<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C.  20549


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

          For the quarterly period ended June 30, 1997
                                         -------------

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

          For the transition period from                        to
                      


                         Commission File Number 0-17736
                                                -------

                                  ESELCO, INC.                     
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      MICHIGAN                                                   38-2785176
----------------------                                    ----------------------
State of Incorporation                                    (I.R.S. Employer      
                                                          Identification Number)
                             725 East Portage Avenue
                        Sault Ste. Marie, Michigan 49783   
                    ----------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                  (906) 632-2221                     
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


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    
                                       -------     -------

           1,593,180 shares of Common Stock, par value $.01 per share,
                         outstanding as of June 30, 1997

<PAGE>

PART I. -- FINANCIAL INFORMATION
     ITEM 1. -- FINANCIAL STATEMENTS

                                E S E L C O, INC.
                  CONSOLIDATED STATEMENT OF FINANCIAL POSITION

<TABLE>
<CAPTION>

                                                                 June 30,           December 31,
                                                                  1997                 1996
                                                                -----------         -----------
<S>                                                             <C>                 <C>
 ASSETS:
    ELECTRIC PLANT, at original cost                            $73,852,064         $71,802,321
       Less - Accumulated depreciation                           31,041,007          29,671,038
                                                                -----------         -----------
                                                                $42,811,057         $42,131,283
       Asset acquired under capital lease                         2,815,065           2,851,622
                                                                -----------         -----------
                                                                $45,626,122         $44,982,883
                                                                -----------         -----------
 CURRENT ASSETS:
    Cash                                                            $74,844            $293,883
    Accounts receivable, less reserve of $39,151
    and $32,000 respectively                                      3,701,942           2,999,783
    Unbilled revenue                                              1,474,430           1,693,826
    Materials and supplies, at average cost                       1,305,028           1,148,046
    Prepayments                                                   1,293,987           1,966,932
                                                                -----------         -----------
                                                                 $7,850,231          $8,102,470
                                                                -----------         -----------
 OTHER ASSETS:
    Debt expense, being amortized                                   $25,372             $28,972
    Regulatory asset                                              3,334,381           3,510,181
    Other                                                           891,762             531,193
                                                                -----------         -----------
                                                                 $4,251,515          $4,070,346
                                                                -----------         -----------
                                                                $57,727,868         $57,155,721
                                                                -----------         -----------
 STOCKHOLDERS' INVESTMENT AND LIABILITIES:
    CAPITALIZATION (See Statement):
       Common Equity                                            $21,454,303         $20,234,722
       Preferred stock                                                    0                   0
       Long-term debt (less current portion)                     14,958,420          16,898,187
                                                                -----------         -----------
                                                                $36,412,723         $37,132,909
                                                                -----------         -----------
    OTHER NONCURRENT LIABILITIES:
       Obligation under capital lease                            $2,733,956          $2,775,905
                                                                -----------         -----------
    CURRENT LIABILITIES:
       Notes payable                                               $741,500          $1,119,000
       Current portion of long-term debt                          3,300,660           2,877,323
       Current portion of lease obligation                           81,109              75,717
       Accounts payable                                           3,331,196           2,143,082
       Dividends declared                                           446,090             415,960
       Accrued taxes                                              1,455,259           1,754,101
       Current deferred income taxes                                 61,955              66,755
       Accrued interest                                             164,773             166,215
       Other                                                        306,214             270,116
                                                                -----------         -----------
                                                                 $9,888,756          $8,888,269
                                                                -----------         -----------
    DEFERRED CREDITS:
       Deferred income taxes                                     $4,316,446          $4,454,626
       Net regulatory liability                                   1,199,526           1,193,526
       Unamortized investment tax credit                            839,581             873,181
       Other                                                      2,336,880           1,837,305
                                                                -----------         -----------
                                                                 $8,692,433          $8,358,638
                                                                -----------         -----------
                                                                $57,727,868         $57,155,721
                                                                -----------         -----------
                                                                -----------         -----------

</TABLE>

                                       1

<PAGE>

                               E S E L C O, INC.

