RISK FACTORS

      You should carefully consider the risks described below as well as other information contained in this prospectus before exchanging your original first mortgage bonds. The risks described in this section are those that we consider to be the most significant to your decision whether to invest in our exchange first mortgage bonds. If any of the events described below occurs, our business, financial condition or results of operations could be materially harmed. In addition, we may not be able to make payments on the exchange first mortgage bonds, and this could result in your losing all or part of your investment.

Risks Related to Our Relationship to Xcel Energy

      We are an operating electric and gas utility and a subsidiary of Xcel Energy. Xcel Energy has a number of other utility and non-utility subsidiaries.

      Xcel Energy provides various guarantees and bond indemnities supporting some of its subsidiaries by guaranteeing the payment or performance by these subsidiaries of specified agreements or transactions. Xcel Energy’s exposure under the guarantees is based upon the net liability of the relevant subsidiary under the specified agreements or transactions. The majority of Xcel Energy’s guarantees limit its exposure to a maximum amount that is stated in the guarantees. As of September 30, 2003, Xcel Energy had guarantees outstanding with a maximum stated amount of approximately $329 million of which $80 million related to Xcel Energy’s former subsidiary, NRG, and actual aggregate exposure of approximately $18 million, which amount will vary over time. Xcel Energy has provided indemnities to sureties in respect of bonds for the benefit of its subsidiaries. The total amount of bonds with these indemnities outstanding as of September 30, 2003 was approximately $33 million, of which $6 million related to NRG. As part of the consummation of NRG’s plan of reorganization, NRG provided Xcel Energy with cash collateral (which NRG may replace with letters of credit) that has the effect of eliminating Xcel Energy’s exposure under the guarantees and sureties related to NRG. If Xcel Energy were to become obligated to make payments under these guarantees and bond indemnities, it could limit Xcel Energy’s ability to contribute equity or make loans to us, or may cause Xcel Energy to seek, within certain regulatory limitations and the limitations provided by corporate law, additional or accelerated funding from us in the form of dividends. If such event were to occur, we may need to seek alternative sources of funds to meet our cash needs.

      If either Standard & Poor’s or Moody’s were to downgrade Xcel Energy’s credit rating below investment grade, Xcel Energy may be required to provide credit enhancements in the form of cash collateral, letters of credit or other security to satisfy part or potentially all of these exposures. If either Standard & Poor’s or Moody’s were to downgrade Xcel Energy’s debt securities below investment grade, it would increase Xcel Energy’s cost of capital and restrict its access to the capital markets. This would limit Xcel Energy’s ability to contribute equity or make loans to us, or may cause Xcel Energy to seek additional or accelerated funding from us in the form of dividends. If such event were to occur, we may need to seek alternative sources of funds to meet our cash needs.

      We rely on Xcel Energy Services Inc. (“Xcel Services”), a subsidiary service company of Xcel Energy, for many administrative services. If Xcel Energy were to experience severe financial difficulties, it could temporarily disrupt the provision of these services or cause us to provide those services ourselves, at potentially greater cost.

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      PUHCA contains limitations on the ability of registered holding companies and certain of their subsidiaries to issue securities. Such registered holding companies and their subsidiaries may not issue securities unless authorized by an exemptive rule or order of the SEC. For utility subsidiaries like us, one of the exemptive rules permits utilities to issue securities to finance their business so long as the issuance has been approved by the appropriate state utility commission. In our case, this offering and our other borrowings have been authorized by the PSCW and are exempt under this rule. To the extent we wish to issue securities that are not exempt by rule under PUHCA, we will need to seek authorization from the SEC under PUHCA.

      Because Xcel Energy does not qualify for any of the main exemptive rules, it sought and received financing authority from the SEC under PUHCA for various financing arrangements. Xcel Energy’s current financing authority permits it, subject to satisfaction of certain conditions, to issue through June 30, 2005 up to $2.5 billion of common stock and long-term debt and $1.5 billion of short-term debt at the holding company level. Xcel Energy has issued $2 billion of long-term debt and common stock.

      One of the conditions of the financing order, which also includes authorization for intra-system loans for the Xcel Energy subsidiaries to the extent not otherwise exempt, is that Xcel Energy’s ratio of common equity to total capitalization, on a consolidated basis, be at least 30 percent.

