Integrys Energy Group

Financial Analyst Meeting - August 28, 2003

WPS Power Development, Inc. - Opportunities and Challenges
by Charles A. Schrock - President

{SLIDE 2} WPS Power Development, Inc. makes nonregulated energy-related investments in the United States and Canada. We own and operate nonregulated baseload hydroelectric and fossil-fueled power plants. We partner with large energy users to develop and operate energy-efficient cogeneration facilities. We also operate various facilities that convert industrial waste to energy.

{SLIDE 3} WPS Power Development, Inc.'s strategy is growth through nonregulated energy-related investments in the United States and Canada. We focus on niche markets, and are creating a geographic and fuel diversified portfolio. We prefer open markets, primarily in the northeast quadrant of the United States and adjacent portions of Canada. We also work to maximize benefits by close coordination with our sister company, WPS Energy Services.

{SLIDE 4} We've built a generation portfolio of over 900 megawatts.

{SLIDE 5} The major generating facilities we own include our hydros in Canada and New England, our coal-fueled Sunbury and Westwood plants in Pennsylvania, our New York fleet that includes two gas plants and one coal plant in upstate New York, the coal-fueled Stoneman plant in southwest Wisconsin, and a gas powered cogeneration plant in Combined Locks, Wisconsin.

I'll give a brief rundown of the status of some of our major facilities.

{SLIDE 6} The E.J. Stoneman generating station in Cassville, Wisconsin, was acquired in 1996. This is a two-unit, 53-megawatt, coal-fired plant. We believe this was the first true merchant power plant in the country, selling power in the open market without firm long-term contracts with native utilities. Our purchase of this facility was really a long-term view—to repower the Stoneman facility, increasing the site's coal-fired capacity from 53-megawatts to 300-megawatts. We have decided that to manage risks, we won't proceed with the repowering until we have contracts in place for the energy and capacity.

{SLIDE 7} The Sunbury Generation Station is a four-unit, coal-fired, 425-megawatt plant located in Pennsylvania that we acquired in 1999. In 2002, we performed a lot of corrective maintenance and installed low NOx burners. This resulted in some improved operation over the latter half of 2002. We also increased the amount of silt that we burn in the smaller boilers at this facility. We use silt for fuel because it is lower cost than other fuel sources. Early this year we discovered that various components in our fuel handling system, including the recently installed low NOx burners, had seen some significant erosion due to the use of silt. In order to correct this, we took a number of unit outages and methodically went through the systems to make repairs. We also put some maintenance and inspection plans in place to prevent this from happening again. We've experienced some other operating problems this year that have impacted availability. But we are working through those now and are optimistic that the future will look better.

Sunbury is also impacted on the financial side by the low value that the market has placed on capacity. This has created a significant shortfall of revenue compared to what we expected. As a result of the operational problems and the depressed capacity markets, Sunbury has performed below our expectations. We have taken steps to mitigate this. For example, we implemented a 10 percent reduction in the work force at the plant, effective January 2003 in order to reduce our operating costs. We continue to assess the long-term value of the plant and stand ready to take appropriate steps to maximize the value we get from this facility for our shareholders.

{SLIDE 8} Our plants in New York have been operating reasonably well. The Niagara Falls plant suffered some damage as a result of an ice storm in early April. We made repairs and brought the unit back on line in early May, and it has been running per our expectations since. The two gas plants—Beaver Falls and Syracuse—have had good availability but haven't been running much because the spark spread has been low.

{SLIDE 9} As an aside, our Beaver Falls and Niagara Falls plants were operating at the time of the blackout on August 14. Both were tripped off line, but neither suffered any damage as a result of the blackout. All three of our New York plants came on line shortly after the blackout to help restore the grid. Also, just as Sunbury has been negatively impacted by the low capacity prices, so has our New York fleet. Many people predict an upturn in capacity values as the existing excess capacity in these markets is used up by load growth.

{SLIDE 10} The Tinker Hydro Station is located in New Brunswick, Canada. The station is comprised of five hydroelectric units and a diesel unit, and has a 34-megawatt capacity. Power from these plants is sold to WPS Energy Services and to the city of Perth-Andover. These units have been running as we expected, but output has been low due to the lingering effects of drought conditions experienced in 2001.

{SLIDE 11} Our Westwood plant is running as expected, but it too has been hurt by the low capacity prices.

{SLIDE 12} The Combined Locks Energy Center facility has also been running as expected. It is entering only its second year of operation in the cogeneration mode, and we have worked through the typical "first year" types of issues with the facility.

{SLIDE 13} We are also part owners of a synthetic fuel facility. This project is performing as expected. Of course, the issue here is the recent IRS announcement regarding "chemical change." In June, the IRS announced that it had reason to question the scientific validity of certain test procedures and results presented by certain taxpayers as evidence that the required significant chemical change has occurred. The IRS announced that it is reviewing information regarding these test procedures and practices. WPS Resources is participating in an industry coalition to work with the IRS, Treasury, and Congress to resolve the issues. Meanwhile, we continue to operate the facility as required per our private letter ruling. We have had two private letter rulings on this facility. The IRS has previously ruled that our facility does qualify for tax credits and that our fuel does undergo chemical change. The IRS made this determination based on test information provided by our experts.

We believe that we are justified in relying on the private letter rulings for the facility, that the test results that we presented to the IRS in connection with these private letter rulings are scientifically valid and that the facility has operated in compliance with the private letter rulings and Section 29 of the Code.

{SLIDE 14} We continue to make changes to our processes to adjust to the current market environment. WPS Power Development has taken a cautious approach to acquisitions. To mitigate market risk, we have taken a conservative view in our market projections, and we place a priority on contracted assets and open markets. Recognizing that we get the most value out of our resources when we work closely with WPS Energy Services, we have recently restructured our organization to provide much closer coordination with Energy Services in the acquisition process. We continue to look for good acquisition opportunities, but have eliminated growth targets for Power Development so as not to simply grow for growth's sake. We know that it is more important to add value for our shareholders than to meet growth targets. In this way we will continue to be a part of the WPS Resources balanced growth strategy.

{SLIDE 15} Now I would like to give Mark Radtke, President of WPS Energy Services, Inc. an opportunity to share more of Energy Services' strategy with you. Mark...