Richard A. Abdoo
Chairman, President & Chief Executive Officer

Dear Wisconsin Energy Shareholder:

We finished 1999 and a decade of industry turbulence with strong performance and significant accomplishments in our regulated utility businesses. It was an exciting year featuring a major acquisition, asset cap relief legislation, the development of the nation's first independent transmission company, and the formation of a nuclear management company that will oversee nuclear plant operations for several companies in the Midwest. It was also an exasperating year in terms of our market valuation. Despite the fact that our earnings improved, our stock, like most other utility industry stocks, fell out of favor on Wall Street. But overall, it was an encouraging year. We met record demand, were ready for Y2K and entered the new millennium excited about our future.

WExpand Our Base

In June 28, 1999 we announced our intention to purchase WICOR, Inc., a Milwaukee-based, diversified holding company with $1.1 billion in assets in utility and non-utility energy and manufacturing subsidiaries. Our combined company will have the size and scope necessary to be a regional leader in the emerging and increasingly competitive energy market.

As I write this letter, this strategic combination is nearly complete. The Public Service Commission of Wisconsin (PSCW) has approved the merger of the two holding companies and the Federal Trade Commission has closed its review. We expect to finalize this acquisition by the end of April 2000.

WEvaluate Our Performance

Earnings for 1999 were $1.79 per share compared to $1.65 per share in 1998, representing an 8% increase. Consolidated net income was 11% higher than 1998, rising from $188 million to $209 million.

Excluding the impact of a one-time charge of 9 cents per share related to the settlement of litigation, earnings from continuing operations were $220 million or $1.88 per share, representing a 17% growth in earnings or a 14% increase on a per share basis over 1998. Most of the 1999 gains can be attributed to strong performance by Wisconsin Electric, our primary subsidiary.

Utility Results: Wisconsin Electric's success was largely due to a 3.9% increase in electric energy sales (in megawatt-hours). Revenues increased by $47 million (2.9%), while gross margin on electric operating revenues grew by $52 million (4.4%) when compared to 1998.

We met record demands in 1999, with Wisconsin Electric's electric energy sales to all classes of customers totaling approximately 30.6 million megawatt-hours. Wisconsin Electric's total number of electric customers grew 1.7% over 1998 and topped the one-million mark for the first time.

Lower fuel and purchased power costs contributed to the increase in gross margin, which was accomplished by substituting lower cost generation (especially from the Point Beach Nuclear Plant) for higher cost generation and power purchases.

Wisconsin Electric's gas operations also delivered favorable results in 1999. Total retail gas sales were up 9.3% over last year driven by a 13.6% increase in sales to residential customers and a 7.3% increase to commercial/industrial customers. Gross margin on gas utility operating revenues grew by $12 million (10.3%) over 1998. Total therm deliveries of natural gas grew 2.3% over 1998 due to an increase in both the number of customers and average usage by customer.

Non-Utility Results: The two fossil-fueled power plants in Connecticut that we acquired in April 1999 generated $101 million in operating revenues through the sale of 2.3 million megawatt-hours of electricity in the New England region. Other non-utility operations generated an additional $121 million in operating revenues, including an incremental $49 million in increased energy marketing, trading and service activities. Total non-utility pretax operating income increased from $3 million in 1998 to $20 million in 1999.

WEmbrace Change

In the energy industry of the late 1990s, success can also be measured by embracing change and bringing new ideas to the marketplace. We had great success in both of these areas throughout 1999.

Asset Cap Legislation: Last year we reported on our efforts to remove the cap on the amount of our non-utility investments imposed by the 1985 Wisconsin Utility Holding Company Act. The passage of the Wisconsin budget provisions and the Reliability 2000 legislation, signed into law in October 1999, relaxed restrictions on non-utility investments. I thank each of you who helped bring about this significant change. Your letters to and contacts with state legislators and officials made a difference in passing one of the most important pieces of energy-related legislation in Wisconsin during the past 10 years.

Transmission Company Formation: To receive this asset cap relief the state budget legislation required that affected utilities contribute their transmission assets to a newly formed transmission company in exchange for an ownership interest in this new company and a share of its earnings. This for-profit company will plan, construct, operate, maintain and expand transmission facilities. Its sole business will be to provide safe and reliable transmission service to all customers in a fair and equitable manner. This initiative has been hailed as a first of its kind in the United States. Wisconsin Electric agreed to join the company, now called the American Transmission Company, LLC (ATC). Jose Delgado, our vice president of electric system operations, was chosen to be the chief executive of the new company. ATC will operate under the umbrella of the Midwest Independent System Operator (MISO).

Nuclear Management Company Launch: The nuclear leadership effort that we spearheaded in 1998 became a reality in 1999 with the formation of the Nuclear Management Company, LLC (NMC). Mike Sellman, our senior vice president and chief nuclear officer, was named president of this new company which will operate seven nuclear generating units at five sites in the states of Wisconsin, Minnesota and Iowa. With the collective expertise of the four participating utilities, and their affiliates, the NMC will utilize industry best practices to provide safe and efficient nuclear energy for this region. Each utility will continue to own its respective nuclear units, maintain exclusive rights to the energy generated, and retain financial responsibility for safe operation, maintenance and decommissioning. Assuming approval by all required regulatory authorities, including the Nuclear Regulatory Commission and the PSCW, we expect the NMC to assume operating responsibility for our Point Beach Nuclear Power Plant with the transfer of operating authority under the operating licenses in mid-2000.

