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  1. 1. Integrys Energy Group Annual Shareholders Meeting May 15, 2008 “Moving Forward” By Larry L. Weyers President & CEO It is a pleasure for me to be here at the first Integrys Energy Group Annual Shareholders Meeting held in Chicago. Integrys has been on a blistering pace since the company’s formation just over 14 months ago. We have spent many long hours establishing the systems and infrastructure that are essential to the organization’s foundation. We are now working hard to build on that foundation to form Integrys into the company we want it to be and know it can be. The pace of the past year has allowed us to meet or exceed critical milestones and put us on a path for future success. Today, while we look back at a few of our accomplishments, we will also look ahead at ways we are moving forward. The business environment during the past year provided many challenges—falling real estate prices, sub-prime loans in the financial sector, rising costs for all types of energy, and a devalued dollar. These challenges impacted our nation, our industry, and our company. Despite these challenges, employees across the Integrys enterprise continued moving forward, meeting deadlines, passing milestones, and completing activities to ensure the continuing success of our company. Integration of the various companies that form Integrys Energy Group took center stage last year. An aggressive change management initiative aided employees in dealing with the magnitude of the change as we merged the cultures and the operating systems of our previously different companies. We revisited our vision, mission, and values to ensure 1
  2. 2. they are consistent with our vision for Integrys, and we added a set of Commitments to further describe the high standard that Integrys expects of its leaders and its employees. Our change management work continues as Integrys evolves. Human Resource programs and systems were revamped to provide Integrys with state-of-the-art options that will enable us to continue attracting the very best talent, develop employees throughout their career, and retain them as long as possible. Dedicated employees in our Information Technology group modified the IT platforms in critical areas including Human Resources, Finance and Accounting, and several other areas of the company, providing us an integrated platform for future growth. Employees across the enterprise worked diligently to capture synergy savings from the combined companies. We captured 38 million dollars in synergy savings in the past year, exceeding our initial budgeted synergy savings for 2007 by 15 million dollars. We are on a path to capture 73 million dollars in permanent synergy savings in 2008. In addition to the integration activities, we completed several operational milestones that will continue to capture value for shareholders and lower the risk profile of our corporation. Let me expand on a few of the more significant ones. On February 21, 2007, we closed the merger and created Integrys. We also announced the proposed sale of the Peoples Energy Production subsidiary. That sale was completed by the end of September, reducing the risk profile of the company, reducing the cash requirements for capital expenditures, and resulting in a significant cash infusion well beyond the pre-merger pro forma estimates. We filed and completed rate cases in Illinois for Peoples Gas and North Shore Gas. These were the first rate cases for these 2 subsidiaries in 12 years. In spite of that, we requested only an 8 percent increase in rates. The rate cases were reasonably successful with a rate increase of approximately 71 million dollars at Peoples Gas and a provision that will allow us to continue promoting energy efficiency without harming future returns. 2
  3. 3. We negotiated a new five-year labor agreement with the Utility Workers Union of America, Gas Workers Local 18007. Each and every member of Local 18007 is a key member of our team and crucial to our efforts and success in Chicago. We very much appreciate having their cooperation and leadership. Thank you for the faith you have in our new relationship. We will continually work to justify that faith. We created a new services company, Integrys Business Support, to provide centralized services to all subsidiaries. This will enable us to provide services at a lower cost. It also positions us well for future growth as support services can quickly flex to accommodate organizational changes. Integrys Business Support currently provides employment to about 1,400 employees across the company. We also completed major milestones in our construction projects. The 250-mile transmission project connecting Wausau, Wisconsin, to Duluth, Minnesota, was completed on behalf of the American Transmission Company late in 2007 and energized in early 2008. We are also nearing completion of the Weston 4 coal plant project. This new plant produced its first electricity in March, was deemed in service for accounting purposes in April, and will be available for full commercial operations during this peak summer period. More importantly, we were able to build Weston 4 at a total project cost of approximately 800 million dollars, which equates to a per kilowatt cost of about 1,600 dollars. We and other industry experts estimate that a similar plant today would cost anywhere from 2,500 to 3,000 dollars per kilowatt. The completion of these two projects reduces our capital expenditures program and reduces the risk associated with our construction efforts. As we grow our business, we are also moving forward to provide further protection for the environment. At Integrys, we take our environmental performance and stewardship very seriously. We will do our part to further protect the environment and ensure sustainability of our customers’ activities and lifestyles. In the past 12 months, we have developed a better understanding of our carbon footprint, committed to more than 300 megawatts of wind generating capacity, shut down our two oldest coal-fired plants, entered into discussions for 500 megawatts of green hydro capacity from Manitoba Hydro, 3
