Securities registered pursuant to Section 12 (b) of the Act:       None
Securities registered pursuant to Section 12 (g) of the Act:       None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

    Yes [X]    No [  ]

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

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

    Yes [  ]    No [X]

The aggregate market value of the common equity of Wisconsin Gas Company held by non-affiliates as of June 30, 2003 was zero. All of the common stock of Wisconsin Gas Company is held by WICOR, Inc., a wholly owned subsidiary of Wisconsin Energy Corporation.

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

Documents Incorporated by Reference
None.

Reduced Disclosure Format
The Registrant meets the conditions set forth in General Instructions I(1)(a) and (b) of Form 10-K and is therefore filing with the reduced disclosure format.

Wisconsin Gas Company (Wisconsin Gas, the Company, Our, Us or We) is a Wisconsin corporation and is a wholly-owned subsidiary of WICOR, Inc. (WICOR). On April 26, 2000, WICOR completed an Agreement and Plan of Merger (the Merger) with Wisconsin Energy Corporation (Wisconsin Energy), pursuant to which all of the outstanding common stock of WICOR was acquired by Wisconsin Energy and WICOR became a wholly-owned subsidiary of Wisconsin Energy. We, in turn, became an indirect wholly-owned subsidiary of Wisconsin Energy. Wisconsin Energy has integrated the gas operations and corporate support areas of Wisconsin Electric Power Company (Wisconsin Electric), Wisconsin Energy's wholly-owned electric, gas and steam utility, with Wisconsin Gas. In April 2002, Wisconsin Electric and Wisconsin Gas began doing business under the trade name "We Energies".

In March 2004, WICOR applied to the Public Service Commission of Wisconsin (PSCW) for approval to transfer its current ownership interest in Wisconsin Gas to Wisconsin Energy, which, if approved, is expected to result in us becoming a direct wholly-owned subsidiary of Wisconsin Energy. We expect the PSCW to act on that application in the second quarter of 2004.

We maintain our principal executive offices in Milwaukee, Wisconsin. We are the largest natural gas distribution public utility in Wisconsin, operating throughout Wisconsin. We are subject to the jurisdiction of the PSCW as to various phases of our operations, including rates, service and issuance of long-term securities.

In November 1998, we entered the water utility business by acquiring the water distribution system of a Milwaukee suburb serving about 500 customers. We currently serve approximately 2,600 customers as of December 31, 2003.

General Information About our Business:   Our business is highly seasonal, particularly as to residential and commercial sales of gas for space heating purposes, with a substantial portion of our sales occurring in the winter heating season. The following table sets forth the volumes of natural gas we delivered to our customers. The sales volumes represent quantities we sold and delivered to customers. The volumes shown as transported represent customer-owned gas that we delivered to customers.

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

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

See "Results of Operations" in Item 7 for selected gas operating information by customer class during each of the three years in the period ended December 31, 2003.

We delivered approximately 1,283.0 million therms of gas during 2003, including customer-owned transported gas, a 4.2% increase compared with 2002. As of December 31, 2003, we were transporting gas for approximately 1,090 customers who purchased gas directly from other suppliers. Transported gas accounted for approximately 38% of total volumes delivered by us during 2003, 39% during 2002 and 40% during 2001. We had approximately 569,500 customers at December 31, 2003, an increase of approximately 1.4% since December 31, 2002.

Our maximum daily send-out in 2003 was 859,532 dekatherms on January 22, 2003. A dekatherm is equivalent to ten therms or one million British thermal units.

Sales to Large Gas Customers:   We provide gas utility service to a diversified base of industrial customers who are largely within Wisconsin Electric's electric service territory. Major industries served include the paper, food products and fabricated metal products industries.

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

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

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

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

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

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

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

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

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

Term Gas Supply:   We currently have contracts for firm supplies with terms in excess of 30 days with 10 gas suppliers for gas acquired in the Chicago area hub and in the three producing areas discussed above. The pricing of the term contracts is based upon first of the month indices. Management believes that the volume of gas under contract is sufficient to meet our forecasted firm peak day demand.

