Home > Investor Information > Presentations > Archived Presentations >

Earnings Conference Call - Fourth Quarter 2002

by Larry L. Weyers
Chairman, President, and Chief Executive Officer

and

Joseph P. O'Leary
Senior Vice President and Chief Financial Officer

Good afternoon. Welcome to the quarterly earnings conference call for WPS Resources Corporation. I'm Larry Weyers, Chairman, President, and Chief Executive Officer for WPS Resources Corporation. With me today is Joe O'Leary, our Senior Vice President and Chief Financial Officer.

We are here today to discuss our earnings for the year and the fourth quarter of 2002 and what you can expect to see from us in the future.

WPS Resources' common stock is traded on the New York Stock Exchange under the ticker symbol WPS. Earlier today we issued a press release containing our earnings information. If you haven't seen the release, you might want to get it. It is also available on our Internet site. Once you are at the site, select Investor Information, select Financial News, select Earnings, and finally select the release from today, January 30.

Before we begin, I need to point out that this presentation contains forward-looking statements within the definition of the Securities and Exchange Commission's safe harbor rules including the realization of projected results for 2003 for WPS Resources and its subsidiaries. Forward-looking statements are beyond the ability of WPS Resources to control and, in many cases, WPS Resources cannot predict what factors would cause actual results to differ materially from those indicated by forward-looking statements. I refer you to the forward-looking statement section of today's press release and to our filed Securities and Exchange Commission disclosure documents for further information.

Now, back to the business at hand.

WPS Resources' consolidated net income increased by 31.8 million dollars during 2002 when compared with 2001. This resulted in basic earnings per share of $3.45 for the year compared with $2.75 in 2001. That's a 25 percent increase in basic earnings per share. Included in 2002 consolidated net income is a 22.8 million dollar after-tax gain relating to the 2001 sale of a portion of WPS Power Development's synthetic fuel operation compared with the after-tax gain of 1.3 million dollars recognized in 2001. The 2001 sale contributed 72 cents to earnings per share in 2002 and 5 cents in 2001. Although the sale occurred late in 2001, we deferred recognition of a portion of the related gain until certain contingencies were met. WPS Resources' consolidated net income excluding the gain on the sale increased by 10.3 million dollars during 2002 when compared with 2001. This resulted in basic earnings per share excluding the gain on the sale of $2.73 for the year compared with $2.70 in 2001.

Consolidated net income increased by 41 percent and was driven by our nonregulated activities. Net income at WPS Power Development increased 21.7 million dollars. This resulted from recognition of a gain related to the sell down of a portion of its ownership interest in its synthetic fuel operation in 2001. WPS Energy Services' net income increased 72 percent primarily due to improved natural gas margins and better management of procurement and volume risk processes. Our gas utility improved net income primarily as the result of the acquisition of Wisconsin Fuel & Light's gas business in April of 2001, a rate increase in 2002, and warmer than normal weather in the fourth quarter of 2001. Although the 2002 heating season was 3 percent milder than normal, the 2001 heating season was even milder at 8 percent warmer than normal.

WPS Resources' consolidated revenues decreased in 2002 by 600 thousand dollars. Although our electric utility segment increased revenues by 87.4 million dollars and our nonregulated power development segment increased revenues by 3.7 million dollars, our gas utility saw a 10.9 million dollar decrease in revenues while our nonregulated energy services segment saw a 79.6 million dollar decrease in revenues. These reductions were primarily the result of a decline in natural gas prices in 2002.

More importantly, our margins improved for all segments of business. Increased margins totaled more than 142 million dollars before taxes, or more than 24 percent.

Now Joe O'Leary will discuss the details behind these financial results.

The Senior Vice President and Chief Financial Officer speaks.

Thanks, Larry.

