Integrys Energy Group

Earnings Conference Call - Third Quarter 2004

by Larry L. Weyers
Chairman, President, and Chief Executive Officer

Joseph P. O'Leary
Senior Vice President and Chief Financial Officer

and

Mark A. Radtke
President - WPS Energy Services and WPS Power Development

Good afternoon. Welcome to the quarterly earnings conference call for WPS Resources Corporation. I'm Larry Weyers, Chairman, President, and Chief Executive Officer for WPS Resources Corporation. With me today is Joe O'Leary, our Senior Vice President and Chief Financial Officer, and Mark Radtke who is President of WPS Energy Services and WPS Power Development.

We are here today to discuss our earnings for the third quarter of 2004 and what you can expect from us in the future.

WPS Resources' common stock is traded on the New York Stock Exchange under the ticker symbol WPS. Earlier today we issued a press release containing our earnings information. If you haven't seen the release, you might want to get it. It is available on our Internet site. Once you are at the site, select Investor Information, select Financial News, select Earnings, and finally select the release from today, October 28.

Before we begin, I need to point out that this presentation contains forward-looking statements within the definition of the Securities and Exchange Commission's safe harbor rules including the realization of projected results for 2004 for WPS Resources and its subsidiaries. Forward-looking statements are beyond the ability of WPS Resources to control and, in many cases, WPS Resources cannot predict what factors would cause actual results to differ materially from those indicated by forward-looking statements. I refer you to the forward-looking statement section of today's press release and to our filed Securities and Exchange Commission disclosure documents for further information.

Now, back to the business at hand. Let me begin with a few highlights.

WPS Resources' income available for common shareholders for the third quarter ended September 30, 2004 was 34.8 million dollars compared with 34.1 million dollars for the same period in 2003. This resulted in basic earnings per share of 93 cents compared with $1.05 in the third quarter of 2003. Income from continuing operations was 37.8 million dollars, or 99 cents in basic earnings per share, for the third quarter of 2004 compared with 33.2 million dollars, or $1.00 in basic earnings per share, for the third quarter of 2003.

For the nine months ended September 30, 2004, income available for common shareholders was 82 million dollars compared with 69.8 million dollars for the same period in 2003. This resulted in basic earnings per share of $2.20 for the first nine months of 2004 compared with $2.15 for the same period in 2003. Income from continuing operations was 94.9 million dollars, or $2.49 in basic earnings per share, for the first nine months of 2004 compared with 78.2 million dollars, or $2.34 in basic earnings per share, for the same period in 2003.

We are pleased with our consolidated operating results to date. Timely retail electric and natural gas rate relief in 2004 has had a favorable impact on Wisconsin Public Service's earnings. Improved utility earnings also resulted from improved economic conditions that generated greater sales volumes to our commercial and industrial customers. However, unfavorable weather to date has limited our utility earnings. WPS Energy Services has continued its strong performance, particularly in the retail natural gas business and through electric portfolio optimization strategies.

Joe O'Leary will now discuss the details. Joe…

The Senior Vice President and Chief Financial Officer speaks.

Thanks, Larry.

I'll begin by looking at our performance during the third quarter.

Utility earnings increased by 1 million dollars during the third quarter of 2004 compared with the same period in 2003 due to retail rate relief in 2004. Our utility margins increased by 10.8 million dollars primarily due to Wisconsin Public Service's retail and wholesale rate increases. Our electric utility margin increased by 10.9 million dollars as a result of rate increases but was partially offset by a decrease in electric sales volumes driven by unfavorable weather conditions. Although purchased power costs were 7.9 percent higher on a per-unit basis in the third quarter of 2004 than in the same period in 2003, the costs were offset by a 4.7 percent decrease in the per-unit cost of fuel used in generation. As a result, fuel and purchased power costs did not have a significant impact on margin. The weather during the quarter was 12 percent cooler than the same period in 2003, which had a negative after-tax earnings per share impact of approximately 2 cents during the quarter for the electric utility.

Gas utility margins decreased slightly due to a 13.8 percent reduction in natural gas throughput volumes, but this was partially offset by the authorized natural gas rate increase.

