ML20082N545

Forwards 1994 Annual Rept to Stockholders,Including Certified Financial Statements

ML20082N545
Person / Time
Site:	Point Beach
Issue date:	04/20/1995
From:	Brady A WISCONSIN ELECTRIC POWER CO.
To:	Office of Nuclear Reactor Regulation
References
NUDOCS 9504250290
Download: ML20082N545 (51)

Text

f Wisconsin Electnc POWER COMPANY 231 W Michigan. PO Box 2046. MitwoukeeNA 53201 2046 (414)221 2345 April 20,1995 Director ofNucla.r 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 1994 annuti 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.

t Wisconsin Electric Power Company is the holder of Facility Operating License Nos. DPR-24 and DPR-27 issued by your Commission under Dockets 50-216 and 50-301, respectively.

Very t y y urs, Ann h ari rady Secreta l

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Mr. Gerald Charnoff Shaw, Pittman, Potts & Trowbridge 1

2300 N Street, N.W.

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Wisconsin Electnc POWER COMPANY I

231 W Mchegon. PO Bcm 2046 M40ukee.WI S32012046 (414)221-2345 April 21,1995

Dear Stockholder:

Wisconsin Electric Power Company will hold its annual meeting of stockholders at 9:00 a.m. on Tuesday, May 16,1995 at the Public Service Building Annex,333 West Everett Street, Milwaukee, Wisconsin. We are not soliciting proxies for this meeting, as over 99% of Wisconsin Electric's voting stock is owned, and will be voted, by its parent company, Wisconsin Energy Corporation. If you wish, you may attend the meeting and vote your shares of preferred stock; however, it will be a short business meeting only.

On behalf of the directors and officers of Wisconsin Energy, I invite you to attend Wisconsin Energy's annual meeting to be held Wednesday, May 17,1995 at 1:30 p.m. The Wisconsin Energy meeting will be held at the Bradley Center,1001 North Fourth Street, in downtown Milwaukee. By attending this meeting, you will have the opponunity to meet many of the Wisconsin Electric ofIicers 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. If you have any questions about the material presented or would like a copy of the Wisconsin Energy Corporation annual repon, please call our toll-free Stockholder Hotline at 1-800-558-9663.

Sincerely,

/

/

Richard A. Abdoo Chairman of the Board and Chief Executive Ollicer

@1Ms?-^ to primeed en verycke paper.

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NOTICE OF ANNUAL MEETING OF STOCKIIOLDERS April 21,1995 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 Annex,333 West Everett Street, Milwaukee, Wisconsin, on Tuesday, May 16,1995, at 9.00 a.m., for the following purposes:

1.

To elect a Board of Directors to hold office until the 1996 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 10,1995 will be entitled te vote at the meeting.

By Order of the Board of Directors Ann Marie Brady Secretary

Wisconsin Electnc POWER COMPANY 23t West Michigan Street P.u. ison 2046 Milwaukee, Wisconsin 53201 INFORMAT'ON STATEMENT and ANNUAL REPORT TO STOCKIIOLDERS INFORMATION STATEMENT This information statement is being furnished to stockholders beginning on or about April 21,1995 in connection with the annual meeting of stockholders of Wisconsin Electric Power Company ("WE") to be held on May 16, 1995, at WE's Public Service Building Annex,333 West Everett Street, Milwaukee, Wisconsin, and all I

adjournments of the meeting, for the purposes listed in the Notice of Annual Meeting of Stockholders. The WE annual report to stockholders accompanics this information statement.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. Ilowever, you may vote your shares of preferred stock at the meeting.

VOTING SECURITIES As of March 10,1995, WE had outstanding 44,508 shares of Six Per Cent. Preferred Stock; 260,000 shares of

$100 par value 3.60% Serial Preferred Stock; and 33,289,327 shares of common stock. Each outstanding share of each class is entitled to one vote. Stockholders of record at the close of business on March 10,1995 will be entitled to vote at the meeting. A majority of the shares entitled to vote shall constitute a quorum. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.

"Plurahty" means that the individuals who receive the largest number of votes are elected as directors up to the maximum number of directors to be chosen in the election. Therefore, any shares not voted, whether by withheld authority, broker non-vote or otherwise, have no effect in the election of directors.

All of WE's outstanding common stock, representing over 99% ofits voting securitics, is owned beneficially by its parent company, Wisconsin Energy Corporation (" Wisconsin Energy" or "WEC"). A list of stockholders of record entitled to vote at the meeting will be available for inspection by stockholders at WE's principal business office at 231 West Michigan Street, Milwaukee, Wisconsin, prior to and at the meeting 1

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In' formation Concerning Nomineen (For Terms Espiring in 1996)

RICIIARD A. AUDOO. Age 50. Chairman of the Board and Chief Executive Omccr of WE and Wisconsin Natural since 1990. Chairman of the Board, President and Chief Executive Omccr of WEC since 1991. President and Chief Executive Omccr of WE from January 1990 to June 1990. Executive Vice President of WEC from January 1990 to May 1991. Director of WE and Wisconsin Natural since 1989. Director of WEC since 1988.

Director of Marshall & lisicy Corporation, M&l Marshall & lisley Bank, ARI Network Services, Inc., Blue Cross

& Blue Shield United of Wisconsin and United Wisconsin Services, Inc.

JOlIN F. AIIEARNE. Age 60 Executive Director of Sigma Xi, The Scientific Research Scciety, an organization that provides grants to graduate students and conducts national meetings on major scientific issues, since 1989.

Adjunct Scholar of Resources for the Future, an economic research, non-profit institute, since 1993. Vice President and Senior Fellow of Resources for the Future from 1984 to 1993. Commissioner of the United States Nuclear Regulatory Commissmn from 1978 to 1983, serving as its Chairman from 1979 to 1981. Director of WEC and WE smcc 1994.

JOllN F. BERGSTROM Age 48. President and Chief Executive Officer of Bergstrom Corporation smcc 1974; Bergstrom Corporation ou ns and operates fifteen 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.

JOllN W. IlOSTON. Age 61. WEC Vice Chairman of the Board since January 1995. President and Chief Operating Omccr of WE from 1990 to 1994. Executive Vice President and Chief Operating Omccr of WE from January to June 1990 President and Chief Operatmg Omccr of Wisconsin Natural from Apnl to December 1994.

Vice President of WEC from 1991 to 1994. Director of WE smcc 1988. Director of WEC since 1991. Director of Wisconsm Natural from March to December 1994.

ROBERT A. CORNOG. Age 54. Chairman of the Board, President and Chief Executive Omccr of Snap-on incorporated. a tool manufacturer, since 1991. President of Macwhyte Company, a maker of wire rope and a subsidiary of Amsted Industries. from 1981 to 1991. Director of WE since 1994. Director of WEC since 1993.

Director of Snap-on incorporated and Johnson Controls, Inc.

RICil ARD R. GRIGG, JR. Age 46. President and Chief Operating Omccr of WE and Wisconsin Natural and Vice President of WEC since January 1995. Group Exccutive and Vice President of WE from June to December 1994. Vice President of WE from 1990 to 1994. Director of WE since 1994. Director of Wisconsin Natural since January 1995 GENEVA II. JOllNSON. Age 65 Corporate Director. President and Chief Executive Omcer of Family Service Amenca, an organization representing private agencies in the United States and Canada that provide human service programs. from 1983 to 1994. Director of WE and WEC since 1988. Director of Firstar Bank Milwaukee, N A.

DAVID K. PORT ER Age 51 Senior Vice President of WE and Vice President of Wisconsin Natural since 1989 Director of WE smee 1989. Director of Wisconsin Natural since 1988.

JERRY G. REMMEL Age M Chief Fmancial Omccr of WE, WEC and Wisconsm Natural since 1989. Vice President of WEC smce January 1994 Treasurer of WEC smcc 1981 Senior Vice President of WE and Vice President-Fmance of Wisconsin Natural from 1959 to 1993 Director of WE since 1989. Director of Wisconsin Natural smee 1958 3

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FREDERICK P. STRATTON, JIL Age 55. Chairman and Chief Executive Officer o Corporation, a manufa urer of small gasolme engines, since 1986. Director o Midwest Express A r1 nes, Inc. and WC)2 Group. Inc.or of Briggs & Stratto

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since 1987. Di

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Afnterprisc Center gelniversity of Wisconsir'-Madis59. Irwin MaicP JON G UDElI]l F

Co-Director of T to entreprencuria nianagement, since 193. Director of WE since 1977. Dire d the Federdor Loan Bank of Chicago from 1982 to 1989. Direct of the Board of D Tecid ps,Inc.

Products Corporation an OTilER M ATTERS e requirements timk followed should a stockholde The Board of Dire tors is not awan Bylaws set fod s

e E nominatens for director or Door pr h annual or special e

t 7( days before the ani"#"B-TOCK OWNERSillP OF DfTES, NOMINEES AND EXECUTIVE OFFICERS WE directors, noinir'ces and extekers as a group (21 persons) do not own any f WE as stock ofits parent company, Wisconsin Energy (less than 1% f o

's stock, but beneficially ow" rldlowing table lists the beneficial ownership of WEC commo WEC common stock outstandi o total d MVVc officer s f February 28,1995.

each director, noim s 9 Plus Investment Plan and WE's Manag individual's spouse 3

fiduciary capacity e na gs Plan (MESP")

N umber N

I i Number Name Shares Name oi dp 14.321 Geneva B. Johnson Shares p, p 101 John L Murray 2,167 yp a,000 David K. Porter 3,000 4.803 g,

Morris W. Reid g,7go p,gk 1,652 Jerry G. Remmel 3.273 1g 1,000 3

Frederick P. Stratton, Jr.

6,416 gge _

2.355 i Jon G. Udcll(1) 5,300 6.481 g

beneficial ownership of 2,936 of such shares.

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Wisconsin Electnc POWER COMPANY 231 West Michigan Street P.O. Box 2046 Milwaukee, Wisconsin 53201 INFORMATION STATEMENT and ANNUAL REPORT TO STOCKilOLDERS INFORM ATION STATEMENT This infortnation statement is being furnished to stockholders beginning on or about April 21,1995 in connection with the annual meeting of stockholders of Wisconsin Electric Power Company ("WE") to be held on May 16, 1995, at WE's Public Service Building Annex,333 West Everett Street, Milwaukee, Wisconsin, and all adjournments of the meeting, for the purposes listed in the Notice of Annual Meeting of Stockholders. The WE annual icport to stockholders accompanies this irformation statement.

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. Ilowever, you may vote your shares of preferred stock at the meeting.

l VOTING SECURITIES As of March 10,1995, WE had outstanding 44,508 shares of Six Per Cent. Preferred Stock; 260,000 shares of

$100 par value 3 60% Serial Preferred Stock; and 33,289,327 shares of common stock. Each outstanding share of each class is entitled to one vote. Stockholders of record at the close of business on March 10,1995 will be entitled to vote at the meeting. A majority of the shares entitled to vote shall constitute a quorum. Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.

" Plurality" means that the individuals who receive the largest number of votes are elected as directors up to the maximum number of directors to be chosen in the election. Therefore, any shares not voted, whether by withheld authority, broker non-vote or otherwise, have no effect in the election of directors.

All of WE's outstanding common stock, representing over 99% ofits voting securities, is owned beneficially by its parent company, Wisconsin Energy Corporation (" Wisconsin Energy" or "WEC"). A list of stockholders of record entitled to vote at the meeting will be available for inspection by stockholders at WE's principal business office at 231 West Michigan Street Milwaukee, Wisconsin, prior to and at the meeting.

