(Mark One)

For the fiscal year ended December 31, 2002

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

(1) Definitive proxy statement for the WPS Resources Corporation Annual Meeting of Shareholders to be held on May 15, 2003 is incorporated by reference into Part III.

WPS RESOURCES CORPORATION
and
WISCONSIN PUBLIC SERVICE CORPORATION

FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 2002

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

    We cannot predict the course of future events or anticipate the interaction of multiple factors beyond our control and their effect on revenues, project timing, and costs. Some risk factors that could cause results different from any forward-looking statement include those described in the RISK FACTORS section of ITEM 1 of this Form 10-K and the following:

    WPS Resources was incorporated in Wisconsin in 1993 as a holding company for regulated utility and nonregulated business units. Approximate percentages of revenues, net income, and assets for 2002 and the year ended December 31, 2002 of WPS Resources and its principal operating subsidiaries are:

    * The percentages above do not total 100% due to intercompany transactions.

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

    Wisconsin Public Service, which began operations in 1883, is a regulated electric and natural gas utility serving an 11,000 square mile service territory in northeastern Wisconsin and an adjacent portion of the Upper Peninsula of Michigan. In 2002, Wisconsin Public Service served 407,696 electric retail customers and 295,816 natural 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, established in 1884, is a regulated utility providing electric service to a 4,500 square mile area of Michigan's Upper Peninsula. In 2002, Upper Peninsula Power provided retail electric service to 50,770 customers and wholesale electric service was provided to 437 customers. Total revenues consisted of 89% retail sales and 11% wholesale sales.

    WPS Resources Capital Corporation was created in 1999 as an intermediate holding company for the nonregulated subsidiaries of WPS Resources. At the end of 2002, WPS Resources Capital Corporation had total assets of $1.2 billion, consisting primarily of its investments in WPS Energy Services and WPS Power Development.

    WPS Energy Services, established in 1994, 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 northeastern United States and in the adjacent provinces of Canada. WPS Energy Services had revenues of $1.5 billion in 2002 and assets of $877 million at December 31, 2002.

    WPS Power Development, established in 1995, 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 its subsidiaries, electric generation facilities in Wisconsin, Maine, Pennsylvania, New York, and New Brunswick, Canada, a 23.3% interest in a synthetic fuel processing facility located in Kentucky, and steam production facilities located in Arkansas and Oregon. WPS Power Development had revenues of $145.2 million in 2002 and assets of $358.1 million at December 31, 2002.

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

    In 2002, Wisconsin Public Service reached a firm net design peak of 1,947 megawatts on the afternoon of July 17. At the time of this summer peak, our total firm resources, (i.e., generation plus firm purchases) totaled 2,432 megawatts. The summer time period is the most relevant for capacity planning purposes. We expect future supply reserves to meet the minimum 18% planning criteria, imposed by the Public Service Commission of Wisconsin, through 2004.

    For additional information regarding our generation facilities, see ITEM 2. PROPERTIES in this Form 10-K.

    In 2002, Upper Peninsula Power purchased 82% of its total energy requirements. Remaining energy requirements were supplied by hydroelectric and combustion turbine facilities owned by Upper Peninsula Power. During 2002, Upper Peninsula Power purchased at wholesale 65 megawatts of firm power from Wisconsin Public Service. Upper Peninsula Power also purchased at wholesale non-firm power from Wisconsin Public Service and Alliant Energy Corporation among others. The purchases from Wisconsin Public Service represented 80% of Upper Peninsula Power's total energy requirements in 2002. Upper Peninsula Power has contracted for 65 megawatts of capacity and energy from Wisconsin Public Service for 2003.

    On December 16, 2002, Wisconsin Public Service acquired the 180-megawatt De Pere Energy Center from Calpine Corporation and terminated the related existing purchased power agreement for approximately $120 million, $72 million of which was paid at closing with the remainder due in December 2003.

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

    Wisconsin Public Service began installation, in 2002, of an 83-megawatt gas-fired combustion turbine at its Pulliam plant site. The unit will be operational in 2003.

    The Kewaunee plant is a pressurized water reactor plant with a nameplate capacity of 562 megawatts. The Kewaunee plant is jointly-owned by Wisconsin Public Service (59%) and Wisconsin Power and Light (41%). Nuclear Management Company, LLC operates the plant. Nuclear Management Company is owned by five utilities in the upper Midwest and operates the six nuclear power plants of these utilities. The plants are located in Iowa, Minnesota, Wisconsin, and Michigan. WPS Resources owns a 20% interest in Nuclear Management Company.

    The Kewaunee plant's operating license expires in 2013. Wisconsin Public Service is considering whether or not to seek extension of the plant-operating license to 2033.

    Based upon the performance of the Kewaunee plant during 2002, Wisconsin Public Service does not anticipate any significant increase in the number of inspection hours or level of scrutiny by the Nuclear Regulatory Commission regarding the general operations of the plant.

    In accordance with Nuclear Regulatory Commission industry requirements, during the scheduled spring 2003 refueling outage a visual inspection of the Kewaunee plant reactor vessel head will be conducted. A visual inspection of the head was last performed during the fall 2001 refueling outage and no problems were identified. There has been no indication of any problems with the vessel head during the current operating cycle and Wisconsin Public Service does not anticipate a problem with the visual inspection during the upcoming refueling outage.

    After evaluating the cost of continued required inspections of the existing reactor vessel head and the cost to replace the reactor vessel head, the Kewaunee plant owners have submitted a construction authorization request to the Public Service Commission of Wisconsin for replacement of the reactor vessel head. The replacement is scheduled to occur during the fall 2004 refueling outage at a total cost of approximately $20 million. Wisconsin Public Service is in the process of requesting recovery of its share of these costs in its electric rates.

Production

    During 2002, the plant produced 4.7 million megawatt hours of electricity. This exceeded the plant's past production record of 4.4 million megawatt hours set in 1999.

Radioactive Waste Storage

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

Security

    As a result of the events of September 11, 2001, additional security measures were implemented at the Kewaunee plant. The plant is in compliance with current security requirements and Nuclear Management Company continues to monitor industry and regulatory activity in this area.

Plant Capacity

    As a result of instrumentation improvements to be made during the spring 2003 refueling outage, net production capacity at the plant is expected to increase by approximately 5 megawatts. We anticipate approval, from the Nuclear Regulatory Commission, to use improved instrumentation in the second quarter of 2003. It is expected that additional capacity improvements will be pursued through other changes at the plant before the scheduled 2004 refueling outage to further increase plant capacity by an additional 25 megawatts.

