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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Securities Registered Pursuant to Section 12(b) of the Act:

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 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 [X]    No [  ]

The aggregate market value of the common stock of Wisconsin Energy Corporation held by non-affiliates was approximately $3.8 billion based upon the reported last sale price of such securities as of June 30, 2004.

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Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date (January 31, 2005):

Common Stock, $.01 Par Value, 116,985,602 shares outstanding

Documents Incorporated by Reference

Portions of Wisconsin Energy Corporation’s definitive Proxy Statement for its Annual Meeting of Stockholders, to be held on May 5, 2005, are incorporated by reference into Part III hereof.

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WISCONSIN ENERGY CORPORATION

FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 2004

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PART I

INTRODUCTION

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

Historically we conducted our operations primarily in three operating segments: a utility energy segment, a non-utility energy segment and a manufacturing segment. The sale of our manufacturing segment was completed effective July 31, 2004 and this segment is reported as discontinued operations. Our primary subsidiaries are Wisconsin Electric Power Company (Wisconsin Electric), Wisconsin Gas LLC, formerly Wisconsin Gas Company (Wisconsin Gas) and W.E. Power, LLC (We Power).

Utility Energy Segment:    Our utility energy segment consists of: Wisconsin Electric, which serves approximately 1,081,400 electric customers in Wisconsin and the Upper Peninsula of Michigan, approximately 437,800 gas customers in Wisconsin and approximately 460 steam customers in metro Milwaukee, Wisconsin; Wisconsin Gas, which serves approximately 577,000 gas customers in Wisconsin and about 2,660 water customers in suburban Milwaukee, Wisconsin; and Edison Sault Electric Company (Edison Sault), which serves approximately 22,700 electric customers in the Upper Peninsula of Michigan. In April 2002, Wisconsin Electric and Wisconsin Gas began doing business under the trade name of “We Energies”.

Non-Utility Energy Segment:    Our non-utility energy segment consists of We Power and Wisvest Corporation (Wisvest). We Power was formed in 2001 to design, construct, own, finance and lease the new generating capacity included in our Power the Future strategy. See Item 7 for more information on Power the Future. Wisvest owns an investment in an electric generating facility and has investments in other energy-related entities and assets. We have substantially reduced the operations of Wisvest since 2000.

Manufacturing Segment:    Our manufacturing segment consisted of WICOR Industries, LLC (WICOR Industries), an intermediary holding company, and its three primary subsidiaries: Sta-Rite Industries, LLC, SHURflo, LLC and Hypro, LLC, which are manufacturers of pumps, water treatment products and fluid handling equipment with manufacturing, sales and distribution facilities in the United States and several other countries. Effective July 31, 2004, we sold this segment to Pentair, Inc. (Pentair).

Power the Future Strategy:    In late February 2001, we filed a petition with the Public Service Commission of Wisconsin (PSCW) starting the regulatory review process for a 10-year strategy, originally proposed in September 2000, to improve the supply and reliability of electricity in Wisconsin. As part of our Power the Future strategy, we are: (1) investing in new natural gas-fired and coal-fired electric generating facilities, (2) upgrading Wisconsin Electric’s existing electric generating facilities and (3) investing in upgrades of our existing energy distribution system. Also, as part of this strategy, we announced and began implementing plans to divest non-core assets and operations in our non-utility energy segment and to reduce our real estate operations. Implementation of the Power the Future strategy is subject to a number of state and federal regulatory approvals and judicial review. Additional information concerning Power the Future may be found below under “Non-Utility Energy Segment” and “Environmental Compliance” as well as in Item 7.

For further financial information about our business segments, see “Results of Operations” in Item 7 and “Note Q - Segment Reporting” in the Notes to Consolidated Financial Statements in Item 8.

We have our annual and periodical filings to the Securities and Exchange Commission (SEC) available, free of charge, through our Internet website www.wisconsinenergy.com. These documents are available as soon as reasonably practicable after such materials are filed (or furnished) with the SEC.

Cautionary Factors:    Certain statements contained herein are “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-Looking Statements include, among other things, statements regarding management’s expectations and projections regarding completion of construction projects, regulatory matters, fuel costs, sources of electric energy supply, gas deliveries, remediation costs, environmental and

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other capital expenditures, liquidity and capital resources and other matters. Also, Forward-Looking Statements may be identified by reference to a future period or periods or by the use of forward looking terminology such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “objectives,” “plans,” “possible,” “potential,” “projects” 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, those risks and uncertainties described under the heading “Cautionary Factors” in Item 7 of this report, as well as other matters described under the heading “Factors Affecting Results, Liquidity and Capital Resources” in Item 7 of this report, and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission (SEC) or otherwise described throughout this document.

UTILITY ENERGY SEGMENT

ELECTRIC UTILITY OPERATIONS

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

Electric Sales

See “Consolidated Selected Utility Operating Data” in Item 6 for certain electric utility operating information by customer class during the period 2000 through 2004.

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

Electric energy sales by Wisconsin Electric to all classes of customers totaled approximately 31.6 million megawatt hours (mwh) during 2004, a 1.5% increase from 2003. Approximately 0.4 million of megawatt-hour sales during 2004 were to Edison Sault. Wisconsin Electric had approximately 1,081,400 electric customers at December 31, 2004, an increase of 1.3% since December 31, 2003.

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

Electric energy sales by Edison Sault to all classes of customers totaled approximately 0.9 million megawatt hours during both 2004 and 2003. No significant megawatt-hour sales during 2004 were to Wisconsin Electric. Edison Sault had approximately 22,700 electric customers at December 31, 2004 and 22,000 electric customers at December 31, 2003.

Electric Sales Growth:    Assuming moderate growth in the economy of our electric utility service territories and normal weather, we presently anticipate total retail and municipal electric kilowatt-hour sales of our utility energy segment to grow at an annual rate of 1.5% to 2.0% over the next five years. We also anticipate that our annual electric demand will grow at a rate of 2.0% to 3.0% over the next five years.

Sales To Large Electric Retail Customers:    Wisconsin Electric provides electric utility service to a diversified base of customers in such industries as mining, paper, foundry, food products and machinery production, as well as to large retail chains. Edison Sault provides electric service to industrial accounts in the paper, crude oil pipeline and limestone quarry industries as well as to several state and federal government facilities.

Our largest retail electric customers are two iron ore mines located in the Upper Peninsula of Michigan. Wisconsin Electric currently has special negotiated power-sales contracts with these mines that expire in December 2007. The

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combined electric energy sales to the two mines accounted for 7.4% and 7.1% of our total electric utility energy sales during 2004 and 2003, respectively.

Sales to Wholesale Customers:    During 2004, Wisconsin Electric sold wholesale electric energy to three municipally owned systems, two rural cooperatives and one municipal joint action agency located in the states of Wisconsin, Michigan and Illinois. Wholesale electric energy sales by Wisconsin Electric were also made to 34 other public utilities and power marketers throughout the region under rates approved by the Federal Energy Regulatory Commission (FERC). Edison Sault sold wholesale electric energy to one rural cooperative during 2004. Wholesale sales accounted for approximately 9.1% of our total electric energy sales and 4.7% of total electric operating revenues during 2004 compared with 8.9% of total electric energy sales and 4.6% of total electric operating revenues during 2003.

