SECURITIES AND EXCHANGE COMMISSION
                       Washington, D. C.  20549

                               FORM 10-K


(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 1997
                                   
                                  OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                   to 
                                 ---------------    ---------------

<TABLE>
<CAPTION>
Commission        Registrant; State of Incorporation             IRS Employer 
file number          Address; and Telephone Number            Identification No.
-----------       ----------------------------------          ------------------

<S>           <C>                                             <C>
  1-11337         WPS RESOURCES CORPORATION                       39-1775292
                  (A Wisconsin Corporation)
                  700 North Adams Street
                  P. O. Box 19001
                  Green Bay, WI 54307-9001
                  920-433-1466

  1-3016          WISCONSIN PUBLIC SERVICE CORPORATION            39-0715160
                  (A Wisconsin Corporation)
                  700 North Adams Street
                  P. O. Box 19001
                  Green Bay, WI 54307-9001
                  920-433-1466
</TABLE>

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

                            Title of                Name of each exchange 
                           each class                on which registered
                           ----------               ---------------------

WPS RESOURCES CORPORATION  Common Stock,            New York Stock Exchange
                           $1 par value               and Chicago Stock
                                                      Exchange
                         
                           Rights to purchase       New York Stock Exchange
                           Common Stock pursuant      and Chicago Stock
                           to Rights Agreement        Exchange
                           dated December 12, 1996  

PAGE
<PAGE>
Securities registered pursuant to Section 12(g) of the Act:
-----------------------------------------------------------

WISCONSIN PUBLIC SERVICE CORPORATION    

               Preferred Stock, Cumulative, $100 par value
               5.00% Series                    5.08% Series
               5.04% Series                    6.76% Series
                           


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

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

State the aggregate market value of the voting stock held by nonaffiliates of
-----------------------------------------------------------------------------
the Registrant.
---------------

          WPS RESOURCES CORPORATION
                
                   $781,131,945 as of March 4, 1998

          WISCONSIN PUBLIC SERVICE CORPORATION

                   None

Number of shares outstanding of each class of common stock, as of December 31,
------------------------------------------------------------------------------
1997
----

WPS RESOURCES CORPORATION               Common Stock, $1 par value,
                                        23,896,962 shares        

WISCONSIN PUBLIC SERVICE CORPORATION    Common Stock, $4 par value,
                                        23,896,962 shares 


               DOCUMENTS INCORPORATED BY REFERENCE

(1)  Definitive proxy statement for the WPS Resources Corporation Annual
     Meeting of Shareholders on May 7, 1998 is incorporated into Parts I and
     III.

PAGE
<PAGE>
                    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, 1997


                        TABLE OF CONTENTS

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v

PART I

 1.  BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

     A. GENERAL
           WPS Resources Corporation . . . . . . . . . . . . . . . . . . .1
           Wisconsin Public Service Corporation. . . . . . . . . . . . . .1
           Regulatory Oversight. . . . . . . . . . . . . . . . . . . . . .2
           Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . .2
           Forward-Looking Statements. . . . . . . . . . . . . . . . . . .2

     B. ELECTRIC MATTERS
           Electric Operations . . . . . . . . . . . . . . . . . . . . . .3
           Generating Capacity . . . . . . . . . . . . . . . . . . . . . .3
           Kewaunee Nuclear Power Plant. . . . . . . . . . . . . . . . . .4
           Fuel Supply . . . . . . . . . . . . . . . . . . . . . . . . . .6
              Electric Generation Mix. . . . . . . . . . . . . . . . . . .6
              Fuel Costs . . . . . . . . . . . . . . . . . . . . . . . . .6
              Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
              Nuclear. . . . . . . . . . . . . . . . . . . . . . . . . . .6
           Regulatory Matters in the Wisconsin Jurisdiction. . . . . . . .7
              Industry Restructuring . . . . . . . . . . . . . . . . . . .7
              Independent System Operator. . . . . . . . . . . . . . . . .8
              Merger Activity. . . . . . . . . . . . . . . . . . . . . . .9
              Electric Supply Issues . . . . . . . . . . . . . . . . . . .9
              Customer Rate Matters. . . . . . . . . . . . . . . . . . . 10
           Regulatory Matters in the Michigan Jurisdiction . . . . . . . 10
              Industry Restructuring . . . . . . . . . . . . . . . . . . 10
              Customer Rate Matters. . . . . . . . . . . . . . . . . . . 11
           Regulatory Matters in the FERC Jurisdiction . . . . . . . . . 11
              Customer Rate Matters. . . . . . . . . . . . . . . . . . . 11
              Open Access Transmission Tariff. . . . . . . . . . . . . . 11
              Marketer Status. . . . . . . . . . . . . . . . . . . . . . 11
              Wholesale Status . . . . . . . . . . . . . . . . . . . . . 11
              Regulatory Compliance. . . . . . . . . . . . . . . . . . . 12
              Hydroelectric Licenses . . . . . . . . . . . . . . . . . . 12
           Other Matters . . . . . . . . . . . . . . . . . . . . . . . . 12
              Research and Development . . . . . . . . . . . . . . . . . 12
              Customer Segmentation. . . . . . . . . . . . . . . . . . . 12
           Electric Financial Summary. . . . . . . . . . . . . . . . . . 13
           Electric Operating Statistics . . . . . . . . . . . . . . . . 14
              WPS Resources Corporation. . . . . . . . . . . . . . . . . 14
              Wisconsin Public Service Corporation . . . . . . . . . . . 15

                                        i

<PAGE>

     C. GAS MATTERS
           Wisconsin Public Service Corporation's Gas Market . . . . . . 16
           Gas Supply. . . . . . . . . . . . . . . . . . . . . . . . . . 16
              General. . . . . . . . . . . . . . . . . . . . . . . . . . 16
              Pipeline Capacity and Storage. . . . . . . . . . . . . . . 17
              Gas Supply Contracts . . . . . . . . . . . . . . . . . . . 18
              New Pipeline Supply Source . . . . . . . . . . . . . . . . 18
           Federal Regulatory Activities . . . . . . . . . . . . . . . . 19
              Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . 19
              Viking Costs on ANR Pipeline . . . . . . . . . . . . . . . 19
              ANR Rate Case Settlement . . . . . . . . . . . . . . . . . 19
           Wisconsin Regulatory Activities . . . . . . . . . . . . . . . 20
              General. . . . . . . . . . . . . . . . . . . . . . . . . . 20
              Gas Cost Recovery Mechanism. . . . . . . . . . . . . . . . 20
              Gas Distribution Restructuring . . . . . . . . . . . . . . 20
              Customer Rate Matters. . . . . . . . . . . . . . . . . . . 21
           Michigan Regulatory Activities. . . . . . . . . . . . . . . . 21
              Gas Cost Recovery. . . . . . . . . . . . . . . . . . . . . 21
              Gas Distribution Restructuring . . . . . . . . . . . . . . 21
              Customer Rate Matters. . . . . . . . . . . . . . . . . . . 21
           Gas Financial Summary . . . . . . . . . . . . . . . . . . . . 22
           Gas Operating Statistics. . . . . . . . . . . . . . . . . . . 23
              WPS Resources Corporation. . . . . . . . . . . . . . . . . 23
              Wisconsin Public Service Corporation . . . . . . . . . . . 24

     D. NONREGULATED BUSINESS ACTIVITIES
           General . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
           WPS Energy Services, Inc. . . . . . . . . . . . . . . . . . . 25
           WPS Power Development, Inc. . . . . . . . . . . . . . . . . . 25
           Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 26

     E. ENVIRONMENTAL MATTERS
           General . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
           Air Quality . . . . . . . . . . . . . . . . . . . . . . . . . 26
           Water Quality . . . . . . . . . . . . . . . . . . . . . . . . 27
           Gas Plant Cleanup . . . . . . . . . . . . . . . . . . . . . . 27

     F. CAPITAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . 28

     G. EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

 2.  PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

     A. UTILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

     B. NONREGULATED . . . . . . . . . . . . . . . . . . . . . . . . . . 31

 3.  LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . 31

 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . 31

 4A. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . 32

     A. EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION. . . . . . . . . 32

     B. EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION . . . 33

                                        ii

<PAGE>


PART II

 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND 
     RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . 34
        WPS Resources Corporation Common Stock Two-Year Comparison . . . 34
        Dividend Restrictions. . . . . . . . . . . . . . . . . . . . . . 34
        Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 34

 6.  SELECTED FINANCIAL DATA

     WPS RESOURCES CORPORATION
     COMPARATIVE FINANCIAL STATEMENTS AND 
     FINANCIAL STATISTICS (1993 TO 1997)

     A. CONSOLIDATED STATEMENTS OF INCOME. . . . . . . . . . . . . . . . 35
     B. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 36
     C. FINANCIAL STATISTICS . . . . . . . . . . . . . . . . . . . . . . 37

     WISCONSIN PUBLIC SERVICE CORPORATION 
     COMPARATIVE FINANCIAL DATA AND FINANCIAL 
     STATISTICS (1993 TO 1997)

     D. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . 38
     E. FINANCIAL STATISTICS . . . . . . . . . . . . . . . . . . . . . . 39

 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATION FOR WPS RESOURCES CORPORATION AND
     WISCONSIN PUBLIC SERVICE CORPORATION. . . . . . . . . . . . . . . . 40

 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     WPS RESOURCES CORPORATION
     A. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS. . . . . 52
     B. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 53
     C. CONSOLIDATED STATEMENTS OF CAPITALIZATION. . . . . . . . . . . . 55
     D. CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . 56
     E. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . 57
     F. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . 76

     WISCONSIN PUBLIC SERVICE CORPORATION
     G. CONSOLIDATED STATEMENTS OF INCOME. . . . . . . . . . . . . . . . 77
     H. CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . 78
     I. CONSOLIDATED STATEMENTS OF CAPITALIZATION. . . . . . . . . . . . 80
     J. CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . 81
     K. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS . . . . . . . . . . 82
     L. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . 83
     M. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . 84

 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
     ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . 85

PART III

10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . 85

11.  EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 85

                                        iii

<PAGE>

12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . . 85

13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . 85

PART IV

14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND 
     REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . 86

     DESCRIPTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . 88
     SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

     SCHEDULE III - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
     WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)
     A. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . 95
     B. STATEMENTS OF INCOME AND RETAINED EARNINGS . . . . . . . . . . . 96
     C. BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . 97
     D. STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . 98
     E. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS . . . . . . . . . . 99

EXHIBITS

10F-1   Power Purchase Agreement Between De Pere
        Energy LLC and Wisconsin Public Service
        Corporation dated November 8, 1995 and 
        amended by a Letter Agreement dated
        February 18, 1997
             Wisconsin Public Service Corporation. . . . . . . . . . . .100

10G-1   WPS Resources Corporation Amended and Restated 
        Deferred Compensation Plan Effective January 1, 
        1998
             WPS Resources Corporation . . . . . . . . . . . . . . . . .213

10G-3   WPS Resources Corporation Short-Term Variable 
        Pay Plan Effective January 1, 1998
             WPS Resources Corporation . . . . . . . . . . . . . . . . .240

11      Statement Regarding Computation of Per Share 
        Earnings                                         
             WPS Resources Corporation . . . . . . . . . . . . . . . . .248

21      Subsidiaries of the Registrant . . . . . . . . . . . . . . . . .249
                                                     
23      Consent of Independent Public Accountants. . . . . . . . . . . .250

24      Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . .251

27      Financial Data Schedule
             WPS Resources Corporation . . . . . . . . . . . . . . . . .259
             Wisconsin Public Service Corporation. . . . . . . . . . . .260

                                        iv

<PAGE>

<PAGE>
                           DEFINITIONS


The following abbreviations and acronyms are used in the text of this
Form 10-K:

Act . . . . . . . . . . . Federal Clean Air Act Amendments of 1990

AFUDC . . . . . . . . . . Allowance for funds used during construction

ANR . . . . . . . . . . . ANR Pipeline Company

APBO. . . . . . . . . . . Accrued postretirement benefit obligation

Btu . . . . . . . . . . . British thermal unit

Columbia *. . . . . . . . The Columbia Energy Center

CWIP. . . . . . . . . . . Construction work in progress

Dakota *. . . . . . . . . Dakota Gasification Plant

De Pere . . . . . . . . . De Pere Energy Center

DNR . . . . . . . . . . . Wisconsin Department of Natural Resources

DOE . . . . . . . . . . . United States Department of Energy

DSM . . . . . . . . . . . Demand-side management of energy use

Dth . . . . . . . . . . . Dekatherm

Edgewater * . . . . . . . The Edgewater Unit 4 power plant

EPA . . . . . . . . . . . United States Environmental Protection Agency

ESOP. . . . . . . . . . . Employee Stock Ownership Plan and Trust of
                          Wisconsin Public Service Corporation

ESI . . . . . . . . . . . WPS Energy Services, Inc., a nonregulated
                          subsidiary of WPS Resources Corporation

FASB. . . . . . . . . . . Financial Accounting Standards Board

FERC. . . . . . . . . . . Federal Energy Regulatory Commission

Great Lakes . . . . . . . Great Lakes Transmission Company

GSR . . . . . . . . . . . Gas supply realignment

Interface . . . . . . . . Constrained Minnesota to Eastern Wisconsin
                          transmission interface

ISO . . . . . . . . . . . Independent system operator

Kewaunee. . . . . . . . . Kewaunee Nuclear Power Plant

                                         v

<PAGE>

kVa . . . . . . . . . . . Kilovolt-ampere

kw. . . . . . . . . . . . Kilowatts

kWh . . . . . . . . . . . Kilowatt-hour 

MG&E. . . . . . . . . . . Madison Gas and Electric Company

MPSC. . . . . . . . . . . Michigan Public Service Commission 

NRC . . . . . . . . . . . Nuclear Regulatory Commission

Order . . . . . . . . . . Order No. 636 issued by the Federal Energy
                          Regulatory Commission in April 1992

PD. . . . . . . . . . . . Pricing differential

PDI . . . . . . . . . . . WPS Power Development, Inc., a nonregulated
                          subsidiary of WPS Resources Corporation

PGAC. . . . . . . . . . . Purchased gas adjustment clause

Polsky. . . . . . . . . . Polsky Energy Corporation

PBR . . . . . . . . . . . Performance based rates

PSCW. . . . . . . . . . . Public Service Commission of Wisconsin

Pulliam * . . . . . . . . The Pulliam generating facility

River Power . . . . . . . Wisconsin River Power Company

SEC . . . . . . . . . . . Securities and Exchange Commission

SFAS. . . . . . . . . . . Statement of Financial Accounting Standards

Sheboygan II. . . . . . . Property adjacent to the Sheboygan River
                          previously used by Wisconsin Public Service
                          Corporation for the gasification of coal

Stoneman. . . . . . . . . Stoneman Power Plant, a merchant steam plant

Superfund * . . . . . . . Comprehensive Environmental Response,
                          Compensation, and Liability Act

TransCanada . . . . . . . TransCanada Pipelines

Union . . . . . . . . . . Local 310 of the International Union of
                          Operating Engineers which represents certain
                          Wisconsin Public Service Corporation employees

UPEN. . . . . . . . . . . Upper Peninsula Energy Corporation

UPPCO . . . . . . . . . . Upper Peninsula Power Company

Viking. . . . . . . . . . Viking Gas Transmission Company

                                        vi

<PAGE>

WDG . . . . . . . . . . . Wisconsin Distributors Group

WEPCO . . . . . . . . . . Wisconsin Electric Power Company

Weston *. . . . . . . . . The Weston generating facility

WP&L. . . . . . . . . . . Wisconsin Power and Light Company

WPPI. . . . . . . . . . . Wisconsin Public Power, Inc.

WPSC. . . . . . . . . . . Wisconsin Public Service Corporation, a
                          regulated electric and gas utility and the
                          principal subsidiary of WPS Resources
                          Corporation

WPSR. . . . . . . . . . . WPS Resources Corporation, a holding company





-----
* Indicates items not defined elsewhere in this report.

                                        vii

<PAGE>

<PAGE>
                              PART I


ITEM 1.  BUSINESS

                           A.  GENERAL

                    WPS RESOURCES CORPORATION

     WPS Resources Corporation ("WPSR"), a Wisconsin Corporation, was
incorporated on December 3, 1993 and operates as a holding company with both
regulated (utility) and nonregulated business units.  WPSR's principal
wholly-owned subsidiaries, each of which is a Wisconsin corporation, are: 
Wisconsin Public Service Corporation ("WPSC"), a regulated electric and gas
utility; and WPS Energy Services, Inc. ("ESI") and WPS Power Development, Inc.
("PDI"), both nonregulated subsidiaries.  WPSC, ESI, and PDI represent
approximately 79%, 21%, and .2% of WPSR's consolidated revenues for 1997 and
95%, 4%, and 1% of WPSR's consolidated assets at December 31, 1997,
respectively.  All of WPSR's net income for 1997 was derived from WPSC.

     On July 10, 1997, WPSR announced an agreement to merge with Upper
Peninsula Energy Corporation ("UPEN").  The S-4 Registration Statement of WPSR 
was declared effective by the Securities and Exchange Commission ("SEC") on
December 5, 1997.  The shareholders of UPEN approved the merger on January 29,
1998.  The merger is subject to (1) approval by the Federal Energy Regulatory
Commission ("FERC"); (2) approval by the SEC under the Public Utility Holding
Company Act of 1935; (3) the expiration or termination of the waiting period
applicable to the merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976; (4) receipt by the parties of an opinion of counsel that the
exchange of stock qualifies as a tax-free transaction; (5) receipt by the
parties of appropriate assurances that the transaction will be accounted for
as a pooling of interests; and (6) the satisfaction of various other
conditions.  The merger is expected to be completed in the second half of
1998.  UPEN will merge with and into WPSR, and Upper Peninsula Power Company
("UPPCO"), UPEN's utility subsidiary, will become a wholly-owned subsidiary of
WPSR.  Each of the 2,950,001 outstanding shares of UPEN common stock (no par
value) will be converted into 0.90 shares of WPSR common stock ($1.00 par
value), subject to adjustment for fractional shares, as provided in the merger
agreement.

On a stand-alone basis, WPSR incurred a net loss in 1997 of $1.0 million,
compared with net income of $0.8 million in 1996.  The 1997 WPSR stand-alone
loss was attributable primarily to costs related to the proposed merger with
UPEN.
 
               WISCONSIN PUBLIC SERVICE CORPORATION

     At December 31, 1997, WPSC served 374,516 electric retail customers and
218,299 gas retail customers in an 11,000 square mile service territory in
northeastern and central Wisconsin and an adjacent part of Upper Michigan. 
Additionally, WPSC provides wholesale (full or partial requirements) electric
service, either directly or indirectly, to 12 municipal utilities, 3 Rural
Electrification Administration financed electric cooperatives, and a privately
held utility.  Operating revenues in the year 1997 were derived 97% from
Wisconsin customers and 3% from Michigan customers.  Of total revenues in
1997, 69% were from electric operations and 31% were from gas operations.  Of

                                        -1-

<PAGE>

total electric revenues, 90% were from retail sales and 10% were from
wholesale sales.

     WPSC's retail service areas are principally protected by indeterminate
permits secured by statute in Wisconsin and through franchises granted by
municipalities in Michigan.

                      REGULATORY OVERSIGHT

     WPSR is exempt from registration under the Public Utility Holding
Company Act of 1935, as amended, but is subject to the various requirements
and prohibitions of the Wisconsin Public Utility Holding Company Act.

     Utility rates, service, and securities issues of WPSC are subject to
regulation by the Public Service Commission of Wisconsin ("PSCW") and the
Michigan Public Service Commission ("MPSC"); and WPSC is subject to regulation
of its wholesale electric rates, hydroelectric projects, and certain other
matters by the FERC.  WPSC is also subject to limited regulation by local
authorities.  WPSC follows Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," and its financial
statements reflect the effects of the different ratemaking principles of
various jurisdictions.  These include the PSCW, 90% of revenues, the MPSC,
3% of revenues, and the FERC, 7% of revenues.  The operation of the Kewaunee
Nuclear Power Plant ("Kewaunee") is subject to the jurisdiction of the Nuclear
Regulatory Commission ("NRC").

                      YEAR 2000 COMPLIANCE
                                
     WPSR has completed an initial assessment of the impact of year 2000
compliance on its computer systems.  WPSR worked with a consultant beginning
in 1996 to analyze the year 2000 problem.  Plans have been established to
analyze all in-house and third party software products and applications.  A
preliminary plan indicates that all major in-house developed systems are
expected to be in compliance by the end of 1998.  The plan is intended to
enable all systems to be in compliance by the year 2000.  The most recent
estimated future internal labor and third party cost of year 2000 compliance
is approximately $13.4 million. 

