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 Statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    [  ]

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

    Yes [X]    No [  ]

The aggregate market value of the common stock of Wisconsin Energy Corporation held by non-affiliates was approximately $2.9 billion based upon the reported last sale price of such securities as of June 28, 2002.

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date (January 31, 2003):

Portions of Wisconsin Energy Corporation's definitive Proxy Statement for its Annual Meeting of Stockholders, to be held on April 30, 2003, are incorporated by reference into Part III hereof.

Wisconsin Energy Corporation was incorporated in the state of Wisconsin in 1981 and became a diversified holding company in 1986. It maintains its principal executive offices in Milwaukee, Wisconsin. Unless qualified by their context when used in this document, the terms "Wisconsin Energy" or the "Company" refer to the holding company and all of its subsidiaries.

Wisconsin Energy conducts its operations primarily in three operating segments: a utility energy segment, a non-utility energy segment and a manufacturing segment. The Company's primary subsidiaries are Wisconsin Electric Power Company ("Wisconsin Electric"), Wisconsin Gas Company ("Wisconsin Gas") and WICOR Industries, Inc ("WICOR Industries").

Non-Utility Energy Segment:   As of January 1, 2002, the non-utility energy segment consists of W.E. Power, LLC ("We Power") and Wisvest Corporation ("Wisvest"). We Power was formed in 2001 to design, construct and own the new generating capacity included in the Company's Power the Future strategy assuming all required regulatory approvals are obtained. Wisvest owns and operates electric generating facilities and has investments in other energy-related entities and assets. The Company is in the process of reducing the operations of Wisvest. See Item 7 for more information on Power the Future.

Manufacturing Segment:   The manufacturing segment consists of WICOR Industries, an intermediary holding company, and its three primary subsidiaries: Sta-Rite Industries, Inc. ("Sta-Rite"), SHURflo Pump Manufacturing Co. ("SHURflo") and Hypro Corporation ("Hypro"), which are manufacturers of pumps, water treatment products and fluid handling equipment with manufacturing, sales and distribution facilities in the United States and several other countries.

Power the Future Strategy:   In late February 2001, Wisconsin Energy announced enhancements to a 10-year, $7 billion strategy, originally proposed in September 2000, to improve the supply and reliability of electricity in Wisconsin. As part of the Power the Future growth strategy, Wisconsin Energy plans to: (1) invest in new natural gas-based and coal-based electric generating facilities and major upgrades on Wisconsin Electric's existing generation facilities, (2) upgrade the existing electric generating facilities at Wisconsin Electric, and (3) invest in upgrades of the existing energy distribution system. As part of this strategy, the Company also announced and began implementing plans to divest of non-core assets and operations, primarily in its non-utility energy segment and its non-utility real estate operations. Implementation of the Power the Future strategy is subject to a number of state and federal regulatory approvals. A dditional information concerning the Power the Future strategy may be found below under "Non-Utility Energy Segment" and "Environmental Compliance" as well as in Item 7.

For further financial information about Wisconsin Energy's business segments, see "Results of Operations" in Item 7 and "Note P -- Segment Reporting" in the Notes to Consolidated Financial Statements in Item 8.

The Company has through its Internet website www.wisconsinenergy.com available free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission ("SEC").

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,"

The Company's electric utility operations consist of the electric operations of Wisconsin Electric as well as Edison Sault. Wisconsin Electric, which is the largest electric utility in the state of Wisconsin, generates, distributes and sells electric energy in a territory in southeastern (including the metropolitan Milwaukee area), east central and northern Wisconsin and in the Upper Peninsula of Michigan. Edison Sault generates, distributes and sells electric energy in a territory in the eastern Upper Peninsula of Michigan.

See "Consolidated Selected Utility Operating Data" in Item 6 for certain electric utility operating information by customer class during the period 1998 through 2002.

Wisconsin Electric:   Wisconsin Electric is 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. Wisconsin Electric also sells wholesale electric power.

Electric energy sales by Wisconsin Electric to all classes of customers totaled approximately 30.4 million megawatt hours ("mwh") during 2002, a 0.5% decrease from 2001. Approximately 0.4 million of megawatt-hour sales during 2002 were to Edison Sault. There were approximately 1,056,000 electric customers at December 31, 2002, an increase of 1.2% since December 31, 2001.

Edison Sault:   Edison Sault is authorized to provide retail electric service in certain territories in the state of Michigan pursuant to franchises granted by municipalities. Edison Sault also provides wholesale electric service under contract with one rural cooperative.

Electric energy sales by Edison Sault to all classes of customers totaled approximately 0.8 million megawatt hours during 2002 and 2001. No significant megawatt-hour sales during 2002 were to Wisconsin Electric. There were approximately 22,000 electric customers at December 31, 2002 and December 31, 2001.

Sales To Large Electric Retail Customers:   Wisconsin Electric provides 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. Edison Sault provides electric service to industrial accounts in the paper, crude oil pipeline and limestone quarry industries as well as to several state and federal government facilities.

The Company's largest retail electric customers are two iron ore mines located in the Upper Peninsula of Michigan. Wisconsin Electric currently has special negotiated power-sales contracts with these mines that expire in 2007. The combined electric energy sales to the two mines accounted for 6.4%, 6.6% and 7.7% of the Company's total electric utility energy sales during 2002, 2001 and 2000, respectively.

Sales to Wholesale Customers:   During 2002, Wisconsin Electric 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. Wholesale electric energy sales by Wisconsin Electric were also made to 34 other public utilities and power marketers throughout the region under rates approved by the Federal Energy Regulatory Commission ("FERC"). Edison Sault sold wholesale electric energy to one rural cooperative during 2002. Wholesale sales accounted for approximately 8.2% of the Company's total electric energy sales and 4.2% of total electric operating revenues during 2002 compared with 10.8% of total electric energy sales and 6.0% of total electric operating revenues during 2001.

Electric System Reliability Matters:   Electric energy sales are impacted by seasonal factors and varying weather conditions from year-to-year. Wisconsin Energy, a summer peaking utility as a result of cooling load, reached its all-time electric peak demand obligation of 6,298 megawatts on August 7, 2001. The summer period is the most relevant period for capacity planning purposes at the Company. Wisconsin Electric is a member of the MAIN reliability council. MAIN guidelines direct members to have a minimum 15% planning reserve margin in place prior to the upcoming peak season. The Public Service Commission of Wisconsin ("PSCW") guidelines to electric utilities in Wisconsin advise a minimum 18% planning reserve margin. The Michigan Public Service Commission has not provided guidelines in this area. During the years 2003 through 2007, Wisconsin Energy currently estimates that electric peak demand obligation will grow at an annualized rate of 1.7% to approximately 6,700 megawatts.

Effective January 1, 2001, Wisconsin Energy combined the service territories of Wisconsin Electric and Edison Sault, a winter peaking utility as a result of heating load, into a single control area.

The Company had adequate capacity to meet all of its firm electric load obligations during 2002 and expects to have adequate capacity to meet all of its firm obligations during 2003. For additional information, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7. For additional information regarding the Company's generation facilities, see "Utility Energy Segment" in Item 2.

