WISCONSIN ELECTRIC POWER CO - Quarter Report: 2008 June (Form 10-Q)

Certain statements contained in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 these forward-looking statements. Forward-looking statements include, among other things, statements concerning management's expectations and projections regarding earnings, completion of construction projects, regulatory matters, fuel costs, sources of electric energy supply, coal and gas deliveries, remediation costs, environmental and other capital expenditures, liquidity and capital resources and other matters. In some cases, 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," "guidance," "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. In addition to the assumptions and other factors referred to specifically in connection with these 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; availability of electric generating facilities; unscheduled generation outages, or unplanned maintenance or repairs; unanticipated events causing scheduled generation outages to last longer than expected; unanticipated changes in fossil fuel, purchased power, coal supply, gas supply or water supply costs or availability due to higher demand, shortages, transportation problems or other developments; nonperformance by electric energy or natural gas suppliers under existing power purchase or gas supply contracts; environmental incidents; electric transmission or gas pipeline system constraints; unanticipated organizational structure or key personnel changes; collective bargaining agreements with union employees or work stoppages; or inflation rates.

• Increased competition in our electric and gas markets and continued industry consolidation.

• Timing, resolution and impact of pending and future rate cases and negotiations, including recovery for new investments as part of Wisconsin Energy's PTF strategy, environmental compliance, transmission service, fuel costs and costs associated with the implementation of the MISO Energy Markets.

• Regulatory factors such as changes in rate-setting policies or procedures; changes in regulatory accounting policies and practices; industry restructuring initiatives; transmission or distribution system operation and/or administration initiatives; required changes in facilities or operations to reduce the risks or impacts of potential terrorist activities; required approvals for new construction; and the siting approval process for new generation and transmission facilities and new pipeline construction.

• Factors affecting the economic climate in our service territories such as customer growth; customer business conditions, including demand for their products and services; and changes in market demand and demographic patterns.

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• Factors which impede or delay execution of Wisconsin Energy's PTF strategy, including receipt of necessary state and federal regulatory approvals and permits; timely and successful resolution of legal challenges, including current challenges to the WPDES permit for the Oak Creek expansion; opposition to siting of new generating facilities; the adverse interpretation or enforcement of permit conditions by the permitting agencies; construction delays; and obtaining the investment capital from outside sources necessary to implement the strategy.

• The impact of recent and future federal, state and local legislative and regulatory changes, including electric and gas industry restructuring initiatives; implementation of the Energy Policy Act; changes in allocation of energy assistance, including state public benefits funds; changes in environmental, tax and other laws and regulations to which we are subject; and changes in the application of existing laws and regulations.

• The cost and other effects of legal and administrative proceedings, settlements, investigations, 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, us or our subsidiary; or our credit ratings.

• The investment performance of our pension and other post-retirement benefit plans.

• The effect of accounting pronouncements issued periodically by standard setting bodies.

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

• Changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including participants in the energy trading markets and fuel suppliers and transporters.

• Other business or investment considerations that may be disclosed from time to time in our SEC filings or in other publicly disseminated written documents, including the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2007.

Wisconsin Electric Power Company expressly disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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INTRODUCTION

Wisconsin Electric Power Company, a wholly owned subsidiary of Wisconsin Energy, was incorporated in the state of Wisconsin in 1896. We maintain our principal executive offices in Milwaukee, Wisconsin. Unless qualified by their context when used in this document, the terms the Company, our, us or we refer to Wisconsin Electric and its subsidiary.

We conduct our operations primarily in three operating segments: an electric utility segment, a natural gas utility segment and a steam utility segment. We serve approximately 1,111,000 electric customers in Wisconsin and the Upper Peninsula of Michigan, approximately 458,000 gas customers in Wisconsin and approximately 470 steam customers in metropolitan Milwaukee, Wisconsin. For further financial information about our business segments, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 9 -- Segment Information in the Notes to Consolidated Condensed Financial Statements.

Wisconsin Energy is also the parent company of Wisconsin Gas, a natural gas distribution utility, which serves customers throughout Wisconsin; Edison Sault, an electric utility which serves customers in the Upper Peninsula of Michigan; and We Power, an unregulated company that was formed in 2001 to design, construct, own and lease to us the new generating capacity included in Wisconsin Energy's PTF strategy, which is described further in this report and in our 2007 Annual Report on Form 10-K. We have combined common functions with Wisconsin Gas and operate under the trade name of "We Energies."

Other:   Bostco is our non-utility subsidiary that develops and invests in real estate. As of June 30, 2008, Bostco had $37.5 million of assets.

We have prepared the unaudited interim financial statements presented in this Form 10-Q pursuant to the rules and regulations of the SEC. We have condensed or omitted some information and note disclosures normally included in financial statements prepared in accordance with GAAP pursuant to these rules and regulations. This Form 10-Q, including the financial statements contained herein, should be read in conjunction with our 2007 Annual Report on Form 10-K, including the financial statements and notes therein.

