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Moving Forward As A Leading Midwest Energy Company

Larry L. Weyers
President and Chief Executive Officer

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

and

Donna M. Sheedy
Manager - Investor Relations

[SLIDE 1] Good afternoon. Welcome to Integrys Energy Group's conference call announcing the closing of the Peoples Energy merger. With me today are Larry Weyers, President and Chief Executive Officer, and Joe O'Leary, Senior Vice President and Chief Financial Officer.

The slides for today's presentation are available on our web site at www.integrysgroup.com. Once you have connected to the Web site, please select "Investor Information" and then press the link to "Presentations." You will find today's presentation, which is titled "Moving Forward As A Leading Midwest Energy Company."

[SLIDE 2] 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. Forward-looking statements are beyond the ability of Integrys Energy Group to control and, in many cases, Integrys Energy Group cannot predict what factors would cause actual results to differ materially from those indicated by forward-looking statements.

[Slide 3] I refer you to the forward-looking statement section of today's news release and to our previously filed Securities and Exchange Commission disclosure documents for further information.

[Slide 4] Today we will discuss our plans for integrating our two companies and achieving the projected synergies. We will also outline our strategic initiatives and plans for growth. We will start with Larry Weyers, who will discuss the highlights of the merger and our strategic initiatives. Then Joe O'Leary will review our synergy potential, integration timeline, construction expenditures, credit profile, and dividends. At the end of our prepared remarks, you will have an opportunity to ask questions.

I will now turn the call over to Larry Weyers.

Larry Weyers - President and Chief Executive Officer

Thank you, Donna. Good morning, everyone, and thank you for joining us on the call today. This is an exciting day for all of us. Today, with the help of numerous dedicated stakeholders, we have brought together two exciting organizations to form Integrys Energy Group, a leading Midwest energy company. I would especially like to thank the members of both the WPS Resources and Peoples Energy teams who worked tremendously long hours to get this merger closed in record time. We know that there is much work ahead of us, and we all appreciate your continued dedication.

[Slide 5] We have a vision to guide us as we move forward with the integration of our companies. It's at the heart of who we are and what we do. The vision of Integrys Energy Group is "People creating a premier and growing energy company." Let's look at that vision in phrases.

People creating: Our ability to achieve this vision rests with our people who are actively working to make the vision real.

Premier and growing: We strive to be the best at what we do, both internally and externally, and are constantly changing to meet customer needs and expectations.

Energy company: We are focused on the energy business in regulated and nonregulated sectors.

Of equal importance is our mission that describes what we do and who we serve. It provides focus for our everyday work and long-term direction for our strategic planning. Our mission is to "provide customers with the best value in energy and related services." It's key to what you will see from us in the future.

[Slide 6] I would like to share with you today the goals of our combined organization. First and foremost, our primary goal is to find opportunities to more effectively and efficiently serve our customers. Second, we will continue to build a motivated team dedicated to operational excellence. Third, we will invest in capital projects, which allow us to serve our customers better and afford our shareholders a reasonable return. Next, we will maintain our emphasis on fiscal responsibility resulting in a strong balance sheet and quality credit ratings. And finally, we will continue to build shareholder value by executing our goals.

It took just seven and one-half months to bring our organizations together, from the date of announcement on July 10 until today. During those months we developed integration plans, and our integration teams are already executing those plans. Before joining you on this call today I had a conversation with senior members of our team and they are excited about the opportunities that are ahead of us. We hope that on this call we convey some of that excitement.

[Slide 7] As a result of this merger, we created a larger and more diversified regulated utility business. We are better positioned to serve our regulated customers due to constructive regulatory environments and our willingness to make capital investments. Along with expanding our regulated utility operations, this merger also enhances our growing nonregulated energy marketing businesses. In our continued effort to focus on our rigorous asset management strategy and to remain true to our efforts to focus on our core competencies, we have decided to divest Peoples Energy Production Company. This will lower our business risk profile, refine our focus, and provide funds to reduce debt and run our business. We have selected J. P. Morgan Securities, Inc. as our financial advisor in this divestiture. They will be providing more detailed information to those interested parties who desire to participate in the divestiture process within the next few weeks. We anticipate the divestiture should be completed by the end of 2007.

[Slide 8] Financially, this merger holds tremendous promise. Our integration teams are focusing on achieving 94 million dollars of steady-state annual synergies within five years. We anticipate that we will begin reaping many of the synergy benefits in 2008. Joe will go over with you in more detail where we believe the synergies will come from and the costs we will be incurring to achieve those synergies.

When we announced the merger in July of 2006, we stated that our new quarterly dividend rate will be 66 cents per common share going forward. Our long-term objective is to achieve a dividend payout ratio of 60 to 65 percent.

We continue to target a long-term average annualized earnings per share growth rate of 6 to 8 percent, which excludes near term costs to achieve merger synergy savings and purchase accounting adjustments. Naturally, the growth will not be linear, with fluctuations in any given year that may be above or below the targeted range. But, overall we believe that in the long run you will see us achieve our objective growth rate.