The nation's electric utility industry had previously been following a trend towards restructuring and increased competition. However, given electric reliability problems in the state of California, which had previously restructured its electric industry framework, and the current status of restructuring initiatives in regulatory jurisdictions where the Company primarily does business, Wisconsin Energy does not expect significant electric deregulation in Wisconsin in the next three years. For additional information, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

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

Wisconsin Energy's net generation totaled 27.8 million megawatt hours during 2002 compared with 28.9 million megawatt hours during 2001 and 29.8 million megawatt hours during 2000. The decline in 2002 generation was primarily due to an increase in scheduled outages at Wisconsin Electric's generating facilities. The Company made up for the decrease in generation through additional power purchases during 2002. When compared with the past three years, net generation as a percent of the Company's total electric energy supply is expected to decrease during 2003 in large part due to the Port Washington unit retirements and planned outages at various Wisconsin Electric generating facilities. Purchased power is expected to be the primary source of additional electric energy supply required to meet load growth in the next two years.

The fuel costs for coal and nuclear generation are relatively stable as the fuel costs are under long-term contracts. The costs for natural gas and purchased power, which is primarily natural gas-based, are more volatile.

Coal Supply:   Wisconsin Electric diversifies the coal supply for its power plants by purchasing coal from mines in northern and central Appalachia as well as from various western mines. During 2003, 99% of Wisconsin Electric's projected coal requirements of 12.0 million tons will be under contracts which are not tied to 2003 market pricing fluctuations. Wisconsin Electric does not anticipate any problem in procuring its remaining 2003 coal requirements through short-term or spot purchases and inventory adjustments.

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

As of the beginning of 2003, Wisconsin Electric had approximately a 109-day supply of coal in inventory at its coal-based facilities.

Coal Deliveries:   Approximately 75% of Wisconsin Electric's 2003 coal requirements are expected to be delivered by Wisconsin Electric-owned 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 delivered to the Milwaukee County Power Plant by truck once it arrives by lake vessel in Milwaukee. 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 Appalachian and Colorado coal bound for Presque Isle Power Plant is shipped via rail to Lake Erie and Lake Michigan (Chicago) coal transfer docks, respectivel y, for lake vessel delivery 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:   Wisconsin Electric owns two 510-megawatt electric generating units at Point Beach Nuclear Plant in Two Rivers, Wisconsin. The United States Nuclear Regulatory Commission operating licenses for Point Beach expire in October 2010 for Unit 1 and in March 2013 for Unit 2. For additional information concerning Point Beach, see "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 and "Note G -- Nuclear Operations" in the Notes to the Consolidated Financial Statements in Item 8.

Nuclear Management Company:   Nuclear Management Company, LLC ("NMC"), owned by the Company and the affiliates of four other unaffiliated investor-owned utilities in the region, operates Point Beach. NMC provides services to nine nuclear generating units at seven sites in the states of Wisconsin, Minnesota, Michigan, Iowa, and Nebraska with a total combined generating capacity of about 5,300 megawatts as of December 31, 2002. Wisconsin Electric continues to own Point Beach and retains 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:   Wisconsin Electric purchases uranium concentrates ("Yellowcake") and contracts for its conversion, enrichment and fabrication. Wisconsin Electric maintains title to the nuclear fuel until fabricated fuel assemblies are delivered to Point Beach, whereupon it is sold to and leased back from the Wisconsin Electric Fuel Trust. For further information concerning this nuclear fuel lease, see "Note J -- Long-Term Debt" in the Notes to the Consolidated Financial Statements in Item 8.

Uranium Requirements:   Wisconsin Electric requires approximately 400,000 pounds of Yellowcake to refuel a generating unit at Point Beach. Wisconsin Electric 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, amended in 2000, which supplies 100% of the annual requirements through 2007 under these staggered, extended fuel cycles.

Conversion:   Wisconsin Electric has 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. Wisconsin Electric has an additional long-term conversion contract with a second conversion supplier to supply the remaining 25% of Wisconsin Electric's annual conversion requirements through 2004.

Enrichment:   Wisconsin Electric effectively has 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. During its fall 2000 refueling outage, the first reload region of a new fuel design from Westinghouse was loaded into Point Beach Unit 2. The first reload region of the new fuel design in Unit 1 was loaded during its spring of 2001 refueling outage. The new fuel design is expected to provide additional safety margin and cost savings and to reduce the number of discharged spent fuel assemblies over the remaining operating license.

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:   Wisconsin Electric provides 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 trust fund at December 31, 2002 to approximately $550.0 million. For additional information regarding decommissioning, see "Note G -- Nuclear Operations" in the Notes to the 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 G - Nuclear Operations" in the Notes to the Consolidated Financial Statements in Item 8.

Wisconsin Electric:   Wisconsin Electric's 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. Of these fourteen plants, thirteen 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.

Edison Sault:   Edison Sault's primary source of generation is its 30-megawatt hydroelectric generating plant located on the St. Marys River in Sault Ste. Marie, Michigan. The water for this facility is leased under a contract with the United States Corps of Engineers with tenure to December 31, 2050. However, the Secretary of the Army has the right to terminate the contract subsequent to December 2020. Edison Sault pays for all water taken from the St. Marys River at predetermined rates with a minimum annual payment of $0.1 million. The total flow of water taken out of Lake Superior, which in effect is the flow of water in the St. Marys River, is under the direction and control of the International Joint Commission, created by the Boundary Water Treaty of 1909 between the United States and Great Britain, now represented by Canada.

Hydroelectric generation is also purchased by Edison Sault under contract from the United States Corps of Engineers' hydroelectric generating plant located within the Soo Locks complex on the St. Marys River in Sault Ste. Marie, Michigan. This 17 megawatt contract has a tenure to November 1, 2040 and cannot be terminated by the United States government prior to November 1, 2030.

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

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 Wisconsin Electric's gas to each plant under interruptible tariffs.

Wisconsin Electric also has power purchase agreements with Alliant Energy Neenah, LLC, a subsidiary of Alliant Energy Corporation, ("Alliant") 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. Wisconsin Electric procures and delivers fuel to Alliant's Neenah Energy Facility and receives the electric power produced, as discussed in "Purchase Power Commitments" below. Wisconsin Electric has another power purchase agreement with Calpine Corporation for peaking capacity from a Zion, Illinois facility which began commercial operation during the summer of 2002. Wisconsin Electric procures and delivers natural gas to the plant and receives the electric power produced, similar to the Alliant agreement.

Wisconsin Electric is 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. 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 gas turbines discussed above. Fuel oil requirements are purchased under partnering agreements with suppliers that assist Wisconsin Electric with inventory tracking and oil market price trends.

Due to regulatory issues, Wisconsin Electric has put the conversion of the four original generating units at the Germantown Power Plant to dual fuel (natural gas and oil) on hold. A fifth dual fuel combustion turbine began commercial operation at Germantown Power Plant in 2000. The dual fuel facilities burn oil only if natural gas is not available due to constraints on the natural gas pipeline and/or at the local gas distribution company that delivers gas to the plants.

Wisconsin Electric:   To meet a portion of its anticipated increase in future electric energy supply needs, Wisconsin Electric has entered into separate long-term power purchase contracts with LSP-Whitewater, LP, Alliant and Calpine Corporation.

The contract with LSP-Whitewater, LP, for 236 megawatts of firm capacity from a gas-based cogeneration facility located in Whitewater, Wisconsin, does not include any minimum energy requirements.

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

Wisconsin Electric's agreement with the Calpine Corporation calls for new generating capacity to be constructed in northern Illinois by a Calpine subsidiary to supply power to Wisconsin Electric. Under the agreement, three 150-megawatt natural gas-based turbine peaking units are to be constructed, two in 2002 and one in 2003. Although two units were constructed in 2002, Wisconsin Electric received power from only one of the two available units. The power from the second unit was under contract to a third party for 2002 only. Wisconsin Electric will have the full 450 megawatts available for its use in 2003. This power purchase agreement also is a tolling agreement.

