(Mark One)

For the fiscal year ended December 31, 2000

For the transition period from ________________ to ___________________

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

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

Indicate by check mark whether the Registrant (1) has 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) has 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. [X]

DOCUMENTS INCORPORATED BY REFERENCE

(1) Definitive proxy statement for the WPS Resources Corporation Annual Meeting of Shareholders on May 3, 2001 is incorporated into Parts I and III.

WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION

    WPS Resources was incorporated in Wisconsin in 1993. WPS Resources is a holding company for regulated utility and nonregulated business units. Principal operating subsidiaries and their approximate percentages of revenues and assets are:

    Wisconsin Public Service, WPS Energy Services, and WPS Power Development are all Wisconsin corporations. Upper Peninsula Power is a Michigan corporation. Wisconsin Public Service and Upper Peninsula Power are regulated utilities.

Wisconsin Public Service Corporation

    Wisconsin Public Service is a regulated electric and gas utility serving an 11,000 square mile service territory in northeastern Wisconsin and a portion of the Upper Peninsula of Michigan. In 2000, Wisconsin Public Service served 395,063 electric retail customers and 235,470 gas retail customers. Wholesale electric service is provided to various customers including municipal utilities, electric cooperatives, energy marketers, other investor-owned utilities, and a municipal joint action agency.

    Upper Peninsula Power is a regulated utility providing electric service to a 4,500 square mile area of Michigan's Upper Peninsula. Electric service was provided to 50,272 retail customers. Wholesale electric service was provided to various municipal utilities, electric cooperatives, and other investor-owned utilities. Total revenues consisted of 91% retail sales and 9% wholesale sales.

    WPS Resources Capital Corporation was created in 1999 as an intermediate holding company for the nonregulated subsidiaries of WPS Resources. WPS Resources Capital Corporation will provide the equity for the nonregulated subsidiaries of WPS Resources. At the end of 2000, WPS Resources Capital Corporation had total assets of $108.6 million, consisting of its investments in WPS Energy Services and WPS Power Development.

    WPS Energy Services is a nonregulated subsidiary of WPS Resources Capital Corporation. WPS Energy Services provides energy and related products and services in the nonregulated energy market throughout the Midwest and eastern United States. WPS Energy Services had revenues of $955.6 million in 2000. Revenues in 2000 have risen significantly over 1999 due to growth in sales volume and the large increase in the cost of natural gas experienced in 2000.

    WPS Power Development is also a nonregulated subsidiary of WPS Resources Capital Corporation. Energy-related services provided by WPS Power Development include project development, engineering and management services, and operations and maintenance services. WPS Power Development currently owns, through subsidiaries, electric generation facilities in Wisconsin, Maine, Pennsylvania, and New Brunswick, Canada. Synthetic fuel processing and steam production facilities are located in Kentucky, Arkansas and Oregon. WPS Power Development had revenues of $128.1 million in 2000.

    Except for historical data and statements of current fact, the information contained in this Annual Report constitutes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Any references made to plans, goals, beliefs, or expectations in respect to future events and conditions or to estimates are forward-looking statements. We believe our expectations are based on reasonable assumptions. Forward-looking statements are inherently uncertain and subject to risks. Such statements 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 in this report include, but are not limited to statements regarding:

 1)    the speed and degree to which competition enters the electric
        and natural gas industries,
 2)    state and Federal legislation, regulation, interpretation, or
        enforcement,
 3)    regulatory initiatives,
 4)    economic climate,
 5)    industrial, commercial, and residential growth,
 6)    environmental regulation,
 7)    weather,
 8)    timing and extent of changes in commodity prices,
 9)    interest rates,
10)    capital markets, and
11)    opportunities for expansion in nonregulated energy markets.

    We make no commitment to disclose any revisions to the forward-looking statements as a result of, facts, events, or circumstances after the date of this report.

    In Wisconsin, the largest communities served by Wisconsin Public Service at the electric retail level are the cities of Green Bay, Oshkosh, Wausau, and Stevens Point. In Michigan, the largest community served at the electric retail level is the area of Houghton/Hancock, which is served by Upper Peninsula Power.

Generating Capacity

    In 2000, Wisconsin Public Service reached a firm net design peak of 1,793 megawatts on the afternoon of August 31. The summer time period is the most relevant for capacity planning purposes. Planned generation capability for the 2000 summer period was 1,980 megawatts. Future supply reserves are expected to meet the minimum 18% planning criteria for 2001 and 2002.

    For additional information regarding our generation facilities, see "UTILITY" in Part I, Item 2, PROPERTIES.

    In 2000, Upper Peninsula Power purchased 89% of its total energy requirements. Remaining energy requirements were supplied by hydroelectric and combustion turbine facilities owned by Upper Peninsula Power. During 2000, 65 megawatts of firm power were purchased from Wisconsin Public Service. Upper Peninsula Power also purchased non-firm power from Wisconsin Public Service and Alliant Energy Corporation among others. The purchases from Wisconsin Public Service represented 75% of Upper Peninsula Power's total energy requirements in 2000. Upper Peninsula Power has contracted for 65 megawatts of capacity and energy from Wisconsin Public Service for the years 2001 and 2002.

    In 2000, Wisconsin Public Service purchased Consolidated Water Power Company's ownership interest in Wisconsin River Power Company increasing the ownership interest of Wisconsin Public Service from 33.1% to 66.88% of the outstanding capital stock of Wisconsin River Power. Wisconsin River Power is the owner and operator of two dams and related hydroelectric plants on the Wisconsin River having an aggregate installed capacity of approximately 39 megawatts. The acquisition was effective January 1, 2001. Wisconsin Power and Light Company has an option to purchase 50% of the additional capital stock of Wisconsin River Power acquired by Wisconsin Public Service in 2000. Wisconsin Power and Light must file with the Securities and Exchange Commission by March 31, 2001 to exercise this option. Upon exercise of this option, Wisconsin Public Service and Wisconsin Power and Light would each own 50% of Wisconsin River Power.

Kewaunee Nuclear Power Plant

    The Kewaunee plant is a pressurized water reactor plant with a nameplate capacity of 562 megawatts. Currently, it is jointly owned by Wisconsin Public Service (41.2%), Wisconsin Power and Light (41.0%), and Madison Gas and Electric Company (17.8%). WPS Resources owns a 20% interest in Nuclear Management Company LLC, the plant's current operator. The plant's operating license expires in 2013.

    On September 29, 1998, Wisconsin Public Service and Madison Gas and Electric Company entered into an agreement to transfer Madison Gas and Electric's 17.8% share of the Kewaunee plant to Wisconsin Public Service. The closing of this agreement remains contingent upon approvals from the Nuclear Regulatory Commission. After the transfer, Wisconsin Public Service will have a 59% ownership interest in the plant. The remaining co-owner, Wisconsin Power and Light Company, will retain its 41% ownership interest in the plant.

    Under the terms of the agreement, Wisconsin Public Service will pay Madison Gas and Electric an amount equal to its depreciated book value for its share of the Kewaunee plant at the ownership transfer date. The ownership transfer date is contingent upon installation of new steam generators at the Kewaunee Nuclear Plant. Shutdown of the plant for installation of the steam generators is anticipated to be in the fall of 2001. Madison Gas and Electric will not participate in the costs related to the installation. Madison Gas and Electric will also provide to Wisconsin Public Service:

1)    its qualified decommissioning trust at the date of the ownership change,

2)    a commitment to dedicate funds available in its nonqualified trust for decommissioning, and

3)    a commitment to make annual decommissioning contributions of  $8,091,000 through the year 2002.

    These funds and contributions are expected to fully fund Madison Gas and Electric's share of total expected plant decommissioning costs.

