WISCONSIN ELECTRIC POWER CO - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2002

Commission	Registrant; State of Incorporation		IRS Employer
File Number	Address; and Telephone Number		Identification No.



001-01245	WISCONSIN ELECTRIC POWER COMPANY		39-0476280
		(A Wisconsin Corporation)
		231 West Michigan Street
		P.O. Box 2046
		Milwaukee, WI 53201
		(414) 221-2345

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that each Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date (July 31, 2002):

Common Stock, $10 Par Value

33,289,327 shares outstanding

Wisconsin Energy Corporation is the sole holder of Wisconsin Electric Power Company Common Stock.

		WISCONSIN ELECTRIC POWER COMPANY


		FORM 10-Q REPORT FOR THE QUARTER ENDED JUNE 30, 2002



		TABLE OF CONTENTS
Item			Page

	Introduction ...............................................................................................................................


	Part I -- Financial Information

1.	Financial Statements

	Condensed Income Statements .....................................................................

	Condensed Balance Sheets ............................................................................

	Condensed Statements of Cash Flows ..........................................................

	Notes to Condensed Financial Statements ....................................................

2.	Management's Discussion and Analysis of
	Financial Condition and Results of Operations ...................................................................

3.	Quantitative and Qualitative Disclosures About Market Risk ..................................................


	Part II -- Other Information

1.	Legal Proceedings .....................................................................................................................

4.	Submission of Matters to a Vote of Security Holders ..............................................................

6.	Exhibits and Reports on Form 8-K ...........................................................................................

	Signatures ..................................................................................................................................

INTRODUCTION

Wisconsin Electric Power Company ("Wisconsin Electric" or "the Company"), a wholly-owned subsidiary of Wisconsin Energy Corporation ("Wisconsin Energy"), is an electric, gas and steam utility with operations in Wisconsin and the Upper Peninsula of Michigan.

In April 2000, Wisconsin Energy acquired WICOR, Inc., which had a wholly-owned subsidiary, Wisconsin Gas Company ("Wisconsin Gas"). Subsequent to the acquisition, Wisconsin Electric and Wisconsin Gas have combined common functions. In April 2002, the two companies began doing business under the trade name of "We Energies".

The unaudited interim financial statements presented in this Form 10-Q have been prepared by Wisconsin Electric pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Wisconsin Electric's financial statements should be read in conjunction with the financial statements and notes thereto included in Wisconsin Electric's 2001 Annual Report on Form 10-K.

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

	WISCONSIN ELECTRIC POWER COMPANY
	CONDENSED INCOME STATEMENTS
	(Unaudited)

					Three Months Ended June 30		Six Months Ended June 30
					2002	2001	2002	2001
					(Millions of Dollars)

	Operating Revenues				$533.6	$517.5	$1,120.3	$1,224.1

	Operating Expenses
		Fuel and purchased power			120.9	124.4	236.5	256.3
		Cost of gas sold			40.6	47.4	127.1	237.1
		Other operation and maintenance			195.5	187.5	367.9	365.4
		Depreciation, decommissioning
			and amortization		67.4	64.6	131.7	130.1
		Property and revenue taxes			17.9	14.6	36.3	32.9
				Total Operating Expenses	442.3	438.5	899.5	1,021.8

	Operating Income				91.3	79.0	220.8	202.3

	Other Income and Deductions
		Interest income			0.9	0.9	1.9	1.5
		Allowance for other funds
			used during construction		0.8	0.4	1.1	0.7
		Equity in earnings of
			unconsolidated affiliate		4.7	3.4	10.5	11.8
		Other			0.5	(0.4)	(4.0)	(0.7)
				Total Other Income and Deductions	6.9	4.3	9.5	13.3

	Financing Costs
		Interest expense			23.6	27.3	48.1	56.5
		Allowance for borrowed funds
			used during construction		(0.5)	(0.2)	(0.7)	(0.3)
				Total Financing Costs	23.1	27.1	47.4	56.2

	Income Before Income Taxes				75.1	56.2	182.9	159.4

	Income Taxes				27.8	21.2	69.2	61.7
	Net Income				47.3	35.0	113.7	97.7

	Preferred Stock Dividend Requirement				0.3	0.3	0.6	0.6

	Earnings Available for Common
		Stockholder			$47.0	$34.7	$113.1	$97.1
					====	====	=====	====

	The accompanying Notes to Condensed Financial Statements are an integral part of these
		financial statements.