As always we remain focused on maintaining a strong balance sheet and a quality credit profile. Our commitment to financial discipline was instrumental in making this merger possible.

[Slide 9] Here are some of the other highlights of our new organization:

[Slide 10] Now let's take a look at our regulated utility operations. We continue to expand our operations in the Midwest and in so doing, we are becoming a larger, stronger, and more diversified regulated utility business.

[Slide 11] As we stated earlier, we serve over 2 million customers. We are operating in four regulated jurisdictions with residential customers representing over 90 percent of our customer base. Our authorized return on equity ranges from 10.75 percent to 11.71 percent.

[Slide 12] Our regulated businesses will continue to provide stable earnings growth. Our service territories are attractive and vibrant with diverse economies and healthy market conditions. We believe that as a result of combining our organizations, synergies will materialize due to our sharing of best practices. We will be eliminating redundant and overlapping functions, resulting in direct cost savings.

[Slide 13] We also see opportunities for our nonregulated energy marketing businesses resulting from our merger as we've combined complementary and successful nonregulated energy marketing business operations. Our long-term expectation for this business is to provide about 25 percent to 30 percent of total consolidated earnings.

[Slide 14] We see strategic opportunities for growing our nonregulated energy marketing businesses by continuing our focus on retail and wholesale customers and expanding into new territories. We will be leveraging the expertise, reputation, and assets of our nonregulated energy marketing businesses by expanding their geographic reach and including a stronger presence in Illinois just as the electric market has opened. And this nonregulated segment will continue taking a disciplined approach to risk management which has been engrained over the years in the culture of our companies.

Joe O'Leary will now give you a quick review of our potential synergies, capital investments, credit profile, and dividends. Joe…

Joe O'Leary - Senior Vice President and Chief Financial Officer

Thanks, Larry.

As Larry said earlier, WPS Resources and Peoples Energy have combined to form a strong, diversified leading Midwest energy company.

[Slide 15] Over the next five years we will work toward achieving synergy savings of $94 million in annual steady-state savings. This figure was derived from an analysis we prepared with assistance from Booz Allen Hamilton, a well-known international management technology consulting firm. At Integrys, we are still in the planning process and, at this time, these are the best estimates for achieving the potential synergies that we have. That being said, we know that the bulk of the synergies will materialize in our regulated operations. We currently estimate that 42 percent of the total savings will result from trimming redundant staffing, 24 percent will come from trimming information technology costs, 18 percent will be generated from corporate and administrative programs, 7 percent of the synergies will stem from efficiencies at our nonregulated operations, 6 percent will come from lowered costs associated with procurement, and 3 percent of the cost savings will be from reduction in costs associated with natural gas supplies. As we move through the planning process, we will update you on where and when these synergies will materialize.

[Slide 16] As with any merger, the synergy savings will initially fluctuate somewhat as we work to merge accounting systems, human resources platforms, and other information technology areas. Most of the costs to achieve the synergies will be invested in 2007. In 2008, we expect to generate a significant ramp-up of real savings to approximately 73 million dollars. By 2011, we estimate that we will achieve steady-state synergies of 94 million. We are expecting about 88 million dollars in steady-state synergies from our regulated utilities and about 6 million dollars of savings from our nonregulated businesses. Costs to achieve those synergies are expected to total about 186 million dollars.

[Slide 17] Of the 186 million dollars in costs to achieve, about 96 percent, or 178 million dollars, would fall within the regulated arena. We expect to spend about:

Our target milestones for integration include having our nonregulated entities functionally integrated by the end of the second quarter in 2007. We expect to have a common compensation and benefits platform by year-end 2007. We also anticipate having a common information technology platform by year-end 2008. And by mid-year 2009, we plan to have a common customer information system.

[Slide 18] At Integrys Energy Group, we believe in investing in capital projects that will allow us to better serve our customers and generate returns for our shareholders. On our fourth quarter earnings conference call we provided details on our utility capital expenditures for 2007 through 2009. We would like to update those projections now to give you even more insight into when we plan to spend the dollars and to include our intended capital investments for the Peoples organization.

Beginning with our utilities, we will invest approximately 765 million dollars in Wisconsin Public Service with about:

The majority of those expenditures relate to completing construction of the 500 megawatt Weston 4 generation facility, installing a scrubber on Weston 3, and constructing natural gas distribution laterals to connect to the Guardian Pipeline, which is being extended to Green Bay, Wisconsin.

At Peoples Gas Light and Coke we will invest about 368 million dollars between 2007 and 2009 which can be broken down to about:

These expenditures include the potential costs of the cast iron replacement program in Chicago, which we hope to recover with a rider mechanism subject to regulatory approval.

We will invest about 48 million dollars at Upper Peninsula Power between 2007 and 2009 which can be broken down to about:

The bulk of these expenditures relate to Federal Energy Regulatory Commission mandated hydro dams, repair of Silver Lake, and other construction projects.

