Other operation and maintenance expenses decreased by $17.0 million during 2001 when compared with 2000 amounts. The most significant change in other operation and maintenance expenses between the comparative periods resulted from a reduction in costs as a result of the WICOR merger, which led to the consolidation of common operating and support areas.

Depreciation and amortization expenses were $5.0 million higher during 2001 compared with 2000. The increase resulted primarily from capital asset additions for gas distribution systems and vehicles. In addition, $1.8 million of accelerated amortization related to the Company's DRIS Engineering System software was recorded in 2001.

Goodwill Amortization:   Goodwill amortization expenses decreased by $11.5 million during 2002 due to the adoption on January 1, 2002 of SFAS 142, which eliminated amortization of goodwill and intangibles with indefinite lives.

Goodwill amortization expenses for 2001 increased by $3.9 million or 51.3%, compared to 2000. The increase was due to the timing of the WICOR merger which resulted in amortization for only 8 months in the 2000 period. During 2001 and 2000, Wisconsin Gas amortized the $441.9 million of allocated goodwill using a forty year life. No goodwill was recorded by the Company prior to the WICOR merger.

Interest Expense:   Interest expense decreased by $14.8 million or 54.8% during 2002 from 2001 due primarily to intercompany notes which were reversed in December 2001 pursuant to a PSCW order. In addition, lower short-term interest rates have contributed to reduced interest expense.

Total Interest Expense increased in 2001 over 2000 due to higher debt levels. In December 2001, the notes payable to WICOR were reversed based on a Consent Order issued by the PSCW. For additional information regarding the Consent Order, see "Note C -- Mergers and Divestitures" in the Notes to Financial Statements.

Other Income and Deductions:   During 2001, other income and deductions decreased by $3.1 million compared to 2000. Other income and deductions in 2000 was negatively impacted by a donation of $3.4 million made by the Company to the Wisconsin Energy Corporation Foundation to assist that organization in becoming self-funding in future years. In 2000, other income and deductions was also impacted to a lesser extent by reduced income from non-utility operations of $1.5 million.

Income Taxes:   The Company's effective income tax rate was 37.4%, 55.1%, and 46.9% for the three years ended December 31, 2002, 2001 and 2000, respectively. The lower rate in 2002 reflects the elimination of goodwill amortization. Amortization of goodwill is not deductible for income tax purposes. The 2000 effective income tax rate includes lower pre-tax income and the amortization of WICOR merger goodwill for eight months, as well as the impact of unrealized capital losses.

The following table summarizes Wisconsin Gas' cash flows during 2002, 2001 and 2000:

During 2002, cash flows from operations decreased to $26.1 million compared to $55.3 million in 2001. This decrease was primarily attributable to an increase in working capital needs during 2002 as a result of higher natural gas prices at the end of the year and weather conditions. In addition, cash flows from operating activities for 2002 increased due to lower tax and interest payments than for 2001.

During 2001, cash flows from operations increased to $55.3 million compared to $24.3 million in 2000 primarily attributable to changes in working capital requirements and higher non-cash charges offset by reduced operating income. Due to the seasonal nature of the energy business, accrued revenues, accounts receivable and accounts payable amounts are higher in the heating season as compared with the summer months. The warmer than normal weather experienced late in the fourth quarter of 2001 and reduced natural gas costs caused lower accounts receivable, unbilled revenue and gas storage costs over 2000. This resulted in increased operating cash flows.

During 2002, Wisconsin Gas had net cash outflows for investing activities of $41.7 million as compared to $56.3 million in 2001. This decrease is directly related to a $12.8 million increase in proceeds from asset sales in 2002. In 2002 and 2001, capital expenditures totaled $53.2 million and $59.9 million, respectively.

During 2002, Wisconsin Gas received $13.5 million from financing activities compared with using $1.5 million during 2001. This change can be attributed to an increase in short-term borrowings between 2002 and 2001 due to the increase in the cost of natural gas towards the end of 2002 and resulting rise in working capital needs.

During 2001, Wisconsin Gas used $1.5 million of net cash in its financing activities consisting primarily of payments on short-term borrowings. Wisconsin Gas paid cash dividends to WICOR of $21.0 million in 2000. In addition, the Company declared special dividends of $255.0 million in June 2000 and $50.0 million in December 2000, which were funded by the issuance of subordinated demand notes payable to WICOR.