WISCONSIN ELECTRIC POWER COMPANY
CONDENSED BALANCE SHEETS

			(Unaudited)
			June 30, 2002	December 31, 2001
			(Millions of Dollars)
Assets

Property, Plant and Equipment
	Electric		$5,185.8	$5,064.4
	Gas		608.3	596.2
	Steam		66.5	66.0
	Common		331.9	334.4
	Other		17.2	17.2
	Accumulated depreciation		(3,271.6)	(3,208.5)
			2,938.1	2,869.7
	Construction work in progress		150.6	163.3
	Leased facilities, net		113.1	116.0
	Nuclear fuel, net		72.5	73.6
		Net Property, Plant and Equipment	3,274.3	3,222.6

Investments			714.5	733.3

Current Assets
	Cash and cash equivalents		18.2	21.3
	Accounts receivable		261.0	236.1
	Other accounts receivable		-	116.4
	Accrued revenues		106.9	132.2
	Inventories, materials and supplies		212.2	227.1
	Prepayments and other assets		121.1	78.0
		Total Current Assets	719.4	811.1

Deferred Charges and Other Assets			313.5	300.5
Total Assets			$5,021.7	$5,067.5
			======	======

Capitalization and Liabilities

Capitalization
	Common equity		$2,002.6	$1,980.1
	Preferred stock		30.4	30.4
	Long-term debt		1,427.8	1,420.5
		Total Capitalization	3,460.8	3,431.0

Current Liabilities
	Long-term debt due currently		175.0	282.7
	Short-term debt		162.1	172.4
	Accounts payable		178.6	213.6
	Accrued liabilities		194.2	143.1
	Other		80.2	67.7
		Total Current Liabilities	790.1	879.5

Deferred Credits and Other Liabilities
	Accumulated deferred income taxes		394.6	399.0
	Other		376.2	358.0
		Total Deferred Credits and Other Liabilities	770.8	757.0
Total Capitalization and Liabilities			$5,021.7	$5,067.5
			======	======

The accompanying Notes to Condensed Financial Statements are an integral part of these
	financial statements.

WISCONSIN ELECTRIC POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

				Six Months Ended June 30
				2002	2001
				(Millions of Dollars)
Operating Activities
	Net income			$113.7	$97.7
	Reconciliation to cash
		Depreciation, decommissioning and amortization		139.8	137.5
		Nuclear fuel expense amortization		14.7	15.3
		Equity in earnings of unconsolidated affiliate		(10.5)	(11.8)
		Deferred income taxes and investment tax credits, net		(58.5)	(5.4)
		Change in -	Accounts receivable and accrued revenues	0.4	78.2
			Other accounts receivable	116.4	-
			Inventories	14.9	18.6
			Other current assets	1.8	(4.0)
			Accounts payable	(35.0)	(36.7)
			Other current liabilities	70.4	(16.8)
		Other		13.9	(6.4)
Cash Provided by Operating Activities				382.0	266.2

Investing Activities
	Capital expenditures			(156.7)	(150.6)
	Return of investment from ATC			-	105.4
	Nuclear fuel			(9.5)	(3.3)
	Nuclear decommissioning funding			(8.8)	(8.8)
	Other			(4.9)	(7.4)
Cash Used in Investing Activities				(179.9)	(64.7)

Financing Activities
	Dividends paid on common stock			(89.8)	(65.0)
	Dividends paid on preferred stock			(0.6)	(0.6)
	Issuance of long-term debt			18.3	22.0
	Retirement of long-term debt			(122.8)	(15.4)
	Change in short-term debt			(10.3)	(130.6)
Cash Used in Financing Activities				(205.2)	(189.6)

Change in Cash and Cash Equivalents				(3.1)	11.9

Cash and Cash Equivalents at Beginning of Period				21.3	10.6

Cash and Cash Equivalents at End of Period				$18.2	$22.5
				====	====

Supplemental Information - Cash Paid For
	Interest (net of amount capitalized)			$58.1	$67.8
	Income taxes (net of refunds)			$61.7	$74.2


The accompanying Notes to Condensed Financial Statements are an integral part of these
	financial statements.

WISCONSIN ELECTRIC POWER COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)

GENERAL INFORMATION

1.	The accompanying unaudited condensed financial statements for Wisconsin Electric Power Company should be read in conjunction with Item 8, Financial Statements and Supplementary Data, in Wisconsin Electric's 2001 Annual Report on Form 10-K. In the opinion of management, all adjustments, normal and recurring in nature, necessary to a fair statement of the results of operations, cash flows and financial position of Wisconsin Electric, have been included in the accompanying income statements, statements of cash flows and balance sheets. The results of operations for the three and six month periods ended June 30, 2002 are not necessarily indicative, however, of the results which may be expected for the entire year 2002 because of seasonal and other factors.

