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 the 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

    Yes [  ]    No [X]

The aggregate market value of the common equity of Wisconsin Electric Power Company held by non-affiliates as of June 30, 2003 was zero. All of the common stock of Wisconsin Electric Power Company is held by Wisconsin Energy Corporation.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date (January 31, 2004):

Portions of Wisconsin Electric Power Company's definitive information statement for its Annual Meeting of Stockholders, to be held on April 30, 2004, are incorporated by reference into Part III hereof.

Wisconsin Electric Power Company (Wisconsin Electric), a wholly-owned subsidiary of Wisconsin Energy Corporation (Wisconsin Energy), was incorporated in the state of Wisconsin in 1896. Unless qualified by their context when used in this document, the terms the Company, Our, Us or We refer to Wisconsin Electric Power Company and its subsidiaries. We are an electric, gas and steam utility which serves approximately 1,068,000 electric customers in Wisconsin and the Upper Peninsula of Michigan, approximately 428,700 gas customers in Wisconsin and about 460 steam customers in metro Milwaukee, Wisconsin. We maintain our principal executive offices in Milwaukee, Wisconsin.

We conduct our operations primarily in three operating segments: an electric utility segment, a natural gas utility segment and a steam utility segment. For further financial information about our business segments, see "Results of Operations" in Item 7 and "Note M -- Segment Reporting" in the Notes to Consolidated Financial Statements in Item 8.

Wisconsin Energy is also the parent company of Wisconsin Gas Company (Wisconsin Gas) a natural gas distribution utility, which serves customers throughout Wisconsin, and Edison Sault Electric Company (Edison Sault) an electric utility which serves customers in the Upper Peninsula of Michigan. Wisconsin Electric and Wisconsin Gas have combined common functions and operate under the trade name of "We Energies".

Power the Future Strategy:   In late February 2001, Wisconsin Energy filed a petition with the Public Service Commission of Wisconsin (PSCW) starting the regulatory review process for a 10-year strategy, originally proposed in September 2000, to improve the supply and reliability of electricity in Wisconsin. As part of Wisconsin Energy's Power the Future strategy, Wisconsin Energy is: (1) investing in new natural gas-based and coal-based electric generating facilities, (2) upgrading our existing electric generating facilities and (3) investing in upgrades of our existing energy distribution system. Implementation of the Power the Future strategy is subject to a number of state and federal regulatory approvals. Additional information concerning Power the Future may be found below under "Environmental Compliance" as well as in Item 7.

Other:   Bostco LLC (Bostco) is our non-utility subsidiary that develops and invests in real estate.

Cautionary Factors:   Certain statements contained herein are "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-Looking Statements may be identified by reference to a future period or periods or by the use of forward looking terminology such as "may," "intends," "anticipates," "believes," "estimates," "expects," "forecasts," "objectives," "plans," "possible," "potential," "project" or similar terms or variations of these terms. Actual results may differ materially from those set forth in Forward-Looking Statements as a result of certain risks and uncertainties, including but not limited to, changes in political and economic conditions, equity and bond market fluctuations, varying weather conditions, governmental regulation and supervision, as well as other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (SEC), including factors described throughout thi s document and in "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

We are the largest electric utility in the state of Wisconsin. We generate, distribute and sell electric energy in southeastern (including the metropolitan Milwaukee area), east central and northern Wisconsin and in the Upper Peninsula of Michigan.

See "Selected Operating Data" in Item 6 for certain electric utility operating information by customer class during the period 1999 through 2003.

We are authorized to provide retail electric service in designated territories in the state of Wisconsin, as established by indeterminate permits, certificates of public convenience and necessity, or boundary agreements with other utilities, and in certain territories in the state of Michigan pursuant to franchises granted by municipalities. We also sell wholesale electric power.

Our electric energy sales to all classes of customers totaled approximately 30.7 million megawatt hours (mwh) during 2003, a 1.1% increase from 2002. Approximately 0.4 million of megawatt-hour sales during 2003 were to Edison Sault. We had approximately 1,068,000 electric customers at December 31, 2003, an increase of 1.1% since December 31, 2002.

Sales To Large Electric Retail Customers:   We provide electric utility service to a diversified base of customers in such industries as mining, paper, foundry, food products and machinery production, as well as to large retail chains.

Our largest retail electric customers are two iron ore mines located in the Upper Peninsula of Michigan. We currently have special negotiated power-sales contracts with these mines that expire in 2007. The combined electric energy sales to the two mines accounted for 7.1% and 6.5% of our total electric utility energy sales during 2003 and 2002, respectively.

