WISCONSIN ELECTRIC POWER CO - Reference is made to Article III of the Restated Articles of Incorporation of WE. (See Exhibit 3.1 above.)

10-K
1
WISCONSIN ELECTRIC POWER COMPANY

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 1994

Commission file number 1-1245

------------
WISCONSIN ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)

Wisconsin 39-0476280
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

231 West Michigan Street, P.O. Box 2046, Milwaukee, Wisconsin 53201
(Address of principal executive offices) (Zip Code)

(414) 221-2345
(Registrant's telephone number, including area code)
------------

Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
----------------------------------------- ---------------------
None --

Securities Registered Pursuant to Section 12(g) of the Act:

PREFERRED STOCK, 3.60% SERIES, $100 PAR VALUE
SIX PER CENT. PREFERRED STOCK, $100 PAR VALUE
(Title of Class)
------------

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 X No
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
-------

The aggregate market value of the voting stock of the Registrant held by non-affiliates is approximately
$14,645,000 based on the reported last sale prices on March 1, 1995 or the average bid and asked prices
of such securities on or prior to such date.
------------

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

Class Outstanding at March 1, 1995
----- ----------------------------
COMMON STOCK, $10 PAR VALUE 33,289,327 Shares

Documents Incorporated by Reference
-----------------------------------

Portions of the Registrant's definitive Information Statement for its Annual Meeting of Stockholders to be
held on May 16, 1995, are incorporated by reference into Part III hereof.

WISCONSIN ELECTRIC POWER COMPANY

FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------

TABLE OF CONTENTS
-----------------

ITEM PAGE

PART I
------

1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 21
4. Submission of Matters to a Vote of Security Holders . . . . . . 24
Executive Officers of the Registrant . . . . . . . . . . . . . . 26

PART II
-------

5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . 29
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 30
Electric Revenue, Kilowatt-Hour Sales and
Customer Statistics . . . . . . . . . . . . . . . . . . . . . 31
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 32
8. Financial Statements and Supplementary Data . . . . . . . . . . 41
Report of Independent Accountants . . . . . . . . . . . . . . . 61
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 62

PART III
--------

10. Directors and Executive Officers of the Registrant . . . . . . . 62
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 62
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . 62
13. Certain Relationships and Related Transactions . . . . . . . . . 62

PART IV
-------

14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 62

Consent of Independent Accountants . . . . . . . . . . . . . . . 67
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

- 2 -
3

DEFINITIONS
-----------
Abbreviations and acronyms used in the text are defined below.

Abbreviations and Acronyms Term
-------------------------- ----

CO2.............................. Carbon Dioxide

CPCN............................. Certificate of Public Convenience and Necessity

DNR.............................. Wisconsin Department of Natural Resources

DOE.............................. U.S. Department of Energy

DSM.............................. Demand Side Management

EMFs............................. Electromagnetic Fields

EPA.............................. U.S. Environmental Protection Agency

EWGs............................. Exempt Wholesale Generators

FERC............................. Federal Energy Regulatory Commission

IPP.............................. Independent Power Producer

ISFSI............................ Independent Spent Fuel Storage Installation

MAPP............................. Mid-Continent Area Power Pool

MDNR............................. Michigan Department of Natural Resources

MPSC............................. Michigan Public Service Commission

MRMC............................. Milwaukee Regional Medical Center

MWh.............................. Megawatt-hour

NOx.............................. Nitrogen Oxide

NRC.............................. U.S. Nuclear Regulatory Commission

Point Beach...................... Point Beach Nuclear Plant

PRP.............................. Potentially Responsible Party

PSCR............................. Power Supply Cost Recovery

PSCW............................. Public Service Commission of Wisconsin

Repap............................ Repap Wisconsin, Inc.

SO2.............................. Sulfur Dioxide

Trust............................ Wisconsin Electric Fuel Trust (nuclear)

USEC............................. U.S. Enrichment Corporation

WED.............................. Wisconsin's Environmental Decade

Wisconsin Electric............... Wisconsin Electric Power Company

Wisconsin Energy................. Wisconsin Energy Corporation

Wisconsin Natural................ Wisconsin Natural Gas Company

WPPI............................. Wisconsin Public Power Inc. SYSTEM

WUMS............................. Wisconsin-Upper Michigan Systems

Yellowcake....................... Uranium Concentrates

- 3 -

4
PART I

ITEM 1. BUSINESS

Wisconsin Electric Power Company ("Wisconsin Electric" or "company") is an
operating public utility incorporated in the State of Wisconsin in 1896. Its
operations are conducted in two business segments, the primary operations of
which are as follows:

Business Segment Operations
---------------- ----------

Electric Operations Wisconsin Electric generates, transmits,
distributes and sells electric energy in a
territory of approximately 12,000 square
miles with a population estimated at over
2,200,000 in southeastern (including the
Milwaukee area), east central and northern
Wisconsin and in the Upper Peninsula of
Michigan.

Steam Operations Wisconsin Electric distributes and sells
steam supplied by its Valley Power Plant
to space heating and processing customers
in downtown and near southside Milwaukee.

For financial information about industry segments, see Note M to the Financial
Statements in Item 8 of this report.

Wisconsin Electric is a subsidiary of Wisconsin Energy Corporation ("Wisconsin
Energy"), which owns all of Wisconsin Electric's Common Stock, and is an
affiliated company to Wisconsin Natural Gas Company ("Wisconsin Natural"), the
gas utility subsidiary of Wisconsin Energy.

On October 11, 1994, Wisconsin Electric and Wisconsin Natural filed a joint
application with the Public Service Commission of Wisconsin ("PSCW") to merge
Wisconsin Natural into Wisconsin Electric. Wisconsin Electric also filed an
application to obtain the Michigan Public Service Commission's ("MPSC")
consent to assume Wisconsin Natural's liabilities in connection with the
merger. The merger, which was approved by the stockholders of Wisconsin
Electric in December 1994, is anticipated to be effective by year-end 1995.
The merger of Wisconsin Natural into Wisconsin Electric is expected to improve
customer service and reduce future operating costs.

ELECTRIC UTILITY OPERATIONS

Electric energy sales by Wisconsin Electric in 1994, to all classes of
customers, totaled 26.9 billion kilowatt-hours, a 4.8% increase over 1993. On
June 17, 1994, Wisconsin Electric experienced a new record peak demand of
4,950 megawatts during a period of unusually hot and humid summer weather.
The previous record of 4,797 megawatts occurred on August 27, 1991. Sales of
the electric utility are impacted by seasonal factors and varying weather
conditions from year-to-year.

There were 944,855 electric customers at December 31, 1994, an increase of 1.3
percent since December 31, 1993. For further information on revenues,
kilowatt-hour sales, and customer statistics by class, see "Electric Revenue,
Kilowatt-Hour Sales and Customer Statistics" on page 30 of this report.

- 4 -
5

ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)

In 1994, Wisconsin Electric's net generation amounted to 26.4 billion
kilowatt-hours. Generation was supplemented with 2.0 billion kilowatt-hours
purchased from neighboring utilities and, to a minor extent, from other
sources. The dependable capability of Wisconsin Electric's generating
stations was 5,288 megawatts in August, 1994 as more fully described in
Item 2. PROPERTIES.

In January 1994, Wisconsin Electric filed with the PSCW its long-term load and
supply plan as part of the Advance Plan 7 Docket. In the Advance Plan
process, the regulated electric utilities located in Wisconsin are required to
file, for planning purposes, long-term forecasts of future resource
requirements along with plans to meet those requirements, including the
planned implementation of energy management and conservation programs
("demand-side savings"). In addition to specifying the expectations of
conservation and load management programs, the plan filed with the PSCW
demonstrates Wisconsin Electric's need to add peaking and intermediate load
capacity during the 20-year planning period. Wisconsin Electric's next base
load power plant is not expected to be placed in-service until after 2010.
The PSCW began technical hearings on Advance Plan 7 in November, 1994. An
order is expected later in 1995. For additional information regarding Advance
Plans, see Item 1. BUSINESS - "REGULATION", Item 3. LEGAL PROCEEDINGS - "OTHER
LITIGATION" and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES".

Wisconsin Electric currently estimates peak demand in the year 2004 to be
about 5,200 megawatts assuming moderate growth in the economy and normal
weather. This estimate does not, however, reflect any potential modifications
to the current regulatory environment. Investments in demand-side management
("DSM") programs have reduced and delayed the need to add new generating
capacity but have not eliminated the need entirely. Purchases of power from
other utilities and transmission system upgrades will also combine to help
delay the need to install some new generating capacity in the future. To
partially meet the anticipated growth in peak demand requirements, Wisconsin
Electric is constructing a four unit, approximately 300 megawatt, peaking
power plant at its Paris Generating Station expected to be placed in service
by the summer of 1995 as described below. Wisconsin Electric also plans to
make additional investments in conservation-related programs during this
period.

Wisconsin Electric has completed the renovation of units 1-4 at its Port
Washington Power Plant at a cost of $107 million. The project, which began in
1991, included the installation of additional emission control equipment.

During the second quarter of 1994, two units, approximately 150 megawatts of
peaking capacity, were placed in service marking the completion of the new
Concord Generating Station. During 1993 two units, or approximately 150
megawatts of peaking capacity, had been placed in service at this facility.
Total capital costs of the four unit facility were approximately $107 million.

- 5 -
6

ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)

The 300 megawatt natural gas-fired combustion turbine peaking facility,
located near Watertown, Wisconsin is expected to run approximately 5% of the
time helping meet electric peak demand requirements.

During 1994, Wisconsin Electric continued construction of the Paris Generating
Station, a four unit, approximately 300 megawatt, gas-fired combustion turbine
power plant, to be placed in service during the summer of 1995. The cost of
this facility, located near Union Grove, Wisconsin, is currently estimated at
$104 million.

The supply of natural gas to operate the Concord and Paris units is to be
provided by Wisconsin Natural, an affiliated company, but may be purchased
from other suppliers with Wisconsin Natural providing gas transportation
services.

Wisconsin Electric and the Milwaukee Regional Medical Center ("MRMC"),
received preliminary approval from Milwaukee County on September 22, 1994, for
the purchase of the Milwaukee County Power Plant. The 11 megawatt power plant
in Wauwatosa, Wisconsin provides steam, chilled water and electricity for the
MRMC facilities. Under the terms of the agreement, Wisconsin Electric is
expected to pay $7 million to $8 million for the electric generation and
distribution facilities. The MRMC will purchase the plant's steam and water-
chilling facilities. Wisconsin Electric will manage and operate the facility,
and collect a management fee from the MRMC. Electric revenues of about $3
million annually will be generated from the investment. It is anticipated
that this transaction will be finalized in 1995.

Approvals from various regulatory agencies including the PSCW, the U. S.
Environmental Protection Agency ("EPA") and the Wisconsin Department of
Natural Resources ("DNR") are required prior to constructing new generation
capacity. All proposed generating facilities will meet or exceed the
applicable federal and state environmental requirements.

For further information regarding future capacity additions, see Item 1.
BUSINESS - "REGULATION".

For information regarding estimated costs of Wisconsin Electric's construction
program and projected investments in conservation programs for the five years
ending December 31, 1999, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL
RESOURCES". All estimates of construction expenditures exclude Allowance For
Funds Used During Construction. For additional information regarding matters
related to Allowance for Funds Used During Construction, see Note D to the
Financial Statements in Item 8.

In accordance with a PSCW order issued in November 1993, after completing a
capacity-related competitive bidding process, Wisconsin Electric signed a
long-term agreement to purchase the electricity that would be generated from a
215 megawatt cogeneration facility planned to be constructed by an
unaffiliated independent power producer ("IPP"), LSP-Whitewater Limited
Partnership. The agreement is contingent upon the facility being completed
and going into operation, which at this time is planned for mid-1996. On
March 9, 1995, the PSCW approved the IPP's application to construct a
cogeneration plant in Whitewater, Wisconsin. For additional information and
related matters, see Item 3. LEGAL PROCEEDINGS - "OTHER LITIGATION - PSCW Two-
Stage CPCN Order" and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Capital Requirements 1995-
1999".
- 6 -
7

ITEM 1. BUSINESS - Electric Utility Operations (Cont'd)

In response to increasing competitive pressures in the markets for electricity
and natural gas, Wisconsin Electric and Wisconsin Natural are implementing a
revitalization process to increase efficiencies and improve customer service
by reengineering and restructuring their organizations. The new structures
consolidate many business functions and simplify work processes. Due to
productivity improvements, staffing levels at Wisconsin Electric have been
reduced; 347 employees elected to retire under an early retirement option and
573 employees have enrolled in severance packages. For additional
information, see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "Wisconsin Electric and Wisconsin
Natural Revitalization".

SOURCES OF GENERATION

The table below indicates sources of energy generation by Wisconsin Electric:

Year Ended December 31
----------------------
1994 1995*
---- -----
Coal 69.0% 69.8%
Nuclear 29.0 27.9
Hydro-electric 1.4 1.6
Gas 0.5 0.6
Oil 0.1 0.1
------ ------
TOTAL 100.0% 100.0%
------------------

*Estimated assuming that there are no unforeseen contingencies such as
unscheduled maintenance or repairs.

COAL: Wisconsin Electric diversifies its coal sources by purchasing from
Northern Appalachia, the Southern Powder River Basin (Wyoming) and the Raton
Basin (New Mexico) mining districts for the power plants in Wisconsin, and
from central Appalachia and western mines for the Presque Isle Power Plant in
Michigan.

Approximately 75 percent of Wisconsin Electric's 1995 coal requirements are
expected to be delivered by Wisconsin Electric-owned unit trains. The unit
trains will transport coal for the Oak Creek and Pleasant Prairie Power Plants
from New Mexico and Wyoming mines. Coal from Pennsylvania mines is
transported via rail to Lake Erie transfer docks and delivered to the Valley
and Port Washington Power Plants by lake vessels. Montana coal for Presque
Isle is transported via rail to Superior, Wisconsin, placed in dock storage
and reloaded into lake vessels for plant delivery. The Presque Isle central
Appalachian origin and Colorado origin coal is shipped via rail to Lake Erie
and Lake Michigan (Chicago) coal transfer docks, respectively, for lake vessel
delivery to the plant. Wisconsin Electric's 1995 coal requirements, projected
to be 10.0 million tons, are 98 percent under contract. Wisconsin Electric
does not anticipate any problem in procuring its remaining 1995 requirements
through short-term or spot purchases and inventory adjustments.

Pleasant Prairie Power Plant: All of the estimated 1995 coal requirements at
this plant are presently covered by three long-term contracts.

- 7 -
8

ITEM 1. BUSINESS - Sources of Generation (Cont'd)

Oak Creek Power Plant: All of the estimated 1995 coal requirements for this
plant are covered by long-term contract. Contract provisions permit Wisconsin
Electric to increase/decrease the annual volume to match burn requirements.

Presque Isle Power Plant: This plant has six generating units designed to
burn bituminous coal and three other units designed to burn sub-bituminous
coal. The units burning sub-bituminous coal are supplied by three long-term
contracts the annual volumes of which are anticipated to be adequate to cover
coal requirements through 1996. Bituminous coal is generally purchased
through one-year contracts from central Appalachia and under a 5 year contract
for the Colorado origin coal.

Edgewater 5 Generating Unit: Coal for this unit, in which Wisconsin Electric
has a 25 percent interest, is purchased by Wisconsin Power and Light Company,
a non-affiliated utility, which is the majority owner of the facility.

Valley and Port Washington Power Plants: These plants are both supplied
through a long-term contract that, in combination with coal supplied to
Wisconsin Electric's other Wisconsin plants, allows the plants to meet the
requirements of the Wisconsin acid rain law. In the event of further air
quality emission requirements affecting these plants, the contract can be
terminated without liability.

The periods and annual tonnage amounts for Wisconsin Electric's principal coal
contracts are as follows:

Contract Period Annual Tonnage
--------------- --------------
Jan. 1977 to Dec. 1996 240,000
Nov. 1987 to Dec. 1997 500,000(A)
Jan. 1980 to Dec. 2006 2,000,000
Jul. 1983 to Dec. 2002 1,000,000
Apr. 1990 to Nov. 1996 375,000(B)
Jan. 1992 to Dec. 2005 1,200,000(C)(1995)
Oct. 1992 to Sep. 2007 2,000,000
Sep. 1994 to Aug. 1999 500,000

---------------------------
(A) The contract can be extended if the total volume has not been
purchased by the respective termination dates.

(B) Annual volume can be increased to meet requirements for the Port
Washington and Valley Power Plants above the 375,000 ton volume
indicated herein.

For information regarding emission restrictions, see Item 1. BUSINESS -
ENVIRONMENTAL COMPLIANCE - "Air Quality - Acid Rain Legislation".

NUCLEAR: Wisconsin Electric purchases uranium concentrates ("yellowcake") and
contracts for its conversion, enrichment and fabrication. Wisconsin Electric
maintains title to the nuclear fuel until the fabricated fuel assemblies are
delivered to the Point Beach Nuclear Plant ("Point Beach"), whereupon it is
sold to and leased back from the Wisconsin Electric Fuel Trust ("Trust"). See
Note F to the Financial Statements in Item 8.

- 8 -
9

ITEM 1. BUSINESS - Sources of Generation (Cont'd)

Uranium Requirements: Wisconsin Electric requires approximately 450,000
pounds of yellowcake annually for its two-units at Point Beach. Uranium
requirements through 1997 will be provided from a combination of existing
contracts with Malapai Resources Company (of Arizona); Energy Resources of
Australia, Ltd.; and Nukem Inc. (U.S.). Wisconsin Electric may exercise
flexibilities in these contracts and purchase certain quantities of uranium on
the spot-market, should market conditions prove favorable. Wisconsin Electric
believes that adequate supplies of uranium concentrates will be available to
satisfy current and future operating requirements.

Under a contract with Nuexco Trading Corporation, Wisconsin Electric was to
receive 200,000 pounds of uranium concentrates on specified delivery dates in
1995 at conversion facilities in the United States or Canada in exchange for
the transfer to Nuexco of an identical quantity of concentrates held by
Wisconsin Electric at the conversion facilities of Comurhex in France.
However, Nuexco is in default under the contract and has filed for bankruptcy
law protection. Wisconsin Electric is reviewing various options that might be
available for use of its concentrates located at Comurhex.

Conversion: Wisconsin Electric has a contract with Sequoyah Fuels
Corporation, a subsidiary of General Atomics, to provide conversion services
for the Point Beach reactors through 1995. Due to operating difficulties
encountered in 1992, Sequoyah Fuels has decided to place its Gore, Oklahoma
conversion plant on indefinite stand-by. In November 1992, Sequoyah Fuels
signed an agreement with Allied Signal Corporation which formed a partnership
called Converdyn Corporation.

Converdyn administers all existing Allied and Sequoyah contracts, with all
conversion services being performed at the existing Allied Signal conversion
facility in Metropolis, Illinois.

Wisconsin Electric also has a conversion contract with the Cameco Corporation,
to provide for an alternate supply of up to approximately 30 percent of
conversion requirements through 1995 and up to 100 percent of conversion
requirements from 1996 through 1999. Cameco is a Canadian based corporation
located in Saskatoon, Saskatchewan, and is a major producer of uranium
concentrates.

Enrichment: Wisconsin Electric currently has a Utility Services Contract with
the U.S. Department of Energy ("DOE") for 70 percent of the enrichment
services required for the operation of both of the Point Beach units. The
contract can provide enrichment services for the entire operating life of each
unit. For a discussion of litigation involving the Utility Services Contract,
see Item 3. LEGAL PROCEEDINGS - OTHER LITIGATION - "Uranium Enrichment
Charges". Wisconsin Electric entered into a supplemental agreement with the
DOE to supply the remaining 30 percent of enrichment service requirements for
the period through 1995 at prices below those offered under the Utility
Services Contract. Responsibility for administering these contracts and
agreements for enrichment services was transferred from DOE to the U.S.
Enrichment Corporation ("USEC") under the Energy Policy Act of 1992. In March
1992, Wisconsin Electric entered into an agreement with Global Nuclear
Services and Supply Limited, an international supplier of enrichment services,
for the remaining 30 percent of enrichment service requirements after 1995.

Fabrication: Fabrication of fuel assemblies from enriched uranium for Point
Beach is covered under a contract with Westinghouse Electric Corporation for
the balance of the plant's current operating license.

- 9 -
10

ITEM 1. BUSINESS - Sources of Generation (Cont'd)

Spent Fuel Storage and Disposal: Wisconsin Electric currently has the
capability to store certain amounts of spent nuclear fuel at Point Beach.
Previous modifications to the storage facilities at Point Beach have made it
possible to accommodate all spent fuel expected to be discharged from the
reactors through 1995 while maintaining the capability for one full core off-
load. In accordance with the provisions of the Nuclear Waste Policy Act of
1982, which require the DOE to provide for the disposal of spent fuel from all
U.S. nuclear plants, Wisconsin Electric entered into a disposal contract
providing for deliveries of spent fuel to the DOE for ultimate disposal
commencing in January 1998. It is anticipated that the DOE will be unable to
accept spent fuel by the 1998 timeframe as contracted. In November of 1991,
Wisconsin Electric filed an application with the PSCW to construct and operate
an Independent Spent Fuel Storage Installation ("ISFSI"). The ISFSI can
provide additional interim dry cask storage until the DOE begins to remove
spent fuel from Point Beach in accordance with the terms of the contract it
has with Wisconsin Electric. Public hearings on the proposed project were
held during October 1994. On February 13, 1995, Wisconsin Electric received a
Certificate of Authority from the PSCW to construct and operate the ISFSI.
Loading of the first storage unit of the ISFSI could take place in the summer
of 1995. In March 1995 separate petitions were filed by intervenors in Dane
County Circuit Court and Fond du Lac County Circuit Court. The Dane County
petition seeks reversal of the order and a remand to the PSCW directing it to
deny Wisconsin Electric's request for authorization to construct the dry cask
facility, or in the alternative, to correct the alleged errors in the PSCW's
order. No specific relief is identified in the Fond du Lac County petition;
however, numerous grounds of error are alleged. Wisconsin Electric intends to
fully participate in both judicial review proceedings and to vigorously oppose
the petitions. For additional information, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"Capital Requirements 1995-1999".

Point Beach Nuclear Plant: Point Beach provided 29 percent of Wisconsin
Electric's net generation in 1994. The plant has two generating units which
had a combined dependable capability during December 1994 of 980 megawatts and
which together constituted 18.3 percent of Wisconsin Electric's dependable
generating capability in 1994. The U.S. Nuclear Regulatory Commission ("NRC")
licenses for Point Beach Units 1 and 2 expire October 5, 2010 and March 8,
2013, respectively.

The NRC has, at various times, directed that certain inspections,
modifications and changes in operating practices be made at all nuclear
plants. At Point Beach, such inspections have been made and necessary changes
to equipment and in operating practices have either been completed or are
expected to be completed within the time schedules permitted by the NRC or
within approved extensions thereof.

Wisconsin Electric has initiated certain plant betterment projects at Point
Beach that are judged to be appropriate and beneficial. Construction is
progressing on the addition of two safety-related emergency diesel powered
electrical generators with installation to be completed in 1996.

On October 1, 1992, Wisconsin Electric filed an application with the PSCW for
the replacement of the Unit 2 steam generators, which would allow for the
unit's operation until the expiration of its operating license in 2013. This
project is estimated to cost $119 million. (In 1984 Wisconsin Electric
replaced the Unit 1 steam generators.) The PSCW deferred the decision on the
steam generator replacements until after the next refueling outage in

- 10 -
11

ITEM 1. BUSINESS - Sources of Generation (Cont'd)

September 1995. In the Interim Order dated February 13, 1995, the PSCW
directed Wisconsin Electric to make suitable arrangements with the fabricator
of the new steam generators to allow the fabrication, delivery and replacement
to proceed promptly if authorized by the PSCW as result of further
investigation. The reasonable costs of such arrangements to maintain a place
in line with the fabricator will be afforded rate recovery. It is anticipated
that the final order in this matter will be issued in early 1996. Without the
replacement of the steam generators, it is believed the unit would not be able
to operate to the end of its current license.

Decommissioning Fund: Pursuant to a 1985 PSCW order amended in 1994,
Wisconsin Electric provides for costs associated with the eventual
decommissioning of Point Beach through the use of an external trust fund.
Payments to this fund, together with investment earnings, brought the balance
in the trust fund on December 31, 1994 to approximately $227 million. For
additional information regarding decommissioning see Note F to the Financial
Statements in Item 8.

Nuclear Plant Insurance: For information regarding matters pertaining to
nuclear plant insurance, see Note F to the Financial Statements in Item 8.

NATURAL GAS (FOR ELECTRIC GENERATION): Natural gas for boiler ignition and
flame stabilization purposes for the Pleasant Prairie, Oak Creek and Valley
Power Plants, is purchased under an agency agreement. The agent purchases
natural gas and arranges for interstate pipeline transportation to the local
gas distribution utility. Gas for the Pleasant Prairie and Oak Creek Power
Plants is delivered by Wisconsin Natural. Gas for the Valley Power Plant is
delivered by Wisconsin Gas Company, a non-affiliated company.

The Concord Generation Station and the Oak Creek combustion turbine use
natural gas as their primary fuel, with Number 2 fuel oil as backup, as will
the Paris Generating Station, expected to go into commercial service in the
summer of 1995. Gas for these plants may be purchased directly from Wisconsin
Natural on an interruptible basis.

OIL: Oil is used for combustion turbines at the Germantown and Port
Washington Power Plants and at Point Beach. Small amounts of oil are also
used for boiler ignition and flame stabilization at some coal-fired plants.
Number 2 fuel oil requirements for 1995 at the Presque Isle Power Plant and
the Point Beach combustion turbine are provided under one-year contracts with
equitable price adjustment formulas. All other oil requirements are purchased
as needed from local suppliers. The Concord and Paris Generating Stations and
the Oak Creek combustion turbine use oil as a secondary fuel source.