    Wisconsin Public Service will then assume responsibility for 59% of the costs of decommissioning the plant. Madison Gas and Electric will retain its obligation for its share of the costs for final disposal of spent nuclear fuel created up to the time of ownership transfer. Madison Gas and Electric will be provided with an option to purchase power from Wisconsin Public Service, at a fixed price, for two years following the date of the ownership transfer. The amount of potential power to be provided is approximately equal to Madison Gas and Electric's current share of the power generated by the plant.

    On April 7, 1998, the Public Service Commission of Wisconsin approved the Wisconsin Public Service application for replacement of the two steam generators at the Kewaunee plant. The total cost of replacing the steam generators is estimated to be approximately $120 million. After the acquisition of Madison Gas and Electric's interest in the Kewaunee plant our share of the cost is estimated to be $70.8 million. Madison Gas and Electric will not be responsible for any portion of the costs of the steam generator as a result of the change in ownership discussed above. Due to delays in the manufacture of the new steam generators, the replacement is now planned for the scheduled refueling outage in the fall of 2001 and is expected to take approximately 60 days.

    On April 21, 2000, the Kewaunee plant was shut down for the scheduled spring 2000 refueling outage. The plant had operated continuously since startup from the 1998 refueling outage for a total of 511 days. On June 2, 2000, the plant returned to service from the 2000 planned maintenance and refueling outage. Inspection of the plant's two steam generators showed that the repairs made to the tubes in previous outages were holding up well. A major overhaul was also performed on the main electrical generator. The Kewaunee plant ended year 2000 with 206 days of continuous operation since startup from the 2000 refueling outage.

    On February 25, 1999, Northern States Power Company, Wisconsin Electric Power Company, and Wisconsin Public Service announced the formation of Nuclear Management Company. Subsequently, Alliant Energy also became a participant in Nuclear Management Company. Combined, the four utilities operate seven nuclear generating units at five locations for a combined generating capacity of approximately 3,760 megawatts. This represents between 12% and 25% of the electricity generated by the individual utilities. In 2000 Consumers Power announced that it will join Nuclear Management Company upon the receipt of regulatory approvals.

    Nuclear Management Company was formed to sustain long-term safety, optimize reliability, and improve the operational performance of the individual nuclear generating plants. Overall plant operations will continue to be staffed by the same plant personnel. The utilities will continue to own their respective plants, be entitled to energy generated at the plants, and retain the financial obligations for their safe operation, maintenance, and decommissioning. Each of the current Nuclear Management Company participants has received the required state and Federal regulatory approvals. All non-union Kewaunee plant employees of Wisconsin Public Service were transferred to Nuclear Management Company on January 1, 2001.

    The Kewaunee plant has been implementing a plan over the last several years to make improvements to plant processes and procedures. Assessments performed by Nuclear Management Company and Kewaunee staff, the Nuclear Regulatory Commission, the Institute of Nuclear Plant Operations, and others have reinforced the need to continue this improvement.

    In 2000, the Nuclear Regulatory Commission Revised Oversight Process was issued which lowered the requirements defining when a formal investigative process needed to be initiated at a nuclear plant. As a result, processes at the Kewaunee plant need to be revised. The improvements necessitated by the Nuclear Regulatory Commission Revised Oversight Process have increased the urgency to implement process improvements currently underway at the plant. In addressing these needed improvements, the Nuclear Regulatory Commission acknowledged the safety record of the Kewaunee plant and its ability to continue operations. However, management believes that the Kewaunee plant must proceed with the current process improvement project to continue operations.

    In order to address the concerns raised by the Nuclear Regulatory Commission, it is estimated that additional costs will be incurred in 2001 of $23.8 million over that requested in the most recent rate case filings of Wisconsin Public Service and the other plant co-owners. The Wisconsin Public Service share of the $23.8 million may be as much as $14 million. Nuclear Management Company has requested approval of the Kewaunee co-owners to spend up to $3.6 million to allow the Kewaunee plant staff to continue to address these issues over the next three months while further definition of the project is developed.

    Additional incremental operating costs for these improvements over the period of 2002 through 2005 are estimated to be $51.7 million and will be included in future rate requests of the Kewaunee co-owners. The Kewaunee co-owners have submitted to the Public Service Commission of Wisconsin a request for deferral of the 2001 and 2002 incremental costs associated with this issue.

    Total additional capital costs associated with these improvements, over the 2001 through 2003 period are estimated to be $4.9 million.

    In 1997, the Public Service Commission of Wisconsin directed the owners of the Kewaunee plant to develop depreciation and decommissioning cost projections based on full cost recovery of the estimated obligation by the end of 2002. Previously, cost estimates had been based on full collection of funds required for decommissioning by 2013, the year in which the operating license expires. The order was prompted by uncertainty regarding the expected useful life of the plant without steam generator replacement. This method of recovery was discontinued on December 31, 2000 as a result of a recent Public Service Commission of Wisconsin rate order for 2001 and 2002. This rate order requires the investment in the new steam generators to be recovered using the sum-of-the-years-digits depreciation method over an 8.5 year period beginning with completion of the new steam generators installation. The unrecovered plant investment at the end of 2000 will be recovered over a period ending 8.5 years after the installation of the steam generators using a straight-line remaining life depreciation methodology. The order further provides for the funding period for decommissioning to be extended to the end of 2010.

    At December 31, 2000, the net carrying amount of our investment in Kewaunee was approximately $52.5 million. The current cost for our share of the estimated costs to decommission Kewaunee is $211.4 million. Wisconsin Public Service decommissioning trust assets at December 31, 2000 totaled $207.2 million.

    During 2000, $8.9 million of depreciation expense related to unrecovered plant investment was recognized compared with $8.3 million recognized in 1999. The 2000 decommissioning funding level was $8.9 million compared with $9.2 million in 1999. Beginning in 2001, the decommissioning funding level will be $2.6 million based on the extension of the funding period.

    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 CONSOLIDATED FINANCIAL STATEMENTS,

    Wisconsin Public Service's electric generation mix for 2000 and 1999 was:

    Wisconsin Public Service's fuel costs for 2000 and 1999 were:

    Coal is the primary fuel source for Wisconsin Public Service, most of which is from the Powder River Basin mines located in Wyoming and Montana. Powder River Basin coal is very low in sulfur and meets the standards of the 1990 Clean Air Act for 2001 and beyond. 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 will increase generation output and provide flexibility in meeting peak electric demands.

    Wisconsin Public Service purchases most of the coal for its wholly-owned plants and the jointly-owned Edgewater and Columbia plants under relatively short-term contracts of up to three years duration. Historically, Wisconsin Public Service has purchased the subbituminous coal directly from the producer. For 2001 to 2003, approximately 23% of the coal requirements for the wholly-owned plants and 8% for the jointly-owned plants have been awarded to a marketer. One long-term contract covers approximately 24% of total requirements and has take-or-pay obligations totaling $89.2 million for the years 2001 through 2016.

    Coal transportation for these plants is purchased under contracts of up to five years duration. Over 90% of our coal transportation is under competitive transportation agreements which are expected to continue to contribute to competitive fuel costs. Union Pacific Railroad Company is the exclusive provider of coal transportation for the jointly-owned Edgewater plant. The plant operator, Wisconsin Power and Light, filed a complaint with the Surface Transportation Board on December 30, 1999 claiming the tariff charged by Union Pacific for unit train service between the Powder River Basin and the Edgewater plant is unreasonably high. The Surface Transportation Board is currently reviewing the complaint and is expected to issue a decision in the latter portion of 2001.

    See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 13, COMMITMENTS AND CONTINGENCIES regarding "Coal Contracts."

    Wisconsin Public Service purchases uranium concentrates, conversion services, enrichment services, and fabrication services for nuclear fuel assemblies at the Kewaunee plant. Approximately 1/3 of the 121 fuel assemblies are removed from the reactor every 18 months and replaced with new assemblies. Removed assemblies are placed in storage at the plant site pending permanent disposal by the United States Department of Energy.