Renewable Energy Projects: We are also dedicated to developing a variety of additional renewable energy sources.

With the completion of the unique and historic Wilderness Shores Settlement Agreement that provides mutual benefits to Wisconsin Electric, state and federal natural resource agencies, area communities and individuals who use the land, rivers and reservoirs for recreational enjoyment, we have now filed applications to renew licenses for eight hydroelectric projects in Michigan's Upper Peninsula and northeastern Wisconsin. Federal Energy Regulatory Commission approval of these license renewals will eliminate uncertainty about the ability to continue operating these eight dams in the future.

Last year we added more "green power" to our mix through four new initiatives. We constructed two wind turbines near Fond du Lac, Wisconsin which can each generate enough electricity for about 300 homes. We added a turbine to our Minergy glass aggregate plant in Neenah, Wisconsin which converts some of the by-product steam into electricity which we are certified to market as green power. We signed an agreement to purchase the majority of the energy that will be produced by the largest wind turbine project east of the Mississippi River. And we contracted for additional renewable energy production from landfill gases.

In May 1999, the PSCW approved our request to expand our energy for tomorrow™ renewable energy program to include commercial and industrial customers, as well as residential customers.

Future Growth: We will continue a focused growth strategy. Through additional cost control initiatives at our non-utility businesses and by completing our strategic combination with WICOR Inc., we are moving forward with our efforts to become one of the leading energy companies in the North Central U.S. We will continue to seek strategic combinations in the best interests of our shareholders, customers and employees.

WEnsure Reliability

In support of Wisconsin Governor Thompson's Reliability 2000 Initiative to ensure the availability of adequate power to meet the increasing demands of our expanding economy, we are proceeding with several long-term measures that will make a positive difference to our customers and the future of our state.

Southern Energy Project: Progress continues on a 300-megawatt natural gas-fired peaking power plant. The plant, being built by Southern Energy in Neenah, Wisconsin, is scheduled for commercial operation by June 2000. We have already signed an eight-year power purchase contract for the power generated at this plant.

Germantown Projects: We are installing a new 85-megawatt combustion turbine at our Germantown Power Plant that is expected to be in service by June 2000. In addition, the installation of inlet cooling on our four existing combustion turbines, which will counteract the reduction of generation capacity during hot summer weather, is expected to be completed by mid-summer, adding about 59 megawatts during the critical summer months.

Electric Transmission Initiatives: We are involved in a number of projects that will increase electric import capability and improve electric system reliability. In June 1999, we completed the Northern Interface Project, bringing an additional 80 megawatts of transfer capacity from the Upper Peninsula of Michigan to Wisconsin. That same month, we completed our Southern Interface Project as well, which is designed to eliminate constraints on our system and provide for future increased electric transfer from northern Illinois to southeastern Wisconsin. In September 1999, the PSCW approved our request to proceed with the upgrading of the Oak Creek-Arcadian Transmission Line. In December 1999, we filed an application with the PSCW to upgrade our transmission facilities to support continuing growth in downtown Milwaukee and the northern metropolitan Milwaukee areas.

WEmploy The Best

Represented and management employees throughout every subsidiary and business unit contributed to our corporate success in 1999. Through the combined efforts of our generation, transmission and power marketing teams, we had adequate supply to meet record demands. Our electric distribution systems experts worked hard under normal and storm conditions to keep the power on, while our gas and steam operations employees delivered steady, reliable energy throughout the year. Our dedicated customer service and contact teams made a daily difference in our customers' lives, while our corporate center and non-utility personnel ably tended our on-going business operations.

During the year, we also strengthened our leadership team. We promoted from within and hired outside talent with the skills we need to continuously improve and capitalize on future opportunities.

WEnvision The Future

We are truly excited about our future. We see our 1999 accomplishments as a prelude to 2000 performance. We have the stage set, with a foundation of strong utility performance upon which to build the future.

With the continuing efforts of our customer-focused and service-oriented employees, and our management team providing leadership and direction, we will have solid performance in 2000. We will continue to focus on our utility businesses -- delivering safe, reliable, reasonably priced services to our customers. We will bring added discipline to our non-utility businesses, and will address Wall Street issues which have caused utility sector stocks to experience their worst performance in over thirty years.

With a firm commitment to enhancing key strengths, financial performance, customer service, environmental stewardship and regional leadership... WE are Wisconsin Energy... Expanding our energies and technologies to meet customer expectations in an evolving marketplace.

We thank you for your investment and the opportunity to demonstrate even greater success in the years ahead.

Richard A. Abdoo Chairman,
President and Chief Executive Officer
March 20, 2000

  Annual Report 1999