ML20065L095

Forwards 1993 Annual Rept to Stockholders of Wisconsin Electric Power Co, Including Financial Statements

ML20065L095
Person / Time
Site:	Point Beach
Issue date:	04/15/1994
From:	Fehring T WISCONSIN ELECTRIC POWER CO.
To:	Office of Nuclear Reactor Regulation
References
NUDOCS 9404200279
Download: ML20065L095 (44)

Text

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Wisconsin Electnc POWER COMPANY j

231 W Michyan. Po Box 2046 Miiwaukoo. WI 53201 2046 (414)221 2345 i

1 1

April 15, 1994 Director of Nuclear Reactor Regulation U.S.

Nuclear Regulatory Commission Washington, DC 20555 Ladies and Gentlemen:

In accordance with 10 C.F.R.

Section 50.71, enclosed is the 1993 annual report to stockholders of Wisconsin Electric Power Company, which includes certified financial statements.

Such annual report accompanies Wisconsin Electric's definitive information statement, which is being mailed to stockholders today.

Wisconsin Electric Power Company is the holder of Facility operating License Nos. DPR-24 and DPR-27 issued by your Commission under Dockets 50-226 and 50-301, respectively.

Si

rely, ML

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Fehrin Assistant Secretary KHE/bjm Enclosure pro \\arpt we cc:

Mr. Gerald Charnoff Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W.

Washington, DC 20037 I

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Wisconsin V

' Electnc POWER COMPANY l'

231 W Michgart PO Box 2044. Mdwoukee. WI 53201-2046 (414)221 2345 l

l April 15,1994

Dear Stockholder:

-)

Wisconsin Electric Power Company will hold its annual meeting of stockholders at 9:00 a.m. on Tuesday, hiay 10,1994 at the Public Service Building,231 West hilchigan Street, hiilwaukee, Wisconsin. We are not soliciting proxies for this meeting, as about 99% of Wisconsin Electric's voting stock is owned and will be voted -

j by its parent company, Wisconsin Energy Corporation. You may, if you wish, attend the meeting and vote your shares of preferred stock; however, it will be a short business meeting only.

,'i On behalf of the directors and officers of Wisconsin Energy, I imite you to attend Wisconsin Energy's annual meeting to be held Wednesday, h!ay 11,1994 at 1:30 p.m. The Wisconsin Energy meeting will be held at the Bradley Center,1001 North Fourth Street, in downtown hiilwaukee, Wisconsin. By attending this meeting, you will have the opportunity to meet many of the Wisconsin Electric officers and directors. Although you cannot vote your shares of Wisconsin Electric preferred stock at the Wisconsin Energy meeting, you should find the afternoon's activities to be worthwhile. You will be asked to register before entering the meeting.

The annual report to stockholders accompanies this information statement. For your information, you may request a Wisconsin Energy Corporation annual report by writing to the Stock Transfer Office at the above address or calling one of the telephone numbers listed below.

Sincerely,

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4 Richard A. Abdoo Chairman of the Board and Chief Executive Officer If you have any questions, please call our toll free Stockholder flotline at:

2212100 in h!ctro hiilwaukee 1-800-558-9663 outside hietro hiilwaukee nis document is printed on rwycled paper, d wbsth7 ofIU n w h De m (m wathn

b NOTICE OF ANNUAL MEETING OF STOCKIIOLDERS April 15,1994 To the Stockholders of Wisconsin Electric Power Company:

The Annual Meeting of Stockholders of Wisconsin Electric Power Company will be held at the Public Service Building,231 West Michigan Street, Milwaukee, Wisconsin, on Tuesday, May 10,1994, at 9:00 a.m., for the following purposes:

1.

To elect a Board of Directors to hold office until the 1995 Annual Meeting of Stockholders; and 2.

To consider any other matters which may properly come before the meeting.

Stockholders of record at the close of business on March 4,1994 will be entitled to vote at the meeting.

By Order of the Board of Directors

/

/

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Ann Ma 'e Ur-Secretary I~

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I Wisconsin Electnc POWER COMPANY 231 West hiichigan Street P.O. Box 2046 i

hiilwaukee, Wisconsin 53201 INFORh1ATION STATEh1ENT and ANNUAL REPOla TO STOCKilOLDERS i

i INFORA1ATION STATEh!ENT i

April 15,1994 This information statement is being furnished to stockholders beginning on or about April 15,1994 in connection with the annual meeting of stockholders of Wisconsin Electric Power Company (WE) to be held on hiay 10, 1994, at the principal office of WE at the Public Service Building,231 West hiichigan Street, hiilwaukee, Wisconsin, and all adjournments of the meeting, for the purposes listed in the Notice of Annual hiceting of Stockholders. The WE annual report to stockholders accompanies this information statement.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

Ilowtwr, you may mte your shares of preferred stock at the meeting.

VOTING SECURITIES As of Alarch 4,1994, WE had outstanding 44,508 shares of Six Per Cent. Preferred Stock; 312,500 shares of Serial Preferred Stock (.$100 par value), consisting of 260,000 shares of 3.60% Series and 52,500 shares of 6.75%

Series; and 33,239,327 shares of common stock. Each outstanding share of each class is entitled to one mte.

Stockholders of record at the close of business on h1 arch 4,1994 will be entitled to mte at the meeting. A majority of the shares entitled to mte shall constitute a quorum. Directors are elected by a plurality of the wtes cast by the shares entitled to mte in the election at a meeting at which a quorum is present. " Plurality" means that the individuals who reccim the largest number of mtes are elected as directors up to the maximum number of directors to be chosen in the election. Therefore, any shares not wted, whether by withheld authority, broker non-mte or otherwise, ham no effect in the election of directors.

All of WE's outstanding common stock, representing 99% of its mting securities, is owned beneficially by its parent company, Wisconsin Energy Corporation (Wisconsin Energy or WEC). A list of stockholders of record entitled to mte at the meeting will be availabic for inspection by stockholders at wet principal business office at 231 West hiichigan Street, hiilwaukee, Wisconsin, prior to and at the meeting.

i RELATIONSIIIP WITH INDEPENDENT PUBLIC ACCOUNTANT Price Waterhouse has acted as independent public accountant for WE or its predecessor continuously since 1932, and was appointed by WEs Board of Directors upon recommendation of Wisconsin Energy's board of directors to serm as such during the current year. Representatives of the firm will not attend the annual meeting, but will be present at Wisconsin Energy's annual meeting on hiay 11,1994 to make any statement they may consider appropriate and to respond to questions which may be directed to them.

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TIIE HOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors is responsible for owrseeing the performance of WE. In 1993 the Board held twehe regular meetings and three special meetings. None of the incumbent directors attended fewer than 86% of the total number of meetings of the Board and the committees on which they scrwd.

On Nowmber 24, 1993, the Board of Directors elected Robert A. Cornog, Chairman, President and Chief Executim Officer of Snap-on Tools Corporation, as a director of WE to fill the meancy on the Board created by the retirement on June 30,1993 of Charles S. McNeer. This election is subject to authorization of the Federal Energy Regulatory Commission (FERC) and will be effectim with the date of authorization by the FERC.

FERC authorization is required because Mr. Cornog is also a director of Johnson Controls, Inc. which supplies WE with electrical equipment. WE does not expect that the FERC will deny Mr. Cornog's directorship as the total dollar m!ume of purchases by WE from Johnson Controls, Inc. including electrical equipment purchases, is minimal, ranging from.031% to.108% of wet total annual purchases of materials, supplies and equipment during the past four calendar years. As of April 1,1994, FERC authorization is pending. In the unlikely emnt that tbc FERC denies Mr. Cornog's WE directorship, the Board reserws the right to name another nominee to fill this vacant director position.

WE has an Executim Committee and a Compensation Committee; it does not have audit or nominating committees. The Executive Committee, which did not meet in 1993, may exercise all of the powers wsted in the Board during periods between Board meetings except, among other things, action regarding dividends or other distributions to stockholders, election of officers or the filling of meancies on the Board or its committees.

Messrs. Abdoo, Boston, Reid, Stratton and Udell are regular members of the Executim Committee; all other directors are alternate members. The Compensation Committee, which met four times in 1993, determines compensation policies for executiw officers of WE, reviews and recommends adjustments to the salaries of elected officers and the fees of directors of WE, and reviews and recommends other direct and indirect forms of compensation, benefits and privileges which the elected officers and directors may receive. Messrs. Bergstrom, Murray, Reid, Stratton, Udell, and Mrs. Johnson are members of the Compensation Committee. Mr. Cornog has been designated a member of the Compensation Committee effectim with the date of authorization of his directorship by the FERC.

INFORMATION CONCERNING NOMINEES FOR DIRECTORS At the 1994 annual meeting, there will be an election of twelve directors to hold office for a term of one year and until they are reelected or until their respective successors are duly elected and qualified.

The nominees named below have consented to being nominated and to serve if elected. The Board of Directors does not expect that any of the nominees will become unavailable for any reason. If that should occur before the meeting, another nominee or nominees will be selected by the WE Board of Directors.

Biographical information regarding each nominee is shown below. Ages are shown as of December 31,1993.

Wisconsin Energy Corporation's principal subsidiaries are WE and Wisconsin Natural Gas Company (Wisconsin Natural).

NOMINEES FOR DIRECIORS (FOR TERMS EXPIRING IN 1995)

RICilARD A. AHDOO. Age 49. Chairman of the Board and Chief Executive Officer of WE and Wisconsin Natural since June 1990. Chairman of the Board, President and Chief Executive Officer of WEC since 1991.

President and Chief Executive Officer of WE from January 1990 to June 1990. President and Chief Operating Officer of WE from June 1989 to January 1990. Executive Vice President of'WE from January 1989 to June 1989. Senior Vice President of WE from 1984 to January 1989. Executive Vice President of WEC from January 1990 to May 1991. Vice President of WEC from May 1987 to January 1990. Director of WE and Wisconsin Natural since 1989 Director of WEC since 1988. Director of M&l Marshall & lisley Bank, ARI Network Services, Inc., Blue Cross & Blue Shield United of Wisconsin and United Wisconsin Services, Inc.