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

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

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

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

Guardian Pipeline:   In March 1999, WICOR announced the formation of a joint venture, Guardian Pipeline, L.L.C. (Guardian), to construct the Guardian interstate natural gas pipeline from the Joliet, Illinois market hub to southeastern Wisconsin. The Guardian pipeline is designed to serve the growing demand for natural gas in Wisconsin and Northern Illinois. WICOR, WPS Investments, LLC, an affiliate of WPS Resources Corporation, and an affiliate of Northern Border Partners, LLP have equal co-ownership interests in Guardian. On March 14, 2001, the Federal Energy Regulatory Commission issued a certificate of public convenience and necessity authorizing construction and operation of the Guardian pipeline.

We have no ownership interest in Guardian. We have committed to purchase 650,000 dekatherms per day of capacity on the pipeline and constructed a 35-mile lateral at a cost of approximately $97.5 million to connect our distribution system to the Guardian pipeline. We received final approval to construct and operate the lateral from the PSCW in an order dated July 25, 2001. We began taking delivery of gas supply from the Guardian pipeline in December 2002 through an interconnection point to our distribution system. With construction of the lateral completed in December 2003, we have access to our full contract capacity from the Guardian pipeline.

To leverage off of operational similarities with our natural gas business, we entered the water utility business in November 1998. As of December 31, 2003, the water utility served approximately 2,600 water customers in the suburban Milwaukee area compared with approximately 2,380 customers at December 31, 2002. We also provide contract services to local municipalities and businesses within our service territory for water system repair and maintenance. During 2003, the water utility had $1.8 million of operating revenues compared with $1.6 million of operating revenues during 2002.

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

We are subject to the regulation of the PSCW as to retail gas and water rates in the state of Wisconsin, standards of service, issuance of long-term securities, construction of certain new facilities, transactions with affiliates, billing practices and various other matters.

We are also subject to regulations, where applicable, of the United States Environmental Protection Agency (EPA) and the Wisconsin Department of Natural Resources.

Gas Cost Recovery:   Our rates traditionally contain clauses providing for periodic rate adjustments, with PSCW approval, to reflect changes in purchased gas costs, including the recovery of transition costs passed through by pipeline suppliers. See "Transition Cost Recovery Policy" below.

The PSCW approved a new performance-based gas cost recovery mechanism (GCRM) which became effective April 1, 2001. See "Rates and Regulatory Matters" in Item 7.

Transition Cost Recovery Policy:   Interstate pipeline companies have been allowed to pass through to local gas distributors various costs incurred in the transition to FERC Order No. 636. The PSCW has authorized the recovery through customer rates of costs that have been passed through to us. Although no assurance can be given, we believe that any additional future transition costs we incur will also be recoverable from our customers.

Changing Regulatory Environment:   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

For discussion of environmental issues, see "Environmental Matters" in Item 3.

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

Research and Development:   We had immaterial research and development expenditures in the last three years, primarily for improvement of service. Research and development activities include specific projects performed by employees, consultants and contractors, plus sponsorship of research by industry associations.

Employees:   At December 31, 2003, we had 701 total employees of which 567 were represented under labor agreements.

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

We own a distribution system which included approximately 10,300 miles of distribution and transmission mains on December 31, 2003. Our distribution system consists almost entirely of plastic and coated steel pipe. We own office buildings in certain communities in which we serve, gas regulating and metering stations, peaking facilities and our major service centers, including garage and warehouse facilities.

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

We are subject to federal, state and certain local laws and regulations governing the environmental aspects of our operations. We believe that, perhaps with immaterial exceptions, our existing facilities are in compliance with applicable environmental requirements.

See "Note N -- Commitments and Contingencies" in the Notes to Financial Statements in Item 8, which is incorporated by reference herein, for a discussion of matters related to certain manufactured gas plant sites.

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

Omitted pursuant to General Instruction I(2)(c).

The names, ages at December 31, 2003 and positions of our executive officers 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.

Richard A. Abdoo, Chairman of the Board and Chief Executive Officer of Wisconsin Energy and Chairman of the Board of Wisconsin Electric and Wisconsin Gas, has indicated his intention to retire from all officer and director positions with Wisconsin Energy and its subsidiaries, and to retire as an employee, effective as of April 30, 2004. Gale E. Klappa, currently President of Wisconsin Energy and President and Chief Executive Officer of Wisconsin Electric and Wisconsin Gas, has been appointed to the officer positions held by Mr. Abdoo. Accordingly, effective

Richard A. Abdoo.  Age 59.