Wisconsin Electric cancelled a long-term contract for 225 megawatts of output due to certain contractual obligations not being met.

Wisconsin Electric currently expects to utilize a combination of new generating capacity identified in its Power the Future proposal and purchase power commitments with independent power producers to meet its electric demand load growth.

In the normal course of business, Wisconsin Electric utilizes 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 Wisconsin Electric's expected incremental cost of generation. Contracts of this nature are one of the power supply resources Wisconsin Electric uses to meet its reliability requirements.

Edison Sault:   Edison Sault purchased 676.9 thousand megawatt hours or 76% of its energy supply during 2002 to meet its energy requirements, including 364.6 thousand megawatt hours from Wisconsin Electric.

Effective January 1, 2001, Edison Sault began purchasing additional capacity and energy from Wisconsin Electric under the terms of a joint operating agreement. Under the agreement, Edison Sault and Wisconsin Electric each retain the rights to any generation and purchased power contracts that were in place on July 1, 2000. Any additional capacity and energy needs of the two companies would be obtained on a joint basis and the costs shared.

American Transmission Company:   Effective January 1, 2001, the Company transferred all of the electric utility transmission assets of Wisconsin Electric and Edison Sault to American Transmission Company LLC ("ATC") in exchange for equity interests 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, 2002, the Company owned approximately 42.5% 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. It is expected to provide comparable service to all customers, including Wisconsin Electric and Edison Sault, 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, and Wisconsin Electric became a non-transmission owning member and customer of the Midwest ISO.

Wisconsin Electric has 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. The annual cost of the services provided by Wisconsin Electric was approximately $52 million and $53 million during 2002 and 2001, respectively, and is expected to decline in future years as ATC provides more of these services directly.

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

The Company's Power the Future proposal includes a commitment to significantly increase the amount of renewable generation utilized by the Company beyond that required by Wisconsin law. In addition, Wisconsin Electric has an "energy for tomorrow®" renewable energy program. For more information about Public Benefits see "Regulation" below.

The Company's 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 "Consolidated Selected Utility Operating Data" in Item 6 for selected gas utility operating information by customer class during the period 1998 through 2002. See "Results of Operations" in Item 7 for selected pro forma gas utility operating information by customer class prepared as if Wisconsin Gas had been a part of Wisconsin Energy since January 1, 2000.

Wisconsin Gas:    During the twelve months of 2002, Wisconsin Gas delivered a total of approximately 1,231.2 million therms, including customer-owned transported gas, a 7.5% increase compared with 2001. At December 31, 2002, Wisconsin Gas was transporting gas for approximately 1,080 customers who purchased gas directly from other suppliers. Transported gas accounted for approximately 39% of total therms delivered by Wisconsin Gas during 2002, 40% during 2001 and 41% during 2000. Wisconsin Gas had approximately 562,000 customers at December 31, 2002, an increase of approximately 1.4% since December 31, 2001.

The maximum daily send-out of Wisconsin Gas during 2002 was 759,066 dekatherms on March 4, 2002. A dekatherm is equivalent to ten therms or one million British thermal units.

Wisconsin Electric:   Total gas therms delivered by Wisconsin Electric, including customer-owned transported gas, were approximately 890.0 million therms during 2002, a 4.4% increase compared with 2001. At December 31, 2002, Wisconsin Electric was transporting gas for approximately 365 customers who purchased gas directly from other suppliers. Transported gas accounted for approximately 38% of total therms delivered by Wisconsin Electric during 2002, 39% during 2001 and 41% during 2000. Wisconsin Electric had approximately 420,500 gas customers at December 31, 2002, an increase of approximately 1.9% since December 31, 2001.

Wisconsin Electric's maximum daily send-out during 2002 was 628,272 dekatherms on March 4, 2002.

Sales to Large Gas Customers:   The Company provides gas utility service to a diversified base of industrial customers who are largely within its electric service territory. Major industries served include the paper, food products and fabricated metal products industries. Fuel used for Wisconsin Electric's electric energy supply represents the Company's largest transportation customer.

Gas Deliveries Growth:   The Company currently forecasts total therm deliveries of natural gas to grow at an annual rate of approximately 1.1% for the combined gas operations of Wisconsin Electric and Wisconsin Gas over the five-year period ending December 31, 2007. This forecast reflects a current year normalized sales level and assumes moderate growth in the economy of the Company's gas utility service territories and normal weather. Abnormal

Competition in varying degrees exists between natural gas and other forms of energy available to consumers. Many of the Company's large commercial and industrial customers are dual-fuel customers that are equipped to switch between natural gas and alternate fuels. The Company offers 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 the Company to have the gas transported to the facilities where it is used. The Company earns substantially the same margin (difference between revenue and cost of gas) whether it sells and transports gas to customers or only transports their gas.

The Company's future ability to maintain its present share of the industrial dual-fuel market (the market that is equipped to use gas or other fuels) depends on the success of the Company and third-party gas marketers in obtaining long-term and short-term supplies of natural gas at marketable prices compared to other sources and their success 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 heavily 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 the Company begins to face competition for the sale of gas to its smaller firm customers.

Both Wisconsin Gas and the gas operations of Wisconsin Electric have been able to meet their contractual obligations with both their suppliers and their customers despite periods of severe cold and unseasonably warm weather.

Pipeline Capacity and Storage:   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. The Company has 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, the companies have also contracted for substantial underground storage capacity, primarily in Michigan. Storage enables the companies to manage significant changes in daily demand and to optimize their overall gas supply and capacity costs. In summer, gas in excess of market demand is transported into the storage fields, and in winter, gas is withdrawn from storage and combined with gas purchased in or near the production areas ("flowing gas") to meet the increased winter market demand. As a result, the companies 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 the companies to reduce their overall costs.

The companies also maintain high deliverability storage in the mid-continent and Southeast production areas, as well as in their 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.

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

Term Gas Supply:   Wisconsin Gas and the gas operations of Wisconsin Electric have contracts for firm supplies with terms in excess of 30 days with more than 20 gas suppliers for gas produced in each of the three producing areas

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, such as Wisconsin Gas and the gas operations of Wisconsin Electric, 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 the Wisco nsin Electric and Wisconsin Gas gas cost incentive mechanisms pursuant to which the companies 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 2002, the companies continued their active participation in the capacity release market.

Spot Market Gas Supply:   Wisconsin Gas and the gas operations of Wisconsin Electric expect to continue to make gas purchases in the 30-day spot market as price and other circumstances dictate. The Company has supply relationships with a number of sellers from whom it purchases spot gas.

Guardian Pipeline:   In March 1999, WICOR announced the formation of a joint venture, Guardian Pipeline, L.L.C., to construct the Guardian interstate natural gas pipeline from the Joliet, Illinois market hub to southeastern Wisconsin ("Guardian Pipeline"). The Guardian Pipeline is designed to serve the growing demand for natural gas in Wisconsin and Northern Illinois. CMS Energy Corporation, a Dearborn, Michigan-based international energy company, and a subsidiary of Xcel Energy, Inc., a Minneapolis-based diversified energy company, were cosponsors of the project with WICOR. The three partners have equal ownership interests in the project. On March 14, 2001, the FERC issued a certificate of public convenience and necessity authorizing construction and operation of the Guardian Pipeline. On January 17, 2003 Xcel Energy announced the completion of the sale of its ownership interest in Guardian Pipeline to an affiliate of Northern Border Partners, LLP.

