Integrys Energy Group

Annual Shareholders Meeting - May 13, 2004

"The Energy Within"

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

Over the years companies come and go, prosper, fail, change direction, and recreate themselves. Only a small percentage has the energy to last for more than a few decades. What is unique about those companies that succeed over long periods of time? How do they master the new challenges of each new era, and recreate themselves with the skills and knowledge to continue their success? I believe it's the energy within those companies. Thomas Edison states, "The first requisite for success is the ability to apply your physical and mental energies to one problem incessantly without growing weary."

As you know, WPS Resources Corporation, through its subsidiaries, has demonstrated the ability to apply our physical and mental energies incessantly for over 120 years. I'm pleased to report that we have just delivered another successful year in the history of this company. Success for our shareholders that can be identified by the following:

A stock price that rose from $38.82 at the end of 2002 to $46.23 one year later—an increase of 19 percent. We neared the $50 mark early in 2004.
Total return to shareholders in 2003 of 25.3 percent.
Forty-five years of consecutive dividends increases.
A report in the Wall Street Journal ranking WPS Resources Corporation fifth in our industry in total return to shareholders over the last three years and the last five years.
Participation in major industry associations that successfully reduced the double taxation of dividends.

Last year at this meeting and in our Annual Report, we told you, our shareholders to "Look to Us" for value, and I believe we delivered in 2003. We continue delivering value for our shareholders because we have the energy within that is required for lasting, successful performance.

Our customers also benefit from the energy within our organization—energy we use to offer products from our regulated and nonregulated subsidiaries. We create solutions for our customers by integrating the activities necessary to satisfy their needs and providing outstanding value for their energy dollars. But, how do we know if we are creating value for our customers? There are several indicators:

We remain one of the lowest-cost producers in the Upper Midwest. Despite the rate increases of the last few years, we are the low-cost producer for many rate categories and we are very competitive in all rate classes.
Surveys by outside parties such as J D Powers and Mastio & Company consistently rank us in the top ten for customer service at both our regulated and nonregulated businesses.
Customer surveys by third-party firms typically rank us as an outstanding provider of customer service compared to other utilities in the state and surrounding territory.
We were a finalist for an American Business Award for the Best Customer Service Organization in corporate America.
We deploy new technologies to serve customers better. In the past few years, we have provided customers with enhanced capabilities to communicate with us over the Internet. Customers visiting our home page can access multiple tools to help them manage their energy cost.
When storms hit our utility service territory, our physical forces respond with all the skill, knowledge, and fortitude necessary to restore energy service to our customers. Our line electricians and gas service mechanics, along with all their support personnel, take our service to new levels under these conditions.

These accomplishments demonstrate the value we provide for customers. However, we are confronted with challenges regarding the cost structure for energy. Energy prices in the United States are rising and will continue to rise for the next few years. Major factors driving the price increases are obvious. All of us know that natural gas prices have risen to a new level, partly because new supplies are coming from deeper wells and, in many cases, further offshore. Increasing natural gas prices drive up the cost of electricity generated using natural gas. Electricity generated using coal is increasing in price because environmental standards require increasingly larger investments to reduce emissions. Newly constructed nuclear power plants are not an option at this time in the United States and certainly not in Wisconsin.

The only other sources of electric generation are renewables such as wind, photovoltaics, and geothermal. But these renewable resources do not solve the problem of rising costs. Our industry continues to research and test renewable sources of energy. We are optimistic about the promise that renewable energy sources provide, but that promise is not yet a reality.

Energy prices in Wisconsin will likely rise even faster than in the rest of the nation because Wisconsin must upgrade and expand its energy infrastructure. The state requires new transmission lines, generation plants, and gas pipelines if we are to have adequate supplies of reliable, low-cost energy. All of these activities will raise the price for our customers in the near term, and we must use the energy within this company to create solutions and address our customers' concerns with care.

We have started efforts throughout the Company to take costs out of the system immediately and to the extent possible, permanently. Examples include the following:

Our Distribution Operations has centralized our billing and credit functions resulting in a reduction of 17 positions while providing improved capability.
Our Financial area has obtained new financing at a lower cost and retired some of our older, more costly financing.
We have revised the maintenance schedules at our existing generation plants and incented our generation staff to have the plants available when market prices are highest.
We have entered into new coal and rail transportation contracts that will better enable us to manage costs.

We also use the energy within this company to take care of the very source of that energy—our employees. We have provided employees with good careers and more opportunities today than ever before. Employees are sharing in our success through a new incentive pay program that has been in existence for two years. This incentive pay program aligns the interests of our employees with the interests of our shareholders and customers. In addition, I believe we have created a certain excitement within the company with projects such as Weston 4, the sale of our Kewaunee Nuclear Power Plant, the re-alignment of WPS Power Development, and the retail initiative that doubled WPS Energy Services' residential direct market customer base in Ohio this past year.

We also use the energy within our company to care for the communities we serve across the northeast quadrant of the United States and portions of Canada. Our employees and retirees make up an army of volunteers available to all the communities involved with our subsidiaries. We use monies from the WPS Resources Foundation to augment the activities of these volunteers. Our foundation gives out approximately one million dollars annually to support education, the arts, and health and human services. We also provide assistance to needy low-income families within the communities we serve.

We further use the energy within our company to proactively protect our environment. We, and others in our industry, have done a remarkable job in making progress. The Environmental Protection Agency reports that total emissions have been reduced by nearly 50 percent since the Clean Air Act was passed in 1970 and it gets cleaner each year. This has occurred even as the country's population increased nearly 40 percent, the economy grew by 165 percent, and electricity use increased 163 percent. But our industry is not satisfied with that accomplishment. We are striving to reduce sulfur dioxide, nitrogen oxides, mercury, and carbon dioxide from facilities that provide electricity.