WPS Energy Services' earnings decreased 2.6 million dollars for the third quarter of 2004 compared with the same period in 2003 primarily due to decreased natural gas margins. Energy Services' margins decreased 2.7 million dollars in the third quarter of 2004 when compared with the same period in 2003. Energy Services' electric margin increased 6.3 million dollars for the quarter. The retail electric margin increased 4.1 million dollars due to a 2.2 million dollar increase in Ohio related to improved supply management and a 2.6 million dollar favorable settlement of a pricing dispute with a counterparty, but was partially offset by a 1.3 million dollar decrease in margin from Michigan retail electric operations due to higher transmission related costs. Energy Services' wholesale electric margin increased by 2.2 million dollars. Portfolio optimization strategies increased wholesale electric margins by 7.7 million dollars, but this was partially offset by a 5.4 million dollar decrease in margin related to exiting from the New Jersey Basic Generation Services Program.

Our nonregulated natural gas margins decreased 9 million dollars for the quarter. Our retail natural gas margin increased 3.3 million dollars largely due to higher natural gas throughput volumes due to new customers in Ohio, operational improvements, and better supply management for residential and small commercial customers. Customer growth and margin improvement in Canada also helped the retail natural gas margin. Our wholesale natural gas margin decreased 12.3 million dollars for the quarter primarily due to the natural gas storage cycle and associated earnings volatility, which had a 9.2 million dollar negative impact on margin compared to the same quarter last year.

WPS Energy Services is impacted by earnings volatility associated with the natural gas storage cycle, which runs annually from April of one year through March of the next year. Generally, injections of natural gas into storage inventory take place in the summer months and natural gas is withdrawn from storage in the winter months. Energy Services' policy is to hedge the value of natural gas storage with sales in the over-the-counter and futures markets, effectively locking in the value of storage. However, fair market value hedge accounting rules require the natural gas storage to be marked-to-market using spot prices, while the sales contracts are marked-to-market using forward price curves. When the month-end spot prices used to value the natural gas storage change disproportionately to the month-end forward prices used to value the contracts for the sale of natural gas inventory in the future, Energy Services experiences volatility in its earnings. For the three-month period ended September 30, 2004, the natural gas storage cycle had a 9.8 million dollar negative impact on earnings, compared with a 600 thousand dollar unfavorable impact for the same period in 2003. The earnings volatility associated with the fair market value hedge accounting rules I just mentioned will substantially reverse by the end of the storage cycle, and the accounting treatment does not impact the underlying cash flows or economics of these transactions. For the nine-month period ended September 30, 2004, there were total pre-tax mark-to-market losses of 12 million dollars recorded related to the 2004/2005 natural gas storage cycle compared with losses of 2.7 million dollars at September 30, 2003 related to the 2003/2004 natural gas storage cycle. The mark-to-market losses associated with the 2004/2005 storage cycle are expected to substantially reverse during the fourth quarter of 2004 and the first quarter of 2005, but no later than when the natural gas has been withdrawn from storage.

The 2 million dollar increase in earnings at WPS Power Development was primarily due to increased synthetic fuel tax credits recognized during the period, higher margins, and a decrease in operating and maintenance expenses. However, higher earnings were partially offset by a decline in operating results from discontinued operations.

WPS Resources' consolidated operating and maintenance expenses increased by 13.8 million dollars in the third quarter of 2004, primarily due to 11.7 million dollars of increased utility operating and maintenance expenses. Electric transmission expenses were 4 million dollars higher at the utilities due primarily to an increase in transmission rates. Pension and postretirement medical costs were responsible for 3 million dollars of the increase. Maintenance costs incurred in preparation for the Kewaunee nuclear plant outage that began on October 6 and maintenance costs associated with distribution assets were responsible for 2 million dollars of the increase.

WPS Resources' consolidated miscellaneous income increased by 1.1 million dollars in the third quarter of 2004. An increase in equity earnings from our investments in American Transmission Company and Wisconsin Valley Improvement Company was partially offset by a decrease in realized gains on decommissioning trust assets.

Our partial ownership of a synthetic fuel facility resulted in recognition of an additional 3.3 million dollars of Section 29 federal tax credits, which reduced federal income tax expense in the third quarter of 2004, compared with the same period in 2003.

