A judge’s ruling that could postpone the $2.15 billion expansion of Wisconsin Energy Corp.’s Oak Creek power plant also could put additional pressure on the company to sell its non-utility assets, such as its Wispark LLC commercial real estate division in Milwaukee, according to utility industry analysts.
"If you can monetize that business (Wispark) to provide capital for your core business, that is something for consideration," said Robert Bellemare, chief executive officer of Utilipoint, an Albuquerque, N.M.-based utility industry consulting firm. "It would not surprise me at all. Other utilities have shored up their balance sheets by selling off some of these (non-utility) assets. I could see why they would do it."
"The core future of the company is A, its utility business, and B, its Power the Future plan. Its other businesses, which include Wispark and a few generation plants outside of Wisconsin, are assets or businesses we could see being sold to fund the growth of the utility business and the Power the Future plan," said Michael Lapides, an equities analyst at New Orleans-based Hibernia Southcoast Capital who covers Wisconsin Energy.
David Parker, an equities analyst who covers Wisconsin Energy Corp. for Robert W. Baird & Co. Inc., said he would not be surprised if the utility company sold Wispark, "if someone walked in with an offer they couldn’t refuse."
Like all publicly traded companies, Wisconsin Energy is under incessant pressure to maintain and improve its quarterly stock price, revenues, net income and dividends for shareholders.
That pressure is likely to increase as the costs of the Oak Creek plan continue to increase, industry analysts say.
Dane County Circuit Court Judge David Flanagan at least temporarily short-circuited Wisconsin Energy Corp.’s Power the Future plan by ruling Nov. 29 that the company and the Public Service Commission of Wisconsin (PSCW) had not met all of the state’s permitting requirements for the Oak Creek proposal.
The company’s We Energies utility subsidiary filed a motion Dec. 14 for a direct, expedited appeal to the Wisconsin Supreme Court. The company asked the Supreme Court to consider and resolve the case before April 30.
"This appeal presents a clear and exigent need for prompt, ultimate resolution of matters involving substantial public importance to Wisconsin," the company stated in the court filing.
The company said Flanagan’s decision was a "novel and erroneous rewriting" of the PSCW’s regulations.
"Construction costs associated with the facilities will increase drastically, resulting in increased costs that could reach hundreds of millions of dollars for Wisconsin households and businesses," the company stated.
Wisconsin Energy Corp.’s construction costs for the Oak Creek project are locked in, but if the project is delayed, those prices likely will increase later in 2005, according to one industry analyst who asked not to be identified. A significant portion of those cost increases would be borne by ratepayers, he said.
"It’s a delay that can be costly, because the costs of some of the (raw) materials can go higher," Bellamare said.
Gale Klappa, Wisconsin Energy Corp. chairman, president and chief executive officer, told WisBusiness.com recently that a one-year delay in the permitting process for the Oak Creek project could add about $150 million to the costs.
"That’s if we cannot break ground by May 1. This would have very dramatic impacts to customers," Klappa told WisBusiness.com, a media partner of Small Business Times.
Baird’s Parker said he doubted shareholders would be asked to carry the burden of the rising costs. Baird owns shares in Wisconsin Energy Corp.
If investors don’t pay for the increased costs, that would only leave one other party to hold the bag – ratepayers.
"As costs go up with the Oak Creek plant, I wouldn’t expect the shareholders to eat that," Parker said. "As investors, we’d be highly disappointed."
Thus, Wispark could be sold to ease the burden on ratepayers, analysts said.
The sale of Wispark in 2005 would add yet another layer of complications to the PabstCity project at the former Pabst Brewing Co. site on Milwaukee’s near west side.
Wispark is a major partner in the PabstCity project.
The project has been riddled with problems, including a lawsuit filed by minority partner Brew City Redevelopment Group LLC and a lawsuit filed by Pabst Brewing Co. over the use of the Pabst name.
Wispark’s reported requests for substantial tax incremental financing (TIF) assistance for the PabstCity project also have been criticized by city officials.
One analyst who asked not to be identified said the problems with
PabstCity "might not be worth the trouble" to Wisconsin Energy Corp., making it even more likely that Wispark will be sold.