JOllN F. IlERGSTROM. Age 47. President and Chief Executive Officer of Bergstrom Corporation since 1974; Bergstrom Corporation owns and operates twelve automobile dealerships, three hotels, a convention center, and a real estate company. Director of WE since 1985. Director of WEC since 1987. Director of First National Bank-Fox Valley, Kimberly-Clark Corporation, Midwest Express Airlines,Inc. and Universal Foods Corporation.

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i JOllN W. IlOSTON. Age 60. President and Chief Operating Officer of WE since 1990 and of Wisconsin Natural since April 1994. Vice President of WEC since 1991. Executive Vice President and Chief Operating Officer of WE from January to June 1990. Senior Vice President of WE from 1982 to January 1990. Director of WE since 19&S. Director of WEC since 1991. Director of Wisconsin Natural since h1 arch 1994.

ROBERT A. CORNOG. Age 53. Chairman of the Board, President and Chief Executive Officer of Snap-on Tools Corporation, a tool manufacturer, since 1991. President of hiacwhyte Company, a maker of wire rope and a subsidiary of Amsted Industries, from 1981 to 1991. Director-designate of WE. Director of WEC since 1993.

Director of Snap-on Tools Corporation and Johnson Controls,Inc.

ROBERT II. GORSKE. Age 61. Vice President and General Counsel of WE and of Wisconsin Natural since 1976. General Counsel of WEC since 1981. Director of WE since 1991. Director of Wisconsin Natural since 1976.

GENEVA U.JOlINSON. Age 64. Corporate Director, fresident and Chief Executive Officer of Family Service America, Inc., an organization representing private ngencies in the United States and Canada that provide human sersice programs, from 1983 to h1 arch 1994. Director of WE and WEC since 1988. Director of Firstar Bank hiilwaukee, N.A.

JOllN L. h1URRAY. Age 66. Corporate Director. Chairman of the Board of Universal Foods Corporation, a manufacturer and marketer of food ingredients and selected consumer food items, from 1984 to 1990. Chief Executive Officer of Universal Foods from 1979 to 1988. Director of WE since 1983. Director of WEC since 1987. Director of Briggs & Stratton Corporation,The h1 arcus Corporation, Twin Disc,Inc. and Universal Foods Corporation.

DAVID K. PORTER. Age 50. Senior Vice President of WE and Vice President of Wisconsin Natural since 1989. Vice President-Corporate Planning of WE from 1986 to 1989. Director of WE since 1989. Director of Wisconsin Natural since 1988.

MORRIS W. REID. Age 68. Vice Chairman of the Board of Versa Technologies,Inc., a manufacturer of Guid power and silicone rubber products, since 1989. Vice Chairman, President and Chief Operating Officer of Versa j

Technologies from 1989 to 1992. Chairman of the Board of Versa Technologies from 1982 to 1989. Independent hianagement Consultant and Corporate Director since 1978. Chairman of the Board of J. I. Case Co., a I

manufacturer of construction and farm machinery, from 1972 to 1978. Director of WE since 1979. Director of WEC since 1987. Director of Ilanc One Wisconsin Corporation, A&E hianufacturing Company, Research Products Corporation and Versa Technologies, Inc.

JERRY G. REMMEL. Age 62. Chief F' ancial Officer of WE, WEC and Wisconsin Natural since 1989. Vice m

President of WEC since January 1994. Treasurer of WEC since 1981. Senior Vice President of WE and Vice President-Finance of Wisconsin Natural from 1989 to 1993. Vice President and Treasurer of WE from 1983 to 1989. Treasurer of Wisconsin Natural from 1974 to 1989. Director of WE since 1989. Director of Wisconsin Natural since 1988.

FREDERICK P. STRNITON, JR. Age 54. Chairman and Chief Executive Officer of Briggs & Stratton Corporation, a manufacturer of small gasoline engines and automotive locks, since 1986. Director of WE since 1986. Director of WEC since 1987. Director of Briggs & Stratton Corporation, Bane One Corporation, Banc One Wisconsin Corporation, hiidwest Express Airlines,Inc. and Weyco Group,Inc.

JON G. UDELL. Age 58. Irwin Maler Professor of Business at the University of Wisconsin hf adison since 1975.

Director of WE since 1977. Director of WEC since 1987. Chairman of the Board of Directors of the Federal Ilome Loan Bank of Chicago from 1982 to 1989, Director of Research Products Corporation and Versa Technologies, Inc.

j OTIIEll MNITEllS The lloard of Directors is not aware of any other matters which may properly come before the meeting. The WE Bylaws set forth the requirements that must be followed should a stockholder wish to propose any floor nominations for director or Door proposals at annual or special meetings of stockholders. In the case of annual meetings, the Bylaws state, among other things, that notice and certain other documentation must be provided to WE at least 70 days before the annual meeting.

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STOCK OWNERSIIIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS WE directors, nominees and executive officers as a group (15 persons) do not own any of WE's stock, but beneficially own 74,801 shares of common stock of its parent company, Wisconsin Energy' Corporation (less than 1% of total WEC common stock outstanding). The following table lists the benclicial ownership of WEC common stock of each director, nominee and named executive officer as of February 28,1994. Included are shares owned by each individuaPs spouse, minor children or any other relative sharing the same residence, as well as shares hcid in a fiduciary capacity or held in WEC's Tax Reduction Act Stock Ownership Plan and Stock Plus Investment Plan, and WE's Management Employee Savings Plan (MESP).

Number Number Number Name of Sharn Name

_of Shares Name of Shares R. A. Abdoo

... 11,781 R.11. Gorske 14,432 M. W. Reid......... 3,273 J. F. Bergstrom 3,000 G. B. Johnson......... 2,053 J. G. Remmel........ 5,827 J. W. Boston

. 3,911 J. L. M urray......

.. 3,000 F. P. Stratton, Jr...... 3,600 R. A. Cornog

..... 1,000 D. K. Porter.......... 8,062 J. G. Udell.......... 5,877(1)

(1)

Dr. Udctl disclaims beneficial ownership of 2,521 of such shares.

Each person has sole voting and investment power as to all shares listed for such person except that the following persons have shared voting and/or investment power as to the indicated number of shares so listed: Mr. Boston (2,562), Mr. Gorske (356), Mr. Stratton (1,500), and Dr. Udcll (2,521) and all directors and executive officers as a group (9,659).

The above beneficial ownership information is based on information furnished by the specified persons and is determined in accordance with Rule 13d-3 under the Securitics Exchange Act of 1934, as required for purposes of this information statement. It is not necessarily to be construed as an admission of beneficial ownership for other purposes.

COMPENSATION DIRECTORS' COM PENSATION Since 1991 and continuing through 1993, each nonemployec director received a monthly retainer fee of $1,500 plus $1,000 for each Board or committee meeting attended. In addition, a per dicm fee of $1,000 for travel on company business is paid for each day on which a Board or committee meeting is not also held. Nonemployce directors are also paid $300 for cach signed, written unanimous consent in lieu of a meeting. Director Reid also received a one-time payment of $5,000 for special senices rendered in 1993 as chairman of the WE and WEC compensation committees in connection with the development and establishment of a long term incentive plan for key executives of WEC and its subsidiaries, including WE. In this regard, Director Reid examined comparable practices of other corporations and prepared an extensive study of long-term incentive plan alternatives for consideration by the compensation committecs. Although certain WE directors also serve on WEC's board and compensation committee, only single fees are paid for meetings held by both boards or committees on the same day. In these cases, fees are allocated between WE and WEC based on senices rendered. Nonemployee directors may defer fees so long as they serve on the Board of WE and/or its affiliates pursuant to an established plan which accrues interest semiannually at the prime rate on the amounts which have been deferred. Such deferral amounts are credited to an unsecured account in the name of each participating director on the books of WE and are payable only following termination of the director's service to WE.

Employee directors receive no directors' fees.

EXECUTIVE OFFICERS' COMPENSATION The following table summarizes certain information concerning compensation awarded to, earned by or paid to WE's Chief Executive Officer and each of WE's other four most highly compensated executive officers for services in all capacities to WEC and its subsidiaries, including WE for the last three fiscal years. The amounts shown in this and all subsequent tables in this information statement are WEC consolidated compensation data. Consequently, the information for 1992 and 1991 will differ from that reported previously, which related only to services rendered to WE. The portion of time devoted by each officer to WE, as determined by the percent of time each officer worked for WE versus the other affiliated companies, is as follows: Mr. Abdoo (79 %), Mr. Boston (98 %), Mr.

Gorske (88 %), Mr. Remmel (79 %) and Mr. Porter (90%).

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SUMMARY

COMPENSATION TABLE Long-Tenn Compensation Awards Annual Compensation Securities Other Annual Underlying All Other Name and Principal Position (1)

Year Salary Bcnus Compensation Options /SARs Compensation

($)

($)

($) (2)

(#) (3)

($) (2) (4)

Richard A. Abdoo Chairman of the Board 1993 450,000 122,000 0

22,500 15,170 and Chief Executive Officer 1992 429,167 59,500 3,1')

0 12,875 1991 389,167 65,000 0

i John W. Boston President and Chicf 1993 262,000 56,000 0

0 8,876 Operating Officer 1992 247,667 33,900 3,067 0

7,430 1991 244,000 39,024 0

Robert 11. Gorske Vice President and 1993 205,000 44,000 0

0 6,928 General Counsel 1992 196,500 20,000 3,067 0

5,895 1991 186,667 28,000 0

Jerry G, Hemmet Senior Vice President 1993 190,000 41,000 0

0 6,406 1992 181,500 22,000 3,153 0

5,445 1991 166,667 23,333 0

Datid K. Porter Senior Vice President 1993 185,000 20,000 0

6,500 6,242 1992 178,167 17,500 3,497 0

5,345 1991 162,000 25,920 0

(1) Principal position at WE during 1993 is listed; each of the named executive officers also held positions with one or more of WE's affiliated companies.

(2)In accordance with the transitional provisions applicable to the revised rules on executive compensation disclosure adopted by the Securities and Exchange Commission, amounts of *0ther Annual Compensation

• and 'All Other Compensation

• are not presented for 1991.

