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"Boundless Energy"

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

Several years ago we set a course for a new journey. A journey that would change our company from a small, integrated utility in Northeastern Wisconsin into a larger energy company with subsidiaries capable of competing successfully in the emerging energy markets. The evolving environment in our industry and our desire to continue creating shareholder value made it absolutely necessary to embark on this journey.

It hasn't been an easy journey, but we have set our stride for the new world. The credit for the success we have created belongs to our employees. They have confronted challenges, embraced change, and endured personal sacrifice to ensure reliable service while care for the community is preserved and enhanced. So, I want to begin today by saluting our employees for their dedication and thanking them for their efforts, the results they have attained, and the plans they have developed for our future.

Last year we began to see the benefits of this journey. Our efforts resulted in solid financial performance as well as several other accomplishments. Our utility operations had one of their best years ever, and our nonregulated subsidiaries were profitable for the first time. Earnings rose by 13 percent over 1999 which was also a good year for us. In addition, our common stock price returned to more reasonable levels increasing in value from $24 3/4 on January 3, 2000 to $36 13/16 on December 29, 2000. Our management team can't take full credit for movement of the stock price, but we are committed to consistent earnings growth, which will continue to drive the stock price upward.

Going forward, we expect earnings growth of 8 to 10 percent on an "annualized" basis. Our 2001 earnings estimate is for $2.55 to $2.65 per share, assuming normal weather. We're expecting WPS Energy Services and WPS Power Development to contribute between 10 and 15 percent to our earnings in 2001.

Our dividend policy calls for moderate growth. In 2000, we increased our dividend for the 42nd consecutive time. We expect to reach our payout target of 70 percent within two years through earnings growth. We have no plans to change our current dividend policy.

Just a few weeks ago we concluded our merger with Wisconsin Fuel and Light, and I want to welcome the new stockholders and employees who are with us today as a result of that merger. The merger added 50,000 new customers to our rolls, an increase of approximately 10 percent. The difficult part of the merger--the integration of the two companies--is progressing well.

The integration of the Upper Peninsula Power Company into our family through our merger in 1998 has also gone well. We have captured the cost savings of that merger by operating Upper Peninsula Power like a region of Wisconsin Public Service.

On January 1 this year we joined the American Transmission Company and transferred our transmission assets in return for partial ownership. In addition, we joined the Midwest Independent System Operator which will provide operations for a much larger regional transmission grid. Both of these actions were prescribed by Wisconsin legislative Act 9 enacted in early 2000.

We are continuing our efforts to obtain approval for the Weston to Arrowhead transmission line which will run from central Wisconsin, near Wausau, to Duluth, Minnesota. Hearings before the Public Service Commission of Wisconsin have been completed, and we expect an order in the third quarter of this year. The Minnesota Environmental Quality Board has already approved the Minnesota portion of this project. We anticipate that ownership of this line will be transferred to the American Transmission Company soon and increase our ownership to 25 percent in that company. Wisconsin Public Service Corporation will stay involved in constructing the line under contract to the American Transmission Company.

Although we feel the transmission line is vitally important for electric reliability, I know there may be shareholders in the audience today who question our need to build this line or who are opposed to its construction. The question and answer period following my comments will provide an opportunity to further discuss that project.

At the Kewaunee Nuclear Plant, operations are going well. The plant continues to run at its current full capacity rating, which is down slightly from its initial capacity rating because of the existing steam generators' limitations. The new steam generators, which were manufactured in Milan, Italy are on site. They are scheduled to be installed later this year.

As of January 1, 2001, the operations of the Kewaunee Nuclear Plant have been transferred to the Nuclear Management Company. This is a company created by five utilities to provide joint operations for eight nuclear reactors. We own a 20 percent stake in the Nuclear Management Company, and they will continue to operate the plant in a safe, reliable, and economical manner. Later this year we will increase our ownership of the Kewaunee Nuclear Power Plant from 41.2 percent to 59 percent by buying out one of our current partners. This ownership increase will provide Wisconsin Public Service with an additional 90 megawatts of base-load nuclear capacity at a very reasonable price.