2.	Wisconsin Electric has modified certain cash flow presentations. Prior year financial statement amounts have been reclassified to conform to their current year presentation.

RECENT ACCOUNTING PRONOUNCEMENT

3.	Asset Retirement Obligations: In June 2001, the Financial Accounting Standards Board issued SFAS 143, Accounting for Asset Retirement Obligations. SFAS 143, which is effective for fiscal years beginning after June 15, 2002, requires entities to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. When the liability is recorded, the entity capitalizes the costs of the liability by increasing the carrying amount of the related long-lived asset. Each period the liability is accreted to its present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company expects to adopt SFAS 143 effective January 1, 2003.

	The Company is performing a detailed assessment of the specific applicability and implications of SFAS 143. The scope of SFAS 143 includes decommissioning costs for Point Beach Nuclear Plant ("Point Beach") and may also apply to other facilities of the Company. Currently, nuclear decommissioning liabilities are accrued as depreciation expense, under an external sinking fund method, as these costs are recovered through rates over the expected service lives of the two generating units at Point Beach. SFAS 143 will require the Company to record the full fair value of the decommissioning liability and a corresponding asset, which will then be depreciated over the remaining expected service lives of the plant's generating units. Any changes in depreciation expense due to differing assumptions between SFAS 143 and those currently required by the Public Service Commission of Wisconsin ("PSCW") are not expected to be material and the Company would expect to seek recovery of th ese expenses in rates.

COMMON EQUITY

4.	Comprehensive Income includes all changes in equity during a period except those resulting from investments by and distributions to owners. Wisconsin Electric had the following total Comprehensive Income during the six month periods ended June 30, 2002 and 2001:

	Six Months Ended June 30
Comprehensive Income	2002	2001
	(Millions of Dollars)

Net Income	$113.7	$97.7
Other Comprehensive Income (Loss)
Unrealized Losses During the Period
on Derivatives Qualified as Hedges
Unrealized losses due to cumulative
effect of change in accounting principle	-	(5.1)
Change in value	(0.8)	4.9
Reclassification to earnings	-	1.2
Net Unrealized Losses	(0.8)	1.0
Total Other Comprehensive Loss	(0.8)	1.0
Total Comprehensive Income	$112.9	$98.7
	=====	====

NUCLEAR OPERATIONS

Nuclear Insurance: The Price-Anderson Act ("the Act"), as amended and extended to August 1, 2002, currently limits the total public liability for damages arising from a nuclear incident at a nuclear power plant. As of August 1, 2002, the United States Senate had not passed an amendment or extended the Act; however existing nuclear plants remain covered by the Act.

SEGMENT INFORMATION

6.	Summarized financial information concerning Wisconsin Electric's reportable operating segments for the three and six month periods ended June 30, 2002 and 2001 is shown in the following table.

Wisconsin Electric	Reportable Operating Segments
Power Company	Electric	Gas	Steam	Total
	(Millions of Dollars)
Three Months Ended

June 30, 2002
Operating Revenues (a)	$460.5	$68.8	$4.3	$533.6
Operating Income (Loss)	$96.0	($3.4)	($1.3)	$91.3

June 30, 2001
Operating Revenues (a)	$443.0	$70.8	$3.7	$517.5
Operating Income (Loss)	$84.3	($4.1)	($1.2)	$79.0

Six Months Ended

June 30, 2002
Operating Revenues (a)	$896.6	$211.2	$12.5	$1,120.3
Operating Income	$194.1	$25.7	$1.0	$220.8

June 30, 2001
Operating Revenues (a)	$891.8	$319.5	$12.8	$1,224.1
Operating Income	$173.8	$26.0	$2.5	$202.3

(a)	Wisconsin Electric accounts for intersegment revenues at tariff rates established by the Public Service Commission of Wisconsin. Intersegment revenues are not material.

