UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 20032004

OR

For the transition period from ________________ to ___________________

Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the Registrants are accelerated filers (as defined in Rule 12b-2 of the Act).

WPS Resources Corporation Yes [X] No [ ]
Wisconsin Public Service Corporation Yes [ ] No [X]

 

WPS Resources Corporation	Yes [X] No [ ]
Wisconsin Public Service Corporation	Yes [ ] No [X]

DOCUMENT INCORPORATED BY REFERENCE

Definitive proxy statement for the WPS Resources Corporation Annual Meeting of Shareholders to be held on May 13, 200419, 2005 is incorporated by reference into Part III.

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WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION

ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 20032004

TABLE OF CONTENTS

vi

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viii

vii

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Forward-Looking Statements

Except for historical data and statements of current fact, the information contained or incorporated by reference in this document constitutes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Any references to plans, goals, beliefs or expectations in respect to future events and conditions or to estimates are forward-looking statements. Although we believe that statements of our expectations are based on reasonable assumptions, forward-looking statements are inherently uncertain and subject to risks and should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. Forward-looking statements included or incorporated in this document include, but are not limited

In addition to statements regarding:

• expectations regarding future revenues or expenses,
• estimated future capital expenditures,
• expected costs of purchased power in the future,
• costs of decommissioning generation facilities,
• recovery of deferred costs,
• future cleanup costs associated with manufactured gas plant sites and
• statements regarding trends or estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations.Operations, forward-looking statements included or incorporated in this report include, but are not limited to, statements regarding future:
  • Revenues or expenses,
    
  • Capital expenditure projections, and
    
  • Financing sources.
    

  We cannot predict the courseForward-looking statements involve a number of future events or anticipate the interaction of multiple factors beyond our controlrisks and their effect on revenues, project timing and costs. Some riskuncertainties. There are many factors that could cause actual results differentto differ materially from any forward-looking statement include those describedexpressed or implied in the Risk Factors sectionthis report. Some of Item 1 of this Annual Report on Form 10-K and the following:those factors include:

  • General economic, businessResolution of pending and future rate cases and negotiations (including the recovery of deferred costs) and other regulatory conditionsdecisions regarding WPSC and UPPCO;
    
  • LegislativeThe impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, changes in environmental, tax and other laws and regulations to which could affect costsWPS Resources and investment recoveryits subsidiaries are subject, as well as changes in application of existing laws and regulations;
    
  • StateCurrent and federal rate regulation,future litigation, regulatory investigations, proceedings or inquiries, including manufactured gas plant site cleanup and pending EPA investigations of WPSC generation facilities;
    
  • Resolution of audits by the inability to obtain necessary regulatory approvalsInternal Revenue Service and various state revenue agencies;
    
  • Changes in generally accepted accounting principles
  • Growth and competition and theThe effects, extent and timing of new business developmentadditional competition in the markets in which WPS Resources' subsidiaries operate;
    
  • The impact of subsidiary companiesfluctuations in commodity prices, interest rates and customer demand;
    
  • Available sources and costs of fuels and purchased power;
    
  • Ability to control costs (including costs of decommissioning generation facilities);
    
  • Investment performance of employee benefit plans;
    
  • Advances in technology;
    
  • Effects of and changes in political, legal and economic conditions and developments in the United States;
    
  • The performance of projects undertaken by nonregulated businesses and the success of efforts to invest in and develop new opportunities;

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  • Potential business strategies, including acquisitions or acquired by subsidiary companiesdispositions of assets or businesses, which cannot be assured to be completed (such as the potential sale of the Sunbury plant, the potential sale of the Kewaunee plant, construction of the Weston 4 generation plant and construction of the Wausau, Wisconsin to Duluth, Minnesota transmission line);
    
  • Business combinations among our competitors and customersThe direct or indirect effect resulting from terrorist incidents or responses to such incidents;
    
  • Energy supply and demand
  • Financial market conditions and the results of financing efforts, including availability, termscredit ratings and use of capitalrisks associated with commodity prices, interest rates and counter-party credit;
    
  • Nuclear and environmental issues
  • Weather and other natural phenomenaphenomena; and
    
  • Commodity price and interest rate risk
  • Counter-party credit risk
  • Federal and state tax policies
  • ActsThe effect of terrorism or waraccounting pronouncements issued periodically by standard-setting bodies.

  We make no commitment to disclose any revisionsExcept to the extent required by the federal securities laws, WPS Resources and its subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of facts,new information, future events or circumstancesotherwise after the date of this report.

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  PART I

  ITEM 1.     BUSINESS

  A. GENERAL

  For purposes of this Annual Report on Form 10-K, unless the context otherwise indicates, when we refer to "us," "we," "our,""our" or "ours," or the "Company" we are describing WPS Resources Corporation.Resources.

  WPS Resources Corporation

  WPS Resources is domiciled in the United States and was incorporated in Wisconsin in 1993. WPS Resources is a holding company for regulated utility and nonregulated business units and is exempt from the Public Utility Holding Company Act of 1935. Approximate percentages of revenues and net income for the year ended 20032004 and assets as of December 31, 20032004 of WPS Resources and its principal operating subsidiaries are:

  	Percent of Revenues *	Percent of Net Income *	Percent of Assets *	Percent of Revenues *	Percent of Net Income *	Percent of Assets *
  Wisconsin Public Service Corporation	26%	83%	60%	25%	75%	62%
  Upper Peninsula Power Company	2%	7%	4%	2%	3%	4%
  WPS Energy Services, Inc.	71%	31%	27%	73%	26%	24%
  WPS Power Development, Inc.	4%	(8%)	9%	1%	4%	9%
  WPS Resources Corporation	0%	(7%)	3%	0%	(8%)	7%

  
  * The percentages above domay not total 100% due to intercompany transactions. Intercompany transactions largely consist of energy sales and purchases between subsidiaries and related intercompany receivables and payables between subsidiaries.

  payables.

  Wisconsin Public Service,For the last three years, the majority of WPS Energy ServicesResources' revenues were earned within the United States and WPS Power Development are Wisconsin corporations. Upper Peninsula Power is a Michigan corporation. Wisconsin Public Service and Upper Peninsula Power are regulated utilities. WPS Energy Services and WPS Power Development are nonregulated entities.the majority of long-lived assets were located within the United States.

  	2004	2003	2002
  Domestic Revenues (millions)	$3,763.6	$3,749.6	$1,407.4
  Foreign Revenues (millions)	1,127.0	571.7	53.7
  Total Revenues (millions)	$4,890.6	$4,321.3	$1,461.1
  Domestic Assets (millions)	$2,823.8	$2,618.4
  Foreign Assets (millions)	22.9	24.1
  Total Assets (millions)	$2,846.7	$2,642.5

  Wisconsin Public Service Corporation

  Wisconsin Public Service,WPSC, a Wisconsin corporation, is domiciled in the United States and began operations in 1883. Wisconsin Public ServiceWPSC is a regulated electric and natural gas utility serving an 11,000 square mile service territory in northeastern Wisconsin and an adjacent portion of the Upper Peninsula of Michigan. It is also a holding company that is exempt from the Public Utility Holding Company Act of 1935. In 2003, Wisconsin Public Service2004, WPSC served 414,295421,159 retail electric customers and 300,859305,648 natural gas retail customers. Wholesale electric service is provided to various customers, including municipal utilities, electric cooperatives, energy marketers, other investor-owned utilities and municipal joint action agencies. For the last three years, all WPSC revenues were earned within the United States and all assets were located within the United States. Total revenues consisted of 87% retail sales and 13% wholesale sales. For more information regarding revenues, net income and total assets for regulated electric operations, see Notes to Consolidated Financial Statements - Segments of Business.

  2003 Operating Revenues
  State	Wisconsin	96%	Michigan	4%
  Customers	Electric	64%	Natural gas	36%
  Electric	Retail	87%	Wholesale	13%
  Natural gas	Retail	100%	Wholesale	0%

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  In December 2004, WPSC continued its efforts to sell its share of the Kewaunee nuclear power plant to Dominion Energy Kewaunee Inc. for approximately $130 million. WPSC continues to work with the PSCW to obtain regulatory approval of the sale. In 2004, WPSC disposed of approximately 5,634 acres of land along the Peshtigo River through sale and donation to the WDNR and at public auction. For more information regarding these sales, see Management's Discussion and Analysis of Financial Condition and Results of Operation.

  Upper Peninsula Power Company

  Upper Peninsula Power, establishedUPPCO, a Michigan corporation, is domiciled in 1884,the United States and began operations in 1884. UPPCO is a regulated electric utility providing electric service toserving a 4,500 square mile area of Michigan's Upper Peninsula. At December 31, 2003, Upper Peninsula Power2004, UPPCO provided retail electric service to 51,52151,905 customers and wholesale electric service to 3536 customers. Total revenues consisted of 88%83% retail sales and 12%17% wholesale sales. For information regarding revenues, net income and total assets for regulated electric operations, see Notes to Consolidated Financial Statements - Segments of Business.

  WPS Investments, LLC

  WPS Investments, LLC is a nonutility company domiciled in the United States and was organized in 2000 under the laws of the State of Wisconsin. On December 31, 2004, WPS Investments was owned 36.36% by WPSC, 10% by UPPCO, and 53.64% by WPS Resources. The principal business of WPS Investments is to hold the investment of WPS Resources and its subsidiaries in ATC and Guardian Pipeline, LLC. At December 31, 2004, WPS Investments owned approximately a 22.64% interest in ATC and a 33.33% interest in Guardian Pipeline, LLC.

  WPS Resources Capital Corporation

  WPS Resources Capital Corporation, a Wisconsin corporation, is domiciled in the United States and was created in 1999 as an intermediate holding company for the nonregulated subsidiaries of WPS Resources. At the end of 2003,2004, WPS Resources Capital Corporation had total assets of $1.5 billion, consisting primarily of its investments in WPS Energy ServicesESI and WPS Power Development.PDI.

  WPS Energy Services, Inc.

  WPS Energy Services,ESI, a Wisconsin corporation, is domiciled in the United States and was established in 1994,1994. ESI is a nonregulated subsidiary of WPS Resources Capital Corporation. WPS Energy ServicesESI offers nonregulated natural gas, electric and alternate fuel supplies, as well as energy management and consulting services, to retail and wholesale customers primarily in the northeastern quadrant of the United States and eastern portions of Canada. Although WPS Energy ServicesESI has a widening array of products and services, revenues are primarily derived through sales of electricity and natural gas. WPS Energy ServicesESI had revenues of $3.1$3.6 billion, including intercompany revenues, in 20032004 and assets of $1.2$1.1 billion at December 31, 2003.2004. For information regarding revenues, net income and total assets, see Notes to Consolidated Financial Statements - Segments of Business.

  WPS Power Development, Inc.

  WPS Power Development,PDI, a Wisconsin corporation, is domiciled in the United States and was established in 1995,1995. PDI is a nonregulated subsidiary of WPS Resources Capital Corporation that owns and operates generation facilities in the United States and Canada.Canada primarily selling energy and capacity to ESI. Energy-related services provided by WPS Power DevelopmentPDI include engineering and management services and operations and maintenance services. WPS Power DevelopmentPDI currently owns, through its subsidiaries, electric generation facilities in Wisconsin, Maine, Pennsylvania and New York in the United States and New Brunswick in Canada, a 23.3% interest in a synthetic fuel processing facility located in Kentucky, and steam production facilities located in Arkansas and Oregon. WPS Power DevelopmentPDI had revenues of $82.4$71.4 million, including intercompany revenues, in 2003,2004, but excluding revenues from discontinued operations (the operations of the Sunbury generation plant, which is pending sale, and certain other related assets)held for sale), and assets of $373.8$380.5 million at December 31, 2003,2004, including $116.4$119.6 million of assets held for sale.

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  For information regarding revenues, net income and total assets see Notes to Consolidated Financial Statements - Segments of Business.

   

  B. REGULATED ELECTRIC OPERATIONS

  WPS Resources' regulated electric utility operations are provided through Wisconsin Public ServiceWPSC and Upper Peninsula Power. Wisconsin Public ServiceUPPCO. WPSC generates and distributes electric energy in northeastern Wisconsin. The cities of Green Bay, Oshkosh, Wausau and Stevens Point are the largest communities served at the electric retail level. Upper Peninsula PowerUPPCO provides electric energy in Michigan's Upper Peninsula. The largest community served at the electric retail level is the Houghton/Hancock area. Wisconsin Public ServiceWPSC also provides retail electric energy to a small portion of Michigan's Upper Peninsula, primarily in the City of Menominee.

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  Revenues, volumes, customers and plant assets for electric operations of Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO are as follows:

   

   

  	2003	2002	2001
  Electric Revenues (millions)
  Wisconsin	$683.4	$661.9	$575.7
  Michigan	130.7	101.2	100.0
  Electric Volumes (million megawatt hours)
  Wisconsin	12.3	12.4	11.5
  Michigan	2.0	2.1	2.0
  Customers
  Wisconsin	405,415	398,841	392,066
  Michigan	60,511	60,134	59,616
  Plant Assets (millions)
  Wisconsin	$2,100.8	$1,872.1	$1,862.9
  Michigan	188.2	186.7	176.4

  	2004	2003	2002
  Electric Revenues (millions)
  Wisconsin	$769.3	$683.4	$661.9
  Michigan	127.3	130.7	101.2
  Total	$896.6	$814.1	$763.1
  Electric Volumes (million megawatt-hours)
  Wisconsin	12.8	12.3	12.4
  Michigan	1.6	2.0	2.1
  Total	14.4	14.3	14.5
  Customers
  Wisconsin	412,246	405,415	398,841
  Michigan	60,935	60,511	60,134
  Total	473,181	465,926	458,975
  Plant Assets (millions)
  Wisconsin	$2,062.2	$1,961.6	$1,868.5
  Michigan	204.5	184.6	183.1
  Total	$2,266.7	$2,146.2	$2,051.6

  In 2003, Wisconsin Public Service2004, WPSC reached a firm net design peak of 1,8881,869 megawatts on the afternoon of AugustJuly 20. At the time of this summer peak, ourWPSC's total firm resources (i.e., generation plus firm purchases) totaled 2,3462,297 megawatts. As a result of continually reaching demand peaks in the summer months, primarily due to air conditioning demand, the summer period is the most relevant for capacity planning purposes. We expect future supply reserves to meet the minimum 18% planning reserve margin criteria imposed by the Public Service Commission of WisconsinPSCW through 2005.

  In 2003, Upper Peninsula Power2004, UPPCO purchased 84%86% of its total energy requirements. Remaining energy requirements were supplied by hydroelectric and combustion turbine facilities owned by Upper Peninsula Power.UPPCO. During 2003, Upper Peninsula Power2004, UPPCO purchased 65 megawatts of firm power from Wisconsin Public Service. Upper Peninsula PowerWPSC. UPPCO also purchased non-firm power from Wisconsin Public ServiceWPSC and Alliant Energy Corporation, among others. The purchases from Wisconsin Public ServiceWPSC represented 81%43% of Upper Peninsula Power'sUPPCO's total energy requirements in 2003. Upper Peninsula Power2004. UPPCO has contracted for 65 megawatts of capacity and energy from Wisconsin Public ServiceWPSC for 2004.2005.

  Facilities

  De Pere Energy Center

  On December 16, 2002, Wisconsin Public Service acquired the 180 megawatt De Pere Energy Center from Calpine Corporation and terminated the related existing purchased power agreement for approximately $120 million, $72 million of which was paid at closing with the remainder paid on December 31, 2003.  The then existing power purchase agreement required Calpine to expand the facility in the future. The power purchase agreement was uneconomical in the current market. As a result, both parties agreed to terminate the agreement. The then existing power purchase agreement had been accounted for as a capital lease under generally accepted accounting principals, but, as a result of the transaction to acquire the facility, the treatment of the purchased power agreement as a capital lease was discontinued. In connection with the transaction, Wisconsin Public Service entered into a new purchased power agreement with Calpine for capacity and energy from a facility to be built near Kaukauna, Wisconsin.  The agreement calls for Wisconsin Public Service to purchase 150 megawatts of capacity beginning on June 1, 2005, escalating to 235 megawatts of capacity on June 1, 2006 until its May 31, 2015 termination date.  The new agreement does not qualify as a capital lease. Calpine began construction on the project in the fall of 2003.  At this time, Wisconsin Public Service believes Calpine will fulfill its contractual commitments, including a June 1, 2005 project in-service date.

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  Facilities

  Weston Unit 4

  Wisconsin Public Service has announced its intentionOn October 7, 2004, WPSC received the final PSCW order granting authority to seek authorization fromproceed with construction of the Public Service Commission of Wisconsin to construct a 500-megawatt coal-fired electric generating facility at its existing Weston 4 power plant site near Wausau, Wisconsin.contingent upon receipt of an air permit. The facility,time allowed to challenge the order has expired making the PSCW decision final.

  On October 19, 2004, the WDNR issued a construction air permit, which allows WPSC to proceed with construction of the Weston 4 generating station.

  On November 15, 2004, a petition was filed by the Sierra Club with the WDNR under Section 285.61, Wis. Stats. contesting the air permit issued for Weston 4. On December 2, 2004, the WDNR granted the petition and forwarded the matter to the Division of Hearings and Appeals. It is anticipated that a contested case hearing will be held in the second half of 2005. The appeal raised legal and factual issues with the permit and with the process used by the WDNR to develop the air emission limits and conditions. Under Wisconsin law, WPSC may proceed with construction unless the hearing examiner issues a stay of the permit or rules the permit to be known as "Weston 4," is expected to cost approximately $770 million (including the acquisition of coal trains) and is scheduled for commercial operationinvalid. Similar issues were raised in 2008.

  On May 1, 2003, Wisconsin Public Service filed a request with the Public Service Commission of Wisconsin for a declaratory ruling on the prudency of Wisconsin Public Service's expenditure of up to $71.2 million on Weston 4 priorchallenge to the anticipated licensing of the projectWDNR air permit issued to WE Energies for its Oak Creek generating station in late 2004 and other related relief. The requested ruling would provide Wisconsin Public Service with assurance of recovery of its reasonable costs incurred or committed in the event construction of Weston 4 is not approved. The Public Service Commission of Wisconsin issued an order on November 12, 2003 granting the request of Wisconsin Public Service subject to the condition that it defer a current return on Construction Work in Progress at Wisconsin Public Service's authorized overall cost of capital until a future rate proceeding. If Wisconsin Public Service is not allowed a current return on construction work in progress, it will capitalize construction costs, including carrying costs as Allowance for Funds Used During Construction and recover them over the life of the facility.

  Wisconsin Public Service submitted applications for required permits on September 26, 2003. The application calls for Wisconsin Public Service to design, build and operate the new facility, using clean coal technologies, at the existing Weston site in Marathon County in central Wisconsin. On February 11,3, 2005, the court issued a decision affirming the WDNR's January 2004 issuance of an air pollution control and construction permit for WE Energies' expansion of the Public Service Commission of Wisconsin determinedOak Creek generating station. While the application to constructdecision in the Oak Creek proceeding is not legally binding on the hearing examiner in the Weston 4 proceeding, it may influence the outcome of the Weston 4 hearing.

  The Weston 4 air permit is one of the most stringent in the nation and will make the plant one of the cleanest plants of its kind in the United States. WPSC began construction in October 2004 and expects the plant to be "complete." The Public Service Commission of Wisconsin and the Wisconsin Department of Natural Resources have 180 days, from February 11, 2004, to make a decision on the project. The Public Service Commission of Wisconsin can request from the Dane County Court of Appeals one 180-day extension to make a decision. The Public Service Commission of Wisconsin and the Wisconsin Department of Natural Resources will createoperational in June 2008.

  WPSC entered into an environmental impact statement. The public will have opportunities to testify at public hearings. Technical hearings will also be held. Following a review of the application, the environmental impact statement and the hearing testimony, the Public Service Commission of Wisconsin will determine if the proposed project will be approved, modified or denied.

  On February 16, 2004, Wisconsin Public Service signed a Letter of Intentagreement with Dairyland Power Cooperative, for electric supply alternatives for 150 megawattseffective as of energy from the proposedNovember 23, 2004. The agreement will allow Dairyland Power to acquire a 30% undivided interest in WPSC's Weston 4 electric generation facility. Accordingplant. The transaction remains contingent on Dairyland Power obtaining acceptable financing for the transaction and adequate transmission capabilities to deliver its share of the agreement,power generated to its transmission network by January 16, 2006. The transaction is also contingent on both WPSC and Dairyland could choose to purchase anPower receiving all required permits and regulatory approvals. In return for its 30% interest in the plant or buy the electricity from it (weWeston 4, Dairyland Power will pay WPSC 30% of Weston 4's construction, operation (including administrative and indirect costs), fuel and maintenance costs.

  Weston Units 1 through 3

  WPSC currently operates three coal-fired generation facilities at its Weston location. The plants have since received written notification from Dairyland, confirming their intent to purchase an interest in the plant.) This transaction is subject to a numbertotal nameplate capacity of conditions including successfully developing a joint plant ownership and operating agreement, Dairyland obtaining financing approval from the Rural Utility Services, and Dairyland securing firm transmission service from the Midwest Independent System Operator on terms and conditions Dairyland deems acceptable.

  Other Generation Facilities

  Wisconsin Public Service owns a 50% interest in Wisconsin River Power Company. Wisconsin River Power456.6 megawatts. Weston unit 3 is the owner and operator oflargest with a combustion turbine and two dams and related hydroelectric plants on the Wisconsin River, which have an aggregate installednameplate capacity of approximately 50321.6 megawatts.

  Wisconsin Public Service completed construction, in June of 2003, of an 83-megawatt gas-fired combustion turbinePulliam

  WPSC also operates six coal-fired generation units at its Pulliam plant site.located in Green Bay, Wisconsin. The units at the Pulliam site have a combined nameplate capacity of 370 megawatts with the largest unit was completed athaving a costnameplate capacity of approximately $38 million.125 megawatts.

  Kewaunee Nuclear Power Plant

  The Kewaunee nuclear power plant is a pressurized water reactor plant with a nameplate capacity of 543607.9 megawatts. The Kewaunee plant is jointly-owned by Wisconsin Public ServiceWPSC (59%) and Wisconsin

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  Power and Light Company (41%). Nuclear Management Company, LLC, operates the Kewaunee plant. Nuclear Management Company is owned by affiliates of five utilities (Alliant Energy Nuclear, NSP Nuclear Corporation, WEC Nuclear Corporation, WPS Nuclear Corporation and Consumers Energy) and operates the six nuclear power plants of these utilities. The plants are located in Iowa, Minnesota, Wisconsin and Michigan. WPS NuclearResources owns a 20% interest in Nuclear Management Company.

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  On November 7, 2003, Wisconsin Public ServiceWPSC and Wisconsin Power and Light signed a definitive agreement to sell the jointly owned Kewaunee nuclear power plant to Dominion Energy Kewaunee, Inc., a subsidiary of Dominion Resources, Inc., for approximately $220 million.

  Wisconsin Public Service anticipates that it will receive approximately $130 million in cash uponThe sale remains subject to the closingapproval of the sale (for its 59% ownership interest inPSCW. Although the plant). Wisconsin Public Service will also retain ownership of trust assets contained in its non-qualified decommissioning trust, one ofPSCW rejected the two decommissioning funds Wisconsin Public Service established to cover the eventual decommissioning of the plant. Dominion will assume responsibilityapplication for the eventual decommissioningsale of the plant. The non-qualified decommissioning trust (the fund that will be retained) had a pretax valueKewaunee on December 31, 2003, of $115.1 million. The cash proceeds from the sale are expected to slightly exceed Wisconsin Public Service's carrying value of the assets being sold. Wisconsin Public Service expects that the retained decommissioning fund, as well as the gain from the plant sale, will be available for allocation to Wisconsin Public Service customers in future rate proceedings. Because the gain and retained decommissioning fund would be allocated to customers, Wisconsin Public Service does not expect a material net income impact at the time of the sale.

  Dominion, based in Richmond, Virginia will pay approximately $220 million for the plant, inventory, materials and land. To help fund eventual decommissioning, Dominion will also receive certain decommissioning funds from both Wisconsin Public Service andNovember 19, 2004, WPSC, Wisconsin Power and Light that were set up exclusivelyand Dominion continue to coverwork with the costsPSCW to obtain approval for the sale. On January 21, 2005, the PSCW issued an order reopening this proceeding. WPSC expects a final decision by the end of Kewaunee decommissioning. The Wisconsin Public Service qualified decommissioning trust (the fund that will be transferred to Dominion) had a pretax value on December 31, 2003, of $239.7 million.March 2005.

  TheAssuming the sale is subject to approvals by various regulatory agencies, including the Public Service Commission of Wisconsin, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. Subject to the timing of the receipt of required regulatory approvals, the transaction is expected to close in 2004. It is not possible to predict whether all necessary governmental approvals will be received. Closing of the transaction is contingent upon receiving such approvals in a form satisfactory to all the parties. The parties hope to close the transaction in the second half of 2004 and before the fall 2004 scheduled refueling outage of the plant.

  At the closing of the sale,completed, both Wisconsin Public ServiceWPSC and Wisconsin Power and Light will enter into power purchase agreements with Dominion Energy Kewaunee, Inc., to purchase capacity and energy generated at Kewaunee, equivalent to the amounts that would have been received from the plant if current ownership had continued and at a cost approximating the expected costs of production had current ownership continued. The power purchase agreements, which also require regulatory approval, extend through 2013 when the plant's current operating license will expire.

  Plant Regulation

  Based upon the performance of the Kewaunee plant during 2003, Wisconsin Public Service does not anticipate any significant increase in the number of inspection hours or level of scrutiny by the Nuclear Regulatory Commission regarding the general operations of the plant.

  In accordance with Nuclear Regulatory Commission industry requirements, during the scheduled spring 2003 refueling outage a visual inspection of the Kewaunee plant reactor vessel head was made and no problems were identified. There has been no indication of any problems with the vessel head during the current operating cycle.

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  After evaluating the cost of continued required inspections of the existing reactor vessel head and the cost to replace the reactor vessel head, the Kewaunee plant owners requested and have since received, approval from the Public Service Commission of Wisconsin to replace the reactor vessel head at a cost of up to $24 million. The replacement is scheduled to be completed during the fall 2004 refueling outage by the then existing owners of the plant. Wisconsin Public Service received approval from the Public Service Commission of Wisconsin to recover its share of these costs in its electric rates.

  Radioactive Waste Storage

  The Midwest Compact Commission continues to monitor the availability of disposal facilities for the low-level radioactive waste created by all Midwest generators. A site at Barnwell, South Carolina, has been available for the storage of low-level radioactive waste from the Kewaunee plant in the past. The availability of this site for future waste storage is uncertain. As a result of technological advances, waste compaction and the reduction of waste generated, the Kewaunee plant has on-site low-level radioactive waste storage capacity sufficient to store all low-level waste expected at the plant through 2013 when the current plant operating license is set to expire.

  Plant Capacity

  As a result of instrumentation improvements made during the spring 2003 refueling outage, net production capacity at the Kewaunee plant was increased by approximately 8 megawatts. On March 2, 2004, the Nuclear Regulatory Commission approved an additionala 6% increase in generating capacity at the Kewaunee plant. TheseThe additional capacity improvements will bewas achieved primarily through minor component upgrades. Changes atThe upgrades were completed during the plant are to be completed prior to the scheduled Fall 2004 refueling outage to further increase plant capacity up to an additionalby 25 megawatts.

  Depreciation and Decommissioning

  At December 31, 2003,2004, the net carrying amount of Wisconsin Public Service'sWPSC's investment in the Kewaunee plant, including construction work in progress,work-in-progress, was approximately $83.6$87 million. The cost in current dollars for Wisconsin Public Service'sWPSC's 59% share of the estimated costs to decommission the Kewaunee plant is $331$350 million. Wisconsin Public Service'sWPSC's decommissioning trust assets at December 31, 20032004, totaled $332.3$344.5 million on a net of tax basis. In 2004, Wisconsin Public ServiceDue to the pending potential sale of the Kewaunee plant, all contributions to the decommissioning fund are currently suspended for 2005. If the sale is not completed, WPSC is required to contribute a pro-rated portion of its $1.1 million to the decommissioning trustannual contribution for the wholesale jurisdiction. The retailproration would be based on the portion of the year remaining if and when pursuit of the sale is discontinued. Retail jurisdiction funding washas been suspended for 2004 due toindefinitely pending the anticipated saleoutcome of the Kewaunee plant. These annualsale and would only be resumed after approval from the PSCW should the transaction not be completed. Annual contributions to the trust are subject to change based on future rate case filings. To date, the Public Service Commission of WisconsinPSCW and the Federal Energy Regulatory CommissionFERC have determined these costs to be reasonable and allowed their recovery in rates.

  During 2003, $16.12004, $15.8 million of depreciation expense related to unrecovered plant investment was recognized, compared with $15.7$16.1 million recognized in 2002.2003. The 20032004 annual decommissioning funding requirement was $3.0$0.3 million.

  Additional discussion of Kewaunee plant matters is included in Management's Discussion and Analysis of Financial Condition and Results of Operation and the Notes to WPS ResourcesResources' Consolidated Financial Statements.

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  Other Generation Facilities

  WPSC owns a 50% interest in Wisconsin River Power Company. Wisconsin River Power is the owner and operator of a combustion turbine and two hydroelectric plants on the Wisconsin River, which have an aggregate installed capacity in excess of 50 megawatts

  Fox Energy Center

  In 2003, WPSC entered into a power purchase agreement with Calpine Corporation for capacity and energy from a facility to be built near Kaukauna, Wisconsin.  The agreement calls for WPSC to purchase 150 megawatts of capacity beginning on June 1, 2005, escalating to 470 megawatts of capacity on June 1, 2006, until May 31, 2015, when it decreases to 235 megawatts. On May 31, 2016, the agreement terminates.  Under the agreement, WPSC will also be responsible for fuel supply to the facility over the life of the agreement. Calpine began construction of the project in the fall of 2004.  At this time, WPSC believes Calpine will fulfill its contractual commitments, including a June 1, 2005 project in-service date.

  Other Facilities

  Wisconsin Public Service,WPSC, Minnesota Power Company, and American Transmission CompanyATC are undertaking the construction of a 220-mile, 345-kilovolt transmission345-kilovolt-transmission line from Wausau, Wisconsin, to Duluth, Minnesota. Completion of the line is expected in 2008 at a total cost of approximately $420.3$420 million. American Transmission Company is a for-profit, transmission-only company. ItATC owns, maintains, monitors, and operates electric transmission assets in portions of Wisconsin, Michigan, and Illinois. American Transmission Company began operation on January 1, 2001. Its assets previously were owned and operated by Wisconsin Electric Power Company, Wisconsin Power and Light Company,

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  Wisconsin Public Service Corporation, Madison Gas & Electric Company, Wisconsin Public Power Inc. and numerous other smaller public and municipal electric utilities serving the upper Midwest, all of which transferred their transmission assets to American Transmission Company in exchange for an ownership interest.

  For additional information regarding our facilities, see Item 2. Properties in this Annual Report on Form 10-K.

  Fuel Supply

  Electric Supply Mix

  Wisconsin Public Service'sWPSC's electric supply mix for 2004 and 2003 and 2002 was:

  Energy Source		2003	2002
  	Coal	60.7%	56.1%
  	Purchased power	17.4%	20.6%
  	Nuclear	17.5%	18.5%
  	Natural gas/fuel oil	2.6%	2.4%
  	Hydro	1.8%	2.4%

  Energy Source		2004	2003
  	Coal	61.7%	60.7%
  	Purchased power	18.4%	17.4%
  	Nuclear	16.1%	17.5%
  	Natural gas/fuel oil	1.9%	2.6%
  	Hydro	1.9%	1.8%

  Fuel Costs

  Wisconsin Public Service'sWPSC's fuel costs for 2004 and 2003 and 2002 were:

  Fuel Cost by Source Cost (per million Btus)

  20032004

  20022003

  Coal

  $1.091.15

  $1.111.09

  Nuclear

  0.430.44

  0.440.43

  Natural gas

  5.596.88

  4.285.59

  Fuel oil

  8.546.45

  6.018.54

  Coal

  Coal is the primary fuel source for Wisconsin Public Service,WPSC, most of which is from the Powder River Basin mines located in Wyoming. Powder River Basin coal is very low in sulfur and meets the standards of the 1990 Clean Air

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  Act for 20032004 and future years. This coal has been our least-cost coal source from any of the subbituminous coal-producing regions in the United States.

  Wisconsin Public Service continues to test alternative coal sources for its Pulliam and Weston plants. Alternative sources could provide more competitive market pricing and higher Btu content. Coal with higher Btu content increases generation output and provides flexibility in meeting peak electric demands.

  Historically, Wisconsin Public ServiceWPSC has purchased coal directly from the producer. Most of the coal purchased by Wisconsin Public ServiceWPSC for its wholly-ownedwholly owned plants and purchased by Wisconsin Power and Light for the jointly-ownedjointly owned Edgewater and Columbia plants is done through relatively short-term contracts of up to five years duration. Wisconsin Public ServiceWPSC does have one contract, however, that runs through 2016. That contract, with Arch Coal Sales, is for our wholly-ownedwholly owned plants and covers approximately 23% of total wholly-ownedwholly owned requirements and has take-or-pay obligations totaling $77.0$75.6 million over the remaining life of the contract. Take-or-pay obligations mean that WPSC is a term in the contract that requires Wisconsin Public Servicerequired to pay for annual contracted coal regardless of whether it takes delivery of the total amount of coal under contract. For 2004, 94%2005, 87% of the wholly-ownedwholly owned and jointly-ownedjointly owned plant requirements are under contract, with the remaining 6%13% to be purchased on the spot market. The contracts for coal are with five different suppliers, using eightseven different mine sources. Peabody COALSALES Company provides approximately 46%33% of the total coal purchases, with 34%23% of the total coal purchased coming from the North Antelope Mine.

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  Wisconsin Public ServiceWPSC currently contracts for coal transportation for its wholly-ownedwholly owned plants under contracts of up to five years duration. Over 90% of Wisconsin Public Service'sWPSC's coal transportation is under competitive transportation agreements, which are expected to continue to contribute to competitive fuel costs.agreements.

  For additional information, see Note 18 in Notes to WPS ResourcesResources' Consolidated Financial Statements - Commitments and Contingencies.

  Nuclear Fuel Cycle

  Wisconsin Public ServiceWPSC purchases uranium concentrates, conversion services, enrichment services and fabrication services for nuclear fuel assemblies at the Kewaunee plant either on the spot market, through a bidding process or by using existing contracts. Wisconsin Public ServiceWPSC removes and replaces approximately one-third of the 121 fuel assemblies from the reactor every 18 months. Wisconsin Public ServiceWPSC stores spent fuel assemblies at the plant site pending permanent disposal by the United States Department of Energy.DOE.

  Wisconsin Public Service'sWPSC's uranium inventory policy is to maintain sufficient inventory for up to two reactor refuelings. AsFollowing completion of December 31, 2003,the plant refueling in November 2004, WPSC has approximately 675,000500,000 pounds of yellowcake (a processed form of uranium ore), or its equivalent, were held in inventory for the plant. Each refueling requires approximately 475,000 pounds of yellowcake. It is expected thatWPSC intends to purchase approximately 300,000500,000 pounds of yellowcake will be acquired in 20042005 to meet the requirements of the inventory policy. Inventory includes uranium under contract as of December 31, 2003.2004.

  Conversion services arewill be complete for the nuclear fuel reload scheduled in 2004.2006 following the completion of a small amount of contracted conversion services during the first half of 2005.

  Wisconsin Public ServiceWPSC has contracted for 100% of the enrichment services required for the Kewaunee Plantplant fuel reloads scheduled to occur in 2004, 2006 and 2007. Wisconsin Public ServiceWPSC has the option of purchasing enrichment services beyond 2007 by either using its existing contract or by purchasing from the spot market. Wisconsin Public ServiceWPSC has contracted for fuel fabrication services for the next fivefour reloads. UponAssuming completion of the sale of the Kewaunee plant, Dominion will assume Wisconsin Public Service'sWPSC's obligations under the enrichment services and fuel fabrication services contracts.

  If, for any reason, the Kewaunee plant is forced to terminate operations, we do not expect the maximum exposure to the co-owners related to fuel contracts to exceed $4.6$3.5 million. This exposure is due to a long-term fuel fabrication contract with Westinghouse. No financial penalties associated with the present uranium supply, conversion service or enrichment agreements exist. Wisconsin Public ServiceWPSC believes uranium inventories could be sold on the spot market.

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  Spent Nuclear Fuel Disposal

  The federal government is responsible for the disposal or permanent storage of spent nuclear fuel. The United States Department of EnergyDOE is currently preparing an application to license a permanent spent nuclear fuel storage facility in the Yucca Mountain area of Nevada.

  Spent nuclear fuel is currently being stored at the Kewaunee plant. At current production levels, the plant has sufficient storage for all fuel assemblies until 2009 with full core offload. Additional capacity will be needed by 2010 to maintain full core offload capability.

  The United States government through the Federal Department of EnergyDOE is under contract with Wisconsin Public ServiceWPSC for the pick up and long-term storage of Kewaunee's spent nuclear fuel. Because the Department of EnergyDOE has failed to begin scheduled pickup of the spent nuclear fuel, Wisconsin Public ServiceWPSC incurred and will continue to incur costs for the storage of the spent nuclear fuel. Wisconsin Public ServiceWPSC is a participant in a suit filed against the federal government for breach of contract and failure to pick up and store the spent nuclear fuel. The case was filed on January 22, 2004, in the United States Court of Federal Claims.

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  The case has been temporarily stayed until June of 2005.

  In November 2003, Wisconsin Public ServiceWPSC reached an agreement to sell its interest in Kewaunee to Dominion Energy Kewaunee, Inc, a subsidiary of Dominion Resources, Inc. UponAssuming regulatory approval and closing of the sale, Dominion will have the right to pursue the spent nuclear fuel claim and Wisconsin Public ServiceWPSC will retain the contractual right to an equitable share of any future settlement or verdict. The total amountsamount of damages sought areis unknown at this time. Because Wisconsin Public ServiceWPSC is just one of many owners of nuclear plants who have brought similar suits against the federal government, resolution of the suit may take several years.

  Funding Decontamination and Decommissioning of Federal Facilities

  The Energy Policy Act of 1992 requires nuclear power companies to fund the decontamination and decommissioning of Department of EnergyDOE facilities relating to the processing of nuclear fuel. As a result, Wisconsin Public ServiceWPSC is required to pay a surcharge for uranium enrichment services purchased from the Federalfederal government prior to October 23, 1992. On an inflation-adjusted basis, Wisconsin Public Service'sWPSC's portion of the obligation related to the Kewaunee plant is approximately $600,000$0.6 million per year through the DOE fiscal year 2007, at which time the payments end. Madison Gas and Electric Company, a former 17.8% owner of the Kewaunee plant, has agreed to continue to pay its portion of this annual assessment through DOE fiscal year 2007. UponAssuming completion of the sale of the Kewaunee plant, Wisconsin Public ServiceWPSC will continue to be responsible for its portion of this obligation through 2007. The last payment will be due near the end of October 2006.

  Regulatory Matters

  The Public Service Commission of WisconsinPSCW and the Michigan Public Service CommissionMPSC regulate electric retail rates for Wisconsin Public Service Corporation.WPSC. The Michigan Public Service CommissionMPSC regulates electric retail rates for Upper Peninsula Power Company.UPPCO. The Federal Energy Regulatory CommissionFERC regulates wholesale electric rates of both utility companies.

  Wisconsin Regulatory Matters

  Effective MarchOn December 21, 2003, Wisconsin Public Service received approval to2004, the PSCW issued a final written order authorizing a retail electric rate increase Wisconsin electric retailof $60.7 million (8.6%), effective January 1, 2005. The new rates $21.4 million (3.5%). These rates (both electric and gas) reflect a 12.0%an 11.5% return on equity, with equity constituting 55%57.35% of the regulatory capital structure.

  On April 1, 2003, Wisconsin Public Service filed an application with the Public Service Commission of Wisconsin for authorization to increase retail electric rates, effective January 1, 2004. The rate increases areincrease was necessary to recover the costs associated with the purchase of the De Pere Energy Center, fuel costs, maintenance of power production facilities and employee benefits. On December 19, 2003, the Public Service Commission of Wisconsin issued a final written order authorizing an electric rate increase of $59.4 million (9.4%), effective January 1, 2004. These new rates (both electric and gas) also reflect a 12.0% return on equity, with equity constituting 56% of the capital structure.

  On November 8, 2002, Wisconsin Public Service entered into an agreement with American Transmission Company for the transfer of primary responsibility for the construction of the Wausau, Wisconsin to Duluth, Minnesota transmission line project from Wisconsin Public Service to American Transmission CompanyWeston 4, increased fuel and the reimbursement of Wisconsin Public Service'spurchased power costs, on the project to date. On April 18, 2003, the Public Service Commission of Wisconsin approved the transfer. The transfer occurred June 30, 2003. For more information on the Wausau to Duluth transmission line, see Note 6 in Notes To WPS Resources Consolidated Financial Statements - Acquisitions and Sales of Assets.increased employee benefit costs.

  On November 26, 2002, Wisconsin Public Service,WPSC, along with Minnesota Power Company and American Transmission Company,ATC, filed a joint application with the Public Service Commission of WisconsinPSCW regarding an increase in the estimated cost to complete the Wisconsin portion of the Wausau, Wisconsin, to Duluth, Minnesota, transmission line. The Public Service Commission of WisconsinPSCW originally approved the 220-mile, 345-kilovolt transmission line on October 30, 2001, at an estimated cost of $166 million. On December 19, 2003, the Public Service Commission of WisconsinPSCW issued an order re-approving the project at a revised

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  cost of $420.3 million. The revised projectcost includes an increase in the scope of the project and other facilities not included in the original application. This decision has beenwas appealed to the Dane CountryCounty Circuit Court of Appeals by

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  <PAGE>

  certain landowners. The court affirmed the PSCW's decision.  It is unknown whether the court decision will be appealed.  In addition, Douglas County in Wisconsin continues to oppose the line and refuses to engage in negotiations relating to easement access to county owned land for the project. As a result of this opposition, the PSCW reopened the docket and ordered the applicants to submit an amended application identifying alternative routes and other options for the project in Douglas County.  In addition, various WDNR permit related decisions are currently the subject of a contested case hearing in Wisconsin.  A decision on the contested case is expected in the third quarter of 2005.  For more information on American Transmission Company,ATC, see Note 10 in Notes to WPS ResourcesResources' Consolidated Financial Statements - Investments In Affiliates, At Equity Method.

  The amount of fuel and purchased power costs Wisconsin Public ServiceWPSC is authorized to recover in rates is established in its general rate filings. If the actual fuel and purchased power costs vary from the authorized level by more than 2% on an annuala year-to-date basis, Wisconsin Public ServiceWPSC is allowed, or may be required, to file an application adjusting rates for the remainder of the year to reflect actual costs for the year to date and updatedplus remaining costs projected costs. On October 29, 2003, Wisconsin Public Service filed for approval to reduce rates by $1.9 million, due to a reduction in the costs of fuel and purchased power, for the period August 15, 2003 through December 31, 2003. On February 19, 2004, the Public Service Commission of Wisconsin approved a refund of $2.7 million, which represents the originally filed amounts, adjustments and interest. This refund will be credited to customer accounts in March 2004. A liability of $2.6 million was accrued as of December 31, 2003 in anticipation of this refund.year.

  As a result of the Kewaunee nuclear power plant unplanned outage in late January and early February 2004 and other fuel cost increases in 2004, Wisconsin Public ServiceWPSC filed for a fuel cost increase of $7.4 million on February 27, 2004. The Public Service CommissionPSCW approved an interim rate increase of Wisconsin has scheduled a hearing for March 22,$6.0 million on April 1, 2004, subject to determinerefund. On September 24, 2004, the amountPSCW approved the final fuel order allowing recovery of $3.2 million. In the fourth quarter of 2004, WPSC refunded to customers $1.8 million recovered in excess of the fuel cost increase to be recovered on an interim basis. Wisconsin Public Service expects that a final order will be issued$3.2 million provided in the summerfinal order.  

  The PSCW also allowed WPSC to defer unanticipated replacement fuel, purchased power and operation and maintenance costs directly associated with the extension of the scheduled Kewaunee refueling outage in the fourth quarter of 2004. The Kewaunee outage was extended an additional three weeks due primarily to difficulties encountered with lifting equipment related to the removal of internal vessel components to complete a required 10-year inspection and procedures to perform the lifts. At December 31, 2004, regarding this rate increase request.

  For information regarding$5.4 million of incremental fuel and purchased power costs and $1.8 million of operation and maintenance costs related to the Public Service Commissionoutage being extended were deferred. The recovery of Wisconsinthese deferred costs is anticipated in 2006, pending approval regardingby the proposed 500-megawatt coal-fired generating facility at Weston, Wisconsin see the section entitled Facilities in Item B.PSCW.

  Michigan Regulatory Matters

  Wisconsin Public Service filed for an increase in electric rates in the first quarter of 2003. On July 21, 2003 the Michigan Public Service Commission authorized an increase in electric rates of $0.3 million and the recovery of an additional $1.0 million of transmission costs through the power supply cost recovery mechanism, effective July 22, 2003.

  On December 20, 2002, the Michigan Public Service Commission approved an 8.95% increase in retail electric rates for customers of Upper Peninsula Power. The Michigan Public Service Commission granted an 11.4% return on equity with the new rates being effective December 21, 2002. This was the first base rate increase for Upper Peninsula Power in 10 years.

  Michigan authorizes a one-for-one fuel and purchased power recovery mechanism for prudently incurred costs. Under the mechanism, the difference between actual and authorized fuel and purchased power costs is deferred until year-end. By March 31 of the following year, the utilityWPSC and UPPCO must each individually file a reconciliation of the actual costs to the authorized costs. Any under or over recovery is then recovered from or returned to the ratepayer throughby the end of the following year. The reconciliation is subject to review and intervention by customers.interested parties. At December 31, 2003, Upper Peninsula PowerUPPCO had significant under recovered fuel and purchased power costs due to the high costs of purchased power. Upper Peninsula Power intends to file, in MarchOn October 14, 2004, a reconciliationthe MPSC approved the full recovery of the deferred 2003 purchased powerfuel costs requesting recovery of $5.2 million. In addition, costsratably through December 31, 2005 (excluding those associated with theWisconsin Electric Power Company's Presque Isle Power Plantoutage). A decision on $1.8 million of deferred Presque Isle outage have been deferred and are expected to be addressedcosts along with other Dead River flood issues is expected in the next rate case. Upper Peninsula Power expects

  In December 2004, UPPCO filed a final decision regardingproposal with the recoveryMPSC to defer a base rate request until January 1, 2006, contingent on the MPSC's approval of recognition of any gains on the sale of certain land sales occurring before December 31, 2014 as nonutility gains. The maximum gain to be treated in this manner would be $30 million. One half of the 2003 fuel costs no later thangains realized before December 31, 2014, in excess of $30 million would have been returned to customers with the end of 2004. Dueother half considered nonutility gain. Under the proposal, UPPCO would have been allowed to request deferred accounting treatment during the proposed moratorium for any governmental mandates and for any unusual and extraordinary events that would cause serious financial harm to UPPCO. UPPCO's Power Supply Cost Recovery clause also would not have been subject to the level ofproposed moratorium. At this time, the under recovery relative to Upper Peninsula Power's revenues,MPSC has not accepted the deferred costs may be recovered over more than one year.proposal.  Final approval or denial from the MPSC is still pending.  As a result, on February 4, 2005, UPPCO filed a

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  request to increase base rates by $5.7 million (7.6% increase). UPPCO also requested interim rate relief of $4.5 million. A prehearing has been scheduled for March 16, 2005.

  Federal Energy Regulatory Commission Matters

  On April 30, 2003, Wisconsin Public ServiceWPSC received a draft order from the Federal Energy Regulatory CommissionFERC approving a 21%, or $4.1 million, interim increase in wholesale electric rates. The new wholesale rates, were effective on May 11, 2003, and are subject to refund if the final rate increase is less. The draft order also granted the use of formula rates, which allow for the adjustment of wholesale electric rates to reflect actual costs without having to file additional rate requests.refund. On March 4, 2004, WPSC, the Federal Energy Regulatory Commissioncustomer groups and Wisconsin Public ServiceFERC reached a tentative settlement regarding the final rate increase. Wisconsin Public Service anticipates noThe settlement includes formula rates going forward, which allows WPSC to bill FERC tariff customers the actual costs incurred during the year. In addition, the settlement allows a return on 100% of the construction work in progress related to Weston 4 and an 11.0% return on equity with the PSCW authorized regulatory capital structure, which is comprised of 57.35% equity for 2005. The settlement was approved by FERC on November 19, 2004. No material refunds or other adjustments to revenues recorded under the interim rates based on the termswere required as a result of the tentative agreement. The final settlement is anticipated to be filed with the Federal Energy Regulatory Commission in the second quarter of 2004.settlement. This is Wisconsin Public Service'sWPSC's first rate increase for its wholesale electric customers in 17 years.

  Hydroelectric Licenses

  Wisconsin Public Service, Upper Peninsula PowerWPSC, UPPCO and Wisconsin River Power have long-term licenses from the Federal Energy Regulatory CommissionFERC for all of their hydroelectric facilities. The Bond Falls hydroelectric facility owned by Upper Peninsula Power was issued

  On January 31, 2005, UPPCO announced its decision to restore Silver Lake as a 40-year license on August 20, 2003. The Alexander Hydro Project owned by Wisconsin Public Service is currently being relicensed. The issuancereservoir for power generation, pending approval of a new long-term license is expected in June 2004.design by FERC. For information on Dead River Flooding, see Note 17 - Commitments and Contingencies to our Notes to Consolidated Financial Statements.

  Other Matters

  Research and Development

  The only memberbusiness segment of WPS Resources' consolidated entity that incursmight incur significant research and development costs is Wisconsin Public Service.WPSC. Electric research and development expenditures for Wisconsin Public ServiceWPSC totaled $0.7 million for 2004, $0.6 million for 2003 and $0.3 million for 2002 and $1.1 million for 2001.2002. These expenditures were primarily charged to electric operations as incurred.

  Customer Segmentation

  In 2003, twenty-eight2004, 29 paper mills and one wholesale customer (a private utility) that primarily provides power to other paper mills accounted for 10%14.9% of Wisconsin Public Service'sWPSC's electric revenues. There is no single customer, or small group of customers, the loss of which would have a material adverse effect on the electric business of Wisconsin Public ServiceWPSC in the current regulatory environment.

  Seasonality

  The electric sales of Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO follow a seasonal pattern due to the air conditioning requirements of customers that are primarily impacted by the variability of summer temperatures.

  Competition

  The electric energy market in Wisconsin continues to be regulated by the Public Service Commission of Wisconsin.PSCW. Retail electric customers currently do not have the ability to choose their electric supplier. However, in order to increase sales, utilities work to attract new commercial/industrial customers into their service territory. As a result, there is competition among utilities to keep energy rates low. Wisconsin utilities have continued to refine regulated tariffs in order to provide customers with the true cost of electric energy to each class of customer, by reducing or eliminating rate subsidies among different ratepayer classes. Although Wisconsin electric energy markets are regulated, utilities still face competition from other energy sources.

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  Although Michigan electric energy markets are open to competition, a competitive market has not yet developed in the upper peninsula of Michigan primarily due to a lack of excess generation and transmission system constraints.capacity.

  -12-WPS Resources regulated electric subsidiaries are members of the Midwest Independent System Operator. The Midwest Independent System Operator is in the process of restructuring the bulk electric power market in the Midwest portion of the United States. The implementation of market restructuring by the Midwest Independent System Operation is currently expected to occur April 1, 2005. Such restructuring could have an impact on competition in the WPS Resources' regulated electric markets, the dispatch of generating facilities and the costs associated with serving utility customers' energy requirements.

  <PAGE>

  Working Capital Requirements

  For a detailed discussioninformation on capital requirements related to WPSC, see Management's Discussion and Analysis of the expected capital needs for WPS Resources' regulated electric operations, seeFinancial Condition and Results of Operation - Liquidity and Capital Requirements in Item G below.Resources - Wisconsin Public Service Corporation.

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  Electric Operating Statistics	Electric Operating Statistics			Electric Operating Statistics
  WISCONSIN PUBLIC SERVICE CORPORATION	2003	2002	2001	2004	2003	2002
  Operating revenues (Millions)
  Residential and farm	$261.7	$249.9	$214.0	$286.0	$261.7	$249.9
  Small commercial and industrial	205.9	197.7	173.3	227.8	205.9	197.7
  Large commercial and industrial	155.5	152.4	137.4	174.7	155.5	152.4
  Resale and other	101.8	96.9	86.0	112.7	101.8	96.9
  Total	$724.9	$696.9	$610.7	$801.2	$724.9	$696.9
  Kilowatt-hour sales (Millions)
  Residential and farm	3,037.3	3,028.9	2,865.6	2,999.6	3,037.3	3,028.9
  Small commercial and industrial	3,496.4	3,442.9	3,310.9	3,521.0	3,496.4	3,442.9
  Large commercial and industrial	4,135.1	4,095.1	4,024.0	4,225.9	4,135.1	4,095.1
  Resale and other	2,742.6	3,012.8	2,418.4	2,746.9	2,742.6	3,012.8
  Total	13,411.4	13,579.7	12,618.9	13,493.4	13,411.4	13,579.7
  Customers served (End of period)
  Residential and farm	368,702	362,718	356,497	374,961	368,702	362,718
  Small commercial and industrial	44,508	43,915	43,305	45,108	44,508	43,915
  Large commercial and industrial	257	241	227	263	257	241
  Resale and other	903	894	898	908	903	894
  Total	414,370	407,768	400,927	421,240	414,370	407,768
  Average kilowatt-hour price (Cents)
  Residential and farm	8.61	8.25	7.47	9.53	8.61	8.25
  Small commercial and industrial	5.89	5.74	5.23	6.47	5.89	5.74
  Large commercial and industrial	3.76	3.72	3.41	4.13	3.76	3.72
  Production capacity (Summer - kilowatts)
  Coal	1,326,700	1,339,000	1,334,100	1,334,300	1,326,700	1,339,000
  Nuclear	315,600	312,700	205,200	332,800	315,600	312,700
  Hydroelectric	40,000	43,300	40,500	40,000	40,000	43,300
  Combustion turbine	449,200	378,120	375,450	485,000	449,200	378,120
  Other	9,900	8,000		9,900	9,900	8,000
  Purchased capacity	267,600	14,900		469,500	267,600	14,900
  Total system capacity	2,409,000	2,096,020	1,978,150	2,671,500	2,409,000	2,096,020
  Generation and purchases (Thousands of kilowatt-hours)
  Coal	8,573,305	8,056,530	8,179,997	8,781,165	8,573,305	8,056,530
  Nuclear	2,451,896	2,638,284	1,480,429	2,284,101	2,451,896	2,638,284
  Hydroelectric	252,961	337,480	253,475	262,536	252,961	337,480
  Purchases and other	2,771,870	3,256,898	3,355,554	2,847,279	2,771,870	3,256,898
  Total	14,050,032	14,289,192	13,269,455	14,175,081	14,050,032	14,289,192
  Steam fuel costs (Cents per million Btu)
  Fossil	110.747	112.993	112.483	116.881	110.747	112.993
  Nuclear	42.922	44.156	40.680	44.212	42.922	44.156
  Total	95.959	96.369	101.255	102.239	95.959	96.369
  System peak - firm (Kilowatts)	1,888,000	1,947,000	2,014,000	1,869,300	1,888,000	1,961,200
  Annual load factor	74.54%	74.54%	70.61%	79.30%	72.00%	71.10%
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  Electric Operating Statistics
  UPPER PENINSULA POWER COMPANY	2003	2002	2001
  Operating revenues (Millions)
  Residential and farm	$31.5	$25.3	$26.3
  Small commercial and industrial	24.0	18.9	20.6
  Large commercial and industrial	11.6	9.9	11.1
  Resale and other	22.1	12.1	7.0
  Total	$89.2	$66.2	$65.0
  Kilowatt-hour sales (Millions)
  Residential and farm	277.0	277.9	265.4
  Small commercial and industrial	252.5	257.7	253.9
  Large commercial and industrial	211.1	227.4	215.5
  Resale and other	194.7	204.9	179.1
  Total	935.3	967.9	913.9
  Customers served (End of period)
  Residential and farm	45,613	45,279	44,865
  Small commercial and industrial	5,613	5,479	5,474
  Large commercial and industrial	13	12
  Resale and other	317	437	404
  Total	51,556	51,207	50,755
  Average kilowatt-hour price (Cents)
  Residential and farm	11.38	9.10	9.98
  Small commercial and industrial	9.49	7.34	8.11
  Large commercial and industrial	5.48	4.31	5.17
  Production capacity (Summer - kilowatts)
  Natural gas	18,800	17,700
  Hydroelectric	25,900	30,000
  Combustion turbine	41,800	55,000
  Purchased capacity	80,700	65,000
  Total system capacity	167,200	167,700
  Generation and purchases (Thousands of kilowatt-hours)
  Natural gas	7,021	5,062	9,444
  Hydroelectric	150,398	162,542	109,355
  Purchases and other	876,885	884,612	878,107
  Total	1,034,304	1,052,216	996,906
  Steam fuel costs (Cents per million Btu)
  Fossil	652.999	368.410	427.746
  System peak - firm (Kilowatts)	153,691	160,869	158,124
  Annual load factor	67.73%	67.27%	65.90%

  -14-

  <PAGE>

  Electric Operating Statistics
  UPPER PENINSULA POWER COMPANY	2004	2003	2002
  Operating revenues (Millions)
  Residential and farm	$34.4	$31.5	$25.3
  Small commercial and industrial	26.4	24.0	18.9
  Large commercial and industrial	15.0	11.6	9.9
  Resale and other	19.6	22.1	12.1
  Total	$95.4	$89.2	$66.2
  Kilowatt-hour sales (Millions)
  Residential and farm	273.8	277.0	277.9
  Small commercial and industrial	250.3	252.5	257.7
  Large commercial and industrial	231.2	211.1	227.4
  Resale and other	217.0	194.7	204.9
  Total	972.3	935.3	967.9
  Customers served (End of period)
  Residential and farm	45,954	45,613	45,279
  Small commercial and industrial	5,644	5,613	5,479
  Large commercial and industrial	5,657	13	12
  Resale and other	330	317	437
  Total	57,585	51,556	51,207
  Average kilowatt-hour price (Cents)
  Residential and farm	12.58	11.38	9.10
  Small commercial and industrial	10.55	9.49	7.34
  Large commercial and industrial	6.48	5.48	4.31
  Production capacity (Summer - kilowatts)
  Natural gas	18,800	18,800	17,700
  Hydroelectric	21,700	25,900	30,000
  Combustion turbine	36,200	41,800	55,000
  Purchased capacity	77,000	80,700	65,000
  Total system capacity	153,700	167,200	167,700
  Generation and purchases (Thousands of kilowatt-hours)
  Natural gas	-	7,021	5,062
  Hydroelectric	118,752	150,398	162,542
  Purchases and other	943,779	876,885	884,612
  Total	1,062,531	1,034,304	1,052,216
  Steam fuel costs (Cents per million Btu)
  Fossil *	-	652.999	368.410
  System peak - firm (Kilowatts)	148,038	153,691	160,869
  Annual load factor	68.44%	67.73%	67.27%
  * Upper Peninsula Power Company had no steam generation during 2004.

  -15-

  <PAGE>

  C. REGULATED NATURAL GAS OPERATIONS

  Wisconsin Public ServiceWPSC provides regulated natural gas service to nearly 300 municipalities in northeastern Wisconsin and adjacent portions of Michigan's Upper Peninsula.

  Revenues, volumes, customers and plant assets for natural gas operations of Wisconsin Public ServiceWPSC are as follows:

  	2003	2002	2001
  Natural Gas Revenues (millions)
  Wisconsin	$397.9	$306.3	$316.1
  Michigan	6.3	4.4	5.5
  Natural Gas Volumes (million therms)
  Wisconsin	789.4	800.6	698.9
  Michigan	17.9	17.4	15.8
  Internal electric generation	47.2	27.4	28.0
  TOTAL	854.5	845.4	742.7
  Customers
  Wisconsin	295,513	290,480	285,063
  Michigan	5,346	5,336	5,290
  Plant Assets (millions)
  Wisconsin	$451.2	$421.4	$387.1
  Michigan	6.0	5.9	5.4

   

  	2004	2003	2002
  Natural Gas Revenues (millions)
  Wisconsin	$414.7	$397.9	$306.3
  Michigan	6.2	6.3	4.4
  Total	$420.9	$404.2	$310.7
  Natural Gas Volumes (million therms)
  Wisconsin	750.7	789.4	800.6
  Michigan	16.6	17.9	17.4
  Internal electric generation	34.0	47.2	27.4
  Total	801.3	854.5	845.4
  Customers
  Wisconsin	300,297	295,513	290,480
  Michigan	5,351	5,346	5,336
  Total	305,648	300,859	295,816
  Plant Assets (millions)
  Wisconsin	$300.3	$451.2	$421.4
  Michigan	5.3	6.0	5.9
  Total	$305.6	$457.2	$427.3

  Facilities

  WPSC has nearly completed its project to install automated meter reading equipment for its customers, having installed 724,000 electric and natural gas meters. Approximately 14,000 meters remain to be installed. Completion of the project is expected in 2005 at a cost of less than $93 million.

  For more information regarding our natural gas facilities, see Item 2. Properties in this Annual Report on Form 10-K.

  Natural Gas Supply

  Wisconsin Public ServiceWPSC manages a portfolio of natural gas supply contracts, storage services and pipeline transportation services designed to meet its varying load pattern at the lowest reasonable cost.

  Wisconsin Public ServiceWPSC contracts for fixed-term firm natural gas supplies with approximately 1513 natural gas suppliers each year (in the United States and Canada) to meet the December through February peak day demand of firm system sales customers. Wisconsin Public ServiceWPSC purchases additional natural gas supplies on the monthly spot market through fixed-term firm contracts as required to supplement natural gas supplies. As of December 31, 2003,2004, the domestic natural gas supply contracts had remaining terms of up to threetwo months and the Canadian natural gas supply contracts had remaining terms of up to tenthree months. Wisconsin Public ServiceWPSC intends to contract for domestic natural gas supplies for terms of two years or less to minimize potential stranded natural gas supply contract costs if retail natural gas deregulation should proceed in Wisconsin.

  Under current regulatory practice, the Public Service Commission of WisconsinPSCW and the Michigan Public Service CommissionMPSC allow Wisconsin Public ServiceWPSC to pass increases or decreases in the cost of natural gas on to customers on a dollar-for-dollar basis through a purchased gas adjustment

  -16-

  <PAGE>

  clause. Changes in the cost of natural gas are reflected in both gas revenues and gas purchases, thus having little or no impact on net income.

  -16-

  <PAGE>

  Wisconsin Public ServiceWPSC contracts with ANR Pipeline Company for firm underground storage capacity located in Michigan and with Nexen and People's Energy Resources Corporation located in Illinois. Wisconsin Public Service's totalWPSC has approximately 116 million therms of firm storage capacity with ANR Pipeline isand approximately 1168 million therms.therms of firm storage capacity in Illinois. Besides providing the ability to manage significant changes in daily natural gas demand, storage also provides Wisconsin Public ServiceWPSC with the ability to purchase natural gas at high load factors on a year-round basis, thus lowering supply cost volatility. Natural gas from storage provides up to 47%approximately 61% of Wisconsin Public Service'sWPSC's supply on winter peak days, approximately 28%30% of its winter sales volumes and approximately 19%21% of its total annual sales volumes. Wisconsin Public Servicevolumes under normal weather conditions. WPSC also contracts with third-party natural gas suppliers for high deliverability storage. This high deliverability storage capacity is designed to deliver natural gas when other supplies cannot be delivered during extremely cold weather in the producing areas, which can temporarily limit wellhead natural gas supplies.

  Wisconsin Public ServiceWPSC holds firm long-term transportation capacity contracts on the ANR Pipeline through OctoberPipeline. The majority of these contracts expire in 2010. Wisconsin Public ServiceWPSC also holds firm transportation capacity with Viking Gas Transmission Company to deliver natural gas from its interconnection with TransCanada Pipelines near Emerson, Manitoba to the interconnection of Viking Gas Transmission with ANR Pipeline near Marshfield, Wisconsin. The Canadian natural gas suppliers at Emerson hold firm capacity on TransCanada Pipelines from Emerson back into the Canadian production areas in Alberta, Canada.

  Regulatory Matters

  The Public Service Commission of WisconsinPSCW and the Michigan Public Service CommissionMPSC regulate WPSC's natural gas retail rates for Wisconsin Public Service.

  In February 2003, Wisconsin Public Service received approval for the installation of automated natural gas meters.

  Effective March 21, 2003, Wisconsin Public Service received an order to decrease Wisconsin natural gas rates $1.2 million (0.3%). These rates (both gas and electric) reflect a 12.0% return on equity.rates.

  On December 19, 2003,21, 2004, the Public Service Commission of Wisconsin approved an $8.9 million (2.2%) annualPSCW issued a final written order authorizing a natural gas rate increase for Wisconsin retail natural gas operations that becameof $5.5 million (1.1%), effective January 1, 2004. These2005. The new rates (both gas and electric) reflect a 12.0%an 11.5% return on equity.equity, with equity constituting 57.35% of the regulatory capital structure. The rate increase was necessary to recover the costs associated with upgrading the existing natural gas infrastructure, increased costs of mandated conservation programs and increased employee benefits costs.

  Other Matters

  Research and Development

  The only business segment of WPS Resources' consolidated entity that might incur significant research and development costs is WPSC's electric operations. Research and development costs incurred for the gas segment of WPSC's business in 2004 were approximately $17,000.

  Customer Segmentation

  Wisconsin Public ServiceWPSC has no single customer that accounts for a significant portion of natural gas throughput. The largest industry segment among Wisconsin Public Service'sWPSC's natural gas customers is the paper industry.

  Seasonality

  The gas throughput of Wisconsin Public ServiceWPSC follows a seasonal pattern due to the heating requirements of customers that is primarily impacted by the variability of winter temperatures. Wisconsin Public ServiceWPSC currently has 12.8 billion cubic feet128.5 million therms of natural gas storage under contract. The availability of natural gas storage capacity allows Wisconsin Public ServiceWPSC to purchase natural gas supplies at times of lower demand, which results in lower energy costs and provides for more assurance of availability of supply in high demand periods.

  -17-

  <PAGE>

  Competition

  Wisconsin Public Service'sWPSC's natural gas operations face competition with other entities and forms of energy in varying degrees, particularly for large commercial and industrial customers who have the ability to switch between natural gas and alternate fuels. Due to the volatility of natural gas prices, Wisconsin Public ServiceWPSC has seen its customers with dual fuel capability switch to alternate fuels for short periods of time, then switch back to natural gas as market rates change. Wisconsin Public ServiceWPSC offers interruptible natural gas sales and natural gas transportation service for these customers to enable them to reduce their energy costs. Transportation customers purchase their natural gas from third-party natural gas suppliers at market prices and contract with Wisconsin Public ServiceWPSC to transport the natural gas from ANR Pipeline to their facilities. Additionally, some customers still purchase their natural gas commodity directly from Wisconsin Public Service,WPSC, but have elected to do so on an interruptible basis, as a means to reduce their costs. Customers continue to switch between firm system supply, interruptible system supply and transportation service each year as the economics and service options change.

  Working Capital Requirements

  For information on capital requirements related to WPSC, see Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources - Wisconsin Public Service currently anticipates capital expenditures in its gas operations of $25.8 million for its automated meter reading system in 2004. There are no other large construction projects or capital needs for the gas utility segment of its operations for the 2004 to 2006 period.Corporation.

  -18-

  <PAGE>

  Natural Gas Operating Statistics	Natural Gas Operating Statistics			Natural Gas Operating Statistics
  Wisconsin Public Service Corporation	2003	2002	2001	2004	2003	2002
  Operating revenues (Millions)
  Residential	$229.2	$182.6	$178.4	$244.9	$229.2	$182.6
  Small commercial and industrial	55.6	42.9	38.3	51.3	55.6	42.9
  Large commercial and industrial	77.0	61.9	70.4	60.7	77.0	61.9
  Other	42.4	23.3	34.5	64.0	42.4	23.3
  Total	$404.2	$310.7	$321.6	$420.9	$404.2	$310.7
  Therms delivered (Millions)
  Residential	263.1	250.8	211.3	248.1	263.1	250.8
  Small commercial and industrial	72.6	69.6	51.8	58.9	72.6	69.6
  Large commercial and industrial	117.1	123.7	114.4	108.6	117.1	123.7
  Other	47.2	27.4	28.0	34.0	47.2	27.4
  Total therm sales	500.0	471.5	405.5	449.6	500.0	471.5
  Transportation	354.5	373.9	337.2	351.7	354.5	373.9
  Total	854.5	845.4	742.7	801.3	854.5	845.4
  Customers served (End of period)
  Residential	273,041	268,391	263,420	277,484	273,041	268,391
  Small commercial and industrial	23,983	24,082	23,242	23,914	23,983	24,082
  Large commercial and industrial	3,236	2,758	3,114	2,924	3,236	2,758
  Other	1	1		-	1
  Transportation customers	598	584	576	595	598	584
  Total	300,859	295,816	290,353	304,917	300,859	295,816
  Average therm price (Cents)
  Residential	87.12	72.80	84.42	98.73	87.12	72.80
  Small commercial and industrial	76.61	61.68	73.94	87.11	76.61	61.68
  Large commercial and industrial	64.71	49.99	61.54	78.24	64.71	49.99

  -19-

  <PAGE>

   

  D. NONREGULATED ENERGY SERVICES
  

  WPS Resources' nonregulated energy services operations are provided through WPS Energy Services, Inc. WPS Energy ServicesESI. ESI is a diversified, energy supply and services company with its principal operations in the northeastern quadrant of the United States, and the eastern portions of Canada and a natural gas supply presence in Alberta, Canada. WPS Energy ServicesESI operates in the retail and wholesale nonregulated energy marketplace. In addition, ESI's three subsidiaries (Advantage Energy, Quest Energy and WPS Energy Services of Canada) market energy products in the retail market. Its emphasis is on serving commercial, industrial and wholesale customers, as well as "aggregated" small commercial and residential customers and standard offer service. Aggregated customers are associations or groups of customers which have joined together to negotiate purchases of electric or natural gas energy as a larger group. These associations and groups, in turn, may consist of individuals, municipalities or other types of natural gas or electric aggregation customers. Standard offer electric service is provided in areas where the energy market has been deregulated. In these markets, customers are allowed to choose their own supplier of electric energy. If they do not chose a specific supplier, their energy needs will be supplied by a standard offer provider. Generally, the public utility commission of the state selects the standard offer service provider. WPS Energy ServicesESI serves as a standard offer service provider in the northern part of the state of Maine.

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

  Energy revenues, volumes and assets are as follows:

  	2003	2002	2001
  Electric Revenues (millions)
  United States	$382	$114	$113
  Canada	-	-	-
  Gas Revenues (millions) *
  United States	2,131	194	$210
  Canada	566	51	-
  Electric Volumes (million megawatt hours)
  United States	9	7	4
  Canada	-	-	-
  Gas Volumes (billion cubic feet)
  United States	371	353	347
  Canada	122	17	-
  Assets (millions)
  United States	$727	$656	$720
  Canada	436	221	-

  2004

  2003

  2002

  Electric Revenues (millions)

    United States

  $519

  $382

  $114

    Canada

  -

  -

  -

    Total

  $519

  $382

  $114

  Gas Revenues (millions) *

    United States

  $1,913

  $2,131

  $194

    Canada

  1,122

  566

  51

    Total

  $3,035

  $2,697

  $245

  Electric Volumes (million megawatt hours)

    United States

  10

  9

  7

    Canada

  -

  -

  -

    Total

  10

  9

  7

  Gas Volumes (billion cubic feet)

    United States

  322

  371

  353

    Canada

  191

  122

  17

    Total

  513

  493

  370

  Assets (millions)

    United States

  $ 685

  $ 727

  $656

    Canada

  402

  436

  221

    Total

  $1,087

  $1,163

  $877

  * Gas revenues increased approximately $997 million in 2003 due to a change in accounting in how revenues are reported. For more information, see Note 1(t) in Notes to WPS Resources Consolidated Financial Statements - Summary of Significant Accounting Policies -

  -20-

  <PAGE>

  Cumulative Effect of Change in Accounting Principle. Gas revenues also increased approximately $500 million in 2003, as a result of the acquisition of a retail natural gas business in Canada.

  WPS Energy Services'ESI's policy is to secure supply for sales commitments through purchase contracts with entities believedthat have been determined to be creditworthy.creditworthy pursuant to the credit policies of ESI. The price risk between supply and sales commitments is managed in compliance with our risk policy through transaction specific supply commitments or through management of the overall portfolio. This policy provides more stable results and reduces ESI's exposure to market price fluctuations.

  -20-

  <PAGE>

  In 2004,For more information on the trading and risk management activities of ESI see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation Introduction, WPS Resources - WPS Energy Services is entering into generation leases withand Market Price Risk Management Activities - WPS Power Development. WPS Energy Services works with WPS Power Development to supply fuel for its gas-fired production facilities and manage the market price and fuel cost risk associated with all electric energy produced at WPS Power Development's generating facilities. WPS Energy Services assumes the market price and fuel cost risks inherent with WPS Power Development's ownership of generation facilities, with the exception of the facilities owned by WPS Westwood Generation and WPS Niagara Generation, which maintain adequate supplies of coal available. WPS Energy Services enters into hedge transactions to mitigate the long-term market price and fuel cost risks and maximize the value of the WPS Power Development assets.Resources.

  Facilities

  WPS Energy ServicesESI has an 81.5% interest in a 3 billion cubic foot natural gas storage field in Kimball, Michigan, which became commercially operational in 2002.Michigan. The storage field allows for additional flexibility in supplying retail and wholesale customers, sale of storage services to the market and potential power peaking services.

  Licenses

  WPS Energy ServicesESI is a Federal Energy Regulatory CommissionFERC licensed marketer. WPS Energy Services isESI and its subsidiaries are registered to sell retail electric service in Maine, Massachusetts, Michigan, New York, Ohio, and Pennsylvania in the United States and the province of Ontario in Canada. WPS Energy ServicesESI is registered to sell natural gas in Michigan, Ohio and New Brunswick Canada. ESI also sells natural gas in Canada.Wisconsin where no license is required. ESI's subsidiary, WPS Energy Services of Canada, is registered in the Canadian provinces of Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Quebec and Saskatchewan. ESI is also a member of the following regional transmission operators:operators and North American Electric Reliability Council reliability regions:

  • Independent Electricity Market Operator (located in Ontario),
    
  • ISO New England,
    
  • Mid-America Interconnected Network,
    
  • Mid-Continent Area Power Pool,
    
  • Midwest Independent System Operator,
    
  • New England Power Pool,Northern Maine Independent System Administrator,
    
  • New York Independent System Operator and
    
  • PJM Interconnection.

  Other Matters

  Customer Segmentation

  Although WPS Energy ServicesESI is not dependent on any one customer, a significant percentage of its retail sales volume is derived from the paper and allied products and food and kindred products industries. WPS Energy Services'ESI's concentration of sales in any single market sector is decreasing as it expands into the northeast United States retail electric and eastern Canada retail natural gas markets.

  -21-

  <PAGE>

  Seasonality

  WPS Energy ServicesESI believes that its business, in the aggregate, is not seasonal, even though certain products sell more heavily in some seasons than in others. Sales of natural gas generally peak in the winter months, while sales of electric energy generally peak in the summer months. WPS Energy ServicesESI's business is volatile as a result of market conditions and the related market opportunities available to its customers. In 2003, 51%2004, 50.7% of WPS Energy ServicesESI gross margin came from natural gas operations, 46%47.3% from electric operations and 3%2.0% from other operations.

  -21-

  <PAGE>

  Competition

  WPS Energy Services' competitors consist ofESI is a nonregulated energy marketer that competes against regulated utilities, large energy traderstrading companies and other energy marketers. WPS Energy ServicesESI competes with other energy providers on the basis of price, reliability, service, financial strength, consumer convenience, performance and reputation. Although the nonregulated energy market has seen a decrease in the number of large energy providers, there continues to be consolidation of small energy marketers. The resulting decrease in market liquidity affects competition and the ability to operate in the nonregulated energy market continues to improve with the increase of well-capitalized wholesale market participants. Although this increases competition, it also allows ESI to operate more efficiently.

  The status of nonregulated energy markets also impacts the competitiveness of ESI. Legislation proposed in Michigan in 2004 that would have substantially harmed the electric choice market and returned Michigan to a model of a regulated supply monopoly was proposed but not passed. In addition, legislation has been introduced in Ohio to change the nonregulated energy market. If passed, this could affect the ability of ESI to compete in the Ohio retail electric market. For more information on the legislative activity in Michigan and Ohio and its impact on ESI, see the discussion on Industry Restructuring in Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation.

  Working Capital

  Currently, capital requirements of WPS Energy ServicesESI are provided by its parent company, WPS Resources. The working capital needs of WPS Energy ServicesESI vary significantly over time due to volatility in commodity prices, the structure of wholesale transactions, the price of natural gas and customersthe other energy opportunities.opportunities available to its customers. WPS Resources provides guarantees for WPS Energy Services'ESI's supply contracts. These guarantees provide the financial strength needed to participate in the nonregulated energy market.

  Delinquent accounts receivable in the Ohio aggregation market have decreased dramatically as a result of an Ohio Public Utility Commission approved payment hierarchy that is more equitable for energy marketers. The new payment hierarchy became effective October 1, 2003. As a result, accounts receivable delinquent balances are no longer an issue in continuing to participate in the Ohio aggregation market.

  See Management's Discussion and Analysis of Financial Condition and Results of Operation for additional information regarding working capital needs of nonregulated operations.

  -22-

  <PAGE>

   

  E. NONREGULATED ELECTRIC GENERATION

  WPS Resources' nonregulated electric generation operations are provided through WPS Power Development, Inc. WPS Power DevelopmentPDI. PDI owns and operates nonregulated electric generation facilities in the northeastern quadrant of the United States and adjacent portions of Canada. WPS Power DevelopmentPDI also operates cogeneration facilities and generation from renewable resources.

  WPS Power Development'sPDI 's revenues, volumes and assets are as follows:

   

  2004

  	2003	2002	2001
  Electric Revenues (millions)
  United States *	$81.4	$58.7	$55.9
  Canada	1.0	0.7	0.7
  Electric Volumes (million megawatt hours)
  United States	2.4	2.4	3.1
  Canada	0.1	0.1	0.1
  Plant Assets (millions)
  United States	$239.4	$246.6	$190.3
  Canada	23.6	24.8	25.9

  2003

  2002

  Electric Revenues (millions)

    United States *

  $70.0

  $81.4

  $58.7

    Canada

  1.4

  1.0

  0.7

    Total

  $71.4

  $82.4

  $59.4

  Electric Volumes (million megawatt hours)

    United States

  2.2

  2.4

  2.4

    Canada

  0.1

  0.1

  0.1

    Total

  2.3

  2.5

  2.5

  Plant Assets (millions)

    United States

  $229.1

  $239.4

  $246.6

    Canada

  26.2

  23.6

  24.8

    Total

  $255.3

  $263.0

  $271.4

  * excludesExcludes revenues from discontinued operations (the operation of the Sunbury generation plant, which is pendingheld for sale, and certain other related assets).

  In 2004, WPS Power Development is enteringPDI entered into operating leasestolling agreements with WPS Energy ServicesESI to market electric production from its facilities and to manage natural gas costs for its gas-fired generatinggeneration facilities. WPS Power DevelopmentPDI continues to manage costs of fuel for its coal-fired facilities. The leasestolling agreements allow WPS Energy ServicesESI to operate WPS Power DevelopmentPDI facilities at its discretion, when market conditions and fuel costs are advantageous. In 2003, WPS Energy ServicesESI began to manage the market risk associated with sales related to the production from WPS Power Development'sPDI's facilities. These agreements allow WPS Power DevelopmentPDI to focus on the operation of the generation facilities and WPS Energy ServicesESI to focus on the management of the market risk associated with energy production from these plants.

  By including the tolling agreements in ESI's electric portfolio, PDI is able to match generation capabilities with customer demand. The improved economic dispatch of PDI's facilities resulted in $2.3 million of margin in excess of tolling fees paid to PDI and reduced the overall risk to the organization by more than 40 percent, as measured by Value-at-Risk (see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for more information about value-at-risk).

  Facilities

  In October 2003, WPS Power Development signedPDI entered into a definitive agreement to sell its Sunbury generation plantfacility to Duquesne Power, L.P., a subsidiary of Duquesne Light Holdings. Under the terms of the asset sales agreement, the sale price is anticipated to beHoldings for approximately $120 million, forsubject to certain working capital adjustments and regulatory approval. On September 30, 2004, PDI received a letter of termination from Duquesne related to this sale. As a result of the plant, emission allowances, fuel and spare parts inventory.

  Thetermination of the sale, PDI entered into a settlement agreement with Duquesne on December 30, 2004. Under a provision of the settlement agreement, PDI retained a $4.4 million escrow deposit associated with the initial sales agreement. PDI has retained an investment banking firm to conduct an auction to sell the Sunbury plant consists of six boilers supplying steam for four turbine generators with a total coal-fired generating capacity of 362 megawatts. In addition, the station includes two oil-fired combustion turbine generators and two diesel generators with operating capacities of 36 megawatts and 6 megawatts, respectively. The facility is located near the town of Shamokin Dam, in Snyder County, Pennsylvania and provides power into the PJM interconnection regional transmission organization.plant.

  For information regarding other facilities of WPS Power Development,PDI, see Item 2, Properties, in this Annual Report on Form 10-K.

  -23-

  <PAGE>

   

  Fuel Supply

  CoalFuel requirements for WPS Power DevelopmentPDI owned plants (excluding gas-fired plants) are estimated at 1.31.5 million tons annually. Fuel for these facilities includes coal, fluid coke, tire-derived fuel and wood. Of this amount, approximately 50%99% will be met through the burning of coal silt.products, including bituminous coal, culm, silt and fluid coke (a petroleum product). In 2003, WPS Power Development2004, PDI purchased all of its coalfuel supplies through the spot market and short-term contracts. In 2004, WPS Power Development2005, PDI expects to supply approximately 60%50% of its annual coalfuel needs through annual coal contracts and its reserves of coal and coal silt.short-term fuel contracts. The remaining 40%50% of coalfuel requirements will be purchased through the spot market. At December 31, 2003, WPS Power Development2004, PDI had an estimated six-year reserve of coal silt for its Westwood facility.

  As part of leasetolling agreements with WPS Energy Services,ESI, all natural gas supply for the natural gas-fired facilities will be supplied by WPS Energy Services.

  ESI.

  In 2004, 46% of annual coal transportation for approximately 20% of annual coal requirements is expected to beSunbury was supplied under an extension of the existing contract withby Norfolk Southern Railroad. The remaining coal transportation is contracted through short-term agreements with a variety of transportation providers.

  Licenses

  All the Federal Energy Regulatory CommissionFERC hydroelectric facility licenses held by WPS Power DevelopmentPDI or its subsidiaries are current. The 33-megawatt hydroelectric facility owned in New Brunswick, Canada, is not subject to licensing.

  Other Matters

  Customer Segmentation

  As a participant in the nonregulated electric generation market, WPS Power DevelopmentPDI sells its production in the wholesale market either through out takeouttake contracts or spot sales. As a result, WPS Power Developmentto ESI under tolling agreements. In 2004, 336 megawatts (36%) of sales were from outtake contracts. Included in the 336 megawatts related to outtake contracts are 200 megawatts from the outtake contract related to the Sunbury plant.

  PDI is not dependent on any one industry, customer or group of customers.customers for a significant portion of its revenues.

  Seasonality

  Although identifiable price peaks do not occur at any certain time of the year, WPS Power DevelopmentPDI believes the nonregulated energy market is subject to seasonal impacts. Generally in the summer months, the demand for electric energy is high, which increases the price at which energy can be sold. In periods of high residential fuel consumption, (generally the winter months) the purchase price of oil and natural gas increases, which increases the production costs at WPS Power Development's gasPDI 's gas- and oil firedoil-fired facilities.

  Competition

  WPS Power DevelopmentPDI competes for sales of electric production with both regulated and nonregulated energy producers.

  WPS Power DevelopmentPDI operates in the wholesale markets of the following regional transmission areas:

  • ISO New England, Power Pool,
    
  • Midwest Independent System Operator,
    
  • New York Independent System Operator and

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  • PJM Interconnection.

  Of WPS Power Development's approximately 829.4PDI's 829.8 megawatts of existing rated summer capacity (including 404 megawatts at Sunbury), fixed price contracts are in place to sell approximately 290 megawatts.136 megawatts in 2005. All 290136 megawatts are firm commitments. The remainder of WPS Power Development'sPDI's energy production is sold into the open market.

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  under tolling agreements with ESI.

  Working Capital

  Equity and working capital requirements of WPS Power DevelopmentPDI are generally financedprovided through WPS Resources. WPS Power Development expects to receive a $24.5 million capital contribution from WPS Resources in 2004. Nonrecourse project debt financing of approximately $87.3$82.3 million was in place for the Sunbury, Maine and Canadian generation plants owned by WPS Power DevelopmentPDI as of December 31, 2003.2004.

  See Management's Discussion and Analysis of Financial Condition and Results of Operation for additional information regarding working capital needs of nonregulated operations.

  F. ENVIRONMENTAL MATTERS

  For information on environmental matters related to WPS Resources and any of its subsidiaries, are subjectsee Note 17 - Commitments and Contingencies to federal, state and local regulations regarding environmental impacts of their operations on air and water quality and solid waste. The application of federal and state restrictionsour Notes to protect the environment can involve review, certification, or issuance of permits by various federal and state authorities, including the United States Environmental Protection Agency and the various states' environmental agencies, including the Wisconsin Department of Natural Resources. These restrictions may limit, prevent, or substantially increase the cost of operation of generation facilities and may require substantial investments in new equipment at existing installations. Such restrictions may require substantial additional investments for new projects and may delay or prevent completion of projects. We cannot forecast the effects of such regulation on our generation, transmission and other facilities or operations.

  Wisconsin Public Service is subject to regulation by the United States Environmental Protection Agency and the Wisconsin Department of Natural Resources with respect to thermal and other discharges from its power plants into Lake Michigan and other waters of Wisconsin. Wastewater discharge permits, with a term of five years, were re-issued by the Wisconsin Department of Natural Resources for the Kewaunee plant in 2000, for the Pulliam plant and Weston Unit 3 in 2002 and for Weston Units 1 and 2 in 2001.

  WPS Power Development is subject to regulation by the United States Environmental Protection Agency and environmental regulation in Maine, New York, Pennsylvania and Wisconsin with respect to thermal and other discharges from its power plants.

  WPS Energy Services is not directly subject to significant environmental regulations at this time.

  Manufactured Gas Plant Remediation

  Wisconsin Public Service continues to investigate the environmental cleanup of ten manufactured gas plant sites, two of which were previously owned by Wisconsin Fuel and Light. As of December 31, 2003, cleanup of the land portion of the Oshkosh site, Stevens Point site, Green Bay site and two sites at Sheboygan was substantially complete. Groundwater treatment and monitoring at these sites will continue into the future. River sediment remains to be addressed at six sites with sediment contamination. Wisconsin Public Service anticipates that remedial investigation work will commence on the sediment portion of the Sheboygan site in the first quarter of 2004. Sediment removal work at the Marinette site is scheduled for the fall of 2004. Work at the other sites remains to be scheduled.

  Effective with the Wisconsin Fuel and Light merger, Wisconsin Public Service acquired two former manufactured gas plant sites in Manitowoc and Wausau. Wisconsin Fuel and Light began the cleanup of the land portion of the Manitowoc site in 1994. A review of the previous land cleanup work may be conducted to verify the effectiveness of the prior work. Groundwater treatment and monitoring of the Manitowoc site continues. River sediment remains to be addressed at the Manitowoc site. Wisconsin Public Service has undertaken and is continuing its site investigation work at the Wausau site.

  Costs of the cleanups completed to date were within the range expected for these sites. Wisconsin Public Service estimates remaining future undiscounted investigation and cleanup costs for all remaining site work to be $36.2 million to $40.6 million. Wisconsin Public Service may adjust these estimates in the future contingent upon remedial technology, regulatory requirements and the assessment of natural

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  resource damages. Wisconsin Public Service currently has a $36.2 million liability recorded for gas plant cleanup with an offsetting regulatory asset. Wisconsin Public Service expects to recover cleanup costs net of insurance recoveries in future customer rates. Under current Public Service Commission of Wisconsin policies, Wisconsin Public Service will not recover carrying costs associated with the cleanup expenditures. Wisconsin Public Service will include long-term operation and maintenance costs associated with these sites in future rate requests. Wisconsin Public Service has received $12.7 million in insurance recoveries, which were recorded as a reduction of the regulatory asset.

  Clean Air Regulations

  The United States Environmental Protection Agency has designated southeastern Wisconsin as an ozone non-attainment area. Under the Clean Air Act, the State of Wisconsin developed a nitrogen oxide reduction plan for Wisconsin's ozone non-attainment area. The nitrogen oxide reductions began in 2003 and will gradually increase through 2007. Wisconsin Public Service owns 31.8% of Edgewater Unit 4, which is located in the ozone non-attainment area. A compliance plan for this unit was initiated in 2000. Wisconsin Public Service's share of the costs of this project is expected to be approximately $5 million. The project is nearly complete. Wisconsin Public Service has incurred costs of approximately $4.9 million on this project as of December 31, 2003.

  The State of Wisconsin is also seeking voluntary reductions from utility units outside the ozone non-attainment area, which may lead to additional expenditures for nitrogen oxide reductions at other units. Wisconsin Public Service is participating in voluntary efforts to reduce nitrogen oxide levels at the Columbia Energy Center. Wisconsin Public Service owns 31.8% of the Columbia facility. The Public Service Commission of Wisconsin has approved recovery of the costs associated with voluntary nitrogen oxide reductions.

  Air quality modeling by the Wisconsin Department of Natural Resources revealed that Weston Units 1 and 2 contribute to a modeled exceedance of the sulfur dioxide ambient air quality standard. Wisconsin Public Service expects that compliance with a future limit can be achieved by managing the coal supply quality and does not expect these changes to have a material impact on the operations of Wisconsin Public Service. Wisconsin Public Service is cooperating with the Wisconsin Department of Natural Resources to develop an approach to resolve this issue.

  United States Environmental Protection Agency Section 114 Request

  In November 1999, the United States Environmental Protection Agency announced the commencement of a Clean Air Act enforcement initiative targeting the utility industry. This initiative resulted in the issuance of several notices of violation/findings of violation and the filing of lawsuits against other unaffiliated utilities. In these enforcement proceedings, the United States Environmental Protection Agency claims that the utilities made modifications to the coal-fired boilers and related equipment at the utilities' electric generating stations without first obtaining appropriate permits under the United States Environmental Protection Agency's pre-construction permit program and without installing appropriate air pollution control equipment. In addition, the United States Environmental Protection Agency is claiming, in certain situations, that there were violations of the Clean Air Act's "new source performance standards." In the matters where actions have been commenced, the federal government is seeking penalties and the installation of pollution control equipment.

  In December 2000, Wisconsin Public Service received from the United States Environmental Protection Agency a request for information under Section 114 of the Clean Air Act. The United States Environmental Protection Agency sought information and documents relating to work performed on the coal-fired boilers located at the Pulliam and Weston electric generating stations of Wisconsin Public Service. Wisconsin Public Service filed a response with the United States Environmental Protection Agency in early 2001.

  On May 22, 2002, Wisconsin Public Service received a follow-up request from the United States Environmental Protection Agency seeking additional information regarding specific boiler-related work

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  performed on Pulliam Units 3, 5 and 7, as well as information on Wisconsin Public Service's life extension program for Pulliam Units 3 - 8 and Weston Units 1 and 2. Wisconsin Public Service made an initial response to the United States Environmental Protection Agency's follow-up information request on June 12, 2002 and filed a final response on June 27, 2002.

  In 2000, 2001 and 2002, Wisconsin Power and Light Company received a similar series of United States Environmental Protection Agency information requests relating to work performed on certain coal-fired boilers and related equipment at the Columbia generating station (a facility located in Portage, Wisconsin, jointly-owned by Wisconsin Power and Light Company, Madison Gas and Electric Company and Wisconsin Public Service). Wisconsin Power and Light Company is the operator of the plant and is responsible for responding to governmental inquiries relating to the operation of the facility. Wisconsin Power and Light Company filed its most recent response for the Columbia facility on July 12, 2002.

  Depending upon the results of the United States Environmental Protection Agency's review of the information, the United States Environmental Protection Agency may seek additional information from Wisconsin Public Service and/or third parties who have information relating to the boilers, close out the investigation or issue a "notice of violation" or "finding of violation" asserting that a violation of the Clean Air Act occurred. To date, the United States Environmental Protection Agency has not responded to the 2002 follow-up filings made by Wisconsin Public Service and Wisconsin Power and Light Company.

  In response to the United States Environmental Protection Agency Clean Air Act enforcement initiative, several utilities elected to settle with the United States Environmental Protection Agency, while others are in litigation. In general, those utilities that settled entered into consent decrees which require the companies to pay fines and penalties, undertake supplemental environmental projects and either upgrade or replace pollution controls at existing generating units or shut down existing units and replace these units with new electric generating facilities. Several of the settlements involve multiple facilities. The fines and penalties (including the capital costs of supplemental environmental projects) associated with these settlements range between $7 million and $30 million. Factors typically considered in settlements include, but are not necessarily limited to, the size and number of facilities as well as the duration of alleged violations and the presence or absence of aggravating circumstances. The regulatory interpretations upon which the lawsuits or settlements are based may change based on future court decisions that may be rendered in pending litigations.

  If the federal government decided to bring a claim against Wisconsin Public Service and if it were determined by a court that historic projects at the Pulliam, Weston or Columbia electric generating stations required either a state or federal Clean Air Act permit, under the applicable statutes these facilities could be required to:

  • shut down any unit found to be operating in non-compliance,
  • install additional pollution control equipment,
  • pay a fine, and/or
  • pay a fine and conduct a supplemental environmental project in order to resolve any such claim.

  At the end of December 2002, the United States Environmental Protection Agency issued new rules governing the federal new source review program. The rules are not yet effective in Wisconsin. They are also not retroactive. Wisconsin has proposed amending its new source review program to substantially conform to the federal regulations. The rules are anticipated to be finalized in the second half of 2004.

  Mercury and Interstate Quality Rules

  In 2001, the Wisconsin Department of Natural Resources initiated a rulemaking effort to control mercury emissions. Coal-fired generation plants are the primary targets of this effort. The proposed rule was open to comment in October 2001. As proposed, the rule requires phased-in mercury emission reductions reaching 90% reduction in 15 years. Wisconsin Public Service estimates that it could cost approximately

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  $163 million to achieve the proposed 90% reductions. Presently, the proposed rule is on hold and it is uncertain if the state will proceed to finalize the regulations.

  In December 2003, the United States Environmental Protection Agency proposed mercury "maximum achievable control technology" standards and an alterative mercury "cap and trade" program substantially modeled on the Clear Skies legislation initiative. In addition, the United States Environmental Protection Agency proposed the Interstate Air Quality rule, which would reduce sulfur dioxide and nitrogen oxide emissions from utility boilers located in 29 states, including Wisconsin. Wisconsin Public Service is in the process of studying the proposed rules. As to the mercury maximum achievable control technology proposal, it requires existing units burning sub-bituminous coal to achieve an annual average mercury emission rate limit of 5.8 pounds per trillion Btu on a unit-by-unit or plant-wide basis. New units must achieve an emission rate limit of 0.020 pounds per gigawatt hour. If the proposed rule is promulgated, Wisconsin Public Service's current analysis indicates that the emission control equipment on the existing units may be sufficient to achieve the proposed limitation. New units will require additional mercury control techniques to reduce mercury emissions by 65% to 85%. Mercury control technology is still in development. Wisconsin Public Service is assessing potential mercury control technologies for application to future new coal-fired units.

  The Interstate Air Quality rule proposal allows affected states (including Wisconsin) to either require utilities located in the state to participate in an interstate cap and trade program or meet the state's emission budget for nitrogen oxides and sulfur dioxide through measures to be determined by the state. Wisconsin has not stated a preference as to which option it would select in the event the rule becomes final. While the effect of the rule on Wisconsin Public Service's facilities is uncertain, for planning purposes, it is assumed that additional expenditures for nitrogen oxide and sulfur dioxide controls will be needed on existing units or the existing units will need to be converted to natural gas by 2010. The installation of any controls and/or any conversion to natural gas will need to be scheduled as part of Wisconsin Public Service's long-term maintenance plan for its existing units. As such, controls or conversions may need to take place before the proposed 2010 compliance date. On a preliminary basis and assuming controls or conversion is required, Wisconsin Public Service estimates a cost of $288 million in order to meet a 2010 compliance date. This estimate is based on costs of current control technology.

  WPS Power Development Generation Facilities

  The generation assets of WPS Power Development are subject to regulations on sulfur dioxide and nitrogen oxide emissions similar to those that apply to Wisconsin Public Service. In addition, the Sunbury generation facilities of WPS Power Development are located in an ozone transport region. As a result, these generation facilities are subject to additional restrictions on emissions of nitrogen oxide. Although WPS Power Development has some emission allowances for 2004 for the Sunbury facility, it may need to purchase approximately 10,000 to 15,000 additional allowances at market rates, to meet its 2004 requirements.

  Columbia (Jointly-Owned Generation Facility)

  In the fourth quarter of 2003, the Wisconsin Environmental Law Advocates filed a complaint in the United States District Court for the Western District of Wisconsin against Wisconsin Power and Light Company and its parent, Alliant Energy Corporation, alleging violations of the federal Clean Water Act at the Columbia generating station (a facility jointly-owned by Wisconsin Power and Light, Madison Gas and Electric Company and Wisconsin Public Service that is operated by Wisconsin Power and Light). The complaint seeks certain upgrades to the Columbia facility's wastewater treatment program, as well as unspecified penalties and attorney fees. In addition, the Wisconsin Department of Natural Resources has been pursuing enforcement of this same matter and has recently referred the matter to the Wisconsin Attorney General's office. To date, no action has been filed or settlement demanded by the State of Wisconsin, however we expect a complaint to be filed in due course. We believe that the total cost to resolve any potential penalties in this matter will not be material.

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  Other Environmental Issues

  Groundwater testing at a former ash disposal site of Upper Peninsula Power indicated elevated levels of boron and lithium. Supplemental remedial investigations were performed and a revised remedial action plan was developed. The Michigan Department of Environmental Quality approved the plan in January 2003. A liability of $1.5 million and an associated regulatory asset of $1.5 million were recorded for estimated future expenditures associated with remediation of the site. Upper Peninsula Power received an order permitting deferral and future recovery of these costs. Upper Peninsula Power has an informal agreement, with the owner of another landfill, under which it has agreed to pay 17% of the investigation and remedial costs. It is estimated that the cost of addressing the site over the next three years is $1.7 million. Upper Peninsula Power recorded 17% ($0.3 million) of this amount as a liability in December 2003.Consolidated Financial Statements.

  G. CAPITAL REQUIREMENTS

  For information on capital requirements related to WPS Resources, see Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources - WPS Resources.

  For information on capital requirements related to WPSC, see Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources - Wisconsin Public Service make large investments in capital assets. Construction expenditures for Wisconsin Public Service, including nuclear fuel, are expected to be approximately $1.3 billion for the period 2004 through 2006. Projected expenditures of $1.3 billion include: expenditures for investment in construction for new generating facilities, an automated meter reading system, corporate infrastructure, nuclear fuel, corporate software and hardware, security, a nuclear reactor vessel head and two combustion turbines. Upon closing of the sale of the Kewaunee nuclear power plant, nuclear fuel and other Kewaunee expenditures would decrease up to $44.9 million for this period. An additional $243 million is forecasted to be needed through 2008 to complete the Weston 4 generation facility. Wisconsin Public Service expects to incur additional construction costs of approximately $41.0 million to fund construction of the transmission facilities required to support the Weston 4 generating facility through the date Weston 4 goes into service. American Transmission Company will reimburse these construction costs to Wisconsin Public Service at the time Weston 4 goes into commercial operation in 2008.Corporation.

  WPS Resources expects to make equity investments in American Transmission Company of up to $128.6 million for the period 2004 through 2006 related to the construction of the Wausau to Duluth transmission line. Additional investments of approximately $63 million will be needed through 2008 to complete this transmission project.

  Upper Peninsula Power expects to incur construction expenditures of approximately $45 million for the period 2004 through 2006, primarily for electric distribution improvements and repairs at hydroelectric facilities.

  There are no commitments for additional acquisition expenditures for the nonregulated subsidiaries at this time.

  Wisconsin Public Service issued $125 million of 4.8% 10-year senior notes in December 2003. The senior notes are secured by a pledge of first mortgage bonds and may become unsecured when Wisconsin Public Service retires all of its outstanding first mortgage bonds. Wisconsin Public Service used the proceeds to pay the cost of redeeming approximately $50 million of its outstanding first mortgage bonds in January 2004. The redeemed bonds carried a 7.125% interest rate and were due to mature on July 1, 2023. The remaining proceeds were used to fund capital expenditures and retire short-term indebtedness. Also in 2003, Wisconsin Public Service redeemed $9.1 million of its 6.125% tax-exempt bonds due in 2013, as well as $50 million of its 6.80% first mortgage bonds due in 2003.

  Also, on November 19, 2003, WPS Resources issued 4,025,000 shares of common stock at an offering price of $43.00 per share. The net proceeds from the offering were used to retire $50 million of 7.0% trust preferred securities in January 2004, to reduce short-term debt, to fund equity contributions to its subsidiary companies and for general corporate purposes.