• Wisconsin Energy Corporation - Chairman of the Board and Chief Executive Officer since 1991. President from 1991 to April 2003. Director since 1988.
• Wisconsin Electric Power Company - Chairman of the Board since 1990. Chief Executive Officer from 1990 to July 2003. Director since 1989.
• Wisconsin Gas Company - Chairman of the Board and Director since 2000.

Stephen P. Dickson.  Age 43.

• Wisconsin Energy Corporation - Controller since 2000.
• Wisconsin Electric Power Company - Controller since 2000.
• Wisconsin Gas Company - Controller since 1998.

Gale E. Klappa.  Age 53.

• Wisconsin Energy Corporation - President since April 2003. Director since December 2003.
• Wisconsin Electric Power Company - President and Chief Executive Officer since August 2003. Director since December 2003.
• Wisconsin Gas Company - President and Chief Executive Officer since August 2003. Director since December 2003.
• Southern Company - Executive Vice President, Chief Financial Officer and Treasurer from March 2001 to April 2003. Chief Strategic Officer from October 1999 to March 2001. Southern Company is a public utility holding company serving the southeastern United States.
• Southern Energy, Inc. (now Mirant Corporation) - President of the North American Group and Senior Vice President from December 1998 to October 1999. Mirant is a multi-national energy company that produces and sells electricity.

Allen L. Leverett.  Age 37.

• Wisconsin Energy Corporation - Chief Financial Officer since July 2003.
• Wisconsin Electric Power Company - Chief Financial Officer since July 2003.
• Wisconsin Gas Company - Chief Financial Officer since July 2003.
• Georgia Power Company - Executive Vice President, Treasurer, and Chief Financial Officer from May 2002 to July 2003. Assistant Treasurer from 2000 to 2002. Georgia Power Company is a utility affiliate of Southern Company, which is a public utility holding company serving the southeastern United States.
• Southern Company Services - Vice President and Treasurer from 2000 to 2002. Vice President of Financial Planning and Analysis from 1997 to 2000. Southern Company Services is also an affiliate of Southern Company.

Larry Salustro.  Age 56.

• Wisconsin Energy Corporation - Senior Vice President and General Counsel since 2000.
• Wisconsin Electric Power Company - Senior Vice President and General Counsel since 2000. Vice President -Legal, Regulatory and Governmental Affairs from 1997 to 2000.
• Wisconsin Gas Company- Senior Vice President and General Counsel since 2000.

Certain executive officers also hold offices in other of Wisconsin Energy's subsidiaries.

There is no established public trading market for our common stock. There were no dividends paid during 2003, 2002 or 2001 to our sole common stockholder, WICOR. In 2001, we suspended declaration of dividends in order to retain sufficient cash to fund ongoing construction activity.

Various financing arrangements and regulatory requirements impose certain restrictions on our ability to transfer funds to WICOR or Wisconsin Energy in the form of cash dividends, loans or advances. Under Wisconsin law, we are prohibited from loaning funds, either directly or indirectly, to WICOR or Wisconsin Energy.

Omitted pursuant to General Instruction I(2)(a).

Wisconsin Gas Company (Wisconsin Gas or the Company, Our, We or Us), an indirect wholly-owned subsidiary of Wisconsin Energy Corporation (Wisconsin Energy), and the oldest and largest natural gas distribution utility in Wisconsin, is a public utility engaged in the distribution of natural gas throughout Wisconsin. Most of our revenues are derived from natural gas delivered in southeastern Wisconsin.

Acquisition of WICOR, Inc.:   On April 26, 2000, Wisconsin Energy acquired WICOR, Inc. (WICOR) in a business combination that was accounted for as a purchase. WICOR was a diversified utility holding company with utility and non-utility energy subsidiaries as well as pump manufacturing subsidiaries. Following the merger, WICOR and its subsidiaries, including us, became subsidiaries of Wisconsin Energy. In February 2004, Wisconsin Energy announced a planned sale of WICOR to a third party, and one of the conditions of the sale is for Wisconsin Gas to be transferred from WICOR to Wisconsin Energy.

Wisconsin Energy has integrated the gas operations of Wisconsin Electric Power Company (Wisconsin Electric), its wholly-owned electric, gas and steam utility subsidiary, and Wisconsin Gas, as well as many corporate support areas. We believe the transfer of Wisconsin Gas to Wisconsin Energy will facilitate our goal of achieving a legal combination of Wisconsin Gas and Wisconsin Electric.