HYDRO: Wisconsin Electric has various licenses from the Federal Energy
Regulatory Commission ("FERC") for its hydroelectric generating facilities
that expire during the period 1998 to 2004. Wisconsin Electric has begun the
licensing process for its largest hydro facility, Big Quinnesec Falls, which
has a license expiring in 1998. Wisconsin Electric continues to support
FERC's efforts to complete the licensing process and issue licenses for four
hydro projects with 1993 expiration dates. These projects are currently being
operated by Wisconsin Electric under annual licenses issued by FERC. The
three hydro facilities, with a total of 2.5 megawatts installed capacity, that
Wisconsin Electric decided not to relicense in 1993 are still being operated
by Wisconsin Electric under annual licenses until FERC determines their
disposition. Wisconsin Electric continues to consult with the U.S. Fish and

- 11 -
12

ITEM 1. BUSINESS - Sources of Generation (Cont'd)

Wildlife Service, DNR, Michigan Department of Natural Resources ("MDNR") and
the National Park Service in conjunction with the licensing process.
Hydroelectric facilities provided 1.4% of Wisconsin Electric's total energy
generation in 1994.

INTERCONNECTIONS WITH OTHER UTILITIES: Wisconsin Electric's system is
interconnected at various locations with the systems of Madison Gas and
Electric Company, Wisconsin Power and Light Company, Wisconsin Public Service
Corporation, Commonwealth Edison Company, Northern States Power Company and
Upper Peninsula Power Company. These interconnections provide for interchange
of power to assure system reliability as well as facilitating access to
generating capacity and the transfer of energy for economic purposes.

Wisconsin Electric is a member of Wisconsin-Upper Michigan Systems ("WUMS"), a
coordinating group which includes four other electric companies in Wisconsin
and Upper Michigan. WUMS, in turn, is a member of Mid-America Interconnected
Network, which is one of nine regional members of the North American Electric
Reliability Council. Membership in these groups permits better utilization of
reserve generating capacity and coordination of long-range system planning and
day-to-day operations.

In March 1994, Wisconsin Electric executed a transmission service agreement
with Commonwealth Edison that will allow Wisconsin Electric to purchase energy
from southern Illinois and Indiana suppliers, using the Commonwealth Edison
transmission system to import such energy into Wisconsin.

A transmission service agreement has been executed to allow Wisconsin Electric
to reserve capacity and import energy from members of the Mid-Continent Area
Power Pool ("MAPP"), a group consisting of electric utilities generally
located west of Wisconsin. Considerable non-firm energy is expected to be
purchased from MAPP members over the next several years.

SALES TO WHOLESALE CUSTOMERS: Wisconsin Electric currently provides wholesale
electric energy to five municipally owned systems, three rural cooperatives,
two municipal joint action agencies and one isolated system of an investor-
owned utility in Wisconsin, Illinois, and the Upper Peninsula of Michigan
under rates approved by the FERC. Sales to these wholesale customers
accounted for 5.3 percent of total kilowatt-hour sales in 1994. Under two
agreements, service is being provided subject to a seven-year notice of
cancellation from the Wisconsin Public Power Inc. SYSTEM ("WPPI"). Wisconsin
Electric also has an eight-year power supply agreement with the Badger Power
Marketing Authority. Sales to the Badger Power Marketing Authority and WPPI
combined are expected to account for approximately one half of the wholesale
sales for 1995.

Service to UPPCO, under a 65 megawatt agreement which expires on December 31,
1997, is expected to account for 30 percent of 1995 wholesale sales. In
October 1993, UPPCO announced that it had reached an agreement in principle
with NSP to purchase 90 megawatts of base-load electric energy beginning in
1998. Wisconsin Electric expects to apply the 65 megawatts of capacity
toward the electric energy needs of new customers and toward the overall
increase in system supply needs anticipated by 1998.

Service to the remaining wholesale customers is provided under agreements
which require a three-year notice of cancellation from the customers.

- 12 -
13

ITEM 1. BUSINESS - Sources of Generation (Cont'd)

During 1994, sales to wholesale customers declined 10.4 percent from 1993,
largely the result of reductions in sales to WPPI. WPPI has been reducing its
purchases from Wisconsin Electric subsequent to acquiring generation capacity
in 1990. Sales to WPPI during 1994, 1993 and 1992 were approximately 725,000
megawatt-hours ("MWh"), 944,000 MWh and 1,166,000 MWh, respectively. Further
reductions are expected as WPPI installs additional capacity. These sales
reductions are not expected to have a significant effect on future earnings.
Under the provisions of a long-term agreement, Wisconsin Electric will
continue to provide transmission services to WPPI.

Wisconsin Electric's existing FERC tariffs also provide for transmission
service to its wholesale customers. During 1994, Wisconsin Electric had three
customers taking transmission service. For further information see Item 1.
BUSINESS - "REGULATION".

In October 1992, the Energy Policy Act was signed into law. Passage of this
law is expected to remove perceived encumbrances and facilitate the entry of
power producers into the already competitive bulk power market. Notable among
its provisions are the creation of a new class of energy producer called
Exempt Wholesale Generators ("EWGs"), who are exempt from the requirements of
the Public Utility Holding Company Act of 1935, and the rights that the Energy
Policy Act provides them and utilities to request a FERC order directing the
provision of transmission service if denied transmission access from
utilities. The transmission aspects of this law are expected to have little
impact on Wisconsin Electric since it has had open access transmission tariffs
on file with the FERC since 1980.

In September 1994 Wisconsin Electric, responding to WPPI's request and a PSCW
order in a transmission construction proceeding, filed an unexecuted Network
Transmission Service Agreement for service to WPPI at the FERC. In November
1994 Wisconsin Electric made a second filing at the FERC to extend network
transmission service to non-WPPI wholesale customers. The proposed Network
Transmission Service is firm service for the loads of wholesale customers
located in Wisconsin Electric's retail service area. It is designed to be
comparable to service provided for the Company's native load.

The electric utility industry continues to become increasingly competitive.
Some municipal utilities are approaching competing utilities in a search for
lower energy prices. Additionally, some large industrial customers are
seeking regulatory changes that could permit retail wheeling to allow them to
seek proposals for energy from alternate suppliers. IPPs are also exploring
cogeneration projects which would provide process steam to customers in
Wisconsin Electric's service territory and sell electricity to Wisconsin
Electric. Consequently, electric wholesale and large retail customers of
Wisconsin Electric or other non-affiliated utilities may determine, from time
to time, to switch energy suppliers, purchase interests in existing power
plants or build new generating capacity, either directly or through joint
ventures with third parties. The advent of EWGs can be expected to accelerate
this practice. For additional information, see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"LIQUIDITY AND CAPITAL RESOURCES".

SALES TO LARGE CUSTOMERS

Wisconsin Electric provides utility service to a diversified base of
industrial customers. Major industries served include the iron ore mining
industry, the paper industry, the machinery production industry, the foundry

- 13 -
14

ITEM 1. BUSINESS - Sales to Large Customers (Cont'd)

industry and the food products industry. The Empire and Tilden iron ore
mines, the two largest customers of Wisconsin Electric, accounted for 4.6
percent and 4.0 percent, respectively, of total electric kilowatt-hour sales
in 1994. Sales to the mines were 15.0 percent higher in 1994 compared to
1993, attributable to a five week strike in 1993. For additional information,
see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - "Electric Sales and Revenues".

STEAM UTILITY OPERATIONS

Wisconsin Electric operates a district steam system for space heating and
processing in downtown and near southside Milwaukee. Sales of the steam
utility fluctuate with the heating cycle of the year and are impacted by
varying weather conditions from year-to-year. The system consists of
approximately 28 miles of high and low pressure mains and related regulating
equipment. Steam for the system is supplied by Wisconsin Electric's Valley
Power Plant. At December 31, 1994, there were 471 customers on the system.
Steam sales in 1994 were 2,395 million pounds, an increase of 0.8 percent from
the 2,376 million pounds sold in 1993.

REGULATION

Wisconsin Electric is subject to the regulation of the PSCW as to retail
electric and steam rates in Wisconsin, standards of service, issuance of
securities, construction of new facilities, transactions with affiliates,
levels of short-term debt obligations, billing practices and various other
matters. Wisconsin Electric is also subject to the regulation of the MPSC as
to the various matters associated with retail electric service in Michigan as
noted above except as to construction of certain new facilities, levels of
short-term debt obligations and advance approval of transactions with
affiliates. Wisconsin Electric, with respect to hydro-electric facilities,
wholesale rates and accounting, is subject to FERC regulation. Operation and
construction relating to Wisconsin Electric's Point Beach facilities are
subject to regulation by the NRC. Wisconsin Electric's operations are also
subject to regulations of the EPA, the DNR and the MDNR.

The PSCW is authorized to direct expenditures for promoting conservation if it
determines that the programs are in the public interest. Recent rate orders
have included provisions for substantial conservation programs initiated by
Wisconsin Electric. For additional information, see Note A to the Financial
Statements in Item 8.

Wisconsin Electric is subject to a power plant siting law in Wisconsin which
requires that electric utilities file updated long-term forecasts (called
"Advance Plans") for the location, size and type of future large generating
plants and high voltage transmission lines about every two years for PSCW
approval after public hearings. Generally, the law provides that the PSCW may
not authorize the construction of any large generating plants or high voltage
transmission lines unless they are in substantial compliance with the most
recently approved plan. The law also prohibits Wisconsin Electric from
acquiring any interest in land for such plants or transmission lines by
condemnation until construction authorization has been received. Advance Plan
orders are based on a review of the utilities' long-term planning options.
However, separate project-specific PSCW approval is required for the
construction of generating facilities and transmission lines.

- 14 -
15

ITEM 1. BUSINESS - Regulation (Cont'd)

Wisconsin Electric employs a least-cost integrated planning process, which
examines a full range of supply and demand side options to meet its customers'
electric needs, such as the renovation of existing power plants, promotion of
cost-effective conservation and load management options, development of
renewable energy sources, purchased power and construction of new company-
owned generation facilities.

For additional information regarding Advance Plans, see Item 3. LEGAL
PROCEEDINGS - "OTHER LITIGATION" and Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND
CAPITAL RESOURCES".

In 1992, the PSCW ordered that utilities should include a cost of $15 per ton
of carbon dioxide ("CO2") when comparing resource planning options (both
supply and demand-side) to account for the economic risk of future greenhouse
gas regulation. Appeals through 1993 and 1994 did not substantially change
the order. Recent supply and DSM plans included the greenhouse gas adder.
There are only minor differences in supply and DSM plans prepared with and
without the greenhouse gas adder.

In 1994, the PSCW ordered the state's utilities to competitively bid all new
generation needs in excess of 12 megawatts to be built in Wisconsin. The two
stage process established by the PSCW consists of: (1) an all-parties
(including utilities) bidding procedure for fossil-fueled and renewable
generation projects and (2) the conventional Certificate of Public Convenience
and Necessity ("CPCN") procedure for the winner or winners. For additional
information regarding the CPCN process, see Item 3. LEGAL PROCEEDINGS - OTHER
LITIGATION and Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "Capital Requirements 1995-1999."

The PSCW is conducting an investigation into the state of the electric utility
industry in Wisconsin, particularly its institutional structure and regulatory
regime, in order to evaluate what changes would be beneficial for Wisconsin.
The PSCW stated that this investigation may result in profound and fundamental
changes to the nature and regulation of the electric utility industry in
Wisconsin. About 50 interested parties, including Wisconsin Electric,
submitted comments as to appropriate objectives for regulation of the electric
utility industry and the utility structures and regulatory approaches likely
to provide the best balance of such objectives. Initial question and answer
sessions were held in November, 1994. The PSCW also scheduled meetings for
early 1995 for the purpose of narrowing the scope of the investigation and has
indicated it anticipates submitting a final report to the Wisconsin
Legislature in late 1995. Copies of Wisconsin Electric's proposal are
available upon request.

Wisconsin Electric's view of industry restructuring separates various electric
utility functions into two major categories - natural monopolies and
competitive entities. The natural monopolies are functions where a single
entity can provide the lowest cost. The competitive entities are functions
where competition can provide the lowest cost. The natural monopolies would
be re-regulated so the appropriate incentives exist to provide electricity at
reasonable prices. The competitive entities would eventually see an
elimination of traditional regulation.

ITEM 1. BUSINESS - Regulation (Cont'd)

systems through a regional transmission group to ensure open access,
comparable pricing, comparable service and adequate cost recovery. The PSCW
would regulate the distribution function for reasonable price, reliability,
public safety and customer satisfaction.

The competitive entities in the Wisconsin Electric model are the generation,
customer service and energy merchant functions. In the restructured electric
utility industry, utilities would unbundle costs into the individual
components of generation, transmission, distribution and service.

RATE MATTERS

See Item 3. LEGAL PROCEEDINGS - "RATE MATTERS" - for a discussion of rate
matters, including recent rate changes and a discussion of the tariffs and
procedures with respect to recovery of changes in the costs of fuel and
purchased power.

ENERGY EFFICIENCY

The management of Wisconsin Electric believes that a strong and continuing
emphasis must be placed on energy management and efficient energy use.
Wisconsin Electric is continuing to develop programs to inform and assist its
customers with respect to conservation options. This policy is regarded by
Wisconsin Electric as in the best interests of its customers and security
holders.

Efficient use of energy is not limited to reduced consumption. Time-of-use
rates for certain electric customers promote the shifting of electricity usage
to those times when electric generating facilities are not fully utilized.
Interruptible and curtailable rates, along with an energy cooperative managed
load curtailment program, are offered to certain industrial customers to
control peak demand. Direct load control of some residential central air
conditioners continues as part of a pilot program which began in 1992.

To promote its energy management and conservation policies, Wisconsin Electric
offers various programs and services to its customers. For industrial and
commercial customers, Wisconsin Electric offers energy evaluations identifying
cost-effective customer conservation opportunities as well as financial
assistance, including direct grants and interest-free financing to purchase
and maintain energy-efficient equipment. Additional financial incentives are
also offered to residential electric customers to encourage the purchase of
energy-efficient appliances and the removal of older inefficient appliances
from the system.

ENVIRONMENTAL COMPLIANCE

Compliance with federal, state and local environmental protection requirements
resulted in capital expenditures by Wisconsin Electric of approximately $57
million in 1994, a decrease of $8 million from 1993. Expenditures incurred
during 1994 included costs associated with the replacement of the
precipitators at Valley Power Plant the installation of pollution abatement
facilities at Wisconsin Electric's power plants, the installation of
underground distribution lines and environmental studies associated with power
plants. Such expenditures are budgeted at approximately $35 million for 1995.

Operation, maintenance and depreciation expenses of Wisconsin Electric's fly
ash removal equipment and other environmental protection systems are estimated
to have been $47 million in 1994. Other environmental costs, primarily for
environmental studies, amounted to $1 million in 1994.
- 16 -
17

ITEM 1. BUSINESS - Environmental Compliance (Cont'd)

Solid Waste Landfills

Wisconsin Electric provides for the disposal of non-ash related solid wastes
and hazardous wastes through licensed independent contractors, but federal
statutory provisions impose joint and several liability on the generators of
waste for certain cleanup costs. Remediation-related activity pertaining to
specific sites is discussed below.

Muskego Sanitary Landfill: In 1992, Wisconsin Electric was informed by the
EPA that it was included in a group of approximately 50 potentially
responsible parties ("PRPs") against which the EPA will issue orders requiring
that the PRPs clean up the Muskego Sanitary Landfill (located in Southeastern
Waukesha County, Wisconsin). On January 14, 1993, Wisconsin Electric notified
EPA that it was proceeding, with other PRPs, to comply with the order. The
first step toward remediation has been identified with the Wisconsin Electric
portion of the $16.8 million dollar effort identified as $115,414 (paid in
1994). Remedial actions for the second step (Groundwater Operable Unit
Remedy) are being evaluated, with EPA recommending a limited pump and treat
option, estimated to cost $7.4 million. Costs would be allocated among the
PRPs based on their waste contribution to the site. Wisconsin Electric has
been identified as one of the small waste contributors to the site.

Maxey Flats Nuclear Disposal Site: In 1986, Wisconsin Electric was advised by
EPA that it is one of a number of PRPs for cleanup at this low-level
radioactive waste site located in Morehead, Kentucky. The amount of waste
contributed by Wisconsin Electric is significantly less than one percent of
the total. Under the terms of a consent decree agreed to by all parties,
Wisconsin Electric will pay the amount of $163,830 (minus a small credit for
an amount previously paid) as its share of the settlement fund for site clean
up costs.

Manistique River/Harbor Area: Wisconsin Electric received a request for
information or PRP letter from EPA on March 12, 1993. The letter states that
the river/harbor has PCB contamination. EPA has requested information
regarding company PCB and oil filled equipment management in the Manistique
River drainage basin. Wisconsin Electric responded to this request on April
22, 1993. Additional information requests from EPA have also been responded
to by Wisconsin Electric. Wisconsin Electric has no reason to believe that
the company is responsible in total or in part for the PCB contamination in
the Manistique River/harbor area. Wisconsin Electric has learned through
newspaper articles that the EPA announced a preliminary plan to dredge most of
the PCB-contaminated sediments, with only limited capping along the
breakwater. The two identified PRPs, Manistique Papers and Edison Sault
Electric Company, have advocated installation of a permanent cap.

Kenosha Iron and Metal: Wisconsin Electric received a request for information
or PRP letter from EPA on December 9, 1994. The letter requested information
regarding any involvement Wisconsin Electric's Pleasant Prairie Power Plant
may have had with this operation. A response to EPA was sent December 29,
1994 indicating that Wisconsin Electric had no reason to believe that the
power plant or Wisconsin Electric did any business with Kenosha Iron and
Metal. No cleanup schedule has been set or remediation costs identified.

- 17 -
18

ITEM 1. BUSINESS - Environmental Compliance (Cont'd)

Marina Cliffs Barrel Dump Site: Wisconsin Electric received a special notice
letter and information request on March 25, 1994 from the DNR. The letter
describes a release of hazardous substances at a former barrel reclamation
facility and landfill site, and requests information on any business dealings
Wisconsin Electric may have had with this former operation. Wisconsin
Electric has no reason to believe that it is responsible for the contamination
problems at this site. No known cleanup schedule has been set or remediation
costs identified.

ETSM Property: Iron cyanide bearing wastes were found both on property owned
by Wisconsin Electric (ETSM facility) and adjacent landowners. The wastes
were removed and properly disposed, with Wisconsin Electric's share of the
cleanup at about $100,000. Adjacent landowners believe Wisconsin Electric to
be the source of the material, however, records do not support that
allegation.

Ash Landfills

Wisconsin Electric aggressively seeks environmentally acceptable, beneficial
uses of its combustion byproducts. However, ash materials have been, and to
some degree, continue to be disposed in company-owned, licensed landfills.
Some early designed and constructed landfills may allow the release of low
levels of constituents, resulting in the need for various levels of
remediation. These costs are included in the environmental operating and
maintenance costs for Wisconsin Electric. Sites currently undergoing
remediation include:

Presque Isle Landfill: Wisconsin Electric entered into a settlement agreement
with the MDNR for conditions existing at an ash landfill site acquired by
Wisconsin Electric when it purchased the Presque Isle Power Plant in 1988.
Wisconsin Electric's groundwater monitoring program at the site detected
elevated levels of certain substances at the oldest portion of the landfill.
Wisconsin Electric has reconstructed and capped that portion of the landfill
to prevent further leachate from entering the groundwater at an approximate
cost of $2.6 million. The cost to implement a remediation plan for the
cleanup of the current groundwater conditions, when approved by the MDNR, is
estimated to not exceed $1 million.

Highway 59 Landfill: In 1989, a sulfate plume was detected in the groundwater
beneath a Wisconsin Electric-owned former ash landfill located in the town of
Waukesha, Wisconsin. After notifying the DNR, Wisconsin Electric initiated a
five-year expanded monitoring program. In response to a request from the DNR,
Wisconsin Electric is preparing an environmental contamination assessment of
the landfill, and will submit the report to the DNR in May, 1995. Wisconsin
Electric believes that any remediation plan developed, approved and
implemented for this site would not have a material adverse effect on its
financial condition.

Air Quality - Acid Rain Legislation

In 1986, the Wisconsin Legislature passed legislation establishing new sulfur
dioxide ("SO2") limitations applicable to Wisconsin's five major electric
utilities, including Wisconsin Electric. The law requires each of the five

- 18 -
19

ITEM 1. BUSINESS - (Cont'd)

major electric utilities to meet a 1.20 lb SO2 per million BTU corporate
average annual emission rate limit beginning in 1993. Prior to 1993,
Wisconsin law limited the total annual SO2 emissions from the five major
electric utilities to 500,000 tons per year. During 1994, approximately
181,000 tons of SO2 were emitted by such utilities, equivalent to an annual
average emission rate of 0.97 lbs SO2 per million BTU.

Wisconsin Electric's compliance plan to meet the SO2 limitations under
Wisconsin's acid rain law includes the increased use of low-sulfur coal at
certain power plant units. Some changes to existing power plant equipment
were made to accommodate the use of low-sulfur coals.

The 1990 amendments to the Federal Clean Air Act mandate significant nation-
wide reductions in air emissions. Most significant to the country's electric
utility companies are the "acid rain" provisions of the amendments which are
scheduled to limit SO2 and nitrogen oxide ("NOX") emissions in phases which
take effect in 1995 and 2000. Wisconsin Electric evaluated the potential
impact resulting from this legislation and concluded that minimal impact will
result from Phase I requirements because of actions taken to meet the above
mentioned Wisconsin acid rain law. Phase II requirements, together with
separate ozone nonattainment provisions of the Clean Air Act which may call
for additional NOX reductions, however, will necessitate the implementation of
a compliance strategy which is not expected to impact rates. Since a portion
of the regulations that have been issued by the EPA are not complete or are
not yet final, the rate impact is subject to change and will be reevaluated as
needed.

For additional information regarding the impact of the Clean Air Act
Amendments, including estimates of the cost of compliance, see Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - "Environmental Issues".

OTHER

Wisconsin Electric is authorized to provide electric service in designated
territories in the state of Wisconsin, as established by indeterminate
permits, certificates of public convenience and necessity, or boundary
agreements with other utilities. Wisconsin Electric provides electric service
in certain territories in the state of Michigan pursuant to franchises granted
by municipalities.

Research and development expenditures of Wisconsin Electric amounted to
$7,996,000 in 1994, $8,485,000 in 1993, and $7,835,000 in 1992. Such
expenditures were primarily for improvement of service and abatement of air
and water pollution. The capitalized portion of research and development
costs amounted to $15,000 in 1993 and $55,000 in 1992; there were no such
capitalized costs in 1994. Research and development activities include work
done by employees, consultants and contractors, plus sponsorship of research
by industry associations.

At December 31, 1994, Wisconsin Electric employed 4,132 persons, of which 105
were part-time.

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20

ITEM 2. PROPERTIES

Wisconsin Electric owns the following generating stations with 1994
capabilities as indicated:
Dependable
Capability In
Megawatts (1)
-----------------------
No. of
Generating August December
Name Fuel Units 1994 1994
---- ---- ---------- ------- --------
Steam Plants:
Point Beach Nuclear 2 974 980
Oak Creek Coal 4 1,135 1,141
Presque Isle (2) Coal 9 612 612
Pleasant Prairie Coal 2 1,200 1,210
Port Washington Coal 4 322 324
Valley Coal 2 267 227
Edgewater (3) Coal 1 98 98
-- ----- -----
TOTAL STEAM 24 4,608 4,592

Hydro Plants (16 in number) 38 75 75
Germantown Combustion
Turbines Oil 4 212 252
Other Combustion
Turbines & Diesel(4) Gas/Oil 6 393 450
-- ----- -----
TOTAL SYSTEM 72 5,288 5,369
== ===== =====

-------------------
(1) Dependable capability is the net power output under average operating
conditions with equipment in an average state of repair as of a given
month in a given year. Changing seasonal conditions are responsible
for the different capabilities reported for the winter and summer
periods in the above table. The values were established by test and
may change slightly from year to year.

(2) UPPCO, a non-affiliated utility, staffs and operates the Presque Isle
Power Plant under an operating agreement with Wisconsin Electric which
extends through December 31, 1997.

(3) Wisconsin Electric has a 25 percent interest in Edgewater 5 Generating
Unit, which is operated by Wisconsin Power and Light Company, a non-
affiliated utility.

(4) During the second quarter of 1994, two units, or approximately 150
megawatts of additional peaking combustion turbine generation capacity,
were placed in service at Wisconsin Electric's Concord Generating Station.

At December 31, 1994, the Wisconsin Electric system had 2,759 miles of
transmission circuits, of which 639 miles were operating at 345 kilovolts, 123
miles at 230 kilovolts, 1,603 miles at 138 kilovolts, and 394 miles at voltage
levels less than 138 kilovolts. At December 31, 1994, Wisconsin Electric was
operating 22,327 pole miles of overhead distribution lines and 13,481 miles of
underground distribution cable, as well as 360 distribution substations and
216,973 line transformers.

- 20 -
21

ITEM 2. PROPERTIES - (Cont'd)

Wisconsin Electric owns various office buildings and service centers
throughout its service area. The principal properties of Wisconsin Electric
are owned in fee except that the major portion of electric transmission and
distribution lines and steam distribution mains are located, for the most
part, on or in streets and highways and on land owned by others.
Substantially all utility property is subject to a first mortgage lien.

ITEM 3. LEGAL PROCEEDINGS

ENVIRONMENTAL MATTERS

Wisconsin Electric is subject to federal, state and certain local laws and
regulations governing the environmental aspects of its operations. Wisconsin
Electric believes that, with immaterial exceptions, its existing facilities
are in compliance with applicable environmental requirements.

Stephenson Building: Crown Life Insurance Company has sued Wisconsin Electric
in federal court, seeking contribution and damages from Wisconsin Electric for
the cost of removing asbestos from boilers and piping in a building owned by
Crown Life. Wisconsin Electric sold that equipment and piping to a former
building owner in 1970. Wisconsin Electric is defending this lawsuit.

