Edgar Filing: WISCONSIN ENERGY CORP

WEC 09.30.2011 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2011



Commission	Registrant; State of Incorporation	IRS Employer
File Number	Address; and Telephone Number	Identification No.



001-09057	WISCONSIN ENERGY CORPORATION	39-1391525
	(A Wisconsin Corporation)
	231 West Michigan Street
	P.O. Box 1331
	Milwaukee, WI 53201
	(414) 221-2345

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



	Large accelerated filer [X]		Accelerated filer [ ]
	Non-accelerated filer [ ] (Do not		Smaller reporting company [ ]
	check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (September 30, 2011):



Common Stock, $.01 Par Value,	231,267,725 shares outstanding.

Form 10-Q

WISCONSIN ENERGY CORPORATION

_______________________

FORM 10-Q REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2011



	TABLE OF CONTENTS
Item		Page

	Introduction	7

	Part I -- Financial Information

1.	Financial Statements

	Consolidated Condensed Income Statements	8

	Consolidated Condensed Balance Sheets	9

	Consolidated Condensed Statements of Cash Flows	10

	Notes to Consolidated Condensed Financial Statements	11

2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

3.	Quantitative and Qualitative Disclosures About Market Risk	41

4.	Controls and Procedures	41

	Part II -- Other Information

1.	Legal Proceedings	42

1A.	Risk Factors	42

2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

6.	Exhibits	43

	Signatures	44



September 2011	2	Wisconsin Energy Corporation

Form 10-Q



DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS

The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:

Primary Subsidiaries
We Power		W.E. Power, LLC
Wisconsin Electric		Wisconsin Electric Power Company
Wisconsin Gas		Wisconsin Gas LLC

Significant Assets
OC 1		Oak Creek expansion Unit 1
OC 2		Oak Creek expansion Unit 2
PWGS 1		Port Washington Generating Station Unit 1
PWGS 2		Port Washington Generating Station Unit 2

Other Affiliates
ATC		American Transmission Company LLC

Federal and State Regulatory Agencies
DOE		United States Department of Energy
EPA		United States Environmental Protection Agency
FERC		Federal Energy Regulatory Commission
MPSC		Michigan Public Service Commission
PSCW		Public Service Commission of Wisconsin
SEC		Securities and Exchange Commission
WDNR		Wisconsin Department of Natural Resources

Environmental Terms
BTA		Best Technology Available
CAMR		Clean Air Mercury Rule
CSAPR		Cross-State Air Pollution Rule
MACT		Maximum Achievable Control Technology
NAAQS		National Ambient Air Quality Standards
SO₂		Sulfur Dioxide

Other Terms and Abbreviations
AQCS		Air Quality Control System
ARRs		Auction Revenue Rights
Compensation Committee		Compensation Committee of the Board of Directors
Edison Sault		Edison Sault Electric Company
ERISA		Employee Retirement Income Security Act of 1974
Exchange Act		Securities Exchange Act of 1934, as amended
FTRs		Financial Transmission Rights
Junior Notes		Wisconsin Energy's 2007 Series A Junior Subordinated Notes due 2067 issued in May 2007
LMP		Locational Marginal Price
MISO		Midwest Independent Transmission System Operator, Inc.
OTC		Over-the-Counter
Plan		The Wisconsin Energy Corporation Retirement Account Plan



September 2011	3	Wisconsin Energy Corporation

Form 10-Q



DEFINITION OF ABBREVIATIONS AND INDUSTRY TERMS

The abbreviations and terms set forth below are used throughout this report and have the meanings assigned to them below:

Point Beach		Point Beach Nuclear Power Plant
PTF		Power the Future
WPL		Wisconsin Power and Light Company, a subsidiary of Alliant Energy Corp.

Measurements
Btu		British Thermal Unit(s)
Dth		Dekatherm(s) (One Dth equals one million Btu)
MW		Megawatt(s) (One MW equals one million Watts)
MWh		Megawatt-hour(s)
Watt		A measure of power production or usage

Accounting Terms
AFUDC		Allowance for Funds Used During Construction
GAAP		Generally Accepted Accounting Principles
OPEB		Other Post-Retirement Employee Benefits



September 2011	4	Wisconsin Energy Corporation

Form 10-Q

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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 (Exchange Act). 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, on-going legal proceedings, 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," "should" 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 catastrophic weather-related or terrorism-related damage; cyber-security threats; 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.


•	Factors affecting the demand for electricity and natural gas, including weather and other natural phenomena; the economic climate in our service territories; customer growth and declines; customer business conditions, including demand for their products and services; and energy conservation efforts.


•	Timing, resolution and impact of pending and future rate cases and negotiations, including recovery of all costs associated with our Power the Future (PTF) strategy, as well as costs associated with environmental compliance, renewable generation, transmission service, distribution system upgrades, fuel and the Midwest Independent Transmission System Operator, Inc. (MISO) Energy Markets.


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


•	The ability to control costs and avoid construction delays during the development and construction of new environmental controls and renewable generation.

•

The impact of recent and future federal, state and local legislative and regulatory changes, including any changes in rate-setting policies or procedures; electric and gas industry restructuring initiatives; transmission or distribution system operation and/or administration initiatives; any 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; changes to the Federal Power Act and related regulations under the Energy Policy Act and enforcement thereof by the Federal Energy Regulatory Commission (FERC) and other regulatory agencies; 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; changes in the application of existing laws and regulations; and changes in the interpretation or enforcement of permit conditions by the permitting agencies.


•	Restrictions imposed by various financing arrangements and regulatory requirements on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances.



September 2011	5	Wisconsin Energy Corporation

Form 10-Q

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION -- (CONT'D)


•	Current and future litigation, regulatory investigations, proceedings or inquiries, including the pending lawsuit against the Wisconsin Energy Corporation Retirement Account Plan (Plan), FERC matters, and IRS audits and other tax matters.


•	Events in the global credit markets that may affect the availability and cost of capital.


•	Other factors affecting our ability to access the capital markets, including general capital market conditions; our capitalization structure; market perceptions of the utility industry, us or any of our subsidiaries; and our credit ratings.


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


•	The financial performance of American Transmission Company LLC (ATC) and its corresponding contribution to our earnings.


•	The impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any regulations promulgated thereunder.


•	The impact of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 and any related regulations.


•	The effect of accounting pronouncements issued periodically by standard setting bodies, including any changes in regulatory accounting policies and practices and any requirement for U.S. registrants to follow International Financial Reporting Standards instead of Generally Accepted Accounting Principles (GAAP).


•	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.


•	The cyclical nature of property values that could affect our real estate investments.


•	Changes to the legislative or regulatory restrictions or caps on non-utility acquisitions, investments or projects, including the State of Wisconsin's public utility holding company law.