Depreciation and Decommissioning

    At December 31, 2002, the net carrying amount of our investment in the Kewaunee plant, including construction work in progress, was approximately $90.4 million. The cost in current dollars for our 59% share of the estimated costs to decommission the Kewaunee plant is $313 million. Wisconsin Public Service decommissioning trust assets at December 31, 2002 totaled $290.5 million. Currently Wisconsin Public Service is required to annually contribute $2.6 million to the decommissioning trust. These annual contributions to the trust are subject to change based on future rate case filings. To date, the Public Service Commission has determined these costs to be reasonable and allowed their recovery in rates.

    During 2002, $15.7 million of depreciation expense related to unrecovered plant investment was recognized, compared with $3.3 million recognized in 2001. The 2002 annual decommissioning funding requirement was $2.6 million.

    Additional discussion of Kewaunee plant matters is included in MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION and the NOTES TO WPS RESOURCES CONSOLIDATED FINANCIAL STATEMENTS.

    Wisconsin Public Service's electric generation mix for 2002 and 2001 was:

    Wisconsin Public Service's fuel costs for 2002 and 2001 were:

    Coal is the primary fuel source for Wisconsin Public Service, most of which is from the Powder River Basin mines located in Wyoming. Powder River Basin coal is very low in sulfur and meets the standards of the 1990 Clean Air Act for 2002 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 increases generation output and provides flexibility in meeting peak electric demands.

    Most of the coal purchased by Wisconsin Public Service for its wholly-owned plants and purchased by Wisconsin Power and Light for the jointly-owned Edgewater and Columbia plants is done through relatively short-term contracts of up to five years duration. Historically, Wisconsin Public Service has purchased the subbituminous coal directly from the producer. In order to capitalize on market opportunities for 2003, approximately 23% of the coal requirements for the wholly-owned plants and 22% for the jointly-owned plants were awarded to a marketer. For 2003, 95% of the wholly-owned and jointly-owned plant requirements are under contract. One long-term contract, for our wholly-owned plants, covers approximately 24% of total requirements and has take-or-pay obligations totaling $81.1 million for the years 2003 through 2016.

    Wisconsin Public Service contracts for coal transportation for its plants under contracts of up to five years duration. Over 90% of our coal transportation is under competitive transportation agreements, which we expect to continue to contribute to competitive fuel costs.

    See Note 15 in NOTES TO WPS RESOURCES CONSOLIDATED FINANCIAL STATEMENTS- COMMITMENTS AND CONTINGENCIES.

Nuclear Fuel Cycle

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

    Wisconsin Pubic Service's uranium inventory policy is to maintain sufficient inventory for up to two reactor refuelings. As of December 31, 2002, approximately 160,000 pounds of yellowcake (a processed form of uranium ore), or its equivalent, were held in inventory for the plant. Each refueling requires approximately 500,000 pounds of yellowcake. It is expected that approximately 825,000 pounds of yellowcake will be acquired in 2003 to meet the requirements of the inventory policy. Inventory includes uranium under contract.

    Conversion services are complete for the nuclear fuel reload scheduled in 2003.

    Wisconsin Public Service has contracted for a fixed quantity of enrichment services 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 contracted for fuel fabrication services for the next six reloads.

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

Spent Nuclear Fuel Disposal

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

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

Funding Decontamination and Decommissioning of Federal Facilities

    The Energy Policy Act of 1992 requires nuclear power companies to fund the decontamination and decommissioning of Department of 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, at which time the payments end. Madison Gas and Electric, a former 17.8% owner of the Kewaunee plant, has agreed to continue to pay its portion of this annual assessment through 2007.

    In 2002, the Public Service Commission of Wisconsin took action on the following issues affecting WPS Resources' regulated operations in Wisconsin:

    On November 26, 2002, Wisconsin Public Service, along with Minnesota Power Company and American Transmission Company, filed a joint application with the Public Service Commission of Wisconsin regarding an increase in the estimated cost to complete the Wausau to Duluth transmission line. The Public Service Commission of Wisconsin originally approved the 220-mile 345-kilovolt transmission line on October 30, 2001 at an estimated cost of $166 million. The applicants are required to notify the Public Service Commission of Wisconsin whenever cost estimates increase by more than ten percent. Current estimates anticipate the cost to complete the project to be $396 million. This updated cost estimate reflects additional costs to the project resulting from time delays, added regulatory requirements, changes and additions to the project at the request of local governments and American Transmission Company management, and overhead costs. The application requests that the Public Service Commission of Wisconsin issue an amended order approving the new estimated cost.  For more information on American Transmission Company, see Note 10 in NOTES TO WPS RESOURCES CONSOLIDATED FINANCIAL STATEMENTS - INVESTMENTS IN AFFILIATES, AT EQUITY METHOD.

    On November 8, 2002, Wisconsin Public Service entered into an agreement with American Transmission Company for the transfer of primary responsibility for the Wausau to Duluth project from Wisconsin Public Service to American Transmission Company and the reimbursement of Wisconsin Public Service's costs on the project to date. The parties are awaiting approval of the agreement by the Federal Energy Regulatory Commission and the Public Service Commission of Wisconsin. At year-end, Wisconsin Public Service had approximately $18.5 million invested in the project.

    In 2002, the Public Service Commission of Wisconsin approved the recovery of costs deferred in 2000 and 2001 related to start-up costs and increased operating costs resulting from the creation of American Transmission Company. These deferred costs were completely recovered in 2002. The order also provides for operating costs of the American Transmission Company/Midwest Independent System Operator to be recovered through an escrow mechanism that will be trued up annually through a rate phase-in period, that ends in 2005.

    During 2002, Wisconsin Public Service temporarily suspended installation of its automated meter reading system while the technology was reviewed in response to potential stray voltage issues. The independent review was completed in 2002 and results presented to the Public Service Commission of Wisconsin. The Public Service Commission of Wisconsin approved continuation of the program and Wisconsin Public Service resumed the installation of automated electric meters in 2002. The resumption of installation of automated gas meters requires the Public Service Commission of Wisconsin approval, which is expected in early 2003.