In December 2001, Wisconsin Gas and Wisconsin Electric entered into a stipulation with the PSCW providing for the termination of the PSCW investigation and the separate related proceeding involving the $305 million of loans from WICOR to Wisconsin Gas in 2000. Pursuant to the Consent Order, Wisconsin Gas and WICOR reversed the $305 million of loans, related interest and related dividends transactions. Wisconsin Energy operates the gas business of Wisconsin Electric and Wisconsin Gas as one operation to achieve operating efficiencies and improved reliability. For additional information regarding the Consent Order, see "Note C -- Mergers and Divestitures" in the Notes to Financial Statements.

The Company anticipates meeting its capital requirements during 2003 primarily through internally generated funds, short-term borrowings and existing lines of credit supplemented through the issuance of debt securities. Beyond 2003, Wisconsin Gas anticipates meeting its capital requirements through internally generated funds supplemented, when required, through the issuance of debt securities.

The Company has access to the capital markets and has been able to generate funds internally and externally to meet its capital requirements. Wisconsin Gas' ability to attract the necessary financial capital at reasonable terms is critical to the Company's overall strategic plan. Wisconsin Gas believes that it has adequate capacity to fund its operations for the foreseeable future through its borrowing arrangements and internally generated cash.

On December 31, 2002, Wisconsin Gas had approximately $185 million of available unused lines of bank back-up credit facilities. The Company had approximately $142.2 million of total short-term debt outstanding on such date.

Wisconsin Gas reviews its bank back-up credit facility needs on an ongoing basis and expects to be able to maintain adequate credit facilities to support its operations. The following table summarizes such facility at December 31, 2002:

On December 11, 2002, Wisconsin Gas entered into an unsecured 364 day $175 million bank back-up credit facility to replace a credit facility that was expiring. On December 18, 2002, the credit facility was increased from $175 million to $185 million. The credit facility may be extended for an additional 364 days, subject to lender agreement.

The following table shows Wisconsin Gas' capitalization structure at December 31:

As described in "Note A -- Summary of Significant Accounting Policies" in the Notes to Financial Statements, certain restrictions exist on the ability of Wisconsin Gas to transfer funds to Wisconsin Energy or WICOR. The Company does not expect these restrictions to have any material effect on its operations or ability to meet its cash obligations.

Access to capital markets at a reasonable cost is determined in large part by credit quality. The following table summarizes the ratings of the debt securities of Wisconsin Gas by Standard & Poors Corporation ("S&P"), Moody's Investors Service ("Moody's") and Fitch as of December 31, 2002.

In February 2003, Moody's placed under review for possible downgrade the long-term security rating of Wisconsin Gas and confirmed the commercial paper rating of Wisconsin Gas. S&P's and Fitch's current outlook for Wisconsin Gas is stable.

Wisconsin Gas believes these security ratings should provide a significant degree of flexibility in obtaining funds on competitive terms. However, these security ratings reflect the views of the rating agencies only. An explanation of the significance of these ratings may be obtained from each rating agency. Such ratings are not a recommendation to buy, sell or hold securities, but rather an indication of creditworthiness. Any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant the change. Each rating should be evaluated independently of any other rating.

Total capital expenditures are currently estimated to be $113 million during 2003, which is an increase of approximately $60 million over 2002, due primarily to construction of the Ixonia lateral project.

In order to improve the availability of natural gas supplies to the state of Wisconsin, future long-term capital requirements may vary from recent capital requirements. The Company currently expects capital expenditures to be between $50 million and $115 million per year during the next five years.

Pension Investments:   The Company funds its pension obligations in outside trusts. During 2002, the pension investments in the trusts have performed consistent with the stock market which has resulted in double digit negative returns. In addition, interest rates have fallen, which results in a higher discounted pension obligation. The Company has recorded a minimum pension liability as of December 31, 2002 of $0.9 million to reflect the funded status of its pension funds.

Financial Instruments:   Wisconsin Gas is a party to various financial instruments with off-balance sheet risk as a part of its normal course of business, which may include, from time to time, financial guarantees and letters of credit which support construction projects, commodity contracts and other payment obligations. The Company's estimated maximum exposure under such agreements is zero as of December 31, 2002.

Contractual Obligations/Commercial Commitments:   The Company has the following contractual obligations and other commercial commitments as of December 31, 2002:

Obligations for utility operations by Wisconsin Gas have historically been included as part of the rate making process and therefore generally are recoverable from customers.