Utility segment revenues increased by more than 76 million dollars, or almost 8 percent, in 2002. Our electric utility segment generated 87 million dollars of additional revenue over 2001. This was largely the result of 10.3 percent higher electric rates, which were granted under an interim rate order that ran from January 1 to June 22. Electric rates were then increased an additional .6 percent for a total electric rate increase of 10.9 percent under the final order that became effective on June 22 and was in place through the end of the year. Our gas utility revenues were almost 11 million less in 2002 than in 2001 largely due to lower natural gas prices. Our gas utility was granted a 4.7 percent increase under the interim order but only a 3.9 percent increase under the final order, which resulted in a 420 thousand dollar refund to our gas customers. The acquisition of Wisconsin Fuel and Light in the second quarter of 2001 resulted in about 17 million dollars of additional gas revenues recorded in 2002.

WPS Power Development's revenues increased by 3.7 million dollars in 2002 largely due to increased revenues from additional generation assets in New York and Wisconsin.

We significantly improved our margins over last year. Our utility margins increased by 105.6 million dollars in 2002 when compared with 2001. In the nonregulated arena, WPS Power Development's margin increased by 20.6 million dollars and WPS Energy Services' margins increased by a net 16 million dollars.

Our consolidated electric utility margin increased by 85 million dollars due to the electric rate increase in Wisconsin and overall electric sales volumes that were 8 percent higher at Wisconsin Public Service. Additionally, our cooling season in 2002 was 7 percent warmer than in 2001 and 23 percent warmer than normal.

While electric sales volumes increased to most classes of customers, the customer sales mix and the slow economy continue to impact our ability to recover the margin contemplated in our final 2002 rate order from the Public Service Commission of Wisconsin.

Our gas utility margin increased by 20.6 million dollars due to the Wisconsin retail natural gas rate increase and a 14 percent increase in overall natural gas throughput volumes. Increased throughput volumes were due in part to Wisconsin Public Service's acquisition of Wisconsin Fuel & Light in April of 2001. Also contributing to the higher gas margin in 2002 was a heating season that was 5 percent colder than in 2001 as a result of weather during the 2001 heating season that was 8 percent warmer than normal. However, the overall heating season for 2002 was still 3 percent warmer than normal.

WPS Energy Services' 19 million dollar higher gas margin in 2002 was due to increased retail sales volumes and better management of its retail gas procurement and volume risk processes. Energy Services' electric margin decreased by 3 million dollars primarily due to less favorable market conditions for opportunity sales in 2002 as a result of the slow economy.

WPS Power Development's margin increased by 20.6 million dollars in 2002 as the result of additional generation assets acquired from CH Resources in June and the Combined Locks Energy Center becoming fully operational in the second quarter of 2002. Lower fuel costs at our Sunbury plant, and lower prices for spot market purchases, and the change in accounting to the equity method for our synfuel operations also contributed to improved margins.

Operating expenses increased by about 83 million dollars in 2002. Increased utility operating expenses accounted for about 68 million dollars of that amount due to:

WPS Power Development was also responsible for more than 8 million dollars of the increased operating expenses due to maintenance and other expenses at Sunbury and additional operating expenses associated with the acquisition of CH Resources.

WPS Energy Services' increase in operating expenses of around 7 million dollars was due to business expansion and increased bad debt expense.

Depreciation expenses increased by 11 million dollars in 2002 due to additional plant assets associated with Wisconsin Public Service's greater ownership in the Kewaunee plant and WPS Power Development's additional plant assets including the Combined Locks Energy Center and the 3 plants obtained in the CH Resources acquisition.

The financial impact of execution of our asset management strategy continued in 2002. Miscellaneous income increased by 10 million dollars primarily due to recognition of a pretax gain of 38 million dollars in 2002 as a result of WPS Power Development's sale of a portion of its synthetic fuel operation in 2001. This was partially offset by a change from consolidation accounting to the equity method of accounting for this facility as a result of the decrease in our ownership percentage. Sales of other property no longer required for operations resulted in pre-tax gains of around 3 million dollars in 2002 compared with about 17 million dollars in 2001.

WPS Power Development also saw a 1.8 million dollar increase in tax credits in 2002 primarily as the result of higher sales volumes produced at our synthetic fuel facility.

The weighted average number of common stock shares outstanding increased in 2002 by about 3.5 million shares primarily as a result of:

Now let's take a look at how we performed during the fourth quarter of 2002.