    In 2002, the Public Service Commission of Wisconsin completed new rules related to the recovery of fuel costs for electric generation and purchased power from ratepayers. The new rules provide for a decrease in the regulatory lag in adjusting rates, a deferral mechanism for catastrophic supply events, and an improved procedure for customer intervention in the process.

    Effective January 1, 2002, the Public Service Commission of Wisconsin granted interim rate relief of $55.5 million in electric rate increases and $11.2 million in natural gas rate increases. A final rate order for 2002 authorized a $58.6 million electric rate increase and a $10.6 million natural gas rate increase. Wisconsin Public Service refunded the over collection of natural gas revenues in July 2002. The final rate order provides for a 12.3% return on equity, based on a capital structure of 55% common equity. The final rate order was effective June 22, 2002.

    In March 2002, Wisconsin Public Service filed a request with the Public Service Commission of Wisconsin for a $50.7 million electric rate increase and an $8.7 million natural gas rate increase for the 2003/2004 biennium. The rate request asks for a 12.6% return on equity with no change in the capital structure. The request is needed to cover increases in medical benefit costs, Kewaunee's scheduled refueling outage, a portion of the costs for a proposed 500-megawatt coal-fired generation plant to be completed in 2008, construction of a combustion turbine at the Pulliam plant, higher rate base, taxes, and depreciation. In the fourth quarter of 2002, Wisconsin's newly elected governor appointed a new chair of the Public Service Commission. On February 20, 2003, the Public Service Commission of Wisconsin ruled on the requested rate increase for Wisconsin Public Service. A final written order is anticipated in March 2003. The order will authorize a 12.0% return on equity with no change in the capital structure.

Michigan Regulatory Matters

    Effective January 1, 2002, all electric retail customers of investor-owned utilities in Michigan had the right to choose their electric generation supplier. At this time, no customers have chosen an alternative electric supplier and no alternative electric suppliers have offered to provide generation service to any customers in Michigan's Upper Peninsula.

    Wisconsin Public Service filed for a 9% increase in electric rates in the first quarter of 2003 and anticipates new rates to be effective by the end of 2003. Wisconsin Public Service has not had an electric rate increase in Michigan since 1986. The rate increase is needed to realize the authorized rate of return on equity, redesign rates to reduce rate subsidies between ratepayer classes, provide rate designs consistent with the Michigan electric energy market, and compensate for the increased costs of business.

    On August 2, 2002, Upper Peninsula Power filed for a 2003 rate increase. The Michigan Public Utility Commission authorized new rates on December 20, 2002, which became effective on December 21, 2002. The approved rates include a revenue increase of $4.9 million in base rates based on an 11.4% return on equity. In addition, the rate order allows transmission related costs to be recovered through the power supply cost mechanism. As a result, Upper Peninsula Power anticipates recovery of an additional $3.6 million from retail customers in 2003. This allows these costs to be recovered in a manner similar to a fuel adjustment.

    Midwest Independent Transmission System Operator, the first Regional Transmission Organization approved by the Federal Energy Regulatory Commission, began operations in the first quarter of 2002. American Transmission Company, which is partially owned by WPS Resources and its subsidiaries, is a member of Midwest Independent Transmission System Operator.

    In 2002, the Federal Energy Regulatory Commission issued a Notice of Proposed Rule Making proposing a standard wholesale electric market design. Comments are due back to the Federal Energy Regulatory Commission in the first quarter of 2003, with a proposed rule issued in April 2003 with a subsequent comment period. It is expected to take several years to implement and perfect the standard market design across the nation.

    In 2002, Wisconsin Public Service filed for a triennial review of its market-based rate authority using the latest Federal Energy Regulatory Commission market power review methods.

    Wisconsin Public Service intends to file for an increase in wholesale electric rates with the Federal Energy Regulatory Commission in the first quarter of 2003. The request will be based on the Public Service Commission of Wisconsin audit of Wisconsin Public Service's Wisconsin rate request for 2003. Wisconsin Public Service has not had an electric rate increase in its Federal Energy Regulatory Commission rates since 1987. If the filing meets all Federal Energy Regulatory Commission criteria, new rates could be implemented, subject to refund, as early as 61 days after the initial filing. If the rate case is litigated to a conclusion, the process can take up to three years to complete. The rate increase is requested to recover the authorized rate of return, the costs of new generation, to unbundle generation and transmission rates to properly reflect rising transmission costs from the American Transmission Company, and to obtain formula rates to reduce the need for future rate cases.

    Wisconsin Public Service, Upper Peninsula Power, and Wisconsin River Power have long-term licenses from the Federal Energy Regulatory Commission for all of their hydroelectric facilities with the exception of Bond Falls. The Bond Falls hydroelectric facility operates under an annual license from the Federal Energy Regulatory Commission with all the terms and conditions of the prior long-term license until such time as the Federal Energy Regulatory Commission acts on the licensing application filed by Upper Peninsula Power. In 2002, the Federal Energy Regulatory Commission issued a final Environmental Impact Statement for the Bond Falls Hydroelectric Project. The Environmental Impact Statement is the basis for a new license. Issuance of the new license is expected in early 2003. The license will have a term of 30 to 50 years from the date the Federal Energy Regulatory Commission claimed jurisdiction over the Bond Falls facility.

    In 2001 the Federal Energy Regulatory Commission issued a 40-year license for the Dead River facility, owned by Upper Peninsula Power Company effective October 3, 2002.

    The only member of WPS Resources' consolidated entity that incurs significant research and development costs is Wisconsin Public Service. Electric research and development expenditures for Wisconsin Public Service totaled $0.3 million for 2002, $1.1 million for 2001, and $1.8 million for 2000. These expenditures were primarily charged to electric operations as incurred.

    In 2002, twenty-eight paper mills accounted for 11% 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.

    The electric sales of Wisconsin Public Service and Upper Peninsula Power follow a seasonal pattern due to the air conditioning requirements of customers. Annual electric sales are also impacted by the variability of summer temperatures. In 2002, Wisconsin Public Service reached a firm net design peak of 1,947 megawatts on the afternoon of July 17 largely due to the demand created by air conditioning.

    The Wisconsin legislature and the Public Service Commission of Wisconsin have decided not to provide retail electric customers the ability to choose their electric supplier at this time. Wisconsin utilities have continued to refine regulated tariffs in order to provide customers with the true cost of electric energy to each class of customer, by reducing or eliminating rate subsidies among different ratepayer classes.

