Integrys Energy Group

Financial Analyst Meeting - August 28, 2003

Distribution from a Utility Perspective - Opportunities and Challenges
by Lawrence T. Borgard - Vice President - Distribution and Customer Service

Thanks, Larry.

{SLIDE 2} Our Distribution or DisCo organization is responsible for all activities related to the delivery of energy from the bulk transmission transfer point (transmission breaker or gate station) to the end use customer. Since 2001, neither Wisconsin Public Service Corporation nor Upper Peninsula Power Company has owned electric transmission lines. In 2001, both companies sold their transmission assets to the American Transmission Company.

{SLIDE 3} The Wisconsin Public Service and Upper Peninsula Power distribution businesses are regulated monopolies providing "basic utility services" that focus on the safe, reliable, competitive, and profitable supply and delivery of natural gas and electricity to customers in a franchised territory.

{SLIDE 4} Wisconsin Public Service serves an 11,000 square-mile area of northeastern Wisconsin and an adjacent portion of Upper Michigan. In 2002, Wisconsin Public Service served more than 407,000 electric customers and more than 295,000 natural gas customers.

{SLIDE 5} Upper Peninsula Power provides electric service to a 4,500 square-mile-area of Michigan's Upper Peninsula. In 2002, Upper Peninsula Power provided electric service to more than 50,000 customers.

{SLIDE 6} Central engineering, accounting, customer service, and customer value teams support the local operating sites for Wisconsin Public Service and Upper Peninsula Power out of our Green Bay headquarters.

{SLIDE 7} Our existing natural gas and electric distribution systems are progressive and state-of-the-art. For example, Wisconsin Public Service has over 20,000 miles of electric distribution lines, 90 percent of which are 24.9 kV line. These lines require less maintenance and have less down time than the 4 kV and 15 kV systems that other utilities utilize. We also rely upon our 6,000 miles of gas main, 69 percent of which is plastic main, to serve our natural gas customers. We began a move to plastic mains in the 1960s for cost and reliability reasons. We invest in state-of-the-art facilities to ensure better reliability at a lower cost for our customers.

{SLIDE 8} Our back office systems are changing to utilize technology versus just adding people. For example, there are five areas that we are updating. The first is our mapping system, which helps our people in the field by standardizing our maps, updating the maps each evening, and providing access to our field employees in their vehicles via a laptop computer. The second area is our customer information system, which will help people in the home office by bringing up all of our customer's account information when a customer calls in to our 24-hour call center. The third area is the automated meter reading system or AMR. This system will automatically read meters so we don't have to send our employees into our customers' homes and backyards. Automated meter reading will improve the quality of meter reading, help us gain operational efficiencies, and provide customers with timely energy information. The fourth area is our work management system. This system helps manage work at a company level. It gives a high-level view of workload and helps our offices communicate effectively to ensure that we meet our customers' needs. Finally, the fifth area is our customer relationship management system. This piece helps get information about customers' accounts into our employees' hands when they are out in the field meeting with customers.

{SLIDE 9} Going forward we're striving to permanently take costs out of the system and become more efficient. We are moving in this direction by centralizing a number of our field functions. We are not closing field offices, but rather shifting the emphasis from addressing walk-in customers' needs to more of an operationally focused field office. This is consistent with what our customers have told us they want us to do. We are finding ways to be more efficient by looking at our natural gas workforce and changing job responsibilities to enhance customer service and function more efficiently. We are improving the scheduling process so that work can be better planned, scheduled, and managed. We are expanding the hours we are available to customers so that we can provide better service. We are standardizing and centralizing the billing process to improve quality and efficiency. This includes accepting bill payments on-line, directly from customers' bank accounts, at pay stations, etc. In other words, how ever the customer wants to interact with us. We are also creating on-line access for our larger customers to provide them with energy information tailored to their business environment.

{SLIDE 10} A large project we continue to work on is the Wausau to Duluth transmission line. This is a proposed high-voltage transmission line running between the Weston substation near Wausau, Wisconsin and the Arrowhead substation near Duluth, Minnesota. The 220-mile, 345-kilovolt line would greatly enhance the reliability of the electric system in Wisconsin and the upper Midwest. The need for the line is evident because it provides an additional path for power to be imported into Wisconsin from the north and west and greatly enhances the reliability of the existing Wisconsin-Minnesota transmission system interface.

{SLIDE 11} Earlier this year we sold our 20.1 million dollar interest in the Wausau to Duluth transmission line project, at book value, to the American Transmission Company, who owns transmission lines in Wisconsin, Michigan, and Illinois. American Transmission Company is a for-profit transmission-only company created by the transfer of transmission assets previously owned by multiple electric utilities servicing predominantly Wisconsin and the Upper Peninsula of Michigan in exchange for an ownership interest in American Transmission Company.

{SLIDE 12} American Transmission Company LLC has submitted an application to the Public Service Commission of Wisconsin for approval to construct the project at a higher cost than initially approved due to a number of environmental, construction, and landowner enhancements. Hearings begin in September.

{SLIDE 13} Because this is an investment opportunity going forward, WPS Resources agreed to fund 50 percent of future project costs for this transmission line up to 198 million dollars. We may terminate our funding obligation if the project extends beyond January 1, 2010. As we provide equity for the project, our ownership interest in the American Transmission Company will grow from its current position of 18.2 percent.

{SLIDE 14} Our goal is not to grow the DisCo organization by adding employees. If we do the basics right, we will grow. We will be serving more customers with fewer employees by becoming more efficient. We are always looking for ways to improve service to our customers. We'll grow by putting systems in place to better serve customers and periodically upgrading our natural gas and electric systems to keep pace with demand.

{SLIDE 15} Though our focus of delivering natural gas and electricity and serving our customers is the same as it has always been, the manner in which we need to go about it has changed significantly. Customers are demanding higher levels of reliability, shorter response times, and real-time pricing information. The political, legislative, and regulatory climate is requiring us to change much more rapidly. Technology is continuing to offer new opportunities that we need to assess.

{SLIDE 16} What our DisCo business unit does best is safely, reliably, and economically deliver electricity and natural gas to customers in northeastern Wisconsin and the Upper Peninsula of Michigan. That is our focus.

{SLIDE 17} Now, Dave Harpole will give you some insights on the generation side of the utility business. Dave is Vice President - Energy Supply for Wisconsin Public Service Corporation. Dave...