WPS Resources' consolidated net income increased by almost 9 million dollars in the fourth quarter of 2002 when compared with the same period in 2001. This resulted in basic earnings per share of 91 cents for the fourth quarter of 2002 compared with 70 cents in 2001. The 30 percent increase was largely the result of an almost 7 million dollar increase in gas utility net income due to the fourth quarter of 2001 being unusually warm. In addition, WPS Power Development's net income increased by 8.3 million dollars as a result of an additional 4.7 million dollars after-tax gain from Power Development's 2001 selldown of an interest in its synthetic fuel facility and additional tax credits resulting from higher synfuel production levels in 2002.

Consolidated revenues increased by more than 230 million dollars, or about 40 percent, during the fourth quarter of 2002 when compared with the same period in 2001.

Utility segment revenues increased by more than 67 million dollars, or more than 29 percent, in the fourth quarter of 2002. Our electric utility segment generated about 34 million dollars of additional revenue over the fourth quarter of 2001, and our gas utility segment generated more than 33 million dollars of additional revenue over the fourth quarter of 2001. This was the result of a Public Service Commission of Wisconsin final 2002 rate order, which authorized Wisconsin Public Service to increase retail electric rates by 10.9 percent and retail natural gas rates by 3.9 percent in Wisconsin effective June 22. Higher overall electric sales volumes of more than 12 percent at our Wisconsin utility added to the increased revenues. Higher natural gas throughput volumes of 16 percent and 26% higher gas costs that we pass through to customers also contributed to increased natural gas revenues for the quarter.

WPS Energy Services' revenues increased by almost 158 million dollars, or about 47 percent, during the fourth quarter of 2002 when compared with 2001 primarily as a result of increased gas sales volumes, including retail gas sales in newly entered Canadian markets, and increased electric sales volumes in Ohio.

WPS Power Development's revenues increased by 8.6 million dollars, or almost 33 percent, during the fourth quarter of 2002 when compared with 2001 primarily as a result of additional generation assets in New York and Wisconsin in the fourth quarter of 2002 that were not part of our operations during the fourth quarter of 2001.

We were able to improve our margins during the fourth quarter of 2002 when compared with the same period in 2001. Our utility margin increased by 35 million dollars. Our nonregulated business margins increased by about 9 million dollars.

Our consolidated electric utility margin increased by almost 28 million dollars due to the electric rate increase. Volumes were up 27 percent for lower-margin wholesale customers and sales to higher-margin residential customers and commercial and industrial customers were up 14 percent and 5 percent.

Our gas utility margin increased by more than 7 million dollars this quarter when compared with the same period in 2001 due to more normal temperatures and Wisconsin Public Service's higher retail natural gas rates. Our fourth quarter heating season was 24 percent colder than last year, but about normal.

WPS Energy Services increased its gas margin by more than 6 million dollars due to increased retail sales volumes and better management of its retail gas procurement and volume risk processes.

WPS Power Development increased its margin by about 3.6 million dollars mainly due to the operation of additional generation assets in upstate New York and Wisconsin. Also contributing to the increased margin were lower fuel costs at the Sunbury generation plant.

Operating expenses increased by about 24 million dollars this quarter compared to 2001. Our utility segment was responsible for more than 17 million dollars of the increased expenses that resulted from:

Operating expenses also increased at our nonregulated segments. WPS Power Development reported more than 4 million dollars of increased operating expenses associated with the generation assets obtained in the CH Resources acquisition, higher maintenance expenses at Sunbury, and costs associated with a reduction in workforce at Sunbury. WPS Energy Services reported more than 2 million dollars of additional operating expenses due to higher benefit, audit, and legal costs associated with business expansion.

Miscellaneous income decreased by more than 10 million dollars in the fourth quarter of 2002 when compared with the same period in 2001 as a result of a pretax gain of 1.7 million dollars from property sales in 2002 compared to a pretax gain of 16 million dollars from property sales that occurred in 2001. This was partially offset by an increase in the gain recognized in the fourth quarter of 2002 from the sale of a portion of our synfuel facility in 2001. An almost 10 million dollar pretax gain was recorded in the fourth quarter of 2002 compared with a 2 million dollar pretax gain in the fourth quarter of 2001.

