Integrys Energy Group

Earnings Conference Call - First Quarter 2004

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

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

and

Mark A. Radtke
President of WPS Energy Services, Inc.

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, and Phil Mikulsky, our Senior Vice President - Development. Phil is responsible for our nonregulated subsidiaries and is currently also President of WPS Power Development. Also with us is Mark Radtke who is President of WPS Energy Services.

We are here today to discuss our earnings for the first quarter of 2004 and what you can expect 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 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, April 21.

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 2004 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. Let me begin with a few highlights.

WPS Resources' income available for common shareholders for the first quarter ended March 31, 2004 was 42.6 million dollars compared with 33 million dollars for the same period in 2003. This resulted in basic earnings per share of $1.15 for the first quarter of 2004 compared with $1.03 in the first quarter of 2003. Income from continuing operations was 46.4 million dollars, or $1.23 in basic earnings per share, for the first quarter of 2004 compared with 35.7 million dollars, or $1.09 in basic earnings per share, for the first quarter of 2003.

WPS Energy Services' strong performance and a favorable mix of sales at Wisconsin Public Service helped improve earnings in the first quarter of 2004 over the same period last year. Business expansion at WPS Energy Services is continuing to benefit our shareholders.

Our enhancement of portfolio optimization strategies is maximizing the value of our nonregulated assets while reducing our risk profile. Improving economic conditions bolstered sales volumes to Wisconsin Public Service's higher margin customers in the first quarter of 2004. Timely retail electric and natural gas rate relief in 2004 also had a favorable impact on Wisconsin Public Service's earnings. We are committed to earnings growth through outstanding customer service, effective management of both costs and risks, execution of our asset management strategy, and balanced business expansion between our utility and nonregulated operations.

Joe O'Leary will now discuss the details.

The Senior Vice President and Chief Financial Officer speaks.

Thanks, Larry.

Our utility margins increased 20.5 million dollars largely due to Wisconsin Public Service's retail and wholesale rate increases and a favorable change in sales mix. Sales volumes to our higher margin commercial and industrial and residential customers increased 3.9 percent, reflecting growth within our service area and improvement in the economy that partially offset the impact of unfavorable weather conditions in the first quarter of 2004 compared to the same period in 2003. Purchased power costs were also 25.2 percent higher per unit in the first quarter of 2004. Wisconsin Public Service purchased additional power due to the unscheduled outage at the Kewaunee Nuclear Plant during January. Gas utility margins increased 2.5 million dollars during the first quarter of this year compared to the same period in 2003 largely due to the retail natural gas rate increase. Utility earnings increased by 7.1 million dollars due primarily to the increased margins.

WPS Energy Services' margins increased by 8.2 million dollars in the first quarter of 2004 when compared to the same period in 2003. The margin on wholesale electric operations increased 4.8 million dollars as a result of extracting additional value from WPS Power Development's merchant generation fleet, while reducing the fleet's exposure to market price risk through the use of combinations of forward contracts and financial options. Increased customer load in Michigan and Ohio, improved management of our retail electric operations, and improved supply procurement resulted in an additional 3.1 million dollars of the increased retail electric margin. WPS Energy Services' gas margin increased slightly with the margin related to retail natural gas operations increasing by 9 million dollars largely due to higher throughput volumes and operational improvements in Ohio. Meanwhile, the wholesale natural gas margin decreased by 8.7 million dollars due to favorable settlements of pending liabilities with counterparties in the first quarter of 2003 and less variability in the price of natural gas, substantially offsetting the increased retail natural gas margin. Although total earnings at WPS Energy Services were unchanged in the first quarter of 2004 compared to last year, we are still very pleased with their results. Margins were improved in 2004 after giving consideration to the impact that nonrecurring favorable settlements with counterparties had in 2003. Earnings also were affected by a change in accounting principle prescribed by the adoption of Issue 02-03. This had a net after-tax positive impact of 3.3 million dollars in 2003.

