Wisconsin Electric Power Company PFD 3.60% (WELPP) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period EndedJune 30, 2008

Commission	Registrant; State of Incorporation		IRS Employer
File Number	Address; and Telephone Number		Identification No.
001-01245	WISCONSIN ELECTRIC POWER COMPANY		39-0476280
		(A Wisconsin Corporation)
		231 West Michigan Street
		P.O. Box 2046
		Milwaukee, WI 53201
		(414) 221-2345

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

                                 Large accelerated filer [  ]                                 Accelerated filer [  ]

                                 Non-accelerated filer [X] (Do not                     Smaller reporting company [  ]
check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [  ]    No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (June 30, 2008):

Common Stock, $10 Par Value, 33,289,327 shares outstanding.

All of the common stock of Wisconsin Electric Power Company is owned by Wisconsin Energy Corporation.

		WISCONSIN ELECTRIC POWER COMPANY
		FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2008
		TABLE OF CONTENTS
Item			Page
	Introduction		8
	Part I -- Financial Information
1.	Financial Statements
	Consolidated Condensed Income Statements		9
	Consolidated Condensed Balance Sheets		10
	Consolidated Condensed Statements of Cash Flows		11
	Notes to Consolidated Condensed Financial Statements		12
2.	Management's Discussion and Analysis of
	Financial Condition and Results of Operations		21
3.	Quantitative and Qualitative Disclosures About Market Risk		39
4T.	Controls and Procedures		39
	Part II -- Other Information
1.	Legal Proceedings		40
1A.	Risk Factors		40
4.	Submission of Matters to a Vote of Security Holders		40
6.	Exhibits		41
	Signatures		42

3

DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below.
Wisconsin Electric Subsidiary and Affiliates
Primary Subsidiary and Affiliates
Bostco	Bostco LLC
Edison Sault	Edison Sault Electric Company
We Power	W.E. Power, LLC
Wisconsin Energy	Wisconsin Energy Corporation
Wisconsin Gas	Wisconsin Gas LLC
Significant Assets
OC 1	Oak Creek expansion Unit 1
OC 2	Oak Creek expansion Unit 2
PWGS	Port Washington Generating Station
PWGS 1	Port Washington Generating Station Unit 1
PWGS 2	Port Washington Generating Station Unit 2
Federal and State Regulatory Agencies
DOE	United States Department of Energy
EPA	United States Environmental Protection Agency
FERC	Federal Energy Regulatory Commission
IRS	Internal Revenue Service
MDEQ	Michigan Department of Environmental Quality
MPSC	Michigan Public Service Commission
PSCW	Public Service Commission of Wisconsin
SEC	Securities and Exchange Commission
WDNR	Wisconsin Department of Natural Resources
Environmental Terms
BART	Best Available Retrofit Technology
CAIR	Clean Air Interstate Rule
CAMR	Clean Air Mercury Rule
CAVR	Clean Air Visibility Rule
NAAQS	National Ambient Air Quality Standards
NOx	Nitrogen Oxide
PM2.5	Fine Particulate Matter
SIP	State Implementation Plans
SO2	Sulfur Dioxide
WPDES	Wisconsin Pollution Discharge Elimination System
Other Terms and Abbreviations
ALJ	Wisconsin Administrative Law Judge
ARRs	Auction Revenue Rights
Bechtel	Bechtel Power Corporation