Electric System Reliability Matters:    Electric energy sales are impacted by seasonal factors and varying weather conditions from year-to-year. As a summer peaking utility, we reached our 2004 electric peak demand obligation of 5,789 megawatts on July 20, 2004 and our all-time electric peak demand obligation of 6,376 megawatts on August 31, 2003. The summer period is the most relevant period for capacity planning purposes for us as a result of cooling load. Wisconsin Electric is a member of the MAIN reliability council. MAIN guidelines direct members to have a minimum 14.12% planning reserve margin in place prior to the upcoming peak season. PSCW guidelines to electric utilities in Wisconsin advise a minimum 18% planning reserve margin. The Michigan Public Service Commission (MPSC) has not provided guidelines in this area.

We had adequate capacity to meet all of our firm electric load obligations during 2004 and expect to have adequate capacity to meet all of our firm obligations during 2005. For additional information, see “Factors Affecting Results, Liquidity and Capital Resources” in Item 7. For additional information regarding our generation facilities, see “Utility Energy Segment” in Item 2.

Competition

Prior to 2003, the nation’s electric utility industry had been following a trend towards restructuring and increased competition. However, given electric reliability problems experienced in the summer of 2003 and in the state of California in 2001 and 2002, which had previously restructured its electric industry framework, and given the current status of restructuring initiatives in regulatory jurisdictions where we primarily do business, we do not expect to be affected by a significant change in electric regulation in the next five years. The PSCW has been and remains focused on electric reliability infrastructure issues for the state of Wisconsin. The state of Michigan implemented electric retail access in 2002, and the FERC continues to strongly support large Regional Transmission Organizations (RTO) such as the Midwest Independent Transmission System Operator, Inc. (Midwest ISO). For additional information, see “Factors Affecting Results, Liquidity and Capital Resources” in Item 7.

Electric Supply

The table below indicates our sources of electric energy supply as a percentage of sales, for the three years ended December 31, 2004, as well as an estimate for 2005:

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We have not built a base load generating plant since the mid 1980’s. Over the past few years, we have seen an increase in natural gas as a fuel source to meet increased customer demand for electricity. Our Power the Future plan, which is discussed further in Item 7, “Power the Future”, includes the addition of 2,320 megawatts of generating capacity over the next seven years. We are currently building two 545-megawatt natural gas units at an existing site in Port Washington, Wisconsin. The first natural gas unit is expected to be operational early in the third quarter of 2005. The second natural gas unit is expected to be operational by the end of the second quarter of 2008. We also have received approval from the PSCW to build two 615-megawatt coal units at an existing site in Oak Creek, Wisconsin. The approval to build these coal units has been challenged, and this matter is to be heard by the Supreme Court of Wisconsin in March 2005. (See Item 7, “Factors Affecting Results, Liquidity, and Capital Resources - Power the Future” for further discussions on the legal and regulatory challenges associated with the proposed coal plants).

We believe that our Power the Future plan will allow us to manage the mix of fuels used to generate electricity for our customers. We believe that it is in the best interests of our customers to provide a diverse fuel mix that is expected to maintain a stable, reliable and affordable energy supply in our service territory.

Our net generation totaled 29.2 million megawatt hours during 2004 compared with 28.0 million megawatt hours during 2003 and 27.8 million megawatt hours during 2002. When compared with the past three years, net generation as a percent of our total electric energy supply is expected to decrease during 2005 in large part due to the Port Washington unit retirements associated with construction of two natural gas-fired generation facilities at the same site, one of which is expected to become operational in 2005, and two nuclear generating facility outages scheduled for 2005. Purchased power is expected to be the primary source of additional electric energy supply required to meet load growth in the next year.

Our average fuel and purchased power costs per megawatt hour by fuel type for the years ended December 31 are shown below.

We use natural gas to fuel our peaking units that are designed to run for short durations. The Port Washington natural gas-fired units under construction as part of Power the Future are combined cycle facilities that are designed to run for longer durations and at a lower operating cost as compared to a peaking unit.

Coal costs in 2004 were adversely affected by the failure of one of our transportation suppliers to deliver coal under a long-term contract, forcing us to obtain replacement coal at substantially higher prices. We are currently evaluating various remedies available for this delivery failure under the transportation contract.

The fuel costs for coal and nuclear generation are relatively stable as the fuel costs are under long-term contracts. However, many existing coal and rail contracts expire at the end of 2005. Based on current market conditions, we expect coal and transportation costs to increase more significantly than our most recent historical trend beginning in 2006.

The costs for natural gas and purchased power, which is primarily natural gas-fired, are more volatile and have experienced significant increases since 2002. Beginning in late 2003 and concurrent with the approval of the PSCW, we established hedging programs to mitigate significant price fluctuations due to gas prices. This hedging program is generally implemented on a 18 month forward-looking basis. Proceeds related to the natural gas hedging program are reflected in the 2004 average costs of Natural Gas and Purchased Power shown above.

Wisconsin Electric’s installed capacity by fuel type for the years ended December 31, is shown below.

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Coal-Fired Generation

Coal Supply:     Wisconsin Electric diversifies the coal supply for its power plants by purchasing coal from mines in northern and central Appalachia as well as from various western mines. During 2005, 97.6% of Wisconsin Electric’s projected coal requirements of 10.5 million tons will be under contracts which are not tied to 2005 market pricing fluctuations. Wisconsin Electric does not anticipate any problem in procuring its remaining 2005 coal requirements through short-term or spot purchases and inventory adjustments. Our coal-fired generation consists of six operating plants with a dependable capability of approximately 3,334 megawatts.

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

As of the beginning of 2005, Wisconsin Electric had approximately a 77-day supply of coal in inventory at its coal-fired facilities.

Coal Deliveries:     Approximately 75% of Wisconsin Electric’s 2005 coal requirements are expected to be delivered by Wisconsin Electric-owned or leased unit trains. The unit trains will transport coal for the Oak Creek and Pleasant Prairie Power Plants from Wyoming mines. Coal from Pennsylvania and Colorado mines is also transported via rail to Lake Erie or Lake Michigan transfer docks and delivered to the Valley and Milwaukee County Power Plants. Montana and Wyoming coal for Presque Isle Power Plant is transported via rail to Superior, Wisconsin, placed in dock storage and reloaded into lake vessels for plant delivery. Central Appalachia and Colorado coal bound for Presque Isle Power Plant is shipped via rail to Lake Erie and Lake Michigan (Chicago) coal transfer docks, respectively, for lake vessel delivery to the plant.

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

Nuclear Generation

Point Beach Nuclear Plant:    Wisconsin Electric owns two 518-megawatt electric generating units at Point Beach Nuclear Plant (Point Beach) in Two Rivers, Wisconsin. The United States Nuclear Regulatory Commission (NRC) operating licenses for Point Beach expire in October 2010 for Unit 1 and in March 2013 for Unit 2. The Nuclear

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Management Company, LLC (NMC) and Wisconsin Electric filed an application with the NRC in February 2004 to renew the operating licenses for both of Wisconsin Electric’s nuclear reactors for an additional 20 years. Based upon the NRC’s published schedule, we expect the NRC to make a decision on the license extension application by January 2006. For additional information concerning Point Beach, see “Factors Affecting Results, Liquidity and Capital Resources” in Item 7 and “Note H – Nuclear Operations” in the Notes to Consolidated Financial Statements in Item 8.