  In 2003, WPS Resources also issued new shares of its common stock under its Stock Investment Plan and under certain stock-based employee benefit plans, increasing equity $31.0 million. WPS Resources expects to continue to issue new shares of its common stock under these plans in 2004.

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  WPS Resources may issue additional debt and/or common stock in 2004. Wisconsin Public Service anticipates filing a new shelf registration in 2004 and may also issue additional bonds in 2004.

  H. EMPLOYEES

  At December 31, 2003,2004, WPS Resources and its subsidiaries had the following employees:

  	Wisconsin  Public Service	Upper  Peninsula  Power	WPS Energy Services	WPS Power Development	WPS Resources	TOTAL	Wisconsin Public Service	Upper Peninsula Power	WPS Energy Services	WPS Power Development	WPS Resources	TOTAL
  Electric Utility	391	171	-		-	562	251	174	-		-	425
  Natural Gas Utility	233	-			-	233	160	-			-	160
  Common Utility	1,859	-			-	1,859	2,051	-			-	2,051
  Nonregulated	-	-	183	193	50	426	-		204	180	44	428
  TOTAL	2,483	171	183	193	50	3,080	2,462	174	204	180	44	3,064

  Local 310 of the International Union of Operating Engineers represents 1,323 of the Wisconsin Public Service1,273 WPSC employees. The current Local 310 collective bargaining agreement with Local 310 expires on October 21, 2006.

  Local 510 of the International Brotherhood of Electrical Workers, AFL-CIO, represents 131 employees of Upper Peninsula Power.135 UPPCO employees. The current Local 510 collective bargaining agreement with Local 510 expires on April 23, 2005.

  Local 1600 of the International Brotherhood of Electrical Workers, AFL-CIO, represents approximately 11395 employees at the Sunbury generation station owned and operated by a subsidiary of WPS Power Development.PDI. The current collective bargaining agreement with Local 1600 expires on May 12, 2004.

  An agreement on a one-year contract extension was approved on March 8, 2004. The new agreement will expire on May 10, 2005.

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  I. RISK FACTORSAvailable Information

  You should carefully considerWPS Resources and WPSC file with the following risk factors, as well as the other information included or incorporated by reference in this SEC:

  • Annual ReportReports on Form 10-K, in connection with any investment in the common stock of
    
  • Quarterly Reports on Form 10-Q,
    
  • WPS Resources or other securities of WPS Resources or Wisconsin Public Service. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known or that we currently believe to be immaterial may also adversely affect us.

    Clean Air Act Enforcement Initiative

    In November 1999, the United States Environmental Protection Agency announced the commencement of a Clean Air Act enforcement initiative targeting the utility industry, resulting in the issuance of several notices of violation/findings of violation and the filing of lawsuits against other unaffiliated utilities. In these enforcement proceedings, the Environmental Protection Agency claims that the utilities made modifications to the coal-fired boilers and related equipment at the utilities' electric generating stations without first obtaining appropriate permits under the Environmental Protection Agency's pre-construction permit program and without installing appropriate air pollution control equipment. In addition, the Environmental Protection Agency is also claiming, in certain situations, that there were violations of the Clean Air Act's "new source performance standards." In response to this initiative, several utilities have elected to settle with the Environmental Protection Agency, while others are in litigation. In general, those utilities that have settled have entered into consent decrees which require the companies to pay fines and penalties, undertake supplemental environmental projects and either upgrade or replace pollution controls at existing generating units or shut down existing units and replace these units with new electric generating facilities. The fines and penalties (including the capital costs of supplemental environmental projects) associated with these settlements have ranged between $7 million and $30 million.

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    At various times in 2000, 2001 and 2002, we received requests from the Environmental Protection AgencyProxy statements,
    

  • Registration statements, including prospectuses,
    
  • Statements for information and documents relating to work performed on our coal-fired boilers located at the Pulliam and Weston electric generating stations, as well as our Columbia generating station (a facility located in Portage, Wisconsin operated by Wisconsin Power and Light Company and jointly-owned by Wisconsin Power and Light Company, Madison Gas and Electric Company and us) and at various times responses to those requests have been filed. Depending upon the results of the Environmental Protection Agency's review of the information, the Environmental Protection Agency may seek additional information from us and/or third parties who have information relating to the boilers, close out the investigation, or issue a "notice of violation" or "finding of violation" asserting that a violation of the Clean Air Act occurred. If the federal government decided to bring a claim against us and if it were determined by a court that historic projects at the Pulliam, Weston or Columbia electric generating stations required either a state or federal Clean Air Act permit, we may, under the applicable statutes, be required to:

    • shut down any unit found to be operating in non-compliance,

    • install additional pollution control equipment,

    • pay a fine, and/or

    • conduct a supplemental environmental project in order to resolve any such claim.

    Sunbury Generation Plant

    On October 24, 2003, WPS Power Development announced that it had signed a definitive agreement to sell its Sunbury generation plant to Duquesne Power, L.P., a subsidiary of Duquesne Light Holdings. We cannot assure you that the transaction will be consummated. For additional information, see "Nonregulated Electric Generation-Facilities."

    WPS Power Development will continue to operate the plant until the sale is completed. As a result of plant performance issues in the past, the plant has incurred outages, both planned and unplanned, for maintenance and repair during which it has been unable to operate at full generating capacity. Plant outages prior to completion of the sale may require increased capital expenditures or higher maintenance and repair expenses.

    The amount of the ultimate gain or loss incurred in connection with the sale may be affected by several factors, including: the timing of the sale, the impact of settling the interest rate swap (if the project debt is retired) and the cost of a forward supply contract to supply WPS Power Development's current out-take contract with a third party, which has been fixed through the acquisition of a power purchase agreement that extends through December 2004 when the out-take contract related to this plant expires.

    Sunbury operates in the PJM Interconnection area, which has been experiencing depressed capacity prices as a result of overcapacity. If market prices for capacity continue at current low levels, margins will likely continue to be negatively affected.

    Kewaunee Nuclear Power Plant

    On November 7, 2003, Wisconsin Public Service and Wisconsin Power and Light (a subsidiary of Alliant Energy Corporation) announced that they had signed a definitive agreement to sell the jointly-owned 543-megawatt Kewaunee nuclear power plant to Dominion Energy Kewaunee, Inc., a subsidiary of Dominion Resources, Inc., for approximately $220 million (approximately $130 million of which will be received by Wisconsin Public Service). In conjunction with the sale, Wisconsin Public Service will enter into a power purchase agreement with Dominion to purchase capacity and energy, equivalent to the amount it would have received from the plant had it maintained its current 59% ownership through the original license term of 2013.

    Both the sale and the related power purchase agreement are subject to approvals by various regulatory agencies, including the Public Service Commission of Wisconsin, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. We cannot assure you that all necessary

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    governmental approvals will be received. The closing of the transaction is contingent upon receiving such approvals in a form satisfactory to all the parties. Wisconsin Public Service and Wisconsin Power and Light expect to incur up to $5.4 million in transaction and transition costs to conclude this transaction. If the transaction does not close, Wisconsin Public Service may be required to write off its 59% ($3.2 million) share of these costs.

    For additional information on the sale of the Kewaunee plant see, "Regulated Electric Operations - Kewaunee Nuclear Power Plant."

    Completion of Planned Hydro Land Sales

    As part of our asset management strategy, in 2001 we entered into an agreement with the Wisconsin Department of Natural Resources to ultimately transfer ownership of certain forest and waterfront land along the Peshtigo River in northeastern Wisconsin to the Department of Natural Resources over a four-year period. The agreement includes an option for the Department of Natural Resources to purchase an additional 179 acres for approximately $5 million in 2004. In addition, Wisconsin Public Service intends to donate approximately 5,200 additional acres of land along the Peshtigo River to the Department of Natural Resources, subject to the Department of Natural Resources closing on its purchase of the 179 acres in 2004.

    In 2004, we also intend to sell approximately 280 acres along the Peshtigo River to private parties.

    We cannot assure you that these sales will be consummated. Various regulatory approvals are needed to complete these transactions. There also is no guarantee that the Wisconsin Department of Natural Resources will exercise its option in 2004. In addition, there is no certainty regarding the amount of the gains to be realized for the sale of these lands to private parties. Expected gains and the related income tax effects for these transactions have been included in our earnings guidance.

    Increasingly Competitive and Changing Industry

    The regulated energy industry has been undergoing dramatic structural change for several years, ranging from increasing competitive pressure on electric and natural gas utility companies to proposals for deregulation. Increased competition from alternative energy sources already provides utility customers with more energy options than in the past. Deregulation could change the rate structure of the regulated utility industry from a system promoting energy reliability through a system of reasonable cost recovery to a total market based rate structure which puts the recovery of costs of generation facilities more at risk. Increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce our utility earnings from retail electric and natural gas sales. While the future of deregulation in the utility industry and its impact on our future is uncertain, change is evident. At the present time, Wisconsin has not adopted legislation or regulations that would allow customers to choose their electric supplier. All Michigan electric customers were able to choose their electric generation suppliers beginning January 1, 2002 as a result of the Customer Choice Act.

    To the extent competitive pressures increase and the pricing and sale of electricity assumes more of the characteristics of a commodity business, the economics of our business may come under increasing pressure. In addition, regulatory changes may increase access to electric transmission grids by utility and nonutility purchasers and sellers of electricity, thus potentially resulting in a significant number of additional competitors in wholesale power generation.

    Availability of Suitable Projects for Purchase or Development

    Our strategy for the growth of our nonregulated generation business depends partially upon our ability to identify and complete acquisitions and development projects at appropriate prices. There can be no assurance that the projects we have acquired to date or projects that we may acquire in the future will perform as expected or that the returns from those projects will support the indebtedness incurred to acquire them or the capital expenditures needed to maintain or develop them. In addition, many of our

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    competitors are seeking opportunities to acquire or develop energy assets. This competition may adversely affect our ability to make investments or acquisitions.

    Changes in State and Federal Regulatory Policy and Authorized Rates of Utility Subsidiaries

    The Public Service Commission of Wisconsin regulates Wisconsin Public Service's retail utility rates in the State of Wisconsin, including Wisconsin Public Service's permitted ratio of debt-to-equity and allowed return on equity. Wisconsin Public Service is generally required to file a rate case with the Public Service Commission of Wisconsin every two years based on a forward-looking test year period. The Michigan Public Service Commission regulates the retail utility rates in the State of Michigan of both Wisconsin Public Service and Upper Peninsula Power. The Federal Energy Regulatory Commission also regulates wholesale rates and other issues affecting Wisconsin Public Service and Upper Peninsula Power. Over time there may be substantial changes in the regulatory environment in any or all of these jurisdictions and any changes could have an adverse effect on the revenues and income of our utility subsidiaries.

    Ability to Sell Electricity Generated from our Nonregulated Facilities at Market Prices

    The Federal Energy Regulatory Commission has authorized us to sell generation from our nonregulated facilities at market prices. The Federal Energy Regulatory Commission retains the authority to modify or withdraw our market based rate authority. If the Federal Energy Regulatory Commission determines that the market is not workably competitive, that we possess market power or that we are not charging just and reasonable rates, then the Federal Energy Regulatory Commission may require us to sell power at a price based upon the costs we incur in producing the power. Our revenues and profit margins will be negatively affected by any reduction by the Federal Energy Regulatory Commission of the rates we may receive.

    Market Prices for Nonregulated Electric Energy Sales

    If market prices for electric energy decline below the cost of production at our nonregulated facilities, these units may be temporarily shut down and alternative sources of energy found to meet energy commitments.

    Increases in Costs of Nonregulated Fuel and Purchased Power

    Our nonregulated subsidiaries, WPS Power Development and WPS Energy Services, may experience increased expenses, including interest costs and uncollectibles, higher working capital requirements and possibly some reduction in volumes sold as a result of any increase in the cost of fuel or purchased power.

    Energy Commodity Markets

    As a company participating in energy commodity markets, WPS Energy Services is exposed to a variety of risks, which can be categorized as market, operational, credit and liquidity risks. Market risk is measured as the potential gain or loss of a portfolio that is associated with a price movement within a given probability over a specific time, known as value-at-risk. Operational risk is the risk of loss from less than flawless execution of transactions, forecasting, scheduling, or other operational activities and is common to all companies participating in the energy marketing industry. Liquidity risk is a risk that a significant downgrade in WPS Resources' credit ratings could cause counter-parties to demand additional assurances of payment. WPS Energy Services also faces credit risk from counterparties.

    Safe Operation, Maintenance and Decommissioning of our Share of our Generating Facilities

    Wisconsin Public Service and WPS Power Development own and operate coal, nuclear, hydro, natural gas and/or other fueled generating facilities. Wisconsin Public Service and WPS Power Development are liable for the maintenance and safe operation of these facilities. They are also responsible for the costs to remove these plants from service and reclaim the sites upon decommissioning of any of these plants.

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    Compliance with Existing and New Environmental Laws and Regulations

    We are subject to extensive environmental regulations in connection with the ongoing conduct of our business and to civil and criminal liability for failure to comply with these regulations. We are also generally responsible for all on site liabilities associated with the environmental condition of our power generation facilities, former manufactured gas plant sites and other facilities which we have previously owned and/or operated or currently own and/or operate regardless of when the liabilities arose and whether they are currently known or unknown.

    The application of current and future federal and state environmental restrictions may limit, prevent or substantially increase the cost of the operation of generation facilities and may require substantial investments in new equipment at existing installations. Such restrictions may require substantial additional investments for new projects and may delay or prevent completion of projects.

    Limitations on Access to the Revenues and Assets of our Subsidiaries

    In general, any claim of WPS Resources against the assets of its subsidiaries is subject to the prior rights of the creditors of those subsidiaries. In addition, the Wisconsin public utility holding company law prohibits public utility subsidiaries from making loansexemption,
    

  • Current Reports on Form 8-K and
    
  • Any Amendments to or pledging their credit for, nonutility members of a Wisconsin public utility holding company system, including the holding company.

    Orders of the Public Service Commission of Wisconsin limit the amount of ordinary dividends that Wisconsin Public Service may pay to WPS Resources to 109% of the prior year's dividend and require that the common equity ratio of Wisconsin Public Service, as calculated by the Public Service Commission of Wisconsin, remain within a range of 54% to 58%. The articles of incorporation of Wisconsin Public Service also limit the amount of dividends it may pay on its common stock if its common stock and common stock surplus account are less than 25% of its total capitalization. Bond indenture provisions currently limit the amount of dividends, which may be paid by Upper Peninsula Power to WPS Resources.

    Substantially all of the physical assets of Wisconsin Public Service and Upper Peninsula Power secure outstanding bond issues of Wisconsin Public Service and Upper Peninsula Power. Some of the generating assets of WPS Power Development's subsidiaries have been mortgaged to secure acquisition financing.

    Synthetic Fuel Production Facility

    We have significantly reduced our consolidated federal income tax liability for the past four years through tax credits available to us under Section 29 of the Internal Revenue Code for the production and sale of solid synthetic fuel from coal. We have not fully utilized Section 29 tax credits previously available to us. In order to maximize the value of our synthetic fuel production facility, we have reduced our interest in the facility from 67% to 23% through sales to third parties. Our ability to fully utilize the Section 29 tax credits that remain available to us in connection with our remaining interest in the facility will depend on whether the amount of our federal income tax liability is sufficient to permit the use of such credits. The Internal Revenue Service strictly enforces compliance with all of the technical requirements of Section 29. Section 29 tax credits are currently scheduled to expire at the end of 2007.

    On June 27, 2003, the Internal Revenue Service announced that it had reason to question the scientific validity of certain test procedures and results that have been presented by certain taxpayers to qualify for Section 29 tax credits. The Internal Revenue Service also announced that it was reviewing information regarding these test procedures and practices. However, on October 29, 2003, the Internal Revenue Service announced that it had closed its investigation and concluded that such tests and procedures were scientifically valid if properly applied and indicated it would issue additional guidance on future sampling and testing. WPS Resources believes that its synthetic fuel facility does and will comply with such guidelines.

    documents.

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  <PAGE>

  As a result of the June Internal Revenue Service announcement, on August 1, 2003, WPS Resources received notice from the Internal Revenue Service that the WPS Resources' affiliate through which it holds an ownership interest in the synthetic fuel facility was under review for the 2001 tax period and that, depending upon the review of the affiliate's 2001 tax return, the Internal Revenue Service might reexamine the affiliate's 2000 tax return. However, following the October announcement that the Internal Revenue Service was closing its investigation, WPS Resources' received preliminary notice in January 2004 that both audits have closed without adjustment. Future years remain open to audit. We continue to believe that the facility has been operated in compliance with the requirements of Section 29.

  The Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs has been conducting an investigation of the synthetic fuel industry and their use of Section 29 tax credits. Pursuant to its invitation, on January 30, 2004, we answered questions of the Committee regarding our synthetic fuel facility. It is not known when the investigation will be completed and what impact, if any, such investigation may have on future legislation or the enforcement policy of the Internal Revenue Service.

  We have recorded the tax benefit of approximately $81.3 million of Section 29 tax credits as reductions of income tax expense from the project's inception in June 1998 through December 31, 2003. As a result of alternative minimum tax rules, approximately $52.3 million of this tax benefit has been carried forward as a deferred tax asset as of December 31, 2003. Future payments under one of the agreements covering the sale of a portion of our interest in the facility are contingent on the facility's continued production of synthetic fuel. Disallowance of some or all of those tax credits would materially affect the related deferred tax account, as well as, future tax obligations. Additionally, such disallowances may result in a reduction of the level of synthetic fuel production at the facility, thus reducing the likelihood and amount of future payments under that agreement. Future tax legislation and Internal Revenue Service review may also affect the value of the credits and the value of our share of the facility.

  Wisconsin Public Utility Holding Company Law

  The Wisconsin public utility holding company law precludes the acquisition of 10% or more of the voting shares of a holding company of a Wisconsin public utility unless the Public Service Commission of Wisconsin has first determined that the acquisition is in the best interests of utility consumers, investors and the public. Those interests may, to some extent, be mutually exclusive. This provision and other requirements of the Wisconsin public utility holding company law may delay, or reduce the likelihood of, a sale or change of control of WPS Resources, thus reducing the likelihood that shareholders will receive a takeover premium for their shares.

  Provisions in our Articles of Incorporation, Bylaws and the Wisconsin Business Corporation Law and our Shareholder Rights Plan

  Our articles of incorporation, bylaws and shareholder rights plan, as well as provisions of the Wisconsin Business Corporation Law, contain provisions that could delay or prevent a change of control or changes in our management that a shareholder might consider favorable and may prevent shareholders from receiving a takeover premium for their shares.

  The WPS Resources articles of incorporation and bylaws provide for a classified Board of Directors. The Board consists of three classes of directors each composed of three directors. All directors are elected for a three-year term with the terms of one class of directors expiring and up for re-election each year. These provisions can be amended, altered, changed or repealed only by the affirmative vote of shareholders possessing at least 75% of the voting power of the then outstanding shares of all classes of stock possessing voting rights.

  The shareholder rights plan provides all shareholders with one right for each share of WPS Resources common stock they own. These rights may be redeemed or, under certain circumstances, exchanged for shares of WPS Resources common stock as provided in the Rights Agreement, dated as of December 12, 1996, as amended. All rights will expire on December 11, 2006.

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  <PAGE>

  The rights are not presently exercisable. They will become exercisable ten days after any person or group of affiliated or associated persons acquires 15% or more of our common stock or ten business days (subject to extension) after a person or group of affiliated or associated persons announces a tender offer for 15% or more of our common stock. Each right will entitle the holder to purchase one share of our authorized but unissued common stock at an exercise price of $85. Upon the acquisition by any person or group of affiliated or associated persons of 15% or more of our common stock, each right, other than the rights held by an acquiring party, will entitle the holder to purchase, at the exercise price, shares of common stock having a market price of two times the exercise price. Rights associated with shares held by a person or group of affiliated or associated persons acquiring 15% or more of our stock will be null and void.

  The rights will have the effect of diluting the ownership interest of any person or group attempting to acquire a substantial interest in WPS Resources, unless our Board of Directors agrees to redeem the rights in order to permit the acquisition. As a result, the rights may substantially reduce the likelihood of a change in control of WPS Resources that is not approved by our Board.

  J. Available Information

  WPS Resources' Internet address is http://www.wpsr.com and Wisconsin Public Service's Internet address is http://www.wisconsinpublicservice.com. WPS Resources and Wisconsin Public ServiceWPSC make these reports available free of charge, on WPS Resources' Internet Web site, their Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after they electronically file such materialare filed with or furnish such material to, the Securities and Exchange Commission. Access to these reportsSEC. WPS Resources' Internet address is www.wpsr.com. Statements and amendments posted on WPS Resources' Web site doesdo not include access to the exhibits and supplemental schedules electronically filed with the reports or amendments. WPS Resources and Wisconsin Public ServiceWPSC are not including the information contained on or available through their Web sites as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.

  You may also obtain materials filed with the Securities and Exchange CommissionSEC by WPS Resources and Wisconsin Public ServiceWPSC at the Securities and Exchange CommissionSEC Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. To obtain information on the operation of the Public Reference Room, you may call 1-800-SEC-0330. You may also view reports, proxy and information statements and other information regarding WPS Resources and Wisconsin Public Service,WPSC (including exhibits), filed with the Securities and Exchange Commission,SEC, at their Web site at http://www.sec.gov.

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  <PAGE>

  ITEM 2.     PROPERTIES

  
  A. UTILITY

  Wisconsin Public Service Facilities

  The following table summarizes information on the electric generation facilities of Wisconsin Public Service,WPSC, including owned or jointly owned facilities:facilities as of December 31, 2004:

  Type	Name	Location	Fuel	Rated Capacity (a) (Megawatts)
  Steam	Pulliam (6 units)	Green Bay, WI	Coal	389.7385.8
  	Weston (3 units)	Wausau, WI	Coal	485.8477.5	(b)
  	Kewaunee	Kewaunee, WI	Nuclear	332.8338.4	(c)(b)
  	Columbia Units 1 and 2	Portage, WI	Coal	352.8347.5	(c)(b)
  	Edgewater Unit 4	Sheboygan, WI	Coal	106.1102.9	(c)(b)
  Total Steam				1,667.21,652.1
  Hydroelectric	Alexander Caldron Falls Castle Rock Grand Rapids Grandfather Falls Hat Rapids High Falls Jersey Johnson Falls Merrill Otter Rapids Peshtigo Petenwell Potato Rapids Sandstone Rapids Tomahawk Tomahawk Wausau Castle Rock Petenwell	Lincoln County, WI Marinette County, WI St. CroixAdams County, WI Menominee County, WI Lincoln County, WI Oneida County, WI Marinette County, WI Lincoln County, WI Marinette County, WI Lincoln County, WI Vilas County, WI Marinette County, WI Adams County, WI Marinette County, WI Marinette County, WI Lincoln County, WI Lincoln County, WI Marathon County, WI Adams County, WI Juneau County, WI	Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro	2.22.3 6.8 12.8 3.4 17.216.9 0.6 1.1 0.2 0.80.9 0.81.0 0.3 0.2 13.5 0.4 0.8 2.3 1.2 2.9 5.32.4    7.13.1	(b) (f) (d) (d)(b)
  Total Hydroelectric				53.666.7
  Combustion Turbine and Diesel	De Pere Energy Center Eagle River Oneida Casino Juneau #J31 West Marinette #31 West Marinette #32 West Marinette #33 Weston #31 Weston #32 Pulliam #31 Juneau #31	De Pere, WI Eagle River, WI Green Bay, WI Adams County, WI Marinette, WI Marinette, WI Marinette, WI Marathon County, WI Marathon County, WI Green Bay, WI Juneau County, WI	Natural Gas Distillate Fuel Oil Distillate Fuel Oil Distillate Fuel Oil Natural Gas Natural Gas Natural Gas Natural Gas Natural Gas Natural Gas Distillate Fuel Oil	183.3181.0 4.1 3.9 44.07.0 42.044.5 50.942.2 20.350.2 46.820.0 73.751.8   8.572.6	(e)(b) (b) (d)
  Total Combustion Turbine and Diesel					477.5477.3
  Wind	Lincoln	Kewaunee County, WI	Wind	1.9
  Landfill Generation	Winnebago Ridgeview Stencil Dairy Holsum Dairy	Oshkosh, WI Manitowoc County, WI Brown County, WI Hilbert, WI	Landfill Landfill Methane Digester Methane Digester	2.5 2.6 0.1 0.5	(f) (f) (f) (f)
  				5.71.8
  Total System				2,205.92,197.9

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  <PAGE>

  (a) Based on capacity ratings for July 2004.2005. As a result of continually reaching demand peaks in the summer months, primarily due to air conditioning demand, the summer period is the most relevant for capacity planning purposes.

  (b) Two units burn only coal and the other unit can burn coal or natural gas.

  (c) These facilities are jointly-ownedjointly owned by Wisconsin Public ServiceWPSC and various other utilities. Nuclear Management Company operates the Kewaunee plant. Wisconsin Power and Light operates the Columbia and Edgewater units. Wisconsin River Power Company operates the Castle Rock, Petenwell, and Juneau units. WPSC operates the West Marinette 33 unit. The capacity indicated is our portion of total plant capacity based on the percent of ownership.ownership or capacity under contract.

  -27-

  (d) These facilities are owned by Wisconsin River Power, which is operated and 50% owned by Wisconsin Public Service.<PAGE>

  (e) Wisconsin Public Service and Marshfield Electric and Water Department jointly own West Marinette 33, a 74.9 megawatts combustion turbine. Wisconsin Public Service is the operator of these facilities. The reported capacity reflects only Wisconsin Public Service's share.

  (f) These facilities are not directly owned by Wisconsin Public Service but are under long-term purchase power contracts.

  As of December 31, 2003, Wisconsin Public Service2004, WPSC owned 119122 distribution substations and 20,49020,897 miles of electric distribution lines. Effective January 1, 2001, all transmission property of Wisconsin Public ServiceWPSC was transferred to American Transmission Company.ATC.

  GasNatural gas properties include approximately 6,8457,483 miles of main, 8586 gate and city regulator stations and 279,829284,104 lateral services. All natural gas facilities are located in Wisconsin except for distribution facilities in and near the City of Menominee, Michigan.

  Substantially all of Wisconsin Public Service'sWPSC's utility plant is subject to a first mortgage lien.

  Upper Peninsula Power Facilities

  The following table summarizes information on the electric generation facilities of Upper Peninsula Power:UPPCO as of December 31, 2004:

  Type	Name	Location	Fuel	Rated Capacity (a) (Megawatts)
  Steam	Warden	L'Anse, MI	Gas	18.8 (b)
  Hydroelectric	Victoria (2 units) Hoist (3 units) McClure (2 units) Prickett (2 units) Autrain (2 units) Cataract Escanaba #1 Escanaba #3 Boney Falls	Ontonagon County, MI Marquette County, MI Marquette County, MI Houghton County, MI Alger County, MI Marquette County, MI Delta County, MI Delta County, MI Delta County, MI	Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro Hydro	12.210.6 1.11.3 4.23.2 0.60.5 0.4 0.4 0.91.6 1.32.4 2.34.2
  Combustion Turbine	Portage Gladstone	Houghton, MI Gladstone, MI	Oil Oil	19.216.5  18.118.2
  				_____
  Total System				79.5   78.1

  (a) Based on July 20042005 rated capacity.

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  <PAGE>

  (b) The J. H. Warden station was taken out of service on January 1, 19941994. The facility was put into service for a short period after the Dead River Flood in 2003 and is now once again in standby or inactive reserve status.

  Upper Peninsula PowerUPPCO owns 2,8263,070 miles of electric distribution lines.

  Effective June 28, 2001, all transmission property of Upper Peninsula PowerUPPCO was transferred to American Transmission Company.ATC.

  Substantially all of Upper Peninsula Power'sUPPCO's utility plant is subject to a first mortgage lien.

   

  B. NONREGULATED

  WPS Resources Corporation

  Asset Management Strategy

  The asset management strategy for WPS Resources consists of the evaluation of all properties and businesses held by WPS Resources to identify their best use. WPS Resources will determine if the best use of the property or business is in current operations or if sale and reinvestment of proceeds is in the best interest of WPS Resources, its shareholders and customers.

  As part of this strategy, in 2001 Wisconsin Public ServiceWPSC entered into an agreement with the Wisconsin Department of Natural ResourcesWDNR for the sale of land and optionsalternatives for additional land purchases in 2003 and 2004. On December 15, 2004, WPSC completed

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  <PAGE>

  the agreement with the WDNR with the $5 million sale of 179 acres and the donation of an additional 5,176 acres along the Peshtigo River.

  In June 2003, the Wisconsin Department of Natural Resources exercised its option to purchase additional lands under a 2001 asset purchase agreement between the Wisconsin Department of Natural Resources and Wisconsin Public Service. The Wisconsin Department of Natural Resources and Wisconsin Public Service agreed to close the $6.5 million sale following approval from the Federal Energy Regulatory Commission to change the boundaries of hydroelectric facilities of Wisconsin Public Service. All regulatory approvals were received and the sale was completed in December 2003.

  The agreement includes an option for the Department of Natural Resources to purchase an additional 179 acres for approximately $5 million inaddition, on October 5, 2004, subject to regulatory approvals. On March 3, 2004, the Department of Natural Resources informed Wisconsin Public Service that it is exercising its option to purchase these lands in 2004. In addition, Wisconsin Public Service intends to donate approximately 5,200 additionalWPSC sold 279 acres of land along the Peshtigo River to the Department of Natural Resources contingent on the Department closing on its purchase of the 179 acres.

  Guardian Pipelineat public auction for approximately $12.2 million.

  WPS Resources throughhas identified approximately 7,300 acres of excess land associated with its affiliate UPPCO hydroelectric facilities. UPPCO is currently working with various interested parties to develop a sales strategy for these properties.

  WPS Investments, acquired a one-thirdEnergy Services Facilities

  ESI has an 81.5% interest in Guardian Pipeline, LLC for $26 milliona 3 billion cubic foot natural gas storage field in May 2003. Guardian owns and operates a 142-mile, 36-inch gas transmission pipeline extending from Joliet, Illinois to Ixonia, Wisconsin.

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  <PAGE>

  Kimball, Michigan.

  WPS Power Development Facilities

  The following table summarizes information on the electric generation facilities owned by WPS Power Development,PDI, including jointly owned facilities:facilities as of December 31, 2004:

  Type	Name	Location	Fuel	Rated Capacity (Megawatts) (a)
  Steam	Sunbury Niagara Falls Stoneman Westwood Wyman	Shamokin Dam, PA Niagara Falls, NY Cassville, WI Tremont, PA Yarmouth, ME	Coal Coal Coal Culm Oil	362.0 48.3 48.0 30.0 20.7 (b)
  Combined Cycle	Syracuse Beaver Falls Combined Locks	Syracuse, NY Beaver Falls, NY Combined Locks, WI	Gas/Oil Gas/Oil Gas	92.291.6 86.187.3 47.0 (c)
  Hydroelectric	Tinker Squa Pan Caribou	New Brunswick, Canada Northern MaineAshland, ME Northern MaineCaribou, ME	Hydro Hydro Hydro	33.733.5 1.4 0.8
  Combustion Turbine and Diesel	Sunbury Sunbury Caribou Tinker Flo's Inn Loring	Shamokin Dam, PA Shamokin Dam, PA Northern Maine New Brunswick, Canada Presque Island,Isle, ME Limestone, ME	Oil Diesel Diesel Diesel Diesel Diesel	36.0 6.0 7.0 1.0 4.2 5.0
  				_____
  Total System				829.4829.8

  (a) Based on summer rated capacity.

  (b) WPS Power DevelopmentPDI owns a 3.3455% interest in the Wyman plant. The plant is a 619-megawatt oil-fired facility.

  (c) WPS Power DevelopmentPDI also has an additional 5five megawatts of capacity available at this facility through the lease of an additional steam turbine.

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  <PAGE>

   

  ITEM 3.    LEGAL PROCEEDINGS

  Stray Voltage Claims

  From time to time Wisconsin Public Service Corporation has been sued by dairy farmers who allege that they have suffered loss of milk production and other damages supposedly due to "stray voltage" from the operation of the Wisconsin Public Service electrical system. Past cases have been resolved without any material adverse effectFor information on Wisconsin Public Service's financial statements. Currently, there are five such cases pending in state court in Wisconsin.

  The Public Service Commission of Wisconsin has established certain requirements for all utilities subject to its jurisdiction with respect to stray voltage. The Commission's orders have defined what constitutes "stray voltage," established a level of concern at which some utility corrective action is required and set forth test protocols to be employed in evaluating whether a stray voltage problem exists. Based upon the information availableclaims related to it to date, Wisconsin Public Service believes that it was in compliance with the Public Service Commission's ordersWPS Resources and that none of the plaintiffs in the five cases had a stray voltage problem as defined by the Public Service Commission. Nonetheless, last spring the Supreme Court of Wisconsin ruled in the case Hoffmann v. Wisconsin Electric Power Company that a utility could be liable in tort to a farmer for damage from stray voltage even though the utility had complied with the Public Service Commission's established level of concern.

  One of the five pending cases, Russell Allen v. Wisconsin Public Service Corporation, is currently on appeal in the Wisconsin Court of Appeals from a jury verdict that awarded the plaintiff $750,000 of economic damages and $1,000,000 for nuisance. The record for the appeal is being assembled so there is no briefing schedule yet. The other four pending cases have trial dates between August 2004 and April 2005. Discovery is in different stages for the different cases. In those cases reviewed to date by expert witnesses retained by Wisconsin Public Service, the experts do not believe that there is scientific basis for concluding that electricity has harmed or damaged the plaintiffs or their cows. Accordingly, Wisconsin Public Service is vigorously defending and contesting these actions.

  Wisconsin Public Service has insurance coverage for these claims, but the policies have customary self-insured retentions per occurrence. Based upon the information known at this time and the availability of insurance, Wisconsin Public Service believes that the total cost to it of resolving the five actions will not be material.

  All four of the cases awaiting trial include a claim for common law punitive damages as well as a claim for treble damages under Wisconsin Statutes, Section 196.64. In light of the information it now has, Wisconsin Public Service does not believe there is any basis for the award of punitive or treble damages in these cases. However, if a jury nonetheless awarded such damages and if the total of defense costs and the verdict exceeded the self-insured retention, Wisconsin Public Service believes its insurance policies would cover such a verdict.

  Kewaunee Nuclear Steam Generator Fabrication Contract

  On February 5, 1997, Wisconsin Public Service Corporation entered into a "time is of the essence" contract with Finmeccanica S.p.A., Azienda Ansaldo Divisione Nucleare ("Finmeccanica") that required Finmeccanica to deliver two replacement steam generators, as well as other components, materials and documentation to the Kewaunee Nuclear Power Plant by April 1, 2000. Finmeccanica did not deliver the replacement steam generators to the plant until December 13, 2000 and did not deliver the final data required under the contract until February 28, 2001, thus triggering a liquidated damages provision in the contract.

  Notwithstanding its failure to timely perform, Finmeccanica had sought to impose back charges against Wisconsin Public Service for alleged cost overruns in an amount exceeding $10 million.

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  <PAGE>

  After failing to reach a negotiated resolution of its dispute with Finmeccanica, on March 1, 2000, Wisconsin Public Service filed suit against Finmeccanica in the federal court in the Eastern District of Wisconsin.

  Finmeccanica filed its answersubsidiaries, see Note 17 - Commitments and counterclaim denying Wisconsin Public Service's allegations and asserting a claim against Wisconsin Public Service for damages in an unspecified amount.

  Following a period of discovery, the parties reached a settlement in the fourth quarter of 2003. PursuantContingencies to the settlement, Finmeccanica paid the plant co-owners $8.5 million (Wisconsin Public Service received its 59% share or approximately $5.0 million) as compensation for the delay in delivery of the replacement steam generators. Wisconsin Public Service also retains its warranty rights under its contract with Finmeccanica. As a result of the settlement, the lawsuit was dismissed on November 20, 2003.our Notes to Consolidated Financial Statements.

  Dead River Flooding

  Silver Lake is located in Michigan's Upper Peninsula, approximately 22 miles northwest of Marquette, Michigan. Silver Lake is the uppermost impoundment of theFor information on Dead River Hydroelectric ProjectFlooding, see Note 17 - Commitments and is used by Upper Peninsula PowerContingencies to store spring runoff for regulated releases and power generation later in the year. As a result of heavy rain experienced in the area on May 11-12, 2003 the fuse plug that was recently installed at Silver Lake was activated, releasing sustained flowsour Notes to the fuse plug spillway channel. These sustained flows ultimately led, contrary to design expectations, to the erosion of the entire fuse plug embankment and foundation. This resulted in the release of 25,300 acre-feet of water from Silver Lake into the Dead River. The release eroded the riverbanks on the Dead River and resulted in overtopping of Upper Peninsula Power's Hoist and McClure dams downstream. The Tourist Park dam, located farther downstream and owned by the Marquette Board of Light & Power, was overtopped and a saddle dike failed on May 15, 2003. The debris and water was carried downstream from the Tourist Park Dam and caused damage at Wisconsin Electric Power Company's Presque Isle power station, temporarily shutting it down.Consolidated Financial Statements.

  The Federal Energy Regulatory Commission's Independent Board of Review issued its report in December 2003 and concluded that the root cause of the incident was the failure of the design to take into account the highly erodible nature of the fuse plug's foundation materials and spillway channel, resulting in the complete loss of the fuse plug, foundation and spillway channel which caused the release of Silver Lake far beyond the intended design of the fuse plug. The fuse plug was designed for the Silver Lake reservoir by an outside engineering firm.

  No lawsuits have been filed to date related to this incident. Upper Peninsula Power has been working with federal and state agencies in their investigations and Upper Peninsula Power's insurance carriers have been fully informed of the incident. Upper Peninsula Power is still in the process of investigating the incident and it is too early to estimate accurately the size of any potential claims or the likelihood of success of any litigation. Upper Peninsula Power carries insurance in amounts it believes is adequate to cover any potential claims.

  Quest Energy, L.L.C.

  On August 13, 2003, Thomas Daly, a former employee of Quest Energy, L.L.C., filed suit against Quest, WPS Resources Corporation and WPS Energy Services in the United States District Court for the Eastern District of Michigan. In his complaint, Daly alleges that he holds a 10.2% "profits interest" in Quest and seeks undetermined damages arising from Quest's failure to honor his claimed interest.

  WPS Resources and WPS-Energy Services were parties to a credit agreement with Quest, whereby WPS Resources provided financing for Quest's operations. In addition, WPS Energy Services sold energy to Quest on credit. In January 2003, pursuant to the terms of the parties' agreement, WPS Energy Services, as WPS Resources' assignee, converted the indebtedness of Quest owed to WPS Resources under the credit agreement into equity. As a result, WPS Energy Services became the owner of 100% of

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  <PAGE>

  the equity of Quest. WPS Energy Services contends that the conversion extinguished any interest of Mr. Daly in Quest.

  WPS Resources, WPS Energy Services and Quest intend to vigorously defend the lawsuit. Discovery is ongoing and is scheduled to continue through August 2004.

  Kewaunee Spent Nuclear Fuel Lawsuit

  See the section titled Spent Nuclear Fuel Disposal under Item 1B above for a description of a lawsuit involving the United States Department of EnergyDOE regarding the disposal of spent nuclear fuel at the Kewaunee generating facility.

  Environmental

  See the section titled Environmental Matters under Item 1F above for a description of variousFor information on environmental proceedings.

  Weston Power Plant

  On April 18, 2002, the Wisconsin Department of Natural Resources issued a Notice of Violation relating to the Weston auxiliary boiler. The noticematters related to certain alleged exceedances of the emission limits and other alleged violations of the air permit. On October 3, 2003, the state filed a lawsuit against Wisconsin Public Service alleging the issues raised in the notice. In a settlement reached on February 23, 2004, Wisconsin Public Service agreed to pay $65,000 to the State of Wisconsin for these environmental violations.

  Combined Locks Energy Center

  In 2002, WPS Power Development's Combined Locks Energy Center received a notice of violation from the Wisconsin Department of Natural Resources regarding nitrogen oxide emissions, WPS Power Development has resolved the issue with the Department of Natural Resources and paid a $50,000 fine.any of its subsidiaries, see Note 17 - Commitments and Contingencies to our Notes to Consolidated Financial Statements.

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  <PAGE>

   

  ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  No matters were submitted to a vote of the security holders of either WPS Resources or Wisconsin Public ServiceWPSC during the fourth quarter 2003.2004.

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  <PAGE>

   

  ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANTS

  A. Executive Officers of WPS Resources Corporation as of January 1, 20042005
  Name and Age		Current Position and Business Experience During Past Five Years	Effective Date
  Larry L. Weyers	5859	Chairman, President and Chief Executive Officer	02-12-98
  Thomas P. Meinz	5758	Executive Vice President - Public Affairs	09-12-04
  		Senior Vice President - Public Affairs	12-24-00
  		Vice President - Public Affairs	02-12-98
  Phillip M. Mikulsky	5556	Executive Vice President - Development	09-12-04
  		Senior Vice President - Development	02-12-98
  Joseph P. O'Leary *	4950	Senior Vice President and Chief Financial Officer	06-04-01
  		Vice President - Finance of United Stationers Corporation	05-01-99
  		Vice President - Tower Leasing of 360Communications	11-01-98
  Charles A. SchrockBernard J. Treml	5055	Senior Vice President	09-14-03
  		President of WPS Power Development, Inc.	11-11-01
  		Senior Vice President	08-31-01
  		Senior Vice President - Operations of Nuclear Management Company, LLCHuman Resources	11-26-0012-19-04
  		Senior Vice President - Energy SupplyHuman Resources	12-13-98 **02-12-98
  Diane L. Ford	5051	Vice President - Controller and Chief Accounting Officer	07-11-99
  		Controller and Chief Accounting Officer	05-01-97
  Richard E. James	5051	Vice President - Corporate Planning	12-29-96
  Bernard J. TremlBarbara A. Nick	5446	Vice President - Human ResourcesCorporate Services	02-12-9807-18-04
  Barbara A. Nick	45	Assistant Vice President - Corporate Services	04-14-02
  		Manager - Corporate Services	11-20-00
  		Assistant to the President	10-31-99
  		Director of Wholesale Energy Services	11-29-98 **
  Bradley A. Johnson	4950	Vice President and Treasurer	07-18-04
  		Treasurer	06-23-02
  		Assistant Treasurer	04-01-01
  		Corporate Planning Executive	12-31-95
  Barth J. Wolf	4647	Secretary and Manager - Legal Services	09-19-99
  		Assistant Secretary and Manager - Legal Services	07-12-98
  * Prior to joining WPS Resources, Joseph P. O'Leary's responsibilities at United Stationers included leading the finance, treasury and accounting functions. United Stationers was the largest provider of wholesale business office products in North America. At 360 Communications, Mr. O'Leary led the start-up of a new business to lease tower space to wireless communications service providers. Prior to that he led the accounting, purchasing and cellular fraud control functions for 360 Communications. 360 Communications was a provider of cellular, long distance and paging services/products to over 2.6 million customers in 15 states. ** Identifies experience with Wisconsin Public Service Corporation.
  NOTE: All ages are as of December 31, 2003.2004. None of the executives listed above are related by blood, marriage, or adoption to any of the other officers listed or to any director of the Registrants. Each officer holds office until his or her successor has been duly elected and qualified, or until his or her death, resignation, disqualification, or removal.

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  B. Executive Officers of Wisconsin Public Service Corporation as of January 1, 20042005
  Name and Age		Current Position and Business Experience During Past Five Years	Effective Date
  Larry L. Weyers	5859	Chairman and Chief Executive Officer	08-15-04
  		Chairman, President and Chief Executive Officer	04-14-02
  		Chairman and Chief Executive Officer	02-12-98
  Thomas P. Meinz	57	Senior Vice President - Public Affairs	12-24-00
  		Vice President - Public Affairs	02-12-98
  Joseph P. O'Leary *	49	Senior Vice President and Chief Financial Officer	06-04-01
  		Vice President - Finance of United Stationers Corporation	05-01-99
  		Vice President - Tower Leasing of 360 Communications	11-01-98
  Lawrence T. Borgard	4243	President and Chief Operating Officer - Energy Delivery	08-15-04
  		Vice President - Distribution and Customer Service	11-25-01
  		Vice President - Transmission and Engineering	07-23-00
  		Vice President - Transmission	07-11-99
  General Manager - TransmissionCharles A. Schrock	04-05-9851	President and Chief Operating Officer - Generation	08-15-04
  		Senior Vice President of WPS Resources Corporation	09-14-03
  		President of WPS Power Development, Inc.	11-11-01
  		Senior Vice President of WPS Resources Corporation	08-31-01
  		Senior Vice President - Operations of Nuclear Management Company, LLC	11-26-00
  		Senior Vice President - Energy Supply	12-13-98
  Thomas P. Meinz	58	Executive Vice President - Public Affairs	09-12-04
  		Senior Vice President - Public Affairs	12-24-00
  		Vice President - Public Affairs	02-12-98
  Joseph P. O'Leary *	50	Senior Vice President and Chief Financial Officer	06-04-01
  		Vice President - Finance of United Stationers Corporation	05-01-99
  Bernard J. Treml	55	Senior Vice President - Human Resources	12-19-04
  		Vice President - Human Resources	05-09-94
  David W. Harpole	4849	Vice President - Energy Supply - Projects	02-14-04
  		Vice President - Energy Supply	04-14-02
  		Assistant Vice President Energy Supply	11-12-00
  		Manager Corporate Services	04-19-98
  Diane L. Ford	5051	Vice President - Controller and Chief Accounting Officer	07-11-99
  		Controller	03-01-92
  Bernard J. Treml	54	Vice President - Human Resources	05-09-94
  Bradley A. Johnson	4950	Vice President and Treasurer	07-18-04
  		Treasurer	06-23-02
  		Assistant Treasurer	04-01-01
  		Corporate Planning Executive	12-31-95
  Barth J. Wolf	4647	Secretary and Manager - Legal Services	09-19-99
  		Assistant Secretary and Manager - Legal Services	07-12-98
  * Prior to joining WPS Resources, Joseph P. O'Leary's responsibilities at United Stationers included leading the finance, treasury and accounting functions. United Stationers was the largest provider of wholesale business office products in North America. At 360 Communications, Mr. O'Leary led the start-up of a new business to lease tower space to wireless communications service providers. Prior to that he led the accounting, purchasing and cellular fraud control functions for 360 Communications. 360 Communications was a provider of cellular, long distance and paging services/products to over 2.6 million customers in 15 states.
  NOTE: All ages are as of December 31, 2003.2004. None of the executives listed above are related by blood, marriage, or adoption to any of the other officers listed or to any director of the Registrants. Each officer holds office until his or her successor has been duly elected and qualified, or until his or her death, resignation, disqualification, or removal.

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  PART II

  ITEM 5.     MARKET FOR REGISTRANTS' COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

  WPS Resources Corporation Common Stock Two-Year Comparison

  	Dividends Per Share	Price Range
  Share Data		High	Low
  2003
  1st Quarter	$ .535	$41.18	$36.80
  2nd Quarter	.535	44.28	39.53
  3rd Quarter	.545	41.60	38.28
  4th Quarter	.545	46.80	40.94
  Total	$2.16
  2002
  1st Quarter	$ .525	$39.93	$35.65
  2nd Quarter	.525	42.68	37.00
  3rd Quarter	.535	41.12	30.47
  4th Quarter	.535	39.95	32.64
  Total	$2.12

  Share Data	Dividends Per Share	Price Range
  		High	Low
  2004
  1st Quarter

  $ .545

  $48.93

  $44.99

    2nd Quarter

     .545

   48.70

   43.50

    3rd Quarter  .555 48.81 44.85  4th Quarter  .555 50.53 45.35    Total$2.200

  2003

    1st Quarter$ .535$41.18$36.80  2nd Quarter  .535 44.28 39.53  3rd Quarter  .545 41.60 38.28  4th Quarter  .545 46.80 40.94    Total$2.160

  WPS Resources common stock is traded on the New York Stock Exchange. WPS Resources is the sole holder of Wisconsin Public Service'sWPSC's common stock.

  Dividend Restrictions

  For information on dividend restrictions related to WPS Resources is a holding company and our ability to pay dividends is largely dependent upon the ability of our subsidiaries to pay dividends to us. The Public Service Commission of Wisconsin has by order restricted our principal subsidiary, Wisconsin Public Service, to paying normal dividends on its common stock of no more than 109% of the previous year's common stock dividend. The Public Service Commission of Wisconsin also requires Wisconsin Public Service to maintain a capital structure (i.e., the percentages by which each of common stock, preferred stock and debt constitute the total capital invested in a utility), which has a common equity range of 54% to 58%. Each of these limitations may be modified by a future order of the Public Service Commission of Wisconsin. Our right to receive dividends on the common stock of Wisconsin Public Service is also subject to the prior rights of that corporation's preferred shareholders and to provisions in that corporation's restated articles of incorporation which limit the amount of common stock dividends which that corporation may pay if its common stock and common stock surplus accounts constitute less than 25%any of its total capitalization. These limitations are not expectedsubsidiaries, see Note 20 - Common Equity to limit any dividend payments in the foreseeable future.

  Upper Peninsula Power's indentures relatingWPS Resources' Notes to its first mortgage bonds contain certain limitations on the payment of cash dividends on its common stock, which is held solely by WPS Resources. Under the most restrictive of these provisions, approximately $14 million of retained earnings were available at December 31, 2003 for the payment of common stock cash dividends by Upper Peninsula Power.Consolidated Financial Statements.

  At December 31, 2003, WPS Resources had $416 million of retained earnings available for dividends.

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  Common Stock

  Listed:	New York Stock Exchange
  Ticker Symbol:	WPS
  Transfer Agent and Registrar:	American Stock Transfer and Trust Company 59 Maiden Lane New York, NY 10038

  As of December 31, 2003,February 28, 2005, there were 22,17221,244 common stock shareholders of record.

  See Item 11 of this Annual Report on Form 10-K for additional information regarding our equity compensation plans.

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  ITEM 6. SELECTED FINANCIAL DATA
  WPS RESOURCES CORPORATION	WPS RESOURCES CORPORATION					WPS RESOURCES CORPORATION
  COMPARATIVE FINANCIAL STATEMENTS AND	COMPARATIVE FINANCIAL STATEMENTS AND					COMPARATIVE FINANCIAL STATEMENTS AND
  FINANCIAL STATISTICS (1999 TO 2003)
  FINANCIAL STATISTICS (2000 TO 2004)						FINANCIAL STATISTICS (2000 TO 2004)
  As of or for Year Ended December 31
  (Millions, except per share amounts, stock price, return on average equity	(Millions, except per share amounts, stock price, return on average equity					(Millions, except per share amounts, stock price, return on average equity
  and number of shareholders and employees)	2003	2002	2001	2000	1999	2004	2003	2002	2001	2000
  Total revenues *	$4,321.3	$1,461.1	$1,345.4	$1,094.1	$1,086.5	$4,890.6	$4,321.3	$1,461.1	$1,345.4	$1,094.1
  Income from continuing operations	110.6	118.5	87.6	75.6	61.9	156.2	110.6	118.5	87.6	75.6
  Income available for common shareholders	94.7	109.4	77.6	67.0	59.6	139.7	94.7	109.4	77.6	67.0
  Total assets	4,292.3	3,671.2	3,346.5	3,202.7	2,185.1	4,445.6	4,292.3	3,671.2	3,346.5	3,202.7
  Preferred stock of subsidiaries	51.1	51.1	51.1		51.2	51.1		51.1	51.1
  Long-term debt and capital lease obligation (excluding current portion)	871.9	824.4	727.8	660.0	584.5	865.7	871.9	824.4	727.8	660.0
  Shares of common stock (less treasury stock
  and shares in deferred compensation trust)
  Outstanding	36.6	31.8	31.1	26.4	26.8	37.3	36.6	31.8	31.1	26.4
  Average	33.0	31.7	28.2	26.5	26.6	37.4	33.0	31.7	28.2	26.5
  Earnings per common share (basic)
  Income from continuing operations	$3.26	$3.64	$3.00	$2.74	$2.21	$4.09	$3.26	$3.64	$3.00	$2.74
  Earnings per common share	2.87	3.45	2.75	2.53	2.24	3.74	2.87	3.45	2.75	2.53
  Earnings per common share (diluted)
  Income from continuing operations	3.24	3.61	2.99	2.74	2.21	4.07	3.24	3.61	2.99	2.74
  Earnings per common share	2.85	3.42	2.74	2.53	2.24	3.72	2.85	3.42	2.74	2.53
  Dividend per share of common stock	2.16	2.12	2.08	2.04	2.00	2.20	2.16	2.12	2.08	2.04
  Stock price at year-end	$46.23	$38.82	$36.55	$36.8125	$25.125	$49.96	$46.23	$38.82	$36.55	$36.8125
  Book value per share	$27.40	$24.62	$23.02	$20.76	$20.01	$29.30	$27.40	$24.62	$23.02	$20.76
  Return on average equity	11.5%	14.6%	12.8%	12.3%	11.3%	13.5%	11.5%	14.6%	12.8%	12.3%
  Number of common stock shareholders	22,172	22,768	23,478	24,029	25,020	21,358	22,172	22,768	23,478	24,029
  Number of employees	3,080	2,963	2,856	3,030	2,900	3,048	3,080	2,963	2,856	3,030
  * Revenues increased $2,860.2 million in 2003 compared to 2002. Approximately $1,127 million of the increase relates to WPS Energy Services' required adoption of Issue No. 02-03, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," effective January 1, 2003. Volume growth driven by WPS Energy Services' acquisition of a retail natural gas business in Canada accounted for another $500 million of the increase. The remaining increase in revenues was primarily related to increased natural gas prices at Wisconsin Public Service and WPS Energy Services and electric rate increases at the utilities.
  * Revenues increased $2,860.2 million in 2003 compared to 2002. Approximately $1,127 million of the increase relates to ESI's required adoption of Issue No. 02-03, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," effective January 1, 2003. Volume growth driven by ESI's acquisition of a retail natural gas business in Canada accounted for another $500 million of the increase. The remaining increase in revenues was primarily related to increased natural gas prices at WPSC and ESI and electric rate increases at the utilities.						* Revenues increased $2,860.2 million in 2003 compared to 2002. Approximately $1,127 million of the increase relates to ESI's required adoption of Issue No. 02-03, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," effective January 1, 2003. Volume growth driven by ESI's acquisition of a retail natural gas business in Canada accounted for another $500 million of the increase. The remaining increase in revenues was primarily related to increased natural gas prices at WPSC and ESI and electric rate increases at the utilities.
  WISCONSIN PUBLIC SERVICE CORPORATION	WISCONSIN PUBLIC SERVICE CORPORATION					WISCONSIN PUBLIC SERVICE CORPORATION
  COMPARATIVE FINANCIAL STATEMENTS AND	COMPARATIVE FINANCIAL STATEMENTS AND					COMPARATIVE FINANCIAL STATEMENTS AND
  FINANCIAL STATISTICS (1999 TO 2003)
  FINANCIAL STATISTICS (2000 TO 2004)						FINANCIAL STATISTICS (2000 TO 2004)
  As of or for Year Ended December 31
  (Millions, except weather information)	2003	2002	2001	2000	1999	2004	2003	2002	2001	2000
  Operating revenues	$1,129.1	$1,007.6	$932.3	$840.5	$719.4	$1,222.1	$1,129.1	$1,007.6	$932.3	$840.5
  Earnings on common stock	78.9	83.1	80.6	70.4	67.1	104.8	78.9	83.1	80.6	70.4
  Total assets	2,570.8	2,324.2	2,196.3	1,871.3	1,760.9	2,768.6	2,577.7	2,324.2	2,196.3	1,871.3
  Long-term debt (excluding current portion)	507.8	442.5	415.6	370.1	373.1	508.0	507.8	442.5	415.6	370.1
  Weather information
  Cooling degree days	351	586	546	330	481	328	351	586	546	330
  Cooling degree days as a percent of normal	72.2%	122.9%	116.9%	70.7%	103.0%	66.7%	72.2%	122.9%	116.9%	70.7%
  Heating degree days	7,883	7,509	7,139	7,841	7,273	7,546	7,883	7,509	7,139	7,841
  Heating degree days as a percent of normal	102.2%	96.9%	91.9%	98.2%	91.7%	97.6%	102.2%	96.9%	91.9%	98.2%

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  ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATION
  

  INTRODUCTION - WPS RESOURCES CORPORATION

  WPS Resources Corporation is a holding company whichthat is exempt from the Public Utility Holding Company Act of 1935. Our wholly owned subsidiaries include two regulated utilities, Wisconsin Public Service CorporationWPSC (which is an operating entity as well as a holding company exempt from the Public Utility Holding Company Act of 1935) and Upper Peninsula Power Company.UPPCO. Another wholly owned subsidiary, WPS Resources Capital Corporation, is a holding company for our nonregulated businesses, including WPS Energy Services, Inc.ESI and WPS Power Development, Inc.PDI.

  Our regulated and nonregulated businesses have distinct competencies and business strategies, offer differing products and services, experience a wide array of risks and challenges, and are viewed uniquely by management. The following summary provides a strategic overview and insight into the operations of our subsidiaries.

  Strategic Overview

  The focal point of WPS Resources' business plan is the creation of long-term value for our shareholders (through growth, operational excellence, and asset management) and the continued emphasis on reliable, competitively priced, and environmentally sound energy services for our customers. We are seeking a balanced portfolio of utility and nonregulated growth, but we are placing emphasis on regulated growth. A discussion of the essential components of our business plan is set forth below:

  Maintain a Strong Utility Base - - As discussed above, we are focusing on growth in our utility operations. A strong utility base is important in order to maintain quality credit ratings, which are critical to our success. In 2004, WPSC signed contracts with several wholesale customers in order to bolster growth beyond our normal utility growth rate, and WPSC is also expanding its generation fleet in order to meet growing electric demand and ensure the continued reliability of our energy services.

  • WPSC entered into long-term power sale agreements with two wholesale customers in 2004. One is for Consolidated Water Power Company's full requirements service (between 65 and 125 megawatts of firm load) through December 31, 2017. The other is a 50-megawatt agreement with Wisconsin Public Power Inc. beginning May 1, 2006, and ending April 30, 2021.
    
  • In October 2004, WPSC began construction of its 500-megawatt coal-fired Weston 4 base-load power plant near Wausau, Wisconsin, and announced in May 2004 that it would pursue plans to build a jointly owned 500-megawatt base-load electric plant with Wisconsin Power and Light. The Weston 4 power plant is expected to be operational in 2008.
    
  • Calpine Corporation's 560-megawatt, combined cycle, natural gas-fired generating facility (Fox Energy Center) in Kaukauna, Wisconsin, is expected to be placed in service in June 2005. WPSC has contracted for approximately 470 megawatts of this plant's output over a 10-year period. WPSC also contracted to purchase 70 megawatts of wind generation over a 20-year period from the Forward Energy Wind Project in Brownsville, Wisconsin. Both of these agreements were signed as a means of seeking the most cost effective mix of energy resources to meet growing electric demand.

  Integrate Resources to Provide Operational Excellence - WPS Resources is committed to integrating the resources of its business units (in accordance with any applicable regulatory restrictions) by leveraging their individual capabilities and expertise across the company.

  • Effective August 2004, in an effort to better manage the market risks associated with PDI's merchant generation plants, we restructured the management of our two nonregulated business units (ESI and PDI) and currently have one executive management team overseeing the operations of these two business units.

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  • In January 2004, ESI implemented strategies to optimize the value of PDI's merchant generation fleet and has reduced the market price risk while extracting additional value from these plants, through the use of various financial and physical instruments (such as forward contracts, options, and swaps). Prior to leveraging ESI's energy marketing expertise, PDI sold uncontracted energy into liquid financial markets at spot prices or day ahead prices, which provided less predictable revenue and margin.

  Strategically Grow Nonregulated Businesses - - ESI looks to grow its electric and natural gas business, targeting growth in the northeastern United States and adjacent portions of Canada (through strategic acquisitions, market penetration of existing businesses, and new product offerings), which is where ESI has the most market expertise. As discussed above, our utilities are our core businesses and as such we are placing a strong emphasis on growth of utility operations in order to balance our regulated and nonregulated growth. PDI focuses on optimizing the operational efficiency of its existing portfolio of assets and pursues compatible power development projects and the acquisition of generation assets that "fit" in well with ESI's customer base and market expertise.

  • In July 2004, ESI completed the acquisition of Advantage Energy, a privately held nonregulated electric power marketer based in Buffalo, New York. This acquisition provides ESI with enhanced opportunities to participate in the New York market, where we believe there is good opportunity for further penetration and the sale of new products.
    
  • ESI continues to grow its business in the energy management sector by providing customers the expertise needed to manage their energy needs in volatile energy markets.

  Place Strong Emphasis on Asset Management - - 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 this strategy calls for the acquisition of assets that compliment our existing assets and strategy such as Advantage Energy. Another portion of the asset management strategy calls for the disposition of assets, including plants and entire business units, which are no longer required for operations.

  • We continue to pursue the sale of Sunbury and expect to have a completed sale in 2005. The sale of Sunbury fits well within our asset management strategy. Included in this strategy is the desire to reduce risk associated with uncontracted merchant exposure.
    
  • We continue to pursue the sale of Kewaunee to a subsidiary of Dominion Resources.
    
  • Our Peshtigo River land sale initiative (which included land sales and donations to the WDNR and the sale of land at public auction) was completed in 2004. We continue to identify alternatives for the sale of the balance of our identified excess real-estate holdings.

  Regulated Utilities

  Our regulated utilities include Wisconsin Public ServiceWPSC and Upper Peninsula Power. Wisconsin Public ServiceUPPCO. WPSC derives its revenues primarily from servicing retail electricthe production, distribution, and sale of electricity, and the purchase, distribution, and sale of natural gas to retail customers in a service area of approximately 11,000 square miles in northeastern and central Wisconsin and an adjacent portion of the Upper Peninsula of Michigan. Wisconsin Public ServiceThe PSCW and the MPSC regulate these retail sales. WPSC also provides wholesale electric service to various customers, including municipal utilities, electric cooperatives, energy marketers, other investor-ownednumerous utilities and a municipal joint action agency. Upper Peninsula Powercooperatives for resale. FERC regulates wholesale sales. UPPCO derives revenues from the sale of electric energy in a service area of approximately 4,500 square miles in the Upper Peninsula of Michigan.Michigan and is regulated by the MPSC.

  The regulatory commissions allow the utilities to earn a return on common stock equity that is commensurate with an investor's desired return, compensating for the risks investors face when providing funds to the utility. The return on common stock equity approved by the PSCW, FERC, and the MPSC was 12.0%, 11.0%, and 11.4%, respectively, in 2004. Generally, consumers bear the price risk for fuel

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  and purchased power costs as regulators allow the utility to recover substantially all of these costs (to the extent they are prudently incurred), through various cost recovery mechanisms, but utilities bear volume risk as rates are based upon normal sales volumes as projected by the utility. The utilities may also be able to defer certain unexpected costs that are incurred during the year for recovery in future rate proceedings (examples include WPSC's deferral of costs associated with the extended Kewaunee outage in 2004 and deferral of costs incurred by UPPCO related to the Dead River flood); however, these costs must be prudently incurred as determined by the regulatory commissions. As such, the ability of our regulated utilities to earn their approved return on equity is dependent upon accurate budgeting and forecasting techniques, ourtheir ability to obtain timely rate increases to account for rising cost structures (while minimizing the required rate increases in order to maintain the competitiveness of our core industrial customer base and keep these customers in our service area,area), and certain conditions that are outside of ourtheir control, such as macroeconomic factors and weather conditions. An approximately three month delay in receiving retail electric rate relief played a significant role in Wisconsin Public Service not earning its approved return on equity in 2003. As a result of this delay, we met with the Public Service Commission of Wisconsin and established procedures and fixed timelines for completion of the 2004 rate case in order to allow the Public Service Commission of Wisconsin to rule on a more timely basis. These efforts led to a timely rate order for 2004. Even with the higher retail electric rates, Wisconsin Public Service's overall electric rates are among the lowest whenUnfavorable weather conditions compared to other investor-owned utilities in Wisconsin and across the nation. The approved returns on equitynormal for Wisconsin Public Service and Upper Peninsula are 12.0% and 11.4%, respectively.

  Perhaps the most relevant risk to our regulated utilities is deregulation. Deregulation of theboth electric and natural gas utilitiesutility operations and increased operating expenses contributed to WPSC's inability to earn its approved rate of return in 2004.

  Uncertainties related to the deregulation process are a risk for our regulated utilities. Deregulation of natural gas service has begun in Wisconsin, especially for natural gas service.Wisconsin. Currently, the largest natural gas customers can purchase natural gas from suppliers other than their local utility.  Efforts are underway to make it easier for smaller natural gas customers to do the same. In addition, the Public Service Commission of Wisconsin has been studying how to deregulate the state's electric supply. We believe electric deregulation inside Wisconsin is at least several years off as the state is focused on improving reliability by building more generation and transmission facilities and creating fair market rules. AsIf electric choice occurs, we believe we willcould lose some generation load but willwould retain the delivery revenues and margin. Also, the capacity that iswould be freed up should be competitive in our marketplace. Deregulation of electricity is present in Michigan; however, in the Upper Peninsula of Michigan, no customers have chosen an alternative electric supplier and no alternative electric suppliers have offered to serve any customers in Michigan's Upper Peninsula due to the lack of excess transmission and generation system capacity in the areas we serve, in the Upper Peninsula, which is a barrier to competitive suppliers entering the market.

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  WPS Power Development

  WPS Power Development competesThe utilities are also exposed to costs associated with increasingly stringent environmental rules and regulations to the extent recovery of these costs is disallowed in rate proceedings. WPSC and UPPCO are also members of the Midwest Independent System Operator, which is in the wholesale merchantprocess of restructuring the electric power generation industry, primarilymarket in the midwestits footprint. For further discussion of environmental risks, see Note 17 to WPS Resources' Notes to Consolidated Financial Statements and northeastern United States and adjacent portions of Canada. WPS Power Development's core competencies include power plant operation and maintenance, waste disposal, and material condition assessment of assets. Revenues are derived primarily through the sale of capacity and energy generated from plant assets through wholesale outtake contracts and into liquid financial markets, primarily the PJM (Pennsylvania, New Jersey and Maryland), New York, and NEPOOL (New England Power Pool) markets, at spot prices or day ahead prices. Historically, risk management activities have not been utilized significantly at WPS Power Development. Excluding discontinued operations (the operationfor further discussion of the Sunbury generation plant, which is pending sale, and certain other related assets), WPS Power Development has approximately 425 megawatts of existing capacity, with fixed price contracts in place to sell approximately 86 megawatts. The majority of the remaining 339 megawatts of generation have been leased to WPS Energy Services under an operating lease effective January 2004, as discussed in more detail below.

  WPS Power Development, through its subsidiary ECO Coal Pelletization #12 LLC, also owns an interest in a synthetic fuel producing facility. SeeMidwest Independent System Operator, see Trends - WPS Resources, Synthetic Fuel Operation for more information.

  WPS Power Development's ability to generate revenues is dependent upon open access to physical markets and liquid financial markets. We are not currently aware of any significant changes in the physical markets in which WPS Power Development operates. In addition, we believe that financial markets are becoming more liquid with the addition of large financial players.

  WPS Power Development is subject to clean air regulations enforced by the United States Environmental Protection Agency and state and local governments. New legislation could require significant capital outlays that may impact WPS Power Development's ability to compete with regulated utilities, which are allowed recovery of these costs.

  Oversupply of capacity, low spark spreads (spark spread is the difference between the market price of electricity and its cost of production), and extreme volatility in the price of fuel, energy, and capacity values have negatively impacted margins at WPS Power Development. In response to these market conditions, WPS Power Development has taken steps to adjust to the current wholesale merchant environment. WPS Power Development has instituted workforce reductions at the central office and at various New York and Pennsylvania plants. On October 23, 2003, a definitive agreement was entered into to sell WPS Power Development's Sunbury generating facility to a subsidiary of Duquesne Light Holdings. The pending sale of Sunbury will allow WPS Power Development to reduce uncontracted merchant exposure and redeploy capital into markets with different risk profiles. In addition, in January 2004, WPS Power Development entered into operating lease agreements with WPS Energy Services as part of its asset management strategy. This partnership will enable WPS Power Development to focus on efficient and effective operation of its plants and is expected to reduce market price risks associated with the merchant generation plants by utilizing WPS Energy Services' financial and physical product trading expertise. WPS Energy Services will utilize various financial tools, including forwards and options, to limit exposure, as well as to extract additional value from volatile commodity prices.

  Given current market conditions, we do not expect to see significant growth through the acquisition of generation assets, but we are continuing to look for growth opportunities that will allow us to extract synergies between WPS Power Development and WPS Energy Services that will enhance shareholder value.Resources.

  WPS Energy Services

  WPS Energy ServicesESI offers nonregulated natural gas, electric, and alternate fuel supplies, as well as energy management and consulting services, to retail and wholesale customers primarily in the northeastern quadrant of the United States and adjacent portions of Canada. Although WPS Energy

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  ServicesESI has a widening array of products and services, revenues are primarily derived through sales of electricity and natural gas.gas to retail and wholesale customers.

  WPS Energy Services'ESI's marketing and trading operations manage power and natural gas procurement as an integrated portfolio with its retail and wholesale sales commitments. ESI strives to maintain a low risk portfolio with relatively few open positions, balancing natural gas and electricity purchase commitments with corresponding sales commitments. In 2003, WPS Energy Services2004, ESI purchased electricity required to fulfill these sales commitments primarily from independent generators, energy marketers, and organized electric power markets and purchased natural gas from a variety of producers and suppliers under daily, monthly, seasonal, and long-term contracts, with pricing delivery and volume schedules to accommodate customer requirements.

  WPS Energy Services' ESI's customers include utilities, municipalities, cooperatives, commercial and industrial consumers, aggregators, and other marketing and retail entities. WPS Energy ServicesESI uses derivative financial instruments to provide flexible pricing to customers and suppliers, manage purchase and sales commitments, and reduce exposure relative to the volatility ofvolatile market prices.

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  The table below discloses future natural gas and electric sales volumes under contract as of December 31, 2003.2004. Contracts are generally one to three years in duration. WPS Energy ServicesESI expects that its ultimate sales volumes in 20042005 and beyond will exceed the volumes shown in the table below as it continues to seek growth opportunities.

  Forward Contracted Volumes at 12/31/2003(1)	2004	2005 to 2007	2008 to 2009
  Wholesale sales volumes - billion cubic feet	95.8	15.1	-
  Retail sales volumes - billion cubic feet	173.4	63.2	-
  Total natural gas sales volumes	269.2	78.3	-
  Wholesale sales volumes - million kilowatt-hours(2)	3,176	238	-
  Retail sales volumes - million kilowatt-hours(2)	5,133	3,623	37
  Total electric sales volumes	8,309	3,861	37

  For comparative purposes, future natural gasopportunities and electric sales volumes under contract at December 31, 2002 are shown below. Actual electric and natural gas sales volumes for 2003 are disclosed within Results of Operations - WPS Resources Corporation, WPS Energy Services' Segment Operations.existing customers who do not have long-term contracts continue to buy their short-term requirements from ESI.

  Forward Contracted Volumes at 12/31/2002(1)	2003	2004 to 2006	2007 to 2008
  Forward Contracted Volumes at 12/31/2004(1)				2005	2006 to 2008	2009 to 2010
  Wholesale sales volumes - billion cubic feet	67.6	9.7	-	98.1	10.2	-
  Retail sales volumes - billion cubic feet	110.4	26.6	-	184.8	39.6	2.0
  Total natural gas sales volumes	178.0	36.3	-	282.9	49.8	2.0
  Wholesale sales volumes - million kilowatt-hours(2)	3,833	3,147	-	5,981	1,665	-
  Retail sales volumes - million kilowatt-hours(2)	1,966	739	10	3,413	1,575	73
  Total electric sales volumes	5,799	3,886	10	9,394	3,240	73

  (1) These tables represent physical sales contracts for natural gas and electric power for delivery or settlement in future periods. Management has no reason to believe that gross margins that will be generated by these contracts will vary significantly from those experienced historically.

  (2) WPS Energy Services acquired retailFor comparative purposes, future natural gas and electric operations in Michigan in 2003. Prior to the acquisition, this operation was an electric wholesale customer of WPS Energy Services, therefore forward contractedsales volumes to this customerunder contract at December 31, 2002 were included2003 are shown below. Actual electric and natural gas sales volumes for 2004 are disclosed within Results of Operations - WPS Resources, ESI Segment Operations.

  Forward Contracted Volumes at 12/31/2003(1)	2004	2005 to 2007	2008 to 2009
  Wholesale sales volumes - billion cubic feet	95.8	15.1	-
  Retail sales volumes - billion cubic feet	173.4	63.2	-
  Total natural gas sales volumes	269.2	78.3	-
  Wholesale sales volumes - million kilowatt-hours	3,176	238	-
  Retail sales volumes - million kilowatt-hours	5,133	3,623	37
  Total electric sales volumes	8,309	3,861	37

  (1) These tables represent physical sales contracts for natural gas and electric power for delivery or settlement in wholesale sales volumes. At December 31, 2003 forward contracted volumes relatedfuture periods. Management has no reason to this operation were included in retail sales volumes.believe that gross margins that will be generated by these contracts will vary significantly from those experienced historically.

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  WPS Energy ServicesESI has experienced steady increases in electric and natural gas sales volumes since its inception, and expects this trend to continue as it continues to look for opportunities that fit within its growth strategy. In 2003, WPS Energy Services2004, ESI grew its retail electric business through the acquisition of retail operations in MichiganNew York and participation inthrough portfolio optimization strategies utilized to maximize the New Jersey Basic Generation Service program.value of PDI's merchant generation fleet and ESI's retail supply portfolio. Natural gas volumes increased as a result of the continued expansion of itsESI's retail natural gas business in Canada. WPS Energy ServicesESI expects to continue to target acquisitions and participate in generation service programs within the area it serves. Although revenues are expected to grow in 2004, we do not anticipate earnings growth in 2004 since 2003 growth included the favorable settlement of several counterparty liabilities and the cumulative effect of a change in accounting arising from the required adoption of Emerging Issues Task Force Issue No. 02-03, "Issues Involved in Energy Trading and Risk Management Activities," with requirements that shifted margin recognition from 2004 to 2003. We anticipate long-term earnings growth at WPS Energy Services in the range of 15% to 25%.

  As a company that participates in energy commodity markets, WPS Energy ServicesESI is exposed to a variety of risks, including market, operational, liquidity, and credit risks. Market risk is measured as the potential gain or loss of a portfolio that is associated with a price movement within a given probability over a specific period of time, known as value-at-risk. Through the use of derivative financial instruments, we believe we have reduced our value-at-risk to acceptable levels.levels (see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for more information about value-at-risk). Operational risk is the risk of loss from less than flawless execution of transactions, forecasting, scheduling, or other operational activities and is common to all companies participating in the energy marketing industry. WPS Energy Services'ESI's continued investment in computational infrastructure, business process improvement, employee training, and internal controls has

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  helped mitigate operational risk to date. Liquidity risk is an emerging risk and one that has historically been less applicable to WPS Energy ServicesESI than many industry participants because of the financial support provided by WPS Resources in the form of guarantees to counterparties. A significant downgrade in WPS Resources' credit ratings, however, could cause counterparties to demand additional assurances of payment. WPS Resources' Board of Directors imposes restrictions on the amount of guarantees WPS Resources is allowed to provide to these counterparties in order to protect its credit ratings, and WPS Energy ServicesESI believes it would have adequate capital to continue core operations unless WPS Resources' credit ratings fell below investment grade (Standard & Poor's rating of BBB-/ and Moody's rating of Baa3).

  The other category of risk mentioned above that WPS Energy ServicesESI faces is credit risk from retail and wholesale counterparties. In order to mitigate its exposure to credit risk, WPS Energy ServicesESI has implemented stringent credit policies. As a result of these credit policies, WPS Energy ServicesESI has not experienced significant write-offs from its large wholesale counterparties to date. Write-offs pertaining to retail counterparties were $0.7 million, or 0.0%, in 2004, compared to $3.1 million, in 2003, or 0.2%, and we believe thisin 2003. ESI believes its write-off percentage is within the range experienced by most energy companies. The table below summarizes wholesale counterparty credit exposure, categorized by maturity date, as of December 31, 20032004 (in millions):

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  Counterparty Rating(1)	Exposure(2)	Exposure Less than 1 year	Exposure 1 to 3 years	Net Exposure of  Counterparties  Greater Than  10% of Net Exposure
  Counterparty Rating (Millions)(1)					Exposure(2)	Exposure Less Than 1 Year	Exposure 1 to 3 Years	Net Exposure of  Counterparties  Greater Than  10% of Net  Exposure
  Investment grade -- regulated utility	$ 5.9	$ 5.5	$ 0.4	$ -	$ 18.8	$ 13.7	$ 5.1	$ -
  Investment grade -- other	79.7	75.9	3.8	17.5	86.6	79.1	7.5
  Non-investment grade -- regulated utility	7.6		-	-	-		-	-
  Non-investment grade -- other	3.3		-	-	4.0		-	-
  Non-rated -- regulated utility	0.9		-	-	-		-	-
  Non-rated -- other	21.2	17.0	4.2	-	36.3	28.2	8.1	-
  Total Exposure	$118.6	$110.2	$ 8.4	$17.5	$145.7	$125.0	$20.7	$ -

  (1) The investment and non-investment grade categories are determined by publicly available credit ratings of the counterparty or the rating of any guarantor, whichever is higher. Investment grade counterparties are those with a senior unsecured Moody's rating of Baa3 or above or a Standard & Poor's rating of BBB- or above.

  (2) Exposure considers netting of accounts receivable and accounts payable where netting agreements are in place as well as netting mark-to-market exposure. Exposure is before consideration of collateral from counterparties. Collateral, in the form of cash and letters of credit, received from counterparties totaled $6.2$11.7 million at December 31, 2003, all2004, $3.2 million from non-investment grade counterparties and $8.5 million from non-rated counterparties.

  A risk that became more prevalent in 2004 is industry restructuring. There is some concern over the status of the nonregulated energy market in Michigan and Ohio, which are two states in which ESI operates. ESI is also a member of the Midwest Independent System Operator, which is in the process of restructuring the electric power market in its footprint. For more information on these risks, see Trends - WPS Resources.

  WPS Power Development

  PDI competes in the wholesale merchant electric power generation industry, primarily in the midwest and northeastern United States and adjacent portions of Canada. PDI's core competencies include power plant operation and maintenance and material condition assessment of assets. In order to enable PDI to focus on its core competencies and improve the efficiency and reliability of its existing fleet of power

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  plants, ESI has assumed much of the market price risk associated with these plants. Through several tolling agreements and power purchase agreements, ESI has contracted for approximately 330 of PDI's 425 megawatts of total capacity (these capacity numbers exclude Sunbury, which is recorded in discontinued operations). ESI utilizes power from PDI's New England and Canadian assets primarily to serve its firm load commitments in northern Maine and certain other sale agreements with customers. For the remaining capacity contracted from PDI, ESI utilizes financial tools, including forwards, options, and swaps to limit exposure, as well as to extract additional value from PDI's merchant generation fleet. These activities had a positive impact on ESI's margin in 2004 and benefited PDI by providing more stable revenue streams.

  PDI has power purchase agreements in place with third-party customers for the 95 megawatts of capacity that is not contracted to ESI, which includes its Stoneman facility in Cassville, Wisconsin, and its Combined Locks facility in Combined Locks, Wisconsin.

  Oversupply of capacity, low spark spreads (spark spread is the difference between the market price of electricity and its cost of production), and high fuel costs have led to lower than anticipated results for PDI's merchant generation business in recent years. In response to these market conditions, PDI has taken steps to adjust to the current wholesale merchant environment. As discussed above, beginning in January 2004, ESI began assuming much of the market price risk for PDI's merchant generation fleet. Prior to the capacity and power contracts with ESI, risk management activities (i.e., hedging activities) were sparsely utilized, leaving PDI's generation fleet more exposed to market price risk. PDI also continues to pursue the sale of Sunbury and anticipates that the plant will be sold in 2005. The Sunbury sale will allow PDI to reduce its uncontracted merchant exposure and enable WPS Resources to redeploy capital into business opportunities with different risk profiles.

  PDI, through its subsidiary ECO Coal Pelletization #12 LLC, also owns an interest in a synthetic fuel producing facility. See Trends - WPS Resources, Synthetic Fuel Operation for more information on the risks related to PDI's investment in this synthetic fuel operation.

  PDI is subject to clean air regulations enforced by the EPA and state and local governments. New legislation could require significant capital outlays. See Note 17 to WPS Resources' Notes to Consolidated Financial Statements for more information on PDI's environmental exposure.

  RESULTS OF OPERATIONS - WPS RESOURCES

  2004 Compared with 2003

  WPS Resources Overview

  WPS Resources' 2004 and 2003 results of operations are shown in the following table:

  WPS Resources' Results (Millions, except share amounts)	2004	2003	Change
  Consolidated operating revenues	$4,890.6	$4,321.3	13.2%
  Income available for common shareholders	$139.7	$94.7	47.5%
  Basic earnings per share	$3.74	$2.87	30.3%
  Diluted earnings per share	$3.72	$2.85	30.5%

  The $569.3 million increase in consolidated operating revenue for the year ended December 31, 2004, compared to the same period in 2003, was largely driven by a $475.1 million, or 15.4%, increase in revenue at ESI and an $82.5 million, or 10.1%, increase in electric utility revenue. Higher natural gas prices, portfolio optimization strategies (implemented in 2004), and expansion of the Canadian retail natural gas business were the primary contributors to increased revenue at ESI. Higher electric utility revenue was primarily the result of authorized retail electric rate increases for WPSC's Wisconsin and Michigan customers. Revenue changes by reportable segment are discussed in more detail below.

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  Income available for common shareholders was $139.7 million ($3.74 basic earnings per share) for the year ended December 31, 2004, compared to $94.7 million ($2.87 basic earnings per share) for the year ended December 31, 2003. Significant factors impacting the change in earnings and earnings per share are as follows (and are discussed in more detail below).

  • Approved rate increases (including the impact of timely retail electric rate relief in 2004, compared to the delay in receiving retail electric rate relief in 2003) favorably impacted year-over-year margin at the utilities.
    
  • Natural gas utility throughput volumes were 6.2% lower in 2004 due to weather that was 4.3% warmer during the heating season, compared to 2003.
    
  • Higher throughput volumes and improved supply management in Ohio favorably impacted ESI's year-over-year retail natural gas margin.
    
  • Portfolio optimization strategies, better management of retail operations in Ohio and positive operating results from Advantage Energy Services is aiding WPS Power Development with itscontributed to improved year-over-year electric margins at ESI.
    
  • As part of our overall asset management startingstrategy, WPS Resources realized earnings of $15.0 million from the sale and donation of land in 2004, compared to $6.5 million in 2003.
    
  • Earnings from equity method investments (primarily from ATC) increased in 2004, compared to 2003.
    
  • Earnings were negatively impacted by higher operating and maintenance expenses in 2004.
    
  • Synthetic fuel related tax credits recognized were higher in 2004 when compared to 2003.
    
  • The weighted average number of shares of WPS Resources common stock increased by 4.4 million shares for the year ended December 31, 2004, compared to the same period in 2003. The increase was largely due to issuing 4,025,000 additional shares of common stock through a public offering in November 2003. Additional shares were also issued under the Stock Investment Plan and certain stock-based employee benefit plans.

  Overview of Utility Operations

  Utility operations include the electric utility segment, consisting of the electric operations of WPSC and UPPCO and the gas utility segment comprising the natural gas operations at WPSC. Income available for common shareholders attributable to the electric utility segment was $68.8 million for the year ended December 31, 2004, compared to $60.0 million for the year ended December 31, 2003. Income available for common shareholders attributable to the gas utility segment was $17.3 million for the year ended December 31, 2004, compared to $15.7 million for the year ended December 31, 2003.

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  Electric Utility Segment Operations

  WPS Resources' Electric Utility Segment Results (Millions)	2004	2003	Change
  Revenues	$896.6	$814.1	10.1%
  Fuel and purchased power costs	295.5	266.3	11.0%
  Margins	$601.1	$547.8	9.7%
  Sales in kilowatt-hours	14,465.7	14,346.7	0.8%

  Electric utility revenue increased $82.5 million, or 10.1%, for the year ended December 31, 2004, compared to the same period in 2003. Electric utility revenue increased largely due to authorized retail and wholesale electric rate increases for WPSC's Wisconsin and Michigan customers (as summarized below) to recover higher fuel and purchased power costs, increased operating expenses, and expenditures incurred for infrastructure improvements.

  • Effective March 21, 2003, the PSCW approved a retail electric rate increase of $21.4 million, or 3.5%.
    
  • Effective May 11, 2003, FERC approved a $4.1 million, or 21%, interim increase in wholesale electric rates.
    
  • Effective July 22, 2003, the MPSC approved a $0.3 million, or 2.2%, increase in retail electric rates for WPSC's Michigan customers and authorized recovery of $1.0 million of increased transmission costs through the power supply cost recovery process.
    
  • Effective January 1, 2004, the PSCW approved a retail electric rate increase of $59.4 million, or 9.3%.

  Electric utility sales volumes were also slightly higher in 2004, increasing 0.8% over 2003 sales volumes. A 1.6% increase in sales volumes to commercial and industrial customers was partially offset by a 1.2% decrease in sales volumes to residential customers. Higher sales volumes to our commercial and industrial customers reflect an improving economy and growth within our service area, while the decrease in sales volumes to residential customers reflects weather that was 6.6% cooler during the 2004 cooling season, compared to 2003.

  The electric utility margin increased $53.3 million, or 9.7%, for the year ended December 31, 2004, compared to 2003. The majority of this increase can be attributed to a $52.3 million, or 10.5%, increase in WPSC's electric margin. The increase in WPSC's electric margin is primarily related to the retail and wholesale electric rate increases, partially offset by a $20.4 million increase in purchased power costs. The quantity of power purchased in 2004 increased 9.3% over 2003 purchases, and purchased power costs were 17.4% higher (on a per-unit basis) in 2004, compared to 2003. The PSCW allows WPSC to adjust prospectively the amount billed to Wisconsin retail customers for fuel and purchased power if costs are in excess of plus or minus 2% from approved levels. In response to a request for additional fuel cost recovery filed early in 2004, WPSC was allowed to recover $3.2 million of its increased fuel and purchased power costs during 2004. Over the past year, WPS Energy Services has positioned itselfThe PSCW also allowed WPSC to mitigate price risksdefer $5.4 million of unanticipated fuel and optimize the market value associated with WPS Power Development's merchant generation facilities. WPS Energy Services expects to employ a variety of physical and financial instruments offered in the marketplace to limit risk exposure associated with fluctuating commodity prices and volumes, enhance value, and minimize cash flow volatility. While riskspurchased power costs directly associated with the power generating capacity,extension of the Kewaunee refueling outage in the fourth quarter of 2004. The Kewaunee outage was extended three weeks due primarily to an unexpected problem encountered with equipment used for lifting internal vessel components to perform a required ten-year in-service inspection. It is anticipated that these costs will be recovered in 2006, pending final approval.

  Electric utility earnings increased $8.8 million, or 14.7%, for the year ended December 31, 2004, compared to 2003. The increased earnings were largely driven by the higher margin at WPSC (including

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  the effect of timely retail electric rate relief in 2004 compared to a delay in receiving retail electric rate relief in 2003), partially offset by higher operating and maintenance expenses.

  Gas Utility Segment Operations

  WPS Resources' Gas Utility Segment Results (Millions)	2004	2003	Change
  Revenues	$420.9	$404.2	4.1%
  Purchased gas costs	301.9	291.0	3.7%
  Margins	$119.0	$113.2	5.1%
  Throughput in therms	801.3	854.5	(6.2%)

  Gas utility revenue increased $16.7 million, or 4.1%, for the year ended December 31, 2004, compared to 2003. Higher revenue was driven by an authorized rate increase and an increase in the per-unit cost of natural gas, sales will be commercially hedged, generally accepted accounting principles relatedpartially offset by an overall 6.2% decrease in natural gas throughput volumes. The PSCW issued a final order authorizing a retail natural gas rate increase of $8.9 million, or 2.2%, effective January 1, 2004. Natural gas prices increased 14.2% per unit in 2004. Higher natural gas prices reflect higher marketplace natural gas costs in 2004. The PSCW and the MPSC allow WPSC to recognition ofpass changes in the fair valuetotal cost of derivative instruments as representednatural gas on to customers. As a result, changes in Statementthe price of Financial Accounting Standards No. 133, "Accountingthe natural gas commodity do not have a direct impact on WPSC's margin. The decrease in natural gas throughput volumes was driven by weather that was 4.3% warmer during the heating season for Derivative Instruments and Hedging Activities," as amended and interpreted and Emerging Issues Task Force Issue No. 02-03, "Issues Involvedthe year ended December 31, 2004, compared to 2003.

  The natural gas utility margin increased $5.8 million, or 5.1%, for the year ended December 31, 2004, compared to 2003. The higher natural gas utility margin is largely due to the authorized rate increase mentioned above. The ability of WPSC to realize the full benefit of an authorized rate increase is dependent upon normal throughput volumes; therefore, the decrease in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," will preclude a perfect matching of gains and lossesnatural gas throughput volumes negatively impacted WPSC's ability to benefit from the generating capacity withfull amount of the physicalrate increase.

  The higher margin drove a $1.6 million, or 10.2% increase in natural gas utility earnings for the year ended December 31, 2004.

  Overview of Nonregulated Operations

  Nonregulated operations consist of natural gas, electric, and financial hedging instrumentsother sales at ESI, a diversified energy supply and services company, and the operations of PDI, an electric generation company. ESI and PDI are both reportable segments.

  Income available for common shareholders attributable to ESI was $36.7 million for the year ended December 31, 2004, compared to $29.0 million for the same period in some reporting periods. The result could cause volatility2003. Higher overall margins were offset by an increase in operating expenses and a $3.3 million after-tax cumulative effect of change in accounting principles that was recorded at ESI in 2003.

  PDI reported income available for common shareholders of $5.0 million for the year ended December 31, 2004, compared to a $7.9 million net loss for the year ended December 31, 2003, largely due to an increase in the reported earningsamount of WPS Energy Services. However,tax credits recognized and a lower loss from discontinued operations, partially offset by higher operating and maintenance expenses and a lower overall margin.

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  ESI's Segment Operations

  Total segment revenues at ESI were $3,556.3 million for the financial impact of this timing difference would be reversedyear ended December 31, 2004, compared to $3,081.2 million for the year ended December 31, 2003. The total margin at ESI was $111.6 million for the time ofyear ended December 31, 2004 compared to $86.8 million for the year ended December 31, 2003. ESI's nonregulated natural gas and electric operations are the primary contributors to revenues and margins and are discussed below.

  ESI's Natural Gas Results (Millions except sales volumes)	2004	2003	Change
  Nonregulated natural gas revenues	$3,035.1	$2,696.6	12.5%
  Nonregulated natural gas cost of sales	2,978.5	2,652.5	12.3%
  Margins	$    56.6	$    44.1	28.3%
  Wholesale sales volumes in billion cubic feet *	236.3	252.4	(6.4%)
  Retail sales volumes in billion cubic feet *	276.7	240.6	15.0%

  * Represents gross physical delivery and/or settlementvolumes

  Natural gas revenue increased $338.5 million, driven by higher natural gas prices and the expansion of the Canadian retail natural gas business (due to obtaining new customers), partially offset by lower sales volumes from physical wholesale transactions. Sales volumes from physical wholesale transactions declined as a result of reduced price volatility of natural gas during the first half of 2004 (volatility provides more opportunity for profitable physical wholesale transactions).

  WPS Energy ServicesThe natural gas margin at ESI increased $12.5 million, or 28.3%, for the year ended December 31, 2004, compared to 2003. The margin related to retail natural gas operations increased $12.3 million, primarily driven by higher natural gas throughput volumes in Ohio (driven by the addition of new customers), operational improvements, and better management of supply for residential and small commercial customers. Customer growth in Canada also contributed to the increase in the retail natural gas margin. The margin attributed to wholesale natural gas operations increased $0.2 million. The increase in wholesale natural gas margin was driven by a $4.6 million margin increase related to the natural gas storage cycle, a $2.2 million increase in the Canadian wholesale natural gas margin, and increased margins from other structured wholesale natural gas transactions. Favorable settlements of liabilities with several counterparties in 2003 (in the amount of $8.4 million) largely offset these increases in the wholesale natural gas margin. For the year ended December 31, 2004, the natural gas storage cycle had a $2.0 million positive impact on margin, compared with a $2.6 million negative impact on margin for the same period in 2003. The increase in the Canadian wholesale natural gas margin is also impacted byrelated to higher volumes (more structured wholesale transactions) as ESI continues to increase its wholesale natural gas operations in this region.

  ESI experiences earnings volatility associated with the natural gas storage cycle, which runs annually from June to March. InjectionsApril 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. WPS Energy Services'ESI's policy is to hedge the price riskvalue of all purchases fornatural gas storage with sales in the over the counterover-the-counter and futures markets, eliminatingeffectively locking in a margin on the price risk for the storage assets. Currentnatural gas in storage. However, fair market value hedge accounting rules allowrequire the natural gas in storage to be marked-to-market using spot prices, while the future sales contracts are marked-to-market using forward prices. When the spot price of natural gas changes disproportionately to the forward price of natural gas, ESI experiences volatility in its earnings. Consequently, earnings volatility may occur within the contract period for natural gas in storage. The accounting treatment does not impact the markingunderlying cash flows or economics of these transactions. At December 31, 2004, there was a $0.6 million difference between the market value of natural gas in storage and the market value of future sales contracts (net risk management liability), related to market of forward sales, but do not allow for the marking to market of the related2004/2005 natural gas inventory. This results in gains and losses that are recognized in different interim periods, but even out by the end of the storage cycle. At December 31, 2003, there were pre-tax mark to market losses ofwas a $2.6 million recorded (relateddifference (net risk management liability) related to the 2003/2004 natural gas storage cycle. The difference between the market value of natural gas in storage and the market value of future sales contracts related to the

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  2004/2005 storage cycle is expected to vary with market conditions, but will reverse entirely when all of the natural gas storage cycle)is withdrawn from storage.

  ESI's Electric Results (Millions)	2004	2003	Change
  Nonregulated electric revenues	$518.9	$382.2	35.8%
  Nonregulated electric cost of sales	466.1	341.8	36.4%
  Margins	$ 52.8	$ 40.4	30.7%
  Wholesale sales volumes in kilowatt-hours *	3,181.5	2,768.0	14.9%
  Retail sales volumes in kilowatt-hours *	7,202.9	6,435.3	11.9%

  * Represents gross physical volumes

  Electric revenue increased $136.7 million, largely due to an $83.7 million increase resulting from higher volumes from portfolio optimization strategies. In the first quarter of 2004, ESI first implemented the portfolio optimization strategies to optimize the value of PDI's merchant generation fleet and its own retail supply portfolios to reduce market price risk and extract additional value from these assets through the use of various financial and physical instruments (such as forward contracts and options). Electric revenue also increased as a result of the July 1, 2004, acquisition of Advantage Energy and higher energy prices compared to the prior year. These increases were partially offset by lower sales volumes from participation in the New Jersey Basic Generation Services Program, as ESI's participation in this program ended in May 2004.

  ESI's electric margin increased $12.4 million, or 30.7%, for the year ended December 31, 2004, compared to 2003. The 2004 retail electric margin increased $7.8 million compared to 2003. The margin related to retail electric operations in Ohio increased $7.6 million, which can be attributed to better management of retail operations and improved supply procurement. Also contributing to the increase in retail electric margin was a $2.6 million favorable settlement of a counterparty pricing dispute and positive operating results from Advantage Energy. The increase in the retail electric margin was partially offset by a decrease in margin from retail electric operations in Maine. The lower margin in Maine was anticipated due to the sales price and supply cost associated with the new provider of last resort in northern Maine (which became effective in March 2004). The margin from retail electric operations in Michigan also decreased, driven by higher wholesale electricity prices, higher transmission related charges, and an increase in competition. The margin attributed to wholesale electric operations increased $4.6 million. The higher wholesale electric margin was driven by a $10.3 million increase from the portfolio optimization strategies discussed above. This increase was partially offset by a $5.7 million decrease in margin from ESI's participation in the New Jersey Basic Generation Services Program, which began in August 2003 and ended in May 2004. Under the program, ESI realized greater margins in 2003, compared to 2004.

  PDI's Segment Operations

  All revenues and costs of PDI's discontinued operations (Sunbury) are combined and reported on a net basis in WPS Resources' Consolidated Statements of Income for all periods presented. Accordingly, the table below does not include revenues and cost of sales of discontinued operations, which are discussed separately within Discontinued Operations below.

  PDI's Production Results (Millions)	2004	2003	Change
  Nonregulated other revenues	$71.4	$82.4	(13.4%)
  Nonregulated other cost of sales	48.1	57.9	(16.9%)
  Margins	$23.3	$24.5	(4.9%)

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  PDI's revenue decreased $11.0 million, or 13.4%, for the year ended December 31, 2004, compared to 2003, largely due to reduced generation from its Beaver Falls facility in New York, lower revenue from its Combined Locks Energy Center in Wisconsin, lower revenue from its steam boiler in Oregon, and lower revenue from its Wyman generation facility in Maine. The Beaver Falls facility experienced an unplanned plant outage that began in October 2003, with the facility returning to service in April 2004. This facility continued to experience lower volumes after returning to service as PDI has been more conservative in the dispatch of this unit to preserve the limited remaining service life of the turbine blades for higher margin opportunities. The decrease in revenue at the Combined Locks Energy Center was driven by lower demand for energy by the counterparty to a power purchase agreement in place at this facility and an unplanned plant outage that began in March 2004, and continued through May 2004. The decrease in revenue from the steam boiler in Oregon was largely due to a 30-day planned outage to perform repairs on the boiler, which took place in the second quarter of 2004. A power purchase agreement in place at the Wyman facility in 2003 was not renewed in 2004. As a result, energy from the Wyman facility was sold into short-term power markets in 2004, but unfavorable energy prices and lack of demand for capacity resulted in a decline in the amount of power generated at this facility in 2004, compared to 2003. The decline in revenue was partially offset by higher sales volumes at the Stoneman generation facility in Cassville, Wisconsin, related to a new power purchase agreement in place at this facility.

  PDI's margin for the year ended December 31, 2004, decreased $1.2 million, or 4.9%, compared to 2003. This margin does not include the results of PDI's discontinued operations, which are expectedreported separately in the Consolidated Statements of Income (Discontinued Operations are discussed below). The Niagara, Beaver Falls, and Wyman generating facilities experienced a combined $4.6 million decrease in margin. The lower margin at the Niagara generating facility was largely due to reversean increase in the per ton cost of coal utilized in the generation process. The unplanned plant outage experienced at the Beaver Falls facility and lower volumes related to PDI's decision to only dispatch the facility at times when energy prices are at a very favorable level, drove the decrease in margin at this facility. Unfavorable energy prices and lack of demand for capacity negatively impacted sales volumes at the Wyman generation facility (there was a power purchase agreement in place at this facility in 2003). These decreases were partially offset by a combined $2.9 million increase in margins at the Combined Locks Energy Center and the Stoneman generation facility. The higher margin at the Combined Locks Energy Center was driven by a negotiated increase in the dispatch flexibility of steam sold under a supply agreement with a counterparty, resulting in an increase in the value of electricity produced from this facility. The increase in margin at the Stoneman generation facility was due to higher sales volumes.

  Overview of Holding Company and Other Segment Operations

  Holding Company and Other operations include the operations of WPS Resources and WPS Resources Capital as holding companies and the nonutility activities at WPSC and UPPCO. Holding Company and Other operations had income available for common shareholders of $11.9 million for the year ended December 31, 2004, compared to a net loss of $2.1 million for the year ended December 31, 2003. This favorable variance can be attributed to an increase in earnings recognized from the sale of Wisconsin land located along the Peshtigo River and an increase in equity earnings from ATC and Wisconsin River Power Company. Equity earnings from ATC were $16.0 million in 2004, compared to $10.1 million in 2003. WPSC nonutility operations recognized a $13.3 million pre-tax gain on the sale of land located near the Peshtigo River in the fourth quarter of 2004, compared to a $6.2 million pre-tax gain that was recognized on the sale of land in the fourth quarter of 2003. WPSC also realized an income tax benefit in the fourth quarter of 2004 from the donation of land to the WDNR.

  Operating Expenses

  WPS Resources' Operating Expenses (Millions)	2004	2003	Change
  Operating and maintenance expense	$513.2	$459.5	11.7%
  Depreciation and decommissioning expense	107.0	138.4	(22.7%)
  Taxes other than income	46.1	43.8	5.3%

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  Operating and Maintenance Expense

  Operating and maintenance expenses increased $53.7 million, or 11.7%, for the year ended December 31, 2004, compared to 2003. Utility operating and maintenance expenses increased $36.3 million. Electric transmission and distribution costs were up $15.2 million at the utilities due primarily to an increase in transmission rates. Pension and postretirement medical costs incurred at the utilities increased $11.0 million. Additionally, $6.8 million of the increase was driven by amortization of costs incurred in conjunction with the implementation of the automated meter reading system and the purchase of the De Pere Energy Center (previously deferred as regulatory assets). Maintenance expenses at WPSC's coal-fired generation facilities were $4.2 million higher in 2004, compared to 2003, driven by an extension of the annual planned outage at the Pulliam 6 generation facility in 2004. Higher payroll and other benefit costs also contributed to the increase in operating and maintenance expenses. The fall refueling outage at Kewaunee did not significantly impact the year-over-year change in operating and maintenance expenses as there was also a refueling outage at Kewaunee in spring 2003, and the PSCW approved the deferral of incremental operating and maintenance expenses that were incurred as a direct result of the refueling outage extension ($1.8 million of operating and maintenance expenses were deferred in the fourth quarter of 2004 and collection is anticipated in 2006). Operating expenses at ESI increased $10.5 million mostly due to higher payroll, benefits, and other costs associated with continued business expansion. Operating and maintenance expenses at PDI were $1.5 million higher as a result of repairs and maintenance expenses incurred in conjunction with outages at its Beaver Falls generation facility, the Combined Locks Energy Center, and the Westwood Generation Station.

