ML20095H555

Annual Rept to Stockholders for 1991 & Related Info Statement to Stockholders

ML20095H555
Person / Time
Site:	Point Beach
Issue date:	12/31/1991
From:	Brady A WISCONSIN ELECTRIC POWER CO.
To:	Office of Nuclear Reactor Regulation
References
NUDOCS 9204300008
Download: ML20095H555 (31)

Text

-_ _ _ _ .

1 .

p\

pi -

Wisconsin Electac POWER COMPANY 231 W PAchoart Po. Boi 2046. Mdwouvee VA 53201 (414)221 2345 April 20, 1992 Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555 Ladies and Gentlemen:

In accordance with 10 C.F.R. Section 50.71, enclosed is the 1991 annual report to stockholders of Wisconsin Electric Power Company, which includes certified financial statements. Such annual-report accompanies Wisconsin Electric's definitive information statement, which is being mailed to stockholdeis today.

Wisconsin Electric Power Company is the acider of Facility Operating License Nos. DPR-24 and DPR-27 it; sued by your Commission under Dockets 50-226 and 50-301, respectively.

Ver r truly yils, 4

Ann Marie rady)

Assistant qcrptary CLF/kir Enclosure j pro \arpt-we cc: Mr. Gerald Charnoff Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W.

Washington, DC 20037

\

'\

h h PDR 66 920450 I PDR h A subskhm <>rnunsm begs agenwa

Wisconsin Electnc f PONER COMPANY 231 West hiichigan Street P.O. Box 2046 hiilwaukee, Wisconsin 33201 INFORMATION STA'llh!ENT and ANNUAL REPORT TO STOCKilOLDERS

!NFORMATION STATEhlENT -

April 20,1992 This statement is furnished in connection with the annual meeting of stockholders of Wisconsin Electric Power Company {NE or the company) to be held on hiay 12,1992, at the principal oface of the company at the Public Service Building, 231 West hiichigan Street, hiilwaukee. Wiscoru t, and all adjournments thereof, for the purposes listed in the Notice of Annual Meeting of Stockholders. 'N.' wmpany'. annual report to stockholders ,

accompanies als 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 ts of March 16,1992, the company had outstanding 44,508 shares of Six Per Cent. Preferred Stock; 960,000 sbarcs of Serial Preferred Stock ($103 par value), consistir; of 260,000 shares of 3.60% Series and 700.000 shares of 6.75% Series; and 33,289,327 shares of com'non stock. Each outstandir g share of each class is entitled to one vote. Stockholders of record at the dose of business on March 16,1992 will be entitled to vote at the mecting.

All of WE's outstanding common stock, representing 97% of its voting securitica, is owed beneficially by ils

~

paren! company, Wisconsin Encrgy Corporation (Wisconsin Energy or WEC).

RELATIONSillP WITII INDEPENDENT PUllLIC ACCOUNTANT Price Waterhouse has acted as independent public accountant for the ccupany or its predecesser continvously since 1932, and was appointed by the company's board of directors upon recommendation of Wisconsin Enc.gy's board of directors to serve as such during the current year. Representatives of 6e firm will not attend the i

ennual meeting of the company, but will be praent at Wisconsin Energy's annual meeting on May 13,1992 to rnale any statement they may consider appropriate and to regond to questions which may be directed to them.

MEETINGS OF Tile IlOAttD OF DIRECTORS The board of diicctors ordinarily ineets monthly. In 1991 the board held twelve regular racetings and one special meeting. None of ti.e incumbent directors attended fewer than 85% of the aggregate number of rnectings of the boar 1 and the committees on which they r.erved.

The exec.tive committee, which met once in 1991, may exercise all of the powers vested in the board during periods betwen board meetings except, among other things, action regarding disidends or other distributions to stockholders, ekction of officers or the filling of vacaccirs on the board or its committees. The company does not have audit, nominating or compensation committees.

I hThis document is printed on recycled paper.

N________.____--_-_-_--_-- _ - _ - - -

l r

INFOltMATION CONCEltNING NOMINEFS FOlt DiltECTOltS .  ;

At the 1992 anmial meeting, there will be au clection of twchc directors to hold office until the annual meeting

• of stockholdm in 1993 and until their respective successors are duly elected and qualified.

The nominers named below have consented to being nominated and to serve if clected. The board of directors does not expect that any of the nominees will become unavaila' ole for any reason. If that should occur before  ;

the meeting, another nomince or nominees will be selected by the company's board of directors.

The information relating to occupations, business experience, direce htt.s and ownershh of equity securities is based on data obtained from the directors and afficers. Ages of directors are shown as of December 31,1991.

Wisconsin Energy Corporation's principal subsidiaries are Wisconsin Electr'. Power Company and Wisconsin l Natural Gas Compar>y.

NOMINEES FOR DIRECTORS (TERhtS EXPIRE IN 1993)

RICllARD A. AllDOO,47, has h;cn chairman of the board and chitf executive officer of the company and >

-Wisconsin Natural since 1990 lie has been chairman of the board, president and chief executive officer of Wisconsin Energy Sina May 1991. lie had been president and chief executive officer of WE during 1990 and  ;

was presidcot and chief operating officer from 1989 to 1990. Mr. Abioo servc<l as executive vice president of Whconsin Electric during 1989 and as a senior vice president from 1984 to 1989. lie had been an executive vice ,

president of Wisconsin Energy from 1990 to biay 1991 and a dce president from 1987 to 1990. I!c has been a i director of the company Mnce 1989 and is a member of the executive committee. Ile has been a director of  :

Wisconsin Energy smce 1988 and is aho a director of Wisconsin Nttural, hi&l Marshall & lisley Bank, ARI  !

Metwork Services,Inc., Blue Croa & Blue Shield United of Wisconsin and United Wisconsin Senices,Inc. Mr. )

Abdoo, who resides in Milwaukee, Wisconsin, does not own any of the company's stock, but is the beneficial -

owner of 4,220 shares of Wisconsin Energy's common stock.

JOlIN F. BERGSTROM,45, has been president and chief executive officer of Bergstrom Corporation, an operator of hotels rnd General hiotors Corporation au.omobile dealerships, since 1974. lie has been a director of Wisconsin Electric since 1985 and is a member of the executive committee. lie has been a director of Wisconsin Energy since 1987. lie is am o director of Kimberly-Clark Corporation and First National Bank - ,

Fox Valley. Mr. Bergstrom, who resides ii. Neenah, Wisconsin, does not own any of the company's stock, but owns beneficially 2,000 shares of Wisconsin Energy's common stock.

JollN W. IlOSTON,58, has been president and chief operating officer of the company since June 1990. lle has been vice president of Wisconsin Energy since May 1991. lie had been executive vice president and chief operating officer of WE during the first five months of 1990 and was a senior sice president from 1982 to 1990. '

lie has been a director of the company since 1988 and is a member ofits execv* p c committee. lie has been a director of Wisconsin Energy since April 1991. Mr. Boston, who resides in Milwaukee, Wisconsin, does not

-own any of the company's stock, but owns beneficially 1,590 shares of Wisconsin Energy's common tstock.

ROllERT 11, GORSKE,59, has been vice president and general counsel of the company and of Wisconsin Natural since 1976, and general counsel of Wisconsin Energy since 1981. Ile has been a director of the company since April 1991. lie is an alternate member of the executive committee and also serves as a director of Wisconsin Natural. Mr. Gorske, who resides in Milwaukee, Wisconsin, does not own any of the company's stock,

- but owns beneficially 9,168 shares of Wisconsin Energy % common stock.

GENEVA B. JO!!NSON,62, has been president and chief executive officer of Family Service America, an organir.ation representing private agencies in the United Wtes and Canada that provide human service programs, since 1983. Mrs. Johnson has been a director of Wisconsin Electiic since 1938 and is an altc;nate member of its executive committee. She has been a director of Wisconsin Energy since 1988. Mrs. Johnson, who resides  !

in Milwaukee, Wisconsin, aloes not own any of the company's stock, but . owns beneficially 957 shares of Wisconsin Energy's common stock.

h 2

c *r--re m n-, - , nv v,--,,-m~>~- r.-m-----n, -n,-e.w w,m ,- ---- - - --- ~w - ,-,n~~-~ ~n - -- -- - - - - - - - - - - - - - - - - - - - -

i Wisconsin  :

'Electnc  ;

POWER COMPMY 231 W Mch.pt Po tw 2046 moae e # M201 INW1 N April 20,1992

Dear Stockholder:

Wisconsin Electric Power Company will hold its annual meeting of stockholders at 9.00 a.m. on Tuesday, hiny 12,1992 at the Public Service Building,231 West hileNgan Street, hiilwaukee, Wisconsin. We are not soliciting proxies for this meeting, as about 97% of Wisconsin hhetric's voting stock is owned and will be voted by it: parent company, Wiscon in Energy Corporation. You may,if you wish, attend the meeting and vote your .,

shares of preferred stock; however, it will be a short business meeting only. ,

On behalf of the directors and officers of Econsin Energy,I cordially imite you to attend Wisconsin Energy's annual meeting to be held Wednesday, hiay 13,1992 at 210 p.m. This year, the Wisconsin Energy meeting will be held at a new site, the Italian Comruunity Center, whid is located west of the Summerfest grounds at 631 East Chicago Street near downtown Afilwaukee, Wisconsin. By attending this meeting, you will have the opportualty to meet many of the Wisconsin Electric officers and directors. Although you cannot vote your shares of Wisconsin Electric preferred stock at the Wisconsin Energy meeting, you should find the afternoon's activities to be worthwhile. You will be asked to register before entering the meeting.