•	Other business or investment considerations that may be disclosed from time to time in our Securities and Exchange Commission (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, 2010.

We expressly disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



September 2011	6	Wisconsin Energy Corporation

Form 10-Q

INTRODUCTION

Wisconsin Energy Corporation is a diversified holding company which conducts its operations primarily in two operating segments: a utility energy segment and a non-utility energy segment. 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. Our primary subsidiaries are Wisconsin Electric Power Company (Wisconsin Electric), Wisconsin Gas LLC (Wisconsin Gas) and W.E. Power, LLC (We Power).

Utility Energy Segment: Our utility energy segment consists of: Wisconsin Electric, which serves electric customers in Wisconsin and the Upper Peninsula of Michigan, gas customers in Wisconsin and steam customers in metropolitan Milwaukee, Wisconsin; and Wisconsin Gas, which serves gas customers in Wisconsin. Wisconsin Electric and Wisconsin Gas operate under the trade name of "We Energies."

Non-Utility Energy Segment: Our non-utility energy segment consists primarily of We Power. We Power was formed in 2001 to design, construct, own and lease to Wisconsin Electric the new generating capacity included in our PTF strategy. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2010 Annual Report on Form 10-K for more information on PTF.

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 2010 Annual Report on Form 10-K, including the financial statements and notes therein.



September 2011	7	Wisconsin Energy Corporation

Form 10-Q

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)

	Three Months Ended September 30					Nine Months Ended September 30
	2011		2010			2011		2010
	(Millions of Dollars, Except Per Share Amounts)
Operating Revenues	$	1,052.8	$	973.2		$	3,373.2	$	3,112.7

Operating Expenses
Fuel and purchased power	350.9		335.6			904.5		871.4
Cost of gas sold	69.2		67.4			533.4		519.0
Other operation and maintenance	296.9		318.1			909.3		971.0
Depreciation and amortization	82.6		77.4			246.2		228.6
Property and revenue taxes	28.9		26.9			85.5		79.8
Total Operating Expenses	828.5		825.4			2,678.9		2,669.8

Amortization of Gain	—		55.2			—		151.8

Operating Income	224.3		203.0			694.3		594.7

Equity in Earnings of Transmission Affiliate	15.7		15.2			46.4		45.5
Other Income, net	16.2		9.6			43.1		25.5
Interest Expense, net	56.8		52.5			177.6		154.9

Income from Continuing Operations Before Income Taxes	199.4		175.3			606.2		510.8

Income Taxes	69.6		63.0			207.5		182.0

Income from Continuing Operations	129.8		112.3			398.7		328.8

Income (Loss) from Discontinued Operations, Net of Tax	—		(0.1		)	11.5		1.8
Net Income	$	129.8	$	112.2		$	410.2	$	330.6

Earnings Per Share (Basic)
Continuing operations	$	0.56	$	0.48		$	1.71	$	1.41
Discontinued operations	—		—			0.05		—
Total Earnings Per Share (Basic)	$	0.56	$	0.48		$	1.76	$	1.41

Earnings Per Share (Diluted)
Continuing operations	$	0.55	$	0.47		$	1.69	$	1.39
Discontinued operations	—		—			0.05		0.01
Total Earnings Per Share (Diluted)	$	0.55	$	0.47		$	1.74	$	1.40

Weighted Average Common Shares Outstanding (Millions)
Basic	232.2		233.8			233.2		233.8
Diluted	234.9		236.9			236.0		236.7

Dividends Per Share of Common Stock	$	0.26	$	0.20		$	0.78	$	0.60

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these financial statements.



September 2011	8	Wisconsin Energy Corporation

Form 10-Q



WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)

	September 30, 2011			December 31, 2010
	(Millions of Dollars)
Assets
Property, Plant and Equipment
In service	$	12,479.6		$	11,590.8
Accumulated depreciation	(3,741.1		)	(3,624.0		)
	8,738.5			7,966.8
Construction work in progress	1,200.0			1,569.9
Leased facilities, net	60.6			64.8
Net Property, Plant and Equipment	9,999.1			9,601.5
Investments
Equity investment in transmission affiliate	346.2			330.5
Other	36.6			45.8
Total Investments	382.8			376.3
Current Assets
Cash and cash equivalents	15.1			24.5
Restricted cash	45.5			8.3
Accounts receivable, net	314.0			344.6
Accrued revenues	162.2			280.3
Materials, supplies and inventories	368.1			379.1
Prepayments and other	227.5			294.3
Total Current Assets	1,132.4			1,331.1
Deferred Charges and Other Assets
Regulatory assets	1,082.9			1,090.1
Goodwill	441.9			441.9
Other	210.4			218.9
Total Deferred Charges and Other Assets	1,735.2			1,750.9
Total Assets	$	13,249.5		$	13,059.8
Capitalization and Liabilities
Capitalization
Common equity	$	3,940.7		$	3,802.1
Preferred stock of subsidiary	30.4			30.4
Long-term debt	4,618.9			3,932.0
Total Capitalization	8,590.0			7,764.5
Current Liabilities
Long-term debt due currently	31.8			473.4
Short-term debt	496.7			657.9
Accounts payable	274.6			315.4
Other	286.3			274.4
Total Current Liabilities	1,089.4			1,721.1
Deferred Credits and Other Liabilities
Regulatory liabilities	918.0			883.8
Deferred income taxes - long-term	1,447.3			1,154.8
Deferred revenue, net	767.7			805.5
Pension and other benefit obligations	100.8			353.2
Other	336.3			376.9
Total Deferred Credits and Other Liabilities	3,570.1			3,574.2
Total Capitalization and Liabilities	$	13,249.5		$	13,059.8

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these financial statements.



September 2011	9	Wisconsin Energy Corporation

Form 10-Q



WISCONSIN ENERGY CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

	Nine Months Ended September 30
	2011			2010
	(Millions of Dollars)
Operating Activities
Net income	$	410.2		$	330.6
Reconciliation to cash
Depreciation and amortization	248.9			237.6
Amortization of gain	—			(151.8		)
Equity in earnings of transmission affiliate	(46.4		)	(45.5		)
Distributions from transmission affiliate	37.0			37.0
Deferred income taxes and investment tax credits, net	215.9			(1.0		)
Deferred revenue	2.9			78.0
Contributions to qualified benefit plans	(257.4		)	—
Change in - Accounts receivable and accrued revenues	136.4			111.4
Inventories	11.1			(44.2		)
Other current assets	(18.7		)	37.8
Accounts payable	(41.8		)	(39.8		)
Accrued income taxes, net	69.1			2.3
Deferred costs, net	19.4			19.5
Other current liabilities	27.1			51.0
Other, net	13.9			30.8
Cash Provided by Operating Activities	827.6			653.7