                  FORWARDING-LOOKING STATEMENTS

     This report includes forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended.  Although WPSR
believes that its expectations are based on reasonable assumptions, no
assurance can be given that actual results may not differ materially from
those in the forward-looking statements included in this report for reasons
that include:  the speed and degree to which competition enters the electric
and natural gas industries; state and federal legislative and regulatory
initiatives that increase competition, affect cost and investment recovery,
and have an impact on rate structures; the economic climate and industrial,
commercial, and residential growth in areas served by WPSC and ESI; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices and interest rates; conditions in the capital markets; and
growth in opportunities for ESI and PDI.

     A forward-looking statement speaks only as of the date on which such
statement is made, and WPSR does not undertake to update any forward-looking

                                        -2-

<PAGE>

statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.  New
factors emerge from time to time, and it is not possible for WPSR to predict
all such factors, nor can it assess the impact of each such factor or the
extent to which any factor, or combination of factors, may cause results to
differ materially from those contained in any forward-looking statement.


                      B.  ELECTRIC MATTERS

                      ELECTRIC OPERATIONS

     The largest communities served at retail with electricity are the cities
of Green Bay, Oshkosh, Wausau, and Stevens Point.

                      GENERATING CAPACITY

     Coordinated planning for generation and transmission is a function of
the Wisconsin Upper Michigan Systems of which WPSC is a member.  Other members
include Madison Gas and Electric Company ("MG&E"), UPPCO, Wisconsin Electric
Power Company ("WEPCO"), Wisconsin Power and Light Company ("WP&L"), and
Wisconsin Public Power, Inc. ("WPPI").  Existing and planned interconnections
with other neighboring utilities provide a further means of sharing reserve
capacities and interchanging energy. 
     
      WPSC experienced a 1997 net firm load peak of 1,607,000 kilowatts
("kw") on July 17.  Considering a firm purchase of 234,000 kw and a total
generating capability of 1,831,300 kw, the system reserve margin was 30.1%. 
In addition, 13,300 kw of firm opportunity sales were served during the peak
hour.  WPSC's future generating reserves, adjusted for firm purchases, firm
sales, and planned capacity additions, are estimated to be above the planning
criteria of a 18% minimum reserve in 1998 and 1999.  See Part I, Item 2,
PROPERTIES, at page 30 for information concerning generating facilities.

     During 1997, the PSCW authorized Polsky Energy Corporation ("Polsky"),
an independent power producer, to build the De Pere Energy Center ("De Pere"),
a 179-megawatt combustion turbine generating facility that is scheduled to be
operational in 1999.  De Pere will be converted to a 232-megawatt combined
cycle operation on or after the fifth year of operation, per the requirements
of the contract.  A combined-cycle unit is a type of combustion turbine in
which the hot exhaust gases pass through a heat recovery steam generator to
produce steam that drives a steam turbine generator which produces
approximately one-third of the power generated.  WPSC has a 25-year contract
to purchase capacity and energy from De Pere.  WPSC will furnish the natural
gas fuel for the facility and is working closely with Polsky to ensure that
there are adequate transmission lines serving De Pere.

      WPSC owns 33.1% of the outstanding capital stock of Wisconsin River
Power Company ("River Power").  The business of River Power consists of the
ownership and operation of two dams and related hydroelectric plants on the
Wisconsin River having an aggregate installed capacity of approximately
38.7 megawatts.  The output of the hydroelectric plants is sold, at the sites
of the plants, to the three joint owners (Consolidated Water Power Company of
Wisconsin Rapids, Wisconsin; Wisconsin Power and Light Company of Madison,
Wisconsin; and WPSC of Green Bay, Wisconsin) substantially in proportion to
their stock ownership interests.

                                        -3-

<PAGE>

                  KEWAUNEE NUCLEAR POWER PLANT

     The Kewaunee Nuclear Power Plant ("Kewaunee"), a 562-megawatt
pressurized water reactor plant, is operated by WPSC and is jointly owned by
WPSC (41.2%), WP&L (41.0%), and MG&E (17.8%).  The Kewaunee operating license
expires in 2013.

     Kewaunee returned to service on June 12, 1997 after having been out of
service since September 21, 1996 for refueling, routine maintenance, and
repair of the two steam generators.  The original Kewaunee steam generator
tubes are susceptible to corrosion and cracking.  Tubes are repaired by
inserting sleeves (tubes within tubes) in the original steam generator tubes. 
The most recent repair was undertaken when previously repaired tubes failed. 
The repair consisted of removing old sleeves and inserting new slightly longer
sleeves which cover the areas of concern in the original steam generator
tubes.  The new sleeves will be inspected during the next refueling and
maintenance outage which is scheduled for the fall of 1998. Kewaunee is
operating at 97% of rated capacity because certain steam generator tubes have
been removed from service rather than repaired.  

     Kewaunee operated for 238 consecutive days before being removed from
service on February 6, 1998 for repair of a reactor coolant pump seal.  The
plant was returned to service on February 13, 1998.

     Additional replacement power costs due to the extended Kewaunee outage
were recovered by a $2.0 million per month customer surcharge during the
period February 21, 1997 through July 1, 1997.  Kewaunee steam generator
repair costs have been deferred as authorized by the PSCW.  The WPSC portion
of these costs is approximately $3.6 million.  The owners have requested the
PSCW to approve recovery of these costs through a customer surcharge which 
for WPSC would be effective for April and May of 1998.

     On March 15, 1996, WPSC filed an application with the PSCW for
permission to replace the Kewaunee steam generators.  Public hearings were
held in January of 1998.  A decision is expected in March of 1998.  The total
cost of replacing the two steam generators would be approximately
$89.0 million.  WPSC's share would be $36.7 million in year of occurrence
dollars.  Because of work already completed, the elapsed time from placing a
firm order for steam generators to receiving delivery has been shortened to
approximately 22 months.

     The owners of Kewaunee have differing views on the desirability of
proceeding with the steam generator replacement project.  Although the new
resleeving repair technology may allow the plant to remain in service for an
extended period of time, WPSC favors replacement at the earliest possible date
because of reliability and cost concerns related to steam generator repairs. 
To date, the other two owners have been unwilling to support replacement of
the steam generators.  If the steam generator replacement project receives
PSCW approval, the issues related to the continued operation and future
ownership would still need to be resolved before steam generator replacement
could proceed.

     The NRC's Systematic Assessment of Licensee Performance for Kewaunee for
the period February 19, 1995 through February 15, 1997 was received in 1997. 
The report evaluated Kewaunee's performance in four categories:  operations,
maintenance, engineering, and plant support.  Maintenance was ranked

                                        -4-

<PAGE>

"superior," and the other areas were rated as "good."  The NRC stated that
Kewaunee's overall performance was generally characterized by effective
management involvement and interdepartmental communication, and a clear
emphasis on quality by the staff.  Areas for improvement that were identified
were:  timely evaluation of errors of personnel, adequacy of procedures and
equipment for monitoring equipment performance, and the timely resolution of
plant identified deficiencies.

     On July 14, 1997, the NRC assessed a $50,000 penalty against Kewaunee. 
The penalty was the result of a NRC inspection in January of 1997 where the
NRC questioned the procedures and equipment used to conduct routine
operational tests on several pumps.  In response, the procedures were updated
to improve the test methods, and more sensitive equipment was obtained.  All
safety-related pumps in the plant were then retested and found to be operating
within standards.

     The federal government has the responsibility to dispose of or
permanently store spent nuclear fuel.  Spent nuclear fuel is currently being
stored at Kewaunee.  With minor plant modifications, Kewaunee should have
sufficient fuel storage capacity until the end of its licensed life in 2013. 
Legislation is being considered on the federal level to provide for the
establishment of an interim storage facility as early as 2002.  Permanent
storage pursuant to the Nuclear Waste Policy Act of 1982 is discussed at
page 7.

     The Midwest Compact Commission, on June 26, 1997, halted development in
Ohio of a six-state, regional disposal facility for low-level radioactive
waste.  The Commission cited dwindling regional waste volumes, continued
access to existing disposal facilities, and potentially high development costs
as the primary reasons for the decision.  A site at Barnwell, South Carolina,
continues to be available for the storage of low-level radioactive waste from
Kewaunee.  In addition, because of technological advances, waste compaction,
and the reduction of waste generated, Kewaunee has on-site low-level
radioactive waste storage capacity sufficient to store low-level waste
expected to be generated over a 10-year period.

     The PSCW has directed the owners of Kewaunee to develop depreciation and
decommissioning cost levels based on full recovery by the end of 2002 versus
recovery by license expiration in 2013.  This was prompted by the uncertainty
regarding the expected useful life of the plant without steam generator
replacement.  At December 31, 1997, the net carrying amount of WPSC's
investment in Kewaunee was approximately $43.0 million.  The current cost of
WPSC's share of the estimated costs to decommission Kewaunee, assuming early
retirement ($182.2 million), exceeds the trust assets at December 31, 1997
($134.1 million) by $48.1 million.  WPSC's customers in the Wisconsin
jurisdiction are responsible for approximately 89% of WPSC's share of Kewaunee
costs.

     As a result of accelerating the recovery of WPSC's share of Kewaunee
related costs, depreciation expense and decommissioning funding have increased
approximately $3.3 million (from $4.7 million in 1996 to $8.0 million in 1997)
and $8.3 million (from $9.0 million in 1996 to $17.3 million in 1997),
respectively, on an annualized basis.  During 1997, $7.5 million of
depreciation expense related to unrecovered plant investment was recognized
compared to $4.7 million which was recognized in 1996.  During 1997, the
decommissioning funding level was $16.1 million compared to $9.0 million in

                                        -5-

<PAGE>

1996.  Customer rates, which became effective in the Wisconsin jurisdiction on
February 21, 1997, are designed to recover the accelerated Kewaunee
depreciation and decommissioning costs.

     Additional discussion of Kewaunee matters is included in MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION at
pages 46 and 48, and NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Notes 1(h),
1(j), 1(k), and 9 at pages 59, 60, 60, and 71, respectively.

                          FUEL SUPPLY

ELECTRIC GENERATION MIX

     WPSC's electric generation mix in 1997 compared with 1996 was:  steam
plants (coal), 68.9%, up from 67.9%; steam plant (nuclear), 8.2% down from
11.2%; hydro, 3.0% down from 3.1%; combined natural gas and fuel oil, 1.3% up
from .6%; and purchased power, 18.6% up from 17.3%.  Purchased power
represents short-term energy purchases.

FUEL COSTS

     Fuel costs in 1997 compared with 1996, expressed in dollars per million
British thermal unit ("Btu"), were:  nuclear, $.43, down from $.47; coal,
$1.09, down from $1.14; natural gas, $2.96, up from $2.84; and No. 2 fuel oil,
$4.27, down from $4.36.   

COAL

     WPSC's primary fuel source is coal.  In 1997, 99% of this coal came from
Powder River Basin mines located in Wyoming and Montana.  This coal is very
low in sulfur and meets the standards of the 1990 Clean Air Act for the year
2000 and beyond.  Further, this coal is the least cost coal for WPSC from any
of the subbituminous coal producing regions in the United States.

      The majority of coal for WPSC's wholly-owned plants and the
jointly-owned Edgewater and Columbia plants is purchased under relatively
short-term contracts of up to three years duration.  WPSC has one long-term
contract which covers approximately 16% of total requirements and has
take-or-pay obligations totaling $198.4 million from 1998 through 2016.  Coal
transportation for these plants is purchased under contracts of up to five
years duration.  Over 90% of the coal transported to these plants is moved
under competitive transportation market conditions which are expected to
continue to yield competitive fuel costs for WPSC for the long term.

NUCLEAR

     WPSC purchases uranium concentrates, conversion services, enrichment
services, and fabrication services for nuclear fuel assemblies at Kewaunee. 
New fuel assemblies replace used assemblies that are removed from the reactor
every 18 months and placed in storage at the plant site pending removal by the
United States Department of Energy ("DOE").

     Uranium concentrates, conversion services, and enrichment services are
purchased at spot market prices, through a bid process, or using existing
contracts.

                                       -6-

<PAGE>

     A uranium inventory policy requires that sufficient inventory exist for
up to two reactor reloads of fuel.  As of December 31, 1997, 960,000 pounds of
yellowcake or its equivalent are held in inventory for Kewaunee.

     Two contracts are in place to provide conversion services for Kewaunee
nuclear fuel for reloads in 1998 and 2000.

     A contract with Cogema, Inc. provides a fixed quantity of enrichment
services through the year 2001.  Additional enrichment services will be
acquired under a contract with the United States Enrichment Corporation which
is in effect for the life of Kewaunee or by purchases on the spot market.

     A contract with Siemens Power Corporation provides fuel fabrication
services through March 15, 2001, for Kewaunee.  This contract contains force
majeure and termination provisions.

     If, for any reason, Kewaunee were forced to suspend operations
permanently, fuel-related obligations are as follows:  (1) there are no
financial penalties associated with the present uranium supply, conversion
service, and enrichment agreements, and (2) the fuel fabrication contract
contains force majeure and termination for convenience provisions.  As of the
end of 1997, the maximum exposure would not be expected to exceed $550,000. 
Uranium inventories could be sold on the spot market.

     The Nuclear Waste Policy Act of 1982 requires that the DOE accept,
transport, and dispose of spent nuclear fuel beginning no later than
January 31, 1998.  The DOE has announced that it will delay the acceptance of
spent nuclear fuel beyond 1998.  The nuclear utilities have been supported by
a decision of the United States Court of Appeals for the District of Columbia
Circuit in their claim that they may pursue the remedies provided in the DOE
standard contract in the event the DOE does not perform its duty to dispose of
spent nuclear fuel by the January 31, 1998 deadline.

     The Energy Policy Act of 1992 requires that the federal government and
nuclear utilities fund the decontamination and decommissioning of the
government's three gaseous diffusion plants in the United States.  WPSC is
required to pay approximately $600,000 per year (adjusted for inflation)
through the year 2007.  WPSC, as well as other nuclear utilities, has filed
suit in the United States Court of Federal Claims disputing the
decontamination and decommissioning assessment.  The suit has been stayed
pending the outcome of the Yankee Atomic Electric Company appeal.  Yankee
Atomic Electric Company has received an adverse decision in the United States
Court of Appeals for the Federal Circuit and has filed a petition for
certiorari with the United States Supreme Court.

         REGULATORY MATTERS IN THE WISCONSIN JURISDICTION

INDUSTRY RESTRUCTURING

     In late 1995, the PSCW outlined a plan for restructuring the electric
industry in Wisconsin.  The plan included a 32-step, 5-year process which
could conclude with retail competition by the year 2001.  Progress on the plan
has been slow.  During 1997, the PSCW chairperson developed a replacement
7-step plan for restructuring which is essentially a regrouping of the
original 32 steps with new priorities.  To date, the revised plan has not been
adopted as the official PSCW restructuring plan.  Restructuring and retail

                                        -7-

<PAGE>

competition, although still under consideration, have been replaced as a
priority by electric reliability issues.  As a result of the electric
reliability problems during the summer of 1997 (see Electric Supply Issues, at
page 9), the PSCW announced that its first priority is to develop the utility
infrastructure necessary to assure reliable electric service and to remove the
barriers to competition at the wholesale level.

     WPSC currently applies accounting standards that recognize the economic
effects of rate regulations and record regulatory assets and liabilities
related to its generation, transmission, and distribution operations.  If rate
recovery of generation-related costs becomes unlikely or uncertain, whether
due to competition or regulatory action, these accounting standards may no
longer apply to WPSC's generation operations.  This change could result in
either full recovery of generation-related regulatory assets (net of related
regulatory liabilities) and costs or an impairment charge, depending on
whether regulators adopt a transition mechanism for the recovery of all or a
portion of these net regulatory assets and costs.  WPSC believes that the
magnitude of any possible impairment charge is lower than the stranded cost
exposure of many other companies in this industry.  Based on a current
evaluation of the various factors and conditions that are expected to impact
future cost recovery, management believes that its regulatory assets,
including those related to generation, are probable of future recovery.

     Management expects that increased competition in a deregulated
environment will put pressure on operating margins at WPSC.  Management also
believes that no significant changes to depreciable lives of WPSC's capital
assets would be necessary in a competitive environment.  However, at this
time, management cannot predict the ultimate results of deregulation.

     During 1997, in an effort to mitigate the effects of market power, the
PSCW issued an order that prohibited ownership by electric utility affiliates
of merchant electric generating plants.  A merchant electric generating plant
is defined as a plant not owned by or under long-term contract with a public
utility.  Later, the PSCW decided that it did not have statutory authority to
order a flat prohibition of utility affiliate ownership of merchant plants and
would consider such ownership on a case-by-case basis.  The major utilities in
Wisconsin, including WPSC, have made legislative proposals, as part of
reliability and restructuring efforts, advocating deregulation of merchant
plants.  PDI has an ownership interest in a merchant generating facility as
discussed on page 25.

     In late 1997, the PSCW initiated a docket on essential services and
customer protections the purpose of which is to create a utility customer
safety net for a restructured electric and gas industry.

INDEPENDENT SYSTEM OPERATOR

     A major feature of a restructured electric industry is establishment of
independent system operators ("ISOs").  An ISO is an independent third party
that would regulate on a "real-time" basis the operation of the transmission
systems in a defined geographic area.  The ISO would monitor the generation,
transmission, and distribution systems, direct the operations of transmission
facilities, administer open access transmission tariffs, and direct generation
redispatch.

                                        -8-

<PAGE>

     WPSC has been working with a number of groups that are attempting to
form ISOs.  The PSCW and the MPSC are considering the formation of statewide
ISOs.  The Mid American Power Pool, one of ten National Electric Reliability
Council regions, is developing an ISO that would include utilities in portions
of Illinois, Minnesota, North Dakota, South Dakota, and Wisconsin. 
Additionally, a group of 26 utilities in 10 Midwestern states is attempting to
form what is known as the Midwest ISO.    

MERGER ACTIVITY

     Industry restructuring has been accompanied by merger activity in the
region which could impact the competitive environment.  The merger of WPSR and
UPEN, as previously described, is presently awaiting regulatory approval.  The
proposed merger between Wisconsin Energy Corporation and Northern States Power
Company was terminated in May 1997 due to merger conditions imposed by the
FERC that were unacceptable to the applicants.  The Interstate Energy
Corporation merger between WPL Holdings, Inc., IES Industries, Inc., and
Interstate Power Company has received FERC and state approvals.  At
December 31, 1997, approval was pending from the Securities and Exchange
Commission.  In May 1997, Wisconsin Energy Corporation announced the proposed
acquisition of ESELCO, Inc., the parent company of the Edison Sault Electric
Company.  Regulatory approvals are pending.

ELECTRIC SUPPLY ISSUES

     The summer of 1997 provided a serious challenge to the reliability of
the electric system in the region.  Over 5,000 megawatts of generating
capacity were unavailable for most of the summer as various utility companies
experienced forced outages for a variety of reasons.

     Kewaunee was returned to service after a longer than normal outage
before the greatest demands were placed on the WPSC electric system.  WPSC's
Pulliam Unit 3, a 26.7-megawatt facility, was refurbished and returned to
service.  WPSC's system operated at nearly full capacity during the warmest
portions of the summer months.  WPSC's interruptible customers experienced
only limited interruptions as a result of WPSC being required to provide power
to other utilities in Wisconsin who were experiencing more severe energy
supply problems.  See page 3 for a discussion of new generating capacity.

     After the summer's reliability concerns, Governor Thompson requested
reports from the PSCW, electric utilities, and industrial customers assessing
the electric capacity problems experienced in eastern Wisconsin during this
past spring and summer.  The reports provided analyses and recommendations on
how to assure the future reliability of the electrical supply and made
recommendations on how to improve the effectiveness of the state's utility
regulatory process.  WPSC participated in the development of the utility
report.

     WPSC is working closely with Governor Thompson, the PSCW, legislators,
and industry participants to ensure that Wisconsin has an adequate supply of
reliable power, an enhanced transmission system, and appropriate regulatory
changes.

                                        -9-

<PAGE>


CUSTOMER RATE MATTERS

     In the Wisconsin jurisdiction, of the major investor-owned utilities,
WPSC is the low cost electric provider (based on the Edison Electric Institute
Summer 1997 Typical Bill Rate Report) with rates being 91% of the state
average for residential rates, 86% for commercial rates, and 88% for large
industrial rates.  WPSC also has some of the lowest gas rates in Wisconsin
with rates being 95% of the state average for residential rates and 94% for
commercial rates.