Excluding discontinued operations, WPS Power Development's margin decreased by 1.4 million dollars for the first quarter of 2004 compared with the same period in 2003. An increase in the cost of coal used at our Niagara generation facility in New York and the plant outage at our Beaver Falls generation facility drove the decrease in margin. The 1.5 million dollar increase in earnings at WPS Power Development was mainly due to a 2.1 million dollar decrease in the loss from discontinued operations and an increase in the amount of Section 29 tax credits recognized.

The after-tax loss from discontinued operations related to the Sunbury plant decreased to 3 million dollars in the first quarter of 2004 compared to 5.1 million dollars in the same period in 2003. The lower loss is largely due to increased margins from discontinued operations, decreased depreciation expense, and decreased repairs and maintenance costs. The increased margins from discontinued operations resulted from improved availability of plant and our ability to generate and purchase the power necessary to service a fixed price out-take contract at lower prices for the first quarter 2004 compared to the same period in 2003. Depreciation expense decreased because we discontinued depreciation on those assets classified as held for sale in the fourth quarter of 2003, as required by current accounting standards.

WPS Resources' consolidated operating expenses increased by 11.5 million dollars in the first quarter of 2004, primarily due to 7.4 million dollars of increased utility operating expenses. Pension, postretirement medical and active medical costs incurred at the utilities accounted for approximately 4.2 million dollars of the increase, with the remaining increase largely driven by amortization of expenses incurred in conjunction with the implementation of the automated meter reading system and increased payroll costs. Additionally, operating expenses increased by 2.2 million dollars at WPS Energy Services due to higher payroll and related benefits associated with business expansion. WPS Power Development's operating expenses increased by 1.2 million due to repair and maintenance expenses associated with the unplanned outage at Beaver Falls.

WPS Resources' consolidated miscellaneous income increased by 3.4 million dollars during 2004, largely due to a 2 million dollar increase in equity earnings from our investments in American Transmission Company and Guardian Pipeline. The remaining 1.2 million dollar increase in miscellaneous income was related to foreign currency transactions at WPS Energy Services and decreased losses allocated to WPS Power Development from its interest in a synthetic fuel facility due to decreased production at the facility.

Our ownership interest in a synthetic fuel facility resulted in recognition of 6.8 million of Section 29 federal tax credits, which reduced federal income tax expense in the first quarter of 2004 compared with 5.9 million dollars in the same period in 2003.

The change in basic earnings per share was impacted by an increase of approximately 5 million shares in the weighted average number of outstanding shares of WPS Resources' common stock for the quarter ended March 31, 2004 compared to the same period in 2003. The increase was due to issuing 4,025,000 additional shares of common stock through a public offering in November 2003 and additional shares issued under the Stock Investment Plan and certain stock-based employee benefit plans.

Please refer to our press release issued this morning for further information relating to our financial results.

Our financial strength and quality credit ratings continue to be among the best in the industry.

Looking forward, assuming we complete the sale of the Sunbury and Kewaunee plants, and obtain requested regulatory actions in 2004, our issuance of equity will likely be at the typical historical levels experienced by our Stock Investment Plan and Dividend Reinvestment Plan during this year.

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

The Chairman, President, and Chief Executive Officer speaks.

Thanks, Joe. Now we will discuss how our operating segments fared and what you can expect in the future. I'll begin with our regulated utilities.

Wisconsin Public Service was granted authority to increase retail electric rates by 9.3 percent, or 59.4 million dollars, and retail natural gas rates by 2.2 percent, or 8.9 million dollars, effective January 1, 2004. As part of this order, the Wisconsin Commission allowed a 12 percent return on equity with 56 percent equity in our utility capital structure.

Wisconsin Public Service also reached a tentative settlement with intervenors on March 4, 2004 in its 4.1 million dollar interim wholesale electric rate request before the Federal Energy Regulatory Commission. Key factors in the settlement include formula-based rates going forward, a return on equity of 11 percent, the ability to utilize the capital structure allowed by the Public Service Commission of Wisconsin, and a current return on construction work in progress.

