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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ___________________

Commission
File Number
Registrant; State of Incorporation;
Address; and Telephone Number
IRS Employer
Identification No.
001-03016WISCONSIN PUBLIC SERVICE CORPORATION39-0715160
(A Wisconsin Corporation)
2830 South Ashland Avenue
P.O. Box 19001
Green Bay, WI 54307-9001
(800) 450-7260


Securities registered pursuant to Section 12(b) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

    Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

    Yes     No




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

    Yes     No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Common Stock, $4 par value,
23,896,962 shares outstanding at
March 31, 2022

All of the common stock of Wisconsin Public Service Corporation is held by Integrys Holding, Inc., a wholly owned subsidiary of WEC Energy Group, Inc.


Table of Contents
WISCONSIN PUBLIC SERVICE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2022
TABLE OF CONTENTS

  Page
   Page 

03/31/2022 Form 10-Q
i
Wisconsin Public Service Corporation

Table of Contents
GLOSSARY OF TERMS AND ABBREVIATIONS

The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:
Affiliates
IntegrysIntegrys Holding, Inc.
WEWisconsin Electric Power Company
WEC Energy GroupWEC Energy Group, Inc.
Federal and State Regulatory Agencies
CBPUnited States Customs and Border Protection Agency
DOCUnited States Department of Commerce
EPAUnited States Environmental Protection Agency
PSCWPublic Service Commission of Wisconsin
SECUnited States Securities and Exchange Commission
WDNRWisconsin Department of Natural Resources
Accounting Terms
ASUAccounting Standards Update
FASBFinancial Accounting Standards Board
GAAPUnited States Generally Accepted Accounting Principles
OPEBOther Postretirement Employee Benefits
Environmental Terms
ACEAffordable Clean Energy
BATWBottom Ash Transport Water
BTABest Technology Available
CAAClean Air Act
CASACClean Air Scientific Advisory Committee
CO2
Carbon Dioxide
ELGSteam Electric Effluent Limitation Guidelines
GHGGreenhouse Gas
NAAQSNational Ambient Air Quality Standards
NOVNotice of Violation
NOxNitrogen Oxide
WOTUSWaters of the United States
WPDESWisconsin Pollutant Discharge Elimination System
Measurements
DthDekatherm
MWMegawatt
MWhMegawatt-hour
Other Terms and Abbreviations
AD/CVDAntidumping and Countervailing Duties
AMIAdvanced Metering Infrastructure
Badger Hollow IBadger Hollow Solar Park I
COVID-19Coronavirus Disease – 2019
D.C. Circuit Court of AppealsUnited States Court of Appeals for the District of Columbia Circuit
ESG Progress PlanWEC Energy Group's Capital Investment Plan for Efficiency, Sustainability, and Growth for 2022-2026
EVElectric Vehicle
Exchange ActSecurities Exchange Act of 1934, as amended
Executive Order 13990Executive Order 13990 of January 20, 2021 – Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis
FTRFinancial Transmission Right
ITCInvestment Tax Credit
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LIBORLondon Interbank Offered Rate
MISOMidcontinent Independent System Operator, Inc.
PTCProduction Tax Credit
RICEReciprocating Internal Combustion Engine
RNGRenewable Natural Gas
Supreme CourtUnited States Supreme Court
Tax LegislationTax Cuts and Jobs Act of 2017
West RiversideWest Riverside Energy Center
WhitewaterWhitewater Cogeneration Facility
WROWithhold Release Order
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

In this report, we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, and future events or performance. These statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by the use of terms such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goals," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects," "seeks," "should," "targets," "will," or variations of these terms.

Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of capital projects, sales and customer growth, rate actions and related filings with regulatory authorities, environmental and other regulations, including associated compliance costs, legal proceedings, effective tax rates, pension and OPEB plans, fuel costs, sources of electric energy supply, coal and natural gas deliveries, remediation costs, climate-related matters, the ESG Progress Plan, liquidity and capital resources, and other matters.

Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the statements. These risks and uncertainties include those described in risk factors as set forth in our 2021 Annual Report on Form 10-K, and those identified below:

Factors affecting utility operations such as catastrophic weather-related damage, environmental incidents, unplanned facility outages and repairs and maintenance, and electric transmission or natural gas pipeline system constraints;

Factors affecting the demand for electricity and natural gas, including political or regulatory developments, varying, adverse, or unusually severe weather conditions, including those caused by climate change, changes in economic conditions, customer growth and declines, commodity prices, energy conservation efforts, and continued adoption of distributed generation by customers;

The timing, resolution, and impact of rate cases and negotiations, including recovery of deferred and current costs and the ability to earn a reasonable return on investment, and other regulatory decisions impacting our regulated operations;

The impact of federal, state, and local legislative and/or regulatory changes, including changes in rate-setting policies or procedures, deregulation and restructuring of the electric and/or natural gas utility industries, transmission or distribution system operation, the approval process for new construction, reliability standards, pipeline integrity and safety standards, allocation of energy assistance, energy efficiency mandates, and tax laws, including those that affect our ability to use PTCs and ITCs;

Federal, state, and local legislative and regulatory changes relating to the environment, including climate change and other environmental regulations impacting generation facilities and renewable energy standards, the enforcement of these laws and regulations, changes in the interpretation of regulations or permit conditions by regulatory agencies, and the recovery of associated remediation and compliance costs;

The ability to obtain and retain customers, including wholesale customers, due to increased competition in our electric and natural gas markets from retail choice and alternative electric suppliers, and continued industry consolidation;

The timely completion of capital projects within budgets and the ability to recover the related costs through rates;

The risk of delays and shortages, and increased costs of equipment, materials, or other resources that are critical to our business operations and corporate strategy, as a result of supply chain disruptions, inflation, and other factors;

The impact of health pandemics, including any new developments relating to the COVID-19 pandemic, on our business functions, financial condition, liquidity, and results of operations;

Factors affecting the implementation of WEC Energy Group's CO2 emission and/or methane emission reduction goals and opportunities and actions related to those goals, including related regulatory decisions, the cost of materials, supplies, and labor, technology advances, the feasibility of competing generation projects, and the ability to execute WEC Energy Group's capital plan;
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The financial and operational feasibility of taking more aggressive action to further reduce GHG emissions in order to limit future global temperature increases;

The risks associated with inflation and changing commodity prices, including natural gas and electricity;

The availability and cost of sources of natural gas and other fossil fuels, purchased power, materials needed to operate environmental controls at our electric generating facilities, or water supply due to high demand, shortages, transportation problems, nonperformance by electric energy or natural gas suppliers under existing power purchase or natural gas supply contracts, or other developments;

Any impacts on the global economy, supply chains and fuel prices, generally, from the ongoing conflict between Russia and Ukraine;

Changes in credit ratings, interest rates, and our ability to access the capital markets, caused by volatility in the global credit markets, our capitalization structure, and market perceptions of the utility industry or us;

Changes in the method of determining LIBOR or the replacement of LIBOR with an alternative reference rate;

Costs and effects of litigation, administrative proceedings, investigations, settlements, claims, and inquiries;

The direct or indirect effect on our business resulting from terrorist attacks and cyber security intrusions, as well as the threat of such incidents, including the failure to maintain the security of personally identifiable information, the associated costs to protect our utility assets, technology systems, and personal information, and the costs to notify affected persons to mitigate their information security concerns and to comply with state notification laws;

The risk of financial loss, including increases in bad debt expense, associated with the inability of our customers, counterparties, and affiliates to meet their obligations;

Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters;

The investment performance of our employee benefit plan assets, as well as unanticipated changes in related actuarial assumptions, which could impact future funding requirements;

Factors affecting the employee workforce, including loss of key personnel, internal restructuring, work stoppages, and collective bargaining agreements and negotiations with union employees;

Advances in technology, and related legislation or regulation supporting the use of that technology, that result in competitive disadvantages and create the potential for impairment of existing assets;

The risk associated with the values of goodwill, other intangible assets, long-lived assets, and equity method investments, and their possible impairment;

Potential business strategies to acquire and dispose of assets, which cannot be assured to be completed timely or within budgets;

The timing and outcome of any audits, disputes, and other proceedings related to taxes;

The effect of accounting pronouncements issued periodically by standard-setting bodies; and

Other considerations disclosed elsewhere herein and in other reports we file with the SEC or in other publicly disseminated written documents.