    For a detailed discussion of the expected capital needs for WPS Resources regulated electric operations see Capital Requirements in ITEM G below.

    Wisconsin Public Service provides regulated natural gas utility services to nearly 300 municipalities in northeastern Wisconsin and adjacent portions of Michigan's Upper Peninsula. Natural gas customers and gas throughput on the Wisconsin Public Service gas system are:

* A dekatherm is equivalent to one million Btus of energy.

    The gas throughput of Wisconsin Public Service follows a seasonal pattern due to the heating requirements of customers. Annual gas sales are also impacted by the variability of winter temperatures.

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

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

    Wisconsin Public Service contracts for fixed-term firm natural gas supplies with approximately 15 natural gas suppliers each year (in the United States and Canada) to meet the December through February peak day demand of firm system sales customers. Wisconsin Public Service purchases additional natural gas supplies on the monthly spot market through fixed-term firm contracts as required to supplement natural gas supplies. As of December 31, 2002, the domestic natural gas supply contracts had remaining terms of up to three months, and the Canadian gas supply contracts had remaining terms of up to ten months. Wisconsin Public Service intends to contract for domestic natural gas supplies for terms of two years or less to minimize potential stranded natural gas supply contract costs if retail natural gas deregulation should proceed in Wisconsin.

    Under current regulatory practice, the Public Service Commission of Wisconsin and the Michigan Public Service Commission allow Wisconsin Public Service to pass increases or decreases in the cost of natural gas on to customers through a purchased gas adjustment clause. Changes in the cost of natural gas are reflected in both gas revenues and gas purchases, thus having little or no impact on net income.

    Wisconsin Public Service contracts with ANR Pipeline Company for firm underground storage capacity located in Michigan. Wisconsin Public Service's total firm storage capacity with ANR Pipeline is approximately 11.6 million dekatherms.

    Besides providing the ability to manage significant changes in daily natural gas demand, storage also provides the ability to purchase natural gas at high load factors on a year-round basis, thus lowering supply cost volatility. Natural gas from storage provides up to 47% of our supply on winter peak days, approximately 28% of our winter sales volumes, and approximately 19% of our total annual sales volumes.

    Wisconsin Public Service also contracts with third-party natural gas suppliers for high deliverability storage. This high deliverability storage capacity is designed to deliver natural gas when other supplies cannot be delivered during extremely cold weather in the producing areas, which can temporarily limit wellhead natural gas supplies.

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

    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 natural gas sales and natural gas transportation service for these customers to enable them to reduce their energy costs. Transportation customers purchase their natural gas from third-party gas suppliers at unregulated prices, and contract with Wisconsin Public Service to transport the natural gas from ANR Pipeline to their facilities. Additionally, some customers still purchase their natural gas commodity directly from Wisconsin Public Service, but have elected to do so on an interruptible basis, as a means to reduce their costs. Customers continue to switch between firm system supply, interruptible system supply, and transportation service each year as the economics and service options change.

    Wisconsin Public Service currently anticipates no large construction projects or capital needs for the gas utility segment of its operations.

Regulatory Matters

    For a discussion of regulatory matters affecting regulated natural gas operations, see Wisconsin Regulatory Matters under ITEM 1B. ELECTRIC UTILITY OPERATIONS.

    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' 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, reliability, service, consumer convenience, performance, and reputation.

    In 2002, total electric power sales were 6,953,284 megawatt-hours. WPS Energy Service's 2002 retail natural gas sales were 135.7 billion cubic feet and total wholesale natural gas sales were 233.8 billion cubic feet. It is WPS Energy Services' policy to secure supply for all sales commitments through purchase contracts with entities we believe to be creditworthy. WPS Energy Services also has generation contracts with WPS Power Development.

    On January 8, 2002, WPS Energy Services received a license to operate as an alternative electric supplier to sell electric energy to Michigan retail customers. WPS Energy Services became 1 of 14 licensed alternative electric suppliers in the state. WPS Energy Services is also a Federal Energy Regulatory Commission licensed marketer and is transacting business in Maine, Ohio, Pennsylvania, New York and Wisconsin.

    On November 1, 2002, WPS Energy Services acquired an existing book of retail gas business in the Canadian provinces of Ontario and Quebec. Consideration for the purchase consists of an earn-out to the seller based on the margin generated during the two years ending October 31, 2004. The retail volumes of this book of business have the potential to equal WPS Energy Services' current retail gas volumes.

    Quest Energy Holdings, LLC, an independent Michigan limited liability company, the owners of Quest Energy, LLC, appointed WPS Energy Services as manager of Quest Energy LLC effective November 19, 2002. The appointment as manager, as well as other factors including the provision of substantial financial support resulted in Quest's financial statements being consolidated with those of WPS Resources as of December 31, 2002. Since May 2000, WPS Resources has provided financial support to Quest in the form of an interest-bearing convertible note with an initial maturity date of May 2005, secured by the assets of Quest. WPS Resources assigned the option to convert the indebtedness of Quest to equity to WPS Energy Services. Effective January 29, 2003, WPS Energy Services exercised the option and converted the indebtedness to equity, making Quest Energy LLC a wholly-owned subsidiary of WPS Energy Services.  For more information on Quest, see Note 6 in NOTES TO WPS RESOURCES CONSOLIDATED FINANCIAL STATEMENTS - ACQUISITIONS AND SALES OF ASSETS.

    WPS Energy Services applied mark-to-market accounting in accordance with Emerging Issues Task Force Issue 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities." The Financial Accounting Standards Board created the Emerging Issues Task Force to provide guidance clarifying accounting standards. Issue 98-10 was rescinded in October 2002 under Emerging Issue Task Force Issue 02-03 "Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities." Therefore, WPS Energy Services' contracts are now accounted for under Statement of Financial Accounting Standard No. 133. In accordance with Issue 02-03, in the first quarter of 2003 WPS Energy Services will be reversing the portion of the risk management assets and liabilities that will no longer be accounted for under mark-to-market accounting, with a positive after-tax cumulative effect of a change in accounting principle to income of approximately $3 million. Contracts that will continue to be marked-to-market have terms no longer than 4 years and most mature within the next 24 months. Most contracts are valued on a forward curve derived from exchange based or liquid over-the-counter market quotations. Reserves for potential costs and risks are considered in determining the fair value of these contracts.

    WPS Energy Services is party to leases, with independent third parties, related to several of its regional offices.