    Uranium concentrates, conversion services, and enrichment services are purchased either on the spot market, through a bidding process, or using existing contracts.

    The uranium inventory policy of Wisconsin Public Service requires that sufficient inventory be maintained for two reactor refuelings. As of December 31, 2000, approximately 884,000 pounds of yellowcake (a processed form of uranium ore), or its equivalent, were held in inventory for the plant. Inventory includes uranium under contract.

    Conversion services are complete for the nuclear fuel reloads scheduled in 2001 and 2003.

    A fixed quantity of enrichment services has been contracted through the year 2004. Wisconsin Public Service has the option of purchasing future enrichment services under an existing contract or purchasing from the spot market.

    Wisconsin Public Service has contracts in place for fuel fabrication services for the next decade.

    If, for any reason, the Kewaunee plant was forced to suspend operations permanently, the maximum exposure related to fuel contracts is not expected to exceed $6,500,000. The increased exposure is due to a new long- term fuel fabrication contract with Westinghouse. No financial penalties associated with the present uranium supply, conversion service, and enrichment agreements exist. Uranium inventories could be sold on the spot market.

    In July 1996, the United States Court of Appeals for the District of Columbia had ruled that the Department of Energy had an unconditional obligation to begin accepting, transporting, and disposing of spent nuclear fuel by January 31, 1998. Wisconsin Public Service has joined other utilities in a motion to enforce the July 1996 ruling. On January 31, 1998, the United States Department of Energy failed to comply with its obligation to begin removing spent nuclear fuel from plant sites as required by the Nuclear Waste Policy Act of 1982. On May 5, 1998, the United States Court of Appeals for the District of Columbia issued a decision denying the motion to enforce the Court's 1996 mandate. The denial centered on the question of whether the Department of Energy could properly use the Nuclear Waste Fund as a source to pay damages. The Court also ruled that the question is not ready for review. The Court indicated that compelling the Department of Energy to submit a detailed program for disposing of spent fuel from utilities and declaring that the utilities are relieved of their obligation to pay fees to the Nuclear Waste Fund falls outside the scope of the Court's authority. The scope of the Court's mandate was limited to defining the nature of the Department of Energy's statutory obligations and did not extend to requiring the Department of Energy to perform under its contracts with the utilities. Our current recourse is to request reimbursement from the Department of Energy for expansion of disposal facilities. Litigation on this issue continues in the industry and we continue to monitor its progress.

    A surcharge imposed by the Energy Policy Act of 1992 requires nuclear power companies to fund the decontamination and decommissioning of Department of Energy facilities relating to the processing of nuclear fuel. As a result, we are required to pay a surcharge for uranium enrichment services purchased from the Federal government prior to October 23, 1992. On an inflation adjusted basis, our portion of the obligation related to the Kewaunee plant is approximately $600,000 per year through the year 2007. Madison Gas and Electric has agreed to continue to pay its portion of this annual assessment after the transfer of their ownership interest in the plant to Wisconsin Public Service.

    Wisconsin Public Service and a number of other nuclear power companies sued the Department of Energy in the United States Court of Federal Claims seeking a refund of the previously paid decontamination and decommissioning surcharge payments. This claim continues in the Court of Federal Claims pending the settlement of other litigation. On August 13, 1998, 22 utilities filed a complaint in the U.S. District Court for the Southern District of New York seeking a declaratory judgement that certain sections of the Energy Policy Act are unconstitutional. As of December 2000, the Department of Energy and the utilities continue legal proceedings in both the Court of Federal Claims and the United States District Courts. No final rulings have been issued.

    In 2000, Wisconsin Public Service along with Alliant Energy, Madison Gas and Electric, Wisconsin Electric, and Wisconsin Public Power Inc. formed American Transmission Company, LLC, as required by Wisconsin Act 9 to be eligible for holding company asset cap relief. American Transmission Company is a regulated transmission company that will construct, operate, maintain and expand transmission facilities in eastern Wisconsin, the Upper Peninsula of Michigan, and a portion of Illinois. American Transmission Company will provide service to all customers, in an effort to support an effective competitive energy market. The member utilities transferred ownership of their transmission assets to American Transmission Company on January 1, 2001 in return for equity interests in the company. Wisconsin Public Service transferred approximately $70.8 million of its transmission assets in exchange for a 12.1 % equity interest in American Transmission Company. As provided by Wisconsin Act 9, as a result of transferring these transmission assets WPS Resources is no longer subject to the asset cap limitation on nonregulated investments of the Wisconsin Holding Company Act. Upper Peninsula Power intends to transfer its transmission assets in exchange for an ownership interest in American Transmission Company in the first half of 2001. American Transmission Company is a member of the Midwest Independent System Operator.

    As was the case since 1997, electric reliability continued to be the primary issue for the Public Service Commission of Wisconsin during 2000 and into 2001. Industry restructuring and retail generation open access remain secondary issues in the state. The priorities of the Public Service Commission of Wisconsin in 2000 were:

1) the completion of a Market Power study,

2) the completion of dockets and orders required to launch American Transmission Company,

3) completion of dockets to allow utility membership in Midwest Independent System Operator,

4) continuation of dockets to approve the construction of the Weston to Arrowhead transmission line, and

5) completion of orders to transfer the responsibility of conservation, load management, and public benefits from the utilities to the Wisconsin Department of Administration with utility customer financing.

    The hearings related to the Weston to Arrowhead transmission line are anticipated to be completed in 2001. The Weston to Arrowhead transmission line is a 250-mile 345-kilovolt transmission line from Wausau, Wisconsin to Duluth, Minnesota to be constructed by Wisconsin Public Service and Minnesota Power and Light Company. Wisconsin Public Service has an option to transfer its portion of the construction project to the American Transmission Company, for completion, in exchange for additional equity interest in American Transmission Company. WPS Resources would continue to fund the construction of the line by American Transmission Company. Commission consideration of generation ownership and construction proposals from Wisconsin Electric Power, Customer's First (a group of environmental and customer groups), municipal utilities, and cooperative energy providers will also be addressed in 2001.

    The Public Service Commission of Wisconsin hired a consultant to perform a market power analysis for Wisconsin and the Upper Peninsula of Michigan electric markets as part of the requirements of Reliability 2000 legislation. The consultant completed a study of the market conditions in Wisconsin, which was then published for comment. The Commission received comments and in December of 2000 issued a "Report to the Legislature on Horizontal Market Power in Wisconsin Electric Markets." The Commission concludes that the study "provides a useful starting point for the analysis of potential horizontal market power problems in Wisconsin." The Commission concurred with numerous comments it received, including those of Wisconsin Public Service, that complete and immediate wholesale and retail deregulation as simulated in the study is not in the public interest, especially in light of the developments in California. The Commission agreed with the conclusions in the study that more transmission is needed and contracts between generators and customers may be an effective form of market power mitigation. Finally, the Commission indicated that horizontal market power issues are a complex subject that will require further study before actions to mitigate market power are considered.

    The Midwest Independent System Operator plans to become operational in the fall of 2001 after being granted status as a Regional Transmission Organization by the Federal Energy Regulatory Commission after a January 2001 compliance filing. As required by Wisconsin Act 9, Wisconsin Public Service, Wisconsin Electric, Madison Gas and Electric, Northern States Power Company - Wisconsin, and Wisconsin Power and Light have all filed and received Public Service Commission of Wisconsin and Federal Energy Regulatory Commission approval to join and have joined the Midwest Independent System Operator. During 2000, three major members of the Midwest Independent System Operator, Dynergy, Commonwealth Edison, and Ameren, requested approval from the Federal Energy Regulatory Commission to withdraw from Midwest Independent System Operator. Other Midwest Independent System Operator members, including Wisconsin Public Service, have filed notifications that they will withdraw from Midwest Independent System Operator if one or more of the original three withdrawals are approved. The withdrawal of Dynergy, Commonwealth Edison, and Ameren will reduce the Midwest Independent System Operator region to Wisconsin and Minnesota, reducing its service territory to a size insufficient to be an effective Regional System Operator.