      During 2002 and 2003, Xcel Energy was required to record significant asset impairment losses from sales or divestitures of NRG assets and businesses; from NRG’s canceling or deferring the funding of certain projects under construction and from NRG’s deciding not to contribute additional funds to certain projects already operating. As a result, Xcel Energy’s common equity ratio fell below 30 percent. As of September 30, 2003 Xcel Energy’s common equity ratio was approximately 40 percent.

      Another condition of the SEC financing order is that (a) if the security to be issued is rated, it is rated investment grade by at least one nationally recognized rating agency and (b) all Xcel Energy’s outstanding securities (except its preferred stock) that are rated must be rated investment grade by at least one nationally recognized rating agency. As of December 31, 2003, Xcel Energy’s senior unsecured debt was rated “BBB-” (CreditWatch positive) by Standard & Poor’s and “Baa3” (under review for possible upgrade) by Moody’s, which is investment grade.

      If Xcel Energy’s common equity ratio falls below the 30 percent level or its securities are not rated investment grade, and Xcel Energy is unable to obtain additional relief from the SEC, Xcel Energy may not be able to issue securities (except that it could issue common stock even if the equity ratio is below 30 percent), which could limit its ability to contribute equity or make loans to us or may cause Xcel Energy to seek, within certain regulatory limitations and the limitations provided by corporate law, additional or accelerated funding from us in the form of dividends. If such event were to occur, we may need to seek alternative sources of funds to meet our cash needs. Alternative sources of funds could include the issuance of additional bonds or other debt securities. No assurance can be given that such alternatives will be available to us in required amounts or at reasonable costs.

      Our senior secured debt has been assigned a rating of “BBB+” (CreditWatch positive) by Standard & Poor’s and of “A3” (under review for possible upgrade) by Moody’s.

      The reductions in our credit ratings and those of Xcel Energy and the other operating utilities of Xcel Energy in 2002 occurred in the context of a severe deterioration in the credit ratings of NRG that began in 2001 and continued in 2002.

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      Any future downgrade of our securities will likely increase our cost of capital and reduce our access to the capital markets. This could adversely affect our financial condition and results of operations. We cannot assure you that any of our current ratings or those of our affiliates, including Xcel Energy, will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency. Any lowering of the rating of our first mortgage bonds would likely reduce the value of the exchange first mortgage bonds offered hereby. As discussed above, NRG is no longer a subsidiary of Xcel Energy or an affiliate of us as of December 5, 2003.

      Historically, we have relied on bank lines of credit, borrowings from NSP-MN and capital contributions from Xcel Energy to supplement our operating cash flow in order to meet the short-term liquidity requirements of our business. We are also expecting to rely on loans we may obtain under a utility money pool primarily funded by Xcel Energy pursuant to a money pool agreement entered into among Xcel Energy, us and Xcel Energy’s other operating utilities and that has been recently approved by the SEC and, as it relates to our participation, the MPSC and that will go into effect upon PSCW approval. If Xcel Energy’s or NSP-MN’s access to the capital markets is impaired, it could limit Xcel Energy’s ability to contribute equity or make loans to us or may cause Xcel Energy to seek additional or accelerated funding from us in the form of dividends and could affect NSP-MN’s ability to make loans to us and could impact the rate of such loans.

      We also rely on accessing the capital markets to support our capital expenditure programs and other capital requirements to maintain and build our utility infrastructure and comply with future requirements such as installing emission control equipment. If we are unable to access the capital markets on favorable terms, our ability to fund our operations and required capital expenditures and other investments may be adversely affected.

      A majority of the members of our board of directors, as well as many of our executive officers, are officers of Xcel Energy. Our board makes determinations with respect to the following:

	•	our payment of dividends;
	•	decisions on our financings and our capital raising activities;
	•	mergers or other business combinations; and
	•	our acquisition or disposition of assets.