    WPS Energy Services works with WPS Power Development to supply fuel for its gas-fired production facilities and sell the electric energy produced by its current operations as well as future acquisitions.

    WPS Energy Services believes that its business, in the aggregate, is not seasonal, even though certain products sell more heavily in some seasons than in others. Sales of natural gas generally peak in the winter months, while sales of electric energy generally peak in the summer months. In 2002, 71% of WPS Energy Services gross margin came from natural gas operations, 24% from electric operations, and 6% from other operations.

    Currently, capital requirements of WPS Energy Services are financed through 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 allied products and food and kindred products industries. WPS Energy Services' concentration of sales in any single market sector is decreasing as it expands into the Michigan retail electric and Canadian retail natural gas markets.

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

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

    WPS Power Development owns:

    On October 25, 2002, the agreement related to WPS Power Development's purchase of the Tracy Pinon power station from Sierra Pacific Resources became terminable. WPS Power Development and Sierra Pacific have each expressed their intent to terminate the agreement.

    Coal requirements for WPS Power Development owned plants are estimated at 1.3 million tons annually. Of this amount, approximately 50% will be met through the burning of coal silt. In 2002, WPS Power Development purchased all of its coal supplies through the spot market and short-term contracts. In 2003, WPS Power Development expects to supply approximately 80% of its annual coal needs through annual coal contracts and its reserves of coal and coal silt. At December 31, 2002, WPS Power Development had an estimated six-year reserve of coal silt for its Westwood facility. The remaining coal requirements will be purchased through the spot market.

    In 2003, coal transportation for approximately 20% of annual coal requirements will be supplied under a two-year contract with Norfolk Southern Railroad. A two-year coal transportation agreement with the B&P Railroad was acquired with the acquisition of the Niagara Falls facility from CH Resources in 2002. The remaining coal transportation is contracted through short-term agreements with a variety of transportation providers.

    Gas-fired plants of WPS Power Development provide electric supply for WPS Energy Services' sales. Additionally, WPS Energy Services supplies the gas to operate these facilities. WPS Energy Services does not dispatch these facilities unless economical fuel is available to meet the energy commitments.

    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 residential fuel consumption, generally the winter months, the purchase price of oil and natural gas increases.

    Equity and working capital requirements of WPS Power Development are generally financed through WPS Resources. Project nonrecourse debt financing is in place for the Sunbury, Maine, and Canadian generation plants owned by WPS Power Development.

    Of WPS Power Development's approximately 915 megawatts of existing capacity, fixed price contracts are in place to sell approximately 290 megawatts. All 290 megawatts are firm commitments. The remainder of the energy production of WPS Power Development is sold into the open market.

    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 acquired emission credits sufficient to meet all emission requirements through the year 2002. Although WPS Power Development has some emission credits for 2003, additional credits may need to be purchased to meet its 2003 requirements.

    In 2002, WPS Power Development's Combined Locks Energy Center received a notice of violation from the Wisconsin Department of Natural Resources regarding nitrogen oxide emissions. The Combined Locks Energy Center was removed from operation in August 2002 due to the nitrogen oxide emission rates reported in compliance tests. WPS Power Development conducted additional compliance testing in December 2002. Based on these compliance tests, the facility was returned to service in December 2002. Fines or penalties associated with this event, if any, are not expected to be material. The unit is currently operating at full capacity.

    In 2002, WPS Power Development acquired three generation facilities as part of its acquisition of CH Resources for $59.2 million.

    WPS Power Development operates primarily in the nonregulated markets of Pennsylvania-New Jersey-Maryland and New York Independent System Operator. WPS Power Development competes for sales of electric production with both regulated and nonregulated energy producers within these markets.

    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 operation of generation facilities and may require substantial investments in new equipment at existing installations. Such restrictions may require substantial additional investments for new projects and may delay or prevent completion of projects. We cannot forecast the effects of such regulation on our generation, transmission, and other facilities or operations.

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

    Wisconsin Public Service continues to investigate the environmental cleanup of ten manufactured gas plant sites, two of which were previously owned by Wisconsin Fuel and Light. As of the fall of 2002, cleanup of the land portion of the Oshkosh site, Stevens Point site and two sites at Sheboygan were substantially complete. Groundwater treatment and monitoring at these sites will continue into the future. River sediment remains to be addressed at the Oshkosh site, as well as other sites with sediment contamination. Wisconsin Public Service anticipates that work will commence on the land portion of the Green Bay site in the first quarter of 2003. Cleanup at the remaining sites located in Two Rivers, Marinette, and Menominee has not yet been scheduled.

    Effective with the Wisconsin Fuel and Light merger, Wisconsin Public Service acquired two former manufactured gas plant sites in Manitowoc and Wausau. Wisconsin Fuel and Light began the cleanup of the land portion of the Manitowoc site in 1994, and the cleanup is substantially complete. Groundwater treatment and monitoring of the Manitowoc site continues. Wisconsin Public Service has not addressed river sediments near the former Manitowoc gas plant site. Wisconsin Public Service has undertaken and is continuing its site investigation work at the Wausau site.

    Costs of the cleanups completed to date were within the range expected for these sites. Wisconsin Public Service estimates remaining future undiscounted investigation and cleanup costs for all remaining site work to be in the range of $38.7 million to $43.7 million. Wisconsin Public Service may adjust these estimates in the future contingent upon remedial technology, regulatory requirements, and the assessment of natural resource damages. Wisconsin Public Service currently has a $38.7 million liability recorded for gas plant cleanup with an offsetting regulatory asset. Wisconsin Public Service expects to recover cleanup costs net of insurance recoveries in future customer rates. Under current Public Service Commission of Wisconsin policies, Wisconsin Public Service will not recover carrying costs associated with the cleanup expenditures. Wisconsin Public Service has received $12.7 million in insurance recoveries, which were recorded as a reduction in the regulatory asset.

    The United States Environmental Protection Agency has designated southeastern Wisconsin as an ozone non-attainment area. Under the Clean Air Act, the State of Wisconsin developed a nitrogen oxide reduction plan for Wisconsin's ozone non-attainment area. The nitrogen oxide reductions begin in 2003 and gradually increase to 2007. This plan affects Edgewater Unit 4, of which Wisconsin Public Service owns 31.8%. A compliance plan for this unit was initiated in 2000. The plan includes a combination of combustion optimization and emission trading at a cost to Wisconsin Public Service of about $5 million. About 70% of the project has been completed.

