WISCONSIN ELECTRIC POWER COMPANY

FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 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 ..................................................

4.

Controls and Procedures ...........................................................................................................

Part II -- Other Information

1.

Legal Proceedings .....................................................................................................................

6.

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

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

Certifications .............................................................................................................................

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WISCONSIN ELECTRIC POWER COMPANY

CONDENSED INCOME STATEMENTS

(Unaudited)

Three Months Ended  

Nine Months Ended   

       September 30       

       September 30       

  2002  

  2001  

  2002  

  2001  

(Millions of Dollars)

Operating Revenues

$566.7

$552.2

$1,687.0

$1,776.3

Operating Expenses

Fuel and purchased power

143.3

149.3

379.8

405.6

Cost of gas sold

22.7

22.8

149.8

259.9

Other operation and maintenance

188.5

160.6

556.4

526.0

Depreciation, decommissioning

and amortization

67.8

66.5

199.5

196.6

Property and revenue taxes

  17.3

  18.0

     53.6

     50.9

Total Operating Expenses

439.6

417.2

1,339.1

1,439.0

Operating Income

127.1

135.0

347.9

337.3

Other Income and Deductions

Interest income

0.1

8.1

2.0

9.6

Allowance for other funds

used during construction

1.0

0.5

2.1

1.2

Equity in earnings of

unconsolidated affiliate

4.7

3.0

15.2

14.8

Other

2.6

(0.4)

(1.4)

(1.1)

Total Other Income and Deductions

8.4

11.2

17.9

24.5

Financing Costs

Interest expense

23.7

27.0

71.8

83.5

Allowance for borrowed funds

used during construction

(0.6)

(0.4)

(1.3)

(0.7)

Total Financing Costs

 23.1

 26.6

 70.5

 82.8

Income Before Income Taxes

112.4

119.6

295.3

279.0

Income Taxes

43.1

46.4

112.3

108.1

Net Income

69.3

73.2

183.0

170.9

Preferred Stock Dividend Requirement

0.3

0.3

0.9

0.9

Earnings Available

for Common Stockholder

$69.0

$72.9

$182.1

$170.0

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

financial statements.

WISCONSIN ELECTRIC POWER COMPANY

CONDENSED BALANCE SHEETS

(Unaudited)

September 30, 2002

December 31, 2001

(Millions of Dollars)

Assets

Property, Plant and Equipment

Electric

$5,254.5

$5,064.4

Gas

616.3

596.2

Steam

66.6

66.0

Common

335.4

334.4

Other

17.8

17.2

Accumulated depreciation

(3,307.4)

(3,208.5)

2,983.2

2,869.7

Construction work in progress

162.7

163.3

Leased facilities, net

111.7

116.0

Nuclear fuel, net

     67.2

     73.6

Net Property, Plant and Equipment

3,324.8

3,222.6

Investments

692.8

733.3

Current Assets

Cash and cash equivalents

5.6

21.3

Accounts receivable

238.2

236.1

Other accounts receivable

-   

116.4

Accrued revenues

96.4

132.2

Inventories, materials and supplies

220.5

227.1

Prepayments and other assets

104.1

  78.0

Total Current Assets

664.8

811.1

Deferred Charges and Other Assets

     330.6

     300.5

Total Assets

$5,013.0

$5,067.5

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Capitalization and Liabilities

Capitalization

Common equity

$2,027.5

$1,980.1

Preferred stock

30.4

30.4

Long-term debt

1,440.3

1,420.5

Total Capitalization

3,498.2

3,431.0

Current Liabilities

Long-term debt due currently

173.6

282.7

Short-term debt

75.6

172.4

Accounts payable

178.4

213.6

Accrued liabilities

248.8

143.1

Other

  65.2

  67.7

Total Current Liabilities

741.6

879.5

Deferred Credits and Other Liabilities

Accumulated deferred income taxes

393.2

399.0

Other

     380.0

     358.0

Total Deferred Credits and Other Liabilities

     773.2

     757.0

Total Capitalization and Liabilities

$5,013.0

$5,067.5

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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)

Nine Months Ended September 30

  2002  

  2001  

(Millions of Dollars)

Operating Activities

Net income

$183.0

$170.9

Reconciliation to cash

Depreciation, decommissioning and amortization

211.0

207.7

Nuclear fuel expense amortization

21.3

23.6

Equity in earnings of unconsolidated affiliate

(15.2)

(14.8)

Deferred income taxes and investment tax credits, net

(56.3)

(10.4)

Change in -

Accounts receivable and accrued revenues

33.7

55.1

Other accounts receivable

116.4

-   

Inventories

6.6

(13.9)

Other current assets

13.8

15.6

Accounts payable

(35.2)

(36.0)

