Fitch Expects To Rate Wisconsin Electric's $300MM Senior Notes 'A+'.

NEW YORK -- Fitch Ratings expects to assign an 'A+' rating to Wisconsin Electric Power Co's (WEPCO; IDR rated 'A' by Fitch) $300 million issue of senior unsecured debentures due 2036, which rank pari passu with WEPCO's other senior unsecured obligations. The Rating Outlook is Stable.

WEPCO's ratings reflects the company's stable cash flows, strong financial profile and constructive regulatory environment. WEPCO's competitive position is supported by its low-cost generating portfolio, diverse service territory and competitive costs and rates. WEPCO's natural gas segment benefits from a large residential class (64% of gas operating revenues) which provides a steady, albeit weather-sensitive, load due to the lack of a weather-normalization clause.

WEPCO's ratings are constrained by those of its highly levered parent, Wisconsin Energy Corp. (WEC; senior unsecured rated 'A-' with a Negative Rating Outlook), which is engaged in a $5 billion capital expenditure program, 'Power the Future' (PTF), that is expected to be funded with internally generated cash and external debt financings. Consequently, consolidated leverage, as measured by the ratio of Debt to EBITDA, is forecasted to remain substantially above average for the 'A-' rating category at more than 4.0 times (x) through 2009.

While WEPCO's debt will also increase as a result of the capital expenditure program, the utility's earnings and cash flow streams are projected to maintain credit measures consistent with the 'A+' rating category. However, WEPCO will rely on continuing supportive regulatory treatment from the Public Service Commission of Wisconsin (PSCW) to maintain its current credit profile. Historically, the regulatory environment in Wisconsin has been very constructive. Earlier this year, WEPCO and its affiliate, Wisconsin Gas received favorable rate orders. However, during this significant construction phase, WEPCO may encounter less favorable regulatory treatment as state commissions, even those constructive as the PSCW, can be reluctant to approve large rate increases.

WEPCO is a regulated electric and natural gas company serving more than one million electric and approximately 446,400 gas customers across Wisconsin and Michigan's UP. WEPCO owns and operates 5,590 MW of coal-fired (60%), gas/oil (21%) and nuclear (19%) generation.

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