On April 1, 2004, Wisconsin Public Service filed a 2005 rate request that consists of increased retail electric rates amounting to 69.4 million dollars, or 9.8 percent, and increased retail natural gas rates amounting to 18.2 million dollars, or 4.5 percent. Key drivers in the rate request are the need to maintain reliability and build the infrastructure, like the new Weston 4 plant, necessary to meet our increased load, which has been growing at about 2 to 3 percent per year. We are expecting hearings on this rate case to be held in October with a final order before year-end. This would allow the new rates to be effective January 1, 2005. Even with the higher rates, we expect our electric and natural gas rates to remain among the lowest in Wisconsin and the nation.

Wisconsin Public Service makes large investments in capital assets. Net construction expenditures are expected to be approximately 1.3 billion dollars in the aggregate for the 2004 through 2006 period. Capital expenditures of this type drive future regulated earnings for our company. The Public Service Commission of Wisconsin currently allows average common equity within our capital structure of 56 percent and an allowed return of 12 percent.

We are continuing to work on our plans to build a 500-megawatt coal-fired electric generator at our Weston Power Plant site near Wausau, Wisconsin. The new unit will be known as Weston 4. In October 2003, the Public Service Commission of Wisconsin approved our request for a declaratory ruling for Weston 4. The ruling stated that it is prudent for Wisconsin Public Service to commit up to 71.2 million dollars to the construction of Weston 4 prior to obtaining final approval of the project in 2004. We submitted our application for a Certificate of Public Convenience and Necessity, or CPCN, to the Public Service Commission in September 2003 seeking project approval, and the application was deemed complete in early February. The Commission has 180 days from that point to rule on the CPCN, although they may request a one-time extension for 180 days. We expect the plant to be operational in June 2008.

We expect that construction of Weston 4, when approved, will require the expenditure of about 530 million dollars between 2004 and 2006, with about 93 percent of that falling into 2005 and 2006. We project that it will cost about 770 million dollars to complete Weston 4, which includes 20 million dollars for the unit train.

In February 2004, we announced a Letter of Intent with Dairyland Power Cooperative that includes electric supply alternatives for 150 megawatts of energy from Weston 4. Under the agreement, Dairyland may purchase an interest in the plant, subject to a number of conditions including successfully developing a joint plant ownership and operating agreement, Dairyland obtaining financing approval from Rural Utility Services, and Dairyland securing firm transmission service from the Midwest Independent System Operator on terms and conditions Dairyland deems acceptable. There are increased costs and risks associated with building and operating a large power plant as a sole owner. In providing Dairyland with electric supply alternatives, we can reduce some of those risks. The agreement is part of our continuing plan to provide least-cost, reliable energy for the increasing electric demand of our customers.

We currently own about 20 percent of the American Transmission Company, which is, among other things, pursuing a new 220-mile transmission line that will run from Wausau, Wisconsin, to Duluth, Minnesota. The Public Service Commission of Wisconsin reapproved construction of the line at an expected cost of about 420 million dollars. American Transmission Company anticipates completing construction of the line in 2008. We anticipate funding approximately 50 percent of total costs incurred, up to 198 million dollars, and receiving additional equity in American Transmission Company. The completion of this project will help to improve reliability for our customers, further diversify our sources of energy in Wisconsin, and enhance earnings for our shareholders.