Investing Activities
Capital expenditures	(612.2		)	(545.6		)
Investment in transmission affiliate	(6.6		)	(3.9		)
Proceeds from asset sales	38.5			63.8
Change in restricted cash	(37.2		)	131.8
Other, net	(32.8		)	(56.1		)
Cash Used in Investing Activities	(650.3		)	(410.0		)

Financing Activities
Exercise of stock options	34.4			76.0
Purchase of common stock	(135.1		)	(128.5		)
Dividends paid on common stock	(182.0		)	(140.3		)
Issuance of long-term debt	720.0			530.0
Retirement and repurchase of long-term debt	(464.7		)	(289.9		)
Change in short-term debt	(161.2		)	(306.5		)
Other, net	1.9			6.5
Cash Used in Financing Activities	(186.7		)	(252.7		)

Change in Cash and Cash Equivalents	(9.4		)	(9.0		)

Cash and Cash Equivalents at Beginning of Period	24.5			20.2

Cash and Cash Equivalents at End of Period	$	15.1		$	11.2

The accompanying Notes to Consolidated Condensed Financial Statements are an integral part of these financial statements.



September 2011	10	Wisconsin Energy Corporation

Form 10-Q

WISCONSIN ENERGY CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1 -- GENERAL INFORMATION

Our accompanying unaudited consolidated condensed financial statements should be read in conjunction with Item 8, Financial Statements and Supplementary Data, in our 2010 Annual Report on Form 10-K. In the opinion of management, we have included all adjustments, normal and recurring in nature, necessary for a fair presentation of the results of operations, cash flows and financial position in the accompanying income statements, statements of cash flows and balance sheets. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year 2011 because of seasonal and other factors.

Reclassifications: On January 20, 2011, our Board of Directors approved a two-for-one stock split of our common stock, which was effected through a stock dividend. New shares were distributed on March 1, 2011 to stockholders of record at the close of business on February 14, 2011. All share and per share information has been restated for all periods presented to reflect this stock split.

2 -- NEW ACCOUNTING PRONOUNCEMENTS

No new accounting pronouncements were issued or adopted during the first nine months of 2011 which would have a material impact on our financial condition, results of operations or cash flows.

3 -- ACCOUNTING AND REPORTING FOR POWER THE FUTURE GENERATING UNITS

Background: As part of our PTF strategy, our non-utility subsidiary, We Power, built four new generating units, Port Washington Generating Station Unit 1 (PWGS 1), Port Washington Generating Station Unit 2 (PWGS 2), Oak Creek expansion Unit 1 (OC 1) and Oak Creek expansion Unit 2 (OC 2), which are leased to our utility subsidiary, Wisconsin Electric, under long-term leases that have been approved by the Public Service Commission of Wisconsin (PSCW). The leases are designed to recover the capital costs of the plant, including a return. PWGS 1, PWGS 2, OC 1 and OC 2 were placed in service in July 2005, May 2008, February 2010 and January 2011, respectively. The accompanying consolidated condensed financial statements eliminate all intercompany transactions between We Power and Wisconsin Electric and reflect the cash inflows from Wisconsin Electric customers and the cash outflows to our vendors and suppliers.

The Oak Creek expansion includes common projects that benefit the existing units at this site as well as the new units. These projects include a coal handling facility and a water intake system, which were placed in service in November 2007 and January 2009, respectively.

During Construction: Under the terms of each lease, we collected in current rates amounts representing our pre-tax cost of capital (debt and equity) associated with capital expenditures for our PTF units. Our pre-tax cost of capital was approximately 14%. The carrying costs that we collected in rates were recorded as deferred revenue and are amortized to revenue over the term of each lease. During the construction of our PTF units, we capitalized interest costs at an overall weighted-average pre-tax cost of interest, which was approximately 5% for the nine months ended September 30, 2010. Capitalized interest is included in the total cost of the PTF units.

Plant in Service: Now that the PTF units are placed in service, we expect to continue to recover in rates the lease costs which reflect the authorized cash construction costs of the units plus a return on the investment. The authorized cash costs were established by the PSCW. The authorized cash costs exclude capitalized interest since carrying costs were recovered during the construction of the units. The lease payments are expected to be levelized, except that OC 1 and OC 2 will be recovered on a levelized basis that has a one time 10.6% escalation after the first five years of the leases. The leases established a set return on equity component of 12.7% after tax. The interest component of the return under each lease was established at rates determined in accordance with the terms of each lease.



September 2011	11	Wisconsin Energy Corporation

Form 10-Q

We recognize revenues (consisting of the lease payments included in rates and the amortization of the deferred revenue) on a levelized basis over the term of the lease.

4 -- COMMON EQUITY

Share-Based Compensation Expense: For a description of share-based compensation, including stock options, restricted stock and performance units, see Note I -- Common Equity in our 2010 Annual Report on Form 10-K. We utilize the straight-line attribution method for recognizing share-based compensation expense. Accordingly, for employee awards, equity classified share-based compensation cost is measured at the grant date based on the fair value of the award, and is recognized as expense over the requisite service period. There were no modifications to outstanding stock options during the period other than necessary adjustments as a result of our stock split. Shares purchased on the open market by our independent agents are currently used to satisfy share-based awards.

The following table summarizes recorded pre-tax share-based compensation expense and the related tax benefit for share-based awards made to our employees and directors:



	Three Months Ended September 30				Nine Months Ended September 30
	2011		2010		2011		2010
	(Millions of Dollars)

Stock options	$	0.6	$	1.9	$	1.9	$	5.7
Performance units	7.3		10.3		11.7		20.9
Restricted stock	0.4		0.3		1.3		1.1
Share-based compensation expense	$	8.3	$	12.5	$	14.9	$	27.7

Related Tax Benefit	$	3.4	$	5.0	$	6.0	$	11.1

Stock Option Activity: During the first nine months of 2011, the Compensation Committee granted 458,180 non-qualified stock options that had an estimated fair value of $3.17 per share. During the first nine months of 2010, the Compensation Committee granted 549,500 stock options that had an estimated fair value of $3.36 per share. The following assumptions were used to value the options using a binomial option pricing model:



	2011		2010

Risk-free interest rate	0.2% - 3.4%		0.2% - 3.9%
Dividend yield	3.9	%	3.7	%
Expected volatility	19.0	%	20.3	%
Expected forfeiture rate	2.0	%	2.0	%
Expected life (years)	5.5		5.9

The risk-free interest rate is based on the U.S. Treasury interest rate whose term is consistent with the expected life of the stock options. Dividend yield, expected volatility, expected forfeiture rate and expected life assumptions are based on our historical experience.