Nuclear Management Company:    NMC, owned by our affiliate WEC Nuclear Corporation and the affiliates of four other unaffiliated investor-owned utilities in the region, operates Point Beach. NMC operates eight nuclear generating units at six sites in the states of Wisconsin, Minnesota, Michigan, and Iowa with a total combined generating capacity of approximately 4,600 megawatts as of December 31, 2004. Wisconsin Electric continues to own Point Beach and retains exclusive rights to the energy generated by the plant as well as financial responsibility for the safe operation, maintenance and decommissioning of Point Beach. For further information, see “Factors Affecting Results, Liquidity and Capital Resources” in Item 7.

Nuclear Fuel Supply:    Wisconsin Electric purchases uranium concentrates (Yellowcake) and contracts for its conversion, enrichment and fabrication. There have been numerous events in the nuclear fuel supply market that have affected the price of uranium concentrates, conversion service and enrichment services. The price of the fuel commodities has risen steadily since the fourth quarter of 2003 and we anticipate that the price will continue to rise due to current demand exceeding current supply. NMC is continually monitoring the nuclear fuel commodities market to assess current and future commodity pricing and adjusting purchasing strategies to address changes in the market conditions. Wisconsin Electric maintains title to the nuclear fuel until fabricated fuel assemblies are delivered to Point Beach; it is then sold to and leased back from the Wisconsin Electric Fuel Trust. For further information concerning this nuclear fuel lease, see “Note J - Long-Term Debt” in the Notes to Consolidated Financial Statements in Item 8.

Uranium Requirements:    Wisconsin Electric requires approximately 400,000 pounds of Yellowcake to refuel a generating unit at Point Beach. Point Beach has staggered fuel cycles that are expected to average approximately 18 months in duration. The supply of Yellowcake for these refuelings is currently provided through one long-term contract, which supplies 100% of the annual requirements through 2007, with an option to extend the current contract through 2009.

Conversion:    Wisconsin Electric, through NMC, has a long-term contract with a provider of uranium conversion services to supply 100% of the conversion requirements for the Point Beach reactors through 2005. Wisconsin Electric has the option to utilize an NMC fleet contract for conversion services to meet approximately 56% of its conversion requirements through 2006. We are currently pursuing additional contracts for conversion services for Point Beach to meet the remaining 2006 requirements and additional contracts for supply beyond 2006.

Enrichment:    Wisconsin Electric effectively has one long-term contract and another contract through NMC that provide for 100% of the required enrichment services for the Point Beach reactors through the year 2006 and approximately 38% of the enrichment services requirements through 2009.

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

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

Nuclear Decommissioning:    Wisconsin Electric provides for costs associated with the eventual decommissioning of Point Beach through the use of an external trust fund. Payments to this fund, together with investment results, brought the balance in the fund at December 31, 2004 to approximately $737.8 million. For additional information regarding decommissioning, see “Note H - Nuclear Operations” in the Notes to Consolidated Financial Statements in Item 8.

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

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Hydroelectric Generation

Wisconsin Electric:    Wisconsin Electric’s hydroelectric generating system consists of thirteen operating plants with a total installed capacity of approximately 89 megawatts and a dependable capability of approximately 57 megawatts. Of these thirteen plants, twelve are licensed by the FERC. The thirteenth plant, with an installed generating capacity of approximately 2 megawatts, does not require a license. Of the twelve licensed plants, eleven plants, representing a total of 85 megawatts of installed capacity, have long-term licenses from the FERC. A fourteenth non-operating plant, the Sturgeon project, was not relicensed and is in the process of being removed. Staged removal of the Sturgeon project has commenced and will be completed by 2006.

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

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

Natural Gas-Fired Generation

Our natural gas-fired generation consists of four operating plants with a dependable capability of approximately 888 megawatts. In addition, early in the third quarter of 2005, we expect to add an additional 545 megawatts of natural gas-fired generation with the first of two units at the Port Washington plant under our Power the Future plan. The second 545-megawatt unit at Port Washington is estimated to come on line in 2008.

We purchase natural gas for these plants on the spot market from gas marketers and producers and we arrange for transportation of the natural gas to our plants. We have an interruptible balancing and storage agreement that is intended to facilitate the variable usage pattern of the plants.

The PSCW has approved a program that allows us to hedge up to 75% of our estimated gas purchases for electric generation. This program is intended to minimize the volatility of natural gas prices to our customers. The costs of this program are included in our fuel and purchased power costs.

Oil-Fired Generation

Fuel oil is used for the combustion turbines at the Point Beach and Germantown Power Plants units 1-4. It is also used for boiler ignition and flame stabilization at the Presque Isle Power Plant, as backup for ignition at the Pleasant Prairie Power Plant and as a backup fuel for the natural gas-fired turbines discussed above. Our oil-fired generation has a dependable capability of approximately 275 megawatts. The natural gas facilities burn oil only if natural gas is not available due to constraints on the natural gas pipeline and/or at the local gas distribution company that delivers gas to the plants. Fuel oil requirements are purchased under partnering agreements with suppliers that assist Wisconsin Electric with inventory tracking and oil market price trends.

Purchase Power Commitments

We enter into short and long-term purchase power commitments to meet a portion of our anticipated electric energy supply needs. The following table identifies our purchase power commitments over the next five years:

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The majority of these purchase power commitments are tolling arrangements whereby we are responsible for the procurement, delivery and cost of natural gas fuel related to specific units identified in the contracts. The energy costs for the balance of the commitments are tied to the costs of natural gas.

Electric Transmission and Energy Markets

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

ATC is owned and governed by the utilities that contributed facilities or capital in accordance with 1999 Wisconsin Act 9. At December 31, 2004, we owned approximately 37.8% of ATC.

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

Wisconsin Electric has contracted to provide, at cost, services required by ATC and which ATC is not able to provide itself at this time. Services include transmission line and substation operation and maintenance, engineering, project, real estate, environmental, supply chain, control center, accounting and miscellaneous services. The annual cost of the services provided by Wisconsin Electric was approximately $21 million, $33 million, and $52 million during 2004, 2003, and 2002, respectively, and is expected to continue to decline in future years as ATC provides more of these services itself.

Midwest ISO:    In connection with its status as a FERC approved RTO, the Midwest ISO is in the process of developing and implementing a bid-based energy market. In March 2004, Midwest ISO filed a proposed Energy Markets Tariff that was approved by the FERC, subject to modification, in August 2004 and which will govern the operation of the market. The scheduled implementation date for the bid-based energy market is April 1, 2005.

In the Midwest ISO, base transmission costs are currently being paid by load serving entities (LSEs) located in the service territories of each Midwest ISO transmission owner in proportion to the load served by the LSE versus the total load of the service territory. This “license plate” rate design is scheduled to be replaced after a six-year phase-in of rates in Midwest ISO; but it also was the subject of a proceeding in which a new rate design governing service in the combined Midwest ISO and PJM Interconnection, L.L.C (PJM) service territories was to be developed. In November 2004, FERC issued an order allowing the existing Midwest ISO license plate rate design to continue until at least February 1, 2008.