In November 2003, we signed a definitive agreement to sell the Kewaunee Nuclear Power Plant to Dominion Energy for approximately 220 million dollars. Wisconsin Public Service owns 59 percent of the plant and an unaffiliated company owns 41 percent. At closing, we expect to receive approximately 130 million in cash and retain ownership of trust assets contained in one of two decommissioning funds we have established to cover the eventual decommissioning of the plant. The agreement calls for Dominion to assume responsibility for the eventual decommissioning of the plant. Cash proceeds from the sale are expected to slightly exceed our carrying value on the assets being sold. We expect that the retained decommissioning fund, as well as most of the gain from the plant sale, will be available for allocation to Wisconsin Public Service's customers in future rate proceedings. We don't expect a material net income impact at the time of the sale. The transaction is subject to approvals by various regulatory agencies, including the Public Service Commission of Wisconsin and the Nuclear Regulatory Commission. The regulatory approval process is well underway with activities in five states—Wisconsin, Michigan, Illinois, Iowa, and Minnesota. We have already received approvals from the Federal Trade Commission, the Iowa Utilities Board, the Minnesota Public Utilities Commission, and certain approvals from the Federal Energy Regulatory Commission. The Nuclear Regulatory Commission approval for transfer of the operating license to Dominion Kewaunee is expected in June 2004. The Wisconsin regulatory proceeding is perhaps the most critical part of the process. Testimony has been submitted for this proceeding and the technical hearings are scheduled for June 17. We expect to receive a decision from the Public Service Commission of Wisconsin in August. Approvals from Illinois and Michigan are expected at about the same time, if not before. At this time, we have not identified any regulatory issues that would preclude closing on the transaction in 2004.

At the closing of the sale, Wisconsin Public Service will enter into a power purchase agreement with Dominion Energy to buy energy and capacity generated at Kewaunee, equivalent to the amounts and at about the same cost that would have occurred if current ownership had continued. The power purchase agreement, which also requires regulatory approval, will extend through 2013 when the plant's current operating license will expire. The parties have also entered into an exclusivity agreement whereby Dominion agrees to only negotiate with Wisconsin Public Service and our current non-affiliated joint plant owner on power purchase agreements for the period after 2013 in the event Dominion obtains a life extension for Kewaunee. This exclusivity period runs from the date of closing of the sale until December 21, 2011, which is two years prior to the end of the current operating license.

Now let's take a closer look at WPS Power Development.

Operations were as expected during the first quarter of the year. We performed planned maintenance outages on most of Sunbury's six boilers during the first quarter. All boilers and major plant components are expected to be available for the summer months.

Our Westwood plant in Pennsylvania performed well during the first quarter, and it has now entered a planned maintenance outage.

We successfully tested tire-derived fuel at our Niagara Falls generation plant located in New York, and are now awaiting regulatory approval to burn higher percentages of refuse tires at this facility. This will allow us to attain lower overall fuel costs.

We completed major repairs on the generator stator at our Beaver Falls generation facility which is located in New York and which had been out of service for these repairs since last October.

Our Combined Locks facility located in Wisconsin ran well during January and February, but it suffered damage to the combustion turbine in early March. We are moving forward with repairs to that facility and are also taking advantage of this downtime to perform other planned maintenance. We expect this facility to be back in service by June.

Our hydro facilities in Maine enjoyed good river flows earlier this year, and the facilities are performing as expected. We expect to have all of WPS Power Development's facilities in service for the summer months.

The synthetic fuel facility in which we have an interest is continuing to produce synfuel according to expectations. The IRS announced that they have closed their issue with respect to chemical change. Following that announcement, the IRS informed us that they have closed their audit for 2001 relating to this issue with no adjustment, and the result was the same for 2000. The Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs continues to look into the synfuel industry. We met with the Subcommittee on January 30, 2004 to help enhance their knowledge of the industry.