See Item 1. BUSINESS - ENVIRONMENTAL COMPLIANCE for a discussion of matters
related to certain solid waste and ash landfills sites.

RATE MATTERS

Wisconsin Retail Electric Jurisdiction

Fuel Cost Adjustment Procedure: Wisconsin Electric's retail rates in
Wisconsin do not contain an automatic fuel adjustment clause, but can be
adjusted by the PSCW if actual cumulative fuel and purchased power costs, when
compared to the costs projected in the retail electric rate proceeding,
deviate from a prescribed range and are expected to continue to be above or
below the authorized annual range of 3 percent.

1994 Fuel Cost Adjustment: Effective August 4, 1994 the PSCW authorized
Wisconsin Electric to reduce Wisconsin retail electric rates through the use
of a fuel adjustment credit to reflect lower fuel and purchased power
expenses. The adjustment reduced Wisconsin retail electric revenue by
approximately $6.8 million through December 31, 1994. The level of fuel
expenses currently included in rates will continue until either the actual
cumulative fuel and purchased power costs exceed the range in the fuel cost
adjustment procedure, at which time Wisconsin Electric can apply for a change
to the fuel adjustment factor currently in place, or rates are revised by the
PSCW in a rate case.

1994 Test Year: In April 1993, Wisconsin Electric filed with the PSCW required
data relating to the 1994 test year. In support of its goal to become the
lowest-cost energy provider in the region, Wisconsin Electric did not seek an
increase in retail electric rates for 1994 over those which were authorized on
February 17, 1993.

1995 Test Year: In 1993 the PSCW discontinued the practice of conducting
annual rate case proceedings, replacing it with a new schedule which calls for
future rate cases to be conducted once every two years. As a result, no
filing was made with respect to the 1995 test year.

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22

ITEM 3. LEGAL PROCEEDINGS - Rate Matters (Cont'd)

1996 Test Year: Under the PSCW's biennial rate case schedule, Wisconsin
Electric would be scheduled to file in mid-1995 for rates to reflect a 1996
test year. Wisconsin Electric and Wisconsin Natural may make a single
combined filing covering electric, steam and gas operations in May 1995 for
the test year beginning January 1, 1996. On March 27, 1995, Wisconsin
Electric and Wisconsin Natural sent a letter to the PSCW proposing a one year
deferral of their upcoming rate case filing. The matter is pending.

Wholesale Electric Jurisdiction

Fuel and Purchased Power Adjustment Tariffs: Wisconsin Electric's wholesale
rates contain an automatic fuel adjustment provision to reflect varying fuel
and purchased power costs. Wholesale sales, to municipals and cooperatives,
represented approximately 5% of total electric sales in 1994.

Michigan Retail Electric Jurisdiction

1993 Test Year: Effective July 9, 1993, the MPSC authorized an annualized
rate increase of $1.4 million, or 4.3%, for Wisconsin Electric's non-mine
retail electric customers. Excluding sales to the two mine customers, which
are separately regulated by the MPSC, retail electric sales in Michigan
account for approximately 2% of Wisconsin Electric's total kilowatt-hour
sales.

Power Supply Cost Recovery Clause: Rates are adjusted to reflect varying fuel
and purchased power costs through a power supply cost recovery ("PSCR") clause
in Wisconsin Electric's tariffs. Such PSCR clause provides for, among other
things, an annual filing of a PSCR plan and, after notice and an opportunity
for hearing, the development of PSCR factors to be applied to customers' bills
during the period covered by the PSCR plan to allow Wisconsin Electric to
recover its costs of fuel and purchased power transactions, as estimated in
its annual filing. The amounts so collected are subject to a reconciliation
proceeding conducted by the MPSC at the end of the period covered by the plan
for recovery of any undercollections of actual costs or for refund or credit
of any amounts in excess of its actual costs in such period. On November 30,
1994, the MPSC approved the proposed PSCR credit factor of $.00535 per
kilowatt-hour for the year 1995.

Wisconsin Retail Steam Jurisdiction

Fuel Adjustment: Wisconsin Electric steam rates contain a provision to adjust
rates to reflect varying fuel costs for all customers except for a large
volume contract representing approximately 14 percent of steam sales in 1994.

1994 Test Year: Consistent with the actions taken with respect to Wisconsin
Electric's Wisconsin Retail Electric Jurisdiction, Wisconsin Electric did not
seek an increase in retail steam rates for 1994 above those authorized in
February 1993.

1996 Test Year: Under the PSCW's biennial rate case schedule, Wisconsin
Electric would be scheduled to file in mid-1995 for rates to reflect a 1996
test year period. Wisconsin Electric and Wisconsin Natural may make a single

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23

ITEM 3. LEGAL PROCEEDINGS - Rate Matters (Cont'd)

combined filing covering electric, steam, and gas operations in May, 1995, for
the test year beginning January 1, 1996. On March 27, 1995, Wisconsin
Electric and Wisconsin Natural sent a letter to the PSCW proposing a one year
deferral of their upcoming rate case filing. The matter is pending.

For additional information see Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - "Rates and Regulatory
Matters".

OTHER LITIGATION

Advance Plan 6: In 1992, Wisconsin Electric joined with other state utilities
in a petition filed in Brown County Circuit Court requesting judicial review
of one aspect of the PSCW's Advance Plan 6 order. The action involved the
Commission's authority to require the utilities to consider, in their
planning, monetized effects of so-called "greenhouse gases".

Also, in 1992, Wisconsin's Environmental Decade ("WED") filed a petition in
Dane County Circuit Court requesting judicial review of another aspect of the
PSCW's Advance Plan 6 order. That proceeding involved the question of whether
the PSCW should have required the utilities to reflect, in their planning,
claimed beneficial employment impacts associated with demand-side management
activities and whether the PSCW's environmental assessment was sufficient. A
group of utilities, including Wisconsin Electric, appeared in that proceeding
in opposition to WED.

The two petitions were consolidated for judicial review in Dane County Circuit
Court. On September 2, 1994, the Court issued a decision that the PSCW (1)
has authority to require the utilities to monetize the economic risk of
potential future regulation of greenhouse gases for advance planning purposes,
and (2) was not required to direct utilities to include the economic impact of
employment benefits in their advance plans. In addition, the Court held the
PSCW's environmental assessment was deficient. The Court remanded the Advance
Plan order to the PSCW for the purpose of providing a factual basis for the
monetized values of greenhouse gases and correcting the environmental
assessment deficiencies. On December 21, 1994, the PSCW issued a supplemental
order purporting to explain the factual basis for the monetized values.

PSCW Two-Stage CPCN Order: In January 1994, Wisconsin Electric filed an
action in Milwaukee County Circuit Court seeking judicial determination
concerning the PSCW's authority to adopt a new "two-stage" CPCN process and to
order utilities to enter into contracts to buy power from other entities.
This action was in response to the PSCW's December 1993 order which detailed
the requirements of the new process to be implemented by the PSCW in making
the final selection from among competing alternatives to construct proposed
future capacity additions, including projects that would be owned and operated
by unaffiliated IPPs. On June 27, 1994, this action was dismissed by
stipulation of the parties. Wisconsin Electric is also an intervenor in a
similar action brought by an unaffiliated IPP in Dane County Circuit Court.
The matter is pending. For additional information see Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
"Capital Requirements 1995-1999".

Spent Fuel Storage and Disposal: See Item 1. BUSINESS - SOURCES OF GENERATION
- NUCLEAR - "Spent Fuel Storage and Disposal" for information concerning the
PSCW's approval of Wisconsin Electric's application to utilize dry cask

- 23 -
24

ITEM 3. LEGAL PROCEEDINGS - Other Litigation (Cont'd)

storage for spent nuclear fuel generated at Point Beach, and pending petitions
for judicial review of the PSCW's decision.

Pittsburg & Midway Case: In a matter brought before the FERC, in July 1993,
Wisconsin Electric filed an initial brief supporting its right to retain coal
reclamation costs collected through the wholesale fuel adjustment clause in
1986 that it believes were prudently incurred in a settlement with the
Pittsburg & Midway Coal Mining Company. Of the total costs involved, the
portion recovered through the wholesale fuel clause amounts to approximately
$750,000. This filing was made in response to a FERC audit staff
determination that Wisconsin Electric should have applied for a waiver of the
FERC's fuel clause regulations in order to attempt to pass through the
wholesale portion of the settlement costs. In order for a final decision to
be made, the FERC must first await the initial decision expected from an
Administrative Law Judge. The matter is pending.

In November 1993, the FERC rejected Wisconsin Electric's request to be allowed
to recover, in wholesale rates in the future, the amount which may have to be
refunded to customers in the event of an unfavorable ruling in the pending
fuel adjustment clause proceeding concerning the Pittsburg & Midway
reclamation charges. In January 1994, Wisconsin Electric filed an appeal with
the U.S. Court of Appeals for the District of Columbia Circuit regarding this
rejection. The matter is pending.

Electromagnetic Fields: Claims are being made or threatened with increasing
frequency against electric utilities across the country for bodily injury,
disease or other damages allegedly caused or aggravated by exposure to
electromagnetic fields ("EMFs") associated with electric transmission and
distribution lines. Results of scientific studies conducted to date do not
establish the existence of a causal connection between EMFs and any adverse
health effects. Wisconsin Electric believes that its facilities are
constructed and operated in accordance with all applicable legal requirements
and standards. Wisconsin Electric does not believe that any claims thus far
made or threatened against it in connection with EMFs will result in any
substantial liability on the part of Wisconsin Electric.

Uranium Enrichment Charges: On February 9, 1995, Wisconsin Electric and ten
other utilities filed an action against USEC in the U.S. Court of Federal
Claims challenging the final decision of the USEC contracting officer in
November 1994 which denied claims of the utilities for damages by reason of
overcharges for uranium enrichment services provided under Utility Services
Contracts between July 1, 1993 and September 30, 1994. The damages sought by
Wisconsin Electric total $3.3 million.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At a special meeting of Wisconsin Electric stockholders held on December 15,
1994, the common and preferred stockholders approved several items. A brief
description of each item voted upon, the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes as to each
matter are listed below:

Item 1: Proposal to approve the Plan and Agreement of Merger, dated June 30,
1994, by and between Wisconsin Electric and Wisconsin Natural, providing for
the merger of Wisconsin Natural with and into Wisconsin Electric. (Vote

- 24 -
25

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - (Cont'd)

required on this proposal: The majority of outstanding shares of preferred
stock, as well as the majority of outstanding shares of preferred and common
stock.)

No. of No. of
Shares Voted Shares Voted No. of
FOR AGAINST Shares BROKER
the Proposal the Proposal ABSTAINING NON-VOTES
------------------------------------------------------------------------------
Common Stock 33,289,327 0 0 0
Six Per Cent. Preferred Stock 34,176 731 1,144 4,142
3.60% Preferred Stock 202,047 3,066 4,604 18,948

Item 2: Proposal to amend Wisconsin Electric's Restated Articles of
Incorporation (the "Restated Articles") to remove the specific reference to
electric and steam operations in the description of Wisconsin Electric's
purpose. (Vote required on this proposal: The majority of outstanding shares
of preferred and common stock.)

No. of No. of
Shares Voted Shares Voted No. of
FOR AGAINST Shares BROKER
the Proposal the Proposal ABSTAINING NON-VOTES
------------------------------------------------------------------------------
Common Stock 33,289,327 0 0 0
Six Per Cent. Preferred Stock 37,789 926 1,478 0
3.60% Preferred Stock 217,108 5,086 6,471 0

Item 3: Proposal to amend the Restated Articles to remove the special voting
rights of the preferred stockholders in connection with the issuance of
certain unsecured indebtedness or consummation of certain mergers or
consolidations. (Vote required on this proposal: Two thirds of the
outstanding shares of each series of preferred stock, as well as the majority
of the outstanding shares of preferred and common stock.)

No. of No. of
Shares Voted Shares Voted No. of
FOR AGAINST Shares BROKER
the Proposal the Proposal ABSTAINING NON-VOTES
------------------------------------------------------------------------------
Common Stock 33,289,327 0 0 0
Six Per Cent. Preferred Stock 30,389 3,315 2,347 4,142
3.60% Preferred Stock 184,471 16,684 8,562 18,948

Item 4: Proposal to amend the Restated Articles to remove designations of
certain series of preferred stock which are no longer outstanding. (Vote
required on this proposal: The majority of outstanding shares of preferred
and common stock.)

No. of No. of
Shares Voted Shares Voted No. of
FOR AGAINST Shares BROKER
the Proposal the Proposal ABSTAINING NON-VOTES
------------------------------------------------------------------------------
Common Stock 33,289,327 0 0 0
Six Per Cent. Preferred Stock 36,079 1,540 1,704 870
3.60% Preferred Stock 210,095 5,723 9,890 2,957

- 25 -
26

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - (Cont'd)

Item 5: Proposal to amend the Restated Articles to conform provisions
relating to managing the business and affairs of Wisconsin Electric during an
emergency with appropriate sections of the revised Wisconsin Business
Corporation Law. (Vote required on this proposal: The majority of
outstanding shares of preferred and common stock.)

No. of No. of
Shares Voted Shares Voted No. of
FOR AGAINST Shares BROKER
the Proposal the Proposal ABSTAINING NON-VOTES
------------------------------------------------------------------------------
Common Stock 33,289,327 0 0 0
Six Per Cent. Preferred Stock 33,210 1,294 1,547 4,142
3.60% Preferred Stock 198,861 3,686 7,170 18,948

Item 6: Proposal to amend the Restated Articles to conform the statutory
references in the provision setting forth the majority vote requirement for
certain extraordinary transactions with the appropriate sections of the
Wisconsin Business Corporation Law, thereby clarifying the applicability of
such vote requirement to a statutory share exchange. (Vote required on this
proposal: The majority of outstanding shares of common stock, as well as the
majority of outstanding shares of each series of preferred stock, as well as
the majority of outstanding shares of preferred and common stock.)

No. of No. of
Shares Voted Shares Voted No. of
FOR AGAINST Shares BROKER
the Proposal the Proposal ABSTAINING NON-VOTES
------------------------------------------------------------------------------
Common Stock 33,289,327 0 0 0
Six Per Cent. Preferred Stock 36,173 1,359 1,791 870
3.60% Preferred Stock 210,031 5,369 10,308 2,957

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages at December 31, 1994 and positions of all of the executive
officers of Wisconsin Electric are listed below along with their business
experience during the past five years. All officers are elected for one year
terms or until their respective successors are duly chosen. There are no
family relationships among these officers, nor is there any agreement or
understanding between any officer and any other person pursuant to which the
officer was selected.
Current Position(s) and
Business Experience
Name and Age During Past Five Years
--------------------- ----------------------
Richard A. Abdoo, 50 Chairman of the Board, President and Chief Executive
Officer of Wisconsin Energy Corporation since
1991; Executive Vice President, 1990 to 1991;
Vice President, 1987 to 1990; Director of
Wisconsin Energy since 1988.
Chairman of the Board and Chief Executive Officer of
Wisconsin Electric Power Company since 1990;
President and Chief Executive Officer, during
1990; President and Chief Operating Officer, 1989
to 1990; Director of Wisconsin Electric since
1989.

- 26 -
27

EXECUTIVE OFFICERS OF THE REGISTRANT (Cont'd)

Current Position(s) and
Business Experience
Name and Age During Past Five Years
--------------------- ----------------------
Richard A. Abdoo (cont'd) Chairman of the Board and Chief Executive Officer of
Wisconsin Natural Gas Company since 1990;
Director of Wisconsin Natural since 1989.

Richard R. Grigg, Jr., 46 Vice President of Wisconsin Energy since January
1995.
President and Chief Operating Officer of Wisconsin
Electric since January 1995; Group Executive
and Vice President, June to December 1994; Vice
President, 1990 to 1994; Director of Wisconsin
Electric since 1994.
President and Chief Operating Officer of Wisconsin
Natural since January 1995; Director of
Wisconsin Natural since January 1995.

Jerry G. Remmel, 63 Vice President of Wisconsin Energy since 1994;
Chief Financial Officer since 1989; Treasurer
since 1981.
Chief Financial Officer of Wisconsin Electric since
1989; Senior Vice President, 1989 to 1994;
Director of Wisconsin Electric since 1989.
Chief Financial Officer of Wisconsin Natural since
1989; Vice President-Finance, 1989 to 1994;
Director of Wisconsin Natural since 1988.

David K. Porter, 51 Senior Vice President of Wisconsin Electric since
1989; Director of Wisconsin Electric since
1989.
Vice President of Wisconsin Natural since 1989;
Director of Wisconsin Natural since 1988.

Calvin H. Baker, 51 Vice President-Finance of Wisconsin Electric since
1994; Vice President-Marketing, 1992 to 1994;
Vice President-Finance, 1991 to 1992.
Senior Vice President, Financial Services
Corporation of New York City (provider of
direct loan programs and industrial
development projects in New York City),
1989 to 1991.

Francis Brzezinski, 43 Vice President of Wisconsin Energy since 1990.
Vice President-Bulk Power of Wisconsin Electric
since 1994.
President and Chief Operating Officer of Wispark
Corp., Wisvest Corp., and Witech Corp.
since 1990.
Owner of Brzezinski Real Estate Advisors, 1989 to
1990.

- 27 -
28

EXECUTIVE OFFICERS OF THE REGISTRANT (Cont'd)

Current Position(s) and
Business Experience
Name and Age During Past Five Years
--------------------- ----------------------
Kristine M. Krause, 40 Vice President - Fossil Operations of Wisconsin
Electric since 1994; Manager of Valley Power
Plant and Steam Services, 1992 to 1994; Manager
of Technical & Administrative Services, 1991 to
1992; General Superintendent - Technical
Services & Control, 1990 to 1991.

Robert E. Link, 43 Vice President - Nuclear Power of Wisconsin
Electric since 1992; Vice President - Marketing,
1991 to 1992; Assistant Vice President -
Marketing, 1990 to 1991.

Kristine A. Rappe, 38 Vice President - Customer Services (formerly Sales,
Service and Marketing) of Wisconsin Electric
since 1994; Regional Manager of Customer
Operations - Fox Valley Region, 1991 to 1994;
Assistant Regional Manager of Customer Operations
- Fox Valley Region during 1991; Manager -
Marketing Department, 1990 to 1991.

Bernard F. Van Dinter, 61 Vice President - Electric Operations of Wisconsin
Electric since 1994; Vice President - Fossil
Operations during 1994; Vice President - System
Operations, 1992 to 1993; Vice President -
Engineering & Construction, 1991 to 1992;
Director of Engineering & Construction during
1991; Director of Corporate Planning, 1990-1991.

Ann Marie Brady, 42 Assistant Secretary of Wisconsin Energy since 1989.
Secretary of Wisconsin Electric since 1994;
Assistant Secretary, 1989 to 1994. Secretary of
Wisconsin Natural since 1993; Assistant
Secretary, 1989 to 1993.

Anne K. Klisurich, 47 Controller of Wisconsin Electric since 1994.
Controller of Wisconsin Natural since 1994.
Accounting Manager of Wisconsin Energy, 1987 to
1994.

- 28 -
29

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

The amount of cash dividends declared on Wisconsin Electric's Common Stock
during the two most recent fiscal years are set forth below. Dividends were
paid to Wisconsin Electric's sole common stockholder, Wisconsin Energy.

Quarter Total Dividend
-----------------------------------------------------------------------------
1993 1 $16,250,000
2 $16,250,000
3 $16,250,000
4 $16,250,000
-----------------------------------------------------------------------------
1994 1 $33,700,000
2 $35,583,667
3 $35,583,667
4 $35,583,667

- 29 -
30

PART II

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Thousands of Dollars)

Earnings available
for common
stockholder $ 165,594 $ 173,548 $ 155,826 $ 175,641 $ 179,990
Operating revenues
Electric $1,403,562 $1,347,844 $1,298,723 $1,292,809 $1,208,045
Steam 14,281 14,090 13,093 12,986 12,126
---------- ---------- ---------- ---------- --------
Total operating
revenues $1,417,843 $1,361,934 $1,311,816 $1,305,795 $1,220,171
Total assets $3,826,129 $3,693,556 $3,285,845 $3,052,133 $2,972,903
Long-term debt and
preferred stock-
redemption
required $1,191,257 $1,193,994 $1,195,210 $1,110,572 $1,002,852

SALES AND CUSTOMERS
1994 1993 1992 1991 1990
---- ---- ---- ---- ----

Electric
Megawatt-hours
sold 26,911,363 25,685,436 24,747,581 25,016,247 23,656,727
Customers
(End of year) 944,855 932,285 919,466 907,871 896,393
Steam
Pounds sold
(millions) 2,395 2,376 2,284 2,282 2,213
Customers
(End of year) 471 459 472 468 470

QUARTERLY FINANCIAL DATA
Three Months Ended
------------------
March June
----- ----
1994 1993 1994 1993
---- ---- ---- ----
(Thousands of Dollars)

Total operating revenues $362,102 $339,651 $341,838 $323,416
Operating income $ 29,185 $ 63,087 $ 62,785 $ 47,733
Earnings available
for common stockholder $ 10,478 $ 44,806 $ 43,476 $ 29,835

Three Months Ended
------------------
September December
----------- ----------
1994 1993 1994 1993
---- ---- ---- ----
(Thousands of Dollars)

Total operating revenues $362,949 $355,436 $350,954 $343,431
Operating income $ 74,356 $ 68,489 $ 74,232 $ 63,528
Earnings available
for common stockholder $ 55,810 $ 51,707 $ 55,830 $ 47,200

-----------------------------------------------------------------------------
The quarterly results of operations are not directly comparable because of
seasonal and other factors. See Management's Discussion and Analysis in
Item 7 for further information.

Earnings and dividends per share are not provided as all Wisconsin Electric's
Common Stock is held by Wisconsin Energy.

- 30 -

Electric Revenue, Kilowatt-Hour Sales and Customer Statistics
-------------------------------------------------------------
Year Ended December 31 1994 1993 1992 1991 1990
---- ---- ---- ---- ----

OPERATING REVENUES ($000)
Residential $ 484,627 $ 472,903 $ 441,240 $ 444,542 $ 407,675
Small commercial and industrial 406,043 386,736 372,213 363,906 347,706
Large commercial and industrial 398,179 380,482 381,083 372,768 347,723
Other retail 13,750 13,975 15,245 15,368 15,097
Resale - municipals 55,508 57,039 62,787 71,382 66,240
---------- ---------- ---------- ---------- ----------
Total retail and municipals 1,358,107 1,311,135 1,272,568 1,267,966 1,184,441
Resale - public utilities 31,295 25,879 18,080 18,476 17,799
---------- ---------- ---------- ---------- ----------
Total revenue from sales 1,389,402 1,337,014 1,290,648 1,286,442 1,202,240
Other operating revenue 14,160 10,830 8,075 6,367 5,805
---------- ---------- ---------- ---------- ----------
Total operating revenues $1,403,562 $1,347,844 $1,298,723 $1,292,809 $1,208,045
========== ========== ========== ========== ==========
KILOWATT-HOUR SALES (Millions)
Residential 6,670 6,551 6,230 6,567 6,197
Small commercial and industrial 6,699 6,358 6,155 6,153 5,955
Large commercial and industrial 10,472 9,771 9,702 9,462 8,764
Other retail 189 196 217 226 232
Resale - municipals 1,415 1,580 1,779 1,935 1,834
---------- ---------- ---------- ---------- ----------
Total retail and municipals 25,445 24,456 24,083 24,343 22,982
Resale - public utilities 1,466 1,229 665 673 675
---------- ---------- ---------- ---------- ----------
Total Sales 26,911 25,685 24,748 25,016 23,657
========== ========== ========== ========== ==========
NUMBER OF CUSTOMERS - Average
Residential 846,745 835,685 824,544 814,078 803,820
Small commercial and industrial 88,765 87,351 85,990 84,540 83,126
Large commercial and industrial 674 675 670 664 654
Other 1,811 1,831 1,945 1,980 1,991
---------- ---------- ---------- ---------- ----------
Total 937,995 925,542 913,149 901,262 889,591
========== ========== ========== ========== ==========
DEGREE DAYS (Milwaukee)
Heating (Normal 7,061) 6,431 6,775 6,723 6,416 6,103
Cooling (Normal 626) 877 651 364 1,056 728

- 31 -

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Earnings

Net income for Wisconsin Electric decreased to $165,594,000 in 1994 compared
to $173,548,000 in 1993, reflecting a non-recurring charge of approximately
$63.5 million ($39 million net of tax), associated with Wisconsin Electric's
organizational restructuring program.

The charge primarily reflects the costs of severance and early retirement
packages which are elements of a "revitalization" program designed to better
position Wisconsin Electric in a changing energy marketplace. The company
anticipates that the non-recurring restructuring charge, which was taken in
the first quarter of 1994, will be offset by the end of 1995 through savings
in operation and maintenance costs.

Excluding the non-recurring charge, net income was $204,594,000 for the 12
months ended December 31, 1994, compared with $173,548,000 in 1993, an
increase of $31 million, or 18 percent. Earnings reflect a 4.8 percent
increase in electric kilowatt-hour sales and a 5.7 percent reduction in non-
fuel operation and maintenance expenses. Electric sales increased primarily
due to warmer weather during the summer of 1994 and additional economic
activity in the company's service area. The reduction in non-fuel operation
and maintenance expenses reflects, among other things, payroll-related savings
as a result of workforce reductions, and lower expenditures made in connection
with power plant renovation work as maintenance programs were completed.

Wisconsin Electric and Wisconsin Natural Revitalization

In response to increasing competitive pressures in the markets for electricity
and natural gas, Wisconsin Electric and Wisconsin Natural have developed and
are implementing a revitalization process to increase efficiencies and improve
customer service.