     Customer rates are based on forecasted expenses and capital costs.  On
February 20, 1997, the PSCW authorized a $35.5 million, or 8.1%, decrease in
retail electric rates.  These rates are effective through 1998.

     WPSR's return on common equity was 11.3% and 10.2% for 1997 and 1996,
respectively.  WPSR's return on common equity is determined in large part by
the return authorized for WPSC by the PSCW.  The authorized return was 11.8%
and 11.5% for 1997 and 1996, respectively, before giving consideration to
earnings on deferred investment tax credits.  The authorized return for 1998
remains at 11.8%.

     The PSCW approved an electric surcharge to allow WPSC to recover costs
of acquiring replacement power during the extended outage at Kewaunee.  The
surcharge, which amounted to approximately $2.0 million per month
(approximately $.23 per kilowatt-hour) was in place for the period
February 21, 1997 through July 1, 1997. 

     The PSCW authorized deferral of Kewaunee steam generator repair costs
which totaled $10.4 million, with WPSC's share being $3.6 million.  The owners
have requested the PSCW to approve recovery of these costs through a customer
surcharge which would be effective for April and May of 1998.    

     WPSR anticipates filing on April 1, 1998 an application with the PSCW
for increased electric rates to be effective for the years 1999 and 2000.

         REGULATORY MATTERS IN THE MICHIGAN JURISDICTION

INDUSTRY RESTRUCTURING

     On June 5, 1997, the MPSC ordered utilities under its jurisdiction to
file electric open access plans and related tariffs.  This action followed two
years of public hearings and a lack of consensus among the stakeholders.  The
MPSC order called for generation open access in increments of 2.5% of retail
load each year starting in 1997 and ending in 2001.  Generation open access is
the ability of customers to purchase electric generation from any supplier and
to use existing transmission and distribution lines to transport the energy to
the purchaser's facilities at the same price that the local supplier would
charge itself for such transportation services.  There would be full
generation open access for retail load in 2002. 

     WPSC submitted a plan which provides retail open access starting in 2000
when the MPSC order requires open access for 10% of retail load.  The WPSC
plan then continues on the MPSC schedule including full open access in 2002. 

     There is uncertainty whether the MPSC has authority to order open
access.  In early 1998, the Michigan Circuit Court issued a decision holding

                                        -10-

<PAGE>

that the MPSC does not have the authority to order retail access, at least on
a pilot basis.  It is expected that this court decision will be appealed.  In
the meantime, the largest Michigan utilities are preparing for the start of
open access in 1998, and Michigan's small utilities are working with the MPSC
staff to determine when and how they should proceed toward open access.

CUSTOMER RATE MATTERS

     WPSC is the lowest cost provider of electric service in Michigan for all
customer classes.  WPSC's electric rates are 72% of the Michigan residential
customer average rate and 75% of the large industrial average rate.

     Other than power supply cost recovery, WPSC has not had an electric rate
increase in Michigan since 1987. 

           REGULATORY MATTERS IN THE FERC JURISDICTION

CUSTOMER RATE MATTERS

     WPSC has not had a FERC wholesale rate case since 1987.

OPEN ACCESS TRANSMISSION TARIFF

     WPSC has reached agreement with a group of Wisconsin municipal
intervenors, the FERC staff, and two administrative law judges regarding the
proposed open access transmission tariff rates and conditions and WPSC's
request for market-based rates.  FERC approval is expected early in 1998.  The
settlement rate will be in effect for two years.

MARKETER STATUS

     ESI has received FERC power "marketer" status.  WPSC, ESI, and PDI have
also been authorized to sell electric energy and capacity at market rates.

WHOLESALE STATUS

     In recent years, WPSC has experienced increased competition and reduced
margins in the wholesale power market.  Transmission availability, pricing and
policy, the availability of reliable and economically priced energy and
capacity in the region, changing market participants (both suppliers and
consumers), the development and increasing use of risk management tools, and
regulatory and legislative developments at both the state and federal levels
are forces that will continue to influence the wholesale electric market.

     WPSC aggressively and competitively procures, packages, markets, and
sells electric energy, capacity, ancillary services, and other associated
energy-related products and services to primarily municipal electric utilities
and electric distribution cooperatives.  The objectives are to retain existing
wholesale customer load, obtain new customers, maintain margins, and optimize
the use of WPSC's generating assets.  WPSC currently provides 12 wholesale
electric customers with approximately 300 megawatts of firm and various levels
of interruptible service.  Wholesale sales represented 16% of WPSC's electric
sales volume in 1997 compared to 17% in 1996.

     Effective in October 1997, WPPI discontinued purchasing power under a
full-requirements supply contract.  WPPI had been purchasing 66 megawatts of

                                        -11-

<PAGE>

electricity from WPSC for resale to municipal utilities.  WPSC has been
successful in partially offsetting the loss of this load by securing new
customers and by other sales to WPPI.

     During 1996, WPSC entered into agreements with UPPCO covering the
handling of after-hours calls, system operating services, and a multi-year
power supply agreement beginning in 1998.  Subsequently, as described at
page 1 of this report, WPSR and UPEN, the parent of UPPCO, announced an
agreement to merge.

REGULATORY COMPLIANCE

     WPPI requested transmission service across the WPSC portion of the
constrained Minnesota to eastern Wisconsin interface ("Interface") to serve
five of WPPI's municipal customers (Sturgeon Bay, Algoma, Eagle River,
New Holstein, and Washington Island) located in the WPSC service territory.
The Interface is owned by WEPCO, (52%), WP&L (28%), and WPSC (20%).  WPPI has
a 1993 contract with WP&L that provides transmission service for these loads
through the WP&L portion of the Interface.

     WPSC filed a complaint with the FERC contending that WPPI and WP&L were
conspiring to use the WPSC portion of the interface capacity for a service
that should use the WP&L portion of the Interface.  WPPI responded with a FERC
complaint against both WPSC and WP&L indicating that neither has provided the
necessary transmission services across the constrained Interface.  WPSC and
WP&L both maintain that they have previous claims to the interface capacity
consistent with the FERC first-come-first-served transmission scheduling
process.

HYDROELECTRIC LICENSES

     New licenses were received in 1997 from the FERC for WPSC's
Caldron Falls, High Falls, Johnson Falls, Sandstone Rapids, Potato Rapids,
Peshtigo, and Grand Rapids hydroelectric projects.  These licenses represent
29.7 megawatts of hydroelectric generating capacity.

                         OTHER MATTERS

RESEARCH AND DEVELOPMENT

     Electric research and development expenditures totaled $1.3 million for
1997, $1.9 million for 1996, and $2.6 million for 1995.  These expenditures
were made for WPSC sponsored projects and were primarily charged to electric
operations.

CUSTOMER SEGMENTATION

     Although 13% of electric revenues come from sales to 26 paper mills,
resulting in a relatively high and favorable load factor, 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 WPSC under the current
regulatory environment.

                                       -12-

<PAGE>

                   ELECTRIC FINANCIAL SUMMARY

     The following table sets forth the revenues, operating income, and
identifiable assets attributable to electric utility operations:

WISCONSIN PUBLIC SERVICE CORPORATION
==============================================================================
(Thousands)                                        Year Ended December 31   
------------------------------------------------------------------------------
                                                1997        1996        1995 
------------------------------------------------------------------------------
              
Electric Operating Revenues                   $479,388    $490,506    $489,000
                                                           
Operating Income, Including Allowance
For Funds Used During Construction            $ 92,998    $101,425    $ 97,928

Identifiable Assets                           $906,198    $905,325    $906,029
==============================================================================

    See Note 12 in Notes to Consolidated Financial Statements.

                                       -13-

<PAGE>
<PAGE>
<TABLE>
                                                     ELECTRIC OPERATING STATISTICS


<CAPTION>
WPS Resources Corporation
=====================================================================================================================
                                                        1997              1996              1995              1994   
---------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>               <C>                <C>          
Operating revenues (Thousands)
Residential and farm                                   $163,766          $169,587          $168,391          $163,381
Small commercial and industrial                         138,949           144,055           140,280           137,323
Large commercial and industrial                         120,312           118,997           117,978           118,121
Resale and other                                         62,734            58,648            62,351            61,991
---------------------------------------------------------------------------------------------------------------------
Total                                                  $485,761          $491,287          $489,000          $480,816
=====================================================================================================================
Kilowatt-hour sales (Thousands)
Residential and farm                                  2,565,432         2,570,397         2,548,373         2,406,479
Small commercial and industrial                       2,876,832         2,761,278         2,672,359         2,555,488
Large commercial and industrial                       3,943,275         3,744,153         3,644,764         3,468,390
Resale and other                                      2,126,805         1,970,083         2,112,635         2,121,660
---------------------------------------------------------------------------------------------------------------------
Total                                                11,512,344        11,045,911        10,978,131        10,552,017
=====================================================================================================================
</TABLE>

                                                                 -14-

<PAGE>
<PAGE>
<TABLE>
                                                      ELECTRIC OPERATING STATISTICS


<CAPTION>
Wisconsin Public Service Corporation
================================================================================================================================
                                                      1997              1996            1995             1994             1993
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>              <C>              <C>              <C>             <C>
Operating revenues (Thousands)
Residential and farm                                 $163,766         $169,587         $168,391         $163,381        $165,568
Small commercial and industrial                       138,949          144,055          140,280          137,323         140,678
Large commercial and industrial                       120,312          118,997          117,978          118,121         123,920
Resale and other                                       56,361           57,867           62,351           61,991          63,090
--------------------------------------------------------------------------------------------------------------------------------
Total                                                $479,388         $490,506         $489,000         $480,816        $493,256
================================================================================================================================
Kilowatt-hour sales (Thousands)
Residential and farm                                2,565,432        2,570,397        2,548,373        2,406,479       2,349,307
Small commercial and industrial                     2,876,832        2,761,278        2,672,359        2,555,488       2,444,548
Large commercial and industrial                     3,943,275        3,744,153        3,644,764        3,468,390       3,296,254
Resale and other                                    1,873,788        1,936,014        2,112,635        2,121,660       2,060,804
--------------------------------------------------------------------------------------------------------------------------------
Total                                              11,259,327       11,011,842       10,978,131       10,552,017      10,150,913
================================================================================================================================
Customers served (End of period)
Residential and farm                                  334,134          328,522          322,550          316,442         310,336
Small commercial and industrial                        39,400           38,376           37,455           36,491          35,683
Large commercial and industrial                           197              168              170              164             137
Resale and other                                          836              826              802              796             794
--------------------------------------------------------------------------------------------------------------------------------
Total                                                 374,567          367,892          360,977          353,893         346,950
================================================================================================================================
Annual average use (Kilowatt-hours)
Residential and farm                                    7,751            7,905            7,982            7,688           7,649
Small commercial and industrial                        74,082           72,995           72,326           70,931          69,532
Large commercial and industrial                    21,606,984       22,115,491       21,824,937       22,091,659      24,416,697
================================================================================================================================
Average kilowatt-hour price (Cents)
Residential and farm                                     6.38             6.60             6.61             6.79            7.05
Small commercial and industrial                          4.83             5.22             5.25             5.37            5.75
Large commercial and industrial                          3.05             3.18             3.24             3.41            3.76
================================================================================================================================
Production capacity (Summer - kilowatts)
Steam                                               1,326,000        1,325,400        1,325,400        1,318,300       1,315,300
Nuclear                                               212,200          213,800          216,700          215,100         215,100
Hydraulic                                              53,000           53,100           52,900           53,400          53,100
Combustion turbine                                    205,930          208,600          207,480          201,200         177,200
Other                                                   7,800            4,200            4,240            4,240           4,240
Purchased capacity                                     14,750           27,250           26,400           26,400          27,700
--------------------------------------------------------------------------------------------------------------------------------
Total system capacity                               1,819,680        1,832,350        1,833,120        1,818,640       1,792,640
================================================================================================================================
Generation and purchases
(Thousands of kilowatt-hours)
Steam                                               8,213,518        7,956,378        7,428,612        7,047,511       7,004,634
Nuclear                                               973,485        1,305,751        1,564,268        1,631,003       1,572,696
Hydraulic                                             351,034          359,750          306,101          292,617         346,386
Purchases and other                                 2,327,334        2,050,762        2,310,399        2,243,021       1,849,047
--------------------------------------------------------------------------------------------------------------------------------
Total                                              11,865,371       11,672,641       11,609,380       11,214,152      10,772,763
================================================================================================================================
Steam fuel costs
(Cents per million Btu)
Fossil                                                110.124          115.132          118.365          132.360         139.038
Nuclear                                                43.174           46.674           49.539           49.168          44.888
Total                                                 103.093          105.439          106.320          116.782         121.949
--------------------------------------------------------------------------------------------------------------------------------
System peak - firm (kilowatts)                      1,607,000        1,591,000        1,670,000        1,543,000       1,569,000
================================================================================================================================
Annual load factor                                     79.42%           77.56%           73.32%           76.96%          73.29%
================================================================================================================================
</TABLE>

                                                            -15-

<PAGE>
<PAGE>
                           C.  GAS MATTERS
                                 
                          WPSC'S GAS MARKET

     As of December 31, 1997, WPSC provided natural gas distribution service
to 213,195 customers in 210 cities, villages, and towns in northeastern and
central Wisconsin, and 5,104 customers in and around the city of Menominee,
Michigan, for a total of 218,299 gas distribution customers.  This represents
an increase of 6,205 customers, or 2.9%, compared to December 31, 1996.  The
principal cities served by WPSC include Green Bay, Oshkosh, Sheboygan,
Two Rivers, Marinette, Stevens Point, and Rhinelander all in Wisconsin, and
the city of Menominee in Michigan.

     WPSC's gas distribution business has a significant seasonal component
and is impacted by varying weather conditions from year-to-year. 
Approximately 68% of WPSC's gas sales and 60% of WPSC's total gas system
throughput (i.e., total gas delivered by WPSC--includes gas sales and gas
delivered for transportation customers) occur during the 5 winter months of
November through March.  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.  WPSC
offers interruptible gas sales and gas transportation service for these
customers to enable them to reduce their energy costs and use natural gas
instead of other fuels.  Transportation customers total 224.  These customers
purchase their gas from other suppliers and contract with WPSC to transport
the gas from ANR Pipeline Company ("ANR") to the customer's facilities. 
Another 133 customers still purchase their gas from WPSC but have elected to
do so on an interruptible basis.  Additional customers are switching from firm
system supply to either interruptible system supply or transportation service
each year as the economics and service options become attractive for them.

     WPSC's gas operations also provide gas to WPSC's electric operations for
power generation in combustion turbine peaking generators and for start-up,
flame stabilization, and peaking use at WPSC's Weston and Pulliam coal-fired
steam plants.  Gas sales for power generation use are provided on an
interruptible basis, with the power plants maintaining alternate fuel
capability.

     Total gas deliveries by WPSC in 1997, including customer-owned gas
transported by WPSC, were 67,289,030 Dth, a 0.4% decrease over 1996.  A
dekatherm ("Dth") is equivalent to 10 therms or 1 million Btu of energy.  Gas
transported for end-user transport customers included in the above total was
28,077,338 Dth in 1997, or approximately 42% of WPSC's total deliveries.

     WPSC's peak day gas throughput in 1997 occurred on January 16 with
422,859 Dth total gas throughput at an average Green Bay temperature of minus
7.7 degrees Fahrenheit.  This compares with WPSC's record gas system
throughput of 432,928 Dth set on February 2, 1996 at an average Green Bay
temperature of minus 23.8 degrees Fahrenheit.

                           GAS SUPPLY

GENERAL

     Since the implementation of FERC Order 636 in November 1993, WPSC has
had full responsibility for the design, acquisition, and operation of gas

                                        -16-

<PAGE>

supplies and the pipeline transportation and storage services required to meet
the varying daily, seasonal, and annual load requirements of its customers. 
WPSC operates a portfolio of gas supply contracts and pipeline transportation
and storage services designed to meet reliably WPSC's varying load pattern at
the lowest reasonable cost.

     WPSC is presently served by a single interstate pipeline, ANR Pipeline
Company.  Because ANR's pipeline system in Wisconsin has reached its maximum
capacity, and because lower prices are generally available in other areas
where there is competition for pipeline services, WPSC is investigating
potential suppliers of pipeline services in addition to those offered by ANR. 
Prominent among possible alternatives is the Viking Voyageur project proposed
by TransCanada Pipelines, Northern States Power Company, and NICOR.  WPSC, as
part of the Wisconsin Capacity Coalition (a group of Wisconsin gas utilities
consisting of MG&E, Wisconsin Gas Company, Wisconsin Fuel and Light Company,
Northern States Power Company-Wisconsin, and WPSC who are working together to
encourage development of alternate pipeline capacity to serve Wisconsin), is
presently evaluating construction of lateral lines to interconnect WPSC's
distribution system with Viking Voyageur and thereby provide access to WPSC's
markets.  Other pipeline service alternatives are also being evaluated.

PIPELINE CAPACITY AND STORAGE

     ANR's system serving WPSC accesses three major gas producing areas of
North America:  (1) the Gulf of Mexico, (2) the mid-continent areas of
Oklahoma, Texas, and Kansas, and (3) the Province of Alberta in western
Canada.  WPSC holds firm long-term transportation capacity on ANR in roughly
equal proportions from each of these three supply areas.  The term of these
long-line ANR firm transportation contracts from the Gulf Coast and
mid-continent areas extend through October 2003.  The term of the ANR contract
for 83% of the supplies from Canada extends through October 1998.  WPSC
intends to renew this ANR contract for supply from Canada in 1998 for another
five-year term through October 2003 at a reduced capacity to coincide with the
expiration of an upstream transportation contract with Viking Gas
Transmission.  The remaining 17% of the Canadian contracts extend through
October 2003.

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

     Besides providing WPSC the ability to manage significant changes in
daily gas demand, storage also provides WPSC the ability to purchase gas from
the production areas at high load factors, thus minimizing supply costs. 
During the summer, gas purchased in excess of market demand is injected into
storage.  During the winter, gas is withdrawn from storage and combined with
gas purchased in the production areas to meet the increased winter demand. 
Gas from storage provides up to 63% of WPSC's supply on winter peak days,
approximately 32% of WPSC's winter sales volumes, and approximately 22% of
WPSC's total annual sales volumes.  WPSC's total firm storage capacity with
ANR is 11.3 million Dth.

     WPSC also contracts for high deliverability storage in the Gulf Coast
and mid-continent production areas during the winter from third-party

                                        -17-

<PAGE>

suppliers.  This storage capacity provides a back-up supply of gas into WPSC's
long-line transportation contracts when other supplies cannot be delivered due
to production supply losses caused by extremely cold weather in the production
areas.

     As of December 31, 1997, WPSC's total firm winter long-line
transportation capacity from ANR was 128,952 Dth per day, and firm capacity
from ANR storage was 223,120 Dth per day, for a total winter peak day capacity
of 352,072 Dth per day.  WPSC's forecasted peak day firm load requirement for
the 1997-1998 winter is 337,453 Dth per day, providing WPSC a 14,619 Dth per
day or 4.3% reserve margin of capacity for load growth and unforeseen needs.

     On November 1, 1998, WPSC's total firm winter long-line transportation
capacity from ANR will be 121,254 Dth per day, and firm capacity from ANR
storage will be 223,120 Dth per day, for a total winter peak day capacity of
344,374 Dth per day.  WPSC's forecasted peak day firm load requirement for the
1998-1999 winter is 323,885 Dth per day, providing WPSC a 20,489 Dth per day
or 6.3% reserve margin of capacity for load growth and unforeseen needs.

     WPSC also holds firm transportation capacity with Viking Gas
Transmission Company, ("Viking") to deliver gas on a firm basis from Viking's
interconnection with TransCanada Pipelines ("TransCanada") at Emerson,
Manitoba, Canada to the interconnection with ANR at Marshfield, Wisconsin. 
The Canadian suppliers, from whom WPSC purchases gas, hold firm capacity on
TransCanada and NOVA from Emerson back into the production areas in Alberta,
Canada.

GAS SUPPLY CONTRACTS

     WPSC contracts for firm term supplies with approximately 12 to 16
suppliers each year for gas produced in each of the three production areas. 
WPSC initially designed its supply portfolio with terms ranging from one to
ten years so that only a portion of WPSC's supply contracts expired in any
given year.  With the current uncertainty surrounding the future of WPSC's gas
merchant function, however, as long-term contracts expire, WPSC has been
replacing them with contracts of a one-year term or less.  This will minimize
potential stranded gas supply contract costs if retail gas deregulation should
proceed quickly in Wisconsin.  WPSC's supply portfolio as of December 31, 1997
contained contracts with remaining terms ranging from two months to six years.