September 2011	12	Wisconsin Energy Corporation

Form 10-Q

The following is a summary of our stock option activity for the three and nine months ended September 30, 2011:



					Weighted-
					Average
			Weighted-		Remaining	Aggregate
	Number of		Average		Contractual Life	Intrinsic Value
Stock Options	Options		Exercise Price		(Years)	(Millions)
Outstanding as of July 1, 2011	11,925,226		$	21.40
Granted	—		$	—
Exercised	(272,412	)	$	17.82
Forfeited	—		$	—
Outstanding as of September 30, 2011	11,652,814		$	21.49

Outstanding as of January 1, 2011	13,036,466		$	20.81
Granted	458,180		$	29.35
Exercised	(1,841,832	)	$	18.68
Forfeited	—		$	—
Outstanding as of September 30, 2011	11,652,814		$	21.49	5.5	$	114.3

Exercisable as of September 30, 2011	8,499,304		$	20.97	4.7	$	87.7

The intrinsic value of options exercised was $3.6 million and $22.6 million for the three and nine months ended September 30, 2011, and $26.8 million and $51.9 million for the same periods in 2010, respectively. Cash received from options exercised was $34.4 million and $76.0 million for the nine months ended September 30, 2011 and 2010, respectively. The actual tax benefit realized for the tax deductions from option exercises for the same periods was approximately $9.0 million and $20.2 million, respectively.

All outstanding stock options to purchase shares of common stock were included in the computation of diluted earnings per share during the third quarter of 2011.

The following table summarizes information about stock options outstanding as of September 30, 2011:



	Options Outstanding				Options Exercisable
		Weighted-Average				Weighted-Average
				Remaining				Remaining
	Number of	Exercise		Contractual	Number of	Exercise		Contractual
Range of Exercise Prices	Options	Price		Life (Years)	Options	Price		Life (Years)
$11.33 to $17.10	2,405,276	$	15.99	2.5	2,405,276	$	15.99	2.5
$19.74 to $21.11	3,771,448	$	20.61	6.2	1,569,748	$	19.91	4.6
$23.88 to $29.35	5,476,090	$	24.50	6.3	4,524,280	$	23.98	5.8
	11,652,814	$	21.49	5.5	8,499,304	$	20.97	4.7



September 2011	13	Wisconsin Energy Corporation

Form 10-Q

The following table summarizes information about our non-vested options during the three and nine months ended September 30, 2011:



Non-Vested Stock Options	Number of Options		Weighted-Average Fair Value
Non-vested as of July 1, 2011	3,153,510		$	3.78
Granted	—		$	—
Vested	—		$	—
Forfeited	—		$	—
Non-vested as of September 30, 2011	3,153,510		$	3.78

Non-vested as of January 1, 2011	5,272,570		$	4.27
Granted	458,180		$	3.17
Vested	(2,577,240	)	$	4.66
Forfeited	—		$	—
Non-vested as of September 30, 2011	3,153,510		$	3.78

As of September 30, 2011, total compensation costs related to non-vested stock options not yet recognized was approximately $1.3 million, which is expected to be recognized over the next 14 months on a weighted-average basis.

Restricted Shares: During the first nine months of 2011, the Compensation Committee granted 74,850 restricted shares to certain key employees and directors. These awards have a three-year vesting period, and generally, one-third of the award vests on each anniversary of the grant date. During the vesting period, restricted share recipients have voting rights and are entitled to dividends in the same manner as other shareholders.

The following restricted stock activity occurred during the three and nine months ended September 30, 2011:



Restricted Shares	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding as of July 1, 2011	198,820
Granted	—		$	—
Released	—		$	—
Forfeited	—		$	—
Outstanding as of September 30, 2011	198,820

Outstanding as of January 1, 2011	205,404
Granted	74,850		$	29.00
Released	(78,624	)	$	19.03
Forfeited	(2,810	)	$	26.45
Outstanding as of September 30, 2011	198,820

We record the market value of the restricted stock awards on the date of grant, and then we charge their value to expense over the vesting period of the awards. The intrinsic value of restricted stock vesting was zero and $2.3 million for the three and nine months ended September 30, 2011, and $0.1 million and $1.1 million for the same periods in 2010, respectively. The actual tax benefit realized for the tax deductions from released restricted shares was zero and $0.7 million for the three and nine months ended September 30, 2011, and $0.1 million and $0.3 million for the same periods in 2010, respectively.

As of September 30, 2011, total compensation cost related to restricted stock not yet recognized was approximately $2.9 million, which is expected to be recognized over the next 22 months on a weighted-average basis.



September 2011	14	Wisconsin Energy Corporation

Form 10-Q

Performance Units: In January 2011 and 2010, the Compensation Committee granted 435,690 and 555,830 performance units, respectively, to officers and other key employees under the Wisconsin Energy Performance Unit Plan. Under the grants, the ultimate number of units that will be awarded is dependent upon the achievement of certain financial performance of our stock over a three-year period. Under the terms of the award, participants may earn between 0% and 175% of the base performance unit award. All grants are settled in cash. We are accruing compensation costs over the three-year period based on our estimate of the final expected value of the awards. Performance units earned as of December 31, 2010 and 2009 vested and were settled during the first quarter of 2011 and 2010, and had a total intrinsic value of $12.6 million and $9.8 million, respectively. The actual tax benefit realized for the tax deductions from the settlement of performance units was approximately $4.3 million and $3.4 million, respectively. As of September 30, 2011, total compensation cost related to performance units not yet recognized was approximately $19.2 million, which is expected to be recognized over the next 20 months on a weighted-average basis.

Restrictions: Wisconsin Energy's ability as a holding company to pay common dividends primarily depends on the availability of funds received from its non-utility subsidiary, We Power, and its utility subsidiaries. Various financing arrangements and regulatory requirements impose certain restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. In addition, under Wisconsin law, Wisconsin Electric and Wisconsin Gas are prohibited from loaning funds, either directly or indirectly, to Wisconsin Energy. See Note I -- Common Equity in our 2010 Annual Report on Form 10-K for additional information on these and other restrictions.

We do not believe that these restrictions will materially affect our operations or limit any dividend payments in the foreseeable future.

Comprehensive Income: Comprehensive income includes all changes in equity during a period except those resulting from investments by and distributions to owners.

Our total comprehensive income for the nine months ended September 30, 2011 and 2010 was $410.4 million and $330.9 million, respectively, which approximates net income for each of those periods.