COMMITMENTS AND CONTINGENCIES

7.	City of West Allis lawsuit: As previously reported, in July 1999, a Milwaukee County Circuit Court jury issued a verdict against Wisconsin Electric awarding the plaintiffs, Giddings & Lewis Inc., Kearney & Trecker Corporation (now a part of Giddings & Lewis), and the City of West Allis, $4.5 million in compensatory damages and $100 million in punitive damages in an action alleging that Wisconsin Electric had deposited contaminated wastes at two sites owned by the plaintiffs in West Allis, Wisconsin. In September 2001, the Wisconsin Court of Appeals, District I, reversed the $100 million punitive damage judgment in its entirety, ordering a new trial on the issue of punitive damages only. In January 2002, the Wisconsin Supreme Court denied petitions for further review and ordered the Milwaukee County Circuit Court to retry the issue of punitive damages. After contested hearings on April 8, 2002, the plaintiffs returned to Wisconsin Electri c $117.7 million, consisting of the portion of the paid judgment pertaining to punitive damages and interest accrued on that amount. The new trial is scheduled to commence on October 21, 2002.

	On May 29, 2002, Wisconsin Electric and the City of West Allis entered into a Settlement Agreement and Release whereby Wisconsin Electric paid $8.7 million to the City of West Allis as full and final settlement of all damage claims by the City of West Allis against Wisconsin Electric. The Settlement Agreement was determined to be in the mutual best interests of the settling parties in order to avoid the burden, inconvenience and expense of continued litigation between the parties and does not constitute an admission of liability or wrongdoing by Wisconsin Electric with respect to any released claims. Wisconsin Electric is presently engaged in discussions with its insurers regarding coverage for the amounts paid in this Settlement; however, the outcome of those discussions is not certain at this time.

	The litigation continues with respect to the joint punitive damages claim of Giddings & Lewis, Inc. and Kearney & Trecker Corporation. With respect to the punitive damages claim of those parties, Wisconsin Electric continues to believe that it has meritorious arguments and continues to vigorously defend the action. As such, Wisconsin Electric has not established a reserve for potential damages from this suit.

ITEM 2.

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

Wisconsin Electric Power Company, a wholly-owned subsidiary of Wisconsin Energy Corporation, is an energy utility with electric, natural gas and steam utility operations.

Cautionary Factors: A number of forward-looking statements are included in this document. When used, the terms "anticipate," "believe," "estimate," "expect," "forecast," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those that are described, including the factors that are noted throughout this document and below in "Factors Affecting Results, Liquidity and Capital Resources".

RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 2002
EARNINGS

Earnings for the second quarter of 2002 increased by $12.3 million or 35.4% when compared to the second quarter of 2001, primarily reflecting improved electric and gas margins during 2002 principally due to periods of favorable weather in the quarter, a shorter refueling outage at Point Beach than in the second quarter of 2001 and lower interest rates offset in part by a charge of $8.7 million related to settlement of litigation with the City of West Allis.

Electric Utility Revenues, Gross Margin and Sales

The following table compares Wisconsin Electric's total electric utility operating revenues and gross margin during the second quarter of 2002 with similar information for the second quarter of 2001.

	Three Months Ended June 30
Electric Utility Operations	2002	2001	% Change
	(Millions of Dollars)

Electric Operating Revenues	$460.5	$443.0	4.0%
Fuel and Purchased Power
Fuel	68.6	73.6	(6.8%)
Purchased Power	50.8	49.6	2.4%
Total Fuel and Purchased Power	119.4	123.2	(3.1%)
Gross Margin	$341.1	$319.8	6.7%
	=====	=====

During the second quarter of 2002, total electric utility operating revenues increased by $17.5 million or 4.0% when compared with the second quarter of 2001. The increase was primarily due to higher overall electric megawatt-hour sales during the second quarter of 2002, especially to higher margin customers resulting from the effects of warmer weather.

Electric gross margin increased 6.7% between the comparative periods primarily due to lower fuel and purchased power costs and favorable weather conditions in the second quarter of 2002. Between the comparative periods, total fuel and purchased power expenses decreased by $3.8 million or 3.1%. These reductions primarily resulted from lower gas prices and improved efficiencies in generation. Completion of the refueling outage at the Point Beach Nuclear Plant Unit 2 resulted in increased unit availability in the second quarter of 2002 and reduced fuel costs for the Company. A second refueling outage for Point Beach is scheduled to begin in September of 2002 for Unit 1. In addition, due to lower gas prices and additional availability of electricity in the Midwest, the cost of purchased power in the second quarter of 2002 was lower than it was in the second quarter of 2001.

The following table compares Wisconsin Electric's electric utility operating revenues and electric utility megawatt-hour sales by customer class during the second quarter of 2002 with similar information for the second quarter of 2001.

Operating Revenues