     An exception to this short-term supply contracting practice will occur
if the proposed Viking Voyageur gas pipeline project is constructed.  In which
case, WPSC plans to enter into five-year gas supply contracts with suppliers
to help support construction of the pipeline.  Viking Voyageur supply
contracts will be assignable to third parties should WPSC's merchant function
be substantially reduced during the term of the supply agreements.

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

NEW PIPELINE SUPPLY SOURCE

     WPSC is planning a joint project with Wisconsin Electric Power Company-
Gas Operations to construct a new eight-inch pipeline from an interconnection

                                        -18-

<PAGE>

with Great Lakes Gas Transmission Company ("Great Lakes") in the Upper
Peninsula of Michigan near Watersmeet into northern Wisconsin.  WPSC plans to
build additional pipeline facilities to connect the new pipeline to WPSC's
existing northern area distribution system to reinforce pressures and increase
system reliability.  WPSC plans to modify and extend the term of portions of
its existing pipeline capacity and storage contracts with ANR and add a new
transportation service on Great Lakes to deliver up to 7,000 Dth per day into
the new pipeline system during the winter.  The new pipeline project is
expected to be in service by November 1998.

                 FEDERAL REGULATORY ACTIVITIES

     WPSC's involvement in federal regulatory activities has been through the
Wisconsin Distributor Group ("WDG") which is made up of several Wisconsin gas
utilities.  Over the past several years, the WDG has participated in numerous
dockets filed by ANR at the FERC.

     Successes in three key issues this year are summarized below.

DAKOTA

     In December 1996, ANR's Dakota Gasification Plant settlement was
approved by FERC.  The settlement results in cost savings for WPSC's customers
compared to the original gas purchase contracts ANR had with Dakota, and
brings to an end the extensive litigation that surrounded this issue.  As part
of the settlement, in July 1997, WPSC received a refund of previously paid
above-market Dakota costs in the amount of $1,912,225 which WPSC refunded to
customers in September 1997.

VIKING COSTS ON ANR PIPELINE

     The WDG was also successful in obtaining refunds of overcollections by
ANR for Viking-related expenses.  In July 1997, WPSC received a refund of
$890,325 which was refunded to its customers in September.

ANR RATE CASE SETTLEMENT

     After nearly three years of effort, a settlement was achieved in the
rate case ANR filed on November 1, 1993 and put into effect on May 1, 1994.   
The settlement will result in refunds to WPSC of $6.8 million, an annual
reduction in WPSC's rates paid to ANR of approximately $7.5 million, or 19%, a
moratorium period against rate increases, and an opportunity for additional
cost reduction through contract portfolio reshaping.  The new, lower rates
went into effect November 1, 1997, subject to future FERC approval.  On
February 13, 1998, FERC issued an order approving ANR's settlement agreement
as filed.  ANR now has until March 15, 1998 to notify the FERC if any party
objects to any conditions imposed by the FERC in its order.  Since the FERC
approved ANR's settlement without modification, WPSC expects ANR will notify
the FERC that no party objects, and the settlement will become effective by
April 15, 1998.

                                        -19-

<PAGE>

                WISCONSIN REGULATORY ACTIVITIES
                                
GENERAL

     The PSCW is considering gas restructuring issues including unbundling of
rates, pricing of contracted services in potential utility bypass situations
(i.e., situations in which a major industrial gas customer may construct a
pipeline connecting them directly to an interstate pipeline, thus avoiding
purchasing any delivery service from the local gas utility), and the
separation of gas utilities from their unregulated gas marketing affiliates.

GAS COST RECOVERY MECHANISM

     Historically, Wisconsin gas utilities, including WPSC, have recovered
their costs for gas supply and pipeline services on a one-for-one basis
through a mechanism called the Purchased Gas Adjustment Clause.  The PSCW
conducted an investigation in Docket 05-GI-106 to determine whether alternate
gas cost recovery mechanisms may be more appropriate in the evolving gas
market.  In particular, Performance Based Rates ("PBR") were evaluated as
alternatives to the traditional one-for-one recovery mechanism.  Under PBRs,
gas utilities are given an incentive to reduce gas costs by being allowed to
keep a portion of any cost savings they are able to obtain relative to a gas
cost target value.

     In November 1996, the PSCW issued an order which gave gas utilities a
choice between continuing under a modified one-for-one gas cost recovery
mechanism, or switching to a PBR mechanism.  WPSC elected to continue under a
modified one-for-one mechanism, as WPSC believes it provides the greatest
value to customers through regulatory oversight and the return to customers of
all savings achieved.  Development of WPSC's modified one-for-one mechanism is
in process, with implementation expected in November 1998.

GAS DISTRIBUTION RESTRUCTURING

     The PSCW has an ongoing investigation into gas industry restructuring in
Docket 05-GI-108.  Although the gas utility distribution function is expected
to continue as a regulated monopoly, sales of the natural gas commodity and
associated services, which were formerly also utility monopoly functions, are
expected to become increasingly open for competition among unregulated
third-party suppliers.  WPSC's position is that utilities should be allowed to
continue to offer a regulated gas supply merchant function if they so choose,
thereby providing customers with a regulated supply choice.

     Phase I of this docket addressed issues of unbundling rates, pricing of
contracted service in potential utility bypass situations, and the separation
of gas utilities from their unregulated gas marketing affiliates.  Phase II
established standards of conduct regarding how gas utilities can interact with
their marketing affiliates.  Phase III explored the issue of how to determine
when a competitive market exists for various segments of customers, so the
utility could then be taken out of serving that market.  

     Because of the complexity of the many issues involved, industry work
groups were formed to study particular issues and bring recommendations back
to the PSCW.  The six work groups are studying pipeline capacity, market-based
pricing for interruptible customers, end-user price reporting, marketer
certification, changes needed in the form of legislation or administrative

                                        -20-

<PAGE>

rules, and social issues and essential services.  Although most of this work
has not yet started, completion of these work groups' assignments is projected
for November 1999.

CUSTOMER RATE MATTERS

     Customer rates are based on forecasted expenses and capital costs.  On
February 20, 1997, the PSCW authorized a $5.7 million, or 2.7%, increase in
WPSC's retail natural gas rates.  The rates are effective through 1998.  

     WPSC anticipates filing on April 1, 1998 an application with the PSCW
for increased gas rates to be effective for the years 1999 and 2000.

                  MICHIGAN REGULATORY ACTIVITIES

GAS COST RECOVERY

     In June 1997, WPSC filed with the MPSC the annual reconciliation of gas
costs and gas revenues for the period April 1, 1996 through March 31, 1997. 
WPSC's gas cost recovery clause in Michigan allows WPSC to recover all
prudently incurred gas costs on a one-for-one basis.  The MPSC staff contested
the prudency of certain summer-only gas sales WPSC made to a single
large-volume customer and recommended that WPSC not be allowed to recover
approximately $245,088 of gas costs associated with these sales.  In January
1998, an administrative law judge issued a Proposal For Decision and
recommended that the MPSC issue an order allowing WPSC to recover the entire
amount in contention.  A final order in this case is expected in March 1998.

GAS DISTRIBUTION RESTRUCTURING

     The MPSC is also investigating the deregulation of retail gas markets
and expansion of gas transportation service in Michigan in Case No. U-11017. 
The MPSC decided it would be appropriate to conduct a series of pilot projects
to test the development of competitive retail gas markets in Michigan. 
Michigan's four largest gas utilities were approached by the MPSC regarding
development and implementation of pilot programs. 

     Because of the small size and limited number of customers in WPSC's
Michigan service territory and the service territories of two other utility
companies, the MPSC did not conduct pilot transportation programs for these
three utilities. 

CUSTOMER RATE MATTERS

     WPSC has not had a natural gas rate case in Michigan since 1986.  

                                        -21-

<PAGE>

                     GAS FINANCIAL SUMMARY

     The following table sets forth the amounts of revenues, operating
income, and identifiable assets attributable to gas utility operations:

WISCONSIN PUBLIC SERVICE CORPORATION
==============================================================================
(Thousands)                                       Year Ended December 31 
------------------------------------------------------------------------------
                                                1997       1996        1995 
------------------------------------------------------------------------------

Gas Operating Revenues                        $211,090    $211,357    $174,693
                                                           
Operating Income, Including Allowance
For Funds Used During Construction            $ 18,584    $ 10,191    $ 12,116

Identifiable Assets                           $235,490    $255,200    $232,983
==============================================================================

    See Note 12 in Notes to Consolidated Financial Statements.

                                        -22-

<PAGE>
<PAGE>
<TABLE>
                                                      GAS OPERATING STATISTICS

<CAPTION>
WPS Resources Corporation
=====================================================================================================================
                                                        1997              1996              1995              1994   
---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>               <C>                <C>               <C>        
Operating revenues (Thousands)
Residential                                            $122,782          $122,224          $109,998          $104,020
Small commercial and industrial                          23,790            22,392            19,933            18,586
Large commercial and industrial                          53,517            55,211            47,627            45,115
Other                                                   190,310           164,673            52,367            25,258
---------------------------------------------------------------------------------------------------------------------
Total                                                  $390,399          $364,500          $229,925          $192,979
=====================================================================================================================
Therms delivered (Thousands)
Residential                                             202,558           216,963           202,152           187,355
Small commercial and industrial                          43,056            46,614            42,600            38,568
Large commercial and industrial                         127,132           142,033           129,494           115,939
Other                                                   595,154           527,069           294,372            56,961
---------------------------------------------------------------------------------------------------------------------
Total therm sales                                       967,900           932,679           668,618           398,823
Transportation                                          268,114           251,279           241,531           234,149
---------------------------------------------------------------------------------------------------------------------
Total                                                 1,236,014         1,183,958           910,149           632,972
=====================================================================================================================
</TABLE>

                                                                -23-

<PAGE>

<PAGE>
<TABLE>
                                             GAS OPERATING STATISTICS


<CAPTION>
Wisconsin Public Service Corporation
========================================================================================================================
                                                        1997         1996           1995           1994           1993
------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>           <C>            <C>
Operating revenues (Thousands)
Residential                                           $122,782     $122,224       $109,998       $104,020       $110,541
Small commercial and industrial                         23,790       22,392         19,933         18,586         20,254
Large commercial and industrial                         53,517       55,211         47,627         45,115         47,091
Other                                                   11,001       11,530         (2,865)        14,337          9,490
------------------------------------------------------------------------------------------------------------------------
Total                                                 $211,090     $211,357       $174,693       $182,058       $187,376
========================================================================================================================
Therms delivered (Thousands)
Residential                                            202,558      216,963        202,152        187,355        192,053
Small commercial and industrial                         43,056       46,614         42,600         38,568         41,385
Large commercial and industrial                        127,132      142,033        129,494        115,939        108,068
Other                                                   21,148        9,709         15,415          9,810          6,337
------------------------------------------------------------------------------------------------------------------------
Total therm sales                                      393,894      415,319        389,661        351,672        347,843
Transportation                                         268,114      251,279        241,531        234,149        220,672
------------------------------------------------------------------------------------------------------------------------
Total                                                  662,008      666,598        631,192        585,821        568,515
========================================================================================================================
Customers served (End of period)
Residential                                            198,524      192,947        186,267        178,992        172,902
Small commercial and industrial                         16,770       16,133         15,905         14,689         14,571
Large commercial and industrial                          2,780        2,846          2,432          2,867          2,508
Other                                                        1            1              1              1              1
Transportation customers                                   224          167            121            117            127
------------------------------------------------------------------------------------------------------------------------
Total                                                  218,299      212,094        204,726        196,666        190,109
========================================================================================================================
Average annual use (Therms)
Residential                                            1,037.3      1,146.6        1,112.3        1,068.8        1,128.4
Small commercial and industrial                        2,619.4      2,937.2        2,770.8        2,673.9        2,888.8
Large commercial and industrial                       32,423.5     37,163.7       39,707.6       34,651.2       41,354.4
========================================================================================================================
Average therm price (Cents)
Residential                                              60.62        56.33          54.41          55.52          57.56
Small commercial and industrial                          55.25        48.04          46.79          48.19          48.94
Large commercial and industrial                          45.92        42.84          40.63          41.84          44.97
========================================================================================================================
</TABLE>

                                                           -24-

<PAGE>
<PAGE>
              D.  NONREGULATED BUSINESS ACTIVITIES
                                
                            GENERAL
                                
     At the end of 1997, WPSR had two principal nonregulated subsidiaries: 
WPS Energy Services, Inc. ("ESI") and WPS Power Development, Inc. ("PDI"). 
These subsidiaries were formed in 1994 and 1995, respectively, for the purpose
of positioning WPSR strategically for participation in the evolving
nonregulated energy marketplace.

                   WPS ENERGY SERVICES, INC.

     ESI is a diversified energy company.  ESI targets retail energy sales
and related services in Midwestern and Eastern states with an emphasis on
serving commercial, industrial, and wholesale customers.  Principal operations
are located in Illinois, Michigan, Ohio, and Wisconsin.  ESI also is
participating in retail pilot projects in each of these states.  Wholesale
energy sales and related services are provided nationwide.

     ESI provides electric, natural gas, and alternate fuel products; risk
management consulting services; real-time energy management services; and
project management.  ESI also provides energy utilization consulting which
identifies opportunities for improving purchasing practices, equipment, and
systems necessary for the efficient use of energy.

     The gas markets in which ESI participates are characterized by strong
competition, narrow margins, and volatile commodity and transportation prices. 
ESI uses various financial instruments to minimize the risks present in the
natural gas marketplace (see Note 1(e), Price Risk Management Activities on
page 57 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).

     Revenues were predominantly from the sale of natural gas.  Revenues from
the sale of natural gas were $179.3 million in 1997 compared to $153.1 million
in 1996.  Sales totaled 574.0 million therms in 1997 compared to 517.4 million
therms in 1996.  Electric sales are not significant because electric retail
access has been slow to develop in ESI's target market areas.  ESI continues
to pursue the electric wholsesale market, but to a lesser extent than in the
past.  

                  WPS POWER DEVELOPMENT, INC.

     PDI develops and owns electric generation projects and provides services
to the electric power generation industry nationwide.  PDI's services include
acquisition and investment analysis, project development, engineering and
management services, and operations and maintenance services.  PDI's areas of
expertise include cogeneration, distributed generation, generation from
renewables, generation plant repowering projects, and conversion of paper mill
sludge to lightweight aggregate.

     PDI owns a two-thirds interest in the Stoneman Power Plant ("Stoneman"),
a 53-megawatt merchant steam plant located in Cassville, Wisconsin.  The
redevelopment of Stoneman as a 300-megawatt to 500-megawatt gas-fired combined
cycle facility is planned for the 1999 to 2000 time period.  PDI also owns
landfill gas generating facilities.

                                        -25-

<PAGE>

                            EARNINGS

     Both ESI and PDI incurred losses for 1997 and 1996.  The loss incurred
at ESI in 1997 was $4.9 million, compared with a loss of $6.3 million in 1996,
a decrease of 22.2%.  The loss incurred by PDI in 1997 was $1.9 million,
compared with $4.0 million in 1996, a decrease of 52.5%.  Operating losses at
the nonregulated subsidiaries were anticipated by management as the companies
develop infrastructure and finance additional working capital needed to
support growth.

     See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION at page 42 for additional information regarding
nonregulated operations.
                                 

                    E.  ENVIRONMENTAL MATTERS     

                            GENERAL

     WPSC is subject to regulation with regard to the impact of its
operations on air and water quality and solid waste disposal, and may be
subject to regulation with regard to other environmental considerations by
various federal, state, and local authorities.  The application of federal and
state restrictions to protect the environment involves or may involve review,
certification, or issuance of permits by various federal and state
authorities, including the United States Environmental Protection Agency
("EPA") and the Wisconsin Department of Natural Resources ("DNR").  Such
restrictions (particularly in regard to emissions into the air and water, and
solid waste disposal) may limit, prevent, or substantially increase the cost
of the operation of WPSC's generating facilities and may require substantial
investments in new equipment at existing installations.  Such restrictions may
also require substantial additional investments for any new projects and may
delay or prevent authorization and completion of the projects.  WPSC cannot
forecast effects of such regulation upon its generating, transmission, and
other facilities, or its operations, but believes that it is presently meeting
existing requirements.

                          AIR QUALITY

     WPSC's generating plants are in compliance with all current sulfur
dioxide, nitrogen oxide, and particulate emission standards.

     The Federal Clean Air Act Amendments of 1990 ("Act") required reductions
in sulfur dioxide in 1995 (Phase I) to meet limitations based on an emission
rate of 2.5 pounds per Btu multiplied by a historical generation baseline for
Pulliam Unit 8 and Edgewater Unit 4 generating units.  The Act requires
further reductions beginning in the year 2000 (Phase II).  The year 2000
limits are based on an emission rate of 1.2 pounds per million Btu multiplied
by a historical generation baseline for all generating units.  WPSC's
generating facilities met the year 2000 standard in 1995.  WPSC achieved
compliance with Wisconsin and federal sulfur dioxide emission limitations by
switching to low sulfur coal. 

     Because of the emission allowance system included in the Act, operations
during Phase I are expected to produce surplus allowances which will be
available to aid in compliance with the requirements of Phase II.  To the

                                       -26-

<PAGE>

extent WPSC determines that it will have allowances available beyond its own
requirements in both Phase I and Phase II, it will consider the sale of the
excess allowances.  The PSCW has ordered that profits from the sale of
allowances be used to benefit utility customers.  

     The Act also requires the installation of low nitrogen oxide burners on
several units.  Low nitrogen oxide burners were installed at Pulliam Unit 8
early in 1994.  Phase I of the Act allows units smaller than 100 megawatts,
such as Pulliam Unit 7, to be designated Phase I units, thus building up
sulfur dioxide credits.  Having made this election, low nitrogen oxide burners
were installed on Pulliam Unit 7 in 1994.  Low nitrogen oxide emissions from
Pulliam Units 7 and 8 and Weston Unit 3 are averaged with Weston Units 1
and 2.  This averaging plan generates additional emission allowances in
Phase I and locks in Phase I nitrogen oxide limits for these units.  This
should reduce Phase II compliance costs.

     Expenditures of $1.0 million to $2.0 million for Phase II of the Acid
Rain Program are projected through 1999 to assure nitrogen oxide emission
compliance at the Pulliam and Weston plants.  The EPA recently proposed
additional nitrogen oxide emission reductions from facilities in 22 eastern
states, including those in Wisconsin.  The reduction in nitrogen oxide
emissions that WPSC will need to achieve has yet to be determined.  However,
it is likely that the reduction will be significant and beyond that required
by the existing rules.  The proposed rules will probably take effect in 2002
to 2004 and result in significant emission control costs. 

     Air toxic provisions in the Act will not be applied until the EPA
determines if those standards need to be applied to utilities.

                         WATER QUALITY

     WPSC is subject to regulation by the EPA and the DNR with respect to
thermal and other discharges into Lake Michigan and other waters of Wisconsin
from WPSC's power plants.  Wastewater discharge permits with a term of five
years were reissued by the DNR to WPSC for Kewaunee in 1995 and the Pulliam
and Weston power plants in 1996.  No new permit conditions or associated
material costs were imposed compared to permits issued during earlier
renewals.  Revisions to state water quality rules as a result of the
Great Lakes Initiative should not result in any significant changes when
wastewater permits are reissued in 2000 for Kewaunee and in 2001 for the
Pulliam and Weston plants.

                       GAS PLANT CLEANUP

     WPSC is investigating the cleanup of eight manufactured gas plant sites
which it previously operated in Green Bay, Two Rivers, Oshkosh, Marinette,
Sheboygan (two sites), Stevens Point, and Menominee (Michigan).  In general,
WPSC is proceeding with these projects as the designated responsible party for
cleanup, although for two sites, Sheboygan II and Oshkosh, formal agreements
have been executed with the DNR covering the investigation and restoration
activities.  The agreement for Sheboygan II allows WPSC to work with Wisconsin
on restoration.  The site is not associated with the larger Sheboygan River
and Harbor Superfund site.  The agreement for Oshkosh was entered into in
order to resolve a unilateral administrative order that was issued by the DNR.

                                       -27-

<PAGE>

     Total costs of cleanup for all eight sites, as estimated by an
environmental consultant, should be in the range of $34.1 million to
$41.1 million.  The estimates assume removal of significantly contaminated
soil and groundwater treatment/monitoring for up to 25 years, depending on
site conditions.  The cost estimates for five of the sites include removal and
disposal of contaminated river sediments.

