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Wells Fargo Electric Power and Utilities CEO/CFO Luncheon Series - March 22, 2005

Remarks by Joseph P. O'Leary
Senior Vice President and Chief Financial Officer
WPS Resources Corporation

{SLIDE 1} Thank you for taking the time to listen as we share the story of WPS Resources Corporation. For those of you who are participating by teleconference, a copy of the slides for today's presentation are on our web site. Select Investor Information, select Presentations, and then select today's presentation.

{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 including the realization of projected results for 2005 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 statements in our filed Securities and Exchange Commission disclosure documents for further information.

Now, back to the business at hand.

{SLIDE 3} WPS Resources is a holding company based in Green Bay, Wisconsin. Our subsidiaries provide energy and energy-related products and services in both regulated and nonregulated energy markets.

We have two regulated utilities. Wisconsin Public Service Corporation is an electric and natural gas utility operating in northeastern Wisconsin and an adjacent portion of Upper Michigan. Upper Peninsula Power Company is our electric company operating in Upper Michigan. Between our two utilities, we serve about 473,000 electric customers and 306,000 natural gas customers.

{SLIDE 4} We also have two major nonregulated subsidiaries. WPS Energy Services, Inc. is a diversified nonregulated energy supply and services company with principal operations in Illinois, Maine, Michigan, New York, Ohio, Virginia, Wisconsin, Alberta, Ontario, and Quebec. It provides retail and wholesale products primarily in the northeast quadrant of the United States and an adjacent portion of Canada.

WPS Power Development, LLC owns and operates nonregulated energy facilities and owns a portion of a synthetic fuel facility. It provides electric power generation services nationwide, but has a significant focus on the northeast quadrant of the United States.

{SLIDE 5} WPS stock is an attractive investment opportunity for a number of reasons.

  1. We have a dependable and growing base of regulated operations. A significant portion of our earnings come from our utility operations. We serve both electric and natural gas customers as well as retail and wholesale customers. We operate in a constructive regulatory environment. And, our capital expenditure program is growing. In Wisconsin we are currently allowed to earn an 11.5 percent return on equity.
  2. We have focused our nonregulated businesses on energy and energy-related services. Success here depends on the same key competencies we use in our regulated operations.
  3. We have an outstanding dividend record that has served our investors well. We have had 46 years of consecutive dividend increases.
  4. We have a strong balance sheet and strong credit ratings-some of the best in the industry.
  5. Finally, we have a talented and experienced management team.

{SLIDE 6} In 2004, our energy services subsidiary provided 72 percent of our operating revenues, with our electric and natural gas utilities contributing 27 percent.

{SLIDE 7} The bulk of our assets-66 percent-reside with our utilities. Our regulated electric and natural gas utilities are continuing to grow as we upgrade our facilities to continually provide quality service and meet the demands of a fertile economic service territory.

The value of WPS Energy Services' assets includes its portfolio of contracts and a 3 billion cubic foot natural gas storage field.

WPS Power Development's assets include 117 million dollars of assets held for sale in conjunction with our proposed sale of our Sunbury generation plant.

{SLIDE 8} Our utilities are the backbone of our earnings right now, and we expect WPS Energy Services and WPS Power Development to continue to provide between 15 and 25 percent of our earnings in the future.

For the 12-month period ended December 31, 2004, our income available for common shareholders was about 140 million dollars of which 62 percent came from our utility segment as compared with 80 percent in 2003.

For the 12 months of 2004, income available for common shareholders increased by 45 million dollars when compared with 2003. The biggest reason for the increase related to timely retail electric rate relief in 2004 compared to delays in receiving retail electric rate relief in 2003. This had a favorable impact on utility earnings. Improved year-over-year nonregulated retail natural gas and electric margins drove a 26.6 percent increase in earnings at WPS Energy Services. Additionally, land sales and tax benefits from land donations contributed approximately 15 million dollars to income available for common shareholders. For a detailed explanation relative to the remainder of the variation, please see our 2004 Form 10-K filed with the Securities and Exchange Commission on March 9, 2005.

{SLIDE 9} Now let's take a closer look at our individual companies. As I indicated earlier, we have two regulated businesses with very long heritages. Wisconsin Public Service was established in 1883 and provides us with a strong financial base. Upper Peninsula Power was established in 1884.