  4. 4. and constructed the Weston 4 coal plant, which will be one of the cleanest operating coal plants in the country. The environment is important to our nonregulated business also. Integrys Energy Services created a business unit focused on renewables, efficiency, and conservation to ensure we are well positioned to proactively address our customers’ increasing desire for environmentally friendly products. In addition, we have refocused our nonegulated asset investment to better address clean and renewable energy technologies. We developed a landfill gas electric generation facility in Rockford, Illinois, and are in the process of installing a photovoltaic solar system at a customer facility in Connecticut. While both projects are the right thing to do, we are also doing them in a way that will earn a reasonable return on the dollars we invest. Today, I am proud to announce a more aggressive commitment to energy efficiency. We will work with regulators, legislators, and customers to find ways to improve energy efficiency. We have already begun with a commitment to spend 7.5 million dollars annually in Illinois for energy efficiency initiatives. Peoples Gas is one of the premier sponsors of a Smart Home that was recently built in Chicago at the Museum of Science and Industry. It is a sustainable “green” home and will be used to demonstrate new energy efficiency ideas. The home will be warmed by Peoples Gas and will showcase the ways, big and small, that people can make eco-friendly living a part of their lives. Also, I am serving on the Governor’s Task Force on Global Climate Change in Wisconsin. Energy efficiency will be a major component of our recommendation. At our electric utilities in Wisconsin and Michigan, we see little probability that we will construct anything other than green generation resources for years to come. We have committed to a new initiative designated, Operational Excellence. We want all of our subsidiaries to achieve excellence in all of their operations. To ensure this, we have established four pillars of this initiative: Project Management, Process Improvement, Compliance, and Contract Administration. Together these will guide our subsidiaries in their efforts. 4
  5. 5. Moving forward, the future for Integrys Energy Group is full of opportunity. Integrys is poised for growth. The platforms are in place to accommodate physical growth, and the plans are in place to realize growth in earnings. In addition, our risk profile has been substantially improved with a much larger utility base providing an estimated 75 percent of our earnings for the next few years. Our capital expenditures have shifted from investing in large generation projects, transmission, and natural gas exploration to capital expenditures for renewable projects, energy efficiency, emission reductions, and conservation. These are investments that support our strategy to move us closer to being a green company. Integrys has substantial investment opportunity, but we will invest with a cautious eye on the associated price increases for our customers. We must ensure that we meet our mission of providing customers with the best value in energy. A major part of our strategy is to provide shareholders with attractive returns. Our common stock dividend currently provides a return of over 5 percent, and this year we are celebrating the 50th consecutive year of dividend increases. Only seven other publicly held companies in America have exceeded our record of consecutive dividend increases. We are proud of that record because we know that our shareholders count on those dividends. Shareholders can also be assured that Integrys is committed to following good governance policies. This year we received exceptionally high rankings in governance from two leading governance ratings services. ISS Governance Services in their annual proxy analysis gave us an index rating better than 88 percent of the companies in the S&P 500 and better than 93 percent of the companies in our industry. Another governance rating firm, Governance Metrics International, gave us a perfect 10 in their global ratings, which include 4,000 companies worldwide. Our home market rating, which compares us to companies in the United States, was a 9.5. One of the governance items that concerns shareholders is the level of compensation provided to our officers and directors. Our compensation policy is simple. We believe that everyone at every level should have the opportunity to earn compensation 5
  6. 6. consistent with the competitive value of the job they perform. If we pay less, we will lose valuable talent. If we pay more, we will become less competitive. Each year the Board of Directors hires one of the premier compensation consultants in the United States to help them determine compensation levels and set compensation policy. They have concluded that our compensation levels are consistent with the market. One of our oldest subsidiaries has been moving forward for a long time and this year passed a significant milestone. This year we are celebrating the 125th anniversary of Wisconsin Public Service Corporation. It was founded as the Oshkosh Gas & Light Company and over the years has evolved into a recognized energy and community leader in northeast Wisconsin. This reputation has grown because employees of the company have been focused on serving customers for the past 125 years. We expect to continue this record indefinitely. Today I am pleased to announce that Integrys is spearheading an effort to create an Illinois Utility Investors group. This new organization will seek members from all utility investors, both electric and natural gas. Illinois Utility Investors will then engage in activities designed to protect your investments. Illinois Utility Investors will be modeled after similar organizations in many other states. You will be hearing more about this in a few weeks. I encourage you to join. As you know, the strength of any corporation depends a great deal on the leadership available on the Board of Directors and the management team. I’m pleased to report that we have a great deal of bench strength in both areas. Part of that bench strength will be called upon because we will be saying goodbye to two of our board members and three of our senior management team. Jim Boris, current Chairman of the Board, will be leaving us to pursue personal activities, and Diana Ferguson left us in April to devote total attention to her new management position with another firm. In addition, Tom Nardi, past Chief Financial Officer of Peoples Energy and currently President of Integrys Business Support and the driving force behind the development of that subsidiary, will be leaving us to pursue other activities. Bud Treml, Senior Vice President and Chief Human Resources Officer, is retiring after 36 years of employment with our 6
  7. 7. company. Bud delayed his retirement to help us with our merger, and we appreciate his help during the integration. Gary Erickson, President of Michigan Gas Utilities and past President of Upper Peninsula Power Company, will retire later this year. Gary started with our company as a line electrician and will have 40 years of service when he retires. We thank these five individuals for the service they have provided to our corporation over the years and for the contributions they have made to our success. We wish them all the best in their future endeavors. I will close by thanking all of our shareholders for the investment you have made in our company and for the trust you have placed in us. Rest assured that we will do our very best to provide good returns for you and protect your investment as we continue moving forward. 7