Integrys Energy Group

Remarks by Patrick D. Schrickel - April 26, 2000

Executive Vice President of WPS Resources Corporation
President and Chief Operating Officer of Wisconsin Public Service Corporation

[Slide 2] Thank you for the opportunity to be with you today. With me are Dan Bittner, Senior Vice President and Chief Financial Officer, and Donna Sheedy, Investor Relations Supervisor. Dan will address financial strategy and results. I will cover several items including our company structure, the economy in which we operate, the opportunities industry restructuring is presenting, and our strategy for shaping and adjusting to the ever-changing environment. Dan, Donna, and I will also be available to answer your questions.

First, a few general comments. Five years ago we set a course to provide both regulated and nonregulated options to our customers. We have made significant progress toward that goal, and we are proud of our 1999 achievements. Wisconsin Public Service, our utility, had a banner year that enhanced our financial performance, and our nonregulated subsidiaries made significant strategic progress as well as progress on our goal of achieving profitability in nonregulated operations. Not only were we able to complete the merger and integration of Upper Peninsula Power on schedule, but we exceeded our savings forecast. Additionally, our first quarter performance in 2000 moved in the direction expected in both the regulated and nonregulated businesses, but Dan will tell you more about that.

And, I'll tell you about the icing on our cake. Recognition came our way three times in 1999 for our extraordinary customer service and extremely competitive energy prices. [Slide 3] Wisconsin Public Service was recognized by a J. D. Powers & Associates' residential customer survey which found us tied for second in the nation in customer satisfaction among approximately 100 utilities surveyed. Additionally, our regulated gas and electric business in Wisconsin generates the lowest complaints per customer ratio of all major utilities, as measured by the Public Service Commission for several years running. Finally, WPS Energy Services was recognized when Mastio & Co. performed an independent, nation-wide customer satisfaction survey in which we were ranked 6th from the top out of 77 energy marketers. We take great pride in the recognition of our exemplary customer service because we have always believed that outstanding service is the cornerstone of our business. It is important that we provide customers with a value package which they, in a world of expanding customer choices, want to purchase from us.

Another thing that might interest you is a change we made to our compensation policy in the last few years. Our officers are now compensated in part through incentive pay plans that require them to meet certain operational and profitability targets and a portion of our officers' and directors' compensation is also provided via stock options. These compensation policies help to align the interests of our officers and directors with those of our shareholders.

Now, let's take a look at the structure of our company.

Structure of our Company

[Slide 4] WPS Resources Corporation is a holding company based in Green Bay, Wisconsin. We have five major subsidiaries as shown on this slide. These companies provide products and services in both regulated and nonregulated energy markets in about 26 states. But I'll tell you more about our major subsidiaries a little later.

WPS Resources' mission is to "Provide customers with the best value in energy and related services." And, we were recognized three times in 1999 for that very thing, as I mentioned earlier, because our strategy is one of customer solutions.

As for the regulatory and legislative outlook, electric reliability continues to be the primary issue for the Public Service Commission of Wisconsin and the state's legislature. Industry restructuring and retail open access remain secondary issues in the state with the top priorities being to develop the utility infrastructure necessary to assure reliable electric service and to remove the barriers to competition at the wholesale level.

In 1999, we found ourselves bumping up against Wisconsin's asset cap limitations on nonutility investments. Working with many parties, Wisconsin Act 9 was enacted which requires a utility holding company to contribute the transmission assets of its Wisconsin utility subsidiary to the American Transmission Company in exchange for relief from the asset cap limitation for energy projects. The American Transmission Company would own the transmission assets contributed and would be a member of the Midwest Independent System Operator. The Federal Energy Regulatory Commission would then have jurisdiction in setting rates for both the independent system operators and the independent transmission companies.

We likely will be joining the Midwest ISO by the end of June, as required by the Wisconsin 1998 Reliability Act, and we expect to transfer our transmission assets to the American Transmission Company by the end of December.

I do not believe that we will see any major legislation leading to deregulation in Wisconsin during 2000. Reliability will continue to be Wisconsin's focus over the next year. As for our involvement in other states, we have been very active and will remain active either directly or with partners in monitoring and shaping the regulatory and legislative rules in all major market areas where we participate.

Now I would like to talk in a little more depth about our subsidiaries. [Slide 5]

Wisconsin Public Service

Wisconsin Public Service, our regulated electric and natural gas utility, is organized in business units [Slide 6] around generation, transmission, distribution, and services. And, market segmentation within our company is not by the traditional residential, commercial, and industrial classes. Because we view our customers differently, our customer solutions are unique. Yet they are based on a strong foundation of being a low-cost provider of electricity. But, I'll allow Dan to describe our competitive position to you, and I'll instead tell you about some of our 1999 accomplishments.