In October 2003, we announced a definitive agreement to sell Sunbury to Duquesne Power, a subsidiary of Duquesne Light Holdings, for 120 million dollars. Substantial progress has been made on this transaction since the pending sale was announced. Late last year, Duquesne Power and Duquesne Light Holdings filed for various regulatory approvals required to close the deal. The Federal Energy Regulatory Commission has already approved the exempt wholesale generator status for Duquesne Power. The other required FERC approvals are expected in the near future. Duquesne Light filed for approval of its Provider of Last Resort plan (POLR) from the Pennsylvania Public Utilities Commission in December 2003. Approval of Duquesne's POLR plan is a condition for this sale. This proceeding is well underway. Hearings were held in the first part of April, and a final decision from the Pennsylvania Public Utilities Commission is expected in July. We have not identified any issues that we believe would preclude closing this transaction. We are working closely with Duquesne to ensure a smooth transition once all the required approvals are received. We believe this transaction is a "win-win" for WPS Resources and for Duquesne. We expect to close on the transaction later this summer—shortly after all required approvals are received.

The sale of Sunbury fits well into our balanced portfolio and asset management strategies. Included in the strategy is the desire to reduce risk associated with uncontracted merchant exposure.

WPS Power Development is focused on efficient operation and optimization of their assets. Given current market conditions, we don't expect to see significant growth in the form of acquired generation assets, but we are continuing to look for growth opportunities for our nonregulated companies that will enhance shareholder value.

Now, let's take a closer look at WPS Energy Services' operations. Here to tell us about this is Mark Radtke, President of WPS Energy Services.

The President of WPS Energy Services speaks.

Thanks, Larry.

I'll begin with some background information on our operations.

In northern Maine, we serve customer commitments totaling about 137 megawatts, which includes 97 megawatts of standard offer service and 40 megawatts of customer requirements under contracts directly with individual customers. We supply this load with power generated by WPS Power Development's facilities and other area generators in the region that we have under contract. While we have been a standard offer service provider for customers receiving distribution from Maine Public Service since 2000, our current contract began on March 1, 2004, with service to these customers continuing through December 2006. Our contracts directly with individual customers generally extend through 2005. We also extended our full requirements contracts with three municipalities through 2007 or 2008. In southern Maine, we do not serve a standard offer load, but we are a competitive electric provider contracting directly with customers. We serve between 90 and 95 megawatts of customer requirements in southern Maine. Contract lengths vary with most contracts ending in 2005 but some not expiring until 2007. Capacity and energy are purchased from various creditworthy counterparties in the NEPOOL market.

WPS Energy Services participated in the 2004 New Jersey Basic Generation Service or BGS auction, but we were not awarded any load. We participated in the auction to the point where the risk and reward balance became unacceptable. The challenge was hedging the different components of the full requirements supply in the marketplace from multiple suppliers, and also competing against large generation owners in the region who had not directly participated in the auction in 2003. We are proud to have the discipline needed to exit auctions such as this when the risk and reward are deemed unacceptable. We expect to replace this income by continuing to build our wholesale electric business through originated structured transactions, proactive management of WPS Power Development's electric generation assets, and expansion of our retail electric business into new regions.

In Michigan, we continue to find opportunities to grow our electric and gas business. The retail electric business is experiencing an increase in the number of suppliers and, in some cases, we are seeing participants that appear to be market share driven. We continue to emphasize high value products for our customers that provide a sustainable business opportunity. On the regulatory and legislative front, there is increased pressure to improve the financial situation of the regulated utilities. One of the utilities in Michigan has received an interim rate order that significantly reduces the savings competitive suppliers can offer customers compared to the regulated bundled product. We are participating in both lobbying efforts at the capital and the regulatory process to advocate for our customers' interests. If the interim order is not altered, it will diminish the benefits of competitive supply for Michigan business customers, and it will reduce our growth and contract renewal prospects in the state.

We have long been active in the Ohio competitive energy market and continue to build on our modest market share in the state. Our residential natural gas business, which was about double in size compared to the previous winter, performed well this past winter. We have also grown the number of electric customers in the Cleveland aggregation program by making an offer to a new segment of customers. Beyond this, there has not been much opportunity to expand electric service as wholesale prices have been high compared with regulated tariff rates. We are participating in the regulatory process defining the competitive landscape beyond the current market development period, which ends in December 2005.

