Integrys Energy Group

Annual Shareholders Meeting - May 11, 2000

"Striding Into the New World"

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

WPS Resources Corporation is striding into a new world! We have hastened our pace and are surging forward in our goal to create value for you, our shareholders. The race in the energy market has changed from a one-mile relay to a full-fledged marathon. We have been training for it, and we are ready.

Only a few months ago we left behind the 1990s. It was a challenging decade for our Company and we came through it with many victories and a few, shall we say, "opportunities for improvement." The challenges came mainly from the restructuring of the energy industry which began in 1978 with the passage of federal legislation. But the restructuring initiatives landed firmly on Wisconsin's doorstep in the early nineties. By that time, gas markets had already been opened to the competitive marketplace and independent power producers, seeking market share in the electric business, were flooding our state and knocking at our door.

We prepared for the changing world by engaging the new market entrants, creating a holding company to provide more flexibility, and creating two new subsidiaries, WPS Energy Services and WPS Power Development, to complement our regulated utility. The holding company structure we created provides us with the flexibility to compete successfully in the new environment and offers our customers both regulated and nonregulated service options.

But, new structure alone is not adequate. We had to develop new skills, new processes, and new cultural attitudes among employees. We had to become more customer focused and more driven by the marketplace. Our decisions had to be more data driven, and we had to confront and manage risks that were unfamiliar to us.

One of the "victories" to emerge from the nineties is that your Company accomplished all that. Today, we have new products and services, new skills in risk management, new processes to track and control the numerous transactions occurring in our new environment, and new cultural attitudes within the Company to support future success. Today, our employees are more customer focused, more market driven, and more inclined to confront risk than ever before. We have become more creative and more innovative. Last year, two of our employees were issued a patent for our DENet® product line which we use both in our regulated utility subsidiary and our nonregulated subsidiaries. Our DENet technology enables us to monitor and control our power plants in Maine and other places far away from our control center in Green Bay. DENet also enables our customers to monitor and control their industrial processes from a distance.

But, DENet is only one example of our progress. We are also installing automated meter reading on our utility grid, and we are partnering with municipals and coops to read their gas, electric, and water meters. We have installed new technology solutions to improve our electric system. Super conducting magnetic energy storage devices have been installed on the northern portion of our electric system and we are the first utility to use this technology. These devices will help us stabilize voltage on the electric grid this summer.

We have also embraced the opportunities available with the Internet. Today, our customers can use the Internet to sign up for gas and electric service and select from a menu of other options. The Internet, combined with DENet technology, allows our industrial and commercial customers to monitor and control their processes in real time. And, our employees use the Net to gather information, make travel arrangements, take classes, and participate in on-line Web seminars. The Internet is a new, useful, and expanding tool. Our employees are using it to become better informed about our industry and make our processes more efficient. But, we have only just begun. We are currently investigating e-business opportunities related to transactions between businesses and will be deploying these in a few weeks. We are continually searching for new, innovative ways to use the Internet to improve interactions with our customers and suppliers and to make our processes more efficient.

Just this week we received a number one ranking for our Web site from Energy E-Comm.com, a firm that specializes in evaluating energy and utility Web sites. The recognition was for small-to-mid size utilities. Let me read to you what they had to say: "The WPSR site is a powerful site with lots of online features and choices for the consumer — preferred billing date application, sign up for service, consolidated account billing capability, budget billing, to name a few. And all over a secure server. Even though the organization is complex, finding pertinent information is easy."

During the nineties we also successfully installed wind turbines on our system. We acquired generating assets in Maine and Pennsylvania. We celebrated 25 years of successful operations at our Kewaunee Nuclear Plant — and, I'm proud to say that Kewaunee continues to be a flagship in the industry. The team at Kewaunee recently completed its longest run ever without a shutdown — 511 days. During the nineties, we also began the creation of two new companies that will provide growth opportunities for employees and shareholders while improving value for our customers.

Last year we formed the Nuclear Management Company in a joint effort with other Wisconsin and Minnesota utilities to create a large nuclear operating company. By combining the operation of seven nuclear units, we will be able to enhance safety and performance, capture synergies, provide a more reliable product, spread risk, lower costs, and as a result, create greater shareholder value for you.

The creation of the American Transmission Company is a similar effort that is affecting the transmission business unit of our Company in a like manner. When we transfer our transmission assets to the transmission company, we will be a part owner of the newly formed American Transmission Company. So, your investment remains intact and we will have the benefits of a larger, regionally coordinated transmission grid. Our investment in new transmission such as the proposed transmission line from Wausau to Duluth will simply increase our ownership in the new transmission company.