(3) Grants in 1993 were in combination with contingent dividend awards, as described in the table entitled "Long-Term Incentive Plans--Awards in Last Fiscal Year *,

(4) All Other Compensation for 1993 for hiessrs. Abdoo, Boston, Gorne, Remmel and Porter, respectively, includes: (i) employer matching of contributions by each named executive into the MESP in the amounts of $4,497, $4,497, $4,497, $4,182 and $4,497, respectively, (ii) *make whole" payments under the Executive Deferred Compensation Plan with respect to matching in the MESP on deferred salary or salary received but not otherwise eligible for matching in the amounts of $9,003, $3,363, $1,653, 5

$1,518 and $1,053, respectively, and (iii) term life insurance premiums in the amounts of $1,670, $1,016,

$778, $706, and $692, respectively.

In connection with the proposed 1993 Omnibus Stock Incentive Plan (the

• Plan"), which is subject to WEC stockholder approval at the May 11,1994 WEC annual meeting, the stock options and contingent dividend awards granted in fiscal year 1993 to Messrs. Abdoo and Porter listed in the above table and as set forth below shall be null and void should WEC stockholder approval not be obtained.

Ol' TION /SAR GRANTS IN LAST FISCAL YEAR Individual Grants (1)

Potential Realizable -

Percent of Value At Assumed Number of Total Annual Rates of Securities Options /SARs Exercise Stock Price Underlying Granted to or Base.

Appreciation for Options /SARs Employees in Price Expiration Option Term (2)

Name Granted (#)

Fiscal Year

($/Sh)

Date 5% ($)

10% ($)

Richard A. Abdoo 22,500 33.5 %

27.375 12/14/03 387,360 981,646 John W. Boston 0

N/A N/A N/A N/A N/A Robert !!. Gorske O

N/A N/A N/A N/A

-N/A Jerry G. Remmel 0

N/A N/A N/A N/A'

, 283.587

'N/A David K. Porter 6,500 9.7 %

27.375 12/14/03 111,904 N/A = Not Applicable (1) Consists ofincentive and non-qualified stock options to purchase shares of WEC common stock granted pursuant to the 1993 Omnibus Stock Incentive Plan on December 15, 1993. These options were granted with an equal number of contingent dividend awards (as described in the table entitled "Long-Term incentive Plans-Awards in Last Fiscal Year"), have exercise prices equal to the fair market value of the WEC shares on the date of grant and first become exercisable on December 15,1997, at which time they become fully exercisable. Upon a " change in control" of WEC, as defined in the Plan, these options shall become immediately exercisable. These options were granted for a term of ten years, subject to earlier termination in certain events related to termination of employment. In the discretion of the WEC compensation committee, the exercise price may be paid by delivery of already owned shares and tax withholding obligations related to exercise may be satisfied by withholding shares otherwise deliverable upon exercise, subject to certain conditions. Subject to the limitations of the Plan, the WEC compensation f

committee has the power with the participant's consent to modify or waive the restrictions on vesting of these options, to amend these options and to grant extensions or to accelerate these options.

(2)The dollar amounts in these columns are the result of calculations at the 5 % and 10% stock appreciation rates set by the Securities and Exchange Commission and therefore do not forecast possible future appreciation, if any, of WEC's common stock price. At the December 14,2003 expiration date of the options granted in 1993, the price of a share of WEC common stock would be $44.59 at an assumed annual appreciation rate of 5% and $71.00 at an assumed annual appieciation rate of 10%. Gains to all WEC stockholders of record at year-end 1993 at those assumed annual appreciation rates would be approximately

$1.8 billion and $4.6 billion, respectively. The total " Potential Realizable Value" for the named executive officers would represent less than.03 % of such gains.

No stock options other than those granted pursuant to the proposed 1993 Omnibus Stock Incentive Plan were outstanding in the last fiscal year. Accordingly, no options were exercisabic in 1993. The following table sets forth the number of options which werc not exercisable and the value of such options based upon the difference between the exercise price and the market price of the underlying shares as of December 31,1993.

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A -

+ + -.

L E

w AGGREGATED Ol'rION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END Ol'rION/SAR VALUES Number of Securities Underlying Value of Unexercised in-the-Money Unexercised Options /SARs Options /SARs at Fiscal Year-End at Fiscal Year-End

(#)

($)

Name Exercisable Unexercisable Exercisable Unexercisable Richard A. Abdoo 0

22,500 0

2,813 John W. Boston N/A N/A N/A N/A Robert 11. Gorske N/A N/A N/A N/A Jerry G. Remmel N/A N/A N/A N/A David K. Porter 0

6,500 0

813 N/A = Not Applicable ne following table shows long-term incentive awards made during 1993:

LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR

]

Estimated Future Performance Payouts Under Number of or Other Non-Stock Shares, Units Period Until Price-Based Plans on Other Maturation Target Name Rights (1) or Payout

($ or #) (2)

Richard A. Abdoo 22,500 12/14/97

$129,465 John W. Boston 0

N/A N/A Robert 11. Gorske O

N/A N/A Jerry G. Remmel 0

N/A N/A David K. Porter 6,500 12/14/97

$37,401 N/A = Not Applicable (1) Consists of performance units awarded under the 1993 Omnibus Stock Incentive Plan in combination with stock options (as described in the table entitled

• Option /SAR Grants in Last Fiscal Year" above).

These performance units, entirely in the form of contingent dividends, will be paid if total shareholder return (appreciation in the value of WEC common stock plus dividends) over a four year period ending December 14, 1997 equals or exceeds the median retum earned by the other companies included in an extemally defined peer group (the companies included in the Peer Group Index in the Performance Graph section of WEC's proxy statement dated May 11,1994), except that there will be no payout if WEC's total shareholder return is negative over the course of su:h period. If payable, each participant shall receive an amount equal to the actual dividends paid on WEC common stock for the period of December 15,1993 through December 14,1997 multiplied by the number of performance units awarded to such participant.

(2) Assumes, for purposes of illustration,4% per year compound annual dividend increase based on the current quarterly dividend rate for WEC common stock.

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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Corporute Mission Statement Wisconsin Electric Power Company (WE) is an electric utility whose principal mission is being the energy supplier of choice in the region it serves while providing earnings to support its financial goals. WE's core business is generating, transmitting and distributing electric and steam energy to meet the needs and wants ofits customers and to assure the economic vitality of the region. WE is committed to improving the quality of Efe in the area it serves, to maintaining employee excellence and to providing a working environment that encourages each employee to achieve superior results and satisfaction.

Compensation Consultant The Compensation Committee, comprised entirely of non-employee directors, has retained Towers Perrin..a nationally recognized compensation consultant, to work with it on matters relating to the administration and design of WE's executive compensation program. The consultant reports directly to the Committee. The consultant provided the Committee with direct access to competitive information regarding pay levels and practices within the mdustry, and the Compensation Committee's decisions regarding executive compensation have been based, in part, on such information.

Philosophy & Objectives The Board of Directors of WE strives to attract, retain and motivate a top-caliber executive team. To that end, it is WE's intent to offer an industry-competitive, performance-based executive compensation program.

The components of the program, as well as the opportunities offered through the program, are designed to be competitive with practices at other comparably-sized and situated electric utilities. In determining competitive pay rates for WE's officer positions, the Committee relies primarily on an analysis of compensation (including base salary, annual b(mus and long-term incentive grant values) for an extemally defined peer group (i.e., the companies included in the Peer Group Index in the Performance Graph section of Wisconsin Energy Corporations's (WEC's) proxy statement dated May 11,1994,)(the " peer companies"). Data are collected and analyzed for these companies from both recent proxy statements and from the Edison Electric Institute (EEI) survey. The Comntittee relies secondarily on a broader analysis of utility compensation rates. In this analysis, the Committee reviews compensation data from the entire eel database, adjusted appropriately for company size. While the peer group is a carefully selected group of utilities of comparable size and offering comparable services, the Committee does not believe these companies to be the only direct competitors for WE's executive talent. The Committee reviews both peer group specific and broader industry pay practices to be fully informed of industry compensation levels.

The Committee does not mathematically average the data from the two analyses but, rather, considers them as separate reads of the external market. While base salaries provide the basis for the executive compensation program, the Compensation Committee believes that a substantial portion of the total compensation package should be at risk, dependent on achievement ofindividual and corporate goals. Successful achievement of these goals is critical to meeting WE's longer-term financial, authorized rate of return on equity and WEC shareholder return goals. Accordingly, the annual incentive compensation program links a portion of each executive's pay to the successful and timely completion of key operational, safety, financial and customer satisfaction goals and the long..

term incentive compensation program specifically links a portion of each executive's compensation to the achievement of the longer-term goals of WE, including total retum on shareholder equity. The long-term incentive plan, designated the 1993 Omnibus Stock Incentive Plan (OSIP), was adopted by the WE and WEC boards in 1993, subject to WEC stockholder approval at WEC's May 11,1994 annual meeting.

The executive compensation program strikes a balance between offering fair and reasonable fixed compensation (e.g., base salary tied to the executive's skills and responsibilities), and variable compensation (e.g., annual incentive compensation tied to the executive's and the company's results over the most recent fiscal year and long-term incentive compensation tied to the company's results over a longer designated period of time). If the OSIP is approved by WEC stockholders, a greater portion of the executive's compensation will be at risk; the Compensation Committee believes that placing a greater proportion of executive compensation at risk will benefit WE. The Compensation Committee expects total cash compensation (base salary +. annual incentive compensation) for executives to vary from year.to-year, based upon WE's operating, safety, financial and customer satisfaction performance, In line with WE's pay-for-performance philosophy, superior performance will yield above-average compensation; likewise, below-average performance will yield below-average compensation.

8

i He Compensation Committee annually reviews the competitiveness of executive base salary levels and annual and long-term incentive opportunities relative to the external market. As described earlier, the Committee primarily considers compensation practices at the peer companies, and secondarily reviews broader industry pay practices.

The Committee periodically conducts an extensive review of peer group pay practices covering all elements of compensation (base salary, annual incentive and longer-term incentives), and is advised as to how these compensation practices differed from or were similar to broader utility industry practices. As general business and competitive factors dictate, the Compensation Committee recommends to the Board of Directors for approval adjustments to the level of base salary and incentive opportunities for executives, Periodically, the Compensation Committee also reviews the design of the executive compensation program, to make sure that it ties closely to WE's 4

strategic goals and operating style, and reflects prevailing industry compensation practices.

