ACQUISITIONS

Agreement to Purchase Alliant Energy Corporation's Natural Gas Distribution Business in Southeast Minnesota

In September 2013, MERC entered into an agreement to purchase Alliant Energy Corporation's natural gas distribution business in southeast Minnesota. This transaction is subject to state and federal regulatory approvals. The purchase price will be based on book value as of the closing date, and will be around $11 million. This acquisition will not be material to us.

Acquisition of Compass Energy Services

In May 2013, Integrys Energy Services acquired all of the equity interests of Compass Energy Services, Inc. and its wholly-owned subsidiary (Compass), a nonregulated retail natural gas business supplying commercial and industrial customers primarily in the Mid Atlantic and Ohio regions. This transaction expands Integrys Energy Services' retail natural gas presence and provides a solid foundation for future growth in these regions.

This acquisition was not material to us. Integrys Energy Services paid $12.4 million to acquire this business. Under the terms of the purchase agreement, the former owners of Compass will be eligible to receive additional cash consideration of up to $8.0 million (but no less than $3.0 million), based upon the financial performance of Compass over the next five years. Integrys Energy Services recorded liabilities of $7.7 million related to this contingent consideration.

The purchase price was allocated based on the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition, as follows:



(Millions)
Assets acquired
Inventories	$	0.7
Assets from risk management activities (current)	15.1
Other current assets	1.1
Assets from risk management activities (long-term)	9.3
Other long-term assets	6.1
Total assets acquired	$	32.3

Liabilities assumed
Liabilities from risk management activities (current)	$	8.3
Other current liabilities	0.5
Liabilities from risk management activities (long-term)	3.4
Total liabilities assumed	$	12.2

Acquisition of Fox Energy Center

In March 2013, WPS acquired all of the equity interests in Fox Energy Company LLC for $391.6 million. Fox Energy Company LLC was dissolved into WPS immediately after the purchase.

The purchase included the Fox Energy Center, a 593-megawatt combined-cycle electric generating facility located in Wisconsin, along with associated contracts. Fox Energy Center is a dual-fuel facility, equipped to use fuel oil, but expected to run primarily on natural gas. This plant gives WPS a more balanced mix of owned electric generation, including coal, natural gas, hydroelectric, wind, and other renewable sources. In giving its approval for the purchase, the PSCW stated that the purchase price was reasonable and will benefit ratepayers.

The purchase price was allocated based on the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition, as follows:



(Millions)
Assets acquired⁽¹⁾
Inventories	$	3.0
Other current assets	0.4
Property, plant, and equipment	374.4
Other long-term assets ⁽²⁾	15.6
Total assets acquired	$	393.4

Liabilities assumed
Accounts payable	$	1.8
Total liabilities assumed	$	1.8


⁽¹⁾	Relates to the electric utility segment.


⁽²⁾	Intangible assets recorded for contractual services agreements. See Note 8, "Goodwill and Other Intangible Assets," for more information.

Prior to the purchase, WPS supplied natural gas for the facility and purchased 500 megawatts of capacity and the associated energy output under a tolling arrangement. WPS paid $50.0 million for the early termination of the tolling arrangement. This amount was recorded as a regulatory asset, as WPS is authorized recovery by the PSCW. In the current rate case, WPS proposed amortizing the regulatory asset over a nine-year period, beginning January 1, 2014. This has not been challenged, and WPS expects PSCW approval in the final decision in this rate case.

The purchase was financed with a combination of short-term debt and cash provided by operations. WPS intends to replace the short-term debt in the fourth quarter of 2013 with long-term financing.

WPS received regulatory approval to defer incremental costs associated with the purchase of the facility. Operating costs for the Fox Energy Center subsequent to the date of acquisition are included in our income statement. Due to regulatory deferral, these costs had no impact on net income. Pro forma adjustments to our revenues and earnings prior to the date of acquisition would not be meaningful or material. Prior to the acquisition, the Fox Energy Center was a nonregulated plant and sold all of its output to third parties, with most of the output purchased by WPS. The plant is now part of WPS's regulated fleet, used to serve its customers.