1

RELATIONSillP WITil INDEPENDENT PUBLIC ACCOUNTANT Price Waterhouse LLP has acted as independent public accountant for WE or its predecessor continuously since 1932, and was appointed by WE's Board of Directors upon recommendation of Wisconsin Energy's board of directors to serve as such during the current 3 car. Representatives of the firm will not attend the annual meeting, but will be present at Wisconsin Energy's annual meeting on May 17,1995 to make any statement they may consider appropriate and to respond to questions which may be directed to them.

TIIE BOARD OF DIRECTORS AND ITS COMMITTEES The Board oIDirectors is responsible for overseeing the performance of WE. In 1994 the Board held nine meetings None of the incumbent directors attended less than 84% of the total number of meetings of the Board and the committees on u hich they served.

EITective Julh,1994, the Board of Directors elected Richard R. Grigg, Jr., President and Chief Operating Officer of WE, a director of WE to fill the vacancy created by the retirement on June 30,1994 of Robert H Gorske. Also, cffective November 1,1994, the Board of Directors increased the size of the Board to thirteen members and elected John F. Ahearne, Execunvc Director of Sigma Xi, The Scientific Research Society and former chairman of the Nuclear Regulatory Commission, as a director. Both directors were elected to serve until the 1995 Annual Mccting and until they are reelected or their respective successors are duly elected and qualified. In addition, Director Reid, pursuant to the Directors' Retirement Policy, is required to retire effective on the date of the 1995 Annual Meeting and Director Murray, who previously retired from his principal position as Chairman of the Board of Universal Foods Corporation, has indicated his intention to retire as a director effective with the end of his present term uhich expires at the 1995 Annual Meeting. In view of these pending retirements, the Board has indicated that it will decrease the siec of the Board effective on the date of the 1995 Annual Meeting.

WE has an Executive Committee and a Compensation Committcc; it does not have audit or nominating committecs. The Executive Committee, which did not meet in 1994, may exercisc all of the powers vested 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 vacancies on the Board or its committecs.

Directors Abdoo, Boston, Johnson, Reid and Udcll are regular members of the Executive Committec; all other directors are alternate members. The Compensation Committee, w hich met four times in 1994, determines compensation policies for executive 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. Directors Ahearne, Bergstrom, Cornog, Johnson, Murray, Reid, Stratton and Udcll are members of the Compensation Committee.

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ELECTION OF DIRECTORS At the 1995 annual meeting, there will be an election of cleven directors to hold office for a term of one year and until they are reelected or until their respect vc 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 l

meetmg, another nonunce or nominees may be selected by the WE Board of Directors.

Biographical information regarding each nominec is shown below. Ages arc shown as of December 31,1994.

Wisconsin Energy's prmcipal subsidiaries arc WE and Wisconsin Natural Gas Company (" Wisconsin Natural").

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1 FREDERICK P. STRATTON, JR. Age 35. Chairman and Chief Executive Officer of Briggs & Stratt.on Corporation, a manufacturer of small gasoline engines, since 1986. Director of WE since 1986. Director of WE,C since 1987. Director of Briggs & Stratton Corporation, Banc One Corporation, Banc One Wisconsin Corporation, Midwest Express Airlines, Inc. and Weyco Group, Inc.

JON G. UDELL. Age 59. Irwin Maict Professor of Business at the University of Wisconsin-Madison since 1975.

Co-Director of The Enterprise Center at the University of Wisconsin-Madison, an educational organization devoted to entrepreneurial management, since 1993. Director of WE since 1977. Director of WEC since 1987. Chairman of the Board of Directors of the Federal Home Loan Bank of Chicago from 1982 to 1989. Director of Research Products Corporation and Versa Technologies, Inc.

OTIIER MATTERS The Board 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 floor 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.

STOCK OWNERSIIIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS WE directors, nominces and executive officers as a group (21 persons) do not own any of WE's stock, but beneficially own 88,294 shares of common stock ofits parent company,. Wisconsin Energy (less than 1% of total WEC common stock outstanding). The following table hsts the beneficial ownership of WEC common stock of cach director, nomince and named executive officer as of Februa.y 28,1995. Included are shares owned by each individual's spouse, minor children or any other relative sharing the same residence, as well as shares held in a fiduciary capacity or held in WEC's Stock Plus investment Plan and WE's Management Employee Savings Plan

("MESP")

Number Number of of Name Shares Name Shares Richard A. Abdoo 14,321 Geneva B. Johnson 2,167 John F. Ahearne 101 John L. Murray 3,000 John F. Bergstrom 3,000 David K. Porter 8,780 John W. Boston 4,803 Morris W. Reid 3,273 Francis Br/crinski 1,652 Jerry G. Remmel 6,416 Robert A. Cornog 1,000 Frederick P. Stratton, Jr.

5,300 Richard R. Grigg. Jr.

2.355 Jon G. UdcIl (1) 6.481 (1) Dr. Udcli disclaims beneficial ownership of 2,936 of such shares.

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In' formation Concerning Nominces (For Terms Expiring in 1996)

NatMi since 1990. Chairman of the Board, President and Chie

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andChief Executive Officer of WE from January 1990 to June 1990. Executive Vice Pre

. President January 1990 to May 1991. Director of WE and Wisconsin Natural since 1989. Director of Director of Marshall & lisley Corporation, M&l Marshall & lisley Bank, ARI Network Service

& Blue Shield United of Wisconsin and United Wisconsin Senices, Inc.

ss JOllN F. AllEARNE. Age 60. Executive Director of Sigma Xi, The Scientific Research that provides grants to graduate students and conducts national meetings on major scientific iss on Adjunct Scholar of Resources for the Future, an economic research, non-profit institute since 1993 nce 1989 Nuclear Regulatory Commission from 1978 to 1983, serving as it

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and WE since 1994.

. Director of WEC Bergstrom Corporation owns and operates fifteen automobile real estate company. Director of WE since 1985. Director of WEC since 1987. Director of First a

Bank-Fox Valley, Kimberly-Clark Corporation Midwest Express Airlines, Inc. and Univ n.

JOllN W. HOSTON. Age 61. WEC Vice Chairman of the Board since January 1995 Presiden Operating Omccr of WE from 1990 to 1994 Executive Vice President and Chief Operating Omccr of WE from January to June 1990. Presnient and Chief Operating Omccr of Wisconsin Natural from Vice President of WEC from 1991 to 1994. Director of WE since 1988 Director Wisconsin Natural from March to December 1994.

. Director of ROllERT A. CORNOG. Age 54. Chainnan of the Board, President and Chief Executiv Incorporated, a tool manufacturer, since 1991. President of Macwhyte Company, a make

-on subsidiary of Amsted Industrics, from 1981 to 1991. Director of WE since 1994. Director of Director of Snap-on incorporated and Johnson Controls, Inc.

RICilARD R. GRIGG,JR, Age 46. President and Chief Operating Omccr of WE and Wisconsin N Vice President of WEC smcc January 1995. Group Executive and Vice President of WE from a and 1994 Vice President of WE from 1990 to 1994. Director of WE since 1994. D cember January 1995.

e GENEVA U. JOllNSON. Age 65 Corporate Director. President and Chief Executive Officer of America, an organization representing private agencies in the United States and Canada that y enice service programs, from 1983 to 1994. Director of WE and WEC since 1988. Director of Firs n

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e, DAVID K. PORTER Age 51. Senior Vice President of WE and Vice President of Wisconsin Nat 1989. Director of WE since 1989 Director of Wisconsin Natural since 1988.

nce JERRY G. REMMEL Age 63 President of WEC since January 1994. Treasurer of WEC smcc 1981. Se President-Fmance of Wisconsin Natural from 1989 to 1993. Duector of W ce Natural smcc 1988 nsin 3

Each person has sole voting and investment power as to all shares listed for such person except that the follpwing persons have shared voting and/or investment power as to the indicated number of shares so listed:

Mr. Boston (3,121), Mr. Brzczinski (167), Mr. Stratton (3,300), Dr. Udell (2,936) and all directors and executive omccrs as a group (12,398).

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

COMPENSATION Directors' Compensation During 1994, each nonemployee director received a monthly retainer fee of $1,500 plus $1,000 for each Board or committee meeting attended. In addition, a per diem 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. Nonemployee directors are also paid $300 for each signed, written unanimous consent in lieu of a meeting. Effective with the date of the 1994 Annual Meeting, non-employee chairs of the committees of the Board received a quarterly chair retainer of $1,250. 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 services 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. Such amounts will be paid out of the general corporate assets or the grantor trust described under

" Retirement Plans" in this information statement. Employee directors receive no directors' fees.

Executisc Officers' Compensation The following table summarizes certain information concerning compensation awarded to, carned by or paid to WE's Chief Eucutive Officer and cach of WE's other four most highly compensated executive officers for services in all capacitics to WEC and its subsidiaries, including WE, for the last three fiscal years. The amounts shown in this and all subsequent tables in this infonnation statement are WEC consolidated compensation data.

Consequently, the information for 1992 will difTer from that reported previously, which related only to services rendered to WE. The portion of time devoted by each ofIicer to WE in 1994, as determined by the percent of time cach officer worked for WE versus the other affiliated companics, is as follows: Mr. Abdoo (79%), Mr. Boston (98%), Mr. Remmel (70%), Mr. Porter (90%) and Mr. Brzezinski (80%).

F

SUMMARY

COMPENSATION TABLE Long-Term I

Compensation Awurds Annus' s

.ation Securities Other Annual Underlying All Other Name and Principal Position (1)

Year Salary Bonus Compensation Options /SARs Compensation (5)

($)

($)

(#)(2)

(5)(3) i Richard A. Abdoo Chairman of the Board and 1994 450,000 222,396 0

25,000 15,970 Chief Executive Omcer 1993 450,000 122,000 0

22,500 15,170 1992 429,167 59,500 3,153 0

12,875 John W. Boston President and Chief 1994 320,000 98,246 0

0 11,005 Operating Omcer 1993 262,000 5(3,000 0

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

7,430 Jerry G. Remmel Chief Financial Omcer 1994 215,000 66,009 0

0 7,481 1993 190,000 41,000 0

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

5,445 David K. Porter

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Senior Vice President 1994 190,000 58,333 0

3,000 6,695 1993 185,000 20,000 0

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

5,345 Francis Briciinski Vice President-Bulk Power 1994 212,000 26,037 0

6,500 7,478 1993 206,167 22,500 0

6,500 7/)58 1992 197,500 21,000 0

0 5,925 (1) Principal position at WE during 1994 is listed, each of the named executive officers also held positions with one or more of WE's amliated companies.

(2) Grants in 1994 were in combination with contingent dividend awards, as described in the table entitled "Long-Term Incentive Plans--Awards in Last Fiscal Year".

(3) All Other Compensation for 1994 for Messrs. Abdoo, Boston, Remmel, Porter and Brzezinski, respectively, includes: (i) employer matching of contributions by cach named executive into the MESP in the amount of $4,620 for each named executive officer, (ii) "make whole" payments under the Executive Dcferred Compensation Plan with respect to matching in the MESP on deferred salary or salary received but not othenvise eligible for matching in the amounts of $8,880, $4,980, $1,830,

$1,080 and $1,740, respectively, and (iii) term life insurance premiums in the amounts of $2,470,

$1,405, $1,031, $995 and $1,118, respectively.

