Integrys Energy Group

WPS Energy Services, Inc. Now and in the Future - September 02, 1999

by Mark Radtke - Vice President

In keeping with today's football theme, I'll describe ESI in terms of:

Game Plan - what does the contest look like, how are we building our team, and what do we need to do to win
Offensive Unit - natural gas sales
Defensive Unit - infrastructure to support and keep the offense on the field
Special Teams - products and services that compliment energy sales, and allow us to offer a comprehensive energy strategy

Key Points of Focus Statement

Fully Integrated: gas, electricity, and energy related services
Regional Retailer of Physical Energy: we choose to deliver energy markets known by our internal experts within our region of focus. We do not pursue physical energy sales in areas that we do not have deliverability expertise.
Energy Management Services: provided to customers outside our region of focus, including; strategy development, supply source selection, price risk management, and supply management.

WPS Energy Services' Market Region

Deliberately chose Northeast quadrant of the U.S.
Large percentage of total U.S. energy consumption
Manageable geographical area
Relatively well-organized markets
Good market arbitrage opportunities
Our customers with multiple facilities tend to share this region

Local Market Expertise

Primary office locations are Wisconsin, Illinois, Michigan, Ohio and Maine
Coupling sales and supply creates ownership and fosters creativity
Expansion methods include acquisition and team hiring

WPS Energy Services' Offensive Unit

Federal regulations have allowed large volume customers to purchase the natural gas commodity from a competitive supplier since the mid-1980s.
Over time, technology and customer preference for choice has caused utility distribution companies to enable smaller volume customers to choose a supplier.
Our over 1000 transport customers are large volume consumers, creating a transport customer demand well in excess of WPSC's system sales.
We attribute our success to the recognition that energy markets are not necessarily driven by energy fundamentals, and customers need a comprehensive energy strategy to effectively manage price and supply risk.
Taking advantage of sophisticated tools requires a skilled sales force. Our team consists primarily of degreed engineering, finance, and legal professionals.
For all the sophistication, at the end of the day, energy products are measured by their price, reliability and utilization value.

ESI Offense - Mass Market "Customer Choice"

Mass Market is the small commercial and residential customer
This can be a difficult segment to serve profitably because of associated sales and administration expense
ESI has used planned experimentation from the first program that we participated in in 1996. Our customer acquisition success was curtailed because the host utility had a concern we acquired too much market to allow competition to develop.
We have since participated in "choice" programs in Illinois, Michigan, Ohio and another in Wisconsin. The programs in Michigan have been particularly successful because of the number of large commercial/small industrial customers who previously could not choose a competitive supplier
Without aggressive use of technology, it is impossible to meet customer needs and expectations while achieving profitability requirements
The largest program we have participated in to date is Columbia of Ohio's "Choice" program
1.2 million customers are able to chose a competitive supplier
To date,
- we have developed a customer base of over 20,000
- customer satisfaction is high, as measured by customer retention, direct feedback and referrals
- we have kept our costs in line by prudently controlling our marketing expenses, and effectively applying technology to minimize administrative costs

WPS Energy Services' Defensive Unit

Our defensive team includes the systems and processes that are required to keep our offense "on the field," growing the business.
Our Energy Supply Management System is a purchased product that we have significantly enhanced or re-written over the last three years.
We do participate in the wholesale and trading markets. Our primary purpose is to extract inefficiencies that exist in the market and acquire competitive, reliable supply for our retail customers. This business line incurs a large number of transactions, making the robust tracking and reporting systems we have developed absolutely essential to profitability.
The need for Risk Management cannot be understated. Our processes include stringent deal capture, middle office separation, and extensive daily reporting to multiple levels, including holding company senior management. We presently use mark-to-market position reporting, and are working with the Electric Power Research Institute to implement their Value at Risk package.
Our Customer Service Information Systems include small scale customer billing and payment processing
Customer information via the Internet includes; product information, on-line enrollment in product offerings, and the ability to view pricing, consumption, and billing history.

WPS Energy Services' Special Teams

Our solid Offensive and Defensive Units are complimented by a strong Special Teams offering energy related products to meet the customer's comprehensive energy needs--not simply a commodity supplier
We have a number of information and invoice verification/payment products coupled with expert analysis of opportunities available in today's regulated and emerging deregulated marketplace
DENet is an internally developed energy and process monitoring and control system that helps customers better understand and take control of how the energy they buy is utilized in their facility
Utilization improvements enhance the total value the customer receives from their energy dollar

Feel the Power!

There is a lot of activity in the electric power side of the business--and at WPS Energy Services we feel the power.
The restructuring process is difficult and slow for states to navigate
California and Pennsylvania are succeeding at demonstrating a good implementation
Customers are eager to work with ESI, and we continue to develop supply portfolios to reliably and economically meet those customer needs

We are working with PDI, the wholesale marketplace, and industrial cogeneration host sites to develop a diverse supply portfolio that will meet the economic and reliability needs of our customers.

We are in the market on a daily basis and have the opportunity to enhance plant economics through arbitrage
Since a 24-hour energy desk is required to support our electric supply needs, leveraging that to include the dispatch and control of PDI facilities is a natural fit

In Summary

We believe we have the correct pieces in place. We continue to gain market share at a manageable pace, our infrastructure is keeping pace with the evolving industry needs, and our comprehensive energy solutions approach is being well received by our customers.

Now I would like to introduce Dan Bittner, Vice President and Chief Financial Officer, who will tell you about securing the resources to stay in the league.