      Historically we have paid quarterly dividends to Xcel Energy. In 2001, 2002 and the first nine months of 2003, we paid $32.5 million, $47.1 million and $37.4 million of dividends to Xcel Energy, respectively. Our board of directors could decide to increase dividends, within the limitations of our financial covenants and credit rating objectives, to Xcel Energy to support its cash needs. This could adversely affect our liquidity. Under PUHCA, we can only pay dividends out of current earnings and retained earnings without the prior approval of the SEC. Under our Wisconsin regulatory commitments, our ability to pay dividends is also effectively limited due to the requirement of the PSCW that we maintain an equity ratio of between 52% and 57% of our total capitalization. At September 30, 2003, our retained earnings were approximately $262 million.

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      On July 31, 2002, a lawsuit purporting to be a class action on behalf of purchasers of Xcel Energy common stock between January 31, 2001 and July 26, 2002, was filed in the United States District Court in Minnesota. The complaint named Xcel Energy; Wayne H. Brunetti, our Chairman and Chairman and Chief Executive Officer of Xcel Energy and one of our directors; Edward J. McIntyre, former Vice President and Chief Financial Officer of Xcel Energy; and James J. Howard, former Chairman of Xcel Energy, as defendants. Among other things, the complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 thereunder related to allegedly false and misleading disclosures concerning various issues, including “round trip” energy trades, the existence of cross-default provisions in Xcel Energy’s and NRG’s credit agreements with lenders, NRG’s liquidity and credit status, the supposed risks to Xcel Energy’s credit rating and the status of Xcel Energy’s internal controls to monitor trading of its power. Thereafter, several additional lawsuits were filed with similar allegations, one of which added claims on behalf of a purported class of purchasers of two series of NRG senior notes issued by NRG in early 2001. The cases have all been consolidated and a consolidated amended complaint has been filed. The amended complaint charges false and misleading disclosures concerning “round trip” energy trades and the existence of provisions in Xcel Energy’s credit agreements with lenders for cross-defaults in the event of a default by NRG and, as to the NRG senior notes, also insufficient disclosures concerning the extent to which NRG’s “fortunes” were tied to those of Xcel Energy, especially in the event of a buy-in of NRG public shares. It adds as additional defendants on the claims relating to the NRG senior notes Gary R. Johnson, our and Xcel Energy’s Vice President and General Counsel and one of our directors, Richard C. Kelly, our Vice President and one of our directors and the President and Chief Operating Officer of Xcel Energy, two former executive officers of NRG (David H. Peterson and Leonard A. Bluhm), one current executive officer of NRG (William T. Pieper) and a former independent director of NRG (Luella G. Goldberg); and, as to the NRG senior notes, it adds claims of false and misleading disclosures under Section 11 of the Securities Act. The defendants filed motions to dismiss all the claims, and the court granted the motions in part and denied them in part on September 30, 2003. The court dismissed the claims brought by a sub-class of plaintiffs represented by Catholic Workman. This group consisted of persons who purchased NRG senior notes and alleged false and misleading statements in the registration statement or prospectus under Section 11 of the Securities Act. The court, however, denied the motion with respect to a putative class of plaintiffs consisting of owners of Xcel Energy common stock who alleged fraud in violation of Sections 10(b) and 20(a) of the Exchange Act. The defendants filed an answer on November 21, 2003, and the case is expected to proceed in the normal course as to the claims relating to common stock.

      On August 15, 2002, a shareholder derivative action was filed in the United States District Court for the District of Minnesota, purportedly on behalf of Xcel Energy, against Xcel Energy’s directors and certain present and former officers, citing essentially the same circumstances as the class actions described above and asserting breach of fiduciary duty. This action has been consolidated for pre-trial purposes with the securities class actions. After the filing of this action, two additional derivative actions were filed in the state trial court for Hennepin County, Minnesota (and subsequently consolidated with each other), against essentially the same defendants, focusing on allegedly wrongful energy trading activities and asserting breach of fiduciary duty for failure to establish and maintain adequate accounting controls, abuse of control and gross mismanagement. In each of the derivative cases, the defendants have served motions to dismiss the complaint for failure to make a proper pre-suit demand (or, in the federal court case, to make any pre-suit demand at all) upon Xcel Energy’s board of directors. On October 10, 2003, oral arguments related to the defendants’ motion to dismiss in the state cases were presented to the court. On January 6, 2004 the state court granted defendants’ motion to dismiss the state shareholder derivative lawsuits.