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OPTION /SAR GRANTS IN LAST FISCAL YEAR Individual Grants (1)

Potential Realizable Percent of Value At Assumed Number of Total Annual Rates of Securitics 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% (S) 10% (S)

Richard A. Abdoo 25,000 30.8 %

26.813 12/13/04 421,564 1,068,325 John W.130ston 0

N/A N/A N/A N/A N/A Jerry G. Remme!

O N/A N/A N/A N/A N/A David K. Porter 3,000 3.7%

26.813 12/13/04 50,588 128,199 Francis Brzezinski 6,500 8.0%

26.813 12/13/04 109,607 277,765 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 (the "OSIP") on December 14,1994.

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 14,1998, a; which time they become fully exercisable. Upon a " change in control" of WEC, as defined in the OSIP, or upon retirement, permanent total disability or death of the option holder, these options shall become immediately exercisable. These options were granted for a term of ten years, sebject to carlict 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 OSIP, the WEC compensation 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 Securitics and Exchange Commission and therefore do not forecast y

possible future appreciation, if any, of WEC's common stock price. At the December 13,2004 expiration date of the options granted in 1994, the price of a share of WEC common stock would be

$43.68 at an assumed annual appreciation rate of 5% and $69.55 at an assumed annual appreciation rate of 10%. Gains to all WEC stockholders of record at year-end 1994 at those assumed annual appreciation rates would be approximately $1.8 billion and $4.7 billion, respectively. The total

" Potential Realizable Value" for the named executive officers would represent approximately.03% of such gains.

No stock options other than those granted pursuant to the OSIP were outstanding in the last fiscal year. Since the earliest date outstanding options previously granted under the OSIP become exercisable is December 15, 1997, no options were exercisable in 1994. The following table sets forth the number of options u hich were 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 31,1994.

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AGGREGATED OPTION /SAR EXERCISES IN LAST FISCAL YEAR AND I

FISCAL YEAR-END OPTION /SAR VALUES Number of Securities Underlying Value of Unexercised in-the-Money Unexercised Options /SARs Options /SARs at Fiscal Year-End at Fiscal Year-Er.d

(#)

($)

Name Exercisable Unexercisable Exercisable Unexercisable Richard A. Abdoo 0

47,500 0

0 John W. Boston N/A N/A N/A N/A Jerry G. Remmel N/A N/A N/A N/A David K. Porter 0

9,500 0

0 Francis Br/czinski 0

13,000 0

0 N/A = Not Applicable The following table show s long-term incentive awards made during 1994:

LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR Performance Estimated Future Number of or Other Payouts Under Shares, Units Period Until Non-Stock or Other Maturation Price-Based Plans (2)

Rights (1) or Payout Target Name

(#)

($ or #)

kichard A. Abdoo 25,00p 12/13/98

$150,000 John W. Boston

/0 N/A N/A Jerry G. Remmel IO N/A N/A

~

David K. Porter 3,00 4 12/13/98

$18,000 Francis Brzczinski 6.500 12/13/98

$39.000 N/A = Not Applicable (1) Consists of performance units awarded under the OSIP 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 (appreciatioa in the value of WEC common stock plus reinvested dividends) over a four year period ending December 13,1998 equals or exceeds the median return carned by the companies included in an externally defined peer group (the companics included in the Peer Group Index in the l

Performance Graph section of WEC's proxy statement for the 1993 WEC Annual Meeting), except that there will be no payout if WEC's total shareholder return is negative over the course of such period if payable, each pamcipant shall receive an amount equal to the actual dividends paid on WEC common stock for the period of December 14,1994 through December 13,1998 multiplied by the number of performance units awarded to such participant. Upon a " change in control" of WEC, as defined in the OSIP, this benefit shall immediately vest with all performance goals deemed fully achieved.

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

I 8

__-.________________________-..-______._______________m___________a

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION Corporate 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 carnings to support its financial goals. WE's core-business is generating, transmitting and distributing clectric 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 oflife in the area it serves, to maintaining employec 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 Pctrin, 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 industry, and the Compensation Committee's decisions regarding executive compensation have been based, largely, 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 ofter an industry competitive, performance-based executive compensation program.

The components of the program, as well as the opportunities offered through the program, arc designed to be competitive with practices at other comparably-sized and situated electric utilitics. In determining competitive pay rates for WE's officer positions, the Committee relics primarily on an analysis of compensation (includmg base salary, annual bonus and long-term incentive grant values) for an externally defined peer group (i.e., the companics included in the Peer Group Index in the Performance Graph section of Wisconsin Energy Corporation's ("WEC") proxy statement for the 1995 WEC Annual Meeting, the "pcer companics"). Data are collected and analyzed for these companies from both recent proxy statements and from a survey conducted by the Edison Electric Institute ("EE!"). The Committee relics 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 utilitics of comparable size and offering comparable services, the Committee does not belicyc these companics 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 ofindustry 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 and WEC's shareholder return goals. Accordingly, the annualincentive compensation program links a portion of each executitc'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 hnks a portion of each executn c's compensation to the achievement of the longer-term goals of WE, including total return on shareholder equity. The long-term incentive plan, designated the 1993 Omnibus Stock Incentive Plan (the "OSIP"), was adopted by the WE and WEC Boards in 1993 and was approved by WEC stockholders at WEC's annual meeting held on May 11,1994 The executis e compensation program strikes a balance between ofTering fair and reasonable fixed compensation (c g, base salary tied to the executive's skills and responsibihtics), and variable compensation 9

(e g., annual incentive compensation ticd to the executive's and the comp 1y's results over the most recent fiscal year and long-term incentive compensation tied to the company's results over a longer designated " eriod p

of time) The Compensation Committee believes that this program, which places a substantial portion of executive compensation at risk, will benefit WE. The Compensation Committee expects total cash compensation (base salary plus 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.

The Compensation Committec annually reviews the competitiveness of executive base salary levels and annual and long-term mcentive opportunities relative to the external market. 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 tics closely to WE's strategic goals and operating style, and reflects prevailing industry compensation practices.

Program Components The executive compensation program currently consists of base salary, annual incentive compensation and long-term mcentive compensation Base salaries, annual incentive targets and long-term incentive grant guidelines are targeted at the 50th percentile ofindustry pay practices. As stated previously, the Committec primarily considers compensation practices at the peer companies in this review and has data presented to it from recent proxies and from the eel survey in this regard. The Committee also reviews broader industry data from the entire eel database, consisting of approximately 100 utilitics, adjusted appropriately for company size. The Committee reviews these data separately and does not mathematically average cr combine the various competitive analyses. The Committee sets salaries, annual incentive targets and long-term incentive grant guidehncs in consideration of these data, and afler direct discussion with and recommendations from Towers Perrm, its consultant.

In addition to external competitive data, base salaries are determined by factors including individual performance and potential, changes in dutics and responsibilitics, economic conditions in the utility senice area, financial success of WE (mcasured in terms of such factors as achievement of authorized rate of return on equity and target carnings), customer satisfaction, competitiveness of utility senice rates and outlook for such rates in the coming year, and changes in salary compensation for comparablejobs at other utilitics. The Committee weights these factors substantially equally.

WE provides annual incentive compensation pursuant to WEC's Short-Term Performance Plan (the "STPP"),

w hich is administered by the WEC compensation comnuttee. Target annual incentive compensation awards for each individual for 1994 ranged from 15% to 45% 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 objectaes. Individual award payouts are permitted to range from 0% to 125% of targeted amounts based on individual and team performa tee.

For 1994, the STPP financial performance goals for WE focused on achievement of target carnings, while the 1994 STPP operational performance goals related principally to-

• Total WEC shareholder return scrsus the peer companics

• Safety of nuclear operations

• Customer satisfaction

• Demand-side management includmg consen ation and load management 10

+ Operating and maintenance cost management

+ Energy production availability Under the STPP for 1994, the Compensation Committee awarded key employee participants amounts ranging from 12% to 49% of base salary as calculated under the formula for the STPP for cach individual. This decision was based on (i) the extent to which a variety of predetermined 1994 STPP corporate performance goals were achieved (principally those enumerated above) and (ii) the extent to which each STPP participant met his or her 1994 individual goals. The 1994 STPP corporate performance goals were divided into two parts--60% operational and 40% financial (except that the weightings for the Chief Executive Officer

("CEO") were 60% financial and 40% operational, as the Compensation Committee believes that the CEO has the primary responsibility for the financial success of WE)

In 1994, WEC's stockholders approved the OSIP which had been recommended by Towers Perrin. The OSIP authori/cs grants to be made to officers and other key employees of WEC and its subsidiaries of performance-based incentives and other equity interests of WEC in the form of one or any combination of the following:

stock options, stock appreciation rights, stock awards and performance units. Initial awards were made under the OSIP for year 1993, subject to the aforementioned stockholder approval. For 1994, OSIP awards in the form of stock options and performance dividend units were made to certain key employees selected by the

]

Committee. The persons chosen to participate in the OSIP are those officers and key employees who will be responsible for leading WEC and its subsidiaries, including WE, into the 21st century. The Compensation Committee and the Board of Directors have approved a table of stock option and performance dividend unit grant guidelines for cach of four groups of OSIP participants. The grant guidelines presently 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 cach participant, that the 1994 grant should be made at the mid-point of the respective guideline range for each participant, except for that of the Chairman of the Board and Chief Executive Officer whose 1994 grant was at the upper limit of his guideline range. 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, cach participant must achieve specified WEC stock ownership targets as to the minimum number of shares he/she shall acquire and own on a scheduled basis over the next ten years. Several officers who are nearing retirement, including named executive officers John W. Boston and Jerry G. Remmel, are not participants in the OSIP.

Chief becutisc Officer Compensation Mr. Abdoo's WEC consohdated base salary for 1994 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. His salary was also determined m consideration of the factors listed in the Program Components section of this report pertaimng to base salarics; such factors were weighted substantially equally. Mr. Abdoo's base salary has not been mercased smcc November 1992 because in 1993 and 1994 it continued to approximate such 50th percentile.