  Depreciation and Decommissioning Expense

  Depreciation and decommissioning expense decreased $31.4 million, or 22.7%, for the year ended December 31, 2004, compared to 2003, due primarily to a decrease of $35.9 million resulting from lower realized gains on decommissioning trust assets and because the decommissioning trust was not funded in 2004 in anticipation of selling Kewaunee. Realized gains on decommissioning trust assets are substantially offset by depreciation expense pursuant to regulatory practice (see detailed discussion in "Miscellaneous Income" below). An increase in depreciation expense from plant asset additions at WPSC partially offset the decrease in decommissioning expense.

  Other Income (Expense)

  WPS Resources' Other Income (Expense) (Millions)	2004	2003	Change
  Miscellaneous income	$ 47.7	$ 63.6	(25.0%)
  Interest expense and distributions of preferred securities	(54.2)	(55.6)	(2.5%)
  Minority interest	3.4	5.6	(39.3%)
  Other income (expense)	$ (3.1)	$ 13.6	(122.8%)

  Miscellaneous Income

  Miscellaneous income decreased $15.9 million, or 25.0%, for the year ended December 31, 2004, compared to 2003. The decrease in miscellaneous income is largely due to a decrease in realized gains on decommissioning trust assets of $33.5 million. There were significant realized gains recognized on decommissioning trust assets in the fourth quarter of 2003, which were driven by a change in the investment strategy for WPSC's qualified nuclear decommissioning trust assets. Qualified decommissioning trust assets were placed in more conservative investments in anticipation of the sale of Kewaunee. Pursuant to regulatory practice, realized gains on decommissioning trust assets are substantially offset by depreciation expense. A $1.5 million write-off of previously deferred financing costs associated with the redemption of our trust preferred securities in the first quarter of 2004.2004 also unfavorably impacted miscellaneous income. Partially offsetting the decreases discussed above were an $8.7 million increase in equity earnings from investments, a $7.1 million increase in income recognized from the sale of Wisconsin land located along the Peshtigo River (discussed previously), and a combined $3.1 million increase related to higher royalties and a decrease in operating losses realized from our

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  investment in a synthetic fuel producing facility. The increase in equity earnings was primarily related to our investments in ATC, Wisconsin River Power Company, and Wisconsin Valley Improvement Company. Equity earnings from ATC were $16.0 million in 2004, compared to $10.1 million in 2003. Royalty income recognized from the synthetic fuel facility increased as a result of higher production levels at this facility.

  Minority Interest

  RESULTS OF OPERATIONS -The decrease in minority interest is related to the fact that PDI's partner in its subsidiary, ECO Coal Pellitization #12 LLC, was allocated more production from the synthetic fuel operation in 2003 compared to 2004. PDI's partner was not allocated any production from the synthetic fuel facility in the first quarter of 2004 as they requested additional production in the fourth quarter of 2003.

  Provision for Income Taxes

  The effective tax rate was 16.1% for the year ended December 31, 2004, compared to 23.4% for the year ended December 31, 2003. The decrease in the effective tax rate was driven by tax deductions pertaining to items that exceed the related book expense (including land donated to the WDNR in the fourth quarter of 2004), resulting in a $5.7 million decrease in the 2004 provision for income taxes compared to 2003, a $9.6 million increase in the amount of tax credits recognized in 2004 (related to an increase in synthetic fuel tax credits produced in 2004 and the favorable settlement of several federal tax audits and refund claims related to prior tax years).

  Our ownership interest in the synthetic fuel operation resulted in the recognition of $27.8 million of Section 29 federal tax credits for the year ended December 31, 2004, and $18.2 million of tax credits for 2003. The increase in synthetic fuel related tax credits was primarily due to an increase in tax credits produced and allocable to PDI, an increase in the value of the credits produced resulting from the higher Btu content of coal and the annual inflation adjustment allowed, and the favorable settlement of several tax audits and refund claims related to prior tax years.

  Discontinued Operations

  The after-tax loss from discontinued operations (Sunbury) was $13.4 million for the year ended December 31, 2004, compared to $16.0 million in 2003. The decrease in the loss from discontinued operations was driven by a $4.4 million termination payment that was received from Duquesne Power in December 2004 as a result of Duquesne's termination of the asset sale agreement for Sunbury, a $3.7 million decrease in operating and maintenance expenses, and a $0.7 million reduction in interest expense. The decrease in operating and maintenance expenses was driven by lower depreciation expense resulting from the discontinuance of depreciation on those assets classified as held for sale effective December 2003. In addition, repair and maintenance expenses were higher in 2003 because of mechanical difficulties related to fuel delivery systems. Sunbury's margin decreased in 2004, compared to 2003, partially offsetting the favorable variances discussed above. The margin was negatively impacted by an increase in the per ton cost of coal utilized to service a fixed price outtake contract and a decrease in opportunities to sell power into the spot market. In anticipation of the sale, Sunbury did not enter into staggered term coal contracts in accordance with its normal procurement practice.

  Cumulative Effect of Change in Accounting Principles

  On January 1, 2003, WPS RESOURCES CORPORATIONResources recorded a positive after-tax cumulative effect of a change in accounting principle of $3.5 million (primarily related to the operations of ESI) to income available for common shareholders as a net result of removing from its balance sheet the mark-to-market effects of contracts that do not meet the definition of a derivative. This change in accounting resulted from the decision of the Emerging Issues Task Force to preclude mark-to-market accounting for energy contracts that are not derivatives. The required change in accounting had no impact on the underlying economics or cash flows of the contracts.

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  In addition, the adoption of SFAS No. 143, "Accounting for Asset Retirement Obligations," at PDI resulted in a $0.3 million negative after-tax cumulative effect of a change in accounting principle in the first quarter of 2003, related to recording a liability for the closure of an ash basin at Sunbury.

  2003 Compared with 2002

  WPS Resources Corporation Overview

  WPS Resources' 2003 and 2002 results of operations are shown in the following table:

  WPS Resources' Results (Millions, except share amounts)	2003	2002	Change	2003	2002	Change
  Consolidated operating revenues	$4,321.3	$1,461.1	196%	$4,321.30	$1,461.10	196%
  Income available for common shareholders	$94.7	$109.4	(13%)	$ 94.70	$ 109.40	(13%)
  Basic earnings per share	$2.87	$3.45	(17%)	$ 2.87	$ 3.45	(17%)
  Diluted earnings per share	$2.85	$3.42	(17%)	$ 2.85	$ 3.42	(17%)

  Total revenues increased significantly due to the required reclassification of previously reported 2002 revenues and cost of sales (see WPS Energy Services'ESI's Segment Operations below for further information). Total revenues also increased due to sales volume growth at WPS Energy Services,ESI, electric utility rate increases, and higher natural gas prices.

  The decrease inIncome available for common shareholders was $94.7 million ($2.87 basic earnings per share inshare) for the year ended December 31, 2003, compared to $109.4 million ($3.45 basic earnings per share) for the year ended December 31, 2002. Significant factors impacting the change in earnings and earnings per share are as follows (and are discussed in more detail below):

  • Approved rate increases and a change in electric utility sales mix favorably impacted margins at the utilities.
    
  • Cooler weather during the cooling season in 2003 negatively impacted electric utility margins.
    
  • Colder weather during the heating season in 2003 positively impacted natural gas throughput volumes.
    
  • Rising operating expenses (primarily pension and medical costs), together with a delay in receiving 2003 retail electric rate relief, negatively impacted electric utility earnings.
    
  • ESI's November 2002 was largely driven byacquisition of a retail natural gas business in Canada and favorable settlements with several counterparties drove an increased year-over-year retail natural gas margin.
    
  • ESI's electric margin improved as a result of acquisition synergies, improved management of retail operations in Michigan, and participation in the New Jersey Basic Generation Service Program.
    
  • PDI's earnings were significantly lower in 2003, primarily as a result of an $18.2 million decrease in after-tax gains recognized from sales of portions of ourits interest in a synthetic fuel operation, a $10.0 million increase in lossesincreased loss from discontinued operations, and a $5.1 million reduction in tax credits recognized from the synthetic fuel operation. These decreases were partially offset by an $18.0 million, or 164%, increase
    
  • Consolidated operating expenses increased in income available for common shareholders at WPS Energy Services. Strategic acquisitions, customer growth, and favorable settlement of certain counterparty liabilities contributed to WPS Energy Services' increased earnings.2003.
    

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  • Also impacting basic earnings per share was an increase of 1.3 million in the weighted average number of outstanding shares of WPS Resources' common stock in 2003 compared to 2002. The increase was largely due to issuing 4,025,000 additional shares through a public offering in November 2003. Additional shares were also issued in 2003 under the Stock Investment Plan.

  Overview of Utility Operations

  Utility operations include the electric utility segment consisting of the electric operations of Wisconsin Public Service and Upper Peninsula Power and the gas utility segment comprising the natural gas operations at Wisconsin Public Service. Income available for common shareholders attributable to the electric utility segment was $60.0 million in 2003 compared to $61.0 million in 2002. Income available for common shareholders attributable to the gas utility segment was $15.7 million in 2003 compared to $18.4 million in 2002.

  Electric Utility Segment Operations

  WPS Resources' Electric Utility Segment Results (Millions)	2003	2002	Change
  Revenues	$814.1	$763.1	7%
  Fuel and purchased power costs	266.3	242.7	10%
  Margins	$547.8	$520.4	5%
  Sales in kilowatt-hours	14,346.7	14,547.6	(1%)

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  WPS Resources' Electric Utility Segment Results (Millions)	2003	2002	Change
  Revenues	$814.1	$763.1	7%
  Fuel and purchased power costs	266.3	242.7	10%
  Margins	$547.8	$520.4	5%
  Sales in kilowatt-hours	14,346.7	14,547.6	(1%)

  Electric utility segment revenues increased $51.0 million, or 7%, for the year ended December 31, 2003, compared to the year ended December 31, 2002. The increase iswas largely due to retail and wholesale electric rate increases for our Wisconsin and Michigan customers in accordance with new rate orders. Wisconsin Public Service was granted authority to increase retail electric rates 3.5%, effective March 21, 2003, by the Public Service Commission of Wisconsin. Wisconsin Public Service was granted authority for a $0.3 million increase in retail electric rates from the Michigan Public Service Commission, effective July 23, 2003. The Michigan Public Service Commission also authorized recovery of $1.0 million of increased transmission costs through the power supply cost recovery fuel adjustment clause. In addition, the Federal Energy Regulatory Commission ordered a 21% interim increase in wholesale electric rates for Wisconsin Public Service effective May 11, 2003, subject to refund to the extent final rates are lower (final rates are anticipated in the second quarter of 2004). Upper Peninsula Power was granted authority to increase retail electric rates by 8.95%, effective December 20, 2002, by the Michigan Public Service Commission.

  The electric utility margin increased $27.4 million, or 5%, in 2003 compared to 2002. Due primarily to the electric rate increases, mentioned above, electric margins at Wisconsin Public ServiceWPSC increased $20.2 million, or 4%. Electric margins at Wisconsin Public ServiceWPSC were also impacted favorably by a change in sales mix in 2003. While total sales volumes remained basically unchanged in 2003 compared to 2002, sales volumes to higher margin residential, and commercial and industrial customers increased slightly. The increase in sales volumes to these higher margin customer classes reflects growth within Wisconsin Public Service'sWPSC's service area and recent changes in the economy. These increases were partially offset by cooler weather during the cooling season for the year ended December 31, 2003, compared to the year ended December 31, 2002. Electric margins at Upper Peninsula PowerUPPCO increased $7.2 million, or 17%, due primarily to the retail electric rate increase mentioned above,increases, partially offset by a 3% decrease in sales volumes. The decrease in sales volumes can bewas attributed to less favorable weather conditions for the year ended December 31, 2003, compared to the year ended December 31, 2002, and customer conservation of electricity made necessary due to a flood that occurred earlier in 2003.

  Although the electric utility margin increased, electric utility segment earnings for the year ended December 31, 2003, decreased $1.0 million compared to the year ended December 31, 2002. The primary reason for the decrease in electric utility segment earnings iswas due to a decrease in earnings at Wisconsin Public ServiceWPSC attributed to a delay in receiving 2003 retail electric rate relief, together with rising operating expenses (primarily pension and medical costs). Rate relief for our increasing operating costs was expected on January 1, 2003; however, the increase in retail electric rates granted by the Public Service Commission of WisconsinPSCW was not effective until March 21, 2003. The delay in receiving rate relief was a significant factor in our inability to achieve our authorized 12% return on equity in 2003. The decrease in earnings experienced by Wisconsin Public ServiceWPSC was partially offset by a modest increase in earnings at Upper Peninsula Power CompanyUPPCO due to the increase in rates.

  The Public Service Commission of Wisconsin allows Wisconsin Public Service to adjust prospectively the amount billed to Wisconsin retail customers for fuel and purchased power if costs fall outside a specified range. Wisconsin Public Service is required to file an application to adjust rates either higher or lower when costs are plus or minus 2% from forecasted costs on an annualized basis. See Liquidity and Capital Resources - WPS Resources, Other Future Considerations, Regulatory for information on fuel filings related to 2003.

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  Gas Utility Segment Operations

  WPS Resources' Gas Utility Segment Results (Millions)	2003	2002	Change	2003	2002	Change
  Revenues	$404.2	$310.7	30%	$404.2	$310.7	30%
  Purchase costs	291.0	198.6	47%
  Purchased gas costs				291.0	198.6	47%
  Margins	$113.2	$112.1	1%	$113.2	$112.1	1%
  Throughput in therms	854.5	845.4	1%	854.5	845.4	1%

  Gas utility segment revenues increased $93.5 million, or 30%, for the year ended December 31, 2003, compared to the year ended December 31, 2002. The increase in gas utility revenues is mostly due to a 39% increase in the average cost of natural gas for the year ended December 31, 2003, compared to the prior year, partially offset by the 0.3% decrease in retail natural gas rates ordered by the Public Service Commission of Wisconsin,PSCW, effective March 21, 2003.

  The natural gas utility margin for the year ended December 31, 2003, increased $1.1 million, or 1%, compared to the year ended December 31, 2002. The increase in the natural gas utility margin can be attributed to a 1% increase in natural gas throughput volumes in 2003 compared to 2002. Natural gas throughput volumes to our higher margin residential and commercial and industrial customers increased 6% in the aggregate, mostly as a result of colder weather in 2003 compared to 2002. Natural gas throughput volumes to our lower margin transport customers decreased 5% due to the rising price of natural gas together with their ability to use alternate fuel sources.

  Despite the modest increase in gas utility margins, gas utility earnings for the year ended December 31, 2003, decreased $2.7 million compared to 2002. The decline is primarily due to rising operating expenses (primarily pension and medical costs) together with the decrease in natural gas rates mentioned above.

  Wisconsin Public Service passes changes in the total cost of gas on to customers through a purchased gas adjustment clause, as allowed by the Public Service Commission of Wisconsin and the Michigan Public Service Commission under regulatory practice.

  Overview of Nonregulated Operations

  Nonregulated operations consist of natural gas, electric, and other sales at WPS Energy Services, a diversified energy supply and services company, and the operations of WPS Power Development, an electric generation company. WPS Energy Services and WPS Power Development are both reportable segments.

  WPS Energy Services'ESI's income available for common shareholders increased to $29.0 million in 2003 compared with $11.0 million in 2002, primarily as a result of increased electric and natural gas margins discussed below.

  WPS Power DevelopmentPDI recognized a net loss of ($7.9)$7.9 million in 2003 compared to income available for common shareholders of $24.0 million in 2002. Despite an increase in margins, WPS Power Development'sPDI's earnings were impacted by a decrease in gains recognized from the sale of portions of its interest in a synthetic fuel operation, increased losses from discontinued operations, and a decrease in the amount of tax credits recognized.

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  WPS Energy Services'ESI's Segment Operations

  Total segment revenues at WPS Energy ServicesESI were $3,081.2 million in 2003 compared to $361.2 million in 2002. The total margin at WPS Energy ServicesESI was $86.8 million in 2003 compared to $48.4 million in 2002. WPS Energy Services'ESI's nonregulated natural gas and electric operations are the primary contributors to revenues and margins and are discussed below.

  WPS Energy Services' Natural Gas Results (Millions except sales volumes)	2003	2002	Change
  Nonregulated natural gas revenues	$2,696.6	$245.1	1,000%
  Nonregulated natural gas cost of sales	2,652.5	210.2	1,162%
  Margins	$    44.1	$ 34.9	26%
  Wholesale sales volumes in billion cubic feet *	252.4	233.8	8%
  Retail sales volumes in billion cubic feet *	240.6	135.7	77%

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  ESI's Natural Gas Results (Millions except sales volumes)	2003	2002	Change
  Nonregulated natural gas revenues	$2,696.6	$245.1	1,000%
  Nonregulated natural gas cost of sales	2,652.5	210.2	1,162%
  Margins	$    44.1	$ 34.9	26%
  Wholesale sales volumes in billion cubic feet *	252.4	233.8	8%
  Retail sales volumes in billion cubic feet *	240.6	135.7	77%

  * Represents gross physical volumes

  WPS Energy Services'ESI's nonregulated natural gas revenues increased $2,451.5 million for the year ended December 31, 2003, compared to the prior year. Approximately $997 million of the increase relatesrelated to the required adoption of Issue No. 02-03, effective January 1, 2003 (see Trends - WPS Resources for more information about this accounting change). Volume growth driven by the acquisition of a retail natural gas business in Canada accounted for approximately $500 million of the increase in revenues in 2003. Most of the remaining increase can bewas attributed to higher natural gas prices compared to the prior year.

  Natural gas margins at WPS Energy ServicesESI increased $9.2 million, or 26%, in 2003 compared to 2002. Approximately $6 million of the increase related to the November 1, 2002, acquisition of a retail natural gas business in Canada. The remaining increase related to favorable settlements of pending liabilities with several counterparties, partially offset by the change in accounting prescribed by the required adoption of Issue 02-03. See Cumulative Effect of Change in Accounting Principles below for further discussion.

  WPS Energy Services' Electric Results (Millions)	2003	2002	Change
  ESI's Electric Results (Millions)				2003	2002	Change
  Nonregulated electric revenues	$382.2	$113.7	236%	$382.2	$113.7	236%
  Nonregulated electric cost of sales	341.8	102.6	233%	341.8	102.6	233%
  Margins	$ 40.4	$ 11.1	264%	$ 40.4	$ 11.1	264%
  Wholesale sales in kilowatt-hours *	2,768.0	4,250.0	(35%)
  Retail sales in kilowatt-hours *	6,435.3	2,703.6	138%
  Wholesale sales volumes in kilowatt-hours *				2,768.0	4,250.0	(35%)
  Retail sales volumes in kilowatt-hours *				6,435.3	2,703.6	138%

  * Represents gross physical volumes

  WPS Energy Services'ESI's nonregulated electric revenues increased $268.5 million for the year ended December 31, 2003, compared to the prior year. Approximately $130 million of the increase relatesrelated to the required adoption of Issue 02-03. Another $88 million of the increase can bewas attributed to participation in the New Jersey Basic Generation Services program. WPS Energy ServicesProgram. ESI acquired 700 megawatts of fixed price load and 250 megawatts of variable priced load for the period from August 1, 2003, to May 31, 2004, as a result of its participation in this program. The remaining increase in nonregulated electric revenues can bewas attributed to increased prices and expansion within existing service territories. WPS Energy ServicesESI also acquired retail electric operations in Michigan in 2003. Prior to the acquisition, this operation was an electric wholesale customer of WPS Energy Services;ESI; therefore, the acquisition did not have a significant impact on total revenues in 2003 compared to 2002. The acquisition did, however, account for most of the increase in retail sales volumes and related decrease in wholesale sales volumes in 2003 compared to 2002.

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  WPS Energy Services'ESI's electric margin increased $29.3 million, or 264%, in 2003 compared to 2002. Approximately $26 million of the increase iswas due to acquisition synergies and improved management of retail operations in Michigan and participation in the New Jersey Basic Generation Service program.Program. The remaining increase in WPS Energy Services'ESI's electric margins iswas largely due to the impact of the change in accounting prescribed by the required adoption of Issue 02-03, which precludesprecluded mark-to-market accounting for nonderivative trading contracts.

  WPS Power Development's-53-

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  PDI's Segment Operations

  All revenues and costs of WPS Power Development'sPDI's discontinued operations are combined and reported on a net basis in the WPS Resources CorporationResources' Consolidated Statements of Income for all periods presented. Accordingly, the table below does not include the results of discontinued operations, which are discussed separately within Discontinued Operations below.

  WPS Power Development's Production Results (Millions)	2003	2002	Change
  PDI's Production Results (Millions)				2003	2002	Change
  Nonregulated other revenues	$82.4	$59.4	39%	$82.4	$59.4	39%
  Nonregulated other cost of sales	57.9	37.8	53%	57.9	37.8	53%
  Margins	$24.5	$21.6	13%	$24.5	$21.6	13%

  WPS Power Development'sPDI's revenues increased $23.0 million, or 39%, in 2003 compared to 2002. WPS Power Development'sPDI's margin increased $2.9 million, or 13%, in 2003 compared to 2002. The increase in revenues and margin was primarily the result of increased generation from generating assets acquired in New York on June 1, 2002, revenues from the Combined Locks Energy Center that became fully operational in the second quarter of 2002, and an increase in generation at the hydroelectric plants in Maine and Canada as a result of increased rainfall, higher capacity revenues, and increased pricing on a renegotiated outtake contract. Partially offsetting these increases was a decrease in revenues and margins at WPS Power Development'sPDI's Stoneman generating facility in Cassville, Wisconsin, facility as a result of the expiration of an energy and capacity outtake contract that was not renewed.

  Overview of Holding Company and Other Segment Operations

  Holding Company and Other operations include the operations of WPS Resources and WPS Resources Capital as holding companies and the nonutility activities at Wisconsin Public Service and Upper Peninsula Power. Holding Company and Other operations experienced a net loss of ($2.1)$2.1 million in 2003 compared to a net loss of ($5.0)$5.0 million in 2002. The decrease in the net loss experienced iswas largely related to an increase in gains recognized on hydroelectric land sales in 2003 compared to 2002 (recorded as a component of miscellaneous income), primarily due to a $6.2 million pre-tax gain recognized in 2003 from land sales to the Wisconsin Department of Natural Resources.WDNR. The sale of these hydroelectric lands iswas part of our asset management strategy, which was initiated in 2001, and iswas intended to optimize shareholder return from the sale, development, or use of certain assets or entire business units.

  Operating Expenses

  WPS Resources' Operating Expenses (Millions)	2003	2002	Change
  Operating and maintenance expense	$459.5	$412.5	11%
  Depreciation and decommissioning expense	138.4	94.8	46%
  Taxes other than income	43.8	39.9	10%

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  Operating and maintenance expenseMaintenance Expense

  Operating expenses increased $47.0 million, or 11%, for the year ended December 31, 2003, compared to the year ended December 31, 2002. Utility operating expenses increased $30.7 million, or 9%, in 2003 compared to 2002. Approximately $18 million of the increase reflects higher pension, postretirement medical, and active medical costs. The remaining increase pertains to costs incurred for plant maintenance related to the Kewaunee nuclear power plant'sKewaunee's scheduled refueling outage in 2003 (there was no refueling outage in 2002), additional operating expenses at the Kewaunee, nuclear power plant, and wage increases. Operating expenses at WPS Energy ServicesESI increased $12.0 million, or 40%, in 2003 compared to 2002, largely due to costs associated with business expansion, including the acquisition of a retail natural gas business in Canada and a retail electric business in Michigan. The remaining increase iswas largely due to higher incentive compensation costs and the costs associated with a full year of operation of generation assets in New York that were purchased by WPS Power DevelopmentPDI in June 2002.

  Depreciation and decommissioning expenseDecommissioning Expense

  Depreciation and decommissioning expense increased $43.6 million, or 46%, due primarily to an increase of $37.4 million resulting from increased realized gains on the decommissioning trust assets that resulted in recording decommissioning expense approximately equal to the gains recognized in miscellaneous income pursuant to regulatory practice. The increase in realized gains iswas due primarily to the change in investment strategy for Wisconsin Public Service'sWPSC's qualified nuclear decommissioning trust assets. Qualified decommissioning trust assets were transferred to more conservative investments in 2003 pending the sale of the Kewaunee, nuclear power plant, thus triggering realized gains. Most of the remaining increase resulted from plant asset additions at Wisconsin Public ServiceWPSC and WPS Power Development.PDI.

  Taxes other than incomeOther Than Income

  Taxes other than income increased $3.9 million, or 10%, primarily due to an increase in gross receipts taxes paid by Wisconsin Public ServiceWPSC as a result of increased revenues.

  Other Income (Expense)

  WPS Resources' Other Income (Expense) (Millions)	2003	2002	Change	2003	2002	Change
  Miscellaneous income	$63.6	$47.8	33%	$63.6	$47.8	33%
  Interest expense and distributions of preferred securities	(55.6)	(55.8)	0%	(55.6)	(55.8)	-%
  Minority interest	5.6	-		5.6	-	-
  Other income (expense)	$13.6	$ (8.0)	-	$13.6	$ (8.0)	-

  Miscellaneous incomeIncome

  Miscellaneous income increased $15.8 million for the year ended December 31, 2003, compared to the year ended December 31, 2002. The increase in miscellaneous income iswas largely due to an increase in realized gains on the decommissioning trust assets of $36.4 million, which iswas primarily the result of the change in investment strategy for the qualified nuclear decommissioning trust assets. The realized gains were offset by increased decommissioning expense, as discussed above. Miscellaneous income also increased $6.2 million as a result of the sale of land to the Wisconsin Department of Natural ResourcesWDNR and $8.1 million resulting from an increase in earnings from equity investments.

  The increases in miscellaneous income were partially offset by lower gains from sales of ownership interests in WPS Power Development'sPDI's synthetic fuel operation. WPS Power DevelopmentPDI recognized a $7.6 million pre-tax gain in 2003 compared with a $38.0 million pre-tax gain in 2002 related to these sell downs.sales. An increase in operating losses generated by the synthetic fuel operation due to increased production decreased miscellaneous income by approximately $3.5 million in 2003. The increased

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  operating losses were driven by our partner's ability to utilize tax credits in 2003 and were offset by minority interest, which is discussed below. In the

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  aggregate, the items mentioned above relating to the synthetic fuel operation resulted in a $33.9 million decrease in miscellaneous income.

  The 2003 gain resulted from the 2002 sale of a portion of WPS Power Development'sPDI's interest in its synthetic fuel operation. Similar gains from the 2002 sale are expected to be recognized annually through 2007, dependent upon production at the synthetic fuel facility. The gain reported in 2002 resulted from a 2001 sell-downsale of a portion of WPS Power Development'sPDI's interest in a synthetic fuel operation, which was recognized in its entirety by December 31, 2002.

  Minority interestInterest

  As a result of WPS Power Development'sPDI's sale of an approximate 30% interest in its subsidiary, ECO Coal Pelletization #12 LLC, on December 19, 2002, $5.6 million of losses related to the synthetic fuel operation and reported in miscellaneous income were allocated to WPS Power Development'sPDI's partner and reported as a minority interest.

  Provision for Income Taxes

  The effective tax rate was 23.4% in 2003 compared to 19.5% in 2002. The increase in the effective tax rate in 2003 compared to 2002 iswas largely due to a decrease in tax credits that could be recognized from our ownership interest in a synthetic fuel operation. Tax credits recognized during the year ended December 31, 2003, decreased $5.1 million compared to the prior year, due to the sale of a portion of our interest in the synthetic fuel operation on December 19, 2002. Lower taxable income in 2003 also reduced the amount of tax credits that could be claimed. Our ownership interest in the synthetic fuel operation resulted in the recognition of $18.1 million of Section 29 tax credits as a reduction of federal income tax expense in 2003 compared to $23.2 million in 2002.

  The operations of our synthetic fuel facility generate tax credits, which we use to reduce our current federal income tax liability, with any remaining credits increasing our alternative minimum tax credit available for future years. The cumulative amount of credits carried forward at December 31, 2003 relating to our interest in the synthetic fuel facility was $52.3 million. Based on a review of all known facts and circumstances, management has concluded that it is more likely than not that we will be able to use these credits in the future.

  Discontinued Operations

  On October 24, 2003, a definitive agreement was entered into to sell WPS Power Development's Sunbury generation plant, subject to certain contingencies. As a result of such agreement, we have determined that the operations of the plant and certain other related assets meet the definition of discontinued operations per the provisions of Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

  The after-tax loss from discontinued operations increased to $22.7$16.0 million ($16.0 million after taxes) for the year ended December 31, 2003, from $9.9$6.0 million ($6.0 million after taxes) for the year ended December 31, 2002. The increased loss iswas largely due to a decrease in capacity sales in 2003 due to the expiration of a sales contract, an increase in variable production expenses related to increased emission costs, and an increase in operating costs. Operating costs increased in 2003 as a result of issues related to fuel quality and associated mechanical difficulties involving fuel delivery systems earlierearly in the year,2003, operational issues related to newly installed environmental equipment in various boilers, and turbine outages. The increase in the loss from discontinued operations was partially offset by decreases in payroll and employee benefits as a result of a restructuring that took place at the end of 2002.

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  Cumulative Effect of Change in Accounting Principles

  WPS Energy Services had been applying the accounting standards of Issue 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," from the first quarter of 2000 until this standard was rescinded by Issue 02-03 in October 2002. WPS Energy Services was defined as a trading company under Issue 98-10 and was required to mark all of its energy related contracts to market. On October 25, 2002, the Emerging Issues Task Force rescinded Issue 98-10, thus precluding mark-to-market accounting for energy trading contracts entered into after that date that are not derivatives and requiring a cumulative change in accounting principle to be recorded effective January 1, 2003 for all nonderivative contracts entered into on or prior to October 25, 2002. On January 1, 2003, WPS Resources recorded a positive after-tax cumulative effect of a change in accounting principle of $3.5 million (primarily related to the operations of WPS Energy Services) to income available for common shareholders to remove from its balance sheet the mark-to-market effects of those contracts entered into on or prior to October 25, 2002 that do not meet the definition of a derivative under Statement No. 133, as amended. The cumulative effect of adopting this new accounting standard is expected to reverse upon the settlement of the contracts impacted by the standard. Most of these settlements are expected to occur in 2004. The required change in accounting had no impact on the underlying economics or cash flows of the contracts. In addition, the adoption of Statement No. 143 at WPS Power Development resulted in a $(0.3) million cumulative effect of change in accounting principle related to the closure of an ash basin at the Sunbury generating plant.

  2002 Compared with 2001

  WPS Resources Corporation Overview

  WPS Resources' 2002 and 2001 results of operations are shown in the following table:

  WPS Resources' Results (Millions, except share amounts)	2002	2001	Change
  Consolidated operating revenues	$1,461.1	$1,345.4	9%
  Income available for common shareholders	$109.4	$77.6	41%
  Basic earnings per share	$3.45	$2.75	25%
  Diluted earnings per share	$3.42	$2.74	25%

  The increase in basic earnings per share in 2002 compared to 2001 was largely driven by a gain at WPS Power Development related to the 2001 sale of part of its synthetic fuel operations. The sale occurred in the fourth quarter of 2001, and we deferred recognition of a portion of the related gain on the sale pending the satisfaction of certain contingencies. In addition, WPS Energy Services' income available for common shareholders increased 72%, primarily due to improved natural gas margins. A full year contribution from gas utility operations acquired in the spring of 2001, warmer than normal weather during the heating season in 2001, and a rate increase approved by regulators resulted in increased earnings from our gas utility in 2002.

  Also impacting basic earnings per share was an increase of 3.5 million in the weighted average number of outstanding shares of WPS Resources' common stock in 2002 compared to 2001. The increase was largely due to issuing 2.3 million additional shares through a public offering in the fourth quarter of 2001 and issuing 1.8 million shares in the merger of Wisconsin Fuel and Light into Wisconsin Public Service in the second quarter of 2001. Additional shares were also issued in 2002 under the Stock Investment Plan.

  Overview of Utility Operations

  Income available for common shareholders attributable to electric utility operations was $61.0 million in 2002 compared with $58.8 million in 2001. Income available for common shareholders attributable to gas utility operations was $18.4 million in 2002 compared with $8.9 million in 2001.

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  Utility margins at Wisconsin Public Service were impacted positively by a Public Service Commission of Wisconsin interim rate order, which was effective January 1, 2002, authorizing a 10.3% increase in Wisconsin retail electric rates and a 4.7% increase in Wisconsin retail natural gas rates. In late June 2002, Wisconsin Public Service received a final 2002 rate order that authorized a 10.9% increase in Wisconsin retail electric rates and a 3.9% increase in Wisconsin retail natural gas rates. The final order authorized a lower retail natural gas rate increase than was approved in the interim order resulting in a $0.4 million refund to Wisconsin Public Service's natural gas customers.

  Electric Utility Segment Operations

  Our electric utility segment margin increased $84.2 million, or 19%, due to the Wisconsin retail electric rate increases at Wisconsin Public Service and higher overall electric utility sales volumes.

  WPS Resources' Electric Utility Segment Results (Millions)	2002	2001	Change
  Revenues	$763.1	$675.7	13%
  Fuel and purchased power costs	242.7	239.5	1%
  Margins	$520.4	$436.2	19%
  Sales in kilowatt-hours	14,547.6	13,532.8	7%

  Our electric utility segment revenues increased $87.4 million, or 13%, in 2002 as the result of the electric rate increases and an 8% increase in overall electric sales volumes at Wisconsin Public Service. Sales volumes were up 25% for lower margin, wholesale customers while sales to higher margin, residential customers increased 6% and sales to higher margin, commercial and industrial customers increased 3%. Summer weather was 7% warmer in 2002 than in 2001, and 23% warmer than normal.

  Increased fuel costs for power generation were partially offset by lower purchased power expenses. Fuel expense for generation plants increased $4.9 million, or 4%, in 2002. Purchased power expense, however, decreased $2.7 million, or 3%, in 2002. Overall generation from Wisconsin Public Service's plants increased 10% while purchased volumes decreased 3%. The change in the energy supply mix was largely due to the availability of less expensive power generation from the Kewaunee nuclear power plant. Wisconsin Public Service increased its ownership interest in the Kewaunee nuclear power plant to 59% in September 2001. Although Upper Peninsula Power's purchased volumes remained fairly consistent, the unit cost of its purchased power decreased 9%.

  As discussed previously, the Public Service Commission of Wisconsin allows Wisconsin Public Service to adjust prospectively the amount billed to Wisconsin retail customers for fuel and purchased power if costs fall outside a specified range. Wisconsin Public Service did not submit any fuel filings in 2002.

  Gas Utility Segment Operations

  Effective April 1, 2001, the gas utility margin at Wisconsin Public Service includes the merged Wisconsin Fuel and Light Company operations.

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  WPS Resources' Gas Utility Segment Results (Millions)	2002	2001	Change
  Revenues	$310.7	$321.6	(3%)
  Purchase costs	198.6	230.2	(14%)
  Margins	$112.1	$ 91.4	23%
  Throughput in therms	845.4	742.7	14%

  An increase in overall natural gas throughput volumes of 14% and the Wisconsin retail gas rate increase resulted in a higher gas utility margin of $20.7 million, or 23%, in 2002. Increased overall gas throughput volumes were partially the result of including 12 months of operations for former Wisconsin Fuel and Light in 2002 compared with the inclusion of 9 months of operations in 2001. Gas throughput volumes were also affected by a heating season that was 5% colder in 2002 than in 2001, but 3% milder than normal.

  Wisconsin Public Service's gas revenues decreased $10.9 million, or 3%, in 2002 and gas purchase costs decreased $31.6 million, or 14%, largely as the result of a 26% decrease in the average unit cost of natural gas in 2002.

  Overview of Nonregulated Operations

  WPS Energy Services' income available for common shareholders increased to $11.0 million in 2002 compared with $6.4 million in 2001 primarily due to a higher gas margin. WPS Power Development's income available for common shareholders increased to $24.0 million in 2002 compared with $2.3 million in 2001 largely due to recognition of a gain related to the 2001 sale of a portion of its synthetic fuel operations.

  WPS Energy Services' Segment Operations

  Revenues at WPS Energy Services were $361.2 million in 2002 compared with $326.6 million in 2001, an increase of 11%. The increase was primarily the result of higher retail natural gas sales volumes in 2002.

  WPS Energy Services' Gas Results (Millions except sales volumes)	2002	2001	Change
  Nonregulated natural gas revenues	$245.1	$210.1	17%
  Nonregulated natural gas cost of sales	210.2	194.2	8%
  Margins	$ 34.9	$ 15.9	119%
  Wholesale sales volumes in billion cubic feet	233.8	242.8	(4%)
  Retail sales volumes in billion cubic feet	135.7	104.5	30%

  Nonregulated gas revenues at WPS Energy Services increased $35.0 million, or 17%, in 2002 primarily as the result of higher natural gas sales volumes in 2002. The nonregulated gas margin increased $19.0 million, or 119%, in 2002 due to improved management of the retail gas procurement and volume risk processes and increased retail sales volumes.

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  WPS Energy Services' Electric Results (Millions)	2002	2001	Change
  Nonregulated electric revenues	$113.7	$112.7	1%
  Nonregulated electric cost of sales	102.6	99.4	3%
  Margins	$ 11.1	$ 13.3	(17%)
  Wholesale sales in kilowatt-hours	4,250.0	1,696.6	151%
  Retail sales in kilowatt-hours	2,703.6	1,944.7	39%

  Nonregulated electric revenues at WPS Energy Services increased $1.0 million, or 1%, in 2002 due to higher sales volumes. The nonregulated electric margin decreased $2.2 million, or 17%, in 2002 primarily due to the slow economy which produced less favorable market conditions for opportunity sales in 2002.

  WPS Power Development's Segment Operations

  WPS Power Development's Production Results (Millions)	2002	2001	Change
  Nonregulated other revenues	$59.4	$56.6	5%
  Nonregulated other cost of sales	37.8	48.7	(22%)
  Margins	$21.6	$ 7.9	173%

  Revenues at WPS Power Development were $59.4 million in 2002 compared with $56.6 million in 2001, an increase of 5%. The increase was primarily due to the operation of the generation assets acquired in New York in the second quarter of 2002 and the operation of the Combined Locks Energy Center. As new generation assets are acquired or constructed, WPS Power Development's output is increased, providing new sales opportunities. Partially offsetting these increases were a change in accounting from consolidation to equity method accounting for WPS Power Development's synthetic fuel operations and lower revenues from steam sales.

  WPS Power Development experienced an increase of $13.7 million, or 173%, in its margin in 2002. The operation of the generation assets acquired in New York and the startup of the Combined Locks Energy Center contributed to WPS Power Development's higher margin in 2002. A change in accounting for WPS Power Development's synthetic fuel operations also increased 2002 margins by approximately $4.3 million. As a result of the November 2001 sale of a portion of WPS Power Development's synthetic fuel operations, WPS Power Development no longer consolidates these operations as a part of revenue and cost of sales. After the sell-down, WPS Power Development became a minority owner, and therefore accounts for its interest in the synthetic fuel operations under the equity method of accounting. As a result of no longer consolidating the synthetic fuel operations, WPS Power Development's margins increased because this business had negative margins in 2001.

  Overview of Holding Company and Other Segment Operations

  Holding Company and Other operations experienced a net loss of $(5.0) million in 2002 compared with income available for common shareholders of $1.3 million in 2001. A net loss was experienced in 2002 primarily due to interest expense from financing to provide funds for subsidiary operations.

  Hydro land sales, which are part of our asset management strategy, resulted in pretax gains of $3.3 million in 2002 compared with pretax gains of approximately $17 million in 2001. In addition, earnings on equity investments were higher in 2002 compared with 2001 primarily due to our investment in American Transmission Company.

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  Operating Expenses

  WPS Resources' Operating Expenses (Millions)	2002	2001	Change
  Operating and maintenance expense	$412.5	$333.0	24%
  Depreciation and decommissioning expense	94.8	84.1	13%
  Taxes other than income	39.9	36.7	9%

  Operating and maintenance expense

  Operating and maintenance expense increased $79.5 million, or 24%, for the year ended December 31, 2002 compared to 2001. Utility operating and maintenance expense increased $67.6 million in 2002 largely due to amortization of regulatory deferrals, increased benefit costs, higher transmission expenses associated with American Transmission Company, increased expenses at the Kewaunee nuclear power plant (as a result of Wisconsin Public Service acquiring additional ownership interest in the plant), and increased energy conservation expenses. Operating and maintenance expenses at WPS Energy Services increased $7.3 million in 2002, largely due to costs associated with business expansion and increased bad debt expense. Operating expenses at WPS Power Development increased $4.3 million in 2002 primarily due to costs associated with the generation assets in New York that were purchased by WPS Power Development in June 2002 and operation of the Combined Locks Energy Center.

  Depreciation and decommissioning expense

  Depreciation and decommissioning expense increased $10.7 million, or 13%, for the year ended December 31, 2002 compared to 2001. Utility depreciation and decommissioning expense increased $7.8 million in 2002 largely due to additional plant assets at Wisconsin Public Service, including its increased ownership interest in the Kewaunee nuclear power plant. Lower depreciation expense of $5.5 million related to decreased decommissioning earnings partially offset the increased plant asset depreciation. WPS Power Development's depreciation expense increased $2.4 million in 2002 due to additional plant assets, including the Combined Locks Energy Center and the assets obtained in the CH Resources acquisition. Depreciation and decommissioning expense at WPS Energy Services did not change significantly from the prior year.

  Taxes other than income

  Taxes other than income increased $3.2 million, or 9%, primarily due to an increase in gross receipts taxes paid by Wisconsin Public Service as a result of increased revenues.

  Other Income (Expense)

  WPS Resources' Other Income (Expense) (Millions)	2002	2001	Change
  Miscellaneous income	$47.8	$37.5	27%
  Interest expense and distributions of preferred securities	(55.8)	(53.4)	4%
  Other income (expense)	$ (8.0)	$(15.9)	50%

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  Miscellaneous income

  Miscellaneous income increased $10.3 million, or 27%, in 2002 compared to 2001. WPS Power Development's miscellaneous income increased $25.1 million in 2002 primarily as the result of recognizing a pretax gain of $38.0 million related to the 2001 sale of part of WPS Power Development's synthetic fuel operations. WPS Power Development recognized a pretax gain of $2.2 million on the sale in the fourth quarter of 2001 and deferred the remaining portion of the gain pending satisfaction of certain contingencies, including the receipt of a private letter ruling from the Internal Revenue Service. The contingencies were satisfied in 2002 and the remaining gain was recognized. WPS Power Development also recognized royalties of $2.3 million in 2002 related to its synthetic fuel operations. Partially offsetting these factors were equity method losses for WPS Power Development's synthetic fuel operations.

  Utility miscellaneous income decreased $8.1 million in 2002 primarily as the result of lower earnings of $5.7 million on Wisconsin Public Service's nuclear decommissioning trust assets. Due to regulatory practice, a decrease in earnings on the trust assets is largely offset by decreased depreciation expense.

  Miscellaneous income related to Holding Company and Other operations also decreased in 2002 compared to 2001. The decrease is largely due to a $13.7 million decrease in gains realized from the sale of hydroelectric lands in 2002, partially offset by increased earnings on equity investments due to the investment in American Transmission Company.

  Interest expense and distributions of preferred securities

  Interest expense increased $2.4 million, or 4%, in 2002 compared to 2001 primarily due to the increase in the amount of long-term debt.

  Provision for Income Taxes

  The effective tax rate was 19.5% in 2002 compared to 9.5% in 2001. The increase in the effective tax rate in 2002 compared to 2001 is largely due to a decrease in tax credits recognized from our ownership interest in a synthetic fuel operation. We used tax credits to the extent the tax law permits to reduce our current federal income tax liability, with any remaining credits increasing our alternative minimum tax credit available for future years.

  Discontinued Operations

  The after-tax loss from discontinued operations decreased to $6.0 million in 2002 from $6.9 million in 2001. While we were able to improve the operating performance of our discontinued generation plant, market conditions for capacity in the area in which this plant participates continued to degrade, which resulted in continued losses.

  BALANCE SHEET - WPS RESOURCES

  20032004 Compared with 2002

  Accounts receivable, net of reserves, increased $209.1 million, or 71%, at December 31, 2003 compared to December 31, 2002 largely due to a $199 million increase in WPS Energy Services' accounts receivable. The increase in receivables at WPS Energy Services is due to a significant increase in electric and natural gas sales volumes combined with significantly higher natural gas prices.

  Inventories increased $68.0 million, or 62%, at December 31, 2003 compared to December 31, 2002. Inventories at Wisconsin Public Service increased approximately $18 million, or 39%, in correlation with the 39% increase in the average price of natural gas experienced by this business in 2003. WPS Energy Services' stored gas inventories increased approximately $50 million, or 82%, due to higher anticipated sales in the first quarter of 2004 compared to the first quarter of 2003 and increased natural gas prices.

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  Current assets from risk management activities increased $111.5decreased $78.6 million, or 27%15.2%, at December 31, 20032004, compared to December 31, 2002,2003, and current liabilities from risk management activities increased $73.5decreased $115.7 million, or 17%22.4%. Long-term assets from risk management activities decreased $31.0$23.9 million, or 23%22.9%, at December 31, 20032004, compared to December 31, 20022003, and long-term liabilities from risk management activities decreased $17.5$23.9 million, or 16%25.9%. These variances were largely dueThe decrease in short-term risk management assets and liabilities was primarily related to changes in the forward price curve of natural gas. The decrease in long-term risk management assets and liabilities was driven by lower natural gas volumes under contract beyond one year and changes in the forward price curve for natural gas and increased volumes.gas.

  Property, plant, and equipment, net, increased $116.4$173.9 million to $2,002.6 million at December 31, 2004, compared to $1,828.7 million at December 31, 2003 compared to $1,712.3 million at December 31, 2002. WPS Resources adopted Statement No. 143, "Accounting for Asset Retirement Obligations," effective January 2003, and as a result, capitalized a net asset retirement cost of $90.8 million (decreased to $78.5 million at December 31, 20032003. This increase was mostly due to depreciation). The remaininga $174.3 million increase in property, plant, and equipment net,at WPSC primarily relatesrelated to capital expenditures at Wisconsin Public Service forassociated with the Pulliam combustion turbineconstruction of Weston 4 and gas and electric distribution equipment. The Staffthe installation of the Securities and Exchange Commission recently expressed their views on the balance sheet classification of costs of removal for the utility industry and required that the amounts be reclassified from accumulated depreciation to a liability. As a result, WPS Resources reclassified costs of removal out of accumulated depreciation at December 31, 2003 and 2002. See Trends - WPS Resources for more information about these accounting changes.automated meter reading.

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  Regulatory assets increased $83.5$33.2 million, or 31%, at December 31, 2003 compared to December 31, 2002 as a result of our investment in Guardian Pipeline, additional investments in American Transmission Company, and the recognition of an intangible pension asset related to the minimum pension liability we recorded at December 31, 2003.

  Accounts payable increased $58.7from $127.7 million at December 31, 2003, compared to $160.9 million at December 31, 2002. The accounts2004, largely due to the increase in environmental remediation liabilities related to manufactured gas plants at WPSC, as discussed below. WPSC expects to recover cleanup costs related to the manufactured gas plants, net of insurance recoveries, in future rates.

  Short-term debt increased $254.4 million, from $38.0 million at December 31, 2003, to $292.4 million at December 31, 2004. Retirements of long-term debt and increased capital expenditures (primarily related to Weston 4) drove the increase in short-term debt.

  Current portion of long-term debt decreased from $56.6 million at December 31, 2003, to $6.7 million at December 31, 2004. On January 19, 2004, WPSC retired early $49.9 million of its 7.125% series first mortgage bonds. These bonds had an original maturity date of July 1, 2023.

  Accounts payable balanceincreased $78.7 million, from $510.7 million at WPS Energy ServicesDecember 31, 2003, to $589.4 million at December 31, 2004. Accounts payable at WPSC increased approximately $110$40.2 million, driven by expenditures related to Weston 4. Accounts payable at ESI increased $38.0 million, primarily as a result of an increase in electric and natural gas purchases required to supply its larger customer base and the significant increase inhigher natural gas prices compared to the prior year.

  The increase experienced by WPS Energy Services was partially offset by a decrease in accounts payable at Wisconsin Public Service, largely due to a $48.4environmental remediation liability increased $30.5 million payable that was recorded at December 31, 2002 resulting from the purchase of the De Pere Energy Center. This amount was paid in 2003.

  Other current liabilities increased $33.8 million, or 64%, in 2003 largely due to an increase in customer prepayments experienced at WPS Energy Services.

  Regulatory liabilities increased $254.7 million at December 31, 2003, compared to December 31, 2002, largely due to the reclassification of $180.0 million of non-legal costs of removal from nuclear decommissioning and other cost of removal to regulatory liabilities. Most of the remaining increase2004. This liability primarily relates to a regulatory liabilityclean-up costs associated with several manufactured gas plant sites at WPSC (see Note 17 to WPS Resources' Consolidated Financial Statements - Commitments and Contingencies, for more information). WPSC's estimate of future clean-up costs required to remediate these sites increased significantly to reflect the WDNR's application of sediment guidance that was recorded upon the adoption of Statement No. 143. See Trends - WPS Resources for more information about this accounting change.recently issued.

  Pension and postretirement benefit obligations increased $67.1decreased $43.1 million, or 95%31.3%, atfrom December 31, 2003, compared to December 31, 20022004, primarily due primarily to a reduction in the minimum pension liability. The decrease in the minimum pension liability that was recorded at December 31, 2003 for our administrative pension plan, driven by WPS Resources' merger of its two non-contributory qualified retirement plans. On a decrease incombined basis, the discount rate used to value our obligation under this plan.

  The $344.0 millionminimum pension liability and related pension asset retirement obligation recorded at December 31, 2003 is related to a legal retirement obligation recorded as a result of our adoption of Statement No. 143 for the decommissioning of the irradiated portions of the Kewaunee nuclear power plant. See Trends - WPS Resources for more information about this accounting change.

  The $463.3 million liability for nuclear decommissioning and other costs of removal at December 31, 2002 was reclassified from accumulated depreciation in accordance with recent views expressed by the Staff of the Securities and Exchange Commission for the utility industry. Historically, these costs of removal were reflected as a component of depreciation expense and accumulated depreciation in accordance with

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  regulatory treatment. Upon adoption of Statement No. 143 on January 1, 2003, costs of removal with associated legal obligations of $290.5 million were removed from nuclear decommissioning and other costs of removal as these costs are now accounted for as asset retirement obligations. At December 31, 2003, costs of removal without an associated legal obligation, as defined by Statement No. 143, were reclassified to a regulatory liabilityreduced pursuant to Statement No. 71. See Trends - WPS Resources for more information about thisgenerally accepted accounting change.principles.

  LIQUIDITY AND CAPITAL RESOURCES - WPS RESOURCES

  We believe that our cash balances, liquid assets, operating cash flows, access to equity capital markets and borrowing capacity made available because of strong credit ratings, when taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to expansion of existing businesses and development of new projects. However, our operating cash flow and access to capital markets can be impacted by macroeconomic factors outside of our control. In addition, our borrowing costs can be impacted by shortshort- and long-term debt ratings assigned by independent rating agencies. Currently, we believe these ratings are among the best in the energy industry (see Financing Cash Flows, Credit Ratings below).

  Operating Cash Flows

  During 2004, net cash provided by operating activities was $243.0 million, compared to $62.4 million in 2003. The increase was driven by operating activities at ESI and WPSC. In 2003, operating activities at ESI used cash due primarily to increasing working capital requirements resulting from business growth and gas storage opportunities near the end of the year. ESI's natural gas operations did not experience the same level of growth in 2004 as they did in 2003, and storage opportunities were similar at the end of both years, which enabled ESI to generate additional operating cash flow in 2004. The increase in net cash provided by operating activities at WPSC was driven by improved operating results.

  During 2003, net cash provided by operating activities was $62.4 million, compared with $188.5 million in 2002. The decrease iswas primarily due to increased working capital requirements, specifically at WPS Energy ServicesESI and Wisconsin Public Service.WPSC. Inventories increased due to high natural gas prices at both WPS Energy ServicesESI and Wisconsin Public Service,WPSC, as well as business growth at WPS Energy Services.ESI. The inventory increase iswas also the result of WPS Energy Services'ESI taking advantage of opportunities to put

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  additional gas into storage at favorable relationships to forward prices. The change in receivables and payables was also attributable to the high natural gas prices as well as the business growth at WPS Energy Services.ESI.

  During 2002, netInvesting Cash Flows

  Net cash provided by operatingused for investing activities was $188.5 million, compared with $144.1$312.6 million in 2001.2004, compared to $244.0 million in 2003. The increase is primarily duewas largely related to ana $114.0 million increase in income available for common shareholders after adjustment for certain non-cash items,utility capital expenditures (see Capital Expenditures below), partially offset by an increasea $50.4 million decrease in cash used for workingthe purchase of equity investments and other acquisitions. Purchase of equity investments and other acquisitions consisted primarily of additional investments in ATC, capital items. The increasecontributions to ECO Coal Pelletization #12 LLC, and the acquisition of Advantage Energy in accounts receivable was2004. In 2003, purchase of equity investments and other acquisitions consisted primarily of WPSC's final payment for the resultpurchase of increased sales volumes at Wisconsin Public Servicethe De Pere Energy Center, WPSC's purchase of a one-third interest in Guardian Pipeline, additional investments in ATC, and capital contributions to ECO Coal Pelletization. WPS Energy Services dueResources contributed capital of $15.7 million to colder weatherECO Coal Pelletization in 2004 and customer growth. Increased natural gas purchases at Wisconsin Public Service$14.0 million in 2003. See WPS Resources' Notes to Consolidated Financial Statements, Note 6 - Acquisitions and WPS Energy Services as the resultSales of colder weather and customer growth contributed to the higher accounts payable balance.

  Investing Cash FlowsAsset for more information.

  Net cash used for investing activities was $244.0 million in 2003 compared to $265.4 million in 2002, a decrease of $21.4 million. The decrease is largely attributed to a $34.1 million decrease in capital expenditures, mainly at the utilities (see Capital Expenditures below), as well as a $24.3 million increase in cash received from the sale of property, plant, and equipment. The majority of the increase in the sale of property, plant, and equipment was the result of WPSC's sale of $20.1 million of assets at book value related to the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to ATC in June 2003. Partially offsetting this decrease was ana $30.4 million increase in cash used for the purchase of equity investments and other acquisitions. See Asset SalesThe composition of purchase of equity investments and Acquisitions below for further detail.

  Cash used for investing activities was $265.4 millionother acquisitions in 2003 is discussed above. In 2002, compared to $134.8 million in 2001, an increase of $130.6 million. These factors were partially the result of cash used for the purchase of equity investments and other acquisitions (discussed in more detail in Asset Sales and Acquisitions below), a decrease in the saleprimarily related to PDI's acquisition of property, plant, and equipment,CH Resources and a decrease in return of$11.7 million capital from the American Transmission Company. The increase was partially offset by a decrease in capital expenditures. The decrease in return of capital is duecontribution to the fact that in 2001ECO Coal Pelletization. See WPS Resources transferred transmission assets at their net book valueResources' Notes to American Transmission Company in exchange for cash and an approximate 15% ownership interest in American Transmission Company. The decrease in the sale of property, plant, and equipment from 2002 to 2001 was due to the 2001 sale of land on the Peshtigo

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  River in northeastern Wisconsin to the Wisconsin Department of Natural Resources, as well as WPS Power Development's transactions surrounding its synthetic fuel facility.

  Asset Sales and Acquisitions

  Certain acquisitions and asset sales that have a significant impact on investing cash flows are discussed below. In addition, seeConsolidated Financial Statements, Note 6 in Notes to WPS Resources Consolidated Financial Statements,- Acquisitions and Sales of Assets for a more detailed discussion of asset sales and acquisitions.

  On December 30, 2003, Wisconsin Public Service sold an additional 542 acres of land near the Peshtigo River to the Wisconsin Department of Natural Resources for $6.5 million as part of a multi-phase agreement reached between the parties in 2001. Under the terms of the 2001 agreement, the Wisconsin Department of Natural Resources bought more than 5,000 acres of land for $13.5 million in 2001. The sale is part of a five to seven-year asset management strategy adopted by WPS Resources in 2001.

  On April 18, 2003, the Public Service Commission of Wisconsin approved Wisconsin Public Service's request to transfer its interest in the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to the American Transmission Company. American Transmission Company is a for-profit transmission-only company created by the transfer of transmission assets previously owned by multiple electric utilities serving the upper Midwest in exchange for an ownership interest in American Transmission Company. Wisconsin Public Service sold approximately $20.1 million of assets at book value related to the Wausau to Duluth transmission line to American Transmission Company in June 2003. No gain or loss was recognized on the transaction. Wisconsin Public Service will continue to manage construction of the project and be responsible for obtaining property rights necessary for the construction of the project.

  During 2003, WPS Resources invested an additional $19.9 million in American Transmission Company, increasing the consolidated WPS Resources ownership interest in American Transmission Company to 19.8%. WPS Resources contributed capital of $14.0 million to ECO Coal Pelletization #12 in 2003 and $11.7 million in 2002.

  On May 30, 2003, WPS Resources purchased a one-third interest in Guardian Pipeline, LLC from CMS Gas Transmission Company, for approximately $26 million. Guardian Pipeline owns a natural gas pipeline, which began operating in 2002, that stretches about 140 miles from near Joliet, Illinois, into southern Wisconsin.

  On December 16, 2002, Wisconsin Public Service purchased the 180-megawatt De Pere Energy Center for $120.4 million and terminated the related existing purchased power agreement. Wisconsin Public Service paid $72.0 million at the close of the transaction and the remaining $48.4 million in December 2003.

  Effective June 1, 2002, WPS Power Development acquired CH Resources, Inc. from Central Hudson Energy Services, Inc. for $61.1 million, including acquisition costs. CH Resources owns three power plants and associated assets in upstate New York with a combined capacity of 258 megawatts.

  In November 2001, WPS Power Development, through its subsidiary ECO Coal Pelletization #12, LLC, entered into a transaction to acquire the remaining interest in the synthetic fuel producing facility (partially owned by ECO #12) from its partner. Concurrently, with this transaction, WPS Power Development entered into a separate transaction with a subsidiary of a public company resulting in ECO #12 contributing 100% of its synthetic fuel producing machinery to a newly formed entity in exchange for cash and a one-third ownership interest in the newly formed entity. These transactions generated a pre-tax gain of $40.2 million, of which $38.0 million had been deferred as of December 31, 2001, as a result of certain rights of rescission and put options being granted to the buyer. WPS Power Development recognized all of the $38.0 million deferred gain in 2002.

  The actual payments for the purchase of the former partner's interest in ECO #12 were contingent upon the same provisions referred to above. As a result, $21.3 million was originally held in escrow and

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  released proportionately as the respective rescission rights and put options expired. As of December 31, 2003, the escrow balance has been released as all contingencies have expired.

  On December 19, 2002, WPS Power Development sold a 30% interest in ECO #12. WPS Power Development received consideration of $3.0 million cash, as well as a fixed note and a variable note. Payments under the variable note are contingent upon the synthetic fuel facility achieving specified levels of synthetic fuel production. In conjunction with the sale, WPS Power Development agreed to make certain payments to a third party broker, consisting of an up-front payment of $1.5 million (which was paid at the time of closing), $1.9 million which was paid in 2003, and an additional $1.9 million to be paid in 2004. A deferred gain of $9.2 million and $11.6 million was reflected on WPS Power Development's balance sheet at December 31, 2003 and 2002, respectively. In 2003, a pre-tax gain in the amount of $7.6 million was recognized as a component of miscellaneous income related to this transaction, of which $2.4 million related to the recognition of a portion of the deferred gain referenced above. Similar annual gains are expected to result from this transaction through 2007. There was no gain recognized in 2002 related to this transaction.information.

  Capital Expenditures

  Capital expenditures by business segment for the years ended December 31, 2004, 2003, 2002, and 20012002 are as follows:

   

  Millions		Years Ended December 31,

  Years Ended December 31,2004

  2003

  2002

  2001

  Electric Utilityutility

  $223.0

  $131.0

  $164.3

  $175.8

  Gas Utilityutility

  62.7

  40.7

  34.0

  ESI

  24.9

  WPS Energy Services1.6

  1.4

  0.8

  PDI

  10.9

  WPS Power Development2.4

  3.3

  8.2

  Other

  27.7

  Other0.3

  (0.2)

  3.0

  5.0

  WPS Resources Consolidated

  $290.0

  $176.2

  $210.3

  $244.3

  The increase in capital expenditures at the electric utility in 2004 as compared to 2003 is mainly due to higher capital expenditures associated with the construction of a 500-megawatt coal-fired Weston 4 generation facility located near Wausau, Wisconsin. Gas utility capital expenditures increased primarily due to the installation of automated meter reading. Capital expenditures at PDI and ESI remained fairly consistent between 2004 and 2003.

  Capital expenditures in the electric utility were higher in 2002, as compared to 2003, mainly due to the construction of portions of the Pulliam combustion turbine at Wisconsin Public ServiceWPSC in 2002. Gas utility capital expenditures increased due to the installation of automated meter reading in 2003. WPS Power Development'sPDI's capital expenditures were higher in 2002 compared to 2003 due to the conversion of the Combined Locks

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  Energy Center to a combined cycle system in 2002. Capital expenditures at WPS Energy ServicesESI remained fairly consistent between 2003 and 2002.

  As part of its regulated utility operations, on September 26, 2003 Wisconsin Public Service submitted an application forFinancing Cash Flows

  Net cash provided by financing activities was $76.8 million in 2004, compared to $198.6 million in 2003. Less cash was required from financing activities as a Certificate of Public Convenience and Necessity to the Public Service Commission of Wisconsin seeking approval to build a 500-megawatt coal-fired generation facility near Wausau, Wisconsin. The facility is estimated to cost approximately $770 million (including the acquisition of coal trains), assuming the Public Service Commission of Wisconsin allows a current return on construction costs. As of December 31, 2003, Wisconsin Public Service has incurred a total cost of $4.0 million related to this project. In its 2003 rate order, the Public Service Commission of Wisconsin authorized deferral of costs related to developmentresult of the facility. On November 12, 2003, Wisconsin Public Service received a declaratory ruling allowing recovery of all reasonable costs (up to $71.2 million) related to the project incurred or committed to prior to the Public Service Commission of Wisconsin's final decision regarding construction authorization. In addition, Wisconsin Public Service expects to incur additional construction costs of approximately $41 million to fund construction of the transmission facilities required to support the generating facility through the date the generating facility goes into service. American Transmission Company will reimburse Wisconsin Public Service for the construction costs of the interconnection and related carrying costs when the generation facility becomes commercially operational.

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  On February 11,increase in cash generated from operating activities in 2004, the Public Service Commission of Wisconsin determined Wisconsin Public Service's application is "complete". The Public Service Commission of Wisconsin and the Wisconsin Department of Natural Resources now have 180 days to make a decision on the project. The Public Service Commission of Wisconsin may request from the Dane County Court of Appeals one 180-day extension. The Public Service Commission of Wisconsin and the Wisconsin Department of Natural Resources will create an environmental impact statement. The public will have opportunities to testify at public hearings. Technical hearings will also be held. Following a review of the application, the environmental impact statement, and the hearing testimony, the Public Service Commission of Wisconsin will determine if the proposed project will be approved, modified, or denied.

  On February 16, 2004, Wisconsin Public Service signed a Letter of Intent with Dairyland Power Cooperative for electric supply alternatives for 150 megawatts of energy from the proposed 500-megawatt coal-fired generation facility. According to the agreement, Dairyland could choose to purchase an interest in the plant or buy electricity from it (we have since received written notification from Dairyland, confirming their intent to purchase an interest in the plant). In providing Dairyland with electric supply alternatives, Wisconsin Public Service can reduce the risks associated with building and operating the power plant. The agreement is part of Wisconsin Public Service's continuing plan to provide least-cost reliable energy for the increasing electric demand of its customers. This transaction is subject to a number of conditions including successfully developing a joint plant ownership and operating agreement, Dairyland obtaining financing approval from the Rural Utility Services, and Dairyland securing firm transmission service from the Midwest Independent System Operator on terms and conditions Dairyland deems acceptable.

  Capital expenditures at the electric utility were $11.5 millionpartially offset by higher in 2001, as compared to 2002, mostly related to steam generator replacement at the Kewaunee nuclear power plant that occurred in 2001. In the gas utility segment, capital expenditures increased by $9.1 millionincurred in 2002, partially due to the installation of automated meter reading. The remaining increase is attributed to various one-time projects that occurred in 2002. Capital expenditures at WPS Energy Services were $10.1 million higher in 2001 compared to 2002 due to the construction of a gas storage field in 2001. WPS Power Development's capital expenditures were $19.5 million higher in 2001 compared to 2002 due to the completion of the Combined Locks Energy Center construction in 2001.

  Financing Cash Flows2004.

  Net cash provided by financing activities was $198.6 million in 2003, compared to $93.1 million in 2002. The $105.5 million increase in cash provided by financing activities in 2003 is primarily related to the decrease in cash provided by operating activities in 2003 compared to 2002. A larger amount of investing activities was financed through common stock and debt issuances in 2003 as compared to the prior year.

  Our financing activities provided cash inflows of $93.1 million and $33.6 million for the years ended December 31, 2002 and 2001, respectively. The 2002 increase was due to new debt issuances used to finance investing activities, offset by an increase in repayments of long-term debt and the capital lease (see Significant Financing Activities below for further detail). The net change in short-term debt in 2002 from 2001 is attributable to the reduced need to rely on commercial paper in 2001 due to the 2001 issuance of additional long-term debt at Wisconsin Public Service and common stock at WPS Resources.

  Significant Financing Activities

  As of December 31, 2003, both WPS Resources and Wisconsin Public Service were in compliance with all of the covenants under their lines of credit and other debt obligations.

  WPS Resources and Wisconsin Public Service established 364-day credit line syndications for $225.0 million and $115.0 million, respectively, during the third quarter of 2003. The 2002 credit line syndications were $180.0 million for WPS Resources and $100.0 million for Wisconsin Public Service.

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  The credit lines are used to back 100% of WPS Resources' and Wisconsin Public Service's commercial paper borrowing programs and letters of credit for WPS Resources.

  WPS Resources had outstanding commercial paper borrowings of $28.0$279.7 million and $16.0$28.0 million at December 31, 20032004, and 2002,2003, respectively. WPS Resources had other outstanding short-term debt of $10.0$12.7 million and $13.8$10.0 million as of December 31, 2004, and 2003, respectively. Short-term borrowings in 2004 were used primarily to fund capital expenditures related to Weston 4.

  In 2004, 2003 and 2002 we issued new shares of common stock under our Stock Investment Plan and under certain stock-based employee benefit and compensation plans. As a result of these plans, equity increased $28.3 million, $31.0 million, and $28.3 million in 2004, 2003, and 2002, respectively.

  In 2003, WPS Resources' shelf registration statement for $350.0On January 19, 2004, WPSC retired $49.9 million was declared effective by the Securities and Exchange Commission, which allowsof its 7.125% series first mortgage bonds. These bonds had an original maturity date of July 1, 2023.

  On January 8, 2004, WPS Resources to issue any combination of debt and equity. In November 2003, 4,025,000 shares of WPS Resources common stock were sold in a public offering at $43.00 per share, which resulted in a net increase in equity of $166.8 million. Net proceeds from this offering were used to retireretired $50.0 million of its 7.0% trust preferred securities in January 2004, reduce short-term debt, fund equity contributions to subsidiary companies, and for general corporate purposes.securities. As a result of this transaction, WPSR Capital Trust I, a Delaware business trust, was dissolved.

  Wisconsin Public Service Corporation, under a registration statement declared effective in 2002,WPSC issued $125.0 million of 4.80% 10-year senior notes in December 2003. The senior notes are collateralized by a pledge of first mortgage bonds and may become non-collateralized if Wisconsin Public ServiceWPSC retires all of its outstanding first mortgage bonds. The net proceeds from the issuance of the senior notes were used to call $49.9 million of 7.125% first mortgage bonds on January 19, 2004, fund construction costs and capital additions, reduce short-term indebtedness, and for other corporate utility purposes.

  Effective January 2001, we began issuing newIn November 2003, 4,025,000 shares of WPS Resources common stock were sold in a public offering at $43.00 per share, which resulted in a net increase in equity of $166.8 million. Net proceeds from this offering were used to retire the trust preferred securities in January 2004, reduce short-term debt, fund equity contributions to subsidiary companies, and for general corporate purposes.

  In November 2003, PDI retired all of its notes payable under our Stock Investment Plan and under certain stock-based employee benefit plans. Equity increased $31.0a revolving credit note, in the amount of $12.5 million $28.3 million, and $18.6 million in 2003, 2002, and 2001, respectively, as a result of these plans. WPS Resources also repurchased $1.1 million,$1.3 million, and $1.1.

  WPSC called $9.1 million of outstanding common stock for stock-based compensation plans6.125% tax-exempt bonds in May 2003.

  In March 2003, 2002, and 2001, respectively.UPPCO retired $15.0 million of 7.94% first mortgage bonds that had reached maturity.

  Wisconsin Public ServiceWPSC used short-term debt to retire $50.0 million of 6.8% first mortgage bonds on February 1, 2003, that had reached maturity. Wisconsin Public Service also called $9.1

  WPSC issued $150.0 million of 6.125% tax-exempt bonds4.875% 10-year senior notes in May 2003. Wisconsin Public Service is evaluating the potential for refinancing existing debt in 2004.

  In March 2003, Upper Peninsula Power retired $15.0 millionDecember 2002. The senior notes are collateralized by a pledge of 7.94% first mortgage bonds that had reached maturity.

  In November 2003, WPS Power Development retiredand may become non-collateralized if WPSC retires all of the notes payable under a revolving credit note, in the amount of $12.5 million.

  In October 2002, Wisconsin Public Service retired $50.0its outstanding first mortgage bonds. WPSC used approximately $72 million of 7.30% first mortgage bonds that had reached maturity.the net proceeds from

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  the issuance of the senior notes to acquire the De Pere Energy Center and $69 million to retire short-term debt. The balance of the net proceeds was used for other corporate utility purposes.

  WPS Resources issued $100$100.0 million of 5.375% 10-year senior non-collateralized notes in November 2002. We used approximately $55 million of the net proceeds from the issuance of these notes to repay short-term debt incurred to provide equity capital to our subsidiaries and the remainder for other corporate purposes.

  Wisconsin Public Service issued $150.0In October 2002, WPSC retired $50.0 million of 4.875% 10-year senior notes in December 2002. The senior notes are collateralized by a pledge of7.30% first mortgage bonds and may become non-collateralized if Wisconsin Public Service retires all of its outstanding first mortgage bonds. Wisconsin Public Service used approximately $72 million of the net proceeds from the issuance of the senior notes to acquire the De Pere Energy Center and $69 million to retire short-term debt. The balance of the net proceeds was used for other corporate utility purposes.

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  that had reached maturity.

  Credit Ratings

  WPS Resources usesand WPSC use internally generated funds and commercial paper borrowing to satisfy most of itstheir capital requirements. WeWPS Resources also periodically issueissues long-term debt and common stock to reduce short-term debt, maintain desired capitalization ratios, and fund future growth. WeWPS Resources may seek nonrecourse financing for funding nonregulated acquisitions. WPS Resources' commercial paper borrowing program provides for working capital requirements of the nonregulated businesses and Upper Peninsula Power. Wisconsin Public ServiceUPPCO. WPSC has its own commercial paper borrowing program. WPSC also periodically issues long-term debt, receives equity contributions from WPS Resources, and makes payments for return of capital to WPS Resources to reduce short-term debt, fund future growth, and maintain capitalization ratios as authorized by the PSCW. The specific forms of long-term financing, amounts, and timing depend on the availability of projects, market conditions, and other factors.

  The current credit ratings for WPS Resources and Wisconsin Public ServiceWPSC are listed in the table below.

  Credit Ratings	Standard & Poor's	Moody's
  WPS Resources Corporation    Senior unsecured debt    Commercial paper    Credit line syndication	A A-1 -	A1 P-1 A1
  Wisconsin Public Service CorporationWPSC    Bonds    Preferred stock    Commercial paper Credit line syndication	AA-A+ AA- A-1+A-1 -	Aa2 A2 P-1 Aa3

  In January 2005, Standard & Poor's downgraded its ratings for WPSC one ratings level and established a negative outlook. At the same time, Standard & Poor's affirmed WPS Resources ratings but changed the outlook from stable to negative. In taking these actions, Standard & Poor's cited WPSC's substantial capital spending program and the risk profile of WPSR's nonregulated businesses.

  In November 2003, Moody's downgraded its long-term ratings for WPS Resources and Wisconsin Public ServiceWPSC one ratings level, leaving only commercial paper ratings unchanged. Moody's downgrade of WPS Resources was based principally on a gradual shift in the company's financial and business risk profile attributable to the growth of nonregulated businesses, the impact of weaker wholesale power markets, and a relatively high dividend payout. Moody's downgrade of Wisconsin Public Service isWPSC was based on the expectation that the utility's substantial capital spending program will exceed its retained cash flow through 2007, which is likely to lead to a meaningful increase in debt. Following the 2003 downgrade, Moody's set the ratings outlook at stable for both WPS Resources and Wisconsin Public Service. WPSC.

  We believe these ratings continue to be among the best in the energy industry, and allow us to access commercial paper and long-term debt markets on favorable terms. Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating.

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  Rating agencies use a number of both quantitative and qualitative measures in determining a company's credit rating. These measures include business risk, liquidity risk, competitive position, capital mix, financial condition, predictability of cash flows, management strength, and future direction. Some of the quantitative measures can be analyzed through a few key financial ratios, while the qualitative ones are more subjective.

  WPS Resources and Wisconsin Public ServiceWPSC hold credit lines to back 100% of their commercial paper borrowing and letters of credit. These credit facilities are based on a credit rating of A-1/P-1 for WPS Resources and A-1+/A-1/P-1 for Wisconsin Public Service.WPSC. A significant decrease in the commercial paper credit ratings could adversely affect the companies by increasing the interest rates at which they can borrow and potentially limiting the availability of funds to the companies through the commercial paper market. A restriction in the companies' ability to use commercial paper borrowing to meet their working capital needs would require them to secure funds through alternate sources resulting in higher interest expense, higher credit line fees, and a potential delay in the availability of funds.

  WPS Energy ServicesESI maintains underlying agreements to support its electric and natural gas trading operations. In the event of a deterioration of WPS Resources' credit rating, many of these agreements allow the

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  counterparty to demand additional assurance of payment. This provision could pertain to existing business, new business or both with the counterparty. The additional assurance requirements could be met with letters of credit, surety bonds, or cash deposits and would likely result in WPS Resources being required to maintain increased bank lines of credit or incur additional expenses, and could restrict the amount of business WPS Energy ServicesESI can conduct.

  WPS Energy ServicesESI uses the NYMEX and over-the-counter financial markets to hedge its exposure to physical customer obligations. These hedges are closely correlated to the customer contracts, but price movements on the hedge contracts may require financial backing. Certain movements in price for contracts through the NYMEX exchange require posting of cash deposits equal to the market move. For the over-the-counter market, the underlying contract may allow the counterparty to require additional collateral to cover the net financial differential between the original contract price and the current forward market. Increased requirements related to market price changes usually only result in a temporary liquidity need that will unwind as the sales contracts are fulfilled.

  Future Capital Requirements and Resources

  Contractual Obligations

  The following table summarizes the contractual obligations of WPS Resources, including its subsidiaries.

  		Payments Due By Period
  Contractual Obligations As of December 31, 2003 (Millions)	Total Amounts Committed	Less than 1 year	1 to 3 years	3 to 5 years	Over 5 years
  Contractual Obligations As of December 31, 2004 (Millions)							Payments Due By Period
  						Total Amounts Committed	Less Than 1 Year	1 to 3 Years	3 to 5 Years	Over 5 Years
  Long-term debt principal and interest payments	$1,498.0	$ 112.9	$ 125.9	$126.8	$1,132.4	$1,316.6	$    58.9	$  118.8	$269.7	$  869.2
  Operating leases	19.0	5.0	4.8	3.1	6.1	18.2	4.2	4.5	3.6	5.9
  Commodity purchase obligations	3,052.7	2,016.7	718.4	243.9	73.7	3,600.4	2,243.7	696.6	212.6	447.5
  Purchase orders	168.8	126.1	37.3	5.4	-	499.6	305.7	163.3	30.6	-
  Capital contributions to equity method investment	206.5	47.3	96.4	62.8	-	175.3	56.2	97.5	21.6	-
  Other	83.4	22.3	58.3	0.8	2.0	221.7	32.6	48.2	46.6	94.3
  Total contractual cash obligations	$5,028.4	$2,330.3	$1,041.1	$442.8	$1,214.2	$5,831.8	$2,701.3	$1,128.9	$584.7	$1,416.9

  Long-term debt principal and interest payments represent bonds issued, notes issued, and loans made to WPS Resources and its subsidiaries. We record all principal obligations on the balance sheet.

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  Commodity purchase obligations represent mainly commodity purchase contracts of WPS Resources and its subsidiaries. The energyEnergy supply contracts at WPS Energy Services summarized aboveESI included as part of commodity purchase obligations are generally have offsettingentered into to meet obligations to deliver energy sale contracts. Wisconsin Public Service expectsto customers. WPSC and UPPCO expect to recover the costs of itstheir contracts in future customer rates. Purchase orders include obligations related to normal business operations and large construction obligations.obligations, including 100% of Weston 4 obligations even though we expect 30% of these costs to be paid by Dairyland Power Cooperative after certain conditions are met. Capital contributions to equity method investment include our commitment to fund a portion of the Wausau, Wisconsin, to Duluth, Minnesota, transmission line. Other mainly represents expected pension and post-retirement funding obligations for the years of 2004 and 2005.obligations.

  Capital Requirements

  Wisconsin Public ServiceWPSC makes large investments in capital assets. Net construction expenditures are expected to be approximately $1,264 million$1.2 billion in the aggregate for the 20042005 through 20062007 period (upon the closing of the sale of the Kewaunee, nuclear power plant, expenditures would decrease approximately $44.9$73.8 million during this period). The largest of these expenditures is for the construction of Weston 4, in which WPSC is expected to incur costs of $432 million between 2005 through 2007, assuming 100% ownership in 2005, and 70% ownership in 2006 and 2007 after the expected purchase of a 30% interest in Weston 4 by Dairyland Power Cooperative.

  As part of its regulated utility operations, on September 26, 2003, WPSC submitted an application for a Certificate of Public Convenience and Necessity to the PSCW seeking approval to construct Weston 4, a 500-megawatt coal-fired generation facility near Wausau, Wisconsin, in which Wisconsin Public ServiceWisconsin. The facility is expectedestimated to incur costscost approximately $770 million (including the acquisition of $549coal trains). As of December 31, 2004, WPSC has incurred a total cost of $94.9 million between 2004 through 2006.related to this project. In addition, Wisconsin Public ServiceWPSC expects to incur additional construction costs through the date the plant goes into service of approximately $12$41 million between 2004 and 2006 to fund construction of the transmission facilities required to support Weston 4. ATC will reimburse WPSC for the generating facility. construction costs of the interconnection and related carrying costs when Weston 4 becomes commercially operational which is expected to occur in June 2008.

  On October 7, 2004, we received the final PSCW order granting authority to proceed with construction of Weston 4 contingent upon receipt of an air permit. The air permit was issued by the WDNR on October 19, 2004. We believe the air permit is one of the most stringent in the nation, which means that Weston 4 will be one of the cleanest plants of its kind in the United States. Construction began in October 2004, and on November 15, 2004, a petition was filed with the WDNR contesting the air permit issued. On December 2, 2004, the WDNR granted the petition and forwarded the matter to the Division of Hearings and Appeals. Construction continues and it is anticipated that the contested case hearing will be held in the second half of 2005.

  Other significant anticipated expenditures during this three-year period (2005 to 2007) include:

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  • combustion turbines - $49 million
  • mercury and pollution control equipmentprojects - $23$188 million
    
  • corporate services infrastructures - $41$34 million
    
  • automated meter readingjointly owned 500-megawatt base-load plant - $35$65 million
    
  • nuclear fuel - $33$43 million
  • mercury control projects - $59 million

  Other capital requirements for the three-year period include a potential contribution of $3.3 million to the Kewaunee nuclear power plant decommissioning trust fund (depending onif the sale of the Kewaunee assets).is not completed.

  On April 18, 2003, the Public Service Commission of WisconsinPSCW approved Wisconsin Public Service'sWPSC's request to transfer its interest in the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to the American Transmission Company.ATC. WPS Resources committed to fund 50% of total project costs incurred up to $198 million, and receive additional equity in American Transmission Company.ATC. WPS Resources may terminate funding if the project extends beyond January 1, 2010. On December 19, 2003, Wisconsin Public ServiceWPSC and American Transmission Company

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  ATC received approval to continue the project with theat a new cost estimatesestimate of $420.3 million. The updated cost estimate reflects additional costs for the project resulting from time delays, added regulatory requirements, changes and additions to the project at the request of local governments, and American Transmission Company's management, andATC overhead costs. Completion of the line is expected in 2008. WPS Resources has the right, but not the obligation, to provide additional funding in excess of $198 million up to its portion of the revised cost estimate. For the period 20042005 through 2006,2008, we expect to make capital contributions of up to $128approximately $175 million for our portion of the Wausau to Duluth transmission line. In exchange, we will receive increased ownership inOur commitment to fund this transmission line could decrease up to 50% if Minnesota Power exercises its option to fund a portion of the American Transmission Company.project.

  WPS Resources expects to provide additional capital contributions to ATC of approximately $15$36 million to American Transmission Company in 2004for the period 2005 through 2007 for other projects.

  Upper Peninsula PowerUPPCO is expected to incur construction expenditures of about $45$47 million in the aggregate for the period 20042005 through 2006,2007, primarily for electric distribution improvements and repairs and safety measures at hydroelectric facilities.

  Capital expenditures identified at WPS Power DevelopmentPDI for 20042005 through 20062007 are expected to be approximately $5$7.4 million, including $2.5 millionprimarily for fuel improvements and blade replacement at the Sunbury facility, which will be reimbursed by Duquesne Light Holdings if the sale of Sunbury is consummated (see Note 4 in Notes to WPS Resources Consolidated Financial Statements, Assets Held for Sale, for a more detailed discussion of the sale of the Sunbury facility).Empire State.

  Capital expenditures identified at WPS Energy ServicesESI for 20042005 through 20062007 are expected to be approximately $2.7 million.$7.0 million, largely due to the Advantage Energy acquisition and computer equipment related to business expansion and normal technology upgrades.

  All projected capital and investment expenditures are subject to periodic review and revision and may vary significantly from the estimates depending on a number of factors, including, but not limited to, industry restructuring, regulatory constraints, acquisition opportunities, market volatility, and economic trends. Other capital expenditures for WPS Resources and its subsidiaries for 20042005 through 20062007 could be significant depending on its success in pursuing development and acquisition opportunities. When appropriate, WPS Resources may seek nonrecourse financing for a portion of the cost of these acquisitions.

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  Capital Resources

  As of December 31, 2004, both WPS Resources and WPSC were in compliance with all of the covenants under their lines of credit and other debt obligations.

  For the period 20042005 through 2006,2007, WPS Resources plans to use internally generated funds net of forecasted dividend payments, cash proceeds from pending asset sales, and debt and equity financings to fund capital requirements. WPS Resources plans to maintain current debt to equity ratios.ratios at appropriate levels to support current ratings and corporate growth. Management believes WPS Resources has adequate financial flexibility and resources to meet its future needs.

  WPS Resources has the ability to issue up to an additional $176.9 million of debt or equity under its currently effective shelf registration statement. Wisconsin Public ServiceWPSC has the ability to issue up to an additional $25.0$375.0 million of debt under its currently effective shelf registration statement. Wisconsin Public Service intendsstatements. The shelf registrations are subject to file a new shelf registration statement in 2004 for an additional $350 million.the ultimate terms and conditions to be determined prior to the actual issuance of specific securities.

  WPS Resources and Wisconsin Public ServiceWPSC have 364-day credit line syndicationsfacilities for $225.0$400.0 million and $115.0 million, respectively. The credit lines are used to back 100% of WPS Resources' and Wisconsin Public Service'sWPSC's commercial paper borrowing programs and letters of credit for WPS Resources. As of December 31, 2003,2004, there was a total of $260.9$141.7 million and $20.2 million available under theWPS Resources' and WPSC's credit lines, of credit, net of $28 million of outstanding commercial paper, and $50.7 million in cash and cash equivalents.respectively.

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  In 2003, WPS Resources announced the sale of WPS Power Development's Sunbury, generation plant and Wisconsin Public ServiceWPSC announced the sale of its portion of Kewaunee. We anticipate being able to complete the Kewaunee nuclear power plant. Bothsale of these sales are expected to closeSunbury in 2004.2005. See the Kewaunee paragraph below for a discussion on this potential sale. A portion of the proceeds related to the Sunbury sale may be used to pay the non-recourse debt related to the plant. A portion of the proceeds related to the Kewaunee sale will be used to retire debt at Wisconsin Public Service.WPSC. The remainder of the proceeds from both the Sunbury and Kewaunee sales will be used by WPS Resources for investing activities and general corporate purposes of its subsidiaries, including reducing the amount of outstanding debt. For more information regarding the Sunbury and Kewaunee sale,sales, see the discussion below.

  Other Future Considerations

  Sunbury Generation Plant

  As a result of both market conditions and issues related to the physical performance of the plant, the Sunbury generation plant has not met our projected near-term financial performance levels. Market conditions continue to be depressed due to low prices for capacity. Sunbury also incurred significant outage time during 2003 to maintain and repair fuel handling and recently installed environmental control equipment that experienced accelerated wear from the use of low grade fuel in some of the units. Operational issues related to Sunbury have been resolved or a plan has been put in place to resolve them. WPS Resources made capital contributions of $18.5$24.5 million to Sunbury in 20032004 to compensate for the impact of decreasedlower capacity revenues, as well as adjustments to Sunbury's operating plan. For 2004, WPS Resources' Board of Directors has granted authorization to contribute up to $24.5 million of capital to Sunbury. These funds will behave been used to cover operating losses, make principal and interest payments, and purchase emission allowances. In 2004, WPS Resources' Board of Directors granted authorization to contribute up to $32.8 million of additional capital to Sunbury. Of that amount, $8.3 million remains available in 2005, as authorized by WPS Resources' Board of Directors.

  On October 24,September 30, 2004, PDI received a letter of termination from Duquesne Power, L.P. related to the previously announced agreement to sell Sunbury to Duquesne for approximately $120 million. Duquesne issued its letter of termination following a determination by the Pennsylvania Public Utility Commission not to reconsider its earlier approved Provider of Last Resort plan, which Duquesne believed did not satisfy a closing condition in the agreement. PDI is continuing its efforts to sell Sunbury. The carrying value of Sunbury is about $117 million, and this project carries approximately $66 million of project-financed debt. Based upon consideration of all information available at this time, management determined that no adjustment to the carrying value of Sunbury was required in 2004. Although management cannot predict the precise timetable or ultimate outcome, PDI is progressing with the sale process, and anticipates being able to complete the sale of Sunbury in 2005.

  Kewaunee

  On November 7, 2003, WPS Power DevelopmentWPSC entered into a definitive agreement to sell its Sunbury generation plant to a subsidiary of Duquesne Light Holdings for approximately $120 million, subject to certain working capital adjustments and regulatory approval. See Note 459% ownership interest in Notes to WPS Resources Consolidated Financial Statements, Assets Held for Sale, for more information.

  Kewaunee Nuclear Power Plant

  On November 7, 2003, Wisconsin Public Service and Wisconsin Power and Light Company entered into a definitive agreement to sell the Kewaunee nuclear power plant to a subsidiary of Dominion Resources, Inc. Wisconsin Public Service is a 59%The other joint owner of theKewanee, Wisconsin Power and Light Company, also agreed to sell its 41% ownership interest in Kewaunee nuclear power plant.to Dominion. The transaction is subject to approvalapprovals from various regulatory agencies, including the Public Service Commission of

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  Wisconsin, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, and several other state utility regulatory agencies and is projected to close in 2004. Approval has already which all major approvals have been obtained, fromexcept for approval by the Iowa Public Utility Commission.PSCW. The PSCW rejected the sale on November 19, 2004. However, WPSC, Wisconsin Power and Light Company, and Dominion Resources, Inc. offered a proposal addressing the PSCW's concerns in December 2004. In January 2005, the PSCW agreed to reconsider its decision on this transaction and we expect a decision to be rendered in March 2005.

  Wisconsin Public ServiceWPSC estimates that its share of the cash proceeds from the sale will approximate $130 million, subject to various post-closing adjustments. The cash proceeds from the sale are expected to slightly exceed the carrying value of the Wisconsin Public ServiceWPSC assets being sold. In addition to the cash proceeds, Wisconsin Public ServiceWPSC will retain ownership of the assets contained in its non-qualified decommissioning trust, one of two funds that were established to cover the eventual decommissioning of the Kewaunee nuclear power plant.Kewaunee. The pretaxnet of tax fair value of the non-qualified decommissioning trust's assets at December 31, 20032004, was $115.1$102.5 million. Dominion will assume responsibility for the eventual decommissioning of Kewaunee and will receive Wisconsin Public Service'sWPSC's qualified decommissioning trust assets that had a net of tax fair value of $239.7$242.0 million at December 31, 2003. Wisconsin Public Service will request2004. WPSC has requested deferral of the gain expected to resultor loss resulting from this transaction and related costs from the Public Service Commission of Wisconsin.PSCW. Accordingly, the gain or loss on the sale of the plant assets and the related non-qualified decommissioning trust assets isare expected to be returned to customers under future rate orders.

  RegulatoryOn February 20, 2005, Kewaunee was temporarily removed from service after a potential design weakness was identified in a backup cooling system. Plant engineering staff identified the concern and

  Wisconsin-64-

  Effective March 21, 2003, Wisconsin Public Service received approval to increase Wisconsin retail electric rates $21.4 million (3.5%) and decrease Wisconsin retail natural gas rates $1.2 million (0.3%). The 2003 electric and retail natural gas rates reflect a 12.0% return on equity and allowed average equity of 55%<PAGE>

  the unit was shutdown in the utility's capital structure.

  On April 1, 2003, Wisconsin Public Service filed an applicationaccordance with the Public Service Commissionplant license. A modification is being made to resolve the issue and it is anticipated that the unit will be back in service at 100% power by mid April. WPSC intends to file a request with the PSCW for recovery of Wisconsin for authorization to increase retail electric rates and retail natural gas rates, effective January 1, 2004. The rate increases are necessary to recover theincremental costs associated with the purchase of the De Pere Energy Center, fuel, costs, maintenance of power production facilities, and employee benefits. On December 19, 2003, the Public Service Commission of Wisconsin issued a final written order authorizing a retail electric rate increase of $59.4 million (9.4%) and a retail natural gas rate increase of $8.9 million (2.2%), effective January 1, 2004. The 2004 rates reflect a 12.0% return on equity. The Public Service Commission of Wisconsin also approved average equity of 56% in the utility's capital structure.

  The amount of fuel and purchased power, costs Wisconsin Public Service is authorized to recover in rates is established in its general rate filings. If the actual fuel and purchased power costs vary from the authorized level by more than 2% on an annual basis, Wisconsin Public Service is allowed, or may be required, to file an application adjusting rates for the remainder of the year to reflect actual costs for the year to dateoperating and updated projectedmaintenance costs. On October 29, 2003, Wisconsin Public Service filed to reduce rates by $1.9 million, due to a reduction in the costs of fuelWPSC and purchased power, for the period August 15, 2003 through December 31, 2003. On February 19, 2004, the Public Service Commission of Wisconsin approved a refund of $2.7 million, which represents the originally filed amounts, adjustments, and interest. This refund is expected to be credited to customer accounts in March 2004. A liability of $2.6 million was accrued as of December 31, 2003 in anticipation of this refund.

  As a result of the Kewaunee nuclear power plant unplanned outage in late January and early February 2004 and other fuel cost increases in 2004, Wisconsin Public Service filed for a fuel cost increase of $7.4 millionon February 27, 2004. The Public Service Commission of Wisconsin has scheduled a hearing for March 22, 2004 to determine the amount of the fuel cost increase to be recovered on an interim basis. Wisconsin Public Service expects that a final order will be issued in summer 2004 regarding this rate increase request.

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  Michigan

  Wisconsin Public Service filed for an increase in electric rates in the first quarter of 2003. On July 21, 2003, the Michigan Public Service Commission authorized an increase in electric rates of $0.3 million and the recovery of an additional $1.0 million of transmission costs through the power supply cost recovery mechanism, effective July 22, 2003.

  On December 20, 2002, the Michigan Public Service Commission approved an 8.95% increase in retail electric rates for customers of Upper Peninsula Power. The Michigan Public Service Commission granted an 11.4% return on equity with the new rates being effective December 21, 2002. This was the first base rate increase for Upper Peninsula Power in 10 years.

  Michigan authorizes a one-for-one fuel and purchased power recovery mechanism for prudently incurred costs. Under the mechanism, the difference between actual and authorized fuel and purchased power costs is deferred until year-end. By March 31 of the following year, the utility must file a reconciliation of the actual costsDominion remain committed to the authorized costs. Any under or over recovery is then recovered from rates or returned to the ratepayer through the endsale of the following year. The reconciliation is subject to review and intervention by customers. At December 31, 2003 Upper Peninsula Power had significantly under recovered fuel and purchased power costs due to the high costs of purchased power. Upper Peninsula Power intends to file, in March 2004, a reconciliation of the 2003 purchased power costs requesting recovery of $5.2 million. In addition, costs associated with the Presque Isle Power Plant outage have been deferred and are expected to be addressed along with other Dead River flood issues in the next rate case. Upper Peninsula Power expects a final decision regarding the recovery of the 2003 fuel costs no later than the end of 2004. Due to the level of the under recovery relative to Upper Peninsula Power's revenues, the deferred cost may be recovered over more than one year.

  Federal

  On April 30, 2003, Wisconsin Public Service received a draft order from the Federal Energy Regulatory Commission approving a 21%, or $4.1 million, interim increase in wholesale electric rates. The new wholesale rates were effective on May 11, 2003, and are subject to refund if the final rate increase is less. The draft order also granted the use of formula rates, which allow for the adjustment of wholesale electric rates to reflect actual costs without having to file additional rate requests. On March 4, 2004, the Federal Energy Regulatory Commission and Wisconsin Public Service reached a tentative settlement regarding the final rate increase. Wisconsin Public Service anticipates no material refunds or other adjustments to revenues recorded under the interim rates based on the terms of the tentative agreement. The final settlement is anticipated to be filed with the Federal Energy Regulatory Commission in the second quarter of 2004. This is Wisconsin Public Service's first rate increase for its wholesale electric customers in 17 years.Kewaunee.

  Asset Management Strategy

  In 2001, WPS Resources initiated an asset managementis finalizing its sales strategy whereby assets, or business units, no longer required for operations would be disposed over the next 5 to 7 years in a manner that allows recognitionbalance of profits and provides capital for redeployment into new opportunities. In conjunction with the execution of a part of thisits identified excess real estate holdings. This strategy the company has identified certain assets to be disposed of consisting primarily of land and some buildings, the sale of which is expected to provide basicfor WPS Resources to meet its average annualized earnings per share between $0.15goal.

  Regulatory

  For a discussion of regulatory considerations, see Note 22, Regulatory Environment, to WPS Resources' Notes to Consolidated Financial Statements.

  American Jobs Creation Act of 2004

  On October 22, 2004, the President of the United States signed into law the American Jobs Creation Act of 2004 ("2004 Jobs Act"). The 2004 Jobs Act introduces a new deduction, the "United States production activities deduction." This domestic production provision allows as a deduction an amount equal to a specified percent of the lesser of the qualified production activities income of the taxpayer for the taxable year or taxable income for the taxable year. The deduction is phased in, providing a deduction of three percent of income through 2006, a six percent deduction through 2009, and $0.25, annually, through 2007.a nine percent deduction after 2009. On December 21, 2004, the FASB issued final staff position ("FSP") 109-1, effective the same day, on accounting for the effects of the domestic production deduction provisions. The FSP  109-1 said the deduction should be accounted for as a special deduction rather than a tax rate reduction. The FSP  109-1 also said the special deduction should be considered by an enterprise in measuring deferred taxes when graduated tax rates are a significant factor and also in assessing if a valuation allowance is necessary. On December 8, 2004, the PSCW issued an order authorizing WPSC to defer of the revenue requirements impacts resulting from the 2004 Jobs Act. The Internal Revenue Service and Department of Treasury issued interim guidance on January 19, 2005, covering the implementation of the domestic production provision of the 2004 Jobs Act. WPS Resources is currently reviewing this guidance in order to quantify the tax impact of this deduction or identify all potential tax issues related to the 2004 Jobs Act. However, pursuant to regulatory treatment, WPS Resources expects any tax benefits derived from utility operations to be deferred and passed on to customers in future rates.

  Section 29 Federal Tax Credits

  The current rise in oil prices may result in a reduction or elimination of the Section 29 federal tax credits expected for future years. A phase out or elimination of the Section 29 federal tax credits would have no impact on the value of alternative minimum tax credits WPS Resources is carrying forward as a result of prior production of Section 29 federal tax credits. WPS Resources is assessing the impact of this issue on future operations and evaluating alternatives to potentially protect the ongoing economic benefits of the synthetic fuel facility.

  GUARANTEES AND OFF BALANCE SHEET ARRANGEMENTS - WPS RESOURCES

  As part of normal business, WPS Resources and its subsidiaries enter into various guarantees providing financial or performance assurance to third parties on behalf of certain subsidiaries. These guarantees are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries' intended commercial purposes.

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  The guarantees issued by WPS Resources include intercompanyinter-company guarantees between parents and their subsidiaries, which are eliminated in consolidation, and guarantees of the subsidiaries' own performance. As such, these guarantees are excluded from the recognition, measurement, and disclosure requirements of Financial Accounting Standards Board InterpretationFIN No. 45, "Guarantors' Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others."

  At December 31, 2004, 2003, and December 31, 2002, outstanding guarantees totaled $977.9 million, $981.8 million, and $652.2 million, respectively, as follows:

  WPS Resources' Outstanding Guarantees (Millions)	December 31, 2003	December 31, 2002	December 31, 2004	December 31, 2003	December 31, 2002
  Guarantees of subsidiary debt	$ 39.7	$ 38.8	$ 27.2	$ 39.7	$ 38.8
  Guarantees supporting commodity transactions of subsidiaries	874.4	584.3	863.9	874.4	584.3
  Standby letters of credit	61.1	22.7	80.9	61.1	22.7
  Surety bonds	1.1	6.4	0.6	1.1	6.4
  Other guarantee	5.5	-	5.3	5.5	-
  Total guarantees	$981.8	$652.2	$977.9	$981.8	$652.2

   

  WPS Resources' Outstanding Guarantees (Millions) Commitments Expiring	Total Amounts Committed At December 31, 2003	Less than 1 year	1 to 3 years	4 to 5 years	Over 5 years	Total Amounts Committed At December 31, 2004	Less Than 1 Year	1 to 3 Years	4 to 5 Years	Over 5 Years
  Guarantees of subsidiary debt	$ 39.7	$ 12.5	$ -	$ -	$ 27.2	$ 27.2	$       -	$     -	$     -	$ 27.2
  Guarantees supporting commodity transactions of subsidiaries	874.4	769.3	83.4	21.2	0.5	863.9	812.6	22.4	12.9	16.0
  Standby letters of credit	61.1	53.4	7.7	-		80.9	68.0	12.9	-
  Surety bonds	1.1	1.1	-	-		0.6	0.6	-	-
  Other guarantee	5.5	-	-	-	5.5	5.3	-	-	-	5.3
  Total guarantees	$981.8	$836.3	$91.1	$21.2	$33.2	$977.9	$881.2	$35.3	$12.9	$48.5

  At December 31, 2003,2004, WPS Resources had outstanding $39.7$27.2 million in corporate guarantees supporting indebtedness. Of that total, $39.5$27.0 million supports outstanding debt at twoone of WPS Power Development'sPDI's subsidiaries. The underlying debt related to these guarantees is reflected on the consolidated balance sheet.

  WPS Resources' Board of Directors has authorized management to issue corporate guarantees in the aggregate amount of up to $1.2 billion to support the business operations of WPS Energy Services.ESI. WPS Resources primarily issues the guarantees to counterparties in the wholesale electric and natural gas marketplace to provide counterparties the assurance that WPS Energy ServicesESI will perform on its obligations and permit WPS Energy ServicesESI to operate within these markets. The amount of guarantees actually issued by WPS Resources to support the business operations at WPS Energy ServicesESI at December 31, 20032004, was $840.2$817.7 million, and this is reflected in the table above. The amount actually supported is dependent onThese guarantees reflect the amount of outstanding business WPS Energy Services hasESI could have with the counterparties holding the guarantees at any point in time. WPS Resources reflects WPS Energy Services'At December 31, 2004, the actual amount of ESI's obligations to counterparties supported by theseWPS Resources' parental guarantees on its consolidated balance sheet either as accounts payable or liabilities from risk management activities.was $132.6 million.