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

We are realizing operating efficiencies through the integration of the operations of Wisconsin Electric and Wisconsin Gas. These operating efficiencies should increase customer satisfaction and reduce operating costs.

As discussed in Note O to the Financial Statements, the 2002 financial statements have been restated to reflect the cumulative effect of a change in accounting for goodwill. This change resulted in a non-cash charge of $295.0 million to write-down the recorded value of goodwill. The charge associated with this cumulative effect of a change in accounting principle does not have any impact on the financial statements of Wisconsin Energy. This charge is eliminated in consolidation because our goodwill is included in a higher-level reporting unit in the Wisconsin Energy consolidated financial statements; the fair value of the Wisconsin Energy reporting unit that includes Wisconsin Gas exceeds the carrying amount of the reporting unit. Based on our discussions with credit rating agencies, we do not expect the charge to have an effect on our security ratings, as this is a non-cash charge that does not impact our ability to generate cash on an ongoing basis and hence leaves our coverage ratios

Gross margin is a better performance indicator than revenues because changes in the cost of gas sold flow through to revenue under gas cost recovery mechanisms. The following table compares our gas utility operating revenues and gross margins (total gas operating revenues less cost of gas sold) during 2003, 2002 and 2001.

2003 vs 2002:   During 2003, gas operating revenues increased by $184.7 million or 35.0%.This increase in revenues is due primarily to a $173.8 million increase in the delivered cost of natural gas, recognition of $3.0 million of increased gas cost incentive revenues under our gas cost recovery mechanism and increased deliveries resulting from colder weather during 2003 compared with 2002. The increase in purchased gas costs is passed on to customers because changes in the cost of gas sold flow through to revenue under the gas cost recovery mechanism.

2002 vs 2001:   During 2002, gas operating revenues decreased by $88.9 million or 14.4% compared to 2001, due to lower delivered gas costs offset in part by increased deliveries resulting from colder winter weather. This decline primarily reflects a decrease in natural gas costs in 2002, which are passed on to customers under the gas cost recovery mechanism.

The following table compares gas gross margin and therm deliveries during 2003, 2002 and 2001.

2002 vs 2001:   Gas gross margin for 2002 totaled $194.3 million, or an increase of $9.6 million from 2001. This increase was primarily due to colder winter weather in 2002, which increased the heating degree days compared to 2001.

2003 vs 2002:   Other operation and maintenance expenses increased by $13.2 million or 15.8% during 2003 when compared with 2002. The increase was primarily attributable to pension, medical and other benefit costs, which increased by $5.0 million, and a $4.7 million increase in bad debt expenses in large part due to higher gas bills during 2003.

2003 vs 2002:   Depreciation and amortization expenses decreased slightly during 2003 compared with 2002.

2002 vs 2001:   Goodwill amortization expenses decreased by $11.5 million during 2002 due to our adoption on January 1, 2002 of Statement of Financial Accounting Standard (SFAS) 142, which eliminated amortization of goodwill and intangibles with indefinite lives.

2003 vs 2002:   Interest expense remained relatively unchanged for 2003 compared to 2002.

2002 vs 2001:   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 Public Service Commission of Wisconsin (PSCW) order. In addition, lower short-term interest rates contributed to reduced interest expense.

Our effective income tax rate was 35.9%, 37.4%, and 55.1% for the three years ended December 31, 2003, 2002 and 2001, respectively. The lower rates in 2003 and 2002 reflect the elimination of goodwill amortization. Amortization of goodwill is not deductible for income tax purposes.

The following table summarizes our cash flows during 2003, 2002 and 2001:

Cash provided by operating activities decreased to $11.7 million during 2003 compared with $26.1 million during the same period in 2002. This decrease was primarily due to an increase in the use of working capital due to higher natural gas prices and higher volumes of natural gas in storage.

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 2003, we invested a total of $126.4 million, an increase of $84.7 million over the prior year, primarily due to costs for construction of the Ixonia natural gas lateral.

During 2002, we had net cash outflows for investing activities of $41.7 million as compared to $56.3 million in 2001. This decrease was 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 2003, we received $114.4 million from financing activities compared with $13.5 million from financing activities during 2002. In December 2003, we sold $125 million of unsecured 5.20% Debentures due December 2015. These securities were issued under an existing $200 million shelf registration statement filed with the SEC. We used the proceeds from the Debentures to repay short-term debt.

During 2002, we 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.