     Expenditures for the gas plant sites are estimated to be made over the
next 32 years.  WPSC has recorded on its books a liability with an offsetting
deferred charge (i.e., a regulatory asset) in the amount of $41.7 million. 
Insurance recoveries and collections in rates have reduced the regulatory
asset to $29.2 million at December 31, 1997.  Expenditures have reduced the
liability to $40.2 million at December 31, 1997.  Based on discussions with
regulators and a Wisconsin rate order, management believes that these costs,
but not the carrying costs associated with the deferred charges, will be
recoverable in future customer rates.  In a rate order that became effective
in February 1997, the PSCW authorized current annualized recovery for gas site
cleanup of $225,000 for each of the years 1997 and 1998.

     Work at the Stevens Point site is expected to commence in 1998.  As
remedial feasibility studies and initial remedial activities are completed,
remediation cost estimates may be adjusted and these adjustments could be
significant.  Other factors that can affect these estimates are changes in
remedial technology and regulatory requirements.

     The cost estimates presented above do not take into consideration any
recovery from insurance carriers or other third parties which WPSC has
obtained or is pursuing.  Insurance recoveries are deferred as a reduction to
the regulatory asset; therefore, neither adjustments to the estimated
liability nor insurance recoveries have an immediate impact on net income.  To
date, WPSC has received insurance settlements of approximately $12.6 million.
     

                     F.  CAPITAL REQUIREMENTS
 
     WPSR's utility subsidiary, WPSC, makes large investments in capital
assets.  Construction expenditures for WPSC are expected to continue in the
$75.0 million to $90.0 million range annually during the 1998 through 2000
period.  This does not include any expenditures for the replacement of
Kewaunee steam generators.  Steam generator replacement, WPSC's share of which
would be approximately $36.7 million in year of occurrence dollars, is
contingent upon receipt of approval from the PSCW to proceed with replacement
and agreement among the owners on a replacement plan.  Potential expenditures
for gas pipeline laterals which would connect WPSC's distribution system with
the proposed Viking Voyageur pipeline from Canada are also not included. 

     In addition, other capital requirements for WPSC during the three-year
period include Kewaunee decommissioning trust fund contributions of
approximately $30.0 million and replacement financing for maturing
first-mortgage bonds of $50.0 million. 

     See note 9 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Future Utility
Expenditures, at page 72 for additional information regarding forecasted
construction expenditures for WPSC.

                                       -28-

<PAGE>

     WPSR expects that internally-generated funds and short-term borrowing
will satisfy most of its capital requirements.  WPSR may periodically issue
additional long-term debt and common stock to reduce short-term debt and to
maintain desired capitalization ratios.  The specific forms of financing,
amounts, and timing will depend on the availability of projects, market
conditions, and other factors.  However, at this time, it is anticipated that
trust originated preferred stock could be issued on behalf of WPSR in 1998. 
WPSR may also expand its leveraged employee stock ownership plan during the
three-year period.

     Investment expenditures for nonregulated projects are uncertain since
there are no material firm commitments at this time.  Debt financing for most
nonregulated projects is expected to be on a nonrecourse basis.


                           G. EMPLOYEES

     At December 31, 1997, WPSR, including its subsidiaries, employed
2,486 persons.  Of this number, 2,399 employees were employed by WPSC. 

     Of the employees of WPSC, 1,888 were considered electric utility
employees and 511 were considered gas utility employees.  Approximately
1,200 WPSC employees are represented by Local 310 of the International Union
of Operating Engineers ("Union").  The Union has been operating without a
contract since October 29, 1997.  Unresolved issues remain and contract
negotiations continue.  There has never been a strike against WPSC by its
employees.

                                       -29-

<PAGE>
<PAGE>
ITEM 2.  PROPERTIES

                          A.  UTILITY

     The following table includes information about electric generation
facilities of WPSC (including those jointly-owned):

<TABLE>
<CAPTION>
                                                                         Rated 
                                                                     Capacity (a)
     Type              Name            Location          Fuel         (Kilowatts)
-------------    ----------------    -------------    -----------    -------------  

<S>           <C>                 <C>              <C>            <C>
Steam            Pulliam             Green Bay, WI    Coal             400,900 (b)
                 Weston              Wausau, WI       Coal or Gas      480,100 (c)
                 Kewaunee            Kewaunee, WI     Nuclear          210,500 (d)
                 Columbia -
                  Units No. 1 & 2    Portage, WI      Coal             325,100 (d)

                 Edgewater
                  Unit No. 4         Sheboygan        Coal             106,200 (d)
                                                                     ---------
Total Steam                                                          1,522,800 

Hydro            Various                                                68,400 (e)
                 (15 Plants)
   
Combustion       Various                              Gas or Oil       269,410 (f)
 Turbine         (7 Plants)                   
 & Diesel                                                            ---------
  
Total System                                                         1,860,610
                                                                     =========

     (a) Based on winter-rated capacity.

     (b) This plant has six units. 

     (c) This plant has three units.  Two units burn only coal and the
         other unit can burn coal or natural gas.

     (d) These facilities are jointly-owned.  Kewaunee is operated by
         WPSC.  WP&L is operator of the Columbia and Edgewater units. 
         The capacity indicated is WPSC's portion of total plant
         capacity based on percent of ownership.

     (e) Includes 12,900 kw purchased from Wisconsin River Power Company.

     (f) WPSC and the Marshfield Electric and Water Department jointly
         own 115,600 kilowatts of combustion turbine peaking capacity
         which WPSC operates.  The capacity indicated is WPSC's
         portion of total plant capacity based on percent of
         ownership. 
</TABLE>

     WPSC owns 55 transmission substations with a transformer capacity of
5,616,110 kilovolt-ampere ("kVa"), 110 distribution substations with a
transformer capacity of 2,881,270 kVa, 1,549 miles of electric transmission
lines, and 19,358 miles of electric distribution lines.  

                                        -30-

<PAGE>

     Gas properties include approximately 4,623 miles of main, 68 gate and
city regulator stations, and 201,566 services.  All gas facilities are located
in Wisconsin except for distribution facilities in and near the city of
Menominee, Michigan.     
  
     Substantially all of WPSC's utility plant is subject to a first mortgage
lien.


                             B.  NONREGULATED

     The following table includes information about jointly-owned electric
generation facilities of PDI:

<TABLE>
<CAPTION>
                                                                Rated
                                                               Capacity 
Type             Name             Location          Fuel      (Kilowatts)
-----       --------------      ------------        ----      -----------
<S>      <C>                 <C>                 <C>       <C>
Steam       Stoneman            Cassville, WI       Coal      53,000 (a)


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


ITEM 3.  LEGAL PROCEEDINGS 

     See Part I, Item 1E, ENVIRONMENTAL MATTERS, at page 26, for a
description of various proceedings relating to environmental matters.


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

     No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year.

                                       -31-

<PAGE>

<PAGE>
ITEM 4A.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information about outside directors is omitted for the reason that such
information will be included in a proxy statement for the Annual Meeting of
Shareholders of WPSR which is scheduled to be held on May 7, 1998.

      A.  EXECUTIVE OFFICERS OF WPS RESOURCES CORPORATION ("WPSR")

<TABLE>
<CAPTION>
                                         Current Position and Business             Effective
       Name and Age                    Experience During Past Five Years              Date
-----------------------------     -------------------------------------------      ---------

<S>                            <C>                                              <C>
Larry L. Weyers           52      Chairman, President, and Chief Executive
                                   Officer                                         02-12-98
                                  President and Chief Executive Officer            05-01-97
                                  President and Chief Operating Officer            01-01-96
                     
Patrick D. Schrickel      53      Executive Vice President                         12-29-96
                                  Vice President                                   12-09-93
                     
Phillip M. Mikulsky       49      Senior Vice President-Development                02-12-98
                                  Vice President-Development                       09-01-95
                                  Manager-System Operations                        10-01-91 *
                                  Director-System Operations                       09-28-91 *

Daniel P. Bittner         54      Vice President and Chief Financial Officer       05-01-97
                                  Vice President                                   12-29-96
                     
Richard E. James          44      Vice President-Corporate Planning                12-29-96
                                  Vice President-Corporate Planning                08-01-95 *
                                  Assistant Vice President-Corporate Planning      05-09-94 *
                                  Assistant Vice President-Rates and Economic
                                   Evaluation                                      03-01-92 *

Thomas P. Meinz           51      Vice President-Public Affairs                    02-12-98

Bernard J. Treml          48      Vice President-Human Resources                   02-12-98

Glen R. Schwalbach        52      Assistant Vice President-Corporate Planning      12-29-96
                                  Assistant Vice President-Corporate Planning      07-28-96 *
                                  Assistant Vice President-Gas Engineering
                                   and Supply                                      06-01-90 *
                     
Francis J. Kicsar         58      Secretary                                        01-01-96

Ralph G. Baeten           54      Treasurer                                        12-09-93

Diane L. Ford             44      Controller and Chief Accounting Officer          05-01-97
                                  Controller                                       12-15-93

George R. Wiesner         40      Assistant Controller                             12-15-96
                                  Director-Financial Accounting ESI/PDI            08-25-96 *
                                  Financial Reporting Supervisor                   05-01-87 *

   *  Identifies experience with Wisconsin Public Service Corporation ("WPSC")
      for Richard  E. James, Phillip M. Mikulsky, Glen R. Schwalbach, and
      George R. Wiesner.  The other listed officers of WPSR are also officers
      of WPSC and their experience with WPSC is indicated below.
</TABLE>


All of the above named executive officers have been employed by WPSR or WPSC
for at least five years.


                                        -32-

<PAGE>
<PAGE>
       B.  EXECUTIVE OFFICERS OF WISCONSIN PUBLIC SERVICE CORPORATION ("WPSC")

<TABLE>
<CAPTION>
                                         Current Position and Business             Effective
        Name and Age                   Experience During Past Five Years              Date
-----------------------------     -------------------------------------------      ---------

<S>                            <C>                                             <C>
Larry L. Weyers           52      Chairman and Chief Executive Officer             02-12-98
                                  President and Chief Executive Officer            05-04-97
                                  President and Chief Operating Officer            01-01-96
                                  Senior Vice President-Power Supply and
                                   Engineering                                     08-01-95
                                  Vice President-Power Supply and Engineering      05-09-94
                                  Vice President-Energy Supply                     01-01-92
                 
Patrick D. Schrickel      53      President and Chief Operating Officer            02-12-98
                                  Executive Vice President                         12-29-96
                                  Senior Vice President-Finance and Corporate
                                   Services                                        05-09-94
                                  Senior Vice President-Operations                 06-01-89
                 
Daniel P. Bittner         54      Senior Vice President-Finance and Corporate
                                   Services                                        12-29-96
                                  Senior Vice President-Customer Service           05-09-94
                                  Senior Vice President-Finance                    03-01-92
                                  Vice President-Treasurer                         02-01-89
                 
Clark R. Steinhardt       56      Senior Vice President-Nuclear Power              06-01-91
                 
Ralph G. Baeten           54      Vice President-Treasurer                         08-01-95
                                  Treasurer                                        03-01-92
                                  Insurance and Benefits Director                  05-01-87

Thomas P. Meinz           51      Vice President-Public Affairs                    02-12-98
                                  Vice President-Power Supply and Engineering      02-23-97
                                  Power Supply and Engineering Executive           01-14-96
                                  Senior Corporate Planning Executive              05-09-94
                                  Manager-System Planning and Licensing            03-01-91

Bernard J. Treml          48      Vice President-Human Resources                   05-09-94
                                  Assistant Vice President-Human Resources         07-01-93
                                  Manager-Human Resources                          08-01-92
                                  Manager-Marketing Programs and Services          08-01-91

Wayne J. Peterson         39      Vice President-Distribution and Customer
                                   Service                                         02-12-98
                                  Assistant Vice President-Customer Service        02-23-97
                                  Manager-System Operations                        10-01-95
                                  Site Leader                                      10-01-94
                                  Electric Superintendent                          04-01-92
                                  Director-Distribution Services                   01-02-92
   
David W. Schonke          64      Assistant Vice President-Electric
                                   Distribution Engineering                        06-01-86
   
Francis J. Kicsar         58      Secretary                                        01-01-96
                                  Assistant Secretary                              03-01-92
                                  Director-Corporate Tax                           10-01-76

Diane L. Ford             44      Controller                                       03-01-92
                                  Administrator-Corporate Accounting               05-01-87


NOTE:   All ages for the officers of WPSR and WPSC are as of December 31,
        1997.  None of the executives listed above for WPSR or for WPSC are
        related by blood, marriage, or adoption to any of the other officers
        listed or to any director of the Registrant.  Each officer shall hold
        office until his or her successor shall have been duly elected and
        qualified, or until his or her death, resignation, disqualification,
        or removal.
</TABLE>

                                        -33-

<PAGE>
<PAGE>
                             PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS


   WPS RESOURCES CORPORATION COMMON STOCK TWO-YEAR COMPARISON
                             
                           Dividends     
Share Data                 Per Share          Price Range 
----------                 ---------     ---------------------
                                          High           Low
                                         -------       -------
 1997
       1st Quarter          $ .475       28-3/4        26-1/8
       2nd Quarter            .475       27-7/8        23-3/8
       3rd Quarter            .485       29-1/4        26-3/4
       4th Quarter            .485       34-1/4        28-1/16
                             -----
             Total          $1.92        
   
   1996
       1st Quarter          $ .465       34-3/8        31-7/8
       2nd Quarter            .465       33-1/2        30-1/8
       3rd Quarter            .475       32-1/8        30-3/8
       4th Quarter            .475       30-5/8        28-1/4
                             -----       
             Total          $1.88        

                      DIVIDEND RESTRICTIONS

     WPSC, WPSR's principal subsidiary, is restricted by a PSCW order to
paying normal common stock dividends of no more than 109% of the previous
year's common stock dividend without prior notice to the PSCW.  Also,
Wisconsin law prohibits WPSC from making loans to WPSR and its nonregulated
subsidiaries and from guaranteeing their obligations. 

     On January 15, 1997, a special common stock dividend of $10.0 million
was declared by WPSC to be paid to WPSR.  The special dividend allowed WPSC's
average equity capitalization ratio to remain at approximately 54%, the level
approved by the PSCW for ratemaking.  The dividend was paid in January 1997. 

                          COMMON STOCK
 
     Listed on the New York and Chicago Stock Exchanges

     Ticker Symbol:  WPS

     Transfer Agent and Registrar:  Firstar Trust Company
                                    P. O. Box 2077
                                    Milwaukee, Wisconsin 53201

     As of December 31, 1997, there were 23,704 common stock shareholders of
record.

                                       -34-

<PAGE>
<PAGE>
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA

         WPS RESOURCES CORPORATION
         COMPARATIVE FINANCIAL STATEMENTS AND
         FINANCIAL STATISTICS (1993 TO 1997)*

                                            A.  CONSOLIDATED STATEMENTS OF INCOME


<CAPTION>
========================================================================================================================
Consolidated Statements of Income
========================================================================================================================
Year Ended December 31 
(Thousands, except share amounts)          1997              1996              1995             1994              1993
------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>               <C>              <C>               <C>
Operating revenues
Electric utility                         $479,388          $490,506          $489,000         $480,816          $493,256
Gas utility                               211,090           211,357           174,693          182,058           187,376
Nonregulated energy and other             187,862           156,391            56,155           10,921                 -
------------------------------------------------------------------------------------------------------------------------
Total operating revenues                  878,340           858,254           719,848          673,795           680,632
========================================================================================================================
Operating expenses
Electric production fuels                 107,538           105,418           104,858          111,011           114,051
Purchased power                            45,876            37,737            39,593           38,631            30,703
Gas purchased for resale                  147,755           149,388           116,253          126,351           133,347
Nonregulated energy cost of sales         182,863           155,133            53,983           10,663                 -
Other operating expenses                  148,569           168,905           154,445          148,917           148,270
Maintenance                                41,661            48,806            50,761           49,983            51,597
Depreciation and decommissioning           77,541            65,178            65,627           56,365            60,609
Taxes other than income                    26,448            26,868            25,921           26,063            25,204
------------------------------------------------------------------------------------------------------------------------
Total operating expenses                  778,251           757,433           611,441          567,984           563,781
========================================================================================================================
Operating income                          100,089           100,821           108,407          105,811           116,851
------------------------------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds
  used during construction                    129               139               170              108               287
Other, net                                 11,511            (1,084)            6,080            4,473             3,356
------------------------------------------------------------------------------------------------------------------------
Total other income                         11,640              (945)            6,250            4,581             3,643
========================================================================================================================
Income before interest expense            111,729            99,876           114,657          110,392           120,494
------------------------------------------------------------------------------------------------------------------------
Interest on long-term debt                 22,331            21,532            22,859           23,407            24,393
Other interest                              4,172             3,596             2,604            1,796             1,562
Allowance for borrowed funds
  used during construction                   (100)             (128)              (68)            (139)             (200)
------------------------------------------------------------------------------------------------------------------------
Total interest expense                     26,403            25,000            25,395           25,064            25,755
========================================================================================================================
Income before income taxes                 85,326            74,876            89,262           85,328            94,739
Income taxes                               29,270            24,358            30,808           29,526            32,539
Minority interest                            (797)             (348)                -                -                 -
Preferred stock dividends of 
  subsidiary                                3,111             3,111             3,111            3,111             3,311
------------------------------------------------------------------------------------------------------------------------
Net income                               $ 53,742          $ 47,755          $ 55,343         $ 52,691          $ 58,889
========================================================================================================================
Shares of common stock
Outstanding at December 31                 23,897            23,897            23,897           23,897            23,897
Average                                    23,873            23,891            23,897           23,897            23,888
Basic and diluted earnings per
  average share of common stock             $2.25             $2.00             $2.32            $2.21             $2.47
Dividend per share of common stock           1.92              1.88              1.84             1.80              1.76
========================================================================================================================

* WPS Resources Corporation became a holding company in 1994.  The data in the 1993 column is that of Wisconsin Public 
  Service Corporation.
</TABLE>

                                                                         -35-

PAGE
<PAGE>
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA

         WPS RESOURCES CORPORATION
         COMPARATIVE FINANCIAL STATEMENTS AND
         FINANCIAL STATISTICS (1993 TO 1997)*

                                                 B.  CONSOLIDATED BALANCE SHEETS


<CAPTION>
========================================================================================================================
Consolidated Balance Sheets
At December 31 (Thousands)                  1997               1996             1995            1994             1993
========================================================================================================================
<S>                                   <C>                <C>              <C>             <C>              <C>
Assets
------------------------------------------------------------------------------------------------------------------------
Utility plant
Electric                                 $1,513,310         $1,483,829       $1,449,201      $1,423,316       $1,386,007
Gas                                         252,029            241,367          228,734         203,384          184,234
------------------------------------------------------------------------------------------------------------------------
Total                                     1,765,339          1,725,196        1,677,935       1,626,700        1,570,241
Less - Accumulated depreciation 
  and decommissioning                     1,032,149            952,296          905,427         846,505          801,056
------------------------------------------------------------------------------------------------------------------------
Total                                       733,190            772,900          772,508         780,195          769,185
Nuclear decommissioning trusts              134,108            100,570           82,109          64,147           56,699
Nuclear fuel, net                            19,062             19,381           14,275          19,417           17,981
------------------------------------------------------------------------------------------------------------------------
Net utility plant                           886,360            892,851          868,892         863,759          843,865
========================================================================================================================
Current assets                              196,591            219,144          186,085         170,015          180,140
Net nonutility and nonregulated plant        19,194             19,738            3,307           2,218            2,121
Regulatory and other assets                 197,457            199,132          208,459         181,283          172,715
------------------------------------------------------------------------------------------------------------------------
Total assets                             $1,299,602         $1,330,865       $1,266,743      $1,217,275       $1,198,841
========================================================================================================================



========================================================================================================================
Capitalization and Liabilities
========================================================================================================================
Capitalization
Common stock equity                      $  477,823         $  467,524       $  463,441      $  446,540       $  433,724
Preferred stock of subsidiary
  with no mandatory redemption               51,200             51,200           51,200          51,200           51,200
Long-term debt of subsidiary                304,008            305,788          306,590         309,945          314,225
------------------------------------------------------------------------------------------------------------------------
Total capitalization                        833,031            824,512          821,231         807,685          799,149
========================================================================================================================
Liabilities
Short-term borrowings                        30,706             57,950           26,500          22,500           21,000
Deferred income taxes                       125,804            130,208          135,958         126,639          138,952
Other liabilities and credits               310,061            318,195          283,054         260,451          239,740
------------------------------------------------------------------------------------------------------------------------
Total liabilities                           466,571            506,353          445,512         409,590          399,692
========================================================================================================================
Total capitalization and liabilities     $1,299,602         $1,330,865       $1,266,743      $1,217,275       $1,198,841
========================================================================================================================