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

    Air quality modeling by the Wisconsin Department of Natural Resources revealed that Weston Units 1 and 2 contribute to a modeled exceedance of the sulfur dioxide ambient air quality standard (the current and projected fuel meets the sulfur content limit). Wisconsin Public Service and the Wisconsin Department of Natural Resources developed a plan to eliminate the modeled exceedance by extending the existing stacks at Weston Units 1 and 2 by 55 feet and limiting the sulfur content of the fuel to 1.2 pounds per million Btu. The cost of the stack extension is about $0.9 million. The United States Environmental Protection Agency is studying the proposal related to increasing the stack height. To date the United States Environmental Protection Agency has been unwilling to agree with this approach unless further studies are done to support the stack height increase. If the United States Environmental Protection Agency does not accept this proposal, additional reduction in sulfur content of fuel burned or significant operational limitations may result. Wisconsin Public Service is cooperating with the Wisconsin Department of Natural Resources to develop an approach to resolve this issue.

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

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

    On May 22, 2002, Wisconsin Public Service received a follow-up request from the Environmental Protection Agency seeking additional information regarding specific boiler-related work performed on Pulliam Units 3, 5 and 7, as well as information on Wisconsin Public Service's life extension program for Pulliam Units 3-8 and Weston Units 1 and 2. Wisconsin Public Service made an initial response to the Environmental Protection Agency's follow-up information request on June 12, 2002, and filed a final response on June 27, 2002.

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

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

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

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

    At the end of December, 2002 the Environmental Protection Agency issued new rules governing the federal new source review program. The rules are not yet effective in Wisconsin. They are also not retroactive.

    The Wisconsin Department of Natural Resources initiated a rulemaking effort to control mercury emissions. Coal-fired generation plants are the primary targets of this effort. The proposed rule was open to comment in October 2001. As proposed, the rule requires phased-in mercury emission reductions reaching 90% reduction in 15 years. Wisconsin Public Service estimates that it could cost approximately $105 million per year to achieve the proposed 90% reductions.

Other Environmental Issues

    Groundwater testing, at a former ash disposal site of Upper Peninsula Power indicated elevated levels of boron and lithium. Supplemental remedial investigations were performed, and a revised remedial action plan was developed. The Michigan Department of Environmental Quality approved the plan in January 2003. A liability of $1.5 million and an associated regulatory asset of $1.5 million was recorded for estimated future expenditures associated with remediation of the site. Upper Peninsula Power received an order permitting deferral and future recovery of these costs.

    See the section titled WPS Power Development, Inc. under ITEM 1E, for a description of various issues related to environmental liabilities regarding the operations of WPS Power Development, Inc.

    WPS Resources and Wisconsin Public Service make large investments in capital assets. Construction expenditures, including nuclear fuel for Wisconsin Public Service are expected to be approximately $736 million for the period 2003 through 2005. This includes expenditures for investment in construction for new generating facilities, an automated meter reading system, corporate infrastructure, nuclear fuel, corporate software and hardware, security, a nuclear reactor vessel head, and a combustion turbine. Additional expenditures will be needed through 2008 to complete these generating facilities. Other Wisconsin Public Service capital requirements for the 2003 through 2005 period include Kewaunee decommissioning trust fund contributions of $7.8 million.

    WPS Resources expects to make capital contributions of up to $80 million for the period 2003 through 2005 to fund construction of the Wisconsin Public Service portion of the Wausau to Duluth transmission line, which will be transferred to American Transmission Company in exchange for an increase in equity ownership in American Transmission Company. Additional expenditures will be needed through 2008 to complete the transmission project.

    Upper Peninsula Power will incur construction expenditures of approximately $39 million for the period 2003 through 2005, primarily for electric distribution improvements and repairs at hydroelectric facilities.

    There are no commitments for additional acquisition expenditures for the nonregulated subsidiaries at this time. Future nonregulated projects may be financed through nonrecourse project financings.

    WPS Resources issued $100.0 million of 5.375% 10-year senior unsecured notes in November 2002. Approximately $55.0 million of the net proceeds from the issuance of these notes were used to repay short-term debt incurred to provide equity capital to our subsidiaries and the remainder was used for other corporate purposes.

    In 2000, WPS Resources began issuing new shares of its common stock under its Stock Investment Plan and under certain stock-based employee benefit plans. Equity increased $28.3 million in 2002, as a result of these plans.

    Wisconsin Public Service issued $150.0 million of 4.875% 10-year senior notes in December 2002 under a shelf registration for the offering and sale of up to $300 million in long-term debt. The senior notes are secured by a pledge of first mortgage bonds and may become unsecured when Wisconsin Public Service retires all of its outstanding first mortgage bonds. Wisconsin Public Service used approximately $72 million of the net proceeds from the issuance of the senior notes to acquire the De Pere Energy Center and $69.0 million to retire short-term debt. The balance of the net proceeds was used for other corporate purposes. Wisconsin Public Service retired $50.0 million of 7.30% first mortgage bonds in October 2002. An additional $50.0 million of 6.80% first mortgage bonds were retired on February 1, 2003.

    WPS Resources may issue additional debt and/or common stock in 2003. Wisconsin Public Service expects to issue additional bonds under its shelf registration in 2003.

    At December 31, 2002, WPS Resources and its subsidiaries employed 2,963 people. Of this number, 2,410 were employees of Wisconsin Public Service, 169 were employees of Upper Peninsula Power, 211 were employees of WPS Power Development, and 132 were employees of WPS Energy Services, with the remainder employed by WPS Resources and its remaining subsidiaries.

    Of the Wisconsin Public Service employees, 1,831 were electric utility employees and 579 were gas utility employees. Local 310 of the International Union of Operating Engineers represents 1,302 of these employees. The current collective bargaining agreement with Local 310 expires on October 25, 2003. Negotiations on a new agreement are scheduled to begin in July 2003.

    Local 510 of the International Brotherhood of Electrical Workers, AFL-CIO represents 132 employees of Upper Peninsula Power. The current collective bargaining agreement with Local 510 expires on April 30, 2005.

    Local 1600 of the International Brotherhood of Electrical Workers, AFL-CIO represents approximately 107 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, 2003. Preliminary discussions have begun on this contract.