The Guardian Pipeline was proposed to consist of 143 miles of 36-inch pipe and related compression equipment as well as an additional 8.5 mile, 16-inch lateral, and was designed to transport about 750,000 dekatherms per day of natural gas. In September of 2001, the FERC approved Wisconsin Gas' purchase of nine miles of existing Northern Natural Pipeline pipe to substitute for building a lateral to connect with the utility system at Eagle, Wisconsin. This purchase negated the need for the 8.5 mile 16 inch segment originally proposed for Guardian.

Construction commenced on the Guardian Pipeline in the spring of 2002. Guardian Pipeline began operation in early December with the exception of the Ixonia meter station which will be completed during the second quarter of 2003. Guardian Pipeline has financed this project using $79 million of total capital contributions split equally among the three co-owners and using the proceeds of a $170 million fixed rate, amortizing project term loan and a $10 million 3-year revolving credit agreement arranged in November 2001.

Currently, Guardian Pipeline has firm precedent agreements to transport 88% of its design capacity. The pipeline entered service and began deliveries to customers during early December 2002. Each joint venture partner has provided a $60 million guarantee for the Guardian Pipeline project, with Wisconsin Energy guaranteeing WICOR's portion. The guarantee is effective during construction of the project and approximately the first six months of commercial operation. Wisconsin Energy expects to be released from this guarantee during the second quarter of 2003.

Wisconsin Gas has no ownership interest in the Guardian Pipeline and has made no guarantees regarding construction of the project. Wisconsin Gas has committed to purchase 650,000 dekatherms per day of capacity on the pipeline and will construct a 35-mile lateral at a cost of approximately $97.5 million to connect its distribution system to the Guardian Pipeline. In November 1999, Wisconsin Gas filed an application with the PSCW to construct and operate the lateral. In October 2000, the PSCW affirmed the need for the Wisconsin Gas lateral in a preliminary determination. Wisconsin Gas received final approval by the PSCW in an Order dated July 25, 2001. Wisconsin Gas began taking delivery of gas supply from the Guardian Pipeline in December 2002 through an interconnection point to its

Steam Utility Operations:   Wisconsin Electric's steam utility generates, distributes and sells steam supplied by its Valley and Milwaukee County Power Plants. Wisconsin Electric operates a district steam system in downtown Milwaukee and the near south side of Milwaukee. Steam is supplied to this system from Wisconsin Electric's Valley Power Plant, a coal-based cogeneration facility. Wisconsin Electric also operates 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 2002, the steam utility had $21.5 million of operating revenues from the sale of 3,001 million pounds of steam compared with $21.8 million of operating revenues from the sale of 2,929 million pounds of steam during 2001. As of December 31, 2002 and 2001, steam was used by 467 and 449 customers, respectively, for processing, space heating, domestic hot water and humidification.

Water Utility Operations:   To leverage off of operational similarities with its natural gas business, Wisconsin Gas entered the water utility business in November 1998. As of December 31, 2002, the water utility served about 2,380 water customers in the suburban Milwaukee area compared with approximately 2,200 customers at December 31, 2001. The Company also provides contract services to local municipalities and businesses within its service territory for water system repair and maintenance. During 2002, the water utility had $1.6 million of operating revenues compared with $1.1 million of operating revenues during 2001.

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

The non-utility energy segment is involved in a variety of businesses including: ownership and operation of independent electric generating facilities; natural gas purchasing and marketing; energy and price risk management; and investment in other energy-related entities and assets.

During 2000, the Company performed a comprehensive review of its existing portfolio of businesses and began implementing a strategy of divesting many of its non-utility energy segment businesses, especially those outside of the Midwest region. The Company expects to continue to reduce the size of its current non-utility energy segment operations in the near-term. As the Company implements its Power the Future strategy, the Company expects to grow the non-utility energy segment within the Midwest region through its newly formed subsidiary We Power.

Demand for electricity in the state of Wisconsin is currently expected to outstrip supply by 7,220 megawatts by 2016, according to the state of Wisconsin 2001 Energy Policy Report. Wisconsin Electric's customer load is currently growing at a rate of approximately 100 to 150 megawatts per year. We Power will provide a part of the new generation to meet Wisconsin's future demand for electricity. Power the Future, which will allow the Company to manage its fuel mix, includes new coal-based plants as well as natural gas-based plants. Without the Power the Future strategy, the Company anticipates that new generation in Wisconsin would most likely come from independent power producers who use natural gas-based facilities. The Company continues to have concerns about long-term natural gas supply at reasonable prices. Coal prices historically have been more stable, and the fuel is much more plentiful. The creation of We Power provides a long-term means for the Company to keep a dive rse fuel mix to maintain a stable, reliable and affordable energy supply in the region. For further information about Wisconsin Energy's Power the Future strategy, see "Environmental Compliance" below as well as "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

In November 2001, Wisconsin Energy created this subsidiary to design, construct, own, finance, and lease the 2,800 MW of new, in-state Wisconsin generating capacity proposed as part of Wisconsin Energy's Power the Future plan.

Wisvest was originally formed to develop, own and operate electric generating facilities and to invest in other energy-related entities. As a result of a change in corporate strategy, Wisvest has discontinued its development activity. During the twelve months ended December 31, 2002, Wisvest had $166.6 million of operating revenues compared with $255.9 million of operating revenues during 2001. The Company has divested, or is in the process of divesting the majority of Wisvest's assets. On December 6, 2002 Wisvest completed the sale of its ownership interest in Wisvest-Connecticut, LLC, which included 1,056 megawatts of capacity in the state of Connecticut. These plants had originally been acquired in April 1999. During 2002 Wisvest-Connecticut had operating revenues of $155.7 million compared with $237.2 million during 2001. As of December 31, 2002, Wisvest operations and investments included:

Calumet Energy Team, LLC:   Calumet Energy owns and operates a 308 megawatt natural gas-based peaking power plant in Chicago, Illinois. The total plant investment is $159 million and it began commercial operation in June 2002. Calumet has a ten-year capacity reservation agreement for 50 megawatts of plant capacity with the City of Chicago. The remaining plant capacity is marketed as merchant power. The plant experienced very limited demand for production during its period of operation in 2002 due to excess capacity in the region and soft electricity market prices.

Other:   The Company has economic interests in other energy-related entities including a cogeneration facility in the state of Maine, the Androscoggin Energy LLC; Kaztex, Inc. and Blackhawk Energy Services, which are strategic energy management services companies with a focus on natural gas and electricity management in the Upper Midwest; and Wisvest Thermal Energy Services, which provides chilled water services to Milwaukee County. The Company also owns a 500 megawatt (nominal) Siemens Westinghouse advanced technology natural gas power island configured for two-on-one combined cycle operation. In connection with the April 2000 WICOR acquisition, the Company acquired WICOR Energy, an unregulated energy services company. In April 2001, the operations of WICOR Energy were merged into Kaztex in exchange for an additional ownership interest in Kaztex.

The manufacturing segment consists of WICOR Industries, an intermediary holding company. Its three primary subsidiaries: Sta-Rite, SHURflo and Hypro were acquired as part of the April 2000 WICOR merger. During the twelve months ended December 31, 2002, WICOR Industries had $685.2 million of operating revenues compared with $585.1 million of operating revenues during 2001.