Lost Revenue Charges:    The FERC permits transmission owning utilities that have not joined an RTO to propose a charge to recover revenues that would be lost as a result of RTO membership. These lost revenues result from FERC’s requirement that, within an RTO and for transmission between the systems operated by the Midwest ISO and PJM, entities that currently pay a transmission charge to move energy through or out of a neighboring

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transmission system will no longer pay this charge to the neighboring transmission system owner or operator upon the neighboring transmission system owner or operator joining an RTO.

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

Renewable Electric Energy

Our Power the Future plan includes a commitment to significantly increase the amount of renewable energy generation we utilize beyond that required by Wisconsin law. Our target is to provide 5% of our retail electric sales in Wisconsin from renewable energy resources by the year 2011. In addition, Wisconsin Electric has an “Energy For Tomorrow®” renewable energy program to provide our customers the opportunity to purchase energy from renewable resources.

Wisconsin’s public benefits legislation requires that for 2005, retail energy providers supply 1.2% of a 3 year average of their Wisconsin retail electric sales from renewable energy. The required minimum percentage increases to 2.2% by the year 2011. For more information about public benefits see “Regulation - Utility Energy Segment” below.

GAS UTILITY OPERATIONS

Our gas utility operations consist of Wisconsin Gas and the gas operations of Wisconsin Electric. Both companies are authorized to provide retail gas distribution service in designated territories in the state of Wisconsin, as established by indeterminate permits, certificates of public convenience and necessity, or boundary agreements with other utilities. The two companies also transport customer-owned gas. Wisconsin Gas, the largest natural gas distribution utility in Wisconsin, operates throughout the state including the City of Milwaukee. Wisconsin Electric’s gas utility operates in three distinct service areas: west and south of the City of Milwaukee, the Appleton area and areas within Iron and Vilas Counties, Wisconsin.

Gas Deliveries

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 “Consolidated Selected Utility Operating Data” in Item 6 for selected gas utility operating information by customer class during the period 2000 through 2004.

Wisconsin Gas:    In 2004, Wisconsin Gas delivered a total of approximately 1,233.0 million therms, including customer-owned transported gas, a 3.9% decrease compared with 2003. As of December 31, 2004, Wisconsin Gas was transporting gas for approximately 1,105 customers who purchased gas directly from other suppliers. Transported gas accounted for approximately 39% of the total volumes delivered by Wisconsin Gas during 2004, 38% during 2003 and 39% during 2002. Wisconsin Gas had approximately 577,000 customers at December 31, 2004, an increase of approximately 1.3% since December 31, 2003.

The maximum daily send-out of Wisconsin Gas during 2004 was 922,076 dekatherms on January 29, 2004. A dekatherm is equivalent to ten therms or one million British thermal units.

Wisconsin Electric:    Total gas therms delivered by Wisconsin Electric, including customer-owned transported gas, were approximately 835.1 million therms during 2004, a 6.0% decrease compared with 2003. At December 31, 2004, Wisconsin Electric was transporting gas for approximately 368 customers who purchased gas directly from other suppliers. Transported gas accounted for approximately 34% of the total volumes delivered by Wisconsin Electric during 2004, 35% during 2003 and 38% during 2002. Wisconsin Electric had approximately 437,800 gas customers at December 31, 2004, an increase of approximately 2.1% since December 31, 2003.

Wisconsin Electric’s maximum daily send-out during 2004 was 682,933 dekatherms on January 29, 2004.

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

Gas Deliveries Growth:    We currently forecast total therm deliveries of natural gas to grow at an annual rate of approximately 3.2% for the combined gas operations of Wisconsin Electric and Wisconsin Gas over the five-year period ending December 31, 2009. This forecast reflects a current year normalized sales level and assumes moderate growth in the economy of our gas utility service territories, normal weather, and incremental Power the Future demand.

Competition

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.

Gas Supply, Pipeline Capacity and Storage

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

Pipeline Capacity and Storage:    In addition to Guardian pipeline, in which we have a one-third ownership interest and which 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 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.

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

Term Gas Supply:    On a combined basis, Wisconsin Gas and the gas operations of Wisconsin Electric currently have contracts for firm supplies with terms in excess of 30 days with suppliers for gas acquired in the Joliet, Illinois market hub and in the three producing areas discussed above. The pricing of the term contracts is based upon first of the month indices. Combined with our storage capability, management believes that the volume of gas under contract is sufficient to meet our forecasted firm peak day demand.

Secondary Market Transactions:    Capacity release is a mechanism by which pipeline long-line and storage capacity and gas supplies under contract can be resold in the secondary market. Local distribution companies, like Wisconsin Gas and the gas operations of Wisconsin Electric, must contract for capacity and supply sufficient to meet the firm peak day demand of their customers. Peak or near peak demand days generally occur only a few times each year. Capacity release facilitates higher utilization of contracted capacity and supply during those times when the full contracted capacity and supply are not needed by the utility, helping to mitigate the fixed costs associated with maintaining peak levels of capacity and gas supply. Through pre-arranged agreements and day-to-day electronic bulletin board postings, interested parties can purchase this excess capacity and supply. The proceeds from these transactions are passed through to ratepayers, subject to the Wisconsin Electric and Wisconsin Gas gas cost incentive mechanisms pursuant to which the companies have an opportunity to share in the cost savings. See “Factors Affecting Results, Liquidity and Capital Resources - Utility Rates and Regulatory Matters” in Item 7 for information on the gas cost recovery mechanism. During 2004, we continued our active participation in the capacity release market.

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

Hedging Gas Supply Prices:    Wisconsin Gas and the gas operations of Wisconsin Electric have PSCW approval to hedge (i) up to 50% of planned flowing gas supply using NYMEX based natural gas options, (ii) up to 10% of planned flowing gas supply using NYMEX based natural gas future contracts and, (iii) up to 33% of planned storage withdrawals using NYMEX based natural gas options. Those approvals allow both companies to pass 100% of the hedging costs (premiums and brokerage fees) and proceeds (gains and losses) through their respective purchase gas adjustment mechanisms. Hedge targets (volumes) are provided annually to the PSCW as part of each company’s five-year gas supply plan filing.

To the extent that opportunities develop and the companies’ physical supply operating plans will support them, Wisconsin Gas and Wisconsin Electric 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 the companies’ gas cost recovery (incentive) mechanisms.

Guardian Pipeline:    We have a one-third interest in a joint venture, Guardian Pipeline, L.L.C. (Guardian). Two unaffiliated companies also have one-third interests. Guardian owns an interstate natural gas pipeline from the Joliet, Illinois market hub to southeastern Wisconsin that is designed to serve the growing demand for natural gas in Wisconsin and Northern Illinois. Guardian pipeline began commercial operation in early December 2002. Currently, Guardian has firm precedent agreements to transport 87% of its 750,000 dekatherms per day pipeline design capacity.

