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Annual Shareholders Meeting - May 15, 2003

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

When people speak of change, they often categorize it as evolutionary or revolutionary. When I look back over the past year, I see change in our industry and the business world in general that I would describe as turbulent. Improprieties in business and politics combined with an economic downturn and, in many cases, less-than-optimal decisions have changed our world. Companies that once were industry leaders were brought to their knees with liquidity problems. Several even entered bankruptcy.

Investors suffered greatly as market values plunged. Ten leading firms in our industry lost more than 130 billion dollars in combined stock market value. The stock price of many firms dropped by 50 percent or more. A few firms, still striving to survive, lost more than 90 percent of their market value.

I'm very pleased to report that investors in our company fared much better. Our stock price increased its value, rising from $36.55 per share at the close of 2001 to $38.82 per share by the close of 2002. By comparison, the Dow Jones Industrial Average fell by 15 percent and the Standard & Poors 500 dropped by 22 percent during the 12 months of 2002. At the same time, we paid our common stock shareholders a dividend, increasing their total return for the year to 12.26 percent. That's the 44th consecutive year we have increased our dividend, which is one of the longest records of increasing dividends in the state of Wisconsin. I'm confident it would be a top performance in many of the states in which we operate.

That's why we encourage investors to "look to us" for value. We take the stewardship of your investment very seriously.

Despite all the turmoil in 2002, WPS Resources Corporation had the best financial results in its history. That is on top of our record-breaking year in 2001.

You can look to our employees as a major reason for the record accomplishment. They stepped up "big time" in 2002.

Employees at WPS Energy Services increased retail gas margins, successfully expanded business with an acquisition in Canada, and managed the risk that a turbulent environment creates. WPS Energy Services had its best year ever with profits increasing 72 percent to 11 million dollars.

Employees at WPS Power Development acquired three electric generation plants in New York state, reduced expenses at our Sunbury Plant in response to market conditions, and successfully sold a portion of our interest in a synthetic fuel facility. The synthetic facility has provided returns that make it one of the most successful projects in our history. It has returned additional value to shareholders in the form of increased earnings.

Employees at Wisconsin Public Service Corporation acquired the 180-megawatt natural gas-fired De Pere Energy Center from Calpine Corporation. Public Service's employees also logged substantial progress on new systems such as automated meter reading, a customer information system, and a work management system. These new systems are designed to position us for the future by increasing service to customers and increasing efficiency.

Employees at Wisconsin Public Service and Upper Peninsula Power also responded to storm damage with all the efficiency and effectiveness our customers have come to expect. Our electric and gas forces often use their highly-developed skills to perform jobs during the worst possible conditions-ice storms, wind, rain, snow, and extreme temperatures. They work in these conditions and still maintain, and even enhance, our relationship with customers. I'm very proud of them, and the entire company is grateful for the job they do.

Upper Peninsula Power Company employees did a heroic job holding expenses down throughout the rate freeze following the merger in 1998 and late last year obtained a rate increase for the first time since 1991.

All employees responded to the budget constraints and strategic initiatives required to maintain our success during a difficult year. All employees acted with integrity in every aspect of their jobs. They exhibited the integrity required to earn and maintain the trust of investors, customers, and the entire community. Integrity is essential every day but was particularly important this past year when employees at other companies were involved in questionable activities such as round-trip trading. Integrity is a strong component of our culture at WPS Resources Corporation. We expect it, we require it, and we respect it! Our employees understand this well.

As I said, our employees stepped up "big time" in 2002 and reaffirmed what I've always known-when the chips are down, we can look to them to bring us through the difficult times.

Shareholders and retirees also deserve credit for our success. They aided us by helping to influence legislators and regulators. Many of them took time to write their local political representatives and travel to Madison or Washington to express viewpoints on issues important to our success. Retirees continue to volunteer for community projects and not-for-profit causes that aid our community. When their affiliation with our company is known, the company benefits. It's good to know that we can look to our shareholders and retirees for their support.

Indeed, using financial measures, the year 2002 was a good one for this company. But, our evaluation of success also includes several measures that are not financial.

Service to customers is another key measure and customers can look to us for quality customer service. Surveys by J.D. Power and Associates and Mastio & Company continue to rank Wisconsin Public Service Corporation and WPS Energy Services among the elite for customer satisfaction.

Protection of the environment is another important measure, and you can look to us for ongoing environmental stewardship. Our employees live our environmental principles in their daily work. Our recent "Certificate of Achievement" from the Environmental Protection Agency is an example of our proactive approach regarding the environment. Since partnering with the EPA in 1993, we have achieved methane emission reductions of 80 million cubic feet. This is equivalent to removing over 7,000 cars from our nation's highways for one year or planting nearly 10,000 trees.

Production costs are another measure of success, and customers can look to us for low-cost energy production. We are still one of the lowest-cost producers of electric energy in the Upper Midwest and, for many customer classes, the lowest-cost energy provider.

Financial strength is an important measure in today's environment, and investors and suppliers can look to us for financial strength. We maintain our financial strength with a strong balance sheet, one of the best debt ratings in the industry, and conservative adherence to established accounting policies. This past year we successfully issued 250 million dollars of debt at very low interest rates. We also completed the syndication of credit lines of 280 million dollars, just in case we need it.