WPS Power Development's tax credits also increased by 4.9 million dollars this quarter when compared with 2001, primarily due to higher sales volumes produced from our synthetic fuel project and an increase in our 2002 taxable income estimate allowing credits relating to prior quarter sales volumes to be recognized.

The weighted average number of common stock shares outstanding increased in the fourth quarter of 2002 by about 2.8 million shares primarily as a result of issuing 2.3 million additional shares in December, 2001.

Now I'll turn the conference call over to Larry Weyers.

The Chairman, President, and Chief Executive Officer speaks.

Thanks, Joe. That gives you background information on our earnings story for the year and quarter. Now I'll discuss how our operating segments fared and what you can expect in the future. I'll begin with our regulated utilities.

January of 2002 brought interim electric and natural gas rates for our Wisconsin customers. We operated under the interim rates until June 22 when the final rate order became effective. The final rate order granted a 10.9 percent, or 58.6 million dollar, annualized increase in retail electric rates and a 3.9 percent, or 10.6 million dollar, annualized increase in retail natural gas rates. The order also granted a 12.3 percent return on equity and allowed 55 percent equity in our capital structure. Even with this rate increase, Wisconsin Public Service's rates remain among the lowest in Wisconsin and the nation.

In February, we expanded our utility operations' call center to 24 hours a day, seven days a week. While 24-hour emergency service has always been available to Wisconsin Public Service and Upper Peninsula Power customers, we expanded the call center to handle our customers' other needs such as billing and payment options, service requests, and advice on managing their energy costs. We also added self-service features to our Internet site. The 24/7 call center and self-service web site give our customers more choices as to how and when they want to be served.

In April, Wisconsin Public Service announced our NatureWise™ Renewable Energy Program, which allows customers to draw their electricity from sources powered by wind and biomass. NatureWise allows customers to sign up for renewable energy in varying amounts and know that the portion of electricity they select is coming from clean, renewable sources right here in northeastern Wisconsin. It's a simple, convenient way to make a difference for the environment now and for future generations.

In May, Public Service began construction of an 83-megawatt combustion turbine electric generator at its Pulliam Power Plant site in Green Bay. The natural gas-fired generator should begin operating in June of 2003.

In September, Public Service announced plans to build a 500-megawatt coal-fired electric generator at its Weston Power Plant site near Wausau, Wisconsin. The 650 million to 700 million dollar power plant is expected to begin operating in 2008.

In December, Public Service purchased the 180-megawatt natural gas-fired De Pere Energy Center from Calpine Corporation and terminated the existing power purchase agreement for about 120 million dollars, with 48 million dollars of that amount to be paid near year-end 2003. We also entered into a new power purchase agreement for up to 235 megawatts of capacity and energy for 10 years from Calpine's proposed Sherry Energy Center to be located near Marshfield, Wisconsin. The cost of the capacity purchases from the Sherry Energy Center will be approximately 250 million dollars over the 10-year period. This was a good deal for Public Service and its customers because it will give us a better mix of resources and will mean lower rates for our customers. Termination of the existing power purchase agreement allows us to take advantage of changes in technology to provide lower-cost options for meeting the increasing demands of our customers.

The Michigan Public Service Commission granted Upper Peninsula Power Company an 8.9 percent increase in its base rates and a return on equity of 11.4 percent starting on December 21, 2002. This was the first base rate increase for Upper Peninsula Power in 10 years.

Last March, Wisconsin Public Service filed a request with the Public Service Commission of Wisconsin to increase its electric rates by 8.3 percent and its natural gas rates by 2.7 percent in 2003. We expect to receive a rate order during this first quarter. We're investing in service, reliability, and infrastructure that our customers require for the future.

Now let me bring you up-to-date on the operations of our two nonregulated subsidiaries. I'll begin with WPS Power Development.