    In addition to Midwest Independent System Operator another organization, Alliance Regional Transmission Organization, has filed with the Federal Energy Regulatory Commission for Regional Transmission Organization status in the Midwest. Alliance is made up of a number of utilities serving portions of Michigan, Ohio, Virginia, West Virginia, and a small portion of Pennsylvania. The three companies requesting withdrawal from the Midwest Independent System Operator have indicated a desire to join Alliance. The Federal Energy Regulatory Commission is expected to take action on the withdrawal requests in early 2001 as well as the requests for Regional Transmission Organization status of Midwest Independent System Operator and Alliance. Intervenors in this withdrawal case, including Wisconsin Public Service, have suggested to the Federal Energy Regulatory Commission that the Midwest Independent System Operator and Alliance should be required to merge and provide one regional transmission organization for the Midwest. As a result, it is likely that this will delay the operations date of the Midwest Independent System Operator. Until a Midwest Regional Transmission Organization is operational, the American Transmission Company will operate the eastern Wisconsin transmission system.

    The summer of 2000 was generally cooler than normal, thus relieving much of the stress regarding reliability of the regional system that was experienced in 1999. In preparation for the summer of 2000, Wisconsin Public Service and other utilities in the state, in accordance with Act 9 filed customer buyback tariffs which allow utilities to shed load during peak demand periods for customers willing to sell back all or a portion of their supply. Wisconsin Public Service developed and filed five tariffs, and the Public Service Commission of Wisconsin approved four of them just prior to the summer season. Wisconsin Public Service opened the closed commercial and industrial direct load control program to more customer participation. In 2000, Wisconsin Public Service leased a number of portable diesel generators and installed them on various parts of the system for extra peaking capability.

    In 2000, Wisconsin Public Service electric rates were 91% of the state average for some residential rates, 82% for commercial rates, and 80% for large industrial rates.

    In 2000, Wisconsin Public Service filed for an electric rate increase effective for 2001. Wisconsin Public Service also filed for a reopener for year 2002 with an additional increase of electric rates. Primary reasons for the rate increase were the cost of improvements to the electric transmission and generation infrastructure, improvements to the customer information system and the facilities system, the continuation of the automated meter reading installation project, and the cost of fuel and purchased power.

    On December 21, 2000, the Commission issued its order in this rate case providing Wisconsin Public Service with an electric increase of $27.2 million, or 5.4%. The Commission did not order a reopener for the year 2002 but indicated that Wisconsin Public Service could file for one if needed. The Commission order approved the request of Wisconsin Public Service for a return on equity of 12.1% and the continuation of the installation of the automated meter reading system in the remainder of the Wisconsin Public Service gas and electric system. The new rates became effective on January 1, 2001.

    On June 2, 2000, legislation was passed in Michigan, providing all electric customers of investor-owned and cooperative utilities the right to choose their generation supplier by January 1, 2002. This law is best characterized as industry restructuring rather than deregulation, since it does not deregulate generation service provided by the current utilities even after January 1, 2002 when customers will be able to choose their electric supplier.

    In addition to customer choice, the law includes a rate reduction and freeze for utilities serving more than 200,000 customers in Michigan, a mechanism to reduce market power in the Lower Peninsula of Michigan, a requirement that a market power study of the market in the Upper Peninsula of Michigan be conducted, stranded cost and transition cost recovery mechanisms, an affiliate interest code of conduct, a customer education mechanism, and various rules on customer and supplier business practices.

    The Commission and the utilities have started the process of developing the systems needed to implement the law. The Commission has opened generic dockets on code of conduct, customer education, stranded cost recovery, slamming and cramming protections, and bill disclosure of generation environmental effects, and has opened individual cases for each utility to develop the open access tariffs and business practices. Wisconsin Public Service and Upper Peninsula Power are parties in all of these cases. Preliminary tariffs are expected in the first quarter of 2001.

    In 2000, Wisconsin Public Service continued to be the lowest-cost provider of electric service in Michigan for all customer classes, although one other Upper Peninsula utility has equally low rates for residential and small commercial customers. Wisconsin Public Service rates were 72% of the state average for residential rates, 73% for commercial rates, and 86% for large industrial rates.

    Wisconsin Public Service and Upper Peninsula Power each have a one-for-one recovery mechanism for electric fuel and purchased power. Although a number of utilities froze their one-for-one recovery mechanisms during the 1990s, Wisconsin Public Service and Upper Peninsula Power did not request a freeze. In the current volatile electric energy market, it is felt that passing through these one-for-one costs of energy send the proper price signals to customers. This also helps preserve the competitive markets that have been developing in the state.

    Other than transmission open access tariff cases, ancillary service rates, and adjustments for fuel buyouts, Wisconsin Public Service has not had a full Federal Energy Regulatory Commission wholesale rate case since 1987.

    Wisconsin Public Service turned over its transmission system to American Transmission Company in exchange for an ownership share of this single purpose transmission company based on the net book value of its transmission assets on January 1, 2001. Wisconsin Public Service filed a new transmission open access tariff with the Federal Energy Regulatory Commission as part of this process to eliminate the Wisconsin Public Service transmission provisions which are now a part of the American Transmission Company open access transmission tariff. The remaining portions of the Wisconsin Public Service tariff are the Upper Peninsula Power Company transmission tariff, ancillary service provisions, and distribution service provisions of Wisconsin Public Service. The Federal Energy Regulatory Commission accepted this tariff for filing effective on January 1, 2001 subject to refund and set it for hearing. An agreement in principle has been reached with intervenors which could settle this case.

    Wisconsin Public Service also filed for:

1) a new reactive ancillary service rate in this tariff which the Federal Energy Regulatory Commission accepted and made effective on January 1, 2001, and

2) new style Regulation and Operating Reserve ancillary service rates which the Federal Energy Regulatory Commission accepted and made effective on July 1, 2000.

    The Federal Energy Regulatory Commission accepted the American Transmission Company's tariff and implemented it on January 1, 2001 subject to refund and set it for hearing. The Commission identified 4 issues that were not approved as filed: a return on equity of 12.2%, recovery of start-up costs, costs to be included in the rate formula, and the phase-in mechanism. The prehearing for this case was held in January 2001. The Federal Energy Regulatory Commission will hold hearings in October 2001 if the issues are not settled prior to that date.

    The Federal Energy Regulatory Commission Order 2000 required all jurisdictional utilities to submit a compliance filing by October 2000, indicating their plans for joining a Regional Transmission Organization or the reasons that they have no plans to join. The Federal Energy Regulatory Commission Order 2000 also required all existing organizations that plan to become Federal Energy Regulatory Commission authorized Regional Transmission Organizations to complete their compliance filings, matching the requirements of the order, by January 16, 2001.

    Wisconsin Public Service and Upper Peninsula Power joined the Midwest Independent System Operator in June 2000. The Midwest Independent System Operator intends to become a Federal Energy Regulatory Commission Regional Transmission Organization. It filed in October 2001 indicating that Wisconsin Public Service and Upper Peninsula Power, among others, were members of the Midwest Independent System Operator and would be included in the Midwest Independent System Operator January 16, 2001 compliance filing.

Hydroelectric Licenses

    All the Federal Energy Regulatory Commission hydroelectric facility licenses held by Wisconsin Public Service are current. With the exception of the licenses for Bond Falls and Dead River, all hydroelectric facility licenses held by Upper Peninsula Power are also current. The Wisconsin River Power licenses for Petenwell and Castle Rock are pending.