The Company is exposed to market and other significant risks as a result of the nature of its businesses and the environment in which those businesses operate. Such risks, described in further detail below, include but are not limited to:

Commodity Price Risk:   In the normal course of business the Company manages its gas supply costs through a portfolio of short and long-term procurement contracts with various suppliers for the purchase of natural gas.

The PSCW has authorized dollar for dollar recovery of natural gas costs for the gas utility operations of Wisconsin Gas through a gas cost recovery mechanism, which mitigates most of the risk of gas cost variations. The maximum amount of earnings at risk in a year is 2.5% of gas costs. For additional information concerning the natural gas utility gas cost recovery mechanisms, see "Rates and Regulatory Matters" below.

Weather:   The rates of Wisconsin Gas are set by the PSCW based upon estimated temperatures which approximate 20-year averages. The gas revenues of Wisconsin Gas are sensitive to the winter heating season. A summary of actual weather information in the Company's service territory during 2002, 2001 and 2000, as measured by degree-days, may be found above in "Results of Operations".

Interest Rate Risk:   The Company has various short-term borrowing arrangements to provide working capital and general corporate funds. Borrowing levels under such arrangements vary from period to period depending upon capital investments and other factors. Future short-term interest expense and payments will reflect both future short-term interest rates and borrowing levels. Currently, the Company does not have any variable rate long-term borrowings which would increase or decrease with interest rate fluctuations.

The Company performed an interest rate sensitivity analysis at December 31, 2002 of its outstanding portfolio of $142.2 million short-term debt with a weighted average interest rate of 1.37%. A one-percentage point change in interest rates would cause the Company's annual interest expense to increase or decrease by approximately $1.4 million before taxes from short-term borrowings.

Marketable Securities Return Risk:   The Company funds its pension and other postretirement benefit obligations through various trust funds, which in turn invest in debt and equity securities. Changes in the market price of the assets in these trust funds can affect future pension and other postretirement benefit expenses. Future annuity payments to these trust funds can also be affected by changes in the market price of trust fund assets. Wisconsin Gas expects that the risk of expense and annuity payment variations as a result of changes in the market price of trust fund assets would be mitigated in part through future rate actions by the Company's utility regulator. However, the Company is currently operating under a PSCW ordered, qualified five-year rate restriction period through 2005. For further information about the rate restriction, see "Rates and Regulatory Matters" below.

At December 31, 2002, the Company held the following total trust fund assets at fair value, primarily consisting of publicly traded debt and equity security investments.

Wisconsin Gas manages its fiduciary oversight of the pension and other postretirement plan trust fund investments through a Board-appointed Investment Trust Policy Committee. Qualified external investment managers are engaged to manage the investments. The Company conducts asset/liability studies periodically through an outside investment advisor. The current study projects long-term, annualized returns of approximately 9%.

Economic Risk.   The Company is exposed to market risks in the regional Midwest economy.

Inflationary Risk:   The Company continues to monitor the impact of inflation, especially with respect to the rising costs of medical plans, in order to minimize its effects in future years through pricing strategies, productivity improvements and cost reductions. Except for continuance of an increasing trend in the inflation of medical costs and the impact on the Company's medical and post retirement benefit plans, the Company has expectations of low-to-moderate inflation. Wisconsin Gas does not believe the impact of general inflation will have a material effect on its future results of operations.

For additional information concerning risk factors, including market risks, see "Cautionary Factors" below.

The PSCW regulates retail natural gas and water rates in the state of Wisconsin, while the Federal Energy Regulatory Commission ("FERC") regulates interstate gas transportation service rates. Orders from the PSCW can be viewed at http://psc.wi.gov/.

WICOR Merger Order:   As a condition of its March 2000 approval of the WICOR acquisition, the PSCW ordered a five-year rate freeze for electric and natural gas rates for Wisconsin Electric and Wisconsin Gas effective January 1, 2001 subject to a limited number of "carve out" items. The Company may seek biennial rate reviews during the five-year rate restriction period limited to "carve out" changes in revenue requirements as a result of:

• Governmental mandates; and
• Major gas lateral projects associated with approved natural gas pipeline construction projects.