{SLIDE 10} Wisconsin Public Service operates primarily in northeastern Wisconsin where the economy has been stronger than the rest of the nation. In fact, Green Bay's seasonally adjusted unemployment rate was 4.3 percent in December 2004, compared with 4.6 percent for Wisconsin, and 5.4 percent for the nation.

{SLIDE 11} Our utility strategy evolves around our strengths of energy conversion and energy transportation, and we capitalize on both.

We value quality credit ratings because they give us access to the financial markets and recognition.

We are the low-cost provider in the Upper Midwest. One reason is that Public Service's coal facilities burn 100 percent Powder River Basin coal, which costs less and is low in sulfur, thus avoiding the need for expensive emission expenditures.

We believe in the importance of state-of-the-art facilities. As a result, over 90 percent of Wisconsin Public Service's distribution line is operated at 24.9 kV and 70 percent of its gas mains are plastic. Because of these standards, we have less maintenance expense and greater reliability for our customers.

Wisconsin Public Service is the first utility in Wisconsin and one of just a few in the country to install automated meter reading. Not only can we read meters more efficiently, but we also gain valuable information on how and when our customers use energy. We believe that energy information is a key to the future for our customers and us.

We have an interactive web site that allows our customers to efficiently make service requests and access tools to help them positively impact their energy use and costs.

In customer satisfaction surveys done by us and others, our customers have consistently given us high marks for our performance. This reinforces our continuing focus on outstanding customer service.

Our utilities make large investments in capital assets. We are planning to spend about 1.2 billion dollars over the next three years.

We believe flexibility is important as our industry changes and that financial strength, quality service, diversity of generation resources, and a knowledgeable staff, with strong leadership, are important for future competitiveness.

{SLIDE 12} Wisconsin Public Service's retail electric rates compare well within our region and across the United States as indicated on this graph—the latest data available from the Edison Electric Institute. Wisconsin Public Service's retail electric rates are the second lowest of the five utilities in the state and lower than the average of the three regions we compare ourselves with—Wisconsin, the Midwest, and the United States. We anticipate that WPS will retain its competitive position through 2005 and beyond.

{SLIDE 13} For large industrial customers, our natural gas distribution rates are significantly lower than other utilities in the state. Our rate case activity has allowed us to remove most of the industrial to residential rate subsidies.

{SLIDE 14} A key component of the customer's low price of electricity is the cost of production. Wisconsin Public Service's electric production cost is less than the average production costs of the MAIN and MAPP areas. MAIN is the electric reliability region for our utilities, which includes eastern Wisconsin, Illinois, Missouri, and the Upper Peninsula of Michigan. MAPP is the neighboring reliability region immediately to the west of MAIN, which includes western Wisconsin, Minnesota, North and South Dakota, Nebraska, Iowa, and a small portion of Montana.

{SLIDE 15} Our regulated electric generation resources are diverse with 58 percent coming from coal, 23 percent from natural gas and oil, 15 percent from nuclear, and 4 percent from hydro. In addition, Wisconsin Public Service purchases about 17 percent of its energy, which allows us to shop for the best value while meeting our system peaks. Upper Peninsula Power purchases most of its generation needs from Wisconsin Public Service.

In November 2003, we announced our plans to sell our nuclear plant, pending regulatory approval. The Public Service Commission of Wisconsin ruled in favor of the sale at its March 17, 2005, meeting. After receipt of the Commission's written order, anticipated in April, we will proceed with the sale of the plant. We will continue to purchase power from the plant through 2013.

{SLIDE 16} Relative to Wisconsin utility investment plans, Wisconsin Public Service expects to average about 175 million dollars per year of maintenance capital expenditures, assuming continued Kewaunee ownership over the upcoming five-year timeframe. Wisconsin Public Service's expected depreciation during this timeframe ranges from about 120 million dollars to 170 million dollars per year and averages out to about 140 million dollars per year.

{SLIDE 17} Weston 4 is projected to total about 460 million dollars of capital expenditures, assuming Dairyland closes on its purchase in January of 2006. Under this assumption, the Weston 4 expenditure pattern is:

Other potential capital expenditures during this timeframe would include pollution control expenditures at existing generators and the second baseload generator we are working on with Wisconsin Power and Light Company. Expenditures on the second baseload unit could start as early as 2007 to meet a 2011 in-service date.