We own 503 megawatts of generation capacity in Pennsylvania, which consists of 473 megawatts from our Sunbury and 30 megawatts from our Westwood facilities. These plants supply the Pennsylvania, New Jersey, and Maryland energy marketplace. A significant portion of the output from Sunbury is under off-take contracts that we've hedged for the next two years. We initiated a work force reduction in January 2003 to reduce our ongoing costs of operating this facility and are considering other alternatives to further optimize the contribution to future earnings from this plant.

We also own 69 megawatts of generation in Maine and New Brunswick, Canada. Unfortunately, these hydro facilities have suffered from drought conditions over the last two years with 2001 being the driest year recorded for the entire state of Maine in 106 years. While precipitation during 2002 improved to more normal levels, because of low water table levels from the prior year, stream flows were still low. Production from these assets was less than anticipated due to the drought. We have done a good job of managing our operating expenses, but the lower production as a result of low river flows from the drought conditions has resulted in lower revenues for the year. By the way, all of the generation from this facility is under contract to WPS Energy Services and another non-affiliated company.

In June, we completed our 59 million dollar purchase of CH Resources, Inc. whose primary assets included three upstate New York power plants. The plants have a combined capacity of 257 megawatts. The Syracuse and Beaver Falls plants are operating as expected, but we've had some maintenance problems at the Niagara Falls plant, which has negatively impacted performance. The generation from these plants is not under contract, but is instead sold in the open market. Power prices in New York have been lower than previous years, similar to other areas of the country. The weak market has had an impact on all three facilities, especially the lower pricing given for capacity and the lower than expected spark spreads. Consequently, the financial performance of the plants has dropped a little below expectations. As the market returns to normal values, we expect these facilities to perform well.

WPS Power Development is continuing to work on its plan to construct a 250-megawatt, coal-fired electric generating power facility in western Wisconsin, if a contract is in place for the capacity. The facility will be constructed as a redevelopment project of the existing 53-megawatt Stoneman Power Plant that was purchased in 1996. The plan calls for construction of an additional 250 megawatts of electrical capacity integrated with the existing 53-megawatt Stoneman Plant. If we can obtain sufficient contracts in the near future, the redevelopment could be completed by the end of 2007 or early 2008. We own two-thirds of the Stoneman Power Plant.

WPS Power Development completed construction of a 50-megawatt simple cycle combustion turbine facility in Combined Locks, Wisconsin, in November of 2001 and completed construction of the cogeneration phase in the second quarter of 2002. The facility is now operational and all of its capacity is under contract. We are working through typical operational issues—not unexpected for the first year of operation. In particular, we had discrepancies between some environmental test results and our normal emissions indications and decided to take the facility out of service to fine tune control systems to better meet permit requirements. The plant was returned to service in late December.

Our synthetic fuel project has been operating well. As Joe mentioned, we recognized a pre-tax gain of 38 million dollars in 2002 relating to the 2001 sale of an interest in this project. The output capacity of this project generates tax credits currently beyond our capacity to use them. Therefore, as part of our overall asset management strategy, we entered into an agreement in December 2002 with a subsidiary of an unaffiliated public company to monetize a portion of this excess capacity through the sale of a 30 percent interest in ECO Coal Pelletization, the company we own which holds our interest in this project. ECO continues to maintain a one-third share in the synthetic fuel project, although our share of the output from the project is reduced by this agreement. This new agreement with this party gives them a preferential allocation of qualifying synfuel from the project. The agreement also gives this party an option, but not the obligation, to be allocated additional synfuel from the project if we make it available to them. This agreement runs through December 2007. We expect our December 2002 monetization to deliver on average annual pre-tax earnings of approximately 7 million dollars from 2003 to 2007 pending satisfaction of certain contingencies relating to the production of the synthetic fuel project.

WPS Power Development currently has a little over 930 megawatts of generating capacity. Additional acquisition and development projects continue to be evaluated.

Market conditions continue to have a detrimental impact on our financial results for WPS Power Development. The market continues to be weak and has placed very low values on generation capacity. Current values for capacity are below the projections made at the time Sunbury was purchased. We revised our operating strategy for Sunbury and were able to increase its margins in 2002, even with the poor market conditions. Sunbury's operating performance, as measured by equivalent availability, has shown improvement and is nearing industry norms. However, based on current market projections, we do not expect Sunbury to contribute to earnings in 2003.