Share Repurchase Program: We purchased 1.9 million shares of our common stock at a cost of $60.1 million and 4.9 million shares at a cost of $128.5 million for the nine months ended September 30, 2011 and 2010, respectively, to fulfill exercised stock options and restricted stock awards. In addition, on May 5, 2011, our Board of Directors authorized a share repurchase program for up to $300 million of our common stock through the end of 2013. Funds for the repurchases are expected to come from internally generated funds and working capital supplemented, if required in the short-term, by the sale of commercial paper. The repurchase program does not obligate Wisconsin Energy to acquire any specific number of shares and may be suspended or terminated by the Board of Directors at any time. Through September 30, 2011, we repurchased approximately 2.5 million shares pursuant to this program at an average cost of $30.32 per share and a total cost of $75.0 million.

5 -- DISCONTINUED OPERATIONS AND DIVESTITURES

The following table summarizes the net impacts of the discontinued operations on our earnings for the three and nine months ended September 30:



	Three Months Ended September 30					Nine Months Ended September 30
	2011		2010			2011		2010
	(Millions of Dollars)
Income from Continuing Operations	$	129.8	$	112.3		$	398.7	$	328.8
Income from Discontinued Edison Sault operations, net of tax	—		—			—		1.8
Income (Loss) from Discontinued other operations, net of tax (a)	—		(0.1		)	11.5		—
Net Income	$	129.8	$	112.2		$	410.2	$	330.6

(a) During 2011, we reached a favorable resolution of uncertain state and federal tax positions associated with our
previously discontinued manufacturing business.



September 2011	15	Wisconsin Energy Corporation

Form 10-Q

Edgewater Generating Unit 5: On March 1, 2011, we sold our 25% interest in Edgewater Generating Unit 5 to Wisconsin Power and Light Company (WPL) for our net book value, including working capital, of approximately $38 million.

Edison Sault: Effective May 4, 2010, we sold Edison Sault to Cloverland Electric Cooperative for approximately $63.0 million. We retained Edison Sault's ownership interest in ATC.

6 -- LONG-TERM DEBT

In September 2011, Wisconsin Electric issued $300 million of 2.95% Debentures due September 15, 2021. The debentures were issued under an existing shelf registration statement filed with the SEC in February 2011. The net proceeds were used to repay short-term debt and for other general corporate purposes.

In January 2011, we issued a total of $420 million in long-term debt ($205 million aggregate principal amount of 4.673% Series B Senior Notes due January 19, 2031 and $215 million aggregate principal amount of 5.848% Series B Senior Notes due January 19, 2041) and used the net proceeds to repay short-term debt incurred to finance the construction of OC 2 and for other corporate purposes. The Series B Senior Notes are secured by a collateral assignment of the leases between Elm Road Generating Station Supercritical, LLC (ERGSS) and Wisconsin Electric related to OC 2.

On April 1, 2011, we used cash and short-term borrowings to retire $450 million of long-term debt that matured.

7 -- FAIR VALUE MEASUREMENTS

Fair value measurements require enhanced disclosures about assets and liabilities that are measured and reported at fair value and establish a hierarchal disclosure framework which prioritizes and ranks the level of observable inputs used in measuring fair value.

Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We primarily apply the market approach for recurring fair value measurements and attempt to utilize the best available information. Accordingly, we also utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We are able to classify fair value balances based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 -- Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Instruments in this category consist of financial instruments such as exchange-traded derivatives, cash equivalents and restricted cash investments.

Level 2 -- Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Instruments in this category include non-exchange-traded derivatives such as Over-the-Counter (OTC) forwards and options.

Level 3 -- Pricing inputs include significant inputs that are generally less observable from objective sources. The inputs in the determination of fair value require significant management judgment or estimation. At each balance sheet date, we perform an analysis of all instruments subject to fair value reporting and include in Level 3 all instruments whose fair value is based on significant unobservable inputs.



September 2011	16	Wisconsin Energy Corporation

Form 10-Q

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the instrument.

The following tables summarize our financial assets and liabilities by level within the fair value hierarchy:



Recurring Fair Value Measures	As of September 30, 2011
	Level 1		Level 2		Level 3		Total
	(Millions of Dollars)
Assets:
Restricted Cash	$	45.5	$	—	$	—	$	45.5
Derivatives	0.5		3.9		10.1		14.5
Total	$	46.0	$	3.9	$	10.1	$	60.0
Liabilities:
Derivatives	$	9.6	$	0.6	$	—	$	10.2
Total	$	9.6	$	0.6	$	—	$	10.2



Recurring Fair Value Measures	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
	(Millions of Dollars)
Assets:
Restricted Cash	$	8.3	$	—	$	—	$	8.3
Derivatives	4.5		5.3		5.9		15.7
Total	$	12.8	$	5.3	$	5.9	$	24.0
Liabilities:
Derivatives	$	6.1	$	5.5	$	—	$	11.6
Total	$	6.1	$	5.5	$	—	$	11.6

Restricted cash consists of certificates of deposit and government backed interest bearing securities and represents (i) for 2010, the remaining funds to be distributed to customers resulting from the net proceeds received from the sale of the Point Beach Nuclear Power Plant (Point Beach), and (ii) for 2011, the settlement we received from the United States Department of Energy (DOE) during the first quarter of 2011, which will be returned, net of costs incurred, to customers. Derivatives reflect positions we hold in exchange-traded derivative contracts and OTC derivative contracts. Exchange-traded derivative contracts, which include futures and exchange-traded options, are generally based on unadjusted quoted prices in active markets and are classified within Level 1. Some OTC derivative contracts are valued using broker or dealer quotations, or market transactions in either the listed or OTC markets utilizing a mid-market pricing convention (the mid-point between bid and ask prices), as appropriate. In such cases, these derivatives are classified within Level 2. Certain OTC derivatives may utilize models to measure fair value. Generally, we use a similar model to value similar instruments. Valuation models utilize various inputs which include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs (i.e., inputs derived principally from or corroborated by observable market data by correlation or other means). Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain OTC derivatives are in less active markets with a lower availability of pricing information which might not be observable in or corroborated by the market. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3.



September 2011	17	Wisconsin Energy Corporation

Form 10-Q

The following table summarizes the fair value of derivatives classified as Level 3 in the fair value hierarchy:



	Quarter to Date						Year to Date
	2011			2010			2011		2010
	(Millions of Dollars)
Beginning Balance	$	14.6		$	15.9		$	5.9	$	5.8
Realized and unrealized gains (losses)	—			—			—		—
Purchases, issuances and settlements	(4.5		)	(5.5		)	4.2		4.6
Transfers in and/or out of Level 3	—			—			—		—
Balance as of September 30	$	10.1		$	10.4		$	10.1	$	10.4

Change in unrealized gains (losses) relating to instruments still held as of September 30	$	—		$	—		$	—	$	—

Derivative instruments reflected in Level 3 of the hierarchy include MISO Financial Transmission Rights (FTRs) that are measured at fair value each reporting period using monthly or annual auction shadow prices from relevant auctions. Changes in fair value for Level 3 recurring items are recorded on our balance sheet. See Note 8 -- Derivative Instruments for further information on the offset to regulatory assets and liabilities.