Sales to Wholesale Customers:   During 2003, we sold wholesale electric energy to three municipally owned systems, two rural cooperatives and two municipal joint action agencies located in the states of Wisconsin, Michigan and Illinois. We also made wholesale electric energy sales to 34 other public utilities and power marketers throughout the region under rates approved by the Federal Energy Regulatory Commission (FERC). Wholesale sales accounted for approximately 9.5% of our total electric energy sales and 5.0% of total electric operating revenues during 2003 compared with 8.7% of total electric energy sales and 4.6% of total electric operating revenues during 2002.

Electric System Reliability Matters:   Electric energy sales are impacted by seasonal factors and varying weather conditions from year-to-year. As a summer peaking utility, we reached our all-time electric peak demand obligation of 6,376 megawatts on August 21, 2003. The summer period is the most relevant period for capacity planning purposes for us due to cooling load. We are a member of the MAIN reliability council. MAIN guidelines direct members to have a minimum 14.12% planning reserve margin in place prior to the upcoming peak season. PSCW guidelines for electric utilities in Wisconsin advise a minimum 18% planning reserve margin. The Michigan Public Service Commission (MPSC) has not provided guidelines in this area.

We had adequate capacity to meet all of our firm electric load obligations during 2003 and expect to have adequate capacity to meet all of our firm obligations during 2004. For additional information, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7. For additional information regarding our generation facilities, see Item 2.

Prior to 2003, the nation's electric utility industry had been following a trend towards restructuring and increased competition. However, given electric reliability problems experienced in the eastern United States during the summer of 2003 and in the state of California in 2001 and 2002, which had previously restructured its electric industry framework, and given the current status of restructuring initiatives in regulatory jurisdictions where we primarily do business, we do not expect significant electric deregulation in Wisconsin in the next five years. For additional information, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

The table below indicates our sources of electric energy supply, including net generation by fuel type, for the following years ended December 31:

Our net generation totaled 27.8 million megawatt hours during 2003 compared with 27.6 million megawatt hours during 2002 and 28.7 million megawatt hours during 2001. The decline in 2002 generation was primarily due to an increase in scheduled outages at our generating facilities. When compared with the past three years, net generation as a percent of our total electric energy supply is expected to decrease during 2004 in large part due to the Port Washington unit retirements in anticipation of the construction of two natural gas-based generation facilities at the same site, one of which is expected to become operational in 2005. Purchased power is expected to be the primary source of additional electric energy supply required to meet load growth in the next year.

The fuel costs for coal and nuclear generation are relatively stable as most of these fuel costs are under long-term contracts. However, some of our coal contracts expire in the near future and we may incur increases in coal prices, subject to market conditions. The costs for natural gas and purchased power, which is primarily natural gas-based, are more volatile.

Our installed capacity by fuel type for the years ended December 31, is shown below.

Coal Supply:   We diversify the coal supply for our power plants by purchasing coal from mines in northern and central Appalachia as well as from various western mines. During 2004, 99% of our projected coal requirements of 12.0 million tons will be under contracts, which are not tied to 2004 market pricing fluctuations. We do not anticipate any problem in procuring our remaining 2004 coal requirements through short-term or spot purchases and inventory adjustments. Our coal-based generation consists of seven operating plants with a dependable capability of approximately 3,560 megawatts.

Following is a summary of the annual tonnage amounts for our principal long-term coal contracts by the month and year in which the contracts expire.

As of the beginning of 2004, we had approximately a 118-day supply of coal in inventory at our coal-based facilities.

Coal Deliveries:   Approximately 75% of our 2004 coal requirements are expected to be delivered by our owned or leased unit trains. The unit trains will transport coal for the Oak Creek and Pleasant Prairie Power Plants from Wyoming mines. Coal from Pennsylvania and Colorado mines is also transported via rail to Lake Erie or Lake Michigan transfer docks and delivered to the Valley and Port Washington Power Plants by lake vessels. Coal from central Appalachia is shipped via rail to Lake Erie transfer docks and transported by lake vessel to Milwaukee where it is delivered to the Milwaukee County Power Plant by truck. Montana and Wyoming coal for Presque Isle Power Plant is transported via rail to Superior, Wisconsin, placed in dock storage and reloaded into lake vessels for plant delivery. Central Appalachia and Colorado coal bound for Presque Isle Power Plant is shipped via rail to Lake Erie and Lake Michigan (Chicago) coal transfer docks, respectively, for lake vessel del ivery to the plant.

Environmental Matters:   For information regarding emission restrictions, especially as they relate to coal-based generating facilities, see "Environmental Compliance".