Wisconsin Electric and Wisconsin Natural are "reengineering" and restructuring
their organizations. The new structures consolidate many business functions
and simplify work processes. Due to productivity improvements, staffing
levels at Wisconsin Electric have been reduced; 347 employees elected to
retire under an early retirement option and 573 employees have enrolled in
severance packages. See Note H to the Financial Statements - Benefits Other
Than Pensions, for additional information.

As part of the revitalization effort, Wisconsin Energy intends to merge
Wisconsin Electric and Wisconsin Natural to form a single combined utility
subsidiary. The proposed merger will improve customer service and reduce
operating costs. The merger, which is anticipated to be effective by year-end
1995, is subject to a number of conditions, including requisite regulatory and
other approvals. Wisconsin Electric and Wisconsin Natural filed a joint
application on October 11, 1994, to obtain the PSCW's approval of the merger.
Wisconsin Electric also filed an application to obtain the MPSC consent to
assume Wisconsin Natural's liabilities in connection with the merger. Both
approvals are expected by year-end 1995.

- 32 -
33

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

Electric Sales and Revenues

Total electric sales of Wisconsin Electric, detailed below by customer class,
increased 4.8 percent in 1994 compared to 1993.

Electric Sales - Megawatt Hours 1994 1993 % Change
------------------------------- ---------- ---------- --------
Residential 6,670,081 6,551,061 1.8
Small Commercial and Industrial 6,699,073 6,357,510 5.4
Large Commercial and Industrial 10,471,869 9,771,383 7.2
Other 1,603,741 1,776,061 (9.7)
---------- ----------
Total Retail and Municipal 25,444,764 24,456,015 4.0
Resale-Utilities 1,466,599 1,229,421 19.3
---------- ----------
Total Sales 26,911,363 25,685,436 4.8
--------------------------------------------------------------------------

Electric energy sales were positively impacted by warmer summer weather in
1994, which resulted in increased use of electricity for air conditioning and
other cooling purposes, and increased economic activity. The increase in
electric sales also reflects colder winter weather during the first quarter of
1994 and increased sales to the Empire and Tilden iron ore mines.

Electric energy sales to the Empire and Tilden iron ore mines, Wisconsin
Electric's two largest customers, were 15.0 percent higher in 1994 compared to
1993. The increase is attributable to a five-week long mine strike during the
third quarter of 1993 which reduced sales during 1993. Wisconsin Electric's
contracts with the mines require the payment of a demand charge regardless of
power usage which partially offset the impact of lost sales on 1993 revenues.
Excluding the mines, sales to large commercial and industrial customers
increased 5.1 percent in 1994. Sales to the mines represented 8.6 percent,
7.8 percent and 9.0 percent of total electric sales during 1994, 1993 and
1992, respectively.

The 19.3 percent increase in the resale of energy to other utilities is
attributable to the increased availability of Wisconsin Electric's power
plants. This allowed Wisconsin Electric additional energy for external sales.
The percentage change is not indicative of future sales growth in this
customer class.

The 9.7 percent reduction in sales to the Other customer class, referred to in
the table above, is largely the result of reductions in sales to WPPI,
Wisconsin Electric's largest municipal customer consortium. WPPI has been
reducing its purchases from Wisconsin Electric subsequent to acquiring
generation capacity in 1990. Since that time, WPPI has expanded the use of
its existing generation facilities and has installed additional capacity,
further reducing its reliance on energy purchases from Wisconsin Electric.
These sales reductions did not have a significant effect on earnings.

- 33 -
34

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

Total electric kilowatt-hour sales increased at a compound annual rate of 4.3
percent between the years 1992 and 1994, while electric revenues increased at
a compound annual rate of 4.0 percent during this period. These increases
reflect among other things, more favorable weather conditions in 1994 compared
to 1992. The warmer than normal summer in 1994 contrasted sharply with the
summer of 1992, the coolest since Wisconsin Electric began keeping records in
1948.

Electric Operation and Maintenance Expenses

Total electric operating expenses, excluding income taxes, depreciation and
the non-recurring revitalization charge, decreased $17 million in 1994
compared to 1993. The decrease largely reflects the payroll-related savings
as a result of workforce reductions referred to above and lower expenditures
made in connection with power plant renovation work as maintenance programs
were completed. These decreases were partially offset by expenses associated
with the implementation of the revitalization program and growth in
conservation-related expenses associated with improving the efficiency of
customers' electric energy usage. Operating expenses, excluding income taxes,
depreciation and the non-recurring charge, have remained relatively flat over
the three-year period ended December 31, 1994.

Other Items

Deferred Income Taxes decreased $33 million during 1994 compared to 1993, due
in part to tax matters related to the timing of payments made in connection
with the severance and early retirement packages associated with the company's
organizational restructuring program. Deferred Income Taxes also reflect a
prior period reclassification between current and deferred income taxes.

Other Interest increased $3.6 million during 1994 compared to 1993 reflecting
increased short-term debt balances at Wisconsin Electric. Interest charges on
long-term debt increased $11 million during 1993 compared to 1992 largely due
to the additional debt issued to finance Wisconsin Electric's construction
programs and the amortization of premiums associated with the debt securities
refinanced during 1992 and 1993.

With expectations of low-to-moderate inflation and future operating cost
reductions discussed above, Wisconsin Electric does not believe the impact of
inflation will have a material effect on its future results of operations.

Electric Sales Outlook

Assuming moderate growth in the service territory economy and normal weather,
Wisconsin Electric presently anticipates electric kilowatt-hour sales to grow
at a compound annual rate of approximately 1.0 percent over the five-year
period ending December 31, 1999. This forecast is subject to a number of
variables, including the economy and weather, which may affect the actual
growth in sales.

- 34 -
35

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

Rates and Regulatory Matters

The table below summarizes the projected annual revenue impact of recent rate
changes authorized by regulatory commissions based on the sales projections
utilized by those commissions in setting rates. The PSCW regulates Wisconsin
retail electric and steam rates, while the FERC regulates wholesale electric
rates. The MPSC regulates retail electric rates in Michigan. The PSCW has
discontinued the practice of conducting annual rate case proceedings,
replacing it with a new schedule which calls for future rate cases to be
conducted once every two years.

In support of its goal to become the lowest-cost energy provider in the region
and in light of the operating cost reductions expected from the reengineering
process discussed above, Wisconsin Electric did not seek an increase in rates
for 1994 or 1995.

Revenue Percent
Increase Change in Effective
Company/Service (Decrease) Rates Date
------------------------- ------------ --------- ---------
Wisconsin Electric
Retail electric, WI $ 26,655,000 2.3 02/17/93
Steam heating 505,000 3.5 02/17/93
Wholesale electric 6,000,000 10.6 06/09/93
Retail electric, MI 1,366,000 4.3 07/09/93
Fuel electric, WI (8,596,000)* (0.9) 11/05/93
Fuel electric, WI (16,179,000) (1.3) 08/04/94
------------------------------------------------------------------------------
* The 1993 fuel credit was eliminated 1/1/94 by PSCW Order.

Under the Wisconsin retail electric fuel adjustment procedure, retail electric
rates may be adjusted, on a prospective basis, if cumulative fuel and
purchased power costs, when compared to the costs projected in the retail
electric rate proceeding, deviate from a prescribed range and are expected to
continue to be above or below that range.

On September 8, 1994, the PSCW issued a notice that it will conduct an
investigation into the state of the electric utility industry in Wisconsin,
particularly its institutional structure and regulatory regime, in order to
evaluate what changes would be beneficial for Wisconsin. The notice states
that this investigation may result in profound and fundamental changes to the
nature and regulation of the electric utility industry in Wisconsin. It is
the PSCW's stated intention that this proceeding will establish criteria and
direction for utilities to incorporate into any proposals involving structural
or regulatory changes they may put forward. The PSCW also intends that the
proceeding reflect input from all those having a stake in Wisconsin's electric
utility industry, including large and small retail customers; wholesale
customers; utility management; utility securities holders; independent power
producers; purveyors of demand-side options and renewable resources;
representatives of the environmental, financial, academic, labor, small
business and governmental communities; and elected representatives. The PSCW
invited interested persons to submit comments as to appropriate objectives for
regulation of the electric utility industry and the utility structures and
regulatory approaches likely to provide the best balance of such objectives.

- 35 -
36

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

On November 1, 1994, Wisconsin Electric submitted its comments to the PSCW in
a paper describing a framework for a restructured industry. Wisconsin
Electric's view of industry restructuring would seek to achieve the benefits
of competition while maintaining reliability of electric service, controlling
costs during the transition to the envisioned end-state, and protecting the
environment with increasing vigor. Today's various electric utility functions
would be split into two major categories--natural monopolies and competitive
entities. The natural monopolies are functions where a single entity can
provide the lowest cost. The competitive entities would perform functions
where competition can provide the lowest cost. The natural monopolies would
be re-regulated so the appropriate incentives exist to provide electricity at
reasonable prices. The competitive entities would eventually see an
elimination of traditional regulation.

In Wisconsin Electric's plan, the re-regulated natural monopolies are the
transmission and distribution functions. Re-regulation of these entities
should involve some form of price cap and performance-standard operation
rules. In the new structure, the FERC would regulate the transmission systems
through a regional transmission group to ensure open access, comparable
pricing, comparable service and adequate cost recovery. The PSCW would
regulate the distribution function for reasonable price, reliability, public
safety and customer satisfaction. The competitive entities in the Wisconsin
Electric model are the generation, customer service and energy merchant
functions.

Initial question and answer sessions were held November 28-29, 1994. At a
meeting on January 24, 1995, the PSCW approved the establishment of an
advisory committee that will examine all aspects of electrical service and the
electric utility industry and suggest which functions should be performed by a
competitive market. The PSCW established a timetable which would have a final
committee report available to the Wisconsin Legislature by the end of 1995.

Wisconsin Electric operates under utility rates which are subject to the
approval of the PSCW, MPSC and FERC. Such rates are designed to recover the
cost of service and provide a reasonable return to investors. Developing
competitive pressures in the utility industry may result in future utility
rates which are based upon factors other than the traditional original cost of
investment. In such a situation, continued deferral of certain regulatory
asset and liability amounts on Wisconsin Electric's books may no longer be
appropriate as allowed under Statement of Financial Accounting Standards
No. 71, Accounting for the Effects of Certain Types of Regulation. At this
time, Wisconsin Electric is unable to predict whether any adjustments to
regulatory assets and liabilities will occur in the future. See Note A to the
Financial Statements - Summary of Significant Accounting Policies - Deferred
Regulatory Assets and Liabilities, for further information.

LIQUIDITY AND CAPITAL RESOURCES

Investing Activities

Wisconsin Electric invested $1,060 million in its businesses during the three
years ended December 31, 1994. The investments made during this three-year
period include construction expenditures for new or improved facilities
totaling $850 million, net capitalized conservation expenditures of $87
million, purchases of nuclear fuel at $64 million and payments to an external
trust for the eventual decommissioning of Wisconsin Electric's Point Beach
Nuclear Plant totaling $42 million.
- 36 -
37

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

During the second quarter of 1994, Wisconsin Electric placed in service the
last two units, or approximately 150 megawatts of capacity, at its Concord
Generating Station, a four unit 300 megawatt natural gas-fired combustion
turbine facility designed to meet peak demand requirements. The first two
units were completed in 1993. Capital expenditures of $6 million, $35 million
and $47 million were made during 1994, 1993 and 1992, respectively, for
construction of this facility. Total capital costs of the Concord facility
were approximately $107 million.

Additionally, during 1994, Wisconsin Electric continued construction of the
new Paris Generating Station, a four unit, approximately 300 megawatt natural
gas-fired combustion turbine facility intended to meet growing peak demand
requirements. This generating station, which is expected to have all four
units in service during the summer of 1995, is currently estimated to cost
$104 million. Capital expenditures of $54 million and $28 million were made
during 1994 and 1993, respectively, for construction of this facility.

Wisconsin Electric completed the $107 million renovation project at its Port
Washington Power Plant in 1994. Unit 4, the last of four units to be
renovated, returned to service in July. The renovation work, which began in
September 1991, restored approximately 320 megawatts of capacity and included
the installation of additional emission control equipment. Expenditures
totaling $12 million, $36 million and $43 million were made during 1994, 1993
and 1992, respectively.

Cash Provided by Operating and Financing Activities

During the three years ended December 31, 1994, cash provided by operating
activities totaled $1,109 million. During this period, internal sources of
funds, after the payment of dividends to Wisconsin Energy, Wisconsin
Electric's sole common shareholder, provided 79 percent of the company's
capital requirements.

Financing activities during the three-year period ended December 31, 1994,
included the issuance of $952 million of long-term debt, principally to
refinance higher coupon debt and the retirement of $73 million of preferred
stock. No preferred stock was issued during this period. Additionally,
during the three-year period ended December 31, 1994, Wisconsin Electric
retired a total of $846 million of long-term debt and increased short-term
debt by $148 million. Dividends on the company's common stock were $140
million, $65 million, and $65 million, during 1994, 1993 and 1992,
respectively.

During 1993, Wisconsin Electric issued five new series of First Mortgage Bonds
aggregating $350 million in principal amount, the proceeds of which were used
to redeem $284.3 million principal amount of four outstanding series of First
Mortgage Bonds and 626,500 shares of Wisconsin Electric's 6.75% Series
Preferred Stock.

During 1992, Wisconsin Electric issued five new series of First Mortgage Bonds
the proceeds of which provided $431 million principal amount to redeem 12
outstanding series of higher coupon First Mortgage Bonds and $130 million of
new capital.

- 37 -
38

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

These refunding transactions are expected to result in approximately $191
million in savings over the lives of the new debt issues. Depending on market
conditions and other factors, additional debt refundings may occur.

Capital Structure

The company's capitalization at December 31 is shown as follows:

1994 1993
------ ------

Common Equity 50.5% 50.7%
Preferred Stock 1.0 1.3
Long-Term Debt
(including current maturities) 42.0 43.7
Short-Term Debt 6.5 4.3
------ ------
100.0% 100.0%

Compared to the electric utility industry generally, Wisconsin Electric has
maintained a relatively high ratio of common equity to total capitalization
and low debt and preferred stock ratios. This conservative capital structure,
along with strong bond ratings (Wisconsin Electric currently has ratings of
AA+ by Standard & Poor's Corporation, Aa2 by Moody's Investors Service and AA+
by Duff & Phelps Inc.) and internal cash generation has provided, and should
continue to provide, the company with access to the capital markets when
necessary to finance the anticipated growth in the company's business. At
year-end 1994, the company had $102 million of unused lines of bank credit, $5
million of cash and cash equivalents, $207 million of short-term debt
(including long-term debt due currently) and $21 million of construction funds
held by trustees.

Capital Requirements 1995-1999

The estimated capital requirements for Wisconsin Electric for the years 1995-
1999 are outlined in the table below. The construction expenditures have
decreased significantly from the estimates reported previously in the 1993
Annual Report on Form 10-K. The primary reason for the decrease is the
revitalization initiative which will reduce the cost to design, build and
maintain company facilities.

1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(Millions of Dollars)

Construction $215 $198 $159 $151 $153
Conservation 14 13 13 14 14
Bond Maturities and
Refinancings 0 30 130 60 91
Changes in Fuel
Inventories 6 8 3 4 (2)
Decommissioning Trust
Payments 20 30 32 35 37
---- ---- ---- ---- ----
Total $255 $279 $337 $264 $293
==============================================================================

- 38 -
39

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

In January 1994, a coordinated state-wide plan for meeting future electricity
needs of Wisconsin customers was filed with the PSCW in the Advance Plan 7
Docket. In the Advance Plan process, Wisconsin Electric, in conjunction with
the other regulated electric utilities located in Wisconsin, is required to
file long-term forecasts of resource requirements, such as the need for
generation and transmission facilities, along with plans to meet those
requirements, including the use of energy management and conservation.

In order to reliably meet its forecasted growth in demand, Wisconsin Electric
employs a least-cost integrated planning process which includes renovation of
existing power plants, promotion of cost-effective conservation and load
management options, development of renewable energy sources, purchases of
power and construction of new company-owned generation facilities.

Investments in demand-side management programs have reduced and delayed the
need to add new generating capacity but have not eliminated the need entirely.
Purchases of power from other utilities and transmission system upgrades will
also combine to help delay the need to install some new generating capacity in
the future. However, in order to serve the near-term growth in peak demand
requirements, Wisconsin Electric has received PSCW approval and is currently
in various stages of adding new capacity as previously described under
"Investing Activities".

Finally, Wisconsin Electric's Advance Plan 7 filing indicates a need for
additional peaking capacity after the turn of the century, along with an
anticipated need for additional intermediate-load capacity during the 2000 to
2010 time period. Wisconsin Electric's next base load power plant is not
expected to be placed in service until after 2010.

The addition of new generating units requires approval from various regulatory
agencies including the PSCW, the EPA and the DNR. All generating facilities
proposed by Wisconsin Electric will meet or exceed the applicable federal and
state environmental requirements.

In 1993, the PSCW, after conducting a competitive bidding process, issued an
order selecting a proposal submitted by an unaffiliated IPP to construct a
generation facility to meet a portion of Wisconsin Electric's anticipated
increase in system supply needs. In accordance with the PSCW Order, Wisconsin
Electric subsequently signed a long-term agreement to purchase electricity
from the proposed facility. The agreement is contingent upon the facility
being completed and going into operation, which at this time is planned for
mid-1996. A number of parties have filed petitions for judicial review of
this PSCW Order, taking the position that the Order should be set aside on
various legal grounds. In a decision dated March 17, 1995, the Dane County
Circuit Court affirmed the PSCW's selection of the LS Power project and the
PSCW's approval of the power purchase agreement entered into by the Company
and LSP-Whitewater L.P., the project's developer. The Court remanded to the
PSCW for further proceedings the PSCW's selection of Wisconsin Electric's
Kimberly project as the conditional second place project to proceed if the LS
Power project does not.

Prior to the PSCW selection of the IPP's generation facility, Wisconsin
Electric had proposed to construct its own 220 megawatt cogeneration facility
in Kimberly, Wisconsin, which was intended to provide process steam to Repap
Wisconsin, Inc. ("Repap") starting in mid-1995. Wisconsin Electric had made
expenditures toward the Kimberly facility amounting to approximately $70
million. These expenditures were primarily associated with the procurement of
- 39 -
40

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

combustion turbines, the steam turbine and the heat recovery boiler in order
to achieve the in-service dates as agreed to in a steam service contract with
Repap. Wisconsin Electric is currently evaluating its options regarding its
Kimberly Cogeneration Facility investment. The equipment procured to date is
a technology of natural gas-fired combined cycle generation equipment that is
marketed worldwide. Wisconsin Electric believes that a market for the
equipment exists and is investigating opportunities to sell the equipment or
to use it in another power project. At this time, Wisconsin Electric does not
believe that the PSCW's selection of an IPP proposal will have a material
adverse effect on its financial condition.

The PSCW has approved Wisconsin Electric's application to utilize dry storage
for spent nuclear fuel generated at Point Beach. The decision completed a
multi-year state review of the Wisconsin Electric proposal. The storage
system to be used at Point Beach also has been certified by the NRC after a
four-year technical review. Dry cask storage at Point Beach will use a two-
container system made of steel and reinforced concrete. Capital costs
associated with this facility are estimated at $6.5 million and are included
in the above forecast. In March 1995 separate petitions were filed by
intervenors in Dane County Circuit Court and Fond du Lac County Circuit Court.
The Dane County petition seeks reversal of the order and a remand to the PSCW
directing it to deny Wisconsin Electric's request for authorization to
construct the dry cask facility, or in the alternative, to correct the alleged
errors in the PSCW's order. No specific relief is identified in the Fond du
Lac petition; however, numerous grounds of error are alleged. Wisconsin
Electric intends to fully participate in both judicial review proceedings and
to vigorously oppose the petitions.

The temporary dry storage facility is necessary because the spent fuel pool
inside the plant is becoming full. The plant would be forced to shut down by
1998 without additional on-site storage capacity. The dry storage facility
will be used until the DOE takes ownership of the spent fuel. While the DOE
and the operators of nuclear power facilities have a contract mandated by
federal law that calls for the DOE to begin accepting fuel in 1998, the
government is not in a position to meet its commitment. If this commitment is
not met, Wisconsin Electric will need to construct additional casks and will
seek PSCW approval to do so.

In a related matter, Wisconsin Electric filed with the PSCW for a Certificate
of Authority to proceed with the planned 1996 replacement of the Unit 2 steam
generators at Point Beach. In 1984, Wisconsin Electric replaced the Unit 1
steam generators. Estimated at a cost of $119 million, which is also included
in the above forecast, the Unit 2 project would allow for its operation until
the expiration of its operating license in 2013. Without the replacement of
the steam generators, it is believed the unit would not be able to operate to
the end of its current license. The PSCW deferred a decision on Wisconsin
Electric's request to replace Unit 2 steam generators until early 1996, but
directed Wisconsin Electric to make arrangements with the fabricator of the
new steam generators to allow replacement to proceed promptly if authorized by
the PSCW.

Capital Resources

During the five-year forecast period ending December 31, 1999, Wisconsin
Electric expects internal sources of funds from operations, after dividends to

- 40 -
41

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Cont'd)

Wisconsin Energy, to provide about 80 percent of the utility capital
requirements. The remaining utility cash requirements are expected to be met
through the reduction of existing cash investments and construction funds on
deposit with trustees, short-term borrowings, the issuance of long-term debt
and capital contributions from Wisconsin Energy.

Exclusive of debt refundings, utility debt issues of $100 million are
anticipated in 1995 and 1997.

Environmental Issues

The 1990 Amendments to the Clean Air Act mandate significant nation-wide
reductions in SO2 and NOx emissions to address acid rain and ground level
ozone control requirements.

In 1994, Wisconsin Electric completed the installation of continuous emission
monitors at all of its facilities and installed low NOx burners on one boiler
at its Oak Creek Power Plant and two boilers at its Valley Power Plant. These
actions, along with the burning of low sulfur coal and the installation of low
NOx burners on other boilers at Oak Creek and Valley Power Plants in early
1995, meet the requirements that became effective January 1, 1995. To date,
approximately $31 million has been spent on Clean Air Act compliance.

Wisconsin Electric elected to voluntarily bring the Valley and Port Washington
Power Plants under jurisdiction of the NOx and SO2 requirements of the Clean
Air Act, five years earlier than mandated. This was possible because these
units meet the more stringent phase II emissions standards today.

Wisconsin Electric projects a surplus of SO2 emission allowances and is
seeking additional allowances available as a result of energy conservation
programs. As an integral component of its least-cost plan, Wisconsin Electric
is active in SO2 allowance trading. Revenue from the sale of allowances is
being used to offset future potential rate increases.

Additional fuel switching and the installation of NOx controls at various
power plants will be required to meet the second phase of reduction
requirements that become effective January 1, 2000. These costs, along with
additional operating expenses, are not expected to exceed $54 million based on
today's cost.

Wisconsin Electric aggressively seeks environmentally acceptable, beneficial
uses of its combustion byproducts. However, ash byproducts have been, and to
some degree, continue to be disposed in company-owned, licensed landfills.
Some early designed and constructed landfills may allow the release of low
levels of constituents, resulting in the need for various levels of
remediation. These costs are included in the environmental operating and
maintenance costs for Wisconsin Electric.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The "Quarterly Financial Data" in Item 6 on page 30 is incorporated herein by
reference.

- 41 -
42

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Cont'd)

WISCONSIN ELECTRIC POWER COMPANY

INCOME STATEMENT

Year Ended December 31

1994 1993 1992
---- ---- ----
(Thousands of Dollars)

Operating Revenues
Electric $1,403,562 $1,347,844 $1,298,723
Steam 14,281 14,090 13,093
---------- ---------- ----------
Total Operating Revenues 1,417,843 1,361,934 1,311,816

Operating Expenses
Fuel (Note F) 285,862 263,385 266,716
Purchased power 42,623 54,880 63,745
Other operation expenses 344,765 341,748 318,253
Maintenance 118,138 149,247 143,618
Revitalization (Note H) 63,500 - -
Depreciation (Note C) 160,758 150,831 148,967
Taxes other than income taxes 70,156 68,969 68,380
Federal income tax (Note I) 94,712 68,239 61,235
State income tax (Note I) 22,155 13,887 14,783
Deferred income taxes - net (Note I) (21,303) 12,034 10,083
Investment tax credit - net (Note I) (4,081) (4,123) (3,960)
---------- ---------- ----------
Total Operating Expenses 1,177,285 1,119,097 1,091,820

Operating Income 240,558 242,837 219,996

Other Income and Deductions
Interest income 11,406 13,351 13,624
Allowance for other funds used during
construction (Note D) 4,985 8,453 6,936
Miscellaneous - net 10,827 9,638 6,547
Federal income tax (Note I) (1,431) (1,718) (1,127)
State income tax (Note I) (571) (811) (630)
---------- ---------- ----------
Total Other Income and Deductions 25,216 28,913 25,350

Income Before Interest Charges 265,774 271,750 245,346

Interest Charges
Long-term debt 95,625 96,110 84,843
Other interest 6,020 2,450 2,414
Allowance for borrowed funds used
during construction (Note D) (2,816) (4,735) (3,653)
---------- ---------- ----------
Total Interest Charges 98,829 93,825 83,604
---------- ---------- ----------
Net Income 166,945 177,925 161,742

Preferred Stock Dividend Requirement 1,351 4,377 5,916
---------- ---------- ----------
Earnings Available for Common
Stockholder $ 165,594 $ 173,548 $ 155,826
========== ========== ==========

Note: Earnings and dividends per share of common stock are not applicable because all of the
company's common stock is owned by Wisconsin Energy Corporation.

See Notes to Financial Statements.

