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The Wall Street Analyst Forum - March 28, 2001

[Slide 1]

"Boundless Energy"

Remarks by Larry L. Weyers [Slide 2]
Chairman, President and Chief Executive Officer
WPS Resources Corporation

[Slide 3] Forward-Looking Statement

Introduction

Thank you for taking the time to be with us today. I am Larry Weyers, Chairman, President, and Chief Executive Officer of WPS Resources Corporation, which is based in Green Bay, Wisconsin. Today I would like to share with you: [Slide 4]

WPS Resources Corporation, through its subsidiaries, has been successful for a long time. We are on the brink of taking that success to another level-a level of much higher growth-while maintaining the quality we have carefully nurtured. [Slide 5] Our management team has set a goal of 8 to10 percent in annualized earnings growth compared to historic utility growth of 2 to 3 percent. Before I tell you how we will accomplish this, let me provide background information on our company.

Our Organization Structure

[Slide 6] WPS Resources Corporation is a holding company for regulated and nonregulated energy supply and services companies. Our primary subsidiary is Wisconsin Public Service Corporation, a regulated electric and natural gas utility that generates and distributes energy in northeastern Wisconsin and an adjacent portion of Michigan.

Upper Peninsula Power Company is a regulated electric utility that supplies and distributes electric energy in the northern half of the Upper Peninsula of Michigan.

WPS Energy Services is a diversified nonregulated energy supply and services company operating in the northeast quadrant of the United States.

WPS Power Development develops, owns, and operates nonregulated electric generation facilities throughout the continental United States.

These companies are the backbone of WPS Resources Corporation. Wisconsin Public Service has been successfully operating since 1883 and Upper Peninsula Power since 1947. The most recent additions to the family, WPS Energy Services and WPS Power Development, are just over six years old.

Wisconsin's Economy

[Slide 7] The economy in Wisconsin is important for both the electric and gas utility as well as our nonregulated operations. Unemployment has moved up recently, but only to 3.3 percent. Wisconsin has not seen noticeable recessionary signs. The paper industry, which makes up a majority of Wisconsin Pubic Service's territory, has been a resilient industry during recessionary times. Economic growth in our service territory during 2000 was above average with income and job gains exceeding both state and national trends. Based on this, we are expecting to continue the 2 to 3 percent in utility energy growth for our electric and gas business.

Wisconsin Regulation/Deregulation

[Slide 8] Wisconsin's regulatory environment is also an important factor in our strategic direction. Wisconsin is studying deregulation, but has not yet moved to a deregulated environment. It has established a biannual planning process and both improved and expedited its project review and approval process. Wisconsin has required utilities to join an independent system operator and an independent transmission organization. The Commission is addressing renewable energy by requiring a percentage of each utility's generation to be in the form of renewable energy. It has also addressed the public benefits issue and provided relief from the 25 percent nonregulated asset limitation placed on holding companies. The Commission has completed a market power study for electric generation and forwarded it to Wisconsin's legislature. In a separate action, as part of our recent rate case, the Commission has authorized expansion of gas retail access.

[Slide 9] Wisconsin is also experiencing leadership changes. Governor Tommy Thompson recently accepted a position in President Bush's cabinet. Our new governor, Scott McCallum, formerly lieutenant governor, is not expected to make radical changes to Governor Thompson's policies that have been enacted over 14 years. A change in Commissioners is also in the offing as John Farrow steps down to return to academia after 3 years on the Commission and is replaced by Bert Garvin. Again, no radical change in policy is expected.

[Slide 10] As a whole, Wisconsin regulation has been responsive. We've created the American Transmission Company, contributed our transmission assets to it, and joined the Midwest Independent System Operator. We've received an authorized return of 12.1 percent and 30 basis points for deferred investment tax credits. We have the ability to flow through our gas costs, and our electric fuel costs have a 2 percent window.

[Slide 11] Wisconsin is a transmission-constrained state as a result of being surrounded on two sides by the Great Lakes. There's been limited development of new generation facilities in Wisconsin since the 1980s. As a result, Wisconsin Public Service and Minnesota Power Company are proposing the construction of a 250-mile transmission line extending from central Wisconsin to the northwestern border of the state. Minnesota's utility regulators approved the construction of their portion of the line this month, but a judge ordered a 120-day briefing schedule in the Wisconsin jurisidictional hearings. This means we won't receive an order from the Wisconsin Commission until probably the fourth quarter.

As a result of contributing our transmission assets to American Transmission Company, we are currently a 12 percent owner in the company. When we complete the construction of the proposed Weston to Arrowhead transmission line, our ownership will increase to 25 percent. We likely will contribute Upper Peninsula Power's transmission assets as well some time this year. Zonal rates are the norm within the Independent System Operator.