A decrease of 14 cents in basic earnings per share was the result of issuing 4,025,000 additional shares of common stock through a public offering in November 2003 and additional shares issued under the Stock Investment Plan and certain stock-based employee benefit plans.

See our press release issued this morning for a detailed discussion of how we performed for the first nine months of 2004.

In August 2004, we renewed the 364-day credit line syndications for WPS Resources and Wisconsin Public Service for 225 million dollars and 115 million dollars, respectively. The credit lines are used to back 100 percent of both commercial paper borrowing programs and letters of credit.

We have the ability to issue up to an additional 176.9 million dollars of debt or equity under WPS Resources' shelf registration statement. Wisconsin Public Service also has a shelf registration statement for an additional 350 million dollars. We are not planning an equity offering in 2004, but there could be both debt and equity offerings in 2005 to fund our utility capital expenditures.

Generally accepted accounting principles require our year-to-date interim effective tax rate to reflect our projected annual effective tax rate. As a result, we estimate the effective tax rate for the year and, based upon year to-date pre-tax earnings, we raise or lower the tax expense recorded for the period to reflect the projected annual effective tax rate. Based upon our year-to-date income before taxes and projected annual effective tax rate, we were not able to recognize the benefit of 5.4 million dollars of tax credits that were produced from our ownership interest in a synthetic fuel operation during the second and third quarters of 2004. Based upon projected taxable income for the remainder of the year, we expect to recognize the remaining 5.4 million dollars of Section 29 federal tax credits in the fourth quarter of 2004.

Now I'll turn the conference call over to Larry Weyers. Larry…

The Chairman, President, and Chief Executive Officer speaks.

Thanks, Joe. Now we will discuss how our operating segments fared and what you can expect in the future. I'll begin with our regulated utilities.

In the regulatory environment, Wisconsin Public Service reached a tentative settlement with interveners on March 4, 2004 in its 4.1 million dollar interim wholesale electric rate request before the Federal Energy Regulatory Commission. The settlement, which is consistent with our initial request, was filed with FERC on July 9, 2004. We expect FERC to approve the settlement before year-end and don't expect it to result in a refund. Key factors in the settlement include formula-based rates going forward, a return on equity of 11 percent, the ability to utilize the capital structure allowed by the Public Service Commission of Wisconsin, and a current return on construction work in progress. This settlement applies to our wholesale customers as of 2002. Our new wholesale customers since 2002 are served at a market-based rate. Under this rate, we earn the current PSCW rate of return with the PSCW approved capital structure. These customers are also on a formula rate.

On March 31, 2004, Upper Peninsula Power Company submitted an application to the Michigan Public Service Commission to collect 5.2 million dollars for increased power supply costs relating to 2003. In addition, we requested deferral of the decision regarding recovery of 1.8 million dollars of deferred power supply costs related to the Dead River flooding. On August 31, 2004, the Michigan Commission approved the deferral of the 1.8 million dollars of fuel and purchased power costs relating to the Dead River flood, as well as allowing the recovery of the 5.2 million dollars to begin while final prudence was determined. On October 14, 2004, the Commission approved recovery of the full 5.2 million dollars of under collection that will be collected from customers through December 2005.

We received an interim fuel rate order effective April 2, 2004, from the Public Service Commission of Wisconsin allowing for an 8 million dollar, or 1.2 percent, annual increase in rates due mostly to the increased cost of fuel and purchased power resulting from the Kewaunee power plant outage during two weeks in January 2004 and expected purchased power costs later in the year. A final fuel rate order was received on September 23, 2004. Due to declining energy costs since our original filing, the interim rates turned out to be higher than needed, so we will be refunding 1.8 million dollars to our Wisconsin customers by year-end. The final order continues to allow Wisconsin Public Service recovery of an estimated 3.2 million dollars of its increased fuel and purchased power costs, 2.1 million dollars of which have been recovered through September 30, 2004, after considering the impact of the refund.