We continue to seek opportunities that will provide value to our shareholders. We have adjusted our approach to minimize merchant plant risk. Given market conditions, Power Development may not grow at the pace that was assumed in the past. We are not targeting a specific level of investment for 2003, but will pursue good opportunities as they arise.

Now, let's take a closer look at WPS Energy Services' operations.

We have enjoyed tremendous growth and margin improvement at Energy Services over the last 6 years, and we expect to continue expanding in the northeastern quadrant of the United States and adjacent portions of Canada. We are continuing to maintain a balance of retail and wholesale natural gas and electric business, utilizing WPS Power Development's assets where applicable. Our nonregulated electric and natural gas sales commitments are generally back-to-back transactions that allow us to effectively manage risk, and we have demonstrated our flexibility and adaptation to an ever-changing market with the discipline needed to transact profitable business.

As indicated earlier, Energy Services' net income increased by almost 72 percent this year. Additionally, its margins improved by 16 million dollars. Our 2002 financial results reflect the efforts we made in 2001 to revamp our natural gas business. This included improving our procurement processes, reducing the components of our sales commitments that are difficult to hedge, and focusing on the quality of suppliers and customers. The improvement in our retail natural gas segment has been a primary driver of our net income growth for 2002.

A key step for us in 2002 was to leverage our retail core competency by increasing involvement in Canadian markets. We were able to do this by acquiring a natural gas retail business operating in Ontario and Quebec under a low-risk, earn-out structure. This enables us to expand our geographical scope and capability without deviating from our core competencies. It also allowed us to leverage the improvements we made to our infrastructure and processes in 2001 across a larger customer base. We expect this operation to contribute to earnings in 2004. The addition of this business to our portfolio and our geographical expansion are contributing to the balance between our wholesale and retail segments—a balance that we believe is very important for us to maintain.

The changing market conditions, as a result of many industry participants pulling back from the marketplace, have benefited us. Though there are fewer participants, the quality of the participants is higher which reduces our counter party credit risk. The bar has been raised for everyone with respect to credit quality and business quality. Remaining market participants are exhibiting greater discipline in their transactions. There has been a mutual focus between suppliers and customers on the strength of their business transaction partner. Fewer market participants has created growth opportunities for us; however, our primary focus has been to improve the quality of our business with more selective profitable growth.

The integration of WPS Energy Services' marketing efforts and Power Development's generation efforts in Maine continues to work well for us and in fact is driving a large percentage of Energy Services' retail electric margin. We are pleased with the results of integrating the capabilities of our nonregulated entities in the Maine market.

These entities are also working together in developing and executing strategies to improve profitability of our Pennsylvania generation plants.

In New York, Energy Services and Power Development are working together to develop an integrated market capability that will work as well for us as it does in Maine. In 2002, we laid some of the foundational steps for this to occur. In 2003, we expect to see improved results from this integration.

The electric market has become less liquid due to the departure of many companies from the market, which makes extracting value more challenging and limits the value that can be obtained through trading around assets. We continue to take a conservative approach toward trading around assets, always maintaining a conservative position and refraining from purely speculative trading. There is still an active, near-term physical market with adequate liquidity to effectively market Power Development's production. The location of Power Development's assets in the PJM and New York ISO markets is a benefit because the liquidity is better there than other parts of the country.

WPS Energy Services has been successful in building a diverse base of electric service customers through both regulatory standard offer contracts, municipal aggregation, and contracting directly with end-use customers.

We also own a 3 billion cubic foot gas storage field in southeast Michigan, which became operational in February of 2002. The storage field allows for increased reliability and greater flexibility in meeting customers' peak day energy requirements. The storage field has performed better than expected—both financially and operationally. We have been pleased with the physical performance of the facility and our ability to capitalize on market opportunities for natural gas storage. During 2003, we will ramp the field to full capacity.