  At December 31, 2003,2004, WPS Resources had issued $34.1$38.3 million in corporate guarantees to support the business operation of WPS Power Development,PDI, which are reflected in the above table. WPS Resources

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  issues the guarantees for indemnification obligations related to business purchase agreements and counterparties in

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  the wholesale electric marketplace to meet their credit requirements and permit WPS Power DevelopmentPDI to operate within these markets. The amount supported is dependent on the amount of the outstanding obligationobligations that WPS Power DevelopmentPDI has with the parties holding the guarantees at any point in time. WPS Resources reflects WPS Power Development'sAt December 31, 2004, the amount of PDI's obligations supported by theseWPS Resources' parental guarantees on its consolidated balance sheet as either accounts payable or other liabilities.was $4.7 million. In February 2004, WPS Resources' Board of Directors authorized management to issue corporate guarantees in the aggregate amount of up to $30.0 million to support business operations at WPS Power DevelopmentPDI in addition to guarantees that have receivedreceive specific authorizations.WPS Resources Board authorization.

  Another $0.1$7.9 million of corporate guarantees support energy and transmission supply at Upper Peninsula PowerUPPCO and are not reflected on WPS Resources' consolidated balance sheet. In February 2004, WPS Resources' Board of Directors authorized management to issue corporate guarantees in the aggregate amount of up to $15$15.0 million to support the business operations of Upper Peninsula Power.UPPCO. Corporate guarantees issued in the future under the Board authorized limit may or may not be reflected on WPS Resources' consolidated balance sheet, depending on the nature of the guarantee.

  At WPS Resources' request, financial institutions have issued $61.1$80.9 million in standby letters of credit for the benefit of third parties that have extended credit to certain subsidiaries. If a subsidiary does not pay amounts when due under a covered contract, the counterparty may present its claim for payment to the financial institution, which will request payment from WPS Resources. Any amounts owed by our subsidiaries are reflected in the consolidated balance sheet.

  At December 31, 2003,2004, WPS Resources furnished $1.1$0.6 million of surety bonds for various reasons including worker compensation coverage and obtaining various licenses, permits, and rights-of-way. Liabilities incurred as a result of activities covered by surety bonds are included in the consolidated balance sheet.

  OtherThe other guarantee of $5.5$5.3 million listed on the above table was issued by Wisconsin Public ServiceWPSC to indemnify a third party for exposures related to the construction of utility assets. This amount is not reflected on the consolidated balance sheet.

  WPS Resources has not identified any material variable interest entities created, or interests in variable entities obtained, after January 31, 2003guarantees the potential retrospective premiums that require consolidation or disclosurecould be addressed under the Financial Accounting Standard Board's revised Interpretation No. 46 ("46R"), and we continueWPS Resources' nuclear insurance program.

  See Note 23, "Variable Interest Entities," to assess the existence of any interests in variable interest entities, not classified as special purpose entities, created on or prior to January 31, 2003. The application of Interpretation No. 46R was required for interests in special-purpose entities for periods ending after December 15, 2003. WPSR Capital Trust I was deconsolidated from the Consolidated Financial Statements of WPS Resources at December 31, 2003, as required by the provisions of Interpretation No. 46R related to special purpose entities. As a result of the deconsolidation, WPS Resources recorded a $1.5 million investment in the Trust within other current assets and a $51.5 million note payable to preferred stock trust, respectively, within the Consolidated Balance Sheet. Refer to Note 15 of WPS Resources' Notes to the Consolidated Financial Statements for further information abouton the deconsolidation of WPSR Capital Trust I.

  WPS Resources currently anticipates that we will disclose information about a variable interest entity upon implementation of Interpretation No. 46R. Interpretation No. 46R in the first quarter of 2004. Through an affiliate of WPS Power Development, Inc., WPS Resources owns a partial interest in a synthetic fuel production facility located in Kentucky and receives tax credits pursuant to Section 29 of the Internal Revenue Code based on sales to unaffiliated third-party purchasers of synthetic fuel produced from coal. At December 31, 2003, WPS Resources' had a 23% ownership interest in the synthetic fuel facility. Section 29 tax credits generated by the facility are currently scheduled to expire at the end of 2007. WPS Resources' maximum exposure to loss as a result of our involvement with this potentialrequires certain variable interest entity is limitedentities to our investment in the entity, which is not significant at December 31, 2003. Currently, we do not believe that WPS Resources isbe consolidated by the primary beneficiary of thisthe entity andif the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties.

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  anticipate consolidation of the synthetic fuel facility upon adoption of Interpretation No. 46R in the first quarter of 2004.

  TRADINGMARKET PRICE RISK MANAGEMENT ACTIVITIES - WPS RESOURCES

  WPS Energy ServicesMarket price risk management activities include the electric and natural gas marketing and related risk management activities of ESI. ESI's marketing and trading operations manage power and natural gas procurement as an integrated portfolio with its retail and wholesale sales commitments. Derivative instruments are utilized in these operations. ESI measures the fair value of contracts, includingderivative instruments (including NYMEX exchange and over-the-counter contracts, natural gas options, natural gas and electric power physical fixed price contracts, basis contracts, and related financial instrumentsinstruments) on a mark-to-market basisbasis. The fair value of derivatives is shown as "assets or liabilities from risk management activities" in the consolidated balance sheets.

  The offsetting entry to assets or liabilities from risk management activities is to other comprehensive income or earnings, depending on the use of the derivative, how it is designated, and if it qualifies for hedge accounting. The fair values of derivative instruments are adjusted each reporting period using various market sources and risk management systems. The primary input for natural gas pricing is the settled forward price curve of the NYMEX exchange, which includes contracts and options. Basis pricing is derived from published indices and documented broker quotes. WPS Energy ServicesESI bases electric prices on published indices and documented broker quotes. The following table provides an assessment of the factors impacting the change in the net value of WPS Energy Services'ESI's assets and liabilities from risk management activities duringfor the 12 months ended December 31, 2003.2004.

  WPS Energy Services, Inc. Mark-to-Market Roll Forward (Millions)	Natural Gas	Electric	Total
  Fair value of contracts at January 1, 2003	$(7.1)	$11.0	$ 3.9
  Less - contracts realized or settled during period	(15.0)	(2.1)	(17.1)
  Plus - fair value of new contracts entered into during period	9.3	1.6	10.9
  Other changes in fair value	16.4	-	16.4
  Cumulative effect of rescission of Issue No. 98-10	9.7	(4.2)	5.5
  Fair value of contracts at December 31, 2003	$13.3	$ 6.3	$ 19.6

  ESI Mark-to-Market Roll Forward (Millions)	Natural Gas	Electric	Total
  Fair value of contracts at January 1, 2004	$13.3	$ 6.3	$19.6
  Less - contracts realized or settled during period	10.9	(2.0)	8.9
  Plus - changes in fair value of contracts in existence at   December 31, 2004	29.2	5.4	34.6
  Fair value of contracts at December 31, 2004	$31.6	$13.7	$45.3

  The fair value of contracts at January 1, 20032004, and December 31, 2003 reflect2004, reflects the values reported on the balance sheet for net mark-to-market current and long-term risk management assets and liabilities as of those dates. Contracts realized or settled during the period includeincludes the value of contracts in existence at January 1, 20032004, that were no longer included in the net mark-to-market assets as of December 31, 2003 and2004, along with the amortization of those derivatives later designated as normal purchases and sales under StatementSFAS No. 133. Mark-to-marketChanges in fair value of existing contracts include unrealized gains and losses related toon contracts that existed at January 1, 2004, and contracts that were entered into subsequent to January 1, 2003, that2004, which are still included in WPS Energy Services'ESI's portfolio at December 31, 2003, are included in the fair value of new contracts entered into during the period.2004. There were, in many cases, offsetting positions entered into and settled during the period resulting in gains or losses being realized during the current period. The realized gains or losses from these offsetting positions are not reflected in the table above.

  Market quotes are more readily available for short duration contracts. The "Other changes in fair value" line intable below shows the table primarily represents the reversalsources of the change in the fair value and maturity of gas storage contracts as of January 1, 2003. With the rescission of Issue No. 98-10, natural gas storage contracts are accounted for on an accrual basis and are no longer adjusted to fair value. The cumulative effect of rescission of Issue No. 98-10 is the reversal of the December 31, 2002ESI's risk management assets and liabilities that no longer qualify for mark-to-market accounting with the rescission of Issue No. 98-10 as required by Issue No. 02-03.instruments.

  ESI Risk Management Contract Aging at Fair Value As of December 31, 2004
  Source of Fair Value (Millions)	Maturity Less Than 1 Year	Maturity 1 to 3 Years	Maturity 4 to 5 Years	Maturity in Excess of 5 Years	Total Fair Value
  Prices actively quoted	$27.4	$1.8	-	-	$29.2
  Prices provided by external sources	8.1	5.1	-	-	13.2
  Prices based on models and other valuation methods	2.8	0.1	-	-	2.9
  Total fair value	$38.3	$7.0	-	-	$45.3

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  WPS Energy Services, Inc. Derivative Contract Aging at Fair Value As of December 31, 2003
  Source of Fair Value (Millions)	Maturity less than 1 year	Maturity 1 to 3 years	Maturity 4 to 5 years	Maturity in excess of 5 years	Total fair value
  Prices actively quoted	$6.0	$(0.1)	-	-	$ 5.9
  Prices provided by external sources	4.3	5.5	-	-	9.8
  Prices based on models and other valuation methods	1.2	2.7	-	-	3.9
  Total fair value	$11.5	$ 8.1	-	-	$19.6

  "Prices actively quoted" includes NYMEX contracts. "Prices provided by external sources" includes basis swaps and over-the-counter contracts. "Prices based on models and other valuation methods" includes some retail natural gas and electric contracts due to the volume optionality that exists in those contracts. We derive the pricing for allmost contracts in the above table from active quotes or external sources. Pricing"Prices actively quoted" includes NYMEX contracts and basis swaps. "Prices provided by external sources" includes electric and natural gas contract positions for which pricing information is the most significant variable in the mark-to-market calculations.obtained primarily through broker quotes. "Prices based on models and other valuation methods" includes electric contracts for which reliable external pricing information does not exist.

  WPS Energy Services,ESI, as a result of WPS Power Development's acquisitionPDI's ownership of generating assets in New York, has acquired transmission congestion contracts, which are financial contracts, that hedge price risk between zones within the New York Independent System Operator. The contracts were marked to fair value using a combination of modeled forward prices and market quotes. The fair market value of the contracts at December 31, 20032004, was $1.3$0.7 million.

  ESI employs a variety of physical and financial instruments offered in the marketplace to limit risk exposure associated with fluctuating commodity prices and volumes, enhance value, and minimize cash flow volatility. However, the application of hedge accounting rules causes ESI to experience earnings volatility associated with electric and natural gas operations. While risks associated with power generating capacity and power sales are economically hedged, certain transactions do not meet the definition of a derivative or qualify for hedge accounting under generally accepted accounting principles. Consequently, gains and losses from the generating capacity do not always match with the related physical and financial hedging instruments in some reporting periods. The result can cause volatility in ESI's reported period-by-period earnings; however, the financial impact of this timing difference will reverse at the time of physical delivery and/or settlement of the hedge transaction. The accounting treatment does not impact the underlying cash flows or economics of these transactions. At December 31, 2004, the unrealized mark-to-market gains were $5.4 million for ESI's electric operations and related hedges that did not qualify for cash flow hedge treatment under SFAS No. 133. See Results of Operations - Overview of Nonregulated Operations - ESI's Segment Operations for information regarding earnings volatility associated with the natural gas storage cycle.

  CRITICAL ACCOUNTING POLICIES - WPS RESOURCES

  In May 2002, the Securities and Exchange Commission issued proposed rules regarding the identification and disclosure of accounting estimates a company makes in applying its accounting policies and the disclosure of initial adoption by a company of an accounting policy that has a material impact on its financial presentation. Under the first part of the proposal, a company would have to identify the accounting estimates reflected in its financial statements that required it to make assumptions about matters that were highly uncertain at the time of estimation. Disclosures about those estimates would then be required if different estimates that the company reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of the company's financial condition, changes in financial condition or results of operations.

  The Securities and Exchange Commission accepted comments on the proposed rules through July 19, 2002 and has not made any final decisions since that time. In anticipation of at least parts of this proposed rule being made final, weWe have identified the following accounting policies to be critical to the understanding of our financial statements because their application requires significant judgment and reliance on estimations of matters that are inherently uncertain. WPS Resources' management has discussed these critical accounting policies with the Audit Committee of the Board of Directors.

  Risk Management Activities

  WPS Resources has entered into contracts that are accounted for as derivatives under the provisions of Statement of Financial Accounting StandardsSFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. At December 31, 2003,2004, those derivatives not designated as hedges are primarily commodity contracts to manage price risk associated with wholesale and retail natural gas purchase and sale activities and electric energy contracts. Management's expectations and intentions are key factors in determining the appropriate accounting for a derivative transaction, and as a result, such expectations and intentions are documented. Cash flow hedge accounting treatment may be used when WPS Resources contracts to buy or sell a commodity at a fixed price for future delivery corresponding with anticipated physical sales or purchases. Fair value hedge accounting may be used when WPS Resources holds firm commitments and enters into transactions that hedge the risk that the price of a commodity may change between the contract's inception and the physical delivery date of the

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  commodity. To the extent that the fair value of a hedge instrument is fully effective in offsetting the transaction being hedged, there is no impact on income available for common shareholders prior to settlement of the hedge. In addition, WPS Resources may apply the normal purchases and normal sales exemption, provided by StatementSFAS No. 133, as amended, to certain contracts. The normal purchases and sales exception provides that no recognition of the contract's fair value in the consolidated financial statements is required until the settlement of the contract.

  DerivativesDerivative contracts that are determined to fall within the scope of StatementSFAS No. 133, as amended, are recorded at fair value on the Consolidated Balance Sheet of WPS Resources. Changes in fair value,

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  except those related to derivative instruments designated as cash flow hedges, are generally included in the determination of income available for common shareholders at each financial reporting date until the contracts are ultimately settled. When available, quoted market prices are used to record a contract's fair value. If no active trading market exists for a commodity or for a contract's duration, fair value is estimated through the use of internally developed valuation techniques or models. Such estimates require significant judgment as to assumptions and valuation methodologies deemed appropriate by WPS Resources' management. As a component of the fair value determination, WPS Resources maintains reserves to account for the estimated direct costs of servicing and holding certain of its contracts based upon administrative costs, credit/counterparty risk, and servicing margin with both fixed and variable components. The effect of changing both the administrative costsunderlying servicing and credit/counterparty risk assumptions is as follows:

  Change in Assumption (Millions)	Effect to Operating Reserve at December 31, 20032004
  100% increase	$1.6 11.4
  50% decrease	$(0.8) (5.7)

  These potential changes to the operating reserve would be shown as part of the Nonregulated cost of fuel, gas and purchased power on the Consolidated Statements of Income and current and long-term Assets/Liabilities from risk management activities on the Consolidated Balance Sheets.

  Asset Impairment

  WPS Resources annually reviews its assets for impairment. Statement of Financial Accounting StandardsSFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets," and StatementSFAS No. 142, "Goodwill and Other Intangible Assets," areform the basis for these analyses.

  The review for impairment of tangible assets is more critical to WPS Power DevelopmentPDI than to our other segments because of its significant investment in property, plant, and equipment and lack of access to regulatory relief that is available to our regulated segments. At December 31, 2004, the carrying value of PDI's property, plant, and equipment totaled $138.1 million, excluding assets held for sale, which totaled $73.9 million. We believe that the accounting estimate related to asset impairment of power plants is a "critical accounting estimate" because: (1) the estimate is susceptible to change from period to period because it requires company management to make assumptions about future market sales pricing, production costs, capital expenditures and generation volumes and (2) the impact thatof recognizing an impairment would have on the assets reported on our balance sheet and the net loss on our income statement could be material.material to our financial position or results of operations. Management's assumptions about future market sales prices and generation volumes require significant judgment because actual market sales prices and generation volumes have fluctuated in the past as a result of changing fuel costs, environmental changes, and required plant maintenance and are expected to continue to do so in the future.

  The primary estimates used at WPS Power DevelopmentPDI in this processthe impairment analysis are future revenue streams and operating costs. A combination of input from both internal and external sources is used to project revenue streams. WPS Power Development'sPDI's operations group projectsforecasts future operating costs with input from external sources for fuel costs and forward energy prices. These estimates are modeled over the projected remaining life of the power plants using the methodology defined in StatementSFAS No. 144. WPS Power DevelopmentPDI evaluates property, plant, and equipment for impairment whenever indicators of impairment exist. StatementThese indicators include a significant underperformance of the assets relative to historical or projected future operating results, a significant change in the use of the assets or business strategy related to such assets, and significant negative industry or economic trends. SFAS No. 144 requires that if the sum of the undiscounted expected future cash flows from a company's asset is less than the carrying value of the asset, an asset impairment must be

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  recognized in the financial statements. For assets held for sale, impairment charges are recorded if the carrying value of such assets exceeds the estimated fair value less costs to sell. The amount of impairment recognized is calculated by reducing the carrying value of the asset to its fair value.

  Throughout 2003, WPS Power Development2004, PDI tested its power plants for recoverabilityimpairment whenever events or changes in circumstances indicated that their carrying amount may not be recoverable. No impairment charges were

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  recorded in 20032004 as a result of these recoverability tests. Results of past impairment tests may not necessarily be an indicator of future tests given the criticality of the accounting estimates involved, as discussed more fully above. Changes in actual results or assumptions could result in an impairment.

  TheWPSC recorded goodwill of $36.4 million in its gas utility segment following the merger of Wisconsin Fuel and Light into Wisconsin Public ServiceWPSC in 2001 resulted in Wisconsin Public Service recording goodwill related to its gas utility segment.2001. The goodwill is tested for impairment yearly based on the guidance of StatementSFAS No. 142. The test for impairment includes assumptions about future profitability of the gas utility segment and the correlation between our gas utility segment and published projections for other similar gas utility segments. A significant change in the natural gas utility market and/or our projections of future profitability could result in a loss being recorded on the income statement related to a decrease in the goodwill asset as a result of the impairment test.

  Receivables and Reserves

  Our regulated natural gas and electric utilities and WPS Energy ServicesESI accrue estimated amounts of revenue for services rendered but not yet billed.  Estimated unbilled sales are calculated using actual generation and throughput volumes, recorded sales, and weather factors. The estimated unbilled sales are assigned different rates based on historical customer class allocations. At December 31, 2004, 2003, and 2002, the amount of unbilled revenues was $113.2 million, $90.0 million, and $105.9 million, respectively. Any difference between actual sales and the estimates or weather factors would cause a change in the estimated revenue.

  WPS Resources records reserves for potential uncollectible customer accounts as an expense on the income statement and an uncollectible reserve on the balance sheet. Wisconsin Public ServiceWPSC records a regulatory asset to offset its uncollectible reserve. Due to the nature ofBecause the nonregulated energy marketing business havinginvolves higher credit risk, the reserve is more critical to WPS Energy ServicesESI than to our other segments. At WPS Energy Services,ESI, the reserve is based on historical uncollectible experience and specific customer identification where practical. If the assumption that historical uncollectible experience matches current customer default is incorrect, or if a specific customer with a large account receivable that has not previously been identified as a risk defaults, there could be significant changes to the expense and uncollectible reserve balance.

  Pension and Postretirement Benefits

  The costs of providing non-contributory defined benefit pension benefits and other postretirement benefits, described in Note 1918 to the Consolidated Financial Statements, are dependent upon numerous factors resulting from actual plan experience and assumptions ofregarding future experience.

  Pension costs for example,and other postretirement benefit costs are impacted by actual employee demographics (including age, compensation levels, and employment periods), the level of contributions we make to the plan, and earnings on plan assets. Changes made to the plan provisions mayOther postretirement benefit costs are also impact currentimpacted by health care cost trends. Pension and future pension costs. Pensionother postretirement benefit costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets, and the discount rates used in determining the projected benefit and other postretirement benefit obligation and pension costs.

  Otherand other postretirement benefit costs, for example, are impacted by actual employee demographics (including age and compensation levels), the level of contributions we make to the plans, earnings on plan assets, and health care cost trends. Changes made to the plan provisions may also impact current and future pension and other postretirement benefit costs. Other postretirement benefit costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets, health care cost trend rates, and the discount rates used in determining the postretirement benefit obligation and postretirement costs.

  WPS Resources' pension plan assets and other postretirement benefit plan assets are primarily made up of equity and fixed income investments. Fluctuations in actual equity market returns as well as changes

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  in general interest rates may result in increased or decreased pension costs in future periods. Likewise, changes in assumptions regarding current discount rates and expected rates of return on plan assets could also increase or decrease recorded pension costs. Changes in assumptions regarding current discount rates, health care cost trend rates, and expected rates of return on plan assets could also increase or decrease recorded other postretirement benefit costs. Management believes that such changes in costs would be recovered at our regulated segments through the ratemaking process.

  The following chart reflects the sensitivities associated withshows how a given change in certain actuarial assumptions by the indicated percentage. The chart below reflects an increase or decrease in the percentage for each assumption, and how each change would impact the projected benefit obligation, ourthe net amount recognized on the balance sheet, and ourthe reported annual pension cost on the income statement as they relate to all of our two large qualifieddefined benefit pension plans. Each sensitivityfactor below reflects an evaluation of the change based on a change in that assumption only.

   

  Actuarial Assumption (Millions, except percentages)	Percent Change in Assumption	Impact on Projected Benefit Obligation	Impact on Net Amount Recognized	Impact on Pension Cost
  Discount rate	(0.5)	$34.0	$(0.6)	$ 0.6
  Discount rate	0.5	(37.6)	0.7	(0.7)
  Rate of return on plan assets	(0.5)	N/A	(2.7)	2.7
  Rate of return on plan assets	0.5	N/A	2.7	(2.7)

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  Actuarial Assumption (Millions, except percentages)	Percent Change in  Assumption	Impact on Projected Benefit Obligation	Impact on Net Amount Recognized	Impact on  Pension  Cost
  Discount rate	(0.5)	$ 44.2	$(3.7)	$ 3.7
  Discount rate	0.5	(41.6)	3.7	(3.7)
  Rate of return on plan assets	(0.5)	N/A	(2.6)	2.6
  Rate of return on plan assets	0.5	N/A	2.6	(2.6)

  The following chart reflects the sensitivities associated withshows how a given change in certain actuarial assumptions by the indicated percentage. The chart below reflects an increase or decrease in the percentage for each assumption and how each change would impact the projected other postretirement benefit obligation, ourthe reported other postretirement benefit liability on the balance sheet, and ourthe reported annual other postretirement benefit cost on the income statement. Each sensitivityfactor below reflects an evaluation of the change based on a change in that assumption only.

  Actuarial Assumption (Millions, except percentages)	Percent Change in Assumption	Impact on Postretirement Benefit Obligation	Impact on Postretirement Benefit  Liability	Impact on Postretirement Benefit Cost	Percent Change in Assumption	Impact on Postretirement Benefit Obligation	Impact on Postretirement Benefit Liability	Impact on Postretirement Benefit Cost
  Discount rate	(0.5)	$21.6	$2.5	$2.5	(0.5)	$23.8	$(1.9)	$ 1.9
  Discount rate	0.5	(20.0)	(1.8)	(1.8)	0.5	(20.5)	1.6	(1.6)
  Health care cost trend rate	(1.0)	(37.4)	(5.6)	(5.6)	(1.0)	(34.7)	4.8	(4.8)
  Health care cost trend rate	1.0	48.6	6.3	6.3	1.0	42.0	(5.2)	5.2
  Rate of return on plan assets	(0.5)	N/A	0.6	0.6	(0.5)	N/A	(0.7)	0.7
  Rate of return on plan assets	0.5	N/A	(0.6)	(0.6)	0.5	N/A	0.7	(0.7)

  In selecting an assumed discount rate, we consider long-term Corporate Aa rated bond yield rates. In selectingTo select an assumed rate of return on plan assets, we consider the historical returns and the future expectations for returns for each asset class, as well as the target allocation of the benefit trust portfolios.

  The fair value of pension plan assets increased $92.7 million in 2003, decreased $47.8 million in 2002, and decreased $13.7 million in 2001. As further described in Note 19 to the Consolidated Financial Statements, as a result of the declining interest rate environment, we were required to recognize an additional minimum liability as prescribed by Statement No. 87. The liability was recorded as an intangible asset, a regulatory asset, and a reduction to common equity through a charge to Other comprehensive income. The charge to Other comprehensive income could be restored through common equity in future periods to the extent fair value of trust assets exceed the accumulated benefit obligation. Also, pension cost and cash funding requirements could increase in future years without continued improved asset returns.

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  The fair value of other postretirement benefit plan assets increased $23.7 million in 2003, decreased $14.8 million in 2002, and decreased $4.4 million in 2001. In selecting assumed health care cost trend rates, we consider past performance and forecasts of health care costs. WPS Resources adjusted its health care cost trend rates upwards each of the last two years in an attempt to keep our health care cost trend rates in line with the rapidly increasing health care costs the country and WPS Resources have faced. Also, other postretirement benefit cost and cash funding could increase in future years without continued improved asset returns.

  Regulatory Accounting

  The electric and gas utility segments of WPS Resources follow Statement of Financial Accounting StandardsSFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," and our financial statements reflect the effects of the different ratemaking principles followed by the various jurisdictions regulating these segments. We defer certain items that would otherwise be immediately recognized as expenses and revenues because our regulators have authorized deferral as regulatory assets and regulatory liabilities for future recovery or refund to customers. Future recovery of regulatory assets is not assured, but areis generally subject to review by regulators in rate proceedings for matters such as prudence and reasonableness. Management regularly assesses whether these regulatory assets and liabilities are probable of future recovery or refund by considering factors such as regulatory environment changes and the status of any pending or potential deregulation legislation. Once approved, we reduceamortize the regulatory assets and liabilities by recognition ininto income over the rate recovery period. If recovery of costs is not approved or is no longer deemed probable, these regulatory assets or liabilities would beare recognized in income in the then current period.period income.

  If our electric and gas utility segments no longer meet the criteria for applying Statementapplication of SFAS No. 71, we would discontinue its application as defined under StatementSFAS No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB StatementSFAS No. 71." Assets and liabilities recognized solely due to the actions of rate regulation maywould no longer be recognized on the balance sheet and would be classified as an extraordinary item in income for the period in which the discontinuation occurs.occurred. A write-off of all WPS Resources' regulatory assets and regulatory liabilities at December 31, 20032004, would result in a 3.0%3.6% decrease in total assets, a 9.4%an 8.7% decrease in total liabilities, and a 122.5%68.4% increase in Incomeincome before taxes.

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  Tax Provision

  As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes infor each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet.

  We must thenalso assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. allowance, which is offset by an expense within the tax provisions in the income statement.

  Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. To the extent we establishThe assumptions involved are supported by historical data and reasonable projections. Significant changes in these assumptions could have a valuation allowance or increase or decrease this allowance in a period, we must include an expense or benefit within the tax provisions in the statementsmaterial impact on WPS Resources' financial condition and results of operations.

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  RELATED PARTY TRANSACTIONS - WPS RESOURCES

  WPS Resources has investments in related parties that are accounted for under the equity method of accounting. These include the investment at WPS Investment, LLC,Investments, LLC's (a consolidated subsidiary of WPS Resources), investments in American Transmission Company, LLCATC and Guardian Pipeline, LLC, Wisconsin Public Service'sPipeline; WPSC's investment in Wisconsin River Power Company, WPS Resources' investment in WPSR Capital Trust I,Company; and WPS Nuclear Corporation's (a consolidated subsidiary of WPS Resources) investment in Nuclear Management Company.

  American Transmission Company, LLC is a for-profit, transmission-only company that owns, plans, maintains, monitors, and operates electric transmission assets WPS Resources also had an investment in portions of Wisconsin, Michigan, and Illinois. At December 31, 2003, WPS Investment's ownership in American Transmission Company was 19.8%. Wisconsin Public Service and Upper Peninsula Power recorded related party transactions for services provided to and network transmission services received from American Transmission Company during 2003, 2002, and 2001. Charges to American Transmission Company for services provided by Wisconsin Public Service were $14.4 million, $12.9 million, and $11.3 million in 2003, 2002, and 2001, respectively. Upper Peninsula Power charged $7.6 million, $5.8 million, and $2.7 million for 2003, 2002, and 2001, respectively, for services provided. Network transmission costs paid to American Transmission Company by Wisconsin Public Service were $33.6 million, $31.0 million, and $25.2 million in 2003, 2002, and 2001, respectively. Upper Peninsula Power recorded network transmission costs of $4.4 million, $5.0 million, and $3.3 million in 2003, 2002, and 2001, respectively.

  Guardian Pipeline, LLC owns a natural gas pipeline, which began operating in 2002, that stretches about 140 miles from near Joliet, Illinois into southern Wisconsin. WPS Investments, LLC purchased its 33% interest in Guardian Pipeline, LLC on May 30, 2003.

  Wisconsin River Power Company, of which Wisconsin Public Service owns 50% of the voting stock, operates an oil-fired combustion turbine and two hydroelectric plants on the Wisconsin River. The energy output from the hydroelectric plants is sold in equal parts to the three companies that previously owned equal portions of all the outstanding stock of Wisconsin River Power (Wisconsin Public Service, Wisconsin Power and Light, and Consolidated Water Power). The electric power from the combustion turbine is sold in equal parts to Wisconsin Public Service and Wisconsin Power and Light. Wisconsin Public Service recorded related party transactions for service provided to and purchases from Wisconsin River Power during 2003, 2002, and 2001. Revenues from service provided to Wisconsin River Power were $1.4 million, $1.5 million, and $0.9 million for 2003, 2002, and 2001, respectively. Purchases from Wisconsin River Power by Wisconsin Public Service were $2.0 million, $2.1 million, and $1.7 million for 2003, 2002, and 2001, respectively.

  WPSR Capital Trust I, which was deconsolidated from the Consolidated Financial Statements of WPS Resources at December 31, 2003, as required by the provisions of Financial Accounting Standards Board's revised Interpretation No. 46 ("46R") related to special purpose entities. Refer todissolved January 8, 2004. See Note 1510 of WPS Resources' Notes to the Consolidated Financial Statements, "Investments in Affiliates, at Equity Method," for further information on the deconsolidationregarding related party transactions involving ATC, Guardian Pipeline, and Nuclear Management Company. Note 24, "Company-Obligated Mandatorily Redeemable Trust Preferred Securities of Preferred Stock Trust," contains information regarding WPSR Capital Trust I. As a result of the deconsolidation, WPS Resources recorded a $1.5 million investment in the Trust within other current assets and a $51.5 million note payable to preferred stock trust, a related party, within the Consolidated Balance Sheet at December 31, 2003. Prior periods have not been restated per the transition provisions of Interpretation No. 46R. The Trust remains consolidated within the December 31, 2002 Consolidated Balance Sheet and the interest payments on the debentures are reflected within interest expense and distributions on trust preferred securities on the Consolidated Statements of Income for all years presented.

  On January 8, 2004, we redeemed all of the subordinated debentures that were initially issued to the Trust for $51.5 million and paid accrued interest of $0.1 million. This action required the Trust to redeem an equal amount of trust securities at face value plus any accrued interest and unpaid distributions. As a result of these transactions, the Trust has been dissolved effective January 8, 2004.

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  The Nuclear Management Company is owned by affiliates of five utilities in the upper Midwest and operates the six nuclear power plants of these utilities. At December 31, 2003 WPS Nuclear Corporation's ownership in Nuclear Management Company was 20%. Wisconsin Public Service recorded related party transactions for services provided by Nuclear Management Company for the management and operation of the Kewaunee nuclear plant. Management service fees paid to Nuclear Management Company by Wisconsin Public Service were $25.2 million, $24.6 million, and $16.4 million in 2003, 2002, and 2001, respectively. Management service fees paid to Nuclear Management Company in 2003 and 2002 reflect a 17.8% increase in Wisconsin Public Service's ownership of the Kewaunee plant after acquiring Madison Gas and Electric Company's ownership in the Kewaunee plant on September 24, 2001.

  TRENDS - WPS RESOURCES

  Environmental

  WPS ResourcesSee Note 17, "Commitments and its subsidiaries are subject to federal, state, and local regulations regarding environmental impacts of their operations on air and water quality and solid waste. The application of federal and state restrictions to protect the environment can involve review, certification, or issuance of permits by various federal and state authorities, including the United States Environmental Protection Agency and the various states' environmental agencies, including the Wisconsin Department of Natural Resources. These restrictions may limit, prevent, or substantially increase the cost of the operation of generation facilities and may require substantial investments in new equipment at existing installations. Such restrictions may require substantial additional investments for new projects and may delay or prevent completion of projects. We cannot forecast the effects of such regulation on our generation, transmission, and other facilities or operations.

  WPS Power Development is subject to regulation by the United States Environmental Protection Agency and environmental regulation in Maine, New York, Pennsylvania, and Wisconsin with respect to thermal and other discharges from its power plants. New legislation could negatively impact future cash flows and impact WPS Power Development's ability to compete with regulated utilities, which are allowed recovery of these costs.

  WPS Energy Services is not directly subject to significant environmental regulations at this time.

  Wisconsin Public Service continues to investigate the environmental cleanup of ten manufactured gas plant sites, two of which were previously owned by Wisconsin Fuel and Light. As of the fall of 2003, cleanup of the land portion at five sites was substantially complete. Groundwater treatment and monitoring at these sites will continue into the future. River sediment remains to be addressed at six sites with sediment contamination. Wisconsin Public Service estimates remaining future undiscounted investigation and cleanup costs for all remaining site work to be $36.2 million to $40.6 million and recorded a $36.2 million liability for gas plant cleanup with an offsetting regulatory asset at December 31, 2003. Wisconsin Public Service expects to recover cleanup costs net of insurance recoveries in future customer rates.

  The United States Environmental Protection Agency has designated southeastern Wisconsin as an ozone non-attainment area. Under the Clean Air Act, the State of Wisconsin developed a nitrogen oxide reduction plan for Wisconsin's ozone non-attainment area. The nitrogen oxide reductions began in 2003 and will gradually increase through 2007. Wisconsin Public Service owns 31.8% of Edgewater Unit 4, which is located in the ozone non-attainment area. A compliance plan for this unit was initiated in 2000. Wisconsin Public Service's share of the costs of this project is expected to be approximately $5 million. The project is nearly complete. Wisconsin Public Service has incurred approximately $4.9 million on this project as of December 31, 2003.

  The State of Wisconsin is also seeking voluntary reductions from utility units outside the ozone non-attainment area, which may lead to additional expenditures for nitrogen oxide reductions at other units. Wisconsin Public Service is participating in voluntary efforts to reduce nitrogen oxide levels at the

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  Columbia Energy Center. Wisconsin Public Service owns 31.8% of the Columbia facility. The Public Service Commission of Wisconsin has approved recovery of the costs associated with voluntary nitrogen oxide reductions.

  Air quality modeling by the Wisconsin Department of Natural Resources revealed that Weston Units 1 and 2 contribute to a modeled exceedance of the sulfur dioxide ambient air quality standard. Wisconsin Public Service expects that compliance with a future limit can be achieved by managing the coal supply quality. Wisconsin Public Service is cooperating with the Wisconsin Department of Natural Resources to develop an approach to resolve this issue.

  In November 1999, the United States Environmental Protection Agency announced the commencement of a Clean Air Act enforcement initiative targeting the utility industry. This initiative resulted in the issuance of several notices of violation/findings of violation and the filing of lawsuits against other unaffiliated utilities. In these enforcement proceedings, the United States Environmental Protection Agency claims that the utilities made modificationsContingencies," to the coal-fired boilers and related equipment at the utilities' electric generating stations without first obtaining appropriate permits under the United States Environmental Protection Agency's pre-construction permit program and without installing appropriate air pollution control equipment. In addition, the United States Environmental Protection Agency is claiming, in certain situations, that there were violations of the Clean Air Act's "new source performance standards." In the matters where actions have been commenced, the federal government is seeking penalties and the installation of pollution control equipment.

  If the federal government decidedWPS Resources' Notes to bringConsolidated Financial Statements for a claim against Wisconsin Public Service and if it were determined by a court that historic projects at the Pulliam and Weston electric generating stations required either a state or federal Clean Air Act permit, Wisconsin Public Service may, under the applicable statutes, be required to:

  • shut down any unit found to be operating in non-compliance,
  • install additional pollution control equipment,
  • pay a fine, and/or
  • pay a fine and conduct a supplemental environmental project in order to resolve any such claim.

  The Wisconsin Department of Natural Resources initiated a rulemaking effort to control mercury emissions. Coal-fired generation plants are the primary targets of this effort. The proposed rule was open to comment in October 2001. As proposed, the rule requires phased-in mercury emission reductions reaching 90% reduction in 15 years. Wisconsin Public Service estimates that it could cost approximately $163 million to achieve the proposed 90% reductions. Presently, the proposed rule is on hold, and it is uncertain if the state will proceed to finalize the regulations.

  In December 2003, the United States Environmental Protection Agency proposed mercury "maximum achievable control technology" standards and an alternative mercury "cap and trade" program substantially modeled on the Clear Skies legislation initiative. In addition, the United States Environmental Protection Agency proposed the Interstate Air Quality rule, which would reduce sulfur dioxide and nitrogen oxide emissions from utility boilers located in 29 states, including Wisconsin. Wisconsin Public Service is in the process of studying the proposed rules. As to the mercury "maximum achievable control technology" proposal, it requires existing units burning sub-bituminous coal to achieve an annual average mercury emission rate limit of 5.8 pounds per trillion Btu on a unit-by-unit or plant-wide basis. New units must achieve an emission rate limit of 0.020 pounds per gigawatt-hour. If the proposed rule is promulgated, Wisconsin Public Service's current analysis indicates that the emission control equipment on the existing units may be sufficient to achieve the proposed limitation. New units will require additional mercury control techniques to reduce mercury emissions by 65% to 85%. Mercury control technology is still in development. Wisconsin Public Service is assessing potential mercury control technologies for application to future new coal-fired units.

  The Interstate Air Quality rule proposal allows the affected states (including Wisconsin) to either require utilities located in the state to participate in an interstate cap and trade program or meet the state's

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  emission budget for nitrogen oxide and sulfur dioxide through measures to be determined by the state. Wisconsin has not stated a preference as to which option it would select in the event the rule becomes final. While the effect of the rule on Wisconsin Public Service's facilities is uncertain for planning purposes, it is assumed that additional nitrogen oxides and sulfur dioxide controls will be needed on existing units or the existing units will need to be converted to natural gas by 2010. The installation of any controls and/or any conversion to natural gas will need to be scheduled as part of Wisconsin Public Service's long-term maintenance plan for its existing units. As such, controls or conversions may need to take place before the proposed 2010 compliance date. On a preliminary basis and assuming controls or conversion is required, Wisconsin Public Service estimates a cost of $288 million in order to meet a 2010 compliance date. This estimate is based on costs of current control technology.

  The generation assetsdetailed discussion of WPS Power Development are subject to regulations on sulfur dioxideResources' environmental commitments and nitrogen oxide emissions similar to those that apply to Wisconsin Public Service. In addition, the Sunbury generation facilities of WPS Power Development are located in an ozone transport region. As a result, these generation facilities are subject to additional restrictions on emissions of nitrogen oxide. Although WPS Power Development has some emission allowances for 2004 for the Sunbury facility, it may need to purchase approximately 10,000 to 15,000 additional allowances at market rates, to meet its 2004 requirements.contingencies.

  Energy and Capacity Prices

  Prices for electric energy and capacity have been extremely volatile over the past three years. WPS Resources' nonregulated entities are impacted by this volatility, which has been driven by the exit of many of the largest speculative traders, the slow downequilibrium between natural gas supply and demand, changes in the economy, and significant overbuilding of generation capacity.

  Although electric energy prices are currently high due to increased natural gas prices, we expect that electric capacity prices will continue to be depressed for several years. Pressure on capacity prices will continue until existing reserve margins are depleted either by load growth or capacity retirements. WPS Power DevelopmentPDI has been negatively impacted by the depressed capacity prices and volatile energy prices discussed above, and as a result we have taken certain steps to reduce our exposure to the merchant marketplace.

  On October 23, 2003, a definitive agreement was signed to sell WPS Power Development's Sunbury generating facility to a subsidiary of Duquesne Light Holdings. The pending sale will allow us to reduce uncontracted merchant exposure and redeploy capital into markets with different risk profiles. In addition, in January 2004, WPS Power DevelopmentPDI entered into an agreementtolling agreements with ESI to lease most ofmarket electric production from its facilities and to manage natural gas costs for its gas-fired generation relating to continuing operations to WPS Energy Services. WPS Energy Services will utilizefacilities. ESI is utilizing various financial tools, including forwards and options, to limit exposure and extract additional value from volatile commodity prices. PDI continues to manage costs of fuel for its coal-fired facilities.

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  Synthetic Fuel Operation

  We have significantly reduced our consolidated federal income tax liabilitySee Note 17, "Commitments and Contingencies," for the past four years through tax credits available to us under Section 29a detailed discussion of the Internal Revenue Code for the production and sale of solid synthetic fuel from coal. In order to maximize the value of ourWPS Resources' synthetic fuel production facility, we have reduced our interestfacility.

  Industry Restructuring

  The Ohio Legislature passed a Senate Bill in May 1999 instituting market-based rates, competitive retail electric services and establishing a market development period that began January 1, 2001, and was to end no later than December 31, 2005. This bill required Ohio electric distribution companies to file electric transition plans, including the facility from 67% to 23% through sales to third parties (see Note 6, Acquisitionscollection of transition costs and Sales of Assets). Our ability to fully utilizefreezing generation rates at a 5% discount during the Section 29 tax credits that remain available to us in connection with our remaining interest in the facility will depend on whether the amount of our federal income tax liability is sufficient to permit the use of such credits. The Internal Revenue Service strictly enforces compliance with allcourse of the technical requirementsmarket development period. At the end of Section 29. Section 29 tax credits are currently scheduled to expirethe market development period, rates would be set at a market-based price. However, the Public Utilities Commission of Ohio, recognizing the competitive electric market has not developed as envisioned and fearing rate shock at the end of 2007.the market development period, requested the Ohio electric distribution utilities to file rate stabilization plans covering the 2006-2008 time period. The 2006-2008 rate stabilization plans are expected to provide rate certainty, financial stability for the electric distribution utilities, and to further develop the competitive market.

  Since 2001, ESI has been the supplier to approximately 100,000 residential, small commercial, and government facilities in the FirstEnergy service areas under the State of Ohio provisions for Opt-out Electric Aggregation Programs. On June 27, 2003,9, 2004, the Internal Revenue Service announcedPublic Utilities Commission of Ohio ordered a competitive bid auction be developed and conducted and approved a modified version of the rate stabilization plan submitted by FirstEnergy. The FirstEnergy Rate Stabilization Plan would establish electric rates consumers would pay beginning in 2006 if the auction does not produce better benefits.

  ESI participated as an intervener in the FirstEnergy Rate Stabilization Plan and competitive bid process cases in an effort to preserve the competitive electric business established in the FirstEnergy service areas in the 2006-2008 time period. ESI filed comments requesting modifications to the competitive bid process to allow for fair competition. In October 2004, the Public Utilities Commission of Ohio issued orders directing FirstEnergy to modify the competitive bid process based on filed comments and direction from independent consultants and scheduled the auction for December 8, 2004.

  The competitive bid process was conducted on December 8, 2004, concluding the same day. On December 9, 2004, the Public Utility Commission of Ohio rejected the auction price citing the clearing price of 5.45 cents per kilowatt-hour was inadequate in comparison to the FirstEnergy Rate Stabilization Plan. While the details of the rate comparison and auction results have not been made public; the Public Utility Commission of Ohio requested stakeholder comments relative to what information to maintain as confidential and for what period of time. The Public Utility Commission of Ohio intends to conduct a similar auction next year, believing the economy of the power market will improve, increasing the probability of an acceptable auction clearing price.

  Given the auction results, the FirstEnergy Rate Stabilization Plan will be implemented. ESI participated in recent case developments relative to the price to be paid by customers who return from competitive supply to default service during the Rate Stabilization Plan period. Continued service by ESI beyond December 31, 2005, to customers of the existing aggregation programs will be dependent on the ability of the communities to comply with the FirstEnergy Rate Stabilization Plan requirements imposed on governmental aggregation programs and improved market power prices.

  Meanwhile, on September 23, 2004, an Ohio House Bill was introduced, proposing change to the electric restructuring law. The bill proposes to give the Public Utilities Commission of Ohio explicit authority to implement rate stabilization plans, where it has been determined that it had reasonthere is insufficient development of the generation market or lack of effective competition in an electric utility's service area and ensuring against any undue competitive disadvantage between Ohio and regional customers of an electric utility of its affiliates. Recent news releases indicate an increased momentum in the Ohio General Assembly for legislation that would make major changes to question the scientific validity of certain test procedures and results that have been presented by certain taxpayers to qualify for Section 29 credits. The Internal Revenue Service also announced that it was reviewing informationSenate Bill 3 in 2005.

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  regarding these test procedures and practices. However, on

  On July 1, 2004, Senate Bills 1331-1336 were introduced in Michigan to amend legislation enacted in June 2000, which initially established a competitive supply alternative for customers in the state's electricity market. On October 29, 2003,6, 2004, Senate Bill S-1 was introduced as a substitute for Senate Bill 1331. As the Internal Revenue Service announced that it hadMichigan legislature closed its investigation and concluded that such tests and procedures were scientifically valid if properly applied and indicated it would issue additional guidance on future sampling and testing. WPS Resources believes that its synthetic fuel facility does and will complyout 2004 with such guidelines.

  As a resultthis package of the June 2003 Internal Revenue Service announcement, on August 1, 2003, WPS Resources received notice from the Internal Revenue Service that the WPS Resources' affiliate through which it holds an ownership interest in a synthetic fuel facility was under review for the 2001 tax period and that, depending upon the review of the affiliate's 2001 tax return, the Internal Revenue Service might reexamine the affiliate's 2000 tax return. However, following the October announcement that the Internal Revenue Service was closing its investigation, WPS Resources' received preliminary notice in January 2004 that both audits related to this issue have closed without adjustment. Future years remain open to audit. We continue to believe that the facility has been operated in compliance with the requirements of Section 29.

  The Permanent Subcommittee on Investigationsbills not being voted out of the Senate Energy and Technology Committee, on Governmental Affairsthey must be reintroduced and sponsored again, if they are to be addressed in 2005. It is our expectation that such a move will be initiated early in 2005.

  Under current legislation, Michigan's regulated utilities were able to securitize overrun costs associated with large generation assets and the MPSC was provided the authority to administer the Electric Choice program to ensure the interests of all stakeholders were met. Under the current Electric Choice program, ESI, through its subsidiary Quest Energy, LLC, has been conducting an investigationestablished itself as a significant supplier to the industrial and commercial markets, achieving contract demand levels of approximately 900 megawatts, and annual sales volumes of 3.6 million megawatt-hours. The initial Senate bills contained provisions that would have substantially harmed the Electric Choice market and returned Michigan to a model of the synthetic fuel industryregulated supply monopoly. If similar legislation is proposed and passed in 2005, it could diminish the benefits of competitive supply for Michigan business customers. The impact on ESI could range from maintaining Michigan business with little or no growth, to an inability to re-contract any business, leading to a possible decision by ESI to exit Michigan's electric market and redirect resources to more vibrant markets. It is not unreasonable to expect changes that will have some level of negative impact on ESI, but it would be unlikely that Michigan customers will lose all of the benefits of competition and revert back to a fully regulated monopoly supply. ESI is actively participating in the legislative and regulatory process in order to protect its interests in Michigan.

  WPSC, UPPCO, and ESI are members of the Midwest Independent System Operator (ISO), which is in the process of restructuring the bulk electric power market across its footprint. The implementation of market restructuring by the Midwest ISO is currently expected to occur April 1, 2005. Such restructuring could have an impact on the costs associated with serving utility customers' energy requirements; however, given the anticipated regulatory treatment of any potential cost differences, WPSC does not currently expect the ultimate outcome will have a material impact on its results of operations or financial condition. WPSC, UPPCO, and ESI are working closely with the Midwest ISO and the FERC to ensure that there is a smooth transition to the new market in order to minimize any impact on them and their usecustomers. ESI currently participates in markets that have gone through comparable transitions. We believe this past experience has prepared ESI for the Midwest ISO transition and positions ESI to manage the risk and pursue the opportunities that will exist.

  Seams Elimination Charge Adjustment

  ESI has identified an issue that could create financial exposure through March 2006. Through a series of Section 29 tax credits. Pursuantorders issued by FERC, Regional Through and Out Rates for transmission service between the Midwest ISO and the PJM Interconnection have been eliminated effective December 1, 2004. The FERC ordered a transitional pricing mechanism called the Seams Elimination Charge Adjustment (SECA) to its invitation,be put into place on January 30,December 1, 2004, we answered questionsthrough March 31, 2006, which would be paid by load serving entities. The purpose of the Committee regarding our synthetic fuel facility.SECA is to compensate transmission owners (during the 16-month transition period) for the revenue they would no longer receive due to the elimination of the Regional Through and Out Rates. Because ESI is a load serving entity, it will be billed for SECA charges based on its power imports during 2002 and 2003. Although actual SECA charges have only been calculated for the first 4 months of the 16-month period, total exposure for the 16-month transitional period is estimated to be approximately $13 million for Michigan and $2 million for Ohio.

  On February 10, 2005, FERC issued an order accepting compliance filings implementing the SECA effective December 1, 2004, subject to refund and surcharge, as appropriate, and setting the case in its entirety for a formal hearing. It is anticipated that the case could take a year or more to reach a final decision. In addition, matters related to the justness and reasonableness and other legal challenges to the SECA itself remain pending before FERC on rehearing. It is not known when the investigationFERC will issue an order on these requests for rehearing. It appears that ESI will be completed and what impact, if any, such investigation may have on future legislation orrequired to pay the enforcement policy of the Internal Revenue Service.SECA charges

  We have recorded approximately $81.3 million of Section 29 tax credits as reductions of income tax expense from the project's inception in June 1998 through December 31, 2003. As a result of alternative minimum tax rules, about $52.3 million of this tax benefit has been carried forward as a deferred tax asset as of December 31, 2003. Future payments under one of the agreements covering the sale of a portion of our interest in the facility are contingent on the facility's continued production of synthetic fuel. Any disallowance of some or all of those tax credits would materially affect the related deferred tax account, as well as future tax obligations. Additionally, such disallowances may also result in a reduction of the level of synthetic fuel production at the facility, thus reducing the likelihood and amount of future payments under that agreement. Future tax legislation and Internal Revenue Service review may also affect the value of the credits and the value of our share of the facility.

  Industry Restructuring

  To the extent competitive pressures increase and the pricing and sale of electricity assumes more of the characteristics of a commodity business, the economics of our business may come under increasing pressure. In addition, regulatory changes may increase access to electric transmission grids by utility and nonutility purchasers and sellers of electricity, thus potentially resulting in a significant number of additional competitors in wholesale power generation.

  Deregulation of the electric and natural gas utilities has begun in Wisconsin, particularly for natural gas service. Currently, the largest natural gas customers can purchase natural gas from suppliers other than their local utility.  Efforts are underway to make it easier for smaller natural gas customers to do the same. In addition, the Public Service Commission of Wisconsin has been studying how to deregulate the state's electric supply. We believe electric deregulation inside Wisconsin is at least several years off as the state is focused on improving reliability by building more generation and transmission facilities and creating fair market rules. As electric choice occurs, we believe we will lose some generation load, which could negatively impact future cash flows, but will retain the delivery revenues and margin. Also, the capacity that is freed up should be competitive in our marketplace. Deregulation of electricity is present in Michigan; however, no customers have chosen an alternative electric supplier and no alternative electric suppliers have offered to serve any customers in Michigan's Upper Peninsula due to the lack of transmission capacity in the areas we serve, which is a barrier to competitive suppliers entering the market.

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  In February 2004 the Michigan Public Service Commission issued an interim order providing electric rate relief

  during this process, subject to Detroit Edison in a manner that could negatively impact the competitive electric supply marketrefund. ESI has actively participated in the area served by this utility. As a resultSECA case since its beginning and believes its position has strong merits. The application and legality of the SECA is being challenged by many other load serving entities and ESI will continue to pursue all avenues to appeal and/or reduce the SECA obligations. In the interim, order, customers of competitive electric suppliersthe exposure will experience a decrease in cost savings comparedbe managed through customer charges and other available avenues, where feasible. Through existing contracts, ESI has the ability to the bundled utility rate, potentially making electric choice less attractivepass SECA charges on to energy consumers. WPS Energy Services serves customerscustomers. However, doing so may hinder ESI's competitiveness in the impacted area and therefore the interim order could negatively impact future electric revenues and margins at this business. We will work to obtain modifications to the interim order as the final rate order is not expected until September 2004.marketplace.

  New Accounting Pronouncements

  ImpactSee Note 1(v), "New Accounting Pronouncements," for a detailed discussion of Issue 02-03 on WPS Energy Services' Revenues

  As required, on January 1, 2003, WPS Energy Services adopted Issue No. 02-03. Upon adoption, Issue 02-03 required revenues related to derivative instruments classified as trading to be reported net of related cost of sales for all periods presented. Prior to January 1, 2003, WPS Energy Services classified all its activities as trading in accordance with the accounting standards in effect at that time. Consistent with the new accounting standards under Issue 02-03, effective January 1, 2003, WPS Energy Services classifies as trading activities only those transactions that at inception are intended to be settled in the near term with the objective of generating profits on short-term differences in prices. As a result of the change in the definition of trading, a larger portion of WPS Energy Services' business activities were classified as trading in 2002 than in 2003. Therefore, previously reported revenues for 2002 and 2001 have been reclassified to be shown net of cost of fuel, natural gas, and purchased power, while most 2003 revenues continue to be reported on a gross basis. The retroactive reclassification to net revenues and cost of sales for 2002 and 2001 trading activities resulted in a $1,127.4 million and $1,243.7 million decrease to WPS Resources' previously reported consolidated nonregulated revenues, respectively, and a corresponding $1,127.4 million and $1,243.7 million decrease to previously reported consolidated nonregulated cost of fuel, natural gas, and purchased power for the years ended December 31, 2002 and 2001, respectively. Neither margins, income, nor cash flows for 2002 were impacted by the reclassification of revenue upon adoption of Issue 02-03.pronouncements.

  Asset Retirement Obligations

  Effective January 1, 2003, WPS Resources adopted Statement No. 143. Under the new accounting standard, WPS Resources recognizes, at fair value, legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, or development and/or normal operation of the asset. The associated retirement costs are capitalized as part of the related long-lived asset and depreciated over their useful life. Legal retirement obligations identified for the regulated segments of WPS Resources relate primarily to the final decommissioning of the Kewaunee nuclear power plant. The nonregulated segments identified a legal retirement obligation related to the closure of an ash basin located at the Sunbury generation plant. The adoption of Statement No. 143 had no impact on the earnings or cash flows of the regulated segment as the effects were offset by the establishment of regulatory assets and liabilities pursuant to Statement No. 71, "Accounting for the Effects of Certain Types of Regulation," and reduced earnings of the nonregulated segment by $0.3 million, recorded as a cumulative effect of change in accounting principle. Upon implementation of Statement No. 143 in the first quarter of 2003, we recorded a net asset retirement cost of $90.8 million (decreased to $78.5 million at December 31, 2003 due to depreciation being recorded) and an asset retirement obligation of $324.8 million upon adoption of Statement No. 143 (increased to $344.0 million at December 31, 2003 as a result of accretion being recorded). The difference between previously recorded liabilities of $290.5 million and the cumulative effect of adopting Statement No. 143 was deferred to a regulatory liability pursuant to Statement No. 71.

  Costs of Removal

  The utility segments of WPS Resources recognize removal costs for utility assets. Historically, these removal costs were reflected as a component of depreciation expense and accumulated depreciation in

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  accordance with regulatory treatment. The Staff of the Securities and Exchange Commission recently expressed their views on the balance sheet classification of these costs of removal and required that the amounts be reclassified from accumulated depreciation to a liability. As a result, WPS Resources reclassified $463.3 million of removal costs from accumulated depreciation to nuclear decommissioning and other costs of removal at December 31, 2002. WPS Resources identified legal retirement obligations associated with the removal of certain utility assets upon implementation of Statement No. 143 in January 2003. Upon the adoption of Statement No. 143 on January 1, 2003, costs of removal with associated legal obligations of $290.5 million were removed from nuclear decommissioning and other costs of removal as these costs are now accounted for as asset retirement obligations. Costs of removal that were not identified as having an associated legal retirement obligation were reclassified from nuclear decommissioning and other costs of removal to a regulatory liability at December 31, 2003. Income available for common shareholders and cash flows were not impacted by this accounting change.

  Variable Interest Entities

  In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51," in order to improve financial reporting by companies involved with variable interest entities. Interpretation No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. On December 24, 2003, the Financial Accounting Standards Board issued a revision to Interpretation No. 46 ("46R") in order to clarify some of the provisions of Interpretation No. 46 and to exempt certain entities from its requirements. The effective implementation date of Interpretation No. 46 was also modified by Interpretation No. 46R. The application of Interpretation No. 46R was required for financial statements of public entities that have interests in special-purpose entities for periods ending after December 15, 2003. WPS Resources identified WPSR Capital Trust I as a special purpose entity that is within the scope of Interpretation No. 46R. See Note 15, "Company-Obligated Mandatorily Redeemable Trust Preferred Securities of Preferred Stock Trust," for further discussion of the impacts of implementing this portion of Interpretation No. 46R on the financial statement of WPS Resources. For all other types of variable interest entities, the application of Interpretation No. 46R will be required in the first quarter of 2004. We do not anticipate a significant impact to the financial statements of WPS Resources in the first quarter of 2004 as a result of adopting the remaining provisions of Interpretation No. 46R.

  Medicare Prescription Drug, Improvement and Modernization Act of 2003

  In January 2004, the Financial Accounting Standards Board Issued Staff Position (FSP) 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP 106-1 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was signed into law on December 8, 2003. Regardless of whether a sponsor elects that deferral, the FSP required certain disclosures pending further consideration of the underlying accounting issues. In accordance with FSP 106-1, we have elected to defer accounting for the effects of this legislation until authoritative guidance on the accounting for the legislation is issued. Refer to Note 19 of WPS Resources' Notes to the Consolidated Financial Statements for further information.

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  IMPACT OF INFLATION - WPS RESOURCES

  Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and report operating results in terms of historic cost. The statements provide a reasonable, objective, and quantifiable statement of financial results; but they do not evaluate the impact of inflation. Under rate treatment prescribed by utility regulatory commissions, Wisconsin Public Service'sWPSC's and Upper Peninsula Power'sUPPCO's projected operating costs are recoverable in revenues. Because rate forecasting assumes inflation, most of the inflationary effects on normal operating costs are recoverable in rates. However, in these forecasts, Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO are only allowed to recover the historic cost of plant via depreciation. Our nonregulated businesses include inflation in forecasted costs. However, any increase from inflation is offset with projected business growth. Therefore, the estimated effect of inflation on our nonregulated businesses is minor.

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  RESULTS OF OPERATIONS - WISCONSIN PUBLIC SERVICE CORPORATION

  Wisconsin Public Service CorporationWPSC is a regulated electric and natural gas utility as well as a holding company exempt from the Public Utility Holding Company Act of 1935. Electric operations accounted for approximately 64%66% of revenues in 2003,2004, while natural gas operations contributed 36%34% to 2004 revenues.

  2004 Compared with 2003

  Wisconsin Public Service Overview

  WPSC's results of operations for the years ended December 31 are shown in the following table:

  Wisconsin Public Service's Results (Millions)	2004	2003	Change
  Operating revenues	$1,222.1	$1,129.1	8.2%
  Earnings on common stock	$104.8	$78.9	32.8%

  Approved retail and wholesale electric rate increases drove a $76.3 million increase in WPSC's electric revenue. The $16.7 million increase in WPSC's natural gas revenue was driven by an increase in the per-unit cost of natural gas and an authorized retail natural gas rate increase, partially offset by a 6.2% decrease in natural gas throughput volumes resulting from unfavorable weather conditions.

  WPSC's earnings on common stock were $104.8 million for the year ended December 31, 2004, compared with $78.9 million for the same period in 2003. As discussed in more detail below, the following factors impacted earnings for the year ended December 31, 2004, compared to the same period in 2003.

  • Approved rate increases (including the impact of timely retail electric rate relief in 2004, compared to the delay in receiving retail electric rate relief in 2003) favorably impacted the electric margin.
    
  • An approved retail natural gas rate increase favorably impacted the natural gas margin at WPSC, but a decrease in natural gas throughput volumes partially offset the favorable impact of this rate increase.
    
  • Land sales, land donations, and higher earnings from equity investments favorably impacted earnings.
    
  • Higher operating and maintenance expense negatively impacted earnings.

  Electric Utility Operations

  Electric Utility Results (Millions)	2004	2003	Change
  Revenues	$801.2	$724.9	10.5%
  Fuel and purchased power	249.0	225.0	10.7%
  Margins	$552.2	$499.9	10.5%
  Sales in kilowatt-hours	13,493.4	13,411.4	0.6%

  Electric utility revenue increased $76.3 million, or 10.5%, for the year ended December 31, 2004, compared to the same period in 2003. Electric utility revenue increased largely due to authorized retail and wholesale electric rate increases for WPSC's Wisconsin and Michigan customers (see discussion within Results of Operations - WPS Resources) to recover higher fuel and purchased power costs, increased operating expenses, and expenditures incurred for infrastructure improvements. Electric utility

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  sales volumes were also slightly higher in 2004, increasing 0.6% over 2003 sales volumes. A 1.5% increase in sales volumes to commercial and industrial customers was partially offset by a 1.2% decrease in sales volumes to residential customers. Higher sales volumes to our commercial and industrial customers reflect an improving economy and growth within our service area, while the decrease in sales volumes to residential customers reflects weather that was 6.6% cooler during the 2004 cooling season, compared to 2003.

  WPSC's electric margin increased $52.3 million, or 10.5%, for the year ended December 31, 2004, compared to 2003. The increase in WPSC's electric margin is primarily related to the retail and wholesale electric rate increases, partially offset by a $20.4 million increase in purchased power costs. The quantity of power purchased in 2004 increased 9.3% over 2003 purchases and purchased power costs were 17.4% higher (on a per-unit basis) in 2004, compared to 2003. The PSCW allows WPSC to adjust prospectively the amount billed to Wisconsin retail customers for fuel and purchased power if costs are in excess of plus or minus 2% from approved levels. In response to a request for additional fuel cost recovery filed early in 2004, WPSC was allowed to recover $3.2 million of its increased fuel and purchased power costs during 2004. The PSCW also allowed WPSC to defer $5.4 million of unanticipated fuel and purchased power costs directly associated with the extension of the Kewaunee refueling outage in the fourth quarter of 2004. The Kewaunee outage was extended three weeks due primarily to difficulties encountered with lifting equipment related to the reactor vessel and procedures to perform the lifts. It is anticipated that these costs will be recovered in 2006, pending final approval.

  WPSC's electric earnings increased $12.2 million, or 22.8%, for the year ended December 31, 2004, compared to 2003. The increased earnings were largely driven by the higher margin (including the effect of timely retail electric rate relief in 2004 compared to a delay in receiving retail electric rate relief in 2003), partially offset by higher operating and maintenance expenses.

  Gas Utility Operations

  Gas Utility Results (Millions)	2004	2003	Change
  Revenues	$420.9	$404.2	4.1%
  Purchase costs	301.9	291.0	3.7%
  Margins	$119.0	$113.2	5.1%
  Throughput in therms	801.3	854.5	(6.2%)

  Gas utility revenue increased $16.7 million, or 4.1%, for the year ended December 31, 2004, compared to 2003. Higher revenue was driven by an authorized rate increase and an increase in the per-unit cost of natural gas, partially offset by an overall 6.2% decrease in natural gas throughput volumes. Natural gas prices increased 14.2% per unit in 2004. Higher natural gas prices reflect higher marketplace natural gas costs in 2004. The PSCW and the MPSC allow WPSC to pass changes in the total cost of natural gas on to customers. As a result, changes in the price of the natural gas commodity do not have a direct impact on WPSC's margin. The decrease in natural gas throughput volumes was driven by weather that was 4.3% warmer during the heating season for the year ended December 31, 2004, compared to 2003.

  The natural gas utility margin increased $5.8 million, or 5.1%, for the year ended December 31, 2004, compared to 2003. The higher natural gas utility margin is largely due to the authorized rate increase mentioned above. The ability of WPSC to realize the full benefit of an authorized rate increase is dependent upon normal throughput volumes; therefore, the decrease in natural gas throughput volumes negatively impacted WPSC's ability to benefit from the full amount of the rate increase.

  The higher margin drove a $1.6 million, or 10.2%, increase in gas utility earnings for the year ended December 31, 2004.

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  Operating Expenses

  Operating Expenses (Millions)	2004	2003	Change
  Operating and maintenance expense	$386.0	$355.1	8.7%
  Depreciation and decommissioning expense	91.0	122.9	(26.0%)

  Operating and maintenance expense

  Operating and maintenance expenses at WPSC increased $30.9 million, or 8.7%, for the year ended December 31, 2004, compared to 2003. Electric transmission and distribution costs were up $13.5 million due primarily to an increase in transmission rates. Pension and postretirement medical costs incurred at WPSC increased $8.9 million. Additionally, $6.8 million of the increase was driven by amortization of costs incurred in conjunction with the implementation of the automated meter reading system and the purchase of the De Pere Energy Center (previously deferred as regulatory assets). Maintenance expenses at WPSC's coal-fired generation facilities were $4.2 million higher in 2004, compared to 2003, revenues.driven by an extension of the annual planned outage at the Pulliam 6 generation facility in 2004. Higher payroll and other benefit costs also contributed to the increase in operating and maintenance expenses. The fall refueling outage at Kewaunee did not significantly impact the year-over-year change in operating and maintenance expenses as there was also a refueling outage at Kewaunee in the spring of 2003, and the PSCW approved the deferral of incremental operating and maintenance expenses that were incurred as a direct result of the refueling outage extension ($1.8 million of operating and maintenance expenses were deferred in the fourth quarter of 2004 and collection is anticipated in 2006, pending approval by the PSCW).

  Depreciation and decommissioning expense

  Depreciation and decommissioning expense decreased $31.9 million, or 26.0%, for the year ended December 31, 2004, compared to 2003, due primarily to a decrease of $35.9 million resulting from lower realized gains on decommissioning trust assets and because the decommissioning trust was not funded in 2004 in anticipation of selling Kewaunee. Realized gains on decommissioning trust assets are substantially offset by depreciation expense pursuant to regulatory practice. An increase in depreciation expense from plant asset additions at WPSC partially offset the decrease in decommissioning expense.

  Other Income

  Other income decreased $22.3 million, from $55.3 million in 2003 to $33.0 million in 2004, largely due to a decrease in realized gains on decommissioning trust assets of $33.5 million. Lower realized gains were substantially offset by lower decommissioning expense, as discussed above. Partially offsetting the lower gains on decommissioning trust assets were higher earnings realized from equity investments and an increase in gains recognized from land sales in 2004, compared to 2003.

  2003 Compared with 2002

  Wisconsin Public Service Corporation Overview

  Wisconsin Public Service'sWPSC's 2003 and 2002 results of operations are shown in the following table:

  Wisconsin Public Service's Results (Millions)	2003	2002	Change
  Operating revenues	$1,129.1	$1,007.6	12%
  Earnings on common stock	78.9	83.1	(5%)

  Wisconsin retail electric and wholesale electric rate increases together with higher natural gas prices contributed to the increase in operating revenues in 2003.

  Earnings from electric utility operations-79-

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  WPSC's earnings on common stock were $53.6$78.9 million in 2003 compared with $58.6$83.1 million in 2002. Earnings fromAs discussed in more detail below, the following factors impacted year-over-year earnings:

  • Electric rate increases and a change in sales mix at WPSC favorably impacted electric margins.
    
  • Favorable weather conditions had a favorable impact on the natural gas utility operations were $15.7 millionmargin, but the impact of favorable weather conditions was largely offset by a decrease in natural gas rates allowed by the PSCW.
    
  • Cooler weather during the cooling season in 2003 comparednegatively impacted electric utility margins.
    
  • Rising operating expenses (primarily pension and medical costs) together with $18.4 million in 2002. The decrease in electric earnings at Wisconsin Public Service was attributable to a delay in receiving 2003 retail electric rate relief together with rising operating expenses (primarily pension and medical costs).negatively impacted electric utility earnings. Rate relief for these increasing operating costs was expected on January  1, 2003; however, the increase in retail electric rates granted by the Public Service Commission of WisconsinPSCW was not effective until March 21, 2003. The decrease in gas utility earnings is also due to rising operating expenses, together with a decrease in the natural gas rates allowed by the Public Service Commission of Wisconsin in 2003 compared to 2002.

  Electric Utility Operations

  Electric Utility Results (Millions)	2003	2002	Change
  Revenues	$724.9	$696.9	4%
  Fuel and purchased power	225.0	217.2	4%
  Margins	$499.9	$479.7	4%
  Sales in kilowatt-hours	13,411.4	13,579.7	(1%)

  Electric utility revenues increased $28.0 million, or 4%, in 2003 compared to 2002. The increase iswas largely due to the retail and wholesale electric rate increases for the Wisconsin and Michigan customers in accordance with new rate orders.

  Due primarily to the electric rate increases, electric margins at Wisconsin Public ServiceWPSC increased $20.2 million, or 4%, in 2003. Electric margins were also impacted favorably by a change in sales mix in 2003. While total sales volumes remained basically unchanged in 2003 compared to 2002, sales volumes to higher margin residential and commercial and industrial customers increased slightly. The increase in sales volumes to these higher margin customer classes reflects growth within Wisconsin Public Service'sWPSC's service area and recent changes in the economy. These increases were partially offset by cooler weather during the cooling season for the year ended December 31, 2003 compared to the year ended December 31, 2002.

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  The Public Service Commission of Wisconsin allows Wisconsin Public Service to adjust prospectively the amount billed to Wisconsin retail customers for fuel and purchased power if costs fall outside a specified range. Wisconsin Public Service is required to file an application to adjust rates either higher or lower when costs are plus or minus 2% from forecasted costs on an annualized basis. See Liquidity and Capital Resources - Wisconsin Public Service, Other Future Considerations, Regulatory for information on fuel filings related to 2003.

  Gas Utility Operations

  Gas Utility Results (Millions)	2003	2002	Change
  Revenues	$404.2	$310.7	30%
  Purchase costs	291.0	198.6	47%
  Margins	$113.2	$112.1	1%
  Throughput in therms	854.5	845.4	1%

  Gas utility revenues increased $93.5 million, or 30%, for the year ended December 31, 2003 compared to the year ended December 31, 2002. The increase in gas utility revenues iswas mostly due to a 39% increase in the average cost of natural gas for the year ended December 31, 2003, compared to the prior year, partially offset by the 0.3% decrease in retail natural gas rates ordered by the Public Service Commission of Wisconsin,PSCW, effective March 21, 2003.

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  <PAGE>

  The natural gas utility margin for the year ended December 31, 2003, increased $1.1 million, or 1%, compared to the year ended December 31, 2002. The increase in the natural gas utility margin can be attributed to a 1% increase in natural gas throughput volumes in 2003 compared to 2002. Natural gas throughput volumes to our higher margin residential and commercial and industrial customers increased 6% in the aggregate, mostly as a result of colder weather in 2003 compared to 2002. Natural gas throughput volumes to our lower margin transport customers decreased 5% due to the rising price of natural gas together with their ability to use alternate fuel sources.

  Wisconsin Public Service passes changes in the cost of gas on to customers through a purchased gas adjustment clause, as allowed by the Public Service Commission of WisconsinOperating Expenses

  Operating Expenses (Millions)	2003	2002	Change
  Operating and maintenance expense	$355.1	$326.9	9%
  Depreciation and decommissioning expense	122.9	81.9	50%

  Operating and the Michigan Public Service Commission under current regulatory practice.

  Other Expenses/Incomemaintenance expense

  Utility operating and maintenance expense increased $28.2 million, or 9%, for the year ended December 31, 2003, compared to the prior year. Approximately $17 million of the increase reflects higher pension, postretirement medical, and active medical costs. The remaining increase pertains to costs incurred for plant maintenance related to the Kewaunee nuclear power plant'sKewaunee's scheduled refueling outage in 2003 (there was no refueling outage in 2002), additional operating expenses at the Kewaunee nuclear power plant and wage increases.

  Depreciation and decommissioning expense

  Utility depreciation and decommissioning expense increased $41.0 million, or 50%, for the year ended December 31, 2003, compared to the prior year, mostly related to an increase of $37.4 million resulting from higher realized gains on the decommissioning trust assets that resulted in recording decommissioning expense approximately equal to the gains recognized in miscellaneous income pursuant to regulatory practice. The remaining increase is related to plant asset additions.

  Other utilityIncome

  Other income increased $41.3 million in 2003, largely due to an increase in realized gains on the decommissioning trust assets of $36.4 million. The realized gains were offset by increased decommissioning expense, as discussed above.

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  <PAGE>

  Other Nonutility Income

  Other nonutility income increased in 2003, largely due to an increase in gains Gains recognized on hydroelectric land sales in 2003 compared to 2002 (primarily due to the $6.2 million pre-tax gain recognized in 2003 from land sales to the Wisconsin Department of Natural Resources).WDNR) were also higher in 2003. Earnings from equity method investments also increased in 2003 compared to 2002.

  2002 Compared with 2001

  Wisconsin Public Service Corporation Overview

  Wisconsin Public Service's 2002 and 2001 results of operations are shown in the following table:

  Wisconsin Public Service's Results (Millions)	2002	2001	Change
  Operating revenues	$1,007.6	$932.3	8%
  Earnings on common stock	83.1	80.6	3%

  Sales volume growth and Wisconsin retail rate increases contributed to increased revenues in 2002.

  Earnings from electric utility operations were $58.6 million in 2002 compared with $57.9 million in 2001. Earnings from gas utility operations were $18.4 million in 2002 compared with $8.9 million in 2001. A full year contribution from gas utility operations acquired in the spring of 2001, warmer than normal weather during the heating season in 2001, and a rate increase approved by regulators resulted in increased earnings from gas utility operations in 2002.

  Utility margins at Wisconsin Public Service were impacted positively by a Public Service Commission of Wisconsin interim rate order which was effective January 1, 2002 authorizing a 10.3% increase in Wisconsin retail electric rates and a 4.7% increase in Wisconsin retail natural gas rates. In late June 2002, Wisconsin Public Service received a final 2002 rate order, which authorized a 10.9% increase in Wisconsin retail electric rates and a 3.9% increase in Wisconsin retail natural gas rates. The final order authorized a lower retail natural gas rate increase than was approved in the interim order resulting in a $0.4 million refund to Wisconsin Public Service's natural gas customers.

  Electric Utility Operations

  Wisconsin Public Service's electric utility margin increased $81.8 million, or 21%, in 2002 primarily due to the Wisconsin retail electric rate increases.

  Wisconsin Public Service Corporation's Electric Utility Results (Millions)	2002	2001	Change
  Revenues	$696.9	$610.7	14%
  Fuel and purchased power	217.2	212.8	2%
  Margins	$479.7	$397.9	21%
  Sales in kilowatt-hours	13,579.7	12,618.9	8%

  Wisconsin Public Service's electric utility revenues increased $86.2 million, or 14%, in 2002 as the result of the electric rate increases and an 8% increase in overall electric sales volumes. Sales volumes were up 25% for lower margin, wholesale customers while sales to higher margin, residential customers increased 6% and sales to higher margin, commercial and industrial customers increased 3%. Summer weather was 7% warmer in 2002 than in 2001, and 23% warmer than normal.

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  Increased fuel costs for power generation were partially offset by lower purchased power expenses. Wisconsin Public Service's fuel expense for generation plants increased $4.9 million, or 4%, in 2002. Wisconsin Public Service's purchased power expense, however, decreased $0.5 million, or 1%, in 2002. Overall generation from Wisconsin Public Service's plants increased 10% while purchased volumes decreased 3%. The change in the energy supply mix was largely due to the availability of less expensive power generation from the Kewaunee nuclear power plant. Wisconsin Public Service increased its ownership interest in the Kewaunee nuclear power plant to 59% in September 2001.

  The Public Service Commission of Wisconsin allows Wisconsin Public Service to adjust prospectively the amount billed to Wisconsin retail customers for fuel and purchased power if costs fall outside a specified range. Wisconsin Public Service is required to file an application to adjust rates either higher or lower when costs are plus or minus 2% from forecasted costs on an annualized basis. Wisconsin Public Service did not submit any fuel filings in 2002.

  Gas Utility Operations

  Effective April 1, 2001, the gas utility margin at Wisconsin Public Service includes the merged Wisconsin Fuel and Light Company operations.

  Wisconsin Public Service Corporation's Gas Utility Results (Millions)	2002	2001	Change
  Revenues	$310.7	$321.6	(3%)
  Purchase costs	198.6	230.2	(14%)
  Margins	$112.1	$ 91.4	23%
  Throughput in therms	845.4	742.7	14%

  An increase in overall natural gas throughput volumes of 14% and the Wisconsin retail gas rate increase resulted in a higher gas utility margin of $20.7 million, or 23%, in 2002. Increased overall gas throughput volumes were partially the result of including 12 months of operations for former Wisconsin Fuel and Light in 2002 compared with the inclusion of 9 months of operations in 2001. Gas throughput volumes were also affected by a heating season that was 5% colder in 2002 than in 2001, but 3% milder than normal.

  Wisconsin Public Service's gas revenues decreased $10.9 million, or 3%, in 2002 and gas purchase costs decreased $31.6 million, or 14%, largely as the result of a 26% decrease in the average unit cost of natural gas in 2002.

  Other Expenses/Income

  Utility operating and maintenance expense increased $64.7 million in 2002 largely due to amortization of regulatory deferrals, increased benefit costs, higher transmission expenses associated with American Transmission Company, increased expenses at the Kewaunee nuclear power plant (as a result of Wisconsin Public Service acquiring additional ownership interest in the plant), and increased energy conservation expenses.

  Utility depreciation and decommissioning expense increased $9.3 million in 2002 largely due to additional plant assets at Wisconsin Public Service, including its increased ownership interest in the Kewaunee nuclear power plant. Lower depreciation expense of $5.5 million in 2002 related to decreased decommissioning earnings partially offset the increased plant asset depreciation.

  Other utility income decreased in 2002 primarily as the result of lower earnings of $5.7 million on Wisconsin Public Service's nuclear decommissioning trust assets. Due to regulatory practice, a decrease in earnings on the trust assets is largely offset by decreased depreciation expense.

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  Other Nonutility Income

  Hydroelectric land sales resulted in pretax gains of $3.3 million at Wisconsin Public Service in 2002 compared with pretax gains of approximately $17 million in 2001. In addition, earnings on equity investments were higher in 2002 compared with 2001 primarily due to the investment in American Transmission Company.

  BALANCE SHEET - WISCONSIN PUBLIC SERVICE

  20032004 Compared with 20022003

  Net utility plant increased $146.6$186.5 million, or 8.5%9.9%, atfrom December 31, 2003, compared to December 31, 2002.2004. The adoption of Statement No. 143, "Accounting for Asset Retirement Obligations," effective January 31, 2003, accounted for approximately $90.8 million of the increase in property,net utility plant primarily relates to capital expenditures associated with the construction of Weston 4 and equipment. Wisconsin Public Service adopted Statement No. 143, "Accounting for Asset Retirement Obligations," effective January 31, 2003, and as a result, capitalized a net asset retirement costthe installation of $90.8 million (decreased to $78.5automated meter reading.

  Pension assets decreased from $67.8 million at December 31, 2003, due to depreciation). The remaining increase in property, plant, and equipment primarily relates to capital expenditures for the Pulliam combustion turbine, and gas and electric distribution equipment. The Staff of the Securities and Exchange Commission recently expressed their views on the balance sheet classification of costs of removal for the utility industry and required that the amounts be reclassified from accumulated depreciation to a liability. As a result, WPS Resources reclassified costs of removal out of accumulated deprecation$0 at December 31, 2003 and 2002. See Trends2004. The decrease in the pension assets was the result of the merger of WPS Resource's two non-contributory qualified retirement plans effective December 31, 2004. For the combined plan, WPSC's cumulative contributions were less than cumulative accrued net benefit costs; therefore, no assets were recorded at December 31, 2004. Prior to the merger, an asset was recognized for one of the plans. (See Note 18 to WPS Resources' Consolidated Financial Statements - WPS ResourcesEmployee Benefit Plans, for more information about these accounting changes.information.)

  Gas in storage increased $19.9-81-

  <PAGE>

  The current portion of long-term debt decreased from $49.9 million at December 31, 2003, compared to $0 at December 31, 2002 largely due2004. On January 19, 2004, WPSC retired early $49.9 million of its 7.125% series first mortgage bonds. These bonds had an original maturity date of July 1, 2023. None of WPSC's long-term debt is scheduled to a 39% increasemature in the average price of natural gas experienced in 2003 compared to 2002.2005.

  Investments and other assetsShort-term debt increased $58.8$91 million, from $10.0 million at December 31, 2003, compared to December 31, 2002 as a result of the recognition of an intangible pension asset related to the minimum pension liability we recorded at December 31, 2003 and additional investments in American Transmission Company.

  Accounts payable decreased $55.3$101.0 million at December 31, 2004. Short-term debt was used to finance a portion of WPSC's capital expenditures in 2004.

  Accounts payable increased $40.2 million, or 38.3%, from December 31, 2003, compared to December 31, 2002 largely due to a $48.42004. The increase in accounts payable was driven by expenditures for Weston 4.

  The environmental remediation liability increased $30.5 million payable that was recorded at December 31, 2002 resulting from the purchase of the De Pere Energy Center. This was paid in 2003.

  Regulatory liabilities increased $242.7 million at December 31, 2003, compared to December 31, 2002 largely due to the reclassification of $167.9 million of non-legal costs of removal from nuclear decommissioning and other costs of removal to regulatory liabilities. Most of the remaining increase2004. This liability relates to a regulatory liabilityclean-up costs associated with several manufactured gas plant sites (see Note 17 to WPS Resources' Consolidated Financial Statements - Commitments and Contingencies, for more information). WPSC's estimate of future clean-up costs required to remediate these sites increased to reflect the WDNR's application of sediment guidance that was recorded upon the adoption of Statement No. 143. See Trends - WPS Resources for more information about this accounting change.recently issued.

  Pension and postretirement benefit obligations increased $67.1decreased $43.0 million, ator 31.6%, from December 31, 2003, compared to December 31, 20022004, primarily due to a reduction in the minimum pension liability that was recorded at December 31, 2003 forrecorded. The decrease in the administrativeminimum pension plan, whichliability was driven by WPS Resources' merger of its two non-contributory qualified retirement plans. On a decrease incombined basis, the discount rate used to value our obligation under this plan.

  The $344.0 millionminimum pension liability and related pension asset retirement obligation recorded at December 31, 2003 is related to a legal retirement obligation identified as a result of our adoption of Statement No. 143 for the decommissioning of the irradiated portions of the Kewaunee nuclear power plant. See Trends - WPS Resources for more information about this accounting change.

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  The $451.6 million liability for nuclear decommissioning and other costs of removal at December 31, 2002 was reclassified from accumulated depreciation in accordance with recent views expressed by the Staff of the Securities and Exchange Commission for the utility industry. Historically, these costs of removal were reflected as a component of depreciation expense and accumulated depreciation in accordance with regulatory treatment. Upon adoption of Statement No. 143 on January 1, 2003, costs of removal with associated legal obligations of $290.5 million were removed from nuclear decommissioning and other costs of removal as these costs are now accounted for as asset retirement obligations. Costs of removal without an associated legal obligation, as defined by Statement No. 143, were reclassified from nuclear decommissioning and other costs of removal to a regulatory liabilityreduced pursuant to Statement No. 71. See Trends - WPS Resources for more information about thisgenerally accepted accounting change.principles.

  LIQUIDITY AND CAPITAL RESOURCES - WISCONSIN PUBLIC SERVICE

  Wisconsin Public ServiceWPSC believes that its cash, operating cash flows, and borrowing ability because of strong credit ratings, when taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to expansion of existing businesses and development of new projects. However, the Company'sWPSC's operating cash flow and access to capital markets can be impacted by macroeconomic factors outside its control. In addition, the Company'sWPSC's borrowing costs can be impacted by its shortshort- and long-term debt ratings assigned by independent rating agencies, which in part are based on certain credit measures such as interest coverage and leverage ratios. Currently, we believeWPSC believes these ratings continue to be among the best in the energy industry (see the Financing Cash Flows and Credit Ratings sections below).

  Operating Cash Flows

  During 2004, net cash provided by operating activities was $213.9 million, compared with $152.6 million in 2003. The increase was driven by improved operating results.

  During 2003, net cash provided by operating activities was $152.6 million, compared with $185.4 million in 2002. The decrease was primarily due to increased working capital requirements. Gas inventories increased $19.9 million due to high natural gas prices. Receivables and accrued revenues also increased due to higher natural gas prices.

  During 2002, netInvesting Cash Flows

  Net cash provided by operatingused for investing activities was $185.4 million, compared with $127.8$252.0 million in 2001.2004 compared to $182.2 million in 2003. The increase was primarily attributedlargely related to ana $111.2 million increase in net income after adjustmentutility capital expenditures (see Capital Expenditures below), partially offset by a $48.4 million decrease in cash used for certain non-cash items, as working capital changes were not significant.

  Investing Cash Flowsthe purchase of equity investments and other acquisitions. The final payment in the amount of $48.4 million related to the De Pere Energy Center was made in December 2003.

  Net cash used for investing activities was $182.2 million in 2003 compared to $184.0 million in 2002. The small decrease is attributed to a $29.4 million decrease in capital expenditures and an increase in the

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  sale of property, plant, and equipment of $26.2 million. The majority of the increase in the sale of property, plant, and equipment was the result of $26.2 million.WPSC's sale of $20.1 million of assets at book value related to the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to ATC in June 2003. These factors were partially offset by an increase in the purchase of equity investments and other acquisitions of $48.4 million. See Asset Sales and Acquisitions below for further detail.

  Net cash used for investing activities was $184.0 million in 2002 compared to $131.8 million in 2001, an increase of $52.2 million. The increase was primarily the result of an increase in capital expenditures (discussed within Capital Expenditures below), as well as a decrease in dividends received from equity method investment (due to a decrease in the return of capital from the American Transmission Company), and a decrease in the sale of property, plant, and equipment. The decrease in the sale of property, plant, and equipment is primarily due to the 2001 sale of land on the Peshtigo River in northeastern Wisconsin to the Wisconsin Department of Natural Resources.

  Asset Sales and Acquisitions

  Certain acquisitions and asset sales that have a significant impact on investing cash flows are discussed below. In addition, see Note 6, Acquisitions and Sales of Assetsremaining purchase price for a more detailed discussion of asset sales and acquisitions.

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  On December 30, 2003, Wisconsin Public Service sold an additional 542 acres of land near the Peshtigo River to the Wisconsin Department of Natural Resources for $6.5 million as part of a multi-phase agreement reached between the parties in 2001. Under the terms of the 2001 agreement, the Wisconsin Department of Natural Resources bought more than 5,000 acres of land for $13.5 million in 2001.

  On April 18, 2003, the Public Service Commission of Wisconsin approved Wisconsin Public Service's request to transfer its interest in the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to the American Transmission Company. American Transmission Company is a for-profit transmission-only company created by the transfer of transmission assets previously owned by multiple electric utilities serving the upper Midwest in exchange for an ownership interest in American Transmission Company. Wisconsin Public Service sold approximately $20.1 million of assets at book value related to the Wausau to Duluth transmission line to American Transmission Company in June 2003. No gain or loss was recognized on the transaction. Wisconsin Public Service will continue to manage construction of the project and be responsible for obtaining property rights necessary for the construction of the project.

  On December 16, 2002, Wisconsin Public Service purchased the 180-megawatt De Pere Energy Center for $120.4 million and terminated the related existing purchased power agreement. Wisconsin Public Service paid $72.0 million at the close of the transaction and the remaining $48.4 million in December 2003. See "Note 6 - Acquisitions and Sales of Assets" in WPS Resources' Notes to Consolidated Financial Statements for more information.

  Capital Expenditures

  Capital expenditures by business segment for the years ended December 31, 2004, 2003, 2002, and 20012002 are as follows:

   

  (Millions)

  Years Ended December 31,

  Years Ended December 31,

  2004

  2003

  2002

  2001

  Electric Utility

  $210.1

  $120.6

  $157.0

  $163.7

  Gas Utility

  62.7

  40.7

  34.0

  Other

  24.9

  Other-

  0.3

  -

  Wisconsin Public Service Consolidated

  -

  WPSC Consolidated$272.8

  $161.6

  $191.0

  $188.6

  The increase in capital expenditures at the electric utility in 2004 as compared to 2003 is mainly due to higher capital expenditures associated with the construction of the 500-megawatt coal-fired Weston 4 generation facility located near Wausau, Wisconsin. Gas utility capital expenditures increased primarily due to the installation of automated meter reading. See Liquidity and Capital Resources - WPS Resources for more information regarding construction of Weston 4.

  Capital expenditures in the electric utility were higher in 2002 compared to 2003 mainly due to construction of portions of the Pulliam combustion turbine at Wisconsin Public ServiceWPSC in 2002. Gas utility capital expenditures increased due to the installation of automated meter reading in 2003.

  As part of its regulated utility operations, on September 26, 2003 Wisconsin Public Service submitted an application for a Certificate of Public Convenience and NecessityFinancing Cash Flows

  Net cash provided by financing activities was $36.9 million in 2004 compared to the Public Service Commission of Wisconsin seeking approval$30.9 million in 2003. Although cash provided by operating activities increased significantly in 2004, additional borrowings were required to build a 500-megawatt coal-fired generation facility near Wausau, Wisconsin. The facility is estimated to cost approximately $770 million (including the acquisition of coal trains), assuming the Public Service Commission of Wisconsin allows a current return on construction costs. As of December 31, 2003, Wisconsin Public Service has incurred a total cost of $4.0 million related to this project. In its 2003 rate order, the Public Service Commission of Wisconsin authorized deferral of costs related to development of the facility. On November 12, 2003, Wisconsin Public Service received a declaratory ruling allowing recovery of all reasonable costs (up to $71.2 million)fund WPSC's capital expenditures, primarily related to the project incurred or committed to prior to the Public Service Commission of Wisconsin's final decision regarding construction authorization. In addition, Wisconsin Public Service expects to incur additional construction costs of approximately $41 million to fund construction of the transmission facilities required to support the generating facility through the date the generating facility goes into service. American Transmission Company will reimburse Wisconsin Public Service for the construction costs of the interconnection and related carrying costs when the generation facility becomes commercially operational.

  On February 11, 2004, the Public Service Commission of Wisconsin determined Wisconsin Public Service's application is "complete". The Public Service Commission of Wisconsin and the Wisconsin

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  Department of Natural Resources now have 180 days to make a decision on the project. The Public Service Commission of Wisconsin may request from the Dane County Court of Appeals one 180-day extension. The Public Service Commission of Wisconsin and the Wisconsin Department of Natural Resources will create an environmental impact statement. The public will have opportunities to testify at public hearings. Technical hearings will also be held. Following a review of the application, the environmental impact statement, and the hearing testimony, the Public Service Commission of Wisconsin will determine if the proposed project will be approved, modified or denied.

  On February 16, 2004, Wisconsin Public Service signed a Letter of Intent with Dairyland Power Cooperative for electric supply alternatives for 150 megawatts of energy from the proposed

  500-megawatt coal-fired generation facility. According to the agreement, Dairyland could choose to purchase an interest in the plant or buy electricity from it (we have since received written notification from Dairyland, confirming their intent to purchase an interest in the plant). In providing Dairyland with electric supply alternatives, Wisconsin Public Service can reduce the risks associated with building and operating the power plant. The agreement is part of Wisconsin Public Service's continuing plan to provide least-cost reliable energy for the increasing electric demand of its customers. This transaction is subject to a number of conditions including successfully developing a joint plant ownership and operating agreement, Dairyland obtaining financing approval from the Rural Utility Services, and Dairyland securing firm transmission service from the Midwest Independent System Operator on terms and conditions Dairyland deems acceptable.

  Capital expenditures at the electric utility were $6.7 million higher in 2001 compared to 2002, mostly related to the 2001 steam generator replacement at the Kewaunee nuclear power plant and the acquisition of Madison Gas and Electric Company's 17.8% interest in the Kewaunee nuclear power plant including its decommissioning trust assets. In the gas utility segment, capital expenditures increased $9.1 million in 2002 from 2001, partially due to the installation of automated meter reading. The remaining increase is attributed to various one-time projects that occurred in 2002.

  Financing Cash FlowsWeston 4.

  Net cash provided by financing activities was $30.9 million in 2003 compared to cash used for financing activities of $7.9 million in 2002. Wisconsin Public ServiceWPSC required cash from financing activities in 2003 as cash provided by operating activities was not adequate to fund investing activities.

  Wisconsin Public Service's financing activities used cash of $7.9 million in 2002 and provided cash of $9.5 million in 2001. Cash was not required from financing activities in 2002 due to strong operating cash flows.

  Significant Financing Activities

  As of December 31, 2003, Wisconsin Public Service was in compliance with all of the covenants under its line of creditSee Liquidity and its other debt obligations.

  Wisconsin Public Service established a 364-day credit line syndicationCapital Resources - WPS Resources for $115.0 million, during the third quarter of 2003. The prior credit line syndication wasdetailed information on significant financing activities for $100.0 million. The credit line is used to back 100% of Wisconsin Public Service's commercial paper borrowing program.

  Wisconsin Public Service had no outstanding commercial paper borrowings at December 31, 2003 and $16.0 million at December 31, 2002. At December 31, 2003 and 2002, Wisconsin Public Service had a $10.0 million short-term note that renews annually and is due "on demand".

  Wisconsin Public Service Corporation, under a registration statement declared effective in 2002, issued $125.0 million of 4.80% 10-year senior notes in December 2003. The senior notes are collateralized by a pledge of first mortgage bonds and may become non-collateralized if Wisconsin Public Service retires all of its outstanding first mortgage bonds. The net proceeds from the issuance of the senior notes were

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  used to call $49.9 million of 7.125% first mortgage bonds on January 19, 2004, fund construction costs and capital additions, reduce short-term indebtedness, and for other corporate utility purposes.

  Wisconsin Public Service used short-term debt to retire $50.0 million of 6.8% first mortgage bonds on February 1, 2003 that had reached maturity and also retired $9.1 million of 6.125% tax-exempt bonds on May 1, 2003. Wisconsin Public Service is evaluating the potential for refinancing existing debt in 2004.

  Wisconsin Public service issued $150.0 million of 4.875% 10-year senior notes in December 2002. The senior notes are collateralized by a pledge of first mortgage bonds and may become non-collateralized if Wisconsin Public Service retires all of its outstanding first mortgage bonds. Wisconsin Public Service used approximately $72 million of the net proceeds from the issuance of the senior notes to acquire the De Pere Energy Center and $69 million to retire short-term debt. The balance of the net proceeds was used for other corporate utility purposes.WPSC.

  Credit Ratings

  Wisconsin Public Service uses internally generated fundsSee Liquidity and commercial paper borrowing to satisfy most of its capital requirements. Wisconsin Public Service also periodically issues long-term debt, receives equity contributions fromCapital Resources - WPS Resources and makes payments for return of capital to WPS Resources to reduce short-term debt, fund future growth, and maintain capitalization ratios as authorized by the Public Service Commission of Wisconsin.detailed information on WPSC's credit ratings.

  The current credit ratings for Wisconsin Public Service are listed in the table below.

  Credit Ratings	Standard & Poor's	Moody's
  Wisconsin Public Service Corporation    Bonds    Preferred stock    Commercial paper    Credit line syndication	AA- A A-1+ -	Aa2 A2 P-1 Aa3

  In November 2003, Moody's downgraded its long-term credit ratings for Wisconsin Public Service one ratings level, leaving only commercial paper ratings unchanged. Moody's downgrade of Wisconsin Public Service is based on the expectation that the utility's substantial capital spending program will exceed its retained cash flow through 2007, which is likely to lead to a meaningful increase in debt. Following the downgrade, Moody's set the ratings outlook at stable for Wisconsin Public Service. We believe these ratings continue to be among the best in the utility industry, and allow us to access commercial paper and long-term debt markets on favorable terms. Credit ratings are not recommendations to buy, are subject to change, and each rating should be evaluated independently of any other rating.

  Rating agencies use a number of both quantitative and qualitative measures in determining a company's credit rating. These measures include business risk, liquidity risk, competitive position, capital mix, financial condition, predictability of cash flows, management strength, regulatory risk, and future direction. Some of the quantitative measures can be analyzed through a few key financial ratios, while the qualitative ones are more subjective.

  Wisconsin Public Service holds a credit line to back 100% of its commercial paper borrowing. This credit facility is based on a credit rating of A-1+/P-1. A decrease in the commercial paper credit rating could adversely affect the company by increasing the interest rates at which it can borrow and potentially limiting the availability of funds to the company through the commercial paper market. A restriction in the company's ability to use commercial paper borrowing to meet its working capital needs could require it to secure funds through alternate sources resulting in higher interest expense, higher credit line fees, and a potential delay in the availability of funds.

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  Future Capital Requirements and Resources

  Contractual Obligations

  The following table summarizes the contractual obligations of Wisconsin Public Service,WPSC, including its subsidiaries.subsidiary.

  		Payments Due By Period
  Contractual Obligations As of December 31, 2003 (Millions)	Total Amounts Committed	Less than 1 year	1 to 3 years	3 to 5 years	Over 5 years
  Contractual Obligations As of December 31, 2004 (Millions)						Total Amounts Committed	Payments Due By Period
  							Less Than 1 Year	1 to 3 Years	3 to 5 Years	Over 5 Years
  Long-term debt principal and interest payments	$ 907.9	$ 80.5	$ 61.2	$ 61.2	$705.0	$  759.8	$ 27.1	$ 54.1	$ 54.1	$  624.5
  Operating lease obligations	14.7	4.1	3.4	2.3	4.9	14.5	3.2	3.4	3.0	4.9
  Commodity purchase obligations	894.3	248.6	331.5	241.0	73.2	1,198.1	187.1	294.9	202.9	513.2
  Purchase orders	167.6	124.9	37.3	5.4	-	493.8	299.9	163.3	30.6	-
  Other	77.5	20.3	57.2	-	-	215.8	30.1	47.0	46.1	92.6
  Total contractual cash obligations	$2,062.0	$478.4	$490.6	$309.9	$783.1	$2,682.0	$547.4	$562.7	$336.7	$1,235.2

  Long-term debt principal and interest payments represent bonds issued, notes issued, and loans made to Wisconsin Public Service.WPSC. We record all principal obligations on the balance sheet. Commodity purchase obligations represent mainly commodity purchase contracts of Wisconsin Public Service. Wisconsin Public ServiceWPSC. WPSC expects to recover the costs of its contracts in future customer rates.

  Purchase orders include obligations related to normal business operations and large construction obligations.obligations, including Weston 4. Other mainly represents expected pension and post-retirement funding obligations for the years of 2004 and 2005.obligations.

  Capital Requirements

  Wisconsin Public Service makes large investments in capital assets. Net construction expenditures are expected to be approximately $1,264 million in the aggregateSee Liquidity and Capital Resources - WPS Resources for the 2004 through 2006 period (upon the closing of the sale of the Kewaunee nuclear power plant, expenditures would decrease approximately $44.9 million during this period). The largest of these expenditures is for the construction of the 500-megawatt coal-fired generation facility near Wausau, Wisconsin, in which Wisconsin Public Service is expected to incur costs of $549 million between 2004 through 2006. In addition, Wisconsin Public Service expects to incur additional construction costs of approximately $12 million between 2004 and 2006 to fund construction of the transmission facilities required to support the generating facility. Other significant anticipated expenditures during this three period include:

  • combustion turbines - $49 million
  • pollution control equipment - $23 million
  • corporate services infrastructures - $41 million
  • automated meter reading - $35 million
  • nuclear fuel - $33 million
  • mercury control projects - $59 million

  Otherdetailed information on capital requirements for the three-year period include a potential contribution of $3.3 million to the Kewaunee nuclear power plant decommissioning trust fund (depending on the sale of the Kewaunee assets).

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  WPSC.

  Capital Resources

  For the period 2004 through 2006, Wisconsin Public Service plans to use funds internally generated net of forecasted dividend payments, cash proceeds from pending asset sales,See Liquidity and debt and equity financings to fund futureCapital Resources - WPS Resources for detailed information on capital requirements. Wisconsin Public Service plans to maintain debt to equity ratios consistent with the Public Service Commission of Wisconsin rate order in effect at the time. Management believes Wisconsin Public Service has adequate financial flexibility and resources to meet its future needs.

  Wisconsin Public Service has the ability to issue up to an additional $25.0 million of debt under its currently effective shelf registration statement. Wisconsin Public Service intends to file a new shelf registration statement in 2004 for an additional $350.0 million.

  Wisconsin Public Service has a new 364-day credit line syndication for $115.0 million. The credit line is used to back 100% of Wisconsin Public Service's commercial paper borrowing program. As of December 31, 2003, Wisconsin Public Service has a total of $115.0 million available under its line of credit.

  In 2003, Wisconsin Public Service announced the sale of its portion of the Kewaunee nuclear power plant. This sale is expected to settle in 2004. A portion of the proceeds related to the Kewaunee sale will be used to retire debt at Wisconsin Public Service. The remainder of the proceeds will be used for general corporate purposes. For more information regarding the Kewaunee sale, see the discussion below.WPSC.

  Other Future Considerations

  Kewaunee Nuclear Power Plant

  On November 7, 2003, Wisconsin Public ServiceSee Liquidity and Wisconsin Power and Light Company entered into a definitive agreement to sell the Kewaunee nuclear power plant to a subsidiary of DominionCapital Resources Inc. Wisconsin Public Service is a 59% owner of the Kewaunee nuclear power plant. The transaction is subject to approval from various regulatory agencies, including the Public Service Commission of Wisconsin, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, and several other state utility regulatory agencies and is projected to close in 2004. Approval has already been obtained from the Iowa Public Utility Commission.