To the extent that natural gas rates and rules need to be modified during the integration of the gas operations of Wisconsin Electric and Wisconsin Gas, the Company's total gas revenue requirements are to remain revenue neutral under the merger order. In its order, the PSCW found that electric fuel cost adjustment procedures as well as gas cost recovery mechanisms would not be subject to the five-year rate restriction period and that it was reasonable to allow the Company to retain efficiency gains associated with the merger. A full rate review will be required by the PSCW at the end of the five-year rate restriction period.

Wisconsin Gas' rates were set within the framework of the Productivity-based Alternative Ratemaking Mechanism, which was established in 1994 and expired on October 31, 2001. Under this mechanism, Wisconsin Gas had the ability to raise or lower margin rates within a specified range on a quarterly basis. Currently, Wisconsin Gas' rates recover $1.5 million per year less than the maximum amount allowed by the PSCW's rate order. Pursuant to that PSCW directive, Wisconsin Gas' rates remain at the same levels as were set prior to the expiration of the Productivity-based Alternative Ratemaking Mechanism.

In October 2002, the PSCW issued an order which eliminated escrow accounting for bad debts effective October 1, 2002. Under escrow accounting Wisconsin Gas expensed amounts included in rates for bad debt expense. If actual bad debt costs exceeded amounts allowed in rates, such amounts were deferred as a regulatory asset. The escrow amount accumulated at September 30, 2002 of $6.9 million is expected to be collected in future rates, but future bad debt expense at Wisconsin Gas will no longer be subject to this separate true-up mechanism.

Gas Cost Recovery Mechanism:   In recent years, the Wisconsin Gas Gas Cost Recovery Mechanism ("GCRM") included an incentive mechanism that provided an opportunity for Wisconsin Gas to increase or decrease earnings within certain limited ranges as a result of gas acquisition activities and transportation costs. For Wisconsin Gas the majority of gas costs are passed through to customers under their existing gas cost recovery mechanisms.

In February 2001, the PSCW issued an order to Wisconsin Gas authorizing a new GCRM. This new GCRM, which became effective in April 2001, is similar to the existing GCRM. Under the new GCRM, gas costs are passed directly to customers through a purchased gas adjustment clause. However, the Company has the opportunity to increase or decrease earnings by up to approximately 2.5% of its total annual gas costs based upon how closely actual gas commodity and capacity costs compare to benchmarks established by the PSCW. Recent changes in the

Commodity Price Risk:   The gas operations of Wisconsin Gas have a commodity risk management program that has been approved by the PSCW. This program hedges the cost of natural gas and therefore changes in the value of the financial instruments do not impact net income. This program allows the Company to utilize call and put option contracts to reduce market risk associated with fluctuations in the price of natural gas purchases and gas in storage. Under this program, Wisconsin Gas has the ability to hedge up to 50% of its planned flowing gas and storage inventory volumes. The cost of applicable call and put option contracts, as well as gains or losses realized under the contracts, do not affect net income as they are fully recovered under the purchase gas adjustment clauses of the Wisconsin Gas gas cost recovery mechanism. In addition, under the Gas Cost Incentive Mechanism, Wisconsin Gas uses derivative financial instruments to manage the cost of gas. The cost of these financial instruments, as well as any gains or losses on the contracts, are subject to sharing under the incentive mechanisms.

Ixonia Lateral:   In April 2002, Wisconsin Gas announced that construction of the 35-mile lateral ("Ixonia Lateral") to connect its distribution system to the Guardian Pipeline may be delayed until the spring of 2003 in order to obtain all permits and easements. On August 30, 2002, Wisconsin Gas filed a request with the PSCW for approval of an increased cost estimate for the Ixonia Lateral. The original cost estimate of $62 million was increased to approximately $97.5 million based on a projected in-service date in the fourth quarter of 2003.

On January 15, 2003, Wisconsin Gas received from the Wisconsin Department of Natural Resources ("WDNR") a Chapter 30 permit to construct the Ixonia Lateral after lengthy negotiations with WDNR and interested parties. Wisconsin Gas filed in February 2003 updated cost estimates reflecting additional costs of approximately $14.0 million required by the WDNR permit conditions. The Ixonia Lateral continues to be economically feasible and provides substantial gas cost savings as well as critical additional pipeline capacity. Wisconsin Gas expects to complete and place the Ixonia Lateral in service during the fourth quarter of 2003. In the event that the Ixonia Lateral is not completed prior to November 2003, Wisconsin Gas would incur additional operating costs for gas to be delivered into its service territory.