{SLIDE 18} A key factor in the success of a regulated utility is the regulatory environment in which it operates. Wisconsin Public Service has been effective in working with the Public Service Commission of Wisconsin, and the Commission's regulation has reasonably balanced ratepayers' and shareholders' interests.

Wisconsin Public Service received authority from the Public Service Commission of Wisconsin to increase its Wisconsin retail electric and natural gas rates for 2005, effective January 1. The requested rate increases amount to about 60.7 million dollars, or 8.6 percent, in increased electric revenues and 5.6 million dollars, or 1.1 percent, in increased natural gas revenues.

{SLIDE 19} We received the certificate of public convenience and necessity for Weston 4 from the Commission in October 2004 and immediately began construction. We expect the plant to be operational in June 2008.

In November 2004, we entered into an agreement with Dairyland Power Cooperative that will allow Dairyland to acquire a 30 percent undivided interest in Weston 4. The transaction is contingent upon Dairyland obtaining acceptable financing for the transaction and adequate transmission capabilities to deliver its share of the power generated to its transmission network by January 2006. It is also contingent upon both companies receiving all required permits and regulatory approvals. In return for its 30 percent interest in Weston 4, Dairyland will pay Wisconsin Public Service 30 percent of Weston 4's construction, operation, fuel, and maintenance costs. The transaction is good for us because it reduces the risk for a company of our size owning such a large generation facility.

{SLIDE 20} WPS Resources expects capital calls from the American Transmission Company relating primarily to transmission line projects to total about 265 million dollars during the next five years, with about 175 million dollars relating to the Wausau to Duluth transmission line. Our commitment to fund this transmission line could decrease up to 50 percent if Minnesota Power exercises its option to fund a portion of the project. The American Transmission Company is authorized to earn a 12.2 percent return on equity. Their rate structure includes a true-up mechanism that enables them to earn their authorized return.

{SLIDE 21} The American Transmission Company's new transmission line is a 345 kV, 220-mile line from Wausau, Wisconsin, to Duluth, Minnesota. Construction is already underway in Minnesota and is expected to begin in Wisconsin in 2005. The line will be complete in 2008 and will improve reliability, diversify sources of energy in Wisconsin, and enhance earnings for shareholders.

{SLIDE 22} Now, I'll discuss our nonregulated businesses.

WPS Energy Services was established in 1994 as a diversified energy supply and services company.

WPS Power Development was established in 1995 to own and operate nonregulated electric generation facilities. On March 1, 2005, WPS Power Development became a subsidiary of WPS Energy Services. This move is intended to strengthen the synergies available between the two companies. We are changing Power Development's focus from building a portfolio of diverse generation facilities to efficient operation of generation that benefits Energy Services' supply portfolio.

{SLIDE 23} I'll tell you first about WPS Energy Services. Our strategy for Energy Services includes providing nonregulated natural gas, electricity, and related services in the northeast quadrant of the United States and adjacent portions of Canada, with a greater focus on commercial and industrial customers. We have also been working hard to improve our margins and have had some success in this area. We expect to expand Energy Services' presence in the wholesale natural gas and electric marketplace, and also focus on retail customers who need and value our energy services. We know we have what it takes to deliver quality service including a strategy with three basic components-first, customer care and a local presence; second, competency which includes knowing where the energy sources and delivery paths are; and finally, technology-employing patented technology for extracting customer energy information and an interactive web site.

{SLIDE 24} Energy Services' principal operations are in Illinois, Maine, Michigan, New York, Ohio, Virginia, Wisconsin, Alberta, Ontario, and Quebec.

Recognized as a leader in responsiveness to customers, Energy Services continues to be ranked among the top gas marketers in the nation by customers in surveys by Mastio & Company. Mastio has been surveying customers of nonregulated energy marketers on a nation-wide basis since 1995.

Energy Services improved its income available for common shareholders from 29 million dollars in 2003 to 37 million dollars in 2004.

It owns about 82 percent of a 3 billion cubic foot gas storage field in Michigan, which became operational in February 2002.

Energy Services is continuing to maintain a balance of retail and wholesale, natural gas and electric business, utilizing WPS Power Development's assets when possible. Our nonregulated electric and natural gas sales commitments are transactions that allow us to effectively manage risk.