We were added to Standard & Poor's Mid-Cap 400 Index in 2002, which gave our stock greater liquidity. And this year we were identified as a Forbes Platinum 400 company. We are proud of these accomplishments.

Projects adding to our growth in the past year include:

Investors can look to us for continued expansion.

We are continuing to support the American Transmission Company and the proposed transmission line between Wausau, Wisconsin, and Duluth, Minnesota.

I'm also very pleased to report that we have announced and are moving forward with our intention to build a new 500-megawatt coal-fired, base-load generation plant at our Weston site near Wausau, Wisconsin. Weston Unit 4 is expected to be operational in 2008. It will be a state-of-the-art plant employing clean coal technology and the most advanced environmental controls. We are working closely with the local community to ensure they have a voice in the project.

We are also building a new service center annex adjacent to our existing facilities in Ashwaubenon. This 23 million dollar project will house our call center and several customer reliability functions. Our call center handled more than 920,000 calls last year in serving the needs of our more than 724,000 utility customers in Wisconsin and Michigan. It's one of the reasons our customers rate us highly and look to us for quality customer service.

Recognizing that employees are at the root of our success, we continue to provide developmental opportunities for them, such as: a new mentoring program, a cross-functional job rotation initiative, a renewed succession planning effort, internal classroom instruction, and off-site training including programs at some of the top business schools in the nation. We continue to develop the leaders of tomorrow because we must look to them for our future success.

We had a good year in 2002, but not everything was rosy. Our debt was downgraded by Standard & Poor's as they scrutinized the energy industry. We had to write off a few small ventures that were not successful. Most disappointing, we had to raise energy prices for our customers in both Wisconsin and Michigan, and we have filed for an additional increase in Wisconsin and part of Michigan for 2004. We know we must stem the tide of rising prices or risk impairment of the competitiveness of our major customers. This will be difficult in the face of rising costs for security, new infrastructure requirements, and increasing environmental control requirements. We have begun that process by working closely with the Wisconsin Paper Council, several large customers, and the state governments in Wisconsin and Michigan.

We have been active on legislative initiatives. We support the initiative to reduce the taxes you pay on the dividends you receive from us. President Bush has proposed an economic stimulus package that includes reduction or elimination of the double taxation of dividends. If the President's proposal is adopted, the dividends you receive from WPS Resources Corporation may not be taxed as heavily as they currently are. But, the rules on what will happen and how it will be implemented are not yet defined.

One proposal would merely swap the dividend tax reduction for an increase in taxes on other investments that affect our profits. This would not help our company or our investors' tax positions.

We are working closely with our two major industry organizations, the Edison Electric Institute and the American Gas Association, to encourage Congress to reduce or eliminate the double taxation of dividends and not disadvantage our company and our shareholders. We have worked hard to reduce our tax bill in recent years, and we would not want the government to reduce the impact of those tax advantages. We invite you to support this initiative also by writing your U.S. Senators and Representatives.

A few of our investors have expressed concern for the level of executive compensation. Our policy on compensation is simple and is based on two principles.

First, we believe everyone in the company should have the opportunity to receive compensation equal to the market value for the job they hold. If we pay less than market, we risk losing valuable talent. If we pay more than market, we risk unnecessary cost increases. To assist in the endeavor, we engage the services of one of the major compensation consulting firms in the United States to determine what those market rates are for all employees.

The second principle we follow is that employees should have a portion of their pay at risk. If the company does well, the employee does well. If not, then the employee does not receive the pay they have at risk.

This principle aligns with our shareholder and employee interests. It provides an incentive for our employees to ensure the company does well and enables our shareholders to benefit from their efforts.

In 2002, nearly 100 percent of our administrative employees had a portion of their pay at risk. I'm pleased to report that we met many of our targets, so both our employees and shareholders benefited from this performance. In a few cases, we missed our targeted goals and, therefore, our employees lost a portion of their pay at risk. While providing competitive compensation and benefit packages, we are also making the benefits more portable to allow for employee flexibility and mobility. If an employee can go elsewhere and be happier, our pay and benefit plans should not hold them back.

Many of you expressed an interest in the status of the Kewaunee Nuclear Power Plant. Just a few weeks ago Kewaunee completed an 18-month cycle of top performance following the installation of two new steam generators in the fall of 2001. During this cycle, the plant set a record for generation and continued its record as one of the top performing nuclear plants in the United States and the world. The plant just returned from a refueling outage on May 11. It was the shortest refueling outage in the plant's history-tying a record of 36 days.

The Nuclear Management Company now operates the Kewaunee plant, and WPS Resources owns 20 percent of that company. The Nuclear Management Company had a great year in 2002, which validates our decision to turn over operations to them. They came in below budget and with record operating performance at the seven nuclear units they operate. Congratulations to Mike Sellman and his entire team for a great job.

Looking forward, we believe 2003 is a year of opportunity. The turbulent environment of last year has caused liquidity problems for many other companies. As a result, our industry will be realigned this year through asset sales and modified strategies. We are ready for that realignment with a strong balance sheet, committed employees, bench strength, and strategic creativity. We have demonstrated our ability to operate in this turbulent environment with our record success in 2002 and the first quarter of 2003. We are prepared for the future. You can look to us for continued growth, sound strategies, solid execution, and unquestionable integrity. All of this will deliver increasing shareholder value.

Thank you.