I'rogram Components The executive compensation program currently consists of base salary, annual incentive compensation and long-term -

incentive compensation. Base salaries, annual incentive targets and long-term incentive grant guidelines are targeted at the 50th percentile of industry pay practices. As stated previously, the Committee primarily considers compensation practices at the peer companies in this review and has data presented to it from recent proxies and from the EEI survey in this regard. The Committee also reviews broader industry data from the entire eel database, consisting of approximately 100 utilities, adjusted appropriately for company size. The Committee reviews these data separately and does not mathematically average or combine the various competitive analyses. The j

Committee sets salaries, annual incentive targets and long-term incentive grant guidelines in consideration of these data, and after direct discussion with and recommendations from Towers Perrin, its consultant.

In addition to external competitive data, base salaries are determined by factors including individual performance and potential, changes in duties and responsibilities, economic conditions in the utility service area, financial success of WE (measured in terms of such factors as achievement of authorized rate of return on equity and target earnings, customer satisfaction, competitiveness of utility service rates and outlook for such rates in the coming year, and changes in salary compensation for comparable jobs at other utilities. The Committee weights these factors substantially equally.

WE provides annual incentive compensation pursmmt to WEC's Short-Term Perfornunce Plan (STPP) which is administered by the WEC compensation committee. Target annual incentive compensation awards for each individual for 1993 ranged from 15 % to 30% of base salary. Annual incentive payouts under the plan are based upon the achievement of individual and specific company-wide operating, safety, financial and customer satisfaction objectives. Individual award payouts are permitted to range from 0% to 125% of targeted amounts based on individual and team perfornunce.

For 1993, the STPP financial performance goals for WE focused on achievement of target earnings, while the 1993 STPP operational performance goals related principally to:

+ Total WEC shareholder return versus the peer companies

+ Demand-side management including conservation and load management

+ Energy production availability

+ Customer satisfaction

+ Operating and maintenance cost management

+ Safety of nuclear operations Under the STPP for 1993, the Compensation Committee awarded key employee participants amounts ranging from 8% to 27% of base salary as calculated under the formula for the STPP for each individual. This decision was based on (i) the extent to which a variety of predetermined 1993 STPP corporate performance goals were achieved (principally those enumerated above) and (ii) the extent to which each STPP participant met his or her 1993 individual goals. The STPP corporate perfornumce goals are divided into two parts--60% operational and 40%

linancial(except that the weightings for the Chief Executive Officer (CEO) are 60% financial and 40% operational, as the Compensation Committee believes that the CEO has the primary responsibility for the financial success of WE).

Under the OSIP, the Compensation Committee awarded long-term incentive compensation in the form of stock options and performance dividend units to certain key employees selected by the Compensation Committee. The Compensation Committee and the Board of Directors have approved a table of stock option and performance 9

dividend unit grant guidelines for each of four groups of OSIP participants. The grant guidelines range from 20,000 to 25,000 stock options and performance dividend units for the Chairman of the Board and Chief Executive Officer to 1,000 to 1,500 of such options and units for participating junior executives. The Compensation Committee determined, based on its subjective evaluation of each participant, that the initial grant should be made at the mid-point of the respective guideline range for each participant. The Compensation Committee expects that the present guideline range will be modified from time to time based on changing conditions in the electric utility industry.

As a condition of participation in the OSIP, each participant must achieve specified WEC stock ownership targets.

Several officers who are nearing retirement, including named executive officers John W. Doston, Robert 11. Oorske and Jerry O. Remmel, will not participate in the OSIP.

Chief Executive Officer Compensation hir. Abdoo's WEC consolidated base salary for 1993 was $450,000,79% of which was paid by WE, and has been set by the Committee at approximately the 50th percentile as compared to industry pay practices. Ilis salary was also adjusted to account for the factors listed in the Program Components section of this report pertaining to base salaries; such factors were weighted substantially equally. hir. Abdoo's base salary has not been increased since November 1992 because in 1993 it continued to approximate such 50th percentile, hir. Abdoo is a designated participant in the STPP and the OSIP. With respect to the STPP, for fiscal year 1993, the Compensation Committee awarded h!r. Abdoo the annual incentive award set forth in the " Bonus" column of the Summary Compensation Table. The award is 27% of hit. Abdoo's consolidated base salary which is within

'I the Committee's target level of setting the annual incentive compensation range between 15% and 30% of base salary. The award was based upon WE's actual performance versus the specific company-wide operational and financial performance goals cited above in the Program Components section. hir. Abdoo's award was also based on the degree to which his 1993 individual goals were achieved. Ilis principal goals related to achieving a safe and effective operation of WE's Point Beach Nuclear Plant, achieving a satisfactory earnings level for WE, and providing leadership to ensure that WE operates in an environmentally responsible, community-minded manner to improve the quality of life in the areas it serves. hir. Abdoo's award was principally determined by achievement of the company-wide goals and was adjusted based on accomplishment of individual goals. The Committee weighted the company-wide perfornumee goals as cited above in the Program Components section; individual goals were weighted substantially equally with the exception of goals relating to fmancial performance, such as achievement of authorized rate of return on equity and target earnings, which were weighted somewhat higher.

)

With respect to the OSIP, in keeping with the Compensation Committee's philosophy as stated above, hir Abdoo was awarded stock options and related dividend performance units in 1993 as set forth in the "Long-Term Compensation Awards' column of the Summary Compensation Table to specifically link a portion of his compensation to the achievement of WE's longer-term goals. hfr. Abdoo's award was set by the Committee at approximately the 50th percentile as compared to industry grant practices. The award of dividend performance units will be paid if total WEC shareholder return (appreciation in the value of WEC common stock plus dividends) over a four year period ending December 14,1997 equals or exceeds the median return earned by the peer companies, except that there will be no payout if WEC's total shareholder return is negative over the course of such period.

The Committee also applied subjective judgment in evaluating the relative importance of the factors which were the basis for determining each component of hir. Abdoo's compensation (i.e., base salary, annual and long-term incentives) to determine precisely his salary and awards.

Compensation of Other Named Executive Officers The other four named executive officers each received merit increases during the fiscal year ranging from approximately 4% to 6% of base salary on an annualized basis. The Committee set such salaries at approximately the 50th percentile as compared to industry pay practices. Each salary was also adjusted to account for the factors listed in the Program Components section of this report pertaining to base salaries; such factors were weighted substantially equally.

~11e other four named executive officers are designated participants in the STPP. For fiscal year 1993, such officers received annual incentive awards as set forth in the " Bonus" column of the Summary Compensation Table. Their awards, which ranged between 11 % and 22% of consolidated base salary, were based upon criteria similar to those described for hir. Abdoo's annual incentive award. Each such award was principally determined by achievement of the company-wide goals and was adjusted based on accomplishment ofindividual goals. The Committee weighted the company-wide goals as cited above in the Program Components section; individual goals were weighted substantially equally with the exception of goals relating to financial performance, which were weighted somewhat higher.

10

Of the other four named executive officers, only Mr. Porter is a participant in the OSIP, Mr. Perter's long-term incentive compensation, awarded based upon criteria similar to those described for Mr. Atxico's long-term incentive award, is reflected in the %ng-Term Compensation Awards' column of the Summary Compensation Table. Mr.

Porter's award was set by the Committee at approximately the 50th percentile as compared to industry grant practices.

'Ihe Committee also applied subjectivejudgment in evaluating the relative importance of the factors which were the basis for determining each component of the named executive officers' compensation (i.e., base salary, annual and long-term incentives) to determine precisely their respective salaries and awards.

Compliance With New Tax Regulations Regarding Executive Compensatiun Section 162(m) of the Internal Revenue Code, added by the Omnibus Budget Reconciliation Act of 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to the corporation's chief executive officer and the other executive officers named in the Summary Compensation Table. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. WE's executive compensation program, as presently constructed, including the OSIP being submitted for WEC shareholder approval, is not likely to generate non-deductible compensation in excess of these limits. The Committee will continue to review these evolving tax regulations as they apply to WE's executive compensation pregram, it is the Committee's intent to preserve the deductibility of executive compensation to the extent reasonably practicable and to the extent consistent with its other compensation objectives.

Comnensation Committee Morris W. Reid (chair)

John F. Bergstrom Geneva B. Johnson John L. Murray Frederick P. Stratton, Jr.

Jon G. Udell RETIREMENT PLANS WEC's utility subsidiaries maintain separate retirement plans for management employees, including executive officers. WE's executive officers participate in the WE management employee retirement plan. The plans provide retirement income based upon years of credited service and final average annual compensation for the 36 highest consecutive months. The following table shows the estinuted annual pension benefits payable upon retirement to persons in various compensation and years-of service classifications:

PENSION PLAN TABLE Years of Service Remuneration 15 20 25 30 35 40

$50,000

$ 11,295

$ 15,060

$ 18,825

$ 22,590

$ 24,754

$ 26,918 100,000 24,233 32,311 40,389 48,467 53,068 57.670 150,000 37,172 49,562 61,953 74,344 81,383 88,422 200,000 50,108 66,811 83,514 100,217 109,693 119,170 250,000 63,045 84,060 105,075 126,090 138,004 149,918 300,000 75,983 101,311 126,639 151,967 166,318 180,670 400,000 101,858 135,811 169,764 203,717 222,943 242,170 500,000 127,733 170,311 212,889 255,467 279,568 303,670 600,000 153,608 204,811 256,014 307,217 336,193 365,170 700,000 179,483 239,31]

299,139 358,967 392,818 426,670 The compensation for the individuals listed in the Summary Compensation Table in the columns labeled " Salary',

• Bonus" and "All Other Compensation' is virtually equivalent to the compensation considered for purposes of the retirement plans and the various supplemental plans. Messrs. Abdoo, Boston, Gorske, Remmel and Porter currently have 18,11,25,39 and 24 credited years of service, respectively. Credited years of service under the retirement plans for certain individuals may be fewer than years of service with the companies as reported in the attached Annual Report to Stockholders. Retirement benefits are not subject to any deduction for Social Security or other 11

offset since they are computed using a step-rate formula which provides a Social Security integrated benefit based upon percentages of the average of the participant's highest 36 consecutive months of compensation for up to 30 years of credited service with additional (lower) percentages of compensation in excess of 30 years up to a maximum of 10 years. The Supplementai Executive Retirement Plan (described below) provides designated participants a "make whole* benefit equal to acy decrease in pension which may have resulted when the retirement plans adopted the step-rate formula. Such "makt whole" benefit will be paid as a pension supplement out of general corporate assets.

