Integrys Energy Group

Remarks by Larry Weyers- May 31, 2000

Chairman, President, and Chief Executive Officer

Thank you for the opportunity to be here today. I want to share with you my thoughts on the restructuring of the energy industry, provide insights into our strategy, and tell you why I believe we will be successful in the new environment and provide increasing value for investors. Those of you that have followed our Company for several years understand the strengths that have supported our success. I won't dwell on these, but I do want to mention a few.

First, we are financially strong. We are the only utility in the nation to be ranked AA+ by Standard & Poor's and Aa1 by Moody's. Our current equity level at WPS Resources is 40% on a consolidated basis, but if the non-recourse debt of our subsidiaries is set aside, that ratio is more like 70%. Based on discussions with the credit rating agencies, these levels should be sufficient for us to maintain a high credit quality for financial flexibility.

One of our major corporate strategies is to maintain a strong financial condition in order to have maximum flexibility for future business initiatives. We intend to use the financial strength and high equity levels to support planned growth at our regulated and nonregulated subsidiaries. At this time, based on our current growth plans, we anticipate issuing common stock in 2001. We should still be able to achieve our projected earnings per share growth of 8% to 10% per year.

Another strength is our strong reputation with customers. We believe this will serve us well in deregulated markets where customers have choice. We try to provide customer solutions and the best value in energy and energy related services. We were recognized three times in 1999 for excelling in customer relationships.

A residential customer survey by J. D. Power & Associates' found us tied for second in the nation in customer satisfaction among approximately 100 utilities surveyed. Complimenting that, our regulated gas and electric business in Wisconsin has received the lowest number of complaints per customer of all major utilities, as measured by the Public Service Commission for several years. At about the same time, Mastio & Co. performed an independent, nation-wide customer satisfaction survey in which WPS Energy Services ranked 6th from the top out of 77 energy marketers.

Another strength contributing to our success is the fact that for the last 6 or 7 years we have been the lowest cost supplier in the Upper Midwest for many of our product lines. We intend to maintain that advantage as we move into a re-regulated competitive environment.

So we have financial strength, good customer relations, and a low-cost profile, but as you know, these strengths may not be adequate for the future. Let me tell you what we are doing to ensure future success.

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. This is a leading edge concept in providing an alternative approach to nuclear plant operations. 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.

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 511-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 formation of the Nuclear Management Company, replacement of the steam generators planned for the fall of 2001, and license extension. We also have approval to purchase Madison Gas and Electric Company's 17% share in the Kewaunee Nuclear Plant, bringing our ownership to 59% of the plant.

This year, we are participating in the creation of the American Transmission Company. It will be the nation's first for-profit electric transmission company. When we transfer our transmission assets to this company, we will be a part owner of the newly formed American Transmission Company. So, our investments remain intact and we will have the benefits of a larger, regionally coordinated transmission grid.

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

We are also investing in assets in the utility. Last 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 is the largest transmission project being pursued in the nation right now. Certainly, it's the largest 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 electric energy consumed must be imported. Investments we make in transmission now, simply increase our ownership in the new transmission company and we anticipate a reasonable return on that investment for many years.

We are also working on energy solutions for the near term and using technology to our advantage. Last 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. The D-SMES technology has reasonable costs, is quicker to deploy than transmission lines, and has less environmental impact. The true long-term answer to reliability concerns is new transmission line construction, but this innovative, temporary solution will benefit our customers in the short term.

We are 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. This technology is consistent with the direction of commerce in the energy industry and it will give us the capability to serve our customers better while facilitating customer choice in Wisconsin.

As you know, WPS Resources is a holding company with utility and nonregulated subsidiaries. Last year we did business in 26 states, and I want to tell you about our nonregulated activities.

Our strategy includes increasing our asset base. 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 and manage risks.

Last year we acquired generating assets in Maine and Pennsylvania to capture the synergies between energy marketing and power generation in the newly opened and lucrative markets of the northeast. Our marketing efforts were successful. We have captured 90% of northern Maine's customers by being selected as the standard offer provider in Maine Public Service's territory.

We have been successful at winning bids to purchase plants that have market potential and we have managed to extract greater value from them. Our knowledge in operating and maintaining generation facilities pays dividends here. 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. Our strategy is to continue growing through the synergies that evolve from putting our nonregulated assets to work to support our nonregulated market growth.