4

DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS
The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below.
Compensation Committee	Compensation Committee of the Board of Directors of Wisconsin Energy
Energy Policy Act	Energy Policy Act of 2005
Fitch	Fitch Ratings
FTRs	Financial Transmission Rights
LMP	Locational Marginal Price
LSEs	Load Serving Entities
MISO	Midwest Independent Transmission System Operator, Inc.
MISO Energy Markets	MISO bid-based energy markets
Moody's	Moody's Investor Services
OTC	Over-the-Counter
Point Beach	Point Beach Nuclear Power Plant
PTF	Power the Future
RSG	Revenue Sufficiency Guarantee
S&P	Standard & Poor's Rating Services
Measurements
MW	Megawatt(s) (One MW equals one million Watts)
MWh	Megawatt-hour(s)
Watt	A measure of power production or usage
Accounting Terms
AFUDC	Allowance for Funds Used During Construction
FASB	Financial Accounting Standards Board
FIN	FASB Interpretation
FSP	FASB Staff Position
GAAP	Generally Accepted Accounting Principles
OPEB	Other Post-Retirement Employee Benefits
SFAS	Statement of Financial Accounting Standards
Accounting Pronouncements
FIN 46	Consolidation of Variable Interest Entities
FSP SFAS 157-b	Determination of Impairment for Nonfinancial Assets and Nonfinancial Liabilities
SFAS 71	Accounting for the Effects of Certain Types of Regulation
SFAS 123R	Share-Based Payment (Revised 2004)
SFAS 133	Accounting for Derivative Instruments and Hedging Activities
SFAS 149	Amendment of SFAS 133 on Derivative Instruments and Hedging Activities
SFAS 157	Fair Value Measurements
SFAS 159	The Fair Value Option for Financial Assets and Financial Liabilities
SFAS 161	Disclosures about Derivative Instruments and Hedging Activities

5

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon management's current expectations and are subject to risks and uncertainties that could cause our actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of construction projects, regulatory matters, fuel costs, sources of electric energy supply, coal and gas deliveries, remediation costs, environmental and other capital expenditures, liquidity and capital resources and other matters. In some cases, forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking te rminology such as "anticipates," "believes," "estimates," "expects," "forecasts," "guidance," "intends," "may," "objectives," "plans," "possible," "potential," "projects" or similar terms or variations of these terms.

Actual results may differ materially from those set forth in forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with these statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statements or otherwise affect our future results of operations and financial condition include, among others, the following:

• Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related or terrorism-related damage; availability of electric generating facilities; unscheduled generation outages, or unplanned maintenance or repairs; unanticipated events causing scheduled generation outages to last longer than expected; unanticipated changes in fossil fuel, purchased power, coal supply, gas supply or water supply costs or availability due to higher demand, shortages, transportation problems or other developments; nonperformance by electric energy or natural gas suppliers under existing power purchase or gas supply contracts; environmental incidents; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; or inflation rates.

• Increased competition in our electric and gas markets and continued industry consolidation.

• Timing, resolution and impact of pending and future rate cases and negotiations, including recovery for new investments as part of Wisconsin Energy's PTF strategy, environmental compliance, transmission service, fuel costs and costs associated with the implementation of the MISO Energy Markets.

• Regulatory factors such as changes in rate-setting policies or procedures; changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission or distribution system operation and/or administration initiatives; required changes in facilities or operations to reduce the risks or impacts of potential terrorist activities; required approvals for new construction; and the siting approval process for new generation and transmission facilities and new pipeline construction.

• Factors affecting the economic climate in our service territories such as customer growth; customer business conditions, including demand for their products and services; and changes in market demand and demographic patterns.

6

• Factors which impede or delay execution of Wisconsin Energy's PTF strategy, including receipt of necessary state and federal regulatory approvals and permits; timely and successful resolution of legal challenges, including current challenges to the WPDES permit for the Oak Creek expansion; opposition to siting of new generating facilities; the adverse interpretation or enforcement of permit conditions by the permitting agencies; construction delays; and obtaining the investment capital from outside sources necessary to implement the strategy.

• The impact of recent and future federal, state and local legislative and regulatory changes, including electric and gas industry restructuring initiatives; implementation of the Energy Policy Act; changes in allocation of energy assistance, including state public benefits funds; changes in environmental, tax and other laws and regulations to which we are subject; and changes in the application of existing laws and regulations.

• The cost and other effects of legal and administrative proceedings, settlements, investigations, claims and changes in those matters.

• Factors affecting the availability or cost of capital such as changes in interest rates and other general capital market conditions; our capitalization structure; market perceptions of the utility industry, us or our subsidiary; or our credit ratings.