Designated s.ted officers of WEC and the utility subsidiaries, including WE, participate in the Supplemental Executive Retirement Plan (SERP). The SERP provides a supplemental pension benefit to participants, which will be paid out of corporate assets, equal to the difference between the actual pension benefit payable under the management employee retirement plan and what such pension benefit would be if calculated without regard to any limitation imposed by the Internal Revenue Code on pension benefits or covered compensation. The SERP also heretofore provided for monthly payments of benefits for a period of ten years to the participant after retirement or to his/her beneficiaries in the event of the participant's death equal to 12.5 % (25 % upon death of the participant) of the average of the participant's highest 36 consecutive months of compensation from the employing company.

No such payments are made until after the retirement or death of the participant. Effective January 1,1994 this SERP benefit will be calculated so as to provide participants instead with a lifetime annuity, estimated to amount to between 8 % and 10 % of final average compensation depending on which pension payment option is selected, that is actuarially equivalent to the value of the benefit as described above.

WEC has entered into an agreement with Mr. Abdoo and WE has entered into agreements with Messrs. Boston and Gorske, who cannot accumulate by normal retirement age the maximum number of years of credited service under the management employee retiremo plans. According to these agreements, Messrs. Abdoo, Boston and Gorske at retirement will receive %demental retirement payments which will make their total retirement benefits at age 60 or older substantially the same as those payable to employees who are in the same compensation bracket and who became plan participants at the age of 25. On October 27,1993, resolutions were adopted authorizing amendments to these agreements, the SERP and the Executive Deferred Compensation Plan to provide for establishment of a grantor trust to fund such agreements and plans and to provide for optional lump sum payments and, in the instance of a change in control, mandatory lump sum payouts without egard to whether the executive's employment has terminated. In each case, the interest rate benchmark formula for calculating the lump sum amount is the five-year U. S. Treasury Security yield as of the last business day of the month prior to date of payment.

AVAILABILITY OF FORM 10-K The Wisconsin Electric Power Company Form 10-K report for 1993 to the Securities and Exchange Commission is available at no cost by writing to WE's Secretary, Ann Marie Brady,231 West Michigan Strat, P.O. Box 2046, Milwaukee, Wisconsin $3201.

12

WISCONSIN ELECTRIC POWER COMPANY 1993 ANNUAL REPORT TO STOCKHOLDERS ACCOMPANYING INFORMATION STATEMENT TABLE OF CONTENTS IIfM EARE Business A-2 Market for Common Equity and Related Stockholder Matters A-2 Selected Financial Data......................... A-3 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. A-4 Income Statement

............................ A-14 Statement o f C a sh Fl ows......................... A-15 Balance Sheet.............................. A-16 Capitalization Statement

........................ A-18 Common Stock Equity Statement...................... A-19 l

Notes to Financi al Statements...................... A-20 Directors................................ A-33 Executive Officers

........................... A-33 A-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 12,600 square miles with a population estimated at over 2,000,000 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 i

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.

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.

MARKET FOR 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 1992 1

$16,250,000 2

$16,250,000 3

$16,250,000 4

$16,250,000 1993 1

$16,250,000 2

$16,250,000 3

$16,250,000 4

$16,250,000 A-2

SELECTED FINANCIAL DATA FINANCIAL 1993 1992 1991 1990 1989 (Thousards of Dollars)

Earnings avaltable f or conrnon st ockholder 5 173,548

$ 155,826

$ 175,641 S 179,990

$ 184,354 Ogerating revenues:

Electric

$1,347,844

$1,298,723

$1,292,809 51,208,045

$1,245,701 Steam 14,090 13,093 12,986 12,126 12,292 Total operating revenues

$1,361,934

$1,311,816

$1,305,795 51,220,171

$1,257,993 Total assets

$3,693,556

$3,285,845 S3,052,133

$2,972,903

$2,967,006 Long-term debt and preferred stock-redenption required

$1,193,994

$1,195,210

$1,110,572

$1,002,852

$1,016,197 SALES AND CUSTOMERS 1993 1992 1991 1990 1989 Electric Megawatt hours sold 25,685,436 24,747,581 25,016,247 23,656,727 24,293,356 Customers (End of year) 932,285 919,466 907,871 896,393 882,883 Steam Pounds sold (millions) 2,376 2,284 2,282 2,213 2,160 Customers (End of year) 459 472 468 470 482 QUARTERLY flNANCIAL DATA Three Months Ended March Jme 1993 1992 1993 1992 (Thousands of Dollars)

Total operating revenues

$339,651 5335,963

$323,416 S315,163 operating incone S 63,087 $ 58,638

$ 47,733 5 45,404 Earnings available for consnon stockholder S 44,806 5 43,244 5 29,835 $ 30,421 Three Months Ended Septemer Decentaer 1993 1992 1993 1992 (Thousands of Dolu )

Total operating revenues

$355,436 $329,374 5343,431 $331,316 Operating income S 68,489 $ 58,778 5 63,528 *. 57,176 Earnings available for coninon stockholder S 51,707 $ 42,204 5 47,200 S 39,957 The quarterly results of operations are not directly conparable because of seasonal and other factors. See Management's Discussion and Analysis for further discussion.

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

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Earnings Earnings for Wisconsin Electric increased to $173,548,000 in 1993 compared to

$155,826,000 in 1992 primarily because of higher kilowatt-hour :; ales.

Electric energy sales were positively impacted by, among other t hings, significantly warmer weather during -the summer of 1993. The lrerease in revenues attributable to the increased energy sales and the various rate increases effective during 1993 were partially offset by increases in non-fuel related operation and maintenance expenses and higher interest charges.

Electric Sales and Revenues Total electric sales of Wisconsin Electric, detailed below by customer class, l

increased 3.8 percent in 1993 compared to 1992 reflecting, among other things, the weather-related increase in sales to other utilities discussed below.

l Electric energy sales were positively impacted by, among other things, the significantly warmer summer weather experienced during the third quarter.of 1993 which resulted in an increased use of electricity for air conditioning and other cooling purposes. The warmer than normal summer of 1993 contrasted sharply with the summer of 1992, the coolest since Wisconsin Electric began keeping records in 1948. Sales were also positively impacted by colder winter weather during the first quarter of 1993.

The 3.8 percent increase in electric revenues achieved during 1993 over 1992 reflects the increase in kilowatt-hour sales and the net increases in electric rates effective in 1993.

Electric Sales - Megawatt Hours 1993 1992

% Change Residential 6,551,061 6,230,136 5.2 Small Lemmercial and Industrial 6,357,510 6,154,530 3.3 Large Commercial and Industrial 9,771,383 9,702,303 0.7 Other 1,776,061 1,995,349 (11.0)

Total Retail and Municipal 24,456,015 24,082,318 1.6 Resale-Utilities 1,229,421 665,263 84.8 Total Sales 25,685,436 24,747,581 3.8 Electric energy sales to the Empire and Tilden iron-ore mines, Wisconsin Electric's two largest customers, were 9.5 percent lower in 1993 compared to-1992.

This decrease is attributable to a five-week long mine employee strike during the third quarter of 1993. Wisconsin Electric's contracts with the A-4

mines require the payment of a demand charge regardless of power usage which partially offset the impact of lost sales on revenues.

Excluding the mines, sales to large commercial and industrial customers increased 3.7 percent in 1993.

Sales to the mines re,nr-en'.co 7.8 percent, 9.0 percent and 8.3 percent of total electric sales during 1993, 1992 and 1991, respectively.

The 84.8 percent increase in the resale of energy to other utilities is attributable to unseasonable weather in the east and south and to the severe flooding which hit the midwestern states during the summer of 1993.

This percentage change is not indicative of future sales growth in this customer class.

The 11.0 percent reduction in sales to the Other customer class is largely the result of reductions in sales to The Wisconsin Public Power, Inc. SYSTEM

("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 during 1993, further reducing its reliance on energy purchases from Wisconsin Electric. Additional reductions are expected in 1994 and beyond.

l These sales reductions are not expected to have a significant effect on future I

earnings.

Sales to WPPI during 1993, 1992 and 1991 were approximately 944,000 megawatt-hours ("MWh"), 1,166,000 MWh and 1,338,000 MWh, respectively.

In addition to the revenues provided by the higher kilowatt-hour sales, the 3.8 percent increase in electric revenues during 1993 includes the impacts of rate changes which were effective during 1993, as shown in " Rates and Regulatory Matters".

Total electric kilowatt-hour sales increased at a compound annual rate of 1.3 percent between the years 1991 and 1993, while electric revenues increased at a compound annual rate of 2.1 percent during this period.

Excluding the mines, total electric kilowatt-hour sales increased at a compound annual rate of 1.6 percent between the years 1991 and 1993 and revenues increased at a compound annual rate of 2.5 percent.

Electric revenues were slightly higher, 0.5 percent, in 1992 compared to 1991 despite a 1.1 percent reduction in electric kilowatt-hour sales, primarily because of not increases in Wisconsin and non-mine Michigan retail electric rates.

Excluding the mines, total electric sales in 1992 decreased 1.7 percent compared to 1991.

Electric Operation and Maintenance Expenses Total electric operating expenses, excluding income taxes and depreciation, were $18 million higher in 1993 compared to 1992. This increase largely reflects an increase in postretirement benefit costs associated with the adoption of Statement of Financial Accounting Standards No.106 ("FAS No. 106")

" Employers' Accounting for Postretirement Benefits Other Than Pensions" (see Note D to the Financial Statements - Benefits Other Than Pensions), growth in conservation related expenditures associated with l

A-5

improving the efficiency of customers' electric energy usage and maintenance expenditures related to the renovation of the Port Washington Power Plant.

The increases in other operation expenses and maintenance were partially offset by lower fuel and purchased power expenses due to lower average per unit generation and purchased power costs.

While depreciation during 1993 increased 1.3 percent compared to 1992, largely reficcting higher depreciable plant balances and lower decommissioning payments, the 11.2 percent increase in depreciation during 1992 compared to 1991 is primarily the result of higher depreciable plant balances and higher authorized depreciation rates effective January 1992. Additionally, Taxes Other the Income Taxes were higher during 1992 compared to 1991 largely due to a $5 million one-time ad valorem tax credit recognized in 1991 and an increase in the 1992 Wisconsin License fee on gross revenues.