Point Beach Nuclear Plant:   We own two 518-megawatt electric generating units at Point Beach Nuclear Plant in Two Rivers, Wisconsin. The United States Nuclear Regulatory Commission (NRC) operating licenses for Point Beach expire in October 2010 for Unit 1 and in March 2013 for Unit 2. The Nuclear Management Company, LLC (NMC), which operates Point Beach for us, filed an application with the NRC in February 2004 to renew the operating licenses for both of our nuclear reactors for an additional 20 years. For additional information concerning Point Beach, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 and "Note E -- Nuclear Operations" in the Notes to Consolidated Financial Statements in Item 8.

Nuclear Management Company:   NMC, owned by one of our affiliates and the affiliates of four other unaffiliated investor-owned utilities in the region, operates Point Beach. NMC provides services to eight nuclear generating units at six sites in the states of Wisconsin, Minnesota, Michigan, and Iowa with a total combined generating capacity of about 4,500 megawatts as of December 31, 2003. We continue to own Point Beach and retain exclusive rights to the energy generated by the plant as well as financial responsibility for the safe operation, maintenance and decommissioning of Point Beach. For further information, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

Nuclear Fuel Supply:   We purchase uranium concentrates (Yellowcake) and contracts for its conversion, enrichment and fabrication. We maintain title to the nuclear fuel until fabricated fuel assemblies are delivered to Point Beach; it is then sold to and leased back from the Wisconsin Electric Fuel Trust. For further information concerning this nuclear fuel lease, see "Note G -- Long-Term Debt" in the Notes to Consolidated Financial Statements in Item 8.

Uranium Requirements:   We require approximately 400,000 pounds of Yellowcake to refuel a generating unit at Point Beach. Point Beach has staggered, extended fuel cycles that are expected to average approximately 18 months in duration. The supply of Yellowcake for these refuelings is currently provided through one long-term contract, which supplies 100% of the annual requirements through 2007.

Conversion:   We have a long-term contract with a provider of uranium conversion services to supply 75% of the conversion requirements for the Point Beach reactors through 2004. We have an additional long-term conversion contract with a second conversion supplier to supply the remaining 25% of our annual conversion requirements through 2004. We also have the option to utilize two NMC fleet contracts for conversion services to meet approximately 45% of our conversion requirements through 2007. We are currently pursuing additional contracts for conversion services for Point Beach beyond our 2004 requirements.

Enrichment:   We effectively have one long-term contract that provides for 100% of the required enrichment services for the Point Beach reactors through the year 2006.

Fabrication:   Fabrication of fuel assemblies from enriched uranium for Point Beach is covered under a contract with Westinghouse Electric Company, LLC for the balance of the plant's current operating licenses.

Used Fuel Storage & Disposal:   For information concerning used fuel storage and disposal issues, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

Nuclear Decommissioning:   We provide for costs associated with the eventual decommissioning of Point Beach through the use of an external trust fund. Payments to this fund, together with investment results, brought the balance in the fund at December 31, 2003 to approximately $674.4 million. For additional information regarding decommissioning, see "Note E -- Nuclear Operations" in the Notes to Consolidated Financial Statements in Item 8.

Nuclear Plant Insurance:   For information regarding nuclear plant insurance, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 and "Note E - Nuclear Operations" in the Notes to Consolidated Financial Statements in Item 8.

Our hydroelectric generating system consists of fourteen operating plants with a total installed capacity of approximately 89 megawatts and a dependable capability of approximately 57 megawatts. Thirteen of these plants are licensed by the FERC. The fourteenth plant, with an installed generating capacity of approximately 2 megawatts, does not require a license. Of the thirteen licensed plants, twelve plants, representing a total of 85 megawatts of installed capacity, have long-term licenses from the FERC, and one plant, the Sturgeon project, will not be relicensed and is intended to be removed. Removal of the Sturgeon project has commenced and will continue over the next several years.

Our natural gas-based generation consists of four operating plants with a dependable capability of approximately 1,157 megawatts. The Concord and Paris Combustion Turbine Power Plants, Germantown Unit 5 and the Oak Creek combustion turbine use natural gas as their primary fuel, with fuel oil as backup. Natural gas is also used for boiler ignition and flame stabilization purposes at the Pleasant Prairie and Oak Creek Power Plants. Gas for these plants is purchased on the spot market from gas marketers and/or producers and delivered on our gas operations local distribution system. An interruptible balancing and storage agreement with ANR Pipeline Company is intended to facilitate the variable gas usage pattern of the combustion turbine plants.

Natural gas for the gas-based boiler at the Milwaukee County Power Plant and for boiler ignition and flame stabilization at the Valley Power Plant is purchased under an agency agreement with a gas marketing company. The agent purchases natural gas and arranges for interstate pipeline transportation to Wisconsin Gas, the local gas distribution utility. Wisconsin Gas then transports our gas to each plant under interruptible tariffs.