Neither Wisconsin Electric nor Wisconsin Gas has an ownership interest in Guardian. However, Wisconsin Gas has committed to purchase 650,000 dekatherms (approximately 87% of the pipeline’s total capacity) per day of capacity on the pipeline over a long-term contract that expires in December 2012.

OTHER UTILITY OPERATIONS

Steam Utility Operations:    Wisconsin Electric’s steam utility generates, distributes and sells steam supplied by its Valley and Milwaukee County Power Plants. Wisconsin Electric operates a district steam system in downtown Milwaukee and the near south side of Milwaukee. Steam is supplied to this system from Wisconsin Electric’s Valley Power Plant, a coal-fired cogeneration facility. Wisconsin Electric also operates the steam production and distribution facilities of the Milwaukee County Power Plant located on the Milwaukee County Grounds in Wauwatosa, Wisconsin.

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Annual sales of steam fluctuate from year to year based upon system growth and variations in weather conditions. During 2004, the steam utility had $22.0 million of operating revenues from the sale of 2,869 million pounds of steam compared with $22.5 million of operating revenues from the sale of 3,073 million pounds of steam during 2003. As of December 31, 2004 and 2003, steam was used by approximately 460 customers for processing, space heating, domestic hot water and humidification.

Water Utility Operations:    To leverage off of operational similarities with its natural gas business, Wisconsin Gas entered the water utility business in November 1998. As of December 31, 2004, the water utility served about 2,660 water customers in the suburban Milwaukee area compared with approximately 2,600 customers at December 31, 2003. Wisconsin Gas also provides contract services to local municipalities and businesses within its service territory for water system repair and maintenance. During 2004, the water utility had $1.9 million of operating revenues compared with $1.8 million of operating revenues during 2003.

UTILITY RATE MATTERS

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

NON-UTILITY ENERGY SEGMENT

Our non-utility energy segment is involved in a variety of businesses including the ownership and operation of independent electric generating facilities and investment in other energy-related entities and assets.

During 2000, we performed a comprehensive review of our existing portfolio of businesses and began implementing a strategy of divesting many of our non-utility energy segment businesses, especially those outside of the Midwest region. As we implement our Power the Future strategy, we expect to grow the non-utility energy segment within the state of Wisconsin through our subsidiary We Power.

Since 2000, we have sold our interest in SkyGen Energy Holdings, LLC, our interest in FieldTech, Inc., our interest in Blythe Energy, LLC, our interest in Wisvest-Connecticut LLC, a 500-megawatt natural gas power island, and our interests in Kaztex Energy Management, Inc. and Blackhawk Energy Services, LLC.

We Power

We Power, through wholly owned subsidiaries, plans to design, construct and finance 2,320 megawatts of new generating capacity in the state of Wisconsin proposed as part of our Power the Future plan. We expect that two unaffiliated entities together will own approximately 17% or 200 megawatts of capacity in two coal units to be constructed in Oak Creek, Wisconsin, and We Power will own the remaining 2,120 megawatts of generating capacity and lease this capacity to Wisconsin Electric. At December 31, 2004, We Power had $414.9 million of construction work in progress. For further information about our Power the Future strategy, see “Environmental Compliance” below as well as “Factors Affecting Results, Liquidity and Capital Resources - Power the Future “ in Item 7.

Wisvest Corporation

Wisvest was originally formed to develop, own and operate electric generating facilities and to invest in other energy-related entities. As a result of the change in corporate strategy to focus on our Power the Future strategy, Wisvest has discontinued its development activity. For the year ended December 31, 2004, Wisvest had $13.0 million of operating revenues compared with $11.7 million of operating revenues during 2003. We have divested the majority of Wisvest’s assets. As of December 31, 2004, Wisvest operations and investments included:

Calumet Energy Team, LLC:    Calumet Energy owns and operates a 308-megawatt natural gas-fired peaking power plant in Chicago, IL. As of December 31, 2004, Calumet Energy had total assets of $29.7 million. Since May 1, 2004, Calumet has operated under the control of PJM, an RTO that also operates bid based energy and capacity markets. Calumet has a ten-year capacity reservation agreement for 50 megawatts of plant capacity with Midwest

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Generation, LLC, supported by the City of Chicago. The remaining plant capacity is marketed as merchant power. The plant has experienced limited demand for production due to excess capacity in the region and soft electricity market prices. For additional information on Calumet Energy see “Results of Operations” in Item 7 and “Note F - Asset Valuation Charges” in the Notes to Consolidated Financial Statements in Item 8.

Other:    We own Wisvest Thermal Energy Services, which provides chilled water services to the Milwaukee Regional Medical Center. We have an interest in a cogeneration facility in the state of Maine, through an equity investment in Androscoggin Energy LLC. We wrote down our investment in Androscoggin to zero in 2003. Androscoggin filed for Chapter 11 bankruptcy protection in November 2004.

OTHER NON-UTILITY OPERATIONS

Minergy Corp.

Minergy is engaged in the development and marketing of proprietary technologies designed to convert high volume industrial and municipal wastes into renewable energy and value-added products. Minergy’s strategic focus is to license that technology and sell equipment to domestic and foreign operators or industrial/municipal users through its patented GlassPack process as a component of larger scale waste processing solutions. We believe this licensing strategy will allow Minergy to recognize the economic benefits of its technology with limited capital requirements. For the year ended December 31, 2004, Minergy had $19.8 million of consolidated operating revenues compared with $22.2 million of consolidated operating revenues during 2003. Minergy’s primary operations and investments include:

Minergy Neenah, LLC:    In 1998, Minergy Neenah, LLC opened a facility in Neenah, Wisconsin that recycles paper sludge from area paper mills using our patented Glass Aggregate technology into renewable energy and glass aggregate. The Glass Aggregate technology is a vitrification process that converts the organic fraction of a waste material into heat and also melts the inorganic fraction into an inert glass aggregate material. The plant also provides substantial environmental and economic benefits to the area by providing an alternative to landfilling paper sludge. For additional information on Minergy Neenah, LLC see “Factors Affecting Results, Liquidity and Capital Resources” in Item 7 and “Note F - Asset Valuation Charges” in the Notes to Consolidated Financial Statements in Item 8.

GlassPack, LLC:    Minergy has developed and patented our GlassPack technology, which is a smaller, less expensive and environmentally cleaner version of the Neenah facility. The GlassPack technology is suited for smaller wastewater treatment and industrial plants, along with river bed sediment. The first commercial GlassPack facility is being constructed in Zion, Illinois by the North Shore Sanitary District with commercial operation expected in late 2005. Minergy is also pursuing other domestic and foreign GlassPack installations through equipment sales or licensing agreements.

Wispark LLC

Wispark develops and invests in real estate. From September 2000 through December 31, 2004, Wispark has reduced its overall holdings from $373.1 million to $125.4 million. Wispark will maintain its remaining portfolio for investment and potential sale. During the twelve months ended December 31, 2004, Wispark had $17.8 million of consolidated operating revenues compared with $11.6 million during 2003.