      On September 23, 2002 and October 9, 2002, actions were filed in the United States District Court for the District of Colorado, purportedly on behalf of classes of employee participants in Xcel Energy’s (and its predecessors’) 401(k) and employee stock ownership plans from as early as September 23, 1999. The complaints in the actions, which name as defendants Xcel Energy, its directors, certain former directors, and certain of Xcel Energy’s present and former officers, allege breach of fiduciary duty in allowing or encouraging

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      On February 26, 2003, Fortistar Capital, Inc. and Fortistar Methane, LLC (together, “Fortistar”) filed a $1 billion lawsuit in the Federal District Court for the Northern District of New York against Xcel Energy and five present or former employees of NRG and NEO Corp., a subsidiary of NRG. In the lawsuit, Fortistar claims that the defendants violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and committed fraud by engaging in a pattern of negotiating and executing agreements “they intended not to comply with” and “made false statements later to conceal their fraudulent promises.” The allegations against Xcel Energy are, for the most part, limited to purported activities related to the contract for NRG’s Pike Energy power facility in Mississippi and statements related to an “equity infusion” into NRG by Xcel Energy. The plaintiffs allege damages of some $350 million and also assert entitlement to a trebling of these damages under the provisions of RICO. The present and former NRG and NEO Corp. officers and employees have requested indemnity from NRG and NRG is now examining these requests. A settlement has been reached by the parties, and they are in the process of dismissing the complaint.

      The defense of these lawsuits may divert the attention of our management. In addition, if any one or a combination of these cases or other similar claims result in a substantial monetary judgment against Xcel Energy or are settled on unfavorable terms, Xcel Energy’s results of operations and liquidity could be materially adversely affected and it could limit Xcel Energy’s ability to contribute equity or make loans to us or may cause Xcel Energy to seek additional or accelerated funding from us in the form of dividends.

Risks Associated with Our Business

      The profitability of our utility operations depends on our ability to recover costs related to providing energy and utility services in rates charged to our customers. In June 2003, we filed our required biennial rate application with the PSCW requesting no change in our Wisconsin retail electric and natural gas base rates. The PSCW may not approve our request and could instead lower our base rates. In mid-December 2003, the PSCW informed us that they expect to complete their audit of our June 2003 rate filing in mid-January and they expect to issue an order in the first quarter of 2004. Although our Wisconsin gas and Michigan electric and gas rates have fuel adjustment recovery mechanisms, Wisconsin law does not allow the use of an automatic electric fuel adjustment clause for our Wisconsin retail electric customers. Instead, the PSCW uses a procedure that compares actual monthly and anticipated annual fuel costs with the forecast of those costs that was included in our latest retail electric rate case. If the comparison results in a difference outside a prescribed range, the PSCW may hold hearings limited to fuel costs and revise retail electric rates upward or downward. Any revised rates would be effective until the next fuel filing or rate case. Any adjustment approved would be calculated on an annual basis, but applied prospectively. The PSCW is not required to approve any such adjustments and may decline to do so. Although we believe that the current regulatory environment applicable to our business would permit us to recover the costs of our utility services, it is possible that there could be changes in circumstances or in the regulatory environment in one or more of those states that would impair our ability to recover costs historically absorbed by our customers. In particular, as a result of the energy crisis in California and the financial troubles at a number of energy companies, including the financial challenges of Xcel Energy and NRG, the regulatory environments in which we operate have received increased public attention. That attention could result in changes adverse to our ability to recover our costs.

      The FERC has jurisdiction over rates for electric transmission service and electric energy sold at wholesale in interstate commerce. In addition, the FERC has jurisdiction over the “Restated Agreement to Coordinate Planning and Operations and Interchange Power and Energy” between NSP-MN and us (the

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      We are unable to predict the impact on our operating results from the future regulatory activities of any of these agencies. Changes in regulations or the imposition of additional regulations could have an adverse impact on our results of operations and hence could materially and adversely affect our ability to meet our financial obligations, including making payments on the exchange first mortgage bonds.

