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Nonregulated Strategies Introduction - August 20, 2001

WPS Resources - An Overview

At the highest level, WPS Resources Corporation has two areas of focus in the energy field-a regulated area which encompasses Wisconsin Public Service Corporation and Upper Peninsula Power Corporation, and a nonregulated area consisting of WPS Energy Services, Inc. and WPS Power Development, Inc. WPS Resources Capital Corporation offers a financial perspective for the nonregulated area when and where applicable.

WPS Energy Services

WPS Energy Services is a diversified nonregulated energy supply and services company with principal operations in Illinois, Maine, Michigan, Ohio, and Wisconsin. It provides products on a nation-wide basis. At year-end, WPS Energy Services had 88 employees.

WPS Energy Services operates in the retail and wholesale nonregulated energy marketplace. Its emphasis is on serving aggregated residential, commercial, industrial, and wholesale customers in the northeast quadrant of the United States.

WPS Energy Services provides energy supply options and strategies that allow customers to manage their energy needs while capitalizing on opportunities resulting from deregulation. It provides natural gas, electric and alternate fuel products, real-time energy management services, energy utilization consulting, and project management.

Now, let's turn to WPS Power Development.

WPS Power Development

WPS Power Development develops, owns and operates various forms of nonregulated energy generation facilities. It also manages a synthetic fuel operation and provides electric power generation services. At year-end, it had 163 employees.

WPS Power Development considers the entire nation its market, although it has a significant focus on northeast quadrant of the United States.

WPS Power Development's products and services include acquisition and investment analysis, project development, engineering and management services, and operations and maintenance services. Its areas of expertise include cogeneration, distributed generation, generation from renewables, and generation plant repowering projects.

Synergies

WPS Energy Services is the marketing, sales, balancing, and aggregation arm of our nonregulated segment while WPS Power Development is the steel and concrete arm. Collectively, Energy Services and Power Development are reforming into a nonregulated energy company that is integrated to the point that it will only exclude the transmission and distribution portion of the way we used to view the energy landscape. The very significant potential of Energy Services' and Power Development's synergies are just now being realized.

Risk Management

Risk management is a critical part of the "landscape" for both WPS Energy Services and WPS Power Development. There are many elements of risk management. Often we like to talk about the "trading" element of risk management. This trading component can be broken down into one of three different categories:

  1. Speculative: WPS Energy Services and WPS Power Development make every attempt to avoid speculative type transactions.
  2. Back-to-Back: This is a critical part of the WPS Energy Services' gas business, but also a critical piece of Energy Services' electric portfolio where assets are not owned (but might be) owned by WPS Power Development.
  3. Trading Around Assets: This is another important part of the Energy Services and Power Development synergy picture and could also be referred to as arbitrage.

Every other element of risk is evaluated. Plans to mitigate risks are in place for both WPS Energy Services and WPS Power Development. Again, trading is one major component that is clearly understood and managed by our nonregulated entities. One important conclusion that you should draw from this discussion-Energy Services and Power Development are not speculative trading companies.

Asset Management

Our asset management consists of buying and selling assets to accommodate WPS Resources' strategies. It also includes the optimization of assets other than steel and concrete such as contracts or conditions that surround our transactions.

Volatility

The energy industry in the United States has witnessed very significant volatility in the past 12 months. This was spawned by three major events:

Technical Capabilities/Requirements

WPS Energy Services and WPS Power Development-but most specifically Energy Services-has developed the ability to technically "keep pace" with the ever-changing energy environment. Technology application to business unit needs has proven to be critical. The nonregulated entities have worked diligently to keep pace with our expanding technology needs.

Critical Mass

We have learned that any new business unit (especially in the energy field) must attain a critical mass to succeed. We have attained that critical mass at WPS Energy Services and we are very close to filling that requirement at WPS Power Development.

Commodity Versus Custom Transactions

WPS Energy Services and WPS Power Development do both commodity and custom transactions, although we do not compare to the "giants" in the electric commodity product line and they do not compare to us in the custom transaction arena.

Synergistically, we can offer a "system operating" (or balancing) function on a real-time basis.

Web Site

Please visit our Web site>. You will find a great deal of information about all of our companies and additional information on the topics I briefly discussed today.