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
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TABLE OF CONTENTS
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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
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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

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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

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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.

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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.

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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.

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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.

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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

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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

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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

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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

<FN>
-----------------------------------------------------------------------------
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
========== ========== ==========

<FN>
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

<FN>
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
========== ==========

<FN>
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
========== ==========

<FN>
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
========== ==========

<FN>
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
=========== ======== ======== ======== ==========

<FN>
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.

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