      In light of the financial troubles of Xcel Energy and NRG, we face enhanced scrutiny from our state regulators. State utility commissions generally possess broad powers to ensure that the needs of the utility customers are being met. To the extent that one or more of our state utility commissions takes the position that any of our dividends have been funded by any of our financings, the regulators may not permit us to recover the related financing costs by passing them through to our customers as costs related to providing energy. Furthermore, our state utility commissions may, in future rate cases, determine that some portion of our financing costs, the issuance of the original first mortgage bonds and the exchange first mortgage bonds may not be recoverable because such costs are deemed to have been increased due to the financial problems at Xcel Energy and NRG. We also may be asked to otherwise ensure that our ratepayers are not harmed as a result of NRG’s bankruptcy.

      Our electric production and transmission system is managed on an integrated basis with the electric production and transmission system of NSP-MN. As discussed above, pursuant to the Interchange Agreement between NSP-MN and us we share, on a proportional basis, all costs related to the generation and transmission facilities of the entire integrated NSP System including capital costs. Accordingly, if the costs to operate NSP-MN’s system increase, or revenue decrease, whether as a result of state or federally mandated improvements or otherwise, our costs could also increase as our revenues could decrease, and we cannot guarantee a full recovery of such costs through our rates at the time the costs are incurred.

      Our electric production and transmission system is managed on an integrated basis with the electric production and transmission system of NSP-MN through the Interchange Agreement.

      NSP-MN’s two nuclear stations, Prairie Island and Monticello, subject it, and indirectly us, to the risks of nuclear generation, which include:

	•	the risks associated with storage, handling and disposal of radioactive materials and the current lack of a long-term disposal solution for radioactive materials;
	•	limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with nuclear operations; and

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	•	uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives.

      The Nuclear Regulatory Commission (“NRC”) has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements promulgated by the NRC could necessitate substantial capital expenditures at NSP-MN’s nuclear plants. In addition, although we have no reason to anticipate a serious nuclear incident, if an incident did occur, it could have a material adverse effect on our results of operations or financial condition. Furthermore, the non-compliance of other nuclear facilities operators with applicable regulations or the occurrence of a serious nuclear incident at other facilities could result in increased regulation of the industry as a whole, which could then increase NSP-MN’s compliance costs and impact the results of operations of its facilities.

      Pursuant to the Interchange Agreement, we share, on a proportional basis, all costs related to the generation and transmission facilities of the entire integrated NSP System including NSP-MN’s nuclear facilities. Accordingly, if the costs to operate NSP-MN’s nuclear facilities increase, whether as a result of outages, increased compliance costs or other events, our costs could also increase, and we cannot guarantee a full recovery of such costs through our rates at the time the costs are incurred.

                  Environmental investigation and remediation costs at our Ashland site could impact our profitability and liquidity.

      We were named as one of three primary responsible parties for creosote and coal tar contamination at a site in Ashland, Wisconsin. The Ashland site includes property owned by us and two other properties: an adjacent city lakeshore park area and a small area of Lake Superior’s Chequemegon Bay adjoining the park.

      The Wisconsin Department of Natural Resources (“WDNR”) and we have each developed several estimates of the ultimate cost to remediate the Ashland site. The estimates vary significantly, between $4 million and $93 million, because different methods of remediation and different results are assumed in each. The Environmental Protection Agency (“EPA”) and WDNR have not yet selected the method of remediation to use at the site. Until the EPA and the WDNR select a remediation strategy for all operable units at the site and determine the level of responsibility of each primary responsible party, we are not able to accurately determine our share of the ultimate cost of remediating the Ashland site.

      In the interim, we have recorded a liability for an estimate of our share of the cost of remediating the portion of the Ashland site that we own, estimated using information available to date and using reasonably effective remedial methods. We have deferred, as a regulatory asset, the remediation costs accrued for the Ashland site because we expect that the PSCW will continue to allow us to recover payments for environmental remediation from our customers. The PSCW has consistently authorized recovery in our rates of all remediation costs incurred at the Ashland site, and has authorized recovery of similar remediation costs for other Wisconsin utilities.