We also have power purchase agreements with Alliant Energy Neenah, LLC (Alliant), a subsidiary of Alliant Energy Corporation and LSP-Whitewater, LP, a subsidiary of Cogentrix, Inc., both of which utilize natural gas as primary fuel and fuel oil as back-up fuel. LSP-Whitewater, LP is responsible for its own natural gas and fuel oil procurement for its Whitewater Cogeneration Facility. We procure and deliver fuel to Alliant's Neenah Energy Facility and receive the electric power produced, as discussed in "Purchase Power Commitments" below. We have another power purchase agreement with Calpine Corporation for peaking capacity from a Zion, Illinois facility, which began commercial operation during the summer of 2002. We procure and deliver natural gas to the plant and receive the electric power produced, similar to the Alliant agreement.

During 2003, the PSCW approved a program for a two-year period allowing us to hedge up to 75% of our estimated monthly gas purchases for electric generation. We include the costs of this risk management program in our fuel and purchased power costs.

We are the gas distribution utility for Concord, Paris, Pleasant Prairie, Whitewater Cogeneration Facility and Oak Creek Power Plants. Wisconsin Gas is the gas distribution utility for the Valley and Milwaukee County Power Plants. Both the Germantown Power Plant and Alliant's Neenah Energy Facility are directly connected to ANR Pipeline, with no gas distribution utility involvement.

Fuel oil is used for the combustion turbines at the Point Beach and Germantown Power Plants units 1-4. It is also used for boiler ignition and flame stabilization at the Presque Isle Power Plant, as backup for ignition at the Pleasant Prairie Power Plant and as a backup fuel for the natural gas-based turbines discussed above. The natural gas facilities burn oil only if natural gas is not available due to constraints on the natural gas pipeline and/or in the local gas distribution system that delivers gas to the plants. Fuel oil requirements are purchased under partnering agreements with suppliers that assist us with inventory tracking and oil market price trends.

To meet a portion of our anticipated increase in future electric energy supply needs, we have entered into separate long-term power purchase contracts with LSP-Whitewater, LP, Alliant, Calpine Corporation and Ameren Energy Marketing Company.

The contract with LSP-Whitewater, LP, a subsidiary of Cogentrix, Inc., for 236 megawatts of firm capacity from the gas-based Whitewater Cogeneration Facility located in Whitewater, Wisconsin, does not include any minimum energy requirements.

Alliant's Neenah Energy Facility is a 300-megawatt gas turbine peaking facility in the town of Neenah, Wisconsin, which began commercial operations in May 2000. The purchase power agreement with Alliant is similar in structure to arrangements commonly referred to in the electric industry as "tolling arrangements." We deliver fuel to the facility and receive electric power. We pay Alliant a "toll" to convert our fuel into the electric energy. The output of the facility is available for us to dispatch during the term of the agreement, which ends in May 2008.

Calpine Corporation's Zion, Illinois facility consists of three 150 MW gas turbine peaking units. Two units became commercial in 2002 and the third unit became commercial in 2003. All three units were under contract to us during 2003. We will also have the full 450 megawatts available for our use in 2004. This power purchase agreement is also a tolling agreement.

Ameren Energy Marketing's Elgin Energy Center, located in Elgin, Illinois, began commercial operation in fall 2002. It consists of four, 116 megawatt combustion turbine units, one of which will be under contract to Wisconsin Electric starting June 1, 2004. This agreement is also a tolling agreement and has a term of five years.

We currently expect to utilize new generating capacity identified in Wisconsin Energy's Power the Future proposal, as well as purchase power commitments with independent power producers to meet our electric demand load growth.

In the normal course of business, we utilize contracts of various duration for the forward purchase of electricity to meet load requirements in an economic manner and when the anticipated market price for electric energy is below our expected incremental cost of generation. Contracts of this nature are one of the power supply resources we use to meet our reliability requirements.

American Transmission Company:   Effective January 1, 2001, we transferred all of our electric utility transmission assets to American Transmission Company LLC (ATC) in exchange for an ownership interest in this new company. Joining ATC is consistent with the FERC's Order No. 2000, designed to foster competition, efficiency and reliability in the electric industry.

ATC is owned and governed by the utilities that contributed facilities or capital in accordance with 1999 Wisconsin Act 9. At December 31, 2003, we owned approximately 34.6% of ATC.