- 42 -
43

WISCONSIN ELECTRIC POWER COMPANY

STATEMENT OF CASH FLOWS

Year Ended December 31

1994 1993 1992
---- ---- ----
(Thousands of Dollars)

Operating Activities
Net income $166,945 $177,925 $161,742
Reconciliation to cash
Depreciation 160,758 150,831 148,967
Revitalization - net 37,253 - -
Nuclear fuel expense - amortization 21,437 21,366 20,818
Conservation expense - amortization 20,910 15,254 13,009
Debt premium, discount & expense -
amortization 13,858 12,813 4,483
Deferred income taxes - net (21,303) 12,034 10,083
Investment tax credit - net (4,081) (4,123) (3,960)
Allowance for other funds used
during construction (4,985) (8,453) (6,936)
Change in Accounts receivable 1,744 (16,981) 9,993
Inventories 1,579 15,181 (5,294)
Accounts payable (14,186) 11,620 9,195
Other current assets (15,144) 3,231 (10,073)
Other current liabilities 1,785 15,453 (3,664)
Other (14,940) (5,176) 8,272
-------- -------- --------
Cash Provided by Operating Activities 351,630 400,975 356,635

Investing Activities
Construction expenditures (245,967) (310,513) (293,589)
Allowance for borrowed funds used
during construction (2,816) (4,735) (3,653)
Nuclear fuel (26,351) (20,016) (17,709)
Nuclear decommissioning trust (10,138) (11,371) (20,212)
Conservation investments - net (20,823) (35,252) (31,087)
Other (7,807) 1,080 1,184
-------- --------- --------
Cash Used in Investing Activities (313,902) (380,807) (365,066)

Financing Activities
Sale of long-term debt 23,184 361,049 567,360
Retirement of long-term debt (21,373) (328,771) (495,940)
Change in short-term debt 69,124 44,179 34,820
Stockholder capital contribution 30,000 - -
Retirement of preferred stock (5,250) (65,504) (2,035)
Dividends on stock - common (140,451) (65,000) (65,000)
- preferred (1,381) (4,729) (5,928)
-------- --------- --------
Cash Provided by (Used in) Financing Activities (46,147) (58,776) 33,277

Change in Cash and Cash Equivalents $ (8,419) $(38,608) $ 24,846
======== ========= ========

Supplemental information disclosures
Cash Paid For
Interest (net of amount capitalized) $ 78,082 $ 77,357 $ 82,193
Income taxes 138,606 94,103 82,126

See Notes to Financial Statements.

- 43 -
44

WISCONSIN ELECTRIC POWER COMPANY

BALANCE SHEET

December 31

ASSETS

1994 1993
---- ----
(Thousands of Dollars)

Utility Plant
Electric $4,304,925 $4,079,794
Steam 40,103 39,113
---------- ----------
4,345,028 4,118,907
Accumulated provision for depreciation (1,914,277) (1,784,110)
---------- ----------
2,430,751 2,334,797
Construction work in progress 205,343 208,834
Nuclear fuel - net (Note F) 56,606 52,665
---------- ----------
Net Utility Plant 2,692,700 2,596,296

Other Property and Investments
Nuclear decommissioning trust fund (Note F) 226,805 214,421
Construction funds held by trustees 21,075 20,550
Conservation investments 138,489 136,995
Other 9,555 3,491
---------- ----------
Total Other Property and Investments 395,924 375,457

Current Assets
Cash and cash equivalents 5,002 13,421
Accounts receivable, net of allowance for
doubtful accounts - $10,547 and $7,201 90,105 91,849
Accrued utility revenues 95,051 89,306
Fossil fuel (at average cost) 58,956 57,955
Materials and supplies (at average cost) 66,777 69,357
Prepayments 56,691 47,939
Other assets 6,520 5,873
---------- ----------
Total Current Assets 379,102 375,700

Deferred Charges and Other Assets
Accumulated deferred income taxes (Note I) 119,132 97,788
Deferred regulatory assets (Note A) 188,126 191,969
Other 51,145 56,346
---------- ----------
Total Deferred Charges and Other Assets 358,403 346,103
---------- ----------
Total Assets $3,826,129 $3,693,556
========== ==========

See Notes to Financial Statements.

- 44 -
45

WISCONSIN ELECTRIC POWER COMPANY

BALANCE SHEET

December 31

CAPITALIZATION AND LIABILITIES

1994 1993
---- ----
(Thousands of Dollars)

Capitalization (See Capitalization Statement)
Common stock equity $1,454,554 $1,399,686
Preferred stock - redemption not required 30,451 30,451
Preferred stock - redemption required - 5,250
Long-term debt (Note K) 1,191,257 1,188,744
---------- ----------
Total Capitalization 2,676,262 2,624,131

Current Liabilities
Long-term debt due currently (Note K) 19,846 19,254
Notes payable (Note L) 187,027 117,903
Accounts payable 67,444 81,630
Payroll and vacation accrued 23,672 26,058
Taxes accrued - income and other 12,904 14,422
Interest accrued 21,461 21,295
Other 18,761 13,238
---------- ----------
Total Current Liabilities 351,115 293,800

Deferred Credits and Other Liabilities
Accumulated deferred income taxes (Note I) 440,564 444,717
Accumulated deferred investment tax credits 87,414 91,495
Deferred regulatory liabilities (Note A) 159,912 167,403
Other 110,862 72,010
---------- ----------
Total Deferred Credits and Other
Liabilities 798,752 775,625

Commitments and Contingencies (Note N)
---------- ----------
Total Capitalization and Liabilities $3,826,129 $3,693,556
========== ==========

See Notes to Financial Statements.

- 45 -
46

WISCONSIN ELECTRIC POWER COMPANY

CAPITALIZATION STATEMENT

December 31

1994 1993
---- ----
(Thousands of Dollars)

Common Stock Equity (See Common Stock Equity Statement)
Common stock - $10 par value; authorized 65,000,000 shares;
outstanding - 33,289,327 shares $ 332,893 $ 332,893
Other paid in capital 169,673 139,673
Retained earnings 951,988 927,120
---------- ----------
Total Common Stock Equity 1,454,554 1,399,686

Preferred Stock - Cumulative
Six Per Cent. Preferred Stock - $100 par value; authorized 45,000 shares;
outstanding - 44,508 shares 4,451 4,451
Serial preferred stock - $100 par value; authorized 2,360,000 shares;
outstanding -
3.60% Series - 260,000 shares 26,000 26,000
---------- ----------
Total Preferred Stock - Redemption Not Required (Note J) 30,451 30,451

6.75% Series - 0 shares and 52,500 shares - 5,250
---------- ----------
Total Preferred Stock - Redemption Required (Note J) - 5,250

Long-Term Debt
First mortgage bonds
Series Due
------ ---
4-1/2% 1996 30,000 30,000
5-7/8% 1997 130,000 130,000
5-1/8% 1998 60,000 60,000
6.10 % 1999-2008 25,000 25,000
6.25 % 1999-2008 1,000 1,000
6-1/2% 1999 40,000 40,000
6-5/8% 1999 51,000 51,000
6.45 % 2004 12,000 12,000
7-1/4% 2004 140,000 140,000
6.45 % 2006 4,000 4,000
6.50 % 2007-2009 10,000 10,000
9-3/4% 2015 46,350 46,350
7-1/8% 2016 100,000 100,000
6.85 % 2021 9,000 9,000
7-3/4% 2023 100,000 100,000
7.05 % 2024 60,000 60,000
9-1/8% 2024 3,443 3,443
8-3/8% 2026 100,000 100,000
7.70 % 2027 200,000 200,000
---------- ----------
1,121,793 1,121,793

Note (unsecured) - Variable rate due 2016 67,000 67,000
Obligations under capital lease (Note F) 43,696 41,870
Unamortized discount - net (21,386) (22,665)
Long-term debt due currently (19,846) (19,254)
---------- ----------
Total Long-Term Debt (Note K) 1,191,257 1,188,744
---------- ----------
Total Capitalization $2,676,262 $2,624,131
========== ==========

See Notes to Financial Statements.

- 46 -
47

WISCONSIN ELECTRIC POWER COMPANY

COMMON STOCK EQUITY STATEMENT

Common Stock Common Stock Other Paid Retained
Shares $10 Par Value In Capital Earnings Total
------------ ------------- ---------- -------- -----------
(Thousands of Dollars)

Balance - December 31, 1991 33,289,327 $332,893 $142,462 $727,865 $1,203,220

Net income 161,742 161,742

Cash dividends
Common stock (65,000) (65,000)
Preferred stock (5,928) (5,928)

Other 65 65
----------- -------- -------- -------- ----------
Balance - December 31, 1992 33,289,327 332,893 142,527 818,679 1,294,099

Net income 177,925 177,925

Cash dividends
Common stock (65,000) (65,000)
Preferred stock (4,729) (4,729)

Purchase of Preferred Stock (Note J) (2,854) (2,854)
Other 245 245
----------- -------- -------- -------- ----------
Balance - December 31, 1993 33,289,327 332,893 139,673 927,120 1,399,686

Net income 166,945 166,945

Cash dividends
Common stock (140,451) (140,451)
Preferred stock (1,381) (1,381)

Stockholder capital contribution 30,000 30,000
Other (245) (245)
----------- -------- -------- -------- ----------
Balance - December 31, 1994 33,289,327 $332,893 $169,673 $951,988 $1,454,554
=========== ======== ======== ======== ==========

See Notes to Financial Statements.

- 47 -
48

WISCONSIN ELECTRIC POWER COMPANY

NOTES TO FINANCIAL STATEMENTS

A - Summary of Significant Accounting Policies
----------------------------------------------

General
-------

The accounting records of the company are kept as prescribed by the Federal
Energy Regulatory Commission (FERC), modified for requirements of the Public
Service Commission of Wisconsin (PSCW).

Revenues
--------

Utility revenues are recognized on the accrual basis and include estimated
amounts for service rendered but not billed.

Fuel
----

The cost of fuel is expensed in the period consumed.

Property
--------

Property is recorded at cost. Additions to and significant replacements of
utility property are charged to utility plant at cost; minor items are charged
to maintenance expense. Cost includes material, labor and allowance for funds
used during construction (see Note D). The cost of depreciable utility
property, together with removal cost less salvage, is charged to accumulated
provision for depreciation when property is retired.

Deferred Regulatory Assets and Liabilities
------------------------------------------

Pursuant to Statement of Financial Accounting Standards No. 71, Accounting for
the Effects of Certain Types of Regulation, the company capitalizes as
deferred regulatory assets incurred costs which are expected to be recovered
in future utility rates. The company also records as deferred regulatory
liabilities the current recovery in utility rates of costs which are expected
to be paid in the future.

A significant portion of the company's deferred regulatory assets and
liabilities relate to the amounts recorded due to the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109).
See Note I.

Statement of Cash Flows
-----------------------

Cash and cash equivalents includes marketable debt securities acquired three
months or less from maturity.

- 48 -
49

A - Summary of Significant Accounting Policies - (Cont'd)
---------------------------------------------------------

Conservation Investments
------------------------

The company directs a variety of demand-side management programs to help
foster energy conservation by its customers. As authorized by the PSCW, the
company has capitalized certain conservation program costs. Utility rates
approved by the PSCW provide for a current return on these conservation
investments. Conservation investments are amortized to operating expense over
a ten-year period.

B - Utility Merger
------------------

In January 1994, Wisconsin Energy Corporation (WEC) announced plans to merge
its wholly-owned natural gas subsidiary, Wisconsin Natural Gas Company (WN),
into Wisconsin Electric. The completion of the merger, which is subject to a
number of conditions including requisite regulatory approvals, is currently
anticipated to occur by year-end 1995.

C - Depreciation
-----------------

Depreciation expense is accrued at straight line rates, certified by the PSCW,
which include estimates for salvage and removal costs.

Depreciation as a percent of average depreciable utility plant was 3.9% in
1994 and 1993, and 4.1% in 1992.

Nuclear plant decommissioning is accrued as depreciation expense (see Note F).

D - Allowance for Funds Used During Construction (AFUDC)
--------------------------------------------------------

AFUDC is included in utility plant accounts and represents the cost of
borrowed funds used during plant construction and a return on stockholders'
capital used for construction purposes. On the income statement the cost of
borrowed funds (before income taxes) is a reduction of interest expense and
the return on stockholders' capital is an item of noncash other income.

Utility rates approved by the PSCW provide for a current return on investment
for selected long-term projects included in construction work in progress
(CWIP). AFUDC was capitalized on the remaining CWIP at a rate of 10.83% in
1994 and 1993, and 11.10% in 1992, as approved by the PSCW.

E - Transactions with Associated Companies
------------------------------------------

Managerial, financial, accounting, legal, data processing and other services
may be rendered between associated companies and are billed in accordance with
service agreements approved by the PSCW. WN also delivers gas to the company
for electric generation at rates approved by the PSCW. The company received
from WEC a stockholder capital contribution of $30,000,000 in 1994.

- 49 -
50

F - Nuclear Operations
----------------------

Nuclear Fuel
------------

The company has a nuclear fuel leasing arrangement with Wisconsin Electric
Fuel Trust (Trust), which is treated as a capital lease. The nuclear fuel is
leased for a period of 60 months or until the removal of the fuel from the
reactor, if earlier. Lease payments include charges for the cost of fuel
burned, financing costs and a management fee. In the event the company or the
Trust terminates the lease, the Trust would recover its unamortized cost of
nuclear fuel from the company. Under the lease terms, the company is in
effect the ultimate guarantor of the Trust's commercial paper and line of
credit borrowings financing the investment in nuclear fuel.

Provided below is a summary of nuclear fuel investment at December 31 and
interest expense on the nuclear fuel lease:
1994 1993 1992
-------- -------- --------
(Thousands of Dollars)
Nuclear Fuel
Under capital lease $ 89,705 $ 91,201
Accumulated provision for amortization (50,983) (54,207)
In process/stock 17,884 15,671
-------- --------
Total nuclear fuel $ 56,606 $ 52,665
======== ========

Interest expense on nuclear fuel lease $ 1,896 $ 1,697 $ 2,098

The future minimum lease payments under the capital lease and the present
value of the net minimum lease payments as of December 31, 1994 are as
follows:
(Thousands of Dollars)

1995 $22,620
1996 14,705
1997 7,992
1998 1,472
1999 539
-------
Total Minimum Lease Payments 47,328
Less: Interest (3,632)
-------
Present Value of Net Minimum
Lease Payments $43,696
=======

The estimated cost of disposal of spent fuel based on a contract with the U.S.
Department of Energy (DOE) is included in nuclear fuel expense. The Energy
Policy Act of 1992 establishes a Uranium Enrichment Decontamination and
Decommissioning fund (fund) for the DOE's nuclear fuel enrichment facilities.
Deposits to the fund will be derived in part from special assessments to
utilities. As of December 31, 1994, the company has on its books a remaining
estimated liability equal to the projected special assessments of $31,133,000.
A corresponding deferred regulatory asset will be amortized to nuclear fuel
expense and included in utility rates over the next 13 years.

- 50 -
51

F - Nuclear Operations - (Cont'd)
---------------------------------

Nuclear Insurance
-----------------

The Price-Anderson Act (Act) provides an aggregate limitation of $8.9 billion
on public liability claims arising out of a nuclear incident. The company has
$200 million of liability insurance from commercial sources. The Act also
establishes an industry-wide retrospective rating plan under which nuclear
reactor owners could be assessed up to $79 million per reactor (the company
owns two), but not more than $10 million in any one year for each reactor, in
the event of a nuclear incident.

An industry-wide insurance program, with an aggregate limit of $200 million,
has been established to cover radiation injury claims of nuclear workers first
employed after 1987. If claims in excess of the available funds develop, the
company could be assessed a maximum of approximately $3.2 million per reactor.

The company has property damage, decontamination and decommissioning insurance
totaling $2.0 billion for loss from damage at the Point Beach Nuclear Plant
with Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited
(NEIL). Under the NML and NEIL policies, the company has a potential maximum
retrospective premium liability per loss of $6.0 million and $15.9 million,
respectively.

The company also maintains additional insurance with NEIL covering extra
expenses of obtaining replacement power during a prolonged accidental outage
(in excess of 21 weeks) at the Point Beach Nuclear Plant. This insurance
coverage provides weekly indemnities of $3.5 million per unit for outages
during the first year, declining to 80% of the amounts during the second and
third years. Under the policy, the company's maximum retrospective premium
liability is approximately $9.0 million.

It should not be assumed that, in the event of a major nuclear incident, any
insurance or statutory limitation of liability would protect the company from
material adverse impact.

Nuclear Decommissioning
-----------------------

The company expects to operate the two units at its Point Beach Nuclear Plant
to the expiration of their current operating licenses, 2010 for Unit 1 and
2013 for Unit 2. The estimated cost to decommission the plant in 1994 dollars
is $335 million based upon a site specific decommissioning cost study
completed in 1994. Assuming plant shutdown at the expiration of the current
operating licenses, prompt dismantlement and annual escalation of costs at
specific inflation factors established by the PSCW, it is projected that
approximately $1.6 billion will be spent over a twenty-year period, beginning
in 2010, to decommission the plant.

Nuclear decommissioning costs are accrued as depreciation expense over the
expected service lives of the two units based upon an external sinking fund
method. It is expected that the annual payments to the Nuclear
Decommissioning Trust Fund (Fund) along with the earnings on the Fund will
provide sufficient funds at the time of decommissioning. The company believes
it is probable that any shortfall in funding would be recoverable in utility
rates.

- 51 -
52

F - Nuclear Operations - (Cont'd)
---------------------------------

In a generic proceeding in 1994, the PSCW issued an order setting forth the
requirement of a site specific estimate with prompt dismantlement for
determining decommissioning funding levels for the owners of nuclear power
plants located in Wisconsin. WE will modify its funding requirements based on
the order in its next utility rate case filing; an increase in funding is
anticipated along with a corresponding increase in expense.

As required by Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (FAS 115), the company's
debt and equity security investments in the Fund are classified as Available
for Sale. Gains and losses on the Fund were determined on the basis of
specific identification; net unrealized holding gains on the Fund were
recorded as part of accumulated provision for depreciation.

Following is a summary of decommissioning costs and earnings charged to
depreciation expense and the Fund balance included in accumulated provision
for depreciation at December 31:

1994 1993 1992
-------- -------- --------
(Thousands of Dollars)

Decommissioning costs $ 3,456 $ 3,456 $ 12,162
Earnings 6,682 7,915 8,050
-------- -------- --------
Depreciation Expense $ 10,138 $ 11,371 $ 20,212
======== ======== ========

Total costs accrued to date $224,559 $214,421
Unrealized gain 2,246
-------- --------
Accumulated Provision for Depreciation $226,805 $214,421
======== ========

The December 31, 1994 Fund balance was stated at fair value, whereas the
December 31, 1993 Fund balance was stated at historical cost. The fair value
of the Fund at December 31, 1993 was $231,991,000.

G - Pension Plans
-----------------

Effective in 1993, the PSCW adopted Statement of Financial Accounting
Standards No. 87, Employers' Accounting for Pensions (FAS 87), for ratemaking.
For 1992, the PSCW recognized funded amounts for ratemaking and the company
charged $3,962,000 to expense as paid.

The company has several noncontributory pension plans covering all eligible
employees. Pension benefits are based on years of service and the employee's
compensation. The majority of the plans' assets are equity securities; other
assets include corporate and government bonds and real estate. The plans are
funded to meet the requirements of the Employee Retirement Income Security Act
of 1974.

- 52 -
53

G - Pension Plans - (Cont'd)
----------------------------

In the opinion of the company, current pension trust assets and amounts which
are expected to be paid to the trusts in the future will be adequate to meet
future pension payment obligations to current and future retirees.

Pension Cost calculated per FAS 87 1994 1993 1992
---------------------------------- --------- --------- ---------
(Thousands of Dollars)
Components of Net Periodic Pension Cost,
Year Ended December 31 -
Cost of pension benefits earned by
employees $ 9,427 $ 9,185 $ 8,290
Interest cost on projected benefit
obligation 33,712 31,650 28,874
Actual (return) loss on plan assets 5,972 (37,846) (14,090)
Net amortization and deferral (44,756) 1,176 (30,216)
--------- --------- ---------
Total pension cost (credit) calculated
under FAS 87 $ 4,355 $ 4,165 $ (7,142)
========= ========= =========
Actuarial Present Value of Accumulated
Benefit Obligation, at December 31 -
Vested benefits-employees' right to
receive benefit no longer contingent
upon continued employment $ 381,148 $ 343,265
Nonvested benefits-employees' right to
receive benefit contingent upon
continued employment 1,000 6,124
--------- ---------
Total obligation $ 382,148 $ 349,389
========= =========
Funded Status of Plans: Pension Assets and
Obligations at December 31 -
Pension assets at fair market value $ 459,456 $ 483,391
Projected benefit obligation
at present value (447,946) (437,461)
Unrecognized transition asset (23,057) (25,497)
Unrecognized prior service cost (1,895) 143
Unrecognized net (gain) loss 11,443 (954)
--------- ---------
Projected status of plans $ (1,999) $ 19,622
========= =========

Rates used for calculations (%) -
Discount Rate-interest rate used to
adjust for the time value of money 8.25 7.5 8.0
Assumed rate of increase
in compensation levels 5.0 5.0 5.0
Expected long-term rate of return
on pension assets 9.0 9.0 9.0

- 53 -
54

H - Benefits Other Than Pensions
--------------------------------

Postretirement Benefits
-----------------------

Effective in 1993, the company adopted prospectively Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions (FAS 106), and elected the 20 year option for
amortization of the previously unrecognized accumulated postretirement benefit
obligation. The PSCW has issued an order recognizing FAS 106 for ratemaking;
therefore, adoption has no material impact on net income. Prior to 1993, the
cost of these postretirement benefits was expensed when paid and was
$4,151,000 in 1992.

The company sponsors defined benefit postretirement plans that cover both
salaried and nonsalaried employees who retire at age 55 or older with at least
10 years of credited service. The postretirement medical plan provides
coverage to retirees and their dependents. Retirees contribute to the medical
plan. The group life insurance benefit is based on employee compensation and
is reduced upon retirement.

Employees' Benefit Trusts (Trusts) are used to fund a major portion of
postretirement benefits. The funding policy for the Trusts is to maximize tax
deductibility. The majority of the Trusts' assets are mutual funds.

- 54 -
55

H - Benefits Other Than Pensions - (Cont'd)
-------------------------------------------

Postretirement Benefit Cost calculated per FAS 106 1994 1993
-------------------------------------------------- --------- ---------
(Thousands of Dollars)

Components of Net Periodic Postretirement Benefit Cost,
Year Ended December 31 -
Cost of postretirement benefits earned by employees $ 2,284 $ 2,291
Interest cost on projected benefit obligation 8,723 8,404
Actual return on plan assets (3,675) (2,096)
Net amortization and deferral 5,530 4,161
--------- ---------
Total postretirement benefit cost calculated
under FAS 106 $ 12,862 $ 12,760
========= =========
Funded Status of Plans: Postretirement Obligations
and Assets at December 31 -
Accumulated Postretirement Benefit Obligation at
December 31 -
Retirees $ (71,562) $ (57,061)
Fully eligible active plan participants (5,991) (13,434)
Other active plan participants (32,074) (43,485)
--------- ---------
Total obligation (109,627) (113,980)

Postretirement assets at fair market value 31,466 26,216
--------- ---------
Accumulated postretirement benefit obligation in
excess of plan assets (78,161) (87,764)

Unrecognized transition obligation 72,029 77,943
Unrecognized net (gain) loss (8,357) 4,981
--------- ---------
Accrued Postretirement Benefit Obligation $ (14,489) $ (4,840)
========= =========

Rates used for calculations (%) -
Discount Rate-interest rate used to adjust
for the time value of money 8.25 7.5
Assumed rate of increase in compensation levels 5.0 5.0
Expected long-term rate of return on
postretirement assets 9.0 9.0

Health care cost trend rate 12.0 declining to
5.0 in year 2002

Changes in health care cost trend rates will affect the amounts reported. For
example, a 1% increase in rates would increase the accumulated postretirement
benefit obligation as of December 31, 1994 by $7,415,000 and the aggregate of
the service and interest cost components of net periodic postretirement
benefit cost for the year then ended by $887,000.

- 55 -
56

H - Benefits Other Than Pensions - (Cont'd)
-------------------------------------------

Revitalization
--------------

In the first quarter of 1994, the company recorded a $63.5 million charge
related to its revitalization program. This charge included $32.1 million for
Early Retirement Incentive Packages (ERIP) and $21.1 million for Severance
Packages (SP). These plans are being used to reduce employee staffing levels.
ERIP provided for a monthly income supplement, medical benefits and waiver of
an early retirement pension reduction. The SP included a severance payment,
medical/dental insurance, outplacement services, personal financial planning
and tuition support. Availability of these plans to various bargaining units
was based upon agreements made between the company and the bargaining units.
These plans have been available to most management employees but not elected
officers.

Under ERIP, 347 employees elected to retire and 573 employees have enrolled in
SP. It is anticipated that the revitalization charge will be offset by the
end of 1995 through savings in operation and maintenance costs. ERIP
supplemental income costs are being paid from pension plan trusts and
medical/dental benefits from employee benefit trusts. Remaining ERIP and SP
costs are being paid from general corporate funds. The ultimate timing of
cash flows for revitalization will depend in part upon the funding limitations
of the company's pension plans. Through December 31, 1994, $26.2 million have
been paid against the revitalization liability.

I - Income Taxes
----------------

Comprehensive interperiod income tax allocation is used for federal and state
temporary differences. The federal investment tax credit is accounted for on
the deferred basis and is reflected in income ratably over the life of the
related property.

- 56 -
57

I - Income Taxes - (Cont'd)
---------------------------

Following is a summary of income tax expense and a reconciliation of total
income tax expense with the tax expected at the federal statutory rate.