We anticipate meeting our capital requirements during 2004 primarily through internally generated funds, short-term borrowings and existing lines of credit. Beyond 2004, we anticipate meeting our capital requirements through internally generated funds supplemented, when required, through the issuance of debt securities depending on market conditions and other factors.

We have access to the capital markets and have been able to generate funds internally and externally to meet our capital requirements. Our ability to attract the necessary financial capital at reasonable terms is critical to our overall strategic plan. We believe that we have adequate capacity to fund our operations for the foreseeable future through our borrowing arrangements and internally generated cash.

On December 31, 2003, we had approximately $200 million of available unused lines in our bank back-up credit facility. We had approximately $133.1 million of total short-term debt outstanding on such date.

We review our bank back-up credit facility needs on an ongoing basis and expect to be able to maintain adequate credit facilities to support our operations. The following table summarizes such facilities at December 31, 2003:

On June 25, 2003, we entered into an unsecured 364 day $200 million bank back-up credit facility to replace a $185 million credit facility that was scheduled to expire on December 10, 2003. The credit facility may be extended for an additional 364 days, subject to lender agreement.

The following table shows our capitalization structure, as restated, at December 31:

Access to capital markets at a reasonable cost is determined in large part by credit quality. The following table summarizes the ratings of our debt securities by Standard & Poors Corporation (S&P), Moody's Investors Service (Moody's) and Fitch as of December 31, 2003.

In March 2003, S&P lowered its corporate credit ratings on us from A to A-. S&P lowered its ratings on our senior unsecured debt from A to A-. S&P lowered our short-term ratings from A-1 to A-2. S&P ratings outlook for us is stable.

In October 2003, Moody's lowered our senior unsecured debt rating from Aa2 to A1. Moody's confirmed our P-1 commercial paper ratings. The rating outlook for us is stable.

In October 2003, Fitch lowered our senior unsecured debt rating from AA- to A+. Fitch lowered our commercial paper ratings from F1+ to F1. The rating outlook for us is stable.

We believe 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 $72 million during 2004, a decrease of approximately $50 million over 2003 due primarily to completion of construction on the Ixonia lateral project in 2003.

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. We currently expect capital expenditures to be between $50 million and $75 million per year during the next five years.

Pension Investments:   We have funded our pension and other post-retirement benefit obligations in outside trusts. These investments are subject to the volatility of the stock market and interest rates. During 2003, our pension investments had returns of 24% and during 2002 we had losses of 13%.

Off-Balance Sheet Arrangements:   We are a party to various financial instruments with off-balance sheet risk as a part of our 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. Our estimated maximum exposure under these agreements is zero as of December 31, 2003.

Contractual Obligations/Commercial Commitments:   We have the following contractual obligations and other commercial commitments as of December 31, 2003:

Our obligations for utility operations have historically been included as part of the rate making process and therefore are generally recoverable from customers.

We are exposed to market and other significant risks as a result of the nature of our 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, we manage our 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 for the majority of natural gas costs for our gas utility through gas cost recovery mechanisms, which mitigates most of the risk of gas cost variations. For additional information concerning our gas cost recovery mechanism and our commodity price risk program, see "Rates and Regulatory Matters" below.

Gas Costs:   Significant increases in the cost of natural gas affect our gas utility operations. Gas costs have increased significantly because the supply of gas in recent years has not kept pace with the demand for natural gas, which has grown throughout the United States as a result of increased reliance on natural gas-based electric generating facilities. We expect that demand for natural gas will remain high into the foreseeable future and that significant price relief will not occur until additional natural gas is added to the nation's energy supply mix.

Higher gas costs increase our working capital requirements resulting in higher gross receipts taxes in the state of Wisconsin. Higher gas costs combined with poor economic conditions also expose us to greater risks of accounts receivable write-offs as more customers are unable to pay their bills. Our risks related to bad debt expenses associated with non-paying customers have increased because federal and state energy assistance dollars have decreased. See "Rates and Regulatory Matters" below for additional information about recovery in rates of bad debt expense.

As a result of a gas cost recovery mechanism, we receive dollar for dollar recovery for the majority of the cost of natural gas. However, increased natural gas costs increase the risk that customers will switch to alternative fuel sources, which could reduce future gas margins.

Weather:   Our rates are set by the PSCW based upon estimated temperatures which approximate 20-year averages. Our gas revenues are sensitive to the winter heating season. A summary of actual weather in our service territory during 2003, 2002 and 2001, as measured by degree-days, may be found above in "Results of Operations".