ATC's sole business is to provide reliable, economic electric transmission service to all customers in a fair and equitable manner. Specifically, ATC plans, constructs, operates, maintains and expands transmission facilities it owns to provide for adequate and reliable transmission of electric power. ATC is expected to provide comparable service to all customers, including us, and to support effective competition in energy markets without favoring any market participant. ATC is regulated by the FERC for all rate terms and conditions of service and is a transmission-owning member of the Midwest Independent Transmission System Operator, Inc. (Midwest ISO). As of February 1, 2002, operational control of ATC's transmission system was transferred to the Midwest ISO. We are a non-transmission owning member and customer of the Midwest ISO.

We have contracted to provide, at cost, services required by ATC and which ATC is not able to provide itself at this time. Services include transmission line and substation operation and maintenance, engineering, project, real estate, environmental, supply chain, control center, accounting and miscellaneous services. We provided services with an

Midwest ISO:   In connection with its role as a FERC-approved Regional Transmission Organization (RTO), the Midwest ISO is in the process of developing a bid-based energy market which is currently proposed to be implemented on December 1, 2004.

In the Midwest ISO, base transmission costs are currently being paid by load serving entities (LSEs) located in the service territories of each Midwest ISO transmission owner in proportion to the load served by the LSE versus the total load of the service territory. This "license plate" rate design is scheduled to be replaced after a six-year phase-in of rates in Midwest ISO.

Lost Revenue Charges:   The FERC permits transmission owning utilities that have not joined an RTO to propose a charge to recover revenues that would be lost as a result of RTO membership. These lost revenues result from FERC's requirement that, within an RTO and for transmission between the systems operated by the Midwest ISO and PJM Interconnection, LLC, entities that currently pay a transmission charge to move energy through or out of a neighboring transmission system will no longer pay this charge to the neighboring transmission system owner or operator upon the neighboring transmission system owner or operator joining an RTO.

For further information, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

Wisconsin Energy's Power the Future plan includes a commitment to significantly increase the amount of renewable energy generation we utilize beyond that required by Wisconsin law. Our target is to provide 5% of retail electric sales in Wisconsin from renewable energy resources by the year 2011. In addition, we have an "Energy For Tomorrow®" renewable energy program to promote additional usage by our customers of energy produced from renewable resources.

Wisconsin's public benefits legislation requires that retail energy providers supply a minimum of 0.5% of their Wisconsin retail electric sales from renewable energy increasing to 2.2% by the year 2011. We met this requirement for 2003. For more information about public benefits see "Regulation" below.

We are authorized to provide retail gas distribution service in designated territories in the state of Wisconsin, as established by indeterminate permits, certificates of public convenience and necessity, or boundary agreements with other utilities. We also transport customer-owned gas. Our gas utility operates in three distinct service areas: west and south of the City of Milwaukee, the Appleton area, and areas within Iron and Vilas Counties, Wisconsin.

Our gas utility business is highly seasonal due to the heating requirements of residential and commercial customers. Annual gas sales are also impacted by the variability of winter temperatures.

See "Selected Operating Data" in Item 6 for selected gas utility operating information by customer class during the period 1999 through 2003.

We delivered approximately 888.3 million therms of gas during 2003, including customer-owned transported gas, a 0.2% decrease compared with 2002. At December 31, 2003, we were transporting gas for approximately 370 customers who purchase gas directly from other suppliers. Transported gas accounted for approximately 35% of our total volumes delivered during 2003, 38% during 2002 and 39% during 2001. We had approximately 428,700 gas customers at December 31, 2003, an increase of approximately 2.0% since December 31, 2002.

Our maximum daily send-out during 2003 was 718,046 dekatherms on January 22, 2003.

Sales to Large Gas Customers:   We provide gas utility service to a diversified base of industrial customers who are largely within our electric service territory. Major industries served include the paper, food products and fabricated metal products industries. Fuel used for our electric energy supply represents our largest transportation customer.

Gas Deliveries Growth:   We currently forecast total therm deliveries of natural gas to grow at an annual rate of approximately 0.8% over the five-year period ending December 31, 2008. This forecast reflects a current year normalized sales level and assumes moderate growth in the economy of our gas utility service territories and normal weather.

Competition in varying degrees exists between natural gas and other forms of energy available to consumers. Many of our large commercial and industrial customers are dual-fuel customers that are equipped to switch between natural gas and alternate fuels. We offer lower-priced interruptible rates and transportation services for these customers to enable them to reduce their energy costs and use gas rather than other fuels. Under gas transportation agreements, customers purchase gas directly from gas marketers and arrange with interstate pipelines and us to have the gas transported to the facilities where it is used. We earn substantially the same margin (difference between revenue and cost of gas) whether we sell and transport gas to customers or only transport their gas.