Our Canadian retail natural gas business continues to grow both in volume and margin. We will complete the earn-out on this acquisition at the end of October 2004. The earn-out for 2004 is one-third that of 2003. Canada has proven to be a viable market for us. We have a good reputation there with employees who really understand the markets and have great customer relationships. We continue to have opportunities to grow our retail natural gas business in our existing markets of Ontario and Quebec. We are currently looking into other Canadian regions to expand retail natural gas sales. We are also planning to enter the retail electric market in Ontario and will leverage our existing large commercial and industrial natural gas customer base in that region to sell electricity.

We do expect to see more margin pressure in the future. Competitive pressure is increasing in virtually all market areas—including natural gas and electricity. Some companies that were financially weakened have improved their balance sheets and stepped up their level of activity. We continue to evolve our product offerings to include higher value and, thus, higher margin products and offset some of the margin erosion through enhanced business operation and efficiency improvements.

Our volume growth is sustainable, although it will vary with acquisition activity. While we have exhibited significant sales growth in the past, we continue to have relatively small market share in the markets in which we operate, and there continues to be many markets in our targeted area in which we do not yet have a presence.

We have signed a definitive agreement to purchase a New York based energy marketing company. We expect to close on the transaction in the third quarter of 2004. The earnings impact is expected to be slightly accretive in 2004 and 2005 because of the performance based purchase structure over the first three years. We believe this is an effective method of entering the New York retail electric market and capturing the synergies with our existing facilities and wholesale market expertise.

The focus changes we've made at WPS Power Development and WPS Energy Services are working well. WPS Energy Services is able to concentrate on managing the risk that both companies have in the market, while WPS Power Development concentrates on operational excellence. Through this new arrangement, WPS Power Development enjoys the benefits of a more stable cash flow and the ability to focus on efficiently producing megawatts of energy and available capacity. WPS Energy Services in turn enjoys having a larger more diverse portfolio to manage in the markets. Managing WPS Energy Services' retail business creates a natural short position, while managing WPS Power Development's generation creates a natural long position in the market. Our portfolio optimization and risk management activity enhances the value of the portfolio while reducing the overall risk. One of the ways we do this is by accumulating optionality to ensure our obligations are met, while retaining the ability to capitalize on opportunities that volatile energy markets can present from time to time.

We are often asked, what makes WPS Energy Services' business different from other energy marketers? I'll try to answer that for you.

First, we have invested in the infrastructure necessary to manage our retail business requirements and minimize our operational risk. Delivery tariffs—the pipes and wires—impose a significant cost for not matching supply with the demand customers incur. Minimizing these imbalances is a key to our operational success in the retail segment.

Second, our stringent adherence to credit standards has prevented us from taking on business we believe to be higher risk. This has kept our bad debt exposure very low.

Third, our pricing models are comprehensive, ensuring that the transactions we enter into are profitable on a deal-by-deal basis. Our business model is not based on, nor is it dependent upon, achieving a level of considerable scale. As a result, we don't "buy" business to achieve scale at the expense of profitability. Our employee compensation plans are structured to reinforce the development of recurring profitable business.

Fourth, our risk administration processes not only record our forward book commitments, they track the performance of that recorded business to ensure it is delivering at the expected levels. Variations are investigated for remedial actions.

But above all, what makes the biggest difference is our focus on our customers. We deliver a positive customer experience, as verified by consistently high ratings in external customer satisfaction surveys, by leveraging our local presence of knowledgeable energy professionals able to respond quickly to customer requests. The information we provide through our Energy Manager web site or custom prepared by our account managers makes us easy to do business with, and we have a long-established reputation of performing that business with integrity.

Now, I'll turn the call back to Larry to discuss WPS Resources, the holding company.

The Chairman, President, and Chief Executive Officer speaks.

Thanks, Mark.

Our asset management strategy calls for the disposition of assets, including plants and entire business units, which are no longer required for operations. Excess land, buildings, and other facilities are a part of this strategy.