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

Sincerely, . ,

/

Richard A. Abdoo Chairman of the Board and Chief Executive Officer If you have any. questions, please call out toll free F;ockholder llotline at:

2212100 in hietro hiilwaukee 1-800-242-96S6 it Wisconsin 1-800-558-9663 outside Wisconsin -

Asaakin onthwwnDay amwaw

e e

t NOTirE OF ANNUAL h1EETING Ol' STOCKilOLDERS i

-I April 20,1992 l l

To the Stockholders of Wisconsin Electric Power Company:

1 l

NOTICE IS IIEREBY GIVEN that the annual meeting of stockholders of Wisconsin Electric Power Company ,

will be held at the Public Service Building,231 West hiichig:n Street, Milwaukee, Wisconsin, on Tuesday, May 12,1992, at 9:00 a.m., for the following purposes:

1. to elect a board of directors to hold office until the annual meeting of stockholders in 1993 and until their successors are duly elected and qualified, and

2. to transact such other business as may properly come before the meeting, or any adjournment or l adjournments thereof.

Stockholders of record at the close of business on March 16,1992 will be entitled to vote at the meeting. j l

By Order of the Board of Directors l

John II. Goetsch j Vice President and Secretary l

l 1

l

CilARLES S, hicNEER,65, hul been chairman of the board and chief esecutive officer of Wisconsin Energy

. _ from 1987 until his retirement as an officer in hiny 1991, lie had been chairman of the board and chief executive officer of the compaay and Wisconsin Natural from 1982 to 1989. Mr. hicNeer has been a director ,

of the company since 1970 and is an alternate member ofits executive committee. lie has been a director of

'W da Energy since 19h1. Ile also serves as.a director of Universal Foods Corporation, hit. hicNect, who  !

tr 4 in hiilwaukee, Wisconsin, does not own any of the compan/a stock, but owns benclicially 34,341 shares

( .ssconsin Energ/s common stock.

JOllN L htORRAY,64, a orporate director, wss chairman of the board of Universal Foods Corporation, a manufacturer and marketer of food ingredients and selected consumer food items, from 1984 until his retirement as an officer in 1990. Ile had been chief executive officer of Universal Foods from 1979 to 1988. II has been a director nf Wisconsin Electric since 1983 and is an ahernate member of its executive committee. lie has been a director of Wisconsin Energy since 1987. l{c is also a director of Universal Foods Corporation, Briggs &

Stratton Corporation, Firstar Corporation, hlarcus Corporation and Twin Disc, Inc. hit. hiurray, who resides in hiilwaukee, Wiscorisin, does not own any of the compan/s stock, but owns beneficially 2,000 shares of Wisconsin Energ/s common stock.

DAVID K. PORTER,48, has been a senior vice president of Wisconsin Electrie and a vice president of Wisconsin l Natural since 1989. At Wisconsin Electric, he had been sice president corporate planmng from 19S6 to 1989.

lie has been a director of the company since 1989 and is an alternate member of its executive committee. lie is also a director of Wisconsin Natural. Mr. Porter, who resides in Milwaukee, Wisconsin, does not own any of '

the compan/s stock, but owns beneficially 4,668 shares of Wisconsin Energy's coramon stock.

MORRIS W. REID,66, has been vice chairrnan of the board, president and chief operating officer of Versa Technologies, Inc., a manufacturer of fluid power and silicone rubber products, since 1989, lie had been chairman of the board of Versa Technologies from 1982 to 1989. Since 1978 he has also beer an independent managemer.t consultant and corpo' ite director. lie was, from 1972 to 1978, chairman of the board of J. I. Case Co., a manufacturer of construction and farm machinery. Mr. Reid has been a director of Wisconsin Elect.ic since 1979 and is a member of its executive committee. IIe has been a director of Wisconsin Energy since 1987.

Ile is also a director of Ban; One Wisconsin Corporation, A&E Manufacturing Company and Versa ,

Technologies. Inc. Mr. Reid, who resides in Racine, Wisconsin, does not own any of the compan/s stock, but owns beneficially 2,182 shares of Wisconsin Energy's common stock.

JERRY G. REMMEL,60, has been a senior vice president of the company and vice president finance of Wisconsin Natural since 1989. IIe has been treasurer of Wisconsin Energy since 1981. Ile had been vice president and treasurer of the company from 1983 to 1989 and treasurer of Wisconsin Natural from 1974 to 1989.

lie has been a director of the company since 1989 and is as alternate member of its executive committee. lie is also a director of Wisconsin Natural. Mr. Re nmel, who resides in Milwaukee, Wisconsin, does not own any ,

of the companfs stock, but he and members of his family are the beneficial owners of 3,578 shucs of Wisconsin i Energy's common stock. Mr. Remtact disclaims beneficial ownership of 118 of such shares.

FREDERICK P. STRATTON, JR.,52, has been chairman and chief executive officer of Briggs & Stratton  :

Corporation, a manufacturer of small gasoline engines and automotive locks, since 1986. lie has been a dir ector of Wisconsin Electric since 1986 and is a member of its executive committee. IIe has been a director of Wisconsin Energy since 1987" lle l'. also a directo of Briggs & Stratton Corporation, Banc One Corporatiot.,

Bane One Wisconsin Corporation, Midwest Express Airlines, Inc. and Weyco Group, Inc. Mr. Stratton, who i resides in Milwaukee, Wisconsin, does not own any of the companys stock, but owns beneficially 2,400 shares of Wisconsin Energy's common stock JON G. UDELI,56, has been Irwin Maier Professor of Business at the University of Wisconsin-Madison since 1975. Dr. Udcll has oesn a director of Wisconsin Electric since 1977 and is an alternate member of its executive comrnittee, lie has been a director of Wisconsin Energy since 1987. From 1982 through 1989 he was chairman of the board of directors of the Federal 11ome loan Bank of Chicago. lie is a director of Research Products Corporation and Versa Technologies, Inc. Dr. Udell, who resides in Madison, Wisconsin, does not own any of the company's stock, but he and members of his family are the benclicial owners of 3,782 shares of Wisconsin Energy's common stock. Dr. Udell disclaims beneficial ownership of 1,731 of such sharcs.

3

I t

OFFICERS t i

. (Figures in parentheses indicate age and yeen of service with Wisconsin Electric Power Company as of December 31,1991.)

RICllARD A. AUDOO (47,16) JOllN 11. GOETSCII (58,33) BERNARD F. VAN DINTER (58.36) chairman of the board vice president & secretary vice picsident-engineering & .

A chief executive officer construction  ;

RODERT II. GORSKE (59, 27)

JollN W. BOSTON (58,9) vice president & general JAhtES J. ZACll (45,22) t president & chief counsel vice president-nuclear power operating officer RICilARD R. GRIGG, JR. (4,21) RICllARD R. PL.TZ (51, 'z6)

DAVID K. PORTER (48,22) vice presideat-system operations controller j

~

senior sice president ROBERT E. LINK (40,11) GORDON A. WILLIS ($3,30) 1 JERRY O. REMMEL (60,36) vice president marketing treasurer r,cnior vice prersident NANCY R. NOESKE (54,12) SUSAN A. LUEGER (38,6)  :

CALVIN 11. BAKER (48, *) vice president consumer assistant vice president-vice president finance relations human resources DOUGLAS S. BO1T (45,1) JOllN E. SPEAKER (60,15) ANN MARIE BRADY (39,3) vice president information vice president-public affairs assistant secretary systems I FRED A. TREBATOSKI (56, 32)" SALLY A. NEWTON (42,18) '

vice president customer assistant treasurer operations

' Employed by the " Will retire as an officer and company September 1,1991, employee of the company effective July 1,1992 1hc directors and officers of the company as a group (27 persons) do not own any of the company's stock, but beneficially own 112,817 shares of common stock of its parent company, Wisconsin Energy Corporation (0.17'7c of such class). Shares indicated in thie,information statement as beneficially owned by the indisidual directors and the directors and officers as a group <re stated as of Feb uary 29,1992, and include, in secordance with applicable Securities and Exchange Commission rules, any sharcs as to which each individual directly or indirectly has or shares voting power and/or investment power and any shares as to which the individual has the right to <

acquire beneficial ownership with!n 60 days of such date. Also included are any shares owne '. by the respective individual's spouse, minor children or any other relative sharing the same residence, as well as any shares held

- by the respective individualin a fiduciary capacity or held for his or her account in Wisconsin Energy's Tax Reduction Act Stock Ownership Plaa,its Stock Plus invcstment Plan, and the company's Management Employee

- Savings Plan. Shares are so included whether or not the director or officer disclaims actual bencibial ownership of any of them.

OTIIER MATTERS The board of directors is not aware of any other matters which are proper subjects for acticn by security holders which may come before the meeting.

4

~ - - . - - - - - - - - - - - - - - - - - - ---

. COMPENSATION DIRECTORS' COM PENSATION

Since January 1991, directors' fees have been $1,500 pcr month retainer fee plus $1,ma for each board o-committee meeting attended in person or by telephone or other electronic means or $300 for each signed, written unanimous consent in lieu of a meeting. In addition, a per diern fee of $1,000 will be paid for travel on company business for each day on which a board or committee meeting is not hdd. Although certain directors of the company also serve on Wisconsin Energy's board, only a single meeting fee for meetings of such boards of directors held on the same day, a single per diem (ce and a single retainer are paid. Employee directors receiv

no directors' fees. Nonemployee directors may defer fees so long as they serve on the board of the company and/or its af0liates.  !

EXECUTIVE OFTICt'RS' COMPENSATION The following table conta'ms information on total cash compensation paid by the company, for services in all capacitics to the company in 1991, to each of the five most highly compensated key policy. making executive ofGcers and to all executive officers as a group:

1 incentive Name of Individual and Principal Capacities Sened Salary C mpensation (1)

RICilARD A. AUDOO $ 281,850 $ 47,073 chairman of the board and chief executive officer JOllN W. HOSTON $ 240,620 $ 38,501 president and chief operating officer ROBERT 11. GORSKE $ IM 333 $ 24,651 vice presid:nt and general counsel DAVID K. PORTER $ 145.917 $ 23,346 senior vice prerident i JERRY G. RT'.MMIIL $ 134,%7 $ 18,811 senior vice president All executive officers as a group (8 persons) $1,315,585 $183,242 (1) Incentive compensation paid by the company as recommended by the Wisconsin Energy compensation committee and board of directors and approved by the WE board of 'lirectors under the Executive incentive Compensation Plan (EICP). The EXCP and other compensation plans are described in the following pages.