Except as may be required by law, we expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED INCOME STATEMENTS (Unaudited)Three Months Ended
March 31
(in millions)20222021
Operating revenues$478.9 $405.3 
Operating expenses
Cost of sales227.5 168.1 
Other operation and maintenance83.7 95.4 
Depreciation and amortization49.7 46.0 
Property and revenue taxes10.9 10.2 
Total operating expenses371.8 319.7 
Operating income107.1 85.6 
Other income, net10.1 8.6 
Interest expense16.6 16.2 
Other expense(6.5)(7.6)
Income before income taxes100.6 78.0 
Income tax expense24.0 8.7 
Net income $76.6 $69.3 

The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.

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WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED BALANCE SHEETS (Unaudited)March 31,December 31,
(in millions, except share and per share amounts)20222021
Assets  
Current assets
Cash and cash equivalents$2.0 $2.4 
Accounts receivable and unbilled revenues, net of reserves of $12.1 and $11.1, respectively
230.3 226.6 
Accounts receivable from related parties22.2 26.1 
Materials, supplies, and inventories82.5 112.9 
Derivative assets27.6 22.2 
Prepaid taxes29.6 40.0 
Other11.0 12.3 
Current assets405.2 442.5 
Long-term assets
Property, plant, and equipment, net of accumulated depreciation and amortization of $1,810.7 and $1,808.4, respectively
5,119.7 5,098.6 
Regulatory assets343.7 347.9 
Goodwill36.4 36.4 
Pension and OPEB assets269.3 260.7 
Other50.2 49.6 
Long-term assets5,819.3 5,793.2 
Total assets$6,224.5 $6,235.7 
Liabilities and Equity 
Current liabilities
Short-term debt$135.0 $331.0 
Accounts payable105.0 130.8 
Accounts payable to related parties35.4 42.6 
Accrued interest21.5 10.1 
Other87.6 71.3 
Current liabilities384.5 585.8 
Long-term liabilities
Long-term debt1,690.9 1,690.6 
Deferred income taxes807.0 782.2 
Deferred ITCs74.8 74.8 
Regulatory liabilities732.0 735.5 
Environmental remediation liabilities93.3 95.0 
Other127.2 128.8 
Long-term liabilities3,525.2 3,506.9 
Commitments and contingencies (Note 17)
Common shareholder's equity
Common stock – $4 par value; 32,000,000 shares authorized; 23,896,962 shares issued and outstanding
95.6 95.6 
Additional paid in capital1,616.7 1,491.5 
Retained earnings602.5 555.9 
Common shareholder's equity2,314.8 2,143.0 
Total liabilities and equity$6,224.5 $6,235.7 

The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.
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WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)Three Months Ended
March 31
(in millions)20222021
Operating activities  
Net income$76.6 $69.3 
Reconciliation to cash provided by operating activities  
Depreciation and amortization49.7 46.0 
Deferred income taxes and ITCs, net20.6 23.3 
Change in –  
Accounts receivable and unbilled revenues, net(2.4)(3.7)
Materials, supplies, and inventories30.4 16.3 
Prepaid taxes10.4 2.4 
Amounts recoverable from customers (16.8)
Other current assets1.4 4.2 
Accounts payable(30.9)(2.9)
Accrued interest11.4 11.5 
Other current liabilities17.7 (25.8)
Other, net(21.3)(6.8)
Net cash provided by operating activities163.6 117.0 
Investing activities  
Capital expenditures(68.0)(71.2)
Proceeds from cash surrender value of life insurance4.4  
Payments for assets transferred from affiliates (5.1)
Other, net1.0 (0.9)
Net cash used in investing activities(62.6)(77.2)
Financing activities  
Change in short-term debt(196.0)(10.0)
Payment of dividends to parent(30.0)(30.0)
Equity contribution from parent125.0  
Other, net(0.4) 
Net cash used in financing activities(101.4)(40.0)
Net change in cash and cash equivalents(0.4)(0.2)
Cash and cash equivalents at beginning of period2.4 2.7 
Cash and cash equivalents at end of period$2.0 $2.5 

The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.