In February 2004, the Wisconsin DNR exercised its option to purchase an additional 179 acres of land near the Peshtigo River for 5 million dollars. This sale will be part of a multi-phase agreement reached in 2001. Under terms of that agreement, the Wisconsin DNR bought more than 5,000 acres of land for 13.5 million dollars in 2001. In December 2003, we completed the sale of an additional 542 acres of land near the Peshtigo River to the Wisconsin DNR for 6.5 million dollars. The sale of the 179 acres will occur after the sale of 279 acres of development lands at an auction on October 5, 2004. Following the close of the third and final phase of the agreement later in 2004, Wisconsin Public Service will donate an additional 5,176 acres to the state. At that point, the Wisconsin DNR will have acquired nearly 12,000 acres for 25 million dollars.

Going forward, we are expecting an average annualized impact of 15 to 25 cents per share through 2007 from sales of land and buildings relating to our overall asset management strategy.

The investment community and market regulators have been concerned about weak corporate governance practices that encourage waste, fraud, and abuse. Our Board of Directors was sensitive to those concerns and encouraged the enhancement of our corporate governance guidelines and the creation of a new section on our web site that would identify our corporate governance practices. I'm proud to report that our work has paid off. Institutional Shareholder Services monitors and compares the corporate governance practices of America's leading publicly traded companies and issues a rating for each publicly traded company. The topics reviewed are board structure and composition, audit issues, charter and by-law provisions, laws of the state of incorporation, executive and director compensation, qualitative factors, director and officer stock ownership, and director education. As a result of our efforts, our rating indicates that we outperform 90.1 percent of the companies in the S&P 400 Index and 82.2 percent of the companies in the utilities group. The ratings will now be included with Institutional Shareholder Services' proxy voting recommendations for business that will be transacted at our Annual Meeting.

More good news comes our way in hearing that WPS Resources is a finalist in the Best Customer Service Organization category for a Stevie Organization Award as part of the Second Annual American Business Awards to be presented in New York on May 10. More than 800 nominations were submitted for consideration in more than 40 categories. The reward honors companies of all types and sizes and the people behind them by recognizing outstanding leadership, innovation, perseverance, creativity, teamwork, and integrity. There are 20 finalists in the Best Customer Service Organization category and we are proud to be one of those companies.

In 2004, we are continuing to seek a balanced portfolio of utility and nonregulated growth but we are placing more emphasis on regulated growth, which reduces our exposure to the risks of nonregulated markets. Our asset management strategy will also continue to increase shareholder return from certain asset transactions. Our long-term earnings per share growth rate target is 6 to 8 percent on an average annualized basis, with fluctuations in any given year that may be above or below that targeted range. We believe this strategy, combined with our dividend, will provide very good returns to our shareholders. Our target for 2004 earnings per share is between $2.95 and $3.10. Earnings per share from on-going operations are anticipated to be between $3.43 and $3.54. This includes a gain from the 2002 sale of a portion of our synthetic fuel operation of about 4.6 million dollars after taxes. Losses per share from discontinued operations are expected to be between 44 cents and 48 cents per share. Achieving our targeted range for 2004 earnings per share is dependent upon, among other things, normal weather, the availability of our generating units, our land sales, and completion of the sale of both the Sunbury and Kewaunee plants.

WPS Resources' conservative nature has served it well through 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. We have developed a business plan that capitalizes on our knowledge of the energy industry. Our utility base is solid and our nonregulated energy businesses are focused. We've rewarded our shareholders with increased dividends for 45 consecutive years. We effectively mitigate and minimize risk in the operation of our business. We strive 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 average annualized earnings per share growth of 6 to 8 percent, and maintaining our outstanding dividend record. We plan to continue delivering value to our investors for many years to come!

Now, Joe, Phil, Mark, and I would like to answer your questions about our financial picture and plans for the future.

Thank you for being a part of our first quarter earnings conference call. A replay of this conference call will be available through May 5 by dialing toll free 888-445-8558.

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.