                   CONSOLIDATED STATEMENT OF CAPITALIZATION

<TABLE>
<CAPTION>
                                                                                   June 30,                  December 31,
                                                                                    1997                         1996
                                                                              ----------------             ----------------
                                                                                AMOUNT     %                 AMOUNT     $
                                                                              ----------- ----             ----------  ----
<S>                                                                           <C>         <C>              <C>         <C>
COMMON EQUITY:
    COMMON STOCK, par value $.01 per share

                                                  1997           1996
                                                ---------      ---------
       Authorized shares                        9,840,000      3,000,000
                                                ---------      ---------
                                                ---------      ---------
       Outstanding shares                       1,593,180      1,540,592          $15,932                     $15,406
                                                ---------      ---------
                                                ---------      ---------
    Capital surplus                                                            19,256,710                  17,331,579
 
    Retained earnings                                                           3,176,178                   4,204,585
 
    Unearned compensation - ESOP and
       Restricted Stock Bonus Plan                                               (994,517)                 (1,316,848)
                                                                               ----------                  ----------

                                                                              $21,454,303   59%           $20,234,722   54%
                                                                               ----------                  ----------

PREFERRED STOCK, value $.01
  per share, authorized 160,000 shares                                                 $0    0%                    $0    0%
                                                                               ----------                  ----------

LONG-TERM DEBT of Subsidiaries (less current portion)
    First Mortgage Bonds:                                                              $0                    $855,000
       Series D, 7.00%, due 1998                                                  900,000                   1,200,000
       Series F, 10.31%, due 2001                                               4,070,000                   4,440,000
       Series G, 10.25%, due 2009                                               1,200,000                   1,500,000
       Series H, 7.90%, due 2002                                                5,567,000                   5,355,000

    Energy Thrift Notes, 5.8%-10%, due 1998-2007

    Equipment Loan, Floating Rate, due 1998                                       119,382                     147,786

    ESOP Loans of the Corporation,
       floating rate, due 2000-2001                                               230,336                     421,110

    Term Loan, floating rate, due 1999                                          2,871,702                   2,979,291
                                                                               ----------                  ----------
                                                                              $14,958,420    41%          $16,898,187    46%
                                                                               ----------   ---            ----------   ---
       TOTAL CAPITALIZATION                                                   $36,412,723   100%          $37,132,909   100%
                                                                               ----------   ---            ----------   ---
                                                                               ----------   ---            ----------   ---

</TABLE>

                                       2

<PAGE>

                               E S E L C O, INC.

                       CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>

                                                  The Three Months              The Six Months            The Twelve Months 
                                                   Ended June 30,               Ended June 30,              Ended June 30, 
                                                --------------------         -------------------        ---------------------
                                                 1997          1996           1997         1996           1997          1996 
                                                ------        ------         ------       ------        -------        ------
<S>                                            <C>           <C>            <C>          <C>           <C>            <C>
 OPERATING REVENUES                           $9,429,787    $8,947,935   $19,345,122    $18,725,187    $38,119,866   $37,503,321 
                                              ----------    ----------   -----------    -----------    -----------   -----------
 OPERATING EXPENSES: 
      Operation - Purchased power              $4,270,580    $4,346,701   $9,244,697     $9,667,957    $18,427,775   $19,581,393 
                - Other                         1,854,521     1,621,286    3,768,765      3,309,360      7,202,678     6,335,548 
      Maintenance                                 546,732       539,001    1,063,837      1,149,176      2,056,820     2,079,690 
      Depreciation and amortization               700,229       646,931    1,400,438      1,315,826      2,699,007     2,552,495 
      Property and other taxes                    400,312       397,268      805,066        766,236      1,595,181     1,559,438 
      Income taxes                                381,200       302,400      686,400        525,400      1,408,196     1,212,584 
                                               ----------    ----------  -----------    -----------    -----------   -----------

           Total operating expenses            $8,157,574    $7,853,587  $16,969,203    $16,733,955    $33,389,657   $33,321,148 
                                               ----------    ----------  -----------    -----------    -----------   -----------

           Net operating income                $1,272,213    $1,094,348   $2,375,919     $1,991,232     $4,730,209    $4,182,173 
                                               ----------    ----------  -----------    -----------    -----------   -----------

 OTHER INCOME (DEDUCTIONS), NET                  ($15,048)     ($30,304)    ($30,961)      ($46,722)      ($31,833)     ($58,568) 
                                               ----------    ----------  -----------    -----------    -----------   -----------

 ALLOWANCE FOR FUNDS USED 
      DURING CONSTRUCTION                         $39,900            $0      $79,800             $0        $79,800            $0 
                                               ----------    ----------  -----------    -----------    -----------   -----------

 INTEREST CHARGES: 
      Interest on long-term debt                 $393,545      $338,136     $784,053       $665,198     $1,486,242    $1,312,592 
      Other interest                               33,776        40,827       48,999         63,314        118,141       207,748 
                                               ----------    ----------  -----------    -----------    -----------   -----------

           Total interest charges                $427,321      $378,963     $833,052       $728,512     $1,604,383    $1,520,340 
                                               ----------    ----------  -----------    -----------    -----------   -----------

 NET INCOME AVAILABLE FOR 
  COMMON STOCK                                   $869,744      $685,081   $1,591,706     $1,215,998     $3,173,793    $2,603,265 
                                               ----------    ----------  -----------    -----------    -----------   -----------

 EARNINGS PER AVERAGE SHARE OF 
   COMMON STOCK                                    $0.55         $0.44        $1.00           $0.79          $2.00         $1.70  
                                                   -----         -----        -----           -----          -----         -----
                                                   -----         -----        -----           -----          -----         -----
 CASH DIVIDENDS DECLARED PER 
   SHARE OF COMMON STOCK                           $0.28         $0.26        $0.55           $0.52          $1.08         $1.01
                                                   -----         -----        -----           -----          -----         -----
                                                   -----         -----        -----           -----          -----         -----  

 AVERAGE COMMON SHARES OUTSTANDING              1,593,180     1,539,538    1,591,251      1,535,473      1,583,419     1,528,305 
                                               ----------    ----------  -----------    -----------    -----------   -----------
                                               ----------    ----------  -----------    -----------    -----------   -----------

</TABLE>

                                       3

<PAGE>

                                E S E L C O, INC.
                        CONSOLIDATED STATEMENT OF CASH FLOW
                   FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                         1997                   1996 
                                                                         ----                   ----
<S>                                                                      <C>                    <C>
NET CASH FLOWS FROM (USED BY): 
OPERATING ACTIVITIES: 
    Net income                                                        $1,591,706             $1,215,998 
     Noncash expenses, revenue, losses and gains 
       included in income 
          Depreciation and amortization                                1,437,137              1,364,353 
          Deferred taxes and charge equivalent to 
            investment tax credit, net of amortization                  (170,580)               446,388 
          Net decrease (increase) in receivables and 
            unbilled revenue                                            (482,763)               691,626 
          Net decrease (increase) in materials and 
            supplies and prepayments                                     515,963                862,039 
          Net increase (decrease) in accounts payable, 
            accrued taxes, and other current liabilities                 925,370             (1,846,409) 
          Increase (decrease) in interest accrued 
            but not paid                                                  (1,442)               (92,138) 
          Other                                                          410,583                 86,578 
                                                                      ----------             ----------
               Net cash from operating activities                     $4,225,974             $2,728,435 
                                                                      ----------             ----------

INVESTING ACTIVITIES: 
     Acquisition of property, plant and equipment                    ($2,170,664)           ($1,605,611) 
     Proceeds from disposals of property, plant 
       and equipment                                                      57,353                 16,120 
                                                                      ----------             ----------
               Net cash used by investing activities                 ($2,113,311)           ($1,589,491) 
                                                                      ----------             ----------

FINANCING ACTIVITIES: 
     Proceeds of short-term debt                                      $3,576,000             $5,923,500 
     Payments to settle short-term debt                               (3,953,500)            (7,252,500) 
     Issuance of long-term debt (net)                                    534,000              1,609,000 
     Payments on long-term debt                                       (1,815,699)            (1,241,679) 
     Proceeds from sale of common stock                                  206,844                405,664 
     Dividends paid                                                     (879,347)              (803,460) 
                                                                      ----------             ----------

               Net cash used by financing activities                 ($2,331,702)           ($1,359,475) 
                                                                      ----------             ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   ($219,039)             ($220,531)
 
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR                   293,883                302,845 
                                                                      ----------             ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD                       $74,844                $82,314 
                                                                      ----------             ----------
                                                                      ----------             ----------
     INTEREST PAID                                                      $897,955               $881,358 
                                                                      ----------             ----------
                                                                      ----------             ----------

     INCOME TAXES PAID                                                  $330,000               $645,000 
                                                                      ----------             ----------
                                                                      ----------             ----------

</TABLE>

                                       4

<PAGE>

                                  ESELCO, INC.

                          NOTES TO FINANCIAL STATEMENTS


(1)  These consolidated financial statements include the accounts of ESELCO,
     Inc. (ESELCO) and its wholly owned subsidiaries, Edison Sault Electric
     Company (Edison Sault), ESEG, Inc. and Northern Tree Service, Inc.  All
     significant intercompany balances and transactions have been eliminated in
     consolidation.  The consolidated financial statements as of June 30, 1997
     and 1996 included herein, which are unaudited, reflect, in the opinion of
     management, all adjustments (which include only normal recurring
     adjustments) necessary to present fairly the results of operations for the
     periods presented.  Sales of electricity by Edison Sault, ESELCO's major
     subsidiary, are affected to some degree by variations in weather
     conditions, and results of operations for interim periods are not
     necessarily indicative of results to be expected for the entire year.

     Certain information and footnote disclosures normally included in financial
     statements prepared in accordance with generally accepted accounting
     principles have been condensed or omitted pursuant to rules and regulations
     of the Securities and Exchange Commission, although ESELCO believes that
     the disclosures which are made are adequate to make the information
     presented not misleading.  It is suggested that these condensed
     consolidated financial statements be read in conjunction with the financial
     statements and the notes thereto included in ESELCO, Inc. 1996 Annual
     Report on Form 10K, which incorporates by reference the financial
     statements in the 1996 Annual Report to Shareholders.

(2)  On March 12, 1997, the Board of Directors of ESELCO declared a 3% stock
     dividend for shareholders of record May 1, 1997.  The outstanding number of
     common shares of ESELCO  previously reported in the Consolidated Statement
     of Capitalization in the Form 10-Q for the period ended March 31, 1997 to
     reflect the effect of this 3% stock dividend did not take into account the
     reduction for the number of fractional shares for which ESELCO was to pay
     cash in lieu of fractional shares.  Accordingly, after taking into account
     this reduction, the number of shares outstanding after the 3% stock
     dividend was declared and cash was paid in lieu of fractional shares is
     1,593,180 shares.  

(3)  On August 22, 1995, Edison Sault filed an application with the Michigan
     Public Service Commission (MPSC) for authority to implement price cap
     regulation.  In the application Edison Sault proposed that its base rates
     be capped at present levels, that its existing power supply cost recovery
     (PSCR) factor be rolled into base rates, and that its existing PSCR Clause
     be suspended.  Edison Sault published the required notice of opportunity to
     comment or request a hearing.  No comments were received and on
     September 21, 1995, the MPSC approved Edison Sault's application subject to
     the modification that Edison Sault give 30 days notice rather than 2 weeks
     notice for rate decreases and that Edison Sault file an 

                                       5

<PAGE>

     application by October 1, 2000, to address its experience under the price
     cap mechanism. With the latter modification the price cap authorization 
     represents an experimental regulatory mechanism.  The order also allows 
     Edison Sault to file an application seeking an increase in rates only under
     extraordinary circumstances.

     On October 23, 1995, the Attorney General for the State of Michigan filed
     an intervention and petition for rehearing in Edison Sault's price cap
     order.  The Attorney General's intervention was based on the grounds that
     the MPSC did not have authority to approve price cap regulation.  On
     December 21, 1995, the MPSC rejected the Attorney General's petition for
     rehearing.  On January 19, 1996, the Attorney General filed an appeal with
     the Michigan Court of Appeals.

     Legal counsel for Edison Sault believes that the Attorney General's appeal
     is without merit and that Edison Sault will prevail.  A decision in this
     case is not expected until mid to late 1997.  Edison Sault implemented the
     price cap order on January 1, 1996.

(4)  In 1993, Edison Sault received notification from the U.S. Environmental
     Protection Agency (U.S. EPA) that it was being named a "Potentially
     Responsible Party" at the Manistique River/Harbor Area of Concern (AOC) in
     Manistique, Michigan.  There were a number of other potentially responsible
     parties, some of whom have been notified by the U.S. EPA.

     The U.S. EPA, in conjunction with the Michigan Department of Natural
     Resources, identified the Manistique River and Harbor as an "Area of
     Concern" (AOC) due to PCBs which have been found in that area.  An
     Environmental Engineering/Cost Analysis (EECA) was submitted to the
     U.S. EPA which provided an analysis of various methods of remediation for
     the harbor.  The EECA presented six alternatives of remediation action and
     ultimately recommended a remediation method of in-place capping. 
     Management believed this to be the most prudent course of action.  Although
     the total ultimate cost of specific remedial action and Edison Sault's
     potential liability were not known at that time, management had estimated
     Edison Sault's minimum cost of this remedy to be $2.9 million.  That figure
     represented an increase of $1.9 million from the amount recorded during
     1994.  Certain other expenditures for investigation of any necessary
     remedial action were incurred and are reflected in the accompanying
     financial statements.

     During 1995 and 1996, the U.S. EPA agreed to allow the PRPs to remediate
     the harbor through in-place capping at a total cost of $6.4 million, with
     the Edison Sault portion costing $3.2 million.  Through further
     negotiations, the U.S. EPA and the PRPs agreed to a cash-out settlement
     whereby the PRPs would pay to the U.S. EPA the $6.4 million cost of capping
     for the right to be absolved from any future legal actions concerning PCB
     pollution.  To effect this settlement, an Administrative Order on Consent
     was executed by all parties in December, 1996 with payments made to the
     U.S. EPA prior to year-end 1996.

     To date, Edison Sault has incurred a total cost of $3.6 million on this
     project.  Edison Sault filed an action on February 4, 1997 in the Circuit
     Court for the County of Schoolcraft, 

                                       6

<PAGE>

     Michigan against certain insurance carriers to recover unreimbursed defense
     costs and expenses associated with defending this matter of approximately 
     $350,000 and indemnification for its costs of approximately $3.2 million in
     settling the matter with the U.S. EPA and obtaining a release of the 
     property damage claims asserted by the U.S. EPA.  The certainty and 
     magnitude of any insurance recovery is unknown at this time.  On April 28,
     1997, Michigan Mutual Insurance Company filed a counterclaim for 
     approximately $1.7 million for previously paid defense costs. Legal counsel
     for Edison Sault believes, based on the information currently available, 
     that the counterclaim lacks merit.

     In November 1993, the MPSC issued an order authorizing Edison Sault to
     defer and amortize, over a period not to exceed ten years, environmental
     assessment and remediation costs associated with the Manistique River AOC. 
     Therefore, Edison Sault has recorded a regulatory asset in the amount of
     $3.2 million, plus unreimbursed costs of $350,000, for a total of
     $3.55 million, which it began amortizing in 1997.

(5)  On May 14, 1997 ESELCO, Inc. and Wisconsin Energy Corporation (Wisconsin
     Energy) announced that they had entered into a definitive agreement
     regarding the acquisition of ESELCO by Wisconsin Energy.  The terms of the
     definitive agreement were approved by both companies' boards.  Upon
     completion of the acquisition, ESELCO would continue to operate from Sault
     Ste. Marie, Michigan.

     All outstanding shares of ESELCO common stock would be converted into
     shares of Wisconsin Energy common stock based on a value of $44.50 for each
     share of ESELCO common stock in a transaction proposed to be structured as
     a tax-free reorganization.  The total purchase price would be approximately
     $71.0 million.  The exact number of shares of Wisconsin Energy common stock
     to be issued in the transaction would be determined by dividing $44.50 by
     the average closing prices of Wisconsin Energy common stock for the ten
     trading days immediately preceding the closing date.  Pursuant to the
     definitive agreement, Wisconsin Energy will be paid a fee of $2.0 million
     if ESELCO consummates or enters into an agreement with respect to, a
     business combination with a party unrelated to Wisconsin Energy or ESELCO
     terminates the definitive agreement to pursue a business combination with a
     party unrelated to Wisconsin Energy prior to the end of the period
     specified in the agreement.

     The transaction is contingent upon several conditions, including the
     approval by the shareholders of ESELCO, receipt of all appropriate
     regulatory approvals and the effectiveness of a registration statement to
     be filed with the Securities and Exchange Commission covering the Wisconsin
     Energy shares to be issued in the transaction.  Shareholders of ESELCO will
     be provided a proxy statement describing the terms of the transaction prior
     to being asked to vote on the transaction at a special meeting of
     shareholders, which is expected to take place later in 1997.  There can be
     no assurance that the conditions will be satisfied or that the transaction
     will be consummated.

                                       7

<PAGE>

                                  ESELCO, INC.

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1997 AND 1996

     Operating revenues for the second quarter of 1997 were 5% higher than the
corresponding period in 1996, while total kilowatthour sales increased 2%. 
Residential and resale sales are up about 2% while industrial sales were up 4%
based on increased sales to three of our four industrial customers.  Commercial
sales were the same as last year.

     Purchased power expense decreased 2% because of increased hydro generation
and lower costs of power purchased from Consumers Power Company.

     Other operating and maintenance expenses increased 11% during the second
quarter of 1997 due to an increase in payroll and associated employee benefits
costs as well as the ten year write-off of costs associated with the Manistique
Harbor EPA Project.

     Depreciation and amortization expenses increased 8% due to Edison Sault's
ongoing construction program.

     Income taxes increased $79,000 due to the increase in taxable income.

     Interest expense increased 13%, primarily due to an increase in borrowings
which included a term loan to cover the payment to the U.S. EPA in connection
with the Manistique Harbor EPA Project.

     Based on the above changes, net income available for common stock increased
27% from last year.

SIX MONTHS ENDED JUNE 30, 1997 AND 1996

     Operating revenues for the first half of 1997 were 3% higher than last
year, while total kilowatthour sales increased 1%.  Residential and commercial
sales are down from last year reflecting warmer weather in 1997.  Industrial
sales were up 3% based on increased sales to three of our four industrial
customers.  Resale sales are up slightly, however, revenue is higher due to the
pass through of cost from the new Consumers Power Company purchased power
contract.

                                       8

<PAGE>

     Purchased power expense decreased 4% due to lower requirements resulting
from a net increase in hydro generation.

     Other operating and maintenance expenses increased 8% during the first half
of 1997 due to an increase in payroll and associated employee benefits costs as
well as the ten year write-off of costs associated with the Manistique Harbor
EPA Project.

     Income taxes increased $161,000 due to the increase in taxable income.

     Interest expense increased 14%, primarily due to an increase in borrowings
which included a term loan to cover the payment to the U.S. EPA in connection
with the Manistique Harbor EPA Project.

     Based on the above changes, net income available for common stock increased
31% from last year.

TWELVE MONTHS ENDED JUNE 30, 1997 AND 1996

     Operating revenues during the current twelve month period were 2% higher
than a year ago.  Total electric sales increased 1% during the current twelve
month period.  Residential and commercial sales were down during the period
while industrial sales increased a net of 2%.  Resale sales were up 3% for the
period.

     Purchased power expense decreased 6% due to decreased requirements
reflecting an increase in hydro generation.  In addition, higher cost energy
purchases were replaced with lower cost energy from American Electric Power
Company during the period.

     Other operating and maintenance expenses were up 10% during the current
twelve month period, due to increased payroll and associated employee benefit
costs and higher water costs reflecting higher rates and additional water
available for generation at Edison Sault's hydro plant.  In addition, the
current period includes the write off of costs associated with the Manistique
Harbor EPA Project.

     Depreciation and amortization expenses increased 6% due to Edison Sault's
ongoing construction program.

     Based on an increase in taxable income, income taxes increased 16% during
the period.

     Based on the above changes, net income available for common stock increased
22% from the prior twelve month period.

                                       9

<PAGE>

LIQUIDITY AND CAPITAL COMMITMENTS

INVESTING ACTIVITIES  ESELCO invested $2,171,000 in property, plant, and
equipment in the six month period ending June 30, 1997.  For the same period in
1996, ESELCO invested approximately $1,606,000 in property, plant, and
equipment.

     Investment expenditures during both periods included costs associated with
the planned construction of a new 138 KV interconnection with Wisconsin Electric
Power Company.  This project has a planned completion date of 1999.  Edison
Sault's projected share of the cost of this project is $9.3 to $13.0 million. 
Most of these expenditures are expected to be made in late 1997 and 1998.

     In December, 1996 ESEG, Inc. ("ESEG") signed a purchase agreement with
Consumers Power Company for the purchase of a 138 KV submarine circuit across
the Straits of Mackinac.  Since 1990, Edison Sault has leased these cables at an
annual net lease cost of approximately $466,000.  ESEG, a wholly-owned
subsidiary of ESELCO, has been an inactive subsidiary of ESELCO.  ESEG will
lease the cables to Edison Sault under an operating lease arrangement.  The
purchase and lease are subject to approval by the Federal Energy Regulatory
Commission (FERC).  The cost of the purchase, which is expected to be
consummated in 1997, will be approximately $3.8 million.

CASH PROVIDED BY OPERATING AND FINANCE ACTIVITIES  Cash provided by operating
activities for the six month periods ending June 30, 1997, and June 30, 1996,
totalled $4,226,000 and $2,728,000, respectively.  After payment of dividends,
internal sources of funds exceeded the capital requirements of ESELCO for the
six months ending June 30, 1997.  Dividend payments for the six months ending
June 30, 1997, totalled $897,000 which represented a 56% payout ratio.  For the
same period in 1996, dividends totalled $803,000 which represented a 66%
dividend payout ratio.

     During 1996, Edison Sault borrowed $3.2 million under a bank term loan
agreement.  The proceeds from this loan were used for payment to the U.S. EPA in
settlement of the Manistique Harbor Project.  In addition, ESEG has arranged
bank secured term loan financing for its planned acquisition of the 138 KV
submarine cables described above.

     Edison Sault has authority to issue up to $10 million in short-term
obligations.  Included in this authority is a line of credit in the amount of
$4 million at the prime rate.  In addition, Edison Sault has authority to issue
short-term thrift notes to Michigan residents.  Edison Sault's short-term
financing requirements relate primarily to financing customer accounts
receivable, unbilled revenue resulting from cycle billing, and capital
expenditures until permanently financed.

     At June 30, 1997, Edison Sault had approximately $7.8 million of unused
bank line of credit and additional energy thrift notes.  These two sources of
short-term financing should be sufficient to meet Edison Sault's short-term
capital requirements.

                                      10

<PAGE>

     ESELCO's shareholders reinvested approximately $207,000 through the
dividend reinvestment plan (DRP) in the first half of 1997.  For the six month
period ending June 30, 1996, the DRP provided $406,000 of capital.

     Effective March 24, 1997 the Board of Directors of ESELCO, Inc. declared
the suspension of the DRP.  The DRP has been suspended pending the potential
acquisition of ESELCO, Inc. by Wisconsin Energy Corporation.

     At June 30, 1997, the long-term portion of first mortgage bonds totalled
$6,170,000 which is a decrease of $1,825,000 from the December 31, 1996 amount. 
First mortgage bonds are secured by the utility plant of Edison Sault.  At
December 31, 1996, there was approximately $10.4 million of unutilized bond
financing capability resulting from plant additions and bond retirements.

     Edison Sault also has authority to issue up to $10 million in long-term
energy thrift notes to Michigan residents.  At June 30, 1997, the long-term
portion of energy thrift notes outstanding was $5,567,000 which is an increase
of $212,000 over the December 31, 1996 amount.

                                      11

<PAGE>

PART II - OTHER INFORMATION

     Item 1.   Legal Proceedings

          See Note 4 of the Notes to Financial Statements in Item 1 Part I
     herein.  Edison Sault filed an action on February 4, 1997 in the Circuit
     Court for the County of Schoolcraft, Michigan against certain insurance
     carriers to recover unreimbursed defense costs and expenses associated with
     defending this matter of approximately $350,000 and indemnification for its
     costs of approximately $3.2 million in settling the matter with the
     U.S. EPA and obtaining a release of the property damage claims asserted by
     the U.S. EPA.  The certainty and magnitude of any insurance recovery is
     unknown at this time.  On April 28, 1997, Michigan Mutual Insurance Company
     filed a counterclaim for approximately $1.7 million for previously paid
     defense costs.  Legal counsel for Edison Sault believes, based on the
     information currently available, that the counterclaim lacks merit.

     Item 2.   Changes in Securities

          (c)  On July 31, 1997, ESELCO sold thirty-six shares of ESELCO Common
     Stock, par value of $.01 per share, to an existing shareholder of ESELCO in
     a private placement pursuant to Section 4(2) of the Securities Act of 1933
     and/or Regulation D thereunder.  The Common Stock was sold directly by
     ESELCO without the use of an underwriter or placement agent.  The aggregate
     offering price of the Common Stock was $1,373.92.

     Item 4.   Submission of Matters to a Vote of Security Holders.

          At ESELCO's Annual Meeting of Stockholders held on May 6, 1997 the
     Board of Directors' nominees listed below were elected as directors, each
     for a term expiring in 2000, by the indicated votes and percentages cast
     for and withheld with respect to each nominee.  There was no solicitation
     in opposition to the nominees proposed in the proxy statement and there
     were no abstentions or broker non-votes with respect to the election of
     directors.

     ---------------------------------------------------------------------
     ---------------------------------------------------------------------
         Name of Nominee             For                Withheld
     ---------------------------------------------------------------------
        William R. Gregory      1,259,540  (81%)       10,885  (1%)
     ---------------------------------------------------------------------
        James S. Clinton        1,195,403  (77%)       10,885  (1%)
     ---------------------------------------------------------------------
     ---------------------------------------------------------------------


          An Amendment to ESELCO's Articles of Incorporation to increase the
     number of authorized common shares from 3,000,000 to 9,840,000 shares was
     approved by the Shareholders by a vote of 1,046,709 shares FOR and 213,589
     shares AGAINST such approval.  There were 36,096 abstentions and no broker
     non-votes with respect to such matter.

          Of the 1,547,345 shares of common stock outstanding and entitled to
     vote on the record date of March 20, 1997, 84% of the shares were
     represented at the meeting.

          Further information regarding these matters, including the name of
     each other director whose term of office as a director continued after the
     meeting and will expire in 1998 and 1999 is contained in ESELCO's Proxy
     Statement dated March 31, 1997 with respect to the Annual Meeting of
     Stockholders held on May 6, 1997.

                                       12

<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

     (a)  List of Exhibits.

<TABLE>
<CAPTION>

                                                                               Filed
Exhibit                                                                ----------------------
  No.             Description of Exhibit                             Herewith     By Reference
-------        --------------------------------------------          --------     ------------
<S>            <C>                                                   <C>          <C>
  (2)          Amended and Restated Agreement and Plan of
               Reorganization by and among Wisconsin Energy
               Corporation and ESELCO, Inc. and ESL Acquisition,         *
               Inc., dated as of May 13, 1997, as amended and
               restated as of July 11, 1997  


  (3)          (a)  Articles of Incorporation as filed on
                    January 6, 1989                                      *
               (b)  Amendment to Articles of Incorporation as
                    filed on August 7, 1997                              *
         
               (c)  Bylaws                                               *

  (4)               Instruments defining the rights of
                    security holders, including indentures: 
                         
               (a)  Mortgage and Deed of Trust as of March 1,
                    1952. (1)                                                          *
               (b)  Supplemental Indenture dated as of
                    February 1, 1957. (1)                                              *
               (c)  Second Supplemental Indenture dated as of
                    January 1, 1964. (1)                                               *
               (d)  Third Supplemental Indenture dated as of
                    February 1, 1968. (1)                                              *
               (e)  Fourth Supplemental Indenture dated as of
                    September 15, 1975. (1)                                            *
               (f)  Fifth Supplemental Indenture dated as of
                    October 1, 1986. (2)                                               *
               (g)  Sixth Supplemental Indenture dated as of
                    April 1, 1989. (4)                                                 *
               (h)  Seventh Supplemental Indenture dated as of
                    February 15, 1992. (5)                                             *
               (i)  Debenture Indenture dated as of August 1,
                    1973. (1)                                                          *
               (j)  Form of Long-Term Energy Thrift Note. (3)                          *

 (10)          (a)  Form of Executive Severance Agreement                *
               (b)  1996 ESELCO, Inc. Restricted Stock Bonus Plan        *
               (c)  ESELCO, Inc. Director's Retirement Plan, as
                    amended January 1, 1995                              *

               (d)  Edison Sault Electric Company Director's Fee
                    Deferral Plan, October 1, 1989                       *
         
               (e)  Edison Sault Electric Company ESELCO Director's
                    Fee Deferral Plan, January 1, 1986                   *
         
               (f)  Supplemental Executive Retirement Plan of
                    Edison Sault Electric Company, as amended as
                    of August 17, 1995                                   *
         
 (27)          Financial Data Schedule                                   *

</TABLE>

                                      13

<PAGE>

Key to Exhibits Incorporated by Reference:

    1       Filed with the Company's Registration Statement, Form S-16,
             No. 2-67191, filed  April 2, 1980.
    2       Filed with the Company's Form 10-K for 1986, dated March 30, 1987,
             File No. 0-1158.
    3       Filed with the Company's Registration Statement, Amendment No. 2 to
             Form S-3, No. 2-67191, filed February 16, 1988.
    4       Filed with the Company's Form 10-Q for June 30, 1989, dated
             August 11, 1989, File No. 0-17736.
    5       Filed with the Company's Form 10-Q for March 31, 1992, dated May 13,
             1992, File No. 0-17736.

  Item 6. (b) Reports on Form 8-K

               The following reports on Form 8-K were filed during the three
         months ended  June 30, 1997.

           Item Reported      Financial Statements Filed      Date of Report
           -------------      --------------------------      --------------
          5.  Other Events               No                    May 13, 1997


                                        SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        ESELCO, INC.
                                        (Registrant)

                                        /s/ William R. Gregory
Date August 11, 1997                    ----------------------------------------
                                        WILLIAM R. GREGORY
                                        Its President


                                        /s/ David R. Hubbard
Date August 11, 1997                    ----------------------------------------
                                        DAVID R. HUBBARD
                                        Its Vice President-Finance


                                       14