Sta-Rite Industries, Inc.:   Sta-Rite is incorporated under the laws of the state of Wisconsin and maintains its principal office and place of business in Delavan, Wisconsin. Sta-Rite is a manufacturer and marketer of pumps, tanks, water treatment products and fluid handling equipment for the water systems, agricultural, pool/spa and water treatment markets world wide. Sta-Rite's products are manufactured at 17 locations with facilities in the United States, Australia, Canada, China, Germany, India, Italy, Mexico and New Zealand and are sold through a world wide network of distributors, retailers and original equipment manufacturers.

SHURflo Pump Manufacturing Co.:   SHURflo is incorporated under the laws of the state of California and maintains its principal office and place of business in Cypress, California. SHURflo manufactures high performance pumps and fluid handling equipment for the beverage/food service, recreational vehicle, marine, industrial, and water treatment markets. Its products are manufactured in California and England. They are sold and distributed globally through original equipment manufacturers and a network of distributors.

Hypro Corporation:   Hypro is incorporated under the laws of the state of Delaware and maintains its principal office and place of business in New Brighton, Minnesota. Hypro manufactures pumps, accessories and pumping systems for agricultural, marine, industrial and fire fighting markets. Hypro's products are manufactured in Minnesota, Oregon and England and are sold to original equipment manufacturers, distributors and agricultural retailers.

Water products include jet, centrifugal, sump, submersible and submersible turbine water pumps, water storage and pressure tanks, water filters, pool and spa filters, pool heaters and pump and tank systems. These products pump, filter and store water used for drinking, cooking, washing and livestock watering, and are used in private and public swimming pools, spas, hot tubs, jetted bathtubs, and fountains. The manufacturing businesses also produce large higher capacity water pumps used in agricultural and turf irrigation systems and in a wide variety of commercial, industrial and municipal fluids-handling applications.

High performance pumps, related fluids-handling products, accessories and pumping systems have applications in a variety of markets, including: (1) the food service industry, where gas-operated pumps are used for pumping soft drinks made from syrups, and electric motor driven pumps are used for water boost and drink dispensing; (2) the recreational vehicle and marine markets, where electric motor driven pumps are used for multiple applications including pumping potable water in travel trailers, motor homes, camping trailers and boats, and for other purposes including marine engine cooling, marine washdown, bilge and livewell pumping; (3) agricultural markets, for spraying fertilizers and pesticides on crops; (4) industrial markets, where applications include carpet cleaning machines for soil extraction, fire fighting and pressure cleaning applications and general industrial uses requiring fluid handling; and (5) the water purification industry, where electric motor driven pumps are use d to pressure reverse osmosis systems for water transfer.

Sales of pumps and water processing equipment are somewhat related to the season of the year as well as the level of activity in the housing construction industry and are sensitive to weather, interest rates, discretionary income, and leisure and recreation spending. The markets for most water and industrial products are highly competitive, with price, service and product performance all being important competitive factors. The Company believes it is a leading producer of pumps for private water systems and swimming pools, spas, food service, recreational vehicle, agricultural spraying, marine engine cooling, and foam proportioning systems for the fire fighting markets. Management believes the Company also ranks among the larger producers of pool and spa filters and submersible turbine pumps. Brand names include "AquaTools," "Berkeley," "Edwards," "Fibredyne," "Flotec," "FoamPro," "Hydro-Flow," "Hypro," "Lurmark," "Nocchi," "Omnifilter," "Onga," "Park," "Rivaflo," "Sherwood," "SHURflo," "Simer," "Sta- Rite," "Tate-Western," "Aermotor," "Diamond," "Ultra-Jet," and "VICO."

Domestic pumps and water products are sold and serviced primarily through a network of independent distributors, dealers, retailers and manufacturers' representatives serving the well drilling, hardware, plumbing, water treatment, pump installing, irrigation, pool and spa, food service, recreational vehicle, marine, industrial, commercial and do-it-yourself markets. Sales are also made on a private label basis to large customers in various water products markets and to original equipment manufacturers.

Backlog of orders for pumps and water products is not a significant indicator of future sales.

International operations are conducted primarily by international subsidiaries and export operations from the United States. Products are sold to markets in approximately 100 countries on six continents. Foreign manufacturing is carried out by Australian, Canadian, Chinese, English, German, Indian, Italian, Mexican and New Zealand operations. The products sold in international markets in some cases are similar to those sold in the United States, but in many instances have distinct features required for those markets. Product distribution channels are similar to those for domestic markets. Non-domestic operating revenues, including exports, were 26% of manufacturing segment sales during 2002 and 24% during 2001.

Raw materials essential to the manufacturing operations are available from various established sources in the United States and overseas. The principal raw materials needed for production of the Company's primary lines of products include: cast iron, aluminum and bronze castings for pumps; copper wire, steel and aluminum for motors; stainless and carbon sheet steel, bar steel and tubing; plastic resins for injection molded components; and powdered metal components. The manufacturing units also purchase from third-party suppliers completely assembled electric motors, plastic molded parts, elastomers for valves and diaphragms, components for electric motors, stamped and die-cast metal parts, and hardware and electrical components. Although the manufacturing subsidiaries own a number of patents and hold licenses for manufacturing rights under other patents, no one patent or group of patents is material to the success of the manufacturing businesses as a whole.

Minergy is engaged in the development and marketing of proprietary technologies designed to convert high volume industrial and municipal wastes into value-added products, including renewable energy. Minergy's future strategic focus is to license that technology to domestic and foreign operators or industrial/municipal users through its patented GlassPack process as a component of larger scale waste processing solutions. Management believes this licensing strategy will allow Minergy to recognize the economic benefits of its technology with limited capital requirements. During the twelve months ended December 31, 2002, Minergy had $16.6 million of consolidated operating revenues compared with $19.8 million of consolidated operating revenues during 2001. Minergy's primary operations and investments include:

Minergy Neenah, LLC:   In 1998, Minergy Neenah, LLC opened a facility in Neenah, Wisconsin that recycles paper sludge from area paper mills using the Company's patented Glass Aggregate technology into three usable and salable products: Glass Aggregate; steam; and electricity. The Glass Aggregate technology is a vitrification process that melts the inorganic fraction of a waste material into an inert glassy stone and converts the organic fraction of a waste material into heat. The plant also provides substantial environmental and economic benefits to the area by providing an alternative to landfilling paper sludge. Minergy intends to maintain ownership and operation of this facility.

GlassPack, LLC:   Minergy has designed, permitted and constructed a GlassPack demonstration facility in Winneconne, Wisconsin which utilizes the Company's patented GlassPack technology. This facility is a scaled-down modular version of the Glass Aggregate technology and is ideally suited for smaller wastewater treatment plants. Minergy has successfully tested numerous municipal and paper wastewater sludges at this plant. In 2002, Minergy completed fabrication and delivery of GlassPack equipment to the sanitary district located in Waukegan, Illinois. The sanitary district will own the facility upon its construction and Minergy will operate the facility pursuant to an agreement with the district. Minergy is currently pursuing other domestic and foreign GlassPack installations through a technology licensing process.