On August 24, 2001, Neighbors Standing United ("NSU"), a landowner group, and an individual landowner, filed petitions for review of the PSCW order dated July 25, 2001, which approved the Company's application to construct and operate the Ixonia Lateral. The petitioners allege, among other issues, that the final environmental impact statement ("FEIS") for this pipeline project did not meet applicable legal requirements and that affected landowners' due process rights were not satisfied during the PSCW review process. After briefing of the issues and oral argument, the Jefferson County Circuit Court on November 5, 2002, rendered a decision denying the petitions for review and request for injunctive relief with one modification by the Court which narrowed the approved pipeline route corridor from 800 to 200 feet. On December 18, 2002, the landowner filed a Notice of Appeal of the Court decision to the Wisconsin Court of Appeals.

These two petitioners also filed on February 21 and 22, 2002, respectively, petitions for review of a January 17, 2002 WDNR decision which concluded that the FEIS for the Guardian Pipeline and Ixonia Lateral projects fully complied with the Wisconsin Environmental Policy Act. These petitions for review and associated proceedings have been stayed by the Jefferson County Circuit Court pending resolution of the proceedings for the court review of the PSCW's order.

Consistent with other companies in the energy industry, Wisconsin Gas faces potentially significant ongoing environmental compliance and remediation challenges related to current and past operations. Specific environmental issues affecting the Company include but are not limited to remediation of former manufactured gas plant sites.

Wisconsin Gas is currently pursuing a proactive strategy to manage its environmental issues including the clean-up of former manufactured gas plant sites.

Manufactured Gas Plant Sites:   Wisconsin Gas is voluntarily reviewing and addressing environmental conditions at a number of former manufactured gas plant sites. For further information, see "Note L -- Commitments and Contingencies" in the Notes to Financial Statements.

Restructuring in Wisconsin:   The PSCW has instituted generic proceedings to consider how its regulation of gas distribution utilities should change to reflect the changing competitive environment in the natural gas industry. To date, the PSCW has made a policy decision to deregulate the sale of natural gas in customer segments with workably competitive market choices and has adopted standards for transactions between a utility and its gas marketing affiliates. However, work on deregulation of the gas distribution industry by the PSCW is presently on hold. Currently, Wisconsin Gas is unable to predict the impact of potential future deregulation on the Company's results of operations or financial position.

Preparation of financial statements and related disclosures in compliance with generally accepted accounting principles ("GAAP") requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges and anticipated recovery of costs. These judgments, in and of themselves, could materially impact the financial statements and disclosures based on varying assumptions. In addition, the financial and operating environment also may have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies applied have not changed.

The following is a list of accounting policies that are most significant to the portrayal of Wisconsin Gas' financial condition and results of operations, and that require management's most difficult, subjective or complex judgments.

Regulatory Accounting:   Wisconsin Gas operates under rates established by the PSCW which are designed to recover the cost of service and provide a reasonable return to investors. Developing competitive pressures in the utility industry may result in future utility prices which are based upon factors other than the traditional original cost of investment. In such a situation, continued deferral of certain regulatory asset and liability amounts on the utilities' books, as allowed under Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation ("SFAS 71"), may no longer be appropriate and the unamortized regulatory assets net of the regulatory liabilities would be recorded as an extraordinary after-tax non-cash charge to earnings. As of December 31, 2002, the Company had $57.8 million in regulatory assets and $169.4 million in regulatory liabilities. The Company continually reviews the applicability of SF AS 71 and has determined that it is currently appropriate to continue following SFAS 71. See "Note A -- Summary of Significant Accounting Policies" in the Notes to Financial Statements for additional information.

Pension and Postretirement Plans:   The Company has significant pension and postretirement obligations and costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and medical trend rates. Changes in these assumptions are primarily influenced by factors outside the Company's control and can have a significant effect on the amounts reported in the financial statements.