[Slide 12] Wisconsin Public Service participated in the creation of and joined the Nuclear Management Company in 2000. This new company combines the expertise of five companies (Wisconsin Public Service, Wisconsin Electric, Alliant Energy, Excel Energy, and Consumers Power) in the operation of 5-and soon to be 6-nuclear power plants. Formation of Nuclear Management Company will enhance safety, increase reliability, and improve the performance of these nuclear plants. It will also be in a better position to interact with the Nuclear Regulatory Commission on matters of interest. Wisconsin Public Service has contributed the operation of the Kewaunee Nuclear Power Plant to the Nuclear Management Company.

Energy Supplies for the Summer of 2001

[Slide 13] We expect energy supplies in Wisconsin to be tight this summer, but we also expect to meet the energy needs of our customers without shortages. Wisconsin requires 18 percent energy reserves by its utilities. We believe all suppliers in the state to be in compliance with this requirement.

Earnings Results in 2000

[Slide 14] For the year ended December 31, 2000, our earnings per share were $2.53 compared with $2.24 for 1999, an increase of 13 percent. Our net income for 2000 was over $7 million more than in 1999 which also is a 13 percent increase, and our revenues grew by more than $853 million during that same time frame. Our nonregulated subsidiaries were profitable for the first time in 2000. We expect to see continued earnings growth from our nonregulated subsidiaries in 2001 and continued strong performance from our utilities.

Our Strategy

[Slide 15] The strategy is in place that will enable us to deliver 8 to 10 percent annualized earnings growth going forward. First, we have a strong utility base. Our utility segment has dependable cash flows, quality operations, reasonable regulation, and is financially strong.

Wisconsin Public Service is rated Aa1 by Moody's and AA by Standard & Poor's. Its facilities are state-of-the-art including plastic gas pipe, a 24.9 kV electric distribution system, automated meter reading, and low operation and maintenance costs. Our customers enjoy low rates, and we have received a number of customer satisfaction awards. We strongly believe in taking care of our customers by providing customer solutions, involving local leadership, and taking advantage of value chain opportunities.

[Slide 16] Energy conversion and transportation are core strengths of Wisconsin Public Service. Operations costs are kept low by maintaining facilities, using state-of-the-art technology and equipment, and staying abreast of a rapidly changing energy environment.

Our nonregulated subsidiaries have been created to capture synergies in the energy marketplace. WPS Power Development provides power generation in new market areas, and WPS Energy Services provides system operations and products and processes to capture market share. The arrangement leverages our generation capacity and enables us to provide energy related products and services while managing risk.

Our growth in the nonregulated marketplace occurs from investing in opportunities where we can add value using our operational experience. We do not make passive investments. We look for niche markets and "bite size" opportunities with a long-term focus. These niche markets are in transmission constrained areas that have good economic growth potential or, conversely, in very fluid marketplaces.

Although we don't have size, we do have the backing of AA credit ratings and financial flexibility, which gives us recognition in the marketplace.

Our dividend policy calls for moderate growth into the future. In 2000, we increased our dividend for the 42nd consecutive time. At the same time, we expect to reach our payout target of 70 percent within two years through earnings growth. We have no plans to change our current dividend policy.

The energy industry has been involved in countless mergers over the last 10 years. We ourselves have participated in a few smaller mergers. Our strategy for the future includes controlling our own destiny. We believe we can thrive by serving niche markets. At the same time, we actively analyze opportunities that present themselves. Wisconsin's holding company law provides a vehicle for ensuring that mergers will serve the state by requiring the holding company of any merged utility to be domiciled in the state. That provision of the Wisconsin holding company law is being challenged by another Wisconsin company.

A Competitive Generation Market

[Slide 17] Our long-term strategy includes remaining in generation markets. As a result, we support and encourage the development of a competitive generation market in Wisconsin to protect customers from high bills as the electric industry restructures nationwide. We encourage a marketplace where customers will be assured of continuing service, quality service levels, and price protection. We encourage independent power producers to enter the market in Wisconsin.

We believe creating a competitive generation market in Wisconsin is the proper course for the future. A competitive market will result in innovative, reliable, and less-costly energy for our customers. It'll also set the stage for customer choice in the future.

Forming Alliances

[Slide 18] We've also been forming alliances with other companies that are mutually beneficial to us. We are installing automated meter reading technology on our facilities, and we're being asked to install the technology for municipal utilities and to read their meters.

We're also operating the electric distribution facilities of some municipal utilities at their request.

We also formed Badger Energy Services, LLC with a number of cooperatives in Wisconsin to sell propane and related energy services. We own one-seventh of this limited liability company, which was able to make a profit in its first year.

Our Growth Plans

Let's take a closer look at our plans for growth.