Accrued income taxes, net

96.7

32.9

Other current liabilities

13.3

7.9

Other

  11.2

  (0.6)

Cash Provided by Operating Activities

600.3

438.0

Investing Activities

Capital expenditures

(249.1)

(235.7)

Return of investment from ATC

-    

105.4

Nuclear fuel

(18.7)

(5.5)

Nuclear decommissioning funding

(13.2)

(13.2)

Other

    (8.2)

    (4.4)

Cash Used in Investing Activities

(289.2)

(153.4)

Financing Activities

Dividends paid on common stock

(134.7)

(97.5)

Dividends paid on preferred stock

(0.9)

(0.9)

Issuance of long-term debt

34.7

22.0

Retirement of long-term debt

(129.1)

(22.4)

Change in short-term debt

  (96.8)

(167.5)

Cash Used in Financing Activities

(326.8)

(266.3)

Change in Cash and Cash Equivalents

(15.7)

18.3

Cash and Cash Equivalents at Beginning of Period

21.3

10.6

Cash and Cash Equivalents at End of Period

$5.6

$28.9

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Supplemental Information - Cash Paid For

Interest (net of amount capitalized)

$79.7

$91.0

Income taxes (net of refunds)

$61.3

$84.7

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

financial statements.

 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 or as otherwise disclosed, 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 nine month periods ended September 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 financial statement presentations. Prior year financial statement amounts have been reclassified to conform to their current year presentation. These reclassifications had no effect on net income.

 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 January 1, 2003, 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 a new liability is recorded beginning in 2003, the entity will capitalize the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, 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 the 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 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 expects to defer the dif ferences as regulatory assets or liabilities. Other than for Point Beach, the Company has not yet determined the applicability of SFAS 143 to its financial statements, but does not expect it to be material.

 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 nine month periods ended September 30, 2002 and 2001:

 5.

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

 6.

Giddings & Lewis Inc./City of West Allis Lawsuit:   On August 30, 2002, Wisconsin Electric entered into a Settlement Agreement and Release with Giddings & Lewis Inc. and Kearney & Trecker Corporation (now a part of Giddings & Lewis), thereby ending all remaining litigation in this lawsuit. Under the Settlement Agreement and Release, Wisconsin Electric paid $8.65 million as full and final settlement of all damage claims by Giddings & Lewis and Kearney & Trecker against Wisconsin Electric. This settlement resulted in a third quarter 2002 charge. 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.

As previously reported, in July 1999, a Milwaukee County Circuit Court jury had issued a verdict against Wisconsin Electric awarding the plaintiffs, Giddings & Lewis, Kearney & Trecker, 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 Electric $117.7 million, consisting of the portion of the paid judgment pertainin g to punitive damages and interest accrued on that amount. The new trial was 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 in full and final settlement of all damage claims by the City of West Allis against Wisconsin Electric. Under this Settlement Agreement and Release, Wisconsin Electric paid $8.65 million to the City of West Allis. This settlement resulted in a charge during the second quarter of 2002.

On September 25, 2002 Wisconsin Electric filed a lawsuit against its insurance carriers to recover those costs and expenses associated with this matter covered by insurance. Wisconsin Electric intends to fully pursue any and all rights of recovery against its carriers under the applicable insurance policies.

Environmental Matters:   The Company periodically reviews its exposure to environmental remediation costs as evidence becomes available indicating that its remediation liability has changed. Given current information, including the following, management believes that future costs in excess of the amounts accrued and/or disclosed on all presently known and quantifiable environmental contingencies will not be material to the Company's financial position or results of operations.

During 2000, the Company expanded a voluntary program of comprehensive environmental remediation planning for former manufactured gas plant sites and coal-ash disposal sites. The Company has performed a preliminary assessment of twelve manufactured gas plant sites previously used by Wisconsin Electric as discussed below. The Company is working with the Wisconsin Department of Natural Resources in its investigation and remediation planning. At this time, the Company cannot estimate future remediation costs associated with these sites beyond those described below.

Manufactured Gas Plant Sites:   The Company has completed remediation at three former manufactured gas plant sites, with remediation at additional sites currently being completed. Other sites are being investigated or monitored. The Company estimates that the future costs for detailed site investigation and future remediation costs may range from $22-$47 million over the next ten years. This estimate is dependent upon several variables including, among other things, the extent of remediation, changes in technology and changes in regulation. As of September 30, 2002, the Company has established reserves of $25.0 million related to future remediation costs.

The PSCW has allowed Wisconsin utilities, including Wisconsin Electric, to defer the costs spent on the remediation of manufactured gas plant sites, and has allowed for such costs to be recovered in rates over five years. As such, the Company has recorded a regulatory asset for unrecovered remediation costs.

ITEM 2.

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