Divesting non-utility assets has been an ongoing corporate strategy for Wisconsin Energy, which completed the sale of its WICOR Industries subsidiary to Pentair Inc. of Golden Valley, Minn., for $850 million and the assumption of $25 million in debt in July.
"The transaction marks another milestone in our strategy to sell non-core businesses. We will use the proceeds to strengthen our balance sheet, fund the construction of necessary electric and gas infrastructure in Wisconsin and create value for our shareholders," Klappa said in a prepared statement when the WICOR sale was completed.
Wisconsin Energy also has been reducing the operations of its Wisvest subsidiary, which owns and has investments in electric generating facilities and other energy-related entities and assets.
Wispark recently formed a joint venture with CenterPoint Venture LLC to consolidate their fully improved land holdings in the Interstate 94 corridor north of Chicago, including the LakeView Corporate Park and the GrandView Business Park, which were formerly owned by Wispark.
Wisconsin Energy Corp. spokeswoman Margaret Stanfield acknowledged the company’s ongoing strategy of shedding its non-utility assets, but declined to comment on the possible sale of Wispark.
"We have a number of non-core assets we have sold. The rest of what you’re talking about now, it’s not appropriate for met to comment on right now," Stanfield said.
Although Wispark remains a high-profile player on the Milwaukee commercial real estate scene, its prominence within the Wisconsin Energy portfolio has been fading. From September 2000 through Dec. 31, 2003, Wispark reduced its commercial real estate holdings from $373.1 million to $159.5 million, according to the corporation’s annual report. During fiscal 2003, Wispark contributed $11.6 million in consolidated revenues to the parent company, down from $18.2 million in 2002.
Bellamare pointed to Wisconsin Energy’s visual slide show it has been presenting at recent national investment conferences, including meetings with Lehman Brothers, Merrill Lynch, Goldman Sachs and Deutsche Bank, in which the company estimated it will gain about $1.1 billion from the sale of assets between 2003 and 2008.
The Milwaukee real estate development community has mixed views about the impact the sale of Wispark would have in the market.
"It would take away one of the major players in development," said Scott Welsh, president of Milwaukee-based Inland Cos. "It will be a void. I personally think Wispark has done a lot, and hopefully, PabstCity will come together."
Welsh said Wispark’s "deep pockets" make it possible to tackle large-scale projects such as PabstCity, which will have substantial environmental remediation and reconstruction costs.
"Projects like PabstCity need a fair amount of capital," Welsh said.
Roger Siegel, executive vice president of The Polacheck Co. Inc., a C.B. Richard Ellis Co., said he would not be surprised to see Wispark be unloaded by Wisconsin Energy Corp.
"I think Wispark has been anticipating this for a long time," Siegel said, adding that he did not anticipate the sale of Wispark having a substantial impact on the Milwaukee commercial real estate market. "The assets are there. It doesn’t make any difference who owns the dirt."
Wispark LLC
Wispark LLC was formed as a subsidiary of Wisconsin Energy Corp. in 1987 with the development of the LakeView Corporate Park in Pleasant Prairie.
In Wispark’s first five years, the company evolved from being a land developer into a full-service, real estate development company. During that period, Wispark created additional master-planned business parks, including the Business Park of Kenosha, the GrandView Business Park in the Town of Yorkville and the NorthWest Corporate Park in Elgin. Ill.
Wispark also has been involved in several high-profile commercial real estate projects in southeastern Wisconsin, including: Gaslight Pointe, a project to redevelop an area along Lake Michigan in downtown Racine featuring housing, marina, offices and a hotel and restaurant; and housing and retail space developments in Milwaukee, including a historic preservation project that renovated the downtown Boston Store for retail, office and apartments. In addition, the company is a partner in the PabstCity project on Milwaukee’s near west side.
Wispark recently formed a joint venture with CenterPoint Venture LLC to consolidate their fully improved land holdings in the Interstate 94 corridor north of Chicago, including the LakeView Corporate Park and the GrandView Business Park, which were formerly owned by Wispark.
January 7, 2005, Small Business Times, Milwaukee, WI