The compensation reported is for that portion of 1991 during which the respective individuals served as executive officers of the company. Other compensation, not otherwise described in this information statement, to each named executive officer and to all executive ofneers as a group does not execed the lesser of $25,000 per person or 10 percent of their aggregate cash compensation.

INFORMATION ABOUT PIANS

- During 1991, the company maintained certain group health, dental and vision care insurance coverage for its

, officers which was not generally available to all salaried employees. In 1991, the net cost to the company of the ,

premiums for such additional benefits for Messrs. Abdoo, Boston, Gorske, Porter and Remmel was $2,364, '

$3,218, $2,873, $2,940 and $2,631, respectively, and $20,727 for all executive officers as a group. Effective January 1,1992, such coverage was replaced with the 2.ame coverage available to all salaried employees. iddition, effective in 1992, the company will maintain supplemental life in wance coverage for its officers in N *nount of two times annual base pay,in addition to the life insurance becat which is prmided to all salaried v ayees.

b 5

j i The company's parent, Wisconsin Energy Corporation, has a qualified Tax Reduction Act Stock Ownership Plan (TRASOP), in which substantially all employces of the company with more than one year of service are participanto Prior to plan year 1987, annual employer contributions were made toward the purchase of l Wisconsin Energy comman stock for participants due to the avaBability of certain tax credits under the Internal Revenue Code. The Tax Reform Act of 1986 removed the last of these available tax credits. Therefore, the last i plan year for which regular employer contributions were made to the TRASOP was 1986. In certain presious 4 years, employee voluntary watributions were also permitted. The TRASOP allows, from time to time, employer discretionary contributions. In 1991, there were no such employer contributions. Dividends from the shares in 3

a particirant's account are reinvested on a tax-deferred basis. A participant will automatically recche the shares in his or her account after retitement or termination of employment A participant also has the option o receive ,

the shares in his or her account when (i) the participant reaches age 59-1/2, (ii) the shares have been held in the account for at least 84 months, or (iii) the participant reac5es age 55 and has been in the TRASOP for at .

least ten years (limited to varying amounts of qualifying shares under specific circumstances). l The company has a qualified Management Erpployee Savings Plan (htESP) in which all its executive and management employces are cligible to participate. Under the htESP a participant may elect to have the employer contribute tc, a trustee for the employce's account,in lieu of paying as salary, up to 15% (except for restrictions which may apply in certain cases) of annual base salary delcrmined without giving effect to such election. In 1991, a participant's elective contribution to the A1 ESP was limited to $8,475 by the Internal i Revenue Code. This limit may be changed from time to time pursuant to the Code. Effective January 1,1992, the h! ESP was amer.ded to ai ow the company to contribute additional funds to match 50% of the first 6% of annual base salary contributed ty cligible employees. The matching contributions, which ate vested when made, are invested by the trustec in Wiscor: sin Energy common stock. Prior to such amendment, the company contributed additional funds to match 25% of the first 6% of annual bu salary contributed. All participant contributions are invested by the trustec in one or more investrnent funds as sclected by the participant, as were j all matching contributions until January 1,1992. Account balances arc distribukd upor. retirement or termination of employment, subject to earlier withdrawalin certain events of financial hardship. The htESP has a prevision to permit qualifying participants to horrow generally up to 50% of their account bidance, limited to a maximum loan of $50,tM The htESP meets the requirements under Section 401(k) of the Internal Revenue Code and accordingly participants are not subject to federalincome tax at the time salary or matching amounts are contributed, or on carnings on the invested funds, but instead arc subject to tax at or following the time of distributions and withdrawals. Cornpensation deferred in 1991 under the htESP by participating executive officers is included uuder Salary in the cash compensation table on page 5. Company matching contributions made in 1991 under .hc MESP for Messrs. Abdoo, Bostan, Gorske, Porter and Remmel were $1,504, $2,099,

$1,864, $1,907 and $1,715, respectively, and $11,952 for all executive officers as a group.

Since 1989, Wisconsin Energj has had in effect the Executive incentive Compensation Plan (EICP), Effective January 1,1992, Wisconsin Energy established the Short Term Performance Plan described below to replace the ElCP. The EICP will remain in cffect until allincentive award amounts have been paid out in 1994 and will be termir.ated at that time. No new performance goals will be ntablished under the EICP and no awards wi!! be made for plan year 1992 and thercafter. The objectives of the E!CP were to improve the %cial and operational performance of Wisconsin Er.crgy and its utility subsidiaries by providing designated ca.med officers of such companics with a financialincentive opportunity which reinforces and recognizes company, organizational and individual performance and to enhance the ability of such companies to attract and retain talented executives.

i As approved by the boards of directors o; WEC and WE, the company's participants in the EICP have been designated by WEC's chief executive officer. The Wisconsin Energy board and its compensation committee appro"cd the long and short-term performance goals which applied in each calendar year, and also approved indhidual incentive awards, if any, to be made early the following year based on attainment of those goals.

Awards under the ElCP could not exceed 20% of a participant's base salary, and were payable in the following manner: 25% of an indniduars award was paid in cash and 75% was converted to share equivalenk, in an unfunded bookkeeping account, based on the prior year-end closing price of Wisconsin U.nergy's common stock.

Such account is maintained for three years, during which time dhidend equivalents are cained and also converted to share equivalents, based on the closing price of WEC common stock on cach dividend payment date.

~

Following the end ot a three-year period the value of the accumulated share equivalents for a particular year will j- be paid in cash, such payment to be based up(m the prior year-end closing price of the common stock at the j time. A participant could elect to defer receipt of all or a portion of either or both the cash or share equivalent portions of any incentice award through the Executive Deferred Compensation Plan (EDCP) described below.

However, effective December 18,1991, the ElCP and the EDCP were amended, with the consent of the affected participants, to provide that 100% of any EICP award made in 1992 attributable to performance of a participant j m 1991 be payable in cash. Messrs. Abdoo, Boston, Gorske, Porter and Remmel, three additional executive L officers of the co*npany, and eleven other officers of the company were designated as participants in the 1991 E!CP. Incentive awards made to executive officers of the company in 1992 for performance during 1991 are listed under Incentive Compensation in the cash compensation table on page 5. The numbers of share l

i 6

equivalents credited as a result of dividen( quivalents carned during 1991 on prior company awards for hicurs.

Abdoo, Boston, Gorske, Porter an.1 Remmel were 67,61,30,40 and 37, respectively, and 284 for all executhe officers as a group.

I Effective January 1,1992, Wiwonsin Energy established the Short Term Performance Plan ISTPP) in place of the ElrP to promote the achievemeat of customer and shareholder focused obje-tives of Wisconsin Enctn and its ur' ty subsidiaries while recognidng the individual performance of designated elected ofGeers and other mangement employees who, by the nature and scope of their positions, at: materially responsible for the suaess of such companies. Subject to approval of the WEC and WE boards of directors, participants in the STPP arc designued by WEC's chief executive officer hiessrs. Boston, Gorske, Porter and Remmel, three additional executive officers of the cornpany, and nine other ofGeers of the company have been designated to panicipate in the STPP in 1992. Under the plan, a target award for cach participant is approved by the WEC and WE boards of directors prior to each calendar year. Performance goals for cach calendar year, which may be corporate, subsidiary, divisional and/or indhidual gA, are established and maximum, expected and minimum achievement levels of performance may be established by WEC's chief executive officer. In addition,in cach calendar year, WEC's chief executive officer may recommend for appreval by the WEC and WE boards of directors one or more company wide performance goals which must be achieved for any participant to receive an award for tht calendar year. The WEC and WE boards of directors may make an upward or downward adjustment to performance goals and target awards during a year if it determines that external chans es or other unanticipated business conditions bave materially affected the fairness of the goals and have unduly influenecd the aLOty to meu them. At the end of nch calendar year, actual awards, if any, under the STPP are determined and approved by the WEC and WE boards of directors based on achievement of the pre-establishcd performance goals. Final awards are payable as soon as practicsle after WEC aad WE board approval thereof.

A participant niay elect to defer receipt of all or a portion of any such award through the Executive Deferred Compensation Plan described below. No amounts were awarded under the STPP in 1991.

Wisconsin Energy has ht<lin effect since 1989 the Executive Deferred Compensation Plan (EDCP) to provide desy;nated elected officers and other executives of Wisconsin Energy and its subsidiaries the opportunity to defer income until retirement. Subject to the approval of the WEC and WE boards of directors, the company's participants in the EDCP are designated by WEC's chief executive officer hiessrs. Abdoo, Boston, Gorste, Porter and Remmel, three additional executive officers of the company, and cleven other officers of the company wer: designated to participate in the EDCP in 1991. Through the EDCP a paiticipant may dcfer, until termination of employment, up to 30% of monthly base salary and could defer up to 100% of any incenthe awards made under the EICP described above. Ilowever, effective December 18,1991, the EDCP was omenaed to provide that any incentive award which would be payable in 1992 under the EICP attributable to performance of the partkipant in 1991 shall be payable entirely in cash and any contrary deferral clection by participants shall be disregarded. Effective L : mry 1,1992, the EDCP was amended to provide that a participant may defer ali or a portion of any incentivo wards made under the STPP or other similar compensation agreements. Interut at the prime rate will accruc on the average b .ance in a participant's EDCP account and will be adjusted an i creiited semi-annually. Since, under the company's management employee retirement plan, base salary deferred ,,

through the EDCP and ir%ive awards carned are not included in the compensation base for calculating a participant's retirement income, a *make whole" benefit relative to such amounts (calculated without regard to any limitations imposed by the Internal Revenue Code on pension benefits or covered compensation) will be paid as a supplement through the EDCP out of general corporate assets. In uidition, a special contributian will be made to S participant's EDCP account to *mde whole" any h1 ESP employer matding contributions lost through deferrals elected under the EDCP or because of other limitations imposed by the Internal Revenue Code on a participant's level of participation in the h1 ESP. The distribution options available to participants arc (i) single lump-sum,(ii) ten-year payout or (iii) live-year payout. Compensation deferred by the executive ofGeers under the EDCP during 1991 is included under Salary in the cash compensation table on pagt 5. In 1991, "mahe whole" payments under the EDCP with respect to h1 ESP cmployer matching contributions for hiessrs. Abdoo, Boston, Gorske, Porter and Remmel were $2,725, $1,510, $599, $280 and $301, respectively, and $6,214 for all executive officers of the company as a group.