Mr. Abdoo is a designated participant in the STPP and the OSIP. With respect to the STPP, for fiscal year 1994, the Compensation Committee awarded Mr. Abdoo the annual incentive award set forth in the " Bonus" column of the Summary Compensation Table. The Committee established Mr. Abdoo's STPP target award les el at 45% of base salary for 1994, with such award being permitted to range between 0% and 125% thereof, based en individual performance, as descnbed under the Program Components section of this report. The Commiace's evaluation of Mr. Abdoo's 1994 performance resulted in an award of 49% of his base salary for the year. 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. Mr. Abdoo's award was also based on the degree to u hich his 1994 individual goals were achieved. His principal goals related to achieving a safe and efTective operation of WE's Point Beach Nuclear Plant, achieving a satisfactory carnings 11

m ucanm...t,

leadmg WE dunng a time of great change and compeutne chauenges m me m_

hzation program. an cifort comnuttee members teucued the progress made dunng 1994 as part of WE s reutah) the identificanon an dd to transinon WE to a leaner, more competune busmess enterpnse. m u mg 00 lus leadership unplementation of a new manarement stru ture uluch udl lead WE mio the nest centun,and legi l

role and strong soice ni influenung federal and state ut hty restructunng regu anonnen of the Point Beach contmued strong haanual reputanon m ) the cononued safe and low-cost opera Pouer Plant. (u) his Nudear Plant. h) the construinon of a hpht-weight aggregate facday at Oak Creek I

d t nce m leadenhip of management and represented employees m gmdmg them to understand and l

h restructunng the way WE does husmess and O n) the resultmg numerous process c anMr Abdoo's awar to become the low-cost encrp prouder m the upper nuducst region hh t of deternuned by aJuewment of the compam-uide co.ds and was adjuste h

uon of goals Proyram ( omponents section. mdnidual go.ds were ucighted substant ally equally with t e indiudu:d goals f

on equity and target relinng to f manual performance. sush as achiesement of authon/ed rate o return canunns which were weichted somew hat bryher l

d abos e. Mr With respett to the (HIP. m keepmg with the Compensanon Conmuttee's phdosophy as state f h m the "1.ong-Abdoo was awarded stosk opuuns and related dnidend perfonnance umts in 1994 as set ort ll knk a portion of J enn Compensanon Awardi column of the Summary Compensanon Table to specifica yMr Abd hn ompensation to the aJuesernent of WE's longer-tenn goals 1 he award of Comnuttee at approumately the 5 nth percentde as compared to m

{

EC common d

stock phn renaesied dn idendo oser a four year penod en mg t f WEC's total shareholder medi.m rumn c.uned in the pect compames. except that there udl be no pasou i retmn is negatne owr the wurse of sush permd I

f hich

~l he Conmuttee also apphed subican e ludement m esaluaung the relatne unportanc m te the basis f or detcinunnu cAh wmponent of Mr memm umnom pm aaenmne h dmmd -d,

('timpernJtiten Of ()ther NJmed Pwt utine ()Ifilet s l

fthe Ihe base salancs of the other lom named executne ofheers are set fonh m t The Conmunce set such Sununan Cornpensanon Iable d baus approumatch 1"o to 22"o of consohdated base s:dary on an annuah/e Each salan was also d to mdustry pay practices salanes at appioumatch the 4th percenale as wmpare f tius report pertairung to base ount for the I Aton hsted m the Program Components section o adpnted to am lk salanet so.h tasters uue uaehteJ substanhalh equa l

1994.such Ihe other tour n uned ewentne oth crs.uc deurnated parnapants in the STPP for fisc oth as ic<en cd annual m cntn e ananh as set I heu awardt uhwh ranged t(tween 12"o and 31"o of conschdated bas

'I able s ruena smular to those dcwnbed for l d operanonal goals pertaming to was hised on s ruena rdanny on"o to the acwmphshment of financia an l

l of WE WI Cs nonotihn submhanes and lu"o to the aaom;>lnhment of f mancial and operanona goa s d td I Ah sush an.ud was punap.dk deternuned by aJuesement of the companpwide based on aaomphshment of mdnidu.d goah ghted substantially equalh unh the abou in the Pmeram Componenh sesnon mJniJu.d roah were wei hted somew hat lugher cwephon of coals rd amp. to f mana.d putorrnance ulush were neig 12 i

level for WE, and prosiding leadership to ensure that WE operates in an environmentally responsible, community-minded manner to improve the quality oflife in the areas it serves.

In determining Mr. Abdoo's STPP award, the Committcc also considered his exceptional performance in leading WE during a time of gicat change and competitive challenges in the utility industry Specifically, the committee members resiewed the progress made during 1994 as part of WE's revitalization program, an effort to transition WE to a leaner, more competitive business enterprise, including (i) the identification and implementation of a new management structure which will lead WE into the next century, (ii) his leadership role and strong voice in influencing federal and state utility restructuring regulation and legislation, (iii) WE's continued strong financial reputation (iv) the continued safe and low-cost operation of the Point Beach Nuclear Plant, (v) the construction of a light-weight aggregate facility at Oak Creek Power Plant, (vi) his leadership of managernent and represented employees in guiding them to understand and provide assistance in restructuring the way WE does business and (vii) the resulting numerous process changes that will enable WE to become the low-cost energy provider in the upper midwest region. Mr. 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 performance goals as cited above in the Program Components section; individual goals were weighted substantially equally with the exception of goals relatmg to financial performance, such as achievement of authorized rate of return on equity and target earnings, wiuch were weighted somew hat higher.

With respect to the OSIP, in keepmg with the Compensation Committee's philosophy as stated above, Mr.

Abdoo was awarded stock options and related dividend peiformance units in 1994 as set forth in the "Long-Term Compensation Awards" column of the Sununary Compensation Table to specifically link a portion of his compensation to the achievement of WE's longer-term goals. Mr. Abdoo's award was set by the Committee at approximately the 50th percentile as corroared to industry grant practices. The award of dividend performance units will be paid if to' d sharchcider return (apprcctah in the value of WEC common stock plus reinvested dividends) mer a four yea.. O md endmg December 13,1998 equals or exceeds the median return carned by the peer companics, except that there will be no payout if WEC's total shareholder return is negative o er the course of such period.

The Comnuttec also apphed subjective judgment in evaluating the relative importance of the factors which were the basis for deternuning cach component of Mr. Abdoo's compensation (i.e, base salary, annual and long-term mcentn es) to precisely determine his salary and awards.

Compensation of Other Named Esecutisc Officers The base salaries of the other four named executive officers are set forth in the " Salary" column of the Summary Compensation Table. These officers reccited increases during the fiscal year ranging from approximately 3% to 22% of conschdated 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 hsted in the Program Components section of this report pertaining to base salancs; such factors were weighted substantially equally.

The other four named executive ofTicers are designated participants in the STPP. For fiscal year 1994, such officers received annual meentive awards as set forth m the " Bonus" column of the Summary Compensation Table. Their awards, u hich ranged between 12% and 31% of consolidated base salary, were based upon cnteria similar to those desenbed for Mr. Abdoo's annual incentive award, except that Mr. Brzezinski's award w as based on entena relatmg 60% to the accomplishment of financial and operational goals pertaining to WEC's nonutthty subsidiaries and 40% to the accomplishment of financial and operational goals of WE.

Each such award was pnncipally determined by achievement of the company-wide goals and was adjusted based on accomphshment 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, uluch were weighted somewhat higher.

12

Of the other four named executive officers, only Messrs. Porter and Brzezinski are participants in the OSIP.

Their long-term incentive compensation, awarded based upon criteria similar to those described for Mr.

Abdoo's long-term incentive award, is reflected in the "Long-Term Compensation Awards" column of the I

Summary Compensation Table. Their awards were set at approximately the 50th percentile as compared to industry grant practices.

The 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 Executisc Compensation 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 omccr and the other executive omcers named in the Summary Compensation Table. Quahfying performance-based compensation will not be subject to the deduction limit if certain requirements are met. WE's executive compensation program, as presently constructed, 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 program. It is the Committee's intent to preserve the deductibihty of executive compensation to the extent reasonably practicable and to the extent consistent with its other compensation objectives.

Compensation Committec Morris W. Reid (chair)

John F. Ahearne John F. Bergstrom Robert A. Cornog Geneva B. Johnson John L. Murray Frederick P. Stratton, Jr.

Jon G. Udcli RETIREMENT PLANS WEC's utihty subsidiaries maintain separate retirement plans for management employees, including executive omccrs. WE's executive omccrs 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 table presented at the end of this section shows the estimated annual pension benefits payable upon retirement to persons in various compensation and years-of-service classifications.

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, Bcolon, Remmel, Poner and Brzerinski currently have 19,12,39,25 and 5 credited years of service, respectively. Credited years of service under the retirement plans for cenain 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 Secunty or other offset since they are computed using a step-rate formula which provides a Social Secunty integrated benclit 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 cars up to a maximum of 10 years.

3 Designated elected officers of WEC and the utihty subsidiaries, includmg WE, participate in the Supplemental Executive Retirement Plan (the " SERP"). The SERP provides monthly supplemental pension benefits to 13 1

participants, w hich will be paid out of corporate assets or the grantor trust describcd below as follows: 01) an amount equal to the difference betuccn 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, (b) an amount calculated so as to provide participants with a supplemental lifetime annuity, estimated to amount to between 8% and 10% of final average compensation depending on u hich pension payment option is selected, and (c) an amount for certain participants 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 under the prior bcncfit formula in effect on December 31,1988. Except for a " change in control" of WEC, as defined in the SERP, no such payments are made until after the retirement or death of the participant.

WEC has entered into an agreement with Mr. Abdoo and WE has entered into an agreement with Mr. Boston, cach of u hom cannot accumulate by normal retirement age the maximum number of years of credited service under the management employee retirement plans. According to these agreements, Messrs. Abdoo and Boston at retirement will receive supplemental retirement payments uhich will make their total retirement benefits at age 60 or older substantially the same as those payable to employees u ho are in the same compensation bracket and uho 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 opoonal lump sum payments and, in the instance of a change in control, mandatory lump sum payouts without regard to whether the executive's employment has terminated. In cach case, the interest rate benchmark formula for calculating the lump sum amount is the five-year U. S. Treasury Note yield as of the last business day of the month prior to date of payment. The WEC Executive Non-Qualified Trust has been established and funded for this purpose.

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

$ 50.000

$ 11.189

$ 14.918

$ 18.648

$ 22.378

$ 24.524

$ 26.670 100.000 24.125 32.167 40.209 48.251 52.834 57,418 150.000 37.064 49,418 61.773 74.128 81.149 88.170 200,000 50.000 66.667 83.334 100.001 109.459 118,918 250.000 62.937 83.916 104.895 125,874 137.770 149.665 300.000 75.875 101,167 126.459 151.751 166.084 180.418 400.000 101,750 135.667 169.584 203.50]

222.709 241.918 500,000 127.625 170.167 212.709 255.251 279,334 303,418 600.000 153.500 204.667 255.834 307,001 335.959 364,918 700.000 179.375 239.167 298.959 358.751 392.584 426,418 800.000 205.250 273.667 342.084 410.501 449.209 487.918 900,000 231.125 308.167 385.209 462.251 505,834 549,418 AVAILAlllLITY Ol' FORM 10-K The Wisconsin I:lectric Pimer Company Form 10-K report for 1994 to the Securities and Exchange Commission is asailable at no cost by w riting to WE's Secretary, Ann Maric Ilrady,231 West Michigan Street, P.O. Ilox 2046, Milw aukee, Wisconsin 53201.

14 I

~

WISCONSIN ELECTRIC POWER COMPANY 1994 ANNUAL REPORT TO STOCKIIOLDERS ACCOMPANYING INFORM ATION STATEMENT TABLE OF CONTENTS frEM PAGE 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-12 Statement of Cash Flows A-13 Balance Sheet A-14 Capitalization Statement A-16 Common Stock Equity Statement A-17 Notes to Financial Statements A-18 Directors A-27 Executive Omccrs A-27 A-1

BUSINESS

~

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

Steam Operations Wisconsin Electric distributes and sells steam supplied by its Valley Power Plant to space hecting 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 ut"ity subsidiary of Wisconsin Energy.

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

MARKET FOR COMMON EQUITY AND RELATED STOCKIIOLDER 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 wcre paid to Wisconsin Electric's sole common stockholder, Wisconsin Energy.