    In 1998, Upper Peninsula Power reached a settlement agreement with federal and state agencies and special interest groups regarding its Bond Falls license. Signing of the agreement, by all parties, occurred early in 2000. The agreement is the basis for a new license from the Federal Energy Regulatory Commission. Issuance of the new license is expected in 2001. The license will have a term of 30 to 50 years from the date it is granted.

    Licensing of the Dead River project is also progressing. During 1999, long-term water power easements were obtained from adjacent landowners providing flowage rights required by the Federal Energy Regulatory Commission and the Clean Water Act. Issuance of the license is expected in 2001. The license will have a 30 to 50-year term beginning in August 1991, the date the Federal Energy Regulatory Commission claimed jurisdiction over the Dead River project.

    The Wisconsin River Power license application process for the Petenwell and Castle Rock plants has been completed and receipt of new licenses of 30 to 50-year terms are anticipated in mid 2001.

Other Matters

Research and Development

    Electric research and development expenditures for Wisconsin Public Service totaled $1.8 million for 2000, $1.7 million for 1999, and $1.5 million for 1998. These expenditures were primarily charged to electric operations.

    Twenty-nine paper mills account for 12% of Wisconsin Public Service's electric revenues. There is no single customer, or small group of customers, the loss of which would have a materially adverse effect on the electric business of Wisconsin Public Service in the current regulatory environment.

C. GAS UTILITY MATTERS

Wisconsin Public Service Corporation's Gas Market

    As of December 31, 2000, Wisconsin Public Service provided natural gas distribution service to 230,174 customers in 225 municipalities in northeastern and central Wisconsin, and 5,296 customers in and around the city of Menominee, Michigan, for a total of 235,470 gas distribution customers. This represents an increase of 5,565 customers, or 2.4%, compared to December 31, 1999. The principal cities served include Green Bay, Oshkosh, Sheboygan, Two Rivers, Marinette, Stevens Point, and Rhinelander, in Wisconsin, and the city of Menominee in Michigan.

    The gas distribution business of Wisconsin Public Service has a significant seasonal component and is impacted by varying weather conditions from year-to-year. In the calendar year 2000, 66.3% of its gas sales and 59% of its total gas system throughput occurred during the five winter months of November through March. Total gas throughput includes gas sales and gas delivered for transportation customers. Competition with other forms of energy exists in varying degrees, particularly for large commercial and industrial customers who have the ability to switch between natural gas and alternate fuels. Wisconsin Public Service offers interruptible gas sales and gas transportation service for these customers to enable them to reduce their energy costs through the use of natural gas. There are currently 368 gas transportation customers on our system. These customers purchase their gas from other suppliers and contract with Wisconsin Public Service to transport the gas from interstate natural gas pipelines to their facilities. Additionally, 131 customers still purchase their gas commodity directly from Wisconsin Public Service, but have elected to do so on an interruptible basis. These customers continue to switch from firm system supply to either interruptible system supply or transportation service each year as the economics and service options become attractive for them.

    Gas operations also provide interruptible gas service to Wisconsin Public Service electric operations for power generation in combustion turbine peaking generators and for start-up, flame stabilization, and peaking use at the Weston and Pulliam coal-fired plants. Wisconsin Public Service also provides gas service to the 179-megawatt combustion turbine generation facility owned and operated by De Pere Energy LLC, an affiliate of Calpine Corporation, an independent power producer.

    Gas sales for customer-owned power generation use are provided on an interruptible basis, with the power plants maintaining alternate fuel capability.

In 2000, Wisconsin Public Service began to provide interruptible gas supplies to an 83-megawatt combustion turbine owned by Madison Gas and Electric.

    Gas supply has been adequate in Wisconsin, with the only significant constraints being created by the demand of generation peakers. The cost of natural gas has increased four fold during the winter of 2000-2001 due to tight supplies nationwide. Wisconsin Public Service gas customers have absorbed the entire impact of these increases due to the purchased gas adjustment clause, which allows Wisconsin Public Service to pass changes in gas prices directly to customers.

    Total gas deliveries in 2000 for Wisconsin Public Service, including customer-owned gas transported, were 70,264,635 dekatherms, a 5.8% increase over 1999. A dekatherm is equivalent to 10 therms or 1 million Btus of energy. Gas transported for end-user transport customers made up approximately 41.9% or 29,454,364 dekatherms of natural gas delivered.

    Peak day gas throughput for 2000 occurred on Wednesday, December 6, 2000, with a total of 414,176 dekatherms total gas throughput at an average Green Bay temperature of 9.2 degrees Fahrenheit. This compares with the previously reported record gas system throughput of 432,928 dekatherms set on February 2, 1996 at an average Green Bay temperature of -23.8 degrees Fahrenheit.

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

    The service territory of Wisconsin Public Service is primarily served by a single interstate pipeline, ANR Pipeline Company. Through ANR's system, Wisconsin Public Service directly or indirectly will access North American natural gas supplies from these major gas-supply areas:

1) Oklahoma, the Texas panhandle, and western Kansas through ANR's Southwest system,

2) the province of Alberta, Canada through the pipelines of NOVA to the Alberta border, TransCanada Pipelines to Emerson, Manitoba, Viking Gas Transmission to Marshfield, Wisconsin, and then into ANR's system, and

3) the Chicago area through ANR's Joliet Hub.

    Wisconsin Public Service holds firm long-term transportation capacity on the pipeline from each of these three supply areas through November 2010. Wisconsin Public Service holds firm transportation capacity with Viking Gas Transmission Company, to deliver gas on a firm basis from its interconnection with TransCanada Pipelines at Emerson, in the Canadian Province of Manitoba, to the interconnection with ANR at Marshfield, Wisconsin. These Canadian gas suppliers hold firm capacity on TransCanada Pipelines from Emerson back into the production areas in Alberta, Canada.

    Because of the substantial daily and seasonal swings in gas usage in our service territory, Wisconsin Public Service also has contracted with ANR for firm underground storage capacity located in Michigan. There are no known geological formations in Wisconsin capable of being developed into underground storage facilities.

    Besides providing the ability to manage significant changes in daily gas demand, storage also provides the ability to purchase gas from the production areas at high load factors, thus minimizing supply costs. During the summer, gas purchased in excess of market demand is injected into storage. During the winter, gas is withdrawn from storage and combined with gas purchased in the production areas to meet the increased winter demand. Gas from storage provides up to 55% of our supply on winter peak days, approximately 26% of our winter sales volumes, and approximately 17% of our total annual sales volumes. Our total firm storage capacity with ANR is 9.2 million dekatherms.

    For winter peak day needs, Wisconsin Public Service also contracts with third-party suppliers for high deliverability storage in production areas. This high deliverability storage service provides a back-up supply of natural gas for our transportation contracts when other supplies cannot be delivered due to production supply losses caused by extremely cold weather in the production areas.

    Wisconsin Public Service contracts for fixed-term firm supplies with approximately 12 to 16 suppliers each year for gas produced in each of the three production areas. Due to the current uncertainty regarding the future role of gas utilities in continuing the gas supply function, Wisconsin Public Service has continued to pursue contracting for domestic gas supplies for terms of one year or less. This will minimize potential stranded gas supply contract costs if retail gas deregulation should proceed quickly in Wisconsin. Our supply portfolio, as of December 31, 2000, contained contracts with remaining terms ranging from three months to three years.

    Additional supplies are purchased on the monthly spot market as required to supplement supplies from fixed term firm contracts. Wisconsin Public Service has been an active spot market purchaser since 1985 and has contracts in place with a number of suppliers of spot market gas.

    Wisconsin Public Service will acquire the gas supply and transportation contracts of Wisconsin Fuel and Light after the acquisition of Wisconsin Fuel and Light is completed. Completion of this acquisition is expected in April 2001. Because Wisconsin Public Service and Wisconsin Fuel and Light hold similar gas supply and transportation contracts, the acquisition of the Wisconsin Fuel and Light contracts is expected to have no significant impact on the combined company's cost of gas.