On April 1, 2004, Wisconsin Public Service filed a 2005 rate request with the Public Service Commission of Wisconsin that consists of increased retail electric rates amounting to 69.4 million dollars, or 9.8 percent, and increased retail natural gas rates amounting to 18.2 million dollars, or 4.5 percent. We also requested a 12 percent return on equity on a 56 percent equity structure. Key drivers in the rate request are the need to maintain reliability and build the infrastructure, like the new Weston 4 plant, necessary to meet our increased load, which has been growing at about 2 to 3 percent per year. Technical hearings on this rate case were held on September 29 and public hearings were held on October 5. The record in this rate case is now closed and we expect to have a final rate order from the Public Service Commission by year-end. This would allow the new rates to be effective January 1, 2005. Even with the higher rates, we expect our electric and natural gas rates to remain among the lowest in Wisconsin and the nation.

We are continuing to work on Weston 4. We received the final Public Service Commission of Wisconsin order granting authority to proceed with construction of the project, contingent upon receipt of an air permit. The air permit was issued by the Wisconsin Department of Natural Resources. We believe the air permit is one of the most stringent in the nation, which means that the Weston 4 plant will be one of the cleanest plants of its kind in the country. After evaluating the conditions in the permit, we accepted it and work has begun. We expect Weston 4 to be operational in June of 2008. We anticipate spending about $770 million dollars on the construction project, which includes the cost of unit trains.

Dairyland Power Cooperative has confirmed their intent to purchase an interest in Weston 4, subject to a number of conditions. If the purchase is completed, then the expenditures made by Wisconsin Public Service would be reduced by 30 percent. There are increased costs and risks associated with building and operating a large power plant as a sole owner. In providing Dairyland with electric supply alternatives, we can reduce some of those risks. The agreement is part of our continuing plan to provide least-cost, reliable energy for the increasing electric demand of our customers.

We currently own about 21 percent of American Transmission Company, which is, among other things, constructing a new 220-mile, 345-kilovolt transmission line that will run from Wausau, Wisconsin, to Duluth, Minnesota. On the Minnesota portion of the line, the first structure was set on October 6. On the Wisconsin portion of the line, a majority of the easements have been obtained on the first 30-mile segment of the line. Material procurement, engineering and design, and permitting are on track to support the expected January 2005 start of construction in Wisconsin. Current court challenges to the Public Service Commission of Wisconsin's re-approval of the project are not expected to delay construction. American Transmission Company anticipates completing construction of the line in 2008. We anticipate funding approximately 50 percent of total costs incurred, up to 198 million dollars, and receiving additional equity in American Transmission Company for those equity contributions. The completion of this project will help to improve reliability for our customers, further diversify our sources of energy in Wisconsin, and enhance earnings for our shareholders.

In November 2003, we signed a definitive agreement to sell the Kewaunee Nuclear Power Plant to Dominion Energy for approximately 220 million dollars. We reported on this transaction in our second quarter conference call. Since then, hearings have been completed in Wisconsin. On October 27, 2004, the Public Service Commission of Wisconsin requested that Supplemental Briefs be filed by the parties in the Kewaunee Nuclear Power Plant sale docket. The requested briefs should discuss the legal authority of the Commission to impose and enforce conditions upon Dominion Energy Kewaunee should the sale of Kewaunee to Dominion be approved and consummated. The Initial Briefs are due November 5, and the Reply Briefs are due November 12. We anticipate that we will receive approvals in time to enable a closing of the sale by year end, assuming that any regulatory conditions that may be required are acceptable to us, our partners, and Dominion.

In May 2004, we announced that we were planning to build a 500-megawatt base load electric plant with Alliant Energy Corporation. We are currently in the planning process, which includes conducting feasibility and siting studies that will determine the fuel type, technology, size, location, and operator. Based on current energy requirement studies completed by both companies, significant increases in energy demand may require that the new plant be operational as early as 2011. The addition of this joint plant to our fleet will allow us to ensure reliability for our customers, manage financial risk, and provide earnings opportunities for our shareholders.

You may also have seen that a new Commissioner was appointed to the Public Service Commission of Wisconsin to replace Ave Bie, who resigned from the Commission on July 23. Governor Doyle appointed Mark Meyer, a former Wisconsin state senator, to fill the vacancy on the Commission. The appointment requires Senate confirmation, but Commissioner Meyer is able to act and serve in the role immediately upon appointment. The Commission is now made up of Burnie Bridge—the Chairman—Robert Garvin, and Mark Meyer. We anticipate that the new Commission will support the need to build generation and transmission infrastructure in the state.