* WPS Resources Corporation became a holding company in 1994.  The data in the 1993 column is that of Wisconsin Public
  Service Corporation.
</TABLE>

                                                                     -36-

<PAGE>

<PAGE>
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA

         WPS RESOURCES CORPORATION
         COMPARATIVE FINANCIAL STATEMENTS AND
         FINANCIAL STATISTICS (1993 TO 1997)*

                                                         C.  FINANCIAL STATISTICS


<CAPTION>
================================================================================================================

Year Ended December 31                   1997             1996            1995           1994            1993
----------------------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>              <C>           <C>              <C> 
Stock price                            $33-13/16         $28-1/2             $34        $26-3/4          $33-5/8
Book value per share                      $20.00          $19.56          $19.39         $18.69           $18.18
Return on average equity                   11.3%           10.2%           12.2%          12.0%            13.9%
Number of common stock shareholders       23,704          23,998          24,341         25,395           25,240
Number of employees                        2,486           2,606           2,547          2,578            2,603
================================================================================================================

* WPS Resources Corporation became a holding company in 1994.  The data in the 1993 column is that of 
  Wisconsin Public Service Corporation.
</TABLE>

                                                                -37-

PAGE
<PAGE>
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA

         WISCONSIN PUBLIC SERVICE CORPORATION
         COMPARATIVE FINANCIAL DATA AND
         FINANCIAL STATISTICS (1993 TO 1997)

                                      D.  SELECTED FINANCIAL DATA


<CAPTION>
========================================================================================================
(Millions)                                     1997          1996         1995         1994         1993 
--------------------------------------------------------------------------------------------------------

<S>                                      <C>           <C>          <C>          <C>         <C>
Operating Revenues                          $  690.5      $  701.9     $  663.7     $  662.8    $  680.6
Net Income                                      64.7          60.4         59.2         55.8        62.2
Total Assets (At December 31)                1,234.0       1,258.9      1,233.4      1,205.2     1,198.8
Long-Term Debt, Net (At December 31)           307.6         310.8        312.7        316.1       314.2
========================================================================================================
</TABLE>

                                                  -38-

PAGE
<PAGE>
<TABLE>
ITEM 6.  SELECTED FINANCIAL DATA

         WISCONSIN PUBLIC SERVICE CORPORATION
         COMPARATIVE FINANCIAL STATEMENTS AND
         FINANCIAL STATISTICS (1993 TO 1997)

                                                        E.  FINANCIAL STATISTICS


<CAPTION>
===================================================================================================================

Year Ended December 31 (Millions)              1997            1996            1995           1994           1993
-------------------------------------------------------------------------------------------------------------------

<S>                                        <C>              <C>             <C>           <C>             <C> 
Coverage
Times interest earned before income taxes        4.48            4.36            4.00           4.19           4.49
Times interest earned after income taxes         3.30            3.21            3.03           3.09           3.29
Times interest and preferred dividends
  earned after income taxes                      2.97            2.88            2.70           2.77           2.93
===================================================================================================================

Capitalization ratios
Common equity including ESOP                     56.0            55.3            55.0           53.9           54.3
Preferred stock                                   6.3             6.3             6.3            6.4            6.4
Long-term debt                                   37.7            38.4            38.7           39.7           39.3
===================================================================================================================
Percent long-term debt to net utility plant      34.7            34.8            36.0           36.6           37.2
===================================================================================================================
Average rate
Bonds                                             7.0             7.0             7.1            7.1            7.1
Preferred stock                                   6.1             6.1             6.1            6.1            6.1
===================================================================================================================
Number of preferred stock shareholders          2,734           2,965           3,165          3,372          3,577
===================================================================================================================
Weather information
Cooling degree days                               255             352             808            519            432
Cooling degree days as a percent of normal      53.3%           73.6%          170.1%         107.0%          86.2%
Heating degree days                             8,099           8,566           7,813          7,578          7,916
Heating degree days as a percent of normal     101.6%          107.5%           98.0%          95.5%         100.2%
===================================================================================================================
</TABLE>

                                                                      -39-

<PAGE>
<PAGE>
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
         CONDITION AND RESULTS OF OPERATION OF 
         WPS RESOURCES CORPORATION AND 
         WISCONSIN PUBLIC SERVICE CORPORATION


                         RESULTS OF OPERATIONS

     WPS Resources Corporation ("WPSR") is a holding company. Approximately
79% and 95% of WPSR's 1997 revenues and assets, respectively, and all of its
net income are derived from Wisconsin Public Service Corporation ("WPSC"), an
electric and gas utility.  WPSR's wholly-owned subsidiaries include WPSC, WPS
Energy Services, Inc. ("ESI"), and WPS Power Development, Inc. ("PDI").

                        1997 COMPARED WITH 1996

WPS RESOURCES CORPORATION OVERVIEW

     Revenues at WPSR increased from $858.3 million in 1996 to $878.3 million
in 1997, or 2.3%.  Net income increased 12.3% from $47.8 million in 1996 to
$53.7 million in 1997.  Basic and diluted earnings per share increased 12.5%,
from $2.00 in 1996 to $2.25 in 1997.  The primary reasons for the increase in
earnings at WPSR were decreased operating and maintenance expenses, increased
other income, an increased nonregulated energy margin, and an increased gas
utility margin.  Partially offsetting these increases in earnings were a
decrease in the electric utility margin, an increase in depreciation
and decommissioning expense, and an increase in income tax expense.

     Earnings on common stock of WPSC were $61.6 million in 1997 and
$57.3 million in 1996.  Nonregulated losses were $7.9 million in 1997 and 
$9.5 million in 1996.

WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW

     Revenues at WPSC were $690.5 million in 1997 compared with
$701.9 million in 1996, a decrease of 1.6%.  Earnings on common stock
increased 7.5%, from $57.3 million in 1996 to $61.6 million in 1997.  The
primary reasons for the increase in earnings at WPSC were a decrease in
operating and maintenance expenses, an increase in other income, and an
increase in the gas utility margin.  Offsetting these increases in earnings
were a decrease in the electric utility margin, an increase in depreciation
and decommissioning expense, and an increase in income tax expense.

ELECTRIC UTILITY OPERATIONS

     Electric margins decreased $21.4 million (see table below), or 6.2%, due
to implementation of a Public Service Commission of Wisconsin ("PSCW") rate
order which authorized a $35.5 million, or 8.1%, electric revenue reduction. 
A second factor contributing to decreased margins was increased replacement
power costs as a result of an extended outage at the Kewaunee Nuclear Power
Plant ("Kewaunee").  WPSC is the operator and 41.2% owner of Kewaunee.  A
surcharge authorized by the PSCW partially offset increases in replacement
power costs in the latter part of the first quarter and in the second
quarter of 1997.

                                    -40-

<PAGE>

   =================================================================
   ELECTRIC MARGINS ($000)         1997           1996        1995
   -----------------------------------------------------------------
   Revenues                      $479,388       $490,506    $489,000
   Fuel and purchased power       153,414        143,155     144,451
   -----------------------------------------------------------------
   Margins                       $325,974       $347,351    $344,549
   =================================================================
   Sales (kWh 000)             11,259,327     11,011,842  10,978,131
   =================================================================

     In spite of a 27.6% decrease in cooling degree days, electric
kilowatt-hour ("kWh") sales increased by 2.2% due to increased demand by
commercial and industrial customers.  Commercial and industrial kWh sales
increased 4.8%, while wholesale kWh sales decreased 3.4%.  Electric operating
revenues decreased $11.1 million, or 2.3%, due primarily to the electric rate
decrease. 

     Electric production fuel expense increased $2.1 million, or 2.0%. 
Nuclear fuel expense was $2.0 million lower than in 1996 due to decreased
generation at Kewaunee in the first and second quarters of 1997 as a result of
an extended outage.  Steam fuel expense was higher by $1.0 million and
combustion turbine generation expense was higher by $3.2 million due to
increased generation requirements from these sources during the extended
outage at Kewaunee.

     Purchased power expense increased $8.1 million, or 21.6%, due to
increased purchase requirements and higher costs of purchased power during the
extended outage at Kewaunee.

     The PSCW allows WPSC to pass changes in the cost of fuel and purchased
power, within a specified range, on to its customers through a fuel adjustment
clause.  WPSC is required to file an application to adjust rates either higher
or lower when costs are plus or minus 2% from forecasted costs on an annual
basis.  The additional fuel costs in 1997 did not result in WPSC being outside
this 2% window.

GAS UTILITY OPERATIONS

     Gas margins increased $1.4 million (see table below), or 2.2%, due
primarily to implementation of a PSCW rate order which authorized a 
$5.7 million, or 2.7%, increase in gas revenues.

   =================================================================
   GAS MARGINS ($000)              1997          1996         1995
   -----------------------------------------------------------------
   Revenues                      $211,090      $211,357     $174,693
   Purchase costs                 147,755       149,388      116,253
   -----------------------------------------------------------------
   Margins                       $ 63,335      $ 61,969     $ 58,440
   =================================================================
   Volume (Therms 000)            662,008       666,598      631,192
   =================================================================

     Gas operating revenues remained relatively stable reflecting the rate 
increase offset by a 5.5% reduction in heating degree days.  Gas revenues also 

                                    -41-

<PAGE>

reflect a one-time reduction of $0.9 million in the first quarter of 1997 as a 
result of a PSCW directive to change the accounting treatment for previous 
customer line extensions.  This reduction represents a decrease of 
approximately $.02 per share after income tax effects.

     Gas purchase costs showed a net decrease of $1.6 million, or 1.1%, due
primarily to reduced purchases because of decreased demand as a result of the
reduction in heating degree days.  The PSCW allows WPSC to pass changes in the
cost of gas on to customers through a purchased gas adjustment clause
("PGAC").

OTHER UTILITY EXPENSES/INCOME

     Other operating expenses at WPSC decreased $24.1 million, or 15.2%.  Cost
saving initiatives and decreased amortization of deferred demand-side
management expenditures resulted in lower customer service and sales expenses
of $9.5 million.  Administrative expenses decreased $5.8 million due to cost
saving measures and reduced postretirement medical, dental, and other benefit
expenses.  Generation operating expenses were lower by $7.3 million primarily
as a result of the completion in 1996 of an amortization of deferred expenses
related to a previous coal contract settlement.  Gas operating expenses
decreased $1.5 million as the result of a PSCW directive requiring gas
servicing revenues and expenses to be classified as other income and
deductions beginning in 1997.

     Maintenance expense decreased $7.1 million, or 14.5%.  Electric
transmission and distribution expenses decreased $3.4 million as a result of
cost saving initiatives and less maintenance of overhead lines in 1997 due to
less storm damage.  Expenses were $1.9 million lower at Kewaunee in 1997
because Kewaunee was out of service in 1996 for scheduled maintenance.  Gas
distribution had lower expenses of $0.9 million due to cost saving initiatives
and decreased maintenance activities.  Steam costs decreased $0.6 million at
WPSC's coal-fired plants due to changes in maintenance schedules as a result
of the extended outage at Kewaunee.

     Depreciation and decommissioning expenses increased $12.0 million, or
18.8%, largely due to the accelerated recovery of investment in Kewaunee and
accelerated funding of Kewaunee decommissioning costs.

     Other income increased $7.5 million, or 141.7%, due primarily to gains in
1997 on the sale of nonutility property of $4.8 million which represented an
increase of approximately $.12 per share after income tax effects.  Also
included in other income in 1997 was interest of $2.2 million resulting from
an income tax audit settlement.  Income tax expense increased $1.9 million
reflecting higher net income in 1997.

OVERVIEW OF NONREGULATED OPERATIONS 

     Nonregulated operations primarily represent the gas and electric sales 
of ESI, an energy marketing subsidiary.  Nonregulated operations also include
PDI which participates in the development of electric generation projects,
invests in generating projects, and provides services to the electric power
generation industry.  Nonregulated operations experienced a loss of $7.9
million in 1997 compared with a loss of $9.5 million in 1996.  

                                    -42-

<PAGE>

     On a stand-alone basis, WPSR incurred a net loss in 1997 of
$1.0 million, compared with net income of $0.8 million in 1996.  The 1997 WPSR
stand-alone loss was attributable primarily to costs related to the proposed
merger with Upper Peninsula Energy Corporation ("UPEN").  

     ESI incurred a loss of $4.9 million in 1997 and $6.3 million in 1996, a
decrease of 22.2%.  PDI incurred a loss of $1.9 million in 1997 and 
$4.0 million in 1996, a decrease of 52.5%.  Operating losses at the
nonregulated subsidiaries were anticipated by management as the companies
develop infrastructure and finance additional working capital needed to
support growth.

NONREGULATED MARGINS

     Gas margins at ESI increased $3.2 million from a negative $1.1 million 
in 1996 to a positive $2.1 million in 1997.  In 1996, customer commitments at
ESI were not fully hedged during a period of volatile gas commodity markets
and certain gas suppliers defaulted which negatively impacted margins. 
Electric margins increased $0.9 million in 1997.

     Nonregulated energy and other operating revenues increased 
$31.5 million, or 20.1%.  The increase in nonregulated energy revenues
consisted largely of increased gas sales at ESI of $26.2 million, or 17.1%, as
a result of customer growth and increased electric sales of $5.6 million, or
716.0%.

     Nonregulated energy cost of sales increased $27.7 million, or 17.9%, due
primarily to increased gas purchases and purchased power of $20.5 million and
$4.7 million, respectively, at ESI.

OTHER NONREGULATED EXPENSES/INCOME

     Other nonregulated operating expenses increased $3.7 million, or 34.6%. 
Other operating expenses increased $2.3 million at WPSR due primarily to
expenses associated with the UPEN merger. 

     Other operating expenses at ESI increased $1.3 million, or 19.4%, due to
expansion of the business and the development of infrastructure as ESI
positions itself for the future.  Although increased margins more than offset
other operating expenses, interest costs increased due to the financing of
additional working capital needed to support the growth of ESI.  

     Other operating expenses at PDI increased $0.4 million as a result of
expansion of the business and operation of the Stoneman Power Plant
("Stoneman").  Project revenues at PDI partially offset costs related to the
investigation of possible energy-related investments and a loss from Stoneman
operations.  

     ESI experienced trading losses of $1.4 million in 1997 and $2.5 million
in 1996.  PDI experienced a loss of $4.0 million in 1996 related to the
write-off of an investment in an industrial processing facility.  This
write-off represented a decrease in 1996 earnings of $.10 per share after
income tax effects.

                                    -43-

<PAGE>

                        1996 COMPARED WITH 1995

WPS RESOURCES CORPORATION OVERVIEW

     Revenues at WPSR increased 19.2% from $719.8 million in 1995 to
$858.3 million in 1996.  Net income was $55.3 million in 1995 compared with
$47.8 million in 1996, a decrease of 13.6%.  Basic and diluted earnings per
share were $2.32 in 1995 and $2.00 in 1996, a decrease of 13.8%.  The most
significant reasons for the decrease in earnings at WPSR were increased
operating expenses at the nonregulated subsidiaries, decreased gas margins at
ESI, a loss on an industrial processing facility investment at PDI, and
increased operating expenses at WPSC.

     Earnings on common stock of WPSC were $57.3 million in 1996 and
$56.1 million in 1995.  Nonregulated losses were $9.5 million in 1996 and 
$0.8 million in 1995.

WISCONSIN PUBLIC SERVICE CORPORATION OVERVIEW

     Revenues at WPSC increased 5.8%, from $663.7 million in 1995 to
$701.9 million in 1996.  Earnings on common stock increased 2.1%, from
$56.1 million in 1995 to $57.3 million in 1996. 

ELECTRIC UTILITY OPERATIONS

     Electric margins increased $2.8 million, or 0.8%, due primarily to
increased sales volumes and decreased purchased power expenses.  Electric
operating revenues remained relatively stable between 1996 and 1995.  Electric
production fuels and purchased power decreased $1.3 million, or 0.9%, as a
result of $1.9 million lower purchased power costs, $1.8 million lower
generation costs at Kewaunee due to an extended outage, and $1.5 million lower
combustion turbine generation costs.  Offsetting these decreases was an
increase in generating costs at coal-fired plants of $3.9 million.

GAS UTILITY OPERATIONS

     Gas margins increased $3.5 million, or 6.0%, due to customer growth at
WPSC and colder weather.  Based on degree days, the weather was 9.6% colder in
1996 than in 1995.  Gas operating revenues increased $36.7 million, or 21.0%,
and gas purchased for resale increased $33.1 million, or 28.5%, both due to
increased volumes as a result of customer growth and higher gas costs.

OTHER UTILITY EXPENSES/INCOME

     Other operating expenses at WPSC increased $7.3 million, or 4.8%. 
Higher operating expenses included an increase of $4.5 million related to
expansion of certain operating activities in anticipation of more competitive
markets and an increase in gas operating expenses of $1.9 million as a result
of customer growth.  Partially offsetting these increases was a decrease in
employee benefit costs of approximately $2.6 million due to a reduction in
postretirement benefit expenses. 

     Maintenance expense decreased $2.0 million, or 4.0%, due to lower
maintenance activity at WPSC's coal-fired plants of $3.3 million.  This
decrease was partially offset by increased maintenance expense at Kewaunee of
$1.0 million.

                                    -44-

<PAGE>

OVERVIEW OF NONREGULATED OPERATIONS

   Nonregulated energy and other operating revenues increased 178.3%, from
$56.2 million in 1995 to $156.4 million in 1996.  The loss at the nonregulated
subsidiaries was $0.8 million in 1995 and $9.5 million in 1996.

NONREGULATED MARGINS

     Gas margins at ESI decreased from a positive $1.2 million in 1995 to a
negative $1.1 million in 1996.  Gas margins were negatively impacted due
primarily to the volatile gas commodity market experienced during 1996 in
which ESI was not fully hedged for its customer commitments and ESI's decision
to honor customer contracts, despite defaults by certain gas suppliers, during
a period of exceptionally high demand.

     Nonregulated energy and other operating revenues increased
$100.2 million, or 178.5%.  Nonregulated energy revenues primarily represent
electric and gas sales made by ESI.  The increase in nonregulated energy
revenues was due to increased gas sales at ESI from $55.2 million in 1995 to
$153.1 million in 1996, an increase of $97.9 million, or 177.2%.  The
increased gas sales resulted from ESI's acquisition of a gas marketing company
in the fourth quarter of 1995, additional customer growth in the wholesale
market, and higher unit prices due to gas commodity market conditions.  Other
operating revenues increased $1.5 million, or 167.3%, and were comprised of
consulting and construction revenue from ESI and PDI.

     Nonregulated energy cost of sales increased $101.2 million, or 187.4%,
due primarily to increased gas purchases and increased gas costs at ESI from
$54.0 million in 1995 to $154.3 million in 1996, an increase of 
$100.3 million, or 185.7%. 

OTHER NONREGULATED EXPENSES/INCOME

     Other operating expenses increased $7.1 million reflecting the expansion
of ESI's and PDI's business and the development of infrastructure including
personnel and systems.

     In 1996, PDI experienced a $4.0 million loss on a write-off of an
investment in an industrial processing facility which had been made in
anticipation of energy sales opportunities.  This loss represented a $.10 per
share decrease in earnings after income tax effects.  ESI experienced trading
losses of $2.5 million in 1996.

                                    -45-

<PAGE>

                             BALANCE SHEET

                        1997 COMPARED WITH 1996

     Nuclear decommissioning trusts increased $33.5 million due to continued
funding and favorable investment returns.  Customer receivables decreased
$19.3 million primarily as a result of decreased sales and increased
collection efforts at WPSC.  Regulatory assets decreased $18.4 million due
primarily to gas plant cleanup insurance recoveries recorded as an offset to
regulatory assets in 1997.  Investments and other assets increased $16.7
million as a result of increased prepaid pension assets and an increased
unrealized gain on the nuclear decommissioning trust.

     Short-term notes payable and commercial paper decreased $16.6 million 
and $10.6 million, respectively, due to decreased operational cash needs at
WPSC and decreased notes payable at WPSR.  Internally generated funds exceeded
cash requirements at both WPSC and WPSR.

                          FINANCIAL CONDITION

     Internally generated funds exceeded WPSR's cash requirements resulting 
in the reduction of short-term borrowings during 1997.  Pretax interest
coverage was 4.48 times for the 12 months ended December 31, 1997 for WPSC. 
WPSC's bond ratings are AA+ (Standard & Poor's and Duff & Phelps) and Aa2
(Moody's).