Financing for part of our nonregulated projects has been accomplished through non-recourse debt. For the Maine and Pennsylvania generation assets, we obtained between 65% and 70% of the funding on a non-recourse basis for terms of 10 to 18 years. We are pleased with the terms and conditions obtained on these non-recourse financings because it demonstrates the confidence the banking industry has with the economics of our purchases.

Progress toward our nonregulated earnings goal has been slower than anticipated. 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 of our nonregulated subsidiaries in the first quarter of 2000. Our management team is committed to creating consistent, increasing earnings results.

Many of you are familiar with one of our projects in Alabama where we are the owner and operator of a facility that produces synthetic fuel from coal. This facility achieved excellent results during the first four months this year. It is now shut down and will not operate until the third quarter. Even with this temporary shutdown, with our results to-date, and the level of operating activity expected during the remainder of the year, our nonregulated subsidiaries will achieve profitability with a goal of contributing 10% to our earnings per share this year.

We are a niche player in the energy industry and we recognize the need to manage risk in new ways. Today our subsidiaries are using financial instruments to reduce risk and volatility rather than speculating. We have the discipline required to concentrate on the physical and customer elements of niche markets.

We also believe in the importance of applying and implementing technology to the maximum extent possible. I have already mentioned our use of D-SMES technology and automated meter reading. We do not see ourselves as a member of the Silicon Valley technology establishment nor do we conduct basic research, but we develop and deploy technology to fill the needs of niche markets. For example, two of our employees were issued a patent for our DENet® product line that we use both in our regulated and our nonregulated subsidiaries. This 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. We have already licensed 422 customers to use our DENet technology.

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 at our utility and nonregulated subsidiaries. The Internet, combined with DENet technology, allows our industrial and commercial customers to monitor and control their processes in real time. Our employees are using the Internet to become better informed about our industry and make our processes more efficient. But, we have only just begun. 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 a few weeks ago 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." If you haven't visited our Web site, check it out. You will find a wealth of information about our company.

In 1999, our annual earnings of $2.24 per share returned to a more normal level that put us back on track to build shareholder value. Our first quarter earnings released in April were $1.10 per share. This is right in line with our expectations, although a little stronger than analysts' estimates. And, this was accomplished in spite of the weather being 11% warmer than normal for the 3-month period. Analysts' estimates of year 2000 earnings for our company have us in the range of $2.40 to $2.55 per share, and we are comfortable with that area.

Our 1999 common stock dividend was $2.00 per share, which puts our payout at 89% based on our 1999 earnings of $2.24 per share. This payout is high compared to our target of 65% to 70%. But, we expect to move closer to our target through growth in our business and increased earnings. We expect to increase earnings between 8% and 10% per year in the next several years. Between 2% and 3% of this will come from our utility with the balance coming from our nonregulated subsidiaries. For a company our size and because we have some room to add more leverage to our capital structure, it doesn't take large new project investments to realize significant earnings growth. Under this scenario, we expect to be within our target payout range in two to three years.

We believe that our dividend is very important to a large portion of our shareholders. As a result, in 1999, we increased our dividend for the 41st consecutive year. We view the continued moderate growth of our dividends as a necessity to attract and retain investors.

Our officers are now compensated 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.

I need to comment on one other item before closing-our current stock price. The stock market had an exceptional year in 1999, but value did not seem to have an impact on the market.

Another factor impacting our stock price is the uncertainty resulting from our changing industry. But, we have taken steps to reduce uncertainty 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 had record earnings last year, and we anticipate its continuing fine performance in the future. I believe more consistent earnings growth based on our strategy of maintaining financial strength, significant growth within our nonregulated operations, and our continuing record of dividends should result in better stock price performance in the future.

Let me close by saying that WPS Resources 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 have financial strength with a strong balance sheet. We have excellent credit ratings. We have increased our dividend for 41 consecutive years and are not planning to change our dividend policy. Our nonregulated companies are profitable and growing rapidly. Our utility is strong and continuing to grow. We have embraced new technologies, including the Internet, that will give us advantages in the niche markets. We are confident of our place in the new energy industry. You can feel confident that WPS Resources is a good value investment.

Postscript by Larry L. Weyers

Mr. Weyers mentioned WPS Resources' proposed acquisition of Wisconsin Fuel & Light that was announced via a news release yesterday. When completed, the transaction will add about 50,000 gas customers to WPS Resources' system, many of which are existing electric customers of Wisconsin Public Service Corporation, its electric and gas utility. The acquisition is structured as a tax-free, stock-for-stock exchange. As a result, WPS Resources will likely issue common stock in 2001 to coincide with the closing on the acquisition.