    Little progress has been made on gas deregulation in Wisconsin over the last year. The timing and details of implementation could have an impact on Wisconsin Public Service because of potential stranded costs associated with interstate pipeline capacity contracts. It is expected that the Wisconsin Commission will allow for stranded cost recovery from customers or direct assignment of stranded contracts should deregulation progress.

    The Wisconsin Public Service rate order for 1999 and 2000 required a study to provide open access to gas suppliers for small commercial customers in the next rate case. In the 2001-2002 rate application, Wisconsin Public Service proposed to facilitate customer choice of natural gas suppliers through the use of its new automated meter reading system. Wisconsin Public Service began installation of the automated meter reading system on a test basis in 1999. The 2001-2002 rate request proposed expansion to the rest of the system in the 2001-2002 time period. This program was approved by the Commission to provide customer choice of gas suppliers for commercial customers in the 20,000 to 75,000 therms per year customer class beginning November 1, 2001. Wisconsin Public Service anticipates expanding this program to all customers as the automated meter reading system is installed on the whole system.

    Wisconsin Public Service implemented a modified one-for-one gas cost recovery mechanism in January 1999, in response to Public Service Commission of Wisconsin requirements. This method allows for the recovery of all gas supply costs provided those costs meet index-based benchmarks and are not deemed imprudent. Under this method, Wisconsin Public Service has been authorized to recover all gas commodity costs incurred to date.

    On June 30, 2000, Wisconsin Public Service filed a three-year gas supply plan with the Public Service Commission of Wisconsin detailing its plans to purchase and transport the necessary gas supplies for the period November 2000 through October 2003. The Gas Supply Plan was approved in October 2000.

    On December 21, 2000, the Public Service Commission of Wisconsin granted Wisconsin Public Service a $4.3 million, or 1.5%, increase in its retail natural gas rates. The rates were effective January 1, 2001. Wisconsin Public Service 2000 gas rates were very competitive in Wisconsin. Rates were 98% of the state average for residential rates and 77% of the state average for commercial and industrial rates.

    In Michigan, as in Wisconsin, the majority of the largest gas customers have a choice of their natural gas commodity supplier. Gas restructuring for smaller customers in Michigan has been in a pilot phase since 1998 when the three largest utilities in the state voluntarily initiated pilot programs to offer choice of gas suppliers to all customer classes. These pilot programs included frozen gas cost recovery mechanisms and are scheduled to conclude in 2001 and 2002.

    In 2000, the Michigan Public Service Commission staff opened an informal docket to determine how best to continue the customer choice of gas suppliers after the large-company pilot programs terminated. After several rounds of comments, a consensus was reached regarding permanent customer choice of gas suppliers for the largest utilities in the state. The Michigan Public Service Commission and one of the three largest Michigan utilities have agreed to implement the customer choice proposal developed. Approval for a second utility is expected shortly.

    Early in 2001, the Commission staff opened a similar informal docket to move to a consensus on how to provide customer choice of natural gas suppliers for all customer classes for medium-sized natural gas utilities in the state. This does not include Wisconsin Public Service. The process is to involve all interested parties and be completed in the third quarter of 2001 with a consensus method to include the medium-sized utilities in those offering customer choice of natural gas suppliers to all customers.

    The small natural gas utilities in the state, including Wisconsin Public Service, are to propose a customer choice program for all customer classes when it is in the best interests of each utility and its customers. There is no timetable for moving this process to the smaller utilities in the state, such as Wisconsin Public Service, but we intend to provide for customer choice of gas suppliers for all customers following our automated meter reading system implementation in Michigan.

    As required, on December 26, 2000, Wisconsin Public Service filed a five-year Gas Cost Recovery Plan with the Michigan Public Service Commission detailing its plan to purchase and transport the necessary gas supplies for the April 2001 through March 2006 period. This Gas Cost Recovery Plan is expected to be approved by the Michigan Public Service Commission in May 2001.

    Wisconsin Public Service had some of the lowest natural gas rates in Michigan during 2000. Its rates were 93% of the state average for residential rates and 73% of the state average for commercial and industrial rates.

    Wisconsin Public Service has not had a natural gas rate case in Michigan since 1986.

    The involvement of Wisconsin Public Service in federal regulatory activities in the natural gas area has been through the Wisconsin Distributor Group. This group is made up of several Wisconsin gas utilities. Although members may file individual interventions, most interventions have been done through the Wisconsin Distributor Group. Past successes in various Federal Energy Regulatory Commission dockets have resulted in substantial refunds for natural gas customers in Wisconsin as well as lower pipeline transportation rates charged by ANR and Viking. Through its membership in the Wisconsin Distributor Group, Wisconsin Public Service participated in a number of dockets at the Federal Energy Regulatory Commission this past year.

    Orders 637, 637-A, and 637-B are the culmination of the Federal Energy Regulatory Commission's Notice of Proposed Rulemaking on the Regulation of Short-term Natural Gas Transportation Services and the Notice of Inquiry on the Regulation of Interstate Natural Gas Transportation Services. Along with other parties, the Wisconsin Distributor Group requested clarification from the Commission on various aspects of these orders. Overall, these orders aligned with the Wisconsin Distributor Group's approach on various topics. The Wisconsin Distributor Group is still pursuing the portion of the order eliminating the right of first refusal for customers of pipelines that have discounted rates. It is the position of the Wisconsin Distributor Group that discounts may be the result of a small window of opportunity and do not necessarily reflect ongoing competitive options. Therefore, customers with discounts may still be subject to the market power of the pipeline and may still need the regulatory protection offered by the right of first refusal.

    Other dockets in which the Wisconsin Distributor Group has participated relate to the compliance filings made by ANR Pipeline Company and Viking Gas Transmission Company in response to Orders 637, 637-A, and 637-B. These dockets are still being worked on by various parties and orders from the Commission are not expected until late in 2001.

    Also during the past year the Federal Energy Regulatory Commission initiated Docket No. PL00-1-000, concerning natural gas transportation policies needed to facilitate development of competitive natural gas markets. The Commission scheduled a number of conferences to gather input from natural gas industry participants. The Wisconsin Distributor Group attended the first conference held in September 2000 concerning the liquidity of the natural gas market.

    On-going activities in which Wisconsin Public Service will be participating as a member of the Wisconsin Distributor Group include the:

1) pipeline compliance filings made in response to Federal Energy Regulatory Commission Orders 637, 637-A and 637-B,

2) the Federal Energy Regulatory Commission's continued efforts in Docket No. PL00-1-000, concerning natural gas transportation policies needed to facilitate development of competitive natural gas markets, and

3) continued monitoring of various dockets filed by ANR Pipeline Company and Viking Gas Transmission Company at the Federal Energy Regulatory Commission.

    Industry restructuring has been accompanied by merger activity in the region, which could impact the competitive environment. During 2000, Wisconsin Public Service announced a merger with Wisconsin Fuel and Light, a gas distribution company serving approximately 50,000 customers in the Manitowoc and Wausau areas of Wisconsin. Hearings before the Public Service Commission of Wisconsin were held in December 2000. It is anticipated that the Public Service Commission of Wisconsin will approve this merger in March of 2001, and the merger will be implemented shortly thereafter. In 2000, Wisconsin Fuel and Light had $56.6 million in revenues and $2.4 million in net income. Wisconsin Fuel and Light has over 1,100 miles of gas mains and approximately 120 employees.

    WPS Power Development develops, owns, and operates nonregulated electric generation facilities and provides services to the electric power generation industry nationwide. Services include project development, engineering and management services, and operation and maintenance services. WPS Power Development has expertise in cogeneration, distributed generation, generation from renewables, and generation plant repowering projects. As of December 31, 2000, WPS Power Development had 163 employees, the majority of which are members of the International Brotherhood of Electrical Workers Local 1600 Union.

