Entergy (17.7%) and PSEG (16.8%). Relatively weak profitability suggests scope for improving operating efficiency and capital structure.

Decreasing cash from operations

WEC recorded a decline of about 4% in net cash flows from its operating activities for the fiscal year ending 2005. The net cash flows from operating activities have come down to $576.9 million in 2005, from $599 million in 2004. Declining cash flows from
operations may adversely affect the company’s liquidity and its ambitious growth plans in short term.
Opportunities

’Power the Future’ plan

WEC has been implementing the ’Power the Future’ plan for the period 2001-2010, to improve the supply and reliability of electricity in Wisconsin. Under Power the Future, the company plans to add new coal-fired and natural gas-fired generating capacity to the state’s power portfolio. As part of its Power the Future strategy, WEC plans to invest approximately $2.6 billion in 2,120 megawatts of new natural gas-fired and coal-fired generating capacity at existing sites; upgrade Wisconsin Electric’s existing electric generating facilities; and invest in upgrades of its existing energy distribution system.
Power the Future plan includes two 545 megawatt natural gas units at an existing site in Port Washington, Wisconsin. The first natural gas unit was placed into service in 2005. The second natural gas unit is expected to be operational in 2008. The construction of two 615 megawatt coal units at an existing site in Oak Creek, Wisconsin has been started, and the first coal unit is expected to be placed in service in 2009, followed by the second unit in 2010. When Power the Future is complete, the company expects to reduce emissions system by more than 65% while generating approximately 50% more electricity. The company’s earnings could grow significantly in the short term.

Increasing focus on renewable energy

Total renewable generation in the US, including combined heat and power generation, is projected to grow from 359 billion kWh in 2003 to 489 billion kWh in 2025, expanding by 1.4% per year through to 2025. The company has been increasing its focus on the renewable energy sources in recent years, as a part of the Power the Future plan. We Energies has targeted 5% of its retail electricity sales to be generated from renewable energy sources by 2011. In 2005, We Energies purchased the development rights for two wind farm projects in Wisconsin from Navitas Energy, which are expected to be online by 2008.
The proposed Blue Sky Green Field Wind Project will be located in the towns of Calumet and Marshfield in northeast Fond du Lac County. The wind project is being designed to generate up to 203 megawatts of electricity to power approximately 45,000 residential homes. Increasing focus on renewable energy projects would reduce its dependence on coal fired power generation capacity and improve its brand image.

Projected increase in the demand for electricity

The electricity demand in the Mid-America Interconnected Network (MAIN) region is expected to increase. Residential electricity demand in this region will increase from 79.8 billion kilowatt-hours in 2004 to 94.9 billion kilowatt-hours in 2014. The industrial electricity demand is expected to increase from 82.6 billion kilowatt-hours in 2004 to 93.5 billion kilowatt-hours in 2014. Total electricity sale (including residential, commercial/other, Industrial and transportation) in the region is expected to increase from 251.8 billion kilowatt-hours in 2004 to 302 billion kilowatt-hours in 2014.
In addition, the company also expects the total retail and municipal electric kilowatt-hour sales of utility energy segment to grow at an annual rate of 1.0% to 1.5% over the next five years. And the annual electric demand is expected to grow at a rate of 2.0% to 3.0% over the next five years in the company’s electric utility service territories. The total therm deliveries of natural gas are expected to grow at an annual rate of approximately 1.6% for the combined gas operations of Wisconsin Electric and Wisconsin Gas over the five-year period till 2010.The company could leverage the growing demand to drive its topline growth.

Rate increases

In July 2005, the company filed an electric and steam price increase request with the Public Service Commission of Wisconsin (PSCW). Under a limited rate proceeding, the company requested an increase in electric rates of $143.6 million for 2006, and an $8.8 million total increase in rates for steam over the two year period of 2006 and 2007. The requested electric rate increase included costs associated with the continued investment in Power the Future strategy; recovery of transmission costs incurred; additional sources of renewable energy; and a rate freeze for day to day operations of the electric system until 2008.
In October 2005, WEC filed a letter with the PSCW to include the additional increased cost of natural gas (in 2005) used for generation of electricity in the company’s pending 2006 pricing request. The PSCW considered these additional costs and approved an increase in electric rates of $222.0 million in January 2006. In addition, the PSCW approved an increase in steam rates of $7.8 million or 31.5% to be phased in over the two year period of 2006 and 2007. These rate increases became effective on January 26, 2006 and are expected to boost the company’s revenues in the short term.

Threats

Rising coal and natural gas prices

The company and its subsidiaries largely use coal and natural gas to generate electricity. Coal accounted for 57.6% of total generation capacity in 2005, while natural gas accounted for about 3%. The price of both these commodities has been rising in the last three years. The average spot price for natural gas at the Henry Hub rose from $5.2 per thousand cubic feet (mcf) in September 2004 to $6.33 per mcf in June 2006. Natural gas prices are likely to rise substantially through 2007. Increased natural gas costs increase the risk that customers will switch to alternative sources of fuel or reduce their usage.
Prices of coal too have increased. The price of Central Appalachia coal (one of the key coal supply bases in the US) was, towards the end of 2004, at its highest level in more than a decade at $65 per ton versus $30 per ton in 2002. Although coal prices have recently come off highs, they are still substantial at $50 per ton in June 2006. The company’s total operating expenses increased by about 13% in fiscal 2005, and its fuel and purchased power costs increased by about 31%. Rising coal and natural gas prices are likely to put pressure on the margins of the company.

Rising US interest rates

The US, the company’s market has seen 17 successive interest rate hikes over the past few years leading to the current high of 5.25%. Inflation fears in US may see another raise in the short-term. A one-percentage point change in interest rates would cause the company’s annual interest expense to increase or decrease by approximately $4.6 million before taxes from short-term borrowings and $1.9 million before taxes from variable rate long-term debt outstanding. This in turn could negatively affect its financing costs and offset some of the positive developments in the US for the growth of the company.

Environmental regulations

WEC is subject to several environmental regulations relating to air emissions such as carbon dioxide, sulfur dioxide, nitrogen oxide, small particulates and mercury, water discharges and management of hazardous and solid waste. The company incurs significant expenditures for the installation of pollution control equipment, environmental monitoring and emissions fees. Moreover, the company’s coal fired power generation capacity accounted for about 57.6% in 2005. Due to this, it may have to reckon with higher environmental compliance costs in the coming years
because of higher emissions from coal generation than clean-burning fuels such as natural gas.
WEC may also be forced to replace its coal fired generation capacity with clean power generation capacity at a considerable cost in the coming years. For instance, the company’s 225-megawatt coal-fired plant was recently replaced by Port Washington Generating Station, which is a natural gas combined-cycle unit.

Environmental compliance costs of Wisconsin Electric were approximately $153 million in 2005 compared with $78 million in 2004. These expenditures are expected to be $83 million during 2006, reflecting nitrogen oxide (NOx), sulfur dioxide (SO2) and other pollution control equipment needed to comply with the US Environmental Protection Agency (EPA) regulations. Greater environmental awareness and stringent regulations could lead to higher operating expenses and capital expenditures by the company for environmental compliance. This will adversely affect the operating margins of the company.