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WISCONSIN PUBLIC SERVICE CORPORATION

CONDENSED STATEMENTS OF EQUITY (Unaudited)
(in millions)Common StockAdditional Paid In CapitalRetained EarningsTotal Common Shareholder's Equity
Balance at December 31, 2021$95.6 $1,491.5 $555.9 $2,143.0 
Net income  76.6 76.6 
Equity contribution from parent 125.0  125.0 
Payment of dividends to parent   (30.0)(30.0)
Stock-based compensation and other 0.2  0.2 
Balance at March 31, 2022$95.6 $1,616.7 $602.5 $2,314.8 

(in millions)Common StockAdditional Paid In CapitalRetained EarningsTotal Common Shareholder's Equity
Balance at December 31, 2020$95.6 $1,436.4 $584.7 $2,116.7 
Net income  69.3 69.3 
Payment of dividends to parent   (30.0)(30.0)
Stock-based compensation and other 0.1  0.1 
Balance at March 31, 2021$95.6 $1,436.5 $624.0 $2,156.1 

The accompanying Notes to Condensed Financial Statements are an integral part of these financial statements.

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WISCONSIN PUBLIC SERVICE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
March 31, 2022

NOTE 1—GENERAL INFORMATION

Wisconsin Public Service Corporation serves approximately 458,100 electric customers and 338,800 natural gas customers.

As used in these notes, the term "financial statements" refers to the condensed financial statements. This includes the income statements, balance sheets, statements of cash flows, and statements of equity, unless otherwise noted. In this report, when we refer to "the Company," "us," "we," "our," or "ours," we are referring to Wisconsin Public Service Corporation.

Investments in companies not controlled by us, but over which we have significant influence regarding the operating and financial policies of the investee, are accounted for using the equity method.

We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC and GAAP. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. These financial statements should be read in conjunction with the financial statements and footnotes in our Annual Report on Form 10-K for the year ended December 31, 2021. Financial results for an interim period may not give a true indication of results for the year. In particular, the results of operations for the three months ended March 31, 2022, are not necessarily indicative of expected results for 2022 due to seasonal variations and other factors.

In management's opinion, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of our financial results.

NOTE 2—ACQUISITION

In accordance with Topic 805: Clarifying the Definition of a Business (ASU 2017-01), transactions are evaluated and are accounted for as acquisitions (or disposals) of assets or businesses, and transaction costs are capitalized in asset acquisitions.

Acquisition of Electric Generation Facility in Wisconsin

In November 2021, we, along with WE, signed an asset purchase agreement to acquire Whitewater, a commercially operational 236.5 MW dual fueled (natural gas and low sulfur fuel oil) combined cycle electrical generation facility in Whitewater, Wisconsin. WE currently purchases all of the capacity from this generation facility pursuant to a power purchase agreement. In December 2021, we, along with WE, filed an application with the PSCW for approval to acquire Whitewater. If approved, our share of the cost of this facility is estimated to be $36.3 million for 50% of the capacity. The transaction is expected to close in January 2023.

NOTE 3—OPERATING REVENUES

For more information about our operating revenues, see Note 1(d), Operating Revenues, in our 2021 Annual Report on Form 10-K.

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Disaggregation of Operating Revenues

The following tables present our operating revenues disaggregated by revenue source for our utility segment. We do not have any revenues associated with our other segment. We disaggregate revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Revenues are further disaggregated by electric and natural gas operations and then by customer class. Each customer class within our electric and natural gas operations have different expectations of service, energy and demand requirements, and can be impacted differently by regulatory activities within their jurisdictions.
Three Months Ended March 31
(in millions)20222021
Wisconsin Public Service Corporation
Electric utility$310.7 $271.4 
Natural gas utility166.9 132.3 
Total revenues from contracts with customers477.6 403.7 
Other operating revenues1.3 1.6 
Total operating revenues$478.9 $405.3 

Revenues from Contracts with Customers

Electric Utility Operating Revenues

The following table disaggregates electric utility operating revenues into customer class:
Three Months Ended March 31
(in millions)20222021
Residential$117.1 $101.9 
Small commercial and industrial97.3 84.1 
Large commercial and industrial63.3 55.2 
Other2.2 2.1 
Total retail revenues279.9 243.3 
Wholesale21.8 18.9 
Resale5.2 5.9 
Other utility revenues3.8 3.3 
Total electric utility operating revenues$310.7 $271.4 