  Wisconsin Public Service estimates that its share of the cash proceeds from the sale will approximate $130 million, subject to various post-closing adjustments. The cash proceeds from the sale are expected to slightly exceed the carrying value of the Wisconsin Public Service assets being sold. In addition to the cash proceeds, Wisconsin Public Service will retain ownership of the assets contained in its non-qualified decommissioning trust, one of two funds that were established to cover the eventual decommissioning of the Kewaunee nuclear power plant. The pretax fair value of the non-qualified decommissioning trust's assets at December 31, 2003 was $115.1 million. Dominion will assume responsibility- WPS Resources for the eventual decommissioning of Kewaunee and will receive Wisconsin Public Service's qualified decommissioning trust assets that had a fair value of $239.7 million at December 31, 2003. Wisconsin Public Service will request deferral of the gain expected to result from this transaction and related costs from the Public Service Commission of Wisconsin. Accordingly, the gaindetailed information on the proposed sale of the plant assets and the related non-qualified decommissioning trust assets is expected to be returned to customers under future rate orders.WPSC's interest in Kewaunee.

  Regulatory

  WisconsinSee Note 22, Regulatory Environment, to WPS Resources' Consolidated Financial Statements for detailed information on WPSC's regulatory issues.

  Effective March 21, 2003, Wisconsin Public Service received approval to increase Wisconsin retail electric rates $21.4 million (3.5%)American Jobs Creation Act of 2004

  See Liquidity and decrease Wisconsin retail natural gas rates $1.2 million (0.3%).Capital Resources - WPS Resources for detailed information on the American Jobs Creation Act of 2004.

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  The 2003 retail electric and natural gas rates reflect a 12.0% return on equity and allowed average equity of 55% in the utility's capital structure.

  On April 1, 2003, Wisconsin Public Service filed an application with the Public Service Commission of Wisconsin for authorization to increase retail electric and natural gas rates, effective January 1, 2004. The rate increases are necessary to recover the costs associated with the purchase of the De Pere Energy Center, fuel costs, maintenance of power production facilities and employee benefits. On December 19, 2003, the Public Service Commission of Wisconsin issued a final written order authorizing a retail electric rate increase of $59.4 million (9.4%) and a retail natural gas rate increase of $8.9 million (2.2%), effective January 1, 2004. The 2004 rates reflect a 12.0% return on equity. The Public Service Commission of Wisconsin also approved average equity of 56% in the utility's capital structure.

  The amount of fuel and purchased power costs Wisconsin Public Service is authorized to recover in rates is established in its general rate filings. If the actual fuel and purchased power costs vary from the authorized level by more than 2% on an annual basis, Wisconsin Public Service is allowed, or may be required, to file an application adjusting rates for the remainder of the year to reflect actual costs for the year to date and updated projected costs. On October 29, 2003, Wisconsin Public Service filed to reduce rates by $1.9 million, due to a reduction in the costs of fuel and purchased power, for the period August 15, 2003 through December 31, 2003. On February 19, 2004, the Public Service Commission of Wisconsin approved a refund of $2.7 million, which represents the originally filed amounts, adjustments, and interest. This refund will be credited to customer accounts in March 2004. A liability of $2.6 million was accrued as of December 31, 2003 in anticipation of this refund.

  As a result of the Kewaunee nuclear power plant unplanned outage in late January and early February 2004, and other fuel cost increases in 2004, the Wisconsin Public Service filed for a fuel cost increase of $7.4 millionon February 27, 2004. The Public Service Commission of Wisconsin has scheduled a hearing for March 22, 2004 to determine the amount of the fuel cost increase to be recorded on an interim basis. Wisconsin Public Service expects that a final order will be issued in summer 2004 regarding this increase.

  Michigan

  Wisconsin Public Service filed for an increase in retail electric rates in the first quarter of 2003. On July 21, 2003, the Michigan Public Service Commission authorized an increase in retail electric rates of $0.3 million and the recovery of an additional $1.0 million of transmission costs through the power supply cost recovery mechanism, effective July 22, 2003.

  Federal

  On April 30, 2003, Wisconsin Public Service received a draft order from the Federal Energy Regulatory Commission approving a 21%, or $4.1 million, increase in wholesale electric rates. The new wholesale rates were effective on May 11, 2003, and are subject to refund if the final rate increase is less. The draft order also granted the use of formula rates, which allow for the adjustment of wholesale electric rates to reflect actual costs without having to file additional rate requests. On March 4, 2004, the Federal Energy Regulatory Commission and Wisconsin Public Service reached a tentative settlement regarding the final rate increase. Wisconsin Public Service anticipates no material refunds or other adjustments to revenues recorded under the interim rates based on the terms of the tentative agreement. The final settlement is anticipated to be filed with the Federal Energy Regulatory Commission in the second quarter of 2004. This was Wisconsin Public Service's first rate increase for its wholesale electric customers in 17 years.

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  OFF BALANCE SHEET ARRANGEMENTS - WISCONSIN PUBLIC SERVICE

  See Guarantees and Off Balance Sheet Arrangements - WPS RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSResources for information regarding WPSC's off balance sheet arrangements.

  CRITICAL ACCOUNTING POLICIES - WISCONSIN PUBLIC SERVICE

  In May 2002, the Securities and Exchange Commission issued proposed rulesSee Critical Accounting Policies - WPS Resources for information regarding the identification and disclosure ofWPSC's critical accounting estimates a company makes in applying its accounting policies and the disclosure of initial adoption by a company of an accounting policy that has a material impact on its financial presentation. Under the first part of the proposal, a company would have to identify the accounting estimates reflected in its financial statements that required it to make assumptions about matters that were highly uncertain at the time of estimation. Disclosures about those estimates would then be required if different estimates that the company reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the presentation of the company's financial condition, changes in financial condition or results of operations.

  The Securities and Exchange Commission accepted comments on the proposed rules through July 19, 2002 and has not made any final decisions since that time. In anticipation of at least parts of this proposed rule being made final, we have identified the following accounting policies to be critical to the understanding of our financial statements because their application requires significant judgment and reliance on estimations of matters that are inherently uncertain.

  Risk Management Activities

  In accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," Wisconsin Public Service records its derivatives at fair value. These amounts are calculated using estimates that are critical to the financial statements. Fair value of the derivatives is calculated using internal models, third party quotes, or a combination of the two methods. Changes in the expected electric and gas market prices could cause variability in the fair values of the derivatives. Because Wisconsin Public Service has regulatory approval to offset the changes in the fair value of derivatives with a regulatory asset or liability, such changes would be reflected on the Consolidated Balance Sheets only.

  Asset Impairment

  The merger of Wisconsin Fuel and Light into Wisconsin Public Service in 2001 resulted in Wisconsin Public Service recording goodwill related to its gas utility segment. The goodwill is tested for impairment yearly based on the guidance of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." The test for impairment includes assumptions about future profitability of the gas utility segment and the correlation between the gas utility segment and published projections for other similar gas utility segments. A significant change in the gas utility market and/or internal projections of future profitability could result in a loss being recorded on the income statement related to a decrease in the goodwill asset, as a result of the impairment test.

  Revenues

  Wisconsin Public Service accrues estimated amounts of revenue for services rendered but not yet billed based on estimated unbilled sales.  Estimated unbilled sales are calculated using actual generation and throughput volumes, recorded sales and weather factors. The estimated unbilled sales are assigned different rates based on historical customer class allocations. Any difference between actual sales and the estimates or weather factors would cause a change in the estimated revenue.

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  Accruals for Pension and Postretirement Benefits

  Wisconsin Public Service estimates its benefit obligations using assumptions about discount rates, future salary increases, expected returns on plan assets, and medical and dental cost trend rates. These assumptions are disclosed annually in our Annual Report on Form 10-K in the Notes to Consolidated Financial Statements. Changes in the economy can cause adjustments in the assumptions used to calculate the benefit obligations and would affect the related liabilities and expenses. For a more detailed sensitivity analysis see WPS RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

  Regulatory Accounting

  The electric and gas utility segments of Wisconsin Public Service follow Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," and our financial statements reflect the effects of the different ratemaking principles followed by the various jurisdictions regulating these segments. We defer certain items that would otherwise be immediately recognized as expenses and revenues because our regulators have authorized deferral as regulatory assets and regulatory liabilities for future recovery or refund to customers. Future recovery of regulatory assets is not assured, but are generally subject to review by regulators in rate proceedings for matters such as prudence and reasonableness. Management regularly assesses whether these regulatory assets and liabilities are probable of future recovery or refund by considering factors such as regulatory environment changes and the status of any pending or potential deregulation legislation. Once approved, we reduce regulatory assets and liabilities by recognition in income over the rate recovery period. If not approved, these regulatory assets or liabilities would be recognized in income in the then current period.

  If our electric and gas utility segments no longer meet the criteria for applying Statement No. 71, we would discontinue its application as defined under Statement No. 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71." Assets and liabilities recognized solely due to the actions of rate regulation may no longer be recognized on the balance sheet and would be classified as an extraordinary item in income for the period in which the discontinuation occurs. A write-off of all Wisconsin Public Service's regulatory assets and regulatory liabilities at December 31, 2003, would result in a 4.9% decrease in total assets, a 23.5% decrease in total liabilities, and a 125.6% increase in income before taxes.policies.

  RELATED PARTY TRANSACTIONS - WISCONSIN PUBLIC SERVICE

  Wisconsin Public Service has investments in related parties that are accounted See Related Party Transactions - WPS Resources for under the equity method of accounting. These include the investment at WPS Investments, LLC, (a consolidated subsidiary of WPS Resources), in American Transmission Company LLC, Guardian Pipeline, LLC, and Wisconsin River Power Company. Wisconsin Public Service also enters into transactions with Upper Peninsula Power and WPS Energy Services, which are both wholly owned subsidiaries of WPS Resources.

  American Transmission Company, LLC is a for-profit, transmission-only company that owns, plans, maintains, monitors and operates electric transmission assets in portions of Wisconsin, Michigan, and Illinois. At December 31, 2003, WPS Investment's ownership in American Transmission Company was 19.8%. Wisconsin Public Service recordedinformation regarding WPSC's related party transactions for services provided to and network transmission services received from American Transmission Company during 2003, 2002, and 2001. Charges to American Transmission Company for services provided by Wisconsin Public Service were $14.4 million, $12.9 million and $11.3 million in 2003, 2002 and 2001, respectively. Network transmission costs paid to American Transmission Company by Wisconsin Public Service were $33.6 million, $31.0 million and $25.2 million in 2003, 2002 and 2001, respectively.

  Guardian Pipeline, LLC owns a natural gas pipeline, which began operating in 2002, that stretches about 140 miles from near Joliet, Illinois, into southern Wisconsin. WPS Investments, LLC purchased its 33% interest in Guardian Pipeline, LLC on May 30, 2003.

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  Wisconsin River Power Company, of which Wisconsin Public Service owns 50% of the voting stock, operates an oil-fired combustion turbine and two hydroelectric plants on the Wisconsin River. The energy output from the hydroelectric plants is sold in equal parts to the three companies that previously owned equal portions of all the outstanding stock of Wisconsin River Power (Wisconsin Public Service, Wisconsin Power and Light, and Consolidated Water Power). The electric power from the combustion turbine is sold in equal parts to Wisconsin Public Service and Wisconsin Power and Light. Wisconsin Public Service recorded related party transactions for service provided to and purchases from Wisconsin River Power during 2003, 2002, and 2001. Revenues from service provided to Wisconsin River Power were $1.4 million, $1.5 million, and $0.9 million for 2003, 2002, and 2001, respectively. Purchases from Wisconsin River Power by Wisconsin Public Service were $2.0 million, $2.1 million, and $1.7 million for 2003, 2002, and 2001, respectively.

  Wisconsin Public Service recorded revenue from Upper Peninsula Power of $27.1 million, $21.5 million, and $21.4 million in 2003, 2002, and 2001, respectively.

  Wisconsin Public Service recorded revenue from WPS Energy Services of $16.4 million, $5.4 million, and $2.5 million in 2003, 2002, and 2001, respectively. Wisconsin Public Service recorded purchases from WPS Energy Services of $5.9 million, $3.3 million, $5.2 million in 2003, 2002 and 2001.transactions.

  TRENDS - WISCONSIN PUBLIC SERVICE

  See Trends - WPS RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Resources for information regarding WPSC's trends.

  IMPACT OF INFLATION - WISCONSIN PUBLIC SERVICE

  See Impact of Inflation - WPS RESOURCES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Resources for information regarding inflation.the impact of inflation on WPSC.

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  ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Market Risks and Other Significant Risks

  WPS Resources has potential market risk exposuresexposure related to commodity price risk, interest rate risk, equity return, and principal preservation risk. The current exposureWPS Resources is also exposed to foreign currency exchange rate risk is not significant.other significant risks due to the nature of our subsidiaries' business and the environment from which we operate. WPS Resources has risk management policies in place to monitor and assist in controlling these market risks and may use derivative and other instruments to manage some of these exposures.exposures as further described below.

  Interest Rate Risk

  WPS Resources and Wisconsin Public ServiceWPSC are exposed to interest rate risk resulting from their variable rate long-term debt and short-term commercial paper borrowing. Exposure to interest rate risk is managed by limiting the amount of variable rate obligations and continually monitoring the effects of market changes in interest rates. WPS Resources and Wisconsin Public ServiceWPSC enter into long-term fixed rate debt when it is advantageous to do so. WPS Resources and Wisconsin Public ServiceWPSC may also enter into derivative financial instruments, such as swaps, to mitigate interest rate exposure. At December 31, 20032004, and 2002,2003, WPS Resources utilized one interest rate swap to fix the interest rate on a variable rate loan at one of its nonregulated subsidiaries.

  Based on the variable rate debt of WPS Resources and Wisconsin Public ServiceWPSC outstanding at December 31, 2003,2004, a hypothetical increase in market interest rates of 100 basis points in 20042005 would increase annual interest expense by approximately $0.7$3.2 million at WPS Resources and $0.1$1.0 million respectively.at WPSC. Comparatively, based on the variable rate debt outstanding at December 31, 2002,2003, an increase in interest rates of 100 basis points would have increased interest expense in 20032004 by approximately $0.6$0.7 million at WPS Resources and $0.3 million.$0.1 million at WPSC. These amounts were determined by performing a sensitivity analysis on the impact of a hypothetical 100 basis points increase in interest rates on the variable rate debt of WPS Resources and Wisconsin Public ServiceWPSC outstanding as of December 31, 20032004, and 2002.2003. This sensitivity analysis was performed assuming a constant level of variable rate debt during the period and an immediate increase in the levels of interest rates with no other subsequent changes for the remainder of the period. In the event of a significant change in interest rates, management would take action to mitigate WPS Resources' and Wisconsin Public Service'sWPSC's exposure to the change.

  Commodity Price Risk

  WPS Resources is exposed to commodity price risk resulting from the impact of market fluctuations in the price of certain commodities, including but not limited to electricity, natural gas, coal, fuel oil, and uranium, which are used and/or sold by our subsidiaries in the normal course of their business. We employ established policies and procedures and utilize contracts of various duration to manage our fuel and gas supply costs and to reduce the market risk associated with changing commodity prices, including using various types of commodity and derivative instruments.

  WPS Resources' exposure to commodity price risk in its regulated utilities is significantly mitigated by the current ratemaking process for the recovery of its electric fuel and purchased energy costs as well as its cost of natural gas purchased for resale. Therefore,Recovery of electric fuel and purchased energy costs through the value-at-riskPSCW ratemaking process can be sought if they exceed more than 2% of the estimated costs used to establish the rates. The risk associated with exposure to costs less than 2% above the estimated costs that are not recoverable are not material. Recovery of utility natural gas commodity costs are allowed to be passed through to retail customers in both Wisconsin and Michigan via gas cost recovery plans authorized by the PSCW and MPSC, respectively. An additional risk within the ratemaking process, regulatory lag risk, occurs between the time we submit rate proceedings and the time we receive the final approval or denial from the PSCW, MPSC, or FERC. The regulatory lag risk may increase or decrease with any change in commodity prices, unplanned outages, or unscheduled maintenance during the approval period. The regulatory lag risk is deemed to be insignificant; therefore, the Value-at-Risk amounts discussed below do not include measures for WPS Resources' regulated utilities. To further

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  manage commodity price risk and the associated regulatory lag risk, our regulated utilities enter into contracts of various durations for the purchase and/or sale of natural gas, fuel for electric generation, and electricity.

  WPS Power DevelopmentFor the nonregulated utilities, PDI utilizes purchase and/or sale contracts for electric fuel and electricity to help manage its commodity price risk. WPS Energy Servicesrisk and ESI uses derivative financial and commodity instruments to reduce market risk associated with the changing prices of natural gas and electricity sold at firm prices to customers. WPS Energy ServicesESI also utilizes these instruments to manage market risk associated with anticipated energy purchases.

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  For purposes of risk management disclosure, WPS Power Development'sPDI and WPS Energy Services'ESI's activities are classified as non-trading. The value-at-risk amounts discussed belowCertain PDI merchant plants are presented separately for both WPS Power Developmentunder contract to ESI and WPS Energy Services dueESI has the ability to reduce market price risk and extract additional value from these plants through the use of various financial and physical tools (including forward contracts and options). Due to the differing marketfact that a majority of PDI's risk is now essentially managed and timing exposures of each entity.reported through ESI, a separate Value-at-Risk amount has not been presented for PDI.

  Value-at-Risk

  To measure commodity price risk exposure, WPS Resources performs a value-at-risk (VaR)Value-at-Risk analysis of its exposures.

  VaRValue-at-Risk is used to describe a probabilistic approach to quantifying the exposure to market risk. The VaRValue-at-Risk amount represents an estimate of the potential change in fair value that could occur from changes in market factors, within a given confidence level, if an instrument or portfolio is held for a specified time period. VaRValue-at-Risk models are relatively sophisticated. However, the quantitative risk information is limited by the parameters established in creating the model. The instruments being used may have features that could trigger a potential loss in excess of the calculated amount if the changes in the underlying commodity price exceed the confidence level of the model used. VaRValue-at-Risk is not necessarily indicative of actual results that may occur.

  VaRValue-at-Risk is estimated using a delta-normal approximation based on a one-day holding period and a 95% confidence level. The delta-normal approximation is based on the assumption that changes in the value of the portfolio over short time periods, such as one day, are normally distributed. It does not take into account higher order risk exposures, so it may not provide a good approximation of the risk in a portfolio with substantial option positions. We utilized a delta-normal approximation because our portfolio has limited exposure to optionality. Our VaRValue-at-Risk calculation includes derivative financial and commodity instruments, such as forwards, futures, swaps, and options as well as commodities held in inventory, such as natural gas held in storage to the extent such positions are significant.

  Our VaRThe Value-at-Risk amount for WPS Energy ServicesESI was calculated to be $0.5 million at December 31, 2004, compared to $0.8 million at December 31, 2003 compared2003. The decrease is due to $0.5 millionless volatility in the market and fewer unusual fluctuations in the various portfolios. Due to the fact that a majority of PDI's risk is essentially managed and reported through ESI, a separate Value-at-Risk amount has not been presented for PDI in 2004. The Value-at-Risk amount for PDI at December 31, 2002. Our VaR amount for WPS Power Development2003 was calculated to be $1.2 million at December 31, 2003 compared with $0.3 million at December 31, 2002. The increase for WPS Power Development was primarily due to increased volatility in our forward price curve for electricity. A significant portion of this VaR amount is mitigated by WPS Power Development's generating capabilities, which are excluded from the VaR calculation as required by the Securities and Exchange Commission rules.million.

  For the year ended December 31, 2003,2004, the average, high, and low VaRValue-at-Risk amounts for WPS Energy ServicesESI were $0.5$0.6 million, $0.8 million, and $0.4$0.5 million, respectively. The same amounts for the year ended December 31, 20022003, were $0.5 million, $0.7$0.8 million, and $0.4 million. For the year ended December 31, 2003, the average, high, and low VaR amounts for WPS Power Development were $0.7 million, $1.3 million, and $0.3 million, respectively. The same amounts for the year ended December 31, 2002 were $1.5 million, $3.2 million, and $0.3 million. The average, high, and low amounts were computed using the VaRValue-at-Risk amounts at the beginning of the reporting period and the four quarter-end amounts.

  Equity Return and Principal Preservation Risk

  WPS Resources and Wisconsin Public ServiceWPSC currently fund liabilities (accumulated benefit obligations) related to employee benefits and nuclear decommissioning through various external trust funds. These funds are managed by various investment managers and hold investments in debt and equity securities. Changes

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  in the market value of these investments can have an impact on the future expenses related to these liabilities. WPS Resources maintains two maina qualified pension plans.  The pension liabilityplan for the Non-administrative Employees Retirement Plan is currently over funded and no contributions to the plan are required.  The pension liability for the Administrative Employees Retirement Plan has risen due to plan design changes and historically low interest rates.  employees' retirement. The liability (accumulated benefit obligation) of the Administrative Employees Retirement Planqualified plan exceeded the value of the Plan'squalified plan's assets by $64.9$20.4 million at December 31, 20032004, and

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  WPS Resources was, therefore, required to recognize a minimum pension liability as prescribed by SFAS No. 87.  Declines in the equity markets or continued declines in interest rates may result in increased future pension costs for these plansthe plan and possible future required contributions. Changes in the market value of investments related to other employee benefits or nuclear decommissioning could also impact future contributions. WPS Resources monitors the trust fund portfoliosportfolio by benchmarking the performance of the investments against certain security indices. All decommissioning costs and most of the employee benefit costs relate to WPS Resources' regulated utilities. As such, the majority of these costs are recovered in customers' rates, mitigating the equity return and principal preservation risk on these exposures.

  Foreign Currency Exchange Rate Risk

  WPS Resources is exposed to foreign currency risk as a result of foreign operations owned and operated in Canada and transactions denominated in Canadian dollars for the purchase and sale of natural gas and electricity by our nonregulated subsidiaries. Forward foreign exchange contracts designated as fair value hedges are utilized to manage the risk associated with currency fluctuations on certain firm sales and sales commitments denominated in Canadian dollars and certain Canadian dollar denominated asset and liability positions. WPS Resources' exposure to foreign currency risk was not significant at December 31, 20032004, or 2002.2003.

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  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  A. CONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31
  (Millions, except per share data)	2003	2002	2001
  Nonregulated revenue	$3,137.6	$410.8	$370.5
  Utility revenue	1,183.7	1,050.3	974.9
  Total revenues	4,321.3	1,461.1	1,345.4
  Nonregulated cost of fuel, gas, and purchased power	3,016.6	339.7	334.3
  Utility cost of fuel, gas, and purchased power	532.3	419.0	444.6
  Operating and maintenance expense	459.5	412.5	333.0
  Depreciation and decommissioning expense	138.4	94.8	84.1
  Taxes other than income	43.8	39.9	36.7
  Operating income	130.7	155.2	112.7
  Miscellaneous income	63.6	47.8	37.5
  Interest expense and distributions on trust preferred securities	(55.6)	(55.8)	(53.4)
  Minority interest	5.6	-	-
  Other income (expense)	13.6	(8.0)	(15.9)
  Income before taxes	144.3	147.2	96.8
  Provision for income taxes	33.7	28.7	9.2
  Income from continuing operations	110.6	118.5	87.6
  Discontinued operations, net of tax	(16.0)	(6.0)	(6.9)
  Net income before cumulative effect of change in
  accounting principles	94.6	112.5	80.7
  Cumulative effect of change in accounting principles, net of tax	3.2	-	-
  Net income before preferred stock dividends of subsidiary	97.8	112.5	80.7
  Preferred stock dividends of subsidiary	3.1	3.1	3.1
  Income available for common shareholders	$94.7	$109.4	$77.6
  Average shares of common stock
  Basic	33.0	31.7	28.2
  Diluted	33.2	32.0	28.3
  Earnings per common share (basic)
  Income from continuing operations	$3.26	$3.64	$3.00
  Discontinued operations	(0.49)	(0.19)	(0.25)
  Cumulative effect of change in accounting principles	0.10	-	-
  Earnings per common share (basic)	$2.87	$3.45	$2.75
  Earnings per common share (diluted)
  Income from continuing operations	$3.24	$3.61	$2.99
  Discontinued operations	(0.49)	(0.19)	(0.25)
  Cumulative effect of change in accounting principles	0.10	-	-
  Earnings per common share (diluted)	$2.85	$3.42	$2.74
  Dividends per common share	$2.16	$2.12	$2.08
  The accompanying notes to WPS Resources Corporation's consolidated financial statements
  are an integral part of these statements.

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  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  B. CONSOLIDATED BALANCE SHEETS
  At December 31
  (Millions)	2003	2002
  Assets
  Cash and cash equivalents	$50.7	$43.3
  Restricted funds	3.2	4.2
  Accounts receivable - net of reserves of $6.6 and $7.0, respectively	502.4	293.3
  Accrued unbilled revenues	90.0	105.9
  Inventories	178.3	110.3
  Current assets from risk management activities	518.1	406.6
  Assets held for sale	116.4	121.2
  Other current assets	86.4	67.1
  Current assets	1,545.5	1,151.9
  Property, plant, and equipment, net	1,828.7	1,712.3
  Nuclear decommissioning trusts	332.3	290.5
  Regulatory assets	127.7	110.9
  Long-term assets from risk management activities	104.3	135.3
  Other	353.8	270.3
  Total assets	$4,292.3	$3,671.2
  Liabilities and Shareholders' Equity
  Short-term debt	$38.0	$29.8
  Current portion of long-term debt	56.6	71.1
  Note payable to preferred stock trust	51.5	-
  Accounts payable	510.7	452.0
  Current liabilities from risk management activities	517.3	443.8
  Liabilities held for sale	2.7	0.6
  Other current liabilities	86.9	53.1
  Current liabilities	1,263.7	1,050.4
  Long-term debt	871.9	824.4
  Deferred income taxes	80.5	73.7
  Deferred investment tax credits	17.7	19.3
  Regulatory liabilities	304.4	49.7
  Environmental remediation liabilities	37.9	40.2
  Pension and postretirement benefit obligations	137.7	70.6
  Long-term liabilities from risk management activities	92.2	109.7
  Asset retirement obligations	344.0	-
  Nuclear decommissioning and other costs of removal	-	463.3
  Other	88.0	86.0
  Long-term liabilities	1,974.3	1,736.9
  Company-obligated mandatorily redeemable trust preferred
  securities of trust holding solely WPS Resources
  7.00% subordinated debentures	-	50.0
  Preferred stock of subsidiary with no mandatory redemption	51.1	51.1
  Common stock equity	1,003.2	782.8
  Total liabilities and shareholders' equity	$4,292.3	$3,671.2
  The accompanying notes to WPS Resources Corporation's consolidated financial statements
  are an integral part of these statements.

  -115-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  C. CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
  			Employee
  			Stock Plan
  			Guarantees and					Accumulated
  			Deferred		Capital in			Other
  	Comprehensive		Compensation	Common	Excess of	Retained	Treasury	Comprehensive
  (Millions)	Income	Total	Trust	Stock	Par Value	Earnings	Stock	Income (Loss)
  Balance at December 31, 2000	-	$548.1	($3.2)	$26.9	$177.7	$354.8	($8.1)	$0.0
  Income available for common shareholders	$77.6	77.6	-	-	-	77.6	-	-
  Other comprehensive income - cash flow hedge (net of tax of $1.8)	(2.7)	(2.7)	-	-	-	-	-	(2.7)
  Comprehensive income	$74.9	-	-	-	-	-	-	-
  Issuance of common stock	-	152.3	-	4.6	147.7	-	-	-
  Dividends on common stock	-	(58.8)	-	-	-	(58.8)	-	-
  Other	-	(0.6)	(1.0)	-	-	-	0.4	-
  Balance at December 31, 2001	-	$715.9	($4.2)	$31.5	$325.4	$373.6	($7.7)	($2.7)
  Income available for common shareholders	$109.4	109.4	-	-	-	109.4	-	-
  Other comprehensive income - cash flow hedge (net of tax of $3.1)	(4.6)	(4.6)	-	-	-	-	-	(4.6)
  Other comprehensive income - minimum pension liability (net of tax of $1.8)	(2.7)	(2.7)	-	-	-	-	-	(2.7)
  Comprehensive income	$102.1	-	-	-	-	-	-	-
  Issuance of common stock	-	28.3	-	0.5	21.7	-	6.1	-
  Purchase of common stock	-	(1.3)	(1.3)	-	-	-	-	-
  Dividends on common stock	-	(67.1)	-	-	-	(67.1)	-	-
  Other	-	4.9	0.1	-	4.7	-	0.1	-
  Balance at December 31, 2002	-	$782.8	($5.4)	$32.0	$351.8	$415.9	($1.5)	($10.0)
  Income available for common shareholders	$94.7	94.7	-	-	-	94.7	-	-
  Other comprehensive income - cash flow hedge (net of tax of $4.8)	7.2	7.2	-	-	-	-	-	7.2
  Other comprehensive income - minimum pension liability (net of tax of $8.2)	(12.3)	(12.3)	-	-	-	-	-	(12.3)
  Other comprehensive income - currency translation	0.1	0.1	-	-	-	-	-	0.1
  Comprehensive income	$89.7	-	-	-	-	-	-	-
  Issuance of common stock	-	197.7	-	4.8	191.8	-	1.1	-
  Purchase of common stock	-	(1.0)	(1.0)	-	-	-	-	-
  Dividends on common stock	-	(71.8)	-	-	-	(71.8)	-	-
  Other	-	5.8	(0.1)	-	5.9	-	-	-
  Balance at December 31, 2003	-	$1,003.2	($6.5)	$36.8	$549.5	$438.8	($0.4)	($15.0)
  The accompanying notes to WPS Resources Corporation's consolidated financial statements
  are an integral part of these statements.

  -116--88-

  <PAGE>

   

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  D. CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31
  (Millions)			2003	2002	2001
  Operating Activities
  Net income before preferred stock dividends of subsidiary			$97.8	$112.5	$80.7
  Adjustments to reconcile net income to net cash provided by operating activities
  	Discontinued operations, net of tax		16.0	6.0	6.9
  	Depreciation and decommissioning		138.4	94.8	84.1
  	Amortization of nuclear fuel and other		42.4	46.5	11.1
  	Unrealized gain on investments		(38.7)	(1.7)	(8.1)
  	Deferred income taxes and investment tax credit		(0.4)	0.7	(33.0)
  	Unrealized losses on nonregulated energy contracts		10.4	5.3	14.4
  	Gain on sales of partial interest in synthetic fuel operation		(7.6)	(38.0)	(2.2)
  	Gain on sale of property, plant, and equipment		(7.1)	(0.8)	(14.9)
  	Cumulative effect of change in accounting principles, net of tax		(3.2)	-	-
  	Other		(13.3)	(9.6)	(10.7)
  	Changes in working capital, net of businesses acquired
  		Receivables, net	(196.1)	(99.7)	84.0
  		Inventories	(79.9)	17.8	(42.1)
  		Other current assets	(29.6)	(6.2)	1.1
  		Accounts payable	102.8	59.1	(35.7)
  		Other current liabilities	30.5	1.8	8.5
  Net cash operating activities			62.4	188.5	144.1
  Investing Activities
  Capital expenditures			(176.2)	(210.3)	(244.3)
  Sale of property, plant and equipment			31.4	7.1	58.8
  Purchase of equity investments and other acquisitions			(102.7)	(72.3)	-
  Return of capital from equity investment			0.2	0.4	42.4
  Dividends received from equity investment			7.8	7.1	3.5
  Decommissioning funding			(3.0)	(2.6)	(2.6)
  Other			(1.5)	5.2	7.4
  Net cash investing activities			(244.0)	(265.4)	(134.8)
  Financing Activities
  Short-term debt - net			14.7	3.9	(98.5)
  Issuance of long-term debt			125.0	250.3	180.8
  Repayment of long-term debt and capital lease			(87.7)	(129.6)	(64.7)
  Payment of dividends
  	Preferred stock		(3.1)	(3.1)	(3.1)
  	Common stock		(71.8)	(67.1)	(58.8)
  Issuance of common stock			197.7	28.3	96.4
  Purchase of common stock			(1.0)	(1.3)	(1.1)
  Redemption of obligations acquired in purchase business combination			-	-	(17.9)
  Other			24.8	11.7	0.5
  Net cash financing activities			198.6	93.1	33.6
  Change in cash and cash equivalents - continuing operations			17.0	16.2	42.9
  Change in cash and cash equivalents - discontinued operations			(9.6)	(16.8)	(11.8)
  Change in cash and cash equivalents			7.4	(0.6)	31.1
  Cash and cash equivalents at beginning of year			43.3	43.9	12.8
  Cash and cash equivalents at end of year			$50.7	$43.3	$43.9
  The accompanying notes to WPS Resources Corporation's consolidated financial statements
  are an integral part of these statements.

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  A. CONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31
  (Millions, except per share data)	2004	2003	2002
  Nonregulated revenue	$3,598.6	$3,137.6	$410.8
  Utility revenue	1,292.0	1,183.7	1,050.3
  Total revenues	4,890.6	4,321.3	1,461.1
  Nonregulated cost of fuel, gas, and purchased power	3,458.8	3,016.6	339.7
  Utility cost of fuel, gas, and purchased power	576.2	532.3	419.0
  Operating and maintenance expense	513.2	459.5	412.5
  Depreciation and decommissioning expense	107.0	138.4	94.8
  Taxes other than income	46.1	43.8	39.9
  Operating income	189.3	130.7	155.2
  Miscellaneous income	47.7	63.6	47.8
  Interest expense and distributions on trust preferred securities	(54.2)	(55.6)	(55.8)
  Minority interest	3.4	5.6	-
  Other income (expense)	(3.1)	13.6	(8.0)
  Income before taxes	186.2	144.3	147.2
  Provision for income taxes	30.0	33.7	28.7
  Income from continuing operations	156.2	110.6	118.5
  Discontinued operations, net of tax	(13.4)	(16.0)	(6.0)
  Net income before cumulative effect of change in
  accounting principles	142.8	94.6	112.5
  Cumulative effect of change in accounting principles, net of tax	-	3.2	-
  Net income before preferred stock dividends of subsidiary	142.8	97.8	112.5
  Preferred stock dividends of subsidiary	3.1	3.1	3.1
  Income available for common shareholders	$139.7	$94.7	$109.4
  Average shares of common stock
  Basic	37.4	33.0	31.7
  Diluted	37.6	33.2	32.0
  Earnings (loss) per common share (basic)
  Income from continuing operations	$4.09	$3.26	$3.64
  Discontinued operations	(0.35)	(0.49)	(0.19)
  Cumulative effect of change in accounting principles	-	0.10	-
  Earnings per common share (basic)	$3.74	$2.87	$3.45
  Earnings (loss) per common share (diluted)
  Income from continuing operations	$4.07	$3.24	$3.61
  Discontinued operations	(0.35)	(0.49)	(0.19)
  Cumulative effect of change in accounting principles	-	0.10	-
  Earnings per common share (diluted)	$3.72	$2.85	$3.42
  Dividends per common share	$2.20	$2.16	$2.12
  The accompanying notes to WPS Resources Corporation's consolidated financial statements are an integral part of these statements.

  -117--89-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  B. CONSOLIDATED BALANCE SHEETS
  At December 31
  (Millions)	2004	2003
  Assets
  Cash and cash equivalents	$40.0	$50.7
  Restricted funds	-	3.2
  Accounts receivable - net of reserves of $8.0 and $6.6, respectively	531.3	502.4
  Accrued unbilled revenues	113.2	90.0
  Inventories	188.8	178.3
  Current assets from risk management activities	439.5	518.1
  Assets held for sale	119.6	116.4
  Other current assets	86.1	86.4
  Current assets	1,518.5	1,545.5
  Property, plant, and equipment, net	2,002.6	1,828.7
  Nuclear decommissioning trusts	344.5	332.3
  Regulatory assets	160.9	127.7
  Long-term assets from risk management activities	80.4	104.3
  Other	338.7	353.8
  Total assets	$4,445.6	$4,292.3
  Liabilities and Shareholders' Equity
  Short-term debt	$292.4	$38.0
  Current portion of long-term debt	6.7	56.6
  Note payable to preferred stock trust	-	51.5
  Accounts payable	589.4	510.7
  Current liabilities from risk management activities	401.6	517.3
  Liabilities held for sale	2.8	2.7
  Deferred income taxes	14.6	1.7
  Other current liabilities	72.6	86.9
  Current liabilities	1,380.1	1,265.4
  Long-term debt	865.7	871.9
  Deferred income taxes	65.5	78.8
  Deferred investment tax credits	16.2	17.7
  Regulatory liabilities	288.3	304.4
  Environmental remediation liabilities	68.4	37.9
  Pension and postretirement benefit obligations	94.6	137.7
  Long-term liabilities from risk management activities	68.3	92.2
  Asset retirement obligations	364.4	344.0
  Other	91.2	88.0
  Long-term liabilities	1,922.6	1,972.6
  Commitments and contingencies
  Preferred stock of subsidiary with no mandatory redemption	51.1	51.1
  Common stock equity	1,091.8	1,003.2
  Total liabilities and shareholders' equity	$4,445.6	$4,292.3
  The accompanying notes to WPS Resources Corporation's consolidated financial statements are an integral part of these statements.

  -90-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  C. CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
  			Employee Stock Plan Guarantees and Deferred Compensation Trust	Common Stock	Capital in Excess of Par Value	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)
  	Comprehensive Income
  (Millions)		Total
  Balance at December 31, 2001	-	$715.9	($4.2)	$31.5	$325.4	$373.6	($7.7)	($2.7)
  Income available for common shareholders	$109.4	109.4	-	-	-	109.4	-	-
  Other comprehensive income - cash flow hedges (net of tax of $3.1)	(4.6)	(4.6)	-	-	-	-	-	(4.6)
  Other comprehensive income - minimum pension liability (net of tax of $1.8)	(2.7)	(2.7)	-	-	-	-	-	(2.7)
  Comprehensive income	$102.1	-	-	-	-	-	-	-
  Issuance of common stock	-	28.3	-	0.5	21.7	-	6.1	-
  Purchase of common stock	-	(1.3)	(1.3)	-	-	-	-	-
  Dividends on common stock	-	(67.1)	-	-	-	(67.1)	-	-
  Other	-	4.9	0.1	-	4.7	-	0.1	-
  Balance at December 31, 2002	-	$782.8	($5.4)	$32.0	$351.8	$415.9	($1.5)	($10.0)
  Income available for common shareholders	$94.7	94.7	-	-	-	94.7	-	-
  Other comprehensive income - cash flow hedges (net of tax of $4.8)	7.2	7.2	-	-	-	-	-	7.2
  Other comprehensive income - minimum pension liability (net of tax of $8.2)	(12.3)	(12.3)	-	-	-	-	-	(12.3)
  Other comprehensive income - currency translation	0.1	0.1	-	-	-	-	-	0.1
  Comprehensive income	$89.7	-	-	-	-	-	-	-
  Issuance of common stock	-	197.7	-	4.8	191.8	-	1.1	-
  Purchase of common stock	-	(1.0)	(1.0)	-	-	-	-	-
  Dividends on common stock	-	(71.8)	-	-	-	(71.8)	-	-
  Other	-	5.8	(0.1)	-	5.9	-	-	-
  Balance at December 31, 2003	-	$1,003.2	($6.5)	$36.8	$549.5	$438.8	($0.4)	($15.0)
  Income available for common shareholders	$139.7	139.7	-	-	-	139.7	-	-
  Other comprehensive income - cash flow hedges (net of tax of $3.1)	4.6	4.6	-	-	-	-	-	4.6
  Other comprehensive income - minimum pension liability (net of tax of $4.0)	(6.0)	(6.0)	-	-	-	-	-	(6.0)
  Other comprehensive income - currency translation	0.3	0.3	-	-	-	-	-	0.3
  Comprehensive income	$138.6	-	-	-	-	-	-	-
  Issuance of common stock	-	26.3	-	0.6	25.6	-	0.1	-
  Dividends on common stock	-	(81.3)	-	-	-	(81.3)	-	-
  Other	-	5.0	(1.9)	0.1	7.0	(0.2)	-	-
  Balance at December 31, 2004	-	$1,091.8	($8.4)	$37.5	$582.1	$497.0	($0.3)	($16.1)
  The accompanying notes to WPS Resources Corporation's consolidated financial statements are an integral part of these statements.

  -91-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WPS RESOURCES CORPORATION
  D. CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31
  (Millions)			2004	2003	2002
  Operating Activities
  Net income before preferred stock dividends of subsidiary			$142.8	$97.8	$112.5
  Adjustments to reconcile net income to net cash provided by operating activities
  	Discontinued operations, net of tax		13.4	16.0	6.0
  	Depreciation and decommissioning		107.0	138.4	94.8
  	Amortization of nuclear fuel and other		44.7	42.4	46.5
  	Unrealized gain on investments		(5.5)	(38.7)	(1.7)
  	Pension and postretirement expense		39.8	26.4	5.2
  	Pension and postretirement funding		(17.8)	(15.6)	(7.3)
  	Deferred income taxes and investment tax credit		(2.1)	(0.4)	0.7
  	Unrealized (gains) losses on nonregulated energy contracts		(10.7)	10.4	5.8
  	Gain on sales of partial interest in synthetic fuel operation		(7.5)	(7.6)	(38.0)
  	Gain on sale of property, plant, and equipment		(12.0)	(7.1)	(0.8)
  	Cumulative effect of change in accounting principles, net of tax		-	(3.2)	-
  	Other		(11.1)	(33.7)	(8.0)
  	Changes in working capital, net of businesses acquired
  		Receivables, net	(67.6)	(183.3)	(83.2)
  		Inventories	(11.6)	(79.9)	17.8
  		Other current assets	(0.9)	(19.4)	(6.2)
  		Accounts payable	45.2	102.8	59.1
  		Other current liabilities	(3.1)	17.1	(14.7)
  Net cash operating activities			243.0	62.4	188.5
  Investing Activities
  Capital expenditures			(290.0)	(176.2)	(210.3)
  Sale of property, plant, and equipment			26.9	31.4	7.1
  Purchase of equity investments and other acquisitions			(52.3)	(102.7)	(72.3)
  Decommissioning funding			(0.3)	(3.0)	(2.6)
  Other			3.1	6.5	12.7
  Net cash investing activities			(312.6)	(244.0)	(265.4)
  Financing Activities
  Short-term debt - net			251.2	14.7	3.9
  Issuance of long-term debt			-	125.0	250.3
  Repayment of long-term debt, note to preferred stock trust and capital lease			(105.1)	(87.7)	(129.6)
  Payment of dividends
  	Preferred stock		(3.1)	(3.1)	(3.1)
  	Common stock		(81.3)	(71.8)	(67.1)
  Issuance of common stock			26.3	197.7	28.3
  Purchase of common stock			-	(1.0)	(1.3)
  Other			(11.2)	24.8	11.7
  Net cash financing activities			76.8	198.6	93.1
  Change in cash and cash equivalents - continuing operations			7.2	17.0	16.2
  Change in cash and cash equivalents - discontinued operations			(17.9)	(9.6)	(16.8)
  Change in cash and cash equivalents			(10.7)	7.4	(0.6)
  Cash and cash equivalents at beginning of year			50.7	43.3	43.9
  Cash and cash equivalents at end of year			$40.0	$50.7	$43.3
  The accompanying notes to WPS Resources Corporation's consolidated financial statements are an integral part of these statements.

  -92-

  <PAGE>

   

  ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  WPS RESOURCES CORPORATION

  E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  The notes to the consolidated financial statements that follow include consolidated WPS Resources footnotes and certain combined footnotes for both WPS Resources Corporation and its wholly-ownedwholly owned subsidiary registrant, Wisconsin Public Service Corporation. In addition, Wisconsin Public Service'sWPSC. WPSC's financial statements also include additional supplemental footnotes related to Wisconsin Public Service.WPSC. Refer to Item 8.8, Section L for a listing of the combined footnotes included in the WPS Resources notes herein and the supplemental footnotes that are applicable to the Wisconsin Public ServiceWPSC registrant.

  NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  (a) Nature of Operations--WPS Resources Corporation is a holding company. Our wholly-ownedwholly owned subsidiary, Wisconsin Public Service Corporation,WPSC, is an electric and natural gas utility. Wisconsin Public ServiceWPSC supplies and distributes electric power and natural gas in its franchised service territory in northeastern Wisconsin and an adjacent portion of the Upper Peninsula of Michigan. Our other wholly owned utility subsidiary, Upper Peninsula Power Company,UPPCO, is an electric utility. Upper Peninsula PowerUPPCO supplies and distributes electric energy to a portion of the Upper Peninsula of Michigan. Another wholly owned subsidiary, WPS Resources Capital Corporation, is a holding company for our nonregulated businesses, WPS Energy Services, Inc.ESI and WPS Power Development, Inc. WPS Energy ServicesPDI. ESI is a diversified energy supply and services company. WPS Power DevelopmentPDI is an electric generation company.

  The term "utility" refers to the regulated activities of Wisconsin Public ServiceWPSC and Upper Peninsula Power,UPPCO, while the term "nonutility" refers to the activities of Wisconsin Public ServiceWPSC and Upper Peninsula Power, whichUPPCO that are not regulated. The term "nonregulated" refers to activities other than those of Wisconsin Public ServiceWPSC and Upper Peninsula Power.UPPCO.

  (b) Consolidation Basis of Presentation--The Consolidated Financial Statements include the accounts of WPS Resources Corporation and all majority owned subsidiaries, after eliminating significant intercompany transactions and balances. If a minority owner's equity is reduced to zero, it is our policy is to record 100% of the subsidiary's losses until the minority owner makes capital contributions or commitments to fund its share of the operating costs. The cost method of accounting is used for investments wherewhen WPS Resources owns less than 20% of the voting stock of the company, unless other evidence indicates we have significant influence over the operating and financial policies of the investee. Investments in businesses not controlled by WPS Resources, Corporation, but over which we have significant influence overregarding the operating and financial policies of the investee, are accounted for using the equity method. For additional information on our equity method investments see Note 10, Investments"Investments in Affiliates, at Equity Method."

  In the fourth quarter of 2003,For all periods presented, certain assets and liabilities of WPS Power Development's Sunbury generation plant were reclassifiedare classified as assets held for sale for all periods presented. Theand Sunbury's operating results for this business have been separately classified and reported as discontinued operations in the consolidated financial statements for all periods presented.operations. Refer to Note 4, Assets"Assets Held for Sale," for more information.

  (c) Use of Estimates--We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. We make estimates and assumptions that affect reported amounts. These estimates and assumptions include assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from thosethese estimates.

  (d) Cash and Cash Equivalents--We consider short-term investments with an original maturity of three months or less to be cash equivalents.

  -118-

  <PAGE>

  Cash paid for taxes during 2004, 2003, and 2002 and 2001 was $37.0 million, $21.9 million, $34.6 million, and $34.0$34.6 million, respectively. During 2004, 2003, 2002, and 2001,2002, cash paid for interest totaled $54.4 million, $57.9 million, and $52.3 million, and $52.6 million, respectively.

  -93-

  <PAGE>

  Non-cash transactions were as follows:

  (Millions)	2003	2002	2001	2004	2003	2002
  Weston 4 construction costs funded through accounts payable				$22.6	$ -	$ -
  Minimum pension liability equity adjustment				6.0	12.3	2.7
  Restricted cash	$(1.0)	$(17.8)	$21.3	3.2	1.0	17.8
  Debt assumed in Advantage acquisition				3.2	-	-
  Exchange of transmission assets for equity interest in ATC				-	5.9	-
  Conversion of indebtedness to equity in Quest Energy LLC	-	2.4	-	-	-	2.4
  Liabilities assumed in connection with CH Resources acquisition	-	0.9	-
  Minimum pension liability equity adjustment	(12.3)	(2.7)	-
  Exchange of transmission assets for equity interest in American Transmission Company	5.9	-	93.1
  Exchange of common stock due to merger with Wisconsin Fuel and Light	-	-	54.8
  Debt assumed in WPS Empire State acquisition				-	-	0.9

  (e) Revenue and Customer Receivables--Revenues are recognized on the accrual basis and include estimated amounts for electric and natural gas services rendered but not billed. Approximately 5.7%6.6% of WPS Resources' total revenue isand approximately 10.1% of WPSC's total revenue in 2004 was from companies in the paper products industry.

  Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO use automatic fuel and purchased power adjustment clauses for the Federal Energy Regulatory Commission wholesale electric and the Michigan Public Service CommissionMPSC retail electric portions of thetheir business. At Upper Peninsula PowerWPSC also uses automatic fuel and purchased power adjustment clauses for its FERC wholesale electric business; however, at UPPCO, most wholesale electric contracts are special contracts and have no automatic fuel and purchasepurchased power adjustment clauses. The Wisconsin retail electric portion of Wisconsin Public Service'sWPSC's business uses a "cost variance range" approach, based on a specific estimated fuel and purchased power cost for the forecast year. If Wisconsin Public Service'sWPSC's actual fuel and purchasepurchased power costs fall outside this range, the Public Service Commission of WisconsinPSCW can authorize an adjustment to future rates. Decreases to rates can be implemented without a hearing, unless requested by Wisconsin Public Service,WPSC, Commission Staff, or interveners, while increases to rates wouldare generally be subject to a hearing. For more information on current regulatory actions relatingrelated to the fuel and purchased power adjustment clauses, see Note 23, Regulatory22, "Regulatory Environment."

  The Public Service Commission of WisconsinPSCW approved a modified one-for-one gas cost recovery plan for Wisconsin Public ServiceWPSC commencing in January 1999. This plan allows Wisconsin Public ServiceWPSC to pass changes in the cost of natural gas purchased from its suppliers on to system natural gas customers, subject to regulatory review. The regulatory review process allowsby the Commission to review the changes for reasonableness.

  The Michigan Public Service CommissionMPSC has approved one-for-one recovery of prudently incurred natural gas costs for Wisconsin Public Service,WPSC, subject to regulatory review. The Michigan Public Service Commission hasMPSC also approved a natural gas cost recovery factor adjustment mechanism for Wisconsin Public ServiceWPSC for the period November 20032004 through October 2004.2005. This adjustment mechanism allows Wisconsin Public ServiceWPSC to upwardly adjust the natural gas rates charged to customers in Michigan based on upward changes to the New York Mercantile Exchange natural gas futures price of gas without further CommissionMPSC action.

  Billings to Upper Peninsula Power'sUPPCO's customers under the Michigan Public Service Commission'sMPSC's jurisdiction include base rate charges and a power supply cost recovery factor. Upper Peninsula PowerUPPCO receives Michigan Public Service CommissionMPSC approval each year to recover projected power supply costs by establishment of power supply cost recovery factors. Annually, the Michigan Public Service CommissionThe MPSC reconciles these factors to actual costs annually and permits 100% recovery of allowed power supply costs. Upper Peninsula PowerUPPCO recognizes any over or under recovery currently in its revenues, and the payable or receivable is recognized on the balance sheet until settlement. The deferrals are relieved with additional billings or refunds. At December 31, 2003, Upper Peninsula Power has also recorded 

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  regulatory assets related to costs associated with the flooding on the Dead River for which the Michigan Public Service Commission has authorized deferral.

  Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO are required to provide service and grant credit to customers within their service territories. The two companies continually review their customers' credit-worthiness and obtain deposits or refund deposits accordingly. Both utilities are precluded from discontinuing service to residential customers during winter moratorium months. OurThe regulated segments calculate a reserve for potential uncollectible customer receivables using a four-year average of bad debts net of recoveries as a percentage of total accounts receivable. The historical percentage is applied to the current year-end accounts receivable balance to determine the required reserve balance required.balance.

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  At WPS Power Development,PDI, electric power revenues related to fixed-price contracts are recognized at the lower of amounts billable under the contract or an amount equal to the volume of the capacity made available or the energy delivered during the period multiplied by the estimated average revenue per kilowatt-hour per the terms of the contract. Under floating-price contracts, electric power revenues are recognized when capacity is provided or energy is delivered.

  WPS Energy ServicesESI accrues revenues in the month that energy is delivered and/or services are rendered. With the January 1, 2003, adoption of Emerging Issues Task Force Issue No. 02-03, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," revenues related to derivative instruments classified as trading are reported net of related cost of sales for all periods presented. Therefore, previously reported revenues for derivatives classified as trading in 2002 and 2001 have been reclassified to be shown net of cost of fuel, natural gas, and purchased power, while most 2004 and 2003 revenues continue to be reported on a gross basis - seebasis. See Note 1(t), Cumulative"Cumulative Effect of Change in Accounting Principle," for more information. Neither margins nor income available for common shareholders were impacted by the reclassification of revenue upon adoption of Issue No. 02-03.

  In accordance with the requirements of Emerging Issues Task Force Issue No. 02-03, WPS Energy Services' gross physical volumes of natural gas and electricity delivered in 2003, 2002, and 2001 are reported in the following tables:

  WPS Energy Services' Gas Results	2003	2002	2001
  Wholesale sales volumes in billion cubic feet*	252.4	233.8	242.8
  Retail sales volumes in billion cubic feet*	240.6	135.7	104.5

  * Represents gross physical volumes

  WPS Energy Services' Electric Results (Millions)	2003	2002	2001
  Wholesale sales volumes in kilowatt-hours*	2,768.0	4,250.0	1,696.6
  Retail sales volumes in kilowatt-hours*	6,435.3	2,703.6	1,944.7

  * Represents gross physical volumes

  WPS Energy ServicesESI calculates the reserve for potential uncollectible customer receivable balances by applying an estimated bad debt experience rate to each past due aging category and reserving for 100% of specific customer receivable balances deemed to be uncollectible. The basis for calculating the reserve for receivables from wholesale counterparties considers any netting agreements, collateral, or guaranties in place.and guarantees.

  (f) Inventories--Inventories consist of natural gas in storage and fossil fuels, including coal. We value all fossil fuels using average cost. Average cost is also used to value natural gas in storage for our regulated segments. Natural gas in storage for our nonregulated segments is valued at the lower of cost or market unless hedged pursuant to a fair value hedge. Through December 2002, natural gas in storage for our nonregulated segments was marked to the current spot price under fair value accounting rules. To comply with new accounting requirements resulting from the rescission of Emerging Issues Task Force 

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  Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," we adopted the inventory valuation method described above for our nonregulated natural gas inventories effective January 1, 2003.

  (g) Risk Management Activities--As part of our regular operations, WPS Resources enters into contracts, including options, swaps, futures, forwards, and other contractual commitments, to manage market risks such as changes in commodity prices interest rates, and foreign currency exchangeinterest rates.

  WPS Resources evaluates its derivative contracts in accordance with Statement of Financial Accounting StandardsSFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted. StatementSFAS No. 133 establishes accounting and financial reporting standards for derivative instruments and requires, in part, that we recognize certain derivative instruments on the balance sheet as assets or liabilities at their fair value. Subsequent changes in fair value of the derivatives are recorded currently in earnings unless certain hedge accounting criteria are met. If the derivatives qualify for regulatory deferral subject to the provisions of StatementSFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," the derivatives are marked to fair value pursuant to StatementSFAS No. 133 and are offset with a corresponding regulatory asset or liability.

  Prior to the adoption of Emerging Issues Task Force Issue No. 02-03, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities," effective January 1, 2003, WPS ResourcesESI accounted for contracts in accordance with Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." See Note 1(t) Cumulative, "Cumulative Effect of Change in Accounting Principle," for more information concerning the transition from Issue No. 98-10 to StatementIssue No. 133.02-03. 

  Effective July 1,In the fourth quarter of 2003, WPS Resources adopted Statement of Financial Accounting StandardsIssue No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Statement No. 149 codifies and clarifies financial accounting and reporting for derivative instruments and hedging activities under Statement No. 133, primarily in connection with decisions made by the Derivatives Implementation Group and for implementation issues raised in the application of Statement No. 133. Statement No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of Statement No. 149 did not have a significant impact on WPS Resources for 2003.

  WPS Resources adopted Emerging Issues Task Force Issue 03-11, "Reporting Realized Gains and Losses on Derivative Instruments that are Subject to FASB StatementSFAS No. 133 and Not 'Held for Trading Purposes' as Defined in Issue No. 02-03," which resulted in recording nonregulated revenues net of cost of fuel, natural gas, and purchased power for energy-related transactions entered into after October 1, 2003, that settle financially and for which the commodity does not physically transfer for arrangements entered into after October 1, 2003.transfer. Had we applied the provisions of Issue No. 03-11 been applied to arrangements entered into prior to October 1, 2003, previously reported nonregulated revenue would have decreased $62.9 million for the nine months endingended September 30, 

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  2003, with a corresponding $62.9 million decrease to nonregulated cost of fuel, natural gas, and purchased power. Previously reported wholesale natural gas sales volumes for the nine months endingended September 30, 2003 would have decreased 10.8 billion cubic feet. Application of the provisions of Issue 03-11 to arrangements entered into prior to October 1, 2003 would not have impacted the 2002 and 2001 financial statements or reported sales volumes. Neither margins, income, nor cash flows were impacted by the adoption of Issue No. 03-11.

  In accordance with views recently expressed by the Securities and Exchange Commission staff, WPS Resources has reclassifiedclassifies mark-to-market gains and losses on derivative instruments not qualifying for hedge accounting as a component of revenues for all periods presented. The retroactive reclassification of the mark-to-market gains and losses did not have a significant impact on our financial statements and neither margins, income available for common shareholders, nor cash flows were impacted by the change.revenues.

  (h) Property, Plant, and Equipment--UtilityEquipment--Utility plant is stated at the original cost of construction including an allowance for funds used during construction. The cost of renewals and betterments of units of property (as distinguished from minor items of property) is capitalized as an addition to the utility plant

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  accounts. Except for land, no gain or loss is recognized in connection with ordinary retirements of utility property units. Maintenance, repair, replacement, and renewal costs associated with items not qualifying as units of property are considered operating expenses. The utility charges the cost of units of property retired, sold, or otherwise disposed of, less salvage, to the accumulated provision for depreciation. The cost of removal associated with the retirement is charged to a regulatory liability.

  We record straight-line depreciation expense over the estimated useful life of utility property and include amounts for estimated removal and salvage. The Public Service Commission of WisconsinPSCW approved depreciation rates for Wisconsin Public ServiceWPSC effective January 1, 1999. On March 1,December 21, 2004, Wisconsin Public Service filed a requestWPSC received approval for new depreciation rates to be effective January 1, 2005. 2005, which are not expected to have a material impact on annual depreciation expense. Depreciation rates for Upper Peninsula PowerUPPCO were approved by the Michigan Public Service Commission and areMPSC effective January 1, 2002 through December 31, 2006.2002.

  DepreciationThe depreciation of Kewaunee production plant for the Kewaunee nuclear power plantWisconsin retail jurisdiction is being accrued based on a Public Service Commission of Wisconsin order that became effective on January 1, 2001. The order included a change in the depreciation methodology for the Kewaunee nuclear power plant after the steam generators were replaced.PSCW order. The cost of the new steam generators that went into service in December 2001 will be recovered over an 8-1/8 1/2 year period using the sum-of-years-digits method of depreciation. Also under this order, the unrecovered plant investment at January 1, 2001, and future additions will be recovered over a period ending 8-1/8 1/2 years after the installation of the steam generators using a straight-line remaining life depreciation methodology. For the Michigan retail and wholesale jurisdictions, depreciation for Kewaunee is calculated on a straight-line basis using depreciation rates approved by the PSCW effective January 1, 1994.

  Depreciation expense also includes accruals for nuclear decommissioning. These accruals are not included in the annual composite rates shown below. An explanation of this item is included in Note 8, Nuclear"Nuclear Plant Operation."

  Annual Utility Composite Depreciation Rates	2003	2002	2001	2004	2003	2002
  Electric	3.63%	3.66%	3.23%	3.59%	3.63%	3.66%
  Gas	3.63%	3.59%	3.37%	3.65%	3.63%	3.59%

  Nonutility property interest capitalization takes place during construction, and gain and loss recognition occurs in connection with retirements. Nonutility property is depreciated using straight-line depreciation. Asset lives range from 3 to 20 years.

  Nonregulated plant is stated at the original construction cost, which includes capitalized interest, for those assets, or estimated fair value at the time of acquisition pursuant to a business combination. The costs of renewals, betterments, and major overhauls are capitalized as an addition to plant. The gains or losses associated with ordinary retirements are recorded in the period of retirement. Maintenance, repair, and minor replacement costs are expensed as incurred.

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  Most of the nonregulated subsidiaries compute depreciation using the straight-line method over the following estimated useful lives:

  Structures and improvements	15 to 40 years
  Office and plant equipment	5 to 35 years
  Office furniture and fixtures	3 to 10 years
  Vehicles	5 years
  Computer equipment	3 years
  Leasehold improvements	Shorter of: life of the lease or life of the asset

  The Combined Locks Energy Center, however, is using the units of production depreciation method for selected pieces of equipment having defined lives stated in terms of hours of production.

  WPS Resources capitalizes certain costs related to software developed or obtained for internal use and amortizes those costs to operating expense over the estimated useful life of the related software, which is usually three to seven years.

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  (i) Capitalized Interest and Allowance for Funds Used During Construction--Our nonregulated subsidiaries capitalize interest for construction projects, while our utilities use an allowance for funds used during construction ("AFUDC") calculation, which includes both an interesta debt and an equity component as required by regulatory accounting.

  Approximately 50% of Wisconsin Public Service'sWPSC's retail jurisdictional construction work-in-progress expenditures are subject to allowance for funds used during construction,AFUDC, except on specific Public Service Commission of Wisconsinprojects approved projects that could have a larger percent of expenditures subject to allowance for funds used during construction.by the PSCW. For 2003, Wisconsin Public Service's allowance for funds used during construction2004, WPSC's AFUDC retail rate was 9.61%9.21%.

  Wisconsin Public Service'sWPSC's construction work-in-progress AFUDC debt and equity percentagespercentage formula for the wholesale jurisdictional electric allowance for funds used during construction arejurisdiction is specified under a formula in the Federal Energy Regulatory Commission'sFERC's Uniform System of Accounts. For 2003, the allowance for funds used during constructionThe 2004 average AFUDC wholesale rate was 4.03%6.99%.

  Upper Peninsula Power is subject to one allowance for funds used during construction rate. That rate is specified in a formula in the Federal Energy Regulatory Commission's Uniform System of Accounts, but limited by the Michigan Public Service Commission's allowed rate of return. For 2003, the allowance for funds used during construction rate was 2.5%. Historically, there have been few calculations of allowance for funds used during construction due to the small dollar amounts or short construction periods of Upper Peninsula Power's construction projects.

  Wisconsin Public Service'sWPSC's allowance for equity funds used during construction for 2004, 2003, and 2002 and 2001 werewas $2.0 million, $2.4 million, and $3.0 million, and $1.9 million, respectively. Wisconsin Public Service'sWPSC's allowance for borrowed funds used during construction for 2004, 2003, and 2002 and 2001 werewas $0.7 million, $1.0 million, and $1.2 million, and $2.1 million, respectively. Upper Peninsula PowerUPPCO did not record allowanceAFUDC for funds used2004, 2003, or 2002, as UPPCO did not have significant construction projects during construction for 2003, 2002, or 2001.these years.

  Our nonregulated subsidiaries calculate capitalized interest on long-term construction projects for periods whereduring which financing is provided by WPS Resources through interim debt. The interest rate capitalized is based upon the monthly short-term borrowing rate WPS Resources incurs for such funds. The amount of interest capitalized during 2004, 2003, and 2002 was insignificant.

  (j) Asset Impairment--We review the recoverability of long-lived tangible and intangible assets, excluding goodwill, other indefinite lived intangible assets, and regulatory assets, using Statement of Financial Accounting Standardsin accordance with SFAS No. 144, "Accounting for the Impairment and Disposal of Long-Lived Assets." StatementSFAS No. 144 requires review of assets when circumstances indicate that the carrying amount of the asset may not be recoverable. This evaluation is based on various analyses, including undiscounted cash flow projections. The carrying amount of assets held and used is not recoverable if it exceeds the undiscounted sum of cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset's carrying value over its fair value.

  The carrying value of assets held for sale is not recoverable if it exceeds the fair value less cost to sell the asset. An impairment charge is recorded for any excess of the carrying value over the fair value less cost to sell. If events or circumstances indicate the carrying value of investments accounted for under the equity method of accounting may not be recoverable, potential impairment is assessed by comparing the future anticipated cash flows from these investments to their carrying values. The estimated fair value less cost to sell for assets held for sale are compared each reporting period to their carrying values. Impairment charges are recorded for equity method investments and assets held for sale if the carrying value of such assets exceeds the future anticipated cash flows or the estimated fair value less cost to sell, respectively.flows.

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  (k) Regulatory Assets and Liabilities--Wisconsin Public ServiceLiabilities--WPSC and Upper Peninsula PowerUPPCO are subject to the provisions of Statement of Financial Accounting StandardsSFAS No. 71, "Accounting for the Effects of Certain Types of Regulation."71. Regulatory assets represent probable future revenue associated with certain incurred costs. Revenuecosts which will be recovered from customers through the ratemaking process. Regulatory liabilities represent amounts that are refundable in future customer rates. Based on a current

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  evaluation of the various factors and conditions that are expected to impact future cost recovery, we believe that future recovery of our regulatory assets is probable.

  (l) Goodwill and Other Intangible Assets--On January 1, 2002, WPS Resources adopted Statement of Financial Accounting StandardsAssets--In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill and amortization of goodwill was discontinued. There was noother assets with indefinite lives are not amortized, but are subject to annual impairment of goodwill upon adoption of Statement No. 142. WPS Resources has elected to performtests. WPSC performs its annual impairment test during the second quarter of each year, while PDI performs its impairment test annually during the third quarter. The impairment tests are updated whenever events or changes in circumstances indicate that goodwillthe assets might be impaired. Based upon the results of impairment testing, performedno impairments were noted in 2004, 2003, no impairment of goodwill was noted.or 2002.

  Other intangible assets with definite lives, consisting primarily of emission credits and customer related intangible assets, are amortized over periods from 1 to 30 years. For more information on WPS Resources' intangible assets, see Note 11, Goodwill"Goodwill and Other Intangible Assets."

  (m) Retirement of Debt--Premiums, discounts, and expenses incurred with the issuance of outstanding long-term debt are amortized over the terms of the debt issues. Any call premiums or unamortized expenses associated with refinancing higher-cost debt obligations used to finance regulated assets and operations are amortized consistent with regulatory treatment of those items, where appropriate.

  (n) Research and Development--The only member of WPS Resources' consolidated entity that incurs significant research and development costs is Wisconsin Public Service.Development-- Electric research and development expenditures for Wisconsin Public ServiceWPSC totaled $0.7 million, $0.6 million, for 2003,and $0.3 million, forin 2004, 2003, and 2002, respectively. No other research and $1.1 million for 2001.development expenditures were significant.

  (o) Asset Retirement Obligations--Effective January 1, 2003, WPS Resources adopted Statement of Financial Accounting StandardsSFAS No. 143, "Accounting for Asset Retirement Obligations." Under the newthis accounting standard, WPS Resources recognizes, at fair value, legal obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction or development, and/or normal operation of the asset. The associated retirement costs are capitalized as part of the related

  long-lived asset and depreciated over the useful life of the asset. For the utility segments of WPS Resources, we believe it is probable that any differences between expenses under StatementSFAS No. 143 and expenses currently recovered through customer rates will be recoverable or refundable in future customer rates. Accordingly, the adoption of this statement had no impact on the utility segment's income as the effects wereits effect is offset by the establishment of regulatory assets or liabilities pursuant to StatementSFAS No. 71. Refer to Note 16,15, "Asset Retirement Obligations"Obligations," for additional information on StatementSFAS No. 143.

  (p) Income Taxes--We account for income taxes using the liability method as prescribed by Statement of Financial Accounting StandardsSFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes have been recorded using currently enacted tax rates for the differences between the tax basis of assets and liabilities and the basis reported in the financial statements. Due to the effects of regulation on Wisconsin Public ServiceWPSC and Upper Peninsula Power,UPPCO, certain adjustments made to deferred income taxes are, in turn, recorded as regulatory assets or liabilities.

  Investment tax credits, which have been used to reduce our federal income taxes payable, have been deferred for financial reporting purposes. These deferred investment tax credits are being amortized over the useful lives of the property to which they are related.relate.

  WPS Resources is an indirect part owner in a facility that produces synthetic fuel from coal, as defined in Section 29 of the Internal Revenue Code. The production and sale of the synthetic fuel from this facilitythat qualifies for tax credits under Section 29 if certain requirements are satisfied. Section 29 tax credits are currently scheduled to expire at the end of 2007. Tax credits that are not utilizedused to reduce tax expense as a result of alternative minimum tax rules relating to United States federal income taxes are carried forward as alternative minimum tax credits to reduce current tax expense in future years. Under current federal law, alternative minimum tax credits do not expire.

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  WPS Resources files a consolidated United States income tax return that includes domestic subsidiaries in which its ownership is 80 percent80% or more. WPS Resources and its consolidated subsidiaries are parties to a tax allocation arrangement under which each entity determines its income tax provision on a stand alonestand-alone basis, after which the effects of federal consolidation are accounted for.

  WPS Resources records a reserve for tax contingencies based upon management's assessment of the probabilities that certain deductions or income tax positions may not be sustained when income tax returns are audited by taxing jurisdictions. Our identified tax exposures are discussed below.

  WPS Resources and its subsidiaries have routinely been subject to examination by various taxing jurisdictions. The periods currently open for examination include: Internal Revenue Service - 2002 and subsequent tax years, Wisconsin Department of Revenue - 1996 and subsequent tax years, and other state and local taxing jurisdictions - various time periods. At any given time there might be several of these audits open covering multiple tax years. Management has not been informed by any taxing jurisdictions of any material adjustment to any filed or proposed tax position as a result of the on-going examinations.

  WPS Resources has submitted a request to have the Internal Revenue Service conduct a pre-filing review of two tax positions related to the 2004 tax return. The first position relates to the value of the Peshtigo River land donated to the WDNR in 2004. The second position relates to the current deductibility of a planned repair that was made to the reactor vessel at Kewaunee in 2004. The IRS has not yet responded to these requests. If the IRS decides not to undertake a pre-filing review, WPS Resources will have to wait for resolution of these positions when they come up for examination post-filing. WPS Resources has recorded a tax benefit with respect to these positions based upon management's assessment of the probability of sustaining the position WPS Resources intends to take in filing its 2004 tax return.

  The combined current benefit of Section 29 tax credits and the deferred benefit of alternative minimum tax credits (arising from Section 29 tax credits) is limited to an amount equal to the WPS Resources regular consolidated federal tax liability. In 2004, and in some previous years, this limitation has impacted the amount of the tax benefit recorded as compared to actual Section 29 tax credits produced. WPS Resources has recorded a tax benefit with respect to Section 29 tax credits based upon management's assessment of the probability of sustaining the filing position for federal tax returns.

  (q) Excise taxes--WPSTaxes--WPS Resources presents revenue net of pass-through taxes on the Consolidated Statements of Income.

  (r) Guarantees--Effective January 1, 2003, WPS Resources adopted the provisions of Financial Accounting Standards BoardFASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Interpretation No. 45 also requires that the guarantor recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

  At December 31, 2003, Wisconsin Public Service2004, WPSC had an outstanding guarantee to indemnify a third-party for certain exposures related to the construction of utility assets. In the event that the construction project is not completed, Wisconsin Public Service agreed to reimburse the guaranteedthird party for certain unrecovered costs.costs related to a utility construction project in the event the project is not completed. At December 31, 2003,2004, the guarantee carries a maximum exposure of $5.5$5.3 million. A liability for the fair value of this obligation was not recognized in the Consolidated Balance Sheets of Wisconsin Public Service,WPSC because the guarantee was issued prior to the effective date for initial measurement and recognition as defined by Interpretation No. 45.

  (s) Stock Options--At December 31, 2003, WPSStock-Based Employee Compensation--WPS Resources had three stock optionhas stock-based employee compensation plans, which are described more fully in Note 22, Stock Option Plans. We account21, "Stock-Based Compensation." WPS Resources accounts for these plans under the recognition and measurement principlesprovisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. NoUpon grant of stock options, no stock-based employee compensation cost for stock options is reflected in net income, available for common shareholders, as all options granted under thosethese plans had an exercise price equal to the market value of 

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  the underlying common stock on the date of grant.

  The following table illustrates the effect on income available for common shareholders and earnings per share if wethe company had applied the fair value recognition provisions of FASB StatementsSFAS No. 123, "Accounting for Stock BasedStock-Based Compensation," to stock-based employee compensation:

   

  (Millions, except per share amounts)	2004	2003	2002
  Income available for common shareholders
  As reported	$139.7	$94.7	$109.4
  Add: Stock-based compensation expense using   the intrinsic value method - net of tax	1.4	2.1	1.3
  Deduct: Stock-based compensation expense   using the fair value method - net of tax	(2.1)	(2.6)	(1.8)
  Pro forma	$139.0	$94.2	$108.9
  Basic earnings per common share
  As reported	$3.74	$2.87	$3.45
  Pro forma	3.72	2.85	3.44
  Diluted earnings per common share
  As reported	$3.72	$2.85	$3.42
  Pro forma	3.70	2.84	3.40

  The fair value of each stock options. option grant is estimated on the date of grant using the Black-Scholes stock option pricing model assuming:

  (Millions, except per share amounts)	2003	2002	2001
  Income available for common shareholders
  As reported	$94.7	$109.4	$77.6
  Deduct: Total stock option employee compensation expense determined under fair value method for all awards, net of related tax effects	(0.5)	(0.5)	(0.3)
  Pro forma	$94.2	$108.9	$77.3
  Basic earnings per common share
  As reported	$2.87	$3.45	$2.75
  Pro forma	2.85	3.44	2.74
  Diluted earnings per common share
  As reported	$2.85	$3.42	$2.74
  Pro forma	2.84	3.40	2.73

  	2004	2003	2002
  Expected life	10 years	10 years	10 years
  Risk-free interest rate	4.40%	4.40% to 4.65%	4.43% to 5.57%
  Expected dividend yield	5.19%	5.68 % to 6.23%	6.23% to 6.60%
  Expected volatility	15.44%	18.25% to 19.97%	19.53% to 20.53%

  (t) Cumulative Effect of Change in Accounting Principles--WPS Energy ServicesPrinciples--ESI had been applying the accounting standards of Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," from the first quarter of 2000 until this standard was rescinded by

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  Issue No. 02-03 in October 2002. WPS Energy ServicesESI was defined as a trading company under Issue No. 98-10 and was required to mark all of its energy relatedenergy-related contracts to market. On October 25, 2002, the Emerging Issues Task Force rescinded Issue No. 98-10, thus precluding mark-to-market accounting for energy trading contracts entered into after that date that are not derivatives and requiring a cumulative effect of change in accounting principle to be recorded effective January 1, 2003, for all nonderivative contracts entered into on or prior to October 25, 2002. On January 1, 2003, WPS Resources recorded an after-tax cumulative effect of a change in accounting principle of $3.5 million (primarily related to the operations of WPS Energy Services)ESI operations) to increase income available for common shareholders as a result of removing from its balance sheet the mark-to-market effects of those contracts entered into on or prior to October 25, 2002, that do not meet the definition of a derivative under StatementSFAS No. 133. The cumulative effect of adopting this new accounting standard is expected to reverse upon the settlement of the contracts impacted by the standard. Most of this reversal is expected to occuroccurred in 2004. The required change in accounting had no impact on the underlying economics or cash flows of the contracts.

  In addition, theThe adoption of StatementSFAS No. 143 at WPS Power DevelopmentPDI on January 1, 2003, resulted in a $0.3 million negative after-tax cumulative effect of change in accounting principle related to recording a liability for the closure of an ash basin at the Sunbury generating plant.Sunbury.

  (u) Reclassifications--We reclassified certain prior year financial statement amounts to conform to the current year presentation.

  (v) New Accounting Pronouncements--In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51," in order to improve financial reporting by companies involved with variable interest entities. Interpretation No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The primary beneficiary is the party that absorbs a majority of the expected losses and/or receives the majority of the expected residual returns of the variable interest entity's activities. On December 24, 2003, the Financial Accounting Standards Board issued a revision to Interpretation No. 46 ("46R") in order to clarify some of the provisions of Interpretation No. 46 and to exempt certain entities from its requirements. The effective implementation date of Interpretation No. 46 was also modified by Interpretation No. 46R. The application of Interpretation No. 46R was required for financial statements of public entities that have interests in special-purpose entities for periods ending after December 15, 2003. WPS Resources identified WPSR Capital Trust I as a special purpose entity that is within the scope of Interpretation No. 46R. Refer to Note 16, "Company-Obligated Mandatorily Redeemable Trust Preferred Securities of Preferred Stock Trust", for further discussion of the impacts of implementing this portion of Interpretation No. 46R on the financial statement of WPS Resources. For all other types of variable interest entities, the application of Interpretation No. 46R will be required in the first quarter of 2004.

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  (v) New Accounting Pronouncements--In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," which addresses the accounting for share-based payment transactions. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees," and requires a company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost is recognized over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123R will be effective for WPS Resources on July 1, 2005. SFAS No. 123R offers companies alternative methods of adopting this standard. At the present time, WPS Resources has not identified any material variable interest entities created,determined which alternative method it will use, or interests in variable entities obtained, after January 31, 2003 that require consolidationthe resulting impact on its financial position or disclosureresults of operations. However, we do not expect a significant impact when we adopt the standard.

  In March 2004, the FASB issued EITF No. 03-01, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments," which provides new guidance for assessing impairment losses on debt and equity investments. The new impairment model applies to investments accounted for under the Financial Accounting Standard Board's Interpretationcost method and investments accounted for under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." EITF No. 46R03-01 also includes new disclosure requirements for cost method investments and continues to assessfor all investments that are in an unrealized loss position. In September 2004, the existenceFASB delayed the accounting provisions of any interests in variable interest entities, not classified as special purpose entities, created on or prior to January 31, 2003.EITF No. 03-01; however, the disclosure requirements were effective for WPS Resources currently anticipates that we will disclose information about a variable interest entity upon implementation of Interpretation No. 46R infor the first quarter ofyear ended December 31, 2004. Through an affiliate of WPS Power Development, Inc., WPS Resources owns a partial interest in a synthetic fuel production facility located in Kentucky and receives tax credits pursuant to Section 29does not expect the adoption of the Internal Revenue Code basedaccounting provisions of EITF No. 03-01 to have a significant impact on sales to unaffiliated third-party purchasersfinancial position or results of synthetic fuel produced from coal.operations.

  WPS Resources' investments accounted for under SFAS No. 115 that have unrealized losses at December 31, 2004, were not significant. At December 31, 2003, WPS Resources had a 23% ownership interest in2004, the synthetic fuel facility.aggregate carrying amount of WPS Resources' maximum exposure to loss as a result of our involvement with this potential variable interest entity is limited to our investment incost method investments totaled $1.5 million. These investments were not evaluated for impairment because the entity, which is not significant at December 31, 2003. Currently, we do not believe that WPS Resources is the primary beneficiary of this entity and do not anticipate consolidationfair value of the synthetic fuel facility upon adoption of Interpretation No. 46 in the first quarter of 2004. 

  The utility segments of WPS Resources recognize removal costs for utility assets. Historically these removal costs have been reflected as a component of depreciation expense and accumulated deprecationinvestments was not estimated in accordance with regulatory treatment. The Staffparagraphs 14 and 15 of the SecuritiesSFAS No. 107, "Disclosures about Fair Value of Financial Instruments," and Exchange Commission has recently expressed their viewsno events or changes in circumstances were identified that would have had a significant adverse effect on the balance sheet presentationfair value of these removal costs for the utility industry and has required that the amounts be reclassified from accumulated deprecation to a liability for all years presented. As a result, WPS Resources reclassified $463.3 million from accumulated depreciation to nuclear decommissioning and other costs of removal at December 31, 2002. Of the total amount reclassified, Wisconsin Public Service recorded $451.6 million. Upon adoption of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" on January 1, 2003, costs of removal with associated legal retirement obligations of $290.5 million were removed from nuclear decommissioning and other costs of removal as these costs are now accounted for as asset retirement obligations. Refer to Note 16, "Asset Retirement Obligations", for more information on costs of removal with associated legal obligations. At December 31, 2003, WPS Resources reclassified $180.0 million of costs of removal that were determined to not have an associated legal obligation from nuclear decommissioning and other costs of removal to a regulatory liability pursuant to Statement No. 71. Wisconsin Public Service reclassified $167.9 million of costs of removal that were determined to not have an associated legal obligation.those investments.

  NOTE 2--FAIR VALUE OF FINANCIAL INSTRUMENTS

  The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such value:

  Cash, Short-Term Investments, Energy Conservation Loans, Notes Payable, and Outstanding Commercial Paper: The carrying amount approximates fair value due to the short maturity of thosethese investments and obligations.

  Nuclear Decommissioning Trusts: The value of nuclearNuclear decommissioning trust investments isare recorded at fair value, net of taxes payable on unrealized gains and losses, andlosses. This represents the amount of assets available to accomplish decommissioning. The nonqualified trust investments designated to pay income taxes when unrealized gains become realized are classified as nuclear decommissioning trusts - other assets.

  Long-Term Debt and Preferred Stock: The fair valuevalues of long-term debt and preferred stock are estimated based on the quoted market price for the same or similar issues or on the current rates offered to WPS Resources for debt of the same remaining maturity.

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  Risk Management Activities: Assets and liabilities from risk management activities are recorded at fair value pursuant to SFAS No. 133.

  The estimated fair values of our financial instruments as of December 31 were:

  (Millions)	2003		2002
  	Carrying Amount	Fair Value	Carrying Amount	Fair Value
  Cash and cash equivalents	$ 50.7	$ 50.7	$ 43.3	$ 43.3
  Restricted cash	3.2	3.2	4.2	4.2
  Energy conservation loans	1.9	1.9	2.2	2.2
  Nuclear decommissioning trusts	332.3	332.3	290.5	290.5
  Nuclear decommissioning trusts - other assets	22.5	22.5	13.0	13.0
  Notes payable	10.0	10.0	13.8	13.8
  Commercial paper	28.0	28.0	16.0	16.0
  Note payable to preferred stock trust	51.5	51.5	-	-
  Trust preferred securities	-	-	50.0	51.1
  Long-term debt	931.2	1014.7	898.1	970.6
  Preferred stock	51.1	49.1	51.1	45.5
  Risk management activities - net	12.9	12.9	(11.6)	(11.6)

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  (Millions)	2004		2003
  	Carrying Amount	Fair  Value	Carrying Amount	Fair  Value
  Cash and cash equivalents	$ 40.0	$ 40.0	$ 50.7	$ 50.7
  Restricted cash	-	-	3.2	3.2
  Energy conservation loans	1.6	1.6	1.9	1.9
  Nuclear decommissioning trusts	344.5	344.5	332.3	332.3
  Nuclear decommissioning trusts - other assets	26.8	26.8	22.5	22.5
  Notes payable	12.7	12.7	10.0	10.0
  Commercial paper	279.7	279.7	28.0	28.0
  Note payable to preferred stock trust	-	-	51.5	51.5
  Long-term debt	874.4	925.2	931.2	1,014.7
  Preferred stock	51.1	50.0	51.1	49.0
  Risk management activities - net	50.0	50.0	12.9	12.9

  NOTE 3--RISK MANAGEMENT ACTIVITIES

  The following table shows WPS Resources' assets and liabilities from risk management activities as of December 31, 2004 and 2003:

  	Assets		Liabilities
  (Millions)	2004	2003	2004	2003
  Utility Segment
  Gas and electric purchase contracts	$ 11.0	$ 8.4	$ -	$ -
  Other	-	-	0.6	-
  Nonregulated Segments
  Commodity and foreign currency contracts	465.3	588.7	435.4	586.4
  Fair value hedges	3.8	0.3	2.3	4.0
  Cash flow hedges
  Commodity contracts	39.8	25.0	22.9	9.0
  Interest rate swap	-	-	8.7	10.1
  Total	$519.9	$622.4	$469.9	$609.5
  Balance Sheet Presentation
  Current	$439.5	$518.1	$401.6	$517.3
  Long-Term	80.4	104.3	68.3	92.2
  Total	$519.9	$622.4	$469.9	$609.5

  Assets and liabilities from risk management activities are classified as current or long-term based upon the maturities of the underlying financial instruments.

  Utility Segment

  Wisconsin Public ServiceWPSC has entered into a limited number of natural gas and electric purchase contracts with customers that are accounted for as derivatives. The Public Service CommissionPSCW approved the recognition of Wisconsin approved recognizing a regulatory asset or liability for the fair value of derivative amounts as a result of these contracts pursuant to Statement No. 71.contracts. Thus, management believes any gains or losses resulting from the eventual settlement of these contracts will be collected from or refunded to customers. As of December 31, 2003, we have recorded an asset from risk management activities of $8.4 million related to these contracts. We recorded an asset from risk management activities of $1.4 million and a liability from risk management activities of $0.7 million related to these contracts at December 31, 2002.

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  Nonregulated Segments

  OurThe derivatives in the nonregulated segments have also entered into contracts that are accounted for as derivatives under the provisions of Statement No. 133, as amended. At December 31, 2003, those derivatives not designated as hedges are primarily commodity contracts used to manage price risk associated with wholesale and retail natural gas purchase and sale activities, and electric energy contracts.contracts, and foreign currency contracts used to manage foreign currency exposure related to our nonregulated Canadian businesses. Changes in the fair value of the non-hedge derivatives that have not qualified for hedge accounting are recognized currently in earnings. At December 31, 2003, the fair value of these contracts is recorded as an asset from risk management activities of $578.1 million and a liability from risk management activities of $582.1 million. At December 31, 2002, we recorded an asset from risk management activities of $25.5 million and a liability from risk management activities of $23.2 million for those contracts entered into after October 25, 2002, that qualified as derivatives and were not designated as hedges. Commodity contracts entered into before October 25, 2002 were accounted for as energy trading contracts under Issue 98-10 at December 31, 2002. At December 31, 2002, WPS Energy Services recorded an asset from risk management activities of $514.9 million and a liability from risk management activities of $516.4 million related to energy trading contracts accounted for under Issue 98-10.

  Our nonregulated segments also enter into derivative contracts that are designated as either fair value or cash flow hedges. Fair value hedges are used to mitigate the risk of changes in pricesthe price of natural gas held in inventory and changes in fair value of foreign currency.storage. The changes in the fair value of these hedges are recognized currently in earnings, as are the changes in fair value of the hedged items. To the extent that the fair value hedge is fully effective, there is no impact on earnings. At December 31, 2003, the fair value of contracts designated as fair value hedges, excluding foreign exchange contracts, are recorded as 

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  an asset from risk management activities of $0.3 million and a liability from risk management activities of $4.0 million. Fair value hedge ineffectiveness recorded in nonregulated cost of fuel, gas, and purchased powerrevenue on the Consolidated StatementStatements of Income was not significant during 2003.in 2004, 2003, or 2002. At December 31, 2002, those contracts designated as fair value hedges were not significant.

  Forward foreign exchange contracts designated as fair value hedges are utilized2004, a mark-to-market gain of $3.0 million related to manage the risk associated with currency fluctuations on certain firm saleschanges in the difference between the spot and purchase commitments denominated in Canadian dollars and certain Canadian dollar denominated asset and liability positions. The termsforward prices of our forward foreign exchange contracts are consistent with the terms of the underlying transactions, generally one year or less. Unrealized gains and losses resultingnatural gas was excluded from the impactassessment of currency exchange rate movements on forward foreign exchange contracts designated to offset certain non-U.S. dollar denominated assets and liabilities are recognizedhedge effectiveness. This loss was reported directly in earnings and offset the foreign currency gains and losses on the underlying exposures being hedged. The contract amounts of forward foreign exchange contracts outstanding at December 31, 2003 are recorded as an asset from risk management activities of $10.6 million and a liability from risk management activities of $4.3 million and were not significant at December 31, 2002. All of the foreign exchange contracts designated as fair value hedges were determined to be perfectly effective.earnings.

  Cash flow hedges consist of commodity contracts associated with our energy marketing activities and an interest rate swap. At December 31, 2003, the fair value ofThe commodity contracts designated as cash flow hedges is recorded as an asset from risk management activities of $25.0 million and a liability from risk management activities of $9.0 million. These cash flow hedges extend through December 2005. The majority2006 and are used to mitigate the risk of cash flow variability associated with the commodity contracts were determined to be perfectly effective; therefore,future purchases and sales of natural gas and electricity. To the extent they are effective, the changes in the values of these contracts are included in other comprehensive income, net of deferred taxes. Cash flow hedge ineffectiveness recorded in nonregulated revenue on the Consolidated Statements of Income was not significant in 2004, 2003, or 2002. When testing for effectiveness, no portion of the derivative instruments was excluded. Amounts recorded in other comprehensive income related to these cash flow hedges will be recognized in earnings as the related contracts are settled or if the hedged transaction is discontinued. Through December 31,In 2004, $6.3we reclassified a $1.9 million gain from other comprehensive income into earnings as a result of the discontinuance of cash flow hedge accounting for certain hedge transactions where it was probable that the original forecasted transaction would no longer occur. The amounts reclassified during 2003 and 2002 were not significant. In the next 12 months, subject to changes in market prices of natural gas and electricity, it is expected tothat $11.5 million will be recognized in earnings. The portion of theseearnings due to contracts that was determined to be ineffective was not significant at December 31, 2003, and was recorded as a component of nonregulated cost of fuel, gas, and purchased power. When testing for effectiveness, no portion of the derivative instruments was excluded. At December 31, 2002, those commodity contracts designated as cash flow hedges were not significant.being settled.

  The interest rate swap designated as a cash flow hedge is used to fix the interest rate for the full term of a variable rate loan due in March 2018. At December 31, 2003, we recorded a liability from risk management activities2018 used to finance the purchase of $10.1 million related to this swap. At December 31, 2002, we recorded a liability from risk management activities of $12.7 million related to this swap.Sunbury. Because the swap was determined to be perfectly effective, the changes in the value of this contract are included in other comprehensive income, net of deferred taxes. Amounts recorded in other comprehensive income related to this swap will be recognized as a component of interest expense as the interest is paid. Through December 31, 2004, $2.2becomes due. In the next 12 months, we expect to expense $1.8 million, is expected to be expensed, assuming interest rates comparable to those at December 31, 2003.2004, and assuming the hedged transaction continues after Sunbury is sold. (See Note 4, "Assets Held for Sale," for more information). We did not exclude any components of the derivative instrument's losschange in fair value from the assessment of hedge effectiveness.

  NOTE 4--ASSETS HELD FOR SALE

  On October 24, 2003, WPSSeptember 30, 2004, PDI received a letter of termination from Duquesne Power, Development entered into a definitiveL.P. related to the previously announced agreement to sell Sunbury to Duquesne for approximately $120 million. Duquesne issued its letter of termination following a determination by the Pennsylvania Public Utility Commission not to reconsider its earlier approved Provider of Last Resort plan, which Duquesne believed did not satisfy a closing condition in the agreement. PDI is progressing with a sale process using an investment banking advisor, and anticipates being able to complete the sale of Sunbury generation plant located in Pennsylvania.2005. This facility currently sells power on a wholesale basis, and providespreviously provided energy for a 200-megawatt around-the-clock outtake contract that expiresexpired on December 31, 2004. The sale of Sunbury will enable WPS Resources to reduce uncontracted merchant exposure and redeploy capital into markets with different risk profiles. Based on the terms of the asset sale agreement, the sale price is anticipated to be approximately $120 million, subject to various working capital adjustments. WPS Power Development is also separately negotiating

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  In December 2004, PDI completed the sale of certain silt reserves that were utilized in the operationsoperation of Sunbury. Consideration consisted of an up-front payment of $1.4 million and possible future payments based upon future silt extraction. The sale of the Sunbury generation plant.silt reserves resulted in a loss of $0.1 million. 

  At December 31, 20032004, and 2002, respectively,2003, the assets and liabilities associated with the Sunbury generation plant that will be transferred to the buyer as well as certain silt reserves have been classified as held for sale in accordance with Statement of Financial Accounting StandardsSFAS No. 144, "Accounting for 

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  the Impairment or Disposal of Long-Lived Assets." Statement No. 144which requires that a long-lived asset classified as held for sale be measured at the lower of its carrying amount or fair value, less costs to sell, and cease being depreciated. NoBased upon consideration of all information available, no adjustments to write down assets held for sale were required in 2003. WPS Resources plans to completeduring the sale of the Sunbury generation plant and certain silt reserves inyears ended December 31, 2004, and therefore, the assets and liabilities recorded as held for sale are classified as current assets and current liabilities, respectively, in the Consolidated Balance Sheets. 2003.

  The major classes of assets and liabilities held for sale are as follows at December 31:

  (Millions)	2003	2002	2004	2003
  Inventories	$   4.2	$   7.8	$ 7.3	$ 4.2
  Other current assets	5.1	5.2	5.4	5.1
  Property, plant, and equipment, net	71.5	70.7	74.7	71.5
  Other assets (includes emission credits)	35.6	37.5	32.2	35.6
  Assets held for sale	$116.4	$121.2	$119.6	$116.4
  Other current liabilities	$0.6	$0.6	$ 0.6	$ 0.6
  Asset retirement obligations	2.1	-	2.2	2.1
  Liabilities held for sale	$2.7	$0.6	$ 2.8	$ 2.7

  WPS Power DevelopmentPDI financed Sunbury with equity from WPS Resources and debt financing, including non-recourse debt and a related interest rate swap. The interest rate swap is designated as a cash flow hedge and, as a result, the mark-to-market loss has been recorded as a component of other comprehensive income. If management determines that the hedged transactions (i.e., future interest payments on the debt) will not continue after the sale, WPS Resources will be required to recognize the amount accumulated within other comprehensive income ($6.15.2 million net of tax at December 31, 2003)2004) currently in earnings. No such determination has been made at December 31, 2003.

  WPS Power Development has an obligation to service a 200-megawatt outtake contract through December 31, 2004. WPS Power Development entered into the contract in conjunction with the acquisition of the Sunbury generating assets. At December 31, 2003, WPS Power Development has hedged its obligation to service its 200-megawatt outtake contract subsequent to the date of the anticipated sale of Sunbury (estimated to be August 31, 2004). The revenues from the outtake contract are $2.7 million less than the hedged cost of purchased power. This loss will be included as a component of the loss from discontinued operations in the Consolidated Statements of Income when realized. The amount of the loss is subject to change if the sale does not close on August 31, 2004.

  A summary of the components of discontinued operations recorded in the Consolidated Statements of Income for the years ended December 31 was as follows:

  (Millions)	2003	2002	2001	2004	2003	2002
  Nonregulated revenue	$ 81.2	$ 87.2	$ 86.4	$ 60.2	$ 81.2	$ 87.2
  Operating expenses	(97.7)	(91.3)	(91.8)	(80.7)	(97.7)	(91.3)
  Other income				4.3	-	-
  Interest expense	(6.2)	(5.8)	(5.9)	(5.5)	(6.2)	(5.8)
  Loss before taxes	(22.7)	(9.9)	(11.3)	(21.7)	(22.7)	(9.9)
  Income tax benefit	(6.7)	(3.9)	(4.4)	(8.3)	(6.7)	(3.9)
  Discontinued operations, net of tax	$(16.0)	$(6.0)	$(6.9)	$(13.4)	$(16.0)	$ (6.0)

  Interest expense represents the nonrecoursenon-recourse term loans directly related to Sunbury.

  In 2001, a consolidated subsidiary of WPS Resources sold electricity to our discontinued operations for $3.4 million. Sales between this subsidiary and our discontinued operations did not occur in 2003 or 2002, and we have determined that similar sales will continue with third parties after the discontinuance; therefore, the $3.4 million sales price is reflected in continuing operations in 2001. The market value of the related party sales was $4.3 million in 2001.

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  A summary of the components of the change in cash used inand cash equivalents related to discontinued operations recorded in the Consolidated Statements of Cash Flows for the years ended December 31 isare as follows:

  (Millions)	2003	2002	2001	2004	2003	2002
  Net cash operating activities	$(3.2)	$ 5.5	$ (1.2)	$(12.2)	$(3.2)	$ 5.5
  Net cash investing activities	(3.4)	(19.4)	(4.5)	(2.4)	(3.4)	(19.4)
  Net cash financing activities	(3.0)	(2.9)	(6.1)	(3.3)	(3.0)	(2.9)
  Change in cash and cash equivalents	$(9.6)	$(16.8)	$(11.8)	$(17.9)	$(9.6)	$(16.8)

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  During 2004, 2003, 2002, and 20012002 cash paid for interest associated with the non-recourse debt of discontinued operations was $5.4 million, $5.5 million, $5.8 million, and $6.2$5.8 million, respectively.

  NOTE 5--PROPERTY, PLANT, AND EQUIPMENT

  Property, plant, and equipment consists of the following utility, nonutility, and nonregulated assets.

   

  (Millions)	2003	2002
  Electric utility	$2,288.9	$2,058.8
  Gas utility	457.2	427.3
  Total utility plant	2,746.1	2,486.1
  Less: Accumulated depreciation	1,200.8	1,079.4
  Net	1,545.3	1,406.7
  Construction in progress	89.3	101.8
  Nuclear fuel, less accumulated amortization	20.3	24.6
  Net utility plant	1,654.9	1,533.1
  Nonutility plant	20.3	19.1
  Less: Accumulated depreciation	4.9	4.4
  Net nonutility plant	15.4	14.7
  Electric nonregulated	161.2	158.3
  Gas nonregulated	7.0	6.9
  Other nonregulated	20.8	20.4
  Total nonregulated property, plant, and equipment	189.0	185.6
  Less: Accumulated depreciation	30.6	21.1
  Net nonregulated property, plant, and equipment	158.4	164.5
  Total property, plant, and equipment	$1,828.7	$1,712.3

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  (Millions)	2004	2003
  Electric utility	$2,409.4	$2,288.9
  Gas utility	510.0	457.2
  Total utility plant	2,919.4	2,746.1
  Less: Accumulated depreciation	1,260.9	1,200.8
  Net	1,658.5	1,545.3
  Construction in progress	154.5	89.3
  Nuclear fuel, less accumulated amortization	24.6	20.3
  Net utility plant	1,837.6	1,654.9
  Nonutility plant	19.5	20.3
  Less: Accumulated depreciation	5.3	4.9
  Net nonutility plant	14.2	15.4
  Electric nonregulated	163.0	161.2
  Gas nonregulated	6.6	7.0
  Other nonregulated	20.1	20.8
  Total nonregulated property, plant, and equipment	189.7	189.0
  Less: Accumulated depreciation	38.9	30.6
  Net nonregulated property, plant, and equipment	150.8	158.4
  Total property, plant, and equipment	$2,002.6	$1,828.7

  NOTE 6--ACQUISITIONS AND SALES OF ASSETS

  Sale of Hydroelectric ProjectsPeshtigo River Lands

  Wisconsin Public ServiceOn October 5, 2004, WPSC sold 542at auction 279 acres of land near the Peshtigo River to the Wisconsin Department of Natural Resources in 2003development lands for $6.5 million as part$12.2 million. Under terms of a multi-phase agreement reached betweenwith the partiesWDNR in 2001. Under2001 related to lands near the terms ofPeshtigo River, the 2001 agreement, the Department of Natural ResourcesWDNR bought more than 5,000 acres of land for $13.5 million in 2001 and has an option to purchase2001. In December 2003, WPSC sold an additional 542 acres of land to the WDNR for $6.5 million. WPSC completed the multi-phase agreement with the sale of 179 acres in 2004 for approximately $5$5.0 million (in March 2004to the Wisconsin Department of Natural Resources exercised this option). PendingWDNR on December 9, 2004. Following the close of the third andthis final phase of the WDNR agreement, in 2004, Wisconsin Public Service will donateWPSC donated an additional 5,176 acres to the state. The sale issales are a part of our asset management strategy.

  Wausau, Wisconsin, to Duluth, Minnesota, transmission lineTransmission Line

  On April 18, 2003, the Public Service Commission of WisconsinPSCW approved Wisconsin Public Service'sWPSC's request to transfer its interest in the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to ATC in exchange for an ownership interest in the American Transmission Company. American Transmission Companycompany. ATC is a for-profit transmission-only company created by the transfer of transmission assets previously owned by multiple electric utilities serving the upper Midwest in exchange for an ownership interest in the company. Wisconsin Public ServiceMidwest. WPSC sold, at book value, approximately $20.1 million of assets related to the Wausau to Duluth transmission line to American Transmission CompanyATC in June 2003. No gain or loss was recognized on the transaction. In December 2003, WPSC also transferred other transmission assets to ATC, increasing its investment an additional $5.9 million. In 2004 and 2003, WPS Resources invested $15.7 million and $14.0 million, respectively, in American Transmission Company,ATC, related to its agreement to fund approximately half of the Wausau, Wisconsin, to Duluth, Minnesota, transmission line. In December 2003, Wisconsin Public Service also transferred other transmission assets to American Transmission Company, increasing its investment an additional $5.9 million. At December 31, 2003,

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  2004, WPS Resources' ownership interest in American Transmission CompanyATC was 19.8%22.64%. Our investment in American Transmission CompanyATC is described more fully in Note 10, - Investments"Investments in Affiliates, at Equity Method."

  Advantage Energy Inc.

  On July 1, 2004, ESI acquired all of the outstanding stock of Advantage Energy Inc., a New York based energy-marketing company founded in 1997. On the date of acquisition, Advantage served approximately 8,200 residential and commercial customers with a peak load of approximately 275 megawatts. Consideration for the purchase consisted of an initial cash payment for the tangible and intangible net worth of the company and an earn-out with a maximum cap and a declining percentage to the seller. Payments under the earn-out will be made on July 1, 2005, 2006 and 2007.