Now, let's take a closer look at our nonregulated operations. Here to tell us about this is Mark Radtke, President of WPS Energy Services, Inc. and WPS Power Development, Inc. Mark…

The President of WPS Energy Services and WPS Power Development speaks.

Thanks, Larry. I'll begin with WPS Power Development.

The production from our solid fuel fluidized bed generators is benefiting from high availability and competitive fuel costs, providing a 15 percent increase in the total megawatt-hours generated for the quarter. Niagara's capacity factor improved from 69.3 percent in the third quarter of 2003 to 85.4 percent in the same period in 2004. Westwood's capacity factor increased from 92.8 percent to 97.7 percent.

Produced megawatt-hours at our natural gas facilities are down by approximately 50 percent compared to the same quarter last year. Beaver Falls' capacity factor declined from 22 percent in the third quarter of 2003 to 3.2 percent in the third quarter of 2004. We have altered the dispatch strategy of Beaver Falls to remain available for high margin opportunities as we approach the end of the life of the turbine blades, which are scheduled for replacement in 2005. Syracuse's capacity factor actually increased from 3 percent in the third quarter of 2003 to 10 percent in the third quarter of 2004. Improved dispatch modeling and fuel sourcing more than offset the lower spark spread compared to the third quarter of 2003.

While availability has improved at Sunbury compared to the third quarter of 2003, total megawatt-hours generated declined 23 percent due to higher coal costs. In anticipation of the sale of Sunbury, we did not enter into staggered term coal contracts in accordance with our normal procurement practice. As a result, we needed to make coal purchases in the currently higher priced spot market.

As you know, about a year ago, we announced the pending sale of our Sunbury Station to Duquesne Power for approximately 120 million dollars. I won't repeat the details of our September 30, 2004, 8-K filing, but suffice it to say the completion of that transaction is seriously in question. We were, and continue to be, prepared to divest of this asset and expect it will remain in discontinued operations. We have retained financial advisors led by Lazard, to assist with the transaction process, and we are evaluating all of the options available to us for Sunbury. While a renegotiated sale to Duquesne continues to be one of the options we consider, we are also entertaining interest from other potential buyers. Frankly, the market for coal-fired generation in PJM is better today than it was a year ago, and we are reasonably confident that we will have a definitive plan, if not a completed agreement, by the end of the year.

The sale of Sunbury fits well into our balanced portfolio and asset management strategies. Included in the strategy is the desire to reduce risk associated with uncontracted merchant exposure or facilities that do not provide a particular benefit to our retail and wholesale portfolio.

WPS Power Development is focused on efficient operation and optimization of their assets. Given current market conditions, we don't expect to see significant growth in the form of acquired generation assets, but we are continuing to look for growth opportunities in the nonregulated generation business that will enhance shareholder value.

Now, let's take a closer look at WPS Energy Services' operations.

On July 1, 2004, we closed on our acquisition of Advantage Energy, a New York based energy-marketing company. The earnings impact is expected to be slightly accretive in 2004 and 2005 because of the earn-out based purchase structure over the first three years. Our first quarter of business in New York has been in line with expectations. Business integration activities are well underway. We have begun offering higher value, fixed-priced products in accordance with our acquisition plan, and customer response has been positive. The New York Public Service Commission's issuance of their "Statement of Policy on Further Steps Toward Competition in Retail Energy Markets" confirms our belief that New York will remain a stable environment for competition for our retail electric business. The continued focus on the utilities exiting the merchant function entirely, creates greater opportunity for market penetration by Advantage and greater opportunity for the sale of new products.