Natural Gas Utility Operating Revenues

The following table disaggregates natural gas utility operating revenues into customer class:
Three Months Ended March 31
(in millions)20222021
Residential$102.1 $67.3 
Commercial and industrial62.8 38.7 
Total retail revenues164.9 106.0 
Transportation6.2 5.8 
Other utility revenues (1)
(4.2)20.5 
Total natural gas utility operating revenues$166.9 $132.3 

(1)Includes the revenues subject to our purchased gas recovery mechanism. The amounts for the three months ended March 31, 2021 reflect the higher natural gas costs that were incurred as a result of the extreme winter weather conditions in February 2021. As these amounts are billed to customers, they are reflected in retail revenues with an offsetting decrease in other utility revenues. In addition, during the first quarter of 2022 we over-collected natural gas costs due to these costs being lower than what was anticipated in rates.

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Other Operating Revenues

Other operating revenues consist primarily of the following:
Three Months Ended March 31
(in millions)20222021
Late payment charges$1.1 $1.1 
Alternative revenues (1)
0.2 0.5 
Total other operating revenues$1.3 $1.6 

(1)See Note 1(d), Operating Revenues, in our 2021 Annual Report on Form 10-K for more information on alternative revenues.

NOTE 4—CREDIT LOSSES

Our exposure to credit losses is related to our accounts receivable and unbilled revenue balances, which are generated from the sale of electricity and natural gas by our regulated utility operations. Our regulated utility operations are included in our utility segment. No accounts receivable and unbilled revenue balances were reported in the other segment at March 31, 2022 and December 31, 2021.

We evaluate the collectability of our accounts receivable and unbilled revenue balances considering a combination of factors. For some of our larger customers and also in circumstances where we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific allowance for credit losses against amounts due in order to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we use the accounts receivable aging method to calculate an allowance for credit losses. Using this method, we classify accounts receivable into different aging buckets and calculate a reserve percentage for each aging bucket based upon historical loss rates. The calculated reserve percentages are updated on at least an annual basis, in order to ensure recent macroeconomic, political, and regulatory trends are captured in the calculation, to the extent possible. Risks identified that we do not believe are reflected in the calculated reserve percentages, are assessed on a quarterly basis to determine whether further adjustments are required.

We monitor our ongoing credit exposure through active review of counterparty accounts receivable balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. To the extent possible, we work with customers with past due balances to negotiate payment plans, but will disconnect customers for non-payment as allowed by the PSCW, if necessary, and employ collection agencies and legal counsel to pursue recovery of defaulted receivables. For our larger customers, detailed credit review procedures may be performed in advance of any sales being made. We sometimes require letters of credit, parental guarantees, prepayments or other forms of credit assurance from our larger customers to mitigate credit risk.

We have included a table below that shows our gross third-party receivable balances and related allowance for credit losses.
(in millions)March 31, 2022December 31, 2021
Accounts receivable and unbilled revenues $242.4 $237.7 
Allowance for credit losses12.1 11.1 
Accounts receivable and unbilled revenues, net (1)
$230.3 $226.6 
Total accounts receivable, net – past due greater than 90 days (1)
$9.9 $8.0 
Past due greater than 90 days – collection risk mitigated by regulatory mechanisms (1)
95.8 %97.3 %

(1)Our exposure to credit losses for certain regulated utility customers is mitigated by a regulatory mechanism we have in place. Specifically, our residential tariffs include a mechanism for cost recovery or refund of uncollectible expense based on the difference between actual uncollectible write-offs and the amounts recovered in rates. As a result, at March 31, 2022, $113.9 million, or 49.5%, of our net accounts receivable and unbilled revenues balance had regulatory protections in place to mitigate the exposure to credit losses.

