INTEGRYS ENERGY GROUP, INC. | 2013 | FY | 3

Discontinued Operations

Discontinued Operations at Holding Company and Other Segment

During 2013, 2012, and 2011, we recorded a $5.9 million after-tax gain, a $1.8 million after-tax gain, and a $0.5 million after-tax loss, respectively, in discontinued operations at the holding company and other segment. We remeasured uncertain tax positions included in our liability for unrecognized tax benefits after effectively settling certain state income tax examinations.

Discontinued Operations at Integrys Energy Services Segment

Potential Sale of Combined Locks Energy Center

Integrys Energy Services is currently pursuing the sale of the Combined Locks Energy Center (Combined Locks), a natural gas-fired co-generation facility located in Wisconsin, as part of its long-term energy asset strategy. An agreement to sell Combined Locks is expected to be entered into during the first half of 2014.

The carrying values of the major classes of assets related to Combined Locks classified as held for sale on the balance sheets were as follows at December 31:
(Millions)
 
2013
 
2012
Inventories
 
$
0.5

 
$
0.5

Property, plant, and equipment, net of accumulated depreciation of $ – and $0.5, respectively
 
0.2

 
2.0

Total assets
 
$
0.7

 
$
2.5



The following table shows the components of discontinued operations related to Combined Locks recorded on the income statements:
(Millions)
 
2013
 
2012
 
2011
Nonregulated revenues
 
$
(0.1
)
 
$
0.3

 
$
7.9

Nonregulated cost of sales
 
(0.2
)
 
(0.5
)
 
(2.0
)
Operating and maintenance expense
 
(2.1
)
 
(0.5
)
 
(0.7
)
Depreciation and amortization expense
 
—

 
(0.2
)
 
(0.3
)
Taxes other than income taxes
 
—

 
(0.1
)
 
(0.2
)
Income (loss) before taxes
 
(2.4
)
 
(1.0
)
 
4.7

(Provision) benefit for income taxes
 
1.1

 
0.4

 
(1.8
)
Discontinued operations, net of tax
 
$
(1.3
)
 
$
(0.6
)
 
$
2.9



Sale of WPS Beaver Falls Generation, LLC and WPS Syracuse Generation, LLC

In March 2013, WPS Empire State, Inc., a subsidiary of Integrys Energy Services, sold all of the membership interests of WPS Beaver Falls Generation, LLC (Beaver Falls) and WPS Syracuse Generation, LLC (Syracuse), both of which owned natural gas-fired generation plants located in the state of New York. The cash proceeds from the sale were $1.6 million. The sale agreement also included a potential annual payment to Integrys Energy Services for a four-year period following the sale based on a certain level of earnings achieved by the buyer (an earn-out). Integrys Energy Services recorded a pre-tax impairment loss of $1.1 million ($0.7 million after tax) related to Beaver Falls and Syracuse during 2012 when the assets and liabilities were classified as held for sale. This impairment loss is reflected in operating and maintenance expense in the table below.

The carrying values of the major classes of assets and liabilities related to Beaver Falls and Syracuse classified as held for sale on the balance sheet were as follows:
 
 
As of the Closing Date
 
As of
(Millions)
 
 in March 2013
 
December 31, 2012
Inventories
 
$
1.8

 
$
1.8

Other current assets
 
0.2

 
—

Property, plant, and equipment
 
5.7

 
5.7

Other long-term assets
 
0.1

 
0.1

Total assets
 
$
7.8

 
$
7.6

 
 
 
 
 
Total liabilities – other current liabilities
 
$
0.4

 
$
0.2



In conjunction with the sale, the buyer assumed certain derivative contracts from WPS Empire State, Inc. Integrys Energy Services maintained these contracts to satisfy certain capacity obligations for its retail electric business and sales to external counterparties. The carrying value of the derivative contract liabilities assumed by the buyer was $6.8 million at closing.