     WPSC is restricted by a PSCW order to paying normal common stock
dividends of no more than 109% of the previous year's common stock dividends
without prior notice to the PSCW.  Also, Wisconsin law prohibits WPSC from
making loans to WPSR and its nonregulated subsidiaries and from guaranteeing
their obligations.  A special common stock dividend of $10.0 million was paid
by WPSC to WPSR in January 1997.  The special dividend allowed WPSC's average
equity capitalization ratio to remain at approximately 54%, the level
approved by the PSCW for ratemaking.

     WPSC makes large investments in capital assets.  Construction
expenditures for WPSC are expected to continue in the $75.0 million to
$90.0 million range annually during the 1998 through 2000 period.  This does
not include expenditures for the replacement of Kewaunee steam generators. 
Steam generator replacement, WPSC's share of which would be approximately
$36.7 million in year of occurrence dollars, is contingent upon receipt of
approval from the PSCW to proceed with replacement and agreement among the
owners on a replacement plan.  Potential expenditures for gas pipeline
laterals which would connect WPSC's distribution system with the proposed
Viking Voyageur pipeline from Canada are also not included.  

     In addition, other capital requirements for WPSC during the three-year
period include Kewaunee decommissioning trust fund contributions of
approximately $30.0 million and maturing first-mortgage bonds of 
$50.0 million.  

     WPSR expects that internally-generated funds and short-term borrowing
will satisfy most of its capital requirements.  WPSR may periodically issue
additional long-term debt and common stock to reduce short-term debt and to
maintain desired capitalization ratios.  The specific forms of financing,
amounts, and timing will depend on the availability of projects, market 

                                    -46-

<PAGE>

conditions, and other factors.  WPSR may expand its leveraged employee stock
ownership plan during the three-year period.  Trusted preferred stock may be
issued on behalf of WPSR in 1998 to reduce short-term borrowing.

     Investment expenditures for nonregulated projects are uncertain since
there are no material firm commitments at this time.  Debt financing for most
nonregulated projects is expected to be on a nonrecourse basis.

     Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of," became
effective in March 1995.  This statement imposes a stricter criterion for
regulatory assets by requiring that such assets be probable of future recovery
at each balance sheet date.  WPSR adopted this statement on January 1, 1996. 
The adoption of this statement did not have a material impact on the financial
position or results of operations based on the current regulatory structure. 
SFAS No. 121 may impact WPSR in the future as competitive factors influence
wholesale and retail pricing in the electric and gas industries and as
regulatory policy regarding recovery of stranded investment is developed.

     SFAS No. 123, "Accounting for Stock-Based Compensation," became
effective in 1996.  This statement permits, but does not require, companies to
change their accounting for stock-based compensation.  The statement also
requires additional disclosures.  WPSR has adopted only the disclosure
provision of the statement and currently does not provide significant
stock-based compensation.

     In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share."  This statement establishes
standards for computing and presenting earnings per share.  Adoption of this
standard by WPSR at December 31, 1997 had no impact on the presentation of
earnings per share as basic and diluted earnings per share are identical to
previously reported earnings per share.

     In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components of revenues, expenses, gains, and
losses.  The statement is effective for fiscal years beginning after 
December 15, 1997.  WPSR will be adopting the requirements for reporting 
comprehensive income in the first quarter of 1998.

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information."  This statement establishes
standards for reporting information about operating segments and is effective
for periods beginning after December 15, 1997.  WPSR will be adopting the
requirements of this statement at year-end 1998 and has not yet determined the
segments which will be disclosed.

     On July 10, 1997, WPSR announced a merger agreement with UPEN.  The S-4
Registration Statement was declared effective by the Securities and Exchange
Commission ("SEC") on December 5, 1997.  The shareholders of UPEN approved the
merger on January 29, 1998.  The merger is subject to (1) approval by the
Federal Energy Regulatory Commission ("FERC"); (2) approval by the SEC under
the Public Utility Holding Company Act of 1935; (3) the expiration or
termination of the waiting period applicable to the merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; (4) receipt by the
parties of an opinion of counsel that the exchange of stock qualifies as a 

                                    -47-

<PAGE>

tax-free transaction; (5) receipt by the parties of appropriate assurances
that the transaction will be accounted for as a pooling of interests; and 
(6) the satisfaction of various other conditions.  The merger is expected to
be completed during the second half of 1998.  UPEN will merge with and into
WPSR, and Upper Peninsula Power Company, UPEN's utility subsidiary, will 
become a wholly-owned subsidiary of WPSR.  Each of the 2,950,001 outstanding
shares of UPEN common stock (no par value) will be converted into 0.90 shares
of WPSR common stock ($1.00 par value), subject to adjustment for fractional 
shares, as provided in the merger agreement.

     Effective March 20, 1997, WPSC received authorization from the PSCW to
defer all costs associated with the repair of the Kewaunee steam generators. 
Repairs are complete and Kewaunee returned to service on June 12, 1997 after
having been out of service since September 21, 1996.  Repair costs of 
$3.6 million (WPSC's portion) have been deferred.  The joint owners of
Kewaunee have requested rate recovery of these deferred costs through a
customer surcharge which would be effective for April and May 1998.

     On July 1, 1997, the PSCW authorized WPSC to defer all advertising costs
associated with developing a communication plan to educate customers on the
potential energy shortage.  WPSC was also authorized to defer all costs
related to returning its fossil-fueled plant, Pulliam Unit 3, to service and
all subsequent operating costs for Pulliam Unit 3 until the next rate filing. 
The recovery of these deferred costs will be considered in a future rate
proceeding.  To date, approximately $0.5 million related to advertising costs
and Pulliam Unit 3 operating costs has been deferred.

     A PSCW order granting a Certificate of Public Convenience and Necessity
for construction of the De Pere Energy Center was issued on October 9, 1997. 
WPSC has a 25-year commitment with Polsky Energy Corporation to purchase the
output of the facility which is scheduled for operation in 1999.  The
transaction will be accounted for as a capital lease.  WPSC will make any
necessary adjustments to debt and equity levels, and appropriate rate relief
is expected.  Should electric retail deregulation occur, this contract may be
deemed uneconomical which could require a loss accrual if the regulator would
not allow recovery as part of the deregulation transition plan.

     WPSC's contract with the International Union of Operating Engineers 
Local 310 expired on October 28, 1997.  Unresolved issues remain and contract
negotiations continue.  Approximately 1,200 employees are covered under this
contract.  The employees continue to work without a contract. 

     WPSR has completed an initial assessment of the impact of the year 2000
compliance on its computer systems.  WPSR worked with a consultant beginning
in 1996 to analyze the year 2000 problem.  Plans have been established to
analyze all in-house and third party software products and applications.  A
preliminary plan indicates that all major in-house developed systems are
expected to be compliant by the end of 1998.  The plan is intended to enable
all systems to be compliant by the year 2000.  The most recent estimated
future internal labor and third party cost of year 2000 compliance is
approximately $13.4 million.

                                TRENDS

     WPSC follows SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," and its financial statements reflect the effects of the 

                                    -48-

<PAGE>

different ratemaking principles followed by the various jurisdictions
regulating the utility.  These include the PSCW, 90% of revenues; the Michigan
Public Service Commission ("MPSC"), 3% of revenues; and the FERC, 7% of
revenues.  In addition, Kewaunee is regulated by the Nuclear Regulatory
Commission ("NRC").  Environmental matters are primarily governed by the
United States Environmental Protection Agency and the Wisconsin Department of
Natural Resources.

     In late 1995, the PSCW outlined its plan for restructuring the electric
industry in Wisconsin.  The plan included 32 steps in a 5-year process
concluding with retail competition by the year 2001.  In 1997, the 32-step
process was changed to a 7-step process which has not yet been adopted as the
official PSCW restructuring plan.

     Should electric deregulation occur such that WPSC would no longer
qualify to reflect the effects of ratemaking under SFAS No. 71 in its
financial statements, no impairment of significant recorded assets or
reduction in reported equity is anticipated.  WPSC does not have any
significant assets which it foresees as being potentially stranded and no
potential disparity between the depreciable lives of WPSC's capital assets and
those lives applicable to a competitive environment has been identified. 
Increased competition is likely to put pressure on margins at WPSC.  However,
at this time, management cannot predict the ultimate results of deregulation.

     Part of electric utility restructuring involves establishing independent
system operators ("ISOs").  An ISO is an independent third party which
potentially owns the transmission facilities, oversees the operations of
transmission facilities, administers open access transmission tariffs, and
directs power dispatch.  WPSC is working with several groups which are
attempting to form ISOs.

     During the past summer, Governor Thompson requested reports from the
PSCW, electric utilities, and industrial customers assessing the electric
capacity problems experienced in eastern Wisconsin during this past spring and
summer.  The reports provided analyses and recommendations on how to assure
the future reliability of the electrical supply and made recommendations on
how to improve the effectiveness of the state's utility regulatory process. 
WPSC participated in the development of the utility report.  The Governor is
expected to make energy supply and regulatory recommendations based on the
reports.

     Both the PSCW and the MPSC continue to review gas industry
restructuring.  In a current docket, the PSCW is addressing gas restructuring
issues including unbundling of rates, pricing of contracted services in
potential utility bypass situations, and the separation of gas utilities from
their nonregulated gas marketing affiliates.  The MPSC is conducting pilot
studies to test the development of competitive retail gas markets in Michigan.

     WPSC has historically recovered gas costs through a PGAC.  The PSCW has
recently allowed utilities to select either an incentive gas cost recovery
mechanism or a modified one-for-one mechanism for gas cost recovery.  WPSC has
selected the modified one-for-one gas cost recovery plan and implementation of
the new mechanism, which is currently under development and is similar to the
recovery received under the existing PGAC, is expected in November 1998.


                                    -49-

<PAGE>

     WPSC is investigating the environmental cleanup of eight manufactured gas
plant sites.  Cleanup estimates have been determined for seven of the sites. 
A detailed investigation has not yet been performed for the eighth site. 
Future investigation and cleanup costs for all eight sites is estimated in the
range of $34.1 million to $41.1 million.  These estimates may be adjusted in
the future contingent upon remedial technology, regulatory requirements, and
experience gained through cleanup activities.

     An initial liability of $41.7 million for cleanup had been established
with an offsetting regulatory asset (deferred charge).  Of this amount,
approximately $1.5 million has been spent to date.  Management believes that
cleanup costs net of insurance recoveries, but not the carrying costs
associated with the cleanup expenditures, will be recoverable in current and
future customer rates.  WPSC has received $12.6 million in insurance
recoveries which have been recorded as a reduction in the regulatory asset. 
The PSCW has authorized current annualized recovery for gas site cleanup of
$225,000 for 1997 and 1998.

     WPSC is in compliance with both the Phase I and II sulfur dioxide and
nitrogen oxide emission limits established by the Federal Clean Air Act
Amendments of 1990.  Additional capital expenditures of $1.0 million to 
$2.0 million are projected through 1999 for Wisconsin and federal air quality
compliance.  Management believes that all costs incurred for additional
compliance will be recoverable in future customer rates.

     On March 15, 1996, WPSC filed an application with the PSCW for
permission to replace the Kewaunee steam generators.  Public hearings were
held in January of 1998.  A decision is expected in March of 1998.  The total
cost of replacing the two steam generators would be approximately 
$89.0 million.  WPSC's share would be $36.7 million in year of occurrence
dollars.  The other two owners of Kewaunee do not favor steam generator
replacement.

     WPSC received a rate order in the Wisconsin jurisdiction effective in
February 1997.  The impact was approximately a $35.5 million decrease in
electric revenues and a $5.7 million increase in gas revenues on an annual
basis.  The new rates are effective for 1997 and 1998.  WPSC intends to file
an application with the PSCW on April 1, 1998 for electric and gas rate
increases which would be effective in 1999 and 2000.

     ESI incurred a $4.9 million loss in 1997 and a $6.3 million loss in 
1996.  A primary strategy for ESI is rapid growth to gain market presence
which is reflected in a 237.7% growth in revenues during the three-year period
1995 through 1997, from $55.2 million in 1995 to $186.4 million in 1997.  To
support this growth, significant expenditures were made for personnel
additions and system improvements.  These expenditures, coupled with extreme
gas market volatility, contributed to the losses incurred at ESI.  Gas market
volatility was reflected in the NYMEX gas futures prices per dekatherm which,
in 1997, ranged from a high of $3.55 to a low of $1.82.  In 1996, gas futures
prices ranged from a high of $4.57 to a low of $1.86.  Gas market volatility
has a direct impact on revenue.   

     PDI expects to improve the overall performance of its investment in
Stoneman due to a multi-year capacity sale agreement.  Stoneman was also
grandfathered by the PSCW as a merchant plant which increases the probability 

                                    -50-

<PAGE>

that the plant will be repowered as a 300-megawatt to 500-megawatt gas-fired
combined cycle generating facility.

                          IMPACT OF INFLATION

   WPSR's current financial statements are prepared in accordance with
generally accepted accounting principles and report operating results in terms
of historic cost.  They provide a reasonable, objective, and quantifiable
statement of financial results; but they do not evaluate the impact of
inflation.  Under rate treatment prescribed by utility regulatory commissions,
WPSC's projected operating costs are recoverable in revenues.  Because
forecasts are prepared assuming inflation, the majority of inflationary
effects on normal operating costs are recoverable in rates.  However, in these
forecasts, WPSC is only allowed to recover the historic cost of plant via
depreciation.


                                    -51-

<PAGE>
<PAGE>
<TABLE>
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          WPS RESOURCES CORPORATION

                       A.  CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS


<CAPTION>
===========================================================================================================
Year Ended December 31 (Thousands, except share amounts)             1997           1996            1995
-----------------------------------------------------------------------------------------------------------

<S>                                                             <C>            <C>             <C>
Operating revenues
Electric utility                                                   $479,388       $490,506        $489,000
Gas utility                                                         211,090        211,357         174,693
Nonregulated energy and other                                       187,862        156,391          56,155
-----------------------------------------------------------------------------------------------------------
Total operating revenues                                            878,340        858,254         719,848
===========================================================================================================

Operating expenses
Electric production fuels                                           107,538        105,418         104,858
Purchased power                                                      45,876         37,737          39,593
Gas purchased for resale                                            147,755        149,388         116,253
Nonregulated energy cost of sales                                   182,863        155,133          53,983
Other operating expenses                                            148,569        168,905         154,445
Maintenance                                                          41,661         48,806          50,761
Depreciation and decommissioning                                     77,541         65,178          65,627
Taxes other than income                                              26,448         26,868          25,921
-----------------------------------------------------------------------------------------------------------
Total operating expenses                                            778,251        757,433         611,441
===========================================================================================================
Operating income                                                    100,089        100,821         108,407
-----------------------------------------------------------------------------------------------------------
Other income
Allowance for equity funds used during construction                     129            139             170
Other, net                                                           11,511         (1,084)          6,080
-----------------------------------------------------------------------------------------------------------
Total other income                                                   11,640           (945)          6,250
===========================================================================================================
Income before interest expense                                      111,729         99,876         114,657
-----------------------------------------------------------------------------------------------------------
Interest on long-term debt                                           22,331         21,532          22,859
Other interest                                                        4,172          3,596           2,604
Allowance for borrowed funds used during construction                  (100)          (128)            (68)
-----------------------------------------------------------------------------------------------------------
Total interest expense                                               26,403         25,000          25,395
===========================================================================================================

Income before income taxes                                           85,326         74,876          89,262
Income taxes                                                         29,270         24,358          30,808
Minority interest                                                      (797)          (348)              -
Preferred stock dividends of subsidiary                               3,111          3,111           3,111
-----------------------------------------------------------------------------------------------------------
Net income                                                           53,742         47,755          55,343
===========================================================================================================

Retained earnings at beginning of year                              311,794        308,965         297,592
Cash dividends on common stock                                      (45,882)       (44,926)        (43,970)
-----------------------------------------------------------------------------------------------------------
Retained earnings at end of year                                   $319,654       $311,794        $308,965
===========================================================================================================

Average shares of common stock                                       23,873         23,891          23,897
Basic and diluted earnings per average share of common stock          $2.25          $2.00           $2.32
Dividend per share of common stock                                     1.92           1.88            1.84
===========================================================================================================

The accompanying notes are an integral part of these statements.
</TABLE>

                                                  -52-

PAGE
<PAGE>
<TABLE>
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          WPS RESOURCES CORPORATION

                                B.  CONSOLIDATED BALANCE SHEETS


<CAPTION>
=================================================================================================
Assets
-------------------------------------------------------------------------------------------------
At December 31 (Thousands)                                             1997              1996
-------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Utility plant
Electric                                                            $1,506,470        $1,474,104
Gas                                                                    251,603           240,791
-------------------------------------------------------------------------------------------------
Total                                                                1,758,073         1,714,895
Less - Accumulated depreciation and decommissioning                  1,032,149           952,296
-------------------------------------------------------------------------------------------------
Total                                                                  725,924           762,599
Nuclear decommissioning trusts                                         134,108           100,570
Construction in progress                                                 7,266            10,301
Nuclear fuel, less accumulated amortization                             19,062            19,381
-------------------------------------------------------------------------------------------------
Net utility plant                                                      886,360           892,851
=================================================================================================

Current assets
Cash and equivalents                                                     6,424             5,978
Customer and other receivables, net of reserves                         87,709           106,967
Accrued utility revenues                                                30,750            35,386
Fossil fuel, at average cost                                            10,336             8,224
Gas in storage, at average cost                                         22,080            19,987
Materials and supplies, at average cost                                 18,793            19,944
Prepayments and other                                                   20,499            22,658
-------------------------------------------------------------------------------------------------
Total current assets                                                   196,591           219,144
=================================================================================================

Regulatory assets                                                       78,544            96,920
Net nonutility and nonregulated plant                                   19,194            19,738
Investments and other assets                                           118,913           102,212
=================================================================================================
Total                                                               $1,299,602        $1,330,865
=================================================================================================
</TABLE>

                                             -53-

<PAGE>
<PAGE>
<TABLE>
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          WPS RESOURCES CORPORATION

                        B.  CONSOLIDATED BALANCE SHEETS (CONTINUED)


<CAPTION>
=================================================================================================
Capitalization and Liabilities
-------------------------------------------------------------------------------------------------
At December 31 (Thousands)                                             1997              1996
-------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>
Capitalization
Common stock equity                                                 $  477,823        $  467,524
Preferred stock of subsidiary with no mandatory redemption              51,200            51,200
Long-term debt                                                         304,008           305,788
-------------------------------------------------------------------------------------------------
Total capitalization                                                   833,031           824,512
=================================================================================================

Current liabilities
Notes payable                                                           10,000            26,600
Commercial paper                                                        20,706            31,350
Accounts payable                                                        85,651            96,531
Accrued taxes                                                            3,514             1,350
Accrued interest                                                         7,801             8,134
Other                                                                    9,536            12,771
-------------------------------------------------------------------------------------------------
Total current liabilities                                              137,208           176,736
=================================================================================================

Long-term liabilities and deferred credits
Accumulated deferred income taxes                                      125,804           130,208
Accumulated deferred investment tax credits                             26,901            28,669
Regulatory liabilities                                                  50,279            48,870
Environmental remediation liabilities                                   40,215            41,697
Other long-term liabilities                                             86,164            80,173
-------------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits                       329,363           329,617
=================================================================================================

Commitments and contingencies (See Note 9)
=================================================================================================
Total                                                               $1,299,602        $1,330,865
=================================================================================================

The accompanying notes are an integral part of these statements.
</TABLE>


                                             -54-

<PAGE>


<PAGE>
<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         WPS RESOURCES CORPORATION

                    C.  CONSOLIDATED STATEMENTS OF CAPITALIZATION


<CAPTION>
===========================================================================================
At December 31 (Thousands, except share amounts)                     1997           1996
-------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>
Common stock equity
Common stock, $1 par value, 100,000,000 shares authorized;
  23,896,962 shares outstanding                                    $ 23,897       $ 23,897
Premium on capital stock                                            145,021        145,021
Retained earnings                                                   319,654        311,794
Shares in deferred compensation trust, 33,430 and 14,223 shares
  at an average cost of $28.44 and $31.16 per
  share at December 31, 1997 and 1996, respectively                    (951)          (443)
ESOP loan guarantees                                                 (9,798)       (12,745)
-------------------------------------------------------------------------------------------
Total common stock equity                                           477,823        467,524
===========================================================================================

Preferred stock - Wisconsin Public Service Corporation
Cumulative, $100 par value, 1,000,000 shares authorized;
  with no mandatory redemption
        Series       Shares Outstanding
        ------       ------------------
         5.00%             132,000                                   13,200         13,200
         5.04%              30,000                                    3,000          3,000
         5.08%              50,000                                    5,000          5,000
         6.76%             150,000                                   15,000         15,000
         6.88%             150,000                                   15,000         15,000
-------------------------------------------------------------------------------------------
Total preferred stock                                                51,200         51,200
===========================================================================================