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A rollforward of the allowance for credit losses for the three months ended March 31, 2022 and 2021 is included below:
Three Months Ended
(in millions)March 31, 2022March 31, 2021
Balance at January 1$11.1 $18.3 
Provision for credit losses2.0 0.4 
Provision for credit losses deferred for future recovery or refund1.7 (0.1)
Write-offs charged against the allowance(3.9)(2.1)
Recoveries of amounts previously written off1.2 1.0 
Balance at March 31$12.1 $17.5 

NOTE 5—REGULATORY ASSETS AND LIABILITIES

The following regulatory assets and liabilities were reflected on our balance sheets at March 31, 2022 and December 31, 2021. For more information on our regulatory assets and liabilities, see Note 6, Regulatory Assets and Liabilities, in our 2021 Annual Report on Form 10-K.
(in millions)March 31, 2022December 31, 2021
Regulatory assets
Environmental remediation costs$119.0 $120.1 
Pension and OPEB costs70.7 74.1 
Income tax related items55.2 54.5 
Plant retirement related items48.1 50.2 
Asset retirement obligations15.7 14.2 
ReACT™14.9 15.6 
Energy efficiency programs7.6 6.1 
Uncollectible expense7.2 5.5 
Other, net5.3 7.6 
Total regulatory assets$343.7 $347.9 

(in millions)March 31, 2022December 31, 2021
Regulatory liabilities
Income tax related items$347.6 $352.7 
Removal costs 191.7 189.9 
Pension and OPEB benefits116.2 116.5 
Derivatives (1)
36.0 26.9 
Earnings sharing mechanism (2)
20.7 26.7 
Electric transmission costs (2)
15.1 19.7 
Energy costs refundable through rate adjustments (3)
12.6 8.4 
Other, net4.7 3.1 
Total regulatory liabilities$744.6 $743.9 
Balance sheet presentation
Other current liabilities$12.6 $8.4 
Regulatory liabilities732.0 735.5 
Total regulatory liabilities$744.6 $743.9 

(1)    For most energy-related physical and financial contracts that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities. See Note 12, Derivative Instruments, for more information on our derivative asset and liability balances.

(2)    The decrease in these regulatory liability balances was primarily related to the PSCW's approval of certain accounting treatments that allowed us to forego applying for a 2022 base rate increase, and instead maintain base rates consistent with 2021 levels. Among the accounting treatments approved was the amortization of certain regulatory liability balances in 2022, to offset a portion of our forecasted revenue deficiency. See Note 23, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on our 2022 base rates.

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(3)    The increase in these regulatory liabilities was primarily related to lower natural gas costs incurred in the first quarter of 2022, compared to what was anticipated in rates.

NOTE 6—PROPERTY, PLANT, AND EQUIPMENT

As a result of a MISO ruling received in June 2021, retirement of the jointly-owned Columbia generating units 1 and 2 became probable. Columbia generating units 1 and 2 are expected to be retired by the end of 2023 and 2024, respectively. The net book value of our ownership share of unit 1 and unit 2 was $87.9 million and $186.2 million, respectively, at March 31, 2022. These amounts were classified as plant to be retired within property, plant, and equipment on our balance sheets. These units are included in rate base, and we continue to depreciate them on a straight-line basis using the composite depreciation rates approved by the PSCW.

NOTE 7—COMMON EQUITY

Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to the sole holder of our common stock, Integrys, in the form of cash dividends, loans, or advances. In addition, Wisconsin law prohibits us from making loans to or guaranteeing obligations of WEC Energy Group, Integrys, or their subsidiaries. See Note 11, Common Equity, in our 2021 Annual Report on Form 10-K for additional information on these and other restrictions.

We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.

NOTE 8—SHORT-TERM DEBT AND LINES OF CREDIT

The following table shows our short-term borrowings and their corresponding weighted-average interest rates:
(in millions, except percentages)March 31, 2022December 31, 2021
Commercial paper
Amount outstanding$135.0 $331.0 
Weighted-average interest rate on amounts outstanding0.63 %0.21 %

Our average amount of commercial paper borrowings based on daily outstanding balances during the three months ended March 31, 2022 was $206.9 million with a weighted-average interest rate during the period of 0.24%.

The information in the table below relates to our revolving credit facility used to support our commercial paper borrowing program, including available capacity under this facility:
(in millions)MaturityMarch 31, 2022
Revolving credit facility (1)
September 2026$400.0 
Less:
Letters of credit issued inside credit facility$1.3 
Commercial paper outstanding135.0 
Available capacity under existing credit facility $263.7 

(1)    In April 2022, we received approval from the PSCW to extend the maturity of this facility to September 2026.