[Slide 19] We expect earnings growth of 8 to 10 percent on an "annualized" basis. But, we know there will be lumpy spots in that growth. Our 2001 earnings estimate is for $2.55 to $2.65 per share, assuming normal weather. We're expecting WPS Energy Services and WPS Power Development to contribute between 10 and 15 percent to our earnings in 2001.

An important element in ensuring that our management is focused on increasing our earnings growth is our compensation policy that places between 30 and 40 percent of management's compensation in an incentive-based arena. As you might expect, this is a great motivator for ensuring that we remain focused on earnings growth.

There are a number of challenges in 2001 that may impact our earnings, and we are addressing these now to minimize any negative impact.

[Slide 20] The delay in closing our merger with Wisconsin Fuel and Light Company until the first quarter of 2001, as a result of waiting for approval by Wisconsin's Commission, causes earnings dilution of 5 to 6 cents per share. Wisconsin Fuel and Light is a gas utility that earns about 45 percent of its earnings in the first quarter. Missing that quarter's income reduces our earnings but still adds to our operating expenses for the rest of the year.

Additionally, the Wisconsin Commission granted Wisconsin Public Service a 12.1 percent return on equity in its recent rate case. With 2001 as a test year in that rate case, our utility is less likely to exceed the allowed return this year.

Our Wisconsin utility also expects increased operation and maintenance expenditures for its Kewaunee Nuclear Power Plant as it takes the plant down for refueling and replaces its two steam generators in the fall of 2001. We will also be purchasing an additional share of the plant this fall, increasing our ownership from 41.2 percent to 59 percent, just before we replace the steam generators. We also need to update much of the plant support areas to stay abreast with the Nuclear Regulatory Commission's standards. We will request deferral of the costs until later periods, but some costs may be incurred before Wisconsin's Commission addresses the deferral issue.

WPS Power Development

[Slide 21] Now, let's take a closer look at WPS Power Development and our synthetic fuel operation in Kentucky. We became involved in this project as a way of maximizing our cash flows through the use of tax credits. What we've discovered is that the operation has tax credit potential that far exceeds our needs. As a result, in 2000, we deferred $11 million in tax credits to future years. The law allows for earning $20 to $25 in tax credits per ton of synthetic fuel produced. Because our appetite for tax credits is limited, we are actively looking for a partner which would allow us to gain on a sell down of our interest in the project, receive continuing royalty fees, and increase production to its maximum.

We currently have a private letter ruling reflecting portability of the equipment involved in our syn fuel operation, but we may need a new private letter ruling for a partner to buy into the project. We believe that production of over 1 million tons of synthetic fuel per year is attainable. We demonstrated this capability after we moved the facility to Kentucky in 2000 and produced over 500,000 tons of syn fuel in just 5 months.

We own over 490 megawatts of generation capacity in Pennsylvania which is made up of our Sunbury and Westwood facilities. We purchased Sunbury in November of 1999, and during 2000, we've accelerated maintenance at the plant. We believe this will result in greater reliability of the facility this year, which is very important in the liquid Pennsylvania, New Jersey, Maryland energy marketplace. More than 50 percent of the output from these facilities is under off-take contracts for the next two years. Our anthracite coal reserves provide us with a partial fuel hedge.

Last October, WPS Power Development announced an agreement to purchase the 545-megawatt Tracy/Pinon Station located in Reno, Nevada. We expect to close on this transaction later this year. This plant is located in a niche market that is transmission constrained in a fast growing area. One hitch to this deal results from California's energy crisis. Nevada's governor is reviewing the sale of all utility generation in the state as was ordered by its regulatory commission. Although this creates uncertainty for the time being, we believe our purchase will be approved.

WPS Power Development is an important part of our earnings growth projections. In addition to expecting continuing profitable operations from its existing diversified generation asset portfolio, we're expecting it to make new investments of about $150 to $200 million per year. With a 3 to 4 percent return on those assets, it can contribute to corporate earnings growth that is projected to be in the range of 8 to 10 percent per year on an annualized basis.

WPS Energy Services

[Slide 22] Now let's move on to our other nonregulated company, WPS Energy Services. This company has enjoyed tremendous growth over the last 6 years, and we expect to continue expanding in the mid-western and eastern United States.

Its principal offices are located in Illinois, Maine, Michigan, Ohio, and Wisconsin. Each office is staffed with individuals experienced in their regional market. Both sales/marketing and supply for a region are conducted out of the respective regional office. We've found that employing local leadership in these far away operations has benefits for us in the political, regulatory, and physical energy system environments. Local leadership provides an inside track in understanding the workings of these very different environments from what we've experienced in our home base in Wisconsin. We will replicate this approach as we grow throughout the northeast and mid-Atlantic regions.