    You should carefully consider the following risk factors, as well as the other information included or incorporated by reference in this Form 10-K in connection with any investment in the common stock of WPS Resources or other securities of WPS Resources or Wisconsin Public Service. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known or that we currently believe to be immaterial may also adversely affect us.

    The energy industry has been undergoing dramatic structural change for several years, resulting in increasing competitive pressure on electric and natural gas utility companies. Increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce our utility earnings from retail electric and natural gas sales. While the future of deregulation in the utility industry and its impact on our future is uncertain, the certainty of change is evident. At the present time, Wisconsin has not adopted legislation or regulations that would allow customers to choose their electric supplier. All Michigan electric customers were able to choose their electric generation suppliers beginning January 1, 2002 as a result of the Customer Choice Act.

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

    Our strategy for the growth of our nonregulated generation business depends upon our ability to identify and complete acquisitions and development projects at appropriate prices. Our nonregulated electric generation segment has achieved growth through acquisition and we expect that it will continue to grow through acquisition. There can be no assurance that the projects we have acquired to date or projects that we may acquire in the future will perform as expected or that the returns from those projects will support the indebtedness incurred to acquire them or the capital expenditures needed to maintain or develop them. In addition, many of our competitors are seeking opportunities to acquire or develop energy assets. This competition may adversely affect our ability to make investments or acquisitions.

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

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

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

    Our nonregulated subsidiaries, WPS Power Development and WPS Energy Services, may experience increased expenses, including interest costs and uncollectibles, higher working capital requirements and possibly some level of price sensitive reduction in volumes sold as a result of increases in the cost of fuel or purchased power. Our regulated utilities, however, are generally allowed to pass on higher natural gas costs, electric production fuel costs and purchased power costs to their customers when they exceed defined parameters.

    We remain liable for the safe operation, maintenance, and decommissioning of our 59% share of the Kewaunee plant even though we transferred operation of the plant to Nuclear Management Company.

We could incur material expenses as a result of our obligations to comply with existing and new environmental laws and regulations.

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

    In addition, as part of an industry wide focus, capital expenditures at two of our coal-fired facilities have been the subject of a formal request for information from the Environmental Protection Agency. If an enforcement proceeding or litigation in connection with this investigation, or in connection with any proceeding for noncompliance with environmental laws, were commenced and resolved against us, we could be required to invest significantly in new emission control equipment, accelerate the timing of other capital expenditures, pay penalties and/or halt certain operations. Moreover, new environmental laws and regulations, or new interpretations of existing laws and regulations, affecting our operations or facilities may be adopted which may cause us to incur additional material expenses.

    In general, any claim of WPS Resources against the assets of its subsidiaries is subject to the prior rights of the creditors of those subsidiaries. In addition, the Wisconsin public utility holding company law prohibits public utility subsidiaries from making loans to, or pledging their credit for, nonutility members of a Wisconsin public utility holding company system, including the holding company.

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

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

    Subject to an exception for certain holding companies organized or created before November 28, 1985, the Wisconsin public utility holding company law requires that any corporation that is a direct or indirect holding company of a Wisconsin public utility be incorporated under the laws of Wisconsin, thereby limiting the number of potential acquirers of WPS Resources. The Wisconsin public utility holding company law also precludes the acquisition of 10% or more of the voting shares of a holding company of a Wisconsin public utility unless the Public Service Commission of Wisconsin has first determined that the acquisition is in the best interests of utility consumers, investors and the public. Those interests may, to some extent, be mutually exclusive. These provisions of the Wisconsin public utility holding company law may delay, or reduce the likelihood of, a sale or change of control of WPS Resources, thus reducing the likelihood that shareholders will receive a takeover premium for their shares. These provisions are currently being challenged by another Wisconsin holding company in the federal courts.

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

    We have significantly reduced our consolidated federal income tax liability for the past three years through tax credits available to us under Section 29 of the Internal Revenue Code for the production and sale of solid synthetic fuel from coal. Our ability to further utilize these credits and maximize the value of our synthetic fuel production facility is limited by Section 29. As a result, we have sold portions of our synthetic fuel facility, or the right to production therefrom, to third parties, which can utilize the additional credits available given the production capacity of the facility. The Internal Revenue Service strictly enforces compliance with all of the technical requirements of Section 29. Compliance with Section 29 is likely to be audited by the Internal Revenue Service. Future tax legislation may affect the value of the credits and our share of the facility.

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

    The following table summarizes information on the electric generation facilities of Wisconsin Public Service, including jointly-owned facilities:

    As of December 31, 2002, Wisconsin Public Service owned 115 distribution substations and 20,212 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 6,686 miles of main, 83 gate and city regulator stations, and 268,763 lateral services. All natural gas facilities are located in Wisconsin except for distribution facilities in and near the City of Menominee, Michigan.

    Substantially all of Wisconsin Public Service's 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 summer 2003 rated capacity.

(b) The J. H. Warden station was taken out of service on January 1, 1994 and is in standby or inactive reserve status.

(c) Included in the nine hydroelectric plants are Escanaba 1, Escanaba 3, and Boney Falls, which generate a total of 4.5 megawatts. All energy produced at these facilities is sold directly to a paper industry customer located in Escanaba, Michigan.

    Upper Peninsula Power owns 2,826 miles of electric distribution lines.

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

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

    In 2001, WPS Resources initiated a 5 to 7 year program involving the assessment of all assets of its subsidiaries, which are no longer needed for operations, and identifying alternative uses to maximize their value. As part of this strategy an initial agreement with the State of Wisconsin was entered into in 2001 to ultimately transfer ownership of forest and waterfront land along the Peshtigo River in northeastern Wisconsin to the State over a 4 year period.

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

(a) Mid-American Power, owns the Stoneman facility. 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. The amount reported in the above table represents our two-thirds interest in the plant. PDI Stoneman signed a letter of intent with Burns and McDonnell on November 15, 2002 to purchase their one-third share of Mid-American Power, LLC. The asset transfer is expected to take place during the first quarter of 2003. The purchase price is $0.6 million and is to be paid at a future date contingent on the development of the Cassville Energy Center.

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

 

ITEM 3. LEGAL PROCEEDINGS

    From time to time Wisconsin Public Service has been sued by dairy farmers who allege that they have suffered loss of milk production and other damages allegedly due to "stray voltage" from the operation of the Wisconsin Public Service's electrical system. Past cases have been resolved without any material adverse effect on WPS Resources' financial statements. Currently, there are eight such cases pending in state court in Wisconsin, although one of the cases has been settled and is in the process of being dismissed.