Our future ability to maintain our present share of the industrial dual-fuel market (the market that is equipped to use gas or other fuels) depends upon our success and the success of third-party gas marketers in obtaining long-term and short-term supplies of natural gas at competitive prices compared to other sources and in arranging or facilitating competitively-priced transportation service for those customers that desire to buy their own gas supplies.

Federal and state regulators continue to implement policies to bring more competition to the gas industry. For information concerning proceedings by the PSCW to consider how its regulation of gas distribution utilities should change to reflect the changing competitive environment in the gas industry, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7. While the gas utility distribution function is expected to remain a highly regulated, monopoly function, the sales of the natural gas commodity and related services are expected to become increasingly subject to competition from third parties. However, it remains uncertain if and when the current economic disincentives for small customers to choose an alternative gas commodity supplier may be removed such that we begin to face competition for the sale of gas to our smaller firm customers.

We have been able to meet our contractual obligations with both our suppliers and our customers despite periods of severe cold and unseasonably warm weather.

Pipeline Capacity and Storage:   In addition to the Guardian pipeline that receives gas supply in the Joliet, Illinois market hub, the interstate pipelines serving Wisconsin originate in three major gas producing areas of North America: the Oklahoma and Texas basins, the Gulf of Mexico and western Canada. We have contracted for long-term firm capacity from each of these areas. This strategy reflects management's belief that overall supply security is enhanced by geographic diversification of the supply portfolios and that Canada represents an important long-term source of reliable, competitively-priced gas.

Because of the daily and seasonal variations in gas usage in Wisconsin, we have also contracted for substantial underground storage capacity, primarily in Michigan. Storage capacity enables us to manage significant changes in daily demand and to optimize our overall gas supply and capacity costs. We generally inject gas into storage during the spring and summer months and withdraw it in the winter months. As a result, we can contract for less long-line pipeline capacity than would otherwise be necessary and can purchase gas on a more uniform daily basis from suppliers year-round. Each of these capabilities enables us to reduce our overall costs.

We also maintain high deliverability storage in the mid-continent and Southeast production areas, as well as in our market area. This storage capacity is designed to deliver gas when other supplies cannot be delivered during extremely cold weather in the producing areas, which can reduce long-line supply.

We hold firm daily transportation and storage capacity entitlements from pipelines and other service providers under long-term contracts.

Term Gas Supply:   We currently have contracts for firm supplies with terms in excess of 30 days with eight gas suppliers for gas acquired in the Chicago area hub and in the three producing areas discussed above. The pricing of the term contracts is based upon first of the month indices. Management believes that the volume of gas under contract is sufficient to meet our forecasted firm peak day demand.

Secondary Market Transactions:   Capacity release is a mechanism by which pipeline long-line and storage capacity and gas supplies under contract can be resold in the secondary market. Local distribution companies, like our gas operations, must contract for capacity and supply sufficient to meet the firm peak day demand of their customers. Peak or near peak demand days generally occur only a few times each year. Capacity release facilitates higher utilization of contracted capacity and supply during those times when the full contracted capacity and supply are not needed by the utility, helping to mitigate the fixed costs associated with maintaining peak levels of capacity and gas supply. Through pre-arranged agreements and day-to-day electronic bulletin board postings, interested parties can purchase this excess capacity and supply. The proceeds from these transactions are passed through to ratepayers, subject to our gas cost incentive mechanism pursuant to which we have an opportunity to share in the cost savings. See "Factors Affecting Results, Liquidity and Capital Resources -- Rates and Regulatory Matters" in Item 7 for information on the gas cost recovery mechanism and gas cost incentive mechanism. During 2003, we continued our active participation in the capacity release market.

Spot Market Gas Supply:   We expect to continue to make gas purchases in the 30-day spot market as price and other circumstances dictate. We have supply relationships with a number of sellers from whom we purchases spot gas.

Hedging Gas Supply Prices:   We have PSCW approval to hedge up to 50% of planned flowing gas and storage inventory supply using NYMEX based natural gas options. That approval allows us to pass 100% of the hedging costs (premiums and brokerage fees) and proceeds through our purchase gas adjustment mechanism. Hedge targets (volumes) are provided annually to the PSCW as part of our five-year gas supply plan filing.

To the extent that opportunities develop and our physical supply operating plans will support them, we also have PSCW approval to utilize NYMEX based natural gas derivatives to capture favorable forward market price differentials. That approval provides for 100% of the related proceeds to accrue to our gas cost recovery (incentive) mechanism.