Goodwill and Other Intangible Assets:   As a result of adoption of SFAS 142 Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), effective January 1, 2002, the Company is required to perform annual assessments of its goodwill for impairment by applying fair-value-based tests. As of December 31, 2002, Wisconsin Gas had $441.9 million of goodwill on its balance sheet, which originated in April 2000 (see "Note C -- Mergers and Divestitures" in the Notes to Financial Statements). To perform its annual impairment test of goodwill, Wisconsin Gas is required to make various assumptions regarding these tests including assumptions about future profitability correlated with published projections for other similar businesses. A

The Company reviewed its goodwill for impairment as of January 1, 2002 upon adoption of SFAS 142 and during the third quarter of 2002 as part of its annual test as required by SFAS 142. In both cases, the Company determined that there were no impairments to the recorded goodwill balance.

Unbilled Revenues:   The Company records utility operating revenues when gas is delivered to its customers. However, the determination of gas sales to individual customers is based upon the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of gas delivered to customers since the date of their last meter reading are estimated and corresponding unbilled revenues are calculated. This unbilled revenue is estimated each month based upon throughput volumes, recorded sales, estimated customer usage by class, weather factors, and applicable customer rates.

Asset Retirement Obligations:   Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"), which requires entities to recognize the estimated fair value of legal liabilities for asset retirements in the period in which they are incurred. The Company has completed a detailed assessment of the specific applicability and implications of SFAS 143. The Company does not have any asset retirement obligations as of January 1, 2003.

The regulated operations of the Company collect removal costs in rates for certain assets that do not have associated legal asset retirement obligations. As of December 31, 2002, the Company estimates that it has approximately $162 million of such regulatory liabilities recorded in Accumulated Depreciation.

This report and other documents or oral presentations contain or may contain forward-looking statements made by or on behalf of Wisconsin Gas. Such statements are based upon management's current expectations and are subject to risks and uncertainties that could cause Wisconsin Gas' actual results to differ materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on the forward-looking statements. When used in written documents or oral presentations, the terms "anticipate," "believe," "estimate," "expect," "forecast," "objective," "plan," "possible," "potential," "project" and similar expressions are intended to identify forward-looking statements. In addition to the assumptions and other factors referred to specifically in connection with such statements, factors that could cause Wisconsin Gas' actual results to differ materially from those contemplated in any forward-looking statements or otherwise affect its future results of operations and financial co ndition include, among others, the following:

• Factors affecting utility operations such as unusual weather conditions; catastrophic weather-related or terrorism-related damage; unplanned maintenance or repairs; unanticipated changes in gas supply or water supply costs or availability due to higher demand, shortages, transportation problems or other developments; nonperformance by natural gas suppliers under existing gas supply contracts; gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; inflation rates; or demographic and economic factors affecting utility service territories or operating environment.

• Regulatory factors such as unanticipated changes in rate-setting policies or procedures; unanticipated changes in regulatory accounting policies and practices; industry restructuring initiatives; distribution system operation and/or administration initiatives; recovery of costs of previous investments made under traditional regulation; recovery of costs associated with adoption of changed accounting standards; required changes in facilities or operations to reduce the risks or impacts of potential terrorist activities; required approvals for new construction; or changes in the regulations from the WDNR related to the siting approval process for new pipeline construction.

• Unexpected difficulties or unanticipated effects of the qualified five-year electric and gas rate freeze ordered by the PSCW as a condition of approval of the WICOR merger.

• The changing gas utility environment as market-based forces replace strict industry regulation and other competitors enter the gas markets resulting in increased wholesale and retail competition.

• Consolidation of the industry as a result of the combination and acquisition of utilities in the Midwest, nationally and globally.

• Changes in social attitudes regarding the utility industries.

• Customer business conditions including demand for their products or services and supply of labor and material used in creating their products and services.

• The cost and other effects of legal and administrative proceedings, settlements, investigations and claims, and changes in those matters.

• Factors affecting the availability or cost of capital such as: changes in interest rates and other general capital market conditions; the Company's capitalization structure; market perceptions of the utility industry, the Company; or security ratings.

• Federal, state or local legislative factors such as changes in tax laws or rates; changes in trade, monetary and fiscal policies, laws and regulations; gas industry restructuring initiatives; or changes in environmental laws and regulations.

• Authoritative generally accepted accounting principle or policy changes from such standard setting bodies as the Financial Accounting Standards Board and the Securities and Exchange Commission.

• Unanticipated technological developments that result in competitive disadvantages and create the potential for impairment of existing assets.

• Other business or investment considerations that may be disclosed from time to time in Wisconsin Gas' Securities and Exchange Commission filings or in other publicly disseminated written documents.

Wisconsin Gas undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.