1994 1993 1992
-------- -------- --------
(Thousands of Dollars)

Current tax expense $118,869 $ 84,655 $ 77,775
Investment tax credit-net (4,081) (4,123) (3,960)
Deferred tax expense (21,303) 12,034 10,083
-------- -------- --------
Total tax expense $ 93,485 $ 92,566 $ 83,898
======== ======== ========
Income before income
taxes $260,430 $270,491 $245,640
======== ======== ========
Expected tax at federal
statutory rate $ 91,150 $ 94,672 $ 83,518
State income tax net of
federal tax reduction 12,875 10,808 12,242
Investment tax credit
restored (4,081) (4,738) (4,071)
Other (no item over
5% of expected tax) (6,459) (8,176) (7,791)
-------- -------- --------
Total tax expense $ 93,485 $ 92,566 $ 83,898
======== ======== ========

FAS 109 requires the recording of deferred assets and liabilities to recognize
the expected future tax consequences of events that have been reflected in the
company's financial statements or tax returns, the adjustment of deferred tax
balances to reflect tax rate changes and the recognition of previously
unrecorded deferred taxes. Following is a summary of deferred income taxes
under FAS 109.

December 31
1994 1993
-------- --------
(Thousands of Dollars)
Deferred Income Tax Assets
Decommissioning trust $ 42,685 $ 44,888
Construction advances 32,126 30,777
Accrued vacation 5,854 6,692
ERIP Accrual 14,969 -
Other 23,498 15,431
-------- --------
Total Deferred Income Tax Assets $119,132 $ 97,788
======== ========

Deferred Income Tax Liabilities
Plant related $397,850 $383,796
Conservation investments 27,564 51,882
Other 15,150 9,039
-------- --------
Total Deferred Income Tax Liabilities $440,564 $444,717
======== ========

- 57 -
58

I - Income Taxes - (Cont'd)
---------------------------

The company also has recorded the following deferred regulatory assets and
liabilities which represent the future expected impact of deferred taxes on
utility revenues.

December 31
1994 1993
-------- --------
(Thousands of Dollars)

Deferred regulatory assets $154,882 $155,881

Deferred regulatory liabilities 159,912 167,403

J - Preferred Stock
-------------------

Serial Preferred Stock authorized but unissued is cumulative, $25 par value,
5,000,000 shares.

In the event of default in the payment of preferred dividends or in the
mandatory redemption requirements, no dividends or other distributions may be
paid on the company's common stock.

Redemption Not Required -

The 3.60% Series Preferred Stock is redeemable in whole or in part at the
option of the company at $101 per share plus any accrued dividends.

Redemption Required -

In 1994 the company called for redemption all of its 52,500 outstanding shares
of 6.75% Series Preferred Stock at a redemption price of par. In 1993 the
company called for redemption 626,500 shares at a purchase price of $104.05
per share plus accrued dividends to the redemption date.

- 58 -
59

K - Long-Term Debt
------------------

The maturities and sinking fund requirements through 1999 for the aggregate
amount of long-term debt outstanding (excluding obligations under capital
lease, see Note F) at December 31, 1994 are shown below.

(Thousands of Dollars)

1995 $ -
1996 30,000
1997 130,000
1998 60,000
1999 92,040

Sinking fund requirements for the years 1995 through 1999, included in the
table above, are $1,040,000. Substantially all utility plant is subject to
the applicable mortgage.

Long-term debt premium or discount and expense of issuance are amortized by
the straight line method over the lives of the debt issues and included as
interest expense. Unamortized amounts pertaining to reacquired debt are
written off currently, when acquired for sinking fund purposes, or amortized
in accordance with PSCW orders, when acquired for early retirement.

Fair value of first mortgage bonds is estimated based upon the market value of
the same or similar issues. The fair value of the company's first mortgage
bonds was $1.0 billion and $1.2 billion at December 31, 1994 and 1993,
respectively.

L - Notes Payable
-----------------

Short-term notes payable balances and their corresponding weighted average
interest rates consist of:

December 31
1994 1993
------------------ ------------------
Interest Interest
Balance Rate Balance Rate
-------- -------- -------- --------
(Thousands of Dollars)

Banks $ 50,400 6.02% $ 50,000 3.28%
Commercial paper 136,627 6.06% 67,903 3.34%
-------- --------
$187,027 $117,903
======== ========

Unused lines of credit for short-term borrowing amounted to $101,600,000 at
December 31, 1994. In support of various informal lines of credit from banks,
the company has agreed to maintain unrestricted compensating balances or to
pay commitment fees; neither the compensating balances nor the commitment fees
are significant.

- 59 -
60

M - Information by Segments of Business
---------------------------------------

Year ended December 31 1994 1993 1992
---------------------- ---- ---- ----
(Thousands of Dollars)
Electric Operations
Operating revenues $1,403,562 $1,347,844 $1,298,723
Operating income before income taxes 329,216 329,727 299,902
Depreciation 159,414 149,646 147,859
Construction expenditures 244,718 305,467 292,031

Steam Operations
Operating revenues 14,281 14,090 13,093
Operating income before income taxes 2,825 3,147 2,235
Depreciation 1,344 1,185 1,108
Construction expenditures 1,213 4,940 1,530

Total
Operating revenues 1,417,843 1,361,934 1,311,816
Operating income before income taxes 332,041 332,874 302,137
Depreciation 160,758 150,831 148,967
Construction expenditures
(including nonutility) 245,967 310,513 293,589

At December 31
--------------
Net Identifiable Assets
Electric $3,798,186 $3,665,536 $3,262,031
Steam 25,315 25,119 20,972
Nonutility 2,628 2,901 2,842
---------- ---------- ----------
Total Assets $3,826,129 $3,693,556 $3,285,845
========== ========== ==========

N - Commitments and Contingencies
---------------------------------

Plans for the construction and financing of future additions to utility plant
can be found elsewhere in this report in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Item 7.

- 60 -
61

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
the Stockholders of Wisconsin Electric Power Company

In our opinion, the financial statements listed under Item 14(a)(1) on pages
62 and 63 present fairly, in all material respects, the financial position of
Wisconsin Electric Power Company at December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

/s/Price Waterhouse LLP
-----------------------
PRICE WATERHOUSE LLP

Milwaukee, Wisconsin
January 25, 1995

- 61 -
62

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance with General Instruction G(3) of Form 10-K, the information
under "Election of Directors" in Wisconsin Electric's definitive Information
Statement for its Annual Meeting of Stockholders to be held May 16, 1995 (the
"1995 Annual Meeting Information Statement") is incorporated herein by
reference. Also see "Executive Officers of the Registrant" in Part I of this
report.

ITEM 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G(3) of Form 10-K, the information
under "Compensation" and "Retirement Plans" in the 1995 Annual Meeting
Information Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of Wisconsin Electric's Common Stock (100% of such class) is owned by the
parent company, Wisconsin Energy Corporation, 231 West Michigan Street, P.O.
Box 2949, Milwaukee, Wisconsin 53201. The directors, director nominees and
executive officers of Wisconsin Electric do not own any of the voting
securities of Wisconsin Electric. In accordance with General Instruction G(3)
of Form 10-K, the information concerning their beneficial ownership of
Wisconsin Energy stock set forth under "Stock Ownership of Directors, Nominees
and Executive Officers" in the 1995 Annual Meeting Information Statement is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements and Report of Independent Accountants

Included in Part II of this report:

Income Statement for the three years ended December 31,
1994

Statement of Cash Flows for the three years ended
December 31, 1994

- 62 -
63

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (Cont'd)

Balance Sheet at December 31, 1994 and 1993

Capitalization Statement at December 31, 1994 and 1993

Common Stock Equity Statement for the three years ended
December 31, 1994

Notes to Financial Statements

Report of Independent Accountants

2. Financial Statement Schedules

Schedules are omitted because of the absence of conditions
under which they are required or because the required
information is given in the financial statements or notes
thereto.

3. Exhibits

The following Exhibits are filed with this report:

Exhibit No.

(3)-1 Restated Articles of Incorporation of Wisconsin
Electric Power Company, as amended and restated
effective January 10, 1995.

2 Bylaws of Wisconsin Electric Power Company, as
amended to November 1, 1994, to increase the
size of the Board of Directors from 12 to 13.
(Section 1 of Bylaw II.)

(23) Consent of Independent Accountants, dated
March 30, 1995 appearing on page 67 of this
Annual Report on Form 10-K for the year ended
December 31, 1994.

(27) Wisconsin Electric Power Company Financial Data
Schedule for the fiscal year ended December 31,
1994.

In addition to the Exhibits shown above, which are filed herewith, Wisconsin
Electric hereby incorporates the following Exhibits pursuant to Exchange Act
Rule 12b-32 and Regulation Section 201.24 by reference to the filings set
forth below:

(2) Plan and Agreement of Merger, dated June 30, 1994,
by and between Wisconsin Electric Power Company
and Wisconsin Natural Gas Company. (Appendix A
to Wisconsin Electric's Proxy Statement dated
October 31, 1994 in File No. 1-1245.)

(4)-1 Reference is made to Article III of the Restated
Articles of Incorporation of Wisconsin Electric.
(Exhibit (3)-1 herein.)

- 63 -
64

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (Cont'd)

Mortgage or Supplemental
Indenture Company Date Exhibit # Under File No.
------------------------------------------------------------------------------
(4)- 2 Mortgage and Wisconsin 10/28/38 B-1 2-4340
Deed of Trust Electric
("WE")
3 Second WE 6/1/46 7-C 2-6422
4 Third WE 3/1/49 7-C 2-8456
5 Fourth WE 6/1/50 7-D 2-8456
6 Fifth WE 5/1/52 4-G 2-9588
7 Sixth WE 5/1/54 4-H 2-10846
8 Seventh WE 4/15/56 4-I 2-12400
9 Eighth WE 4/1/58 2-I 2-13937
10 Ninth WE 11/15/60 2-J 2-17087
11 Tenth WE 11/1/66 2-K 2-25593
12 Eleventh WE 11/15/67 2-L 2-27504
13 Twelfth WE 5/15/68 2-M 2-28799
14 Thirteenth WE 5/15/69 2-N 2-32629
15 Fourteenth WE 11/1/69 2-0 2-34942
16 Fifteenth WE 7/15/76 2-P 2-54211
17 Sixteenth WE 1/1/78 2-Q 2-61220
18 Seventeenth WE 5/1/78 2-R 2-61220
19 Eighteenth WE 5/15/78 2-S 2-61220
20 Nineteenth WE 8/1/79 (a)2(a) 1-1245 (9/30/79
Form 10-Q)
21 Twentieth WE 11/15/79 (a)2(a) 1-1245 (12/31/79
Form 10-K)
22 Twenty-First WE 4/15/80 (4)-21 2-69488
23 Twenty-Second WE 12/1/80 (4)-1 1-1245 (12/31/80
Form 10-K)
24 Twenty-Third WE 9/15/85 (4)-1 1-1245 (9/30/85
Form 10-Q)
25 Twenty-Four WE 9/15/85 (4)-2 1-1245 (9/30/85
Form 10-Q)
26 Twenty-Fifth WE 12/15/86 (4)-25 1-1245 (12/31/86
Form 10-K)
27 Twenty-Sixth WE 1/15/88 4 1-1245 (1/26/88
Form 8-K)
28 Twenty-Seventh WE 4/15/88 4 1-1245 (3/31/88
Form 10-Q)
29 Twenty-Eighth WE 9/1/89 4 1-1245 (9/30/89
Form 10-Q)
30 Twenty-Ninth WE 10/1/91 (4)-1 1-1245 (12/31/91
Form 10-K)
31 Thirtieth WE 12/1/91 (4)-2 1-1245 (12/31/91
Form 10-K)
32 Thirty-First WE 8/1/92 (4)-1 1-1245 (6/30/92
Form 10-Q)
33 Thirty-Second WE 8/1/92 (4)-2 1-1245 (6/30/92
Form 10-Q)
34 Thirty-Third WE 10/1/92 (4)-1 1-1245 (9/30/92
Form 10-Q)
35 Thirty-Fourth WE 11/1/92 (4)-2 1-1245 (9/30/92
Form 10-Q)

- 64 -
65

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (Cont'd)

Mortgage or Supplemental
Indenture Company Date Exhibit # Under File No.
------------------------------------------------------------------------------
36 Thirty-Fifth WE 12/15/92 (4)-1 1-1245 (12/31/92
Form 10-K)
37 Thirty-Sixth WE 1/15/93 (4)-2 1-1245 (12/31/92
Form 10-K)
38 Thirty-Seventh WE 3/15/93 (4)-3 1-1245 (12/31/92
Form 10-K)
39 Thirty-Eighth WE 8/01/93 (4)-1 1-1245 (6/30/93
Form 10-Q)
40 Thirty-Ninth WE 9/15/93 (4)-1 1-1245 (9/30/93
Form 10-Q)

All agreements and instruments with respect to long-term debt not
exceeding 10 percent of the total assets of the Registrant have been
omitted as permitted by related instructions. The Registrant agrees
pursuant to Item 601(b)(4) of Regulation S-K to furnish to the
Securities and Exchange Commission, upon request, a copy of all such
agreements and instruments.

(10)-1 Purchase and Sale Agreement by and among The Cleveland-Cliffs Iron
Company, Cliffs Electric Service Company, Upper Peninsula Generating
Company, Upper Peninsula Power Company and Wisconsin Electric Power
Company, dated as of December 8, 1987. (Exhibit 10 to Wisconsin
Electric's Form 8-K dated December 18, 1987 in File No. 1-1245.)

2 Supplemental Benefits Agreement between Wisconsin Energy Corporation
and employee Richard A. Abdoo dated November 21, 1994. (Exhibit
(10)-2 to Wisconsin Energy's 1994 Form 10-K in File No. 1-9057.) *

3 Supplemental Benefits Agreement between Wisconsin Electric and
employee John W. Boston dated November 21, 1994. (Exhibit (10)-3 to
Wisconsin Energy's 1994 Form 10-K in File No. 1-9057.) *

4 Directors' Deferred Compensation Plan of Wisconsin Electric Power
Company, as restated as of January 1, 1994. (Exhibit (10)-6 to
Wisconsin Energy's 1994 Form 10-K in File No. 1-9057.) *

5 Executive Non-Qualified Trust by and between Wisconsin Energy
Corporation and Firstar Trust Company, dated May 12, 1994,
established to provide a source of funds to assist in the meeting
of the liabilities under various nonqualified deferred compensation
plans made between Wisconsin Energy and its subsidiaries and various
plan participants. (Exhibit 10-1 to Wisconsin Energy's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, File No.
1-9057.) *

6 Service Agreement dated January 1, 1987 between Wisconsin Electric
Power Company, Wisconsin Energy Corporation and other non-utility
affiliated companies. (Exhibit (10)-(a) to Wisconsin Electric's Form
8-K dated January 2, 1987 in File No. 1-1245.)

- 65 -
66

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K (Cont'd)

* Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
Certain compensatory plans in which directors or executive officers of
the Registrant are eligible to participate are not filed in reliance
on the exclusion in Item 601(b)(10)(iii)(B)(6) of Regulation S-K.

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 1994.

- 66 -
67

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements and Prospectuses constituting part of the Registration Statements
on Form S-3 (Nos. 33-49199 and 33-51749) of Wisconsin Electric Power Company
of our report dated January 25, 1995 appearing on page 61 of this Form 10-K.

/s/ Price Waterhouse LLP
------------------------
PRICE WATERHOUSE LLP

Milwaukee, Wisconsin
March 30, 1995

- 67 -
68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

WISCONSIN ELECTRIC POWER COMPANY

/s/R. A. Abdoo
By -------------------------------------
Date March 30, 1995 (R. A. Abdoo, Chairman of the Board
and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature and Title Date

/s/R. A. Abdoo
--------------------------------------------------- March 30, 1995
(R. A. Abdoo, Chairman of the Board and
Chief Executive Officer and Director
- Principal Executive Officer)

/s/R. R. Grigg
--------------------------------------------------- March 30, 1995
(R. R. Grigg, Jr., President and Chief Operating
Officer and Director)

/s/J. G. Remmel
--------------------------------------------------- March 30, 1995
(J. G. Remmel, Chief Financial Officer and
Director)

/s/A. K. Klisurich
--------------------------------------------------- March 30, 1995
(A. K. Klisurich, Controller
- Principal Accounting Officer)

/s/D. K. Porter
--------------------------------------------------- March 30, 1995
(D. K. Porter, Senior Vice President
and Director)

- 68 -
69

Signature and Title Date

/s/J. F. Ahearne
--------------------------------------------------- March 30, 1995
(J. F. Ahearne, Director)

/s/J. F. Bergstrom
--------------------------------------------------- March 30, 1995
(J. F. Bergstrom, Director)

/s/J. W. Boston
---------------------------------------------------- March 30, 1995
(J. W. Boston, Director)

/s/R. A. Cornog
---------------------------------------------------- March 30, 1995
(R. A. Cornog, Director)

/s/G. B. Johnson
---------------------------------------------------- March 30, 1995
(G. B. Johnson, Director)

/s/J. L. Murray
---------------------------------------------------- March 30, 1995
(J. L. Murray, Director)

/s/M. W. Reid
---------------------------------------------------- March 30, 1995
(M. W. Reid, Director)

/s/F. P. Stratton, Jr.
---------------------------------------------------- March 30, 1995
(F. P. Stratton, Jr., Director)

/s/J. G. Udell
---------------------------------------------------- March 30, 1995
(J. G. Udell, Director)

- 69 -
70

Wisconsin Electric Power Company

EXHIBIT INDEX
-------------

1994 Annual Report on Form 10-K
For the Year Ended December 31, 1994

Exhibit
Number
-------

(3)-1 Restated Articles of Incorporation of Wisconsin Electric Power
Company, as amended and restated effective January 10, 1995.

2 Bylaws of Wisconsin Electric Power Company, as amended to November 1,
1994, to increase the size of the Board of Directors from 12 to 13.
(Section 1 of Bylaw II.)

(23) Consent of Independent Accountants, dated March 30, 1995 appearing
on page 67 of this Annual Report on Form 10-K for the year ended
December 31, 1994.

(27) Wisconsin Electric Power Company Financial Data Schedule for the
fiscal year ended December 31, 1994.

The foregoing Exhibits are filed with this report. The additional Exhibits
which are incorporated by reference are listed in Item 14(a)(3) of this
report.

- 70 -

EX-3.1
2
RESTATED ARTICLES OF INCORPORATION

1
EXHIBIT (3)-1
RESTATED ARTICLES OF INCORPORATION
OF
WISCONSIN ELECTRIC POWER COMPANY

These Restated Articles of Incorporation of Wisconsin Electric Power Company,
a corporation incorporated under Chapter 180 of the Wisconsin Statutes, the
Wisconsin Business Corporation Law, supersede and take the place of the
existing Restated Articles of Incorporation and all prior amendments thereto.

ARTICLE I. NAME

The name of such corporation is WISCONSIN ELECTRIC POWER COMPANY.

ARTICLE II. PURPOSE

The corporation is organized for the purpose of engaging in any lawful
activity within the purposes for which corporations may be organized under the
Wisconsin Business Corporation Law.

ARTICLE III. DESCRIPTION OF CAPITAL STOCK

A. Authorized Number and Classes of Shares

The aggregate number of shares which the corporation shall have authority
to issue is Seventy-two Million Three Hundred Thirty-one Thousand Five
Hundred (72,331,500) shares, divided into four classes consisting of:

(1) Sixty-five Million (65,000,000) shares of Common Stock of the par
value of Ten Dollars ($10) per share (hereinafter called the
"Common Stock");

(2) Forty-five Thousand (45,000) shares of Six Per Cent. Preferred
Stock of the par value of One Hundred Dollars ($100) per share
(hereinafter called the "6% Preferred Stock");

(3) Two Million Two Hundred Eighty-six Thousand Five Hundred
(2,286,500) shares of Serial Preferred Stock of the par value of
One Hundred Dollars ($100) per share (hereinafter called the "$100
Par Value Serial Preferred Stock"); and

(4) Five Million (5,000,000) shares of Serial Preferred Stock of the
par value of Twenty-five Dollars ($25) per share (hereinafter
called the "$25 Par Value Serial Preferred Stock").

The 6% Preferred Stock, the $100 Par Value Serial Preferred Stock and the
$25 Par Value Serial Preferred Stock are together hereinafter called the
"Preferred Stocks".

B. Common Stock Provisions

(1) Dividends

Subject to the rights of the holders of the Preferred Stocks as
fixed in or pursuant to this Article III., such dividends (payable
in cash, stock or otherwise) as may be determined by the Board of
Directors may be declared and paid on the Common Stock from time to
time from any funds, property or shares legally available therefor.
1
2

(2) Voting Rights

Each outstanding share of Common Stock shall be entitled to one
vote on each matter submitted to a vote at a meeting of stock-
holders except as otherwise provided in these Articles.

(3) Preemptive Rights

No holder of the Common Stock shall be entitled as such, as a
matter of right, to subscribe for or purchase or receive any part
of any new or additional issue of stock, or securities convertible
into stock, of any class whatever, whether now or hereafter
authorized, and whether issued for cash, property or services, by
way of dividend, or in exchange for the stock of another corpor-
ation.

C. Preferences and Provisions Pertaining to the Preferred Stocks

(1) Dividends

(a) 6% Preferred Stock

The holders of the 6% Preferred Stock shall be entitled to
receive cumulative cash dividends thereon, when and as
declared by the Board of Directors, out of the unreserved and
unrestricted earned surplus of the corporation, or if there
is no such earned surplus, out of the net capital surplus of
the corporation, provided at the time of payment the
corporation is not insolvent or would not be rendered
insolvent thereby, at the rate of six per centum per annum
and no more, payable quarterly on the last days of January,
April, July and October in each year. Such dividends on the
6% Preferred Stock shall be cumulative from and after January
31, 1921, so that if thereafter dividends at the rate of six
per centum per annum for any past quarterly dividend period
shall not have been paid on the 6% Preferred Stock, or set
apart therefor, and the dividend, at said rate, for the then
current quarterly dividend period, shall not have been
declared and funds set apart therefor, the deficiency shall
be fully paid or funds for the payment thereof set apart, but
without interest, before any dividends shall be paid or set
apart for the Common Stock.

(b) $100 Par Value Serial Preferred Stock

The holders of the $100 Par Value Serial Preferred Stock
shall be entitled to receive cumulative cash dividends
thereon, when and as declared by the Board of Directors, out
of the unreserved and unrestricted earned surplus of the
corporation, or if there is no such earned surplus, out of
the net capital surplus of the corporation, provided at the
time of payment the corporation is not insolvent or would not
be rendered insolvent thereby, payable quarterly on the first
days of March, June, September and December in each year, at
such fixed rate of dividend with respect to any series of the
$100 Par Value Serial Preferred Stock as may be determined
and fixed by the Board of Directors at the time of original
issuance of such series. Such dividends on the $100 Par
Value Serial Preferred Stock shall be cumulative from the

2
3

first day of the quarterly dividend period in which such
stock is issued, except that as to any shares of the $100 Par
Value Serial Preferred Stock originally issued subsequent to
June 1, 1974, dividends shall be cumulative from the date
upon which such shares shall have been originally issued,
provided, however, that if the date of first original issue
is within 30 days preceding a regular quarterly dividend
payment date the accumulated dividend otherwise payable on
such regular dividend payment date shall be payable only at
the time of payment of the dividend for the next quarterly
period. Deferral for one calendar quarter of the payment of
the initial dividend under the circumstances provided for
above shall not be deemed to be a default in the payment of
the dividends for any purpose. If thereafter such fixed
dividend for any past quarterly dividend period shall not
have been paid on the $100 Par Value Serial Preferred Stock,
or set apart therefor, and the dividends, at such fixed rate
or rates, for the then current quarterly dividend period,
shall not have been declared and funds set apart therefor,
the deficiency shall be fully paid or funds for the payment
thereof set apart, but without interest, before any dividends
shall be paid or set apart for the Common Stock. The holders
of the $100 Par Value Serial Preferred Stock shall not be
entitled to receive any dividends thereon other than the
dividends referred to in this subdivision (b).

If all prior sinking fund requirements, if any, on any series
of the $100 Par Value Serial Preferred Stock shall not have
been complied with, the deficiency shall be fully paid or
funds for the payment thereof set apart, but without
interest, before any dividends shall be paid or set apart for
the Common Stock.

The holders of the $25 Par Value Serial Preferred Stock shall
be entitled to receive cumulative cash dividends thereon,
when and as declared by the Board of Directors, out of the
unreserved and unrestricted earned surplus of the
corporation, or if there is no such earned surplus, out of
the net capital surplus of the corporation, provided at the
time of payment the corporation is not insolvent or would not
be rendered insolvent thereby, payable quarterly on the first
days of March, June, September and December in each year, at
such fixed rate of dividend with respect to any series of the
$25 Par Value Serial Preferred Stock as may be determined and
fixed by the Board of Directors at the time of original
issuance of such series. Such dividends on the $25 Par Value
Serial Preferred Stock shall be cumulative from the date upon
which such shares shall have been originally issued,
provided, however, that if the date of first original issue
is within 30 days preceding a regular quarterly dividend
payment date the accumulated dividend otherwise payable on
such regular dividend payment date shall be payable only at
the time of payment of the dividend for the next quarterly
period. Deferral for one calendar quarter of the payment of
the initial dividend under the circumstances provided for
above shall not be deemed to be a default in the payment of
the dividends for any purpose. If thereafter such fixed

3
4

dividend for any past quarterly dividend period shall not
have been paid on the $25 Par Value Serial Preferred Stock,
or set apart therefor, and the dividends, at such fixed rate
or rates, for the then current quarterly dividend period,
shall not have been declared and funds set apart therefor,
the deficiency shall be fully paid or funds for the payment
thereof set apart, but without interest, before any dividends
shall be paid or set apart for the Common Stock. The holders
of the $25 Par Value Serial Preferred Stock shall not be
entitled to receive any dividends thereon other than the
dividends referred to in this subdivision (c).

If all prior sinking fund requirements, if any, on any series
of $25 Par Value Serial Preferred Stock shall not have been
complied with, the deficiency shall be fully paid or funds
for the payment thereof set apart, but without interest,
before any dividends shall be paid or set apart for the
Common Stock.