Since 1991, operating expenses, excluding income taxes and depreciation, have increased at a compound annual rate of 1.9 percent, reflecting increases in non-fuel related operation and maintenance expenses which were largely offset by reductions in fuel and purchased power expenses.

Other Items 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 program and the amortization of premiums associated with the debt securities refinanced during 1992 and 1993.

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 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.

This "reengineering" and restructuring of the business systems will lead to a i

reduction in the total Wisconsin Electric / Wisconsin Natural workforce.

Effective in early 1994, employees have the option of choosing a voluntary 1

separation package. An early retirement option also has been offered to qualified employees. As a result, it is currently estimated that Wisconsin Energy's utility subsidiaries will incur non-recurring reorganization charges aggregating between $30 to $75 million during 1994.

The portion attributable to Wisconsin Electric is currently estimated to be between $27 and $65 million.

See Note D to the Financial Statements - Benefits Other Than Pensions, for additional information.

It is expected that these costs will be offset, before the end of 1995, by the reductions in future operating costs that these programs will achieve.

In addition to the corporate restructuring at Wisconsin Electric and Wisconsin Natural, as part of this revitalization effort, Wisconsin Energy announced its intent to merge the two companies to form a single combined utility

/

A-6

)

subsidiary. The proposed merger will accomplish the goal of improved customer service and will also enable the reduction of operating costs.

The merger, which is anticipated to be effective by year-end 1994, will be subject to a number of conditions, including regulatory and other approvals.

Rates and Regulatory Matters The following table 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 Public Service Commission of Wisconsin ("PSCW") regulates Wisconsin retail electric and steam rates, while the FERC regulates wholesale electric rates. The Michigan Public Service Commission ("MPSC") regulates retail electric rates in Michigan.

The PSCW announced that it will discontinue the practice of conducting annual rate case proceedings, replacing it with a new schedule l

which calls for future rate cases to be conducted once every two years.

In April 1993, Wisconsin Electric filed required data with the PSCW relating to the 1994 test year indicating a need to raise retail rates. However, 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 has indicated that it has no current plans to seek an increase in rates for 1994 and 1995.

Because of the PSCW's newly adopted biennial rate case schedule, Wisconsin Electric's next rate case would be filed in mid-1995 for rates to be effective in 1996.

Revenue Percent Increase Change in Effective Company / Service (Decrease)

Rates Date Wisconsin Electric fuel electric, WI

$(24,207,000)

(2.1) 05/29/92 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 Under the Wiscnnsin 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.

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.

A-7

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 1.1 percent over the five-year period ending December 31, 1998.

This forecast is subject to a number of variables, including the economy and weather, which may affect the actual growth in sales.

LIQUIDITY AND CAPITAL RESOURCES Investing Activities Wisconsin Electric invested'$986 million in its business during the three years ended December 31, 1993.

The investments made during this three year period include construction expenditures for new or improved facilities totaling $820 million, net capitalized conservation expenditures of $86 million, purchases of nuclear fuel at $57 million and payments to an external trust for the eventual decommissioning of Wisconsin Electric's Point Beach Nuclear Plant totaling $51 million.

In July 1993, Wisconsin Electric placed in-service two units, or approximately 1,

150 megawatts of capacity, at its new Concord Generating Station, a four unit, approximately 300 megawatt natural gas-fired combustion turbine facility designed to meet peak demand requirements.

Capital expenditures of $35 million, $47 million and $13 million were made during 1993, 1992 and 1991, respectively, for the construction of this facility.

The two remaining units, or approximately another 150 megawatts of capacity, are expected to be placed in-service during the summer of 1994.

The total cost of this project is currently estimated at $108 million. Wisconsin Electric has firm capacity purchased power contracts intended to maintain adequate reserve margins prior to complet b of this facility.

Additionally, during 1993 Wisconsin Electric started work related to the construction of the new Paris Generating Station, also a four unit, approximately 300 megawatt 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 $105 million.

Capital expenditures of $28 million were made for work performed on this project during 1993.

The PSCW has allowed Wisconsin Electric to earn a current return on construction work in progress ("CWIP") related to the construction of the Concord and Paris power plants.

Wisconsin Electric is nearing completion of the renovation work at its Port Washington Power Plant, which includes upgrading the turbine generators and boilers and the installation of additional emission control equipment.

With units 1 and 2 completed during 1993 and unit 3 completed in 1992, the project will conclude with the completion of the unit 4 work during the summer of 1994. The total cost of this project is currently estimated at $109 million.

A-8 l

1 Capital Resources During the five-year forecast period ending December 31, 1998, Wisconsin Electric expects internal sources of funds from operations, after dividends to the company, to provide about 78 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 1994 and 1997.

Clean Air Act The 1990 Amendments to the Clean Air Act mandate significant nationwide reductions in nitrogen oxide (NO,) and sulfur dioxide (SO,) emissions to address acid rain and ozone control requirements.

Wisconsin Electric's strategy for complying with the requirements which become effective in 1995 calls for the use of low sulfur coal and the installation of low NO, burners and continuous emission monitoring equipment at its Oak Creek Power Plant.

Equipment costs, which are not expected to exceed $9 million based on today's costs, along with additional operating expenses are expected to increase electric rates by less than 1 percent.

Wisconsin Electric projects a surplus of S0, allowances and is also seeking additional S0, allowances which may be available as a result of its energy conservation programs. As an integral component of its least-cost 50, emission compliance plan, Wisconsin Electric has been active in S0, allowance trading.

Revenues from the sale of surplus allowances are being used to offset future rate increases.

Wisconsin Electric's strategy for complying with the requirements which become effective after 1995 includes installation of continuous emission monitoring equipment on the remaining company boilers, fuel switching and installation of NO, control equipment, if needed. With an estimated cost not to exceed $75 million based on today's costs, this compliance strategy could increase rates by I to 2 percent.

A-13

WISCONSIN ELECTRIC POWER COMPANY INCOME STAfEMENT Year Ended December 31 1993 1992 1991 (Thousands of Dollars)

Operating Revenues Electric

$1,347,844

$1,298,723

$1,292,809 Steam 14.090 13,093 12,986 Total Operating Revenues 1,361,934 1,311,816 1,305,795 operating Expenses Fuel (Note B) 263,385 266,716 291,271 Purchased power 54,880 63,745 65,261 Other operation expenses 341,748 318,253 295,654 Maint enance 149,247 143,618 136,142 Depreciation (Note E) 150,831 148,967 133,997 Taxes other than income taxes 68,969 68,380 57,916 Federal income tax (Note F) 68,239 61,235 73,854 State income tax (Note F) 13,887 14,783 16,889 Deferred income taxes - net (Note F) 12,034 10,0&3 6,148 investnent tax credit - net (Note F)

(4,123)

(3,960)

(4,381)

Total Operating Expenses 1,119,097 1,091,820 1,072,751 operating income 242,837 219,996 233,044 Other Income and Deductions Interest income 13,351 13,624 15,688 Allowance for other funds used during construction (Note C) 8,453 6,936 7,227 Miscellaneous - net 9,638 6,547 6, 64 9 Federal incomo tax (Note F)

(1,718)

(1,127)

(1,292)

State income tax (Note F)

(811)

(630)

( 843)

Total other Income and Deductions 28,913 25,350 27,429 income Bef ore Interest Charges 271,750 245,346 260,473 Interest Charges Long-term debt 96,110 84,84 3 77,615 other interest 2,450 2,414 4,849 Allowance for borrowed funds used during construction (Note G)

(4, 735 )

(3,693)

(3,560)

Total interest Charges 93,825 83,604 78,904 Net income 177,925 161,742 181,569 Pref erred Stock Dividend Requirement 4,3 77 5,916 5,928 Earnings Available f or Conynon S t ock holder 5 173,548 s 155,826

$ 175,641

)

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

See hotes to Financial Statements.

A-14

WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASH FLOWS Year Ended December 31 1993 1992 1991 (Thousards of Dollars)

Operating Activities Net income

$177,925

$161,742

$181,569 Reconcillation to cash Depreciation 150,831 148,967 133,997 Nuclear fuel expense - amortization 21,366 20,818 22,139 Conservation expense - amortization 15,254 13,009 10,175 Debt premiun, discount & expense -

amortization 12,813 4,483 2,857 Deferred income taxes - net 12,034 10,083 6,148 Investment tax credit net (4,123)

(3,960)

(4,381)

Allowance for other funds used during construction (8,453)

(6,934)

(7,227)

Change in Accounts receivable (16,981) 9,993 (6,308)

Inventories 15,181 (5,294) 11,670 Accounts payable 11,620 9,195 (6,790)

Other current assets 3,231 (10,073)

(2,413)

Other current tiobilities 15,453 (3,664) 3,452 other (5,176) 8,272 (3,633)

Cash Provided by Operating Activities 400,975 356,635 341,255 l

Investing Activities construction expenditures (310,513)

(293,589)

(215,446)'

Allowance for borrowed funds used during construction (4,735)

(3,653)

(3,560)

Nuclear fuel (20,016)

(17,709)

(19,728)

Nuclear decomissioning trust (11,371)

(20,212)

(19,358)

Conservation investments - net (35,252)

(31,087)

(19,986) l Change in construction funds held by trustee 3,006 1,930 37,813 Other (1,926)

(746)

(15)

Cash used in Investing Activities (380,807)

(365,066)

(240,280)

Financing Activities sate of long-term debt 361,049 567,360 124,221 Retirement of long-term debt (328,771)

(495,940)

(27,552)

Change in short-term debt 44,179 34,820 (16,900)

Retirement of preferred stock (65,504)

(2,035)

Dividends on stock - comon (65,000)

(65,000)

(167,745)

- preferred (4,729)

(5,928)

(5,928)

Cash Provided by (Used in) Financing Activities (58,776) 33,277 (93,904)

Change in Cash and Cash Equivalents

$(38,608)

$ 24,846

$ 7,0 71 23333333 333223333 3333233B Supplemental information disclosures:

Cash Paid For interest (net of amount capitalized)

$ 77,357

$ 82,193

$ 78,332 Income taxes 94,103 82,126 90,981 I

See Notes to financial Statements.