      We proposed, and the EPA and WDNR have approved, an interim action (a coal tar removal/ groundwater treatment system) for one operable unit at the site for which we have accepted responsibility. The groundwater treatment system began operating in the fall of 2000. In 2002 we installed additional monitoring wells in the deep aquifer to better characterize the extent and degree of contaminants in that aquifer while the coal tar removal system is operational. In 2002 a second interim response action was also implemented. As approved by the WDNR, this interim response action involved the removal and capping of a seep area in a city park. Surface soils in the area of the seep were contaminated with tar residues. The interim action also included the diversion and ongoing treatment of groundwater that contributed to the formation of the seep.

      On September 5, 2002, the Ashland site was placed on the National Priorities List (“NPL”). The NPL is intended primarily to guide the EPA in determining which sites require further investigation. Resolution of

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      On August 5, 2003, EPA issued to us a general notice of liability letter for the Ashland Site. EPA further notified us that it would enter into formal negotiations for the purpose of allowing us to take over the completion of the remedial investigation/ feasibility study (“RI/FS”) being conducted at the site. On August 26, 2003, we responded to EPA’s general notice of liability and committed to complete the RI/FS subject to an Administrative Order on Consent (“AOC”) document to be negotiated among the parties. We entered into the AOC and Scope of Work (“SOW”) with EPA, effective November 14, 2003. It is expected to cost approximately $1.5 million to complete the RI/FS activities required by the AOC. We must also pay USEPA’s costs of oversight of this work.

      The AOC and SOW requires us to submit monthly written progress reports concerning actions taken at the site. The first progress report was submitted to EPA in December 2003. The AOC and SOW also required that we submit a technical letter report to EPA containing a description of similarities and differences between the RI/FS work plan prepared by the WDNR and our RI/FS work plan. This technical letter report was submitted to EPA in December 2003 and was used as a basis for a Technical Scoping Meeting held among EPA, WDNR and us. The Technical Scoping Meeting was held on January 8, 2004 to resolve any major technical discrepancies between DNR’s RI/FS work plan and our RI/FS work plan. We will soon be submitting a revised RI/FS work plan to EPA incorporating discussions from the Technical Scoping Meeting. Upon USEPA approval, the field work required by the RI/FS workplan will proceed, likely in 2004. It is estimated that the Final RI/FS report setting forth proposed cleanup options will be submitted at the end of 2005. Thereafter, USEPA will select a cleanup option.

      We continue to work with the WDNR to access state and federal funds to apply to the ultimate remediation cost of the entire site.

                  We are subject to commodity price risk, credit risk and other risks associated with energy markets.

      We engage in wholesale sales and purchases of electric capacity and energy and natural gas, and, accordingly, are also subject to commodity price risk, credit risk and other risks associated with these activities either directly or through the Interchange Agreement.

      We are exposed to market and credit risks in our generation and retail distribution operations. The level of these risks are reduced somewhat by retail fuel cost recovery mechanisms which allow certain costs to be recovered from retail customers. To minimize the risk of market price and volume fluctuations, we or NSP-MN on our behalf enter into physical and financial derivative instrument contracts to hedge purchase and sale commitments, fuel requirements and inventories of natural gas, distillate fuel oil, electricity and coal and emission allowances. However, physical and financial derivative instrument contracts do not completely eliminate risks, including commodity price changes, market supply shortages, credit risk and interest rate changes. The impact of these variables could result in our inability to fulfill contractual obligations, significantly higher energy or fuel costs relative to corresponding sales contracts or increased interest expense.

      Credit risk includes the risk that wholesale counterparties that owe us money or energy will breach their obligations. Should the counterparties to these arrangements fail to perform, we may be forced to enter into alternative arrangements. In that event, our financial results could be adversely affected and we could incur losses.

                  Recession, grid disturbances, acts of war or terrorism could negatively impact our business.

      The consequences of a prolonged recession and adverse market conditions may include the continued uncertainty of energy prices and the capital and commodity markets. We cannot predict the impact of any continued economic slowdown or fluctuating energy prices. However, such impact could have a material adverse effect on our financial condition and results of operations.