Our industry is often maligned for any impact we have on the environment. As shareholders in this industry it's important for us to understand the facts. The Chicago Tribune recently reported that electric generation from coal-fired plants generated just slightly over 8 percent of the carbon dioxide emitted in the world. Our industry is taking steps to reduce that even further with coal plants such as Weston 4, which will operate at much higher efficiencies than our existing units.

Mercury emissions from U.S. power plants are responsible for only 1 percent of the mercury emissions in the world. Yet our industry is taking steps that will reduce this by over 50 percent—once again through the use of coal-fired plants such as Weston 4.

Wisconsin Public Service Corporation releases approximately 50 percent of the amount of sulfur dioxide allowed by law for electric generation. In addition, where necessary we have modified our generation plants to reduce the amount of nitrogen oxides released into the environment.

We care about the environment, and we take steps to protect it as one of the most valuable resources we have for this and future generations. We are proud of our tradition of environmental stewardship. This year we included our environmental report with the mailing of our Annual Report to shareholders to demonstrate our commitment to the environment and to showcase our many accomplishments.

The energy within our company has served us well in the past and will serve us well in the future.

We have developed plans for our future success, enabling good returns for shareholders and increasing value for customers and opportunities for employees. We have lowered the risk profile for our corporation through several activities including:

The proposed sale of the Kewaunee Nuclear Power Plant to a subsidiary of Dominion Resources. This was a bittersweet decision for our corporation since Kewaunee has been a star performer in the industry throughout the United States and the world for 30 years. Kewaunee has the potential to generate electricity for an additional 30 years, but the risk of continued ownership is great for our company, customers, and shareholders. Kewaunee's continuing success is more probable if it is part of a larger company committed to being a large player in the nuclear power generation industry. The sale also provides cost certainty for our customers through creation of a power purchase agreement that provides stability in the expected price of generation at Kewaunee, but without the risks of budget overruns or unexpected expenditures.
We have lowered our risk exposure to the merchant plant business with the proposed sale of our Sunbury Power Plant in Pennsylvania. Sunbury has performed at reasonable levels for us. Market conditions have changed the financial profile for this investment. As a result, the Sunbury asset can be better utilized as part of the energy portfolio of its proposed new owner, a subsidiary of Duquesne Light Holdings.
We have established a new Portfolio Optimization and Risk Management group with offices near Washington, D.C. Through hedging and the use of financial instruments, this group has reduced our overall risk profile while optimizing our nonregulated portfolio in the marketplace.
We have redirected the efforts of WPS Power Development, maintaining the upside potential of this subsidiary while reducing its exposure to the merchant plant business.

We have used the energy within WPS Resources to identify attractive investments and pursue them successfully.

In the next few years we will invest over $1 billion in projects such as Weston 4, the Arrowhead to Weston transmission line, and our new Service Center Annex here in Green Bay.
We have invested several million dollars to improve security for our facilities, customers, employees, and the communities we serve. This includes enhanced security at all of our power plants, substations, and general office facilities as well as increased attention to our cyber security.
We have used the energy within this company to prepare our workforce for future challenges. These efforts include cross-functional rotations, formal training, succession planning, and our initiative to enhance the diversity of our workforce. These initiatives impact every work group in our company and several processes including recruitment, development, training, compensation, and promotions.

We have used the energy within the company to enhance corporate governance:

We have taken steps to comply with the new governance requirements of the Sarbanes-Oxley Act and the New York Stock Exchange. Our corporation has spent several million dollars in the last few years to enhance our internal controls to ensure that our processes are robust and their integrity is not imperiled.
We have revised our Code of Conduct and posted it on our Internet site for all to see.
We have created an Ethics Hotline for employees.
We have made changes in the operation of our Board of Directors to ensure the independence of their decisions and to create a more robust oversight of management activities. As a result of these changes, Institutional Shareholders Services, which ranks the quality of corporate governance has increased our ranking considerably. As of April 14 of this year, they reported that our governance score is higher than 90 percent of the companies in the Standard & Poor's 400 index and 82 percent of the companies in the utilities group. This is a substantial improvement from the scores attributed to our corporation in November of 2003. Strengthening our governance process has been an initiative of our Board of Directors for the past 12 months. The results to date are very positive. Our Boards of Directors and management teams have demonstrated solid ethics and integrity for over 120 years. These changes serve to solidify that tradition.

Once again, many of you have indicated your concerns regarding compensation levels in the company. We keep our compensation policies very simple. Everyone in the corporation, at every level, should have the opportunity to earn a market-based compensation for the position they hold. If we pay more than market, our costs will rise unnecessarily. If we pay less than market, we risk losing valuable employees. In addition, we believe that employees should have a substantial amount of their compensation at risk. If the company does well, our employees should benefit from that success. If the company does not do well, our employees will not receive a portion of their compensation.

In conclusion, I think it's clear that WPS Resources Corporation has the energy within to continue our success in 2004 and beyond. We will use that energy to continue the many activities that benefit our society and the world we live in. We will continue to provide the best value in energy services for customers. We will continue to provide exciting career opportunities for our employees. We will continue to support the communities that buy our products. We will continue to protect the environment. And, we will also use the energy within to provide good returns for shareholders and to protect the investment and trust you have placed in us. Thank you for your investment in WPS Resources Corporation.