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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WISCONSIN ELECTRIC POWER COMPANY
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
	Three Months Ended June 30				Six Months Ended June 30
	2008		2007		2008		2007
	(Millions of Dollars)
Operating Revenues	$             782.0		$             758.2		$          1,767.9		$          1,673.7
Operating Expenses
Fuel and purchased power	298.6		231.1		636.9		459.7
Cost of gas sold	80.2		67.0		317.3		266.9
Other operation and maintenance	315.6		282.9		658.0		557.3
Depreciation, decommissioning
and amortization	63.4		66.8		125.2		136.7
Property and revenue taxes	24.4		22.4		48.6		45.5
Total Operating Expenses	782.2		670.2		1,786.0		1,466.1
Amortization of Gain	87.0		-		246.0		-
Operating Income	86.8		88.0		227.9		207.6
Equity in Earnings of Transmission Affiliate	10.7		9.3		20.8		18.7
Other Income, net	4.7		17.5		13.4		27.6
Interest Expense, net	19.4		23.2		42.2		46.9
Income Before Income Taxes	82.8		91.6		219.9		207.0
Income Taxes	30.6		35.7		83.8		80.9
Net Income	52.2		55.9		136.1		126.1
Preferred Stock Dividend Requirement	0.3		0.3		0.6		0.6
Earnings Available for Common Stockholder	$               51.9		$               55.6		$             135.5		$             125.5
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these financial statements.

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WISCONSIN ELECTRIC POWER COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
			(Unaudited)
			June 30, 2008		December 31, 2007
			(Millions of Dollars)
Assets
Property, Plant and Equipment
	In service		$               7,443.8		$               7,052.8
	Accumulated depreciation		(2,659.7)		(2,577.4)
			4,784.1		4,475.4
	Construction work in progress		78.8		302.1
	Leased facilities, net		865.4		547.3
		Net Property, Plant and Equipment	5,728.3		5,324.8
Investments
	Restricted cash		256.9		323.5
	Equity investment in transmission affiliate		222.7		209.9
	Other		0.4		0.4
		Total Investments	480.0		533.8
Current Assets
	Cash and cash equivalents		15.1		22.0
	Restricted cash		320.6		408.1
	Accounts receivable		276.6		264.8
	Accrued revenues		157.2		213.4
	Materials, supplies and inventories		243.7		285.6
	Prepayments		99.9		105.3
	Regulatory assets		69.9		153.0
	Other		92.1		81.1
		Total Current Assets	1,275.1		1,533.3
Deferred Charges and Other Assets
	Regulatory assets		738.1		787.3
	Other		140.8		133.6
		Total Deferred Charges and Other Assets	878.9		920.9
Total Assets			$               8,362.3		$               8,312.8
Capitalization and Liabilities
Capitalization
	Common equity		$               2,689.8		$               2,656.2
	Preferred stock		30.4		30.4
	Long-term debt		1,192.0		1,338.1
	Capital lease obligations		972.9		646.6
		Total Capitalization	4,885.1		4,671.3
Current Liabilities
	Long-term debt and capital lease obligations due currently		8.2		5.7
	Short-term debt		403.9		354.3
	Accounts payable		317.5		371.0
	Regulatory liabilities		441.5		560.8
	Other		170.6		186.4
		Total Current Liabilities	1,341.7		1,478.2
Deferred Credits and Other Liabilities
	Regulatory liabilities		943.1		1,011.0
	Deferred income taxes - long-term		563.6		468.5
	Pension and other benefit obligations		358.9		395.4
	Other long-term liabilities		269.9		288.4
		Total Deferred Credits and Other Liabilities	2,135.5		2,163.3
Total Capitalization and Liabilities			$               8,362.3		$               8,312.8
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of
	these financial statements.

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WISCONSIN ELECTRIC POWER COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended June 30
	2008		2007
	(Millions of Dollars)
Operating Activities
Net income	$               136.1		$               126.1
Reconciliation to cash
Depreciation, decommissioning and amortization	132.0		141.5
Equity in earnings of transmission affiliate	(20.8)		(18.7)
Distributions from transmission affiliate	16.2		13.9
Deferred income taxes and investment tax credits, net	113.7		(28.6)
Change in - Accounts receivable and accrued revenues	44.4		73.8
Inventories	41.9		38.7
Other current assets	(20.7)		2.3
Accounts payable	14.4		(18.6)
Accrued income taxes, net	(31.3)		(17.8)
Deferred costs, net	56.6		(38.9)
Pension plan contribution	(47.7)		-
Other current liabilities	15.8		(11.1)
Other	(130.0)		36.0
Cash Provided by Operating Activities	320.6		298.6
Investing Activities
Capital expenditures	(262.2)		(194.7)
Proceeds from asset sales, net	4.0		7.8
Change in restricted cash	154.1		-
Investment in transmission affiliate	(8.2)		-
Proceeds from investments within nuclear decommissioning trust	-		213.4
Purchases of investments within nuclear decommissioning trust	-		(213.4)
Other	(9.5)		(14.2)
Cash Used in Investing Activities	(121.8)		(201.1)
Financing Activities
Dividends paid on common stock	(108.5)		(89.8)
Dividends paid on preferred stock	(0.6)		(0.6)
Issuance of long-term debt	-		23.4
Retirement and repurchase of long-term debt	(147.0)		(14.1)
Change in short-term debt	49.6		(29.8)
Other	0.8		5.3
Cash Used in Financing Activities	(205.7)		(105.6)
Change in Cash and Cash Equivalents	(6.9)		(8.1)
Cash and Cash Equivalents at Beginning of Period	22.0		18.2
Cash and Cash Equivalents at End of Period	$                 15.1		$                 10.1
Supplemental Information - Cash Paid For
Interest (net of amount capitalized)	$                 40.1		$                 47.4
Income taxes (net of refunds)	$                   0.5		$               112.5
The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of
these financial statements.