In Michigan, we continue to find opportunities to grow our electric and natural gas business. On the regulatory and legislative front, there is increased pressure to improve the financial situation of the regulated utilities. Detroit Edison, one of the utilities in Michigan, has received an interim rate order that significantly reduces the savings competitive suppliers can offer customers compared to the regulated bundled product. On July 1, 2004, Senate bills were introduced in Michigan to amend the law enacted in June 2000, which initially established a competitive supply alternative for customers in the state's electricity market. The proposed legislation prescribes a number of changes that would deal a serious blow to retail competition in the state of Michigan. However, Michigan committee level legislative activity appears to be on hold awaiting the November election and Michigan Public Service Commission action on Detroit Edison's rate case. In addition, on September 30, Consumers and Detroit Edison made filings with the Michigan Commission to increase their Power Supply Cost Recovery factors effective January 1, 2005, by $2.88 and $1.82 per megawatt-hour, respectively. All other things being equal, this translates into a corresponding increase in savings opportunity relative to the market and improves the attractiveness of an alternative competitive supply. We are continuing to participate in the legislative and regulatory process, and anticipate a viable and sustainable opportunity for the Electric Choice market in Michigan.

We have long been active in the Ohio competitive energy market and continue to build on our modest market share in the state. Our residential natural gas business has continued to expand, which has increased our retail margins significantly over 2003. Additionally, we are participating in a regulatory process to define the retail electric competitive landscape beyond the current market development period, which ends in December 2005. Ohio's efforts to create a "2006 and beyond" market structure has presented a challenge for competitive electric suppliers. In the First Energy territory, an auction structure is being proposed that does not appear to result in efficient market competition. An auction that does not result in competitive pricing may well cause the regulators to select First Energy's Rate Stabilization Plan, which we believe will be detrimental to competition in the state.

In northern Maine, we serve customer commitments totaling about 137 megawatts, which includes 80 megawatts of standard offer service and 57 megawatts of customer requirements under direct contracts with individual customers. Our standard offer aggregation contracts extend through the end of 2006, and we expect those customer requirements to be re-bid as they have been since competitive market inception in 2000. We are in our third term of serving standard offer loads in northern Maine. WPS Power Development's package of generating units collectively provides about 20 percent of the requirements for the standard offer service in Maine. The vast majority of the energy is produced at the 34-megawatt, hydroelectric Tinker station. This generation is a great example of the synergy available between WPS Power Development and WPS Energy Services, and we are interested in strengthening our generation position in the Maine market. In southern Maine, we do not serve a standard offer load, but we are a competitive electric provider contracting directly with customers. We serve between 90 and 95 megawatts of customer requirements in southern Maine. Contract lengths vary, with most contracts ending in 2005 and some extending into 2007. Capacity and energy are purchased from various creditworthy counterparties in the NEPOOL market. We are pleased with our volume and margin position in southern Maine and continue to be enthusiastic about our prospects in that market.

Our Canadian retail natural gas business continues to perform better than expected. Even though we no longer serve a few large customers that were a part of the original contracts we purchased, we have been able to add new customers with comparable margins, and we continue to improve our realized margin. Canada has proven to be a viable market for us.

We are continuing to participate in the formation of, and are preparing to operate in, the Midwest Independent System Operator or MISO Day 2 market environment. While this is a significant market structure change to undertake, the MISO marketplace should be more efficient under Day 2, improving WPS Energy Services' ability to supply and hedge our wholesale and retail portfolio needs.

Our retail natural gas mass markets have seen a substantial turn-around in profitability in 2004 over prior years. The turn-around can be largely attributed to improved purchasing and hedging strategies, timing of market expansion, and operational excellence. We expect this growth and contribution improvement to continue in 2005. There is an effort underway by an Ohio utility to exit the natural gas merchant function, further encouraging customers to shop for competitive supply alternatives like WPS Energy Services.

The commercial and industrial natural gas marketplace is very stable. We have been pleased with the consistency of results in the business over the past few years, although accounting requirements do create non-cash margin impacts depending on market conditions. The most significant impact is driven by the inventory accounting requirements of natural gas in storage, which Joe described earlier.

Our volume growth is sustainable, although it will vary with acquisition activity. While we have exhibited significant sales growth in the past, we continue to have a relatively small market share in the markets in which we operate, and there continues to be many markets in our targeted area in which we do not yet have a presence. For instance, we are evaluating opportunities in Alberta, Canada and New York State. This provides us ample opportunity for continued growth of our business.