A-15

^

WISCONSIN ELECTRIC POWER COMPANY BALANCE SHEET December 31 ASSETS 1993 1992 (Thousands of Dollars)

Utility Plant Electric

$4,079,794

$3,821,490 Steam 39,113 33,177 4,118,907 3,854,667 Accumulated provision for depreciation (1,784,110)

(1,668,264) 2,334,797 2,186,403 Construction work in progress 208,834 181,451 Nuclear fuel - net (Note B) 52,665 53,800 Net Utility Plant 2,596,296 2,421,654 Other Property and Investments Nuclear decommissioning trust fund (Note B) 214,421 203,050 Construction funds held by trustees 20,550 23,556 Conservation investments 136,995 117,964 Other 3,491 3,482 Total Other Property and Investments 375,457 348,052 Current Assets Cash and cash equivalents 13,421 52,029 Accounts receivable, net of allowance for doubtful accounts - $7,201 and $6,842 91,849 74,868 Accrued utility revenues 89,306 92,328 Fossil fuel (at average cost) 57,955 70,122 Materials and supplies (at average cost) 69,357 72,371 Prepayments 47,939 47,117 Other assets 5,873 6,904 Total Current Assets 375,700 415,739 Deferred Charges and Other Assets Accumulated deferred income taxes (Note F) 97,788 61,396 Deferred regulatory assets (Note A) 191,969 Other 56,346 39,004 Total Deferred Charges and Other Assets b46,5bb 5bb,kbb Total Assets

$3,693,556

$3,285,845 See Notes to Financial Statements.

A-16

---______-_--_____-._mm___.._.-

WISCONSIN ELECTRIC POWER COMPANY BALANCE SilEET December 31 CAPITAllZATION AND LIABILITIES 1993

'1992 (Thousands of Dollars)

Capitalization (See Capitalization Statement)

Common stock equity

$1,399,686

$1,294,099 Preferred stock - redemption not required 30,451 30,451 Preferred stock - redemption required 5,250 67,900 Long-term debt (Note J) 1,188,744 1,127,310 Total Capitalization 2,624,131 2,519,760 Current Liabilities Long-term debt due currently (Note J) 19,254 19,633 Notes payable (Note K) 117,903 73,724 Accounts payable 81,630 70,010 Payroll and vacation accrued 26,058 26,018 Taxes accrued - income and other 14,422 11,706 Interest accrued 21,295 17,023 Other 13,238 4,813 Total Current Liabilities 293,800 222,927 Deferred Credits and Other Liabilities Accumulated deferred income taxes (Note F) 444,717 415,076 Accumulated deferred investment tax ciedits 91,495' 96,233 Deferred regulatory liabilities (Note A) 167,403 Other 72,010 31,849 Total Deferred Credits and Other Liabilities 775,625 543,158 Commitments and Contingencies (Note N)

Total Capitalization and Liabilities

$3,693,556

$3,285,845 See Notes to financial Statements.

A-17

_=

WISCONSIN ELECTRIC POWER COMPANY CAPITALIZATION STATEMENT December 31 1993 1992 (Thousands of Dotters)

Cwman Stock Equity (See Comon Stock Equity Statement)

Common stock ($10 par value; authorized 65,000,000 shares; outstanding - 33,289,327 shares)

S 332,893

$ 332,893 Other paid in capital 139,673 142,527 Retained earnings 927,120 818,679 Total Common Stock Equity 1,399,686 1,294,099 Preferred Stock Cunulative 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 - Redenption Not Required (Note !)

30,451 30,451 6.75% Series - 52,500 shares and 679,000 shares 5,250 67,900 Total Preferred Stock - Redemption Regulred (Note 1) 5,250 67,900 Long-Term Debt 1

First mortgage bonds i

Series Due 4 1/2%

1 976 30,000 5 7/8%

1996 27,726 5 7/8%

1997 130,000 130,000 5-1/8%

1998 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 8 1/2%

2016 100,000 6.85 %

2021 9,000 9,000 7 3/4%

2023 100,000 9.85 1 2023 100,000 7.05 %

2024 60,000 9-1/8%

2024 3,443 60,000 8 3/8%

2026 100,000 100,000 7.70 %

2027 200,000 200,000 1,121,793 1,056,076 Note (unsecured) variable rate due 2016 67,000 67,000 Obligations under capital lease (Note B) 41,870 42,604 Urmnortized discount - net (22,665)

(18,737)

Long term debt due currently (19,254)

(19,633)

Total Long term Debt (Note J) 1,188,744 1,127,310 Total Capitalization

$2,624,131 S2,519,760 sassassess massssssas See Notes to Financial Statements.

A-18

m t.

WISCONSIN ELECTRIC POWER COMPANY COMMON STOCK EQUITY STATEMENT Conunon Stock Comnon Stock Other Paid Retained Shares

$10 Par Value in Capital Earnings Total (Thousands of Dollars)

Balance - Deceaber 31, 1990 33,289,327

$332,893 S142,462

$704,969

$1,180,324 Net income 181,569 181,569 Cash dividends ccvmon stock (152,745)

(152,745)

Preferred stock (5,928)

(5,928)

Balance - Decenber 31, 1991 33,289,327 332,893 142,462 727,865 1,203,220 Net income 161,742 161,742 Cash dividends coninon stock (65,000)

(65,000)

Preferred stock (5,928)

(5,928)-

Other 65 65 Balance - Dececber 31, 1992 33,289,327 332,893 142,527 818,679 1,294,099 Net income 177,925' 177,925 Cash dividends coninon stock (65,000)

(65,000)

Preferred stock (4,729)

(4,729)

Purchase of Preferred Stock

2,854)

(2,854)

Other 245 245 Balance Decenter 31, 1993 33,289,327 S332,893

$139,673

$927,120

$1,399,686

s=========

==

=== ssas ass===ss

=====sassa See Notes to Financial Statements.

A-19

WISCONSIN ELECTRIC POWER C0tiPANY 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 G).

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 nas 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.

The 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 F.

A-20

4 Statement of Cash Flows Cash and cash equivalents include ~ marketable debt securities acquired three months or less from maturity.

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 - Nuclear _ Operations 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:

1993 1992 1991 (Thousands of Dollars)

Nuclear Fuel Under capital lease

$'91,201 5 92,807 Accumulated provision for amortization (54,207)

(54,786)

In process / stock 15,671 15,779 Total nuclear fuel

$ 52,665 $ 53,800 Interest expense on nuclear fuel lease

$ 1,697 $ 2,098 $ 3,174 i

A_21 4

r

-n-y

,----------e,-

.n.

,,, n

i i

l The future minimum lease payments under the capital lease and the present

'l value of the net minimum lease payments as of December 31, 1993 are as follows:

(Thousands of Dollars) j 1994

$20,335 1995 12,992 1996 7,559 1997 2,881 1998 538 Total Minimum Lease Payments 44,305 Less: Interest (2,435)

Present Value of Net Minimum Lease Payments

$41,870 The estimated cost of disposal of spent fuel based on a contract.with the U.S.

Department of Energy (00E) is included in nuclear fuel expense.

The Energy Policy Act of 1992 establishes a Uranium Enrichment Decontamination and Decommissioning fund (fund) for the D0E's nuclear fuel enrichment facilities.

Deposits to the fund will be derived in part from special assessments to i

utilities. The company has booked the remaining estimated liability of

$36,774,000, which will be assessed over fourteen years. Assessments are included in nuclear fuel expense and reflected in utility rates.

Nuclear plant decommissioning is accrued as depreciation expense based on an external sinking fund method.

Total decommissioning.is currently estimated at

$280 million in 1993 dollars and is subject to periodic review.

l The Price-Anderson Act (Act) provides an aggregate limitation of $9.4 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 $2.2 billion for loss from damage at the Point Beach Nuclear. Plant-with Nuclear Mutual Limited (NHL), Nuclear Electric. Insurance Limited (NEIL),

American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters.

Under the NML and NEIL policies, the company has potential maximum retrospective premium liability per loss of $7.0 million and $14.2 million, respectively.

A-22

---4 A-Ah-r

.ma; 544.

a 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 67% of the amounts during the second and

-third years. - Under the policy, the company's maximum retrospective premium liability is approximately $8.9 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.

C - 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 and 1991, the PSCW recognized funded amounts for ratemaking and the company charged the following amounts to expense as paid, $3,962,000 and i-

$3,739,000, respectively.

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, guaranteed investment contracts and real estate. The plans are funded to meet the requirements of the Employee Retirement Income Security Act of 1974.

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.

1 7

I i

A-23 4,...

m m,,

e Pension Cost calculated per FAS 87 1993 1992

_1991 (Thousands of Dollars)

Components of Net Periodic Pension Cost,

-Year Ended December 31 -

Cost of pension benefits earned by employees 9,185 8,290

$ 7,523 Interest cost on projected benefit obligation 31,650 28,874 27,394 Actual return on plan assets (37,846)

(14,090)

(88,243)

Net amortization and deferral 1,176 (30,216) 51,694 Total pension cost (credit) calculated under FAS 87 4,165 (7,142)

$ (1,632)

Actuarial-Present Value of Accumulated Benefit Obligation, at December 31 -

Vested benefits-employees' right to receive benefit no longer contingent upon continued employment

$ 343,265

$ 304,769 Nonvested benefits-employees' right to receive benefit contingent upon continued employment 6,124 5,905 Total obligation

$ 349,389

$ 310,674 Funded Status of Plans: Pension Assets and Obligations at December 31 -

Pension assets at fair market value

$ 483,391

$ 461,954 Projected benefit obligation at present value (437,461)

(379,587)-

Unrecognized transition asset (25,497)

(27,937)

Unrecognized prior service cost 143 14,980 Unrecognized net gain (954)

(50,112)

Projected status of plans

$ 19,622

$ 19,298 Rates used for calculations (%) -

Discount Rate-interest rate used to adjust for the time value of money 7.5 8.0 8.0 Assumed rate of increase i

in compensation levels 5.0 5.0 5.0 Expected long-term rate of return on pension assets 9.0 9.0 9.0 l

i 1

D - 8enefits Other Than Pensions i

In January 1993, the company adopted prospectively Statement of Financial Accounting Standards No. 106, Employers' Accounting for.Postretirement Benefits ~0ther Than Pensions (FAS 106), and elected the 20 year option for A-24 l.~

'D iMs

amortization of the previously unrecognized accumulated postretirement benefit obligation. The PSCW has issued an order recognizing FAS 106 for ratemaking; I

therefore, adoption has no material impact on net income. For years prior to 1993 the cost of these postretirement benefits was expensed when paid and was

$4,151,000 in 1992, and $4,365,000 in 1991.