We performed an interest rate sensitivity analysis at December 31, 2003 of our outstanding portfolio of $133.1 million short-term debt with a weighted average interest rate of 1.15%. A one-percentage point change in

Marketable Securities Return Risk:   We fund our pension and other post-retirement 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 post-retirement benefit expenses. Future contributions to these trust funds can also be affected by changes in the market price of trust fund assets. We expect that the risk of expense and contribution variations as a result of changes in the market price of trust fund assets would be mitigated in part through future rate actions by our utility regulator. However, we are 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, 2003, we held the following total trust fund assets at fair value, primarily consisting of publicly traded debt and equity security investments.

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

Credit Rating Risk:   We do not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. We do have certain agreements in the form of commodity and energy services contracts and employee benefit plans that could require collateral or termination payments in the event of a credit ratings change to below investment grade. At December 31, 2003, we estimate that the potential payments under such agreements that could result from credit rating downgrades totaled approximately $0.8 million.

Inflationary Risk:   We continue 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 impacts on our medical and post-retirement benefit plans, we have expectations of low-to-moderate inflation. We do not believe the impact of general inflation will have a material effect on our future results of operations.

Economic Risk.   We are exposed to market risks in the regional Midwest economy.

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 Wisconsin Energy's acquisition of WICOR, the PSCW ordered a five-year rate restriction period in effect freezing electric and natural gas rates for Wisconsin Electric and us effective January 1, 2001. We may seek biennial rate reviews during the five-year rate restriction period limited to 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 our gas operations with Wisconsin Electric's, our total gas revenue requirements are to remain revenue neutral under the merger order. In its order, the PSCW found that gas cost recovery mechanisms would not be subject to the five-year rate restriction period and that it was reasonable to allow us to retain efficiency gains associated with the merger. A full rate review will be required by the PSCW for rates beginning in January 2006.

Limited Rate Adjustment Request:   On July 2, 2003, we filed an application with the PSCW for $26.2 million (3.9%) of rate adjustments for anticipated 2004 revenue deficiencies associated with (1)  increased costs linked to changes in Wisconsin's public benefits legislation, and (2) costs for construction of the Ixonia Lateral. Hearings were completed in December 2003 and in February the PSCW approved an annual increase in gas rates of $25.9 million effective March 5, 2004.

Gas Cost Recovery Mechanism:   Our Gas Cost Recovery Mechanism (GCRM) includes an incentive mechanism that provides an opportunity for us to increase or decrease earnings within certain limited ranges as a result of gas acquisition activities and transportation costs. The majority of gas costs are passed through to customers under our existing gas cost recovery mechanism.

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

Commodity Price Risk Programs:   We have commodity risk management programs that have been approved by the PSCW. These programs hedge the cost of natural gas. As gas costs are recovered from customers, changes in the value of the financial instruments do not impact net income. These programs allow us to utilize option contracts to reduce market risk associated with fluctuations in the price of natural gas purchases and gas in storage. Under these programs, we have the ability to hedge up to 50% of our 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 clause of our gas cost recovery mechanism. In addition, under the Gas Cost Incentive Mechanism, we use 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 mechanism.

Bad Debt Expense:   Under escrow accounting we 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. In October 2002, the PSCW issued an order, which eliminated escrow accounting for bad debts effective October 1, 2002. We expect to collect the escrow amount accumulated at September 30, 2002 of approximately $6.9 million in future rates, but our future bad debt expense will no longer be subject to this separate true-up mechanism.

In 2003, due to a combination of unusually high natural gas prices, the soft economy within our service territories, and limited governmental assistance available to low-income customers, we have seen a significant increase in uncollectible accounts receivable. Because of this, we sent a letter to the PSCW in July 2003 requesting authority to defer for future rate recovery all residential bad debt write-offs during 2003 in excess of amounts included in current annual utility rates. The PSCW approved our request for deferral of 2003 uncollectible accounts receivable effective October 2003. We have deferred approximately $4.7 million in uncollectible accounts receivable as of December 31, 2003. Our annual residential bad debt expense in base rates is approximately $11.3 million.