  Kewaunee

  On November 7, 2003, WPSC and Wisconsin Power and Light Company entered into an agreement to sell Kewaunee to a subsidiary of Dominion Resources, Inc. The transaction is subject to approvals from various regulatory agencies, of which all major approvals have been obtained, except for approval by the PSCW. The Commission rejected the sale on November 19, 2004; however, WPSC, Wisconsin Power and Light Company, and Dominion offered a proposal addressing the Commission's concerns in December 2004. In January 2005, the Commission agreed to reconsider its decision on this transaction, and we anticipate a decision by the Commission in March 2005.

  If the Commission approves the proposed transaction, WPSC estimates that its share of the cash proceeds from the sale will approximate $130 million, subject to various post-closing adjustments. The cash proceeds from the sale are expected to slightly exceed the carrying value of the WPSC assets being sold. In addition to the cash proceeds, WPSC will retain ownership of the assets contained in its non-qualified decommissioning trust, one of two funds that were established to cover the eventual decommissioning of Kewaunee. The pretax fair value of the non-qualified decommissioning trust's assets at December 31, 2004, was $129.4 million. Dominion will assume responsibility for the eventual decommissioning of Kewaunee and will receive WPSC's qualified decommissioning trust assets that had a pretax fair value of $241.9 million at December 31, 2004. WPSC has requested deferral of the gain expected to result from this transaction and related costs from the PSCW. Accordingly, WPSC anticipates most of the gain on the sale of the plant assets and the related non-qualified decommissioning trust assets will be deferred and returned to customers under future rate orders.

  As of December 31, 2004, WPSC's share of the carrying value of the assets and liabilities included within the sale agreement was as follows:

  (Millions)	2004
  Property, plant, and equipment, net	$177.9
  Qualified decommissioning trust fund	241.9
  Other current assets	5.3
  Total assets	$425.1
  Regulatory liabilities	$ (55.9)
  Asset retirement obligations	363.9
  Total liabilities	$308.0

  The assets and liabilities disclosed above do not meet the criteria to be classified as held for sale on the Consolidated Balance Sheets under the provisions of SFAS No. 144 due to uncertainties inherent in the regulatory approval process.

  Assuming the closing of the sale, WPSC will enter into a long-term power purchase agreement with Dominion to purchase energy and capacity virtually equivalent to the amounts that would have been 

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  received had current ownership in Kewaunee continued. The power purchase agreement, which also will require regulatory approval, will extend through 2013 when the plant's current operating license will expire. Fixed monthly payments under the power purchase agreement will approximate the expected costs of production had WPSC continued to own the plant. Therefore, management believes that the sale of Kewaunee and the related power purchase agreement will provide more price certainty for WPSC's customers and reduce our risk profile. In April 2004, WPSC entered into an exclusivity agreement with Dominion. Under this agreement, if Dominion decides to extend the operating license of Kewaunee, Dominion agreed to negotiate only with WPSC for its share of the plant output for a new power purchase agreement that would extend beyond Kewaunee's current operating license termination date. This agreement allows for the same exclusivity rights for Wisconsin Power and Light and its share of output of the plant. The exclusivity period will start on the closing date of the sale and extend through December 21, 2011.

  Guardian Pipeline

  On May 30, 2003, WPS Resources purchased a one-third interest in Guardian Pipeline, LLC from CMS Gas Transmission Company for approximately $26 million. Guardian Pipeline owns a natural gas pipeline, which began operating in 2002, that stretches about 140 miles from near Joliet, Illinois, into southern Wisconsin. The pipeline can transport up to 750 million cubic feet of natural gas daily. Our interest in Guardian Pipeline LLC is accounted for as an equity method investment and is described more fully in Note 10, Investments"Investments in Affiliates, at Equity Method. As the consideration paid for Guardian Pipeline approximates the underlying equity in the net assets of this investment, no purchase accounting adjustments were required. This pipeline improves natural gas price competition in Wisconsin and is critical to natural gas reliability in the state."

  Sunbury

  As discussed in Note 4, Assets Held for Sale, WPS Power Development entered into a definitive agreement on October 24, 2003 to sell its Sunbury generation plant for approximately $120 million, subject to certain working capital adjustments. The assets and liabilities of the Sunbury generation plant that will be transferred to the buyer in this transaction have been classified as held for sale on the Consolidated Balance Sheets and the operations and cash flows related to the operations of the Sunbury generation plant that will be eliminated upon the date of sale have been classified as discontinued operations within the Consolidated Statements of Income and Consolidated Statements of Cash Flows, respectively.

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  Kewaunee Nuclear Power Plant

  On November 7, 2003, Wisconsin Public Service entered into a definitive agreement to sell its 59% ownership interest in the Kewaunee nuclear power plant to a subsidiary of Dominion Resources, Inc. The other joint owner of Kewaunee, Wisconsin Power and Light Company, also agreed to sell its 41% ownership interest in Kewaunee to Dominion. The transaction is subject to approval from various regulatory agencies, including the Public Service Commission of Wisconsin, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, and several other state utility regulatory agencies and is projected to close in 2004. Approval has already been obtained from the Iowa Public Utility Commission.

  Wisconsin Public Service estimates that its share of the cash proceeds from the sale will approximate $130 million, subject to various post-closing adjustments. The cash proceeds from the sale are expected to slightly exceed the carrying value of the Wisconsin Public Service assets being sold. In addition to the cash proceeds, Wisconsin Public Service will retain ownership of the assets contained in its non-qualified decommissioning trust, one of two funds that were established to cover the eventual decommissioning of Kewaunee. The pretax fair value of the non-qualified decommissioning trust's assets at December 31, 2003 was $115.1 million. Dominion will assume responsibility for the eventual decommissioning of Kewaunee and will receive Wisconsin Public Service's qualified decommissioning trust assets that had a fair value of $239.7 million at December 31, 2003. Wisconsin Public Service will request deferral of the gain expected to result from this transaction and related costs from the Public Service Commission of Wisconsin. Accordingly, Wisconsin Public Service anticipates most of the gain on the sale of the plant assets and the related non-qualified decommissioning trust assets will be returned to customers under future rate orders. As of December 31, 2003, Wisconsin Public Service's share of the carrying value of assets and liabilities included within the sale agreement were as follows:

  (Millions)	2003
  Property, plant, and equipment, net	$421.8
  Other current assets	5.2
  Total assets	$427.0
  Regulatory liabilities	$(25.7)
  Asset retirement obligations	343.6
  Total liabilities	$317.9

  The assets and liabilities disclosed above do not meet the criteria to be classified as held for sale on the Consolidated Balance Sheets under the provisions of FASB Statement No. 144 due to uncertainties inherent in the regulatory approval process.

  Upon the closing of the sale, Wisconsin Public Service will enter into a long-term power purchase agreement with Dominion to purchase energy and capacity equivalent to the amounts that would have been received had current ownership in the Kewaunee nuclear power plant continued. The power purchase agreement, which also will require regulatory approval, will extend through 2013 when the plant's current operating license will expire. Fixed monthly payments under the power purchase agreement will approximate the expected costs of production had Wisconsin Public Service continued to own the plant. Therefore, management believes that the sale of Kewaunee and the related power purchase agreement will provide more price certainty for Wisconsin Public Service's customers and reduce our risk profile.

  Quest Energy, LLC

  Through 2002, WPS Resources provided financial support and energy supply services to a third party, Quest Energy, LLC, a Michigan limited liability company that markets electric power to retail customers in Michigan. Financial support was in the form of wholesale electric sales extended without generally required credit assurances, an interest-bearing note including an equity conversion option with an initial

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  maturity date of May 2005, and trade credit indebtedness, all secured by the assets of Quest. WPS Energy ServicesESI reported revenues related to wholesale electric sales to Quest of $1.4 million in 2002. In November 2002, and $0.3 million in 2001. WPS Resources assigned the equity conversion option to WPS Energy Services on January 29, 2003 and WPS Energy Services acquired a 100% ownership interest in Quest. Prior to the acquisition, Quest Energy Holdings, LLC, an independent Michigan limited liability company and owner of Quest Energy, LLC, appointed WPS Energy ServicesESI as manager of Quest Energy LLC, in November 2002.LLC. The appointment as manager, as well as other factors, including the provision of substantial financial support, resulted in the consolidation of Quest's financial statements being consolidated with those of WPS Resources as of December 31, 2002. WPS Energy Services utilizedResources assigned the equity conversion option to ESI on January 29, 2003, and ESI acquired a 100% ownership interest in Quest. ESI used the purchase accounting method to account for this acquisition. There was no cash consideration paid; therefore, the purchase price of $0.7 million was equivalent to the carrying value of the note receivable from Quest on December 31, 2002. There was no goodwill recorded in this acquisition, as the purchase price approximated the fair value of the acquired assets and liabilities.

  De Pere Energy Center

  On December 16, 2002, Wisconsin Public ServiceWPSC completed the purchase of the 180-megawatt De Pere Energy Center from Calpine Corporation, a California-based independent power producer. Prior to this purchase, the power from the De Pere Energy Center was under long-term contract to Wisconsin Public ServiceWPSC and was accounted for as a capital lease. This power purchase power agreement required Calpine to expand the facility in the future. The power purchase agreement became uneconomical in the current market. Concurrentmarket, and the contract was terminated concurrent with the purchase of the long-term power purchase contract was terminated.De Pere Energy Center. The $120.4 million purchase included a $72.0 million payment upon closing and a $48.4 million payment in December 2003. As a result of the purchase, the capital lease obligation was reversed and the difference between the capital lease asset and the $120.4 million purchase price was recorded as a regulatory asset. Of the $47.8 million regulatory asset initially recorded, $45.6 million is under the jurisdiction of the Public Service Commission of WisconsinPSCW and will beis being amortized over 20 yearsa 20-year period beginning on January 1, 2004. Amortization of the remaining regulatory asset, which is under the jurisdiction of Federal Energy Regulatory CommissionFERC and the Michigan Public Service Commission,MPSC, began in 2003 and will also occur over 20 years.

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  The transaction also includes a new power purchase agreement with Calpine'sCalpine Corporation for capacity and energy from the Fox Energy Center, which is currently under construction innear Kaukauna, Wisconsin. The Fox Energy Center is being constructed as a 235-megawatt gas-fired facility and is scheduledagreement calls for completion in June 2005. Wisconsin Public Service willWPSC to purchase 150 megawatts of electricity fromcapacity beginning on June 1, 2005, throughescalating to 470 megawatts of capacity on June 1, 2006, increasinguntil May 31, 2015, when it decreases to an estimated 235 megawatts annually in 2006 through 2015 from this plant. The additional capacity is neededmegawatts. On May 31, 2016, the agreement terminates.  Under the agreement, WPSC will also be responsible for fuel supply to serve expected growth in northeast Wisconsin.the facility over the life of the agreement. The new power purchase agreement is contingent on timely plant construction and does not meet the requirements of a capital lease. At this time, WPSC believes Calpine will fulfill its contractual commitments, including a June 1, 2005 project in-service date.

  ECO Coal Pelletization #12

  In NovemberAs a result of several transactions in 2001, WPS Power Development, through its subsidiaryPDI became the sole member of ECO Coal Pelletization #12 LLC, entered into a transaction to acquire from its partner the remaining interest in the synthetic fuel producing facility (partially owned by ECO #12). Concurrently, with this transaction, WPS Power Development entered into a separate transaction with a subsidiary of a public company resulting in ECO #12 contributingwhich contributed 100% of its synthetic fuel producing machinery to a newly formed entity in exchange for cash and a one-third ownership interest in the newly formed entity.

  As a result of these transactions, WPS Power Development was the sole member of ECO #12. ECO #12 holds a one-third minority ownership interest in an entity whichthat produces synthetic fuel from coal qualifying for tax credits under Section 29 of the Internal Revenue Code. The sale of synthetic fuel produced by this facility entitles ECO #12 to a portion of the Section 29 tax credits generated.

  These transactions generated a pre-tax gain of $40.2 million, of which $38.0 million had been deferred as of December 31, 2001, as a result of certain rights of rescission and put options beingthat were granted to the buyer. The rights of rescission and the put options expired in 2002 and, as a result, WPS Power 

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  DevelopmentPDI recognized all of the $38.0 million deferred gain in miscellaneous income on the Consolidated Statement of Income in 2002.

  The actual payments for the purchase of the former partner's interest in ECO #12 were contingent upon the same provisions referred to above. As a result, $21.3 million was originally held in escrow and was released proportionately as the respective rescission rights and put options expired. As ofAt December 31, 2002, this escrow had a balance of $3.5 million, $2.7 million of which was released in 2003 as the remaining contingencies, not related to the recognition of the deferred gain, expired. As a result of negotiations with our former partner, the remaining $0.8 million was released to WPS Power DevelopmentPDI and recorded as a gain, within miscellaneous income, in 2003.

  On December 19, 2002, WPS Power DevelopmentPDI sold an approximate 30% interest in ECO #12 to a third party. The buyer purchased the Class A interest in ECO #12, which gives the buyer a preferential allocation of tons of synthetic fuel produced and sold annually. The buyer may be allocated additional tons of synthetic fuel if WPS Power DevelopmentPDI makes them available, but neither party is obligated beyond the required annual allocation of tons. The buyer's share of losses generated from the synthetic fuel operation, $5.6$3.4 million in 2003,2004, is recorded as minority interest in the Consolidated Statements of Income.

  WPS Power DevelopmentPDI received consideration of $3.0 million cash, as well as a fixed note and a variable note for the second sale transaction. Payments under the variable note are contingent upon the synthetic fuel production facility achievingachievement of specified levels of synthetic fuel production.production by the facility. In conjunction with the sale, WPS Power Development hasPDI agreed to make certain payments to a third partythird-party broker, consisting of an up frontup-front payment of $1.5 million (which was paid at the time of closing), $1.9$1.4 million which was paid in 2003, and a projected payment of $1.9 million in 2004. A deferred gain of $9.2$6.9 million and $11.6$9.2 million was reflected on WPS Power Development'sPDI's balance sheet at December 31, 20032004, and 2002,2003, respectively. This deferred gain represents the present value of future payments under the fixed note and the upfrontup-front cash payments net of transaction costs. It does not include an amount for the variable note, which is contingent upon the synthetic fuel production. Payments on the variable note are a function of fuel production and are recognized as a component of the gain when received. In 2003, a pre-tax gain in the amountPre-tax gains of $7.5 million and $7.6 million waswere recognized as a component of miscellaneous income in 2004 and 2003, respectively, related to this transaction. Similar gains are expected to result from this transaction through 2007. There was no gain recognized in 2002 from the 2002 sale.

  Canadian Retail Gas Business

  On November 1, 2002, WPS Energy ServicesESI entered into an agreement to purchase a book of retail natural gas business in the Canadian provinces of Quebec and Ontario. Consideration for the purchase consistsconsisted of an earn-out 

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  to the seller based on a percentage of gross marginmargins on the volume of natural gas delivered to certain customers during a two-year period ending October 31, 2004. The earn-out iswas equivalent to fixed percentages of gross margin realized over this two-year period for customers already under contract and for customers appearing on the acquired customer list who entered into a contract with WPS Energy ServicesESI subsequent to the date of purchase. Total consideration paid from the acquisition date through December 31, 2003 approximated $0.8amounted to $0.9 million. This transaction was accounted for using the purchase method of accounting; therefore, the results of operations are included in the financial statements presented for WPS Resources only since the acquisition date. There was no goodwill recorded in the acquisition as the purchase price approximated the fair value of the acquired assets and liabilities. The business is part of the operations of WPS Energy Services of Canada Corp., a subsidiary of WPS Energy Services,ESI, which was created in October 2002.

  WPS Empire State, Inc.

  Effective June 1, 2002, WPS Power DevelopmentPDI acquired CH Resources, Inc. from Central Hudson Energy Services, Inc. The corporate name of CH Resources, Inc. was changed toa business, now called WPS Empire State, Inc. WPS Empire Statewhich owns three power plants and associated assets in upstate New York with a combined nameplate capacity of 258259 megawatts. WPS Power DevelopmentPDI used the purchase method of accounting to account for the acquisition, accordingly theacquisition. The operations of WPS Empire State are included in

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  the financial statements presented for WPS Resources for all periods beginning June 1, 2002, but do not have a material impact. The purchase price, including acquisition costs, was $61.1 million. There was no goodwill recorded in this acquisition, as the purchase price approximated the fair value of the acquired assets and liabilities.

  Wisconsin River Power Company

  Wisconsin Public Service increased its ownership in Wisconsin River Power Company to two-thirds by purchasing an additional one-third interest from Consolidated Water Power Company in 2000. In December 2001, Wisconsin Power and Light Company exercised its option to purchase one-half of Wisconsin Public Service's additional one-third share of Wisconsin River Power. Both transactions were at net book value of Wisconsin River Power at August 31, 2000. As a result, Wisconsin Public Service and Wisconsin Power and Light each own one-half of Wisconsin River Power with Wisconsin Public Service remaining the operator of the facility.

  Additional Interest in Kewaunee Nuclear Power Plant

  On September 24, 2001, Wisconsin Public Service acquired Madison Gas and Electric Company's 17.8% interest in the Kewaunee nuclear power plant including its decommissioning trust assets. As a result of the $17.5 million purchase, Wisconsin Public Service now owns 59% of the plant with the remaining portion held by Wisconsin Power and Light Company. The additional share of the operations of the Kewaunee nuclear power plant is included in the financial statements of Wisconsin Public Service beginning September 24, 2001. Madison Gas and Electric retains its obligations as they relate to the plant for the period of time it was an owner.

  Madison Gas and Electric maintained one decommissioning trust fund that accumulated its remaining contributions in accordance with its existing funding plan, which extended to December 31, 2002. On January 3, 2003, Madison Gas and Electric transferred the assets of the remaining trust fund to a Wisconsin Public Service trust fund. This trust fund has been included in our financial statements since the initial transaction. Wisconsin Public Service assumed Madison Gas and Electric's share of the decommissioning obligations in exchange for these trust funds. See earlier discussion in this section for additional information related to the sale of the Kewaunee nuclear power plant.

  Wisconsin Fuel and Light Company

  On April 1, 2001, Wisconsin Public Service completed a merger with Wisconsin Fuel and Light Company. Wisconsin Fuel and Light served residential, commercial, and industrial natural gas customers in Manitowoc and Wausau, Wisconsin. Wisconsin Fuel and Light's shareholders received 1.73 shares of WPS Resources' common stock for each share of Wisconsin Fuel and Light common stock. A total of 1,763,943 shares were issued resulting in a purchase price of $54.8 million based on an average price of $31.0625, the prevailing price at the time of the merger announcement.

  Wisconsin Public Service used the purchase method of accounting and recorded $41.9 million of total premium associated with the purchase. Of the total premium, $36.1 million was recorded as goodwill and is included within other assets on the Consolidated Balance Sheets. During 2001, Wisconsin Public Service amortized $0.6 million of goodwill using the straight-line method over a period of 40 years. We adopted Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. In accordance with the requirements of this statement, we ceased amortizing the goodwill on January 1, 2002. In 2003, Wisconsin Public Service transferred $0.9 million from a regulatory acquisition premium (previously classified as property, plant, and equipment) to goodwill. See Note 11, Goodwill and Other Intangible Assets, for more information.

  The remaining premium, $4.9 million after taxes, was recorded as an acquisition adjustment in plant, which we expect to be recovered in Wisconsin retail rates over the three-year period of 2003 through 2005. The acquisition premium will be amortized over the recovery period.

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  The operations of Wisconsin Fuel and Light are included in the financial statements presented for Wisconsin Public Service and WPS Resources for the period beginning April 1, 2001, but do not have a material impact.

  NOTE 7--JOINTLY-OWNED7--JOINTLY OWNED UTILITY FACILITIES

  Information regarding Wisconsin Public Service'sWPSC's share of major jointly-ownedjointly owned electric-generating facilities in service at December 31, 20032004, is set forth below:

  (Millions, except for percentages)	West Marinette  Unit No. 33	Columbia Energy  Center	Edgewater Unit No. 4	Kewaunee Plant	West Marinette Unit No. 33	Columbia Energy Center	Edgewater  Unit No. 4	Kewaunee
  Ownership	68.0%	31.8%	31.8%	59.0%	68.0%	31.8%	31.8%	59.0%
  Wisconsin Public Service's share of plant nameplate capacity (megawatts)	56.8	335.2	105.0	315.0
  WPSC's share of plant nameplate capacity (megawatts)					56.8	335.2	105.0	358.7
  Utility plant in service	$18.0	$129.5	$28.8	$252.2	$18.0	$132.2	$30.4	$270.1(1)
  Accumulated depreciation	$ 7.5	$ 82.5	$16.9	$180.8	$ 7.9	$ 85.0	$17.7	$189.5(1)
  In-service date	1993	1975 and 1978	1969	1974	1993	1975 and 1978	1969	1974

  Wisconsin Public Service's(1) Excludes asset retirement obligation asset and related accumulated depreciation.

  WPSC's share of direct expenses for these plants is included in the corresponding operating expenses in the Consolidated Statements of Income. Wisconsin Public ServiceWPSC has supplied its own financing for all jointly-owned projects.

  NOTE 8--NUCLEAR PLANT OPERATION

  On November 7, 2003, Wisconsin Public ServiceWPSC and Wisconsin Power and Light Company entered into an agreement to sell the Kewaunee nuclear power plant to a subsidiary of Dominion Resources, Inc. The transaction is subject to approvalapprovals from various regulatory agencies, including the Public Service Commission of Wisconsin, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, and several other state utility regulatory agencies and is projected to close in the second half of 2004. Approval has alreadywhich all major approvals have been obtained, fromexcept for approval by the Iowa Public Utility Commission.PSCW. The PSCW rejected the sale on November 19, 2004. However, WPSC, Wisconsin Power and Light Company, and Dominion Resources, Inc. offered a proposal addressing the PSCW's concerns in December 2004. In January 2005, the PSCW agreed to reconsider its decision on this transaction, and we expect a decision to be rendered in March 2005. See Note 6, Acquisitions"Acquisitions and Sales of Assets," for more information on the transaction.

  The quantity of heat produced for the generation of electric energy by the Kewaunee nuclear power plant is the basis for the amortization of the costs of nuclear fuel, to electric production fuel expense, including an amount for ultimate disposal. These costs are recovered currently from customers in rates. The ultimate storage of fuel is the responsibility of the United States Department of Energy pursuant to a contract required by the Nuclear Waste Act of 1982. The Department of Energy receives quarterly payments for the storage of fuel based on generation. During 2003, payments

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  Payments from Wisconsin Public ServiceWPSC to the Department of Energy totaled $2.6 million, $2.3 million. During 2002 and 2001, payments totaled $2.5 million, and $1.4$2.0 million, during 2004, 2003, and 2002 respectively.

  On an interim basis, spent nuclear fuel storage space is provided at the Kewaunee nuclear power plant.Kewaunee. Expenses associated with interim spent fuel storage at the Kewaunee nuclear power plant are recognized as current operating costs. At current production levels, the plant has sufficient storage for all fuel assemblies until 2009 with full core offload. Additional capacity will be needed by 2010 to maintain full core offload capability for fuel assemblies in use at shutdownthe end of its current license in 2013.

  The accumulated provision for nuclear fuel, which represents nuclear fuel purchases and amortization, totaled $273.0 million at December 31, 2004, and $265.1 million at December 31, 2003 and $256.9 million at December 31, 2002.2003. 

  For information on the depreciation policy for the Kewaunee, nuclear power plant, see Note 1(h), Property,"Property, Plant, and Equipment."

  Wisconsin Public Service'sWPSC's share of nuclear decommissioning costs to date has been accrued over the estimated service life of the Kewaunee, nuclear power plant, recovered currently from customers in rates, and deposited in external trusts. Such costs totaled $0.3 million in 2004, $3.0 million in 2003, and $2.6 million in both 2002 and 

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  2001.2002. In developing our decommissioning funding plan, we assumed a long-term after-tax earnings rate of approximately 5%.

  As of December 31, 2003,2004, the market value of the external nuclear decommissioning trusts totaled $332.3 million.$344.5 million, net of tax.

  As part of the anticipated sale of the Kewaunee, nuclear power plant, Wisconsin Public ServiceWPSC will transfer its qualified nuclear decommissioning trust assets to Dominion. Wisconsin Public ServiceWPSC will retain the nonqualified trust assets, which totaled $115.1$129.4 million pretax ($92.6102.5 million net of tax) at December 31, 2003.2004. The funds collected from customers for the decommissioning obligation related to the nonqualified trust are expected to be refunded to customers in accordance with yet-to-be-determined regulatory guidelines. Also in conjunction with the anticipated sale, the Public Service Commission of WisconsinPSCW suspended funding into the retail jurisdiction of Wisconsin Public Service'sWPSC's decommissioning trusts for 2004. For the wholesale jurisdiction, funding during 2004 will be $1.1was $0.3 million.

  In the fourth quarter of 2003, Wisconsin Public ServiceWPSC changed its investment strategy for its qualified trust and placed the assets in short-term investments. This was done to reduce volatility in the value of the trust for the anticipated transfer to Dominion at the time of closing of the Kewaunee sale. A condition of the sale specifies a minimum amount of qualified trust assets to be transferred. This liquidation and reinvestment resulted in a sizable increase in realized earnings for 2003 and a corresponding increase in depreciation expense. It also resulted in a sizable decrease in the percent of investments held in equity securities compared to prior years.

  Investments in the nuclear decommissioning trusts are recorded at fair value. Investments at December 31, 2003,2004, consisted of 27.9%71% cash and cash equivalents and 29% equity securities and 72.1% fixed income securities. The investments are presented net of related income tax effects on unrealized gains, and represent the amount of assets available to accomplish decommissioning. The nonqualified trust investments designated to pay income taxes when unrealized gains become realized are classified as other assets. At December 31, 2003,2004, the amount classified as other assets was $22.5$26.8 million. An offsetting regulatory liability reflects the expected reduction in future rates as unrealized gains in the nonqualified trust are realized. Information regarding the cost and fair value of the external nuclear decommissioning trusts, net of tax is set forth below:

  2003 Security Type (Millions)	Fair Value	Cost	Unrealized Gain
  Fixed income	$239.7	$239.6	$ 0.1
  Equity	92.6	59.1	33.5
  Balance at December 31	$332.3	$298.7	$ 33.6
  2002 Security Type (Millions)	Fair Value	Cost	Unrealized Gain
  Fixed income	$119.7	$114.0	$ 5.7
  Equity	170.8	143.0	27.8
  Balance at December 31	$290.5	$257.0	$33.5

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  2004 Security Type (Millions)	Fair Value	Cost	Unrealized Gain
  Cash and cash equivalents	$243.9	$243.9	$    -
  Equity	100.6	60.6	40.0
  Balance at December 31	$344.5	$304.5	$40.0
  2003 Security Type (Millions)	Fair Value	Cost	Unrealized Gain
  Fixed income	$239.7	$239.6	$  0.1
  Equity	92.6	59.1	33.5
  Balance at December 31	$332.3	$298.7	$33.6

  Future decommissioning costs collected in customer rates and a charge for realized earnings from external trusts are included in depreciation expense. Realized trust earnings totaled $5.5 million in 2004, $38.7 million in 2003, and $1.7 million in 2002, and $8.1 million in 2001.2002. In 2002, unrealized gains and losses, net of taxes, in the external trusts were reflected as changes to the decommissioning reserve, since decommissioning expense is recognized as the gains and losses are realized, in accordance with regulatory requirements. The noncurrent liability for nuclear decommissioning and other costs of removal included an accumulated provision for decommissioning totaling $290.5 million at December 31, 2002. In 2003, the accumulated provision for decommissioning was removed from nuclear decommissioning and other costs of removal as these costs are now accounted for as asset retirement obligations in accordance with Statement No. 143 (see Note 1(v), New Accounting Pronouncements).

  If the sale is not consummated, Wisconsin Public Service'sWPSC's share of the Kewaunee nuclear power plant decommissioning, based on its 59% ownership interest, is estimated to be $331$350 million in current (2003)(2004) dollars based on a site-specific study. The study was performed in 2002 by an external consultant and will beis used as the basis for calculating regulatory funding requirements. The study uses several assumptions, including immediate dismantlement as the method of decommissioning and plant shutdown in 2013. Based on the standard cost escalation assumptions reflected in our current funding plan, which were determined based on the requirements of a July 1994 Public Service Commission of WisconsinPSCW order, the undiscounted amount of Wisconsin Public Service'sWPSC's share of decommissioning costs forecasted to be expended between the years 2013 and 2037 is $929 million if the sale is not consummated. See Note 6, Acquisitions"Acquisitions and Sales of Assets," for further discussion of the pending sale of the Kewaunee nuclear power plant.Kewaunee.

  Beginning January 1, 2003, we adopted StatementSFAS No. 143. This statement applies to all entities with legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, or development and/or normal operation of that asset. We have identified the final decommissioning of the Kewaunee nuclear power plant as an asset retirement obligation and have recorded an asset retirement obligation of $343.6$363.9 million at December 31, 2003.2004. This amount is based on several significant assumptions, including the scope of decommissioning work performed, the timing of future cash flows, and inflation and discount rates. Some of these assumptions differ significantly from the assumptions authorized by the Public Service Commission of WisconsinPSCW to calculate the nuclear decommissioning liability for funding purposes. For more information on StatementSFAS No. 143 and its impact on the Kewaunee nuclear power plant refer to Note 16, Asset15, "Asset Retirement Obligations.

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  "

  NOTE 9--REGULATORY ASSETS AND LIABILITIES

  The following regulatory assets and liabilities are reflected in our consolidated balance sheets as of December 31:

  WPS Resources' Regulatory Assets/Liabilities (Millions)	2003	2002
  Regulatory assets
  De Pere Energy Center	$ 47.7	$ 47.8
  Environmental remediation costs (net of insurance recoveries)	41.0	40.0
  Minimum pension liability	15.2	-
  Deferred nuclear costs	4.9	7.9
  Automated meter reading costs	4.5	2.6
  Plant related costs	2.6	0.3
  Funding for enrichment facilities	2.4	3.0
  Unamortized loss on debt	1.4	2.1
  Other	8.0	7.2
  Total	$127.7	$110.9
  Regulatory liabilities
  Cost of removal reserve	$180.0	$ -
  Asset retirement obligations	66.9	-
  Unrealized gain on decommissioning trust	22.5	13.0
  Income tax related items	11.8	17.7
  Derivatives	8.4	1.4
  Demand-side management expenditures	5.3	5.9
  Deferred gain on emission allowance sales	5.1	3.8
  Deferred American Transmission costs	3.4	3.1
  Interest from tax refunds	0.7	4.8
  Other	0.3	-
  Total	$304.4	$49.7

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  WPS Resources' Regulatory Assets/Liabilities (Millions)	2004	2003
  Regulatory assets
  Environmental remediation costs (net of insurance recoveries)	$ 72.7	$ 41.0
  De Pere Energy Center	45.3	47.7
  Deferred nuclear costs	10.9	4.9
  Plant related costs	6.5	2.6
  Minimum pension liability	6.4	15.2
  Reserve for uncollectible accounts	5.5	4.4
  Unamortized loss on debt	2.4	1.4
  Automated meter reading costs	1.8	4.5
  Funding for enrichment facilities	1.8	2.4
  Other	7.6	3.6
  Total	$160.9	$127.7
  Regulatory liabilities
  Cost of removal reserve	$186.2	$180.0
  Asset retirement obligations	46.6	66.9
  Unrealized gain on decommissioning trust	26.8	22.5
  Income tax related items	11.2	11.8
  Derivatives	11.0	8.4
  Deferred gain on emission allowance sales	3.7	5.1
  Deferred ATC costs	1.6	3.4
  Demand-side management expenditures	1.1	5.3
  Interest from tax refunds	-	0.7
  Other	0.1	0.3
  Total	$288.3	$304.4

  Our utility subsidiaries expect to recover their regulatory assets and return their regulatory liabilities through rates charged to customers based on specific ratemaking decisions or precedent for each item over periods specified by the regulators or over the normal operating period of the assets and liabilities to which they relate. Except for amounts expended for environmental costs, Wisconsin Public Servicemanufactured gas plant remediation, WPSC is recovering carrying costs for all regulatory assets. Upper Peninsula PowerUPPCO may recover carrying costs on environmental regulatory assets. Based on prior and current rate treatment for such costs, we believe it is probable that Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO will continue to recover from customers the regulatory assets described above.

  See Note 6, Acquisitions"Acquisitions and Sales of Assets,Assets;" Note 15, "Asset Retirement Obligations;" Note 16, Asset Retirement Obligations; Note 17, Income"Income Taxes;" and Note 19, Employee18, "Employee Benefit Plans," for specific information on regulatory deferrals related to the De Pere Energy Center, asset retirement obligations and cost of removal, income taxes, and pensions. See Note 18, Commitments17, "Commitments and Contingencies," for information on environmental remediation deferred costs.

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  NOTE 10--INVESTMENTS IN AFFILIATES, AT EQUITY METHOD

  Investments in corporate joint ventures and other companies accounted for under the equity method at December 31, 2004, and 2003 and 2002 follow.

  (Millions)	2003	2002	2004	2003
  American Transmission Company, LLC	$79.9	$57.5
  ATC, LLC			$113.4	$ 79.9
  Guardian Pipeline, LLC	27.4	-	29.0	27.4
  Wisconsin River Power Company	12.8	9.6	12.8	12.8
  Other	4.9	6.1	6.8	4.9
  Investments in affiliates, at equity method	$125.0	$73.2	$162.0	$125.0

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  Investments in affiliates under the equity method are a component of other assets on the Consolidated Balance Sheets, and the equity income is recorded in miscellaneous income on the Consolidated Statements of Income. Most of the equity income is taxable to the investor, rather than the investees, due to the nontaxable nature of several of the investees' business structures. Accordingly, the provision for income taxes includes our taxes on this equity income.

  WPS Investments, LLC, a consolidated subsidiary of WPS Resources, had a 19.8%22.64% ownership interest in American Transmission Company, LLCATC at December 31, 2003. American Transmission Company2004. ATC is a for-profit, transmission-only company. It owns, maintains, monitors, and operates, electric transmission assets in portions of Wisconsin, Michigan, and Illinois. American Transmission Company began operation on January 1, 2001. Its assets previously were owned and operated by multiple electric utilities serving the upper Midwest, all of which transferred their transmission assets to American Transmission CompanyATC in exchange for an ownership interest. A Wisconsin law encouraged utilities in the state to transfer ownership and control of their transmission assets to a state-wide transmission company. The Midwest Independent System Operator directs ATC's operation of the transmission system.

  Wisconsin Public Service contributed its transmission assets on January 1, 2001 and Upper Peninsula Power contributed its transmission assets on June 28, 2001. During 2003, Wisconsin Public ServiceWPSC made additional contributions and sold the Wausau, Wisconsin, to Duluth, Minnesota, transmission line to the American Transmission Company, seeATC. See Note 6, Acquisitions"Acquisitions and Sales of Assets," for more information on these transactions.

  Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO record related partyrelated-party transactions for services provided to and network transmission services received from American Transmission Company.ATC. Charges to American Transmission CompanyATC for services provided by Wisconsin Public ServiceWPSC were $9.3 million, $14.4 million, and $12.9 million in 2004, 2003, and $11.32002, respectively. UPPCO charged $6.7 million, $4.8 million, and $4.5 million in 2004, 2003, 2002, and 2001, respectively. Upper Peninsula Power charged $7.6 million, $5.8 million, and $2.7 million for 2003, 2002, and 2001, respectively for services provided. Network transmission service costs paid to American Transmission CompanyATC by Wisconsin Public ServiceWPSC were $42.6 million, $33.6 million, and $31.0 million in 2004, 2003, and $25.2 million in 2003, 2002, and 2001, respectively. Upper Peninsula PowerUPPCO recorded network transmission service costs of $4.4$4.0 million, $5.0$4.2 million, and $3.3$4.9 million in 2004, 2003, 2002, and 2001,2002, respectively.

  WPS Resources recorded dividends received of $11.7 million and $7.5 million from American Transmission Company at December 31, 2003.

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  ATC in 2004 and 2003, respectively.

  Condensed financial data of American Transmission Company follows:ATC follows. 

  (Millions)	2004	2003	2002
  Income statement data
  Revenues	$   262.8	$225.6	$205.3
  Operating expenses	(157.7)	(139.5)	(131.1)
  Other income (expense)	(26.9)	(23.4)	(20.1)
  Net income	$     78.2	$ 62.7	$ 54.1
  WPS Investment's equity in net income	$     16.0	$ 10.1	$   7.9
  Balance sheet data
  Current assets	$    30.1	$  33.1	$  40.7
  Non-current assets	1,156.5	927.3	754.3
  Total assets	$1,186.6	$960.4	$795.0
  Current liabilities	$   194.4	$ 66.6	$ 46.9
  Long-term debt	448.5	448.2	348.0
  Other non-current liabilities	6.7	12.9	6.6
  Shareholders' equity	537.0	432.7	393.5
  Total liabilities and shareholders' equity	$1,186.6	$960.4	$795.0

   

  (millions)	2003	2002	2001
  Income statement data
  Revenues	$225.6	$205.3	$174.5
  Operating expenses	(139.5)	(131.1)	(110.1)
  Other income (expense)	(23.4)	(20.1)	(11.2)
  Net income	$ 62.7	$ 54.1	$ 53.2
  WPS Investment's equity in net income	$ 10.1	$ 7.9	$ 7.1

   

  Balance sheet data
  Current assets	$ 33.1	$ 40.7	$ 56.7
  Non-current assets	927.3	754.3	666.2
  Total assets	$960.4	$795.0	$722.9
  Current liabilities	$ 66.6	$ 46.9	$ 36.1
  Long-term debt	448.2	348.0	297.9
  Other non-current liabilities	12.9	6.6	3.2
  Shareholders' equity	432.7	393.5	385.7
  Total liabilities and shareholders' equity	$960.4	$795.0	$722.9

  Wisconsin River Power Company, of which Wisconsin Public ServiceWPSC owns 50% of the voting stock is incorporated under the laws of the state of Wisconsin and has its principal office at the principal executive offices of Wisconsin Public Service. Wisconsin River Power's business consists of the operation of an oil-fired combustion turbine andPower Company, which operates two hydroelectric plants on the Wisconsin River. TheRiver and an oil-fired combustion turbine. Two-thirds of the energy output of the hydroelectric plants is sold in equal parts to WPSC, and the three companies that previously owned equal proportions of all of the outstanding stock of Wisconsin River Power (Wisconsin Public Service,remaining one-third is sold to Wisconsin Power 

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  and Light, and Consolidated Water Power).Light. The electric power from the combustion turbine is sold in equal parts to Wisconsin Public ServiceWPSC and Wisconsin Power and Light.

  Wisconsin Public ServiceWPSC records related party transactions for sales to and purchases from Wisconsin River Power. Revenues from services provided to Wisconsin River Power were $1.1 million, $1.4 million, and $1.5 million for 2004, 2003, and $0.9 million for 2003, 2002, and 2001, respectively. Purchases from Wisconsin River Power by Wisconsin Public ServiceWPSC were $2.0$3.2 million, $2.3 million, and $2.1 million for 2004, 2003, and $1.7 million for 2003, 2002, and 2001, respectively.

  Wisconsin Public ServiceWPSC recorded dividends received of $6.0 million and $1.5 million from Wisconsin River Power at December 31, 2003.

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  in 2004 and 2003, respectively.

  Condensed financial data of Wisconsin River Power Company follows.

  (millions)	2003	2002	2001
  Income statement data
  Revenues	$ 6.7	$ 6.4	$ 5.5
  Operating expenses	(5.0)	(4.9)	(4.3)
  Other income (expense)	7.7	4.2	1.4
  Net income	$ 9.4	$ 5.7	$ 2.6
  Wisconsin Public Service's equity in net income	$ 4.7	$ 2.7	$ 1.8
  Balance sheet data
  Current assets	$ 8.3	$ 3.6	$ 2.1
  Non-current assets	19.9	20.1	16.5
  Total assets	$28.2	$23.7	$18.6
  Current liabilities	$ 1.1	$ 3.5	$ 4.3
  Other non-current liabilities	1.7	1.0	0.8
  Shareholders' equity	25.4	19.2	13.5
  Total liabilities and shareholders' equity	$28.2	$23.7	$18.6

   

  (Millions)	2004	2003	2002
  Income statement data
  Revenues	$ 7.5	$ 6.7	$ 6.4
  Operating expenses	(5.5)	(5.0)	(4.9)
  Other income (expense)	10.4	7.7	4.2
  Net income	$12.4	$ 9.4	$ 5.7
  WPSC's equity in net income	$ 6.2	$ 4.7	$ 2.7
  Balance sheet data
  Current assets	$ 9.0	$ 8.3	$ 3.6
  Non-current assets	20.1	19.9	20.1
  Total assets	$29.1	$28.2	$23.7
  Current liabilities	$ 1.0	$ 1.1	$ 3.5
  Other non-current liabilities	2.5	1.7	1.0
  Shareholders' equity	25.6	25.4	19.2
  Total liabilities and shareholders' equity	$29.1	$28.2	$23.7

  WPS Investments, LLC, a consolidated subsidiary of WPS Resources, purchased a 33% ownership interest in Guardian Pipeline, LLC on May 30, 2003. Guardian Pipeline owns a natural gas pipeline, which began operating in 2002, that stretches about 140 miles from near Joliet, Illinois, into southern Wisconsin. It can transport up to 750 million cubic feet of natural gas daily.

  ESI records related party transactions for purchases from Guardian Pipeline. These purchases amounted to $0.4 million and $0.1 million for 2004 and 2003, respectively.

  Condensed financial data of Guardian Pipeline, LLC as of December 31 2003 and for the year ended December 31, 2004, and the period from May 30, 2003, to December 31, 2003, follows.

  (Millions)	2003
  Income statement data
  Revenues	$ 20.6
  Operating expenses	(8.7)
  Other income (expense)	(8.2)
  Net income	$ 3.7
  WPS Investment's equity in net income	$ 1.2
  Balance sheet data
  Current assets	$ 7.4
  Non-current assets	270.9
  Total assets	$278.3
  Current liabilities	$ 10.2
  Long-term debt	175.6
  Shareholders' equity	92.5
  Total liabilities and shareholders' equity	$278.3

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  (Millions)	2004	2003
  Income statement data
  Revenues	$  35.2	$  20.6
  Operating expenses	(16.8)	(3.1)
  Other income (expense)	(13.4)	(13.8)
  Net income	$ 5.0	$ 3.7
  WPS Investment's equity in net income	$   1.7	$   1.2
  Balance sheet data
  Current assets	$   5.0	$   7.4
  Non-current assets	268.4	272.3
  Total assets	$273.4	$279.7
  Current liabilities	$ 18.1	$ 21.6
  Long-term debt	157.8	165.6
  Shareholder's equity	97.5	92.5
  Total liabilities and shareholders' equity	$273.4	$279.7

  Other investments accounted for under the equity method include WPS Nuclear Corporation's (a consolidated subsidiary of WPS Resources) investment in Nuclear Management Company.Company and other minor investments. The Nuclear Management Company is owned by affiliates of five utilities in the upper Midwest and operates the six nuclear power plants of these utilities. At December 31, 20032004, WPS Nuclear Corporation's ownership in Nuclear Management Company was 20%. Wisconsin Public ServiceWPSC recorded related party transactions for services provided by Nuclear Management Company for the management and operation of the 

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  Kewaunee nuclear plant.Kewaunee. Management service fees paid to Nuclear Management Company by Wisconsin Public ServiceWPSC were $25.2$26.7 million, $24.6$25.6 million, and $16.4$24.7 million in 2003, 2002, and 2001, respectively. Management service fees paid to Nuclear Management Company in2004, 2003, and 2002, reflect a 17.8% increase in Wisconsin Public Service's ownership of the Kewaunee plant after acquiring Madison Gas and Electric Company's ownership in the Kewaunee plant on September 24, 2001.respectively.

  NOTE 11--GOODWILL AND OTHER INTANGIBLE ASSETS

  Goodwill recorded by WPS Resources Corporation was $36.4 million and $35.5$36.8 million at December 31, 20032004, and 2002, respectively. The goodwill2003. Of this amount, $36.4 million is recorded in Wisconsin Public Service'sWPSC's natural gas segment relating to its merger with Wisconsin Fuel and Light. In 2003, Wisconsin Public ServiceWPSC transferred $0.9 million from a regulatory acquisition premium (previously classified as property, plant, and equipment) to goodwill. The increase in goodwill reflectsreflected an adjustment to the amount of recoverable goodwill recorded from the Wisconsin Fuel and Light merger allowed by the Public Service Commission of WisconsinPSCW in its March 2003 rate order. The remaining $0.4 million of goodwill relates to PDI.

  Goodwill and purchased intangible assets are included in other assets on the Consolidated Balance Sheets. Emission credits are recorded at the lower of cost or market. Information in the tables below relates to total purchased identifiable intangible assets for the years indicated (excluding assets held for sale).

  (Millions)	December 31, 2003
  Asset Class	Average Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
  Emission credits	1 to 30	$ 7.4	$(1.1)	$6.3
  Customer related	1 to 5	3.7	(3.0)	0.7
  Other	1 to 30	3.3	(0.6)	2.7
  Total		$14.4	$(4.7)	$9.7
  (Millions)	December 31, 2002
  Asset Class	Average Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
  Emission credits	1 to 30	$ 5.2	$(0.6)	$4.6
  Customer related	1 to 5	3.5	(2.0)	1.5
  Other	1 to 30	3.3	(0.4)	2.9
  Total		$12.0	$(3.0)	$9.0

  The generation assets of WPS Power Development are subject to regulations on sulfur dioxide and nitrogen oxide emissions. In 2003, WPS Power Development had a net increase-115-

  <PAGE>

  (Millions)	December 31, 2004
  Asset Class	Average Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
  Emission credits	1 to 30	$ 6.9	$(0.9)	$ 6.0
  Customer related	1 to 8	11.2	(4.6)	6.6
  Other	1 to 30	4.2	(1.6)	2.6
  Total		$22.3	$(7.1)	$15.2
  (Millions)	December 31, 2003
  Asset Class	Average Life (Years)	Gross Carrying Amount	Accumulated Amortization	Net
  Emission credits	1 to 30	$ 7.4	$(1.1)	$6.3
  Customer related	1 to 5	3.7	(3.0)	0.7
  Other	1 to 30	3.3	(0.6)	2.7
  Total		$14.4	$(4.7)	$9.7

  A customer related intangible asset in the gross carrying valueamount of their emissions credits due to additional purchases$7.3 million was recorded in conjunction with the July 1, 2004 acquisition of emission allowances to meet requirements, partially offset by the write-downAdvantage Energy. This intangible asset will be amortized over a period of existing nitrogen oxide allowances to market value.eight years.

  Intangible asset amortization expense, in the aggregate, for the years ended December 31, 2004, and 2003 and 2002 was $1.7$2.4 million and $1.0$1.7 million, respectively.

  The following table providespresents the components of the consolidated net periodic benefit cost (credit) for the plans for the years ended December 31,2004, 2003, 2002, and 2001:2002:

  Estimated Amortization Expense: For year ending December 31, 2004  For year ending December 31, 2005 $2.7 million For year ending December 31, 2006 2.2 million For year ending December 31, 2007 2.1 million For year ending December 31, 2008 $ 1.9 million For year ending December 31, 2009 1.6 million   1.3 million   0.9 million   1.3 million   1.4 million -144- <PAGE> NOTE 12--LEASES The companyWPS Resources leases various property, plant, and equipment. Terms of the leases vary, but generally require the companyWPS Resources to pay property taxes, insurance premiums, and maintenance costs associated with the leased property. Rental expense attributable to operating leases was $5.7 million, $5.2 million, and $5.1 million in 2004, 2003, and $7.1 million in 2003, 2002 and 2001 respectively. Future minimum rental obligations under non-cancelable operating leases, are payable as follows: Year ending December 31   (Millions)   Year ending December 31 (Millions)       2004 $5.0 2005 2.8 $ 4.2 2006 2.0 2.3 2007 1.7 2.2 2008 1.4 2.0 2009 1.6 Later years 6.1 5.9 Total payments 19.0 $18.2 -116- <PAGE> NOTE 13--SHORT-TERM DEBT AND LINES OF CREDIT WPS Resources Corporation has a syndicated a $225 million 364-day revolving credit facility and Wisconsin Public Servicea $175 million 364-day bi-lateral loan agreement. WPSC has syndicated a $115 million 364-day revolving credit facility, to provide short-term borrowing flexibility and security for commercial paper outstanding. The information in the table below relates to short-term debt and lines of credit for the years indicated. (Millions, except for percentages) 2003 2002 2001 2004 2003 2002 As of end of year         Commercial paper outstanding $28.0 $16.0 $15.0 $279.7 $28.0 $16.0 Average discount rate on outstanding commercial paper 1.15% 1.35% 1.95% 2.46% 1.15% 1.35% Short-term notes payable outstanding $10.0 $13.8 $31.2 $12.7 $10.0 $13.8 Average interest rate on short-term notes payable 1.12% 1.22% 1.61% 2.52% 1.12% 1.22% Available (unused) lines of credit $288.9 $264.5 $130.0 $161.9 $288.9 $264.5 For the year         Maximum amount of short-term debt $194.2 $133.4 $177.6 $312.5 $194.2 $133.4 Average amount of short-term debt $104.3 $59.7 $110.6 $75.3 $104.3 $59.7 Average interest rate on short-term debt 1.38% 1.73% 4.32% 1.82% 1.38% 1.73% The commercial paper had ahas varying maturity date ofdates ranging from January 8, 2004. The short-term notes payable is due "on demand."4, 2005, through January 25, 2005. -145--117- <PAGE> NOTE 14--LONG-TERM DEBT At December 31 (Millions) 2003 2002 First mortgage bonds - Wisconsin Public Service       Series Year Due         6.80% 2003   $     - $  50.0   6.125% 2005   - 9.1   6.90% 2013   22.0 22.0   7.125% 2023   50.0 50.0             Senior notes - Wisconsin Public Service       Series Year Due         6.125% 2011   150.0 150.0   4.875% 2012   150.0 150.0   4.80% 2013   125.0 -   6.08% 2028   50.0 50.0       First mortgage bonds - Upper Peninsula Power       Series Year Due         7.94% 2003   - 15.0   10.0% 2008   0.9 1.5   9.32% 2021   16.2 17.1             Unsecured senior notes - WPS Resources       Series Year Due         7.00% 2009   150.0 150.0   5.375% 2012   100.0 100.0             Term loans - nonrecourse, collateralized by nonregulated assets 87.2 91.7 Tax exempt bonds 27.0 27.0 Notes payable to bank, collateralized by nonregulated plant - 11.6 Senior secured note 2.9 3.1 Total 931.2 898.1 Unamortized discount and premium on bonds and debt (2.7) (2.6) Total long-term debt 928.5 895.5 Less current portion (56.6) (71.1) Total long-term debt $871.9 $824.4 At December 31 (Millions) 2004 2003 First mortgage bonds - WPSC       Series Year Due         6.90% 2013   $ 22.0 $ 22.0   7.125% 2023   0.1 50.0           Senior notes - WPSC       Series Year Due         6.125% 2011   150.0 150.0   4.875% 2012   150.0 150.0   4.80% 2013   125.0 125.0   6.08% 2028   50.0 50.0             First mortgage bonds - UPPCO       Series Year Due         10.0% 2008   - 0.9   9.32% 2021   15.3 16.2             Unsecured senior notes - WPS Resources       Series Year Due         7.00% 2009   150.0 150.0   5.375% 2012   100.0 100.0             Term loans - nonrecourse, collateralized by nonregulated assets 82.3 87.2 Tax exempt bonds 27.0 27.0 Senior secured note 2.7 2.9 Total 874.4 931.2 Unamortized discount and premium on bonds and debt (2.0) (2.7) Total long-term debt 872.4 928.5 Less current portion (6.7) (56.6) Total long-term debt $865.7 $871.9 On January 19, 2004, Wisconsin Public ServiceWPSC retired $49.9 million of its 7.125% series first mortgage bonds. These bonds had an original maturity date of July 1, 2023. In February 2003, Wisconsin Public Service retired $50.0 millionAll of 6.80% firstWPSC's debt securities are subject to the terms and conditions of the First Mortgage of WPSC. Under the terms of the mortgage, bonds that had reached maturity. Wisconsin Public Service also called $9.1 millionsubstantially all property owned by WPSC is pledged as collateral for these outstanding debt securities. All these debt securities require semiannual payments of 6.125% tax-exempt bonds in May 2003. In December 2003, Wisconsin Public Service issued $125.0 millioninterest. All principal payments are due on the maturity date of 4.80%each series. All WPSC senior notes due December 2013. The senior notes are collateralized by a pledge of first mortgage bonds and become non-collateralized if Wisconsin Public ServiceWPSC retires all of its outstanding first mortgage bonds. In March 2003, Upper Peninsula Power retired $15.0 millionUnder the terms of 7.94% first mortgage bonds that had reached maturity. Upper Peninsula Powerthe First Mortgage of UPPCO, substantially all property owned by UPPCO is required to make bondpledged as collateral for this outstanding debt series. Interest payments are due semiannually on May 1 and November 1 with a sinking fund payments for somepayment of its outstanding first mortgage bonds.$900,000 due each November 1. The final sinking fund payment due November 1, 2021, will completely retire the series. Borrowings by WPS Power DevelopmentPDI under term loans and collateralized by nonregulated assets totaled $87.2$82.3 million at December 31, 2003.2004. The assets of WPS New England Generation, Inc. and WPS Canada Generation, Inc., subsidiaries of WPS Power Development,PDI, collateralize $5.8$5.4 million -146- <PAGE> and $14.4$13.2 million, respectively, of the total outstanding amount. Both have semiannual installment payments, an interest rate of 8.75%, and mature in May 2010. Sunbury Generation, LLC, an indirect subsidiary of WPS Power Development,PDI, is the borrower of the remaining $67.0$63.7 million that is collateralized by its plant. Quarterly payments are made in relation to this financing, that carrieswhich, as the result of an interest rate swap, carries an effective interest rate of 7.8725%8.1% for the year ended December 31, 2003 2004,  -118- <PAGE> and matures in March 2018. This loan also has renewals in 2006 and 2012. However, if certain debt covenants are not met, the lender is not required to renew the loans. In April 2001, the Schuylkill County Industrial Development Authority issued $27.0 million of refunding tax-exempt bonds. At the time of issuance of the refunding bonds, WPS Westwood Generation, LLC, a subsidiary of WPS Power Development,PDI, owned the original bonds, the proceeds of which were used in substantial part to provide facilities. Upon issuance of the refunding bonds, the original bonds were paid off. WPS Westwood Generation was paid $27.0 million from the proceeds of the refunding bonds for the retirement of the original bonds plus accrued interest. WPS Westwood Generation is now obligated to pay the refunding bonds with monthly payments that have a floating interest rate that is reset weekly. At December 31, 2003,2004, the interest rate was 1.10%1.8%. The bonds mature in April 2021. WPS Resources agreed to guarantee WPS Westwood Generation's obligation to provide sufficient funds to pay the refunding bonds and the related obligations and indemnities. In November 2003, WPS Power Development retired all of the notes payable under a revolving credit note, in the amount of $12.5 million. The note was collateralized by the assets of the Stoneman plant and was guaranteed by WPS Resources. Variable interest payments were made quarterly during 2003. Upper Peninsula PowerBuilding Development Corporation has a senior secured note of $2.9$2.7 million as of December 31, 2003,2004, which requires semiannual payments at an interest rate of 9.25%, and matures in 2011. The note is secured by a first mortgage lien on the building they own, which is also leased to UPPCO for use as their corporate headquarters. At December 31, 2003,2004, WPS Resources and its subsidiaries were in compliance with all covenants relating to outstanding debt. A schedule of all principal debt payment amounts, including bond maturities and early retirements, for WPS Resources is as follows: Year ending December 31   (Millions)   Year ending December 31 (Millions)       2004 $56.6 2005 7.0 $   6.7 2006 7.7 7.7 2007 8.3 8.3 2008 9.4 9.4 2009 159.9 Later years 842.2 682.4 Total payments $931.2 $874.4 NOTE 15--COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF PREFERRED STOCK TRUST On July 30, 1998, WPSR Capital Trust I, a Delaware business trust, issued $50.0 million of trust preferred securities to the public. WPS Resources owns all of the outstanding trust common securities of the Trust, and the only asset of the Trust was $51.5 million of subordinated debentures issued by WPS Resources. The debentures were due on June 30, 2038 and bore interest at 7% per year. The terms and interest payments on the debentures correspond to the terms and distributions on the trust preferred securities. As discussed in Note 1(v), New Accounting Pronouncements, the provisions of Interpretation No. 46R were required to be applied to special purpose entities as of the end of the first reporting period ending after December 15, 2003. It has been determined that WPSR Capital Trust I qualifies as a special purpose entity and; therefore, the provisions of Interpretation No. 46R were applied to the Trust at December 31, 2003. Prior to this date, we consolidated the preferred securities of the Trust into our financial statements as we held all of the voting securities. Per the provisions of Interpretation No. 46R, however, the voting interest approach is not effective in identifying controlling financial interests in which  -147- <PAGE> the equity investor does not bear the residual economic risks. It has been determined that the preferred security holders bear the majority of the residual economic risks associated with WPSR Capital Trust I and, therefore, the Trust has been deconsolidated effective December 31, 2003. As a result of the deconsolidation, WPS Resources recorded a $1.5 million investment in trust within other current assets and a $51.5 million note payable to preferred stock trust, respectively, within the Consolidated Balance Sheet at December 31, 2003. Prior periods have not been restated per the transition provisions of Interpretation No. 46R. The Trust remains consolidated within the December 31, 2002 Consolidated Balance Sheet and the interest payments on the debentures are reflected within interest expense and distributions on trust preferred securities on the Consolidated Statements of Income for all years presented. On January 8, 2004, we redeemed all of the subordinated debentures that were initially issued to the Trust for $51.5 million and paid accrued interest of $0.1 million. This action required the Trust to redeem an equal amount of trust securities at face value plus any accrued interest and unpaid distributions. As a result of these transactions, the Trust has been dissolved effective January 8, 2004. NOTE 16--ASSET15--ASSET RETIREMENT OBLIGATIONS Legal retirement obligations, as defined by the provisions of SFAS No. 143, "Accounting for Asset Retirement Obligations," identified for the utility segments of WPS Resourcesat WPSC relate primarily to the final decommissioning of the Kewaunee nuclear power plant. Wisconsin Public ServiceKewaunee. WPSC has a legal obligation to decommission the irradiated portions of the Kewaunee nuclear power plant in accordance with the Nuclear Regulatory Commission's minimum decommissioning requirements. The liability, calculated under the provisions of SFAS No. 143, is based on several assumptions, including the scope of decommissioning work to be performed, the timing of the future cash flows, and inflation and discount rates. Some of these assumptions differ significantly from the assumptions authorized by the PSCW to calculate the nuclear decommissioning liability for funding purposes. In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," WPSC established a regulatory liability to record the differences between ongoing expense regulation under SFAS No. 143 and the ratemaking practices for retirement costs authorized by the PSCW. As of December 31, 2004, the net of tax market value of external nuclear decommissioning trusts established for future retirement costs, authorized by the PSCW, was approximately $344.5 million. See Note 6, "Acquisitions and Sales of Assets," for information on the pending sale of Kewaunee. We have also identified other legal retirement obligations related to utility plant assets that are not currently significant to the financial statements. Upon implementation of StatementSFAS No. 143 on January 1, 2003, we recorded a net asset retirement cost of $90.8 million and an asset retirement obligation of $324.8 million. The difference between previously recorded liabilities of $290.5 million and the cumulative effect of adopting of StatementSFAS No. 143 was deferred to a regulatory liability pursuant to StatementSFAS No 71. The nonregulated segments of WPS Resources have-119- <PAGE> PDI has identified a legal retirement obligation related to the closure of an ash basin located at the Sunbury plant. Upon implementationSunbury. The adoption of StatementSFAS No. 143 the nonregulated segments of WPS Resources recorded an increaseat PDI resulted in net property, plant, and equipment of $1.4a $0.3 million a liability of $2.0 million, and anegative after-tax cumulative effect of adoption after tax that reduced income available for common shareholders by $0.3 millionchange in accounting principle in the first quarter of 2003. 2003 related to recording a liability for the closure of this ash basin. The asset retirement obligation associated with Sunbury is recorded as a liability held for sale on the consolidated balance sheets. See Note 6, "Acquisitions and Sales of Assets"4, "Assets Held for information on the pending sales of the Sunbury plant and the Kewaunee nuclear power plant.Sale." The following table describes all changes to the asset retirement obligation liabilities of WPS Resources.   (Millions) Utility Nonregulated Total Asset retirement obligations at December 31, 2002 $      - $    - $       - Liability recognized in transition 324.8 2.0 326.8 Accretion expense 19.2 .1 19.3 Asset retirement obligation at December 31, 2003 $344.0 $ 2.1 $346.1 The following pro forma liabilities reflect amounts relating to asset retirement obligations as if Statement No. 143 had been applied during all periods presented:   (Millions) December 31, 2003 December 31, 2002 January 1, 2002 Utility segments:         Nuclear decommissioning $343.6 $324.4 $306.7   Other 0.4 0.4 0.3 Nonregulated segments:         Ash basin facility 2.1 2.0 1.9 -148- <PAGE> (Millions) WPSC PDI Total Asset retirement obligations at December 31, 2002 $       - $   - $       - Liability recognized in transition 324.8 2.0 326.8 Accretion expense 19.2 0.1 19.3 Asset retirement obligations at December 31, 2003 344.0 2.1 346.1 Accretion expense 20.4 0.1 20.5 Asset retirement obligation at December 31, 2004 $364.4 $2.2 $366.6 Pro forma income available for common shareholders and earnings per share have not been presented for the periods ended December 31, 2004, 2003, 2002, and 20012002 because the pro forma application of StatementSFAS No. 143 to prior periods would result in pro forma income available for common shareholders and earnings per sharedoes not materially differentdiffer from the actual amounts reported for those periods in the Consolidated Statements of Income. NOTE 17--INCOME16--INCOME TAXES The principal components of our deferred tax assets and liabilities recognized in the balance sheet as of December 31 are as follows: (Millions) 2003 2002       Deferred tax assets     Plant related $ 70.5 $ 91.5 Deferred tax credit carry forwards 52.0 35.7 Employee benefits 28.7 45.0 State capital and operating loss carry forwards 10.9 7.9 Other comprehensive income 13.4 6.9 Risk management activities 6.9 (5.6) Regulatory deferrals 3.4 1.6 Other 5.2 4.3 Total deferred tax assets 191.0 187.3       Valuation allowance (3.0) (0.6) Net deferred tax assets $188.0 $186.7       Deferred tax liabilities     Plant related $233.3 $209.7 Employee benefits 16.1 38.2 Regulatory deferrals 8.7 6.7 Other comprehensive income 3.4 - Other 7.0 5.8 Total deferred tax liabilities $268.5 $260.4       Net deferred tax liabilities $ 80.5 $ 73.7 Valuation allowances have been established for certain state operating and capital loss carry forwards, due-120- <PAGE> (Millions) 2004 2003       Deferred tax assets:     Deferred tax credit carry forwards $ 74.0 $ 52.0 Plant related 59.0 55.8 Employee benefits 31.5 28.7 Deferred income and deductions 17.5 21.1 Other comprehensive income 16.4 13.4 State capital and operating loss carry forwards 11.3 10.9 Risk management activities 10.3 6.9 Regulatory deferrals 1.8 3.4 Other 7.5 (1.2) Total deferred tax assets 229.3 191.0       Valuation allowance (1.5) (3.0) Net deferred tax assets $227.8 $188.0       Deferred tax liabilities:     Plant related $243.3 $233.3 Risk management activities 18.3 - Regulatory deferrals 13.2 8.7 Employee benefits 11.0 16.1 Other comprehensive income 5.8 3.4 Deferred income and deductions 3.5 3.3 Other 12.8 3.7 Total deferred tax liabilities $307.9 $268.5       Consolidated Balance Sheet Presentation:     Current deferred tax liabilities $ 14.6 $ 1.7 Long-term deferred tax liabilities 65.5 78.8 Net deferred tax liabilities $ 80.1 $ 80.5 Deferred tax credit carryforwards include $71.1 million of alternative minimum tax credits related to the uncertaintytax credits available under Section 29 of the ability to benefit from these losses in the future.Internal Revenue Code. These alternative minimum tax credit carryforwards can be carried forward indefinitely. Carry forward periods for state capital and operating loss carryforwards vary, but in the majority of states in which we do business, the period is 15 years or more. The balance of the carryforward of state net operating losses is $220.0 million for all states. Valuation allowances have been established for certain state operating and capital loss carryforwards due to the uncertainty of the ability to realize the benefit of these losses in the future. The implementation of new tax strategies allowed WPS Resources to reduce its valuation allowance in 2004. -149-The following table presents a reconciliation of federal income taxes (which are calculated by multiplying the statutory federal income tax rate by book income before federal income tax) to the provision for income taxes reported in the Consolidated Statements of Income. -121- <PAGE>   The differences between income taxes determined by applying the federal statutory rate to income before tax expense for the periods ended December 31 are as follows: (Millions, except for percentages) 2003 2002 2001      2004       2003    2002 Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount                 Statutory federal income tax 35.0% $50.5 35.0% $51.5 35.0% $ 33.9 35.0% $65.2 35.0% $50.5 35.0% $51.5 State income taxes, net 5.9 8.5 5.3 7.8 5.2 5.0 3.4 6.4 5.9 8.5 5.3 7.8 Plant related (0.8) (1.1) (1.6) (2.4) (3.3) (3.2) 0.1 0.1 (0.8) (1.1) (1.6) (2.4) ESOP dividend (1.0) (1.5) (1.0) (1.4) (0.1) (0.1) Benefits and compensation (2.0) (3.7) (1.6) (2.3) (1.4) (2.1) Investment tax credit (1.2) (1.7) (1.2) (1.7) (1.8) (1.7) (0.8) (1.5) (1.2) (1.7) (1.2) (1.7) Federal tax credits (13.1) (18.9) (16.4) (24.1) (23.0) (22.3) (17.6) (32.8) (13.1) (18.9) (16.4) (24.1) Other differences, net (1.4) (2.1) (0.6) (1.0) (2.5) (2.4) (2.0) (3.7) (0.8) (1.3) (0.2) (0.3) Effective income tax 23.4% $33.7 19.5% $28.7 9.5% $9.2 16.1% $30.0 23.4% $33.7 19.5% $28.7                 Current provision                 Federal   $18.3   $17.3   $33.8   $20.1   $18.3   $17.3 State   14.0   11.1   8.4   11.6   14.0   11.1 Foreign   1.8   (0.4)   -   0.4 1.8 (0.4) Total current provision   34.1   28.0   42.2 32.1 34.1 28.0 Deferred provision (benefit)   2.8   3.2   (31.8)   1.1   2.8   3.2 Recognition of Net Operating Loss carryforward   (1.5)   (0.8)   0.5 Recognition of net operating loss carryforward   (1.7)   (1.5)   (0.8) Recognition of deferred investment tax credit   (1.7)   (1.7)   (1.7)   (1.5) (1.7) (1.7) Total income tax expense   $33.7   $28.7   $9.2   $30.0   $33.7   $28.7 Foreign income (loss) before taxes was $8.3 million in 2004, $4.3 million in 2003, and ($1.2)$(1.2) million in 2002. As the related temporary differences reverse, Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO are prospectively refunding taxes to customers for which deferred taxes were recorded in prior years at rates different than current rates. The regulatory liability for these refunds and other regulatory tax effects totaled $11.2 million as of December 31, 2004, and $11.8 million as of December 31, 2003 and $17.7 million as of December 31, 2002.2003. NOTE 18--COMMITMENTS17--COMMITMENTS AND CONTINGENCIES Commodity and Purchase Order Commitments WPS Resources routinely enters into long-term purchase and sale commitments that have various quantity requirements and durations. The commitments described below are as of December 31, 2004. WPS Energy ServicesESI has unconditional purchase obligations related to energy supply contracts that total $2,136.0$2.4billion. Substantially all of these obligations end by 2009, with obligations totaling $2.6 million extending from 2010 through 2012. The majority of the energy supply contracts are to meet ESI's offsetting obligations to deliver energy to its customers. WPSC has obligations related to nuclear fuel, coal, purchased power, and natural gas. Nuclear fuel contracts total $38.2 million and extend through 2009. The energy supply2014. Assuming Kewaunee is sold as discussed in Note 6, "Acquisitions and Sales of Assets," these nuclear fuel contracts at WPS Energy Services generally have offsetting energy sale contracts. Wisconsin Public Service has obligations relatedwould be assigned to coal, purchased power, natural gas and nuclear fuel.Dominion. Obligations related to coal supply and transportation extend through 2016 and total $321.4$386.2 million. Through 2015, Wisconsin Public Service2016, WPSC has obligations totaling $395.6$600.6 million for either capacity or energy related to purchased power. Also, there are natural gas supply and transportation contracts with total estimated demand payments of $129.3$129.7 million through 2010. Nuclear fuel contracts total $48.0 million. Wisconsin Public ServiceWPSC expects to recover these costs in future customer rates. Additionally, Wisconsin Public ServiceWPSC has contracts to sell electricity and natural gas to customers. Many -122- <PAGE> PDI has entered into purchase contracts totaling $12.6 million. The majority of these contracts have indefinite lives.relate to coal purchases for Sunbury and expire in 2005. See Note 4, "Assets Held for Sale," for more information on Sunbury. -150- <PAGE> WPS Power Development also enters into long-term commodity contracts, mainly related to the purchase of coal for the Sunbury plant. The contracts total $1.8 million and extend through 2007. Upper Peninsula PowerUPPCO has made commitments for the purchase of commodities, mainly capacity or energy related to purchased power, thatwhich total $20.6$5.2 million and extend through 2006. WPS Resources also has commitments in the form of purchase orders issued to various vendors. At December 31, 20032004, these purchase orders totaled $168.8$499.6 million and $493.8 million for WPS Resources and Wisconsin Public Service committed $167.6 million of the total.WPSC, respectively. The majority of these commitments relate to large construction projects, including the construction of the 500-megawatt Weston 4 coal-fired generation facility near Wausau, Wisconsin. Nuclear Plant Operation In accordance with Nuclear Regulatory Commission industry requirements, during the completed spring 2003 refueling outage, a visual inspection of the Kewaunee nuclear power plant reactor vessel head was conducted. There were no problems with the vessel head during the most recently completed operating cycle. After evaluating the cost of continued required inspections of the existing reactor vessel head and the cost to replace the reactor vessel head, the Kewaunee nuclear power plant owners submitted a construction authorization request to the Public Service Commission of Wisconsin for replacement of the reactor vessel head. Approval of the request was received in 2003. The replacement is scheduled to occur during the fall 2004 refueling outage at a cost of up to $14.2 million for Wisconsin Public Service's share of the project. The Price Anderson Act ensures that funds will be available to pay for public liability claims arising out of a nuclear incident. This Act may require Wisconsin Public ServiceWPSC to pay up to a maximum of $59.4 million per incident. The payments will not exceed $5.9 million per incident in a given calendar year. These amounts relate to Wisconsin Public Service'sWPSC's 59% ownership in the Kewaunee nuclear power plant. See Note 8, Nuclear Plant Operation, for detailed information on the operations of the Kewaunee nuclear power plant. See Note 6, Acquisitions and Sales of Assets, for information on the pending sale of the Kewaunee nuclear power plant. Kewaunee. Clean Air Regulations The United States Environmental Protection Agency has designated southeastern Wisconsin asgeneration facilities of PDI are located in an ozone non-attainment area. Under the Clean Air Act, the Statetransport region. As a result, these generation facilities are subject to additional restrictions on emissions of Wisconsin developed anitrogen oxide. During 2004, no additional nitrogen oxide reduction planemission allowances were purchased and no additional allowance purchases are anticipated for Wisconsin's ozone non-attainment area. The nitrogen oxide reductions2005. PDI began in 2003 and will gradually increase through 2007. Wisconsin Public Service owns 31.8% of Edgewater Unit 4, which is located in the ozone non-attainment area. A compliance plan2004 with some sulfur dioxide emission allowances for this unit was initiatedits generation facilities that are required to participate in 2000. Wisconsin Public Service's share of the costs of this project is expected to be approximately $5 million. The project is nearly complete. Wisconsin Public Service has incurred approximately $4.9 million on this project as of December 31, 2003. The State of Wisconsin is also seeking voluntary reductions from utility units outside the ozone non-attainment area, which may lead to additional expenditures for nitrogen oxide reductions at other units. Wisconsin Public Service is participating in voluntary efforts to reduce nitrogen oxide levels at the Columbia Energy Center. Wisconsin Public Service owns 31.8% of the Columbia facility. The Public Service Commission of Wisconsin has approved recovery of the costs associated with voluntary nitrogen oxide reductions. -151- <PAGE> Air quality modeling by the Wisconsin Department of Natural Resources revealed that Weston Units 1 and 2 contribute to a modeled exceedance of the sulfur dioxide ambient air quality standard. Wisconsin Public Service expects that compliance with a future limit can be achieved by managing the coal supply quality and does not expect these changesemission program. During 2004, additional sulfur dioxide allowances of 15,000 were purchased at market rates. PDI estimates purchasing approximately 10,000 sulfur dioxide allowances in total, at market rates, to have a material impact on the operations of Wisconsin Public Service. Wisconsin Public Service is cooperating with the Wisconsin Department of Natural Resources to develop an approach to resolve this issue.meet its 2005 requirements for its generation facilities. United States Environmental Protection Agency Section 114 Request In November 1999, the United States Environmental Protection AgencyEPA announced the commencement of a Clean Air Act enforcement initiative targeting the utility industry. This initiative resulted in the issuance of several notices of violation/findings of violation and the filing of lawsuits against other unaffiliated utilities. In these enforcement proceedings, the United States Environmental Protection Agency EPA claims that the utilities made modifications to the coal-fired boilers and related equipment at the utilities' electric generating stations without first obtaining appropriate permits under the United States Environmental Protection Agency'sEPA's pre-construction permit program and without installing appropriate air pollution control equipment. In addition, the United States Environmental Protection AgencyEPA is claiming, in certain situations, that there were violations of the Clean Air Act's "new source performance standards." In the matters where actions have been commenced, the federal government is seeking penalties and the installation of pollution control equipment. In December 2000, Wisconsin Public ServiceWPSC received from the United States Environmental Protection AgencyEPA a request for information under Section 114 of the Clean Air Act. The United States Environmental Protection AgencyEPA sought information and documents relating to work performed on the coal-fired boilers located at theWPSC's Pulliam and Weston electric generating stations of Wisconsin Public Service. Wisconsin Public Servicestations. WPSC filed a response with the United States Environmental Protection AgencyEPA in early 2001. On May 22, 2002, Wisconsin Public ServiceWPSC received a follow-up request from the United States Environmental Protection AgencyEPA seeking additional information regarding specific boiler-related work performed on Pulliam Units 3, 5, and 7, as well as information on Wisconsin Public Service'sWPSC's life extension program for Pulliam Units 3-8 and Weston Units 1 and 2. Wisconsin Public ServiceWPSC made an initial response to the United States Environmental Protection Agency'sEPA's follow-up information request on June 12, 2002, and filed a final response on June 27, 2002. In 2000 2001, and 2002, Wisconsin Power and Light Company received a similar series of United States Environmental Protection AgencyEPA information requests relating to work performed on certain coal-fired boilers and related equipment at the Columbia  -123- <PAGE> generating station (a facility located in Portage, Wisconsin, jointly-ownedjointly owned by Wisconsin Power and Light Company, Madison Gas and Electric Company, and Wisconsin Public Service)WPSC). Wisconsin Power and Light Company is the operator of the plant and is responsible for responding to governmental inquiries relating to the operation of the facility. Wisconsin Power and Light Company filed its most recent response for the Columbia facility on July 12, 2002. Depending upon the results of the United States Environmental Protection Agency'sEPA's review of the information, the United States Environmental Protection AgencyEPA may issue "notices of violation" or "findings of violation" asserting that a violation of the Clean Air Act occurred and/or seek additional information from Wisconsin Public ServiceWPSC and/or third parties who have information relating to the boilers or close out the investigation or issue a "notice of violation" or "finding of violation" asserting that a violation of the Clean Air Act occurred.investigation. To date, the United States Environmental Protection AgencyEPA has not responded to the 2002 follow-up filings made by Wisconsin Public ServiceWPSC and Wisconsin Power and Light Company.Light. In addition, under the federal Clean Air Act, citizen groups may pursue a claim. WPSC has received no notice of a claim from a citizen suit. In response to the United States Environmental Protection AgencyEPA Clean Air Act enforcement initiative, several utilities have elected to settle with the United States Environmental Protection Agency,EPA, while others are in litigation. In general, those utilities that have settled have entered into consent decrees which require the companies to pay fines and penalties, undertake supplemental environmental projects, and either upgrade or replace pollution controls at existing generating units or shut down existing units and replace these units with new electric generating facilities. Several of the settlements involve multiple facilities. The fines and -152- <PAGE> penalties (including the capital costs of supplemental environmental projects) associated with these settlements range between $7 million and $30 million. Factors typically considered in settlements include, but are not necessarily limited to, the size and number of facilities as well as the duration of alleged violations and the presence or absence of aggravating circumstances. The regulatory interpretations upon which the lawsuits or settlements are based may change based on future court decisions that may be rendered in pending litigations. If the federal government decided to bring a claim against Wisconsin Public ServiceWPSC and if it were determined by a court that historic projects at theWPSC's Pulliam and Weston electric generating stationsplants required either a state or federal Clean Air Act permit, Wisconsin Public ServiceWPSC may, under the applicable statutes, be required to: shut down any unit found to be operating in non-compliance, install additional pollution control equipment, pay a fine, and/or pay a fine and conduct a supplemental environmental project in order to resolve any such claim. At the end of December 2002 and October 2003, the United States Environmental Protection AgencyEPA issued new rules governing the federal new source review program. These rules are currently being challenged in the District of Columbia Circuit Court of Appeals, and a final decision is not anticipated before April of 2005. The rules are not yet effective in Wisconsin. They are also not retroactive. Wisconsin has proposed amending its new source review program to substantially conform to the federal regulations. The Wisconsin rules are not anticipated to be finalized inbefore 2006, after the second halfDistrict of 2004.Columbia Circuit Court of Appeals' decision is rendered. Mercury and Interstate Quality Rules On October 1, 2004, the mercury emission control rule became effective in Wisconsin. The Wisconsin Department of Natural Resources initiated a rulemaking effortrule requires WPSC to control annual system mercury emissions. Coal-fired generation plantsemissions in phases. The first phase will occur in 2008 and 2009. In this phase, the annual mercury emissions are capped at the primary targetsaverage annual system mercury emissions for the period 2002 through 2004. The next phase will run from 2010 through 2014 and requires a 40% reduction from average annual 2002 through 2004 mercury input amounts. After 2015, a 75% reduction is required with a goal of this effort. The proposedan 80% reduction by 2018. If federal regulations are promulgated, we believe the State of Wisconsin will revise the Wisconsin rule was open to comment in October 2001. As proposed,be consistent with the rule requires phased-in mercury emission reductions reaching 90% reduction in 15 years. Wisconsin Public Servicefederal rule. WPSC estimates that it could costcapital costs of approximately $163$101 million to achieve the proposed 90%75% reductions. Presently, the proposed rule is on hold, and it is uncertain if the state will proceedThe capital costs are expected to finalize the regulations.be recovered in a future rate case. -124- <PAGE> In December 2003, the United States Environmental Protection AgencyEPA proposed mercury "maximum achievable control technology" standards and an alterativealternative mercury "cap and trade" program substantially modeled on the Clear Skies legislation initiative. In addition,The EPA also proposed the United States Environmental Protection Agency proposedClean Air Interstate Rule (formerly known as the Interstate Air Quality rule,Rule), which would reduce sulfur dioxide and nitrogen oxide emissions from utility boilers located in 29 states, including Wisconsin. Wisconsin, Public Service is in the process of studying the proposed rules.Michigan, Pennsylvania, and New York. As to the mercury maximum"maximum achievable control technologytechnology" proposal, it requires existing units burning sub-bituminous coal to achieve an annual average mercury emission rate limit of 5.8 pounds per trillion Btu, existing units burning bituminous coal to achieve an annual average mercury emission rate limit of 2.0 pounds per trillion Btu, and existing units burning coal-refuse to achieve an annual average mercury emission rate limit of 0.38 pounds per trillion Btu on a unit-by-unit or plant-wide basis. New sub-bituminous coal-fired units must achieve an emission rate limit of 0.020 pounds per gigawatt-hour. If the EPA proposed mercury "maximum achievable control technology" rule is promulgated, Wisconsin Public Service'sWPSC's current analysis indicates that the emission control equipment on the existing units may be sufficient to achieve the proposed limitation. New units will require additional mercury control techniques to reduce mercury emissions by 65% to 85%. Weston 4 will install and operate mercury control technology with the aim of achieving a mercury emission rate less than that proposed in the EPA proposed mercury "maximum achievable control technology" rule. As to the mercury cap and trade program, WPSC is studying its long-term compliance strategy to meet the targets set forth in the proposed rule. Based on the current rule proposal and current projections, WPSC anticipates meeting the proposed targets. Mercury control technology is still in development. Wisconsin Public ServiceWPSC is assessing potential mercury control technologies for application to future new coal-fired units. The proposed alternative mercury cap and trade program would require a 30% reduction in national mercury emissions in 2010 and a 70% reduction in national mercury emissions beginning in 2018. WPSC estimates the cost to comply with the proposed alternative mercury cap and trade program is similar to the cost to comply with the Wisconsin rule. Whichever form of the proposed federal mercury rule is promulgated, PDI's current analysis indicates that additional emission control equipment on the existing units may be required. Excluding Sunbury, PDI estimates the capital cost for the remaining units to be approximately $1 million to achieve a 70% reduction. If Sunbury is not sold, the mercury control costs would be approximately $33 million in total. See Note 4, "Assets Held for Sale," for more information on Sunbury. As to the Clean Air Interstate Air Quality ruleRule proposal, the proposal allows the affected states (including Wisconsin)Wisconsin, Michigan, Pennsylvania, and New York) to either require utilities located in the state to participate in an interstate cap and trade program or meet the state's emission budget for nitrogen oxides and sulfur dioxide and nitrogen oxide through measures to be determined by the state. Wisconsin hasThe states have not statedadopted a preference as to which option itthey would select in the event the rule becomes final. Whilerules become final, but the states are investigating a possible cap and trade program. The effect of the rule, if adopted, on Wisconsin Public Service'sWPSC's and PDI's facilities is uncertain, foruncertain. Currently, WPSC is evaluating a number of options that include using the cap and trade program and/or installing controls. For planning purposes, it is assumed that additional expenditures forsulfur dioxide and nitrogen oxide and sulfur dioxide controls will be needed on existing units or the existing units will need to be converted to natural gas by 2010. The installation of any controls and/or any conversion to natural gas will need to be scheduled as part of Wisconsin Public Service'sWPSC's long-term maintenance plan for its existing units. As such, controls or conversions may need to take place before the proposed 2010 compliance date.2010. On a preliminary basis -153- <PAGE> and assuming controls or conversion isare required, Wisconsin Public ServiceWPSC estimates a costcapital costs of $288$246 million in order to meet aan assumed 2010 compliance date. This estimate is based on costs of current control technology.technology and current information regarding the proposed rule. The costs may change based on the requirements of the final rule. WPS Power Development Generation Facilities PDI is evaluating the compliance options for the Clean Air Interstate Rule proposal. Additional nitrogen oxide controls on some of PDI's facilities may be necessary. The generation assets of WPS Power Developmentestimated capital costs for additional nitrogen oxide controls are subject to regulations on$2.9 million, excluding Sunbury. Additional sulfur dioxide andreductions are unlikely. If the Sunbury sale does not occur, the additional nitrogen oxide emissions similar to those that apply to Wisconsin Public Service. In addition,control costs are about $41 million in total. Also, PDI will evaluate a number of options using the Sunbury generation facilities of WPS Power Development are located in an ozone transport region. As a result, these generation facilities are subject to additional restrictionscap and trade program, fuel switching, and/or installing controls. See Note 4, "Assets Held for Sale," for more information on emissions of nitrogen oxide. Although WPS Power Development has some emission allowances for 2004 for the Sunbury facility, approximately 10,000 to 15,000 additional allowances may need to be purchased, at market rates, to meet its 2004 requirements.Sunbury. Columbia (Jointly-Owned Generation Facility)-125- In the fourth quarter of 2003, the Wisconsin Environmental Law Advocates filed a complaint in the United States District Court for the Western District of Wisconsin against Wisconsin Power and Light Company and its parent, Alliant Energy Corporation, alleging violations of the federal Clean Water Act at the Columbia generating station (a facility jointly owned by Wisconsin Power and Light, Madison Gas and Electric Company and Wisconsin Public Service that is operated by Wisconsin Power and Light.) The complaint seeks certain upgrades to the Columbia facility's wastewater treatment program, as well as unspecified penalties and attorney fees. In addition, the Wisconsin Department of Natural Resources has been pursuing enforcement of this same matter and has recently referred the matter to the Wisconsin Attorney General's office. To date, no action has been filed or settlement demanded by the State of Wisconsin, however we expect a complaint to be filed in due course. We believe that the total cost to resolve any potential penalties in this matter will not be material<PAGE> Other Environmental Issues Groundwater testing at a former ash disposal site of Upper Peninsula PowerUPPCO indicated elevated levels of boron and lithium. Supplemental remedial investigations were performed, and a revised remedial action plan was developed. The Michigan Department of Environmental Quality approved the plan in January 2003. A liability of $1.4 million and an associated regulatory asset of $1.4 million were recorded for estimated future expenditures associated with remediation of the site. Upper Peninsula PowerUPPCO received an order from the MPSC permitting deferral and future recovery of these costs. Upper Peninsula PowerUPPCO has an informal agreement, with the owner of another landfill, under which it has agreed to pay 17% of the investigation and remedial costs. It is estimated that the cost of addressing the site over the next three3 years is $1.7$1.6 million. Upper Peninsula PowerUPPCO has recorded 17% ($0.3 million)$0.3 million of this amount as aits share of the liability inas of December 2003.31, 2004. Manufactured Gas Plant Remediation Wisconsin Public ServiceWPSC continues to investigate the environmental cleanup of ten manufactured gas plant sites. As of the fall of 2003, cleanup of the land portion of the Oshkosh, Stevens Point, Green Bay, Manitowoc, and two Sheboygan sites was substantially complete. Groundwater treatment and monitoring at these sites will continue into the future. Cleanup of the land portion of four sites will be addressed in the future. River sediment remains to be addressed at six sites with sediment contamination. Wisconsin Public Service anticipates that remedialRemedial investigation work will commenceis expected to begin on the sediment portion of the Sheboygan site in the first quarter of 2004.2005. Sediment removal work at the Marinette site is scheduled for the fall of 2004.2005. Work at the other sites remains to be scheduled. CostsThe WDNR recently issued interim guidance for sediment remediation. Based on WDNR's application of these cleanups are within the range expected for these sites. Wisconsin Public Service estimatesthis guidance, WPSC estimated future undiscounted investigation and cleanup costs as of December 31, 2004 to be in the range of $36.2 million to $40.6$66.7 million. Wisconsin Public ServiceWPSC may adjust these estimates in the future contingent upon remedial technology, regulatory requirements, and the assessment of natural resource damages. -154- <PAGE> Wisconsin Public Service currently has a $36.2 millionWPSC's liability recorded forwas reviewed in December 2004 against projected cleanup with an offsetting regulatory asset (deferred charge). Wisconsin Public Servicecosts. Accordingly, the liability was increased to $66.7 million. WPSC has received $12.7 million to date in insurance recoveries that we recorded as a reduction to the regulatory asset. Wisconsin Public Servicerecoveries. WPSC expects to recover actual cleanup costs, net of insurance recoveries, in future customer rates. Under current Public Service Commission of WisconsinPSCW policies, Wisconsin Public ServiceWPSC will not recover carrying costs associated with the cleanup expenditures. Stray Voltage Claims From time to time, WPSC has been sued by dairy farmers who allege that they have suffered loss of milk production and other damages supposedly due to "stray voltage" from the operation of WPSC's electrical system. Past cases have been resolved without any material adverse effect on the financial statements of WPSC. Currently, there are three such cases pending in state court in Wisconsin, Public Serviceone of which is on appeal. The PSCW has established certain requirements regarding stray voltage for all utilities subject to its jurisdiction. The PSCW has defined what constitutes "stray voltage," established a level of concern at which some utility corrective action is required, and set forth test protocols to be employed in evaluating whether a stray voltage problem exists. Based upon the information available to it to date, WPSC believes that it was in compliance with the PSCW's orders, and that none of the plaintiffs had a stray voltage problem as defined by the PSCW for which WPSC is responsible. Nonetheless, in 2003, the Supreme Court of Wisconsin ruled in the case Hoffmann v. WEPCO that a utility could be liable in tort to a farmer for damage from stray voltage even though the utility had complied with the PSCW's established level of concern. One of the three remaining cases was appealed to the Wisconsin Court of Appeals. On February 15, 2005, the Court of Appeals affirmed the jury verdict that awarded the plaintiff approximately $0.8 million for economic damages and $1 million for nuisance. The Court of Appeals also remanded the issue of future damages relative to an injunction. WPSC is considering further appeal. The other two pending cases  -126- <PAGE> have trial dates in April 2005 and September 2005. Discovery has been completed in both cases. One of the two pending cases was tried to a jury in the fall of 2004. The jury deadlocked 10 - 4 in favor of WPSC, and then, in response to an instruction from the trial judge to try to reach a verdict, crafted a compromise that was invalid under the law, resulting in a mistrial. The expert witnesses retained by WPSC do not believe that there is a scientific basis for concluding that electricity has harmed or damaged the plaintiffs or their cows in either of the two remaining cases. Accordingly, WPSC is vigorously defending and contesting these actions. WPSC has insurance coverage for these claims, but the policies have customary self-insured retentions per occurrence. Based upon the information known at this time and the availability of insurance, WPSC believes that the total cost to it of resolving the remaining three actions will include long-term operationnot be material. One of the cases awaiting trial includes a claim for common law punitive damages as well as a claim for treble damages under a Wisconsin statute, sec. 196.94. In light of the information it now has, WPSC does not believe there is any basis for the award of punitive or treble damages in this case. However, if a jury awarded such damages, and maintenanceif the total of defense costs associated with these sites in future rate requests.and all damages exceeded the self-insured retention, WPSC believes its insurance policies would cover such a verdict, including any punitive or treble damages.  Flood Damage On May 14, 2003, a fuse plug at the Silver Lake reservoir owned by Upper Peninsula PowerUPPCO was breached. This breach resulted in subsequent flooding downstream on the Dead River, which is located in Michigan's Upper Peninsula near Marquette, Michigan. A dam owned by Marquette Board of Light and Power, which is located downstream from the Silver Lake reservoir near the mouth of the Dead River, also failed during this event. In addition, high water conditions and siltation resulted in damage at the Presque Isle Power Plant owned by Wisconsin Electric Power Company. Presque Isle, which is located downstream from the Marquette Board of Light and Power dam, was ultimately forced into a temporary shutdown. The Federal Energy Regulatory Commission'sFERC's Independent Board of Review issued its report in December of 2003 and concluded that the root cause of the incident was the failure of the design to take into account the highly erodible nature of the fuse plug's foundation materials and spillway channel, resulting in the complete loss of the fuse plug, foundation, and spillway channel, which caused the release of Silver Lake far beyond the intended design of the fuse plug. The fuse plug was designed for the Silver Lake reservoir was designed by an outside engineering firm. WPS Resources maintains a comprehensive insurance program that includes Upper Peninsula PowerUPPCO and which provides both property insurance for its facilities and liability insurance for liability to third parties. WPS Resources is insured in amounts that it believes are sufficient to cover its responsibilities in connection with this event. Deductibles and self-insured retentions on these policies are not material to WPS Resources. To date no lawsuits have been commenced. In November 2003, Upper Peninsula PowerUPPCO received approval from the Michigan Public Service CommissionMPSC and the Federal Energy Regulatory CommissionFERC for deferral of costs that are not reimbursable through insurance or recoverable through the power supply cost recovery mechanism. Recovery of costs deferred will be addressed in future rate proceedings. On October 14, 2004, the MPSC approved final recovery of the $5.2 million of increased 2003 power supply costs related to UPPCO's integrated system. As of December 31, 2003, Upper Peninsula Power2004, UPPCO has deferred $3.2$2.6 million pretax and expensed $1.0$1.5 million pretax of costs for damages resulting from the flood. In addition, Upper Peninsula PowerUPPCO has recorded a $1.6an $0.8 million insurance receivable at December 31, 2003.2004. The total insurance payments received to date as of December 31, 2004 were $2.7 million. In January 2005, UPPCO announced its decision to restore Silver Lake as a reservoir for power generation, pending approval of a design by FERC. Provided that FERC approves a design in the spring of 2005, work is expected to begin in 2005 and be completed in 2006. -127- <PAGE> Wausau, Wisconsin, to Duluth, Minnesota, Transmission Line Wisconsin Public Service, along with co-applicants Minnesota Power and American Transmission Company, continues to pursue the developmentConstruction of the 220-mile, 345-kilovolt Wausau, Wisconsin, to Duluth, Minnesota, transmission line and expectsbegan in the project to proceed despite opposition primarily from local landowners, the Citizens Utility Board, and environmental groups.first quarter of 2004 in Minnesota. Under a recent agreement, American Transmission Company will assumeATC has assumed primary responsibility for the overall management of the project and will own and operate the completed line. Wisconsin Public ServiceWPSC received approval from the Public Service Commission of WisconsinPSCW and the Federal Energy Regulatory CommissionFERC to transfer ownership of the project to the American Transmission Company. Wisconsin Public ServiceATC. WPSC will continue to manage construction of the project and be responsible for obtaining private property rights in Wisconsin necessary for the construction of the project. As partVarious WDNR permit related decisions are currently the subject of a contested case hearing in Wisconsin. A decision on the ownership transfer, Wisconsincontested case is expected in the third quarter of 2005. In December 2003, the PSCW issued an amended Certificate of Public Service received approximately $20.1 millionConvenience and Necessity per ATC's request for relief. This decision was appealed to the sale of its construction expenditures in June 2003. -155- <PAGE>Dane County Circuit Court by certain landowners. The court affirmed the PSCW's decision. It is unknown whether the court decision will be appealed. WPS Resources committed to fund 50% of total project costs incurred up to $198 million, andmillion. WPS Resources will receive additional equity in American Transmission Company. In 2003,ATC in exchange for a portion of the project funding. During the year ended December 31, 2004, WPS Resources invested $14.0$15.7 million in American Transmission Company,ATC, related to its agreement to fund approximately half of the Wausau to Duluth transmission line. WPS Resources may terminate funding if the project extends beyond January 1, 2010. On December 19, 2003, Wisconsin Public ServiceWPSC and American Transmission CompanyATC received approval to continue the project with the new cost estimatesestimate of $420.3 million. The updated cost estimate reflects additional costs for the project resulting from time delays, added regulatory requirements, changes and additions to the project at the request of local governments, and American Transmission Company's management, andATC overhead costs. Completion of the line is expected in 2008. WPS Resources has the right, but not the obligation, to provide additional funding in excess of $198 million up to its portion of the equity portion of revised cost estimate. For the period 20042005 through 2006,2008, we expect to make capital contributions offund up to $128approximately $175 million for our portion of the Wausau to Duluth transmission line. Our commitment to fund this transmission line could decrease up to 50% if Minnesota Power exercises its option to fund a portion of the project. Synthetic Fuel Production Facility We have significantly reduced our consolidated federal income tax liability for the past four years through tax credits available to us under Section 29 of the Internal Revenue Code for the production and sale of solid synthetic fuel from coal. In order to maximize the value of our synthetic fuel production facility, we have reduced our interest in the facility from 67% to 23% through sales to third parties (see Note 6, Acquisitions and Sales of Assets).parties. Our ability to fully utilize the Section 29 tax credits that remain available to us in connection with our remaining interest in the facility will depend on whether the amount of our federal income tax liability is sufficient to permit the use of such credits. The Internal Revenue Service strictly enforces compliance with all of the technical requirements of Section 29. Section 29 tax credits are currently scheduled to expire at the end of 2007. On June 27, 2003, the Other future tax legislation and Internal Revenue Service announced that it had reason to questionreview may also affect the scientific validity of certain test procedures and results that have been presented by certain taxpayers to qualify for Section 29 tax credits. The Internal Revenue Service also announced that it was reviewing information regarding these test procedures and practices. However, on October 29, 2003, the Internal Revenue Service announced that it had closed its investigation and concluded that such tests and procedures were scientifically valid if properly applied and indicated it would issue additional guidance on future sampling and testing. WPS Resources believes that its synthetic fuel facility does and will comply with such guidelines. As a resultvalue of the June Internal Revenue Service announcement, on August 1, 2003, WPS Resources received notice fromtax credits and the Internal Revenue Service that the WPS Resources' affiliate through which it holds an ownership interest in the synthetic fuel facility was under review for the 2001 tax period and that, depending upon the reviewvalue of our share of the affiliate's 2001 tax return, the Internal Revenue Service might reexamine the affiliate's 2000 tax return. However, following the October announcement that the Internal Revenue Service was closing its investigation, WPS Resources' received preliminary notice in January 2004 that both audits have closed without adjustment. Future years remain open to audit. We continue to believe that the facility has been operated in compliance with the requirements of Section 29. The Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs has been conducting an investigation of the synthetic fuel industry and their use of Section 29 tax credits. Pursuant to its invitation, on January 30, 2004, we answered questions of the Committee regarding our synthetic fuel facility. It is not known when the investigation will be completed and what impact, if any, such investigation may have on future legislation or the enforcement policy of the Internal Revenue Service. We have recorded the tax benefit of approximately $81.3$113.3 million of Section 29 tax credits as reductions of income tax expense from the project's inception in June 1998 through December 31, 2003.2004. As a result of alternative minimum tax rules, approximately $52.3$71.1 million of this tax benefit has been carried forward as a deferred tax asset as of December 31, 2003. Future2004. The tax benefit recorded with respect to WPS Resources' share of tax credits from the facility is based on our expected consolidated tax liability for all open tax years including the current year, and all future years in which we expect to utilize deferred tax credits to offset our future tax liability. Reductions in our expected consolidated tax liability for any of these years could result in disallowance of previously recorded credits, and/or a change in the amount of the tax benefit deferred to future periods. A reduction in our expected consolidated tax liability for the current year may result in a reduction of the level of synthetic fuel production at the facility. A portion of future payments under one of the agreements covering the sale of a portion of our interest in the facility are contingent on the facility's continued production of synthetic fuel. Any disallowance of some or all of those tax credits would materially affect the related Pre-tax gains approximating $7 million annually are expected to be realized through 2007 from this sell-down. -156--128- <PAGE> deferred tax account, as well as, future tax obligations. Additionally, such disallowances may result Dairyland Power Cooperative Dairyland Power Cooperative has confirmed its intent to purchase an interest in Weston 4 by signing a reductionjoint plant agreement in November 2004, subject to a number of the level of synthetic fuel production at the facility, thus reducing the likelihood and amount of future payments under that agreement. Future tax legislation and Internal Revenue Service review may also affect the value of the credits and the valueconditions. The agreement with Dairyland Power Cooperative is part of our sharecontinuing plan to provide least-cost, reliable energy for the increasing electric demand of the facility.our customers. NOTE 19--EMPLOYEE18--EMPLOYEE BENEFIT PLANS WPS Resources has a non-contributory qualified retirement plansplan covering substantially all employees under which we may make contributionsemployees. During 2004, $1.6 million was contributed to an irrevocable trust. We established the plans to provide retired employees, who meet conditions relating to age and length of service, with retirement payments. As a result of the plans funding levels, noPension Plan. No contributions were made to them in 2003 2002, or 2001.2002. WPS Resources also sponsors several nonqualified retirement plans, which are not funded. WPS Resources also currently offers medical, dental, and life insurance benefits to employees and their dependents. We expense these items for active employees as incurred. We fund benefits for retirees through irrevocable trusts as allowed for income tax purposes. Wisconsin Public Service and Upper Peninsula Power expensed and recovered through customer rates the net periodic benefit cost. Our nonregulated subsidiaries expensed allocated amounts. Our non-administrative plan is a collectively bargained plan and, therefore, is tax exempt. The investments in the trust covering administrative employees are subject to federal unrelated business income taxes at a 35% tax rate. Wisconsin Public ServiceWPSC serves as plan sponsor and administrator for the qualified retirement plansplan and the postretirement plans and administers the plans. Accordingly, Wisconsin Public Service'sWPSC's Consolidated Balance Sheets reflect the assets and liabilities associated with these plans. With the exception of UPPCO's Supplemental Employee Retirement Plan, the assets and liabilities related to the non-qualified pension plans are also recorded on WPSC's Consolidated Balance Sheets. The net periodic benefit cost associated with the plans is allocated betweenamong WPS Resources' subsidiaries. Actuarial calculations are performed (based upon specific employees and their related years of service) in order to determine the appropriate benefit cost allocation. PensionThe costs of pension and postretirement benefits are accounted for under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." Postretirement plan costs are accounted for under Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The standards require the company to accrue the cost of these benefits as expenseexpensed over the period in which the employee renders service. The transition obligation for postretirement benefits of current and future retirees under Statement No. 106 is being recognized over 20 yearsa 20-year period beginning in 1993. WPS Resources uses a December 31 measurement date for the majority of its plans. The recently enacted Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act)("the Act") provides a prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of certain retiree health care benefit plans. The Act may impact our postretirement benefit obligations and future net periodic postretirement benefit costs, however, until regulations necessary to implementIn May 2004, the Act and specific accounting guidance are issued, we cannot determine the benefit, if any, associated with the new law. We will continue to monitor the new regulations and may amend the plan in order to benefit from the new legislation. Certain accounting issues raised by the Act are not explicitly addressed by Statement No. 106. As a result, the Financial Accounting Standards BoardFASB staff issued FASB Staff Position (FSP) No. 106-1,("FSP") 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" which allows2003." WPS Resources and its actuarial advisors determined that benefits provided by the plan sponsor to elect to defer recognitionas of the effectsdate of the Act until authoritative guidance on the accounting for this Act is issued. As allowed by FSP 106-1,enactment were at least actuarially equivalent to Medicare Part D, and, accordingly, WPS Resources has electedwill be entitled to defer recognitionthe federal subsidy. WPS Resources performed a measurement of the effects of the Act on its accumulated postretirement benefit obligation as of July 1, 2004 (the date FSP 106-2 was adopted). As of July 1, 2004, WPS Resources' and WPSC's accumulated postretirement benefit obligation decreased $40.3 million and $33.5 million, respectively, as a result of the Act. The change in the accumulated postretirement benefit obligation due to the Act is considered an actuarial gain that will be recognized in future periods and, therefore, had no cumulative effect on WPS Resources' or WPSC's retained earnings as of July 1, 2004. The effect of the subsidy served to reduce the net periodic postretirement benefit cost in these financial statements and accompanying notes. The Company's deferral election expires upon the occurrence of any event that triggers a required remeasurement of plan assets or obligations, or upon the issuance of specific authoritative guidance on the accountingby $2.6 million for WPS Resources, including $2.2 million for WPSC, for the federal subsidy. Such guidance is pending and when issued could require the company to adjust previously reported information. -157- <PAGE>year ended December 31, 2004. The following tables provide a reconciliation of the changes in the plan's benefit obligations and fair value of assets over the three one-year periods ending December 31,during 2004, 2003, and 2002, and 2001, andas well as a statement of the funded status as of December 31 for each year:year.   Pension Benefits Other Benefits (Millions) 2003 2002 2001 2003 2002 2001 Reconciliation of benefit obligation           Obligation at January 1 $534.1 $495.2 $484.9 $234.3 $176.2 $102.6 Service cost 14.4 11.5 11.0 7.1 5.3 3.0 Interest cost 35.4 33.7 32.7 15.3 12.5 7.6 Plan amendments - - 0.2 (15.3) (4.7) - Actuarial loss - net 61.4 26.2 35.4 49.5 52.5 65.5 Acquisitions - - 13.1 - - 3.7 Benefit payments (34.4) (32.5) (21.2) (9.3) (7.5) (6.2) (Settlements)/curtailments - - (60.9) - - - Obligation at December 31 $610.9 $534.1 $495.2 $281.6 $234.3 $176.2               Reconciliation of fair value of plan assets             Fair value of plan assets at January 1 $511.6 $591.9 $676.1 $119.7 $134.7 $152.3 Actual return on plan assets 92.7 (47.8) (13.7) 23.7 (14.8) (4.4) Employer contributions - - - 15.6 7.3 (7.0) Acquisitions - - 18.1 - - - Benefit payments (34.4) (32.5) (88.6) (9.3) (7.5) (6.2) Fair value of plan assets at December 31 $569.9 $511.6 $591.9 $149.7 $119.7 $134.7 Funded status at December 31 $(41.0) $(22.5) $96.7 $(131.9) $(114.6) $(41.5) Unrecognized transition (asset) obligation - (0.2) (2.2) 3.8 13.1 14.4 Unrecognized prior-service cost 48.1 53.6 59.1 (21.5) (16.3) (12.9) Unrecognized (gain) loss 67.8 53.2 (69.3) 99.7 66.0 (12.4) Net asset (liability) recognized $ 74.9 $84.1 $84.3 $(49.9) $(51.8) $(52.4)               -129- <PAGE>   Pension Benefits Other Benefits (Millions) 2004 2003 2002 2004 2003 2002 Reconciliation of benefit obligation (qualified and non-qualified plans)             Obligation at January 1 $637.2 $553.8 $513.1 $281.6 $234.3 $ 176.2 Service cost 20.5 15.2 12.0 7.5 7.1 5.3 Interest cost 39.8 36.9 34.9 16.9 15.3 12.5 Plan amendments - - - - (15.3) (4.7) Actuarial (gain) loss - net 62.0 67.0 27.5 (3.4) 49.5 52.5 Benefit payments (38.8) (35.7) (33.7) (7.9) (9.3) (7.5) Obligation at December 31 $720.7 $637.2 $553.8 $294.7 $281.6 $ 234.3               Reconciliation of fair value of plan assets  (qualified plans)           Fair value of plan assets at January 1 $569.9 $511.6 $591.9 $149.7 $119.7 $ 134.7 Actual return on plan assets 54.5 92.7 (47.8) 12.9 23.7 (14.8) Employer contributions 1.6 - - 16.2 15.6 7.3 Benefit payments (37.1) (34.4) (32.5) (7.9) (9.3) (7.5) Fair value of plan assets at December 31 $588.9 $569.9 $511.6  $170.9 $149.7 $ 119.7               Funded status of plans             Funded status at December 31 $(131.8) $(67.3) $(42.2) $(123.8) $(131.9) $(114.6) Unrecognized transition obligation 0.4 0.6 0.6 3.4 3.8 13.1 Unrecognized prior-service cost 44.8 50.5 56.3 (19.4) (21.5) (16.3) Unrecognized loss 127.0 78.0 58.6 91.1 99.7 66.0 Net asset (liability) recognized $   40.4 $ 61.8 $ 73.3 $ (48.7) $ (49.9) $ (51.8) Amounts recognized in the Consolidated Balance Sheets relatingrelated to the qualified benefit plans consist of: Pension Benefits Other Benefits Pension Benefits Other Benefits (Millions) 2003 2002 2003 2002 2004 2003 2004 2003 Prepaid benefit cost $ 67.9 $84.1 $ - $ - $      - $ 67.9 $      - $      - Accrued benefit cost (64.9) - (49.9) (51.8) (45.9) (87.8) (48.7) (49.9) Intangible assets 38.6 - - - 45.0 41.6 - - Regulatory asset 15.2 - - - 6.4 15.2 - - Accumulated other comprehensive income (before tax effect of $7.3 million) 18.1 - - - Accumulated other comprehensive income (before tax effect of $14.0 million and $10.0 million, respectively) 34.9 24.9 - -       Net asset (liability) recognized $ 74.9 $84.1 $(49.9) $(51.8) $40.4 $ 61.8 $(48.7) $(49.9) Included in the above table is an accrued benefit cost of $1.7 million at December 31, 2004, and $1.8 million at December 31, 2003, related to UPPCO's Supplemental Employee Retirement Plan. The accumulated benefit obligation for the qualifiedall defined benefit pension plans was $549.5$634.8 million and $572.4 million at December 31, 2004, and 2003, and $424.4 million at December 31, 2002. -158- <PAGE> respectively. Information for qualified pension plans with an accumulated benefit obligation in excess of plan assets:assets is presented in the following table.   December 31, (Millions) 2004 2003 Projected benefit obligation $720.7 $321.4 Accumulated benefit obligation  634.8  315.1 Fair value of plan assets  588.9  250.2	December 31,-130-
  (Millions)<PAGE>	2003	2002
  Projected benefit obligation	$321.4	-
  Accumulated benefit obligation	315.1	-
  Fair value of plan assets	250.2	-

  	Pension Benefits			Other Benefits			Pension Benefits			Other Benefits
  (Millions)	2003	2002	2001	2003	2002	2001	2004	2003	2002	2004	2003	2002
  Net periodic benefit cost
  Service cost	$14.4	$11.5	$11.0	$ 7.1	$5.3	$3.0	$20.5	$15.2	$12.0	$ 7.5	$ 7.1	$ 5.3
  Interest cost	35.4	33.7	32.7	15.3	12.5	7.6	39.8	36.9	34.9	16.9	15.3	12.5
  Expected return on plan assets	(46.7)	(47.7)	(47.0)	(10.6)	(10.2)	(9.7)	(45.9)	(46.7)	(47.7)	(11.6)	(10.6)	(10.2)
  Amortization of transition (asset) obligation	(0.2)	(2.0)	(3.5)	1.0	1.3		0.2	-	(1.8)	0.4	1.0	1.3
  Amortization of prior-service cost (credit)	5.5	5.5		(2.2)	(1.2)	(1.2)	5.7	5.8		(2.2)	(1.8)	(1.2)
  Amortization of net (gain) loss	-	(0.8)	(2.3)	2.9	(1.2)	(4.6)	4.5	0.7	(0.6)	4.1	2.6	(1.2)
  Special termination benefits	0.8	-		-	-		-	0.8	-	-	-
  Net periodic benefit cost (credit) before settlement / curtailment	9.2	0.2	(3.6)	13.5	6.5	(3.6)
  (Settlement gain)/curtailment loss	-	-	(12.7)	-	-
  Regulatory liability/(asset) offset	-	-	11.8	-	-
  Net periodic benefit cost (credit) before settlement/ curtailment							24.8	12.7	2.6	15.1	13.6	6.5
  Amortization of settlement gain regulatory liability	-	(11.8)	-	-	-		-	-	(11.8)	-	-
  Amortization of curtailment loss regulatory asset	-	8.1	-	-	-		-	-	8.1	-	-
  Net periodic benefit cost (credit)	$9.2	$(3.5)	$(4.5)	$13.5	$6.5	$(3.6)	$24.8	$12.7	$ (1.1)	$15.1	$13.6	$ 6.5

  Net periodic benefit cost (credit) recorded by Wisconsin Public ServiceWPSC related to pension benefits was $3.7$16.3 million in 2004, $6.7 million in 2003, and ($7.2)4.9) million in 2002, and ($7.4) million in 2001.2002. Net periodic benefit cost (credit) recorded by Wisconsin Public ServiceWPSC related to other benefits was $11.9$12.4 million in 2004, $12.0 million in 2003, $4.7and $4.5 million in 2002, and ($5.5) million2002.