[Slide 7] In June, we installed 14 wind turbines on a wind farm in Kewaunee County at a cost of $10 million. When operating at full capacity, they will produce enough electricity to serve 3,600 homes. These wind turbines will allow us to learn more about this technology, its impact on Wisconsin, and whether wind is a viable source for electric supply.

In September, we began installing automated meter reading equipment that is capable of hourly meter reads. This equipment allows us to read gas and electric meters electronically over our power lines and gives our customers flexibility on when and how often their meters are read. We feel this technology is consistent with where commerce in the energy industry is going and that it will give us the capability to serve our customers better while facilitating customer choice in Wisconsin.

In November, we filed an application with the Public Service Commission of Wisconsin for the construction of a 250-mile, 345-kilovolt transmission line in partnership with Minnesota Power. We believe this line is the largest transmission project being pursued in the nation right now. Certainly, it's the largest transmission line in Wisconsin in terms of dollars, distance, and voltage, and it's the first major transmission line to be built in Wisconsin in 30 years. The investment opportunity is around $150 million, and we are targeting completion for 2003. This line will strengthen the electric network in Wisconsin where about 15% of the energy consumed must be imported.

While plans are under way to remedy Wisconsin's strained transmission system for the long term, we are working on energy solutions for the near term. In February, we announced that we will become the first utility in the world to use distributed superconducting magnetic energy storage (D-SMES) to stabilize the voltage on its electric transmission system. The technology, while not new, is typically used by individual businesses to improve power reliability. Our use will benefit thousands of electric consumers in northern Wisconsin where significant growth and summer tourism have been straining power lines. The D-SMES technology has reasonable costs, is quicker to deploy than transmission lines, and has less environmental impact. While we believe the true long-term answer to Wisconsin's reliability concerns is the proposed transmission line, this innovative, temporary solution will benefit our customers.

Our jointly-owned Kewaunee Nuclear Power Plant celebrated its 25th year of operation during 1999 and completed the year with 100% availability for the first time in its history as a result of our move to an 18-month refueling cycle. As an owner and operator of the plant, we are proud of the plant's 510-day continuous operating record that began in 1998 and ended when the plant came down for refueling on April 22. Kewaunee enjoys a reputation as one of the best operated plants in the world and is a flagship in the industry.

We are positioning Kewaunee to be a competitively viable plant for the long-term through steam generator replacement planned for the fall of 2001, license extension, and formation of a nuclear management company. We also plan to purchase Madison Gas and Electric Company's 17% share in the Kewaunee Nuclear Plant, bringing our ownership to 59% of the plant.

In 1999, we became partners with three other utilities in the creation of a Nuclear Management Company. This new company will assume the day-to-day operating responsibility for the seven nuclear units owned by the partners, representing 3,800 megawatts of nuclear capacity, by mid-2000. The short-term goals of the Nuclear Management Company are to sustain long-term safety, optimize reliability, and improve operational performance. We expect to transfer our operating license for the Kewaunee plant to the Nuclear Management Company sometime in 2000.

Now I would like to update you on our nonregulated subsidiaries.

WPS Energy Services, Inc.

[Slide 8] WPS Energy Services is a diversified nonregulated energy supply and services company with principal offices located in Wisconsin, Michigan, Illinois, Ohio, and Maine. WPS Energy Services operates in the retail and wholesale nonregulated energy marketplace with an emphasis on serving commercial, industrial and wholesale customers in the northeast quadrant of the United States.

WPS Energy Services provides natural gas, electric, and alternate fuel products, real-time energy management services, energy consulting, and project management [Slide 9]. Our patented DENet® computer technology allows customers to monitor their energy usage and equipment process information and to access energy supply information through the Internet.

Because natural gas markets have deregulated faster than electric markets, WPS Energy Services enters new markets with natural gas marketing. Then as the states restructure their electric industries, we provide electricity to these customers as well. With this strategy, we refine the tools and talents we need to grow and we build a foundation for entering the competitive electric market. Historically, we have made substantial investments in our growth at WPS Energy Services and, as a result, our customers have grown by more than 25% annually. That growth has resulted in a negative financial impact in the short term, but our objective in 2000 is to continue expanding at a measured rate that provides more immediate rewards for the shareholders of WPS Resources. As we grow at WPS Energy Services, we hire seasoned professionals from the area who understand local market conditions, regulations, and laws.

WPS Power Development, Inc.

[Slide 10] WPS Power Development develops, owns, and operates nonregulated electric generation facilities and provides services to the electric power generation industry nationwide. WPS Power Development's services include acquisition and investment analysis, project development, engineering and management services, and operations and maintenance services. Its areas of expertise include fossil and hydro generation, cogeneration, distributed generation, generation from renewables, and generation plant repowering projects.