Minergy Detroit, LLC:   In September 1999, the City Council of Detroit, Michigan, awarded a 15-year contract to Minergy Detroit, LLC, a wholly owned subsidiary of Minergy, to recycle 500 to 600 dry tons per day of the city's wastewater solids into a glass aggregate product. The contract is contingent upon Minergy Detroit, LLC obtaining satisfactory financing, required construction and operating permits and the necessary construction agreements. To date, Minergy has been unable to negotiate satisfactory agreements. However, Minergy is continuing to pursue these items, including contract amendments with the City of Detroit and a joint venture or contract assignment to third parties, to determine if the project will be developed.

Wispark develops and invests in real estate. From September 2000 through December 31, 2002, Wispark has reduced its overall holdings from $373.1 million to $160.1 million. It is Wispark's objective to continue its divestiture strategy. Wispark will maintain its remaining portfolio for investment and potential sale. Any new investments are expected to center on development of urban redevelopment sites in the We Energies service area.

Wispark has developed several business parks primarily in southeastern Wisconsin, and to a lesser extent in the metropolitan Chicago and Minneapolis/St. Paul markets. Wispark's flagship development, the 1,600-acre LakeView Corporate Park located near Kenosha, Wisconsin is home to more than 68 companies located in more than 8.0 million square feet of buildings that have been developed on property in excess of 900 acres. Many out-of-state firms have located in this park, creating a significant number of new jobs and growth in electricity and natural gas revenues.

Other non-utility subsidiaries primarily include:

Wisconsin Energy Capital Corporation:   Wisconsin Energy Capital Corporation engages in investing and financing activities. Activities include advances to affiliated companies, and investments in financial instruments and in partnerships developing low- and moderate-income housing projects. Other investments may be made from time to time.

WEC Nuclear Corporation:   WEC Nuclear Corporation has a 20% ownership interest in Nuclear Management Company, LLC. Formed during the first quarter of 1999, Nuclear Management Company, LLC provides services to Wisconsin Electric in connection with Point Beach Nuclear Plant as well as to other unaffiliated companies with nuclear generating facilities. For additional information about Nuclear Management Company, see "Utility Energy Segment" above and "Factors Affecting Results, Liquidity and Capital Resources" in Item 7.

Witech Corporation:   Witech Corporation is a venture capital company operating in the state of Wisconsin. At December 31, 2002, Witech had investments in four companies. Wisconsin Energy continues to evaluate the Witech portfolio in connection with its announced strategy to focus on core investments.

WEC International, Inc.:   WEC International, Inc. previously had two investments in joint ventures in the Netherlands involving waste treatment and by-product utilization activities which are currently in bankruptcy proceedings. The investments were insignificant to Wisconsin Energy.

Badger Service Company:   Badger Service Company holds coal rights in Indiana. Estimates indicate that 40 million tons of coal could be recovered from this property with conventional mining techniques. However, there are no current plans to develop the property. Badger Service Company may sell or develop these rights in the future as conditions warrant.

Wisconsin Energy is an exempt holding company by order of the United States Securities and Exchange Commission under Section 3(a)(1) of the Public Utility Holding Company Act of 1935, as amended, and, accordingly, is exempt from that law's provisions other than with respect to certain acquisitions of securities of a public utility.

Non-Utility Asset Cap:   In October 1999, the Wisconsin State Legislature passed amendments to the non-utility asset cap provisions of Wisconsin's public utility holding company law as part of the 1999-2001 biennial state budget, 1999 Wisconsin Act 9. As a result, Wisconsin Energy remains subject to certain restrictions that have the potential of limiting diversification into non-utility activities. Under the amended public utility holding company law, the sum of certain assets of all non-utility affiliates in a holding company system may not exceed 25% of the assets of all public utility affiliates. However, among other items, the amended law exempts energy-related assets and assets such as Minergy's used for providing environmental engineering services and for processing waste materials from being counted against the asset cap provided that they are employed in qualifying businesses. In addition, the amended law also exempts the manufacturing, distributing or selling of certain products of WICOR Industries used for filtration, pumping water or other fluids, processing or heating water, handling fluids or other

Under the Power the Future plan, the $3 billion estimated cost of constructing 2,800 megawatts of new generating facilities to be owned by We Power, LLC, a non-utility energy subsidiary of Wisconsin Energy, is expected to qualify as energy projects under the amended non-utility asset cap and therefore would be entirely exempt from the definition of "non-utility" property for this purpose. The remaining $4 billion estimated cost of the Power the Future plan represents investments in new and existing energy distribution system assets and upgrades to existing generation assets and has no impact on the amount of non-utility assets under the non-utility asset cap test.

For Wisconsin Energy to qualify for the amended non-utility asset cap rules, all of its public utility affiliates were required to irrevocably transfer their electric transmission facilities and rights of way in the state of Wisconsin to ATC. As described in further detail under "Utility Energy Segment" above and in "Factors Affecting Results, Liquidity and Capital Resources" in Item 7, Wisconsin Electric and Edison Sault transferred their electric transmission system assets to ATC effective January 1, 2001.

Wisconsin Electric is 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, is exempt from that law's provisions other than with respect to certain acquisitions of securities of a public utility.

Wisconsin Electric and Wisconsin Gas are subject to the regulation of the PSCW as to retail electric, gas, steam and water 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. Wisconsin Electric is subject to regulation of the PSCW as to certain levels of short-term debt obligations. Wisconsin Electric and Edison Sault are both subject to the regulation of the Michigan Public Service Commission 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. Wisconsin Electric's hydroelectric facilities are regulated by the FERC. Wisconsin Electric and Edison Sault are subject to regulation of the FERC with respect to wholesale power service and accounting. Edison Sault is subject to regulation of the FERC with respect to the issuance of certain securities.

The following table compares the source of the Company's utility energy segment operating revenues by regulatory jurisdiction for each of the three years in the period ended December 31, 2002.

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 Wisconsin Electric's Point Beach Nuclear Plant are subject to regulation by the United States Nuclear Regulatory Commission. Total flow of water to Edison Sault's hydroelectric generating plant is under the control of the International Joint Commission, created by the Boundary Water Treaty of 1909

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, conservation and environmental research and development programs and to begin transferring the funds for these programs to the Department of Administration. The Company implemented this change in October 2000. The utilities' traditional role of providing these programs has shifted to the Department of Administration, which administers the funds for a statewide public benefits program.

This law also requires that retail energy providers supply 0.5% of their Wisconsin retail electric sales from renewable energy, which the Company did in 2002, with the required minimum percentage increasing to 2.2% by the year 2011.

Affiliated Interest Policies Docket:   From late 1998 through early 2000, the PSCW reviewed the policies on standards of conduct governing diversification of activities that can be performed within a utility and utility affiliates. During these proceedings, Wisconsin Electric took the position that state policy should protect competition, not individual competitors, and that customers should have the choice to use either Wisconsin Electric or another vendor for these products and services. In April 2000, the PSCW issued an order that allows utilities to continue to provide and sell products and services other than core utility products as long as the related costs are fully allocated and not subsidized by ratepayers.

Calumet Energy Team, LLC is an exempt wholesale generator pursuant to Section 32 of the Public Utility Holding Company Act of 1935, as amended. Calumet's operations are subject to regulation of the FERC with respect to wholesale power service and to regulations, where applicable, of the United States Environmental Protection Agency and the Illinois Department of Environmental Protection.

Wisvest-Connecticut, LLC, formerly a wholly-owned subsidiary of Wisvest, was an exempt wholesale generator pursuant to Section 32 of the Public Utility Holding Company Act of 1935, as amended. Wisvest-Connecticut, LLC's operations were subject to regulation of the FERC with respect to wholesale power service and to regulations, where applicable, of the United States Environmental Protection Agency and the Connecticut Department of Environmental Protection.