The focus changes we've made at WPS Power Development and WPS Energy Services are working well. We have rolling three-year tolling agreements with WPS Power Development for their uncontracted merchant generation. As such, WPS Energy Services is able to concentrate on managing the risk that both companies have in the market, while WPS Power Development concentrates on operational excellence. Through this new arrangement, WPS Power Development enjoys the benefits of a more stable cash flow and the ability to focus on efficiently producing megawatts of energy and available capacity. WPS Energy Services in turn enjoys having a larger, more diverse portfolio to manage. Our portfolio optimization and risk management activity enhances the value of our portfolio while reducing the overall risk for WPS Resources.

Now, I'll turn the call back to Larry to discuss WPS Resources, the holding company. Larry…

The Chairman, President, and Chief Executive Officer speaks.

Thanks, Mark.

Our asset management strategy calls for the continuing disposition and acquisition of assets in a manner that enhances our earnings capability. The acquisition portion of the strategy calls for the acquisition of assets that compliment our existing assets and strategy such as Advantage Energy and Guardian Pipeline. Another portion of our asset management strategy calls for the disposition of assets, including plants and entire business units, which are no longer required for operations. Excess land, buildings, and other related assets are a part of this strategy.

Our Peshtigo River land initiative reached another milestone on October 5 when we sold at auction 279 acres of development lands for about 12 million dollars. Under terms of a multi-phase agreement reached with the Wisconsin Department of Natural Resources in 2001, the Wisconsin DNR bought more than 5,000 acres of land for 13.5 million dollars in 2001. In December 2003, we completed the sale of an additional 542 acres of land near the Peshtigo River to the Wisconsin DNR for 6.5 million dollars. We will complete the sale of 179 acres for 5 million dollars to the Wisconsin DNR before year-end. Following the close of this third and final phase of the Wisconsin DNR agreement later this year, Wisconsin Public Service will donate an additional 5,176 acres to the state. At that point, the Wisconsin DNR will have acquired nearly 11,000 acres for 25 million dollars.

Going forward, we are expecting an average annualized impact of 15 to 25 cents per share through 2007 from sales of land and related assets as part of our asset management strategy.

In 2004, we are continuing to seek a balanced portfolio of utility and nonregulated growth but we are placing more emphasis on regulated growth. Our asset management strategy will also continue to increase shareholder return from certain asset transactions. Our long-term earnings per share growth rate target is 6 to 8 percent on an average annualized basis, with fluctuations in any given year that may be above or below that targeted range. We believe this strategy, combined with our dividend, will provide very good returns to our shareholders. Our target for 2004 earnings per share is between $3.15 and $3.25. Earnings per share from on-going operations are anticipated to be between $3.56 and $3.66. This includes a gain recognized this year from the 2002 sale of a portion of our synthetic fuel operation of about 4.6 million dollars after taxes. Losses per share from discontinued operations are expected to be 41 cents per share. Achieving our targeted range for 2004 earnings per share is dependent upon, among other things, normal weather, the availability of our generating units, completion of our planned land sales, and completion of the sale of the Kewaunee plant.

WPS Resources' conservative nature has served it well through the years. Our core competencies are in energy and energy related businesses. We intend to stay in those businesses within the United States and Canada. We have developed a business plan that capitalizes on our knowledge of the energy industry. Our utility base is solid and our nonregulated energy businesses are focused. We've rewarded our shareholders with increased dividends for 46 consecutive years. We effectively mitigate and minimize risk in the operation of our business. We strive to maintain quality credit ratings. Finally, we deliver value to our customers and our shareholders.

We plan to continue delivering shareholder value through our strong utility foundation, focused nonregulated energy and energy-related businesses, achieving our projected average annualized earnings per share growth of 6 to 8 percent, and maintaining our outstanding dividend record. We plan to continue delivering value to our investors for many years to come!

Now, Joe, Mark, and I would like to answer your questions about our financial picture and plans for the future.

Thank you for being a part of our third quarter earnings conference call. A replay of this conference call will be available through November 11 by dialing toll free 800-843-4813.

The text for today's presentation is available on our web site. Just select Investor Information and then Presentations.

If you have additional questions, you may contact Joe O'Leary at 920-433-1463 or Donna Sheedy at 920-433-1857.