The following table shows the components of discontinued operations related to Beaver Falls and Syracuse recorded on the income statements:
(Millions)
 
2013
 
2012
 
2011
Nonregulated revenues
 
$
1.2

 
$
0.6

 
$
5.0

Nonregulated cost of sales
 
(0.9
)
 
(2.0
)
 
(2.3
)
Operating and maintenance expense
 
0.4

*
(3.5
)
 
(3.3
)
Depreciation and amortization expense
 
—

 
(0.6
)
 
(0.7
)
Taxes other than income taxes
 
(0.3
)
 
(1.4
)
 
(0.9
)
Miscellaneous income
 
—

 
0.3

 
—

Income (loss) before taxes
 
0.4

 
(6.6
)
 
(2.2
)
(Provision) benefit for income taxes
 
(0.2
)
 
2.6

 
0.9

Discontinued operations, net of tax
 
$
0.2

 
$
(4.0
)
 
$
(1.3
)

*
Includes a $1.0 million gain on sale at closing

The sale of Beaver Falls and Syracuse may generate immaterial cash flows from a four-year annual earn-out payment. In addition, Integrys Energy Services will continue to settle certain forward financial natural gas swaps under contracts that existed at the time of sale. These settlements will generate cash flows, of which the majority will expire within two years of the sale, and are not considered significant to the overall operations of Beaver Falls and Syracuse. Integrys Energy Services also maintained derivative contracts with Beaver Falls and Syracuse to satisfy certain capacity obligations for its retail electric business and sales to external counterparties. However, a significant portion of these obligations have been novated to the buyer. Integrys Energy Services does not have the ability to significantly influence the operating or financial policies of Beaver Falls and Syracuse and also does not have significant continuing involvement in the operations of Beaver Falls and Syracuse. Therefore, the continuing cash flows discussed above are not considered direct cash flows of Beaver Falls and Syracuse.

Sale of WPS Westwood Generation, LLC

In November 2012, Sunbury Holdings, LLC, a subsidiary of Integrys Energy Services, sold all of the membership interests of WPS Westwood Generation, LLC (Westwood), a waste coal generation plant located in Pennsylvania. The cash proceeds related to the sale were $2.6 million. Integrys Energy Services also received a $4.0 million note receivable from the buyer with a seven and one-half year term. Integrys Energy Services recorded a pre-tax impairment loss of $8.4 million ($5.0 million after tax) related to Westwood during the third quarter of 2012 when the assets and liabilities were classified as held for sale. This impairment loss is reflected in operating and maintenance expense in the table below.

The carrying values of the major classes of assets and liabilities related to Westwood classified as held for sale on the balance sheet were as follows:
 
 
As of the Closing Date
(Millions)
 
 in November 2012
Inventories
 
$
1.0

Current assets from risk management activities
 
0.1

Property, plant, and equipment
 
5.5

Other long-term assets
 
1.1

Total assets
 
$
7.7

 
 
 
Total liabilities – long-term liabilities from risk management activities
 
$
0.1



The following table shows the components of discontinued operations related to Westwood recorded on the income statements:
(Millions)
 
2012
 
2011
Nonregulated revenues
 
$
9.2

 
$
12.4

Nonregulated cost of sales
 
(4.4
)
 
(5.6
)
Operating and maintenance expense
 
(14.3
)
*
(5.7
)
Depreciation and amortization expense
 
(1.0
)
 
(1.4
)
Taxes other than income taxes
 
(0.2
)
 
(0.2
)
Miscellaneous income
 
—

 
0.1

Interest expense
 
(0.7
)
 
(0.6
)
Loss before taxes
 
(11.4
)
 
(1.0
)
Benefit for income taxes
 
4.5

 
0.3

Discontinued operations, net of tax
 
$
(6.9
)
 
$
(0.7
)

*
Includes a $0.6 million loss on sale at closing

Integrys Energy Services will receive interest income for seven and one-half years from the sale date related to the note receivable from the buyer. Integrys Energy Services does not have the ability to significantly influence the operating or financial policies of Westwood and also does not have significant continuing involvement in the operations of Westwood. Therefore, the continuing cash flows discussed above are not considered direct cash flows of Westwood.

Sale of Energy Management Consulting Business

During 2011, Integrys Energy Services recorded a $0.1 million after-tax gain in discontinued operations when contingent payments were earned related to the 2009 sale of its energy management consulting business.

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