      The conflict in Iraq and any other military strikes or sustained military campaign may affect our operations in unpredictable ways and may cause changes in the insurance markets, force us to increase

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      Further, like other operators of major industrial facilities, our generation plants, fuel storage facilities and transmission and distribution facilities may be targets of terrorist activities that could result in disruption of our ability to produce or distribute some portion of our energy products. Any such disruption could result in a significant decrease in revenues and significant additional costs to repair and insure our assets, which could have a material adverse impact on our financial condition and results of operation. In addition, these facilities constitute collateral for the first mortgage bonds. See “Description of the Exchange First Mortgage Bonds” below. Damage or destruction of such facilities could adversely affect the value of the collateral.

      Also, because our generation and transmission systems are part of an interconnected regional grid, we face the risk of possible loss of business due to a disruption or black-out caused by an event (severe storm, generator or transmission facility outage) on a neighboring system or the actions of a neighboring utility, similar to the August 14, 2003 black-out in portions of the eastern U.S. and Canada. Any such disruption could result in a significant decrease in revenues and significant additional costs to repair assets, which could have a material adverse impact on our financial condition and results of operation.

                  Increased competition resulting from restructuring efforts could have a significant financial impact on us and consequently decrease our revenue.

      Retail competition and the unbundling of regulated energy and gas service could have a significant financial impact on us due to an impairment of assets, a loss of retail customers, lower profit margins and/or increased costs of capital. Any such restructuring may have a significant impact on our financial position, results of operations and cash flows. We cannot predict when we will be subject to changes in legislation or regulation, nor can we predict the impact of these changes on our financial position, results of operations or cash flows. We believe that the prices we charge for electricity and the quality and reliability of our service currently place us in a position to compete effectively in the energy market.

                  Our operating results may fluctuate on a seasonal and quarterly basis and can be adversely affected by milder weather.

      Our electric and gas utility businesses are seasonal businesses and weather patterns can have a material impact on our operating performance. Demand for electricity is often greater in the summer and winter months associated with cooling and heating and demand for natural gas is extremely sensitive to winter (November to March) weather effects on space heating requirements. Because natural gas is heavily used for residential and commercial heating, the demand for this product depends heavily upon weather patterns throughout our service territory and a significant amount of natural gas revenues are recognized in the first and fourth quarters related to the heating seasons. Accordingly, our operations have historically generated less revenues and income when weather conditions are cooler in the summer and milder in the winter. We expect that unusually mild summers and winters would have an adverse effect on our financial condition and results of operations.

      Electric production expenses tend to vary with the quantity of electricity sold and changes in the unit costs of fuel and purchased power. The fuel and purchased power costs recovery mechanism of the Wisconsin jurisdiction does not allow for complete recovery of all expenses and, therefore, dramatic changes in costs or periods of extreme temperatures can impact earnings.

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Risks Related to the Exchange First Mortgage Bonds

                  Any lowering of the credit ratings on the exchange first mortgage bonds would likely reduce their value.

      As described above under the caption “Risk Factors — Risks Related to Our Relationship to Xcel Energy,” our credit ratings were lowered in 2002 and could be further lowered in the future. Any lowering of the credit rating on the exchange first mortgage bonds would likely reduce the value of the exchange first mortgage bonds offered hereby.

                  The exchange first mortgage bonds have no prior public market and a public market may not develop or be sustained after the offering.

      Although the exchange first mortgage bonds generally may be resold or otherwise transferred by holders who are not our affiliates without compliance with the registration requirements under the Securities Act, they will constitute a new issue of securities without an established trading market. We have been advised by the initial purchasers of the original first mortgage bonds that they currently intend to make a market in the exchange first mortgage bonds. However, such a market may not develop or, if it does develop, it may not continue. In addition, any such market-making activity may be limited during the exchange offer and during the pendency of any shelf registration that we might file. If an active public market does not develop, the market price and liquidity of the exchange first mortgage bonds may be adversely affected. Furthermore, we do not intend to apply for listing of the exchange first mortgage bonds on any securities exchange or automated quotation system.

      Even if a market for the exchange first mortgage bonds does develop, you may not be able to resell the exchange first mortgage bonds for an extended period of time, if at all. In addition, future trading prices for the exchange first mortgage bonds will depend on many factors, including, among other things, prevailing interest rates, our financial condition and the market for similar securities. As a result, you may not be able to liquidate your investment quickly or to liquidate it at an attractive price.