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.

Utility Energy Segment:   Compliance with federal, state and local environmental protection requirements resulted in capital expenditures by Wisconsin Electric of approximately $77 million in 2002 compared with $49 million in

Operation, maintenance and depreciation expenses for Wisconsin Electric's fly ash removal equipment and other environmental protection systems are estimated to have been approximately $46 million during 2002 and $45 million during 2001.

The Company provides 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 R -- 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 Wisconsin Electric has 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 R -- Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8. Sites currently undergoing remediation include:

Highway 59 Landfill:   In 1989, a sulfate plume was detected in the groundwater beneath a Wisconsin Electric-owned former ash landfill located in the Town of Waukesha, Wisconsin. After notifying the Wisconsin Department of Natural Resources, Wisconsin Electric initiated a five-year expanded monitoring program. In July 1995, Wisconsin Electric prepared an environmental contamination assessment of the landfill and submitted the report to the Wisconsin Department of Natural Resources. Wisconsin Electric has petitioned the City of Waukesha to extend city water service to residents of the Town of Waukesha affected by contamination from the site. The City Council has agreed to extend service at Wisconsin Electric's cost. In addition to providing City water to affected residents, Wisconsin Electric has completed excavation of saturated ash and placement of a cap on the landfill, and completed final landscaping of the site in 2001. City water supply piping to residen ts is currently being installed. The cost for complete remediation of this site is estimated to be $3.5 million.

Kansas Ave. Landfill:   The Kansas Ave. site, located in the City of St. Francis, Wisconsin, was a small landfill area used to support the operations of Wisconsin Electric's former Lakeside Power Plant. Wisconsin Electric is working with the Wisconsin Department of Natural Resources to obtain closure for this site. Expenses associated with the site closure are estimated to be $0.9 million. No groundwater treatment is planned at this time.

Lakeside Landfill:   During 2001, Wisconsin Electric 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. The Company has initiated excavation and utilization of residual coal at the site and has implemented slope stabilization and cover construction. The cost for remediation of this site is estimated to be approximately $3.2 million.

Oak Creek North Landfill:   Groundwater impairments at this landfill, located in the City of Oak Creek, Wisconsin, prompted Wisconsin Electric 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 ash contact with water and remove unwanted ponding of water near monitoring systems. Future costs for remediation, involving reconfiguration of the site and construction of a new cap, are estimated to be approximately $3.5 million.

The Company is reviewing and addressing environmental conditions at a number of former manufactured gas plant sites. See "Note R -- 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. The Company has met the requirements of Phase I. The Phase II requirements of the 1990 amendments to the Federal Clean Air Act are expected to have minimal future impacts on the Company's utilities 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 over the next seven years.

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 Company's growing demand for electricity using environmentally friendly equipment. The plan proposes to build five new generating units, a total of 2,800 megawatts, at a total cost of about $3.0 billion. Three of the units would be built at the site of the Company's Oak Creek Power Plant. Two of these units would use a supercritical pulverized coal design and the other would use coal gasification technology. All of these units will use state-of-the-art emission controls. The other two units would be located at the Company's Port Washington Power Plant site, where older, less efficient coal-based units installed before 1950 would be retired and new natural gas-based units would be built. These latest technologies are expected to provide a significant reduction in air emissions compared with existing, older power plants. Implementation of the Power the Future plan also provides for upgrad es to existing power plants and modernization to increase efficiency and reduce emissions. In addition to the positive environmental attributes of the generation technology, 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 "Non-Utility Segment" above as well as "Corporate Developments" in Item 7.

Research and Development:   Wisconsin Electric 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. During the last three years, the manufacturing segment incurred immaterial research and development expenditures for the development of new or improved products. Research and development activities include work done by employees, consultants and contractors, plus sponsorship of research by industry associations.

Employees:   At December 31, 2002, the following number of individuals were employed by Wisconsin Energy and its subsidiaries:

The employees represented under labor agreements were with the following bargaining units as of December 31, 2002.

The principal properties of Wisconsin Energy and its subsidiaries are owned in fee except that the major portion of electric utility distribution lines, steam utility distribution mains and gas utility distribution mains and services are located, for the most part, on or in streets and highways and on land owned by others. Substantially all of Wisconsin Electric's utility plant is subject to a first mortgage lien.

Effective January 1, 2001, Wisconsin Electric and Edison Sault exited the electric transmission business by contributing all of their transmission assets to ATC in exchange for equity interests in this new company. For further information, see "Electric Utility Operations" in Item 1.

Wisconsin Electric:   Wisconsin Electric owns the following generating stations with dependable capabilities as indicated.

As of December 31, 2002, Wisconsin Electric operated approximately 21,900 pole-miles of overhead distribution lines and 19,300 miles of underground distribution cable as well as approximately 347 distribution substations and 253,000 line transformers.

As of December 31, 2002, Wisconsin Electric's gas distribution system included approximately 8,400 miles of mains connected at 21 gate stations to the pipeline transmission systems of ANR Pipeline Company, Guardian Pipeline, Natural Gas Pipeline Company of America, Northern Natural Pipeline Company and Great Lakes Transmission

As of December 31, 2002, the combined steam systems supplied by the Valley and Milwaukee County Power Plants consisted of approximately 43 miles of both high pressure and low pressure steam piping, 8.8 miles of walkable tunnels and other pressure regulating equipment.

Wisconsin Electric owns various office buildings and service centers throughout its service area.

Wisconsin Gas:   Wisconsin Gas owns a distribution system which, on December 31, 2002, included approximately 10,100 miles of distribution and transmission mains. Wisconsin Gas' distribution system consists almost entirely of plastic and coated steel pipe. Wisconsin Gas owns office buildings in certain communities in which it serves, gas regulating and metering stations, peaking facilities and its major service centers, including garage and warehouse facilities.

Where distribution mains and services occupy private property, Wisconsin Gas in some, but not all, instances has obtained consents, permits or easements for such installations from the apparent owners or those in possession, generally without an examination of title.

Edison Sault:   Edison Sault's primary source of electric energy is its 30 megawatt hydroelectric generating plant on the St. Marys River in Sault Ste. Marie, Michigan. In addition, Edison Sault owns and operates a 4.8 megawatt diesel-based peaking power plant.

Edison Sault maintains approximately 816 miles of primary distribution lines and renders service to its customers through approximately 9,400 line transformers.

Wisvest Corporation:   Wisvest owns a chilled water production and distribution facility located in Milwaukee County, Wisconsin. Calumet Energy Team LLC owns a 308-megawatt peaking power plant in Chicago, Illinois. Wisvest-Connecticut, LLC, owned two fossil-fueled power plants in the state of Connecticut: the Bridgeport Harbor Station with an active generating capacity of 590 megawatts, and the New Haven Harbor Station with an active generating capacity of 466 megawatts. The Wisvest-Connecticut units were sold in December 2002.

The manufacturing segment has manufacturing or assembly facilities located in California (5), Minnesota, Nebraska, New Hampshire, Oregon, Wisconsin, Australia, Canada, China, England, Germany, India, Italy (3), Mexico (2) and New Zealand. These plants contain more than 1,600,000 square feet of floor space. In addition, through its manufacturing business, the Company owns or leases sales/distribution facilities in the United States (11), in Australia (5), in Mexico (3), (2) each in Canada, Italy, New Zealand, and England and (1) each in China, France, Germany, India, and Russia.