Our strategy at WPS Power Development is to increase WPS Resources' asset base. [Slide 11] This is the steel and concrete side of our nonregulated business, including fossil power plants, hydroelectric stations, and renewable energy sources. It is the infrastructure we believe is necessary to serve customers well.

As electric markets deregulate and utilities sell their generation assets, WPS Power Development evaluates these opportunities. We've been successful at winning bids to purchase plants that have great potential and have managed to extract greater value from them. We also evaluate the construction of new plants and the possibility of repowering existing plants. Diversity in these projects-in location, market, technology, and fuel-is a key strategy for us.

In 1999, we made great strides by bringing to reality our theories about buying and developing generation facilities and then significantly reducing their operating costs to be competitive in the marketplace.

In June, we purchased 92 megawatts of generation facilities from Maine Public Service. This $37 million transaction yielded hydroelectric facilities, diesel peaking units, and oil-fired generation in northern Maine and New Brunswick, Canada. As a result, we are able to participate in Maine's newly opened electric energy marketplace.

In November, we completed the purchase of a four-unit, coal-fired power plant located in Pennsylvania. The $107 million transaction yielded assets with a nameplate capacity of 472 megawatts. This purchase allows us to compete as an energy supplier in the sizable Pennsylvania, New Jersey, and Maryland marketplace. These states have already established open electric markets and provide a good opportunity for us to extract value from our plant.

We also own two-thirds of the Stoneman Power Plant, a 53-megawatt coal-fired merchant steam plant in southwestern Wisconsin. We are currently contemplating converting this plant to a combined cycle unit.

We have other investments, too. We own landfill and wood waste gas generating facilities in Wisconsin and steam boilers in other states. We are also a two-thirds owner and the operator of a facility in Alabama that produces synthetic fuel from coal that can be burned in boilers. This is a Section 29 tax credit project. Although starting out slow, this plant is currently beating our pro forma projections for production and is the primary reason for WPS Power Development's first quarter profitability.

[Slide 12] In 1995, WPS Energy Services and WPS Power Development began a journey together into the competitive marketplace. Today, they continue to travel as partners and support one another as we stride forward. When WPS Power Development purchases generation assets, WPS Energy Services moves in to market the energy produced and maximize the value of those assets. For example, when WPS Power Development bought generating facilities in Maine, WPS Energy Services immediately opened a marketing office there. As a result, WPS Energy Services now serves more than 90% of the electric customers in Northern Maine.

Conversely, when WPS Energy Services enters a new retail market, it requires generation supplies to back its electric sales. And, hopefully, those supplies come from WPS Power Development. Our strategy is to continue growing through the synergies that these two subsidiaries offer by putting WPS Power Development's assets to work to support the market growth WPS Energy Services achieves.

We also take pride in the technology we've developed to offer advanced real-time energy management systems to our customers and streamline our own backroom operations. With WPS Energy Services' patented DENet energy management system, customers can manage their energy and processes in real time, access this information remotely over the Internet, and generate historical reports for analysis. System flexibility allows monitoring of virtually any utility or process parameter such as gas, electricity, water, steam, temperature, and production output.

We also use DENet to tie together our nonregulated plants through an integrated computer network. All of our employees in these nonregulated businesses have access to this system. In 1999, our nonregulated companies established a 24-hour energy monitoring, dispatch, and coordination center in Green Bay operated by WPS Energy Services. This center monitors and controls our production facilities and generating plants in Maine, Pennsylvania, Alabama, Arkansas, Wisconsin, and Oregon-scheduling operations, bringing units on line or taking them off line in response to market prices, and coordinating operations with the employees at the plants. This centralized operation contributes greatly to the savings we've achieved in operating these plants.

In addition to DENet and the benefits it provides, we are using the Internet for critical business processes and customer interaction. For example, we've developed Internet-based customer enrollment, information, and billing systems to support the needs of our diverse customers-from large industrial accounts to residential homes. This is part of the technological infrastructure that supports our growth strategy.

And that is only a few of the myriad of technological applications WPS Energy Services offers.

At Wisconsin Public Service, we offer an on-line catalog of energy products, experimental wind performance data, real-time hourly system interchange transactions, budget billing, and on-line signup for numerous programs on the Internet. We are also partnering in the telecommunications area with expertise in paging, call center applications, long-distance service, local exchange service, and telephone communication services.

But rather than making our list too long [Slide 13], I invite you to visit our web site where you will find a wealth of information about our companies and the products and services we offer.

Before moving on to Dan's financial presentation, I would like to leave you with one thought about our companies [Slide 14] - we are strategically positioned to lead the pack in niche markets. Watch for more good news about our successes during the rest of this year and beyond.