Quarter Total Dividend 1093 1

$16,250,000 2

$16,250,000 3

$16,250,000 4

$16.250,000 1994 1

$33,700,000 2

$35,583.667 3

$35,583,667 4

$35,583.667 A-2

SELECTED FINANCIAL DATA FINANCIAL 1994 1993 1992 1991 1990 (Thousands of Dollars)

Earnings available for common stockholder

$ 165,594

$ 173,548

$ 155,826

$ 175,641

$ 179,990 Operating revenues Electric

$1,403,562

$1,347,844

$1,298,723

$1,292,809

$1,208,045 Steam 14.2M 14.090

!?.093 12 986 12.126 Totaloperating revenues

$1,417,843

$1,361,934

$1,311,816

$1,305,795

$1,220,171 Total assets

$3,826,129

$3,693,556

$3,285,845

$3,052,133

$2,972,903 gy Long-term debt and preferred stock-redemption required

$1,191,257

$1,193,994

$1,195,210

$1,110,572

$ 1,002,852 SALES AND CUSTOMERS 1994 1993 1992 1991 19_9_0 Electric Megawatt-hours sold 26,911,363 25,685,436 24,747,581 25,016,247 23,656,727 Customers (End of year) 944,855 932,285

,919,466 907,871 896,393 Steam Pounds sold (millions) 2,395 2,376 2,284 2,282 2,213 Customers (End of year) 471 459 472 468 470 QUARTERLY FINANCIAL DATA Three Months Ended March June 1994 1993 1994 1993 Total operating revenues

$362,102

$339,651

$341,838

$323,416 Operating income

$ 29,185

$ 63,087

$ 62,785

$ 47,733 Earnings available for common stockholder

$ 10,478

$ 44,806

$ 43,476

$ 29,835 Three Months Ended September December 1994 1993 1994 1993 Total operating revenues

$362,949

$355,436

$350,954

$343,431 Operating income

$ 74,356

$ 68,489

$ 74,232

$ 63,528 Earnings available for common stockholder

$ 55,810

$ 51,707

$ 55,830

$ 47,200 The quarterly results of operations are not directly comparab!c because of seasonal and other factors. See Management's Discussion and Analysis for further information.

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

A-3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION.

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

The charge primarily reflects the costs of severance and early retirement packages which are elements of a

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

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

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

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

l As part of the resitalization effort, Wisconsin Energy intends to merge Wisconsin Electric and Wisconsin Natural to form a sing!c combined utility subsidiary. The proposed merger will improve customer senice and reduce operating costs. The merger, which is anticipated to be effective by year-end 1995, is subject to a number of conditions, including requisite regulatory and other approvals. Wisconsin Electric and Wisconsin Natural filed a joint application on October 11,1994, to obtain the PSCW's approval of the merger.

Wisconsin Electric also filed an application to obtain the MPSC consent to assume Wisconsin Natural's liabilities in connection with the merger. Both approvals are expected by year-end 1995.

A-4

___J

Electric Sales and Revenues Tot'al electric sales of Wisconsin Electric, detailed below by customer class, increased 4.8 percent in 1994 compared to 1993.

I l_qctric Sales - Merawatt ilours 1994 1993

% Change l

Residential 6,670,081 6,551,061 1.8 Small Commercial and Industrial 6,699,073 6,357,510 5.4 Large Commercial and Industrial 10,471,869 9,771,383 7.2 s

Other 1.603.741 1.776.06I (9.7)

Total Retail and Municipal 25,444,764 24,456,015 4.0 Resale-Utilities 1.466.599 1,229,42_1 19.3 Total Sales 26,911,363 25,685,436 4.8 Electnc energy sales were positively impacted by warmer summer weather in 1994, which resulted in increased use of electricity for air conditioning and other cooling purposes, and increased economic activity. The increase in.

clectric sales also reflects colder winter weather during the first quarter of 1994 and increased sales to the Empire and Tilden iron ore mines.

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

Sales to the mines represented 8.6 percent,7.8 percent and 9.0 percent of total electric sales during 1994,1993 and 1992, respectively.

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

The 9.7 percent reduction in sales to the Other customer class, referred to in the table above, is largely the result of

.cductions in sales to WPPI, Wisconsin Electric's largest municipal customer consortium. WPPI has been reducing its purchases from Wisconsin Electric subsequent to acquiring generation capacity in 1990. Since that time, WPPI has expanded the use of its existing generation facilities and has installed additional capacity, further reducing its reliance on energy purchases from Wisconsin Electric. These sales reductions did not have a significant effect on carnings.

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

Electric Operation and Maintenance Expenses Total electric operating expenses, excluding income taxes, depreciation and the non-recurring revitalization charge, decreased $17 million in 1994 compared to 1993. The decrease largely reflects the payroll-related savings as a result of workforce reductions referred to above and lower expenditures made in connection with power plant renovation work as maintenance programs were completed. These decreases were partially offset by expenses associated with the implementation of the revitalization program and growth in conservation-related expenses associated with improving the efTiciency of customers' clectne energy usage. Operating expenses, excluding A-5

~

income taxes, depreciation and tne non-recurring charge, have remained relatively flat over the three-year period' cnded December 31,1994.

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

Other Interest increased $3 6 million during 1994 compared to 1993 reflecting increased short-term debt balances at Wisconsin Electric. Interest charges on long-term debt increased $11 million during 1993 compared to 1992 largely due to the additional debt issued to finance Wisconsin Electric's const uction programs and the amortization of premiums associated with the debt securitics refinanced during 1992 and 1993.

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

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

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

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

Revenue Percent increase Change in Effective Company /Scrvice (Decrease)

Rates Date Wisconsm Electric Retail electnc, WI

$ 26,655,000 2.3 02/17/93 Steam heating 505,000 3.5 02/17/93 Wholesale electric 6,000,000 10 6 06/09/93 Retail electric, MI 1,366,000 4.3 07/09/93 Fuel electric, WI

• (8,596,000)

(0 9) 11/05/93 Fuel electnc. WI (16.179.000)

(13) 08/04/94

• The 1993 fuct credit was climinated 1/1/94 by PSCW Order.

A-6

..---w

Under the Wisconsin retail electric fuel adjustrnent procedure, retail electric rates may be adjusted, on a prospe basis, if cumulative fuel and purchased power costs, when compared to the costs projected in the retail electric rate pr'oceeding, deviate from a prescribed range and arc expected to continue to be above or below that range.

On September 8,1994, the PSCW issued a notice that it will conduct an im estigation into the state of the electric utility mdustry in Wisconsin, particularly its institutional structure and regulatory regime, in order to evaluate what changes would be beneficial for Wisconsin. The notice states that this investigation may result in profound and fundamental changes to the nature and regulation of the electric utility industry in Wisconsin it is the PSCW's stated intention that this proceeding will establish criteria and direction for utilities to incorporate into any proposals mvolvmg structural or regulatory changes they may put fonvard. The PSCW also intends that the proceedmg reflect mput from all those harmg a stake m Wisconsin's electric utility industry, including large and small retail custorners; w holesale customers, utility management, utihty secunties holders; independent power producers, purveyors of demand-side options and renewable resources; representatives of the environmental, financial, academic, labor, small business and governmental communifics; and elected representatives. The PSCW inuted interested persons to subnut conunents as to appropriate objectives for regulation of the electric utility industry and the utihty structures and regulatory approaches likely to provide the best balance of such objectives.

On November 1,1994, Wisconsin Electnc submitted its comments to the PSCW in a paper describing a framework for a restructured industry. Wisconsin Electric's view ofindustry restructuring would seek to achieve the benefits of competition while maintaimng rchabihty oiclectnc service, controlling costs during the transition to the envisioned end-state, and protecting the environment with increasmg vigor. Today's various electric utility functions would be spht into two major categones--natural monopohes and competitive entitics, The natural monopolics are functions u here a single entity can provide the lowest cost. The competitive entities would perform functions u here competition can provide the lowest cost. The natural monopolics would be re-regulated so the appropnate incentives exist to provide electncity at reasonable prices. The competitive entitics would eventually see an climination of traditional regulation.

In Wisconsin Electric's plan, the re-regulated natural monopolics are the transmission and distribution functions.

Re-regulation of these entities should involve some form of price cap and performance-standard operation rules. In the new structure, the FERC would regulate the transmission systems through a regional transmission group to ensure open access, comparable pricing, comparable service and adequate cost recovery. The PSCW would regulate the distnbution function for reasonable price, reliability, public safety and customer satisfaction. The competitive entitics m the Wisconsm Electric model are the generation, eviomer service and energy merchant functions Imtial question and answer sessions were held November 28-29,1994. At a meeting on January 24,1995, the PSCW apprmed the establishment of an advisory committee that will examine all aspects of electncal senice and the electne utihty mdustry and suggest uluch functions should be performed by a competitive market. The PSCW cstabhshed a tunctable which would hase a final committee report availab!c to the Wisconsin Legislature by the end of 1995 Wisconsm Electric operates under utility rates uhich are subject to the approval of the PSCW, MPSC and FERC.

Such rates are designed to recos er the cost of scruce and provide a reasonable return to investors Developing competitne pressures in the utihty industry may result in future utihty rates uhich are based upon factors other than the traditional ongmal cost ofimestment. In such a situation, continued deferral of certain regulatory asset and liabihty amounts on Wisconsm Electric's books may no longer be appropnate as allowed under Statement of Financial Accounting Standards No 71, Accounting for the Effects of Certain Types of Regulation. At this time, Wisconsin Electnc is unable to predict u hether any adjustments to regulatory assets and liabilitics will occur m the future Sec Note A to the Emancial Staternents - Summary of Significant Accounting Policies - Deferred Regulatory Assets and Liabihties, for further mformation A-7

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

During the second quarter of 1994, Wisconsin Electric placed in senice the last two units, or approximately 150 megawatts of capacity, at its Concord Generating Station, a four unit 300 megawatt natural gas-fired combustion turbine facility designed to meet peak demand requirements. The first two units were completed in 1993. Capital expenditures of $6 million, $35 million and $47 million were made during 1994,1993 and 1992, respectively, for construction of this facility. Total capital costs of the Concord facility were approximately $107 million Additionally, during 1994, Wisconsin Electric continued construction of the new Paris Generating Station, a four unit, approximately 300 megawatt natural gas-fired combustion turbmc facility intended to meet growing peak demand requirements. This generating station, which is expected to have all four units in senice during the summer of 1995, is currently estimated to cost $104 million. Capital expenditures of $54 million and $28 million were made during 1994 and 1993, respectively, for construction of this facility.

Wisconsin Electric completed the $107 million renovation project at its Port Washington Power Plant in 1994.

Unit 4, the last of four umts to be renovated, retumed to service in July. The renovation work, which began in September 1991, restored approximately 320 megawatts of capacity and included the installation of additional cmission control equipment. Expenditures totaling $12 million, $36 million and $43 million were made during 1994.1993 and 1992, respectively.

Cash Prmided by Operating and Financing Actisitics Dunng the three years ende/ December 31,1994, cash provided by operating activitics totaled $1,109 milhon.

During this penod, internal sources of funds, after the payment of dividends to Wisconsin Energy, Wisconsin Electnc's sole common shareholder, provided 79 percent of the company's capital requirements.

Fmancmg actaities during the threc-year period ended Dece'nber 31,1994, included the issuance of'i952 million oflong-term debt, principally to refinance higher coupon debt and the retirement of $73 million of preferred stock.

No preferred stock was issued dunng this period. Additionally, during the three-year period ended December 31, 1994 Wisconsin Electric retired a total of $846 million oflong-term debt and increased short-term debt by $148 million Dividends on the company's common stock were $140 million, $65 million, and $65 million, during 1994,1993 and 1992, respectively.

During 1993, Wisconsm Electnc issued five new senes of First Mortgage Bonds aggregating $350 million in pnneipal amount, the proceeds of v hich were used to redeem $284.3 million principal amount of four outstanding senes of First Mortgage Bonds and 626.500 shares of Wisconsin Electnc's 6.75% Series Preferred Stock.

Dunng 1992 Wisconsin Electric issued five new senes of First Mortgage Bonds the proceeds of w hich provided

$431 million principal amount to redeem 12 outstanding series of higher coupon First Mortgage Bonds and $130 nulhon of new capital These refunding transactions are expected to result in approximately $191 million in savings over the lives of the new debt issues Dependmg on market conditions and other factors, additional debt refundmgs may occur.