We expect both the American Transmission Company and the Nuclear Management Company to be operational by year end.

The "victory" coming out of the nineties that gives me the most pride is the national recognition that two of our subsidiaries received for exceptional customer service. In a national survey conducted by J. D. Powers and Associates, Wisconsin Public Service was identified as number two in the country in providing value to retail residential customers. At about the same time, another national survey conducted by Mastio & Company identified WPS Energy Services as the sixth highest ranked energy marketing firm by industrial customers. These are great accomplishments for a small energy company headquartered in Green Bay, Wisconsin.

But, the nineties produced a few disappointments or "opportunities for improvement" as well. Foremost is the inconsistent earnings growth and our low stock price which has impacted our cumulative total return to shareholders. Inconsistent earnings growth during the nineties was brought about, in part, by the restructuring taking place in our industry. Creating new subsidiaries and nurturing them to profitability is an arduous task, but we have survived those difficult early years. And, I'm proud to report profitability for both WPS Energy Services and WPS Power Development in the first quarter of 2000. Your management team is committed to creating consistent, increasing earnings results. Throughout the nineties, we continued our record of paying dividends and dividend growth. And, we have no plans to change our dividend policies.

The other major impact on the total return you receive is the stock market price. Our stock price is based on the market's perception of our value, and we work diligently to impact that perception positively. I believe more consistent earnings growth and our continuing record of dividends, should result in better stock price performance in the future. Another factor impacting on our stock price is the uncertainty resulting from our changing industry. As you know, Wall Street does not like uncertainty. So, we have taken steps to reduce the uncertainties about our future success. Most notably, our nonregulated subsidiaries are now profitable and are poised to increase shareholder value in the coming years. Our utility, Wisconsin Public Service, had record earnings last year, and we anticipate its continuing fine performance in the future.

But, there are challenges ahead. Wisconsin does not have adequate transmission ties to assure a reliable source of energy as our economy continues to grow. We have shareholders, customers, and even a few employees who are concerned about our plans to build the Weston to Arrowhead transmission line. Several of those individuals are with us today, and I will make time to hear their questions and comments during the Question and Answer portion of this meeting. We will also have several representatives of our Company available in the lobby following this meeting to discuss this matter with you.

Another challenge facing us is the establishment of fair rules as we restructure the energy industry. Our competitors would like rules that give them an unfair advantage. We are not afraid of competition. In fact, we have asked regulators to open the marketplace in Wisconsin. But, to be successful in the new marketplace, there must be a level playing field with fair rules for everyone. You can help us in that regard by contacting regulators and legislators on important issues. Many of you have done that for us in past years and I thank you. We will try to alert you to the significant issues and their impact on your Company. We will also try to provide you with opportunities to have your voice heard by working directly with you or through the Wisconsin Utility Investors group.

Turning to another matter, some of you raised the topic of compensation for executives and Board members. I want to address that topic because we have no hidden agendas or motives. Our pay philosophy is simple. First, all employees (including executives and Board members) should have the opportunity to earn compensation at a level that is competitive in the marketplace for their position. Second, we are putting more pay at risk, especially at the higher level positions in your Company. We believe both of these simple principles are consistent with your interests as shareholders. If we do not pay at market levels, we cannot attract and retain the talent we need. By putting more pay at risk and linking bonuses and stock options to the creation of shareholder value, we are aligning the interests of management with the interests of our shareholders. Last year our short-term variable pay program provided payments to certain executives — primarily because our utility, Wisconsin Public Service, had the highest earnings level in its history. The Board of Directors and our Human Resources department examines our compensation system annually and works with one of the major consulting firms to ensure our compensation goals are being met.

Let me close by saying that WPS Resources, your Company, is poised for future success and the creation of shareholder value. We are the low-cost producer in the Upper Midwest in many of our product lines. We maintain excellent customer relationships. We fortify our financial strength with a strong balance sheet, and Wisconsin Public Service is the only utility in the nation with an AA+ rating from Standard and Poor's and an Aa1 from Moody's. Upper Peninsula Power Company has been fully integrated into our family of companies and we have realized the synergies and savings projected. Our nonregulated companies are profitable. But, perhaps most important, we have the best employees that any CEO could want. They are the ones driving our exceptional operating record. They are the ones earning us national recognition for customer service. They are the ones engineering our successful growth. They are the ones allowing us to take the next hill in stride.

We also have knowledgeable shareholders and I thank all of you for the support you have given us through the years. Given our plans for profitable performance, we can stride with confidence into the new world and I ask for your continuing support and loyalty as we do. We won't let you down. Thank you.

Audio of Larry Weyer's Closing Statements (WAV: 786KB)