    WPS Power Development owns:

• two-thirds of the Stoneman Power Plant, a 53 megawatt coal-fired merchant steam plant located in southwestern Wisconsin.
• 92 megawatts of hydro and fossil-fueled generation assets located in northern Maine and New Brunswick, Canada,
• the 460-megawatt coal-fired Sunbury Generation Station in Pennsylvania,
• the 30-megawatt Westwood Generating Station, which burns waste anthracite coal material, i.e., culm, located in Pennsylvania,
• two-thirds of a facility in Kentucky which produces synthetic fuel from coal fines which can be burned in boilers,
• steam boilers in Arkansas and Oregon, and
• landfill and wood waste gas generating facilities in Wisconsin.

    WPS Power Development reached agreement in 2000 with Sierra Pacific Resources to acquire its 545-megawatt natural gas- and oil-fired Tracy/Pinon Power Station. The sale of Tracy/Pinon, which is subject to approval and review by various regulatory agencies, is expected to close some time in the year 2001. Under the agreement, Sierra Pacific will buy energy and ancillary services from WPS Power Development at agreed-upon prices, subject to a collar, over an as yet undetermined time frame. After this period, energy sales become subject to the Federal Energy Regulatory Commission generation tariff until WPS Power Development receives approval of the Federal Energy Regulatory Commission to apply market-based rates.

    The annual coal requirements for WPS Power Development owned plants is estimated at 1.2 million tons. Of this amount, approximately 50% will be met through the burning of coal silt. In 2000, WPS Power Development purchased all of its coal supplies on the spot market. In 2001, WPS Power Development expects to supply approximately 60% of its annual coal needs through annual coal contracts and its reserves of coal and coal silt. WPS Power Development has approximately a 10 year reserve of coal silt. The remaining coal requirements will be purchased through the spot market. Various reserves of coal silt were acquired with the Sunbury power plant acquisition.

    In 2001, coal transportation for approximately 25% of annual coal requirements will be supplied under a one-year contract with Norfolk Southern Railroad.

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

    Although identifiable price peaks do not occur at any certain time of the year, WPS Power Development 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 fuel consumption, generally the winter months, the purchase price of coal and natural gas increases.

    Equity and working capital requirements of WPS Power Development are generally financed through the holding company, WPS Resources. Project nonrecourse debt financing has been put in place for the generation plants owned by WPS Power Development.

    Of WPS Power Development's approximately 650 megawatts of existing capacity, fixed price contracts are in place to sell approximately 350 megawatts. Of this, 250 megawatts are firm commitments. The remainder of the energy production of WPS Power Development is sold on the spot market.

    Although WPS Power Development operates in the nonregulated energy market, the existence of various long-term out-take contracts entered into as part of the generation asset acquisition agreements mitigates some of the impact of spot market competition.

    WPS Power Development's synthetic coal facility was moved successfully from Alabama to Kentucky, in 2000, and is producing coal briquettes according to expectations. In order to realize optimum benefits from this project, WPS Power Development intends to sell part of its interest in the facility to realize the full economic potential of the project. This action has been slowed due to issues currently being raised by the Internal Revenue Service with respect to synthetic fuel projects in general. In 2000, WPS Power Development recognized a deferred tax asset of approximately $11.0 million reflecting tax credits from this project and a few other small projects that will be carried forward to reduce the regular tax liability of WPS Resources in future years. Current plans call for a closer match of the facility's production levels with our ability to use the tax credits each year until WPS Power Development sells a portion of the project.

    WPS Power Development has reached an agreement to build and operate a 50-megawatt electric cogeneration facility adjacent to a paper manufacturing plant located in Combined Locks, Wisconsin. The natural gas-fired combustion turbine, with a heat recovery boiler, will provide electricity to the wholesale electric marketplace through WPS Energy Services. Process steam will also be sold to the paper manufacturer. Construction of the facility is estimated to cost less than $50 million with construction beginning in the second quarter of 2001 and completion by year-end. WPS Power Development is currently in the process of obtaining all necessary permits and regulatory approvals. The facility will be owned by Combined Locks Energy Center, LLC, a subsidiary of WPS Power Development.

    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 non-attainment area. As a result, these generation facilities are subject to additional restrictions on emissions of nitrogen oxide. WPS Power Development has acquired emission credits sufficient to meet all emission requirements through the year 2002. The Environmental Protection Agency may be issuing tighter restrictions for 2003 and beyond. Although WPS Power Development has emission credits for 2003, it is unknown whether these will be sufficient to meet the, as yet undisclosed, new requirements of the Environmental Protection Agency. It is estimated that WPS Power Development will incur approximately $23 million in capital costs over the next three years to address environmental regulations at its Sunbury facility.

    WPS Energy Services is a diversified nonregulated energy supply and services company with principal operations in Illinois, Maine, Michigan, Ohio, and Wisconsin. WPS Energy Services operates in the retail and wholesale nonregulated energy marketplace. Emphasis is on servicing commercial, industrial, and wholesale customers in the northeast quadrant of the United States. Wholesale products are provided on a nationwide basis. WPS Energy Services provides individualized energy supply options and strategies that allow customers to manage energy needs while capitalizing on opportunities resulting from deregulation. WPS Energy Services provides natural gas, electric, and alternate fuel products, real-time energy management services, energy utilization consulting, and project management. WPS Energy Services has 88 employees as of December 31, 2000.

    During 2000, WPS Energy Services expanded its operations in Maine to include retail electric service and was selected to be the standard offer provider in northern Maine for a three-year period beginning on March 1, 2001. WPS Energy Services also reached agreement with WPS Power Development to purchase 50 megawatts of electric energy from the Sunbury generation station for resale into the PJM energy market. In January 2001, WPS Energy Services contracted with Alternative Energy Inc. for 37 megawatts of electric supply from its biomass plant in Ashland, Maine. WPS Energy Services also has contracted with its sister company, WPS Power Development, for 50 megawatts of supply.

    WPS Energy Services will be the majority owner in a natural gas storage facility that it is developing in Michigan. The facility, expected to be operational in 2001, will have a capacity of 3 billion cubic feet of natural gas. This additional storage capacity will allow increased supply reliability to customers in Michigan and greater flexibility in meeting peak day energy requirements.

    WPS Energy Services is actively involved in the electric and gas commodities market. WPS Energy Services enters into market transactions rather than specific purchase agreements to secure energy resources in order to meet energy commitments. The majority of commitments to deliver energy are addressed through long-term transactions and enhanced through spot market purchases.

    WPS Energy Services markets and uses its patented energy management system called DENet. DENet provides customers the capability to manage their energy consumption on a real-time basis and generate reports on historical energy use through the Internet. DENet's flexibility allows a customer to monitor utility and process parameters related to gas, electricity, water, steam, temperature, and production output. WPS Energy Services uses DENet to remotely control the operation of WPS Power Development plants through its 24-hour marketing desk. Employees in numerous locations have access to plant operations through the system.

    WPS Energy Services believes that its business, in the aggregate, is not seasonal. Certain of its products do 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.

    Capital requirements of WPS Energy Services are financed through the holding company, WPS Resources.

    Although WPS Energy Services is not dependent on any one customer, a significant percentage of its retail sales volume is derived from the paper and forest products industry. Management does not feel that this situation poses any significant risk to the ongoing operation of WPS Energy Services.

    WPS Energy Services operates in nonregulated energy markets. Its competitors consist of regulated utilities, large energy traders, and other energy marketers. WPS Energy Services competes with other energy providers on the basis of price, service, consumer convenience, performance, and reputation.

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

    See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION for additional information regarding nonregulated operations.

    WPS Resources 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.

    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. Applications for permit renewals for Wisconsin Public Service's Pulliam and Weston generation facilities were submitted in 2000. Revisions to state water quality rules under the Great Lakes Initiative are not expected to result in any significant changes when wastewater permits are reissued in 2001 for the Pulliam and Weston plants. Wisconsin Public Service is not aware of any significant changes in future operations at its jointly-owned plants at Columbia or Edgewater as a result of the Great Lakes Initiative.