Recently, Wisconsin Public Service Corporation and our remaining partner in the Kewaunee facility committed to upgrading the existing processes and systems at Kewaunee so that we have state-of-the-art systems in place to ensure its continuing, safe and reliable operation. This project has already begun, and we expect significant progress by the end of this year.

The remainder of our generation fleet, which includes our fossil and hydro facilities, continues to operate well. Our generation fleet is in excellent mechanical condition, and we expect no problems serving our load this summer. We will enter the summer with our required 18 percent reserve margin, and we believe other energy suppliers in the state will also have the required reserve margin. Of course, the best laid plans are subject to uncertainties. Our supply situation would change if the state faces extremely hot weather for long periods and/or we or another supplier loses one or more of the major generating plants or transmission lines in Wisconsin. We have contingency plans in place to ensure reliability.

People often ask me if Wisconsin could experience an energy crisis similar to the recent events in California. The answer is yes, and we will, unless we take action to provide the needed infrastructure now.

Although we expect the needs of all customers in Wisconsin to be met during the coming summer, Wisconsin is in dire need of additional generation and transmission capacity. The state has come perilously close to having inadequate supplies during the summers of 1998 and 1999. The summer of 2000 was unusually cool, and an ample supply of electricity was available. Estimates show that the state will be short of generating capacity by 600 megawatts in 2003 if additional generating capacity is not installed. To put that into perspective, the Kewaunee Nuclear Plant is a 500-megawatt facility. By 2010, over 3,000 megawatts of capacity must be added to meet the growing needs of our state. That is the equivalent of six plants the size of Kewaunee. Also keep in mind this is a problem with two parts. The first part is building the generating capacity needed. The second, and equally important part, is building the transmission system to deliver the energy.

The California experience has turned many people against deregulation efforts in our industry. But, the problem in California was not caused by deregulation. California never fully deregulated. They only deregulated the wholesale price of electricity. The retail price was still regulated. Consequently, California's utilities bought at high wholesale prices and sold at low regulated prices. This was a failure of the market structure created in California, not deregulation.

WPS Resources Corporation is prepared to meet the increasing demand for electricity, and today I am unveiling our plans to provide additional generating capacity for the future. As many of you know, we firmly believe the state should move now to create a competitive generation market. This can be accomplished by enabling independent power producers to build additional generating capacity in Wisconsin rather than requiring utilities to build the capacity. We believe this competitive generation market will provide reliable supplies of electricity at competitive rates for customers and also be good for shareholders because it will preclude the need of regulators to order utilities to divest their generation in future years in order to solve market power concerns. Our generation plan takes steps to create this competitive generation market and also provides us with a portfolio of generating projects with diverse technology and fuel options. The plan includes the following:

This generation plan, combined with the development of the Weston to Arrowhead transmission line, enables WPS Resources Corporation and its subsidiaries to provide ample supplies of low-cost, reliable energy for customers in Northeastern Wisconsin and Upper Michigan. WPS Resources remains committed to be the lowest-cost, reliable supplier of energy.

Let's turn our attention to our nonregulated subsidiaries which turned in a record year in 2000. WPS Energy Services continues its rapid growth of revenues increasing from $292 million in 1999 to over $956 million in 2000. During the first quarter of 2001, revenues at WPS Energy Services were up an additional 335 percent compared with the first quarter last year. We are currently slowing the revenue growth and attempting to increase profit margins on the volume of business being done.

WPS Power Development has also experienced considerable growth in the past 12 months. Our coal briquetting operation has been moved from Alabama to Kentucky. It is now producing briquettes at a level above our expectations when the project was placed in service. Last year the project generated all the tax credits we could use and an additional $11 million which were placed on our balance sheet as deferred tax credits. We expect continuing profitability from this project for the next several years.