Wispark LLC:    As of December 31, 2002, Wispark properties included the following commercial and industrial parks in the state of Wisconsin: LakeView Corporate Park located near Kenosha; Business Park of Kenosha and PrairieWood Corporate Park in Kenosha County; GrandView in Racine County; Mitchell International in Milwaukee County; and Cottonwood Commerce in Hartland. Wispark also owns Gaslight Pointe, a residential and commercial complex located in Racine, the Radisson Hotel and Conference Center in Kenosha, as well as other properties located in Wisconsin Electric's service territories that are held for future development.

Minergy Corp.:   Minergy owns a Glass Aggregate facility located in Neenah, Wisconsin and a GlassPack facility in Winneconne, Wisconsin.

Other:   Badger Service Company holds rights to coal in an area of 8,594 acres in Knox County, Indiana.

Wisconsin Energy is subject to federal, state and certain local laws and regulations governing the environmental aspects of its operations. The Company believes that, perhaps with immaterial exceptions, its existing facilities are in compliance with applicable environmental requirements.

See "Environmental Compliance" in Item 1, which is incorporated by reference herein, for a discussion of matters related to certain solid waste and coal-ash landfills, manufactured gas plant sites and air quality.

Giddings & Lewis, Inc./City of West Allis Lawsuit:   See "Note R -- Commitments and Contingencies" in the Notes to Consolidated Financial Statements in Item 8 for matters related to the settlement of a lawsuit alleging that Wisconsin Electric had placed contaminated wastes at two sites in the City of West Allis, Wisconsin.

Columbia Propane Lawsuit:   In 1999, Wisconsin Gas was sued by Columbia Propane LP in the Circuit Court of Wood County, Wisconsin for an estimated $5 million in clean up costs related to a manufactured gas plant site in Marshfield, Wisconsin. The gas plant was owned and operated by People's Gas until 1960 when Wisconsin Gas acquired the assets of People's Gas subject to the terms of an Asset Purchase Agreement. In 1962, Wisconsin Gas sold the site to Columbia Propane. Columbia Propane asserts in the lawsuit that Wisconsin Gas stands in the shoes of People's Gas and is liable for environmental liabilities. Wisconsin Gas contested the liability and filed a motion for summary judgment contending that as a matter of law it was not liable for the clean up costs. The judge granted Wisconsin Gas' motion for summary judgment and dismissed the complaint, but on December 28, 2001, the Wisconsin Court of Appeals reversed the trial court and remanded the matter back for trial on the issue as to whether the parties intended tort liability to be assumed by Wisconsin Gas under the terms of the Asset Purchase Agreement. On January 29, 2002, Wisconsin Gas filed with the Wisconsin Supreme Court a Petition for Review. On April 22, 2002, the Wisconsin Supreme Court granted Wisconsin Gas' Petition for Review. Oral arguments were held on January 15, 2003 and to date, no opinion has been rendered by the Wisconsin Supreme Court.

California PRP Notification: In June 2001, WICOR Industries received a letter from the California Department of Toxic Substance Control notifying Sta-Rite that its Park facility in Long Beach had arranged for transport and treatment of waste at Davis Chemical Company in Los Angeles, California which operated between 1949 and 1990. The Department determined that there had been a release of hazardous substances at this site. Other PRPs are listed in the notification. The sellers of the Park facility in Long Beach to Sta-Rite have indemnified Sta-Rite with respect to any liability arising from the release of hazardous substances at the Davis Chemical Company in Los Angeles prior to August 10, 2000. The indemnity is contained in the Asset Purchase Agreement dated August 10, 2000 which governed the purchase by Sta-Rite of the Park facility.

See "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 for information concerning rate matters in the jurisdictions where Wisconsin Electric, Wisconsin Gas and Edison Sault do business.

Used Nuclear Fuel Storage & Removal:   See "Factors Affecting Results, Liquidity and Capital Resources" in Item 7 for information concerning the United States Department of Energy's breach of a contract with Wisconsin

Electric that required the United States Department of Energy to begin permanently removing used nuclear fuel from Point Beach Nuclear Plant by January 31, 1998.

Stray Voltage:   On July 11, 1996, the PSCW issued its final order regarding the stray voltage policies of Wisconsin's investor-owned utilities. The order clarified the definition of stray voltage, affirmed the level at which utility action is required, and appropriately placed some of the responsibility for this issue in the hands of the customer. Additionally, the order established a uniform stray voltage tariff which delineates utility responsibility and provides for the recovery of costs associated with unnecessary customer demanded services. While this action has been beneficial in Wisconsin Electric's efforts to manage this controversial issue, it has not had a significant impact on Wisconsin Electric's financial position or results of operations.

In recent years, several actions by dairy farmers have been commenced or claims made against Wisconsin Electric for loss of milk production and other damages to livestock allegedly caused by stray voltage resulting from the operation of its electrical system. At the present time, three such actions are pending and one case is on appeal. One of the three cases was filed in Circuit Court, Kenosha County, Wisconsin and alleges that Wisconsin Electric was negligent with respect to the design, construction, maintenance and operation of the distribution line serving the plaintiffs' farm, and the 138 kV transmission line which crosses plaintiffs' property, thereby giving rise to stray currents which impacted dairy cows and caused physical injury. The claimed damage period commenced in early 1993 and continues to the present. No final damages claim has been provided to date. The Company believes that the case has little merit and intends to vigorously defend the claim. Trial has been scheduled to commence i n June 2003. Of the remaining two cases, the claims made against Wisconsin Electric are not expected to have a material adverse effect on the Company's financial statements.

Electromagnetic Fields:   Claims have been made or threatened against electric utilities across the country for bodily injury, disease or other damages allegedly caused or aggravated by exposure to electromagnetic fields associated with electric transmission and distribution lines. Results of scientific studies conducted to date have not established the existence of a causal connection between electromagnetic fields and any adverse health affects. Wisconsin Electric and Edison Sault believe that their facilities are constructed and operated in accordance with all applicable legal requirements and standards. Currently, there are no cases pending or threatened against Wisconsin Electric nor against Edison Sault with respect to damage caused by electromagnetic fields.

No matters were submitted to a vote of Wisconsin Energy's security holders during the fourth quarter of 2002.

The names, ages at December 31, 2002 and positions of the executive officers of Wisconsin Energy are listed below along with their business experience during the past five years. All officers are appointed until they resign, die or are removed pursuant to the Bylaws. There are no family relationships among these officers, nor is there any agreement or understanding between any officer and any other person pursuant to which the officer was selected.

Certain executive officers also hold offices in Wisconsin Energy's non-utility subsidiaries.

As of December 31, 2002, based upon the number of Wisconsin Energy Corporation stockholder accounts (including accounts in Wisconsin Energy's dividend reinvestment and stock purchase plan), there were 64,720 registered stockholders.

Wisconsin Energy Corporation common stock is listed on the New York Stock Exchange. The ticker symbol is WEC. Daily trading prices and volume can be found in the "NYSE Composite" section of most major newspapers, usually abbreviated as WI Engy.

Common Stock Dividends of Wisconsin Energy:   Cash dividends on Wisconsin Energy's common stock, as declared by the board of directors, are normally paid on or about the first day of March, June, September and December. Wisconsin Energy reviews its dividend policy on a regular basis. Subject to any regulatory restrictions or other limitations on the payment of dividends, future dividends will be at the discretion of the board of directors and will depend upon, among other factors, earnings, financial condition and other requirements.