  Assumptions

  The weighted average assumptions used at December 31 in 2001.

  During 2000, WPS Resources made substantial changes to the administrative employees' portion of the pension and postretirement benefit plans. Effective January 1, 2001, the administrative employees' pension plan was changed to a pension equity plan with a lump sum distribution option for all future retirees. Additionally, all future administrative retirees will no longer be given subsidized postretirement medical and dental coverage. Due to employees who waited until 2001 to retire to take advantage of the new plan benefits and various reorganizations, including the formation of Nuclear Management Company, LLC a significant number of employees left our pension plan in early 2001. This required curtailment accounting for the year 2000 under Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." Most of the 2000 curtailment loss was deferredplans are as a regulatory asset.follows:

  	Pension Benefits			Other Benefits
  	2004	2003	2002	2004	2003	2002
  Discount rate for benefit obligations	5.75%	6.25%	6.75%	5.75%	6.25%	6.75%
  Discount rate for net periodic benefit cost	6.25%	6.75%	7.25%	6.25%	6.75%	7.25%
  Expected return on assets	8.75%	8.75%	8.75%	8.75%	8.75%	8.75%
  Rate of compensation increase	5.50%	5.50%	5.50%	-	-	-

  For the reasons mentioned above, large numbers of lump sum payments were paid out of the pension plan during the course of 2001. This required settlement accounting under Statement No. 88. Most of the settlement gain was deferred as a regulatory liability. 

  Based on a rate order received from the Public Service Commission of Wisconsin, during 2002 Wisconsin Public Service amortized the entire regulatory asset and regulatory liability relating to the aforementioned curtailment loss and settlement gain.

  At December 31, 2003,Starting in 2005, WPS Resources hadplans to record a minimum pension liability adjustment relatedchange its expected return on plan assets from 8.75% to its large qualified Administrative Employees' Retirement Plan. Part of that minimum pension liability 

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  <PAGE>

  adjustment was a charge to other comprehensive income. WPS Resources determined that the portion of what normally would have been charged to other comprehensive income that related to the regulated portion of our operations should be recorded as a regulatory asset.

  Assumptions

  Weighted average assumptions used to determine benefit obligations at December 31
  	Pension Benefits			Other Benefits
  	2003	2002	2001	2003	2002	2001
  Discount rate	6.25%	6.75%	7.25%	6.25%	6.75%	7.25%
  Rate of compensation increase	5.50%	5.50%	5.50%	-	-	-
  Weighted average assumptions used to determine net periodic benefit cost for years ended December 31
  	Pension Benefits			Other Benefits
  	2003	2002	2001	2003	2002	2001
  Discount rate	6.75%	7.25%	7.50%	6.75%	7.25%	7.50%
  Expected return on plan assets	8.75%	8.75%	8.75%	8.75%	8.75%	8.75%
  Rate of compensation increase	5.50%	5.50%	5.50%	-	-	-

  8.50%. To develop the 8.75% expected long-term rate of return on assets, WPS Resources considered the historical returns and the future expectations for returns for each asset class, as well as the target allocation of the benefit trust portfolios.

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  The assumptions used for WPS Resources' medical and dental cost trend rates are shown in the following table:

  	2003	2002	2001	2004	2003	2002
  Assumed medical cost trend rate (under age 65)	11.0%	12.0%	10.0%	10.0%	11.0%	12.0%
  Ultimate trend rate	5.0%	5.0%		5.0%	5.0%
  Ultimate trend rate reached in	2011	2011	2008	2010	2010	2010
  Assumed medical cost trend rate (over age 65)	13.0%	14.0%	12.0%	12.0%	13.0%	14.0%
  Ultimate trend rate	6.5%	6.5%		6.5%	6.5%
  Ultimate trend rate reached in	2011	2011	2008	2011	2011	2011
  Assumed dental cost trend rate	5.0%	6.0%	7.0%	5.0%	5.0%	6.0%
  Ultimate trend rate	5.0%	5.0%		5.0%	5.0%
  Ultimate trend rate reached in	2004	2004		2004	2004	2004

  Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

   

  (Millions)	1% Increase	1% Decrease
  Effect on total of service and interest cost   components of net periodic postretirement   health care benefit cost	$ 3.9	$ (3.5)
  Effect on the health care component of the   accumulated postretirement benefit obligation	$48.6	$(37.4)

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  (Millions)	1% Increase	1% Decrease
  Effects on total of service and interest cost components of net periodic postretirement health care benefit cost	$ 3.5	$ (3.1)
  Effect on the health care component of the accumulated postretirement benefit obligation	$42.0	$(34.7)

  Plan Assets

  WPS Resources pension plans weighted-averageWeighted-average asset allocations of the plans at December 31, 2003,2004, and 2002, by asset category2003, are as follows:

  	Plan Assets at December 31,			Pension Plan Assets at December 31,			Postretirement Plan Assets at December 31,
  	2003	2002		2004	2003		2004	2003
  Asset category
  Equity securities	61%	54%		63%	61%		63%	62%
  Debt securities	35%	40%		33%	36%		37%	38%
  Real Estate	3%	4%		4%	3%		0%	0%
  Other	1%	2%
  Total	100%	100%		100%	100%		100%	100%

  The Board of Directors has established the Employee Benefits Administrator Committee to manage the operations and administration of all benefit plans and related trusts. The Committee has an investment policypolicies for the Pension Planplan assets that establishesestablish target asset allocations for the above listed asset classes as follows: Equitypension plan - equity securities 60%, Debtdebt securities 35%, and Realreal estate 5%. The Committee is committed to diversification to reduce the risk of large losses. To that end the Committee has adopted policies requiring that each asset class will be diversified, multiple managers with differing styles of management will be employed, and; postretirement plan - equity exposure will be limited to 70% of the total portfolio value. On a quarterly basis, the Committee reviews progress towards achieving the performance objectives of the pension plans and the individual managers.

  WPS Resources postretirement benefit plans weighted-average asset allocations at December 31, 2003, and 2002, by asset category are as follows:

  	Plan Assets at December 31,
  	2003	2002
  Asset category
  Equity securities	63%	57%
  Debt securities	27%	36%
  Real Estate	0%	0%
  Other	10%	7%
  Total	100%	100%

  The Employee Benefits Administrator Committee has an investment policy for the postretirement plans' assets that establishes target asset allocations for the above listed asset classes as follows: Equity securities 65% and Debt, debt securities 35%. The Committee is committed to diversification to reduce the risk of large losses. To that end, the Committee has adopted policies requiring that each asset class will be diversified, multiple managers with differing styles of management will be employed, and equity exposure will be limited to 70% of the total portfolio value. On a quarterly basis, the Committee reviews progress towards achieving the performance objectives of the other postretirement plans and the individual managers.

  Cash Flows

  WPS Resources expects to contribute $1.6$8.2 million to its pension plans and $18.7$20.9 million to its other postretirement benefit plans in 2004.2005.

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  Nonqualified plans

  The following table shows the payments, reflecting expected future service, that WPS Resources sponsors several non-qualifiedexpects to make for pension plans covering certain current and former employees. These non-qualified pension plans are not funded. WPS Resources' projected benefit obligationother postretirement benefits. In addition, the table shows the expected federal subsidies under these plans was $26.3 million at December 31, 2003, $19.7 million at December 31, 2002, and $17.9 million at December 31, 2001. The weighted average assumptions used to determine benefit obligations and net periodic benefit cost for the nonqualified plant are the same as the assumptions disclosed above for the qualified plans. Amounts recognized in the Consolidated Balance Sheets related to the non-qualified pension plans are as follows:

  (Millions)	2003	2002
  Accrued benefit cost	$(22.9)	$(18.8)
  Intangible assets	2.9	3.5
  Accumulated other comprehensive income (before tax effect  of $2.7 million in 2003 and $1.8 million in 2002)	6.8	4.5
  Net liability recognized	$(13.2)	$(10.8)

  With the exception of Upper Peninsula Power's Supplemental Early Retirement Plan, the assets and liabilities related to the non-qualified pension plans are recorded on the Consolidated Balance Sheets of Wisconsin Public Service. The net periodic benefit cost is allocated to WPS Resources' subsidiaries in a similar manner to the qualified retirement plans,Medicare Part D, which will partially offset other postretirement benefits, as discussed above. Included in the table above is an accrued benefit cost of $1.8 million at December 31, 2003 and 2002 related to Upper Peninsula Power's Supplemental Early Retirement Plan.earlier.

  WPS Resources' net periodic benefit cost under these plans was $3.5 million in 2003, $2.4 million in 2002, and $2 million in 2001. The net periodic benefit costs allocated to Wisconsin Public Service under these plans was $2.8 million in 2003, $2.1 million in 2002, and $1.7 million in 2001. The accumulated benefit obligation for these plans has risen due to recent plan design changes and the decline in the discount rate used to estimate the plans' liability. Therefore, WPS Resources was required to adjust the minimum pension liability recorded on the December 31, 2003 Consolidated Balance Sheet. Because these adjustments were non-cash, their effect has been excluded from the accompanying Consolidated Statement of Cash Flows. 

  (Millions)	Pension Benefits	Other Benefits	Federal Subsidies
  2005	$ 37.5	$10.8	$     -
  2006	39.6	11.9	(1.3)
  2007	41.8	13.1	(1.5)
  2008	44.0	14.1	(1.6)
  2009	46.0	15.3	(1.8)
  2010-2014	262.3	89.9	(10.9)

  Defined Contribution Benefit Plans

  WPS Resources maintains a 401(k) Savings Plan for substantially all full-time employees. Employees generally may contribute from 1% to 30% of their base compensation to individual accounts within the 401(k) Savings Plan. Participation in this plan automatically qualifies eligible non-union employees for participation in the Employee Stock Ownership Plan ("ESOP").ESOP. The company match, in the form of WPS Resources shares of common stock, is contributed to an employee's ESOP account. The plan requires a match equivalent to 100% of the first 4% and 50% of the next 2% contributed by non-union employees. Certain union employees receive a contribution to their ESOP account regardless of their participation in the 401(k) Savings Plan. The ESOP held 2.12.2 million shares of WPS Resources common stock (market value of approximately $96$109 million) at December 31, 2003.2004. Total costs incurred under these plans were $7.7 million in 2004, $5.7 million in 2003, and $4.8 million in 2002, and $4.5 million in 2001. Wisconsin Public Service's2002. WPSC's share of the total costs was $6.5 million in 2004, $4.6 million in 2003, and $3.9 million in 2002, and $3.8 million in 2001.2002.

  WPS Resources maintains a deferred compensation plan that enables certain key employees and non-employee directors to defer a portion of their compensation or fees on a pre-tax basis. Key employees can defer up to 75% of their base compensation and up to 100% of any incentive awards. Non-employee directors can defer up to 100% of their director fees. There are essentially two separate investment programs available to plan participants, allowing them to direct the investment of deferrals into various investment fund equivalents offered by the plan.participants. The first program ("Program 1") offers WPS Resources common stock as a hypothetical investment option for participants; deemed dividends paid on the common stock are automatically reinvested; and all distributions must be made in WPS Resources common stock. The second program ("Program 2") offers a variety of hypothetical

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  investment options indexed to mutual funds, WPS ResourcesResources' return on equity, and WPS Resources common stock. Participants may not redirect investments between the two programs. All employee deferrals are remitted to Wisconsin Public ServiceWPSC and, therefore, the liabilities and costs associated with the deferred compensation plans are included on Wisconsin Public Service'sWPSC's Consolidated Balance Sheets and Consolidated Statements of Income, respectively.

  Program 1 is accounted for as a plan that does not permit diversification. As a result, the deferred compensation arrangement is classified as an equity instrument and changes in the fair value of the deferred compensation obligation are not recognized. The deferred compensation obligation associated with Program 1 was $13.0 million at December 31, 2004, and $10.3 million at December 31, 2003 and $8.8 million at December 31, 2002.2003.

  Program 2 is accounted for as a plan that permits diversification. As a result, the deferred compensation obligation associated with this program is classified as a liability in the Consolidated Balance Sheets and adjusted, with a charge or credit to expense, to reflect changes in the fair value of the deferred compensation obligation. The obligation, classified within other long-term liabilities, was $21.0 million at December 31, 2004, and $18.7 million at December 31, 2003 and $16.0 million at December 31, 2002.2003. The costcosts incurred under Program 2 waswere $2.1 million in 2004, $2.4 million in 2003, and $1.6 million in 2002, and $1.4 million in 2001.2002.

  The deferred compensation programs are partially funded through WPS Resources common stock that is held in a rabbi trust. The common stock held in the rabbi trust is classified in equity in a manner similar to accounting for treasury stock. The total cost of WPS Resources common stock held in the rabbi trust was $8.4 million at December 31, 2004, and $6.5 million at December 31, 2003 and $5.4 million at December 31, 2002. 2003.

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  NOTE 20--PREFERRED19--PREFERRED STOCK OF SUBSIDIARY

  Wisconsin Public ServiceWPSC has issued1,000,000 authorized shares of preferred stock with no mandatory redemption and a $100 par value. The following table shows theOutstanding shares outstanding of the 1,000,000 shares authorized:are as follows at December 31:

  						2004		2003
  (Millions, except share amounts)	Series	Shares Outstanding	2003	2002	Series	Shares Outstanding	Carrying Value	Shares Outstanding	Carrying Value
  	5.00%	132,000	$13.2	$13.2	5.00%	130,799	$13.1	130,853	$13.1
  	5.04%	30,000	3.0	3.0	5.04%	29,920	3.0	29,920	3.0
  	5.08%	50,000	5.0	5.0	5.08%	49,928	5.0	49,928	5.0
  	6.76%	150,000	15.0	15.0	6.76%	150,000	15.0	150,000	15.0
  	6.88%	150,000	15.0	15.0	6.88%	150,000	15.0	150,000	15.0
  Total		512,000	$51.2	$51.2		510,647	$51.1	510,701	$51.1

  All shares of preferred stock of all series constitute one class and are of equal rank except as to dividend rates and redemption terms. Payment of dividends from any earned surplus or other available surplus is not restricted by the terms of any indenture or other undertaking by Wisconsin Public Service.WPSC. Each series of outstanding preferred stock is redeemable in whole or in part at Wisconsin Public Service'sWPSC's option at any time on 30 days' notice at the respective redemption prices. Wisconsin Public ServiceWPSC may not redeem less than all, nor purchase any, of its preferred stock during the existence of any dividend default.

  In the event of Wisconsin Public Service'sWPSC's dissolution or liquidation, the holders of preferred stock are entitled to receive (a) the par value of their preferred stock out of the corporate assets other than profits before any of such assets are paid or distributed to the holders of common stock and (b) the amount of dividends accumulated and unpaid on their preferred stock out of the surplus or net profits before any of such surplus or net profits are paid to the holders of common stock. Thereafter, the remainder of the corporate assets, surplus, and net profits shall be paid to the holders of common stock.

  The preferred stock has no pre-emptive, subscription, or conversion rights, and has no sinking fund provisions.

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  NOTE 21--COMMON20--COMMON EQUITY

  Shares outstanding at December 31	2003	2002
  Common stock, $1 par value, 200,000,000 shares authorized	36,830,556	32,040,875
  Treasury stock	15,700	65,650
  Average cost of treasury shares	$25.19	$23.62
  Shares in deferred compensation rabbi trust	192,880	166,446
  Average cost of deferred compensation rabbi trust shares	$33.72	$32.29

  As part of a merger with Wisconsin Fuel and Light into Wisconsin Public Service, 1,763,871 shares of common stock were issued on April 1, 2001 to former Wisconsin Fuel and Light shareholders.

  On December 17, 2001, 2,300,000 shares of WPS Resources common stock were issued at $34.36 per share and resulted in a net increase in equity of $76.0 million.

  Shares outstanding at December 31	2004	2003
  Common stock, $1 par value, 200,000,000 shares authorized	37,500,791	36,830,556
  Treasury stock	12,000	15,700
  Average cost of treasury shares	$25.19	$25.19
  Shares in deferred compensation rabbi trust	229,238	192,880
  Average cost of deferred compensation rabbi trust shares	$36.84	$33.72

  On November 24, 2003, 4,025,000 shares of WPS Resources common stock were issued at $43.00 per share and resulted in a net increase in equity of $166.8 million.

  Treasury shares at December 31, 20032004, relate to our Non-Employee Directors Stock Option Plan. The number of stock options granted under this plan may not exceed 100,000 shares. All options under this plan have a ten-year life, but may not be exercised until one year after the date of grant.

  Effective January 2001, we began issuing new stock under our Stock Investment Plan and under certain of our stock-based employee benefit plans. These stock issuesissuances increased equity $28.3 million, $31.0 million, in 2003 and $28.3 million in 2002. WPS Resources also repurchased $1.1 million of existing common stock for stock-based compensation plans in 2003. 2004, 2003, and 2002, respectively.

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  Reconciliation of Common Shares	Common Stock Shares Outstanding
  Balance at December 31, 2000	26,409,470
  Common stock offering	2,300,000
  Wisconsin Fuel and Light Merger	1,763,871
  Stock issued for Stock Incentive Plan and other stock-based    employee benefit plans  Stock issued from Treasury Stock  Stock repurchased for stock-based compensation plans		581,392 29,333 (30,816)
  Balance at December 31, 2001	31,053,250
  Stock IncentiveInvestment Plan and other stock-based employee benefit plans	544,578
  Stock issued from Treasury Stock Stock repurchased for stock-based compensation plans	544,578 241,402 (30,451)
  Increase in deferred compensation rabbi trust shares	(30,451)
  Balance at December 31, 2002	31,808,779
  Common stock offering	4,025,000
  Stock IncentiveInvestment Plan and other stock-based employee benefit plans	764,681
  Stock issued from Treasury Stock Stock repurchased for stock-based compensation plans	764,681 49,950
  Increase in deferred compensation rabbi trust shares	(26,434)
  Balance at December 31, 2003	36,621,976
  Stock Investment Plan and other stock-based employee benefit plans	670,235
  Stock issued from Treasury Stock	3,700
  Increase in deferred compensation rabbi trust shares	(36,358)
  Balance at December 31, 20032004	36,621,97637,259,553

  In December 1996, we adopted a Shareholder Rights Plan. The plan is designed to enhance the ability of the Board of Directors to protect shareholders andof WPS Resources if efforts are made to gain control of our company in a manner that is not in our best interests or the best interests of our shareholders. The

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  plan gives our existing shareholders, under certain circumstances, the right to purchase stock at a discounted price. The rights expire on December 11, 2006.

  WPS Resources is a holding company and our ability to pay dividends is largely dependent upon the ability of our subsidiaries to pay dividends to us. The PSCW has by order restricted our principal subsidiary, WPSC, to paying normal dividends on its common stock of no more than 109% of the previous year's common stock dividend. The PSCW also requires WPSC to maintain a capital structure (i.e., the percentages by which each of common stock, preferred stock and debt constitute the total capital invested in a utility), which has a common equity range of 54% to 58%. Each of these limitations may be modified by a future order of the PSCW. Our right to receive dividends on the common stock of WPSC is also subject to the prior rights of WPSC's preferred shareholders and to provisions in WPSC's restated articles of incorporation which limit the amount of common stock dividends which WPSC may pay if its common stock and common stock surplus accounts constitute less than 25% of its total capitalization. These limitations are not expected to limit any dividend payments in the foreseeable future.

  UPPCO's indentures relating to its first mortgage bonds contain certain limitations on the payment of cash dividends on its common stock, which is held solely by WPS Resources. Under the most restrictive of these provisions, approximately $19.6 million of retained earnings were available at December 31, 2004 for the payment of common stock cash dividends by UPPCO.

  At December 31, 2003, we2004, WPS Resources had $416.1$474.4 million of retained earnings available for dividends.

  Earnings per share is computed by dividing income available for common shareholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing income available for common shareholders for the period by the weighted average number of shares of common stock outstanding during the period adjusted for the exercise and/or conversion of all potentially dilutive securities. Such dilutive items include in-the-money stock options, restricted shares, and performance share grants. The calculation of diluted earnings per share for the years shown excludes some stock option plan shares that had an anti-dilutive effect. The shares having an anti-dilutive effect are not significant for any of the years shown. The following table reconciles the computation of basic and diluted earnings per share:

  Reconciliation of Earnings Per Share
  (Millions, except per share amounts)	2003	2002	2001
  Income available for common shareholders	$94.7	$109.4	$77.6
  Basic weighted average shares	33.0	31.7	28.2
  Incremental issuable shares	0.2	0.3	0.1
  Diluted weighted average shares	33.2	32.0	28.3
  Basic earnings per common share	$2.87	$3.45	$2.75
  Diluted earnings per common share	$2.85	$3.42	$2.74

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  Reconciliation of Earnings Per Share (Millions except per share amounts)	2004	2003	2002
  Income available for common shareholders	$139.7	$94.7	$109.4
  Basic weighted average shares	37.4	33.0	31.7
  Incremental issuable shares	0.2	0.2	0.3
  Diluted weighted average shares	37.6	33.2	32.0
  Basic earnings per common share	$3.74	$2.87	$3.45
  Diluted earnings per common share	$3.72	$2.85	$3.42

  NOTE 22--STOCK OPTION PLANS21--STOCK-BASED COMPENSATION

  In 2001, shareholders approved the WPS Resources Corporationhas three main stock option plans: the 2001 Omnibus Incentive Compensation Plan ("Omnibus Plan"), the 1999 Stock Option Plan ("Employee Plan"), and the 1999 Non-Employee Directors Stock Option Plan ("Director Plan"). No additional stock options will be issued under the Employee Plan, although the plan will continue to exist for certain management personnel. purposes of the existing outstanding options.

  In 1999,May of 2001, shareholders approved the WPS Resources Corporation 1999 Stock OptionOmnibus Plan for certain management personnel. In December 1999,The Long-Term Incentive Plan was approved under the Board of Directors approved the WPS Resources Corporation 1999 Non-Employee Directors Stock Option2001 Omnibus Plan. The Long-Term Incentive Plan has two stock-based compensation components: non-qualified stock options and performance shares. 

  Under the provisions of the 2001 Omnibus Incentive Compensation Plan, the number of shares for which stock options may be granted may not exceed 2 million, and no single employee that is the chief executive officer of WPS Resourcesthe company or any of the other four highest compensated officers of WPS Resources orthe company and its subsidiaries can be granted options for more than 150,000 shares during any calendar year. Under the provisions of the WPS Resources Corporation 1999 Stock Option Plan, the number of shares for which options may be granted may not exceed 1.5 million and no single employee can be granted options for more than 400,000 shares during any five-year period. No additional stock options will be issued under the 1999 Stock Option Plan, although the plan will continue to exist for purposes of the existing outstanding options. Stock options are granted by the Compensation Committee of the Board of Directors and may be granted at any time. No stock options will have a term longer than ten years. The exercise price of each stock option is equal to the fair market value of the stock on the date the stock option was granted.

  Stock options were granted under the 1999 Stock Option Plan on February 11, 1999 (subject to shareholder approvalA portion of the 1999 Stock Option Plan thatexecutive long-term incentive was receivedawarded in the form of performance shares. These shares vest over a three-year performance period and are paid out in shares of WPS Resources common stock. The number of shares paid out is calculated by multiplying a performance percentage by a target number of shares. The performance multiplier is based on May 6, 1999,the performance of WPS Resources relative to the performance of a specific peer group of companies. The payout may range from 0% to 200% of target. Based upon these criteria, 119,296 shares are included in the denominator of the diluted earnings per share computation at December 31, 2004. In accordance with Accounting Principles Board Opinion No. 25, WPS Resources accrues the plan expense over the three-year period in which time the exercise priceservices are performed. Compensation expense recorded was established$2.3 million in 2004, $3.3 million in 2003, and $1.8 million in 2002. 

  Restricted stock shares granted on April 18, 2002, totaled 12,186 shares and had a one-year vesting period. Beginning April 18, 2003, 15% of the shares became unrestricted, with an additional 15% release of restriction at each six-month interval thereafter until fully unrestricted. Restricted shares have a value equal to the fair market value of the shares on the grant date. No compensation expense was recorded for the initial grant), March 13, 2000, and December 14, 2000, with exercise prices of $29.875, $23.1875, and $34.75, respectively. During 2001, stock options were granted under the 2001 Omnibus Plan on July 12 and December 13, with exercise prices of $34.38 and $34.09, respectively. During 2002, stock options were granted under the 2001 Omnibus Plan on January 28, April 11, and December 12, with exercise prices of $36.38, $41.29, and $37.96, respectively.these shares in 2004. In 2003 stock options were granted underand 2002, $0.2 million and $0.3 million of compensation expense was recorded, respectively.

  Under the 2001 Omnibusprovisions of the Director Plan, on February 10 and December 10, having exercise prices of $38.25 and $44.73, respectively. The stock options vest and become exercisable in equal 25% installments over a four-year period.

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  Thethe number of stock options granted under the 1999 Non-Employee Directors Stock Option Planplan may not exceed 100,000, and the shares issued thereunder mustto be delivered will consist solely of treasury shares. Stock options are granted at the discretion of the Board of Directors. No options may be granted under this plan after December 31, 2008. All options have a ten-year life, but may not be exercised until one year after the date of grant. Options granted under this plan are immediately vested. The exercise price of each option is equal to the fair market value of the stock on the date the stock options were granted. Options were granted on December 9, 1999 and February 10, 2000, with exercise prices

  One-fourth of $25.4375 and $25.6875, respectively. No additionalthe stock options are expected to be issuedgranted under this plan.

  the Omnibus Plan and the Employee Plan will become vested and exercisable each year on the anniversary date of the grant. The number of shares subject to 

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  each stock option plan, each outstanding stock option, and stock option exercise prices are subject to adjustment in the event of any stock split, stock dividend, or other transaction affecting our outstanding common stock.

  The fair valueA summary of eachthe activity of the stock option grant was estimated using the Black-Scholes stock option pricing model and the following assumptionsplans for each grant date.2004, is presented below:

  	Annual Dividend Yield	Expected  Volatility	Risk-free  Interest Rate
  July 12, 2001	6.58%	20.93%	5.54%
  December 13, 2001	6.60%	20.19%	5.62%
  January 28, 2002	6.60%	20.53%	5.40%
  April 11, 2002	6.58%	19.53%	5.57%
  December 12, 2002	6.23%	20.08%	4.43%
  February 10, 2003	6.23%	19.97%	4.40%
  December 10, 2003	5.68%	18.25%	4.65%
  Expected life (in years)	10

  Stock Options	Shares	Weighted-Average Exercise Price
  Options outstanding at beginning of year
  Omnibus plan	993,677	$38.9707
  Employee plan	283,621	33.1055
  Director plan	15,700	25.4853
  Granted during 2004
  Omnibus plan	321,313	48.1100
  Exercised during 2004
  Omnibus plan	30,431	35.1724
  Employee plan	38,301	30.5332
  Director plan	3,700	25.4375
  Forfeited during 2004
  Omnibus plan	4,437	41.2294
  Outstanding at end of year
  Omnibus plan	1,280,122	41.3472
  Employee plan	245,320	33.5071
  Director plan	12,000	25.5000
  Options exercisable at year-end
  Omnibus plan	459,425	37.3676
  Employee plan	245,320	33.5071
  Director plan	12,000	25.5000
  Weighted-average fair value of options granted during 2004   Omnibus plan	$4.40

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  A summary of the statusactivity of the stock option plans as of December 31,for 2003, is presented below:

  Stock Options	Shares	Weighted-Average Exercise Price
  Options outstanding at beginning of year
  Omnibus plan	663,548	$36.1131
  Employee plan	492,021	31.5572
  Director plan	19,400	25.4762
  Granted during 2003
  Omnibus plan	335,424	44.5601
  Exercised during 2003
  Omnibus plan	4,420	34.6538
  Employee plan	207,150	29.4879
  Director plan	3,700	25.4375
  Forfeited during 2003
  Omnibus plan	875	36.3014
  Employee plan	1,250	23.1875
  Outstanding at end of year
  Omnibus plan	993,677	38.9707
  Employee plan	283,621	33.1055
  Director plan	15,700	25.4853
  Options exercisable at year-end
  Omnibus plan	241,076	35.4684
  Employee plan	225,116	33.0890
  Director plan	15,700	25.4852
  Weighted-average fair value of options granted during 2003
  Omnibus plan	$4.53

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  Stock Options	Shares	Weighted-Average Exercise Price
  Options outstanding at beginning of year
  Omnibus plan	663,548	$36.1131
  Employee plan	492,021	31.5572
  Director plan	19,400	25.4762
  Granted during 2003
  Omnibus plan	335,424	44.5601
  Exercised during 2003
  Omnibus plan	4,420	34.6538
  Employee plan	207,150	29.4879
  Director plan	3,700	25.4375
  Forfeited during 2003
  Omnibus plan	875	36.3014
  Employee plan	1,250	23.1875
  Outstanding at end of year
  Omnibus plan	993,677	38.9707
  Employee plan	283,621	33.1055
  Director plan	15,700	25.4853
  Options exercisable at year-end
  Omnibus plan	241,076	35.4684
  Employee plan	225,116	33.0890
  Director plan	15,700	25.4852
  Weighted-average fair value of options granted during 2003   Omnibus plan	$4.53

  A summary of the statusactivity of the stock option plans as of December 31,for 2002, is presented below:

  Stock Options	Shares	Weighted-Average Exercise Price	Shares	Weighted-Average Exercise Price
  Options outstanding at beginning of year
  Omnibus plan	327,427	$34.1038	327,427	$34.1038
  Employee plan	705,916	30.9806	705,916	30.9806
  Director plan	23,150	25.4699	23,150	25.4699
  Granted during 2002
  Omnibus plan	341,613	38.0064	341,613	38.0064
  Exercised during 2002
  Employee plan	206,849	29.5512	206,849	29.5512
  Director plan	3,750	25.4375	3,750	25.4375
  Forfeited during 2002
  Omnibus plan	5,492	34.0900	5,492	34.0900
  Employee plan	7,046	32.6744	7,046	32.6744
  Outstanding at end of year
  Omnibus plan	663,548	36.1131	663,548	36.1131
  Employee plan	492,021	31.5572	492,021	31.5572
  Director plan	19,400	25.4762	19,400	25.4762
  Options exercisable at year-end
  Omnibus plan	80,484	34.1040	80,484	34.1040
  Employee plan	256,011	31.6679	256,011	31.6679
  Director plan	19,400	25.4762	19,400	25.4762
  Weighted-average fair value of options granted during 2002
  Omnibus plan	$3.64
  Weighted-average fair value of options granted during 2002 Omnibus plan			$3.64

  A summary of the status of the stock option plans as of December 31, 2001 is presented below:

  Stock Options	Shares	Weighted-Average Exercise Price
  Options outstanding at beginning of year
  Omnibus plan	-	-
  Employee plan	722,416	$30.9322
  Director plan	24,000	25.4688
  Granted during 2001
  Omnibus plan	327,427	34.1038
  Exercised during 2001
  Employee plan	16,500	28.8617
  Director plan	850	25.4375
  Forfeited during 2001	-	-
  Outstanding at end of year
  Omnibus plan	327,427	34.1038
  Employee plan	705,916	30.9806
  Director plan	23,150	25.4699
  Options exercisable at year-end
  Employee plan	283,604	30.6072
  Director plan	23,150	25.4699
  Weighted-average fair value of options granted during 2001
  Omnibus plan	$3.23

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  The following table summarizes the status of the stock options outstanding and exercisable at December 31, 20032004, under the 2001 Omnibus Plan.

  Exercise prices	Options outstanding	Weighted-average exercise price	Options exercisable	Weighted-average exercise price	Weighted-average remaining contractual life (in years)
  Stock Options Outstanding						Stock Options Outstanding				Stock Options Exercisable
  Exercise Prices						Shares	Weighted-Average Remaining Contractual Life (in Years)	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share
  $34.0900	303,223	$34.0900	150,042	$34.0900	8	281,689	7	$34.0900		205,545	$34.0900
  34.3800	14,479	34.3800	6,693	34.3800	8	13,386	6	34.3800		9,493	34.3800
  36.3800	500	36.3800	125	36.3800	8	500	7	36.3800		250	36.3800
  37.9600	335,051	37.9600	82,966	37.9600	8	325,310	8	37.9600		158,383	37.9600
  41.2900	5,000	41.2900	1,250	41.2900	8	5,000	7	41.2900		2,500	41.2900
  38.2500	8,797	38.2500	-	-	10	8,797	8	38.2500		2,200	38.2500
  44.7300	326,627	44.7300	-	-	10	324,127	9	44.7300		81,054	44.7300
  48.1100						321,313	10	48.1100		-	48.1100
  	993,677	$38.9707	241,076	$35.4684		1,280,122		$41.3472		459,425	$37.3676

  The following table summarizes the status of the stock options outstanding and exercisable at December 31, 20032004, under the 1999 Stock Option Plan.

  Exercise prices	Options outstanding	Weighted-average exercise price	Options exercisable	Weighted-average exercise price	Weighted-average remaining contractual life (in years)
  Stock Options Outstanding						Stock Options Outstanding				Stock Options Exercisable
  Exercise Prices						Shares	Weighted-Average Remaining Contractual Life (in Years)	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share
  $29.8750	76,700	$29.8750	76,700	$29.8750	6	49,500	4	$29.8750		49,500	$29.8750
  23.1875	8,000	23.1875	-	-	6	5,500	5	23.1875		5,500	23.1875
  34.7500	198,921	34.7500	148,416	34.7500	7	190,320	6	34.7500		190,320	34.7500
  	283,621	$33.1055	225,116	$33.0890		245,320		$33.5071		245,320	$33.5071

  The following table summarizes the status of the stock options outstanding and exercisable at December 31, 20032004, under the 1999 Non-Employee Director Stock Option Plan.

  Exercise prices	Options Outstanding and exercisable	Weighted-average exercise price	Weighted-average remaining contractual life (in years)
  Stock Options Outstanding				Stock Options Outstanding				Stock Options Exercisable
  Exercise Prices				Shares	Weighted-Average Remaining Contractual Life (in Years)	Weighted-Average Exercise Price Per Share		Shares	Weighted-Average Exercise Price Per Share
  $25.4375	12,700	$25.4375	6	9,000	5	$25.4375		9,000	$25.4375
  25.6875	3,000	25.6875	6	3,000	5	25.6875		3,000	25.6875
  	15,700	$25.4852		12,000		$25.5000		12,000	$25.5000

  NOTE 23--REGULATORY22--REGULATORY ENVIRONMENT

  Wisconsin

  Effective March 21, 2003, Wisconsin Public Service received approval to increase Wisconsin retail electric rates $21.4 million (3.5%) and decrease Wisconsin retail natural gas rates $1.2 million (0.3%). The new retail electric and natural gas rates reflect a 12.0% return on equity and allowed average equity of 55% of total capital.

  The amount of fuel and purchased power costs Wisconsin Public Service is authorized to recover in rates is established in the general rate filing. If the actual fuel and purchased power costs vary from the authorized level by more than 2% on an annual basis, Wisconsin Public Service is allowed, or may be required, to file an application adjusting rates for the remainder of the year to reflect actual costs for the year to date and updated projected costs. On October 29, 2003, Wisconsin Public Service filed to reduce rates by $1.9 million, due to a reduction in the costs of fuel and purchased power, for the period August 15, 2003 through December 31, 2003. On February 19, 2004, the Public Service Commission of Wisconsin approved a refund of $2.7 million, which represents the originally filed amounts, adjustments 

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  and interest. This refund will be credited to customer accounts in March 2004. A liability of $2.6 million was accrued as of December 31, 2003 in anticipation of this refund.

  As a result of the Kewaunee nuclear power plant unplanned outage in late January and early February 2004, and other fuel cost increases in 2004, the Wisconsin Public Service filed for a fuel cost increase of $7.4 millionon February 27, 2004. The Public Service Commission of Wisconsin has scheduled a hearing for March 22, 2004 to determine the amount of the fuel cost increase to be recorded on an interim basis. Wisconsin Public Service expects that a final order will be issued in summer 2004 regarding this increase.

  On April 1, 2003, Wisconsin Public Service filed an application with the Public Service Commission of Wisconsin for authorization to increase electric rates and natural gas rates, effective January 1, 2004. The rate increases are necessary to recover the costs associated with the purchase of the De Pere Energy Center, fuel costs, maintenance of power production facilities and employee benefits. On December 19, 2003, the Public Service Commission of WisconsinPSCW issued a final written order authorizing a retail electric rate increase of $59.4 million (9.4%) and a retail natural gas rate increase of $8.9 million (2.2%), effective January 1, 2004. The new rates reflect a 12.0% return on equity and allowed average equity of 56% of total capital.

  Michigan-139-

  Wisconsin Public Service<PAGE>

  As a result of the Kewaunee unplanned outage, which lasted approximately two weeks during late January and into early February 2004, and other fuel cost and purchased power increases expected in 2004, WPSC received an interim fuel rate order from the PSCW allowing for a $6.0 million (1.2%) increase in rates that went into effect April 2, 2004. In September 2004, the PSCW issued its final order, requiring WPSC to refund $1.8 million of revenues collected under the interim rate order to customers. The refund was returned to customers in October and November 2004. The reduction from the interim rate was necessary due to lower than anticipated fuel and purchased power costs in the third quarter of 2004, which were the result of cooler than normal weather conditions. The final order allowed WPSC recovery of an estimated $3.2 million of its increased fuel and purchased power costs.

  On December 21, 2004, the PSCW issued a final written order authorizing a retail electric increase of $60.7 million (8.6%) and a retail natural gas rate increase of $5.6 million (1.1%), effective January 1, 2005. The retail electric rate increase is primarily driven by increased costs related to fuel and purchased power, construction of Weston 4, benefit costs, and Midwest Independent System Operator costs. The natural gas rate increase is primarily related to increases in benefit costs and the cost of distribution system improvements. The 2005 rates reflect an 11.5% return on equity. The PSCW also approved a common equity ratio of 57.35% in the utility's regulatory capital structure.

  On November 5, 2004, WPSC filed an application with the PSCW to defer all incremental costs, including carrying costs, resulting from unexpected problems encountered in the refueling outage at Kewaunee. During the refueling outage, an unexpected problem was encountered with equipment used for lifting internal vessel components to perform a required 10-year inspection. These equipment problems caused the outage to be extended by approximately three weeks. On November 11, 2004, the PSCW authorized WPSC to defer the replacement fuel costs related to the extended outage. On November 23, 2004, the PSCW authorized WPSC to defer purchased power costs ($5.4 million) and operating and maintenance expenses ($1.8 million) related to the extended outage, effective from when the problems were discovered, including carrying costs at WPSC's authorized weighted average cost of capital. Kewaunee returned to service on December 4, 2004. On February 18, 2005, WPSC filed for PSCW approval to recover these costs and it is anticipated that these costs will be recovered in 2006, pending final approval by the PSCW.

  On November 9, 2004, WPSC filed an application with the PSCW to defer, with carrying costs, the 2005 revenue requirement impacts resulting from the American Jobs Creation Act of 2004 (Jobs Creation Act). The Jobs Creation Act reduces the corporate income tax on certain manufacturing industries. Because the act was not signed into law until October 22, 2004, it was not included in WPSC's 2005 rate proceeding. On December 7, 2004, the PSCW authorized WPSC to defer the 2005 revenue requirement impacts resulting from the Jobs Creation Act including carrying costs at WPSC's authorized weighted average cost of capital.

  On February 20, 2005, Kewaunee was temporarily removed from service after a potential design weakness was identified in a backup cooling system. Plant engineering staff identified the concern and the unit was shutdown in accordance with the plant license. A modification is being made to resolve the issue and it is anticipated that the unit will be back in service at 100% power by mid April. WPSC intends to file a request with the PSCW for recovery of incremental costs associated with fuel, purchased power, and operating and maintenance costs. WPSC and Dominion remain committed to the sale of Kewaunee.

  Michigan

  On March 31, 2004, UPPCO submitted an application to the MPSC to recover $5.2 million of increased 2003 power supply costs relating to UPPCO's integrated system. In addition, UPPCO requested deferral of $1.8 million of power supply costs related to the Dead River flood. On August 31, 2004, the MPSC approved the deferral of the $1.8 million of power supply costs relating to the Dead River flood, and authorized the interim recovery of the $5.2 million pending a final prudence determination. On October 14, 2004, the Commission approved final recovery of the $5.2 million of increased 2003 power 

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  supply costs relating to UPPCO's integrated system. These costs will be recovered from customers through December 2005.

  On December 8, 2004, UPPCO submitted a request to the MPSC to approve UPPCO's proposed treatment of the net gain proceeds from certain sales of undeveloped and partially developed land located in the Upper Peninsula of Michigan as appropriate for ratemaking purposes. If approved by the MPSC, UPPCO will voluntarily forego retail electric service base rate increases through December 31, 2005; however, UPPCO may file for base rate increases in 2005 to be effective on or after January 1, 2006. UPPCO may also file for MPSC consideration of deferred accounting of any governmental mandates during the moratorium and for any unusual and extraordinary events. At this time, the MPSC has not accepted the proposal, and final approval or denial from the MPSC is still pending. 

  On February 4, 2005, UPPCO submitted an application to the MPSC for a 7.6% increase in retail electric rates ($5.7 million in revenues). UPPCO also requested interim rate recovery of 6.0% ($4.5 million in revenues) to allow UPPCO to recover costs during the first quarter of 2003. On July 21,time the Michigan Public Service Commission authorized an increase inMPSC is reviewing the full case. The retail electric rates of $0.3 million and the recovery of an additional $1.0 million of transmission costs through the power supply cost recovery mechanism, effective July 22, 2003.

  On December 20, 2002, the Michigan Public Service Commission approved an 8.95% increase in retail electric rates for customers of Upper Peninsula Power. The Michigan Public Service Commission granted an 11.4% return on equity with the new rates being effective December 21, 2002. This was the first base rate increase for Upper Peninsula Power in 10 years.

  Michigan authorizes a one-for-one fuel and purchased power recovery mechanism for prudently incurred costs. Under the mechanism, the difference between actual and authorized fuel and purchased power costs is deferred until year-end. By March 31 of the following year, the utility must file a reconciliation of the actual costs to the authorized costs. Any under or over recovery is then recovered from or returned to ratepayers through the end of the following year. The reconciliation is subject to review and intervention by customers. At December 31, 2003, Upper Peninsula Power had significantly under recovered fuel and purchased power costsprimarily due to the high costs of purchased power. Upper Peninsula Power intends to file, in March 2004, a reconciliation of the 2003 costs requesting recovery of $5.2 million. In addition, the costs associated with the Presque Isle Power Plant outage have been deferredimproving service quality and are expected to be addressed along with other Dead Flood issues in the next rate case. Upper Peninsula Power expects a final decision regarding the recovery of the 2003 fuel costs no later than the end of 2004. Due to the level of the under recovery relative to Upper Peninsula Power's revenues, the deferred cost may be recovered over more than one year.reliability, technology upgrades, and managing rising employee and retiree benefit costs.

  Federal

  On April 30, 2003, Wisconsin Public ServiceWPSC received a draft order from the Federal Energy Regulatory CommissionFERC approving a 21%, or $4.1 million (21%), interim increase in wholesale electric rates. The new wholesale rates were effective on May 11, 2003, and arewere subject to refund if the final rate increase iswas less. The draft order also granted the use of formula rates, which allow for the adjustment of wholesale electric rates to reflect actual costs without having to file additional rate requests. On March 4, 2004, the Federal Energy Regulatory CommissionFERC and Wisconsin Public ServiceWPSC reached a tentative settlement regarding the final rate increase. Wisconsin Public Service anticipatesWPSC had no material refunds or other adjustments to revenues recorded under the interim rates based on the terms of the tentative agreement. The final settlement is anticipated to be filed withwas approved by FERC on November 19, 2004. No material refunds were required as a result of the Federal Energy Regulatory Commission in the second quarter 

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  of 2004.settlement. This was Wisconsin Public Service'sWPSC's first rate increase for its wholesale electric customers in 17 years.

  On February 10, 2005 the FERC issued an order accepting compliance filings implementing the Seams Elimination Charge Adjustment effective December 1, 2004, subject to refund and surcharge, and set the matters raised for evidentiary hearing. On February 28, 2005, Quest Energy, LLC, a wholly-owned subsidiary of ESI, filed a motion for partial stay of FERC's February 10, 2005 order imposing a Seams Elimination Charge Adjustment on Quest. The purpose of the Seams Elimination Charge Adjustment is to compensate transmission owners for the revenue they would no longer receive due to the elimination of the Regional Through and Out Rates. Because ESI is a load serving entity, it will be billed for Seams Elimination Charge Adjustment charges based on its power imports during 2002 and 2003.

  NOTE 24--SEGMENTS23--VARIABLE INTEREST ENTITIES

  The FASB has issued Interpretation No. 46R (as revised), "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51," in order to improve financial reporting by companies involved with variable interest entities. Interpretation No. 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional financial support from other parties. The primary beneficiary is the party that absorbs the majority of the expected losses and/or receives the majority of the expected residual returns of the variable interest entity's activities.

  The application of Interpretation No. 46R was required for financial statements of public entities that have interests in special-purpose entities for periods ending after December 15, 2003. WPS Resources identified WPSR Capital Trust I as a special purpose entity that is within the scope of Interpretation No. 46R. Refer to Note 24, "Company-Obligated Mandatorily Redeemable Trust Preferred Securities of Preferred Stock Trust," for further discussion of the impacts of implementing this portion of Interpretation No. 46R on the financial statement of WPS Resources.

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  WPS Resources adopted the provisions of Interpretation No. 46R for variable interest entities not defined as special purpose entities effective March 31, 2004. The required adoption had no impact on our consolidated financial statements, as we did not identify significant variable interests in any unconsolidated variable interest entities where we were determined to be the primary beneficiary. We have identified our equity ownership in a synthetic fuel producing facility as a variable interest in a variable interest entity. Through an affiliate of PDI, WPS Resources owns a partial interest in a synthetic fuel facility located in Kentucky and received tax credits pursuant to Section 29 of the Internal Revenue Code based on sales to unaffiliated third-party purchasers of synthetic fuel produced from coal. At December 31, 2004, WPS Resources had a 23% ownership interest in the synthetic fuel facility. No other variable interests were identified. WPS Resources' maximum exposure to loss as a result of our involvement with this variable interest entity is limited to our investment in this entity, which was not significant at December 31, 2004. We were not identified as the primary beneficiary of this entity and, therefore, were not required to consolidate the synthetic fuel facility into our financial statements at December 31, 2004. The adoption of Interpretation No. 46R also included an analysis of our power purchase and sale agreements. We do not believe that any of our power purchase or sale agreements constitute significant variable interests that would lead us to consolidate entities not currently consolidated or deconsolidate any entities currently consolidated.

  NOTE 24--COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF PREFERRED STOCK TRUST

  On July 30, 1998, WPSR Capital Trust I, a Delaware business trust, issued $50.0 million of trust preferred securities to the public. WPS Resources owned all of the outstanding trust common securities of the Trust, and the only asset of the Trust was $51.5 million of subordinated debentures issued by WPS Resources. The debentures were due on June 30, 2038, and bore interest at 7% per year. The terms and interest payments on the debentures corresponded to the terms and distributions on the trust preferred securities.

  As discussed in Note 23, "Variable Interest Entities," it was determined that WPSR Capital Trust I qualified as a special purpose entity and, therefore, the provisions of Interpretation No. 46R were applied to the Trust at December 31, 2003. Prior to this date, we consolidated the preferred securities of the Trust into our financial statements as we held all of the voting securities. Per the provisions of Interpretation No. 46R, however, it was determined that the preferred security holders held the majority of the residual economic risks associated with WPSR Capital Trust I and, therefore, the Trust was deconsolidated effective December 31, 2003. As a result of the deconsolidation, WPS Resources recorded a $1.5 million investment in trust within other current assets and a $51.5 million note payable to preferred stock trust, respectively, within the Consolidated Balance Sheet at December 31, 2003.

  On January 8, 2004, WPS Resources redeemed all of the subordinated debentures that were initially issued to the Trust for $51.5 million and paid accrued interest of $0.1 million. This action required the Trust to redeem an equal amount of trust securities at face value plus any accrued interest and unpaid distributions. As a result of these transactions, the Trust was dissolved effective January 8, 2004.

  NOTE 25--SEGMENTS OF BUSINESS

  We manage our reportable segments separately due to their different operating and regulatory environments.

  Our principal business segments are the regulated electric utility operations of Wisconsin Public ServiceWPSC and Upper Peninsula PowerUPPCO and the regulated natural gas utility operations of Wisconsin Public Service. Wisconsin Public Service'sWPSC. WPSC's revenues are primarily derived from the service of electric and natural gas retail customers in northeastern and central Wisconsin and an adjacent partportion of Upper Michigan. Wisconsin Public ServiceWPSC also provides wholesale electric service to various customers, including municipal utilities, electric cooperatives, energy marketers, other investor-owned utilities, and a municipal joint action agency. Portions of Wisconsin Public Service'sWPSC's electric and natural gas operations cannot be specifically identified as electric or natural gas and instead are allocated using either actual labor hours, revenues, 

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  number of customers, or number of meters. Upper Peninsula PowerUPPCO derives revenues from the sale of electric energy in the Upper Peninsula of Michigan.

  Our other reportable segments include WPS Energy ServicesESI and WPS Power Development. WPS Energy ServicesPDI. ESI offers nonregulated natural gas, electric, and alternate fuel supplies as well as energy management and consulting services to retail and wholesale customers primarily in the northeastern quadrant of the United States and adjacent portions of Canada. Although WPS Energy ServicesESI has a widening array of products and services, revenues are primarily derived through sales of electricity and natural gas. WPS Energy Services'gas to retail and wholesale customers. ESI's marketing and trading operations manage power and natural gas procurement as an integrated portfolio with its retail and wholesale sales commitments. Electricity required to fulfill these sales commitments was procured primarily from independent generators, energy marketers, and organized electric power markets. Natural gas was purchased from a variety of suppliers under daily, monthly, seasonal and long-term contracts with pricing delivery and volume schedules to accommodate customer requirements. WPS Energy Services'ESI's customers include utilities, municipalities, cooperatives, commercial and industrial consumers, aggregators, and other marketing and retail entities.

  WPS Power DevelopmentPDI competes in the wholesale merchant electric power generation industry, primarily in the midwestMidwest and northeastern United States and adjacent portions of Canada. WPS Power Development'sPDI's core competencies include power plant operation and maintenance, waste disposal, and material condition assessment of assets. RevenuesIn order to enable PDI to focus on its core competencies and improve the efficiency and reliability of its existing fleet of power plants, ESI has assumed much of the market price risk associated with these plants. In 2004, PDI entered into tolling and power purchase agreements with ESI to manage electric production from many of its facilities and to manage natural gas costs for its gas-fired generation facilities. PDI continues to manage costs of fuel for its coal-fired facilities. The agreements allow ESI to operate PDI facilities at its discretion, when market conditions and fuel costs are derived primarily through the sale of capacity and energy generated from plant assets through wholesale outtake contracts and into liquid financial markets, primarily the PJM (Pennsylvania, New Jersey and Maryland), New York and NEPOOL (New England Power Pool) markets,advantageous. PDI has power purchase agreements in place with third-party customers at spot prices or day ahead prices.facilities not under contract with ESI.

  The Holding Company and Other segment includes the operations of WPS Resources and WPS Resources Capital Corporation as holding companies and the nonutility activities at Wisconsin Public ServiceWPSC and Upper Peninsula Power. UPPCO.

  The tables below present information for the respective years pertaining to our operations segmented by lines of business.

  Segments of Business
  (Millions)
  	Regulated Utilities			Nonutility and Nonregulated Operations
  2004	Electric Utility(1)	Gas Utility(1)	Total Utility(1)	ESI	PDI	Other	Reconciling Eliminations	WPS Resources Consolidated
  Income Statement
  External revenues	$875.6	$416.4	$1,292.0	$3,553.5	$ 45.1	$ -	$ -	$4,890.6
  Internal revenues	21.0	4.5	25.5	2.8	26.3	1.1	(55.7)	-
  Depreciation and decommissioning	79.5	16.0	95.5	2.5	8.5	0.5	-	107.0
  Miscellaneous income	10.4	0.4	10.8	1.7	(2.0)	40.6	(3.4)	47.7
  Interest expense	25.6	7.7	33.3	0.8	2.4	20.8	(3.1)	54.2
  Provision for income taxes	39.2	10.2	49.4	20.4	(36.0)	(3.8)	-	30.0
  Discontinued operations	-	-	-	0.4	(13.8)	-	-	(13.4)
  Income available for common shareholders	68.8	17.3	86.1	36.7	5.0	11.9	-	139.7
  Total assets	2,225.2	577.9	2,803.1	1,087.3	380.5	321.5	(146.8)	4,445.6
  Cash expenditures for long-lived assets	223.0	62.7	285.7	1.6	2.4	0.3	-	290.0

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  Segments of Business
  (Millions)
  	Regulated Utilities			Nonutility and Nonregulated Operations
  2003	Electric Utility *	Gas Utility *	Total Utility *	WPS Energy Services	WPS Power Development	Other	Reconciling Eliminations	WPS Resources Consolidated
  Income Statement
  External revenues	$785.6	$398.1	$1,183.7	$3,063.2	$74.3	$0.1	-	$4,321.3
  Internal revenues	28.5	6.1	34.6	18.0	8.1	1.1	(61.8)	-
  Depreciation and decommissioning	112.8	14.3	127.1	1.8	8.9	0.6	-	138.4
  Miscellaneous income	43.6	1.3	44.9	1.2	(5.0)	30.7	(8.2)	63.6
  Interest expense	24.9	6.7	31.6	0.5	2.8	27.3	(6.6)	55.6
  Provision for income taxes	33.9	9.2	43.1	17.4	(24.2)	(2.6)	-	33.7
  Discontinued operations	-	-	-	0.3	(16.3)	-	-	(16.0)
  Cumulative effect of change in accounting principle	-	-	-	3.3	(0.3)	-	0.2	3.2
  Income available for common shareholders	60.0	15.7	75.7	29.0	(7.9)	(2.1)	-	94.7
  Balance Sheet
  Total assets	2,102.1	497.0	2,599.1	1,162.7	373.8	305.0	(148.3)	4,292.3
  Cash expenditures for long-lived assets	131.0	40.7	171.7	1.4	3.3	(0.2)	-	176.2

  *(1) Includes only utility operations. Nonutility operations are included in the Other column.

  Segments of Business
  (Millions)
  	Regulated Utilities			Nonutility and Nonregulated Operations
  2002	Electric Utility *	Gas Utility *	Total Utility *	WPS Energy Services	WPS Power Development	Other	Reconciling Eliminations	WPS Resources Consolidated
  Income Statement
  External revenues	$741.6	$308.7	$1,050.3	$358.8	$51.8	$0.2	-	$1,461.1
  Internal revenues	21.5	2.0	23.5	2.4	7.6	1.1	(34.6)	-
  Depreciation and decommissioning	72.6	13.3	85.9	1.1	7.3	0.5	-	94.8
  Miscellaneous income	6.3	0.3	6.6	1.8	27.7	19.8	(8.1)	47.8
  Interest expense	28.7	6.3	35.0	1.6	3.4	22.4	(6.6)	55.8
  Provision for income taxes	31.9	12.4	44.3	6.6	(18.3)	(3.6)	(0.3)	28.7
  Discontinued operations	-	-	-	0.6	(6.6)	-	-	(6.0)
  Income available for common shareholders	61.0	18.4	79.4	11.0	24.0	(5.0)	-	109.4
  Balance Sheet
  Total assets	1,816.7	513.9	2,330.6	877.2	358.1	172.7	(67.4)	3,671.2
  Cash expenditures for long-lived assets	164.3	34.0	198.3	0.8	8.2	3.0	-	210.3

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  Segments of Business
  (Millions)
  	Regulated Utilities			Nonutility and Nonregulated Operations
  2003	Electric Utility(1)	Gas Utility(1)	Total Utility(1)	ESI	PDI	Other	Reconciling Eliminations	WPS Resources Consolidated
  Income Statement
  External revenues	$ 785.6	$398.1	$1,183.7	$3,063.2	$ 74.3	$ 0.1	$ -	$4,321.3
  Internal revenues	28.5	6.1	34.6	18.0	8.1	1.1	(61.8)	-
  Depreciation and decommissioning	112.8	14.3	127.1	1.8	8.9	0.6	-	138.4
  Miscellaneous income	43.6	1.3	44.9	1.2	(5.0)	30.7	(8.2)	63.6
  Interest expense	24.9	6.7	31.6	0.5	2.8	27.3	(6.6)	55.6
  Provision for income taxes	33.9	9.2	43.1	17.4	(24.2)	(2.6)	-	33.7
  Discontinued operations	-	-	-	0.3	(16.3)	-	-	(16.0)
  Cumulative effect of change in accounting principle	-	-	-	3.3	(0.3)	-	0.2	3.2
  Income available for common shareholders	60.0	15.7	75.7	29.0	(7.9)	(2.1)	-	94.7
  Total assets	2,102.1	497.0	2,599.1	1,162.7	373.8	305.0	(148.3)	4,292.3
  Cash expenditures for long-lived assets	131.0	40.7	171.7	1.4	3.3	(0.2)	-	176.2

  ⁽¹⁾ Includes only utility operations. Nonutility operations are included in the Other column.

  Segments of Business
  (Millions)
  	Regulated Utilities			Nonutility and Nonregulated Operations
  2002	Electric Utility(1)	Gas Utility(1)	Total Utility(1)	ESI	PDI	Other	Reconciling Eliminations	WPS Resources Consolidated
  Income Statement
  External revenues	$741.6	$308.7	$1,050.3	$358.8	$ 51.8	$ 0.2	$ -	$1,461.1
  Intersegment revenues	21.5	2.0	23.5	2.4	7.6	1.1	(34.6)	-
  Depreciation and decommissioning	72.6	13.3	85.9	1.1	7.3	0.5	-	94.8
  Miscellaneous income	6.3	0.3	6.6	1.8	27.7	19.8	(8.1)	47.8
  Interest expense	28.7	6.3	35.0	1.6	3.4	22.4	(6.6)	55.8
  Provision for income taxes	31.9	12.4	44.3	6.6	(18.3)	(3.6)	(0.3)	28.7
  Discontinued operations	-	-	-	0.6	(6.6)	-	-	(6.0)
  Income available for common shareholders	61.0	18.4	79.4	11.0	24.0	(5.0)	-	109.4
  Cash expenditures for long-lived assets	164.3	34.0	198.3	0.8	8.2	3.0	-	210.3

  -172-

  <PAGE>

  Segments of Business
  (Millions)
  	Regulated Utilities			Nonutility and Nonregulated Operations
  2001	Electric Utility *	Gas Utility *	Total Utility *	WPS Energy Services	WPS Power Development	Other	Reconciling Eliminations	WPS Resources Consolidated
  Income Statement
  External revenues	$654.4	$320.6	$975.0	$322.3	$ 47.9	$0.2	-	$1,345.4
  Intersegment revenues	21.3	1.0	22.3	4.3	8.7	1.1	(36.4)	-
  Depreciation and decommissioning	66.4	11.7	78.1	0.7	4.9	0.4	-	84.1
  Miscellaneous income	14.5	0.2	14.7	1.1	2.6	27.2	(8.1)	37.5
  Interest expense	28.3	6.0	34.3	0.2	4.2	23.0	(8.3)	53.4
  Provision for income taxes	31.6	5.9	37.5	3.5	(29.9)	(1.8)	(0.1)	9.2
  Discontinued operations	-	-	-	0.9	(7.8)	-	-	(6.9)
  Income available for common shareholders	58.8	8.9	67.7	6.4	2.3	1.3	(0.1)	77.6
  Balance Sheet
  Total assets	1,725.9	482.6	2,208.5	720.1	323.1	167.7	(72.9)	3,346.5
  Cash expenditures for long-lived assets	175.8	24.9	200.7	10.9	27.7	5.0	-	244.3

  *(1) Includes only utility operations. Nonutility operations are included in the Other column.

  Geographic Information
  (Millions)
  	2003			2002			2001
  	Revenues	Long-lived Assets		Revenues	Long-lived Assets		Revenues
  United States	$3,749.6	$2,618.4		$1,407.4	$2,358.5		$1,343.1
  Canada	571.7	24.1		53.7	25.5		2.3
  Total	$4,321.3	$2,642.5		$1,461.1	$2,384.0		$1,345.4

  Geographic Information (Millions)
  	2004			2003			2002
  	Revenues	Long-Lived Assets		Revenues	Long-Lived Assets		Revenues
  United States	$3,763.6	$2,823.8		$3,749.6	$2,618.4		$1,407.4
  Canada(1)	1,127.0	22.9		571.7	24.1		53.7
  Total	$4,890.6	$2,846.7		$4,321.3	$2,642.5		$1,461.1

  -173-(1)Revenues and assets of Canadian subsidiaries.

  -144-

  <PAGE>

   

  NOTE 25--QUARTERLY26--QUARTERLY FINANCIAL INFORMATION (Unaudited)

  (Millions, except for share amounts)	Three Months Ended					Three Months Ended
  						March	June	2004 September	December	Total
  Operating revenues						$1,373.3	$1,045.9	$1,072.5	$1,398.9	$4,890.6
  Operating Income						71.0	17.5	49.9	50.9	189.3
  Income from continuing operations						46.4	10.7	37.8	61.3	156.2
  Income available for common shareholders						42.6	4.6	34.8	57.7	139.7
  Average number of shares of common stock (basic)						37.1	37.3	37.4	37.5	37.4
  Average number of shares of common stock (diluted)						37.3	37.5	37.6	37.8	37.6
  Earnings per common share (basic) (2)
  Income from continuing operations						$1.23	$0.27	$0.99	$1.61	$4.09
  Earnings per common share (basic)						1.15	0.12	0.93	1.54	3.74
  Earnings per common share (diluted) (2)
  Income from continuing operations						$1.22	$0.26	$0.99	$1.60	$4.07
  Earnings per common share (diluted)						1.14	0.12	0.93	1.53	3.72
  	2003
  	March	June	September	December	Total	March	June	2003 September	December	Total
  Operating revenues (1)	$1,281.8	$971.9	$989.3	$1,078.3	$4,321.3	$1,281.8	$971.9	$989.3	$1,078.3	$4,321.3
  Operating income	57.4	10.5	52.5	10.3	130.7	57.4	10.5	52.5	10.3	130.7
  Income from continuing operations	35.7	9.2	33.3	32.4	110.6	35.7	9.2	33.3	32.4	110.6
  Net income before cumulative effect of change in accounting principles	30.6	3.5	34.8	25.7	94.6	30.6	3.5	34.8	25.7	94.6
  Income available for common shareholders	33.0	2.7	34.1	24.9	94.7	33.0	2.7	34.1	24.9	94.7
  Average number of shares of common stock (basic)	32.1	32.4	32.6	34.5	33.0
  Average number of shares of common stock						32.1	32.4	32.6	34.5	33.0
  Average number of shares of common stock (diluted)	32.4	32.7	32.9	34.8	33.2	32.4	32.7	32.9	34.8	33.2
  Earnings per common share (basic) (2)
  Income from continuing operations	$1.09	$0.26	$1.00	$0.92	$3.26	$1.09	$0.26	$1.00	$0.92	$3.26
  Net income before cumulative effect of change in accounting principles	0.93	0.08	1.05	0.72	2.77	0.93	0.08	1.05	0.72	2.77
  Earnings per common share (basic)	1.03	0.08	1.05	0.72	2.87	1.03	0.08	1.05	0.72	2.87
  Earnings per common share (diluted) (2)
  Income from continuing operations	$1.08	$0.26	$0.99	$0.91	$3.24	$1.08	$0.26	$0.99	$0.91	$3.24
  Net income before cumulative effect of change in accounting principles	0.92	0.08	1.04	0.72	2.75	0.92	0.08	1.04	0.72	2.75
  Earnings per common share (diluted)	1.02	0.08	1.04	0.72	2.85	1.02	0.08	1.04	0.72	2.85
  	2002
  	March	June	September	December	Total
  Operating revenues (1)	$380.3	$310.5	$350.6	$419.7	$1,461.1
  Operating income	48.8	22.8	45.7	37.9	155.2
  Income from continuing operations	32.1	23.6	29.9	32.9	118.5
  Income available for common shareholders	28.1	21.7	30.5	29.1	109.4
  Average number of shares of common stock	31.4	31.7	31.9	32.0	31.7
  Average number of shares of common stock (diluted)	31.6	31.9	32.1	32.2	32.0
  Earnings per common share (basic) (2)
  Income from continuing operations	$1.00	$0.72	$0.91	$1.01	$3.64
  Earnings per common share (basic)	0.89	0.68	0.96	0.91	3.45
  Earnings per common share (diluted) (2)
  Income from continuing operations	$0.99	$0.71	$0.91	$1.00	$3.61
  Earnings per common share (diluted)	0.89	0.68	0.95	0.90	3.42

  (1) Revenue havehas been reclassified, including revenues related to discontinued operation, to conform to current year presentation.

  (2) Earnings per share for the individual quarters do not total the year ended earnings per share amount because of the significant changes to the average number of shares outstanding and changes in incremental issuable shares throughout the year.

  Because of various factors, which affect the utility business, the quarterly results of operations are not necessarily comparable.

   

  -174--145-

  <PAGE>

  ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  WPS RESOURCES CORPORATION

  
  
  F. REPORT OF INDEPENDENT AUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRM

   

  To the Shareholders and Board of Directors of WPS Resources Corporation

  We have audited the accompanying consolidated balance sheets of WPS Resources Corporation and subsidiaries (the "Company"), as of December 31, 20032004 and 2002,2003, and the related consolidated statements of income, common shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003.2004. Our audits also included the financial statement schedules listed in the Index at Item 15.  These financial statements and financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

  We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

  In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of WPS Resources Corporation and subsidiaries as of December 31, 20032004 and 2002,2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003,2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

  As discussed in Note 1 to the consolidated financial statements, effective January 1, 2003 the Company changed its method of accounting for certain energy trading contracts to adopt EITF 02-3, "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." As discussed in Notes 1 and 1615 to the consolidated financial statements, effective January 1, 2003, the Company changed its method of accounting for asset retirement obligations to adopt Statement of Financial Accounting StandardsStandard No. 143, "Accounting for Asset Retirement Obligations."

  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

   

  DELOITTE/s/ Deloitte & TOUCHETouche LLP

  
  
  Milwaukee, Wisconsin
  March 10, 20049, 2005

  -175--146-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA						ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION	WISCONSIN PUBLIC SERVICE CORPORATION						WISCONSIN PUBLIC SERVICE CORPORATION
  G. CONSOLIDATED STATEMENTS OF INCOME	G. CONSOLIDATED STATEMENTS OF INCOME						G. CONSOLIDATED STATEMENTS OF INCOME
  Year Ended December 31
  (Millions)		2003		2002		2001		2004		2003		2002
  Operating revenues
  Electric		$724.9		$696.9		$610.7		$801.2		$724.9		$696.9
  Gas		404.2		310.7		321.6		420.9		404.2		310.7
  Total operating revenues		1,129.1		1,007.6		932.3		1,222.1		1,129.1		1,007.6
  Operating expenses
  Electric production fuels		134.1		127.7		122.8		137.7		134.1		127.7
  Purchased power		90.9		89.5		90.0		111.3		90.9		89.5
  Gas purchased for resale		291.0		198.6		230.2		301.9		291.0		198.6
  Other operating expenses		283.1		257.5		192.5		306.9		283.1		257.5
  Maintenance		72.0		69.4		69.7		79.1		72.0		69.4
  Depreciation and decommissioning		122.9		81.9		72.6		91.0		122.9		81.9
  Federal income taxes		30.9		33.0		29.3		37.8		30.9		33.0
  Investment tax credit restored		(1.5)		(1.5)		(1.5)		(1.3)		(1.5)		(1.5)
  State income taxes		8.9		10.3		7.4		10.6		8.9		10.3
  Gross receipts tax and other		36.8		33.4		31.4		38.5		36.8		33.4
  Total operating expense		1,069.1		899.8		844.4		1,113.5		1,069.1		899.8
  Operating income		60.0		107.8		87.9		108.6		60.0		107.8
  Other income and (deductions)
  Allowance for equity funds used during construction		2.4		3.0		1.9		2.0		2.4		3.0
  Other, net		60.3		16.0		34.7		35.2		60.3		16.0
  Income taxes		(7.4)		(5.0)		(8.7)		(4.2)		(7.4)		(5.0)
  Total other income		55.3		14.0		27.9		33.0		55.3		14.0
  Interest expense
  Interest on long-term debt		27.8		27.2		24.1		29.9		27.8		27.2
  Other interest		4.9		7.9		9.2		4.5		4.9		7.9
  Allowance for borrowed funds used during construction		(1.0)		(1.2)		(2.1)		(0.7)		(1.0)		(1.2)
  Total interest expense		31.7		33.9		31.2		33.7		31.7		33.9
  Minority interest		(1.6)		(1.7)		(0.9)		-		(1.6)		(1.7)
  Net income		82.0		86.2		83.7		107.9		82.0		86.2
  Preferred stock dividend requirements		3.1		3.1		3.1		3.1		3.1		3.1
  Earnings on common stock		$78.9		$83.1		$80.6		$104.8		$78.9		$83.1
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes
  are an integral part of these statements.
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes are an integral part of these statements.							The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes are an integral part of these statements.

  -176-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  H. CONSOLIDATED BALANCE SHEETS
  At December 31
  (Millions)	2003	2002
  Assets
  Utility plant
  Electric	$2,121.2	$1,906.3
  Gas	457.2	427.3
  Total	2,578.4	2,333.6
  Less - Accumulated depreciation and decommissioning	1,132.4	1,013.4
  Total	1,446.0	1,320.2
  Nuclear decommissioning trusts	332.3	290.5
  Construction in progress	81.7	98.4
  Nuclear fuel, less accumulated amortization	20.3	24.6
  Net utility plant	1,880.3	1,733.7
  Current assets
  Cash and cash equivalents	4.7	3.4
  Customer and other receivables, net of reserves of $4.4
  at December 31, 2003 and $3.7 at December 31, 2002	103.6	101.2
  Receivables from related parties	9.3	7.7
  Accrued unbilled revenues	51.3	47.3
  Fossil fuel, at average cost	14.9	16.3
  Gas in storage, at average cost	50.9	31.0
  Materials and supplies, at average cost	26.2	24.0
  Assets from risk management activities	4.5	1.4
  Prepayments and other	38.2	30.7
  Total current assets	303.6	263.0
  Regulatory assets	125.0	109.0
  Pension assets	67.8	84.1
  Goodwill	36.4	35.5
  Investments and other assets	157.7	98.9
  Total assets	$2,570.8	$2,324.2
  Capitalization and Liabilities
  Capitalization
  Common stock equity	$798.2	$745.9
  Preferred stock with no mandatory redemption	51.2	51.2
  Long-term debt to parent	12.4	12.8
  Long-term debt	495.4	429.7
  Total capitalization	1,357.2	1,239.6
  Current liabilities
  Current portion of long-term debt	49.9	50.0
  Short-term debt	10.0	26.0
  Accounts payable	104.9	160.2
  Intercompany accounts payable	8.6	1.2
  Accrued interest and taxes	9.3	10.8
  Other	16.5	16.5
  Total current liabilities	199.2	264.7
  Long-term liabilities and deferred credits
  Accumulated deferred income taxes	134.1	123.8
  Accumulated deferred investment tax credits	16.5	18.1
  Regulatory liabilities	285.4	42.7
  Environmental remediation liability	36.2	38.7
  Pension and postretirement benefit obligations	135.9	68.8
  Asset retirement obligations	344.0	-
  Nuclear decommissioning and other costs of removal	-	451.6
  Other long-term liabilities	62.3	76.2
  Total long-term liabilities and deferred credits	1,014.4	819.9
  Commitments and contingencies	-	-
  Total capitalization and liabilities	$2,570.8	$2,324.2
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's
  notes are an integral part of these statements.

  -177--147-

  <PAGE>

   

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION I. CONSOLIDATED STATEMENTS OF CAPITALIZATION
  At December 31
  (Millions, except share amounts)	2003	2002
  Common stock equity
  Common stock	$95.6	$95.6
  Premium on capital stock	438.3	383.8
  Accumulated other comprehensive loss	(14.9)	(2.7)
  Retained earnings	279.2	269.2
  Total common stock equity	798.2	745.9
  Preferred stock
  Cumulative, $100 par value, 1,000,000 shares authorized
  with no mandatory redemption -
  Shares
  Series     Outstanding
  5.00%     132,000	13.2	13.2
  5.04%       30,000	3.0	3.0
  5.08%       50,000	5.0	5.0
  6.76%     150,000	15.0	15.0
  6.88%     150,000	15.0	15.0
  Total preferred stock	51.2	51.2
  Long-term debt to parent
  Series     Year Due
  8.76%      2015	5.2	5.3
  7.35%      2016	7.2	7.5
  Total long-term debt to parent	12.4	12.8
  Long-term debt
  First mortgage bonds
  Series     Year Due
  6.80%      2003	-	50.0
  6.125%    2005	-	9.1
  6.90%      2013	22.0	22.0
  7.125%    2023	50.0	50.0
  Senior notes
  Series    Year Due
  6.08%     2028	50.0	50.0
  6.125%   2011	150.0	150.0
  4.875%   2012	150.0	150.0
  4.8%       2013	125.0	-
  Total	547.0	481.1
  Unamortized discount and premium on bonds, net	(1.7)	(1.4)
  Total first mortgage bonds	545.3	479.7
  Current portion	(49.9)	(50.0)
  Total long-term debt	495.4	429.7
  Total capitalization	$1,357.2	$1,239.6
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes
  are an integral part of these statements.

  ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  H. CONSOLIDATED BALANCE SHEETS
  At December 31
  (Millions)	2004	2003
  Assets
  Utility plant
  Electric	$2,223.9	$2,121.2
  Gas	510.0	457.2
  Total	2,733.9	2,578.4
  Less - Accumulated depreciation	1,189.3	1,132.4
  Total	1,544.6	1,446.0
  Nuclear decommissioning trusts	344.5	332.3
  Construction in progress	153.1	81.7
  Nuclear fuel, less accumulated amortization	24.6	20.3
  Net utility plant	2,066.8	1,880.3
  Current assets
  Cash and cash equivalents	3.5	4.7
  Customer and other receivables, net of reserves of $5.5
  at December 31, 2004 and $4.4 at December 31, 2003	106.2	103.6
  Receivables from related parties	9.1	15.6
  Accrued unbilled revenues	68.4	51.3
  Fossil fuel, at average cost	15.2	14.9
  Gas in storage, at average cost	60.2	50.9
  Materials and supplies, at average cost	28.3	26.2
  Assets from risk management activities	5.7	4.5
  Prepayments and other	39.3	38.8
  Total current assets	335.9	310.5
  Regulatory assets	156.5	125.0
  Pension assets	-	67.8
  Goodwill	36.4	36.4
  Investments and other assets	173.0	157.7
  Total assets	$2,768.6	$2,577.7
  Capitalization and Liabilities
  Capitalization
  Common stock equity	$899.7	$798.2
  Preferred stock with no mandatory redemption	51.2	51.2
  Long-term debt to parent	12.0	12.4
  Long-term debt	496.0	495.4
  Total capitalization	1,458.9	1,357.2
  Current liabilities
  Current portion of long-term debt	-	49.9
  Short-term debt	101.0	10.0
  Accounts payable	145.1	104.9
  Payables to related parties	8.9	14.9
  Accrued interest and taxes	8.1	9.3
  Other	20.5	16.5
  Total current liabilities	283.6	205.5
  Long-term liabilities and deferred credits
  Accumulated deferred income taxes	130.1	134.7
  Accumulated deferred investment tax credits	15.2	16.5
  Regulatory liabilities	271.1	285.4
  Environmental remediation liability	66.7	36.2
  Pension and postretirement benefit obligations	92.9	135.9
  Asset retirement obligations	364.4	344.0
  Payables to related parties	18.6	-
  Other long-term liabilities	67.1	62.3
  Total long-term liabilities and deferred credits	1,026.1	1,015.0
  Commitments and contingencies	-	-
  Total capitalization and liabilities	$2,768.6	$2,577.7
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes are an integral part of these statements.

  -178--148-

  <PAGE>

   

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  J. CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
  						Accumulated
  				Capital in		Other
  	Comprehensive		Common	Excess of	Retained	Comprehensive
  (Millions)	Income	Total	Stock	Par Value	Earnings	Loss
  Balance at December 31, 2000	-	$573.0	$95.6	$248.1	$229.3	-
  Earnings on common stock	$80.6	80.6	-	-	80.6	-
  Other comprehensive income (net of taxes)	0.0	-	-	-	-	-
  Comprehensive income	$80.6	-	-	-	-	-
  Net equity infusions from parent	-	114.8	-	114.8	-	-
  Dividends to parent	-	(59.5)	-	-	(59.5)	-
  Other	-	1.7	-	1.7	-	-
  Balance at December 31, 2001	-	$710.6	$95.6	$364.6	$250.4	-
  Earnings on common stock	$83.1	83.1	-	-	83.1	-
  Other comprehensive loss - minimum pension liability (net of taxes of $1.8)	(2.7)	(2.7)	-	-	-	(2.7)
  Comprehensive income	$80.4	-	-	-	-	-
  Net equity infusions from parent	-	15.0	-	15.0	-	-
  Dividends to parent	-	(64.0)	-	-	(64.0)	-
  Other	-	3.9	-	4.2	(0.3)	-
  Balance at December 31, 2002	-	$745.9	$95.6	$383.8	$269.2	($2.7)
  Earnings on common stock	$78.9	78.9	-	-	78.9	-
  Other comprehensive loss - minimum pension liability (net of taxes of $8.2)	(12.2)	(12.2)	-	-	-	(12.2)
  Comprehensive income	$66.7	-	-	-	-	-
  Net equity infusions from parent	-	50.0	-	50.0	-	-
  Dividends to parent	-	(69.0)	-	-	(69.0)	-
  Other	-	4.6	-	4.5	0.1	-
  Balance at December 31, 2003	-	$798.2	$95.6	$438.3	$279.2	($14.9)
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes are an integral part of these statements.

  -179-

  ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  I. CONSOLIDATED STATEMENTS OF CAPITALIZATION
  At December 31
  (Millions, except share amounts)		2004		2003
  Common stock equity
  Common stock		$95.6		$95.6
  Premium on capital stock		516.0		438.3
  Accumulated other comprehensive loss		(20.7)		(14.9)
  Retained earnings		308.8		279.2
  Total common stock equity		899.7		798.2
  Preferred stock
  Cumulative, $100 par value, 1,000,000 shares authorized
  with no mandatory redemption -
  Shares
  Series      Outstanding
  5.00%        131,916		13.2		13.2
  5.04%          29,983		3.0		3.0
  5.08%          49,983		5.0		5.0
  6.76%        150,000		15.0		15.0
  6.88%        150,000		15.0		15.0
  Total preferred stock		51.2		51.2
  Long-term debt to parent
  Series      Year Due
  8.76%         2015		5.0		5.2
  7.35%         2016		7.0		7.2
  Total long-term debt to parent		12.0		12.4
  Long-term debt
  First mortgage bonds
  Series      Year Due
  6.90%         2013		22.0		22.0
  7.125%       2023		0.1		50.0
  Senior notes
  Series      Year Due
  6.08%        2028		50.0		50.0
  6.125%      2011		150.0		150.0
  4.875%      2012		150.0		150.0
  4.8%          2013		125.0		125.0
  Total		497.1		547.0
  Unamortized discount and premium on bonds, net		(1.1)		(1.7)
  Total first mortgage bonds		496.0		545.3
  Current portion		-		(49.9)
  Total long-term debt		496.0		495.4
  Total capitalization		$1,458.9		$1,357.2
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes are an integral part of these statements.

  -149-

  <PAGE>

   

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  K. CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31
  (Millions)	2003	2002	2001
  Cash flows from operating activities:
  Net income	$82.0	$86.2	$83.7
  Adjustments to reconcile net income to net cash from
  operating activities -
  Depreciation and decommissioning	122.9	81.9	72.6
  Gain on nuclear decommissioning trust	(38.7)	(1.7)	(8.1)
  Amortization	41.4	45.5	9.2
  Deferred income taxes	12.1	(0.3)	3.2
  Allowance for equity funds used during construction	(2.4)	(3.0)	(1.9)
  Equity income, net of minority interest	(9.3)	(9.5)	(7.4)
  Gain on sale of property	(7.3)	(0.7)	(14.9)
  Pension expense (credit)	9.3	0.2	(4.5)
  Postretirement funding	(2.9)	(0.7)	6.3
  Other, net	(16.9)	(5.2)	(2.5)
  Changes in -
  Customer and other receivables	(4.0)	(23.1)	16.2
  Accrued utility revenues	(4.0)	(6.4)	18.9
  Fossil fuel inventory	1.5	(1.3)	(3.9)
  Gas in storage	(19.9)	2.6	(11.0)
  Miscellaneous assets	(10.4)	(7.5)	(0.5)
  Accounts payable	0.4	37.6	(26.0)
  Accrued taxes and interest	(1.4)	(9.0)	5.4
  Miscellaneous current and accrued liabilities	0.2	(0.2)	(7.0)
  Net cash provided by operating activities	152.6	185.4	127.8
  Cash flows from investing activities:
  Capital expenditures	(161.6)	(191.0)	(188.6)
  Purchase of equity investments and other acquisitions	(48.4)	-	-
  Sale of property, plant, and equipment	27.7	1.5	16.2
  Decommissioning funding	(3.0)	(2.6)	(2.6)
  Dividends received and return of capital from equity method investment	4.5	6.7	35.5
  Other	(1.4)	1.4	7.7
  Net cash used for investing activities	(182.2)	(184.0)	(131.8)
  Cash flows from financing activities:
  Short-term debt - net	(16.0)	16.0	(60.0)
  Issuance of long-term debt	125.0	150.0	150.0
  Payments of long-term debt and capital lease	(59.5)	(123.3)	(54.2)
  Equity contributions from parent	50.0	60.0	95.0
  Equity withdrawal by parent	-	(45.0)	(35.0)
  Dividends to parent	(69.0)	(64.0)	(59.5)
  Preferred stock dividends	(3.1)	(3.1)	(3.1)
  Redemption of obligations acquired in purchase business combination	-	-	(17.9)
  Other	3.5	1.5	(5.8)
  Net cash provided by (used for) financing activities	30.9	(7.9)	9.5
  Net change in cash and equivalents	1.3	(6.5)	5.5
  Cash and equivalents at beginning of year	3.4	9.9	4.4
  Cash and equivalents at end of year	$4.7	$3.4	$9.9
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's
  notes are an integral part of these statements.

  -180-

  ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  J. CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
  						Accumulated
  				Capital in		Other
  	Comprehensive		Common	Excess of	Retained	Comprehensive
  (Millions)	Income	Total	Stock	Par Value	Earnings	Loss
  Balance at December 31, 2001	-	$710.6	$95.6	$364.6	$250.4	-
  Earnings on common stock	$83.1	83.1	-	-	83.1	-
  Other comprehensive loss - minimum pension liability   (net of taxes of $1.8)	(2.7)	(2.7)	-	-	-	(2.7)
  Comprehensive income	$80.4	-	-	-	-	-
  Net equity infusions from parent	-	15.0	-	15.0	-	-
  Dividends to parent	-	(64.0)	-	-	(64.0)	-
  Other	-	3.9	-	4.2	(0.3)	-
  Balance at December 31, 2002	-	$745.9	$95.6	$383.8	$269.2	($2.7)
  Earnings on common stock	$78.9	78.9	-	-	78.9	-
  Other comprehensive loss - minimum pension liability   (net of taxes of $8.2)	(12.2)	(12.2)	-	-	-	(12.2)
  Comprehensive income	$66.7	-	-	-	-	-
  Net equity infusions from parent	-	50.0	-	50.0	-	-
  Dividends to parent	-	(69.0)	-	-	(69.0)	-
  Other	-	4.6	-	4.5	0.1	-
  Balance at December 31, 2003	-	$798.2	$95.6	$438.3	$279.2	($14.9)
  Earnings on common stock	$104.8	104.8	-	-	104.8	-
  Other comprehensive loss - minimum pension liability   (net of taxes of $3.8)	(5.8)	(5.8)	-	-	-	(5.8)
  Comprehensive income	$99.0	-	-	-	-	-
  Net equity infusions from parent	-	75.0	-	75.0	-	-
  Dividends to parent	-	(75.0)	-	-	(75.0)	-
  Other	-	2.5	-	2.7	(0.2)	-
  Balance at December 31, 2004	-	$899.7	$95.6	$516.0	$308.8	($20.7)
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's notes are an integral part of these statements.

  -150-

  <PAGE>

  ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  WISCONSIN PUBLIC SERVICE CORPORATION
  K. CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended December 31
  (Millions)	2004	2003	2002
  Cash flows from operating activities:
  Net income	$107.9	$82.0	$86.2
  Adjustments to reconcile net income to net cash from
  operating activities -
  Depreciation and decommissioning	91.0	122.9	81.9
  Gain on nuclear decommissioning trust	(5.5)	(38.7)	(1.7)
  Amortization	42.8	41.4	45.5
  Deferred income taxes	1.0	12.1	(0.3)
  Allowance for equity funds used during construction	(2.0)	(2.4)	(3.0)
  Equity income, net of minority interest	(14.6)	(9.3)	(9.5)
  Gain on sale of property	(13.7)	(7.3)	(0.7)
  Pension expense (credit)	16.3	6.7	(4.9)
  Postretirement expense	12.4	12.0	4.5
  Pension and postretirement funding	(17.8)	(15.6)	(7.3)
  Other, net	14.3	(13.3)	9.6
  Changes in -
  Customer and other receivables	1.0	(4.0)	(23.1)
  Accrued utility revenues	(17.1)	(4.0)	(6.4)
  Fossil fuel inventory	(0.3)	1.5	(1.3)
  Gas in storage	(9.3)	(19.9)	2.6
  Miscellaneous assets	(3.3)	(10.4)	(7.5)
  Accounts payable	9.0	0.4	37.6
  Accrued taxes and interest	(1.2)	(1.4)	(9.3)
  Miscellaneous current and accrued liabilities	3.0	(0.1)	(7.5)
  Net cash provided by operating activities	213.9	152.6	185.4
  Cash flows from investing activities:
  Capital expenditures	(272.8)	(161.6)	(191.0)
  Purchase of equity investments and other acquisitions	-	(48.4)	-
  Sale of property, plant, and equipment	19.5	27.7	1.5
  Decommissioning funding	(0.3)	(3.0)	(2.6)
  Other	1.6	3.1	8.1
  Net cash used for investing activities	(252.0)	(182.2)	(184.0)
  Cash flows from financing activities:
  Short-term debt - net	91.0	(16.0)	16.0
  Issuance of long-term debt	-	125.0	150.0
  Payments of long-term debt and capital lease	(50.3)	(59.5)	(123.3)
  Equity contributions from parent	75.0	50.0	60.0
  Equity withdrawal by parent	-	-	(45.0)
  Dividends to parent	(75.0)	(69.0)	(64.0)
  Preferred stock dividends	(3.1)	(3.1)	(3.1)
  Other	(0.7)	3.5	1.5
  Net cash provided by (used for) financing activities	36.9	30.9	(7.9)
  Net change in cash and equivalents	(1.2)	1.3	(6.5)
  Cash and equivalents at beginning of year	4.7	3.4	9.9
  Cash and equivalents at end of year	$3.5	$4.7	$3.4
  The accompanying WPS Resources Corporation's and Wisconsin Public Service Corporation's
  notes are an integral part of these statements.

  -151-

  <PAGE>

  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  WISCONSIN PUBLIC SERVICE CORPORATION

  L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  Certain notes to Wisconsin Public Service Corporation'sWPSC's financial statements are combined with the notes to the financial statements forof WPS Resources Corporation. Listed below are thein Item 8, Section E. The combined notes to Wisconsin Public Service's financial statements. The combined footnotes are in Item 8. Section E.listed below.

  	Combined FootnoteItem 8, Section E Footnote Reference
  Summary of Significant Accounting Policies	Note 1
  Fair Value of Financial Instruments	Note 2
  Risk Management Activities	Note 3
  Property, Plant, and Equipment	Note 5
  Acquisitions and Sales of Assets	Note 6
  Jointly-OwnedJointly Owned Utility Facilities	Note 7
  Nuclear Plant Operation	Note 8
  Regulatory Assets and Liabilities	Note 9
  Investments in Affiliates, at Equity Method	Note 10
  Goodwill and Other Intangible Assets	Note 11
  Long-Term Debt	Note 14
  Asset Retirement Obligations	Note 15
  Commitments and Contingencies	Note 18 17
  Employee Benefit Plans	Note 19 18
  Preferred Stock of Subsidiary	Note 20 19
  Stock Option PlansStock-Based Compensation	Note 22 21
  Regulatory Environment	Note 23 22

  In addition to the combined notes, the following are supplemental notes related to Wisconsin Public Service andfor WPSC. These notes should be read in conjunction with the WPS Resources' consolidated financial statements and the related notes. Wisconsin Public ServiceWPSC is subject to regulation by the Federal Energy Regulatory CommissionFERC under the Federal Power Act and follows the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission.FERC.

  NOTE 1--CASH AND CASH EQUIVALENTS

  We consider short-term investments with an original maturity of three months or less to be cash equivalents.

  Cash paid for taxes during 2004, 2003, and 2002 and 2001 was $38.4 million, $29.7 million, $52.2 million, and $43.0$52.2 million, respectively. During 2004, 2003, 2002, and 2001,2002, cash paid for interest totaled $28.7 million, $28.4 million, $25.4 million, and $23.6$25.4 million, respectively.

  Non-cash transactions were as follows:

  (Millions)	2003	2002	2001	2004	2003	2002
  Weston 4 construction costs funded through accounts payable				$22.6	$    -	$   -
  Minimum pension liability equity adjustment	$(12.2)	$(2.7)	$ -	5.8	12.2	2.7
  Exchange of transmission assets for equity interest in American Transmission Company	5.9	-	71.1
  Exchange of common stock due to merger with Wisconsin Fuel and Light	-	-	54.8
  Exchange of transmission assets for equity interest in ATC				-	5.9	-

  -181--152-

  <PAGE>

   

  NOTE 2--FAIR VALUE OF FINANCIAL INSTRUMENTS

  The estimated fair values of Wisconsin Public Service'sWPSC's financial instruments as of December 31 were:

  (Millions)	2003		2002		2004		2003
  	Carrying Amount	Fair Value	Carrying Amount	Fair Value	Carrying Amount	Fair Value	Carrying Amount	Fair Value
  Cash and cash equivalents	$ 4.7	4.7	$ 3.4		$ 3.5	$ 3.5	$ 4.7
  Energy conservation loans	1.9	1.9	2.2		1.6	1.6	1.9
  Nuclear decommissioning trusts - utility plant	332.3	332.3	290.5		344.5	344.5	332.3
  Nuclear decommissioning trusts - other assets	22.5	22.5	13.0		26.8	26.8	22.5
  Notes payable	10.0	10.0	10.0		10.0	10.0	10.0
  Commercial paper	-	-	16.0		91.0	91.0	-
  Long-term debt	547.0	565.7	481.1	497.5	497.1	523.2	547.0	565.7
  Preferred stock	51.2	49.1	51.2	45.5	51.2	50.1	51.2	49.1
  Risk management activities	8.4	8.4	0.7
  Risk management activities - net					10.4	10.4	8.4

  NOTE 3--REGULATORY ASSETS AND LIABILITIES

  The following regulatory assets and liabilities were reflected in Wisconsin Public Service'sWPSC's consolidated balance sheets as of December 31:

  (Millions)	2003	2002	2004	2003
  Regulatory assets
  Manufactured gas plant remediation costs (net of insurance recoveries)			$ 71.3	$ 39.6
  De Pere Energy Center	$ 47.7	$ 47.8	45.3	47.7
  Environmental remediation costs (net of insurance recoveries)	39.6	38.5
  Deferred nuclear costs			10.9	4.9
  Plant related costs			6.5	2.6
  Minimum pension liability	15.2	-	6.4	15.2
  Deferred nuclear costs	4.9	7.9
  Reserve for uncollectible accounts			5.5	4.4
  Unamortized loss on debt			2.4	1.4
  Automated meter reading costs	4.5	-	1.8	4.5
  Plant related costs	2.6	0.3
  Funding for enrichment facilities	2.4	3.0	1.8	2.4
  Unamortized loss on debt	1.4	2.1
  Other	6.7	9.4	4.6	2.3
  Total	$125.0	$109.0	$156.5	$125.0
  Regulatory liabilities
  Cost of removal reserve	$167.9	$ -	$173.7	$167.9
  Asset retirement obligations	66.9	-	46.6	66.9
  Unrealized gain on decommissioning trust	22.5	13.0	26.8	22.5
  Derivatives	8.4	1.4	11.0	8.4
  Income tax related items			6.6	4.9
  Deferred gain on emission allowance sales			3.7	5.1
  Deferred ATC costs			1.6	3.4
  Demand-side management expenditures	5.3	5.9	1.1	5.3
  Deferred gain on emission allowance sales	5.1	3.8
  Income tax related items	4.9	10.7
  Deferred American Transmission costs	3.4	3.1
  Interest from tax refunds	0.7	4.8
  Other	0.3	-	-	1.0
  Total	$285.4	$ 42.7	$271.1	$285.4

  -182--153-

  <PAGE>

  NOTE 4--LEASES

  Wisconsin Public ServiceWPSC leases various property, plant, and equipment. Terms of the leases vary but generally require the companyWPSC to pay property taxes, insurance premiums, and maintenance costs associated with the leased property. Rental expense attributable to operating leases was $4.2 million, $3.9 million, and $3.9 million in each of the years2004, 2003, and 2002 and 2001.respectively. Future minimum rental obligations under non-cancelable operating leases are payable as follows:

  Year ending December 31
  (Millions)
  2004	$4.1
  2005	2.0	$ 3.2
  2006	1.4	1.7
  2007	1.2	1.7
  2008	1.1	1.6
  2009		1.4
  Later years	4.9	4.9
  Total payments	$14.7	$14.5

  NOTE 5--COMMON EQUITY

  Wisconsin Public ServiceWPSC is restricted by a Public Service Commission of WisconsinPSCW order to payingpay normal common stock dividends of no more than 109% of the previous year's common stock dividend without the Public Service Commission of Wisconsin'sPSCW's approval. WPS Resources may provide equity contributions or request a return of capital in order to maintain utility common equity levels consistent with those allowed by the regulators. Wisconsin law prohibits Wisconsin Public ServiceWPSC from making loans to or guaranteeing obligations of WPS Resources or its other subsidiaries.