Power the Future - Port Washington:   In January 2003, we received a Certificate of Authority from the PSCW authorizing construction of a 16.8 mile gas lateral that will connect the Port Washington Generating Station to the ANR Pipeline. It will also improve reliability for the natural gas distribution system in the area. We received a Chapter 30 wetland permit from the WDNR in July 2003 approving construction of this lateral. The WDNR permitted construction of substantially the entire lateral consistent with the planned route previously approved by the PSCW, with certain exceptions. We have modified the planned route pursuant to the WDNR's request and received the necessary approvals for the modified route. Including the requested changes, the PSCW, approved an updated cost estimate for the project of $41.5 million in November 2003. Construction of the lateral is scheduled to begin in spring 2004 and to be completed by late 2004.

In July and August 2003, two landowners filed separate Petitions for Review in Ozaukee County Circuit Court challenging the Chapter 30 permit issued in July 2003 by the WDNR to us for the Port Washington lateral natural gas pipeline. Further, in September 2003, one of the same landowners filed an additional Petition for Review in Ozaukee County Circuit Court challenging the WDNR's denial of a request for a contested case hearing on the issuance of the Chapter 30 permit. We have reached a settlement with the landowners and the Petitions for Review have been dismissed.

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

We are currently pursuing a proactive strategy to manage our environmental issues including the clean-up of former manufactured gas plant sites.

Manufactured Gas Plant Sites:   We are voluntarily reviewing and addressing environmental conditions at a number of former manufactured gas plant sites. For further information, see "Note N -- 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, we are unable to predict the impact of potential future deregulation on our results of operations or financial position.

New Pronouncements:   In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation 46, Consolidation of Variable Interest Entities (FIN 46). This standard requires an enterprise that is the primary beneficiary of a variable interest entity to consolidate that entity. We have determined we do not have any variable interest in unconsolidated entities to consolidate as a result of adoption of FIN 46. In October 2003, the FASB deferred the adoption of FIN 46 for entities commonly referred to as special-purpose entities to the first reporting period ending after December 15, 2003. In December 2003, the FASB revised the effective date for all other types of entities to financial statements for periods after March 15, 2004. We do not anticipate any impact upon adoption of the final phase of Interpretation 46.

The FASB issued FASB Staff Position No. SFAS 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003", (FSP 106-1) that allows sponsors to elect to defer recognition of the effects of the Act. In accordance with FSP 106-1, we elected to defer recognition of

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 our business, but on our 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 our financial condition and results of operations and that require management's most difficult, subjective or complex judgments.

Regulatory Accounting:   We operate under rates established by a state regulatory commission, 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 our 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, 2003, we had $51.7 million in regulatory assets and $318.2 million in regulatory liabilities. We continually review the applicability of SFAS 71 and have d etermined 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 Other Post-retirement Benefits:   Our reported costs of providing non-contributory defined pension benefits (described in "Note K -- Benefits" in the Notes to Financial Statements) are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience. Pension costs are impacted by actual employee demographics (including age, compensation levels, and employment periods), the level of contributions made to plans, and earnings on plan assets. Changes made to the provisions of the plans may also impact current and future pension costs. Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and pension costs.

In accordance with SFAS 87, Employers' Accounting for Pensions (SFAS 87), changes in pension obligations associated with these factors may not be immediately recognized as pension costs on the income statement, but generally are recognized in future years over the remaining average service period of plan participants. As such, significant portions of pension costs recorded in any period may not reflect the actual level of cash benefits provided to plan participants.

As of December 31, 2002, approximately 72% of our pension plan assets are invested in equity securities. Remaining plan assets were invested primarily in corporate and government bonds. During 2002, the funded status of our plans fell significantly due to the decline in the value of plan investments and due to the increase in the benefit obligation resulting from a lower discount rate. Our pension plans went from a $84.4 million overfunded status as of December 31, 2001 to a $43.5 million overfunded status as of December 31, 2002. As a result of some of our plans becoming underfunded, we recorded a minimum pension liability of $1.8 million in December 2002. Our regulators have adopted SFAS 87 and 88 for rate making purposes. As such, during 2002 we recorded a corresponding $18.0 million regulatory asset under SFAS 71 (see "Note A -- Summary of Significant Accounting Policies" in the Notes to Financial Statements) representing future pension costs expected to be recoverable in future rates.