A-8

_,~

~

i Capital Structure

~

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

1994 1993 Common Equity 50.5 %

50.7 %

Preferred Stock 1.0%

1.3%

Long-Term Debt (including current maturities) 42.0 %

43.7 %

Short-Term Debt 65%

4.3%

100 0 %

100.0 %

i.

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

Capital Requirements 1995-1999 The estimated capital requirements for Wisconsin Electric for the years 1995-1999 arc outlined in the table below.

The construction expenditures have decreased significantly from the estimates reported previously in the 1993 Annual Report on Form 10-K. The primary reason for the decrease is the revitalization initiative w hich will reduce the cost to design, build and maintain company facilitics.

1995 1996 1997 1998 1999 (Millions of Dollars)

Construction

$215

$198

$159

$151

$153 Consenation 14 13 13 14 14 Bond Maturitics and Refinancings 0

30 130 60 91 Changes m Fuci 1mentones 6

8 3

4 (2)

Decommissioning Trust Payments 20 30 32 35 37 Total

$255

$279

$337

$264

$293 In January 1994, a coordinated state-wide plan for meeting future electricity needs of Wisconsin customers was filed with the PSCW in the Advance Plan 7 Docket. In the Advance Plan process, Wisconsin Electric,in conjunction with the other regulated electric utilities located in Wisconsin, is required to file long-term forecasts of resource requirements, such as the need for generation and transmission facilities, along with plans to meet those requirements, including the use of energy management and conservation.

In order to reliably meet its forecasted growth in demand, Wisconsin Electric employs a least-cost integrated planning process uhich includes renovation of existing power plants, promotion of cost-effectise conservation and load management options, development of renewable energy sources, purchases of power and construction of new company-owned generation facihties Investments in demand-side management programs have reduced and delayed the need to add new generating capacity but have not chminated the need entirely, Purchaws of power from other utilitics and transmission system upgrades will also combine to hcip delay the need to install some new generating capacity in the future. However, A-9

in order to serve the near-term growth in peak demand requirements, Wisconsin Electric has received PSCW approval and is currently in various stages of adding new capacity as previously described under "Invesfing Activitics",

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

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

In 1993, the PSCW, after conducting a competitive bidding process, issued an order selecting a proposal submitted by an unaffiliated IPP to construct a generation facility to meet a portion of Wisconsin Electric's anticipated increase in system supply needs. In accordance with the PSCW Order, Wisconsin Electric subsequently signed a long-term agreement to purchase electricity from the proposed facility. The agreement is contingent upon the l

facihty being completed and going into operation, w hich at this time is planned for mid-1996. A number of parties l

have filed petitions forjudicial review of this PSCW Order, taking the position that the Order should be set aside on various legal grounds. In a decision dated March 17,1995, the Dane County Circuit Court affirmed the PSCW's selection of the LS Powcr project and the PSCW's approval of the power purchase agreement entered into by the Company and LSP-Whitewater L.P., the project's developer. The Court remanded to the PSCW for further proceedings the PSCW's selection of Wisconsin Electric's Kimberly project as the conditional second place project to proceed if the '.S Power project does not.

l Prior to the PSCW selection of the IPP's generation facility, Wisconsin Electric had proposed to construct its own 220 megawatt cogeneration facility in Kimberly, Wisconsin, w hich was intended to provide process steam to Repap Wisconsin, Inc. ("Repap") starting in mid-1995. Wisconsin Electric had made expenditures toward the Kimberly facility amounting to approximately $70 nullion. These expenditures were primarily associated with the procurement of combustion turbines, the steam turbine and the heat recovery boiler in order to achieve the in-service dates as agreed to in a steam service contract with Repap. Wisconsin Electric is currently evaluating its T uns regarding its Kimberly Cogeneration Facility inve tment. The equipment procured to date is a technology d

[

of natural gas-fired combined cycle generation equipment that is marketed worldwide. Wisconsin Electric believes j

that a market for th, equipment exists and is investigating opportunitics to sell the equipment or to use it in i

another power project. At this time, Wisconsin Electric does not beheve that the PSCW's selection of an IPP proposal will have a material adverse effect on its financial condition.

The PSCW has approved Wisconsin Electric's application to utilize dry storage for spent nuclear fuel generated at Point Beach. The decismn completed a multi-year state review of the Wisconsin Electric proposal. The storage system to be used at Point Beach also has been certified by the NRC after a four-year technical review. Dry cask storage at Point Beach w di use a two-containct system made of stect and reinforced concrctc. Capital costs associated with this facility are estimated at $6.5 million and are included in the above forecast. In March 1995 separate petitions were filed by interrenors in Dane County Circuit Court and Fond du Lac County Circuit Court.

The Dane County petition seeks res ersal of the order and a remand to the PSCW directing it to deny Wisconsin Electric's request for authorization to construct the dry cask facility, or in the alternative, to correct the alleged errors in the PSCW's order. No specific reliefis identified in the Fond du Lac petition; howescr, numerous grounds of error are alleged. Wisconsin Electric intends to fully participate in both judicial review proceedings and to vigorously oppose the petitions.

The temporary dry storage facility is necessary because the spent fuel pool inside the plant is becoming full. The plant would be forced to shut down by 1998 without additional on-site storage capacity. The dry storage facihty will be used until the DOE takes ownership of the spent fuel While the DOE and the operators of nuclear power facihties have a contract mandated by federal law that calls for the DOE to begin accepting fuel in 1998, the I

(

A-10 l

WISCONSIN ELECTRIC POWER COMPANY INCOME STATEMENT Year Ended December 31 1994 193J J292 (Thousands of Dollars)

Operating Revenues Electric

$1,403,562

$1,347,844

$1,298,723 Steam 14.281 14.090 13.093 Total Operating Revenues 1,417,843 1,361,934 1,311,316 Operating Eynscs 285,862 263,385 266,716 Fuel (Note F)

Purchased power 42,623 54,880 63,745 Other operation expenses 344,765 341,748 318,253 Maintenance 118,138 149,247 143,618 Revitalization (Note II) 63,500 Depreciation (Note C) 160,758 150,831 148,% 7 Taxes other than income taxes 70,156 68,969 68,380 Federalincome tax (Note I) 94,712 68,239 61,235 State income tax (Note 1) 22,155 13,887 14,783 Deferred income taxes - net (Note 1)

(21,303) 12,034 10,083 Investment tax credit - net (Note I)

(4.081)

(4.123)

(3.960)

Total Operating Expenses 1,177,285 1,119,097 1,091,820 Operating Income 240,558 242,837 219,9 %

Other Income and Deductions Interest income 11,406 13,351 13,624 Allowince for other funds used during construction (Note D) 4,985 8,453 6,936 Miscellaneous - net 10,827 9,638 6,547 Federalincome tax (Note I)

(1,431)

(1,718)

(1,127)

Ftate income tax (Note 1)

(571)

(811)

_(630)

Total Other Income and Deductions 25,216 28,913 25,350 Income llefore Interest Charges 265,774 271,750 245,346 Interest Charges Long-term debt 95,625 96,110 84,843 Other interest 6,020 2,450 2,414 Allowance for borrowed funds used during construction (Note D)

(2.8161 (4.735)

(3.653)

TotalInterest Charges 98,829 93,825 83,604 Net income 166,945 177,925 161,742 Preferred Stock Dividend Requirement L3]J 4.377 1916 Earnings Available for Common Stockholder

$ 165.594

$ 173.548

$ 155.826 Note: Earnings and dividends per share of common stock are not applicable because all of the company's common stock is owned by Wisconsin Energy Corporation.

See Notes to Financial Statements.

A 12 rm e

government is not in a position to meet its commitment. If this commitment is not met, Wisconsin Electric will need to construct additional casks and will seek PSCW approval to do so.

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

Capital Resources During the five-year forecast period ending December 31,1999, Wisconsin Electric expects internal sources of '

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

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

Environmental Issues The 1990 Amendments to the Clean Air Act mandate significant nation-wide reductions in SO and NOx 2

emissions to address acid rain and ground level ozone control requirements.

In 1994, Wisconsin Electric completed the installation of continuous emission monitors at all ofits facilities and installed low NOx burners on one boiler at its Oak Creek Power Plant and two boilers at its Valley Power Plant.

These actions, along with the burning oflow sulfur coal and the installation of low NOx burners on other boilers at Oak Crcck and Valley Power Plants in early 1995, meet the requirements that became effective January 1,1995.

To date, approximately $31 million has been spent on Clean Air Act compliance.

Wisconsin Electric elected to voluntarily bring the Valley and Port Washington Power Plants underjurisdiction of and SO requirements of the Clean Air Act, five years earlier than mandated. This was possible because the NOx 2

these units meet the more stringent phase 11 emissions standards today.

Wisconsin Electric projects a surplus of 50 emission allowances and is seeking additional allowances available as 2

a result of energy conservation programs. As an integral component ofits least-cost plan, Wisconsin Electric is active in SO allowance trading. Revenue from the sale of allowances is being used to offset future potential rate 2

increases.

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

Wisconsin Electric aggressively sccks environmentally acceptable, beneficial uses of its combustion byproducts.

Ilowever, ash byproducts have been, and to some degree, continue to be disposed in company-owned, licensed landfills. Some early designed and constructed landfills may allow the release oflow levels of constituents, resulting in the need for various levels of remediation. These costs are included in the environmental operating and maintenance costs for Wisconsin Electric.

e A-l l F

WISCONSIN ELECTRIC POWER COMPANY STATEMENT OF CASil FLOWS Year Ended December 31 1994 1293 JS92 (Thousands of Dollars)

Operating Activities Net income

$166,945

$177,925

$161,742 Reconciliation to cash Depreciation 160,758 150,831 148,967 Revitalization - net 37,253 Nuclear fuel expense - amortization 21,437 21,366 20,818 Conservation expense - amortization 20,910 15,254 13,009 Debt premium, discount & expense - amortization 13,858 12,813 4,483 Deferred income taxes - net (21,303) 12,034 10,083 Investment tax credit - net (4,081)

(4,123)

(3,960)

Allowance for other funds used during construction (4,985)

(8,453)

(6,936)

Change in Accounts receivable 1,744 (16,981) 9,993 Inventories 1,579 15,181 (5,294)

Accounts payable (14,186) 11,620 9,195 Other current assets (15,144) 3,231 (10,073)

Other current liabilities 1,785 15,453 (3,664)

Other (14.940)

(5.176) 8 272 Cash Provided by Operating Activities 351,630 400,975 356,635 Investing Activities Construction expenditmes (245,967)

(310,513)

(293,589)

Allowance for borrowed funds used during construction (2,816)

(4,735)

(3,653)

Nuclear fuel (26,351)

(20,016)

(17,709)

Nuclear decommissioning trust (10,138)

(11,371)

(20,212)

Conservation investments - net (20,823)

(35.252)

(31,087)

Other (7.807) 1.080 1.184 Cash Used in lmesting Activities (313,902)

(380,807)

(365,066)

Financmg Activities Sale oflong-term debt 23,184 361,049 567,360 Retirement oflong-term debt (21,373)

(328,771)

(495,940)

Change in short-term debt 69,124 44,179 34,820 Stockholder capital contribution 30,000 Retirement of preferred stock (5,250)

(65,504)

(2,035)

Dividends on stock - common (140,451)

(65,000)

(65,000)

~

- prefened (1.381)

(4,729)

(5.928)

Cash Provided by (Used in) Fmancing Activities (46,147)

(58,776) 33,277 Change in Cash and Cash Equivalents

$ (8.419)

$(38.608)

L243 Supplemental information disclosures Cash Paid For

. Interest (net of amount capitaltied)

$ 78,082 5 77,357

$ 82,193 Income taxes 138,606 94,103 82,126 See Notes to Fmanctal Statements.