  During 2003, Wisconsin Public Service2004, WPSC received equity contributions of $50$75.0 million from WPS Resources. Wisconsin Public ServiceWPSC paid common dividends of $69$75.0 million to WPS Resources in 2003.2004. The equity contributions allowed Wisconsin Public Service'sWPSC's average equity capitalization ratio for ratemaking to remain within the target range as established by the Public Service Commission of WisconsinPSCW in its most recent rate order.

  NOTE 6--LONG-TERM6--PREFERRED STOCK

  WPSC has issued preferred stock with no mandatory redemption and a $100 par value. The following table shows the carrying value and shares outstanding at December 31, 2003, and 2004 of the 1,000,000 shares authorized:

  (Millions, except share amounts)	Series	Shares Outstanding	Carrying Value
  	5.00%	131,916	$13.2
  	5.04%	29,983	3.0
  	5.08%	49,983	5.0
  	6.76%	150,000	15.0
  	6.88%	150,000	15.0
  Total		511,882	$51.2

  NOTE 7--LONG-TERM DEBT

  At December 31, 2003, Wisconsin Public Service2004, WPSC was in compliance with all covenants relating to outstanding debt. A schedule of all principal debt payment amounts, including bond maturities and early retirementsretirement payments is as follows:

  -154-

  <PAGE>

  Year ending December 31 (Millions)
  2004	$ 49.9
  2005	-
  2006	-
  2007	-
  2008	-
  Later years	497.1
  Total payments	$547.0

  Year ending December 31 (Millions)
  2005	$       -
  2006	-
  2007	-
  2008	-
  2009	-
  Later years	497.1
  Total payments	$497.1

  NOTE 7--SHORT-TERM8--SHORT-TERM DEBT AND LINES OF CREDIT

  Wisconsin Public Service has syndicated a $115 million 364-day revolving credit facility to provide short-term borrowing flexibility and security for commercial paper outstanding.

  The information in the table below relates to short-term debt and lines of credit for the years indicated:

  -183-

  <PAGE>

  (Millions, except for percentages)	2003	2002	2001	2004	2003	2002
  As of end of year
  Commercial paper outstanding	$ -	$16.0	$ -	$91.0	$ -	$16.0
  Average discount rate on outstanding commercial paper	-%	1.35%	-%	2.44%	-%	1.35%
  Short-term notes payable outstanding	$10.0	$10.0	$10.0	$10.0	$10.0	$10.0
  Average interest rate on short-term notes payable	1.12%	1.39%	2.06%	2.26%	1.12%	1.39%
  Available (unused) lines of credit	$115.0	$100.0	$55.0	$20.2	$115.0	$100.0
  For the year
  Maximum amount of short-term debt	$103.0	$80.0	$90.0	$116.0	$103.0	$80.0
  Average amount of short-term debt	$64.7	$22.9	$47.3	$36.3	$64.7	$22.9
  Average interest rate on short-term debt	1.24%	1.74%	4.41%	1.67%	1.24%	1.74%

  The short-term notes payable are due "on demand."commercial paper had varying maturity dates ranging from January 4, 2005, through January 11, 2005.

  NOTE 8--ASSET9--ASSET RETIREMENT OBLIGATIONS

  Legal retirement obligations identified for Wisconsin Public Service relate primarily to the final decommissioning of the Kewaunee nuclear power plant. We haveWPSC has a legal obligation to decommission the irradiated portions of the Kewaunee nuclear power plant in accordance with the Nuclear Regulatory Commission's minimum decommissioning requirements. We haveWPSC has also identified other legal retirement obligations that are not currently significant to the financial statements. Upon implementation of Statement of Financial Accounting StandardsSFAS No. 143 on January 1, 2003, weWPSC recorded a net asset retirement cost of $90.8 million and an asset retirement obligation of $324.8 million. The difference between the previously recorded liabilities of $290.5 million and the liability recorded as a resultcumulative effect of adopting StatementSFAS No. 143 was deferred as a regulatory liability pursuant to StatementSFAS No. 71.

  See WPS Resources Corporation, Note 6, "Acquisitions and Sales of Assets," for information on the pending sale of the Kewaunee nuclear power plant.

  The following table describes changes to the asset retirement obligation liability of Wisconsin Public Service.

  (Millions)
  Asset retirement obligations at December 31, 2002	$      -
  Liability recognized in transition	324.8
  Accretion expense	19.2
  Asset retirement obligation at December 31, 2003	$344.0

  The following pro forma liabilities reflect amounts as if Statement No. 143 had been applied during all periods presented:

  (Millions)	December 31, 2003	December 31, 2002	January 1, 2002
  Nuclear decommissioning	$343.6	$324.4	$306.7
  Other	0.4	0.4	0.3

  Pro forma net income has not been presented for the periods ended December 31, 2003, 2002, and 2001 because the pro forma application of Statement No. 143 to prior periods would result in pro forma net income not materially different from the actual amounts reported for those periods in the Consolidated Statements of Income.

  -184-

  <PAGE>

  Wisconsin Public ServiceWPSC recognized removal costs for utility assets prior to the adoption of StatementSFAS No. 143. Historically these removal costs were reflected as a component of depreciation expense and accumulated deprecationdepreciation in accordance with regulatory treatment. The Staff of the Securities and Exchange Commission has recently expressed their views on the balance sheet presentation of these removal costs for the utility industry and has required that the amounts be reclassified from accumulated deprecation to a liability for all years presented. As a result, Wisconsin Public Service reclassified $451.6 million from accumulated depreciation to nuclear decommissioning and other costs of removal at December 31, 2002. Upon adoption of Financial Accounting StandardsSFAS No. 143 "Accounting for Asset Retirement Obligations" on January 1, 2003, costs of removal with associated legal retirement obligations of $290.5 million were removed from nuclear decommissioning and other costs of removal as these costs are now accounted for as asset retirement obligations. At December 31, 2003, Wisconsin Public Service reclassified $167.9 million ofSubsequent to adopting SFAS No. 143, amounts recognized for costs of removal that were determined todo not have an associated legal obligation from nuclear decommissioning and other costs of removal toare reported as a regulatory liability pursuant to StatementSFAS No. 71.

  -155-

  <PAGE>

  NOTE 9--INCOME10--INCOME TAXES

  The principal components of Wisconsin Public Service'sWPSC's deferred tax assets and liabilities recognized in the balance sheet as of December 31 are as follows:

  (Millions)	2004	2003
  Deferred tax assets
  Plant related	$ 53.5	$ 51.7
  Employee benefits	22.2	18.9
  Deferred income and deductions	14.5	13.4
  Other comprehensive income	13.8	10.0
  Regulatory deferrals	1.8	3.4
  Other	4.6	1.4
  Total	$110.4	$ 98.8
  Deferred tax liabilities
  Plant related	$212.6	$203.2
  Employee benefits	11.0	16.1
  Regulatory deferrals	10.6	5.7
  Deferred income and deductions	3.8	3.3
  Other	3.1	4.6
  Total	$241.1	$232.9
  Consolidated Balance Sheet Presentation
  Prepayments and other	$      -	$ (0.6)
  Other current liabilities	0.6	-
  Long-term deferred tax liabilities	130.1	134.7
  Net deferred tax liabilities	$130.7	$134.1

  (Millions)	2003	2002
  Deferred tax assets
  Plant related	$ 64.9	$ 64.5
  Employee benefits	18.9	36.0
  Other comprehensive income	10.0	1.8
  Regulatory deferrals	3.4	1.6
  Other	1.6	0.8
  Total	$ 98.8	$104.7
  Deferred tax liabilities
  Plant related	$203.2	$179.8
  Employee benefits	16.1	38.2
  Regulatory deferrals	5.7	6.7
  Other	7.9	3.8
  Total	$232.9	$228.5
  Net deferred tax liabilities	$134.1	$123.8

  -185--156-

  <PAGE>

   

  The differences betweenfollowing table presents a reconciliation of federal income taxes determined(which are calculated by applyingmultiplying the statutory federal income tax rate by book income before federal income tax) to the federal statutory rate to income before tax expense reported in the Consolidated Statements of Income for the periods ended December 31 are as follows:31.

  (Millions, except for percentages)	2003		2002		2001		2004		2003		2002
  	Rate	Amount	Rate	Amount	Rate	Amount	Rate	Amount	Rate	Amount	Rate	Amount
  Statutory federal income tax	35.0%	$45.3	35.0%	$47.2	35.0%	$44.6	35.0%	$55.7	35.0%	$45.3	35.0%	$47.2
  State income taxes, net	5.5	7.1	5.4	7.2	5.1	6.4	5.1	8.1	5.5	7.1	5.4	7.2
  Investment tax credit restored	(1.2)	(1.5)	(1.1)	(1.5)	(1.2)	(1.5)	(0.9)	(1.4)	(1.2)	(1.5)	(1.1)	(1.5)
  Plant related	(0.9)	(1.2)	(1.7)	(2.3)	(2.7)	(3.4)	0.1	0.2	(0.9)	(1.2)	(1.7)	(2.3)
  Benefits and compensation							(1.9)	(3.1)	(1.5)	(1.9)	(1.3)	(1.8)
  Federal tax credits							(0.2)	(0.3)	(0.2)	(0.3)	(0.2)	(0.3)
  Other differences, net	(3.1)	(4.0)	(2.9)	(3.8)	(1.8)	(2.2)	(5.0)	(7.9)	(1.4)	(1.8)	(1.4)	(1.7)
  Effective income tax	35.3%	$45.7	34.7%	$46.8	34.4%	$43.9	32.2%	$51.3	35.3%	$45.7	34.7%	$46.8
  Current provision
  Federal		$24.2		$35.6		$33.3		$38.7		$24.2		$35.6
  State		9.4		11.5		7.4		11.6		9.4		11.5
  Total current provision		33.6		47.1		40.7		50.3		33.6		47.1
  Deferred provision		13.6		1.2		4.7		2.3		13.6		1.2
  Investment tax credit restored		(1.5)		(1.5)		(1.5)		(1.3)		(1.5)		(1.5)
  Total income tax expense		$45.7		$46.8		$43.9		$51.3		$45.7		$46.8

  As the related temporary differences reverse, Wisconsin Public ServiceWPSC is prospectively refunding taxes to customers for which deferred taxes were recorded in prior years at rates different than current rates. The regulatory liability for these refunds and other regulatory tax effects totaled $6.6 and $4.9 million as of December 31, 2004, and 2003, and $10.7 million as of December 31, 2002.

  NOTE 10--MINORITY INTEREST

  Previously, WPS Investments was a consolidated subsidiary of Wisconsin Public Service that held Wisconsin Public Service's investment in American Transmission Company. Minority interest on the financial statements of Wisconsin Public Service resulted from joint ownership in WPS Investments. Due to capital contributions to WPS Investments during 2003, WPS Resources became the majority owner. As a result, WPS Investments is now a consolidated subsidiary of WPS Resources that continues to be jointly owned with Wisconsin Public Service and Upper Peninsula Power. Wisconsin Public Service accounts for its investment in WPS Investments under the equity method. The ownership interests have varied throughout 2003, 2002, and 2001 and will continue to change as additional assets are contributed to WPS Investments by the utilities or cash is contributed by WPS Resources.respectively.

  NOTE 11--SEGMENTS OF BUSINESS

  Wisconsin Public ServiceWPSC manages its reportable segments separately due to their different operating and regulatory environments. Its principal business segments are the regulated electric utility operations and the regulated gas utility operations. The tables below present information for the respective years pertaining to the operations of Wisconsin Public ServiceWPSC segmented by lines of business.

  Segments of Business
  (Millions)
  	Regulated Utilities
  2004	Electric Utility	Gas Utility	Total Utility	Other (1)	WPSC Consolidated
  Income Statement
  Operating revenues	$ 801.2	$420.9	$1,222.1	$    -	$1,222.1
  Depreciation and decommissioning	75.0	16.0	91.0	-	91.0
  Other income, excluding taxes	10.4	0.4	10.8	26.4	37.2
  Interest expense	23.1	7.7	30.8	2.9	33.7
  Income taxes	38.4	10.2	48.6	2.7	51.3
  Earnings on common stock	65.8	17.3	83.1	21.7	104.8
  Total assets	2,080.8	577.9	2,658.7	109.9	2,768.6
  Cash expenditures for long-lived assets	210.1	62.7	272.8	-	272.8

  -186-

  <PAGE>

  Segments of Business
  (Millions)
  	Regulated Utilities				Wisconsin Public Service Consolidated
  2003	Electric Utility	Gas Utility	Total Utility	Other *
  Income Statement
  Operating revenues	$ 724.9	$404.2	$1,129.1	$ -	$1,129.1
  Depreciation and decommissioning	108.6	14.3	122.9	-	122.9
  Other income	43.7	1.3	45.0	17.7	62.7
  Interest expense	22.3	6.7	29.0	2.7	31.7
  Income taxes	31.7	9.2	40.9	4.8	45.7
  Earnings on common stock	53.6	15.7	69.3	9.6	78.9
  Balance Sheet
  Total assets	1,965.1	497.0	2,462.1	108.7	2,570.8
  Cash expenditures for long-lived assets	120.6	40.7	161.3	0.3	161.6

  *(1) Nonutility operations are included in the Other column.

  -157-

  Segments of Business
  (Millions)
  	Regulated Utilities				Wisconsin Public Service Consolidated
  2002	Electric Utility	Gas Utility	Total Utility	Other *
  Income Statement
  Operating revenues	$ 696.9	$310.7	$1,007.6	$ -	$1,007.6
  Depreciation and decommissioning	68.6	13.3	81.9	-	81.9
  Other income	6.3	0.3	6.6	12.4	19.0
  Interest expense	25.4	6.3	31.7	2.2	33.9
  Income taxes	31.1	12.4	43.5	3.3	46.8
  Earnings on common stock	58.6	18.4	77.0	6.1	83.1
  Balance Sheet
  Total assets	1,696.1	513.9	2,210.0	114.2	2,324.2
  Cash expenditures for long-lived assets	157.0	34.0	191.0	-	191.0

  *<PAGE>

  Segments of Business
  (Millions)
  	Regulated Utilities
  2003	Electric Utility	Gas Utility	Total Utility	Other (1)	WPSC Consolidated
  Income Statement
  Operating revenues	$ 724.9	$404.2	$1,129.1	$ -	$1,129.1
  Depreciation and decommissioning	108.6	14.3	122.9	-	122.9
  Other income, excluding taxes	43.7	1.3	45.0	17.7	62.7
  Interest expense	22.3	6.7	29.0	2.7	31.7
  Income taxes	31.7	9.2	40.9	4.8	45.7
  Earnings on common stock	53.6	15.7	69.3	9.6	78.9
  Total assets	1,965.7	497.0	2,462.7	115.0	2,577.7
  Cash expenditures for long-lived assets	120.6	40.7	161.3	0.3	161.6

  (1) Nonutility operations are included in the Other column.

   

  Segments of Business
  (Millions)
  	Regulated Utilities				Wisconsin Public Service Consolidated	Regulated Utilities
  2001	Electric Utility	Gas Utility	Total Utility	Other *
  2002						Electric Utility	Gas Utility	Total Utility	Other (1)	WPSC Consolidated
  Income Statement
  Operating revenues	$ 610.7	$321.6	$ 932.3	$ -	$ 932.3	$696.9	$310.7	$1,007.6	$ -	$1,007.6
  Depreciation and decommissioning	60.9	11.7	72.6	-	72.6	68.6	13.3	81.9	-	81.9
  Other income	13.2	0.2	13.4	23.2	36.6
  Other income, excluding taxes						6.3	0.3	6.6	12.4	19.0
  Interest expense	23.0	6.0	29.0	2.2	31.2	25.4	6.3	31.7	2.2	33.9
  Income taxes	30.8	5.9	36.7	7.2	43.9	31.1	12.4	43.5	3.3	46.8
  Earnings on common stock	57.9	8.9	66.8	13.8	80.6	58.6	18.4	77.0	6.1	83.1
  Balance Sheet
  Total assets	1,603.4	482.6	2,086.0	110.4	2,196.4
  Cash expenditures for long-lived assets	163.7	24.9	188.6	-	188.6	157.0	34.0	191.0	-	191.0

  *(1) Nonutility operations are included in the Other column.

  -187-

  <PAGE>

  NOTE 12--QUARTERLY FINANCIAL INFORMATION (Unaudited)

  (Millions)	Three Months Ended					Three Months Ended
  	2003					2004
  	March	June	September	December	Total	March	June	September	December	Total
  Operating revenues	$351.7	$244.8	$254.0	$278.6	$1,129.1	$372.0	$259.8	$260.2	$330.1	$1,222.1
  Operating income	29.7	7.8	30.6	(8.1)	60.0	37.7	15.8	34.4	20.7	108.6
  Earnings on common stock	23.9	4.3	28.0	22.7	78.9	32.5	11.9	30.5	29.9	104.8
  	2002					2003
  	March	June	September	December	Total	March	June	September	December	Total
  Operating revenues	$269.4	$221.4	$236.6	$280.2	$1,007.6	$351.7	$244.8	$254.0	$278.6	$1,129.1
  Operating income	29.4	18.4	34.2	25.8	107.8	29.7	7.8	30.6	(8.1)	60.0
  Earnings on common stock	25.3	9.6	27.9	20.3	83.1	23.9	4.3	28.0	22.7	78.9

  Because of various factors whichthat affect the utility business, the quarterly results of operations are not necessarily comparable.

  NOTE 13--RELATED PARTY TRANSACTIONS

  Wisconsin Public ServiceWPSC routinely enters into transactions with Upper Peninsula Powerrelated parties, including WPS Resources, its subsidiaries, and other entities in which WPSC has material interests.

  The following table shows purchases from and sales to related parties:

  -158-

  <PAGE>

  (Millions)	2004	2003	2002
  Electric sales to UPPCO	$16.1	$27.1	$21.5
  Electric purchases from UPPCO	4.9	1.4	-
  Gas sales to ESI	20.8	16.4	5.4
  Gas purchases from ESI	15.4	5.9	3.3

  WPS Energy Services,Leasing, a consolidated subsidiary of WPSC, has a note payable to the WPS Resources parent company. The balance of the payable was $12.0 million and $12.4 million at December 31, 2004, and 2003, respectively. Interest expense on the note totaled $1.0 million per year in 2004, 2003, and 2002.

  With the exception of UPPCO's Supplemental Employee Retirement Plan, the assets and liabilities related to the qualified and non-qualified pension plans and the postretirement plans of WPS Resources are recorded on WPSC's Consolidated Balance Sheets. The net periodic benefit cost associated with the plans is allocated among WPS Resources' subsidiaries. At December 31, 2004, and 2003, WPSC's Consolidated Balance Sheets included $1.4 million and $1.1 million, respectively, in receivables from related parties related to these benefit plans.

  WPS Resources and its consolidated subsidiaries file consolidated federal income tax returns. WPSC pays the income taxes, which are wholly-ownedthen allocated to the appropriate entities. The tax allocable to each subsidiary is the amount of tax it would have paid had it filed a separate return for the tax year in question, after application of any credit to which it would be entitled on a separate return basis. Adjustments are made as necessary to reflect any items which are usable on the consolidated return, but which would not be usable on a separate return, such as deducting a capital loss that can be used against capital gains attributable to another member of the consolidated group. At December 31, 2004, WPSC's Consolidated Balance Sheet included intercompany taxes receivable of $3.1 million and intercompany taxes payable of $24.4 million. At December 31, 2003, intercompany taxes payable totaled $6.3 million.

  At December 31, 2004, WPSC had a 36.4% interest in WPS Investments, accounted for under the equity method. WPS Investments is a consolidated subsidiary of WPS Resources that is jointly owned by WPS Resources, WPSC, and UPPCO. Prior to 2003, WPS Investments was a consolidated subsidiary of WPSC, but capital contributions during 2003 resulted in majority ownership by WPS Resources. The ownership interests have varied throughout 2004, 2003, and 2002 and will continue to change as cash is contributed by WPS Resources or additional assets are contributed by the utilities. Equity income recorded by WPSC during 2004 and 2003 was $6.9 million and $5.8 million, respectively.

  WPSC also provides and receives other services, property, and things of value to and from its parent, WPS Resources, and other subsidiaries of WPS Resources. The following related partyAll such transactions are included inmade pursuant to a master affiliated interest agreement approved by the financial statementsPSCW. The agreement provides that WPSC receives payment equal to the higher of Wisconsin Public Service:

  (Millions)	2003	2002	2001
  Electric sales to Upper Peninsula Power Company	$ 27.1	$ 21.5	$ 21.4
  Gas sales to WPS Energy Services	16.4	5.4	2.5
  Gas purchases from WPS Energy Services	5.9	3.3	5.2

  Included inits cost or fair value for services and property and other things of value which WPSC provides to WPS Resources or its other nonregulated subsidiaries, and WPSC makes payments equal to the accounts receivable balancelower of the provider's cost or fair value for property, services, and other things of value which WPS Resources or its other nonregulated subsidiaries provide to WPSC. The agreement further provides that any services, property, or other things of value provided to or from WPSC to or for any other regulated subsidiary of WPS Resources be provided at December 31, 2003 are amounts due from related parties undercost. Modification or amendment to the relationships described.master agreement requires the approval of the PSCW.

  -188--159-

  <PAGE>

   

  ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  
  WISCONSIN PUBLIC SERVICE CORPORATION

  M. REPORT OF INDEPENDENT AUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRM

   

  To the Board of Directors of Wisconsin Public Service Corporation

  We have audited the accompanying consolidated balance sheets and statements of capitalization of Wisconsin Public Service Corporation and subsidiaries (the "Company"), as of December 31, 20032004 and 2002,2003, and the related consolidated statements of income, common shareholder's equity, and cash flows for each of the three years in the period ended December 31, 2003.2004. Our audits also included the financial statement schedules listed in the Index at Item 15.  These financial statements and financial statement schedules are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

  We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

  In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Wisconsin Public Service Corporation and subsidiaries as of December 31, 20032004 and 2002,2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20032004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

  As discussed in Note 8 to the consolidated financial statements, effective January 1, 2003, the Company changed its method of accounting for asset retirement obligations to adopt Statement of Financial Accounting StandardsStandard No. 143, "Accounting for Asset Retirement Obligations."

  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

  DELOITTE/s/ Deloitte & TOUCHETouche LLP

  Milwaukee, Wisconsin
  March 10, 20049, 2005

  -189--160-

  <PAGE>

   

  ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL DISCLOSURE

  None.

  ITEM 9A.   CONTROLS AND PROCEDURES

  Evaluation of Disclosure Controls and Procedures

  As of the end of the period covered by this Annual Report on Form 10-K, WPS Resources' and Wisconsin Public Service'sWPSC's management evaluated, with the participation of WPS Resources' and Wisconsin Public Service'sWPSC's Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of WPS Resources' and Wisconsin Public Service'sWPSC's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) and have concluded that, WPS Resources' and Wisconsin Public Service'sWPSC's disclosure controls and procedures were effective as of the date of such evaluation in timely alerting them to material information relating to WPS Resources and Wisconsin Public ServiceWPSC (including their consolidated subsidiaries) required to be included in their periodic Securities and Exchange CommissionSEC filings, particularly during the period in which this Annual Report on Form 10-K was being prepared.

  Changes in Internal Controls

  There were no significant changes in WPS Resources' and Wisconsin Public Service'sWPSC's internal controlscontrol over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 20032004 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

  Management Reports on Internal Control over Financial Reporting

  WPS Resources Corporation

  The management of WPS Resources and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. WPS Resources' control systems were designed to provide reasonable assurance to WPS Resources' management and board of directors regarding the preparation and fair presentation of published financial statements.

  All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

  WPS Resources' management assessed the effectiveness of its internal control over financial reporting as of December 31, 2004. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December 31, 2004, WPS Resources' internal control over financial reporting is effective based on those criteria.

  WPS Resources Corporation's independent registered public accounting firm has issued an audit report on management's assessment of WPS Resources' internal control over financial reporting.

  Wisconsin Public Service Corporation

  The management of WPSC and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. WPSC's control systems were designed to provide reasonable assurance to WPSC's management and board of directors regarding the preparation and fair presentation of published financial statements.

  -161-

  <PAGE>

  All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

  WPSC's management assessed the effectiveness of its internal control over financial reporting as of December 31, 2004. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management believes that, as of December 31, 2004, WPSC's internal control over financial reporting is effective based on those criteria.

  WPSC's independent registered public accounting firm has issued an audit report on management's assessment of WPSC's internal control over financial reporting.

  Reports of Independent Registered Public Accounting Firm 

  To the Shareholders and Board of Directors of WPS Resources Corporation

  We have audited management's assessment, included in the accompanying Management Reports on Internal Control over Financial Reporting, that WPS Resources Corporation and subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

  A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

  Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

  -162-

  <PAGE>

  In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2004 of the Company and our report dated March 9, 2005 expressed an unqualified opinion on those financial statements and financial statement schedules.

  /s/ Deloitte & Touche LLP

  Milwaukee, Wisconsin
  March 9, 2005

  To the Board of Directors of Wisconsin Public Service Corporation

  We have audited management's assessment, included in the accompanying Management Reports on Internal Control over Financial Reporting, that Wisconsin Public Service Corporation and subsidiaries (the "Company") maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.

  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

  A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

  -163-

  <PAGE>

  Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

  In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2004 of the Company and our report dated March 9, 2005 expressed an unqualified opinion on those financial statements and financial statement schedules.

  /s/ Deloitte & Touche LLP

  Milwaukee, Wisconsin
  March 9, 2005

  ITEM 9B.     OTHER INFORMATION

  None.

  PART III

  ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

  Information required by this itemItem regarding the directors of WPS Resources, Section 16 compliance and the members of the audit committee and the audit committee financial expert can be found in WPS Resources' Proxy Statement for its Annual Meeting of Shareholders to be held May 13, 200419, 2005, under the captions "Election of Directors," "Ownership of Voting Securities-Section 16(a) Beneficial Ownership Reporting Compliance" and "Committees of the Board of Directors," respectively. Such information is incorporated by reference as if fully set forth herein. The directors of WPS Resources are also the directors of Wisconsin Public Service.WPSC.

  Information regarding the executive officers of WPS Resources and Wisconsin Public ServiceWPSC can be found in this Annual Report on Form 10-K in Item 4A.

  WPS Resources has adopted a Code of Conduct, which serves as our Code of Business Conduct and Ethics. The Code of Conduct applies to all of our directors, officers, and employees, including the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller and any other persons performing similar functions. The Code of Conduct also applies to Wisconsin Public ServiceWPSC and all of its directors, officers, and employees. The Code of Conduct is available on our web site at www.wpsr.com under "Investor Information" then select, "Corporate Governance." A copy is also available to any shareholder, upon request, by writing to Barth J. Wolf, Secretary and Manager - Legal Services, WPS Resources 

  -164-

  <PAGE>

  Corporation, P.O. Box 19001, Green Bay, Wisconsin 54307-9001. Any amendments to, or waivers from, our Code of Conduct will be disclosed on our web site within the prescribed time period.

  WPS Resources'Resources has also adopted corporate governance guidelines. These guidelines, as well as the charters for its audit committee, governance committee, and compensation committee are all available on our web site at www.wpsr.com under "Investor Information" then select, "Corporate Governance." A copy of our corporate governance guidelines and our audit committee, governance committee and

  -190-

  <PAGE>

  compensation committee charters are also available to any shareholder, upon request by writing to Barth J. Wolf, Secretary and Manager - Legal Services, WPS Resources Corporation, P.O. Box 19001, Green Bay, Wisconsin 54307-9001.

  ITEM 11.     EXECUTIVE COMPENSATION

  WPS Resources Corporation

  Information required by this Item regarding compensation paid by WPS Resources to its directors and its "named executive officers" can be found in WPS Resources' Proxy Statement for its Annual Meeting of Shareholders to be held May 13, 200419, 2005, under the captions "Board Compensation" and "Executive Compensation." Such information is incorporated by reference as if fully set forth herein. Named executive officers include the Chief Executive Officer and the next four most highly compensated executive officers for 2003.2004.

  -165-

  <PAGE>

  Wisconsin Public Service Corporation

  Summary Compensation Table

  The following table sets forth cash and other compensation paid to or earned by each of the named executive officers of Wisconsin Public ServiceWPSC for the last three fiscal years. Named executive officers include the Chief Executive Officer and the next four most highly compensated executive officers for 2003.2004. Compensation amounts for those Wisconsin Public ServiceWPSC named executive officers also reported as named executive officers of WPS Resources are repeated in this table and do not reflect additional compensation.

  -191-

  <PAGE>

  					Long-Term Compensation
  Annual Compensation					Awards		Payouts
  Name and Title	Year	Salary	Bonus	Other  Annual Compen- sation	Restricted Stock Awards	Securities Underlying Options	LTIP Payouts	All Other Compen- sation
  		($) (1)	($)	($) (2)	($) (3)	(#)	($)(5)	($)(6)
  Larry L. Weyers Chairman, President, and CEO	2003  2002 2001	544,817 539,300 498,931	409,465 358,853 267,377	38,880 26,627 20,095	-  -  -	97,015 99,027 86,116	-  -  -	23,487 19,068 15,941
  Joseph P. O'Leary Senior Vice President and Chief Financial Officer (4)	2003 2002 2001	234,778 232,400 125,481	98,428 110,264 54,242	- - -	- - -	17,371 17,781 28,595	- - -	- - -
  Thomas P. Meinz Senior Vice President - Public Affairs	2003 2002 2001	174,265 172,500 161,087	71,267 81,999 64,322	14,763 10,110 7,630	-  - -	11,505 12,318 12,051	-  - -	13,798 11,272 10,347
  Bernard J. Treml Vice President - Human Resources	2003 2002 2001	165,678 164,000 155,000	62,552 75,821 59,421	8,579 5,876 4,434	- - -	6,538 6,692 6,547	-  -  -	13,151 11,066 12,044
  Lawrence T. Borgard Vice President - Distribution and Customer Service	2003 2002 2001	155,576 154,000 135,130	86,107 76,212 55,571	- - -	-  -  -	6,235 6,284 6,148	-  -  -	8,618 6,617 6,130

  					Long-Term Compensation
  Annual Compensation					Awards		Payouts
  Name and Title	Year	Salary	Bonus	Other Annual Compen- sation	Restricted Stock Awards	Securities Underlying Options	LTIP  Payouts	All Other Compen- sation
  		($) (1)	($)	($) (2)	($) (3)	(#)	($)	($)(4)
  Larry L. Weyers Chairman and Chief Executive Officer	2004 2003 2002	600,000 544,817 539,300	777,060 409,465 358,853	30,078 38,880 26,627	- - -	111,607 97,015 99,027	1,161,681 1,058,688 -	25,669 27,837 22,068
  Joseph P. O'Leary Senior Vice President and Chief Financial Officer	2004 2003 2002	261,862 234,778 232,400	158,016 98,428 110,264	- - -	- - -	23,304 17,371 17,781	234,603 120,936 -	7,717 2,065 2,065
  Charles A. Schrock President and Chief Operating Officer - Generation	2004 2003 2002	248,153 240,031 237,600	144,223 34,294 79,765	1,026 1,326 908	- - -	16,000 14,404 16,967	223,854 - -	18,134 18,711 16,526
  Thomas P. Meinz Executive Vice President - Public Affairs	2004 2003 2002	186,992 174,265 172,500	108,082 71,267 81,999	11,421 14,763 10,110	- - -	13,326 11,505 12,318	162,557 159,485 -	16,895 17,498 15,516
  Bernard J. Treml Senior Vice President - Human Resources	2004 2003 2002	175,213 165,678 164,000	97,138 62,552 75,821	6,637 8,579 5,876	- - -	7,634 6,538 6,692	88,275 87,724 -	17,062 17,740 15,675

  (1) In addition to base salary, these amounts include elective deferred compensation in a reserve account for each individual.

  (2) These amounts reflect above-market earnings on elective deferred compensation. Perquisites for the Chief Executive Officer and the four other named executive officers were less than $50,000 or 10% of the total of salary and bonus for the year and, accordingly, are not listed.

  (3) Performance shares of WPS Resources Common Stock have been awarded to each of the named executive officers as reported in the Long-Term Incentive Plan table presented below. At December 31, 2003,2004, the closing stock price of WPS Resources common stock was $46.23.$49.96. Based on this valuation, an award of the performance shares at target would have a value at year-end of $1,789,058$1,950,139 for Larry L. Weyers, $334,058$368,855 for Joseph P. O'Leary, $228,145$301,009 for Charles A. Schrock, $235,561 for Thomas P. Meinz, $125,699and $132,194 for Bernard J. Treml, and $118,626 for Lawrence T. Borgard.Treml.

  (4) Joseph P. O'Leary was first employed by Wisconsin Public Service in June 2001.

  (5) LTIP payouts are to be made on March 16, 2004. For information regarding these payouts for the Wisconsin Public Service named executives see WPS Resources Proxy Statement to be filed in April 2004.

  -192--166-

  <PAGE>

   

  (6)(4) All Other Compensation for 20032004 as reported in the table above is:

  Name and Title	Year	Contributions to Employee Stock Ownership Plan ($)	Above Market Earnings on Mandatory Deferred Compensation ($)	Year	Contributions to Employee Stock Ownership Plan ($)	Deferred Compensation Contribution for  ESOP Restoration Benefit ($)	Life Insurance Premiums ($)	Above Market Earnings on Mandatory  Deferred Compensation ($)
  Larry L. Weyers	2003	10,018	13,469	2004	10,899	0	4,350	10,420
  Joseph P. O'Leary	2003	-		2004	5,198	0	2,519	-
  Charles A. Schrock				2004	10,904	0	2,304	4,926
  Thomas P. Meinz	2003	8,128	5,670	2004	8,601	2,117	1,791	4,386
  Bernard J. Treml	2003	7,130	6,021	2004	8,073	2,621	1,710	4,658
  Lawrence T. Borgard	2003	8,618	-

  Agreements with Named Executive Officers

  Individual employment and severance agreements exist with each of the named executive officers. The agreements are intended to retain the services of these officers in the event of a change in control of WPS Resources. Each agreement entitles the officer to a continuation of salary and benefits for a maximum period of three years after a change in control. Each employment and severance agreement also provides a cash termination payment should there be a termination of the officer's employment after a change of control or in anticipation of a change in control. Generally, total termination payments provided are not to exceed the present value of 2.99 times the executive's average annual salary and annual bonuses for the five years immediately preceding a change of control. Certain named executive officers may receive termination payments in excess of 2.99 times average annual salary, portions of which may not be tax deductible. The termination payments replace all other severance payments to which the executive may be entitled under current severance agreements. In addition, Joseph P. O'Leary has an additional severance plan providing for payment of one times annual salary if his employment is terminated within three years of employment for any reason other than cause or voluntary change of employment. This agreement does not apply in the event of a change of control.

  Option Grants to Named Executives in Last Fiscal Year

  Individual Grants	Individual Grants					Individual Grants
  Name	Number of securities underlying Options/SARs granted	Percent of total options/SARs granted to employees in  fiscal year	Exercise or base price ($/Sh)	Expiration  date	Grant date  present value $	Number of securities underlying options/SARs granted	Percent of total options/SARs granted to employees in  fiscal year	Exercise or base price ($/sh)	Expiration  date		Grant date  present value $
  Larry L. Weyers	97,015	28.92%	$44.73	12/10/13	$581,119.85	111,607	34.73%	$48.11	12/8/14		629,463
  Joseph P. O'Leary	17,371	5.18%	$44.73	12/10/13	104,052.29	23,304	7.25%	$48.11	12/8/14		131,435
  Charles A. Schrock						16,000	4.98%	$48.11	12/8/14		90,240
  Thomas P. Meinz	11,505	3.43%	$44.73	12/10/13	68,914.95	13,326	4.15%	$48.11	12/8/14		75,159
  Bernard J. Treml	6,538	1.95%	$44.73	12/10/13	39,162.62	7,634	2.38%	$48.11	12/8/14		43,056
  Lawrence T. Borgard	6,235	1.86%	$44.73	12/10/13	37,347.65

  As of December 31, 2003,2004, WPS Resources has not granted SARs to any employee.

  All options for WPS Resources common stock reported above will vest at a rate of 25% per year beginning on December 10, 20048, 2005 and ending on December 10, 2007.8, 2008. The year-end closing price of WPS Resources stock was $46.23.$49.96. There were no stock appreciation rights granted to any employee in 2003.2004.

  -193--167-

  <PAGE>

   

  The grant date present value in the last column of the table above is based on option values of $5.99$5.64 per option granted on December 10, 2003.8, 2004. This value was calculated using the standard Binomial Model. For purposes of determining the value of these options, the following assumptions were made:

  Option Value	$5.995.64
  Annual dividend yield	5.68%5.19%
  Volatility	18.25%15.44%
  Risk free rate of return	4.65%4.40%
  Time of exercise	10 years

  The annual dividend yield assumption was based on actual dividends and stock prices of WPS Resources common stock over the prior 36-month period to determine an annualized 12-month yield. The risk free rate of return equals the interest rate on 10-year treasuries on the grant date. Due to the lack of experience with the plan, the time of exercise was assumed to be the maximum exercise period of the options. Expected volatility is based on the monthly price of WPS Resources common stock over the three years prior to the grant date.

  Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values for the Named Executive Officers

  			Number of securities underlying unexercised options/SARs at fiscal year end	Value of unexercised in-the-money options/SARs at fiscal year end (1)			Number of securities underlying unexercised options/SARs at fiscal year end	Value of unexercised in-the-money options/SARs at fiscal year end (1)
  			(#)	($)			(#)	($)
  Name	Shares acquired on exercise (#)	Value Realized ($)	Exercisable/ Unexercisable		Shares acquired on exercise (#)	Value realized ($)	Exercisable/ Unexercisable
  Larry L. Weyers	34,000	310,250	123,945 / 233,053	1,371,835 / 1,497,252	0	0	213,195 / 255,410	2,884,329 / 1,522,834
  Joseph P. O'Leary	-	-	18,743 / 45,004	208,716 / 308,297	0	0	34,680 / 52,371	467,318 / 330,571
  Charles A. Schrock					1,200	21,582	43,534 / 39,436	699,822 / 253,756
  Thomas P. Meinz	7,500	76,213	25,562 / 29,588	326,543 / 199,172	8,000	145,880	29,349 / 31,127	403,891 / 191,507
  Bernard J. Treml	12,000	170,340	9,597 / 16,381	106,958 / 108,848	0	0	16,091 / 17,520	220,927 / 105,897
  Lawrence T. Borgard	12,000	123,300	8,690 / 15,370	96,744 / 101,125

  (1) Amounts represent the excess fair market value of the underlying stock at year-end and the exercise price of each option. The year-end stock price was $46.23.$49.96.

  Performance Share (Long-Term Incentive Plan) Awards to the Named Executive Officers

  Long TermLong-Term Incentive Plans - Awards in Last Fiscal Year
  			Estimated future payouts under non-stock price-based plans
  Name	Number of shares, units or other rights (#)	Performance or other period until maturation or payout	Threshold ($ or #)	Target ($ or #)	Maximum ($ or #)
  Larry L. Weyers	13,07812,991	3 years	-	-	-
  Joseph P. O'Leary	2,3422,713	3 years	-	-	-
  Charles A. Schrock	1,862	3 years	-	-	-
  Thomas P. Meinz	1,551	3 years	-	-	-
  Bernard J. Treml	881889	3 years
  Lawrence T. Borgard-	840-	3 years-

  -194-Performance shares are part of the WPS Resources 2001 Omnibus Incentive Compensation Plan. The program sets performance goals, based on total shareholder return, at the start of each three-year period. Comparison of WPS Resources' total shareholder return with the shareholder return of a peer group of major publicly traded energy service companies, for the three-year period, determines if the performance share awards are ultimately issued, and if so, how many. The number of shares initially awarded

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  individuals within the plan is based on market levels of incentive compensation and competitiveness of the total compensation package. Award levels are targeted to meet the median of the range of similar awards paid by comparable companies.

  Pension Plans

  The tables below show the lump sum retirement benefit payable to a covered participant for specified salary levels and years of service under the provisions of the WPSC Retirement Plan and the WPS Resources Corporation Pension Restoration and Supplemental Retirement Plan in effect January 1, 2005, assuming termination of employment on that date:

  Pension Plan Table Lump Sum Retirement Benefits (1) at January 1, 2005 For Years of Service Indicated (For Hires Prior to January 1, 2001)
  Final Average Pay(2)	15 Years	20 Years	25 Years	30 Years	35 Years
  $ 200,000	$ 507,900	$ 641,400	$ 800,000	$ 950,000	$1,100,000
  250,000	634,875	801,750	1,000,000	1,187,500	1,375,000
  300,000	761,850	962,100	1,200,000	1,425,000	1,650,000
  350,000	888,825	1,122,450	1,400,000	1,662,500	1,925,000
  400,000	1,015,800	1,282,800	1,600,000	1,900,000	2,200,000
  450,000	1,142,775	1,443,150	1,800,000	2,137,500	2,475,000
  500,000	1,269,750	1,603,500	2,000,000	2,375,000	2,750,000
  550,000	1,396,725	1,763,850	2,200,000	2,612,500	3,025,000
  600,000	1,523,700	1,924,200	2,400,000	2,850,000	3,300,000
  650,000	1,650,675	2,084,550	2,600,000	3,087,500	3,575,000
  700,000	1,777,650	2,244,900	2,800,000	3,325,000	3,850,000
  750,000	1,904,625	2,405,250	3,000,000	3,562,500	4,125,000
  800,000	2,031,600	2,565,600	3,200,000	3,800,000	4,400,000
  850,000	2,158,575	2,725,950	3,400,000	4,037,500	4,675,000
  900,000	2,285,550	2,886,300	3,600,000	4,275,000	4,950,000
  950,000	2,412,525	3,046,650	3,800,000	4,512,500	5,225,000
  1,000,000	2,539,500	3,207,000	4,000,000	4,750,000	5,500,000
  1,050,000	2,666,475	3,367,350	4,200,000	4,987,500	5,775,000
  1,100,000	2,793,450	3,527,700	4,400,000	5,225,000	6,050,000
  1,150,000	2,920,425	3,688,050	4,600,000	5,462,500	6,325,000
  1,200,000	3,047,400	3,848,400	4,800,000	5,700,000	6,600,000

  (1) The Pension Plan provides a lump sum benefit, which may be converted into an actuarially equivalent annuity with monthly payments. The benefit is not subject to any deduction for Social Security or other offset.

  (2) "Final Average Pay" is the average of the last 60 months or the 5 highest calendar years' compensation within the 10-year period immediately proceeding the participant's termination of employment, whichever is greater.

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  Pension Plan Table Lump Sum Retirement Benefits(1) at January 1, 2005 For Years of Service Indicated (For Hires After December 31, 2000)
  Final Average Pay(2)	15 Years	20 Years	25 Years	30 Years	35 Years
  $300,000	$435,000	$600,000	$795,000	$ 990,000	$1,185,000
  350,000	507,500	700,000	927,500	1,155,000	1,382,500
  400,000	580,000	800,000	1,060,000	1,320,000	1,580,000

  (1) The pension plan provides a lump sum benefit, which may be converted into an actuarially equivalent annuity with monthly payments. The benefit is not subject to any deduction for Social Security or other offset.

  (2) "Final Average Pay" is the average of the last 60 months or the 5 highest calendar years' compensation within the 10-year period immediately proceeding the participant's termination of employment, whichever is greater.

  Named executive officers' compensation for pension purposes differs from annual compensation reported in the Summary Compensation Table. Pension compensation for the Namednamed executive officers is:

  Name	2004 Pension Compensation ($)	Years of Service
  Larry L. Weyers	989,966	19
  Joseph P. O'Leary	357,889	3
  Charles A. Schrock	282,447	25
  Thomas P. Meinz	258,259	35
  Bernard J. Treml	234,786	32

  Annual benefits payable from the pension plan were subject to a maximum limitation of $165,000 for 2004 under the Internal Revenue Code. The amount of compensation considered for purposes of the pension plan was limited to $205,000 for 2004 under the Internal Revenue Code. The pension restoration plan provides additional pension benefits for pension restoration plan participants to compensate for any loss of benefit payable under the pension plan caused by the maximum benefit limitation, compensation limitation, or any salary deferral under the WPS Resources Deferred Compensation Plan. Retirement benefits presented in the pension plan tables include the pension restoration benefit.

  The WPS Resources Supplemental Retirement Plan provides supplemental monthly payments to its participants. Certain executive officers, including the Chief Executive Officers is:Officer and each of the other named executive officers, participate in the supplemental retirement plan. Retirement benefits presented in the pension plan tables do not include benefits under the supplemental retirement plan.

  Name	2003 Pension Compensation ($)	Years of Service
  Larry L. Weyers	869,567	18
  Joseph P. O'Leary	325,918	2
  Thomas P. Meinz	241,914	35
  Bernard J. Treml	224,221	32
  Lawrence T. Borgard	247,977	19

  Benefits under the supplemental retirement plan are payable if the participant retires or terminates employment after reaching age 55 and completing at least 10 years of credited service or 5 years in the event of termination following a change in control. An eligible participant with 15 or more years of credited service will receive a monthly benefit equal to 60 percent of the participant's "Final Average Earnings," reduced by the monthly pension plan benefit and restoration plan benefit to which the participant is entitled or would be entitled had the participant elected an annuity form of payment. "Final Average Earnings" mean 1/36^th of the base salary and annual bonus paid to the participant during the month in which the participant's employment is terminated and the immediately preceding 35 months, or during the 3 calendar years immediately preceding the calendar year in which the participant's employment is terminated. If the participant has fewer than 15 years of credited service, the 60 percent target benefit percentage is reduced by 4 percent for each year by which the participant's years of credited service is less than 15 years.

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  <PAGE>

  Estimated annual benefits to be received by each of the named executive officers under the Supplemental Retirement Plan upon normal retirement are as follows:

  Name	Estimated Supplemental Retirement Benefit ($)
  Larry L. Weyers	336,249
  Joseph P. O'Leary	-
  Thomas P. Meinz	60,265
  Bernard J. Treml	63,872
  Lawrence T. Borgard	99,263

  Estimated Supplemental Retirement Benefit ($)

  Larry L. Weyers

  362,799

  Joseph P. O'Leary

  0

  Charles A. Schrock

  103,231

  Thomas P. Meinz

  59,903

  Bernard J. Treml

  63,266

  Additional information required by this Item regarding compensation paid by Wisconsin Public Service to its named executive officers can be found in WPS Resources' Proxy Statement for its Annual Meeting of Shareholders to be held May 13, 2004 under the caption "Executive Compensation." Such information is incorporated by reference as if fully set forth herein.

  ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  AND RELATED STOCKHOLDER MATTERS

  WPS Resources Corporation

  Information required by this Item regarding the principal securities holders of WPS Resources and the security holdings of its directors and executive officers can be found in WPS Resources' Proxy Statement for its Annual Meeting of Shareholders to be held May 13, 200419, 2005 under the caption "Ownership of Voting Securities--Beneficial Ownership." Such information is incorporated by reference as if fully set forth herein.

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  <PAGE>

  Wisconsin Public Service Corporation

  Ownership of Voting Securities

  All of the common stock of Wisconsin Public ServiceWPSC is held by WPS Resources.

  Listed in the following table are the shares of WPS Resources' common stock owned as of February 29, 200421, 2005 by the directors and named executive officers of Wisconsin Public ServiceWPSC, who are not directors or named executive officers of WPS Resources, as well as the number of shares owned by the directors and executive officers of Wisconsin Public ServiceWPSC as a group as of February 29, 2004.21, 2005.

  		Amount and Nature of Shares Beneficially Owned February 29, 2004
  Name and Title		Aggregate Number of Shares Beneficially  Owned (1)	Number of Shares  Subject to Stock  Options	Percent of Shares
  Thomas P. Meinz Senior Vice President - Public Affairs		41,910	25,562	*
  Bernard J. Treml Vice President - Human Resources		20,241	9,597	*
  Lawrence T. Borgard Vice President - Distribution and Customer Service		18,765	8,690	*
  All 17 directors and executive officers as a group		874,730	234,308	2.4%

  		Amount and Nature of Shares Beneficially Owned February 21, 2004
  Name and Title		Aggregate Number of Shares Beneficially Owned (1)	Number of Shares Subject to Stock Options	Percent of Shares
  Charles A. Schrock President and Chief Operating Officer - Generation		52,317	43,534	*
  Thomas P. Meinz Executive Vice President - Public Affairs		41,397	23,711	*
  Bernard J. Treml Senior Vice President - Human Resources		26,559	16,091	*
  All 18 directors and executive officers as a group		611,601	389,018	1.6%

  * Less than 1% of WPS Resources outstanding shares of common stock

  (1) Aggregate Number of Shares Beneficially Owned includes shares of common stock held in the Employee Stock Ownership Plan and Trust, the Wisconsin Public Service CorporationWPSC Deferred Compensation Trust, and all stock options, which are exercisable within 60 days of February 29, 2004.21, 2005. Each director or officer has sole voting and investment power with respect to the shares reported, unless otherwise noted. No voting or investment power exists related to the stock options reported until exercised.

  None of the persons listed beneficially owns shares of any other class of WPS Resources' equity securities.

  -171-

  <PAGE>

  Equity Compensation Plan Information

  The following table sets forth information with respect toInformation required by this Item regarding equity compensation plans under which equity securities of WPS Resources are authorizedcan be found in WPS Resources' Proxy Statement for issuance asits Annual Meeting of December 31, 2003. No such plan exists for Wisconsin Public Service's equity securities.

  Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights.	(b) Weighted-average exercise price of outstanding options, warrants and rights.	(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
  Equity Compensation plans approved by security holders	1,214,065	$37.2912	1,787,783
  Equity compensation plans not approved by security holders	15,700	$25.4688	76,000
  Total	1,229,765	$37.1402	1,863,783

  Equity compensation plans not approved by security holders consists solely of the WPS Resources Corporation 1999 Non-Employee Directors Stock Option Plan, which provides stock options to directors 

  -196-

  <PAGE>

  at the discretion of the Board of Directors. The Board does not anticipate any further stock options will be issued under this plan. The plan provides that all exercises of options under this plan areShareholders to be completed throughheld May 19, 2005 under the usecaption "Ownership of treasury stock.Voting Securities--Equity Compensation Plan Information." Such information is incorporated by reference as if fully set forth herein.

  ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Wisconsin Public ServiceWPSC provides and receives services, property, and other things of value to and from its parent, WPS Resources, and other subsidiaries of WPS Resources. All such transactions are made pursuant to a master affiliated interest agreement approved by the Public Service Commission of Wisconsin.PSCW. The agreement provides that Wisconsin Public ServiceWPSC receives payment equal to the higher of its cost or fair value for services and property and other things of value which Wisconsin Public ServiceWPSC provides to WPS Resources or its other nonregulated subsidiaries, and Wisconsin Public ServiceWPSC makes payments equal to the lower of the provider's cost or fair value for property, services, and other things of value which WPS Resources or its other nonregulated subsidiaries provide to Wisconsin Public Service.WPSC. The agreement further provides that any services, property, or other things of value provided to or from Wisconsin Public ServiceWPSC to or for any other regulated subsidiary of WPS Resources be provided at cost. Modification or amendment to the master agreement requires the approval of the Public Service Commission of Wisconsin.PSCW.

  ITEM 14.     PRINCIPAL ACCOUNTANTACCOUNTING FEES AND SERVICES

  The following is a summary of the fees billed to WPS Resources and Wisconsin Public ServiceWPSC by Deloitte & Touche LLP for professional services performed for 20032004 and 2002:2003:

   

  Fees	2003	2002
  Audit Fees (a)	$1,555,124	$1,585,483
  Audit Related Fees (b)	142,067	96,865
  Tax Fees (c)	-	-
  All Other Fees (d)	36,396	35,007
  Total Fees	$1,733,587	$1,717,355

  Fees	2004	2003
  Audit Fees (a)	$2,050,083	$1,555,124
  Audit Related Fees (b)	197,415	142,067
  Tax Fees (c)	-	-
  All Other Fees (d)	14,345	36,396
  Total Fees	$2,261,843	$1,733,587

  a)  Audit Fees. Consists of aggregate fees billed to WPS Resources and Wisconsin Public ServiceWPSC by Deloitte & Touche LLP for professional services rendered for the auditaudits of the annual consolidated financial statements, and reviews of the interim consolidated financial statements included in quarterly reports and audits of the effectiveness of, and management's assessment of the effectiveness of, internal control over financial reporting, of WPS Resources and its subsidiaries andsubsidiaries. Audit fees also include services that are normally provided by Deloitte & Touche in connection with statutory and regulatory filings or engagements, including comfort letters, consents and other services related to SEC matters, and consultations arising during the course of the audits and reviews concerning financial accounting and reporting standards. Audit fees reported above include $800,000 to re-audit the 2000 and 2001 consolidated financial statements, which was required due to changes in accounting principles and external auditors.

  b)  Audit Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the consolidated financial statements or internal control over financial reporting and are not reported under "Audit Fees." These services include employee benefit plan audits, accounting consultations in connection with potential transactions, and consultations concerning financial accounting and reporting standards.

  c)  Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, tax audit issues, mergers and acquisitions, and tax planning.

  -197--172-

  <PAGE>

  d)  All Other Fees. Consists of other fees billed to WPS Resources and Wisconsin Public ServiceWPSC by Deloitte & Touche LLP for products and services other than the services reported above. All Other Fees are for software licensing provided in 20032004 and 2002.2003. The nature of the software license fees, which include support and learning services, have been deemed to be permissible non-attest services.

  In considering the nature of the services provided by the independent auditor, the audit committee determined that such services are compatible with the provision of independent audit services. The audit committee discussed these services with the independent auditor and WPS Resources management and determined that they are permitted under the rules and regulations concerning auditor independence promulgated by the U.S. Securities and Exchange CommissionSEC to implement the Sarbanes-Oxley Act of 2002, as well as those of the American Institute of Certified Public Accountants. Since May 6, 2003, the audit committee has approved in advance 100% of the services described in the table above under "Audit-Related Fees," "Tax Fees" and "All Other Fees" in accordance with its pre-approval policy.

  -198--173-

  <PAGE>

   

  PART IV

  ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a)	Documents filed as part of this report:
  (1)	Consolidated Financial Statements included in Part II at Item 8 above:
  	Description		Pages in 10-K
  	WPS Resources Corporation
  	Consolidated Statements of Income for the three years ended December 31, 2004, 2003, 2002, and 20012002		11489
  	Consolidated Balance Sheets as of December 31, 20032004 and 20022003		11590
  	Consolidated Statements of Common Shareholders' Equity for the three years ended December 31, 2004, 2003, 2002, and 20012002		11691
  	Consolidated Statements of Cash Flows for the three years ended December 31, 2004, 2003, 2002, and 20012002		11792
  	Notes to Consolidated Financial Statements		11893
  	Report of Independent Auditors' ReportRegistered Public Accounting Firm		175146
  	Wisconsin Public Service Corporation
  	Consolidated Statements of Income for the three years ended December 31, 2004, 2003, 2002, and 20012002		176147
  	Consolidated Balance Sheets as of December 31, 20032004 and 20022003		177148
  	Consolidated Statements of Capitalization as of December 31, 20032004 and 20022003		178149
  	Consolidated Statements of Common Shareholder's Equity for the three years ended December 31, 2004, 2003, 2002, and 20012002		179150
  	Consolidated Statements of Cash Flows for the three years ended December 31, 2004, 2003, 2002, and 20012002		180151
  	Notes to Consolidated Financial Statements		181152
  	Report of Independent Auditors' ReportRegistered Public Accounting Firm		189160
  						-174- <PAGE>
  (2)	Financial Statement Schedules. The following financial statement schedules are included in Part IV of this report. Schedules not included herein have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
  	Description		Pages in 10-K
  	Schedule I - Condensed Parent Company Only Financial Statements
  	A.	Statements of Income and Retained Earnings	207181
  -199- <PAGE>
  	B.	Balance Sheets	208182
  	C.	Statements of Cash Flows	209183
  	D.	Notes to Parent Company Financial Statements	210184
  	Schedule II WPS Resources Corporation Valuation and Qualifying Accounts		214187
  	Schedule II Wisconsin Public Service CorporationWPSC Valuation and Qualifying Accounts		215188
  (3)	Listing of all exhibits, including those incorporated by reference.

   

  Exhibit Number	Description of Documents
  2.1*	Asset Contribution Agreement between American Transmission Company LLCATC and Wisconsin Electric Power Company, Wisconsin Power and Light Company, Wisconsin Public Service Corp,WPSC, Madison Gas & Electric Co., Edison Sault Electric Company, South Beloit Water, Gas and Electric Company, dated as of December 15, 2000. (Incorporated by reference to Exhibit 2A-3 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 2000.)
  3.1	Restated Articles of Incorporation of WPS Resources Corporation.Resources. (Incorporated by reference to Exhibit 3(i).(2) to WPS Resources Corporation'sResources' Form 10-Q for the quarter ended September 30, 2002.)
  3.2	Articles of Incorporation of Wisconsin Public Service CorporationWPSC as effective May 26, 1972 and amended through May 31, 1988 (Incorporated by reference to Exhibit 3A to Form 10-K for the year ended December 31, 1991); Articles of Amendment to Articles of Incorporation dated June 9, 1993 (Incorporated by reference to Exhibit 3 to Form 8-K filed June 10, 1993.)
  3.3	By-Laws of WPS Resources, Corporation, as amended through May 15, 2003.April 1, 2004. (Incorporated by reference to Exhibit 3B-13.1 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-Q for the quarterly period ended March 31, 2003.2004.)
  3.4	By-Laws of Wisconsin Public Service Corporation,WPSC, as amended through Mayin effect August 15, 2003.2004. (Incorporated by reference to Exhibit 3B-23.1 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-Q for the quarterly period ended March 31, 2003.September 30, 2005.)
  4.1	Rights Agreement, dated December 12, 1996, between WPS Resources Corporation and U.S. Bank National Association (successor to Firstar Trust Company) (Incorporated by reference to Exhibit 4.1 to WPS Resources Corporation'sResources' Form 8-A filed December 13, 1996 [File No.1-11337].)
  		-175- <PAGE>
  4.2	Amendment to Rights Agreement, effective as of October 9, 2002, by and among WPS Resources, Corporation, U.S. Bank National Association and American Stock Transfer & Trust Company. (Incorporated by reference to Exhibit 4(h) to WPS Resources Corporation'sResources' Form S-3 filed on April 28, 2003, File No. 333-104787.)
  4.3	First Mortgage and Deed of Trust, dated as of January 1, 1941 from Wisconsin Public Service CorporationWPSC to U.S. Bank National Association (successor to First Wisconsin Trust Company), Trustee (Incorporated by reference to Exhibit 7.01 - File No. 2-7229); -200- <PAGE> Supplemental Indenture, dated as of November 1, 1947 (Incorporated by reference to Exhibit 7.02 - File No. 2-7602); Supplemental Indenture, dated as of November 1, 1950 (Incorporated by reference to Exhibit 4.04 - File No. 2-10174); Supplemental Indenture, dated as of May 1, 1953 (Incorporated by reference to Exhibit 4.03 - File No. 2-10716); Supplemental Indenture, dated as of October 1, 1954 (Incorporated by reference to Exhibit 4.03 - File No. 2-13572); Supplemental Indenture, dated as of December 1, 1957 (Incorporated by reference to Exhibit 4.03 - File No. 2-14527); Supplemental Indenture, dated as of October 1, 1963 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Supplemental Indenture, dated as of June 1, 1964 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Supplemental Indenture, dated as of November 1, 1967 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Supplemental Indenture, dated as of April 1, 1969 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Fifteenth Supplemental Indenture, dated as of May 1, 1971 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Sixteenth Supplemental Indenture, dated as of August 1, 1973 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Seventeenth Supplemental Indenture, dated as of September 1, 1973 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Eighteenth Supplemental Indenture, dated as of October 1, 1975 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Nineteenth Supplemental Indenture, dated as of February 1, 1977 (Incorporated by reference to Exhibit 2.02B - File No. 2-65710); Twentieth Supplemental Indenture, dated as of July 15, 1980 (Incorporated by reference to Exhibit 4B to Form 10-K for the year ended December 31, 1980); Twenty-First Supplemental Indenture, dated as of December 1, 1980 (Incorporated by reference to Exhibit 4B to Form 10-K for the year ended December 31, 1980); Twenty-Second Supplemental Indenture dated as of April 1, 1981 (Incorporated by reference to Exhibit 4B to Form 10-K for the year ended December 31, 1981); Twenty-Third Supplemental Indenture, dated as of February 1, 1984 (Incorporated by reference to Exhibit 4B to Form 10-K for the year ended December 31, 1983); Twenty-Fourth Supplemental Indenture, dated as of March 15, 1984 (Incorporated by reference to Exhibit 1 to Form 10-Q for the quarter ended June 30, 1984); Twenty-Fifth Supplemental Indenture, dated as of October 1, 1985 (Incorporated by reference to Exhibit 1 to Form 10-Q for the quarter ended September 30, 1985); Twenty-Sixth Supplemental Indenture, dated as of December 1, 1987 (Incorporated by reference to Exhibit 4A-1 to Form 10-K for the year ended December 31, 1987); Twenty-Seventh Supplemental Indenture, dated as of September 1, 1991 (Incorporated by reference to Exhibit 4 to Form 8-K filed September 18, 1991); Twenty-Eighth Supplemental Indenture, dated as of July 1, 1992 (Incorporated by reference to Exhibit 4B - File No. 33-51428); Twenty-Ninth Supplemental Indenture, dated as of October 1, 1992 (Incorporated by reference to Exhibit 4 to Form 8-K filed October 22, 1992); Thirtieth Supplemental Indenture, dated as of February 1, 1993 (Incorporated by reference to Exhibit 4 to Form 8-K filed January 27, 1993); Thirty-First Supplemental Indenture, dated as of July 1, 1993 (Incorporated by reference to Exhibit 4 to Form 8-K filed July 7, 1993); Thirty-Second Supplemental Indenture, dated as of November 1, 1993 (Incorporated by reference to Exhibit 4 to Form 10-Q for the quarter ended September 30, 1993); Thirty-Third Supplemental Indenture, dated as of December 1, 1998 (Incorporated by reference to Exhibit 4D to Form 8-K filed December 18, 1998); Thirty-Fourth Supplemental Indenture, dated as of August 1, 2001 (Incorporated by reference to Exhibit 4D to Form 8-K filed August 24, 2001); Thirty-Fifth Supplemental Indenture, dated as of December 1, 2002 (Incorporated by reference to Exhibit 4D to Form 8-K filed December 16, 2002); and Thirty-Sixth Supplemental Indenture, dated as of December 8, 2003 (Incorporated by reference to Exhibit 4.2 to Form 8-K filed December 9, 2003.) -176- <PAGE> All references to periodic reports are to those of Wisconsin Public Service CorporationWPSC (File No. 1-3016).
  -201- <PAGE>
  4.4	Indenture, dated as of December 1, 1998, between Wisconsin Public Service CorporationWPSC and U.S. Bank National Association (successor to Firstar Bank Milwaukee, N.A., National Association) (Incorporated by reference to Exhibit 4A to Form 8-K filed December 18, 1998); First Supplemental Indenture, dated as of December 1, 1998 between Wisconsin Public Service CorporationWPSC and Firstar Bank Milwaukee, N.A., National Association (Incorporated by reference to Exhibit 4C to Form 8-K filed December 18, 1998); Second Supplemental Indenture, dated as of August 1, 2001 between Wisconsin Public Service CorporationWPSC and Firstar Bank, National Association (Incorporated by reference to Exhibit 4C of Form 8-K filed August 24, 2001); Third Supplemental Indenture, dated as of December 1, 2002 between Wisconsin Public Service CorporationWPSC and U.S. Bank National Association (Incorporated by reference to Exhibit 4C of Form 8-K filed December 16, 2002); and Fourth Supplemental Indenture, dated as of December 8, 2003, by and between Wisconsin Public Service CorporationWPSC and U.S. Bank National Association (successor to Firstar Bank, National Association and Firstar Bank Milwaukee, N.A., National Association). (Incorporated by reference to Exhibit 4.1 to Form 8-K filed December 9, 2003). References to periodic reports are to those of Wisconsin Public Service CorporationWPSC (File No. 1-3016).
  4.5	Indenture, dated as of October 1, 1999, between WPS Resources Corporation and U.S. Bank National Association (successor to Firstar Bank Milwaukee, N.A., National Association) (Incorporated by reference to Exhibit 4(b) to Amendment No. 1 to Form S-3 filed October 21, 1999 [Reg. No. 333-88525]); First Supplemental Indenture, dated as of November 1, 1999 between WPS Resources Corporation and Firstar Bank, National Association (Incorporated by reference to Exhibit 4A of Form 8-K filed November 12, 1999); and Second Supplemental Indenture, dated as of November 1, 2002 between WPS Resources Corporation and U.S. Bank National Association. (Incorporated by reference to Exhibit 4A of Form 8-K filed November 25, 2002). All references to filings are those of WPS Resources Corporation (File No. 1-11337).
  10.1	Joint Power Supply Agreement among Wisconsin Public Service Corporation,WPSC, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated February 2, 1967. (Incorporated by reference to Exhibit 4.09 in File No. 2-27308.)
  10.2	Joint Power Supply Agreement (Exclusive of Exhibits) among Wisconsin Public Service Corporation,WPSC, Wisconsin Power and Light Company, and Madison Gas and Electric Company dated July 26, 1973. (Incorporated by reference to Exhibit 5.04A in File No. 2-48781.)
  10.3	Basic Generating Agreement, Unit 4, Edgewater Generating Station, dated June 5, 1967, between Wisconsin Power and Light Company and Wisconsin Public Service Corporation.WPSC. (Incorporated by reference to Exhibit 4.10 in File No. 2-27308.)
  10.4	Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated February 24, 1983, between Wisconsin Power and Light Company, Wisconsin Electric Power Company, and Wisconsin Public Service Corporation.WPSC. (Incorporated by reference to Exhibit 10C-1 to Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 1983.)
  10.5	Amendment No. 1 to Agreement for Construction and Operation of Edgewater 5 Generating Unit, dated December 1, 1988. (Incorporated by reference to Exhibit 10C-2 to Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 1988.)
  10.6	Revised Agreement for Construction and Operation of Columbia Generating Plant among Wisconsin Public Service Corporation,WPSC, Wisconsin Power and Light Company, and Madison Gas and Electric Company, dated July 26, 1973. (Incorporated by reference to Exhibit 5.07 in File No. 2-48781.)
  -202- <PAGE>
  10.7+	Form of Key Executive Employment and Severance Agreement entered into between WPS Resources Corporation and each of the following: Phillip M. Mikulsky and Larry L. Weyers. (Incorporated by reference to Exhibit 10.8 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 2002.)
  		-177- <PAGE>
  10.8+	Form of Key Executive Employment and Severance Agreement entered into between WPS Resources Corporation and each of the following: Larry B. Borgard, Diane L. Ford, David W. Harpole, Richard E. James, Bradley A. Johnson, Thomas P. Meinz, Barbara A. Nick, Joseph P. O'Leary, Mark A. Radtke, Charles A. Schrock, Bernard J. Treml and Daniel J Verbanac. (Incorporated by reference to Exhibit 10.9 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 2002.)
  10.9+	Form of Key Executive Employment and Severance Agreement entered into between WPS Resources Corporation and each of the following: Bradley A. Johnson, Barbara A. Nick and Barth J. Wolf. (Incorporated by reference to Exhibit 10.10 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 2002.)
  10.10+	WPS Resources Corporation Deferred Compensation Plan as Amended and Restated Effective January 1, 20042005
  10.11+	WPS Resources Corporation 2001 Omnibus Incentive Compensation Plan. (Incorporated by reference to Exhibit 10H-4 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 2000.)
  10.12+	WPS Resources 1999 Stock Option Plan. (Incorporated by reference to Exhibit 10-2 in WPS Resources Corporation'sResources' Form 10-Q for the quarter ended June 30, 1999, filed August 11, 1999.)
  10.13+	WPS Resources Corporation 1999 Non-Employee Directors Stock Option Plan. (Incorporated by reference to Exhibit 4.2 in WPS Resources Corporation'sResources' Form S-8, filed December 21, 1999. [Reg. No. 333-93193].)
  10.14	Term Loan Agreement, dated as of November 5, 1999 among PDI New England, Inc., PDI Canada, Inc., and Bayerische Landesbank Girozentrale. (Incorporated by reference to Exhibit 4H to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 1999.)
  10.15*	Credit Agreement dated as of April 14, 2000 among Sunbury Generation, LLC, as Borrower, Bayerische Landesbank Girozentrale, Cayman Islands Branch, as WC Lender, the Term Lenders Party Hereto From Time to Time and Bayerische Landesbank Girozentrale, New York Branch, as Administrative Agent. (Incorporated by reference to Exhibit 10J-2 to WPS Resources Corporation'sResources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended December 31, 2000.)
  10.16+10.17+	Severance Arrangement betweenForm of WPS Resources Corporation and Joseph P. O'Leary.NonQualified Stock Option Agreement. (Incorporated by reference to Exhibit 10.1810.1 to WPS Resources' and WPSC's Form 8-K filed December 13, 2004)
  10.18+	Form of WPS Resources Corporation'sPerformance Stock Right Agreement. (Incorporated by reference to Exhibit 10.2 to WPS Resources' and Wisconsin Public Service Corporation'sWPSC's Form 10-K for the year ended8-K filed December 31, 2002.)13, 2004)
  10.19* #	Joint Plant Agreement by and between WPSC and Dairyland Power Cooperative, dated as of November 23, 2004
  12.1	WPS Resources Corporation Ratio of Earnings to Fixed Charges
  12.2	Wisconsin Public Service CorporationWPSC Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Dividends
  21	Subsidiaries of the Registrants
  -203- <PAGE>
  23.1	Consent of Independent Auditors' ConsentRegistered Public Accounting Firm for WPS Resources Corporation
  		-178- <PAGE>
  23.2	Consent of Independent Auditors' ConsentRegistered Public Accounting Firm for Wisconsin Public Service CorporationWPSC
  24	Powers of Attorney
  31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for WPS Resources Corporation
  31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for WPS Resources Corporation
  31.3	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for Wisconsin Public Service CorporationWPSC
  31.4	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for Wisconsin Public Service CorporationWPSC
  32.1	Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for WPS Resources Corporation
  32.2	Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for Wisconsin Public Service CorporationWPSC
  99.599	Proxy Statement for WPS Resources Corporation's 2004Resources' 2005 Annual Meeting of Shareholders [To be filed with the Securities and Exchange CommissionSEC under Regulation 14A within 120 days after December 31, 2003;2004; except to the extent specifically incorporated by reference, the Proxy Statement for the 20042005 Annual Meeting of Shareholders shall not be deemed to be filed with the Securities and Exchange CommissionSEC as part of this Annual Report on Form 10-K]
  *	Schedules and exhibits to this document are not filed therewith. The registrant agrees to furnish supplementally a copy of any such schedule or exhibit to the Securities and Exchange CommissionSEC upon request.
  +	A management contract or compensatory plan or arrangement.
  -204- <PAGE>
  (b)	Reports on Form 8-K
  #	On October 24, 2003,Portions of this exhibit have been redacted and are subject to a Form 8-K, dated October 24, 2003, was furnished by WPS Resources reporting, under Items 7 and 9, WPS Resources' news release announcing its earnings for the quarter and nine months ended September 30, 2003.
  	On October 27, 2003, a Form 8-K, dated October 24, 2003, wasconfidential treatment request filed by WPS Resources reporting, under Items 5 and 7, WPS Resources' news release announcing that a definitive agreement was signed to sell the Sunbury Generating Station to Duquesne Power, L.P., a subsidiary of Duquesne Light Holdings.
  	On November 7, 2003, a Form 8-K, dated November 7, 2003, was filed by WPS Resources and Wisconsin Public Service reporting, under Items 5 and 7, Wisconsin Public Service's news release announcing that a definitive agreement was signed to sell the jointly-owned Kewaunee Nuclear Power Plant to Dominion Energy Kewaunee, Inc., a subsidiary of Dominion Resources, Inc.
  	On November 20, 2003, a Form 8-K, dated November 19, 2003, was filed by WPS Resources reporting, under Items 5 and 7, that it had entered into an Underwriting Agreement with A.G. Edwards & Sons Inc.,Robert W. Baird & Co. Incorporated, Edward D. Jones & Co., L.P. and The Williams Capital Group, L.P. in connection with the offeringSecretary of SEC pursuant to Rule 24b-2 under the Securities and saleExchange Act of 3,500,000 shares of1934, as amended. The redacted material is being filed separately with the Company's common stock, plus up to an additional 525,000 shares to cover over-allotments (which was subsequently taken up).SEC.
  	On December 9, 2003, a Form 8-K, dated December 8, 2003, was filed by Wisconsin Public Service Corporation reporting, under Items 5 and 7, that it had agreed to sell $125 million aggregate principal amount of its senior notes, 4.80% series due December 1, 2013 in a public offering and filing the underwriting agreement, fourth supplemental indenture and thirty-sixth supplemental indenture related thereto.

  -205--179-

  <PAGE>

   

  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized, on this 11th9th day of March, 2004.2005.

  WPS RESOURCES CORPORATION		WISCONSIN PUBLIC SERVICE CORPORATION
  (Registrants)
  By:	/s/ L. L. Weyers	By:	/s/ L. L. Weyers
  	L. L. Weyers Chairman, President and Chief Executive Officer		L. L. Weyers Chairman President and Chief Executive Officer

   

  Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each of the Registrants and in the capacities and on the dates indicated.

  Signature	Title	Date
  Richard A. Bemis*	Director
  Albert J. Budney, Jr.*	Director
  Ellen Carnahan*	Director
  Robert C. Gallagher*	Director
  Kathryn M. Hasselblad-Pascale*	Director
  James L. Kemerling*	Director
  John C. Meng*	Director
  William F. Protz, Jr.*	Director
  /s/ L. L. Weyers	Chairman, President, Chief Executive Officer and Director (principal executive officer)	March 11, 20049, 2005
  L. L. Weyers
  /s/ J. P. O'Leary	Senior Vice President and Chief Financial Officer (principal financial officer)	March 11, 20049, 2005
  J. P. O'Leary
  /s/ D. L. Ford	Vice President - Controller and Chief Accounting Officer (principal accounting officer)	March 11, 20049, 2005
  D. L. Ford
  *By:  /s/ L. L. Weyers
  L. L. Weyers	Attorney-in-Fact	March 11, 20049, 2005

  -206--180-

  <PAGE>

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
  A. STATEMENTS OF INCOME AND RETAINED EARNINGS
  Year Ended December 31
  (Millions)	2003	2002	2001
  Income
  Equity earnings from subsidiaries in excess of dividends	$35.8	$58.2	$31.5
  Dividends from subsidiaries	72.0	64.0	59.0
  Equity earnings from subsidiaries	107.8	122.2	90.5
  Investment income and other	3.4	3.3	5.3
  Total income	111.2	125.5	95.8
  Operating expenses	7.6	7.8	9.8
  Income before interest expense and income taxes	103.6	117.7	86.0
  Interest expense	20.6	16.3	17.7
  Income before income taxes	83.0	101.4	68.3
  Income taxes	(8.5)	(8.0)	(9.3)
  Net income before cumulative effect of change in accounting principles	91.5	109.4	77.6
  Cumulative effect of change in accounting principles, net of tax	3.2	-	-
  Net Income	94.7	109.4	77.6
  Retained earnings, beginning of year	415.9	373.6	354.8
  Common stock dividends	(71.8)	(67.1)	(58.8)
  Retained earnings, end of year	$438.8	$415.9	$373.6
  Average shares of common stock
  Basic	33.0	31.7	28.2
  Diluted	33.2	32.0	28.3
  Earnings per common share (basic)
  Net income before cumulative effect of change in accounting principles	$2.77	$3.45	$2.75
  Cumulative effect of change in accounting principles	$0.10	-	-
  Earnings per common share (basic)	$2.87	$3.45	$2.75
  Earnings per common share (diluted)
  Net income before cumulative effect of change in accounting principles	$2.75	$3.42	$2.74
  Cumulative effect of change in accounting principles	$0.10	-	-
  Earnings per common share (diluted)	$2.85	$3.42	$2.74
  The accompanying notes to WPS Resources Corporation's parent company financial statements are an integral part of these statements.

  -207-

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
  A. STATEMENTS OF INCOME AND RETAINED EARNINGS
  Year Ended December 31
  (Millions)	2004	2003	2002
  Income
  Equity earnings from subsidiaries in excess of dividends	$79.4	$35.8	$58.2
  Dividends from subsidiaries	81.0	72.0	64.0
  Equity earnings from subsidiaries	160.4	107.8	122.2
  Investment income and other	1.8	3.4	3.3
  Total income	162.2	111.2	125.5
  Operating expenses	12.3	7.6	7.8
  Income before interest expense and income taxes	149.9	103.6	117.7
  Interest expense	17.6	20.6	16.3
  Income before income taxes	132.3	83.0	101.4
  Income taxes	(7.4)	(8.5)	(8.0)
  Net income before cumulative effect of change in accounting principles	139.7	91.5	109.4
  Cumulative effect of change in accounting principles, net of tax	-	3.2	-
  Net Income	139.7	94.7	109.4
  Retained earnings, beginning of year	438.8	415.9	373.6
  Common stock dividends	(81.3)	(71.8)	(67.1)
  Other	(0.2)	-	-
  Retained earnings, end of year	$497.0	$438.8	$415.9
  Average shares of common stock
  Basic	37.4	33.0	31.7
  Diluted	37.6	33.2	32.0
  Earnings per common share (basic)
  Net income before cumulative effect of change in accounting principles	$3.74	$2.77	$3.45
  Cumulative effect of change in accounting principles	-	$0.10	-
  Earnings per common share (basic)	$3.74	$2.87	$3.45
  Earnings per common share (diluted)
  Net income before cumulative effect of change in accounting principles	$3.72	$2.75	$3.42
  Cumulative effect of change in accounting principles	-	$0.10	-
  Earnings per common share (diluted)	$3.72	$2.85	$3.42
  The accompanying notes to WPS Resources Corporation's parent company financial statements are an integral part of these statements.

  -181-

  <PAGE>

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
  B. BALANCE SHEETS
  At December 31
  (Millions)	2003	2002
  Assets
  Current assets
  Cash and cash equivalents	$0.5	$9.1
  Accounts receivable - affiliates	4.2	2.3
  Other receivables	2.5	0.8
  Notes receivable - affiliates	71.9	7.9
  Total current assets	79.1	20.1
  Long-term notes receivable - affiliates	27.4	12.8
  Investments in subsidiaries, at equity
  Wisconsin Public Service Corporation	798.2	745.9
  WPS Resources Capital Corporation	320.6	261.5
  Upper Peninsula Power Company	59.8	57.1
  Other	49.2	7.2
  Total investments in subsidiaries, at equity	1,227.8	1,071.7
  Net equipment	0.4	0.4
  Other investments	21.5	21.2
  Deferred income taxes	4.2	4.7
  Total assets	$1,360.4	$1,130.9
  Liabilities and Capitalization
  Current liabilities
  Notes payable - affiliates	$2.0	$20.6
  Notes payable to preferred stock trust	$51.5	-
  Commercial paper	28.0	-
  Accounts payable - affiliates	0.8	1.5
  Accounts payable	1.1	0.1
  Dividends payable	-	0.3
  Other	3.9	4.3
  Total current liabilities	87.3	26.8
  Capitalization
  Total common stock equity	1,003.2	782.8
  Unsecured senior notes, net of unamortized discount	248.9	248.8
  Advances from affiliates	21.0	72.5
  Total capitalization	1,273.1	1,104.1
  Total liabilities and capitalization	$1,360.4	$1,130.9
  The accompanying notes to WPS Resources Corporation's parent company financial statements are an integral part of these statements.

  -208-

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
  B. BALANCE SHEETS
  At December 31
  (Millions)	2004	2003
  Assets
  Current assets
  Cash and cash equivalents	$0.5	$0.5
  Accounts receivable - affiliates	7.7	4.2
  Other receivables	2.2	2.5
  Current deferred income taxes	0.1	-
  Notes receivable - affiliates	66.6	71.9
  Total current assets	77.1	79.1
  Long-term notes receivable - affiliates	27.0	27.4
  Investments in subsidiaries, at equity
  Wisconsin Public Service Corporation	899.7	798.2
  WPS Resources Capital Corporation	391.8	320.6
  Upper Peninsula Power Company	64.0	59.8
  Other	82.2	49.2
  Total investments in subsidiaries, at equity	1,437.7	1,227.8
  Net equipment	0.3	0.4
  Other investments	21.2	21.5
  Advance to affiliate	18.6	-
  Deferred income taxes	0.1	4.2
  Total assets	$1,582.0	$1,360.4
  Liabilities and Capitalization
  Current liabilities
  Notes payable - affiliates	$20.5	$2.0
  Notes payable to preferred stock trust	-	$51.5
  Commercial paper	188.8	28.0
  Accounts payable - affiliates	4.1	0.8
  Accounts payable	0.4	1.1
  Dividends payable	-	-
  Other	6.3	3.9
  Total current liabilities	220.1	87.3
  Capitalization
  Total common stock equity	1,091.8	1,003.2
  Unsecured senior notes, net of unamortized discount	249.1	248.9
  Advances from affiliates	21.0	21.0
  Total capitalization	1,361.9	1,273.1
  Total liabilities and capitalization	$1,582.0	$1,360.4
  The accompanying notes to WPS Resources Corporation's parent company financial statements are an integral part of these statements.

  -182-

  <PAGE>

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
  C. STATEMENTS OF CASH FLOWS
  Year Ended December 31
  (Millions)	2003	2002	2001
  Operating
  Net income	$94.7	$109.4	$77.6
  (Deduct) equity earnings from subsidiaries in excess of dividends	(35.8)	(58.2)	(31.5)
  Deferred income taxes	(0.2)	(1.1)	(1.7)
  Cumulative effect of change in accounting principles, net of tax	(3.2)	-	-
  Other - net	1.2	1.2	0.5
  Changes in other items
  Receivables	(1.9)	(0.1)	1.1
  Accounts payable	0.3	(5.9)	6.0
  Other	(0.8)	0.3	(0.3)
  Net cash - operating	54.3	45.6	51.7
  Investing
  Notes receivable - affiliates	(83.7)	11.3	23.3
  Capital contributions - affiliates, net	(117.6)	(82.2)	(113.1)
  Investments - other	(1.1)	(4.3)	(4.7)
  Net cash - investing	(202.4)	(75.2)	(94.5)
  Financing
  Commercial paper, net	28.0	(15.0)	(44.6)
  Intercompany debt, net	(13.6)	(6.2)	47.8
  Proceeds from long-term debt	-	100.0	-
  Purchase of deferred compensation stock	(1.0)	(1.3)	(1.1)
  Proceeds from issuance of common stock	197.7	28.3	96.4
  Dividends paid on common stock	(71.8)	(66.8)	(58.3)
  Financing - other	0.2	(0.8)	0.1
  Net cash - financing	139.5	38.2	40.3
  Net change in cash	(8.6)	8.6	(2.5)
  Cash, beginning of year	9.1	0.5	3.0
  Cash, end of year	$0.5	$9.1	$0.5
  The accompanying notes to WPS Resources Corporation's parent company financial statements are an integral part of these statements.

  -209-

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
  C. STATEMENTS OF CASH FLOWS
  Year Ended December 31
  (Millions)	2004	2003	2002
  Operating
  Net income	$139.7	$94.7	$109.4
  (Deduct) equity earnings from subsidiaries in excess of dividends	(79.4)	(35.8)	(58.2)
  Deferred income taxes	4.0	(0.2)	(1.1)
  Cumulative effect of change in accounting principles, net of tax	-	(3.2)	-
  Other - net	(14.8)	1.2	1.2
  Changes in other items
  Receivables	(3.2)	(1.9)	(0.1)
  Accounts payable	2.6	0.3	(5.9)
  Other	2.5	(0.8)	0.3
  Net cash - operating	51.4	54.3	45.6
  Investing
  Notes receivable - affiliates	5.7	(83.7)	11.3
  Capital contributions - affiliates, net	(128.9)	(117.6)	(82.2)
  Investments - other	(1.1)	(1.1)	(4.3)
  Net cash - investing	(124.3)	(202.4)	(75.2)
  Financing
  Commercial paper, net	160.8	28.0	(15.0)
  Intercompany debt, net	18.5	(13.6)	(6.2)
  Repayment of note to preferred stock trust	(51.5)	-	-
  Proceeds from long-term debt	-	-	100.0
  Purchase of deferred compensation stock	-	(1.0)	(1.3)
  Proceeds from issuance of common stock	26.3	197.7	28.3
  Dividends paid on common stock	(81.3)	(71.8)	(66.8)
  Financing - other	0.1	0.2	(0.8)
  Net cash - financing	72.9	139.5	38.2
  Net change in cash	-	(8.6)	8.6
  Cash, beginning of year	0.5	9.1	0.5
  Cash, end of year	$0.5	$0.5	$9.1
  The accompanying notes to WPS Resources Corporation's parent company financial statements are an integral part of these statements.

  -183-

  <PAGE>

  SCHEDULE I - CONDENSED
  PARENT COMPANY FINANCIAL STATEMENTS
  WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)

  D. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS

  The following are supplemental notes to the WPS Resources Corporation (parent company only) financial statements and should be read in conjunction with our consolidated financial statements and the related notes.

  SUPPLEMENTAL NOTES
  Note 1	WPS Resources has short-term notes receivable of $5.4 million from WPS Power Development in 2003 and 2002, $6.5 million from Upper Peninsula Power in 2003, $60.0 million from WPS Energy Services in 2003 and $2.5 million from WPS Energy Services in 2002. Notes receivable bear interest rates that approximate current market rates.
  Note 2	WPS Resources has long-term notes receivable from Wisconsin Public Service of $5.1 million and $7.3 million in 2003 and $5.3 million and $7.5 million in 2002, bearing interest rates at 8.76% and 7.35%. Monthly payments are $51,670 and $63,896 through January 2015 and May 2016. In addition, WPS Resources has a long-term note receivable from Upper Peninsula Power of $15.0 million in 2003 bearing an interest rate at 5.25%. Interest payments are made semi-annually with the balance of the note due August 2013.
  Note 3	WPS Resources has short-term notes payable to WPS Energy Services of $20.6 million for 2002 and from WPS Power Development of $2.0 million in 2003. The notes bear interest at a rate that approximates current market rates. In addition, WPS Resources has reclassified a long-term note payable to WPS Resources Capital Trust I of $51.5 million to short-term notes payable in 2003 since this will be paid in 2004.
  Note 4	WPS Resources has long-term unsecured notes payable of $150.0 million in both 2003 and 2002 with an unamortized discount of $0.3 million. The note bears an interest rate at 7% through October 2009. Interest is paid semiannually.
  Note 5	WPS Resources has long-term unsecured notes payable of $100 million in both 2003 and 2002 with an unamortized discount of $0.8 million. The notes bear interest at a rate of 5.375% through December 2012. Interest is paid semiannually.
  Note 6	WPS Resources has a long-term notes payable to WPS Power Development of $21.0 million in both 2003 and 2002. The note bears an interest rate that approximates current market rates through December 2021. In addition, WPS Resources has a long-term note payable to WPS Resources Capital Trust I of $51.5 million for 2002. The note has been reclassified to short-term notes payable in 2003. We also have guaranteed other long-term debt and obligations of our subsidiaries arising in the normal course of business for both years.
  -210- <PAGE>
  Note 7	At December 31, 2003, WPS Resources (parent company only) was in compliance with all covenants relating to outstanding debt. A schedule of all principal debt payment amounts for WPS Resources (parent company only) is as follows:
  	Year ending December 31 (Millions)
  	2004			$    -
  	2005			-
  	2006			-
  	2007			-
  	2008			-
  	Later years			271.0
  	Total payments			$271.0
  Note 8	As part of normal business, WPS Resources enters into various guaranties providing financial or performance assurance to third parties on behalf of certain subsidiaries. These guaranties are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries' intended commercial purposes.
  	At December 31, 2003 and December 31, 2002, outstanding guaranties totaled $979.0 million and $655.8 million, respectively, as follows:
  	WPS Resources' Outstanding Guaranties (Millions)	December 31, 2003	December 31, 2002		Expiration
  	Guaranties of subsidiary debt	$ 39.7	$ 38.8		2004-2018
  	Guaranties supporting commodity transaction of    subsidiaries	874.4	584.3		2004-2008
  	Standby letters of credit	61.1	22.7		2004-2006
  	Surety bonds	1.1	6.4		2004
  	Total guaranties	$976.3	$652.2
  	Guaranties of subsidiary debt support indebtedness of two WPS Power Development subsidiaries. The underlying debt related to the guarantees is stated on the Consolidated Balance Sheets as of December 31, 2003, and 2002.
  	Guarantees supporting commodity transactions include agreements on behalf of WPS Energy Services, Wisconsin Public Service, and WPS Power Development. WPS Resources primarily issues guarantees on behalf of WPS Energy Services to counterparties in the wholesale electric and natural gas marketplace to meet the counterparties' requirements. We also issue guarantees to counterparties in the wholesale electric marketplace to meet credit requirements on behalf of WPS Power Development. Guaranties have also been issued on behalf of WPS Power Development for indemnification obligations related to business purchase agreements. The Consolidated Balance Sheets reflect the obligations supported by these parental guarantees.
  	At December 31, 2003, and 2002, financial institutions have issued $61.1 million and $22.7 million respectively, in standby letters of credit for the benefit of third parties that have extended credit to certain subsidiaries. If a subsidiary does not pay amounts when due under a covered contract, the counterparty may present its claim for payment to the financial institution, which will request payment from WPS Resources. Any amounts owed by our subsidiaries are reflected in the Consolidated Balance Sheets.
  -211- <PAGE>
  	At December 31, 2003 and 2002, WPS Resources furnished $1.1 million and $6.4 million of surety bonds for various reasons including worker compensation coverage and obtaining various licenses, permits and rights-of-way. Liabilities incurred as a result of activities covered by surety bonds are included in the Consolidated Balance Sheets.

  SUPPLEMENTAL NOTES
  Note 1	WPS Resources has short-term notes receivable from affiliates in 2004 and 2003 as follows. Notes receivable bear interest rates that approximate current market rates.
  			Year Ending December 31 (Millions)
  	Affiliate		2004	2003
  	WPS Power Development		$ 4.0	$ 5.4
  	Upper Peninsula Power		11.6	6.5
  	WPS Energy Services		51.0	60.0
  	Total		$66.6	$71.9
  Note 2	WPS Resources has long-term notes receivable from affiliates as follows:
  			Year Ending December 31 (Millions)
  	Affiliate		2004	2003
  	Wisconsin Public Service
  	Series	Year Due
  	8.76%	2015	$5.0	$5.2
  	7.35%	2016	7.0	7.2
  	Upper Peninsula Power
  	Series	Year Due
  	5.25%	2013	15.0	15.0
  	Total		$27.0	$27.4
  Note 3	WPS Resources has short-term notes payable to affiliates in 2004 and 2003 as follows. The notes bear interest at a rate that approximates current market rates.
  			Year Ending December 31 (Millions)
  	Affiliate		2004	2003
  	WPS Power Development		$20.5	$ 2.0
  	WPS Resources Capital Trust I		-	51.5
  	Total		$20.5	$53.5

  -212--184-

  <PAGE>

  Note 4	WPS Resources has long-term unsecured notes payable as follows. Interest is paid semiannually.
  				Year Ending December 31
  				2004	2003
  	Unsecured senior notes (Millions)
  	Series	Year Due
  	7.00%	2009		$150.0	$150.0
  	5.375%	2012		100.0	100.0
  	Total			250.0	250.0
  	Unamortized discount on notes			(0.9)	(1.1)
  	Total long-term notes payable			$249.1	$248.9
  Note 5	WPS Resources has a long-term note payable to affiliates as follows. We also have guaranteed other long-term debt and obligations of our subsidiaries arising in the normal course of business for both years.
  				Year Ending December 31
  	Affiliate			2004	2003
  	WPS Power Development (Millions)
  	Interest Rate		Year Due
  	Market		2021	$21.0	$21.0
  	Total			$21.0	$21.0
  Note 6	At December 31, 2004, WPS Resources (parent company) was in compliance with all covenants relating to outstanding debt. A schedule of all principal debt payment amounts for WPS Resources (parent company) is as follows:
  	Year Ending December 31 (Millions)
  	2005				$       -
  	2006				-
  	2007				-
  	2008				-
  	2009				150.0
  	Later years				121.0
  	Total payments				$271.0
  Note 7	As part of normal business, WPS Resources enters into various guarantees providing financial or performance assurance to third parties on behalf of certain subsidiaries. These guarantees are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries' intended commercial purposes.
  	At December 31, 2004, 2003, and 2002, outstanding guarantees totaled $967.8 million, $976.3 million, and $652.2 million, respectively, as follows:

  -185-

  <PAGE>

  	WPS Resources' Outstanding Guarantees (Millions)	December 31, 2004	December 31, 2003	December 31, 2002
  	Guarantees of subsidiary debt	$ 27.2	$ 39.7	$ 38.8
  	Guarantees supporting commodity transactions of subsidiaries	863.9	874.4	584.3
  	Standby letters of credit	76.1	61.1	22.7
  	Surety bonds	0.6	1.1	6.4
  	Total guarantees	$967.8	$976.3	$652.2

  	WPS Resources' Outstanding Guarantees (Millions) Commitments Expiring	Total Amounts Committed At December 31, 2004	Less Than 1 Year	1 to 3 Years	4 to 5 Years	Over 5 Years
  	Guarantees of subsidiary debt	$ 27.2	$ -	$ -	$ -	$27.2
  	Guarantees supporting commodity transactions of subsidiaries	863.9	812.6	22.4	12.9	16.0
  	Standby letters of credit	76.1	67.1	9.0	-	-
  	Surety bonds	0.6	0.6	-	-	-
  	Total guarantees	$967.8	$880.3	$31.4	$12.9	$43.2

  	At December 31, 2004, WPS Resources had outstanding $27.2 million in corporate guarantees supporting indebtedness. Of that total, $27.0 million supports outstanding debt at one of PDI's subsidiaries. The underlying debt related to these guarantees is reflected on the consolidated balance sheet.
  	Guarantees supporting commodity transactions include agreements on behalf of ESI, WPSC, PDI, and UPPCO. WPS Resources primarily issues guarantees on behalf of ESI to counterparties in the wholesale electric and natural gas marketplace to meet the counterparties' requirements. We also issue guarantees to counterparties in the wholesale electric marketplace to meet credit requirements on behalf of PDI. Guaranties have also been issued on behalf of PDI for indemnification obligations related to business purchase agreements. The Consolidated Balance Sheets reflect the obligations supported by these parental guarantees.
  	At December 31, 2004, and 2003, financial institutions have issued $76.1 million and $61.1 million respectively, in standby letters of credit for the benefit of third parties that have extended credit to certain subsidiaries. If a subsidiary does not pay amounts when due under a covered contract, the counterparty may present its claim for payment to the financial institution, which will request payment from WPS Resources. Any amounts owed by our subsidiaries are reflected in the Consolidated Balance Sheets.
  	At December 31, 2004 and 2003, WPS Resources furnished $0.6 million and $1.1 million of surety bonds for various reasons including worker compensation coverage and obtaining various licenses, permits and rights-of-way. Liabilities incurred as a result of activities covered by surety bonds are included in the Consolidated Balance Sheets.

  -186-

  <PAGE>

  SCHEDULE II
  WPS RESOURCES CORPORATION
  VALUATION AND QUALIFYING ACCOUNTS
  Allowance for Doubtful Accounts
  Years Ended December 31, 2004, 2003, and 2002
  (In Millions)
  	Balance at	Acquisitions	Additions
  	Beginning of	of	Charged to		Balance at
  Fiscal Year	Year	Businesses	Expense	Reductions *	End of Year
  2002	$5.0	$0.1	$7.9	$6.0	$7.0
  2003	$7.0	-	$7.0	$7.4	$6.6
  2004	$6.6	-	$7.1	$5.7	$8.0
  * Represents amounts written off to the reserve, net of recoveries.

  -187-

  <PAGE>

  SCHEDULE II
  WISCONSIN PUBLIC SERVICE CORPORATION
  VALUATION AND QUALIFYING ACCOUNTS
  Allowance for Doubtful Accounts
  Years Ended December 31, 2004, 2003, and 2002
  (In Millions)
  		Balance at		Acquisitions		Additions
  		Beginning of		of		Charged to				Balance at
  Fiscal Year		Year		Businesses		Expense		Reductions *		End of Year
  2002		$3.5		-		$3.9		$3.7		$3.7
  2003		$3.7		-		$5.2		$4.5		$4.4
  2004		$4.4		-		$6.0		$4.9		$5.5
  * Represents amounts written off to the reserve, net of recoveries.

  -188-

  <PAGE>

  EXHIBITS FILED HEREWITH
  10.10	WPS Resources Corporation Deferred Compensation Plan as Amended and Restated Effective January 1, 2005
  10.19#*	Joint Plant Agreement by and between Wisconsin Public Service Corporation and Dairyland Power Cooperative, dated as of November 23, 2004
  12.1	WPS Resources Corporation Ratio of Earnings to Fixed Charges
  12.2	Wisconsin Public Service CorporationWPSC Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Dividends
  21	Subsidiaries of the Registrants
  23.1	Consent of Independent Auditors' ConsentRegistered Public Accounting Firm for WPS Resources Corporation
  23.2	Consent of Independent Auditors' ConsentRegistered Public Accounting Firm for Wisconsin Public Service Corporation WPSC
  24	Powers of Attorney
  31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for WPS Resources Corporation
  31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for WPS Resources Corporation
  31.3	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for Wisconsin Public Service CorporationWPSC
  31.4	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934 for Wisconsin Public Service CorporationWPSC
  32.1	Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for WPS Resources Corporation
  32.2	Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 for Wisconsin Public Service CorporationWPSC
  #	Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of SEC pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. The redacted material is being filed separately with the SEC.
  *	Schedules and exhibits to this document are not filed therewith. The registrant agrees to furnish supplementally a copy of any such schedule or exhibit to the SEC upon request.

  -213--189-

  <PAGE>

  SCHEDULE II
  WPS RESOURCES CORPORATION
  VALUATION AND QUALIFYING ACCOUNTS
  Allowance for Doubtful Accounts
  Years Ended December 31, 2003, 2002, and 2001
  (in Millions)
  	Balance at	Acquisitions	Additions
  	Beginning of	of	Charged to		Balance at
  Fiscal Year	Year	Businesses	Expense	Reductions *	End of Year
  2001	$4.2	$0.1	$7.2	$6.5	$5.0
  2002	$5.0	$0.1	$7.9	$6.0	$7.0
  2003	$7.0	-	$7.0	$7.4	$6.6
  * Represents amounts written off to the reserve, net of recoveries.

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  SCHEDULE II
  WISCONSIN PUBLIC SERVICE CORPORATION
  VALUATION AND QUALIFYING ACCOUNTS
  Allowance for Doubtful Accounts Years Ended December 31, 2003, 2002, and 2001 (In millions)
  		Balance at		Acquisitions		Additions
  		Beginning of		of		Charged to				Balance at
  Fiscal Year		Year		Businesses		Expense		Reductions *		End of Year
  2001		$3.4		$0.1		$4.4		$4.4		$3.5
  2002		$3.5		-		$3.9		$3.7		$3.7
  2003		$3.7		-		$5.2		$4.5		$4.4
  * Represents amounts written off to the reserve, net of recoveries.

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