Guardian Pipeline:   In March 1999, WICOR, Inc. (WICOR), which was acquired by Wisconsin Energy in April 2000, announced the formation of a joint venture, Guardian Pipeline, L.L.C. (Guardian), to construct the Guardian interstate natural gas pipeline from the Joliet, Illinois market hub to southeastern Wisconsin. The Guardian pipeline is designed to serve the growing demand for natural gas in Wisconsin and northern Illinois. WICOR, WPS Investments, LLC, an affiliate of WPS Resources Corporation, and an affiliate of Northern Border Partners, LLP have equal co-ownership interests in Guardian. On March 14, 2001, the FERC issued a certificate of public convenience and necessity authorizing construction and operation of the Guardian pipeline. The Guardian pipeline began operation in December 2002 and we have been transporting natural gas on the pipeline since that time.

Our steam utility generates, distributes and sells steam supplied by our Valley and Milwaukee County Power Plants. We operate a district steam system in downtown Milwaukee and the near south side of Milwaukee. Steam is supplied to this system from our Valley Power Plant, a coal-based cogeneration facility. We also operate the steam production and distribution facilities of the Milwaukee County Power Plant located on the Milwaukee County Grounds in Wauwatosa, Wisconsin.

Annual sales of steam fluctuate from year to year based upon system growth and variations in weather conditions. During 2003, the steam utility had $22.5 million of operating revenues from the sale of 3,073 million pounds of steam compared with $21.5 million of operating revenues from the sale of 3,001 million pounds of steam during 2002. As of December 31, 2003 and 2002, steam was used by approximately 460 and 470 customers, respectively, for processing, space heating, domestic hot water and humidification.

See "Factors Affecting Results, Liquidity and Capital Resources -- Rates and Regulatory Matters" in Item 7.

We are an exempt holding company under Section 3(a)(1) of the Public Utility Holding Company Act of 1935, as amended, and Rule 2 thereunder and, accordingly, are exempt from that law's provisions other than with respect to certain acquisitions of securities of a public utility.

We are subject to the regulation of the PSCW as to retail electric, gas and steam rates in the state of Wisconsin, standards of service, issuance of securities, construction of certain new facilities, transactions with affiliates, billing practices and various other matters. We are subject to regulation of the PSCW as to certain levels of short-term debt obligations. We are subject to the regulation of the MPSC as to the various matters associated with retail electric service in the state of Michigan as noted above except as to issuance of securities, construction of certain new facilities, levels of short-term debt obligations and advance approval of transactions with affiliates. Our hydroelectric facilities are regulated by the FERC. We are subject to regulation of the FERC with respect to wholesale power service and accounting. For information on how our rates are set, see "Rates and Regulatory Matters" in Item 7.

The following table compares the source of our operating revenues by regulatory jurisdiction for each of the three years in the period ended December 31, 2003.

For information concerning the implementation of full electric retail competition in the state of Michigan effective January 1, 2002, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

Operation and construction relating to our Point Beach Nuclear Plant are subject to regulation by the NRC. Our operations are also subject to regulations, where applicable, of the United States Environmental Protection Agency (EPA), the Wisconsin Department of Natural Resources (WDNR), the Michigan Department of Natural Resources and the Michigan Department of Environmental Quality.

Electric Reliability Legislation:   In 1998, the Wisconsin State Legislature passed and the Governor of Wisconsin signed into law 1997 Wisconsin Act 204, intended to address concerns with electric reliability in the state of Wisconsin. 1997 Wisconsin Act 204 included new requirements concerning market power, which utilities and their affiliates must meet in order to construct generating facilities. The requirements apply to electric utility facilities in excess of 100 megawatts.

Public Benefits:   Public benefits legislation was included in 1999 Wisconsin Act 9. The law created new funding which is adjusted annually to be collected by all electric utilities and remitted to the Wisconsin Department of Administration. The law also required utilities to continue to collect the funds at existing levels for low-income

This law also requires that retail energy providers supply 0.5% of their Wisconsin retail electric sales from renewable energy, which we did in 2003, with the required minimum percentage increasing to 2.2% by the year 2011.

Expenditures for environmental compliance and remediation issues are included in anticipated capital expenditures described in "Liquidity and Capital Resources" in Item 7. For discussion of additional environmental issues, see "Environmental Matters" in Item 3. For further information concerning air quality standards and rulemaking initiated by the EPA, including estimated costs of compliance, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

Our compliance with federal, state and local environmental protection requirements resulted in capital expenditures of approximately $15 million in 2003 compared with $77 million in 2002. Expenditures incurred during 2003 primarily included costs associated with the installation of pollution abatement facilities at our power plants. These expenditures are expected to approximate $105 million during 2004, reflecting nitrogen oxide (NO_x) and other pollution control equipment needed to comply with various rules promulgated by the EPA.