(d) No Preference of Any Class of the Preferred Stocks Over Any
Other Class Thereof

With respect to dividends, the Preferred Stocks shall rank
ratably, according to their respective dividend rights as
defined in this Article III., without preference of any one
class of the Preferred Stocks over any other class thereof,
and without preference of any series of any such class over
any other series of such class.

(2) Division of $100 Par Value Serial Preferred Stock and $25 Par Value
Serial Preferred Stock into Series

(a) $100 Par Value Serial Preferred Stock

The Board of Directors of such corporation shall have power
to divide from time to time the $100 Par Value Serial
Preferred Stock into series, to provide from time to time for
the issue of the $100 Par Value Serial Preferred Stock in
such series, and to fix and determine the following relative
rights and preferences of the shares of any series so
established hereinafter:

(i) The rate of dividend applicable to shares of such
series;

(ii) The price at and the terms and conditions on which
shares of such series may be redeemed;

(iii) The amount payable upon shares of such series in event
of voluntary or involuntary liquidation of the
corporation;

(iv) Sinking fund provisions for the redemption or purchase
of shares of such series;

(v) The terms and conditions on which shares may be
converted, if the shares of such series are issued
with the privilege of conversion.

4
5

(b) $25 Par Value Serial Preferred Stock

The Board of Directors of such corporation shall have power
to divide from time to time the $25 Par Value Serial
Preferred Stock into series, to provide from time to time for
the issue of the $25 Par Value Serial Preferred Stock in such
series, and to fix and determine the following relative
rights and preferences of the shares of any series so
established hereinafter:

(i) The rate of dividend applicable to shares of such
series;

(ii) The price at and the terms and conditions on which
shares of such series may be redeemed;

(iii) The amount payable upon shares of such series in event
of voluntary or involuntary liquidation of the
corporation;

(iv) Sinking fund provisions for the redemption or purchase
of shares of such series;

(v) The terms and conditions on which shares may be
converted, if the shares of such series are issued
with the privilege of conversion.

(3) Liquidation, Dissolution or Winding Up

In the event of any liquidation or winding up of the corporation,
whether voluntary or involuntary, the assets and funds of the
corporation shall be distributed subject to the following
conditions:

(a) Out of the corporate assets, the holders of the Preferred
Stocks shall be entitled to be paid the full liquidation
value thereof, before any of such assets shall be paid or
distributed to the holders of the Common Stock. After the
making of such payments to the holders of the Preferred
Stocks, the remainder of such corporate assets shall be
divided and paid to the holders of the Common Stock according
to their respective shares. In the event that such assets
are not sufficient to provide for the payment in full of the
liquidation value of the Preferred Stocks, as aforesaid, such
assets shall be divided among and paid ratably to such
holders of the Preferred Stocks, according to their
respective shares. "Liquidation value" with respect to each
share of 6% Preferred Stock shall mean the par value thereof,
namely One Hundred Dollars ($100) per share. "Liquidation
value" with respect to each share of $100 Par Value Serial
Preferred Stock, 3.60% Series, shall be the value indicated
in Section D. of this Article III. and with respect to each
share of any other series of $100 Par Value Serial Preferred
Stock or of any series of $25 Par Value Serial Preferred
Stock shall mean in the event of a voluntary liquidation or
winding up of the corporation the amount fixed by the Board
of Directors for the particular series to be payable upon
such shares in the event of voluntary liquidation and in the
event of an involuntary liquidation of the corporation the
amount so fixed in the event of an involuntary liquidation.
5
6

(b) Out of the unreserved and unrestricted earned surplus of the
corporation, or if there is no such earned surplus, out of
the net capital surplus of the corporation, provided at the
time of payment the corporation is not insolvent or would not
be rendered insolvent thereby, the holders of the Preferred
Stocks shall be entitled to be paid the amount of all unpaid
accumulated or accrued dividends thereon, before any of such
surplus or net capital surplus shall be paid or distributed
to the holders of the Common Stock. After the making of such
payments to the holders of the Preferred Stocks, the
remainder of such surplus or net capital surplus shall be
divided among and paid to the holders of the Common Stock
according to their respective shares. In the event that such
surplus or net capital surplus is not sufficient to provide
for the payment in full to the holders of the Preferred
Stocks of the amounts above provided for in this subdivision
(b) of paragraph (3), such surplus or net capital surplus
shall be divided among and paid ratably to such holders of
the Preferred Stocks in accordance with their respective
interests as in this subdivision (b) defined.

(c) All of the payments to the holders of the Preferred Stocks in
this paragraph (3) provided for, shall be made ratably to
such holders in accordance with their respective interests as
in this paragraph (3) defined, without preference of any one
class of the Preferred Stocks over any other class thereof,
and without preference of any series of any such class over
any other series of such class.

(4) Preemptive Rights

No holder of any of the Preferred Stocks shall be entitled as such,
as a matter of right, to subscribe for or purchase or receive any
part of any new or additional issue of stock, or securities
convertible into stock, of any class whatever, whether now or
hereafter authorized and whether issued for cash, property or
services, by way of dividend, or in exchange for the stock of
another corporation.

(5) Redemption Procedure

The corporation may redeem the whole or any part of the $100 Par
Value Serial Preferred Stock or of the $25 Par Value Serial
Preferred Stock, or both, at any time outstanding, or the whole or
any part of any series thereof, from time to time upon the
conditions fixed by the Board of Directors for the particular
series by paying in cash the redemption price or prices so fixed
for such series by the Board of Directors, which may consist of a
redemption price or scale of redemption prices applicable only to
redemption for a sinking fund (which term as used herein shall
include any fund or requirement for the periodic purchase, redemp-
tion or retirement of shares) and a different redemption price or
scale of redemption prices applicable to any other redemption,
together with a sum in the case of each share of each series so to
be redeemed, computed at the annual dividend rate for the series of
which the particular share is a part from the date from which
dividends on such share became cumulative to the date fixed for
such redemption, less the aggregate of the dividends theretofore or
on such redemption date paid thereon. Notice of every such

6
7

redemption shall be given by publication at least once in each of
two calendar weeks in a daily newspaper printed in the English
language and published and of general circulation in the City of
Milwaukee, Wisconsin, the first publication to be at least thirty
days and not more than sixty days prior to the date fixed for such
redemption. At least thirty days' and not more than sixty days'
previous notice of every such redemption shall also be mailed to
the holders of record of the shares so to be redeemed, at their
respective addresses as the same shall appear on the books of the
corporation; but no failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any such shares so to be
redeemed. In case of the redemption of a part only of any such
series at the time outstanding, the corporation shall select by lot
or in such other manner as the Board of Directors may determine,
the shares so to be redeemed. The Board of Directors shall have
full power and authority, subject to the limitations and provisions
herein contained, to prescribe the manner in which and the terms
and conditions upon which the $100 Par Value Serial Preferred Stock
and the $25 Par Value Serial Preferred Stock shall be redeemed from
time to time. If such notice of redemption shall have been duly
given by publication, and if on or before the redemption date
specified in such notice all funds necessary for such redemption
shall have been set aside by the corporation, separate and apart
from its other funds, in trust for the account of the holders of
the shares to be redeemed, so as to be and continue to be available
therefor, then notwithstanding that any certificate for any such
shares so called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be
deemed outstanding, the right to receive dividends thereon shall
cease to accrue from and after the date of redemption so fixed, and
all rights with respect to such shares so called for redemption
shall forthwith on such redemption date cease and terminate, except
only the right of the holders thereof to receive the amount payable
upon redemption thereof, but without interest; provided, however,
that the corporation may, after giving notice by publication of any
such redemption as hereinbefore provided or after giving to the
bank or trust company referred to below irrevocable authorization
to give or complete such notice by publication, and prior to the
redemption date specified in such notice, deposit in trust, for the
account of the holders of the shares to be redeemed, funds
necessary for such redemption with a bank or trust company in good
standing, organized under the laws of the United States of America
or of the State of Wisconsin, doing business in the City of
Milwaukee, having capital, surplus and undivided profits
aggregating at least $1,500,000, designated in such notice of
redemption, and thereupon all shares with respect to which such
deposit shall have been made shall no longer be deemed to be
outstanding, and all rights with respect to such shares shall
forthwith upon such deposit in trust cease and terminate, except
only the right of the holders thereof to receive the amount payable
upon the redemption thereof, but without interest. Shares of the
$100 Par Value Serial Preferred Stock and shares of the $25 Par
Value Serial Preferred Stock (a) purchased or redeemed pursuant to
any obligation of the corporation to purchase or redeem shares for
a sinking fund, (b) redeemed pursuant to the provisions hereof or
purchased and for which credit shall have been taken against any
sinking fund obligation, and (c) surrendered pursuant to any
conversion right, shall not be reissued or otherwise disposed of

7
8

and shall be cancelled. Any other shares of such classes redeemed
or otherwise acquired by the corporation shall continue to be part
of the authorized capital stock of the corporation and may
thereafter, in the discretion of the Board of Directors and to the
extent permitted by law, be sold or reissued from time to time, as
part of the same or another series of the same class subject to the
terms and conditions herein set forth.

(6) Voting Rights

(a) Ordinary Voting Rights

Each outstanding share of the 6% Preferred Stock and each
outstanding share of the $100 Par Value Serial Preferred
Stock shall be entitled to one vote, and each outstanding
share of the $25 Par Value Serial Preferred Stock shall be
entitled to one-quarter of a vote, on each matter submitted
to a vote at a meeting of stockholders except as otherwise
provided in these Articles. The references in subdivision
(b) of this paragraph (6), in paragraphs (7) and (8) of this
Section C. and in Article VI. to two-thirds, a majority or
one-third of specified shares shall mean two-thirds, a
majority or one-third, as the case may be, of the votes
entitled to be cast at a meeting by such specified shares,
based on one vote for each share of the 6% Preferred Stock,
one vote for each share of the $100 Par Value Serial
Preferred Stock, one-quarter vote for each share of the $25
Par Value Serial Preferred Stock and one vote for each share
of Common Stock.

(b) Voting Rights in Event of Dividend Defaults

If and when dividends payable on any of the Preferred Stocks
of any class or series at the time outstanding are in default
in an amount equivalent to four full quarterly dividends
thereon, and until such default shall have been remedied as
hereinafter provided, the holders of the Preferred Stocks,
voting together as a class and without regard to series,
shall be entitled to elect the smallest number of directors
necessary to constitute a majority of the full Board of
Directors, and the Common stockholders, voting separately as
a class, shall be entitled to elect the remaining directors
of the corporation. Upon accrual of such special right of
the Preferred Stocks, a meeting of the holders of the
Preferred Stocks and the holders of the Common Stock for the
election of directors shall be held upon notice promptly
given as provided in the Bylaws for a special meeting by the
President or the Secretary of the corporation. If within
fifteen days after the accrual of such special right of the
Preferred Stocks the President and the Secretary of the
corporation shall fail to call such meeting, then such
meeting shall be held upon notice, as provided in the Bylaws
for a special meeting, given by the holders of not less than
1,000 shares of the Preferred Stocks, after filing with the
corporation of notice of their intention to do so. The terms
of office of all persons who may be directors of the
corporation at the time shall terminate upon the election of
a majority of the Board of Directors by the holders of the
Preferred Stocks, whether or not the Common stockholders

8
9

shall at the time of such termination have elected the
remaining directors of the corporation; thereafter during the
continuance of such special right of the Preferred Stocks to
elect a majority of the Board of Directors, the holders of
the Preferred Stocks, voting together as a class, shall be
entitled to elect a majority of the Board of Directors and
the holders of the Common Stock, voting separately as a
class, shall be entitled to elect the remaining directors of
the corporation; and all directors so elected, whether at
such special meeting or any adjournment thereof, or at any
subsequent annual meeting for the election of directors, held
during the continuance of such special right, shall hold
office until the next succeeding annual election and until
their respective successors, elected by the holders of the
Preferred Stocks, voting as a class, and the Common
stockholders, voting as a class, are elected and qualified,
unless their terms of office shall be sooner terminated as
hereinafter provided. However, if and when all dividends
then in default on the Preferred Stocks shall thereafter be
paid (and such dividends shall be declared and paid out of
any funds legally available therefor as soon as reasonably
practicable), the Preferred Stocks shall thereupon be
divested of such special right herein provided for to elect a
majority of the Board of Directors, but subject always to the
same provisions for the vesting of such special right in such
stock in the case of any similar future default or defaults,
and the election of directors by the holders of the Preferred
Stocks and of the Common Stock, voting without regard to
class, shall take place at the next succeeding annual meeting
for the election of directors, or at any adjournment thereof.
The terms of office of all persons who may be directors of
the corporation at the time of such divestment shall
terminate upon the election of the directors at such annual
meeting or adjournment thereof.

At the first meeting for the election of directors after any
accrual of the special right of the holders of the Preferred
Stocks to elect a majority of the Board of Directors as
provided above, and at any subsequent annual meeting for the
election of directors held during the continuance of such
special rights, the presence in person or by proxy of the
holders of record of a majority (defined as provided in
subdivision (a) of paragraph (6) of this Section C.) of the
outstanding shares of Preferred Stocks, without regard to
class or series, shall be necessary to constitute a quorum
for the election of the directors whom the holders of the
Preferred Stocks are entitled to elect, and the presence in
person or by proxy of the holders of record of a majority of
the outstanding shares of Common Stock shall be necessary to
constitute a quorum for the election of the directors whom
the Common stockholders are entitled to elect. If at any
such meeting there shall not be such a quorum of the holders
of the Preferred Stocks, the meeting shall be adjourned from
time to time without notice other than announcement at the
meeting until such quorum shall have been obtained; provided
that, if such quorum shall not have been obtained within
ninety days from the date of such meeting as originally
called (or, in the case of any annual meeting held during the
continuance of such special right, from the date fixed for

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such annual meeting), the presence in person or by proxy of
the holders of record of one-third (defined as provided in
subdivision (a) of paragraph (6) of this Section C.) of the
outstanding shares of the Preferred Stocks, without regard to
class or series, shall then be sufficient to constitute a
quorum for the election of the directors whom such
stockholders are then entitled to elect. The absence of a
quorum of the holders of the Preferred Stocks as a class or
of the Common stockholders as a class shall not, except as
hereinafter provided for, prevent or invalidate the election
by the other class of stockholders of the directors whom they
are entitled to elect, if the necessary quorum of
stockholders of such other class is present in person or
represented by proxy at any such meeting or any adjournment
thereof. However, at the first meeting for the election of
directors after any accrual of the special right of the
holders of the Preferred Stocks to elect a majority of the
Board of Directors, the absence of a quorum of the holders of
the Preferred Stocks shall prevent the election of directors
by the Common stockholders, until a quorum of the holders of
the Preferred Stocks shall be obtained.

(7) Voting Rights on Certain Changes in Authorized Shares

(a) Increase in Authorized Amount of Any of the Preferred Stocks

So long as any of the Preferred Stocks are outstanding, the
corporation shall not, without the consent (given by vote at
a meeting duly called for the purpose in accordance with the
provisions of the Bylaws) of the holders of a majority
(defined as provided in subdivision (a) of paragraph (6) of
this Section C.) of the total number of shares of such stock
then outstanding, without regard to class or series, present
or represented by proxy at such meeting, increase the total
authorized amount of any class of the Preferred Stocks (other
than as authorized by this Article III.) or authorize any
other preferred stock ranking on a parity with the Preferred
Stocks as to assets or dividends (other than through the
reclassification of then authorized but unissued shares of
any class of the Preferred Stocks into shares of any other
class thereof).

(b) Authorization of Class of Stock Ranking Ahead of Preferred
Stocks and Amendments to Articles Prejudicial to Rights of
Preferred Stocks

So long as any of the Preferred Stocks are outstanding, the
corporation shall not (i) without the consent (given by vote
at a meeting duly called for the purpose in accordance with
the provisions of the Bylaws) of the holders of at least two-
thirds (defined as provided in subdivision (a) of paragraph
(6) of this Section C.) of the total number of shares of the
6% Preferred Stock, of the holders of at least two-thirds (as
so defined) of the total number of shares of the $100 Par
Value Serial Preferred Stock and of the holders of at least
two-thirds (as so defined) of the total number of shares of
the $25 Par Value Serial Preferred Stock, without regard to
series, then outstanding, present or represented by proxy at

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such meeting, authorize any class of stock which shall be
preferred as to assets or dividends over the Preferred
Stocks; or (ii) without the consent of the holders of at
least two-thirds (as so defined) of the total number of
shares of the 6% Preferred Stock then outstanding, given as
above provided in this subdivision (b), amend the Articles of
Incorporation to change the express terms and provisions of
the 6% Preferred Stock in any manner substantially
prejudicial to the holders thereof, or without the consent of
at least two-thirds (as so defined) of the total number of
shares of the $100 Par Value Serial Preferred Stock then
outstanding, given in like manner, amend the Articles of
Incorporation to change the express terms and provisions of
the $100 Par Value Serial Preferred Stock in any manner sub-
stantially prejudicial to the holders thereof, or without the
consent of at least two-thirds (as so defined) of the total
number of shares of the $25 Par Value Serial Preferred Stock
then outstanding, given in like manner, amend the Articles of
Incorporation to change the express terms and provisions of
the $25 Par Value Serial Preferred Stock in any manner
substantially prejudicial to the holders thereof. Whenever
any amendment referred to in the foregoing clause (ii)
affects the holders of shares of one or more but not all the
series of any class of the Preferred Stocks at the time
outstanding, such amendment shall not be made without the
consent of the holders of at least two-thirds (as so defined)
of the total number of the then outstanding shares of such
affected series (given by vote at a meeting duly called for
the purpose in accordance with the provisions of the Bylaws).

(8) Special Voting Rights on Issuance of the $100 Par Value Serial
Preferred Stock or the $25 Par Value Serial Preferred Stock

So long as any shares of the $100 Par Value Serial Preferred Stock
or the $25 Par Value Serial Preferred Stock are outstanding, the
consent of the holders of at least two-thirds (defined as provided
in subdivision (a) of paragraph (6) of this Section C.) of the
total number of shares of Preferred Stocks at the time outstanding
voting together as a class and without regard to series, given in
person or by proxy, either in writing or by vote at any meeting
called for the purpose, shall be necessary for effecting or
validating the issue of any shares of the $100 Par Value Serial
Preferred Stock or the $25 Par Value Serial Preferred Stock or any
shares of stock, or of any security convertible into stock, of any
class ranking on a parity with either of such classes, unless

(a) the net income of the corporation (determined as hereinafter
provided) for any twelve consecutive calendar months within
the fifteen calendar months immediately preceding the month
within which the issuance of such additional shares is
authorized by the Board of Directors of the corporation shall
have been in the aggregate not less than one and one-half
times the sum of the interest requirements for one year on
all of the indebtedness of the corporation to be outstanding
at the date of such proposed issue and the full dividend
requirements for one year on all shares of the Preferred
Stocks and all other stock, if any, ranking prior to or on a
parity with the $100 Par Value Serial Preferred Stock or the
$25 Par Value Serial Preferred Stock, to be outstanding at

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the date of such proposed issue, including the shares then
proposed to be issued but excluding any such indebtedness and
any such shares proposed to be retired in connection with
such proposed issue. "Net income" for any period for the
purpose of this paragraph (8) shall be computed by adding to
the net earnings of the corporation for said period,
determined in accordance with generally accepted accounting
practices, as adjusted by action of the Board of Directors of
the corporation as hereafter provided, the amount deducted
for interest. In determining such net income for any period,
there shall be deducted, in addition to other items of
expense, the amount charged to income for said period on the
books of the corporation for taxes and the provisions for
depreciation and depletion as recorded on such books or the
minimum amount required therefor under the provisions of any
then existing general indenture or mortgage or deed of trust
of the corporation, whichever is larger. In the determina-
tion of such net income, the Board of Directors of the
corporation may, in the exercise of due discretion, make
adjustments by way of increase or decrease in such net income
to give effect to changes therein resulting from any
acquisition of properties or to any redemption, acquisition,
purchase, sale or exchange of securities by the corporation
either prior to the issuance of any shares of the Preferred
Stocks or stock, or securities convertible into stock,
ranking on a parity therewith then to be issued or in
connection therewith; and

(b) the aggregate of the capital of the corporation applicable to
all stock of any class ranking junior to the Preferred
Stocks, plus the surplus of the corporation, shall be not
less than the aggregate amount payable upon involuntary
liquidation, dissolution or winding up of the affairs of the
corporation to the holders of all shares of the Preferred
Stocks and of any shares of stock of any class ranking on a
parity therewith to be outstanding immediately after such
proposed issue, excluding from such computation all
indebtedness and stock to be retired through such proposed
issue.

No portion of the surplus of the corporation utilized to satisfy
the foregoing requirements shall be available for dividends (other
than dividends payable in stock of any class ranking junior to the
Preferred Stocks) or other distributions upon or in respect of
shares of stock of the corporation of any class ranking junior to
the Preferred Stocks or for the purchase of shares of such junior
stock until such number of additional shares of the $100 Par Value
Serial Preferred Stock or the $25 Par Value Serial Preferred Stock,
or of stock, or securities convertible into stock, ranking on a
parity with either of such classes, are retired or until and to the
extent that the capital applicable to such junior stock shall have
been increased.

D. Variable Terms of the Respective Series of the $100 Par Value Serial
Preferred Stock and the $25 Par Value Serial Preferred Stock

(1) Terms of 3.60% Series

The number of authorized shares of the $100 Par Value Serial
Preferred Stock, 3.60% Series, is Two Hundred Sixty Thousand
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(260,000) shares. The cumulative cash dividend, accruing from
June 1, 1946, is at the rate of $3.60 per annum per share, payable
quarterly on the first days of March, June, September and December
in each year. The shares of the $100 Par Value Serial Preferred
Stock, 3.60% Series, shall be redeemable at One Hundred Four
Dollars ($104) per share through July 1, 1951, at One Hundred Three
Dollars ($103) per share thereafter and through July 1, 1956, at
One Hundred Two Dollars ($102) per share thereafter through July 1,
1961 and thereafter at One Hundred One Dollars ($101) per share
plus, in each case, an amount equal to accrued and unpaid dividends
to the redemption date. In the event of any voluntary liquidation,
dissolution or winding up, or involuntary liquidation of the
corporation, the amount payable upon shares of the $100 Par Value
Serial Preferred Stock, 3.60% Series, shall be the par amount
thereof, namely, One Hundred Dollars ($100) per share.

(2) Terms of New $100 Par Value Serial Preferred Stock or $25 Par Value
Serial Preferred Stock Deemed An Addition to This Section D.

Upon completion of any filing and recording of a resolution of the
Board of Directors adopted pursuant to Section C.(2), which may be
required in order that the same shall constitute an amendment to
these Articles of Incorporation, the terms of the new series as set
forth therein shall be deemed to become an appropriately numbered
additional paragraph to this Section D., and may be so certified by
any officer of this corporation or by any public official whose
duty it may be to certify copies of these Articles of Incorporation
or amendments thereto.

ARTICLE IV. NUMBER OF DIRECTORS

The Board of Directors shall consist of such number of Directors as shall be
fixed from time to time by or in the manner provided in the Bylaws.

ARTICLE V. EMERGENCY PROVISIONS

The business and affairs of the corporation shall be managed by its Board of
Directors, except as otherwise provided in this Article V. after the
occurrence and during the continuance of any "emergency" as hereinafter
defined. During any such emergency the provisions of this Article V. shall
apply to the maximum extent permitted by the Wisconsin Business Corporation
Law, particularly Sections 180.0207 and 180.0303 thereof, or any successor
provisions, as at the time in effect. The provisions of this Article V. shall
control during any such emergency, notwithstanding any contrary provisions of
the Articles of Incorporation or Bylaws of the corporation, except that this
Article V. shall not apply upon the accrual or continuance of the special
right of the Preferred Stocks pursuant to Article III.C.(6)(b) and nothing
herein shall in any way limit such special right.

As used in this Article V., an "emergency" shall mean a catastrophic event
that prevents a quorum of the Board of Directors from being readily assembled.

During any such emergency which makes it impossible to assemble a quorum of
directors at a duly noticed and constituted meeting, the business and affairs
of the corporation shall be managed by an interim Board of Directors
consisting of so many of the incumbent directors, if any, as are known to be
alive and not incapacitated, and whom the corporation is able to contact by

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normal means of communication, together with provisional directors selected as
hereinafter provided. The total number of directors on such interim Board of
Directors shall be the lesser of the number determined in or pursuant to the
Bylaws, or the number of eligible persons who are known to be alive, are not
incapacitated and can be readily contacted by the usual means of communica-
tion. The Board of Directors by resolution may from time to time designate a
list of provisional directors and the order of priority in which such persons
shall become interim directors in the event of emergency, which designation
shall continue in effect until such resolution has been subsequently amended
or rescinded or has by its terms ceased to have effect. Interim directors
need not be stockholders of the corporation. In addition to the exercise, on
a temporary basis, of all of the powers of the regular Board of Directors, the
interim Board of Directors shall have the authority to declare vacancies in
any positions of the regular Board of Directors in cases where any incumbent
director is incapacitated or missing or otherwise unable to be contacted
within a reasonable time, and to fill such vacancies, as well as any vacancy
resulting from the death of a director, by electing replacements to the
regular Board of Directors to serve until the next succeeding annual meeting
of stockholders.

When an emergency, as herein defined, has occurred, any director or
provisional director named in the aforementioned resolution, is empowered on
behalf of the corporation to declare the provisions of this Article V. to be
in effect, and to call a meeting of either the regular or an interim Board of
Directors on such notice, which may be shorter than the notice provided in the
Bylaws for special meetings of the Board of Directors, as such person may
determine to be advisable. In the case of a meeting of the interim Board of
Directors, reasonable efforts shall be made to give such notice to all persons
who are or may be eligible to serve as interim directors. At the first
meeting of any interim Board of Directors, three or more interim directors may
act, notwithstanding any other quorum requirement provided by law, these
Articles of Incorporation or the Bylaws of the corporation, and
notwithstanding any failure of other interim directors to receive notice of
the meeting. Prior to any initial meeting of the interim Board of Directors
three or more interim directors, and thereafter a majority of the interim
directors who are deemed to be serving as such, may take action as the Board
of Directors by telephone meeting, written instrument or other means which
reasonably evidences the assent to the action of a majority of such number of
interim directors, in lieu of action at a meeting.