A-13

WISCONSIN ELECTRIC POWER COSIPANY IIALANCE SIIEET December 31 ASSETS 1994 1993 (Thousands of Dollars)

Utility Plant Electric

$4,304,925

$4,079,794 Steam 40.103 39.113 4,345,028 4,118,907 Accumulated provision for depreciation (1.914.277)

(1.784.110) 2,430,751 2,334,797 Construction work in progtess 205,343 208,834 Nuclear fuel - net (Note F) 56.606 52.665 Net Utility Plant 2,692,700 2,596,296 Other Property and Investrnents Nuclear decommissioning trust fund (Note F) 226,805 214,421 Construction funds held by trusiccs 21,075 10,550 Conservation investments 138,489 136,995 Other 9.555 3.491 Total Other Property and Investments 395,924 375,457 Current Assets Cash and cash equivalents 5,002 13,421 Accounts receivable, net of allow:.nce for doubtful accounts - $10,547 and $7,201 90,105 91,849 Accrued utility revenues 95,051 89,306 Fossil fuel (at average cost) 58,956 57,955 Materials and supplies (at average cost) 66,777 69,357 Prepayments 56,691 47,939 Other assets 6.520 5.87_3 Total Current Assets 379,102 375,700 Dcferred Charges and Other Assets Accumulated deferred mcome taxes (Note 1) 119,132 97,788 Dcferred regulatory assets (Note A) 188,126 191,969 Other

$ 1.145 56.346 Total Deferred Charges and Other Assets 358,403 346,103 Total Assets

$3 826,129

$3.693.556 See Notes to Financial Statements.

A-14 i

ASI WISCONSIN ELECTRIC POWER COMPANY

~

l HAIANCE SIIEET December 31 CAPITALIZATION AND LIABILITIES 1994 1993 (Thousands of Dollars)

Capitalization (Sce Capitalization Statement)

Common stock equity

$1,454,554 S1,399,686 Preferred stock - redemption not required 30,451 30,451 Preferred stock dmption required 5,250 Long-term dd,t (Note K) 1.191.257 1.188.744 Total Capitalization 2,676,262 2,624,131 Current Liabilitics Long-term debt due currently (Note K) 19,846 19,254 Notes payable (Note L) 187,027 117,903 Accounts payable 67,444 81,630 Payroll and vacation accrued 23,672 26,058 Taxes accrued - income and other 12,904 14,422 Interest accrued 21,461 21,295 Other 18.761 13.238 Total Current Liabilitics 351,115 293,800 Deferred Credits and Other Liabilitics Accumulated deferred income taxes (Note I) 440,564 444,717 Accumulated deferred investment tax credits 87,414 91,495 Deferred regulatory liabilitics (Note A) 159,912 167,403 Other 110.862 72.010 Total Deferred Credits and Other Liabilities 798,752 775,625 Commitments and Contingencies (Note N)

Total Capitalization and Liabilitics

$1826129

$3,693,556 See Notes to Financial Statements.

A-15

. [

WISCONSIN ELECTRIC POWER COMPANY CAPITALIZATION STATEMENT December 31 1994 1993 (Thousands of Dollars)

Common Stock Equity (See Common Stock Equity Statement)

Common stock - 510 par value, authorized 65,000,000 shares; outstanding - 33,289,327 shares

$ 332,893 5 332,893 Other paid in capital 169,673 139,673 Retained earnings 951.988 927.120 Total Common Stock Equity 1,454,554 1,399,686 Preferred Stock - Cumulative Six Per Cent. Preferred Stock - $100 par value; authorized 45,000 shares; outstanding - 44,508 shares 4,451 4,451 r

Serial preferred stock. $ 100 par value; authonzed 2,360,000 shares; outstanding -

3.60% Senes - 260,000 shares 26.000 26.000 Total Preferred Stock - Redemption Not Required (Note 1) 30,451 30,451 6.75% Series - O shares and $2,500 shares 12jLO Total Preferred Stock - Redemption Required (Note 1) 5,250 Long-Term Debt First mortgage bonds Sinu DE 4-1/2% 1996 30,000 30,000 5-7/8% 1997 130,000 130,000 5-1/8% 1998 60,000 60,000 6 10 % 1999-2008 25,000 25,000 6 25 % 1999-2008 1,000 1,000 6-1/2% 1999 40,000 40,000 6-5/8% 1999 51,000 51,000 6.45 % 2004 12,000 12,000 71/4% 2004 140,000 140,000 6 45 % 2006 4,000 4,000 6.50 % 2007-2009 10,000 10,000 93/4% 2015 46,350 46,350 7-1/8% 2016 100,000 100,000 6 85 % 2021 9,000 9,000 7-3/4% 2023 100,000 100,000 l

7 05 % 2024 60,000 60,000 i

9-1/8% 2024 3,443 3,443 l

8-3/8% 2026 100,000 100,000 7.70 % 2027 200.000 200.000 1,121,793 1,121,793 Note (unsecured)- Variable rate due 2016 67,000 67,000 Obligations under capital icase (Note F) 43,696 41,870 Unamortized discount - net (21,386)

(22,665) long-term debt due currently (19.8M)

(19.254)

Total long-Term Debt (Note K) 1.191.257 1J 88.744 Total Capitalization

$2.676.262 g6E M See Notes to Fmancial Statements.

A-16

WISCONSIN ELECTRIC POWER COMPANY

~

COMMON STOCK EQUITY STATEMENT Common Stock Common Stock Other Paid Retained Ehares

$10 Par Value In Capital Earninas Total (Thousands of Dollars)

Dalance December 31,1991 33,289,327

$332,893

$142,462

$727,865

$ 1,203,220 161,742 161,742 Net income Cash dividends Common stock (65,000)

(65,000)

Preferred stock (5,928)

(5,928)

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

(65,000)

Preferred stock (4,729)

(4,729)

Purchase of Preferred Stock (Note J)

(2,854)

(2,854)

Other 245 245 Balance - December 31,1993 33,289,327 332,893 139,673 927,120 1,399,686 Net income 166,945 166,945 Cash dividends Common stock (140,451)

(140,451)

Preferred stock (1,381)

(1,381)

Stockholder capital contribution 30,000 30,000 Other (245)

(245)

Balance - December 31,1994 31 289.327

$332.893

$169.673

$951.988

$1.454.554 See Notes to Financial Statements.

A-17

WISCONSIN ELECTRIC POWER COMPANY NOTES TO FINANCIAL STATEMENTS A - Summary of Sinnificant Accountinn Policies peneral 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.

BLel The cost of fuel is expensed in the period consumed.

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

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

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

See Note I.

Siatement of Cash Flows t

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

Conservation InycStments 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 D - UtilitMLernr in January 1994, Wisconsm Energy Corporation (WEC) announced plans to merge its wholly-owned naturai gas subsidiary, Wisconsin Natural Gas Company (WN), into Wisconsm Electric. The completion of the merger, w hich A-18

.1

is subject to a number of conditions including requisite regulatory approvals, is currently anticipated to occur by year-end 1995.

C - D_eprgqialign Depreciation expense is accrued at straight line rates, certified by the PSCW, w hich include estimates for salvage and removal costs.

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

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

D - Allowance for Funds Used Durinn Construction (AFUD_C_)

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

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

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

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

Provided below is a summary of nuclear fuel investment at December 31 and interest expense on the nuclear fuel lease:

1994 1993 1992 (Thousands of Dollars)

Nuclear Fuel Under capital lease

$ 89,705

$ 91,201 Accumulated provision for amortization (50,983)

(54,207)

In process / stock 17.884 15.671 Total nuclear fuel

$_56.606

$52Jf65 Interest expense on nuclear fuel lease 5 1,896

$ 1,697

$ 2,098 A-19

The future minimum lease payments under the capital Icase and the present value of the net minimum lease payments as of December 31.1994 are as follows:

(Thousands of Dollars) 1995

$22,620 1996 14,705 1997 7,992 1998 1,472 1999 539 Total Minimum Lease Pay ments 47,328 Less: Interest (3.632)

Present Value of Net Mmimum Lease Payments

$43 696 The estimated cost of disposal of spent fuel based on a contract with the U.S. Department of Energy (DOE) is included in nuclear fuel expense. The Energy Policy Act of 1992 establishes a Uranium Enrichment Decontamination and Decommissioning fund (fund) for the DOE's nuc! car fuel enrichment facilities. Deposits to the fund will be derived in part from special assessments to utilities. As of December 31,1994, the company has on its books a remaining estimated liability equal to the projected special assessments of $31,133,000. A corresponding deferred regulatory asset will be amortized to nuclear fuel expense and included in utility rates over the next 13 years.

Nuclear Insurance The Price-Anderson Act (Act) provides an aggregate limitation of $8.9 billion on public liability claims arising out of a nuclear incident. The company has $200 million ofliability 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-nide insurance program, with an aggregate limit of $200 million, has been established to cover radiation injury claims of nuclear workers first employed after 1987. If claims in excess of the available funds develop, the company could be assessed a maximum of approximately $3.2 million per reactor.

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

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

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

Nuclear Decommissignjng The company expcets to operate the two umts at its Pomt Beach Nuclear Plant to the expiration of their current operating licenses. 2010 for Unit I and 2013 for Unit 2. The estimated cost to decommission the plant in 1994 dollars is $335 million based upon a site specific decommissioning cost study completed in 1994. Assuming plant A-20 E

sh6tdown at the expiration of the current operating licenses, prompt dismantlement and annual escalation of costs at specific inflation factors established by the PSCW, it is projected that approximately $1.6 billion will be spent over a twenty-year period, begmning in 2010, to decommission the plant.

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

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

As required by Statement of Financial Accounting Standards No. I15, Accounting for Certain Investments in Debt and Equity Securities (FAS 115), the company's debt and equity security investments in the Fund are classified as Available for Sale. Gains and losses on the Fund were determined on the basis of specific identification; net unrealized holding gains on the Fund were recorded as part of accumulated provision for depreciation.

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

1994 1993 1992 (Thousands of Dollars)

Decommissioning costs

$ 3,456

$ 3,456

$ 12,162 Earnings 6.682 7.915 8.050 Depreciation Expense J 10138 J_1 I 371_

J_2(1212 m

Total costs accrued to date

$224,559

$214,421 Unrealized gain 2.246 Accumulated Provision for Depreciation

$226 A 5_

$214.421 The December 31,1994 Fund balance was stated at fair value, whereas the December 31,1993 Fund balance was stated at historical cost The fair value of the Fund at December 31,1993 was $231,991.000.

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

The company has several noncontributory pension plans covermg all cligible employees Pension benefits are based on S cars of scruce and the employce's compensation. The majority of the plans' assets are equity secunties; other assets include corporate and government bonds and real estate. The plans are funded to meet the requirements of the Employee Retirement income Secunty Act of 1974.

In the opinion of the company, current pension trust assets and amounts u hich are expected to be paid to the trusts m the future will be adequate to meet future pension payment obligations to current and future retirecs.

A-21

Pension Cost calculated per FAS 87 1994 1993 1992 (Thousands of Dollars)

~

Components of Net Periodic Pension Cost, Year Ended December 31 -

Cost of pension benefits carned by employees

$ 9,427

$ 9,185

$ 8,290 Interest cost on projected benefit obligation 33,712 31,650 28,874 Actual (rcturn) loss on plan assets 5,972 (37,846)

(14,090)

Net amortization and deferral (44.756) 1.176

_{30.216)

Total pension cost (credit) calculated under FAS 87

_$_4_155

$_4265

$ (7.142)

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

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

$ 381,148

$ 343,265 Nonvested benefits-cmployees' right to receive benefit contingent upon continued employment 1.000 6.124 Total obligation

$_382148

$ 349.389 Funded Status of Plans: Pension Assets and Obligations at December 31 -

Pension assets at fair market value

$ 459,456

$ 483,391 Projected benefit obligation at present value (447,946)

(437,461)

Unrecognized transition asset (23,057)

(25,497)

Unrecogni/cd prior service cost (1,895) 143 Unrecogm/cd net (gain) loss 11.443 (954)

Projected status of plans

$ m 19)

_$ 19.622 Rates used for calculations (%)-

Discount Rate-mterest rate used to adjust for the time value of money 8.25 7.5 8.0 Assumed rate of increase in compensation levels 5.0 5.0 5.0 Expected long-term rate of return on pension assets 9.0 9.0 9.0 H - Benefits Other Than Pensions Postretirement Benefits Effective in 1993, the compan) adopted prospectively Statement of Financial Accounting Standards No.106, Employers' Accounting for Postretirement Benefits Other Than Pensions (FAS 106), and elected the 20 year option for amortization of the previoush unrecognized accumulated postretirement benefit obligation. The PSCW has issued an order recognizing FAS f 06 for ratemaking; therefore, adoption has no materialimpact on net income.

Prior to 1993, the cost of these pcstrctirement benefits was expensed when paid and was $4,151,000 in 1992.

The company sponsors defirv<1 benefit postrctirement plans that cover both salaried and nonsalaried employees who retire at age 55 or oldet with at least 10 years of credited service. The postretirement medical plan provides coverage to retirecs and their dependents. Retirees contribute to the medical plan The group life insurance benefit is based on employee compensation and is reduced upon retirement.

A-22 i=V>~~

~~~

l l

EmNoyces' BencDt Trusts (Trusts) are used to fund a major portion of postrctirement benefits. The funding policy-

, for the Trusts is to maximize tax deductibility. The majority of the Trusts' assets are mutual funds.

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

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

Cost of postrctirement benefits carned by employees

$ 2,284

$ 2,291 Interest cost on projected benefit obligation 8,723 8,404 Actual return on plan assets (3,675)

(2,096)

Net amortization and deferral 5.530 4.161 Total postrctirement benefit cost calculated under FAS 106

$ 12J6.2

$_1_2,760 Funded Status of Plans: Postrctirement Obligations and Assets at December 31 -

Accumulated Postrctirement Benefit Obligation at December 31 -

Retirecs

$ (71,562)

$ (57,061)

Fully eligible active plan participants (5,991)

(13,434)

Other active plan participants (32.074)

(43.485)

Total obligation (109,627)

(113,980)

Postrctirement assets at fair market value 31.466 21 2_1_6 Accumulated postrctirement benefit obligation in excess of plan assets (78,161)

(87,764)

Unrecognized transition obligation 72,029 77,943 Unrecognized net (gain) loss (8.357) 4.981 Accrued Postrctirement Benefit Obligation

$JI4.489)

$ (4.840_)

Rates used for calculatmns (%) -

Discount Rate-interest rate used to adjust for the time value of money 8.25 7.5 Assumed rate of increase in compensation levels 5.0 5.0 Expected long-term rate of return on postrctirement assets 9.0 9.0 llcalth care cost trend rate 12.0 declining to 5.0 in year 2002 Changes in health care cost trend rates will affect the amounts reported. For example, a 1% increase in rates would increase the accumulated postretirement benefit obligation as of December 31,1994 by $7,415,000 and the aggregate of the service and interest cost components of net periodic postrctirement benefit cost for the year then ended by $887,000.

Rojtalization in the first quarter of 1994, the company recorded a $63.5 million charge related to its revitalization program.

This charge included $32.1 million for Early Retirement incentive Packages (ERIP) and $21.1 million for Severance Packages (SP) These plans are being used to reduce employee stafling lesels. ERIP provided for a monthly income supplement, medical benefits and waiver of an early retirement pension reduction. The SP included a severance payment, medical / dental insurance, outplacement services, personal financial planning and tuition support. Availabihty of these plans to various bargaining units was based upon agreements made between the company and the bargainmg umts. These plans have been available to most management employces but not elected officers A-23

Under ERIP,347 cmployces elected to retire and 573 employees have enrolled in SP. It is anticipated that the

• revitalization charge will be offset by the end of 1995 through savings in operation and maintenance costs. ERIP supplemental income costs are being paid from pension plan trusts and medical / dental benefits from employee benefit trusts. Remaining ERIP and SP costs are being paid from general corporate funds. The ultimate timing of cash flows for revitalization will depend in part upon the funding limitations of the company's pension plans.

Through December 31,1994. $26 2 million have been paid against the revitalization liability.

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

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

1994 1993 1992 (Thousands of Dollars)

Current tax cxpense

$ 118,869

$ 84,655

$ 77,775 Im estment tax credit-net (4,081)

(4,123)

(3,960)

Dcferred tax expense

[21,103)

_12,014 10.083 Total tax expense

$ 93.,485

$ 92,566

$ 81898 income before income taxes

$260 430

$270.491

$24_5f640 1

Expected tax at federal statutory rate

$ 91,150

$ 94,672

$ 83,518 State income tax net of federal tax reduction 12,875 10,808 12.242 Investment tax credit restored (4,081)

(4,738)

(4,071)

Other (no item over 5% of expected tas)

_{(1459)

(8.176)

(7.791)

Total tax expense

$ 91485

$ 92,566

$ 83 898 FAS 109 requires the recording of deferred assets and liabihtics to recognize the expected future tax consequences of events that have been reflected in the company's financial statements or tax returns, the adjustment of deferred tax balances to reflect tax rate changes and the recogmtion of previously unrecorded deferred taxes. Following is a summary of deferred income taxes under FAS 109.

December 31 1994 1993 (Thousands of Dollars)

Deferred Income Tax Assets Decomnussioning trust

$ 42,685

$ 44,888 Constructmn advances 32,126 30,777 Accrued vacation 5,854 6,692 ERIP Accrual 14,969 Other 23,498 15.431 Total Dcferred Income Tax Assets

_$119LL32

$ 97,788 Deferred Income Tax Liabihties Plant related

$397,850

$383,796 Conservation im estments 27,564 51,882 Other ISM 9.039 Total Deferred Income Tax Liabilitics 544(L53 5444 217 A-24

l I

l i

The company also has recorded the followmg deferred regulatory assets and liabilitics which represent the future l

expected im;iact of deferred taxes on utahty revenues December 31 1994 1993 (Thousands of Dollars) l Deferred regulatory assets

$154,882

$155,881 Deferred regulatory liabilitics 159,912 167,403 J - Preferred Stock Scrial Preferred Stock authorized but unissued is cumulatis e, $25 par value,5,000,000 shares.

In the event of default in the pay ment 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 w hole or in part at the option of the company at $101 per share plus any accrued dividends.

Redemption Required -

In 1994 the company called for redemption ab ofits 52,500 outstanding shares of 6.75% Series Preferred Stock at a redemption price of par. In 1993 the compan) called for redemption 626,500 shares at a purchase price of

$104.05 per share plus accrued dividends to thc tedemption date.

K - Long-Term Dcbl The maturitics and smking fund requirements through 1999 for the aggregate amount oflong-term debt outstanding (excluding obligations under capital lease, see Note F) at December 31,1994 are shown below.

(I housands of Dollars) 1995 1996 30.000 1997 130,000 1998 60,000 1999 92.040 Sinking fund requirements for the years 1995 through 1999, included in the table above, arc $1,040.000.

Substantially all utshty plant is subject to the apphcabic mortgage.

Long-term debt premium or discount and expense ofissuance are amortized by the straight hne method wer the lives of the debt issues and included as interest expense. Unamortized amounts pertaining to reacquired debt are written off currently, w hen acquired for sinking fund purposes, or amortized in accordance with PSCW orders, when acquired for earl) retirement Fair value of first mortgage bonds is estimated based upon the market value of the same or similar issues. The fair value of the company's first mortgage bonds was $10 billion and $1.2 bilhon at December 31,1994 and 1993, respectively.

A-25

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

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

Banks

$ 50,400 602%

$ 50,000 3.28 %

Commercial paper 136.627 6 06 %

67.903 3.34 %

$187,027

$117.903 1

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

M - Information by Segments of Business Year ended December 31 1994 1993 1992 (Thousands of Dollars)

Electric Operations Operating revenues

$1,403,562

$ 1,347,844

$ 1,298,723 Operating income before income taxes 329,216 329,727 299,902 Depreciation 159,414 149,646 147,859 Construction expenditures 244,718 305,467 292,031 Steam Operations Operatmg resenues 14,281 14,090 13.093 Operating income before income taxes 2,825 3,147 2.235 Depreciation 1,344 1,185 1,108 Construction egnditures 1,213 4,940 1,530

'Iotal Operating revenui s 1,417,843 1,361,934 1,311,816 Operating incor.c before income taxes 332,041 332,874 302,137 Depreciation 160,758 150,831 148,967 Construction openditures (including nonutility) 245,967 310,513 293,589 At December 31 Net identifiable Assets Electric

$3.798,186

$3,665,536 $3,262,031 Steam 25,315 25.119 20,972 Nonutility 2.628 2.901 2.842 Total Assets

$M26 ly

$169M56 $M85 845_

m N - Comnntments and Continnencies 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-26

. ______ ]

l DIRECTORS

~

The'mformation under " Election of Directors" in Wisconsin Electric's definitive Information Statement dated April 21,1995, 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, 1994.)

RICllARD A. ABDOO l50,19]

KRISTINE M. KRAUSE [40,16]

Chairman of the Board Vice President-Fossil Operations

& Chief Executive Officer RICIIARD R. GRIGG, JR. [46,24]

ROBERT E. LINK [43,20J President & Chief Operating Officer Vice President-Nuclear Power JERRY G. REMMEL [63,39]

KRISTINE A. RAPPE [38,12]

Chief Financial Officer Vice President-Customer Services DAVID K. PORTER [51,25]

BERNARD F. VAN DINTER [61,39]

Senior Vice President Vice President-Electric Operations CALVIN 11 BAKER [51,3]

ANN MARIE BRADY [42,6]

Vice President-Finance Secretary FRANCIS BRZEZINSKI (43,5)

ANNE K. KLISURICH [47,22]

Vice President-Bulk Power Controller i

A-27

gEgt sconsin Asnue Telephone 414 276 9500 Meautee. WI 53202 Price Wateriwuserw REPORT OF INDEPENDENT ACCOUNTAN'IS i

To the Board of Directors and the Stockholden of Wisconsin Elecide Power Company In our opinion, the accompanying balance sheet and capitalization statement and the related statements ofincome, of common stock equity and of cash flows present faidy,in all material respects, the financial position of Wisconsin Electric Power Company at.

December 31,1994 and 1993, and the msults ofits operations and its cash flows for each of the thme yenniin the penod ended December 31,1994,in conformity with generally accepted accounting principles. Rese 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 require that we plan and perfonn the audit to obtain reasonable assumnce 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 pmvide a reasonable basis for the opinion expressed above.

b M(,Q January 25,1995 i

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