As of December 31, 2003 approximately 76% of our pension plan assets were invested in equity securities. Remaining plan assets were invested primarily in corporate and government bonds. During 2003, the funded status of our plans recovered from the 2002 levels, and are $73.1 million overfunded. As a result, we reduced the minimum pension liability in December 2003. We recorded a corresponding $2.5 million regulatory asset under SFAS 71 during 2003 (see "Note A - Summary of Significant Accounting Policies" in the Notes to Financial Statements) representing future pension costs expected to be recoverable in future rates.

The following chart reflects pension plan sensitivities associated with changes in certain actuarial assumptions by the indicated percentage. Each sensitivity reflects a change to the given assumption, holding all other assumptions constant.

In addition to pension plans, we maintain other post-retirement benefit plans which provide health and life insurance benefits for retired employees (described in "Note K -- Benefits" in the Notes to Financial Statements). We account for such plans in accordance with Statement of Financial Accounting Standards No. 106, Employers' Accounting for Post-retirement Benefits Other Than Pensions (SFAS 106). Our reported costs of providing these post-retirement benefits are dependent upon numerous factors resulting from actual plan experience including employee demographics (age and compensation levels), our contributions to the plans, earnings on plan assets and health care cost trends. Changes made to the provisions of the plans may also impact current and future post-retirement benefit costs. Other post-retirement benefit costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determ ining the post-retirement benefit obligation and post-retirement costs. Our other post-retirement benefit plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns as well as changes in general interest rates may result in increased or decreased other post-retirement costs in future periods. Similar to accounting for pension plans, our regulators have adopted SFAS 106 for rate making purposes.

The following chart reflects other post-retirement benefit plan sensitivities associated with changes in certain actuarial assumptions by the indicated percentage. Each sensitivity reflects a change to the given assumption, holding all other assumptions constant.

Goodwill and Other Intangible Assets:   As a result of the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), effective January 1, 2002, we recorded a charge of $295 million reflecting the cumulative effect of changing how we value goodwill. In addition, we are required to perform annual assessments of our goodwill for impairment by applying fair-value-based tests. We determined there was no further impairment at our annual test date in 2003. As of December 31, 2003, we had $146.9 million of goodwill on our balance sheet, which originated in April 2000. The goodwill that was originally recorded on our books reflected the difference between the amount that Wisconsin Energy paid for us and our historical book value. To perform our annual test of goodwill, we are required to make various assumptions including assumptions about our future profitability as compared to published pr ojections for other similar businesses, capital expenditures, discount rate and growth rate. We assess the fair value by considering future discounted cash flows. This analysis is supplemented with a comparison of fair value based on public company trading multiples and merger and acquisition transaction multiples for similar companies. A significant change in these markets or a difference between actual results and our projections could result in an impairment loss related to a decrease in the goodwill asset.

In addition, SFAS 142 required the elimination of goodwill and indefinite-lived intangible asset amortization on January 1, 2002 which resulted in an increase in net income of $11.5 million for 2002. At this time, we are unable to predict whether any other adjustments to goodwill will occur in the future. For further information, see "Note F -- Goodwill" in the Notes to Financial Statements.

Unbilled Revenues:   We record operating revenues when gas is delivered to our 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, we estimate the amount of gas delivered to customers since the date of their last meter reading and these estimated volumes are allocated to our customer classes. The unbilled revenue is estimated each month based upon throughput volumes, recorded sales, estimated customer usage by class, weather factors and applicable customer rates. Significant fluctuations in gas demand for the unbilled period or changes in the composition of customer classes could impact the accuracy of the unbilled revenue estimate. Total gas operating revenues during 2003 of $713.1 million included unbilled revenues of $61.2 million at December 31, 2003.

This report and other documents or oral presentations contain or may contain forward-looking statements made by us or on our behalf. These statements are based upon management's current expectations and are subject to risks and uncertainties that could cause our 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 our actual results to differ materially from those contemplated in any forward-looking statements or otherwise affect our future results of operations and financial condition 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; environmental incidents; 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 territory 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
  
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  operations to reduce the risks or impacts of potential terrorist activities; required approvals for new construction; or changes in the regulations from the Wisconsin Department of Natural Resources 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; our capitalization structure; market perceptions of the utility industry or us; 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; changes in environmental laws and regulations; or changes in allocation of energy assistance, including state public benefits funds.

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

• 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 our Securities and Exchange Commission filings or in other publicly disseminated written documents.

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

See "Factors Affecting Results, Liquidity and Capital Resources -- Market Risks and Other Significant Risks" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in this report for information concerning potential market risks to which we are exposed.