ARTICLE VI. AMENDMENTS TO THE ARTICLES

Any lawful amendment of these Articles of Incorporation may be made by the
affirmative vote of the holders of a majority (defined as provided in Article
III.C.(6)(a)) of shares outstanding and, if the shares of any one or more
classes or series shall be entitled under these Articles or otherwise by law
to vote thereon as a class, the affirmative vote of the holders of a majority
(as so defined) of such shares outstanding unless otherwise provided in these
Articles, at any meeting of stockholders at which such action may properly be
taken. The corporation has elected, pursuant to Section 180.1706(1) of the
Wisconsin Business Corporation Law, that the majority vote requirements set
forth in Sections 180.1103(3), 180.1202(3), 180.1402(3) and 180.1404(2) of the
Wisconsin Business Corporation Law shall be applicable to all of the subjects
covered by those Sections, subject, however, to the voting requirements
specifically set forth in Article III. hereof.

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ARTICLE VII. EFFECT OF HEADINGS

The descriptive headings in these Articles were formulated, used and inserted
herein for convenience only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.

ARTICLE VIII. REGISTERED OFFICE AND AGENT

The address of the registered office of the corporation is 231 West Michigan
Street, Milwaukee, Wisconsin 53201 and the name of its registered agent at
such address is Ann Marie Brady.

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CERTIFICATE

The undersigned officer of Wisconsin Electric Power Company hereby certifies
that the foregoing Restated Articles of Incorporation of said Company contain
an amendment to the Restated Articles of Incorporation, as amended to date,
adopted on October 26, 1994 by the Board of Directors, in accordance with
Section 180.1002 of the Wisconsin Statutes.

Executed on behalf of the Company on:

1-9-95
--------------------------------
(date)

/s/Thomas H. Fehring
--------------------------------
(signature)

Thomas H. Fehring
--------------------------------
(printed name)

Assistant Secretary
--------------------------------
(title)

This document was drafted by:
John E. Dunn, Esq.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee WI 53202-4497

Please Return To:
John E. Dunn, Esq.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee WI 53202-4497

EX-3.2
3
BYLAWS OF WISCONSIN ELECTRIC POWER COMPANY

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EXHIBIT (3)-2

BYLAWS

WISCONSIN ELECTRIC POWER COMPANY

-------------------------------------------

AS AMENDED TO NOVEMBER 1, 1994, INCLUSIVE

-------------------------------------------

BYLAWS
OF
WISCONSIN ELECTRIC POWER COMPANY

BYLAW I. STOCKHOLDERS

SECTION 1. DATE OF ANNUAL MEETING

The annual meeting of the stockholders of the corporation shall be held on or
before the 1st day of July of each year, on the date and at the time
designated by the Board of Directors, for the purposes of electing directors
and of transacting such other business as may properly be brought before the
meeting.

SECTION 2. CALL OF SPECIAL MEETINGS

Special meetings of the stockholders may be held upon call of the Board of
Directors, the Executive Committee, the Chairman of the Board or the President
or the holders of not less than one-tenth (defined as provided in Section 5 of
this Bylaw) of all shares of the corporation entitled to vote at the meeting
at such time as may be stated in the call and notice; or in case the meeting
is for the purpose of enabling the holders of the Six Per Cent. Preferred
Stock, the $100 Par Value Serial Preferred Stock and the $25 Par Value Serial
Preferred Stock (hereinafter together called the "Preferred Stocks") to elect
directors of the corporation, upon the conditions set forth in the Articles of
Incorporation, then, upon call as therein provided.

SECTION 3. PLACE OF MEETINGS

The Board of Directors may designate any place, either within or without the
State of Wisconsin, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal business office of the corporation in the State of Wisconsin or such
other suitable place in the county of such principal office as may be
designated by the person calling such meeting, but any meeting may be
adjourned to reconvene at any place designated by vote of a majority (defined
as provided in Section 5 of this Bylaw) of the shares represented thereat.

SECTION 4. NOTICE OF MEETINGS

Notice of the time and place of every meeting of the stockholders, and in the
case of a special meeting further stating the purposes for which such meeting
is called, shall be delivered personally or mailed at least ten (10) days
before the meeting to each stockholder of record entitled to vote at the
meeting, at his address as it may appear on the books of the corporation.
Such further notice shall be given by mail, publication or otherwise, as may
be required by law.

SECTION 5. VOTING AT MEETINGS

A. Proxies

Every stockholder entitled to vote at any meeting may so vote either in
person or by proxy.

B. Balloting and Inspectors of Election

Voting at meetings of stockholders need not be by written ballot unless
so determined in a resolution of the Board of Directors relating thereto.
Voting at meetings of stockholders shall be conducted by one or more
inspectors of election appointed by the Board of Directors. However, no
director or person who is a candidate for the office of director shall be
appointed as such inspector. The inspectors, before entering upon the
discharge of their duties, shall take and subscribe an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality
and according to the best of their ability.

C. Quorum

Except as otherwise provided in the Articles of Incorporation, a majority
(defined as provided below in this Section) of the shares entitled to
vote, represented in person or by proxy, shall constitute a quorum at a
meeting of stockholders. If a quorum is present, the affirmative vote of
the majority (as so defined) of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the
stockholders unless the vote of a greater number or voting by classes is
required by law or the Articles of Incorporation. Though less than a
quorum of the outstanding shares are represented at a meeting, a majority
(as so defined) of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which
a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed.

D. Proxies Upon Accrual of Special Right

In connection with the first election of a majority of the members of the
Board of Directors by the holders of the Preferred Stocks upon accrual of
the special right of such holders to elect a majority of the members of
the Board, as provided in Article III of the Articles of Incorporation,
the corporation shall prepare and mail to such holders of record such
proxy forms, communications and documents as may be deemed appropriate
(and also such as may be required by any governmental authority having
jurisdiction) for the purpose of soliciting proxies for the election of
directors by such holders, voting separately as a class without regard to
series.

E. Majority, Etc., to be Based on Votes Entitled to be Cast

The references in Sections 2 and 3 and this Section 5 of Bylaw I and in
Section 2 of Bylaw II to one-tenth or a majority of specified shares
shall mean one-tenth or a majority, as the case may be, of the votes
entitled to be cast at a meeting by holders of such specified shares.

SECTION 6. CONDUCT OF MEETINGS

Meetings of the stockholders shall be presided over by the Chairman of the
Board if there be an incumbent in that office, or in his absence or at his
request, by the President, or if he is not present, by a Vice President, or if
no Vice President is present, by a chairman to be chosen at the meeting. The
Secretary of the corporation, or if he is not present, an Assistant Secretary
of the corporation, or if no Assistant Secretary is present, a person
appointed by the chairman of the meeting, shall act as secretary of the
meeting.

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SECTION 7. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE

For the purpose of determining stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a
stated period but not to exceed, in any case, seventy days. If the stock
transfer books shall be closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such books
shall be closed for at least ten days immediately preceding such meeting. In
lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of stockholders,
such date in any case to be not more than seventy days and, in case of a
meeting of stockholders, not less than ten days prior to the date on which the
particular action, requiring such determination of stockholders, is to be
taken. If the stock transfer books are not closed and no record date is fixed
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the close of business on the date on which notice of the meeting is
mailed or on the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of stockholders. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this Section, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of
the stock transfer books and the stated period of closing has expired.

SECTION 8. NOTICE OF STOCKHOLDER NOMINATION(S) AND/OR PROPOSAL(S)

Except with respect to nomination(s) or proposal(s) adopted or recommended by
the Board of Directors for inclusion in the corporation's proxy or information
statement for its annual meeting, a stockholder entitled to vote at a meeting
may nominate a person or persons for election as director(s) or propose
action(s) to be taken at a meeting only if written notice of any stockholder
nomination(s) and/or proposal(s) to be considered for a vote at an annual
meeting of stockholders is delivered personally or mailed by Certified Mail-
Return Receipt Requested at least seventy (70) days before such meeting to the
Secretary of the corporation at the principal business office of the
corporation. With respect to stockholder nomination(s) for the election of
directors each such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination(s) and of the person or persons
to be nominated; (b) a representation that the stockholder is a holder of
record or a beneficial holder of stock of the corporation entitled to vote at
such meeting (including the number of shares the stockholder owns as of the
record date and the length of time the shares have been held) and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements and
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been
required to be included in a proxy or information statement filed pursuant to
the proxy rules of the Securities and Exchange Commission (whether or not such
rules are applicable) had each nominee been nominated, or intended to be
nominated, by the Board of Directors; and (e) the consent of each nominee to
serve as a director of the corporation if so elected. With respect to
stockholder proposal(s) for action(s) to be taken at an annual meeting of
stockholders, the notice shall clearly set forth: (a) the name and address of

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the stockholder who intends to make the proposal(s); (b) a representation that
the stockholder is a holder of record or a beneficial holder of the stock of
the corporation entitled to vote at the meeting (including the number of
shares the stockholder owns as of the record date and the length of time the
shares have been held) and intends to appear in person or by proxy to make the
proposal(s) specified in the notice; (c) the proposal(s) and a brief
supporting statement of such proposal(s); and (d) such other information
regarding the proposal(s) as would have been required to be included in a
proxy or information statement filed pursuant to the proxy rules of the
Securities and Exchange Commission (whether or not such rules are applicable).

Except with respect to nomination(s) or proposal(s) adopted or recommended by
the Board of Directors for inclusion in the notice to stockholders for a
special meeting of stockholders, a stockholder entitled to vote at a special
meeting may nominate a person or persons for election as director(s) and/or
propose action(s) to be taken at a meeting only if written notice of any
stockholder nomination(s) and/or proposal(s) to be considered for a vote at a
special meeting of stockholders is delivered personally or mailed by Certified
Mail-Return Receipt Requested to the Secretary of the corporation at the
principal business office of the corporation so that it is received in a
reasonable period of time before such special meeting. Only business within
the purposes described in the notice to stockholders of the special meeting
may be considered at the special meeting. All other notice requirements
regarding stockholder nomination(s) and/or proposal(s) applicable to annual
meetings also apply to nomination(s) and/or proposal(s) for special meetings.

The chairman of the meeting may refuse to acknowledge the nomination(s) and/or
proposal(s) of any person made without compliance with the foregoing
procedures. This section shall not affect the corporation's rights or
responsibilities with respect to its proxies or proxy or information statement
for any meeting.

BYLAW II. DIRECTORS

SECTION 1. NUMBER

The number of directors constituting the whole Board of Directors shall be
such number as shall be fixed from time to time by the affirmative vote of the
whole Board but in no event shall the number be less than three. Until so
fixed at a different number, the number shall be thirteen. The number of
directors at any time constituting the whole Board shall not be reduced so as
to shorten the term of any director then in office.

The directors shall hold office until the next annual meeting of stockholders
at which their respective terms of office shall expire and until their
respective successors are duly elected and qualified.

SECTION 2. VACANCIES

Any vacancy occurring among the directors, including a vacancy created by an
increase in the number of directors, shall be filled by the affirmative vote
of a majority of the remaining directors and each director so elected shall
hold office until the next annual stockholders' meeting. However, in filling
any vacancy occurring among the directors elected by the holders of the
Preferred Stocks, the Board shall be limited to voting upon a candidate or
candidates nominated by the remaining director or a majority of the remaining
directors elected by the holders of the Preferred Stocks; in filling any

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vacancy occurring among the directors elected by the Common stockholders, the
Board shall be limited to voting upon candidates nominated by the remaining
director or a majority of the remaining directors elected by the Common
stockholders.

At any meeting of the stockholders, the holders of a majority (defined as
provided in Section 5 of Bylaw I) of shares of the Preferred Stocks of the
corporation, voting separately as a class without regard to series, may remove
any director theretofore elected by the holders of the Preferred Stocks or
elected by the Board to fill a vacancy among the directors elected by the
holders of the Preferred Stocks, and may fill any vacancy in the Board for the
unexpired term thus caused; and the holders of a majority (defined as provided
in Section 5 of Bylaw I) of the shares of Common Stock of the corporation,
voting separately as a class, may remove any director theretofore elected by
the Common stockholders or elected by the Board to fill a vacancy among the
directors elected by the Common stockholders, and may fill the vacancy in the
Board for the unexpired term thus caused.

SECTION 3. REGULAR MEETINGS

Regular meetings of the Board of Directors shall be held at such time and
place within or without the State of Wisconsin as may from time to time be
fixed by the Board without notice other than the resolution or other action of
the Board establishing the time and place of such regular meetings.

SECTION 4. SPECIAL MEETINGS

Special meetings of the Board of Directors may be called by or at the request
of the Board of Directors, the Executive Committee, the Chairman of the Board,
the President, or any two directors. The persons calling any special meeting
of the Board of Directors may fix any place, either within or without the
State of Wisconsin, as the place for holding any special meeting of the Board
of Directors called by them, and if no other place is fixed, the place of
meeting shall be the principal business office of the corporation.

SECTION 5. NOTICE OF MEETINGS

Notice of each meeting of the Board of Directors (unless otherwise provided in
or pursuant to Section 3 of this Bylaw) shall be given by written notice
delivered personally or mailed or given by telephone or telegram to each
director at his business address or at such other address as such director
shall have designated in writing filed with the Secretary, in each case not
less than 6 hours prior thereto. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed
to be delivered when the telegram is delivered to the telegraph company; if by
telephone, at the time the call is completed. Whenever any notice whatever is
required to be given to any director of the corporation under the Articles of
Incorporation, Bylaws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the
director entitled to such notice, shall be deemed equivalent to the giving of
such notice. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting
and objects thereat to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board need be
specified in the notice or waiver of notice of such meeting.

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SECTION 6. QUORUM

A majority of the members of the Board shall constitute a quorum for the
transaction of business, but if at any meeting of the Board there shall be
less than a quorum present, a majority of the directors present may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall have been obtained, when any business may be
transacted which might have been transacted at the meeting as first convened
had there been a quorum.

SECTION 7. MANNER OF ACTING

The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors, unless the act
of a greater number is required by the Articles of Incorporation, Bylaws or
any provision of law.

SECTION 8. EXECUTIVE COMMITTEE

The Board of Directors, by the affirmative vote of a majority of the whole
Board, may appoint an Executive Committee, to consist of not less than three
directors, as the Board may from time to time determine. The Executive
Committee shall have and may exercise, when the Board is not in session, all
of the powers vested in the Board, except action in respect of dividends to
stockholders, election of officers or the filling of vacancies in the Board or
the Executive Committee. The Board shall have the power at any time to fill
vacancies in, to change the membership of, or to dissolve, the Executive
Committee. The Executive Committee may make rules for the conduct of its
business and may appoint such committees and assistants as it shall from time
to time deem necessary. A majority of the Executive Committee shall
constitute a quorum.

SECTION 9. OTHER COMMITTEES

The Board of Directors may also appoint one or more other committees to
consist of such number of the directors of the corporation and to perform such
functions as the Board may from time to time determine, except that no
committee created under authority of this Section shall exercise the powers of
the Board of Directors in the management of the business and affairs of the
corporation. The Board shall have power at any time to fill vacancies in, to
change the membership of, or to dissolve, any such committee. A majority of
any such committee may determine its action and fix the time and place of its
meetings, unless the Board shall otherwise provide.

SECTION 10. COMPENSATION

The Board of Directors, by affirmative vote of a majority of the directors
then in office, and irrespective of any personal interest of any of its
members, may (a) establish reasonable compensation of all directors for
services to the corporation as directors, officers or otherwise, and the
manner and time and payment thereof, and (b) provide for reasonable pensions,
disability or death benefits, and other benefits or payments, to directors,
officers and employees and to their estates, families, dependents or
beneficiaries on account of prior services rendered by such directors,
officers and employees to the corporation.

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SECTION 11. PRESUMPTION OF ASSENT

A director who is present at a meeting of the Board of Directors or a
committee thereof of which he is a member at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply
to a director who voted in favor of such action.

SECTION 12. UNANIMOUS CONSENT WITHOUT A MEETING

Any action required by the Articles of Incorporation, Bylaws or any provision
of law to be taken at a meeting of directors or any other action which may be
taken at such a meeting may be taken without a meeting if a consent in writing
setting forth the action so taken shall be signed by all of the directors or
members of a committee thereof entitled to vote with respect to the subject
matter thereof and such consent shall have the same force and effect as a
unanimous vote.

BYLAW III. OFFICERS

SECTION 1. POSITIONS

The Board of Directors, as soon as may be after the election of directors held
in each year, shall elect one of its number Chairman of the Board unless it
determines not to fill such office, and shall elect one of its number
President of the corporation, and shall elect one or more Vice Presidents, a
Secretary and a Treasurer and from time to time shall appoint such Assistant
Secretaries, Assistant Treasurers and other officers as it may deem proper.
Any two or more offices may be held by the same person, except the offices of
President and Secretary and the offices of President and Vice President.

SECTION 2. TERM OF OFFICE

The term of office of all officers shall be one year or until their respective
successors are duly chosen or until their prior death, resignation or removal.
Any officer may be removed from office at any time by the affirmative vote of
a majority of the whole Board.

SECTION 3. POWERS AND DUTIES

Subject to such limitations as the Board of Directors may from time to time
prescribe, the officers of the corporation shall each have such powers and
duties as generally pertain to their respective offices, as well as such
powers and duties as from time to time may be conferred by the Board of
Directors or the Executive Committee. The Treasurer and the Assistant
Treasurers may be required to give bond for the faithful discharge of their
duties, in such sum and of such character as the Board may from time to time
prescribe.

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BYLAW IV. INDEMNIFICATION

SECTION 1. MANDATORY INDEMNIFICATION

The corporation shall indemnify to the fullest extent permitted by law any
person who is or was a party or threatened to be made a party to any legal
proceeding by reason of the fact that such person is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another enterprise, against expenses
(including attorney fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such legal
proceeding.

SECTION 2. CERTAIN DEFINITIONS

As used in this Bylaw IV, (a) "indemnify" includes the advancement of expenses
upon receipt of an undertaking to repay upon specified conditions, (b)
"fullest extent permitted by law" means the fullest extent to which indemnity
may lawfully be provided by, pursuant to or consistently with, the provisions
of subsections (1) and (2) of Section 180.05 of the Wisconsin Statutes (or any
successor provision), a bylaw under subsection (6) of that Section (or any
successor provision) or any other applicable law, whether statutory or
otherwise, (c) "person" includes the person's heirs, executors and
administrators, (d) "legal proceeding" means any threatened, pending or
completed action, suit or proceeding, whether or not by or in right of the
corporation, (e) "other enterprise" includes any corporation, partnership,
joint venture, trust, dividend reinvestment plan, stock purchase plan,
employee benefit plan or other plan or entity, (f) "expenses" include expenses
in the enforcement of rights under this Bylaw and any excise taxes assessed
with respect to an employee benefit plan and (g) in respect of any of such
plans, (i) "serving at the request of the corporation as a director or
officer" includes serving at the request of the corporation in any capacity
that involves services or duties with respect to the plan or its participants
or beneficiaries and (ii) action reasonably believed to be in the interest of
such participants or beneficiaries shall be deemed reasonably believed to be
in, or not opposed to, the best interests of the corporation.

SECTION 3. LEGAL ENFORCEABILITY

The rights provided to any person by the terms of this Bylaw IV shall be
legally enforceable against the corporation by such person, who shall be
presumed to have relied on the provisions of this Bylaw in undertaking or
continuing any of the positions with the corporation or other enterprise
referred to in Section 1 of this Bylaw IV.

SECTION 4. LIMITATION ON MODIFICATION OR TERMINATION

No modification or termination of this Bylaw IV shall be effected which would
impair any rights hereunder arising at any time out of events occurring prior
to such modification or termination.

SECTION 5. NON-EXCLUSIVE BYLAW

This Bylaw IV is not intended to be exclusive and accordingly shall not be
construed as impairing in any way the power and authority of the corporation,
to the extent legally permissible without regard to this Bylaw IV, in its
discretion to indemnify or agree to indemnify, or to purchase insurance
indemnifying, any employee, agent or other person.

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BYLAW V. STOCK CERTIFICATES AND TRANSFER

SECTION 1. STOCK CERTIFICATES AND FACSIMILE SIGNATURES

The certificates for shares of stock of the corporation shall be signed either
manually or by facsimile signature by the President or a Vice President, and
by the Secretary or an Assistant Secretary of the corporation, or any other
officer or officers that the Board of Directors designates, and may be sealed
with the seal of the corporation.

The certificates for shares shall be countersigned and registered either
manually or by facsimile signature in such manner, if any, as the Board of
Directors may from time to time prescribe. The transfer agent and the
registrar may, but need not be, the same person or agency. In the event that
the corporation or its agent is acting in the dual capacity of transfer agent
and registrar, a single manual or facsimile signature may be used.

In case any such person acting as an officer, transfer agent or registrar, who
has signed, or whose facsimile signature has been placed upon such
certificate, shall have ceased to be such officer, transfer agent or
registrar, before such certificate is issued, it may be used by the
corporation with the same effect as if such person had not ceased to be such
at the date of its issue.

SECTION 2. TRANSFER OF STOCK

The shares of stock of the corporation shall be transferable on the books of
the corporation upon request by the holders thereof or by duly authorized
attorney, upon surrender and cancellation of certificates for a like number of
shares of the same class of stock, with duly executed assignment and power of
transfer endorsed thereon or attached thereto, and with such proof of the
authenticity of the signature as the corporation or its agents may reasonably
require.

Prior to due presentment of a certificate for shares for registration of
transfer the corporation may treat the registered owner of such shares as the
person exclusively entitled to vote, to receive notifications and otherwise to
have and exercise all the rights and powers of an owner. Where a certificate
for shares is presented to the corporation with a request to register for
transfer, the corporation shall not be liable to the owner or any other person
suffering loss as a result of such registration of transfer if (a) there were
on or with the certificate the necessary endorsements, and (b) the corporation
had no duty to inquire into adverse claims or has discharged any such duty.
The corporation may require reasonable assurance that said endorsements are
genuine and effective and in compliance with such other regulations as may be
prescribed by or under the authority of the Board of Directors.

SECTION 3. LOST, DESTROYED OR STOLEN CERTIFICATES

Where the owner claims that his certificate for shares has been lost,
destroyed or wrongfully taken, a new certificate shall be issued in place
thereof if the owner (a) so requests before the corporation has notice that
such shares have been acquired by a bona fide purchaser, and (b) files with
the corporation a sufficient indemnity bond, and (c) satisfies such other
reasonable requirements as may be prescribed by or under the authority of the
Board of Directors.

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BYLAW VI. CONTRACTS, CHECKS, NOTES, BONDS, ETC.

SECTION 1. CONTRACTS

The Board of Directors may authorize any officer or officers, agent or agents,
to enter into any contract or execute or deliver any document or instrument,
whether of conveyance or otherwise, in the name of and on behalf of the
corporation, and such authorization may be general or confined to specific
instances.

SECTION 2. CHECKS, DRAFTS, ETC.

All checks and drafts on the corporation's bank accounts and all bills of
exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed or, in the case of wire
transfers, shall be authorized by such officer or officers, employee or
employees, or agent or agents as shall be thereunto authorized from time to
time by the Board of Directors; provided that checks drawn on the
corporation's bank accounts may bear the facsimile signature of such officer
or officers, employee or employees, or agent or agents as the Board of
Directors shall authorize; and provided further that in the case of notes,
bonds or debentures issued under a trust instrument of the corporation and
required to be signed by two officers of the corporation, the signatures of
either or both of such officers may be in facsimile if specifically authorized
and directed by the Board of Directors of the corporation and if such notes,
bonds or debentures are required to be authenticated by a corporate trustee
which is a party to the trust instrument. In case any such officer who has
signed, or whose facsimile signature has been placed upon such instrument
shall have ceased to be such officer before such instrument is issued, it may
be issued by the corporation with the same effect as if such officer had not
ceased to be such at the date of its issue.

BYLAW VII. FISCAL YEAR

The fiscal year of the corporation shall begin on the first day of January in
each year and shall end on the thirty-first day of December following.

BYLAW VIII. CORPORATE SEAL

The corporate seal shall have inscribed thereon the name of the corporation
and the words "Corporate Seal, Jan. 29, 1896."

BYLAW IX. EFFECT OF HEADINGS

The descriptive headings in these Bylaws were formulated, used and inserted
herein for convenience only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.

BYLAW X. AMENDMENTS

The Bylaws of the corporation may be altered, amended, added to, rescinded or
repealed and new Bylaws may be adopted at any meeting of the stockholders,
provided notice of the proposed change is given in the notice of the meeting.
Subject to the power of the stockholders to alter, amend, or repeal any Bylaws
made by the Board of Directors, the Board may make additional Bylaws for the
corporation and may from time to time alter and amend these Bylaws.
10

EX-27
4
WE SCHEDULE UT - FISCAL YEAR ENDED DECEMBER 31, 1994

UT
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE AUDITED FINANCIAL STATEMENTS OF WISCONSIN ELECTRIC POWER
COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
1,000

U.S. DOLLARS
DEC-31-1994
JAN-01-1994
DEC-31-1994
12-MOS
1
PER-BOOK
2,692,700
395,924
379,102
0
358,403
3,826,129
332,893
169,673
951,988
1,454,554
0
30,451
1,100,407
50,400
67,000
136,627
0
0
23,850
19,846
942,994
3,826,129
1,417,843
91,483
1,085,802
1,177,285
240,558
25,216
265,774
98,829
166,945
1,351
165,594
140,451
95,625
351,630
0
0

Earnings per share of common stock is not applicable because all of the
company's common stock is owned by Wisconsin Energy Corporation.
See financial statements and footnotes in accompanying 10-K.