                  Broker-dealers or holders of our first mortgage bonds may become subject to the registration and prospectus delivery requirements of the Securities Act.

      Any broker-dealer that:

	•	exchanges its original first mortgage bonds in the exchange offer for the purpose of participating in a distribution of the exchange first mortgage bonds; or
	•	exchanges original first mortgage bonds that were received by it for its own account in the exchange offer,

may be deemed to have received restricted securities and may be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction by that broker-dealer. Any profit on the resale of the exchange first mortgage bonds and any commission or concessions received by a broker-dealer may be deemed to be underwriting compensation under the Securities Act.

      In addition to broker-dealers, any holder of first mortgage bonds that exchanges its original first mortgage bonds in the exchange offer for the purpose of participating in a distribution of the exchange first mortgage bonds may be deemed to have received restricted securities and may be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction by that holder of first mortgage bonds.

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Risks Related to a Failure to Exchange Original First Mortgage Bonds for Exchange First Mortgage Bonds

                  You may have difficulty selling the original first mortgage bonds which you do not exchange.

      If you do not exchange your original first mortgage bonds for the exchange first mortgage bonds offered in this exchange offer, you will continue to be subject to the restrictions on the transfer of your original first mortgage bonds. Those transfer restrictions are described in the indenture and in the legend contained on the original first mortgage bonds, and arose because we issued the original first mortgage bonds under exemptions from, and in transactions not subject to, the registration requirements of the Securities Act. In general, you may offer or sell your original first mortgage bonds only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. If you do not exchange your original first mortgage bonds in the exchange offer, you will no longer be entitled to have those original first mortgage bonds registered under the Securities Act.

      In addition, if a large number of original first mortgage bonds are exchanged for exchange first mortgage bonds issued in the exchange offer, the principal amount of original first mortgage bonds that will be outstanding will decrease. This will reduce the liquidity of the market for the original first mortgage bonds, making it more difficult for you to sell your original first mortgage bonds.

                  You must tender the original first mortgage bonds in accordance with proper procedures in order to ensure the exchange will occur.

      The exchange of the original first mortgage bonds for the exchange first mortgage bonds can only occur if the proper procedures, as detailed in this prospectus, are followed. The exchange first mortgage bonds will be issued in exchange for the original first mortgage bonds only after timely receipt by the exchange agent of the original first mortgage bonds or a book-entry confirmation, a properly completed and executed letter of transmittal (or an agent’s message in lieu thereof) and all other required documentation. If you want to tender your original first mortgage bonds in exchange for exchange first mortgage bonds, you should allow sufficient time to ensure timely delivery. The exchange agent is not and we are not under any duty to give you notification of defects or irregularities with respect to your tender of original first mortgage bonds for exchange. Original first mortgage bonds that are not tendered will continue to be subject to the existing transfer restrictions. In addition, if you are an affiliate of ours or you tender the original first mortgage bonds in the exchange offer in order to participate in a distribution of the exchange first mortgage bonds, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Additional information is set forth below under the captions “The Exchange Offer” and “Plan of Distribution.”

                  If a market develops for the exchange first mortgage bonds, the exchange first mortgage bonds might trade at prices higher or lower than the initial offering price of the original first mortgage bonds.

      If a market develops for the exchange first mortgage bonds, they might trade at prices higher or lower than the initial offering price of the original first mortgage bonds. The trading price would depend on many factors, such as prevailing interest rates, the market for similar securities, general economic conditions and our financial condition, performance and prospects.

Risks Associated with Our Former Accountant, Arthur Andersen LLP

                  Your ability to recover from our former independent certified public accountant, Arthur Andersen LLP, is limited.

      On March 27, 2002, we appointed Deloitte & Touche LLP to be our independent certified public accountant. Our former independent certified public accountant, Arthur Andersen LLP, was convicted on federal obstruction of justice charges arising from the federal government’s investigation of Enron Corp. In light of the conviction, Arthur Andersen ceased practicing before the SEC on August 31, 2002. Arthur Andersen was the auditor of our consolidated financial statements and related schedules as of December 31,

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