Fitch Affirms Wisconsin Energy & Subsidiaries; Revises WEC's Outlook to Stable

Business Wire, April 30, 2008

CHICAGO -- Fitch Ratings has affirmed the outstanding ratings of Wisconsin Energy Corp., (WEC), and Wisconsin Energy Capital Corp. (WECC). The Rating Outlook has been revised to Stable from Negative. The ratings of Wisconsin Electric Power Co. (WEPCO) and Wisconsin Gas Co. (WI Gas) are affirmed with a Stable Outlook. Approximately $4.4 billion of securities are affected by today's rating actions. A full description of the ratings is shown below.

Ratings Affirmed

WEC

--Issuer Default Rating (IDR) at 'A-';

--Senior unsecured debt at 'A-';

--Junior subordinate debt at 'BBB ';

--Commercial paper/short-term IDR at 'F2'.

WECC

--IDR at 'A-';

--Senior unsecured debt at 'A-'.

WEPCO

--IDR at 'A';

--Senior unsecured debt at 'A ';

--Preferred stock at 'BBB ';

--Commercial paper/short-term IDR at 'F1'.

WI Gas

--IDR at 'A';

--Senior unsecured debt at 'A ';

--Commercial paper/short-term IDR at 'F1'.

WEC ratings are supported by the underlying strength of its regulated electric and gas utility subsidiaries, from which it derives stable and consistent cash distributions to meet dividend payments and service holding company debt obligations and strong liquidity position. The utilities consistently post strong financial results, maintain solid operating performances and competitive positions, and operate in a constructive regulatory environment in Wisconsin. Favorably, WEPCO is able to recover fuel and environmental compliance related costs through regulatory mechanisms, although there may be some regulatory lag. Fitch expects WEC credit ratios to improve to levels consistent with the existing guidelines for the ratings as the capital expenditure program winds down over the next two years.

Rating concerns facing WEC primarily relate to elevated levels of capital expenditures through completion of construction of the two new coal units (Oak Creek) by 2010. WEC is challenged to execute the 'Power of the Future' strategy (PTF) and maintain credit quality in the face of increasing labor and construction costs and winter weather related construction delays in 2007-2008.

The revision of WEC's Outlook to Stable from Negative reflects Fitch's expectation that the company's credit metrics will improve over the ratings horizon. Currently, WEC's financial profile is below average for certain 'A-' guideline ratios, with the ratio of EBITDA-to-interest at 4.0 times (x) and debt-to-EBITDA at 4.6x for the year ended December 2007. However, cash flow coverage was strong at more than 4.6x in 2007. Fitch forecasts credit metrics will steadily improve over the medium term following the roll off of the credits related to the sale of WEPCO's Point Beach nuclear plant, and the addition of PTF facilities and new wind generation into rate base. Importantly, parent level debt would be reduced considerably by 2012 assuming WEC is able to complete permanent financing for its PTF plants. Consequently, the ratios of EBITDA-to-interest and debt-to-EBITDA are projected by Fitch to improve to around 4.4x and 3.8x, respectively, within the next three years. Funds flow to interest coverage is expected to be at or near 4.0x by 2012. A lack of improvement credit metrics due to construction delays or cost overruns would put pressure on the current ratings and Outlook.

WECC was the funding vehicle for WEC's former non-regulated operations. The debt obligations of WECC are supported by an agreement with WEC, therefore the ratings of WECC reflect the credit quality of WEC. WECC has approximately $125 million of debt outstanding, with staggered maturities through 2028. WEC does not anticipate further funding through WECC and will pay down maturities as they come due.

WEC is the holding company for WEPCO and WI Gas in Wisconsin, as well as Edison Sault Electric Co. in Michigan. WEC's utility operations serve approximately 1.1 million electric and 1 million natural gas customers in Wisconsin and the Upper Peninsula of Michigan.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.