Wispark has developed several business parks primarily in southeastern Wisconsin. Wispark’s flagship development, the 1,600-acre LakeView Corporate Park located near Kenosha, Wisconsin is home to 76 companies located in more than 9.1 million square feet of buildings that have been developed on property in excess of 920 acres. Many out-of-state firms have located in this park, creating a significant number of new jobs and growth in electricity and natural gas revenues.

In December 2004 Wispark entered into a joint venture with a major industrial development company whereby Wispark contributed land in its LakeView and GrandView Corporate parks valued at approximately $40.0 million to the joint venture in return for approximately $20.8 million in cash, future development fees and a 36% interest in the joint venture, which includes land contributed by our joint venture partner.

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Other Non-Utility Subsidiaries

Other non-utility subsidiaries primarily include:

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

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

REGULATION

Wisconsin Energy Corporation

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

Non-Utility Asset Cap:    In October 1999, the Wisconsin State Legislature passed amendments to the non-utility asset cap provisions of Wisconsin’s public utility holding company law as part of the 1999-2001 biennial state budget, 1999 Wisconsin Act 9. As a result, we remain subject to certain restrictions that have the potential of limiting diversification into non-utility activities. Under the amended public utility holding company law, the sum of certain assets of all non-utility affiliates in a holding company system may not exceed 25% of the assets of all public utility affiliates. However, among other items, the amended law exempts energy-related assets and assets, like Minergy’s, used for providing environmental engineering services and for processing waste materials, from being counted against the asset cap provided that they are employed in qualifying businesses. As a result of these exemptions, our non-utility assets are significantly below the non-utility asset cap as of December 31, 2004.

Under our Power the Future plan, the cost of constructing new generating facilities to be owned by We Power is expected to qualify as energy projects under the amended non-utility asset cap and therefore would be entirely exempt from the definition of “non-utility” property for this purpose. The remaining cost of our Power the Future plan represents investments in new and existing energy distribution system assets and upgrades to existing generation assets and has no impact on the amount of non-utility assets under the non-utility asset cap test.

Utility Energy Segment

Wisconsin Electric is an exempt holding company under Section 3(a)(1) of the Public Utility Holding Company Act of 1935, as amended, and Rule 2 thereunder and, accordingly, is exempt from that law’s provisions other than with respect to certain acquisitions of securities of a public utility. For information on how rates are set for our regulated entities see “Utility Rates and Regulatory Matters” in Item 7.

Wisconsin Electric and Wisconsin Gas are subject to the regulation of the PSCW as to retail electric, gas, steam and water rates in the state of Wisconsin, standards of service, issuance of securities, construction of certain new facilities, transactions with affiliates, billing practices and various other matters. Wisconsin Electric is subject to regulation of the PSCW as to certain levels of short-term debt obligations. Wisconsin Electric and Edison Sault are both subject to the regulation of the MPSC as to the various matters associated with retail electric service in the state of Michigan as noted above except as to issuance of securities, construction of certain new facilities, levels of short-term debt obligations and advance approval of transactions with affiliates. Wisconsin Electric’s hydroelectric facilities are regulated by the FERC. Wisconsin Electric and Edison Sault are subject to regulation of the FERC with respect to wholesale power service and accounting. Edison Sault is subject to regulation of the FERC with respect to the issuance of certain securities.

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The following table compares the source of our utility energy segment operating revenues by regulatory jurisdiction for each of the three years in the period ended December 31, 2004.

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

Operation and construction relating to Wisconsin Electric’s Point Beach Nuclear Plant are subject to regulation by the NRC. Total flow of water to Edison Sault’s hydroelectric generating plant is under the control of the International Joint Commission, created by the Boundary Water Treaty of 1909 between the United States and Great Britain, now represented by Canada. The operations of Wisconsin Electric, Wisconsin Gas and Edison Sault are also subject to regulations, where applicable, of the United States Environmental Protection Agency (EPA), the Wisconsin Department of Natural Resources, the Michigan Department of Natural Resources and the Michigan Department of Environmental Quality.

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

Public Benefits:    Public benefits legislation was included in 1999 Wisconsin Act 9. The law created new funding which is adjusted annually to be collected by all electric utilities and remitted to the Wisconsin Department of Administration (DOA). The law also required utilities to continue to collect the funds at existing levels for low-income, conservation and environmental research and development programs and to transfer the funds for these programs to the DOA. We implemented this change in October 2000. The utilities’ traditional role of providing these programs has shifted to the DOA, which administers the funds for a statewide public benefits program. As part of its order authorizing the construction of the two coal units under our Power the Future strategy, the PSCW required us to implement an energy efficiency program for the years 2005-2008 in addition to the DOA administered programs.

This law also requires that for 2005, retail energy providers supply 1.2% of a 3 year average of their Wisconsin retail electric sales from renewable energy. The required minimum percentage increases to 2.2% by the year 2011.

Non-Utility Energy Segment

We Power is a holding company subsidiary of Wisconsin Energy and was formed to design, construct, own, finance and lease the new generating capacity in our Power the Future strategy. We Power owns the interests in the companies constructing this new generating capacity (collectively, the We Power project companies). When complete, these facilities will be leased on a long-term basis to Wisconsin Electric. We Power has received determinations from the FERC that upon the transfer of the facilities by lease to Wisconsin Electric, the We Power project companies will not be deemed public utilities under the Federal Power Act and thus will not be subject to

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FERC’s jurisdiction. For a short period prior to the transfer of each generation unit to Wisconsin Electric, We Power will be engaged in the sale of test power, a FERC jurisdictional transaction. Currently, the We Power project companies have received approval from the FERC for the sale of test power to Wisconsin Electric from Port Washington Unit 1, which sales are expected to commence in March or April 2005, and for the transfer of any FERC jurisdictional facilities at Port Washington to Wisconsin Electric and/or ATC. Under Wisconsin law, We Power is not a “public utility”. Environmental permits necessary for operating the facilities are the responsibility of the operating entity, Wisconsin Electric.

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

ENVIRONMENTAL COMPLIANCE

Environmental Expenditures

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

Utility Energy Segment:    Compliance with federal, state and local environmental protection requirements resulted in capital expenditures by Wisconsin Electric of approximately $78 million in 2004 compared with $15 million in 2003. Expenditures incurred during 2004 primarily included costs associated with the installation of pollution abatement facilities at Wisconsin Electric’s power plants. These expenditures at Wisconsin Electric are expected to approximate $147 million during 2005, reflecting nitrogen oxide (NO_x), sulfer dioxide (SO₂) and other pollution control equipment needed to comply with various rules promulgated by the EPA.

Operation, maintenance and depreciation expenses for Wisconsin Electric’s fly ash removal equipment and other environmental protection systems are estimated to have been approximately $52 million during 2004 and $51 million during 2003.

Solid Waste Landfills

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

Coal-Ash Landfills

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

Lakeside Property:    During 2001, Wisconsin Electric completed an investigation of property that was used primarily for coal storage, fuel oil transport and coal ash disposal in support of the former Lakeside Power Plant in St. Francis, Wisconsin. Excavation and utilization of residual coal at the site, slope stabilization and cover construction have been completed. Currently, discussion is taking place with neighbors and other interested parties to determine the ultimate use of the remediated property and some other adjacent land also owned by Wisconsin Electric. Future costs for remediation of this site are estimated to be approximately $1.0 million.