We estimate our operation, maintenance and depreciation expenses for fly ash removal equipment and other environmental protection systems to have been approximately $51 million during 2003 and $46 million during 2002.

We provide for the disposal of non-ash related solid wastes and hazardous wastes through licensed independent contractors, but federal statutory provisions impose joint and several liability on the generators of waste for certain cleanup costs. Currently there are no active cases.

Giddings and Lewis, Inc./City of West Allis Lawsuit:    For information about this matter, see "Note O -- Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8.

Some early designed and constructed coal-ash landfills may allow the release of low levels of constituents resulting in the need for various levels of remediation. Where we have become aware of these conditions, efforts have been expended to define the nature and extent of any release, and work has been performed to address these conditions. For additional information, see "Note O -- Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8. Sites currently undergoing remediation and/or monitoring include:

Lakeside Property:   During 2001, we completed an investigation of property that was used primarily for coal storage, fuel oil transport and coal ash disposal in support of the former Lakeside Power Plant in St. Francis, Wisconsin. Excavation and utilization of residual coal at the site, slope stabilization and cover construction have been completed. Currently, discussion is taking place with neighbors and other interested parties to determine ultimate use of the remediated property and some other adjacent land also owned by us. Future costs for remediation of this site are estimated to be approximately $2.8 million.

Oak Creek North Landfill:   Groundwater impairments at this landfill, located in the City of Oak Creek, Wisconsin, prompted us to investigate, during 1998, the condition of the existing cover and other conditions at the site. Surface water drainage improvements were implemented at this site during 1999 and 2000, which are expected to eliminate

We are reviewing and addressing environmental conditions at a number of former manufactured gas plant sites. See "Note O -- Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8.

The 1990 amendments to the Federal Clean Air Act mandate significant nationwide reductions in air emissions. The most significant sections of this law applicable to the country's electric utilities are the acid rain and nonattainment provisions. The acid rain provisions limit SO₂ and NO_x emissions in phases. Phase I became effective in 1995 and Phase II became effective during the year 2000. We have met the requirements of Phase I. The Phase II requirements are having a minimal impact because of existing cost effective compliance strategies and previous actions taken.

Ozone nonattainment rules implemented by the state of Wisconsin and ozone transport rules implemented by the state of Michigan, both under authority of the Federal Clean Air Act, will limit NO_x emissions in phases ending in 2007.

See "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 for information concerning National Ambient Air Quality Standards established during 1997 by the EPA and ozone non-attainment rulemaking promulgated by the EPA during 1998.

Wisconsin Energy's Power the Future strategy provides a plan to meet the growing demand for electricity while using environmentally friendly equipment. Under Power the Future, Wisconsin Energy plans to build four new generating units, a total of 2,320 megawatts of capacity, at a total cost of approximately $2.8 billion (in year of occurrence dollars). We will lease the plants from our affiliate. When the plants are completed, Wisconsin Energy expects to own approximately 1,090-megawatts of new natural gas-based generation and 1,030-megawatts of new coal-based generation. Wisconsin Energy plans to build the two coal units at the site of our existing Oak Creek Power Plant. Wisconsin Energy anticipates that two unaffiliated entities together will own approximately 17% or 204-megawatts of these two units. The Oak Creek units will use a supercritical pulverized coal design and state-of-the-art emission controls. The two natural gas-based units are being construct ed at our existing Port Washington Power Plant site, where older, less efficient coal-based units installed before 1950 are being retired. Implementation of Wisconsin Energy's Power the Future plan also provides for upgrades to our existing power plants and modernization to increase efficiency and reduce emissions. As a result of the use of the latest emission reduction technologies on the new units, and the installation of equipment to reduce emissions on certain of our existing coal-based units, the plan results in a significant reduction in SO₂, NOx, and mercury emissions. In addition to the positive environmental attributes of the generation technologies, the plan involves an increased commitment to conservation and renewable fuels, as well as a commitment to address greenhouse gas issues. For further information about Wisconsin Energy's Power the Future strategy, see "Corporate Developments" in Item 7.

Research and Development:   We had immaterial research and development expenditures in the last three years, primarily for improvement of service and abatement of air and water pollution by the electric utility operations. Research and development activities include work done by employees, consultants and contractors, plus sponsorship of research by industry associations.

Employees:   At December 31, 2003, we had 5,146 total employees of which 3,542 were represented under labor agreements.

The employees represented under labor agreements were with the following bargaining units as of December 31, 2003.

Effective January 1, 2001, we exited the electric transmission business by contributing all of our transmission assets to ATC in exchange for an equity interest in this new company. For further information, see "Electric Utility Operations" in Item 1.

We own the following generating stations with dependable capabilities as indicated.