    The ash disposal site for Upper Peninsula Power's John H. Warden Station was closed in 1993. Subsequent groundwater testing indicated elevated levels of boron and lithium. Supplemental remedial investigations were performed and a revised remedial action plan was developed. The plan was submitted to the Michigan Department of Environmental Quality for approval in 1999. A liability of $1.5 million and a regulatory asset of $1.5 million have been recorded for estimated future expenditures associated with this site. Upper Peninsula received an order permitting deferral of these costs.

    Other matters pertaining to the environment regarding gas plant cleanup and air quality issues are discussed in Legal Proceedings, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 13 to the Financial Statements.

    WPS Resources and Wisconsin Public Service will make large investments in capital assets. Construction expenditures are expected to be approximately $486 million for the period 2001 through 2003. This includes expenditures for the replacement of the Kewaunee plant steam generators, investment in automated meter reading, and construction of a proposed transmission line from Wausau, Wisconsin to Duluth, Minnesota. Other Wisconsin Public Service capital requirements for the three-year period include Kewaunee decommissioning trust fund contributions of $7.8 million.

    Upper Peninsula Power will incur construction expenditures of approximately $52 million for the period 2001 through 2003, primarily for electric distribution improvements and repairs at hydro facilities.

    The $249.8 million purchase of the Tracy/Pinon facilities, by WPS Power Development, may be financed with nonrecourse debt and an equity infusion from WPS Resources. In addition, WPS Power Development is committed to the development of the Combined Locks Energy Center, which is not expected to exceed $50 million. There are no commitments for additional acquisition expenditures for the nonregulated subsidiaries at this time. Future nonregulated projects will be financed through nonrecourse project financings to the extent possible.

    WPS Resources uses internally generated funds and short-term borrowing to temporarily satisfy its capital requirements. WPS Resources may periodically issue additional long-term debt and common stock to reduce short-term debt and maintain desired capitalization ratios.

    WPS Resources filed a shelf registration with the Securities and Exchange Commission, which allows the issuance of an aggregate of $400 million of long-term debt and common stock. Long-term debt of $150 million was issued under the shelf registration in November 1999 to reduce short-term debt and provide equity infusions to subsidiaries. Wisconsin Public Service also has a shelf registration providing additional debt capacity of $52 million. In December 1999, we began to purchase shares of WPS Resources common stock on the open market for the Stock Investment Plan. This was discontinued in January 2001, when WPS Resources began issuing new shares for the Stock Investment Plan.

    WPS Resources anticipates issuing the following additional debt and equity financing in 2001:

    Specific forms of financing, amounts, and timing may change due to the availability of projects, market conditions, and other factors.

    In addition, WPS Resources will issue approximately 1.8 million new shares of common stock in the first half of 2001 for completion of the merger of Wisconsin Fuel and Light into Wisconsin Public Service.

    See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Note 13 regarding "Future Utility Expenditures."

H. EMPLOYEES

    At December 31, 2000, WPS Resources and its subsidiaries employed 3,030 people. Of this number, 2,568 were employed by Wisconsin Public Service and 165 were employed by Upper Peninsula Power, with the remainder employed by WPS Resources and its remaining subsidiaries.

    Of the Wisconsin Public Service employees, 2,044 were electric utility employees and 524 were gas utility employees. Local 310 of the International Union of Operating Engineers represents 1,246 of these employees. The current collective bargaining agreement with Local 310 expires on October 25, 2003.

    Local 510 of the International Brotherhood of Electrical Workers, AFL-CIO represents 126 employees of Upper Peninsula Power. The current collective bargaining agreement with Local 510 expires on April 30, 2002.

    Local 1600 of the International Brotherhood of Electrical Workers, AFL-CIO represents approximately 104 employees at the Sunbury generation station owned and operated by a subsidiary of WPS Power Development. The current collective bargaining agreement with Local 1600 expires on May 12, 2002.

    As of December 31, 2000, Wisconsin Public Service owned 57 transmission substations with a transformer capacity of 5,730,610 kilovolt-amperes, 110 distribution substations with a transformer capacity of 3,205,810 kilovolt-amperes, 1,563 miles of electric transmission lines, and 20,038 miles of electric distribution lines. Effective January 1, 2001, all transmission property of Wisconsin Public Service was transferred to American Transmission Company.

    Gas properties include approximately 5,454 miles of main, 70 gate and city regulator stations, and 219,478 lateral services. All gas facilities are located in Wisconsin except for distribution facilities in and near the city of Menominee, Michigan.

    Substantially all of our utility plant is subject to a first mortgage lien.

    The following table summarizes information on the electric generation facilities of Upper Peninsula Power:

(a) Based on winter-rated capacity.

(b) The J. H. Warden station is capable of burning any combination of gas and/or coal. The station was taken out of service on January 1, 1994 and is in standby or inactive reserve status.

(c) Included in the nine hydro plants are Escanaba 1, Escanaba 3, and Boney Falls, which generate a total of 7,850 kilowatts. All energy produced at these facilities is sold directly to a paper industry customer located in Escanaba, Michigan.

    Upper Peninsula Power owns 802 miles of electric transmission and 2,753 miles of electric distribution lines.

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

    The following table summarizes information on the electric generation facilities of WPS Power Development, including jointly-owned facilities:

(a)    The Stoneman facility is owned by Mid-American Power, LLC. PDI Stoneman, Inc. (a wholly-owned subsidiary of WPS Power Development, Inc.) and B. M. Stoneman, Inc., (a wholly-owned subsidiary of Burns and McDonnell) own 66-2/3% and 33-1/3%, respectively, of Mid-American Power, LLC.

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

ITEM 3. LEGAL PROCEEDINGS

    See the section titled Spent Nuclear Fuel Disposal under Part I, Item 1B, ELECTRIC UTILITY MATTERS, Fuel Supply, for a description of various proceedings relating to spent nuclear fuel.

Funding Decontamination and Decommissioning of Federal Facilities

    See the section titled Funding Decontamination and Decommissioning of Federal Facilities under Part I, Item 1B, ELECTRIC UTILITY MATTERS, Fuel Supply, for a description of various proceedings relating to decontamination and decommissioning liabilities.

   On December 14, 2000, Wisconsin Public Service received a request for information from the United States Environmental Protection Agency under Section 114 of the Clean Air Act seeking information on the electric generating facilities owned and operated by Wisconsin Public Service. A response to the information request was filed with the Environmental Protection Agency on January 16, 2001, which included information regarding projects and work performed at the Weston and J.P. Pulliam power plants, from 1975 to the present costing $250,000 or more. In situations involving other electric generating facilities (not owned or operated by Wisconsin Public Service), the Environmental Protection Agency has initiated enforcement actions relating to work performed on utility boilers. As set forth in the response to the Section 114 request projects costing $250,000 or more have been undertaken by Wisconsin Public Service for the facilities subject to the Section 114 request. To date, no claims have been made against Wisconsin Public Service. The Environmental Protection Agency is in the process of reviewing the information provided by Wisconsin Public Service.

    No matters were submitted to a vote of common stockholders during the fourth quarter of the fiscal year. The merger of Wisconsin Public Service and Wisconsin Fuel and Light was approved by the preferred stockholders of Wisconsin Public Service in December 2000.

    Information about outside directors is included in our proxy statement for the Annual Meeting of Shareholders of WPS Resources which is scheduled to be held on May 3, 2001.

* Identifies experience with Wisconsin Public Service Corporation. All officers listed above are also officers of Wisconsin Public Service with the exception of Bradley W. Andress, Phillip M. Mikulsky, Richard E. James, Neal A. Siikarla, Glen R. Schwalbach, and George R. Wiesner.