• The investment performance of our pension and other post-retirement benefit plans.

• The effect of accounting pronouncements issued periodically by standard setting bodies.

• Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets.

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

• Other business or investment considerations that may be disclosed from time to time in our SEC filings or in other publicly disseminated written documents, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2007.

Wisconsin Electric Power Company expressly disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

7

INTRODUCTION

Wisconsin Electric Power Company, a wholly owned subsidiary of Wisconsin Energy, was incorporated in the state of Wisconsin in 1896. We maintain our principal executive offices in Milwaukee, Wisconsin. Unless qualified by their context when used in this document, the terms the Company, our, us or we refer to Wisconsin Electric and its subsidiary.

We conduct our operations primarily in three operating segments: an electric utility segment, a natural gas utility segment and a steam utility segment. We serve approximately 1,111,000 electric customers in Wisconsin and the Upper Peninsula of Michigan, approximately 458,000 gas customers in Wisconsin and approximately 470 steam customers in metropolitan Milwaukee, Wisconsin. For further financial information about our business segments, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 -- Segment Information in the Notes to Consolidated Condensed Financial Statements.

Wisconsin Energy is also the parent company of Wisconsin Gas, a natural gas distribution utility, which serves customers throughout Wisconsin; Edison Sault, an electric utility which serves customers in the Upper Peninsula of Michigan; and We Power, an unregulated company that was formed in 2001 to design, construct, own and lease to us the new generating capacity included in Wisconsin Energy's PTF strategy, which is described further in this report and in our 2007 Annual Report on Form 10-K. We have combined common functions with Wisconsin Gas and operate under the trade name of "We Energies."

Other:   Bostco is our non-utility subsidiary that develops and invests in real estate. As of June 30, 2008, Bostco had $37.5 million of assets.

We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC. We have condensed or omitted some information and note disclosures normally included in financial statements prepared in accordance with GAAP pursuant to these rules and regulations. This Form 10-Q, including the financial statements contained herein, should be read in conjunction with our 2007 Annual Report on Form 10-K, including the financial statements and notes therein.

8

PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ELECTRIC POWER COMPANY
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
	Three Months Ended June 30		Six Months Ended June 30
	2008	2007	2008	2007
	(Millions of Dollars)
Operating Revenues	$             782.0	$             758.2	$          1,767.9	$          1,673.7
Operating Expenses
Fuel and purchased power	298.6	231.1	636.9	459.7
Cost of gas sold	80.2	67.0	317.3	266.9
Other operation and maintenance	315.6	282.9	658.0	557.3
Depreciation, decommissioning
and amortization	63.4	66.8	125.2	136.7
Property and revenue taxes	24.4	22.4	48.6	45.5
Total Operating Expenses	782.2	670.2	1,786.0	1,466.1
Amortization of Gain	87.0	-	246.0	-
Operating Income	86.8	88.0	227.9	207.6
Equity in Earnings of Transmission Affiliate	10.7	9.3	20.8	18.7
Other Income, net	4.7	17.5	13.4	27.6
Interest Expense, net	19.4	23.2	42.2	46.9
Income Before Income Taxes	82.8	91.6	219.9	207.0
Income Taxes	30.6	35.7	83.8	80.9
Net Income	52.2	55.9	136.1	126.1
Preferred Stock Dividend Requirement	0.3	0.3	0.6	0.6
Earnings Available for Common Stockholder	$               51.9	$               55.6	$             135.5	$             125.5
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these financial statements.