WPS Energy Services provides electricity, natural gas, and alternate fuel products, real-time energy management services, energy information management, project management, and energy utilization consulting. It targets wholesale gas market regions encompassing retail customers and includes the natural gas producing regions important to those retail markets.

WPS Energy Services' participation in the electric market is primarily limited to markets where sales commitments are backed up by physical assets we either own or we control through a contract. This enables us to manage risk more effectively.

We were recently awarded a 3-year Standard Offer Provider contract for the northern Maine market. The retail marketing efforts of our office in Maine are continuing to generate electric revenue for WPS Energy Services while securing a market for the output of WPS Power Development's generation assets.

WPS Energy Services also recently won a 5-year contract to serve the municipal aggregation group for the City of Cleveland, Ohio. We are currently developing a supply strategy that will profitably meet the City's objectives; but if we aren't able to provide service within a targeted range, we are not under obligation to serve city residents.

To further our growth opportunities, we're participating in the gas expansion program in New Brunswick, Canada, and increasing our wholesale gas business.

WPS Energy Services provides 24-hour energy management, coordination, and marketing of WPS Power Development's controlled electric generation and production assets.

We've adopted mark-to-market accounting, which has added $650 million to our balance sheet. Additionally, all of our transactions are hedged to limit the downside. We're becoming more selective in garnering customers and are looking to large customers who can benefit from our energy assistance and advice.

WPS Energy Services is also an important part of our earnings growth projections. Now that it is profitable, we're expecting it to achieve continued earnings growth that will aid us in delivering on our goal of 8 to 10 percent earnings growth at the corporate level.

Harnessing Technology's Power

[Slide 23] We're participating in the e-commerce revolution to harness the power of technology and make it work for us. We've made small, active investments in e-commerce companies to learn about the technology and exploit it within our companies. We are already taking orders for electricity and gas over the Internet, and we have an award-winning web site.

Our patented Internet-based DENet® technology allows us to monitor and control the operations of our plants across the country from our system operating facility in Green Bay, Wisconsin. More than 400 of our customers are also using our Internet-based technology to monitor their operations and make the best choices for their energy usage. Our interactive, Internet-based Energy Manager system allows our customers to manage their energy needs from one site by providing timely, useful, personalized information for energy tracking and planning using real-time data and continuous market information.

We're using distributed superconducting magnetic energy storage devices (D-SMES) to stabilize the voltage on our transmission system. This technology, while not new, has typically been used only by individual businesses to control their power. Our use benefits thousands of electric customers in northern Wisconsin, where significant growth and summer tourism have been straining power lines. This technology has performed as expected so far, but fortunately, we have not yet had a serious enough fault to really test it at its maximum.

We're also deploying automated meter reading technology throughout our Wisconsin service territory. This technology uses our power lines and a fixed radio network to electronically read electric and gas meters. We save by not having to travel to customers' properties, and we gain real-time energy use data.

Needed Capital Expenditures

[Slide 24] Our utilities are projecting capital expenditures of nearly $500 million over the next three years. Steam generator replacement is expected to be about $66 million. The replacement of penstocks at Upper Peninsula Power's hydro facilities will account for $10 million. Completion of our automated meter reading project will be in the range of $60 million. The construction of the Weston to Arrowhead transmission line will require at least $150 million.

Our nonregulated companies will also require capital expenditures. The completion of our purchase of the Tracy/Pinon Station will require financing for the disclosed bid amount of $250 million. Potential cogeneration and acquisition opportunities will also consume capital.

Required Financing

[Slide 25] In April we will be refunding the tax exempt bonds for Westwood and replacing them with variable rate tax exempt bonds in the amount of $20 to $28 million.

About 1.8 million shares are required to complete our merger with Wisconsin Fuel and Light in April.

In the second or third quarter, we will be issuing between $50 and $100 million of common stock to cover the capital expenditure projects at our subsidiaries.

Our utility, Wisconsin Public Service, plans to issue $150 million in fading lien bonds in the third quarter, and WPS Resources will likely issue $100 to $150 million in unsecured debt in the third or fourth quarter. The utility also plans to call its 8.8 percent first mortgage bonds on September 1.

The specific forms of financing that we use, the amounts, and the timing of the financing may change depending on the availability of projects, market conditions, and other factors.

Boundless Energy

[Slide 26] For a small energy company like ours, it takes the boundless energy of excellent employees to be successful. We've been successful in the past because of our experienced, loyal employees and we will continue to be successful because of their unbridled energy in ensuring that they've done the best they can to create value for our shareholders.

We have adapted to the competitive nonregulated energy arena which will lead to more earnings growth than we've experienced when we were just one fine utility company.

[Slide 27] Thank you.