In 2002, we significantly restructured the inner workings of WPS Energy Services to better leverage the capabilities of our employees across the organization in order to pursue the best opportunities. This has facilitated learning and the use of best practices in all of our markets. It has also improved the overall efficiency and effectiveness of Energy Services' ability to respond to growth opportunities.

WPS Energy Services' employees are incented to produce margin and profit—not volume or revenues. The majority of the forward price curves used by WPS Energy Services in its mark-to-market evaluation come from external sources. Further protection is provided through our WPS Resources corporate Risk Administration area, which monitors trading activities at Energy Services on a daily basis and assures that they are appropriately hedged.

In the wake of many market participants' declining credit quality, Energy Services continues to be diligent in its evaluation of credit risk and monitoring of counter party credit exposure. Our strategy has not been altered significantly because our focus has not been on building a trading company, but rather on developing and delivering structured energy products to wholesale and retail energy customers. Those customers are eager to find credit-worthy suppliers like us. With the reduction in the number of market participants, customers are now focusing on the quality of their supplier. We have consistently been regarded as a quality and reliable supplier, and those characteristics are more important than ever to customers. This has contributed to Energy Services' customer and margin growth.

Finally, I'll turn to WPS Resources.

In December of 2001, we announced the initiation of our asset management strategy. Our strategy calls for the disposition of assets that are no longer required for operations in a manner that allows recognition of profits over the next 4 to 6 years. Land, buildings, and other facilities at our subsidiaries are a part of this strategy. In 2002, our asset management activities relating to property sales added five cents per share to our earnings. Going forward, we are expecting an average annualized impact of 15 to 25 cents per share through 2007 from our asset management strategy relating to property sales. We also continue to seek other ways to optimize the value of our assets, such as the sales of interest in our synthetic fuel project in 2001 and 2002.

In February, WPS Resources was added to Standard & Poor's MidCap 400 Index. This gave our stock greater liquidity with our average daily trading volume increasing from about 40,000 shares to 120,000 shares.

In May, we selected a new auditor, Deloitte & Touche, to replace Arthur Andersen. We also decided to undertake a reaudit of 2000 and 2001 to enhance our financial flexibility. We are proud to say that the reaudit was completed and did not change our earnings reported for those years.

In July, we announced that we would increase our common stock dividend payable for the 44th consecutive year. Our quarterly dividend increased to 53-1/2 cents per share with our dividend payment on September 20.

In 2002, we complied with changes in Securities and Exchange Commission rules and certified the material accuracy of our public reports and proxy statements filed with the SEC.

In October, we established 180 million dollars in revolving credit lines for WPS Resources and $100 million dollars in revolving credit lines for Wisconsin Public Service. Eleven banks participated in the syndication. Moody's assigned a "Aa3" rating to WPS Resources' and a "Aa2" rating to Wisconsin Public Service's 364-day senior unsecured syndicated bank facility. The increased credit lines give us greater flexibility as we grow our regulated utilities and nonregulated business.

In November, WPS Resources completed the sale of 100 million dollars of 5.375 percent 10-year senior unsecured notes. The notes mature on December 1, 2012 and were rated "Aa3" by Moody's and "A" by Standard & Poor's.

In December, Wisconsin Public Service completed the sale of 150 million dollars of 4.875 percent 10-year senior notes. The notes were in the form of fading lien notes and have the security of first mortgage bonds until all other Wisconsin Public Service first mortgage bonds are retired. They then will either become senior unsecured notes or will be secured by substitute mortgage bonds. The notes mature on December 1, 2012 and were rated "Aa1" by Moody's and "AA-" by Standard & Poor's.

Our financial strength and quality credit ratings—among the best in the industry— generate great market demand and enable us to issue debt on very favorable terms. We will continue to work hard to maintain our quality credit ratings that give us access to the capital markets at reasonable rates.

We expect to issue common stock this year. The size of the common stock issue is contingent on the level of future investment activity by our subsidiaries.

Our stock price has held up well over the last year—a year that was volatile for many companies. We finished 2001 at $36.55 and ended 2002 at $38.82. For investors who held WPS common stock from December 31, 2001 through December 31, 2002 and were able to reinvest their $2.12 in dividends paid per share, their total shareholder return for the year was 12.26 percent—a very positive result for our investors in a year that was difficult for many other companies.