    The Public Service Commission of Wisconsin has established certain requirements for all utilities subject to its jurisdiction with respect to stray voltage. The Public Service Commission of Wisconsin's orders have defined what constitutes "stray voltage," established a level of concern at which some utility corrective action is required, and set forth test protocols to be employed in evaluating whether a stray voltage problem exists. Based upon the information available to it to date, Wisconsin Public Service believes that it was in compliance with the Public Service Commission of Wisconsin's orders, and that none of the eight plaintiffs had a stray voltage problem as defined by the Public Service Commission of Wisconsin. There is currently pending before the Supreme Court of Wisconsin a case in which another utility is arguing that there is no basis for civil liability for stray voltage without evidence that the utility violated the Public Service Commission of Wisconsin's standards. While it is possible that the Court may decide the case without reaching that issue, it is also possible that the Court will determine whether, and if so under what conditions, a dairy farmer can maintain an action for stray voltage without proof that the utility has violated the Public Service Commission of Wisconsin's standards.

    The seven remaining cases pending against Wisconsin Public Service have been assigned separate trial dates in 2003 and 2004. Discovery is in different stages for the different cases. In those cases reviewed to date by expert witnesses retained by Wisconsin Public Service, the experts do not believe that there is scientific basis for concluding that electricity has harmed or damaged the plaintiffs or their cows. Accordingly, Wisconsin Public Service is vigorously defending and contesting these actions.

    Wisconsin Public Service has insurance coverage for these claims, but the policies have a current $1.0 million self-insured retention per occurrence. The case with by far the largest damage claim is Russell Allen v. Wisconsin Public Service Corporation, in which plaintiff's economist has projected more than $14 million in damages for a 26-year period. Based on a number of factors developed in the case, including the expert's own deposition testimony, Wisconsin Public Service believes the $14 million figure is excessive and improper. The Allen case is scheduled for trial in Green Bay, Wisconsin in May 2003. Defense costs for the Allen case have exceeded the self-insured retention. Based upon the information known at this time and the availability of insurance, Wisconsin Public Service believes that the total cost to resolve the remaining seven actions will not be material.

    Some of the remaining seven cases include a claim for punitive damages. All assert a claim for treble damages under a Wisconsin Statute, Section 196.64. In light of the information it now has, Wisconsin Public Service does not believe there is any basis for the award of treble damages in these cases. If a jury awarded such damages, and if the total of defense costs and the verdict exceeded the self-insured retention, Wisconsin Public Service believes its insurance policies would cover such a verdict.

Kewaunee Nuclear Power Plant

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

    Notwithstanding its failure to timely perform, Finmeccanica has sought to impose back charges against Wisconsin Public Service for alleged cost overruns in an amount exceeding $10 million. Finmeccanica alleges that any delay in delivery of the replacement steam generators is excused because it was caused by the actions of Wisconsin Public Service.

    After failing to reach a negotiated resolution of its dispute with Finmeccanica, on March 1, 2000 Wisconsin Public Service filed suit against Finmeccanica in the federal court in the Eastern District of Wisconsin. In its complaint, Wisconsin Public Service alleges that Finmeccanica's failure to timely deliver the replacement steam generators is not excused and that the delay caused substantial damages to Wisconsin Public Service.

    In response to Wisconsin Public Service's complaint, on July 2, 2001 Finmeccanica moved to dismiss the complaint on the ground that the parties' contract required arbitration of any disputes between Wisconsin Public Service and Finmeccanica. On March 28, 2002, the Court issued an order denying Finmeccanica's motion. Thereafter, on April 15, 2002 Finmeccanica filed its answer and counterclaim denying Wisconsin Public Service's allegations and asserting a claim against Wisconsin Public Service for damages in an unspecified amount. Discovery is ongoing, and is scheduled to continue through early 2004.

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 OPERATIONS, Fuel Supply, for a description of various proceedings relating to decontamination and decommissioning liabilities.

    See the section titled Environmental Matters under ITEM 1F for a description of various environmental proceedings.

    On July 17, 2002, Citizens Utility Board filed a petition for judicial review of the Public Service Commission of Wisconsin's final decision in Docket 6690-UR-113, Wisconsin Public Service Corporation's 2002 rate case. Citizens Utility Board sought reversal of the Public Service Commission of Wisconsin's decision to allow Wisconsin Public Service Corporation to recover approximately $8.3 million in deferred costs incurred in complying with certain Nuclear Regulatory Commission regulations applicable to the Kewaunee plant. On January 10, 2003, the Dane County Circuit Court issued a Decision and Order in Case No. 02-CV-2231 affirming the Public Service Commission of Wisconsin and dismissing the Petition for Review. Citizens Utility Board did not appeal the circuit court's decision.

    See the section titled WPS Energy Services, Inc. under ITEM 1D for a description of status of bankruptcy proceedings involving Enron.

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

PART II

    WPS Resources is the sole holder of Wisconsin Public Service's common stock.

Dividend Restrictions

    WPS Resources' principal subsidiary, Wisconsin Public Service, is restricted by a Public Service Commission of Wisconsin order limiting the payment of normal common stock dividends to no more than 109% of the previous year's common stock dividend, without approval of to the Public Service Commission of Wisconsin. Return of capital payments may be declared in order to maintain Wisconsin Public Service's common equity at levels consistent with those allowed by the Public Service Commission of Wisconsin, provided that the return of capital does not cause the common equity ratio to fall below prescribed levels. Wisconsin law prohibits Wisconsin Public Service from making loans to WPS Resources and its nonregulated subsidiaries and guaranteeing their obligations.

    Wisconsin Public Service's Articles of Incorporation contain certain limitations on the payment of cash dividends. These limitations are not expected to limit any dividend payments in the foreseeable future.

    At December 31, 2002, WPS Resources had $398 million of retained earnings available for dividends.

    Upper Peninsula Power's indentures relating to its first mortgage bonds contain certain limitations on the payment of cash dividends on its common stock, which is held solely by WPS Resources. Under the most restrictive of these provisions, approximately $8 million of retained earnings were available at December 31, 2002 for the payment of common stock cash dividends by Upper Peninsula Power.

Common Stock

    As of December 31, 2002, there were 22,768 common stock shareholders of record.

    See ITEM 11 of this Form 10-K for additional information regarding Equity Compensation Plans.