We intend to invest about 46 million dollars at Minnesota Energy Resources between 2007 and 2009 primarily for growth and integrity of our mains and services. This can be broken down to about:

We anticipate investing about 33 million dollars in North Shore Gas between 2007 and 2009. This can be broken down to about 11 million dollars each year.

At Michigan Gas Utilities, we plan to invest about 25 million dollars between 2007 and 2009 with about 9 million invested in the first year and about 8 million invested in each of the next two years primarily for natural gas mains.

Turning next to our nonregulated segments, our current forecast includes construction expenditures of about 126 million in 2007 for Peoples Energy Production. As you know, we've announced our plans to divest this company in 2007, so we are not anticipating expenditures beyond then.

We expect to spend about 23 million dollars at Integrys Energy Services, our nonregulated marketing services subsidiary, primarily for scheduled maintenance projects at generation facilities, computer equipment needed for business expansion, and planned technology upgrades. The amount to be spent is about 13 million dollars in 2007 and about 5 million dollars in each of the next two years.

As you can see, this is a very healthy construction expenditure program with plans for Integrys Energy Group to spend about 1.4 billion dollars over the next three years. We've focused our capital investment program on our regulated generation and distribution operations that will grow rate base while maintaining competitive utility rates for our customers. But as you know, utilities are allowed to earn a return on their rate base, and, sometimes, construction work-in-progress. Additionally, it is extremely important for us to maintain the integrity of our systems. In the past, we have been known for having one of the most reliable electric and natural gas distribution systems because we have continually invested in 24.9 KV electric lines and plastic natural gas mains, both of which require less maintenance and enhance reliability. We expect to continue improving service to our customers by improving the distribution systems that help them meet their energy needs.

We also expect to make about 132 million dollars in equity contributions to the American Transmission Company primarily to cover transmission line projects with the largest of those being the Wausau, Wisconsin, to Duluth, Minnesota, transmission line which will require about 57 million dollars of that amount. We anticipate that our total equity contributions will be about 44 million dollars in 2007, 62 million dollars in 2008, and 26 million dollars in 2009. The ATC is currently allowed a return on equity of 12.2 percent through 2012. We anticipate our ownership in the ATC will move from 31 percent to 35 percent in 2008.

[Slide 19] On the regulatory front, we expect to continue sharing core values across our organization and working hard for a constructive regulatory approach that is critical to our long-term success. Our constructive regulatory approach was demonstrated in achieving expedited regulatory approvals for our merger. We expect to file rate cases for Peoples Gas and North Shore Gas during the first quarter of 2007. The normal process followed in Illinois could give us a decision from the Illinois Commerce Commission during the first quarter of 2008.

[Slide 20] One of our core goals, which Larry Weyers mentioned earlier, was to maintain our strong balance sheet and quality credit ratings. Although in the short term our balance sheet will be impacted by this merger, we will remain resolute regarding our financial discipline. We have and will continue to work hard to maintain quality credit ratings that allow us to attain ready access to the capital markets and finance our projects at lower rates than most other companies enjoy.

[Slide 21] As part of the merger, we anticipate increasing our quarterly common stock dividend rate to 66 cents per share going forward. This will result in a prorated dividend for this first quarter. We anticipate that Integrys will continue the 66 cents per share quarterly dividend rate in the future, subject to evaluation by the Integrys Energy Group Board of Directors as future business needs dictate.

We would like to remind you that for 66 consecutive years we have paid a dividend. We have increased our dividends for 48 consecutive years. We have been named to Standard & Poor's High Yield Dividend Aristocrat Index, and we are a Mergent Dividend Achiever. This prestigious designation means that we are part of an elite group of companies that have consistently delivered dividend increases to shareholders for 10 years or longer.

Now I'll turn the call back to Larry.

The President and Chief Executive Officer speaks.

Thanks, Joe…

[Slide 22] As we have discussed on this call, we have tremendous opportunities ahead of us at Integrys Energy Group. First and foremost, you can be assured that we will focus on achieving excellence in customer service. Because let's face it, customers are key to our success. We will grow and enhance our regulated and nonregulated businesses and make investments in capital projects that will enhance our ability to serve our customers and generate an attractive return for our shareholders. By focusing on building on our core competencies, we will continue to carry on our asset management strategy. At the heart of our growth will be fiscal responsibility and our dedication to creating long-term shareholder value.

Before I open the call to questions, I would once again like to thank all of those people who made this merger possible. We appreciate your hard work, support, and dedication.

Now, we are available to answer your questions.

Thank you for being a part of our conference call today. A replay of this conference call will be available through March 7, 2007, by dialing toll free 800-801-6152.

The text for today's presentation is available on our Web site at www.integrysgroup.com. Just select Investor Information and then Presentations. The Integrys Energy Group web site at www.integrysgroup.com will go live tomorrow, February 22. You will also be able to find today's presentation on that site.

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