The carrying amount and estimated fair value of certain of our recorded financial instruments are as follows:



	September 30, 2011				December 31, 2010
Financial Instruments	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Millions of Dollars)
Preferred stock, no redemption required	$	30.4	$	22.9	$	30.4	$	23.5
Long-term debt, including current portion	$	4,543.3	$	5,160.3	$	4,288.0	$	4,578.0

The carrying value of net accounts receivable, accounts payable and short-term borrowings approximates fair value due to the short-term nature of these instruments. The fair value of our preferred stock is estimated based upon the quoted market value for the same or similar issues. The fair value of our long-term debt, including the current portion of long-term debt, but excluding capitalized leases and unamortized discount on debt, is estimated based upon quoted market value for the same or similar issues or upon the quoted market prices of U.S. Treasury issues having a similar term to maturity, adjusted for the issuing company's bond rating and the present value of future cash flows.

8 -- DERIVATIVE INSTRUMENTS

We utilize derivatives as part of our risk management program to manage the volatility and costs of purchased power, generation and natural gas purchases for the benefit of our customers and shareholders. Our approach is non-speculative and designed to mitigate risk and protect against price volatility. Regulated hedging programs require prior approval by the PSCW.

We record derivative instruments on the balance sheet as an asset or liability measured at its fair value, and changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of the fair market value accounting to be offset to regulatory assets and liabilities. We do not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivatives executed with the same counterparty under the same master netting arrangement. As of September 30, 2011, we recognized $20.7 million in regulatory assets and $16.3 million in regulatory liabilities related to derivatives in comparison to $22.0 million in regulatory assets and $15.3 million in regulatory liabilities as of December 31, 2010.



September 2011	18	Wisconsin Energy Corporation

Form 10-Q

We record our current derivative assets on the balance sheet in Prepayments and other current assets and the current portion of the liabilities in Other current liabilities. We had no long-term portion of derivative assets as of September 30, 2011, and the long-term portion of our derivative liabilities of $0.5 million is recorded in Other deferred credits and other liabilities as of September 30, 2011. Our Consolidated Condensed Balance Sheets as of September 30, 2011 and December 31, 2010 include:



	September 30, 2011				December 31, 2010
	Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability
			(Millions of Dollars)
Natural Gas	$	3.3	$	10.2	$	2.5	$	11.6
Fuel Oil	0.5		—		4.4		—
FTRs	10.1		—		5.9		—
Coal	0.6		—		2.9		—
Total	$	14.5	$	10.2	$	15.7	$	11.6

Our Consolidated Condensed Income Statements include gains (losses) on derivative instruments used in our risk management strategies under Fuel and purchased power for those commodities supporting our electric operations and under Cost of gas sold for the natural gas sold to our customers. Our estimated notional volumes and gains (losses) for the three and nine months ended September 30, 2011 and 2010 were as follows:



	Three Months Ended September 30, 2011				Three Months Ended September 30, 2010
	Volume	Gains (Losses)			Volume	Gains (Losses)
		(Millions of Dollars)				(Millions of Dollars)
Natural Gas	15.7 million Dth	$	(10.5	)	17.4 million Dth	$	(8.8	)
Power	zero MWh	—			65,040 MWh	(0.5		)
Fuel Oil	2.2 million gallons	2.4			2.3 million gallons	(0.1		)
FTRs	5,896 MW	5.2			6,584 MW	4.4
Total		$	(2.9	)		$	(5.0	)



	Nine Months Ended September 30, 2011				Nine Months Ended September 30, 2010
	Volume	Gains (Losses)			Volume	Gains (Losses)
		(Millions of Dollars)				(Millions of Dollars)
Natural Gas	54.0 million Dth	$	(27.7	)	65.0 million Dth	$	(33.3	)
Power	zero MWh	—			224,640 MWh	(0.5		)
Fuel Oil	8.8 million gallons	4.9			6.0 million gallons	(0.1		)
FTRs	18,439 MW	10.5			18,673 MW	16.2
Total		$	(12.3	)		$	(17.7	)

As of September 30, 2011 and December 31, 2010, we posted collateral of $12.8 million and $11.7 million, respectively, in our margin accounts. These amounts are recorded on the balance sheets in Prepayments and other current assets.



September 2011	19	Wisconsin Energy Corporation

Form 10-Q

9 -- BENEFITS

The components of our net periodic pension and Other Post-Retirement Employee Benefits (OPEB) costs for the three and nine months ended September 30 were as follows:



	Pension Costs
	Three Months Ended September 30						Nine Months Ended September 30
Benefit Plan Cost Components	2011			2010			2011			2010
	(Millions of Dollars)
Net Periodic Benefit Cost
Service cost	$	4.0		$	5.9		$	11.9		$	17.7
Interest cost	16.9			17.1			50.7			50.9
Expected return on plan assets	(20.5		)	(19.6		)	(61.6		)	(58.3		)
Amortization of:
Prior service cost	0.6			0.6			1.7			1.7
Actuarial loss	8.4			6.7			25.5			20.0
Net Periodic Benefit Cost	$	9.4		$	10.7		$	28.2		$	32.0



	OPEB Costs
	Three Months Ended September 30						Nine Months Ended September 30
Benefit Plan Cost Components	2011			2010			2011			2010
	(Millions of Dollars)
Net Periodic Benefit Cost
Service cost	$	2.6		$	2.8		$	7.8		$	8.4
Interest cost	5.2			5.3			15.6			15.8
Expected return on plan assets	(4.3		)	(3.6		)	(12.7		)	(10.8		)
Amortization of:
Transition obligation	—			0.1			0.2			0.3
Prior service (credit)	(0.4		)	(3.0		)	(1.4		)	(8.9		)
Actuarial loss	1.7			2.7			4.7			8.1
Net Periodic Benefit Cost	$	4.8		$	4.3		$	14.2		$	12.9

In January 2011, we contributed $122.4 million to our qualified benefit plans. In September 2011, we contributed $135.0 million to our qualified benefit plans. Future contributions to the plans will be dependent upon many factors, including the performance of existing plan assets and long-term discount rates.

Postemployment Benefits: Postemployment benefits provided to former or inactive employees are recognized when an event occurs. The estimated liability for such benefits was $13.5 million as of September 30, 2011 and $14.8 million as of December 31, 2010.

10 -- GUARANTEES

We enter into various guarantees to provide financial and performance assurance to third parties on behalf of our affiliates. As of September 30, 2011, we had the following guarantees:



	Maximum Potential
	Future Payments		Outstanding		Liability Recorded
	(Millions of Dollars)
Guarantees	$	2.8	$	0.1	$	—
Letters of Credit	$	1.6	$	0.7	$	—



September 2011	20	Wisconsin Energy Corporation

Form 10-Q

We provide guarantees to support obligations of our affiliates to third parties under agreements and surety bonds. In the event our affiliates fail to perform, we would be responsible for the obligations.