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Oak Creek North Landfill:    Groundwater impairments at this landfill, located in the City of Oak Creek, Wisconsin, prompted Wisconsin Electric to investigate, during 1998, the condition of the existing cover and other conditions at the site. Surface water drainage improvements were implemented at this site during 1999 and 2000, which are expected to eliminate ash contact with water and remove unwanted ponding of water near monitoring systems. Future costs for remediation are estimated to be approximately $1.5 million and involve reconfiguration of the site and construction of a new cap, which will be accomplished as a part of site upgrades needed to facilitate construction of the new power plants.

Manufactured Gas Plant Sites

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

Air Quality

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

The 1-hour ozone nonattainment rules implemented by the state of Wisconsin and ozone transport rules implemented by the state of Michigan, both under authority of the Federal Clean Air Act, will limit NO_x emissions in phases ending in 2007.

In 2004, the EPA began implementing the National Ambient Air Quality Standards for 8-hour ozone and fine particulate matter (PM_2.5 ).

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

Our Power the Future strategy provides a plan to meet our growing demand for electricity while using environmentally friendly equipment. We plan to build two coal units (Elm Road) at the site of Wisconsin Electric’s existing Oak Creek Power Plant. The Elm Road units will use a supercritical pulverized coal design and state-of-the-art emission controls. Two natural gas-fired units are being constructed at Wisconsin Electric’s existing Port Washington Power Plant site, where older, less efficient coal-fired units installed before 1950 were retired in 2003 and 2004. Implementation of our Power the Future plan also provides for upgrades to existing power plants and modernization to increase efficiency and reduce emissions. As a result of the use of the latest emission reduction technologies on the new units, and the installation of equipment to reduce emissions on certain of our existing coal-fired units, the plan is expected to result in a significant reduction in SO₂, NOx and mercury emissions. In addition to the positive environmental attributes of the generation technologies, the plan involves an increased commitment to conservation and renewable fuels, as well as a commitment to reduce greenhouse gases. For further information about our Power the Future strategy, see “Non-Utility Energy Segment” above as well as “Factors Affecting Results, Liquidity and Capital Resources - Power the Future Strategy” in Item 7.

Clean Water Act

Section 316(b) of the Clean Water Act requires that the location, design, construction and capacity of cooling water intake structures reflect the best technology available (BTA) for minimizing adverse environmental impact. This law dates back to 1972; however, prior to September 2004, there have not been federal rules that define precisely how states and EPA regions would determine that an existing intake meets BTA requirements. This rule establishes, for the first time, national performance standards and compliance alternatives for existing facilities that are designed to minimize the potential adverse environmental impacts to aquatic organisms associated with water withdrawals from cooling water intakes. Costs associated with implementation of the rule for Wisconsin Electric’s Oak Creek

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Power Plant, We Power’s Elm Road Generating Station and Port Washington Generating Station have been included in project costs. Studies to determine costs, if any, that may be associated with the existing facilities are expected to take place over the next three years.

OTHER

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

Employees:    At December 31, 2004, we had the following number of employees:

The employees represented under labor agreements were with the following bargaining units as of December 31, 2004.

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During 2004, labor and management successfully renegotiated six contracts covering 3,140 employees.

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We own our principal properties outright, except that the major portion of electric utility distribution lines, steam utility distribution mains and gas utility distribution mains and services are located, for the most part, on or in streets and highways and on land owned by others.

UTILITY ENERGY SEGMENT

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

Wisconsin Electric:    As of December 31, 2004, Wisconsin Electric owns the following generating stations with dependable capabilities during 2004 as indicated.

As of December 31, 2004, Wisconsin Electric operated approximately 21,900 pole-miles of overhead distribution lines and 20,400 miles of underground distribution cable, as well as approximately 352 distribution substations and 267,700 line transformers.

As of December 31, 2004, Wisconsin Electric’s gas distribution system included approximately 8,983 miles of mains connected at 22 gate stations to the pipeline transmission systems of ANR Pipeline Company, Guardian, Natural Gas Pipeline Company of America, Northern Natural Pipeline Company and Great Lakes Transmission Company. Wisconsin Electric has a liquefied natural gas storage plant which converts and stores in liquefied form natural gas received during periods of low consumption. The liquefied natural gas storage plant has a send-out capability of 70,000 dekatherms per day. Wisconsin Electric also has a propane air system for peaking purposes. This propane air system will provide approximately 2,000 dekatherms per day of supply to the system. Where distribution lines and services and gas distribution mains and services occupy private property, Wisconsin Electric has obtained consents, permits or easements for these installations from owners of those properties, generally without an examination of ownership records.

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As of December 31, 2004, the combined steam systems supplied by the Valley and Milwaukee County Power Plants consisted of approximately 43 miles of both high pressure and low pressure steam piping, 9 miles of walkable tunnels and other pressure regulating equipment.

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

Wisconsin Gas:    Wisconsin Gas owns a distribution system which, as of December 31, 2004, included approximately 10,400 miles of distribution and transmission mains connected at gate stations to the pipeline transmission systems of ANR Pipeline Company, Guardian, Northern Natural Pipeline Company, Viking Gas Transmission and Michigan Consolidated Gas Company. Wisconsin Gas has a liquefied natural gas storage plant which converts and stores in liquefied form natural gas received during periods of low consumption. The liquefied natural gas storage plant has a send-out capability of 3,600 dekatherms per day. Wisconsin Gas also has a propane air system for peaking purposes. This propane air system will provide approximately 2,400 dekatherms per day of supply to the system. Wisconsin Gas’ distribution system consists almost entirely of plastic and coated steel pipe. Wisconsin Gas owns office buildings in certain communities in which it serves, gas regulating and metering stations, peaking facilities and its major service centers, including garage and warehouse facilities.

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

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

Edison Sault maintains approximately 859 miles of primary distribution lines and renders service to its customers through approximately 9,755 line transformers.

NON-UTILITY ENERGY SEGMENT

We Power:    We Power commenced construction of the first 545-megawatt natural gas unit of the Port Washington Generating Station in July 2003, and commenced site preparation for construction of the second 545-megawatt natural gas unit in May 2004. We Power also received authorization from the PSCW to build two 615-megawatt coal plants at our Oak Creek site. This authorization has been vacated by the Dane County Circuit Court. For information about Power the Future, see “Factors Affecting Results, Liquidity and Capital Resources - Power the Future” in Item 7.

Wisvest Corporation:    Wisvest owns a chilled water production and distribution facility located in Milwaukee County, Wisconsin. Calumet Energy Team, LLC owns a 308-megawatt peaking power plant in Chicago, Illinois.

OTHER

Wispark LLC:    As of December 31, 2004, Wispark properties, owned in full or through minority interests in joint ventures, included the following commercial and industrial parks in the state of Wisconsin: LakeView Corporate Park located near Kenosha, Wisconsin; Business Park of Kenosha and PrairieWood Corporate Park in Kenosha County; GrandView Business Park in Racine County; and Mitchell International Business Park in Milwaukee County. Wispark developed Gaslight Pointe, a residential and commercial complex located in Racine. Wispark owns the Radisson Hotel and Conference Center near Kenosha, as well as other properties located in Wisconsin Electric’s service territories that are held for future development or sale. Wispark also owns property in Northwest Business Park in Elgin, Illinois and is a minority owner in an industrial park located in Gurnee, Illinois.

