Integrys Energy Group

Strategic Direction - August 20, 2001

by Larry L. Weyers - Chairman, President & CEO

Let's start by looking at the corporate structure of WPS Resources Corporation, the holding company. We have two utilities-Wisconsin Public Service which includes Wisconsin Fuel and Light, our latest acquisition, and Upper Peninsula Power. We currently operate Upper Peninsula Power as a division of Wisconsin Public Service. We have an intermediate holding company, WPS Resources Capital Corporation, between WPS Resources and our two nonregulated subsidiaries, WPS Energy Services and WPS Power Development.

Most of you are familiar with this corporate structure, so I will move on and discuss our corporate strategy in more depth.

Our overall holding company strategy includes the following major items:

Our management team is committed to 8 to 10 percent annualized earnings growth. We have accomplished this goal the past two years, although admittedly, we were starting from fairly low earnings in 1998. Our current earnings estimate for 2001 suggests it may be tight this year, but we are striving to achieve this goal annually.
We expect to achieve at least 15 percent of our total earnings per share from our nonregulated businesses this year.
We are committed to pursuing energy-related investments only. Our current strategy does not allow us to stray into other industries, although we do have minor investments in the local telecommunications area.
We are committed to pursuing projects in the United States only. Our current strategy does not call for investments in foreign countries, but will consider investments in Canada provided the right risk mitigation is available.
A major part of our strategy is to maintain flexibility. Since we cannot predict with certainty what the regulatory or legislative issues may be nor their impact on us, we instead strive to maintain a maximum amount of strategic, operating, and financial flexibility. This has served us well in the past few years as the energy industry was modified significantly in many of the states in which we operate.
WPS consistently pays dividends and we have increased our dividend for 43 consecutive years. At this time, we have no plans to change our shareholder dividend strategy. The dividend growth, when compared to our target earnings per share growth, will enable us to lower our payout ratio significantly in the next few years. We continue to view our dividend policy as important to maintain for our current mix of investors.
We have modified our compensation system in the last few years to place a substantial amount of pay at risk and create incentives for our executives. The incentives are in the form of annual cash incentives; intermediate term cash and stock incentives based on a three-year rolling average performance, and longer term incentives in the form of stock options.

Let's turn our attention to the strategy of our utilities. The strategy here includes the following items:

We want to keep our utilities operationally and financially strong.
We will continue to invest in rate base. A recent example of this includes our investments in new steam generators at the Kewaunee Nuclear Power Plant, the installation of automated meter reading technology, our current initiatives to develop 5 major software systems with a total rate base cost that exceeds 100 million dollars, and the 10 million dollar investment in new penstocks at Upper Peninsula Power's hydro operations.
We will strive to earn the authorized return in all regulatory jurisdictions.
We are currently a low-cost producer of electricity in the Upper Midwest, and our strategic plan calls for us to maintain that advantage
We currently have and we strive to maintain good customer relations which we believe can be a major asset as we enter a more competitive world

Let's turn our attention now to our nonregulated subsidiaries. I will first discuss WPS Energy Services' strategy.

Their basic strategy is to capture market share in the gas and electric markets in the northeast quadrant of the United States. We limit the activities of this subsidiary to this quarter of the United States because our success depends on placing qualified resources into each market area. These resources are limited and can be better leveraged if concentrated in an area smaller than the entire United States.
WPS Energy Services is a niche player. We do not intend to go up against the Enron's and Southern Company's of the world.
Currently WPS Energy Services is concentrating on widening its margins in the commodity business. We have seen our margins widen somewhat in certain of our gas markets. The electric markets have considerably wider margins than the gas business, and a higher percent of the revenues from our retail operations is coming from our electric commodity line.
We maintain a strong presence in wholesale gas markets in order to complement our retail operations. These wholesale markets are also profitable.

WPS Power Development is our nonregulated subsidiary that develops energy projects throughout the United States. Their strategy includes the following major items:

We expect to invest between 150 and 250 million dollars annually in power plant projects. We recognize that this investment will be uneven with some years requiring substantially more than 250 million dollars and other years perhaps requiring less than the 150 million dollars.
Every project we pursue must have the ability to stand on its own and be profitable over its life cycle, and we also prefer projects which can be profitable in year one or soon thereafter.
We limit the activities of WPS Power Development to the United States, although we have allowed them to pursue some assets in Canada.

A major part of our strategy for our nonregulated businesses is to capture the synergies between WPS Energy Services and WPS Power Development. This has worked well for us in Maine and in the Pennsylvania and Ohio region. In Maine we led with WPS Power Development by purchasing generating assets. In Ohio we led with WPS Energy Services because the customers there can be served by WPS Power Development's power plants in Pennsylvania. This ability to lead with either subsidiary adds to our flexibility.

We feel we have a winning strategy-one that will ensure we are competitive and growing for many years to come.