Wisconsin Electric is subject to the potential retrospective premiums that could be assessed under its insurance program.

11 -- SEGMENT INFORMATION

Summarized financial information concerning our operating segments for the three and nine months ended September 30, 2011 and 2010 is shown in the following table:



					Corporate &
	Operating Segments				Other (a) &
	Energy				Reconciling			Total
Three Months Ended	Utility		Non-Utility		Items			Consolidated
	(Millions of Dollars)
September 30, 2011
Operating Revenues (b)	$	1,036.7	$	113.0	$	(96.9	)	$	1,052.8
Depreciation and Amortization	$	64.1	$	18.3	$	0.2		$	82.6
Operating Income (Loss)	$	135.6	$	89.8	$	(1.1	)	$	224.3
Equity in Earnings (Loss) of Unconsolidated Affiliates	$	15.7	$	—	$	(0.1	)	$	15.6
Interest Expense, Net	$	26.8	$	16.9	$	13.1		$	56.8
Income Tax Expense (Benefit)	$	45.5	$	28.4	$	(4.3	)	$	69.6
Income from Discontinued Operations, Net of Tax	$	—	$	—	$	—		$	—
Net Income (Loss)	$	95.0	$	44.6	$	(9.8	)	$	129.8
Capital Expenditures	$	252.1	$	7.3	$	5.7		$	265.1

September 30, 2010
Operating Revenues (b)	$	960.5	$	87.4	$	(74.7	)	$	973.2
Depreciation and Amortization	$	63.2	$	13.9	$	0.3		$	77.4
Operating Income (Loss)	$	134.2	$	69.0	$	(0.2	)	$	203.0
Equity in Earnings (Loss) of Unconsolidated Affiliates	$	15.2	$	—	$	(0.1	)	$	15.1
Interest Expense, Net	$	29.2	$	11.0	$	12.3		$	52.5
Income Tax Expense (Benefit)	$	44.6	$	22.2	$	(3.8	)	$	63.0
Income (Loss) from Discontinued Operations, Net of Tax	$	—	$	—	$	(0.1	)	$	(0.1	)
Net Income (Loss)	$	84.7	$	36.3	$	(8.8	)	$	112.2
Capital Expenditures	$	149.2	$	16.6	$	0.7		$	166.5



September 2011	21	Wisconsin Energy Corporation

Form 10-Q



					Corporate &
	Operating Segments				Other (a) &
	Energy				Reconciling			Total
Nine Months Ended	Utility		Non-Utility		Items			Consolidated
	(Millions of Dollars)
September 30, 2011
Operating Revenues (b)	$	3,331.1	$	327.5	$	(285.4	)	$	3,373.2
Depreciation and Amortization	$	191.4	$	54.3	$	0.5		$	246.2
Operating Income (Loss)	$	436.7	$	261.7	$	(4.1	)	$	694.3
Equity in Earnings (Loss) of Unconsolidated Affiliates	$	46.4	$	—	$	(0.3	)	$	46.1
Interest Expense, Net	$	82.1	$	49.8	$	45.7		$	177.6
Income Tax Expense (Benefit)	$	145.9	$	84.2	$	(22.6	)	$	207.5
Income from Discontinued Operations, Net of Tax	$	—	$	—	$	11.5		$	11.5
Net Income (Loss)	$	297.1	$	127.9	$	(14.8	)	$	410.2
Capital Expenditures	$	583.1	$	22.2	$	6.9		$	612.2
Total Assets (c)	$	12,847.8	$	2,958.4	$	(2,556.7	)	$	13,249.5

September 30, 2010
Operating Revenues (b)	$	3,083.9	$	239.5	$	(210.7	)	$	3,112.7
Depreciation and Amortization	$	188.4	$	39.5	$	0.7		$	228.6
Operating Income (Loss)	$	410.1	$	188.0	$	(3.4	)	$	594.7
Equity in Earnings of Unconsolidated Affiliates	$	45.5	$	—	$	—		$	45.5
Interest Expense, Net	$	88.9	$	28.9	$	37.1		$	154.9
Income Tax Expense (Benefit)	$	138.9	$	62.7	$	(19.6	)	$	182.0
Income from Discontinued Operations, Net of Tax	$	0.7	$	—	$	1.1		$	1.8
Net Income (Loss)	$	252.9	$	96.8	$	(19.1	)	$	330.6
Capital Expenditures	$	445.1	$	99.0	$	1.5		$	545.6
Total Assets (c)	$	11,700.2	$	2,965.3	$	(1,947.0	)	$	12,718.5


(a)	Other includes all other non-utility activities, primarily non-utility real estate investment and development by Wispark LLC, as well as interest on corporate debt.


(b)	An elimination for intersegment revenues of $97.2 million and $75.0 million for the three months ended September 30, 2011 and 2010, respectively, and $286.1 million and $211.2 million for the nine months ended September 30, 2011 and 2010, respectively, is included in Operating Revenues. This elimination is primarily between We Power and Wisconsin Electric.


(c)	An elimination of $2,392.0 million and $1,803.3 million is included in Total Assets as of September 30, 2011 and 2010, respectively, for PTF-related activity between We Power and Wisconsin Electric.

12 -- VARIABLE INTEREST ENTITIES

The primary beneficiary of a variable interest entity must consolidate the related assets and liabilities. Certain disclosures are required by sponsors, significant interest holders in variable interest entities and potential variable interest entities.

We assess our relationships with potential variable interest entities such as our coal suppliers, natural gas suppliers, coal and gas transporters, and other counterparties in power purchase agreements and joint ventures. In making this assessment, we consider the potential that our contracts or other arrangements provide subordinated financial support, the potential for us to absorb losses or rights to residual returns of the entity, the ability to directly or indirectly make decisions about the entities' activities and other factors.

We have identified two tolling and purchased power agreements with third parties that represent variable interests. We account for one of these agreements, with an independent power producer, as an operating lease. The agreement has a remaining term of two years. We have examined the risks of the entity including the impact of operations and maintenance, dispatch, financing, fuel costs, remaining useful life and other factors, and have



September 2011	22	Wisconsin Energy Corporation

Form 10-Q

determined that we are not the primary beneficiary of this entity. We have concluded that we do not have the power to direct the activities that would most significantly affect the economic performance of the entity over its remaining life.