The management employee retirement plan of the company covers approximately 1,517 cmployees, including officers. The aggregate cash compensation for the individuals named in the table on page 5 and compensation for purposes cf the management employee retirement plan phis various supplemental plans described herein do not differ substantially. The estimated credited years of service under the management employee rei.rement plan for hiessrs. Abdoo, Boston, Gorske, Porter and Remmel ar- 16 years,9 years. 27 years,22 years and 37 years, respectisely.

The formula used for calculating retiremeat benefits is a step rate formula which provides a Social Security integrated benefit baser * .pon percentages of a participant's plan wages (highest 36 consecutive months average) 7

i f

i for up to 30 years of credited senice with additional (lower) percentages of plan wages for credited senice in i cwest of 30 years up to a maximum of 10 years. ,

Federal laws place certain lirnitations on pensions which may be paid and the amount of compensation which l may be taken into account in calculating benefits to be paid from federal income tax qualified plans. Pension i amounts which exceed such limitations will be paid at an operating expense through the Whconsin Energy i Corporation EDCP and Supplernental Executive Retirement Plan (SERP), as appropriate, on the same basis as  :

if they were paid out of the reti.ement plan. The annual retirement benefits payable for the life annuity form of pension for an indhidual retiring at age 65 in 1992 for specified compensation levels and years of service are shown in the following table. Such amounts are not subject to any deduction for Social Security benefits. The indicated benefits are calculated without regard to internal Revenue Service limitations affecting benefits from tax qualified pension plans and icelude benefits payable under the EDCP and SERP. The SERP (described below) provides designated participants a *make whole" benefit equal to any decrease in pension which may have resulted when the management employee retirement plan adopted the step rate pension formula. Such *make whole* benefit will be paid as a pension supplement out of general corporate assets.

P Annual Retirement Benefns at an Assumed Aversgs Auumed Retirement Arc of 65 years Years orCred ted service i r

Based on liighest 36 Conucutive Months 20 Years 30 Years 40 Yens 3 $ $ $

50.000 14,950 22,424 26,724 120,000 39,101 58,651 69.776 .

190,000 63,250 94.874 112,824 i 260,000 87,401 131,101 135,876 330,000 111,551 167,328 198,928 400,000 135.701 203,551 241,976 For many years Wisconsin Energy, and previously Wisconsin Electric, has had the plan now titled the Supplemental Executive Retirement Plan (SERP). Subject to the approval of the WEC and WE boards of directors, the company's participants in the SERP are designated by WEC's chief executive officer, hiessrs.

Abdoc, Boston, Gorske, Porter and Remmel, three adultional executive officers of the company, and cleven other officers of the company participated in the plan during 1991. In addition to the previously described benefit payments which relate to the management employee retirement plan, the SERP prmides for monthly payments of benefits for a period of ten yeart to the participant after retirement or to his or her beneficiaries in the event of the participant's death, equal to 12.5% (25% upon the death of the participant) of the average of the participant's highest 36 consecutive months of compensation (such compensation includes the monthly average of anyincentive payments Warded during such 3Araenth period and any base salary or other compensation that would have been paid duiing such 36-rnonth period but was not paid due to elective deferrals made by the participant under a savings or other deferred compensation plan). No such payments are made until after the retirement or death of the participant.

Wisconsin Energy has entered into an agreement with hit. Abdoo and Wisconsin Electric has entered into agrer.ments with hiessrs. Boston and Gorske, who cannot accurnulate by normal retirement age the maximum number of years of credited senice under the management employee retirement plans of Wisconsin Electric ,

and/or Wisconsin Natural. According to these agreements, such companies will provide such officees with supplemental retirement payrnents which will make their total retirement benefits at age 60 or older from such companics, including benefits under such plans, and which may take into accon . any vested benefits payable from previous employers, substantially the st.me as those payable to employees who are in the same compensation bracket and who became participants in such plans at the age of 25.

AVAllAHILI1Y OF FORhl 10 K 4 . ne Wisconsin Electric Form 10 K report for 1991 to the Securitief and Exebange Commission is available at

. no cost by writing to the vice persident and secretary, John II, Goetsch,231 West hilchigan Street, P.O. Box 2046, hiihvaukee, Wisconsin $3201.

8

, - - _ a2 _ _ _ ._.___ _ _ _ , _ _ _ _ _ . _ _ _ _ ... _. _

. 9 G

I WISCONSIN ELECTRIC POWER COMPANY 1991 ANNUAL REPORT TO STOCKHOLDERS ACCOMPANYING INFORMATION STATEMENT ,

1ABLE OF CONTENTS ITEM PAGE Business . . . . . ........................ A-2 Market for Common Equity and Related Matters . . . . . . . . . . . A-2 Selected Financial Data ...................... A-3 Quarterly Financial Data . . . . . . . . . . . . . . . . . . . . . . A-3 Management's Discussion and Analysis of Financial Condition and Results of Operations . . ........ . .... A-4 Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . A-10 Statement of Cash Flows ...................... A-ll Balance Sheet ........................... A-12 _

Capitalization Statement . . . . . . . . . . . . . . . . . . . . . . A-14 Common Stock Equity Statement .............. .... A-15 i Notes to Financial Statements ................... A-16 Directors ..................... ... .... A-23 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23 Report of Independent Accountants ................. A-24 A-1

i BUSINESS 3 l

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

Business Segment Operations Electric Operations Wisconsin Electric generates, transmits, distributes and sells electric energy in a territory of approximately 12,600 square miles with a population estimated at over i 2,000,000 in southeastern (including the l Milwaukee area), east central and northern '

Wisconsin and in the Upper Peninsula of Michigan.

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

For financial information about industry segments, see Note L to the Financial ,

Statements.

l Wisco'nsin Electric is a subsidiary of Wisconsin Energy Corporation (" Wisconsin l Energy"), which owns all of Wisconsin Electric's Common Stock.

MARKET FOR COMMON EQUITY AND RELATED MATTERS The amount of cash dividends declared on Wisconsin Electric's Common : tock during the t**o most recent fiscal years are set forth below. Dividents were paid to Wisconsin Electric's sole common stockholder, Wisconsin Energy.

Quarter Total Dividend 1990 1 $61,132,122-2 $42,963,035 3 $42,963,035 4 .$42,963,035

'1991 1 $63,863,035*

2 $34,627,501 3 $34,627,501 4 $34,627,501 L

• A $15 million cash dividend-included in this amount was declared in the f fourth quarter of 1990 but was not paid until the first quarter of 1991.

l L <

u ,

y A-2 y

T 1 - - _ . - , - . . . _ _. ._ __

SELECTED flhANCIAL DATA FiEAWCIAL 1991 1990 1989 1968 1987 (Thousands of Dollars)

Earnings available for cwwmxi st ockholder $ 175,641 $ 179,990 5 104,354 5 173,021 S 165,308 Operating revenues:

Electric $1,292,809 $1,208,045 51,245,701 51,275,396 51,120,682 Steam 12,9S6 12,126 12,292 12,363 10,508 Intel operating revenues $1,305,795 51,220,171 51,257,993 51,287,759 51,131,190 Total assets 53,052.133 $2,972,903 $2,967,006 52,871, D45 52,767,525 Long-term debt and pre f erred stock-redemption required $1,110,572 51,002,852 S1,016,197 51,050,339 5 855,493

$ ALES AND CUSTOMER $

1991 1990 1989 1938 1987 __

Electric Megawa t t -h our s s o '. d 25,016,247 23,656,727 24,293,356 24,050,662 20,134,62t Custurers (End of year) 907,871 896,393 882,803 870,780 859,449 Sttam Pounds (millions) sold 2,282 2,213 2,160 1,879 1,657 Custoners (End of year) 468 470 482 494 510 UARTERLY fikANCIAL DATA Three Months Ended Merch June 1991 1990 1991 1990 (Thousands of Dollars) totat operating revenues $323,273 S305,590 5320,810 $298,679 operating income $ 57,273 $ 56,524 $ $3,254 5 51,916 Earnings evollable

< conro<1 stockholder S 42,430 5 45,449 1 39,265 5 39,511 Three Monthr. Ended Septenber Dec ember 1991 1990 1991 1990 (thousands of Dollars)

Total operating revenues $337,783 $315,760 $323,929 $300,142 Operating income -5 66,83' S 64,131 $ 55,6B0 t $3,628 Eernings available f or connon $ts-inoloer $ 52,504 $ 52,187 5 41,442 5 42,843 The quarterly results of operations are not directly comparable because of senaonal and other factors. See Management's Olscussion and Analysis for further dictussion.

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

A-3

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

Earnings Earnings for Wisconsin Electric decreased to $175,641,000 in 1991 compared to t

$179,990,000 in 1990. The . decrease reflects higher operation and maintenance  !

expenses and a reduction in other income. The increase in expenses and an electric fuel adjustment retail rate reduction largely offset the revenue '

effects of increased kilowatt-hour sales and a $35.4 million electric retail rate increase which became effective January 4, 1991.

I Electric Sales and Revenues

- Total electric. sales of Wisconsin Electric detailed below by customer class, I inc eased 5.7 percent in 1991 compared to 1990, reflecting warmer summer weather, the resumption of normal sales to the Empira and Tilden iron ' ore mines and moderate increases in economic activity.

-Electric Sales-- Megawatt Hours 1991 1990  % Change  !

Residential 6,566,748 6,196,887 6.0 Small Commercial _

and Industrial 6,152,833 5,954,603 3.3 Large Comtnercial and Industrial 9,462,065 8,763,987 8.0 ,

Other 2,161,706 2,066,045 4.6 '

Total Retail and Municipal 24,'s43,352 22,981,522 5.9 Resale-Utilities 672,895 675,205 (0.3)

Total Sales 25,016,247 23,656,727 5.7 Electric energy sales to the Empire and Tilden mines, Wisconsin Electric's two largest customers, were 28.8 percent -higher in 1991, primarily tiecause 1990 sales were reduced due .to an employees' strike at the mines which lasted from August I to December 1 of that year. Excluding the mines, total electric sales increased 4.1 percent and sales to large commercial and industrial customers increased 3.2 percent in 1991. Sales to the mines represented approxiretely 8 percent, 7 percent and 10 percent of total electr ic sales duringJ1991, 1990 and 1989, respectively.

Electric revenues increased 7.0 percent during '1991, reflecting higher -

electric kilowatt ~-hour sales, and a $35.4 million or 3.3 percent electric rate increase on an annualized basis which became effective January 4, 1991. The increase in revenues' associated with such items was partially offset by a '

retail electric fuel adjustment rate decrease effective on May 25, 1991.

l' i-L l

A-4

Electric sales iacreased at a compound annual rate of 1.5 percent in 1991 an.1 199.0, when compared to 1989, while electric revenues increased at a compond

. annual rate of 1.9 percent. Electric sales in 1990 were ?.6 percent less Jan in 1989, reflecting the lower sales to the mines and eft ,ts of milder winter weather. Excluding the mines, electric sales in 1990 increased approximately 1 percent over 1989. Electric revenues in 1990 were 3 percent lower than 1989 primarily because of a $29.7 million rate reduction and lower sales.

Electric Operation and Maintenance Expenses Total electric operating expenses, excluding income taxes and depreciation, increased $71 million in 1991 compared to 1990 largely due to higher fuel, purchased power and oth::r operation and maintenanct costs. Fuel and purchased power costs increastd $42 million in 1991 relative to 1990 due both to increased sales and to a higher per unit cost of caal :nd purchased power.

Maintenance costs were $7.5 million higher in 1991 relative to 1990 due in part to a $3.5 million increase in expenses related to renovation work at the Port Washington Power Plant. During 1990 total operating expenses, excluding income taxes and depreciation, decreased $10 million compared to 1989, _

primarily reflecting the decrease in sales from 1989 and the increa.,ed energy purchases during 1990 compared to 1989 at prices that were attractive when compared to the cost of available company generation. Since 1989, operating expenses, excluding income taxes and depreciation, have increased at a compound annual rate of 3.8 percent.

Under the Wisconsin retail electric fuel adjustment procedure, retail electric rates may be adjusted if cumulative fuel and purchased power costs, when j compared to the costs projected in the retail electric raw proceedi.9, deviate from a prescribed range and are expected to continue to be above or 6 below the authorized range. Under this procedure, Wisconsin Electric reduced its retail electric .ates in each of the last three years. On an annualized i basis, electric rates were reduced by fuel adjustments of $14.9 million on May 25, 1991, $13.6 million on November 28, 1990 and $8.4 million on July 31, 1939.

Other items Other income was higher in 1990 relative to 1991 and 1989, largely because of

$15.3 million of iaterest income related to tax settlements which was recorded in 1990.

See Note C - Pension Plans and Other Postretirement Benefits and Note E -

, In.ome Taxes in the Notes to Financial Statements for discussions pertaining to the adoption of new accounting standards in these areas.

Rates and Regulatory Matters The table below shows the projected annual revenue impact of recent rate changes authorized by regulatory commissions based on tLe sales projections g utilized by those commissions in setting rates. The PSCW on January 11, 1992 '

authorized a $56.4 million retail electric base rate increase for 1992 and eliminated the $14.9 million fuel adjustment reduction which had been in effect since May 25, 1991. The increase is bascJ on an authorized regulatory return on common equity of 12.8 percent, down from 13.1 percent authorized for 1991. On October 1,1991, Wisconsin Electric filed its first rate case with the MPSC since 1986, requesting an increase in base rates, in December 1991, A-5

a negotiated settlement was reached with the HPSC resulting in a $1.9 million, i or 6.1 percent rate increase on an annualized basis, effective January 17, )

1992. The regulatory return on common equity was set at 12.8 percent. The" i PSCW regulates Wisconsin retail electric and steam rates, while the FERC . i regulates wholesale electric rates. The MPSC regulates retail electric rates j in Michigan.- l l

Revenue Percent increase Change in Effective i Service (Decrease) Rates Date  ;

l Retail electric, Wis. $ 35,405,000 3.3% 1/01/91 Steam heating 216,000 1.6 1/04/91 Fuel tiectric, Wis.- (14,900,000) (1.3) 5/25/91 '

Retail electric,-Wis. 56,391,000 5.1 1/H/92 '

Steam heating _

272.000 2.0 1/11/92  ;

Retail electric, Mich. 1,850.000 6.1 1/17/92  ;

In setting retail rates, the annual rate case process in Wisconsin addresses the impact of inflation by incorporating inflation-related increases in .he estimates of expenses used in the forward-locking test year.

Electric Sales Outlook l

Assuming _ moderate growth in the service territory economy and normal weather, l Wisconsin Electric presently anticipates electric kilowatt-hour sales to grow at a_ compound annual rate of approximately 1.1 percent over the five-year period ending December 31, 1996.-This forecast is subject to a number of variables, incLding the economy and weather, which may affect the actual growth in sales.

LIQUIDITY AND CAPITAL RESOURCES Investing Activities Wisconsin Electric invested $708 million in its businesses during the three years ended December 31, 1991. Construction expenditures for new or improved facilities represented.the largest component totaling $570 million, followed by not capitalized conservation expenditures of $76 million, purchases of nuclear. fuel at $59 million, and payments to an external trust for the eventual _ decommissioning of the company's Point Beach Nuclear Plant totaling

-$53 million offset by a reduction in construction funds held by trustee and other items totaling approximately $50 million.

Although no new base load power plants were under construction during the last three years, Wisconsin Electric has begun to make expenditures related to _its -

combustion-turbine construction program. During 1991, expenditures of $13 million were made toward construction of the new Cuncord Generating Station, a four_ unit, 300 megawatt natural gas-fired combustion turbine facility designed to meet peak demand requirements. Two units-(150-megawatts in total).are expected to be placed in service in 1993 with the balance in 1994.

-A-6

, a - t_____ _u__

I .

Cash Provided by Operating and Financing Activities  !

During the three years ended December 31, 1991, cash provided by operating i activities totaled $1,037 million. During this period, internal sources of funds, after the payment of dividends, provided 79 percent of the company's L capital requirements.

Financing activities during the three year period included the issuance of l

$231 million of long-term debt. In December 1991, Wisconsin Electric issued

$100 million of First Mortgage Bonds, 8-3/8% Series, using the proceeds to

! reduce short-term horrowings incurred to finance its ongoing capital requirements. In October 1991, the company issued $9 million of First Mortgage Bonds, 6.85% Series, as the reven"n enurce and collateral for a City of Milwaukee tax exempt filiancing f ar improvements to the company's steam heating facilities.

During the three years ended December 31, 1991, the company continued efforts to reduce its overall cost of capital. in February 1992, Wisconsin Electric replaced its 7% Series Debentures due 1993 with lower cost short-term debt.

In 1989, the company sold $60 million of 9-1/8% Series First Mortgage Bonds, using the proceeds to refund a major portion of its 11-1/2% Series First Mortgage Bonds. The remaining bonds of the 11-1/2% series were refunded in ,

l September 1990. Depending on market conditions and other factors, the company

may pursJe additional debt refundings during 1992.

During the three-year period ending December 31, 1991, Wisconsin Electric retired a total of $186-million of long-term debt and increased short-term debt by $39 million. Dividends on the company's common stock, which is entirely ow ed by the company's parent, Wisconsin Energy, were $108 million,

$175 millior and $117 million, during 1991, 1990, and 1989, respectively.

Capital Structure

! The company's capitalization at December 31 is shown below:

1931 1990 1989 Common Equity 50.2% 51.4% 52.1%

Preferred Stock 4.2 4.4 4.4 Long-Term Debt 44.0 41.8 43.5 (including current

-maturities)

Short-Term Debt 1.6 2.4 -

100.0% 100.0% 100.0% ,

Compared to the electric utility industry generally, the company has maintained a relatively high ratio of common equity to-total ;apitalization 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 and Aa2 by Moody's Investors Service) and i internal cash generation has provided, and should continue to provide, the l L company with access to the capital markets when necessary to finance the anticipated growth-in the company's business. At year-end 1991, Wisconsin Electric had $102 million of unused lines of bank credit, $27 million of cash, A-7

,. .. . -- _- _ ~ _ . . _ - - - - - -- . - - _ - . - -

cash ecuivalents and short-term investments, $54 million of short-term debt-(inclucing long-term debt due currently) and $25 million of construction fun.ds held-by trustees.

During 1990 Moody's lowered its ratings of Wisconsin Electric's first mortgage ,

bonds from Aaa to Aa2. As of December 31, 1991 there were no electric l utilities' securities with the " triple-A" rating from either Standard & Poor's Corporation or Moody's Investors Service.

Capital Requirements 1992-1996 j The esthnsted capital requirements for Wisconsin Electric for the years 1992- l 1996 a m outlined below*

l (Millions of Dollars) ,

1992 199.1 1994 1995 1996 l

Construction $325 $388 $408 $330 $372 Conservation 35 39 39 37 33 Bond Maturities /

. Sinking Funds 24 7 2 2 38 Changes in fuel thventories (9) 2 6 6 6 Decommissioning Trust payments 18 19 20 20 21 Total $393 $455 $475 $395 $470 In order to reliably meet the forecasted growth in demand, the company employs a least cost integrated planning process which includes renovation of existing power plants, promotion of cost effective conservation and load management options, construction of new company-owned generation facilities and purchased power.

'Although investments in conservation related programs are reducing and delaying the need for new capacity, they do not eliminate the need entirely.

With continued growth in peak demand requirements, Wisconsin Electric is planning to build additional capacity, resulting in a correspondingly higher level of construction expenditures during the forecast period than was experienced _in recent years, in the forecast period, a total of 750 megawatts of natural gas-fired combustion turbine peaking capacity is planned for completion, with 150 megawatts annually in 1993 and 1994, 300 megawatts in 1995 and 150 megawatts in 1996. Additional peaking capacity is planned for

-later in the 1990s. The company has entered into purchase power contracts inter.ded to delay construction as long as feasible and to maintain adequate reserve margins prior to the availability of the planned capacity additions.

Also intended for completion in 1994 is a gas-fired cogeneration facility, to

- be rated at approximately 200 megawatts, that would generate electricity for the Wisconsin Electric system and provide' process'. steam to be sold to Repap Wisconsin, Inc. (forme'rly Midtec Paper Corporation) lfor use in its coated paper making facilities. Repap Wisconsin, Inc., located in Kimberly, Wisconsin, is currently the company's largest Wisconsin retail electric customer.

-Wisconsin Electric's next base load power plant is planned to be placed in-service ouring the summer of 1999. Employing the clean-burning technology of circulating fluidized bed combustion, this coal-fired facility is planned to be located at the site of the company's recently retired North Dak Creek A-8

units, therefore gaining cost savings by utilizing existing fuel transportation facilities, electric transmission lines and cooling water supplies.

The addition of new generating units requires approval from various regulatory agencies including the PSCW, the U.S. Environmental Protection Agency (EPA),

the Wiscon in Department of Natural Resources and the FERC.

Current construction projects of significance include renovation work at the company's Port Washington Power Plant and construction of a transmission line in the Upper Peninsula of Michigan. Scheduled for completion by the summer of 1992, this transmission line will enable Wisconsin Electric to increase the reliable transfer of power from the Presque Isle Power Plant to the Wisconsin system by 130 megawatts, providing a total capability of 300 megawatts.

Capital Resources During the five-year period ending December 31, 1996, Wisconsin Electric expects internal sources of funds from operations, after dividends, to provide _

about 70 percent of the company's capital requirements.

The remaining cash requiremants are expected to be met through the reduction of existing cash "estments and construction funds on oeposit with trustees, short-term borrcwings and the issuance of long-term debt. Current plans call for debt issues of $100 million during each of the years 1992 through 1995 (inclusive) and $200 million in 1996.

CLEAN AIR ACT The 1990 Amendments to the Clean Air Act mandate significant nationwide reductions in nitrogen oxide ("NOx") and sulfur dioxide ("502") emissions.

Phase 1 of the acid rain provisions, effective in 1995, is not expected to significantly impact Wisconsin Electric because of actions taken to meet the strict S02 emission limitations set by Wisconsin's acid rain law effective in 1993. Limited additional measures will be necessary for N0x emission control and continuous emission monitoring.

The compliance strategy for Phase I calls for continued use of low sulfur coal and the installation of low N0x burners and continuous emission monitoring equipment at one of Wisconsin Electric's electric generation plants. The cost of the equipment is estimated at $9 million based on today's costs. Equipment ,

costs, along with additional operating costs are expected to increase electric rates by less than 1 percent. Wisconsin Electric is projecting a surplus of ,

502 allowances during the Phase I period and will also seek additional S02 allowances which may be available as a result of its energy conservation activities. To the extent that a surplus become. available, Wisconsin Electric may sell allowances to other utilities retain them for use in Phase 11.

The compliance strategy for Phase 11, which requires continuous emission monitoring at all fossil fuel power plants by 1995 and additional emission reductions by the year 2000, includes installation of continuous emission monitoring equipment on the remaining company boilers, fuel switching, and installation of control equipment, if needed. Equipment costs, which may be as high as $75 million based on today's costs, could increase electric rates by 1 to 2 percent. Because the regulations have not yet been issued by the EPA, cost and rate estimates are subject to change and will be reviewed when the regulations are published.

A-9

t$l$CC3 SIN ELECTRIC POWER CCWANY INCDME W1ATEMENT Year Erded Decenter 31 lvV1 1990 1989 (Thousands of Dollars)

Operating Revenues Electric 51,292,809 51,208,045 51,245,701 team 12,986 12,126 12,292 Total operating Revenues 1,305,795 1,220,171 1,257,993 Operating Espenses Fuel (Note g) 291,271 263,889 290,074 Purchased power 65,261 50,916 31,387 other operation expenses (Note C) 295,654 268,345 257,708 Neintenance 136,142 128,675 145,057 Depreciation (Note D) 133,997 131,981 129,344 Taxes ether than income taxes 57,916 63,269 60,977 -

Federal income tea (Note E) 73,854 59,442 70,987 p State income tax (Note E) 16,B89 15,035 17,410

• Deferred itseme taxes net (Note E) 6,148 17,507 14,982 Investment tal credit - net (Note E) (4,381) (5,087) (5,686)

Total Operating Expenses 1,072,751 993,572 1,012,248 Operating income 233,044 226,199 245,745 other Incorre and Decuctions Interest income 15,688 32,603 21,714 Allowance for other funds used during construction (Note F) 7,227 5,B45 4,8 99 Miscellaneous - ret 6, 64 9 8,029 (1,696)

Federal income tax (Note E) (1,292) (6,678) (252) state income tan (Note E) ( 843 ) (2,318) (1,049) totti Other income and Deductions 27,429 37,481 23,616 Income Before Interest Charges 260,473 263,680 269,361 Interest Charges tong term deut 77,615 79,8D6 80,755 i Other interest 4,849 835 73 7 Allowance for borrowed funds used  :

during construction (Note F) (3,560) (2,877 (2,413)

Total Interest charges 78,904 77,762 79,079 het Incore 181,569 185,918 100,282 Pref erred Stock Dividend Requirement 5,928 5,928 5,928 Earnings Available for Cornon Stockholder S 175,641 5 179,990 $ 184,354 hote: Earnings and dividends per share of cortron stock are not a;plicable because all of the company's cormnon stock is owned by Visconsin Energy Corporation.

See Notes to Financial $tatements.

A-10

- ~ . - . _ _ _ _ - - . . _ . - _ - - - . - . - - . . .

dl$ CON $1N ELEC1RIC P M R COMPANY

$1ATECIN1 Or CASH f LOWS *

. Year Ended Decenter 31 1991 1990 1989 (Thousands of Dolters) ,

L Operating Activitiest Wet income $181,569 s185,918 5190,282  ;

Reconciliation to cash:  !

Depreciation 133,997 131,981 129,344 Nuclear fuel expense r a-'iration 22,139 23,507 22,950  ;

Deferred income taxes : .:t 6,148 17,507 14,982 '

investment tax credit ,- (4,381) (5,087) (5,686)

Allowance for other funds used during constrt.ction (7,227) (5,845) (4,899)-

Change in: Accounts receivable (6,308) (6,366) (4,114)

Inventories 11,670 (13,246) (6,291)

Accounts payable (6,790) (9,431) (2,693)

Other current assets (2,413) 8,197 15,039 other current liabilities 3,452 (14,657) 15,317

-other 9,402 (20) 18,881 Cash Provided by Operating Activities 341,258 312,458 383,112 investing Activities:

C m truction expenditures (215,446) (176,9$4) (178,087)

A. .' wance f or borr4wed funds used during construction (3,560) (2,879) (2,413)

Nuclear fuel (19,728) (20,121) (19,337)

Nuclear dectmnissioning trust (19,358) (17.248) (16,245)

Conservation rebates and loans - net (19,989) (29,396) (26,831)

Change in construction funds held by trustee 37,813 9,735 1,883 ,

other (15) 11,863 (1,249)

Cash Used 1.1 Investing Activities (240,283) (225,000) (242,329)

Financing Activities sale of Long term debt 124,221 25,793 81,033

-Retirement of long-term deot (27,552) (61,925) (96,824)

Changs in short-term debt (16,9 0 ) 55,804 -

Dividends on stock comon (167,745) (175,021) (116,865)

- preferred (5,928) (5,928) (5,928)

Cash Used in Financing Activities (93,904) (161,277) (138,584) i

~ Change in Cash ,nd Cash Equivalents- 1 7,071 $(7?,819) S 2,199 '

==,s==== ==e. : = sas ....

supplemental information disclosures Cash Paid fort-Interest (net of amount capitalized) $ 78,332 $ 78,455 $ 81,788

-Income taxes 90,981 84,383 71,970 See Notes to' Financial Statements.

A-ll

_. . a -- - . . . . . = - -- .- .. --

WISCONSIN ELECTRIC "0SER COMPANY BALANCE SHEET December 31 ASSETS 1991 1990 (Thousands of Dollars)

Utility Plant Electric $3,598,699 $3,456,639 Steam 31,975 29,686 3,630,674 3,486,325 _

accumulated provision for depreciation (1,548,775) (1,460,199) 2,081,899 2,026,126 Construction work in progress 128,865 96,905 Nuclear fuel - net (Note B) 56,899 60,252 Net Utility Plant 2,267,663 2,183,263 Other Property and Investments Nuclear decommissioning trust fund (Note D) 182,838 163,480 Construction funds held by trustecs 25,486 63,299 Conservation investments 99,842 90,346 Other 4,234 4,423 Total Other Property and Investments 312,400 321,548 Current Assets Cash and cash equivalents 27,183 20,112 Accounts receivable, net of allowance for -

doubtful accounts - $7,121 and $5,589 84,861 78,553 Accrued utility revenues 86,046 84,601 Fossil fuel (at average cost) 64,877 77,487 Materials and supplies (at average cost) 72,322 71,382 Prepayments 44,989 43,356 Other assets 5,241 5,906 Total Current Assets 535,519 381,397 Deferred Charges and Other Assets Accumulated deferred income taxes 60,245 59,711 Other 26,306 26,964 Total Deferred Charges and Other Assets 86,551 86,675

$3,052,133 $2,972,903 See Notes to Financial Statements.

A-12

WISCONSIN ELECTRIC POWER COMPANY 8ALANCE SHEET 4

December 31 LIABILITIES 1991 1990 (Thousands of Dollars)

Capitalization (See Capitalization Statement)

Common stock equity $1,203,220 $1,180,324 Preferred stock - redemption not required 30,451 30,451 Preferred stock - redemption required 70,000 70,000 Long-term debt 1,040,572 932,852 Total Capitalization 2,344,243 2,213,627 Current Liabilities Long-term debt due currently 14,901 25,733.

Notes payable - commercial paper 38,904 55,804

-Accounts payable. 60,815 67,605 Payroll-and vacation accrued 23,227 21,914 Taxes accrued - income and other 16,017 15,090 Interest accrued 18,807 18,111 Dividends declared 67 15,067 Other 5,106 4,590 Total Current Liabilities 177,844 223,914 Deferred Credits and Other Liabilities

. Accumulated deferred income taxes 399,967 389,432 Accumulated deferred investment tax credits 100,304 104,715 Other 29,775 41,215 Total Deferred Credits and Other Liabilities 530,046 535,362 Commitments and Contingencier (Note K)

$3,052,133 $2,972,903 See Notes'to Financial Statements.

A-13

. . . - . _ . . . - . _ . . ~ . ~ . , - . - ... - --

OlSCONSIN ELECTRIC POWER COMPAN7 CAPITAllZATION STATEMENT December 31 1971 1990 (Thousands of Dollars)

Cowen Stock Equity (See comon Stock Equity Statement)

Comon stock ($10 par value; authorized 65,000,000 shares; outstanding - 33,289,327 shares) $ 332,893 $ 332,893 Other paid in capital 142,462 142,462 Retained earnings 727,865 704,969 Total Comon $tock Equity 1,203,220 1,180,324 Preferred stock Cwulative Six Per Cent. Preferred Stock * $100 par value; authortred 45,000 shares; outstanding - 44,508 shares 4,451 4,451 Seriet preferred stock 1100 per value; authorized 2,360,000 shares; outstanding -  !

3.60% Series P60,000 shares 26,000 26,000 Total Preferred Stock Redeeption Not Required (hote H) 30,451 30,451 6.75% Series - 700,000 shares 70,000 70,000 Total Preferred Stock Redenption Required (Note H) 70,000 70,000 tong Term Debt first mortgage bonds Series Due 4 3/4% 1991 - 3,525 4 1/2%- 1993 4,985 4,985 5 7/81 1996 36,707 36,807 I

6 1/2% 1997 11,191 11,191 6 7/8% 1997. 37,580 37,580 6 5/8% 1998 9,676 9,676 6 7/8% 1998 33,360 33,360

. 6.10 % 1999 2008 25,000 25,000

-6.25 % 1999-2008 1,000 1,000 7 1/4% -1999 38,929 38,929 8 3/8% 1999 39,230 39,230 8 1/2% 1999 11,678 11,678 6.45 % 2004- 12,000 12,000 8 3/4% 2006 59,8v7 59,897 6.45 % 2006 4,000 4,000 6.50 %~ 2007 2009 10,000 10,000 8 7/B% 2008 79,934 79,934 9 3/4% 2015 46,350 46,350 8-1/2% 2016 100,000 100,000 9 5/8% 2318 100,000 100,000 6.85 % 2021 9,000 -

9.85 % 2022 100,000 100,000 9 1/8% . 2024 60,000 60,000 8 3/8% 2026 100,000 -

930,517 825,142 Debentures (unsecured)

7% Series due 1993 (Note !) 23,985 24,785 Note (unsecured)

-Variable rate due 2016 67,000 67,000 Obligations under capital lease (Note B) 43,248 48,150

-Unamortized discount net (9,277)- -(6,492)

Long term debt due currently- '14,901) (25,733)

Total Long Term Debt (Note 1) 1,040,572 932,852 Total Capitalization $2,344,243 52,213,627 E358323355 B33322E2E3 See Notes to Financial $tatements.

A-14

W11 CON $1W ELECTRIC Pout 2 COMPANY COMMON STOCA (DUlff $fATEMEWI Comon Stock Cocion S t oc k Other Paid Retained Sheres $10 Per Value in Capital Earnings ictal (Thovsonds of Dollars)

Balance - Decerber 31, 1983 33,287,327 $332,893 $142,462 $647,511 $1,122.866 Net income 190,282 190,282 Cash dividends Coorcws stock (116,bs5) (116,865)

Preferred stock (5,928) (5.928)

Balance - Decenber 31, 1989 33,289,327 332,893 142,462 715,000 1,190,355 Net income 185,918 185,918 _

Cash dividends Comnon stock (190,021) (190,021)

Preferred stock (5,928) (5,928)

Balance December 31, 1990 33,289,327 332,893 142,462 704,969 1,180,324 Net inc ome 181,569 181,569 Cash dividends Common stock (152,745) (152,745)

Preferred stock (5,928) (5,928)

P.ilance Decemoer 31, 1991 33,289,327 $332,893 $142,462 $727,B65 $1,203,220 333383S3285 55832333 3825E333 53533335 33R8833333 See Notes to financial Statemente.

A-15

WISCONSIN ELECTRIC POWER COMPA!1Y NOTES 10 fINAf1CIAL STATEMENTS A - Summarv of Sianificant Accountina Policies General The accounting records of t' cany are kept as p escribed by the Federal Energy Regulatory Commissic ,), modified for requirements of the Public Service Commission of Wiscoi. ,PSCW).

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

Fuel The cost of fuel is expensed in the period consumed. Nuclear fuel expense includes the estit..eted cost for disposal of spent fuel based on a contract with the u.S. Department of Energy.

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

Income Taxes Beginning in January 1991, pursuaat to a PSCW order, comprehensive interperiod '

income tax allocation was adopted for federal and state timing differerces.

In prior years deferred income tax accounting was applied primarily to significant federal timing 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.

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

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

A-16

i Conservaticn investments The company directs a variety of demand-side management programs to help foster energy conservation by its customers. As authorized by the PSCW, the l 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 o'cor a ten-year period.

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

credit borrowings financing the investment in nuclear fuel.

The amount of nuclear fuel under capital lease and the accumulated provision for amortization at December 31 was $94,703,000 and $55,816,000 for 1991 and

$103,443,000 and $60,630,000 for 1990, respectively. Interest expense on the nuclear fuel lease was $3,174,000 in 1991, $3,992,000 in 1990 and $3.926,000 in 1989.

The future minimum lease payments under the capital lease and the present value of the net minimum lease payments as of December 31, 1991 are as follows:

(Thousands of Dollars) 1992 $ 21,525 1993 14,619 1994 7,897 1995 2,857 1996 338 -

Total Minimua, Lease Payments 47,236 Less: Interest (3,988)

Present Value of Net Minimum Lease Payments $ 43,248

=......

A-17

1he Price-And6rson Act (Act) provides an aggregate limitation of $7.8 billion on public liability claims arising out of a nuclear incident. The company has

$200 million of-liability = insurance from commercial sources. The Act also-establishes an industry-wide retrospective rating plan under which nuclear reactor owners could be assessed up to $65 million per reactor (the company owns two), but not more than $10 million in any one year for each reactor, in the event of a nuclear incident.

An industry-wide insurance program, with an aggregate limit of $200 million, has been established to cover radiation injury claims of nuclear workers first .

employed after -January 1,1988. If claims in excess of the available funds  !

develop, the company could be assessed a maximum of approximately $3.2 million per reactor. I lhe company has property damage, decontamination and decommissioning insurance totaling $1.75 billion for loss from damage at the Point Beach Nuclear Plant with Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited

-(NEIL). Under these NML and NEIL policies, the company has potential maximum retrospective premium liability of $6.9 million and $7.0 million, respectively.

-- i m company also maintains additional insurance with NEll covering extra enses of obtaining replacement power during a prolonged accidental outage prmcess of 21 weeks) at the Point Beach Nuclear Plant. This insurance coverage provides weekly ind 1nities of $3.5 million per unit for outages during the first year, declining to 67% of the amounts during the second year, and 33% for the third year. Under the policy, the company's maximum retrospective premium liability is approximately $9.5 million.

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

C - Pension- Plans and- Other Pos1 retirement Benefits I

In the opinion of the company, current pension trust assets and amounts which

-are expected to be paid to the trusts in the future will be adequate to meet future pension payment obligations to current and future retirees.

The olans _are funded to meet the requirements of the Employee Retirement income Security Act of--1974. The PSCW recognizes funded amounts for ratemaking, which amounts'are charged to expense as paid. Pension expense was -

$3,739,000 in 1991, $584,000 in 1990 and $1,536,000 in 1989.

The following information-has been provided in accordance with Statement of Financial Accounting Standards _ No. 87, Employers' Accounting for Pensions (FAS 87). The company has several noncontributory pension plans covering all eligible emplcyees. Pension benefits are based on years of service and the

. employee's compensation. The majority of the olans' assets are equity securities; other assets-include corporate and government bonds, guaranteed investment contracts -and real estate.

A-18

1991 1990 1989

~

. (Thousands of Dollars)

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

Jost of pension benefits earned by employees $ 7,523 $ 7,092 $ 5,770 Interest cost on projected bene'it obligation 27,394 25,769 23,892 Actual return on plan assets (88,243) (12,254) (67,725)

~

Net amortization and deferral 51,694 (26,655) 33,281 Total pension cost calculated under FAS 87 $ (1,632) $ (6,048) $ (4,782) a ,- ......... ........ ........

j% ;p, . rial Present Value of Accumulated Tefit Obligation, at December 31 -

i9A, 3' ;~,. . 5ted benefits-employees' right to

~'

7.D' s >b2@f ' eceive benefit no longer contingent upon continued employment $ 278,905 $258,720 Nonvested benefits employees' right to eceive benefit contingent upon continued employmcnt 5,544 4,727 Total obligation $ 284,449 $263,447 Funded Status et Dlans: Pension Assets and Obligations ai December 31 -

Pension assets at fair market value $ 464,212 $392,525 Projected benefit obligation it present value (362,781) (324,747)

Unrecognized transition asset (30,379) (32,819)

Unrecognized prior service cost 15,963 12,378 Unrecos e cd ar. gain (79,065) (44,710)

P!ojected stctus of plans h h,9b0 h h,6hh

......... ...=,....

i Rates used -for calculations (%) - 1 Discount Rate-interest rate used to adjust for the time value of money 8.0 8.5 8.5 Assumed rate of increase in compensation levels 5.0 5.5 5.5 Expected long-term rate ',T return on peasion assets 9.0 9.0 9.0 In 1990, the Financial Accounting Standards Board (FASB) issued, for adoptinn by 1993, Statement of Financial Accounting Standards No.106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This standard requires the accrual of postretirement benefits other than pensions during the employee's period of service and permits recognition of the transition obligation (the unfunded and unrecog.iized accumulatri postretirement benefit obligation) in the initial year of implementation 0: over periods up to 20 years for the company. The company expects to adopt the standard prospectively in 1993 and elect the 20 year transition option. The current accumulated postretirement benefit obligation net of amounts previously funded is est i.aated to be $61-$87 million, depending upon the cost assumptions. The

+ company expects to seek regulatory recovery of the accruals and any effects of the statement will depend on its treatment by the regulatory commissions.

A-19 l

LThe company.provides life insurance for retirees and medical-insurance Lbenefitsifor participating retired employees and their dependents. The cost

'of these postretirement benefits is expensed when paid and was approximately .

$4,365,000.in 1991, $4,342,000-in 1990 and $4,827,000;in 1989. An Enc e loyees' Benefit Trust-(Trust)1is used to fund a major portion of-postretirement life

-insurance' benefits :for: current employees and retirees. Reginning in August 1991, medical benefits-for active employees and participating retired employees;and their dependents:are funded by payments to the Trust.

D --Depreciation Depreciation expense is accrued at straight line rates, certified Ly the PSCW, which' include estimates ~ tor salvage and removal costs.

Nuclear plant decommissioning is accrued as-depreciation expense based on an external sinking fund method. Total decommissioning is estimated at $252 million in 1991 dollars.

Depreciation as a percent of average depreciable utility plar.t was 4.0%-in 1991 and 4.1% in 1990 and 1989.

E - Income Taxes Following is'a summary ofLincome tax expense and a reconciliation of total income tax expense with-the tax expected at the federal statetory rate.

1991 1990 1989 (Thousands of Dollars)

Current' tax expense- $ 92,878 $ 81,r/3 $ 89,706 Investment tax credit-net (4,381) (5,087) ( ,686)

Deferred tax expense 6,148 17,507 14,982 Total tax expense $ 94,645 $-95,893 5 99,002 Income before income taxes $276,214 $281,811 $289,284 Txpected tax at- federal statutorv-rate $ 93,913 $ 95,816 $ 98,356 State income tax net'of federal tax reduction 13,820 11,120 11,445 Investment tax credit '

restored (4,394) (5,142) (5,928)

Other-(no item over-5% of expected tax) (8,694). ( 5,991) (4,871)

Total' tax' expense $ 94,645 $ 95,893 $ 99,002 J

A-20 j e ere - -m. --.-e - ,,-,-m. ,--e-o --we-g , + - ---mvg-

e.~ _. - -- _. - . . - .. . _ . .

Pursuant to a PSCW order, beginning in 1991, deferred income tax accounting was adopted for. federal and state _ timing differences, in' prior years deferred income tax accounting was applied primarily to significant federal timing  ;

• idifferences. Previously unrecorded deferred income taxes are being acnrded ratably over the remaining life _of the related property. At December 31, 1991, the cumulative amount of _ timing differences for which deferred income '

taxes have not been provided was approximately $43 million lor federal tax purposes and $332 million for state tax purposes. Any tax effect of these

, amounts is expected to be r? covered through future utility rates.

In February 1992, the FASB issued, for adoption by 1993, Standard No.109, Accounting for income Taxes. This income tax accounting standard requires an asset and liability approach, the adjustment of deferred income tax calances to reflect income tax rate changes and the recognition of previously ur-acorded deferred taxes. Although the company has : quantified all the effects of adopting the standard, it S expected that a... additional deferred income taxes will be offset primarily by regulatory assets and liabilities representing the expected future revenue impact of these adjustments. The company believes adoption of the standard will not have a material effect on its results of operations. The company intends to apply the standard prospectively. '

F - Allowance for Funds Used Durina Construction (AFUDC)

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

In 1991 and 19R utili. rates approved by the pSCW provide for a current return on investment for selected long-term projects included in construction work'in progress (CWIP). AFUDC was capitalized on the remaining CWIP at a rate of 11.16% in 1991, 11.13% in 1990, and 11.41% in 1989, as approved by the PSCW.

G - Transactions with Associated Companies Managerial, financ,al, accounting, legal, data processing and other services may be rendered between associated companies and are billed in accordance with service agreements approved by the PSCW. The company also buys gas from Wisconsin Natural (WN), another subsidiary of Wisconsin Energy Corporation, for electric generation at rates approved by the PSCW.

H - Preferred Stock

- Serial Preferred Stock authorized but unissued is carolative, $25 par lue, 5,000,000 shares.

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

A-21

Redemption Not Required -

The 3.60% Series Preferred: Stock is redeemable in whole or in part at the '

option _ of- the company at $101 per share plus any accrued dividends. .

Redemption' Required -

The 6.75% Series Preferred Stock has a redemption requirement of 21,000 shares at par value annually on each June 1 beginning in 1993 (with a noncumulative  :

option to redeem up to 31,500 additional shares annually) with redemption of ,

the remaining shares required on June 1, 2026. In addition to the mandatory redemption, the company _may at i_ts option redeem the stock at $106.75 per ,

share plus any accrued dividends prior to June 1,1992 and at declining amounts thereaf ter to $100 per share plus any accrued dividends, on or after June 1, 2002.

J_- i.ona-Term Debt  ;

The maturities and sinking fund requirements through 1996 for the aggregate amount of long-term debt outstanding (excluding obligations under capital j lease, see Note B) at December 31, 1991 are shown below.

1992 $ 4,550,000 1993 32,660,000 1994 3,690,000  :

1995 3,690,000 1996 40,397,000 Sinking fund requirements for the years 1992 through 1996, included in the l table above, are $19,310,000, of which $17,150,000 has been anticipated by the advance purchase of bonds and $2,160,000 may be satisfied by certifying additional mortgaged property. Substantially all utility' plant is subject to the applicable mortgage.

In February 1992 the company refunded all-$23,985,000 of 7% Series Debentures

due November 15, 1993. The company entered into a contract which effectively fixes the interest rate on up to $24 million of commercial paper at approximately 5% through November 15, 1993.

J - Lines of Credit; Unused lines of credit for short-term borrowing amounted to $101,600,000 at December 31, 1991. In support of various informal lines of credit f rom 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.

K - Commitments and Continaencies 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 22

L - Information by Seaments of Business

. Year $ ended December 31 '1991 1990 1989

__._,_u_______________ ____ ____ ____

(Thousands of Dollars)

Electric Operations Operating revenues $1,292,809 $1,208,045 $1,245,701 Operating l income before income taxes 323,075 311,130 341,333 Depreciation 132,912 130,970 128,397

-Construction expenditures 212,408 174,891 176,327 Steam' Operations Operating revenues 12,986 12,126 12,292 Operating income before income taxes 2,479 1,966 2,113 Depreciation 1,085 1,01] 947 Construction expenditures 2,803 1,716 1,669 Total Operating revenu 1,305,795 1,220,171 1,257,993 Operating income before income taxes 325,554 313,096 343,446 Depreciation 133,937 131,991 129,344 Construction expenditures (including nonutility) 215,446 176,954 178,087 At. December 31 L

- Net Identifiable Assets Electric- $3,028,283 $2,951,217 $2,945,900 Steam 20,963 18,698 18,609 Nonutility 2,887 2,988 2,497 Total Assets $3,052,133 $2,972,303 $2,967,006

_ DIRECTORS The information.in "Information Concerning Nominees fcr Directors" appearing -

l on pages 2-4 of Wisconsin Electric's definitive Information Statement dated April 20, 1992, attached hereto, is incorporated herein by reference.

t' s

0FFICERS The informaticn -in " Officers" appearing on page 4 of Wisconsin Electric's definitive Information Statement dated April 20, 1992, attached hereto, is incorporated herein- by reference.

(

A-23

~

100 East Wisconsin Avenue Telephone 414 276 9500 Su'tg 1500 Mdwaukee, WI $3202 Price Hhierhouse &

t REPORT OF INDEPENDENT ACCOUNTANTS To the Eoani of Dimetors and Stockholders of Wisconsin Electric Power Company In our opinion, th- accompnying balance sheet and capitalization statement and the related statements of income, of common stock equity and of cash Dows present fairly, in all material respects, the financial position of Wisconsin Electric Power Company at Decer.iber 31,1991 and 1990, and the results of ie operations and its cash flows for each of the three years in the period ended Dxe...r.er 31.1991, in conformity with generally accepted accounting principles. 'llese financial statements are the responsibility of the Company's managerrent; our responsibility is to express an

- opinion on thnse financial statements based on our audits. Wr. conducted our audits of these statements in accordance with generally accepted auditing standants which require that we plan and perform the audit to obta:n reasonable assurance about whether the financial statements aze free of material misstatement. An audit includes extmining, on a test basis, evidenca supporting the amounts and disclosures in the fimancial statements, assessing the accounting princip%s used and significant estimates rnade by management, and evaluating the overall financial statement pmsentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

SQR January 29,1992 A-24