NOTE 9—MATERIALS, SUPPLIES, AND INVENTORIES

Our inventory consisted of:
(in millions)March 31, 2022December 31, 2021
Materials and supplies$52.2 $50.5 
Fossil fuel27.5 28.9 
Natural gas in storage2.8 33.5 
Total$82.5 $112.9 

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Substantially all materials and supplies, fossil fuel, and natural gas in storage inventories are recorded using the weighted-average cost method of accounting.

NOTE 10—INCOME TAXES

The provision for income taxes differs from the amount of income tax determined by applying the applicable United States statutory federal income tax rate to income before income taxes as a result of the following:
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(in millions)AmountEffective Tax RateAmountEffective Tax Rate
Statutory federal income tax$21.1 21.0 %$16.4 21.0 %
State income taxes net of federal tax benefit6.4 6.4 %4.9 6.3 %
Federal excess deferred tax amortization(1.6)(1.6)%(1.6)(2.1)%
Federal excess deferred tax amortization – Wisconsin unprotected(1.2)(1.2)%(10.5)(13.4)%
Other(0.7)(0.7)%(0.5)(0.6)%
Total income tax expense$24.0 23.9 %$8.7 11.2 %

The effective tax rate of 23.9% for the three months ended March 31, 2022, differs from the United States statutory federal income tax rate of 21%, primarily due to state income taxes. This item was partially offset by the impact of the protected deferred tax benefits associated with the Tax Legislation, as discussed in more detail below.

The effective tax rate of 11.2% for the three months ended March 31, 2021, differs from the United States statutory federal income tax rate of 21%, primarily due to the recognition of certain unprotected deferred tax benefits created as a result of the Tax Legislation. Effective January 1, 2020, in accordance with the rate order received from the PSCW in December 2019, we began amortizing the unprotected deferred tax benefits over periods ranging from two years to four years, to reduce near-term rate impacts to our customers. This item was partially offset by state income taxes.

The Tax Legislation required us to remeasure the deferred income taxes at our utility segment and we began to amortize the resulting excess protected deferred income taxes beginning in 2018 in accordance with normalization requirements (see federal excess deferred tax amortization line above).

See Note 23, Regulatory Environment, in our 2021 Annual Report on Form 10-K for additional information on unprotected tax benefits.

NOTE 11—FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

Fair value accounting rules provide a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are defined as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are observable, either directly or indirectly, but are not quoted prices included within Level 1. Level 2 includes those financial instruments that are valued using external inputs within models or other valuation methods.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methods that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to customers' needs.

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Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We use a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical measure for valuing certain derivative assets and liabilities. We primarily use a market approach for recurring fair value measurements and attempt to use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

When possible, we base the valuations of our derivative assets and liabilities on quoted prices for identical assets and liabilities in active markets. These valuations are classified in Level 1. The valuations of certain contracts not classified as Level 1 may be based on quoted market prices received from counterparties and/or observable inputs for similar instruments. Transactions valued using these inputs are classified in Level 2. Certain derivatives are categorized in Level 3 due to the significance of unobservable or internally-developed inputs.

The following tables summarize our financial assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
March 31, 2022
(in millions)Level 1Level 2Level 3Total
Derivative assets    
Natural gas contracts$22.4 $1.3 $ $23.7 
FTRs  0.6 0.6 
Coal contracts 5.8  5.8 
Total derivative assets$22.4 $7.1 $0.6 $30.1 
Derivative liabilities    
Natural gas contracts$ $0.1 $ $0.1 

December 31, 2021
(in millions)Level 1Level 2Level 3Total
Derivative assets
Natural gas contracts$6.5 $3.0 $ $9.5 
FTRs  1.4 1.4 
Coal contracts 15.3  15.3 
Total derivative assets$6.5 $18.3 $1.4 $26.2 
Derivative liabilities
Natural gas contracts$1.4 $0.2 $ $1.6 

The derivative assets and liabilities listed in the tables above include options, futures, physical commodity contracts, and other instruments used to manage market risks related to changes in commodity prices. They also include FTRs, which are used to manage electric transmission congestion costs in the MISO Energy and Operating Reserves Markets.

The following table summarizes the changes to derivatives classified as Level 3 in the fair value hierarchy:
 Three Months Ended March 31
(in millions)20222021
Balance at the beginning of the period$1.4 $1.2 
Purchases 0.1 
Settlements(0.8)(0.9)
Balance at the end of the period$0.6 $0.4 

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Fair Value of Financial Instruments

The following table shows the financial instruments included on our balance sheets that were not recorded at fair value:
 March 31, 2022December 31, 2021
(in millions)Carrying AmountFair ValueCarrying AmountFair Value
Long-term debt (1)
$1,659.0 $1,657.9 $1,659.3 $1,903.2 

(1)The carrying amount of long-term debt excludes finance lease obligations of $31.9 million and $31.3 million at March 31, 2022 and December 31, 2021, respectively.

The fair value of our long-term debt is categorized within Level 2 of the fair value hierarchy.

NOTE 12—DERIVATIVE INSTRUMENTS

We use derivatives as part of our risk management program to manage the risks associated with the price volatility of purchased power, generation, and natural gas costs for the benefit of our customers. Our approach is non-speculative and designed to mitigate risk. Our regulated hedging programs are approved by the PSCW.

We record derivative instruments on our balance sheets as an asset or liability measured at fair value unless they qualify for the normal purchases and sales exception and are so designated. We continually assess our contracts designated as normal and will discontinue the treatment of these contracts as normal if the required criteria are no longer met. Changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy-related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of fair value accounting to be offset to regulatory assets and liabilities.

None of our derivatives are designated as hedging instruments. On our balance sheets, we classify derivative assets and liabilities as current or long-term based on the maturities of the underlying contracts. Derivative assets and liabilities not shown separately on our balance sheets are included in the other current and other long-term line items. The following table shows our derivative assets and derivative liabilities.
 March 31, 2022December 31, 2021
(in millions)Derivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
Current
Natural gas contracts$23.0 $0.1 $9.2 $1.5 
FTRs0.6  1.4  
Coal contracts4.0  11.6  
Total current 27.6 0.1 22.2 1.5 
Long-term
Natural gas contracts0.7  0.3 0.1 
Coal contracts1.8  3.7  
Total long-term2.5  4.0 0.1 
Total$30.1 $0.1 $26.2 $1.6 

Realized gains (losses) on derivatives are primarily recorded in cost of sales on the income statements. Our estimated notional sales volumes and realized gains (losses) were as follows:
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(in millions)VolumesGainsVolumesGains (Losses)
Natural gas contracts
11.6 Dth
$5.2 
13.6 Dth
$(1.7)
FTRs
2.0 MWh
0.8 
2.7 MWh
0.9 
Total$6.0 $(0.8)

On our balance sheets, the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are not offset against the fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. At both March 31, 2022 and December 31, 2021, we had posted cash collateral of $6.3 million.
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These amounts were recorded on our balance sheets in other current assets. At March 31, 2022, we had also received cash collateral of $17.5 million. This amount was recorded on our balance sheet in other current liabilities.

The following table shows derivative assets and derivative liabilities if derivative instruments by counterparty were presented net on our balance sheets:
March 31, 2022December 31, 2021
(in millions)Derivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
Gross amount recognized on the balance sheet$30.1 $0.1 $26.2 $1.6 
Gross amount not offset on the balance sheet(17.5)
(1)
 (1.4)(1.4)
Net amount$12.6 $0.1 $24.8 $0.2 

(1)    Includes cash collateral received of $17.5 million.

NOTE 13—GUARANTEES

As of March 31, 2022, we had $20.6 million of standby letters of credit issued by financial institutions for the benefit of third parties that have extended credit to us, which automatically renew each year unless proper termination notice is given. These amounts are not reflected on our balance sheets.

NOTE 14—EMPLOYEE BENEFITS

The following tables show the components of net periodic benefit cost (credit) for our benefit plans.
 Pension Benefits
 Three Months Ended March 31
(in millions)20222021
Service cost$2.6 $3.0 
Interest cost5.7 5.5 
Expected return on plan assets(13.8)(12.9)
Amortization of net actuarial loss4.4 6.9 
Net periodic benefit cost (credit)$(1.1)$2.5 

 OPEB Benefits
 Three Months Ended March 31
(in millions)20222021
Service cost