We also have a purchased power agreement for 236 MW of firm capacity from a gas-fired cogeneration facility, which we account for as a capital lease. The agreement includes no minimum energy requirements over the remaining term of 11 years. We have examined the risks of the entity including operations and maintenance, dispatch, financing, fuel costs and other factors, and have determined that we are not the primary beneficiary of the entity. We do not hold an equity or debt interest in the entity and there is no residual guarantee associated with the purchased power agreement.

We have approximately $321.6 million of required payments over the remaining term of these agreements. We believe that the required lease payments under these contracts will continue to be recoverable in rates. Total capacity and lease payments under these contracts for the nine months ended September 30, 2011 and 2010 were $51.0 million and $49.6 million, respectively. Our maximum exposure to loss is limited to the capacity payments under the contracts.

13 -- COMMITMENTS AND CONTINGENCIES

Environmental Matters: We periodically review our exposure for remediation costs as evidence becomes available indicating that our liability has changed. Given current information, we believe that future costs in excess of the amounts accrued and/or disclosed on all presently known and quantifiable environmental contingencies will not be material to our financial statements as a whole.

We have a program of comprehensive environmental remediation planning for former manufactured gas plant sites and coal combustion product disposal sites. We perform ongoing assessments of manufactured gas plant sites and related disposal sites used by Wisconsin Electric and Wisconsin Gas, and coal combustion product disposal/landfill sites used by Wisconsin Electric. We are working with the Wisconsin Department of Natural Resources (WDNR) in our investigation and remediation planning. At this time, we cannot estimate future remediation costs associated with these sites beyond those described below.

Manufactured Gas Plant Sites: We have identified several sites at which Wisconsin Electric, Wisconsin Gas, or a predecessor company historically owned or operated a manufactured gas plant. These sites have been substantially remediated or are at various stages of investigation, monitoring and remediation. We have also identified other sites that may have been impacted by historical manufactured gas plant activities. Based upon on-going analysis, we estimate that the future costs for detailed site investigation and future remediation costs may range from $35 million to $65 million over the next ten years. This estimate is dependent upon several variables including, among other things, the extent of remediation, changes in technology and changes in regulation. As of September 30, 2011, we have established reserves of $45.1 million related to future remediation costs.

The PSCW has allowed Wisconsin utilities, including Wisconsin Electric and Wisconsin Gas, to defer the costs spent on the remediation of manufactured gas plant sites, and has allowed for these costs to be recovered in rates over five years. Accordingly, we have recorded a regulatory asset for remediation costs.

Divestitures: Over the past several years, we have sold various businesses and assets. In connection with these sales, we have agreed to provide the respective buyers with customary indemnification provisions including, but not limited to, certain environmental, asbestos and product liability matters. In addition, pursuant to the sale of Point Beach, we have agreed to indemnification provisions customary to transactions involving the sale of nuclear assets. We also provided customary indemnifications to WPL in connection with the sale of our interest in Edgewater Generating Unit 5. We have established reserves as deemed appropriate for these indemnification provisions.

Cash Balance Pension Plan: In June 2009, a lawsuit was filed by Alan M. Downes, a former employee, against the Plan in the U.S. District Court for the Eastern District of Wisconsin. Counsel representing the plaintiff has sought class certification for other similarly situated plaintiffs. The complaint alleges that Plan participants who received a lump sum distribution under the Plan prior to their normal retirement age did not receive the full benefit to which they were entitled in violation of the Employee Retirement Income Security Act of 1974 (ERISA) and are owed additional benefits, because the Plan failed to apply the correct interest crediting rate to project the cash balance account to their normal retirement age. In September 2010, the plaintiff filed a First Amended Class Action



September 2011	23	Wisconsin Energy Corporation

Form 10-Q

Complaint alleging additional claims under ERISA and adding Wisconsin Energy as a defendant. The plaintiff has not specified the amount of relief he is seeking.

In March 2011, after the matter was addressed by the Plan's Employee Benefits Committee and following the Committee's review and analysis of the facts and evolving state of the law, the Plan acknowledged in an amended answer that it had used an incorrect interest crediting rate in computing lump sum payments prior to normal retirement age. The Committee determined the interest crediting rates that should be applied to address the interest crediting rate calculation and determined that the benefits for certain eligible participants should be recalculated. The plaintiff is opposing the Committee's actions and the Court has not yet decided what deference, if any, to give to the Committee's decision. In the meantime, the parties have engaged in mediation and are exploring settlement opportunities. We are currently unable to predict the final outcome or impact of this litigation. While an adverse outcome of this lawsuit could have a material adverse effect on Plan funding and future expense, we do not believe that the resolution of this matter will cost more than $0.05 per share in 2011.

Income Taxes: During 2011, our state and federal unrecognized tax benefits decreased by approximately $15.4 million exclusive of accrued interest, of which $10.2 million relates to discontinued operations. This decrease was the result of the expiration of state statute of limitations, as well as effective settlements with state and federal taxing authorities. Additionally, within the next 12 months, it is reasonably possible that our unrecognized tax benefits associated with discontinued operations may decrease by approximately $1.5 million due to the expiration of state statute of limitations.

14 -- SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ended September 30, 2011, we paid $138.1 million in interest, net of amounts capitalized, and received $62.7 million in net refunds from income taxes. During the nine months ended September 30, 2010, we paid $101.2 million in interest, net of amounts capitalized, and $162.0 million in income taxes, net of refunds.

As of September 30, 2011 and 2010, the amount of accounts payable related to capital expenditures was $19.2 million and $18.2 million, respectively.



September 2011	24	Wisconsin Energy Corporation

Form 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2011

CONSOLIDATED EARNINGS

The following table compares our operating income by business segment and our net income during the third quarter of 2011 with the third quarter of 2010, including favorable (better (B)) or unfavorable (worse (W)) variances:



	Three Months Ended September 30
	2011			B (W)			2010
	(Millions of Dollars)
Utility Energy Segment	$	135.6		$	1.4		$	134.2
Non-Utility Energy Segment	89.8			20.8			69.0
Corporate and Other	(1.1		)	(0.9		)	(0.2		)
Total Operating Income	224.3			21.3			203.0
Equity in Earnings of Transmission Affiliate	15.7			0.5			15.2
Other Income, net	16.2			6.6			9.6
Interest Expense, net	56.8			(4.3		)	52.5
Income from Continuing Operations Before Income Taxes	199.4			24.1			175.3
Income Taxes	69.6			(6.6		)	63.0
Income from Continuing Operations	$	129.8		$	17.5		$	112.3
Diluted Earnings Per Share from Continuing Operations	$	0.55		$	0.08		$	0.47

UTILITY ENERGY SEGMENT CONTRIBUTION TO OPERATING INCOME

Our utility energy segment contributed $135.6 million of operating income during the third quarter of 2011, an increase of $1.4 million, or 1.0%, compared with the third quarter of 2010. The following table summarizes the operating income of this segment between the comparative quarters: