

EXHIBIT 3                                                 CONFORMED COPY






                            NSP STOCK OPTION AGREEMENT

                   STOCK OPTION AGREEMENT, dated as of April 28, 1995 by
         and among Wisconsin Energy Corporation, a Wisconsin corporation
         ("WEC"), and Northern States Power Company, a Minnesota corpo-
         ration (the "Company").

                   WHEREAS, concurrently with the execution and delivery
         of this Agreement, (i) the Company, WEC, Northern Power Wis-
         consin Corp., a Wisconsin corporation ("New NSP") and WEC Sub
         Corp., a Wisconsin corporation ("Sub"), are entering into an
         Agreement and Plan of Merger, dated as of the date hereof (the
         "Merger Agreement"), which provides, among other things, upon
         the terms and subject to the conditions thereof, for the merger
         of the Company with and into New NSP and the merger of Sub with
         and into New NSP (the "Mergers"), and (ii) WEC and the Company
         are entering into a certain stock option agreement dated as of
         the date hereof whereby WEC grants to the Company an option
         with respect to certain shares of WEC's common stock on the
         terms and subject to the conditions set forth therein (the "WEC
         Stock Option Agreement"); and

                   WHEREAS, as a condition to WEC's willingness to enter
         into the Merger Agreement, WEC has requested that the Company
         agree, and the Company has so agreed, to grant to WEC an option
         with respect to certain shares of the Company's common stock,
         on the terms and subject to the conditions set forth herein.

                   NOW, THEREFORE, to induce WEC to enter into the Mer-
         ger Agreement, and in consideration of the mutual covenants and
         agreements set forth herein and in the Merger Agreement, the
         parties hereto agree as follows:

                   1.  Grant of Option.  The Company hereby grants WEC
         an irrevocable option (the "Company Option") to purchase up to
         13,387,772 shares, subject to adjustment as provided in Section
         11 (such shares being referred to herein as the "Company
         Shares") of common stock, par value $2.50 per share, of the
         Company (the "Company Common Stock") (being 19.9% of the number
         of shares of Company Common Stock outstanding on the date
         hereof) in the manner set forth below at a price (the "Exercise
         Price") per Company Share of 44.075 (which is equal to the Fair
         Market Value (as defined below) of a Company Share on the date
         hereof) payable, at WEC's option, (a) in cash or (b) subject to
         the Company's having obtained the approvals of any Governmental
         Authority required for the Company to acquire the WEC Shares
         (as defined below) from WEC, which approvals the Company shall
         use best efforts to obtain, in shares of common<PAGE>







         stock, par value $.01 per share, of WEC ("WEC Shares") in ei-
         ther case in accordance with Section 4 hereof.  Notwithstanding
         the foregoing, in no event shall the number of Company Shares
         for which the Company Option is exercisable exceed 19.9% of the
         number of issued and outstanding shares of Company Common
         Stock.  As used herein, the "Fair Market Value" of any share
         shall be the average of the daily closing sales price for such
         share on the New York Stock Exchange (the "NYSE") during the 10
         NYSE trading days prior to the fifth NYSE trading day preceding
         the date such Fair Market Value is to be determined.  Capital-
         ized terms used herein but not defined herein shall have the
         meanings set forth in the Merger Agreement.

                   2.  Exercise of Option.  The Company Option may be
         exercised by WEC, in whole or in part, at any time or from time
         to time after the Merger Agreement becomes terminable by WEC
         under circumstances which could entitle WEC to termination fees
         under either Section 9.3(a) of the Merger Agreement (provided
         that the events specified in Section 9.3(a)(ii)(x) of the Mer-
         ger Agreement shall have occurred, although the events speci-
         fied in Section 9.3(a)(ii)(y) thereof need not have occurred)
         or Section 9.3(b) of the Merger Agreement (regardless of
         whether the Merger Agreement is actually terminated or whether
         there occurs a closing of any Business Combination involving a
         Target Party or a closing by which a Target Party becomes a
         subsidiary), any such event by which the Merger Agreement be-
         comes so terminable by WEC being referred to herein as a
         "Trigger Event."  The Company shall notify WEC promptly in
         writing of the occurrence of any Trigger Event, it being un-
         derstood that the giving of such notice by the Company shall
         not be a condition to the right of WEC to exercise the Company
         Option.  In the event WEC wishes to exercise the Company Op-
         tion, WEC shall deliver to the Company a written notice (an
         "Exercise Notice") specifying the total number of Company
         Shares it wishes to purchase.  Each closing of a purchase of
         Company Shares (a "Closing") shall occur at a place, on a date
         and at a time designated by WEC in an Exercise Notice delivered
         at least two business days prior to the date of the Closing.
         The Company Option shall terminate upon the earlier of:  (i)
         the Effective Time; (ii) the termination of the Merger Agree-
         ment pursuant to Section 9.1 thereof (other than upon or during
         the continuance of a Trigger Event); or (iii) 180 days follow-
         ing any termination of the Merger Agreement upon or during the
         continuance of a Trigger Event (or if, at the expiration of
         such 180 day period the Company Option cannot be exercised by
         reason of any applicable judgment, decree, order, law or regu-
         lation, 10 business days after such impediment to exercise
         shall have been removed or shall have become final and not
         subject to appeal, but in no event under this clause (iii)
         later than October 31, 1997).  Notwithstanding the foregoing,



                                       -2-<PAGE>







         the Company Option may not be exercised if WEC is in material
         breach of any of its material representations or warranties, or
         in material breach of any of its covenants or agreements, con-
         tained in this Agreement or in the Merger Agreement.  Upon the
         giving by WEC to the Company of the Exercise Notice and the
         tender of the applicable aggregate Exercise Price, WEC shall be
         deemed to be the holder of record of the Company Shares issu-
         able upon such exercise, notwithstanding that the stock trans-
         fer books of the Company shall then be closed or that certifi-
         cates representing such Company Shares shall not then be actu-
         ally delivered to WEC.

                   3.  Conditions to Closing.  The obligation of the
         Company to issue the Company Shares to WEC hereunder is subject
         to the conditions, which (other than the conditions described
         in clauses (i), (iii) and (iv) below) may be waived by the
         Company in its sole discretion, that (i) all waiting periods,
         if any, under the HSR Act, applicable to the issuance of the
         Company Shares hereunder shall have expired or have been ter-
         minated; (ii) the Company Shares, and any WEC Shares which are
         issued in payment of the Exercise Price, shall have been ap-
         proved for listing on the NYSE upon official notice of issu-
         ance; (iii) all consents, approvals, orders or authorizations
         of, or registrations, declarations or filings with, any fed-
         eral, state or local administrative agency or commission or
         other federal state or local Governmental Authority, if any,
         required in connection with the issuance of the Company Shares
         hereunder shall have been obtained or made, as the case may be,
         including, without limitation, the approval of the SEC under
         Section 10 of the 1935 Act of the acquisition of the Company
         Shares by WEC and, if applicable, the acquisition by the Com-
         pany of the WEC Shares constituting the Exercise Price here-
         under; and (iv) no preliminary or permanent injunction or other
         order by any court of competent jurisdiction prohibiting or
         otherwise restraining such issuance shall be in effect.

                   4.  Closing.  At any Closing, (a) the Company will
         deliver to WEC or its designee a single certificate in defini-
         tive form representing the number of the Company Shares desig-
         nated by WEC in its Exercise Notice, such certificate to be
         registered in the name of WEC and to bear the legend set forth
         in Section 12, and (b) WEC will deliver to the Company the ag-
         gregate price for the Company Shares so designated and being
         purchased by (i) wire transfer of immediately available funds
         or certified check or bank check or (ii) subject to the condi-
         tion in Section 1(b), a certificate or certificates represent-
         ing the number of WEC Shares being issued by WEC in consider-
         ation thereof, as the case may be.  For the purposes of this
         Agreement, the number of WEC Shares to be delivered to the
         Company shall be equal to the quotient obtained by dividing (i)



                                       -3-<PAGE>







         the product of (x) the number of Company Shares with respect to
         which the Company Option is being exercised and (y) the Exer-
         cise Price by (ii) the Fair Market Value of the WEC Shares on
         the date immediately preceding the date the Exercise Notice is
         delivered to the Company.  The Company shall pay all expenses,
         and any and all United States federal, state and local taxes
         and other charges that may be payable in connection with the
         preparation, issue and delivery of stock certificates under
         this Section 4 in the name of WEC or its designee.

                   5.  Representations and Warranties of the Company.
         The Company represents and warrants to WEC that (a) except as
         set forth in Section 4.1 of the NSP Disclosure Schedule, the
         Company is a corporation duly organized, validly existing and
         in good standing under the laws of the State of Minnesota and
         has the corporate power and authority to enter into this
         Agreement and, subject to obtaining the applicable approval of
         shareholders of the Company for the repurchase of Company
         Shares pursuant to Section 7(a) below under circumstances where
         Subdivision 3 of Section 302A.553 of the MBCA would be appli-
         cable (the "Buyback Approvals") and subject to any regulatory
         approvals referred to herein and to the provisions of Section
         302A.551 of the MBCA, if applicable, to carry out its obliga-
         tions hereunder, (b) the execution and delivery of this Agree-
         ment by the Company and the consummation by the Company of the
         transactions contemplated hereby have been duly authorized by
         all necessary corporate action on the part of the Company and
         no other corporate proceedings on the part of the Company are
         necessary to authorize this Agreement or any of the transac-
         tions contemplated hereby (other than any required Buyback Ap-
         provals), (c) such corporate action (including the approval of
         the Board of Directors of the Company) is intended to render
         inapplicable to this Agreement and the Merger Agreement and the
         transactions contemplated hereby and thereby, the provisions of
         the MBCA referred to in Section 4.15 of the Merger Agreement,
         (d) this Agreement has been duly executed and delivered by the
         Company, constitutes a valid and binding obligation of the
         Company and, assuming this Agreement constitutes a valid and
         binding obligation of WEC, is enforceable against the Company
         in accordance with its terms, (e) the Company has taken all
         necessary corporate action to authorize and reserve for issu-
         ance and to permit it to issue, upon exercise of the Company
         Option, and at all times from the date hereof through the ex-
         piration of the Company Option will have reserved, 13,387,772
         authorized and unissued Company Shares, such amount being sub-
         ject to adjustment as provided in Section 11, all of which,
         upon their issuance and delivery in accordance with the terms
         of this Agreement, will be validly issued, fully paid and non-
         assessable, (f) upon delivery of the Company Shares to WEC upon




                                       -4-<PAGE>







         the exercise of the Company Option, WEC will acquire the Com-
         pany Shares free and clear of all claims, liens, charges, en-
         cumbrances and security interests of any nature whatsoever, (g)
         except as described in Section 4.4(b) of the Merger Agreement,
         the execution and delivery of this Agreement by the Company
         does not, and the consummation by the Company of the transac-
         tions contemplated hereby will not, violate, conflict with, or
         result in a breach of any provision of, or constitute a default
         (with or without notice or lapse of time, or both) under, or
         result in the termination of, or accelerate the performance
         required by, or result in a right of termination, cancellation,
         or acceleration of any obligation or the loss of a material
         benefit under, or the creation of a lien, pledge, security in-
         terest or other encumbrance on assets (any such conflict, vio-
         lation, default, right of termination, cancellation or ac-
         celeration, loss or creation, a "Violation") of the Company or
         any of its subsidiaries, pursuant to, (A) any provision of the
         Restated Articles of Incorporation or by-laws of the Company,
         (B) any provisions of any loan or credit agreement, note,
         mortgage, indenture, lease, Company benefit plan or other
         agreement, obligation, instrument, permit, concession, fran-
         chise, license or (C) any judgment, order, decree, statute,
         law, ordinance, rule or regulation applicable to the Company or
         its properties or assets, which Violation, in the case of each
         of clauses (B) and (C), could reasonably be expected to have a
         material adverse effect on the Company and its subsidiaries
         taken as a whole, (h) except as described in Section 4.4(c) of
         the Merger Agreement or Section 1(b) or Section 3 hereof, the
         execution and delivery of this Agreement by the Company does
         not, and the performance of this Agreement by the Company will
         not, require any consent, approval, authorization or permit of,
         or filing with or notification to, any Governmental Authority,
         (i) none of the Company, any of its affiliates or anyone acting
         on its or their behalf has issued, sold or offered any security
         of the Company to any person under circumstances that would
         cause the issuance and sale of the Company Shares, as contem-
         plated by this Agreement, to be subject to the registration
         requirements of the Securities Act as in effect on the date
         hereof and, assuming the representations of WEC contained in
         Section 6(h) are true and correct, the issuance, sale and de-
         livery of the Company Shares hereunder would be exempt from the
         registration and prospectus delivery requirements of the Secu-
         rities Act, as in effect on the date hereof (and the Company
         shall not take any action which would cause the issuance, sale
         and delivery of the Company Shares hereunder not to be exempt
         from such requirements), and (j) any WEC Shares acquired pur-
         suant to this Agreement will be acquired for the Company's own
         account, for investment purposes only and will not be acquired
         by the Company with a view to the public distribution thereof
         in violation of any applicable provision of the Securities Act.



                                       -5-<PAGE>







                   6.  Representations and Warranties of WEC.  WEC rep-
         resents and warrants to the Company that (a) WEC is a corpora-
         tion duly organized, validly existing and in good standing un-
         der the laws of the State of Wisconsin and has the corporate
         power and authority to enter into this Agreement and to carry
         out its obligations hereunder, (b) the execution and delivery
         of this Agreement by WEC and the consummation by WEC of the
         transactions contemplated hereby have been duly authorized by
         all necessary corporate action on the part of WEC and no other
         corporate proceedings on the part of WEC are necessary to au-
         thorize this Agreement or any of the transactions contemplated
         hereby, (c) this Agreement has been duly executed and delivered
         by WEC and constitutes a valid and binding obligation of WEC,
         and, assuming this Agreement constitutes a valid and binding
         obligation of the Company, is enforceable against WEC in ac-
         cordance with its terms, (d) prior to any delivery of WEC
         Shares in consideration of the purchase of Company Shares pur-
         suant hereto, WEC will have taken all necessary corporate ac-
         tion to authorize for issuance and to permit it to issue such
         WEC Shares, all of which, upon their issuance and delivery in
         accordance with the terms of this Agreement, will be validly
         issued, fully paid and nonassessable (subject to Section
         180.0622(2)(b) of the WBCL, as judicially determined), and to
         render inapplicable to the receipt by the Company of the WEC
         Shares the provisions of the WBCL referred to in Section 5.15
         of the Merger Agreement, (e) upon any delivery of such WEC
         Shares to the Company in consideration of the purchase of Com-
         pany Shares pursuant hereto, the Company will acquire the WEC
         Shares free and clear of all claims, liens, charges, encum-
         brances and security interests of any nature whatsoever, (f)
         except as described in Section 5.4(b) of the Merger Agreement,
         the execution and delivery of this Agreement by WEC does not,
         and the consummation by WEC of the transactions contemplated
         hereby will not, violate, conflict with, or result in the
         breach of any provision of, or constitute a default (with or
         without notice or lapse of time, or both) under, or result in
         any Violation by WEC or any of its subsidiaries, pursuant to
         (A) any provision of the Restated Articles of Incorporation or
         By-laws of WEC, (B) any provisions of any loan or credit
         agreement, note, mortgage, indenture, lease, WEC benefit plan
         or other agreement, obligation, instrument, permit, concession,
         franchise, license or (C) any judgment, order, decree, statute,
         law, ordinance, rule or regulation applicable to WEC or its
         properties or assets, which Violation, in the case of each of
         clauses (B) and or (C), would have a material adverse effect on
         WEC and its subsidiaries taken as a whole, (g) except as de-
         scribed in Section 5.4(c) of the Merger Agreement or Section
         1(b) or Section 3 hereof, the execution and delivery of this
         Agreement by WEC does not, and the consummation by WEC of the
         transactions contemplated hereby will not, require any consent,



                                       -6-<PAGE>







         approval, authorization or permit of, or filing with or noti-
         fication to, any Governmental Authority and (h) any Company
         Shares acquired upon exercise of the Company Option will be
         acquired for WEC's own account, for investment purposes only
         and will not be, and the Company Option is not being, acquired
         by WEC with a view to the public distribution thereof in vio-
         lation of any applicable provision of the Securities Act.

                   7.  Certain Repurchases.

                   (a)  WEC Put.  At the request of WEC by written no-
         tice at any time during which the Company Option is exercisable
         pursuant to Section 2 (the "Repurchase Period"), the Company
         (or any successor entity thereof) shall repurchase from WEC all
         or any portion of the Company Option, at the price set forth in
         subparagraph (i) below, or, at the request of WEC by written
         notice at any time prior to April 30, 1997 (provided that such
         date shall be extended to October 31, 1997 under the circum-
         stances where the date after which either party may terminate
         the Merger Agreement pursuant to Section 9.1(b) of the Merger
         Agreement has been extended to October 31, 1997), the Company
         (or any successor entity thereof) shall repurchase from WEC all
         or any portion of the Company Shares purchased by WEC pursuant
         to the Company Option, at the price set forth in subparagraph
         (ii) below:

                   (i)  the difference between the "Market/Offer Price"
              for shares of Company Common Stock as of the date WEC
              gives notice of its intent to exercise its rights under
              this Section 7 (defined as the higher of (A) the price per
              share offered as of such date pursuant to any tender or
              exchange offer or other offer with respect to a Business
              Combination which was made prior to such date and not
              terminated or withdrawn as of such date (the "Offer
              Price") and (B) the Fair Market Value of Company Common
              Stock as of such date (the "Market Price")) and the Exer-
              cise Price, multiplied by the number of Company Shares
              purchasable pursuant to the Company Option (or portion
              thereof with respect to which WEC is exercising its rights
              under this Section 7), but only if the Market/Offer Price
              is greater than the Exercise Price;

                  (ii)  the product of (x) the sum of (A) the Exercise
              Price paid by WEC per Company Share acquired pursuant to
              the Company Option and (B) the difference between the
              Market/Offer Price and the Exercise Price, but only if the
              Market/Offer Price is greater than the Exercise Price, and
              (y) the number of Company Shares so to be repurchased
              pursuant to this Section 7.  For purposes of this clause
              (ii), the Offer Price shall be the highest price per share



                                       -7-<PAGE>







              offered pursuant to a tender or exchange offer or other
              Business Combination offer during the Repurchase Period
              prior to the delivery by WEC of a notice of repurchase.

                   (b)  Redelivery of WEC Shares.  If WEC elected to
         purchase Company Shares pursuant to the exercise of the Company
         Option by the issuance and delivery of WEC Shares, then the
         Company shall, if so requested by WEC, in fulfillment of its
         obligation pursuant to clause (A) of Section 7(a)(ii)(x) (that
         is, with respect to the Exercise Price only and without limi-
         tation to its obligation to pay additional consideration under
         clause (B) of Section 7(a)(ii)(x)), redeliver the certificate
         for such WEC Shares to WEC, free and clear of all liens,
         claims, damages, charges and encumbrances of any kind or nature
         whatsoever; provided, however, that if less than all of the
         Company Shares purchased by WEC pursuant to the Company Option
         are to be repurchased pursuant to this Section 7, then WEC
         shall issue to the Company a new certificate representing those
         WEC Shares which are not due to be redelivered to WEC pursuant
         to this Section 7 as they constituted payment of the Exercise
         Price for the Company Shares not being repurchased.

                   (c)  Payment and Redelivery of Company Option or
         Shares.  In the event WEC exercises its rights under this Sec-
         tion 7, the Company shall, within 10 business days thereafter,
         pay the required amount to WEC in immediately available funds
         and WEC shall surrender to the Company the Company Option or
         the certificates evidencing the Company Shares purchased by WEC
         pursuant thereto, and WEC shall warrant that it owns the Com-
         pany Option or such shares and that the Company Option or such
         shares are then free and clear of all liens, claims, damages,
         charges and encumbrances of any kind or nature whatsoever.

                   (d)  WEC Call.  If WEC has elected to purchase Com-
         pany Shares pursuant to the exercise of the Company Option by
         the issuance and delivery of WEC Shares, notwithstanding that
         WEC may no longer hold any such Company Shares or that WEC
         elects not to exercise its other rights under this Section 7,
         WEC may require, at any time or from time to time prior to
         April 30, 1997 (provided that such date shall be extended to
         October 31, 1997 under the circumstances where the date after
         which either party may terminate the Merger Agreement pursuant
         to Section 9.1(b) of the Merger Agreement has been extended to
         October 31, 1997), the Company to sell to WEC any such WEC
         Shares at the price attributed to such WEC Shares pursuant to
         Section 4 plus interest at the rate of 6.5% per annum on such
         amount from the Closing Date relating to the exchange of such
         WEC Shares pursuant to Section 4 to the closing date under this
         Section 7(d) less any dividends on such WEC Shares paid during




                                       -8-<PAGE>







         such period or declared and payable to stockholders of record
         on a date during such period.

                   (e)  Repurchase Price Reduced at WEC's Option.  In
         the event the repurchase price specified in Section 7(a) would
         subject the repurchase of the Company Option or the Company
         Shares purchased by WEC pursuant to the Company Option to a
         vote of the shareholders of the Company pursuant to Section
         302A.553, Subd. 3 of the MBCA, then WEC may, at its election,
         reduce the repurchase price to an amount which would permit
         such repurchase without the necessity for such a shareholder
         vote.

                   8.  Voting of Shares.  Following the date hereof and
         prior to the fifth anniversary of the date hereof (the "Expi-
         ration Date"), each party shall vote any shares of capital
         stock of the other party acquired by such party pursuant to
         this Agreement, including any WEC Shares issued pursuant to
         Section 1(b) ("Restricted Shares") or otherwise beneficially
         owned (within the meaning of Rule 13d-3 promulgated under the
         Securities Exchange Act of 1934, as amended (the "Exchange
         Act")) by such party on each matter submitted to a vote of
         shareholders of such other party for and against such matter in
         the same proportion as the vote of all other shareholders of
         such other party are voted (whether by proxy or otherwise) for
         and against such matter.

                   9.  Restrictions on Transfer.

                   (a)  Restrictions on Transfer.  Prior to the Expira-
         tion Date, neither party shall, directly or indirectly, by op-
         eration of law or otherwise, sell, assign, pledge, or otherwise
         dispose of or transfer any Restricted Shares beneficially owned
         by such party, other than (i) pursuant to Section 7, or (ii) in
         accordance with Section 9(b) or Section 10.

                   (b)  Permitted Sales.  Following the termination of
         the Merger Agreement, a party shall be permitted to sell any
         Restricted Shares beneficially owned by it if such sale is made
         pursuant to a tender or exchange offer that has been approved
         or recommended, or otherwise determined to be fair to and in
         the best interests of the shareholders of the other party, by a
         majority of the members of the Board of Directors of such other
         party which majority shall include a majority of directors who
         were directors prior to the announcement of such tender or ex-
         change offer.

                   10.  Registration Rights.  Following the termination
         of the Merger Agreement, each party hereto (a "Designated
         Holder") may by written notice (the "Registration Notice") to



                                       -9-<PAGE>







         the other party (the "Registrant") request the Registrant to
         register under the Securities Act all or any part of the Re-
         stricted Shares beneficially owned by such Designated Holder
         (the "Registrable Securities") pursuant to a bona fide firm
         commitment underwritten public offering in which the Designated
         Holder and the underwriters shall effect as wide a distribution
         of such Registrable Securities as is reasonably practicable and
         shall use their best efforts to prevent any person (including
         any Group (as used in Rule 13d-5 under the Exchange Act)) and
         its affiliates from purchasing through such offering Restricted
         Shares representing more than 1% of the outstanding shares of
         common stock of the Registrant on a fully diluted basis (a
         "Permitted Offering").  The Registration Notice shall include a
         certificate executed by the Designated Holder and its proposed
         managing underwriter, which underwriter shall be an investment
         banking firm of nationally recognized standing (the "Manager"),
         stating that (i) they have a good faith intention to commence
         promptly a Permitted Offering and (ii) the Manager in good
         faith believes that, based on the then prevailing market con-
         ditions, it will be able to sell the Registrable Securities at
         a per share price equal to at least 80% of the then Fair Market
         Value of such shares.  The Registrant (and/or any person des-
         ignated by the Registrant) shall thereupon have the option ex-
         ercisable by written notice delivered to the Designated Holder
         within 10 business days after the receipt of the Registration
         Notice, irrevocably to agree to purchase all or any part of the
         Registrable Securities proposed to be so sold for cash at a
         price (the "Option Price") equal to the product of (i) the
         number of Registrable Securities to be so purchased by the
         Registrant and (ii) the then Fair Market Value of such shares.
         Any such purchase of Registrable Securities by the Registrant
         (or its designee) hereunder shall take place at a closing to be
         held at the principal executive offices of the Registrant or at
         the offices of its counsel at any reasonable date and time
         designated by the Registrant and/or such designee in such no-
         tice within 20 business days after delivery of such notice.
         Any payment for the shares to be purchased shall be made by
         delivery at the time of such closing of the Option Price in
         immediately available funds.

                   If the Registrant does not elect to exercise its op-
         tion pursuant to this Section 10 with respect to all Regis-
         trable Securities, it shall use its best efforts to effect, as
         promptly as practicable, the registration under the Securities
         Act of the unpurchased Registrable Securities proposed to be so
         sold; provided, however, that (i) neither party shall be en-
         titled to more than an aggregate of two effective registration
         statements hereunder and (ii) the Registrant will not be re-
         quired to file any such registration statement during any pe-
         riod of time (not to exceed 40 days after such request in the



                                       -10-<PAGE>







         case of clause (A) below or 90 days in the case of clauses (B)
         and (C) below) when (A) the Registrant is in possession of ma-
         terial non-public information which it reasonably believes
         would be detrimental to be disclosed at such time and, in the
         opinion of counsel to the Registrant, such information would
         have to be disclosed if a registration statement were filed at
         that time; (B) the Registrant is required under the Securities
         Act to include audited financial statements for any period in
         such registration statement and such financial statements are
         not yet available for inclusion in such registration statement;
         or (C) the Registrant determines, in its reasonable judgment,
         that such registration would interfere with any financing, ac-
         quisition or other material transaction involving the Regis-
         trant or any of its affiliates.  The Registrant shall use its
         reasonable best efforts to cause any Registrable Securities
         registered pursuant to this Section 10 to be qualified for sale
         under the securities or Blue-Sky laws of such jurisdictions as
         the Designated Holder may reasonably request and shall continue
         such registration or qualification in effect in such jurisdic-
         tion; provided, however, that the Registrant shall not be re-
         quired to qualify to do business in, or consent to general
         service of process in, any jurisdiction by reason of this pro-
         vision.

                   The registration rights set forth in this Section 10
         are subject to the condition that the Designated Holder shall
         provide the Registrant with such information with respect to
         such holder's Registrable Securities, the plans for the dis-
         tribution thereof, and such other information with respect to
         such holder as, in the reasonable judgment of counsel for the
         Registrant, is necessary to enable the Registrant to include in
         such registration statement all material facts required to be
         disclosed with respect to a registration thereunder.

                   A registration effected under this Section 10 shall
         be effected at the Registrant's expense, except for underwrit-
         ing discounts and commissions and the fees and the expenses of
         counsel to the Designated Holder, and the Registrant shall
         provide to the underwriters such documentation (including cer-
         tificates, opinions of counsel and "comfort" letters from au-
         ditors) as are customary in connection with underwritten public
         offerings as such underwriters may reasonably require.  In
         connection with any such registration, the parties agree (i) to
         indemnify each other and the underwriters in the customary
         manner, (ii) to enter into an underwriting agreement in form
         and substance customary for transactions of such type with the
         Manager and the other underwriters participating in such of-
         fering and (iii) to take all further actions which shall be





                                       -11-<PAGE>







         reasonably necessary to effect such registration and sale (in-
         cluding, if the Manager deems it necessary, participating in
         road-show presentations).

                   The Registrant shall be entitled to include (at its
         expense) additional shares of its common stock in a registra-
         tion effected pursuant to this Section 10 only if and to the
         extent the Manager determines that such inclusion will not ad-
         versely affect the prospects for success of such offering.

                   11.  Adjustment Upon Changes in Capitalization.
         Without limitation to any restriction on the Company contained
         in this Agreement or in the Merger Agreement, in the event of
         any change in Company Common Stock by reason of stock divi-
         dends, splitups, mergers (other than the Mergers), recapital-
         izations, combinations, exchange of shares or the like, the
         type and number of shares or securities subject to the Company
         Option, and the purchase price per share provided in Section 1,
         shall be adjusted appropriately to restore to WEC its rights
         hereunder, including the right to purchase from the Company (or
         its successors) shares of Company Common Stock representing
         19.9% of the outstanding Company Common Stock for the aggregate
         Exercise Price calculated as of the date of this Agreement as
         provided in Section 1.

                   12.  Restrictive Legends.  Each certificate repre-
         senting shares of Company Common Stock issued to WEC hereunder,
         and WEC Shares, if any, delivered to the Company at a Closing,
         shall include a legend in substantially the following form:

                   THE SECURITIES REPRESENTED BY THIS CERTIFICATE
              HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
              1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
              IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGIS-
              TRATION IS AVAILABLE.  SUCH SECURITIES ARE ALSO SUB-
              JECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET
              FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF
              APRIL 28, 1995, A COPY OF WHICH MAY BE OBTAINED FROM
              THE ISSUER UPON REQUEST.

         It is understood and agreed that:  (i) the reference to the
         resale restrictions of the Securities Act in the above legend
         shall be removed by delivery of substitute certificate(s)
         without such reference if WEC or the Company, as the case may
         be, shall have delivered to the other party a copy of a letter
         from the staff of the Securities and Exchange Commission, or an
         opinion of counsel, in form and substance satisfactory to the
         other party, to the effect that such legend is not required for
         purposes of the Securities Act; (ii) the reference to the pro-
         visions to this Agreement in the above legend shall be removed



                                       -12-<PAGE>







         by delivery of substitute certificate(s) without such reference
         if the shares have been sold or transferred in compliance with
         the provisions of this Agreement and under circumstances that
         do not require the retention of such reference; and (iii) the
         legend shall be removed in its entirety if the conditions in
         the preceding clauses (i) and (ii) are both satisfied.  In ad-
         dition, such certificates shall bear any other legend as may be
         required by law.  Certificates representing shares sold in a
         registered public offering pursuant to Section 10 shall not be
         required to bear the legend set forth in this Section 12.

                   13.  Binding Effect; No Assignment; No Third Party
         Beneficiaries.  This Agreement shall be binding upon and inure
         to the benefit of the parties hereto and their respective suc-
         cessors and permitted assigns.  Except as expressly provided
         for in this Agreement, neither this Agreement nor the rights or
         the obligations of either party hereto are assignable, except
         by operation of law, or with the written consent of the other
         party.  Nothing contained in this Agreement, express or im-
         plied, is intended to confer upon any person other than the
         parties hereto and their respective permitted assigns any
         rights or remedies of any nature whatsoever by reason of this
         Agreement.  Any Restricted Shares sold by a party in compliance
         with the provisions of Section 10 shall, upon consummation of
         such sale, be free of the restrictions imposed with respect to
         such shares by this Agreement, unless and until such party
         shall repurchase or otherwise become the beneficial owner of
         such shares, and any transferee of such shares shall not be
         entitled to the registration rights of such party.

                   14.  Specific Performance.  The parties recognize and
         agree that if for any reason any of the provisions of this
         Agreement are not performed in accordance with their specific
         terms or are otherwise breached, immediate and irreparable harm
         or injury would be caused for which money damages would not be
         an adequate remedy.  Accordingly, each party agrees that, in
         addition to other remedies, the other party shall be entitled
         to an injunction restraining any violation or threatened vio-
         lation of the provisions of this Agreement.  In the event that
         any action should be brought in equity to enforce the provi-
         sions of the Agreement, neither party will allege, and each
         party hereby waives the defense, that there is adequate remedy
         at law.

                   15.  Entire Agreement.  This Agreement, the WEC Stock
         Option Agreement, the Confidentiality Agreement and the Merger
         Agreement (including the exhibits and schedules thereto) con-
         stitute the entire agreement among the parties with respect to
         the subject matter hereof and thereof and supersede all other
         prior agreements and understandings, both written and oral,



                                       -13-<PAGE>







         among the parties or any of them with respect to the subject
         matter hereof and thereof.

                   16.  Further Assurances.  Each party will execute and
         deliver all such further documents and instruments and take all
         such further action as may be necessary in order to consummate
         the transactions contemplated hereby.

                   17.  Validity.  The invalidity or unenforceability of
         any provision of this Agreement shall not affect the validity
         or enforceability of the other provisions of this Agreement,
         which shall remain in full force and effect.  In the event any
         court or other competent authority holds any provisions of this
         Agreement to be null, void or unenforceable, the parties hereto
         shall negotiate in good faith the execution and delivery of an
         amendment to this Agreement in order, as nearly as possible, to
         effectuate, to the extent permitted by law, the intent of the
         parties hereto with respect to such provision and the economic
         effects thereof.  If for any reason any such court or regula-
         tory agency determines that WEC is not permitted to acquire, or
         the Company is not permitted to repurchase pursuant to Section
         7, the full number of shares of Company Common Stock provided
         in Section 1 hereof (as the same may be adjusted), it is the
         express intention of the Company to allow WEC to acquire or to
         require the Company to repurchase such lesser number of shares
         as may be permissible, without any amendment or modification
         hereof.  Each party agrees that, should any court or other
         competent authority hold any provision of this Agreement or
         part hereof to be null, void or unenforceable, or order any
         party to take any action inconsistent herewith, or not take any
         action required herein, the other party shall not be entitled
         to specific performance of such provision or part hereof or to
         any other remedy, including but not limited to money damages,
         for breach hereof or of any other provision of this Agreement
         or part hereof as the result of such holding or order.

                   18.  Notices.  All notices and other communications
         hereunder shall be in writing and shall be deemed given if (i)
         delivered personally, or (ii) sent by reputable overnight cou-
         rier service, or (iii) telecopied (which is confirmed), or (iv)
         five days after being mailed by registered or certified mail
         (return receipt requested) to the parties at the following ad-
         dresses (or at such other address for a party as shall be
         specified by like notice):









                                       -14-<PAGE>







                   A.  If to WEC, to:

                        Wisconsin Energy Corporation
                        231 West Michigan Street
                        Milwaukee, WI  53201

                        Attention:  Walter T. Woelfle, Esq.
                                    Telephone:  (414) 221-2765
                                    Telecopy:  (414) 221-2412

                        with a copy to:

                        Quarles & Brady
                        411 East Wisconsin Avenue
                        Milwaukee, WI  53202

                        Attention:  Patrick M. Ryan, Esq.
                                    Telephone:  (414) 277-5181
                                    Telecopy:  (414) 277-5174

                        and a copy to:

                        Skadden, Arps, Slate, Meagher & Flom
                        919 Third Avenue
                        New York, NY  10022

                        Attention:  Sheldon S. Adler, Esq.
                                    Telephone:  (212) 735-3000
                                    Telecopy:  (212) 735-2000

                   B.  If to the Company, to:

                        Northern States Power Company
                        4 Nicollet Mall
                        Minneapolis, MN  55401

                        Attention:  Gary R. Johnson, Esq.
                                    Telephone:  (612) 330-7623
                                    Telecopy:  (612) 330-6222

                        with a copy to:

                        Gardner, Carton & Douglas
                        Quaker Tower
                        321 North Clark Street, 31st Floor
                        Chicago, IL  60610

                        Attention:  Peter Clarke, Esq.
                                    Telephone:  (312) 245-8685
                                    Telecopy:  (312) 644-3381



                                       -15-<PAGE>







                        and a copy to:

                        Wachtell, Lipton, Rosen & Katz
                        51 West 52nd Street
                        New York, NY  10019

                        Attention:  Barry A. Bryer, Esq.
                                    Seth A. Kaplan, Esq.
                                    Telephone:  (212) 403-1000
                                    Telecopy:  (212) 403-2000

                   19.  Governing Law; Choice of Forum.  This Agreement
         shall be governed by and construed in accordance with the laws
         of the State of New York applicable to agreements made and to
         be performed entirely within such State and without regard to
         its choice of law principles.  Each of the parties hereto (a)
         consents to submit itself to the personal jurisdiction of any
         federal court located in the State of New York or any New York
         state court in the event any dispute arises out of this Agree-
         ment or any of the transactions contemplated by this Agreement,
         (b) agrees that it will not attempt to deny or defeat such
         personal jurisdiction by motion or other request for leave from
         any such court and (c) agrees that it will not bring any action
         relating to this Agreement or any of the transactions contem-
         plated by this Agreement in any court other than a federal
         court sitting in the state of New York or a New York state
         court.

                   20.  Interpretation.  When a reference is made in
         this Agreement to a Section such reference shall be to a Sec-
         tion of this Agreement unless otherwise indicated.  Whenever
         the words "include", "includes" or "including" are used in this
         Agreement, they shall be deemed to be followed by the words
         "without limitation".  The descriptive headings herein are in-
         serted for convenience of reference only and are not intended
         to be part of or to affect the meaning or interpretation of
         this Agreement.

                   21.  Counterparts.  This Agreement may be executed in
         two counterparts, each of which shall be deemed to be an orig-
         inal, but both of which, taken together, shall constitute one
         and the same instrument.

                   22.  Expenses.  Except as otherwise expressly pro-
         vided herein or in the Merger Agreement, all costs and expenses
         incurred in connection with the transactions contemplated by
         this Agreement shall be paid by the party incurring such ex-
         penses.





                                       -16-<PAGE>







                   23.  Amendments; Waiver.  This Agreement may be
         amended by the parties hereto and the terms and conditions
         hereof may be waived only by an instrument in writing signed on
         behalf of each of the parties hereto, or, in the case of a
         waiver, by an instrument signed on behalf of the party waiving
         compliance.

                   24.  Extension of Time Periods.  The time periods for
         exercise of certain rights under Sections 2, 6 and 7 shall be
         extended:  (i) to the extent necessary to obtain all regulatory
         approvals for the exercise of such rights, and for the expira-
         tion of all statutory waiting periods; and (ii) to the extent
         necessary to avoid any liability under Section 16(b) of the
         Exchange Act by reason of such exercise.

                   25.  Replacement of Company Option.  Upon receipt by
         the Company of evidence reasonably satisfactory to it of the
         loss, theft, destruction or mutilation of this Agreement, and
         (in the case of loss, theft or destruction) of reasonably sat-
         isfactory indemnification, and upon surrender and cancellation
         of this Agreement, if mutilated, the Company will execute and
         deliver a new Agreement of like tenor and date.  































                                       -17-<PAGE>








                   IN WITNESS WHEREOF, the parties hereto have caused
         this Agreement to be executed by their respective duly autho-
         rized officers as of the date first above written.


                                  WISCONSIN ENERGY CORPORATION


                                  By:   /s/ RICHARD A. ABDOO            
                                       Name:  Richard A. Abdoo
                                       Title: Chairman, President and
                                              Chief Executive Officer

                                  NORTHERN STATES POWER COMPANY


                                  By:   /s/ JAMES J. HOWARD             
                                       Name:  James J. Howard
                                       Title: Chairman and Chief
                                              Executive Officer
































                                       -18-