WPS Power Development now owns two facilities in Pennsylvania including the Sunbury Plant and the Westwood Plant. The Westwood Plant was acquired within the last 12 months and provides an additional 32 megawatts of capacity for our operations in Pennsylvania. Considerable maintenance work was done on these plants during the past several months, and we anticipate better availability and profitable operations from these facilities during the coming summer months.

We're participating in the e-commerce revolution to harness the power of technology and make it work for our customers, shareholders, employees, and vendors. We've made small, active investments in e-commerce companies to learn about the technology and exploit it when feasible. We are already taking orders for electricity and gas over the Internet, and we have an award-winning Web site. This summer we will launch a new Web application for industrial customers allowing them to sell back their power during times of high prices or tight supply.

Wisconsin Public Service owns over 15,000 acres of land in Wisconsin. Most of this land is associated with our hydroelectric generation facilities, and many of these acres are not actually required for the operation of the hydro generation facilities. We announced our intentions to remove many of these lands from the hydro facilities and transfer ownership. We are working with state and federal agencies and the local communities to find an acceptable steward for their future care. Transfer of the ownership at this time will provide working assets for our shareholders and also enable us to ensure that suitable stewardship is arranged for these lands so that many generations of Wisconsinites can enjoy nature at its finest.

During the past year, we revised our human resources processes. One of the initiatives that falls under these programs is our diversity initiative which we began in early 2000. The diversity initiative will create a more diverse workforce within our company enabling us to interact with an increasingly-diverse customer base. In addition, we will be able to attract and retain workers from a more diverse pool of talent. WPS Resources defines diversity in the broadest possible sense, meaning all those characteristics which make us different from one another. This includes our ethnic heritage, race, gender, language, age, and beliefs. It also includes family, financial, employment, and educational backgrounds as well as life experience, personality type, and diversity of thought.

Some of you have expressed concern about the compensation levels for management and the directors. Our compensation philosophy is very simple. Everyone within the WPS Resources family of companies should have the opportunity to earn compensation that is competitive for the position they fill. If we do not compensate at this level, we will lose talent from our company at all levels, and we will fail to attract the required talent. The second principle we follow with regard to compensation is that we are trying to have a higher percentage of compensation tied to corporate performance so that if the company does well, compensation is up. If the company does not do well, compensation is down. We believe this is consistent with our shareholders' interests and the practices of many companies in America today. We are also requiring our management team and directors to hold larger amounts of our common stock. This gives them a vested interest in ensuring that our stock continues to perform.

Recently we started an initiative to preserve our history. As you know, the subsidiaries within WPS Resources Corporation have a long history of service to the community. Our company is changing dramatically, but we cannot allow ourselves to forget our roots. We have formed a group, including retirees and active employees, that is interested in capturing the history of our company including many memorable artifacts. Today, we have with us four retirees who have devoted countless hours to developing the historical display that you saw when you entered-Jim Dobratz, Gary Hammond, Arnie Rentmeester, and Louie Ryan. We will provide them with the resources to capture the historical information and places to store the artifacts for all to enjoy. Their work will later be on display at the Ashwaubenon Historical Society. If you would like to become involved in this project or if you have pictures or artifacts, please contact our Senior Vice President of Public Affairs, Tom Meinz.

In closing, let me say that the journey we have embarked upon is adventurous. There is a lot of change in our industry. There is a lot of change in our company. There is a lot of change in society, and there is a lot of change in the new-global economy. Our management team has chartered a course for WPS Resources that is robust, flexible, and innovative. We have more than a 100-year tradition of proud service to our customers, shareholders, communities, and employees. Our journey upholds this tradition while positioning us to adjust to changes and capitalize on opportunities. When we come to a fork in the road, we will take it--like Yogi Berra suggests, but we will take the high road, perhaps the road less traveled. I believe as Robert Frost suggests, that will make all the difference.

Thank you.