During 2002 and continuing into 2003, we find that new accounting standards are in effect for reporting WPS Energy Services' transactions. On October 25, 2002, the Emerging Issues Task Force rescinded Issue 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." Issue 98-10 required that energy trading contracts of a trading operation be marked to market—that is, measured at fair value as of the balance sheet date—with the gains and losses included in earnings. As a result of the rescission, contracts will be required to be evaluated under statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The rescission was effective immediately for all energy contracts entered into on or after October 25, 2002. The rescission is effective January 1, 2003, for contracts entered into prior to October 25, 2002. There was not a significant impact to 2002 WPS Energy Services' earnings as a result of this change. The effect of adjusting the financial results in 2003 for energy trading contracts entered into prior to October 25, 2002 will be accounted for as a cumulative effect of a change in accounting principle. We have not yet determined this amount. The recission of 98-10 affects the timing of the recognition of income or loss in earnings and does not change the underlying economics of cash flows or transactions entered into by WPS Energy Services.

WPS Resources will adopt the new accounting standard, EITF 02-03, "Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities" in the first quarter of 2003. This new standard requires net reporting of revenues by energy companies qualifying as derivatives and also as trading activities under the accounting rules. WPS Energy Services anticipates that the majority of its contracts do not meet the definition of trading under the accounting rules and will continue to report the majority of its revenues on a gross basis.

Today, we are announcing a slight revision in our overall strategy that will change our risk profile and targeted earnings growth. For the past several years, we have sought balanced growth in our regulated and nonregulated business with some emphasis on the nonregulated subsidiaries. Our targeted growth rate has been 8 to 10 percent earnings per share growth. In 2003, we will continue to seek balanced utility and nonregulated growth; however, we will place more emphasis on regulated growth thereby reducing our exposure to the risks of the nonregulated markets. We are also slowing our long-term earnings per share growth rate to a target of 6 to 8 percent on an average annualized basis, with fluctuations in any given year that may be above or below that targeted range. These revisions in our overall strategy will reduce the overall risk to investors and, combined with our growing dividend, provide very good returns to our shareholders. Our target for 2003 earnings per share is between $2.75 and $2.95 for 2003 but recognize that there may be some impacts due to the required accounting standard changes. We will provide new earnings guidance once the full impact of the Issue 98-10 recision is evaluated. Achieving our targeted range for 2003 earnings per share is dependent upon, among other things, the timely successful completion of our rate case pending before the Public Service Commission of Wisconsin, normal weather, availability of our generating units, a pick-up in the recovery of the economy, continued execution of our asset management strategy, improvement in the market price for energy, and successful execution of cost control initiatives.

Investors have recently had a tough time in attempting to identify quality companies. They are recognizing that WPS Resources' conservative nature has served it well throughout the years. Our core competencies are in energy and energy related businesses. We intend to stay in those businesses within the United States and Canada. Our electric and gas utility has served northeastern Wisconsin for over 119 years. We understand the energy business and have developed a business plan that capitalizes on that understanding. Our utility base is solid and our nonregulated energy businesses are focused. We've rewarded our shareholders with another year of increased dividends. We effectively mitigate and minimize risk in the operation of our business. We work hard to maintain quality credit ratings. Finally, we deliver value to our customers and our shareholders.

We plan to continue delivering shareholder value through our strong utility foundation, focused nonregulated energy and energy-related businesses, achieving our projected annualized earnings per share growth of 6 to 8 percent, and maintaining our outstanding dividend record. We plan to continue delivering value for many years to come!

Now, I'd like to take time to answer some of your questions about our financial picture and plans for the future.

Thank you for being a part of our third quarter earnings conference call. A replay of this conference call will be available through February 13 by dialing 800-945-7650.

The text for today's presentation is available on our Web site. Just select Investor Information and then Presentations.

If you have additional questions, you may contact Joe O'Leary at 920-433-1463 or Donna Sheedy at 920-433-1857.