We believe that energy information is critical in a competitive environment. As a result, we have developed and patented DENet® technology that gives us the capability to help our customers effectively manage their energy needs. Our DENet and eMiner™ technology is also used by WPS Power Development to operate and manage all of its production facilities throughout the United States from its Green Bay offices.

{SLIDE 25} Energy Services' electric margins are improving. The addition of a retail electric business in Michigan, more favorable market price conditions in Maine, participation in the New Jersey Basic Generation Service Program, and improved management of power supplies in various markets contributed to increased electric margins in 2003 and 2004.

{SLIDE 26} We are also focusing on improving WPS Energy Services' natural gas margins. We acquired a Canadian retail natural gas business in 2002, which helped to increase our nonregulated natural gas margins. In addition, operational improvements and supply management in the Ohio market are contributing to increased natural gas margins.

{SLIDE 27} Now let's take a look at WPS Power Development. Our strategy with Power Development is to drive value by efficiently operating energy-related investments in the United States and Canada. While we don't have a fixed investment objective, we continue to seek opportunities that will provide value to our shareholders. Other than Canada, we will not be venturing into foreign markets. We do, however, plan to maximize the benefits derived from WPS Power Development providing electric assets that can generate energy to be sold by WPS Energy Services.

{SLIDE 28} WPS Power Development focuses on improving the value of assets through operational excellence. We prefer assets that have characteristics that allow us to further increase value creation as part of WPS Energy Services' portfolio. Our fuel mix includes coal, hydro, diesel, oil, culm, waste wood, tires, and natural gas. We currently have 830 megawatts of capacity and provide some of the production assets behind Energy Services' sales in northern Maine and Pennsylvania.

Power Development is progressing with a sale process of our Sunbury plant in Pennsylvania using an investment banking advisor and anticipates being able to complete the sale of Sunbury in 2005.

{SLIDE 29} WPS Power Development also has a landfill gas facility and a wood gas facility in Wisconsin, an interest in a synthetic fuel facility in Kentucky, and steam supply facilities in Oregon and Arkansas. Although these facilities are small, they round out our broad-based expertise. In December 2002, WPS Power Development entered into a transaction to sell an ownership interest in its synthetic fuel operations. We expect to recognize pre-tax income from this transaction of 36 million dollars between 2003 and 2007 assuming certain production related contingencies are satisfied. We recognized 7.5 million dollars in pre-tax income from this sale in 2004.

{SLIDE 30} Our stock has performed well over the last several years-outperforming the Philadelphia Utility Index and S&P 500 Composite Index.

{SLIDE 31} We've increased our dividends for 46 consecutive years.

{SLIDE 32} Our investors have enjoyed earnings per share growth over the last seven years, with our nonregulated contribution to earnings per share growing during that time.

{SLIDE 33} During our January 31st earnings conference call, we said that our 2005 target for earnings per share is between $3.90 to $4.15. We stated that achieving our targeted range for 2005 was dependent upon, among other things, normal weather, the availability of our generating units, and completion of land sales. Completion of the potential sale of the Kewaunee plant, which would decrease earnings in 2005, was not included in this target. As a result of the current status of the process for the potential sale of the Sunbury plant, we did not provide guidance on earnings per share from discontinued operations.

{SLIDE 34} We are continuing to seek balanced utility and nonregulated growth; however, we are placing more emphasis on regulated growth thereby reducing our exposure to the risks of the nonregulated market. Our long-term growth drivers include significant utility investment combined with supportive regulation, continued growth in our nonregulated businesses, and execution of our asset management strategy.

{SLIDE 35} As a conservative company, we believe in maintaining a strong balance sheet. Here is a graph of our principal debt maturities.

{SLIDE 36} We manage our financial position in order to maintain quality credit ratings. This gives us access to the financial resources we need as well as lower interest rates. We believe we have some of the best credit ratings in the industry.

{SLIDE 37} In summary, WPS Resources delivers value through a dependable and growing base of regulated operations, complementary nonregulated energy businesses, 46 years of dividend increases, strong credit ratings, and employing an experienced management team.

We are confident of our place in the evolving energy industry. You can feel confident that WPS Resources will work hard to continue enhancing shareholder value.