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

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Wisconsin Energy Capital Corporation:    WECC owns a commercial office building in Milwaukee, Wisconsin. WECC, in combination with Wispark, owns three low income housing developments located in Milwaukee, Kenosha and Neenah, Wisconsin.

In addition to those legal proceedings discussed below, we are currently, and from time to time, subject to claims and suits arising in the ordinary course of business. Although the results of these legal proceedings cannot be predicted with certainty, management believes, after consultation with legal counsel, that the ultimate resolution of these proceedings will not have a material adverse effect on our financial statements.

ENVIRONMENTAL MATTERS

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

EPA Information Requests:    Wisconsin Electric and Wisconsin Gas responded to an EPA request for information pursuant to Comprehensive Environmental Response, Compensation and Liability Act Section 104(e) for the Solvay Coke and Gas Site located in Milwaukee, Wisconsin. All potentially responsive records and corporate legal files have been reviewed and responsive information was provided in October 2004. A predecessor company of Wisconsin Electric owned a parcel of property that is within the property boundaries of the site. A predecessor company of Wisconsin Gas had a customer and corporate relationship with the entity that owned and operated the site, Milwaukee Solvay Coke Company. Although neither company has accepted responsibility for costs of any sort related to the property, remediation cost estimates and reserves continue to be included in the estimated manufactured gas plant values reported in “Note S - Commitments and Contingencies” in the Notes to Consolidated Financial Statements in Item 8.

See “Environmental Compliance” in Item 1 and “Environmental Matters,” “Manufactured Gas Plant Sites,” “Ash Landfill Sites” and “EPA Information Requests” in Note S- “Commitments and Contingencies” in the Notes to Consolidated Financial Statements, which are incorporated by reference herein, for a discussion of matters related to certain solid waste and coal-ash landfills, manufactured gas plant sites and air quality.

UTILITY RATE MATTERS

See “Factors Affecting Results, Liquidity and Capital Resources - Utility Rates and Regulatory Matters” and “Power the Future” in Item 7 for information concerning rate matters in the jurisdictions where Wisconsin Electric, Wisconsin Gas and Edison Sault do business.

OTHER MATTERS

Used Nuclear Fuel Storage and Removal:    See “Factors Affecting Results, Liquidity and Capital Resources – Nuclear Operations” in Item 7 for information concerning the United States Department of Energy’s breach of a contract with Wisconsin Electric that required the Department of Energy to begin permanently removing used nuclear fuel from Point Beach Nuclear Plant by January 31, 1998.

Stray Voltage:    In recent years, several actions by dairy farmers have been commenced or claims made against Wisconsin Electric for loss of milk production and other damages to livestock allegedly caused by stray voltage resulting from the operation of its electrical system.

On June 25, 2003, the Wisconsin Supreme Court upheld a Court of Appeals decision that affirmed a jury’s verdict against Wisconsin Electric, awarding $1.2 million to the plaintiffs in a stray voltage lawsuit. The Wisconsin

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Supreme Court rejected the argument that if a utility company’s measurement of stray voltage is below the PSCW “level of concern,” such company cannot be found negligent in stray voltage cases. The Supreme Court decision held that PSCW regulations regarding stray voltage were only minimum standards to be considered by a jury in stray voltage litigation. However, the Supreme Court remanded back to the trial court its requirement imposed on Wisconsin Electric to replace a cable with an ungrounded distribution line. In February 2005, the parties reached an agreement in principle to settle all remaining issues in the case.

On February 26, 2004, a Wisconsin jury awarded $850,000 to a dairy farmer who alleged that Wisconsin Electric’s distribution system caused damages to his livestock. Wisconsin Electric has filed an appeal in this decision. The claim made against Wisconsin Electric in this case is not expected to have a material adverse effect on our financial statements. One other stray voltage case is pending against Wisconsin Electric and is currently scheduled for trial in the summer of 2005. For additional information, see “Factors Affecting Results, Liquidity and Capital Resources - Legal Matters” in Item 7.

Electromagnetic Fields:    Claims have been made or threatened against electric utilities across the country for bodily injury, disease or other damages allegedly caused or aggravated by exposure to electromagnetic fields associated with electric transmission and distribution lines. Results of scientific studies conducted to date have not established the existence of a causal connection between electromagnetic fields and any adverse health affects. Wisconsin Electric and Edison Sault believe that their facilities are constructed and operated in accordance with applicable legal requirements and standards. Currently, there are no cases pending or threatened against Wisconsin Electric or Edison Sault with respect to damage caused by electromagnetic fields.

For information regarding additional legal matters, see “Factors Affecting Results, Liquidity and Capital Resources - Legal Matters” in Item 7.

No matters were submitted to a vote of our security holders during the fourth quarter of 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, ages at December 31, 2004 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. Reference to Wisconsin Gas LLC includes the time spent with its predecessor, Wisconsin Gas Company.

Gale E. Klappa.  Age 54.

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EXECUTIVE OFFICERS OF THE REGISTRANT – (Cont’d)

Charles R. Cole.  Age 58.

Stephen P. Dickson.  Age 44.

Frederick D. Kuester.  Age 54.

Allen L. Leverett.  Age 38.

Kristine A. Rappé.  Age 48.

Larry Salustro.  Age 57.

Certain executive officers also hold offices in our non-utility subsidiaries.

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PART II

NUMBER OF COMMON STOCKHOLDERS

As of December 31, 2004, based upon the number of Wisconsin Energy Corporation stockholder accounts (including accounts in our dividend reinvestment and stock purchase plan), we had 58,168 registered stockholders.

COMMON STOCK LISTING AND TRADING

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

DIVIDENDS AND COMMON STOCK PRICES

Common Stock Dividends of Wisconsin Energy:    Cash dividends on our common stock, as declared by the Board of Directors, are normally paid on or about the first day of March, June, September and December of each year. We review our dividend policy on a regular basis. Subject to any regulatory restrictions or other limitations on the payment of dividends, future dividends will be at the discretion of the Board of Directors and will depend upon, among other factors, earnings, financial condition and other requirements. For information regarding restrictions on the ability of our subsidiaries to pay us dividends see “Note I - Common Equity” in the Notes to Consolidated Financial Statements in Item 8.

On January 20, 2005, our Board of Directors announced that it increased our common stock quarterly dividend rate by 4.8%, to $0.22 per share. With the increase, the new annual dividend rate will be $0.88 per share. The Board has established a goal of increasing the annual dividend at a rate of approximately half of the expected rate of growth in earnings, subject to the factors referred to above.

Range of Wisconsin Energy Common Stock Prices and Dividends:

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ISSUER PURCHASES OF EQUITY SECURITIES

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WISCONSIN ENERGY CORPORATION

CONSOLIDATED SELECTED FINANCIAL AND STATISTICAL DATA

CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

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WISCONSIN ENERGY CORPORATION

CONSOLIDATED SELECTED UTILITY OPERATING DATA