The company sponsors defined benefit postretirement plans that cover both salaried and nonsalaried employees who retire at age 55 or older with at least i

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.

l A-25

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

Components of Net Periodic Postretirement Benefit Cost, Year Ended December 31, 1993 -

Cost of postretirement benefits earned by employees 2,291 Interest cost on projected benefit obligation 8,404 t

Actual return on plan assets (2,096)

Net amortization and deferral 4,161 Total postretirement benefit cost calculated 12,760 under FAS 106 Funded Status of Plans: Postretirement Obligations and Assets at December 31 -

Accumulated Postretirement Benefit Obligation at December 31, 1993 -

Retirees

$ (57,061)

Fully eligible active plan participants (13,434)

Other active plan participants (43,485)

Total obligation (113,980)

Postretirement assets at fair market value 26,216 j

Accumulated postretirement benefit obligation in excess of plan assets (87,764)

Unrecognized transition obligation 77,943 Unrecognized net loss 4,981 Accrued Postretirement Benefit Obligation

$ (4,840)

Rates used for calculations (%) -

Discount Rate-interest rate used to adjust for the time value of money 7.5 Assumed rate of increase in compensation levels 5.0 Expected long-term rate of return on postretirement assets 9.0-Health care cost trend rate 14.0 declining to 5.0 in 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, 1993 by $7,900,000 and the aggregatelof the service and interest cost components of not periodic postretirement benefit cost for the year then ended by $900,000.

A-26

Statement of Financial Accounting Standards No. 112, Employers' Accounting for Postemployment Benefits (fAS 112), was issued in 1992.

This statement establishes standards of financial accounting and reporting for the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. The company adopted FAS 112 prospectively for 1994.

It is anticipated that adoption will not have a material effect on net income.

The company has announced a Voluntary Severance Package (VSP) and Early Retirement incentive Program (ERIP) effective January 1994 and March 1994, respectively to eligible employees.

The availability of these plans to various bargaining units is based upon agreements made between the company and the unions. These plans are available to most management employees but not elected officers.

The VSP includes a severance payment, medical / dental insurance, outplacement l

services, personal financial planning and tuition support.

ERIP provides for a monthly income supplement, medical benefits, and personal financial planning.

It is estimated that 11-23% of total employees will elect one of these plans.

The estimated cost associated with these plans is $27,000,000 -

$65,000,000.

E - Depreciation l

Depreciation expense is accrued at straight line rates, certified by the PSCW, I

which include estimates for salvage and removal costs.

Depreciation as a percent of average depreciable utility plant was 3.9% in 1993, 4.1% in 1992, and 4.0% in 1991.

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

l l

l l

l A-27

. ~.

l F - Income Taxes Comprehensive interperiod ircome 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.

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.

1993 1992 1991 (Thousands of Dollars)

Current tax expense

$ 84,655

$ 77,775

$ 92,878 Investment tax credit-net (4,123)

(3,960)

(4,381)

Deferred tax expense 12,034 10,083 6,148 Total tax expense

$ 92,566

$ 83,898

$ 94,645

)

1 Income before income taxes

$270,491

$245,640

$276,214 Expected tax.at federal statutory rate

$ 94,672

$ 83,518

$ 93,913 State income tax net of federal tax reduction 10,808 12,242 13,820 Investment tax credit restored (4,738)

(4,071)

(4,394)

Other (no item over

)

5% of expected tax)

(8,176)

(7,791)

(8,694)

Total tax expense

$ 92,566

$ 83,898

$ 94,645 FAS 109 requires the recording of deferred assets and liabilities to recognize

-l 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. The company adopted FAS 109 prospectively in 1993.

Following is a summary of deferred income taxes as of December 31, 1993, after FAS 109 adoption, and December 31, 1992, prior to adoption.

A-28

1993 1992 (Thousands of Dollars)

Deferred Income Tax Assets Decommissioning trust

$ 44,888

'$'48,740

' Construction advances 30,777 9,371 Accrued vacation 6,692 Other 15,431-3,285 Total Deferred Income Tax Assets

$ 97,788

$ 61,396 Deferred Income Tax Liabilities Plant related

$383,796

$371,411 Conservation investments 51,882 43,665 Other 9,039 Total Deferred Income Tax Liabilities $444,717

$415,076 The company also has recorded deferred regulatory assets and liabilities of

$155,881,000 and $167,403,000, respectively, as of December'31,1993, which -

represent the future expected impact of deferred' taxes on utility revenues.

Adoption of FAS 109 had no material effect on net income.

G - 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 1993, 11.10% in 1992, and 11.16% in 1991, as approved by the PSCW.

H - Transactions with Associated Companies l

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.

The company also buys gas from Wisconsin Natural (WN), another subsidiary of Wisconsin Energy-Corporation, for electric generation at rates approved by the PSCW.

l A-29

~.

I 1 - 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 1993 the company called for redemption 626,500 shares of its~6.75% Series Preferred Stock at a purchase price of $104.05 per share plus accrued dividends to the redemption date.

In 1992 the company purchased 21,000 shares on the open market.

The 6.75% Series Preferred Stock has a redemption requirement of 21,000 shares at par value annually on each June 1 with a noncumulative option to redeem up to 31,500 additional shares annually.

J - Long-Term Debt The maturities through 1998 for the aggregate amount of long-term debt outstanding (excluding obligations under capital lease, see Note B) at December 31, 1993 are shown below.

1994 1995 1996 30,000,000 1997 130,000,000 1998-60,000,000 There are no sinking fund requirements for the years 1994 through 1998.

Substantially all utility plant is subject to the appilcable 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.

A-30 w-e w

,y y=.--+

-~.--,

... =w e

.-w

K - Notes Payable Short-term notes payable consist of:

December 31 1993-1992 (Thousands of Dollars)

Banks S 50,000 Commercial paper 67,903 73,724

$117,903

$ 73,724 Unused lines of credit for short-term borrowing amounted to $101,600,000 at December 31, 1993.

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.

L - Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments (FAS 107), requires, if practicable, disclosure of the fair value of financial instruments, both assets and liabilities recognized and not recognized in the balance sheet. The fair values provided below represent the amounts at which the financial instruments could have been exchanged between willing parties on December 31.

Fair value is estimated based upon the market value of the financial instrument or upon instruments with similar characteristics.

For most financial instruments held by the company, book value approximates fair value.

The value of financial instruments recognized on the balance sheet, for which book value does not approximate fair value, is as follows:

December 31 1993 1992 Book Fair Book Fair Value Value Value Value (Thousands of dollars)

Nuclear Decommissioning Trust Fund

$214,421

$231,991

$203,050

$213,049 First Mortgage Bonds 1,121,793 1,169,432 1,056,076 1,066,491 A-31

In 1993, the FASB issued Statement of Financial Accounting Standards No.115 (FAS 115), Accounting for Certain Investments in Debt and Equity Securities.

This standard addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities.

The company adopted FAS 115 prospectively in 1994.

It is anticipated that adoption will not have a material effect on net income.

M - Information by Segments of Business Year ended December 31 1993 1992 1991 (Thousands of Dollars)

Electric Operations Operating revenues

$1,347,844 $1,298,723 $1,292,809 Operating income before income taxes 329,727 299,902 323,075 Depreciation 149,646 147,859 132,912 Construction expenditures 305,467 292,031 212,408 Steam Operations Ore; ting revenues 14,090 13,093 12,986 Operating income before income taxes 3,147 2,235 2,479 Depreciation 1,185 1,108 1,085 Construction expenditures 4,940 1,530 2,803 Total Operating revenues 1,361,934 1,311,816 1,305,795 Operating income before income taxes 332,874 302,137 325,554 Depreciation 150,831 148,967 133,997 Construction expenditures (including nonutility) 310,513 293,589 215,446 At December 31 Net Identifiable Assets Electric

$3,665,536 $3,262,031 $3,028,283 Steam 25,119 20,972 20,963 Nonutility 2,901 2,842 2,887 Total Assets

$3,693,556 $3,285,845 $3,052,133 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".

A-32 m__________________

0 - Subsequent Event in January 1994, Wisconsin Energy corporation, the parent company of Wisconsin Electric, announced plans to raerge its wholly-owned natural gas utility subsidiary, Wisconsin Natural Gas Company, into Wisconsin Electric.

The merger, subject to requisite regulatory and other approvals, is anticipated to be effective by year-end 1994.

DIRECTORS The information in "Information Concerning Nominees for Directors" appearing on pages 2-3 of Wisconsin Electric's definitive Information Statement dated April 15,19'J4, attached hereto, is incorporated herein by reference.

EXECUTIVE OFFICERS (figures in brackets indicate age and years of service with Wisconsin Electric Power Company as of December 31, 1993.)

RICHARD A. ABD00 [49,18]

ROBER1 H. GORSKE [61, 29]

Chairman of the Board Vice President & General

' Chief Executive Counsel utficer ANN MARIE BRADY [41, 5]

J0llN W. BOSTON [60, 11]

Secretary President & Chief Operating Officer ANNE K. KLISURICH [46, 21]

Controller DAVID K. PORTER [50, 24]

Senior Vice President CALVIN H. BAKER [50, 2]

JERRY G. REMMEL [62, 38]

Vice President-Finance Chief financial Officer l

l 1

A-33 1

Eas sconsin Avenue Telephone 414 276 9500 Milwaukee, WI 53202 Price Hhierhouse J1EPORT OF INDEPENDENT ACCOUNTANTS To the lloard of Directors and Stockholders of Wisconsin Electric Power Company in our opinion, the accompanying balance sheet and capitalization statement and the irlated statements of income, of common stock equity and of cash flows present fairly, in all material respects, the financial position of Wisconsin Electric Power Company at December 31,1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31,1993, 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 statements in accordance with generally accepted auditing standards which rrquire that we plan and perform the audit to obtain seasonable 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. As discussed in the Notes to Financial Statements, the Company changed its method of accounting for income taxes and postretirement benefits effective January 1,1993.

We concur with these changes in accounting.

Mb January 26,1994

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