9

WISCONSIN ELECTRIC POWER COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
			(Unaudited)
			June 30, 2008	December 31, 2007
			(Millions of Dollars)
Assets
Property, Plant and Equipment
	In service		$               7,443.8	$               7,052.8
	Accumulated depreciation		(2,659.7)	(2,577.4)
			4,784.1	4,475.4
	Construction work in progress		78.8	302.1
	Leased facilities, net		865.4	547.3
		Net Property, Plant and Equipment	5,728.3	5,324.8
Investments
	Restricted cash		256.9	323.5
	Equity investment in transmission affiliate		222.7	209.9
	Other		0.4	0.4
		Total Investments	480.0	533.8
Current Assets
	Cash and cash equivalents		15.1	22.0
	Restricted cash		320.6	408.1
	Accounts receivable		276.6	264.8
	Accrued revenues		157.2	213.4
	Materials, supplies and inventories		243.7	285.6
	Prepayments		99.9	105.3
	Regulatory assets		69.9	153.0
	Other		92.1	81.1
		Total Current Assets	1,275.1	1,533.3
Deferred Charges and Other Assets
	Regulatory assets		738.1	787.3
	Other		140.8	133.6
		Total Deferred Charges and Other Assets	878.9	920.9
Total Assets			$               8,362.3	$               8,312.8
Capitalization and Liabilities
Capitalization
	Common equity		$               2,689.8	$               2,656.2
	Preferred stock		30.4	30.4
	Long-term debt		1,192.0	1,338.1
	Capital lease obligations		972.9	646.6
		Total Capitalization	4,885.1	4,671.3
Current Liabilities
	Long-term debt and capital lease obligations due currently		8.2	5.7
	Short-term debt		403.9	354.3
	Accounts payable		317.5	371.0
	Regulatory liabilities		441.5	560.8
	Other		170.6	186.4
		Total Current Liabilities	1,341.7	1,478.2
Deferred Credits and Other Liabilities
	Regulatory liabilities		943.1	1,011.0
	Deferred income taxes - long-term		563.6	468.5
	Pension and other benefit obligations		358.9	395.4
	Other long-term liabilities		269.9	288.4
		Total Deferred Credits and Other Liabilities	2,135.5	2,163.3
Total Capitalization and Liabilities			$               8,362.3	$               8,312.8
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of
	these financial statements.

10

WISCONSIN ELECTRIC POWER COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended June 30
	2008	2007
	(Millions of Dollars)
Operating Activities
Net income	$               136.1	$               126.1
Reconciliation to cash
Depreciation, decommissioning and amortization	132.0	141.5
Equity in earnings of transmission affiliate	(20.8)	(18.7)
Distributions from transmission affiliate	16.2	13.9
Deferred income taxes and investment tax credits, net	113.7	(28.6)
Change in - Accounts receivable and accrued revenues	44.4	73.8
Inventories	41.9	38.7
Other current assets	(20.7)	2.3
Accounts payable	14.4	(18.6)
Accrued income taxes, net	(31.3)	(17.8)
Deferred costs, net	56.6	(38.9)
Pension plan contribution	(47.7)	-
Other current liabilities	15.8	(11.1)
Other	(130.0)	36.0
Cash Provided by Operating Activities	320.6	298.6
Investing Activities
Capital expenditures	(262.2)	(194.7)
Proceeds from asset sales, net	4.0	7.8
Change in restricted cash	154.1	-
Investment in transmission affiliate	(8.2)	-
Proceeds from investments within nuclear decommissioning trust	-	213.4
Purchases of investments within nuclear decommissioning trust	-	(213.4)
Other	(9.5)	(14.2)
Cash Used in Investing Activities	(121.8)	(201.1)
Financing Activities
Dividends paid on common stock	(108.5)	(89.8)
Dividends paid on preferred stock	(0.6)	(0.6)
Issuance of long-term debt	-	23.4
Retirement and repurchase of long-term debt	(147.0)	(14.1)
Change in short-term debt	49.6	(29.8)
Other	0.8	5.3
Cash Used in Financing Activities	(205.7)	(105.6)
Change in Cash and Cash Equivalents	(6.9)	(8.1)
Cash and Cash Equivalents at Beginning of Period	22.0	18.2
Cash and Cash Equivalents at End of Period	$                 15.1	$                 10.1
Supplemental Information - Cash Paid For
Interest (net of amount capitalized)	$                 40.1	$                 47.4
Income taxes (net of refunds)	$                   0.5	$               112.5
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of
these financial statements.