Long-term debt
First mortgage bonds - Wisconsin Public Service Corporation
        Series             Year Due
        ------             --------
        5-1/4%               1998                                    50,000         50,000
        7.30%                2002                                    50,000         50,000
        6.80%                2003                                    50,000         50,000
        6-1/8%               2005                                     9,075          9,075
        6.90%                2013                                    22,000         22,000
        8.80%                2021                                    53,100         53,100
        7-1/8%               2023                                    50,000         50,000
-------------------------------------------------------------------------------------------
Total                                                               284,175        284,175
Unamortized discount and premium on bonds, net                         (890)          (978)
-------------------------------------------------------------------------------------------
Total first mortgage bonds                                          283,285        283,197
-------------------------------------------------------------------------------------------
ESOP loan guarantees                                                  9,798         12,745
Notes payable to bank, secured by nonregulated plant                 10,710          9,581
Other long-term debt                                                    215            265
-------------------------------------------------------------------------------------------
Total long-term debt                                                304,008        305,788
===========================================================================================
Total capitalization                                               $833,031       $824,512
===========================================================================================

The accompanying notes are an integral part of these statements.
</TABLE>


                                           -55-

PAGE
<PAGE>
<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         WPS RESOURCES CORPORATION

                                D.  CONSOLIDATED STATEMENTS OF CASH FLOWS


<CAPTION>
=============================================================================================================
Year Ended December 31 (Thousands)                                   1997            1996              1995
-------------------------------------------------------------------------------------------------------------

<S>                                                            <C>             <C>               <C>
Cash flows from operating activities
Net income                                                        $  53,742       $  47,755         $  55,343

Adjustments to reconcile net income to net cash from
  operating activities
Depreciation and decommissioning                                     77,541          65,178            65,627
Amortization of nuclear fuel and other                               14,665          28,691            33,499
Deferred income taxes                                                (5,917)         (7,715)              319
Investment tax credit restored                                       (1,767)         (1,778)           (1,725)
Allowance for equity funds used during construction                    (129)           (139)             (170)
Pension income                                                      (11,432)        (12,413)          (11,678)
Postretirement liability                                              4,952           7,150             6,917
Deferred demand-side management expenditures                             (5)         (6,250)           (8,595)
(Gain)/loss on sale of nonutility property                           (4,802)             (8)               13
Other, net                                                           (6,936)          7,954             7,150

Changes in
Customer and other receivables                                       19,258         (27,666)          (19,272)
Accrued utility revenues                                              4,636           2,200            (8,766)
Fossil fuel inventory                                                (2,112)            477             1,804
Gas in storage                                                       (2,093)         (9,911)            5,711
Accounts payable                                                    (10,880)         29,048               840
Accrued taxes                                                         2,164            (394)              592
Environmental remediation insurance recovery                         12,374             200                 -
Gas refunds                                                            (318)         (6,175)            4,926
-------------------------------------------------------------------------------------------------------------
Net cash from operating activities                                  142,941         116,204           132,535
=============================================================================================================

Cash flows from (used for) investing activities
Construction of utility plant and nuclear fuel expenditures         (58,258)        (84,750)          (80,226)
Purchase of other property and equipment                             (2,030)        (16,431)           (1,089)
Decommissioning funding                                             (16,059)         (8,978)           (8,181)
Purchase of investments and acquisitions                                  -            (728)          (10,217)
Proceeds from sale of nonutility property                             6,255              10                29
Other                                                                  (558)           (359)              485
-------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                              (70,650)       (111,236)          (99,199)
=============================================================================================================

Cash flows from (used for) financing activities
Redemption of first mortgage bonds                                        -          (6,900)                -
Issuance of notes payable                                            92,760         141,225            15,000
Redemption of notes payable                                        (109,360)       (129,625)          (10,000)
Issuance of other long-term debt                                      1,789          15,296                 -
Issuance of commercial paper                                        700,540         345,339            51,500
Redemption of commercial paper                                     (711,184)       (325,489)          (52,500)
Cash dividends on common stock                                      (45,882)        (44,926)          (43,970)
Purchase of deferred compensation stock                                (508)           (443)                -
-------------------------------------------------------------------------------------------------------------
Net cash used for financing activities                              (71,845)         (5,523)          (39,970)
=============================================================================================================
Net increase (decrease) in cash and equivalents                         446            (555)           (6,634)
=============================================================================================================
Cash and equivalents at beginning of year                             5,978           6,533            13,167
=============================================================================================================
Cash and equivalents at end of year                               $   6,424       $   5,978         $   6,533
=============================================================================================================

Cash paid during year for
Interest, less amount capitalized                                 $  22,089       $  21,983         $  21,255
Income taxes                                                         35,374          31,735            34,300
Preferred stock dividends of subsidiary                               3,111           3,111             3,111

Other information
Construction and nuclear fuel expenditures,
  including accruals, allowance for funds used during
  construction, and customer contributions                        $  65,646       $  81,714         $  73,251
=============================================================================================================

The accompanying notes are an integral part of these statements.
</TABLE>

                                                  -56-

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA       
        
        WPS RESOURCES CORPORATION AND 
        WISCONSIN PUBLIC SERVICE CORPORATION

            E.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (a) NATURE OF OPERATIONS--WPS Resources Corporation ("WPSR") is a
          holding company.  Approximately 79% and 95% of WPSR's 1997
          revenues and assets, respectively, and all of its net income are 
          derived from Wisconsin Public Service Corporation ("WPSC"), all of 
          the outstanding common stock of which is owned by WPSR.  WPSC is 
          an electric and gas utility engaged in the supply and distribution 
          of electric power and natural gas in its franchised service 
          territory.  WPSR also provides gas and electric marketing and 
          energy-related services in nonregulated markets through its 
          wholly-owned subsidiary, WPS Energy Services, Inc. ("ESI").  
          WPS Power Development, Inc. ("PDI"), another wholly-owned 
          subsidiary of WPSR, participates in the development of electric 
          generation projects, provides service to the electric power 
          generation industry, and owns a two-thirds interest in a merchant
          generating plant, the Stoneman Power Plant ("Stoneman").

          The term "utility" refers to the regulated activities of WPSC, 
          while the term "nonutility" refers to the activities of WPSC which 
          are not regulated.  The term "nonregulated" refers to activities 
          other than those of WPSC.

     (b)  USE OF ESTIMATES--The preparation of WPSR's financial statements 
          is in conformity with generally accepted accounting principles.  
          Management may make estimates and assumptions that affect the 
          reported amounts of assets and liabilities and the disclosure of 
          contingent assets and liabilities at the date of the financial 
          statements and the reported amounts of revenues and expenses 
          during the reporting period.  Actual results could differ from 
          those estimates.

     (c)  ACQUISITIONS AND NONREGULATED INVESTMENTS--In the fourth quarter 
          of 1995, ESI acquired interests in a producing gas reserves 
          operation and in a gas marketing operation.  The acquisitions have 
          been accounted for under the purchase method of accounting.  The 
          price paid in excess of the fair value of identifiable assets 
          acquired for the gas marketing operation is being amortized over a 
          five-year period.

     (d)  CONSOLIDATION--WPSR consolidates all majority-owned subsidiaries.
          All significant intercompany transactions and accounts have been 
          eliminated.

     (e)  PRICE RISK MANAGEMENT ACTIVITIES--ESI utilizes derivative
          financial and commodity instruments (derivatives), including
          futures and forward contracts, to reduce market risk associated 
          with fluctuations in the price of natural gas and electricity sold 

                                    -57-

<PAGE>
          under firm commitments with certain of its customers.  ESI also 
          utilizes derivatives, including price swap agreements, call and 
          put option contracts, and futures and forward contracts, to manage 
          market risk associated with a portion of its anticipated supply 
          requirements.  In addition, ESI utilizes derivatives, within 
          specified guidelines, for trading purposes.

          Gains or losses on derivatives associated with firm commitments 
          are recognized as adjustments to the cost of sales or to revenues 
          when the related transactions affect earnings.  Gains and losses 
          on derivatives associated with forecasted transactions are 
          recognized when such forecasted transactions affect earnings.  At 
          December 31, 1997, $0.5 million in losses related to firm 
          commitments and forecasted transactions were deferred.  If it is 
          no longer probable that a forecasted transaction will occur, any 
          gain or loss on the derivative instrument as of such date is 
          immediately recognized in earnings.  Derivatives for trading
          purposes are marked to market each accounting period, and gains 
          and losses are recognized as a component of other income at that 
          time.  In 1997 and 1996, trading losses of $1.4 million and 
          $2.5 million, respectively, were recognized.  

          At December 31, 1997, ESI had outstanding 3.9 million notional 
          dekatherms of natural gas under futures and option agreements and 
          3.2 million notional dekatherms of natural gas under basis swap 
          agreements for purposes of managing market risk.  The financial 
          instruments outstanding at December 31, 1997 expire at various 
          times through May 1999.  ESI has certain gas sales commitments 
          through May 1999 with a range of sale prices from $2.25 to $3.58 
          per dekatherm and a range of associated gas purchase costs of 
          $2.18 to $3.51 per dekatherm.

          As of December 31, 1997, the fair value of trading instruments 
          included assets of $0.5 million.  The average fair value of 
          trading instruments during 1997 included assets of $0.5 million 
          and liabilities of $0.5 million.  Except for an insignificant 
          level of electric trading instruments, financial instruments used 
          for trading in 1997 and 1996 were natural gas derivatives.  At 
          December 31, 1997, ESI had outstanding 0.9 million notional 
          dekatherms of natural gas under futures and option agreements and
          3.9 million notional dekatherms of natural gas under basis swap 
          agreements for trading purposes.

     (f)  UTILITY PLANT--Utility plant is stated at the original cost of
          construction which includes an allowance for funds used during 
          construction ("AFUDC").  Approximately 50% of retail 
          jurisdictional construction work in progress ("CWIP") expenditures 
          are subject to AFUDC using a rate based on WPSC's overall cost of 
          capital.  Major new generating facilities earn AFUDC on total CWIP 
          expenditures.  For 1997, the AFUDC retail rate was approximately 
          10.4%.

                                    -58-

<PAGE>

          AFUDC is recorded on wholesale jurisdictional electric CWIP at 
          debt and equity percentages specified in the Federal Energy 
          Regulatory Commission ("FERC") Uniform System of Accounts.  For 
          1997, the AFUDC wholesale rate was approximately 5.7%.

          Substantially all of WPSC's utility plant is subject to a first 
          mortgage lien.

     (g)  PROPERTY ADDITIONS, MAINTENANCE, AND RETIREMENTS OF UTILITY
          PLANT--The cost of renewals and betterments of units of property 
          (as distinguished from minor items of property) is capitalized as 
          an addition to the utility plant accounts.  No gain or loss is 
          recognized in connection with ordinary retirements of utility 
          property units.  The cost of units of property retired, sold, or 
          otherwise disposed of, plus removal cost, less salvage, are 
          charged to the accumulated provision for depreciation.  
          Maintenance and repair costs and replacement and renewal costs 
          associated with items not qualifying as units of property are 
          generally charged to operating expense.  

          Nonutility property and nonregulated property follow a similar 
          policy except that gains and losses are recognized in connection 
          with retirements.

     (h)  DEPRECIATION--Straight-line composite depreciation expense is 
          recorded over the estimated useful life of utility property and 
          includes estimated salvage and cost of removal.  Except for the 
          Kewaunee Nuclear Power Plant ("Kewaunee"), rates approved by the 
          Public Service Commission of Wisconsin ("PSCW") on January 1, 1994 
          remain in effect. 

          ============================================================
                                      1997          1996          1995
          ------------------------------------------------------------
          Annual composite 
          depreciation rates
          Electric                    3.52%         3.33%        3.43%
          Gas                         3.26%         3.35%        3.46%
          ============================================================

          Nonutility property and nonregulated property are depreciated 
          using straight-line depreciation.  Most assets have depreciation 
          lives ranging from five to ten years.  

          Property at Stoneman is depreciated using various lives, certain 
          of which are as long as 40 years.

          Depreciation and nuclear decommissioning costs are accrued over 
          the estimated service life of Kewaunee.  On January 3, 1997, the 
          PSCW accepted WPSC's recommendation to accelerate cost recovery of 
          the remaining unrecovered investment in Kewaunee and accelerate 
          funding of Kewaunee decommissioning costs.  The PSCW order directs 
          the owners of Kewaunee to develop depreciation and decommissioning 
          estimates to provide for full recovery by the end of 2002.  Prior 
          to 1997, the service life of Kewaunee was estimated to end in
          2013, the year its license expires.  This decision results in a 

                                    -59-

<PAGE>

          significant acceleration of the Wisconsin retail jurisdictional 
          portion of Kewaunee depreciation and decommissioning collections 
          in customer rates for 1997 and future years.  Depreciation 
          expense, exclusive of depreciation expense related to nuclear 
          decommissioning costs, increased by approximately $3.3 million on 
          an annualized basis from $4.7 million in 1996 to $8.0 million in 
          1997.

     (i)  IMPAIRMENT--WPSR follows the provisions of Statement of Financial 
          Accounting Standards ("SFAS") No. 121, "Accounting for the 
          Impairment of Long-Lived Assets and for Long-Lived Assets to be 
          Disposed of."  SFAS No. 121 requires that long-lived assets and 
          certain identifiable intangibles be reviewed for impairment 
          whenever circumstances indicate that the carrying amount of an 
          asset may not be recoverable.  Impairment losses resulting from 
          application of this statement are reported in income in the period 
          in which the recognition criteria are first applied and met.  This
          statement does not have a material impact on the current carrying 
          amount of WPSR's assets.

     (j)  NUCLEAR FUEL--The cost of nuclear fuel is amortized to electric 
          production fuel expense based on the quantity of heat produced for 
          the generation of electric energy by Kewaunee.  Costs amortized to 
          electric fuel expense (which assume no salvage values for uranium 
          and plutonium) include an amount for ultimate disposal and are 
          recovered through current customer rates.  As required by the 
          Nuclear Waste Policy Act of 1982, a contract has been signed with 
          the United States Department of Energy ("DOE") for the ultimate
          storage of the fuel; and quarterly payments, based on generation, 
          are made to the DOE for fuel storage.  Interim storage space for 
          spent nuclear fuel is provided at Kewaunee, and expenses 
          associated with this storage are recognized as current operating
          costs.  Currently, there is on-site storage capacity for spent 
          fuel through the year 2013.  As of December 31, 1997 and 1996, the 
          accumulated provisions for nuclear fuel totaled $151.2 million and
          $147.7 million, respectively.

     (k)  NUCLEAR DECOMMISSIONING--Nuclear decommissioning costs to date 
          have been accrued over the estimated service life of Kewaunee, 
          recovered currently from customers in rates, and deposited in 
          external trusts.  Such costs totaled $16.1 million in 1997 and 
          $9.0 million in both 1996 and 1995.  The increase in 1997 was the 
          result of the PSCW's approval of the acceleration of Kewaunee 
          depreciation and decommissioning funding as described in 
          note 1(h).  The increase is $8.3 million on an annualized basis, 
          from $9.0 million to $17.3 million.

          Based on the standard cost escalation assumptions required by a 
          July 1994 PSCW order, the undiscounted amount of WPSC's
          decommissioning costs forecasted to be expended between the years 
          2003 and 2039 is $614.0 million under the revised funding plan 
          which became effective in 1997.  In developing the funding plan, a 
          long-term after-tax earnings rate of approximately 5.5% was 
          assumed.

                                   -60-

<PAGE>

          WPSC's share of Kewaunee decommissioning is estimated to be
          $182.2 million in current dollars based on a site-specific study.  
          The study, which was performed in 1992, uses immediate 
          dismantlement as the method of decommissioning beginning after a 
          dormant period extending from 2002 until 2015.  As of December 31, 
          1997, the market value of the external nuclear decommissioning 
          trusts totaled $134.1 million.  

          Depreciation expense includes future decommissioning costs 
          collected in customer rates and an offsetting charge for earnings 
          from external trusts.  As of December 31, 1997, the accumulated 
          provision for depreciation and decommissioning included 
          accumulated provisions for decommissioning totaling 
          $134.1 million.  Realized trust earnings totaled $3.7 million, 
          $3.0 million, and $4.0 million, and unrealized trust earnings 
          totaled $13.8 million, $6.5 million, and $5.0 million for the 
          years ended December 31, 1997, 1996, and 1995, respectively.  
          Unrealized gains, net of tax, in external trusts are reflected as
          an increase to the decommissioning reserve, since decommissioning 
          expense will be recognized as the gains are realized, in 
          accordance with regulatory requirements.

          Investments in the nuclear decommissioning trusts are recorded at 
          market value.  The investments classified as utility plant are 
          presented net of related income tax effects on unrealized gains 
          and represent the amount of assets available to accomplish 
          decommissioning.  The nonqualified trust investments designated to 
          pay income taxes when unrealized gains become realized are 
          classified as other assets.  An offsetting regulatory liability
          reflects the expected reduction in future rates as unrealized 
          gains in the nonqualified trust are realized.

     (l)  CASH AND EQUIVALENTS--WPSR considers short-term investments with
          an original maturity of three months or less to be cash 
          equivalents.

     (m)  REVENUE AND CUSTOMER RECEIVABLES--WPSR accrues revenues related to 
          electric and gas service, including estimated amounts for service
          rendered but not billed.

          Automatic fuel adjustment clauses are used for FERC
          wholesale-electric and Michigan Public Service Commission ("MPSC") 
          retail-electric portions of WPSC's business.  The PSCW 
          retail-electric portion of the business uses a "cost variance 
          range" approach.  This range is based on a specific estimated fuel 
          cost for the forecast year.  If WPSC's actual fuel costs fall 
          outside this range, a hearing may be held and an adjustment to 
          future rates may result.  WPSC has a purchased gas adjustment 
          clause ("PGAC") which allows it to pass changes in the cost of gas 
          purchased from its suppliers on to system gas customers, subject 
          to PSCW and MPSC review.  The continued use of a PGAC for all 
          Wisconsin utilities has been reexamined by the PSCW and utilities 
          were given the choice between continuing under a modified 
          one-for-one gas cost recovery plan or switching to an incentive 
          gas cost recovery mechanism.  WPSC has applied for a modified
          one-for-one gas cost recovery plan which is similar to cost

                                    -61-

<PAGE>

          recovery under the existing PGAC.  Implementation of the modified 
          one-for-one gas cost recovery plan is expected in November 1998.

          WPSC is required to provide service and grant credit to customers 
          within its service territory and is precluded from discontinuing 
          service to residential customers during certain periods of the 
          year.  WPSC continually reviews its customers' credit-worthiness 
          and obtains deposits or refunds deposits accordingly.  WPSC is 
          permitted to recover bad debts in utility rates.  

          Approximately 12% of WPSC's total revenues are from companies in 
          the paper products industry.                 

          In October 1997, WPSC lost a major wholesale customer representing 
          annual sales of approximately 380,000 megawatt-hours.  An effort 
          is being made to replace these lost sales with additional
          opportunity sales.   

     (n)  REGULATORY ASSETS AND LIABILITIES--WPSC is subject to the
          provisions of SFAS No. 71, "Accounting for the Effects of Certain 
          Types of Regulation."  Regulatory assets represent probable future 
          revenue associated with certain incurred costs which will be 
          recovered from customers through the ratemaking process. 
          Regulatory liabilities represent costs previously collected that 
          are refundable in future customer rates.  The following regulatory 
          assets and liabilities were reflected in the Consolidated Balance 
          Sheets as of December 31:

          ============================================================
          (Thousands)                               1997         1996
          ------------------------------------------------------------
          Regulatory assets
          Demand-side management expenditures     $31,360      $39,355
          Environmental remediation costs
            (net of insurance recoveries)          29,249       43,062
          Coal and rail contract buy-out costs      2,293        2,404
          Debt refinancing costs                    1,859        2,919
          Enrichment facility fee                   5,544        5,979
          Kewaunee steam generator 
            resleeving costs                        3,577            -
          Other                                     4,662        3,201
          ------------------------------------------------------------
          Total                                   $78,544      $96,920
          ============================================================
          Regulatory liabilities
          Income tax related items                $26,119      $30,056
          Pensions                                  2,443        4,885
          Conservation costs                        6,491        9,101
          Unrealized gain on decommissioning 
            trust                                  11,348        3,587
          Other                                     3,878        1,241
          ------------------------------------------------------------
          Total                                   $50,279      $48,870
          ============================================================

                                    -62-

<PAGE>

          As of December 31, 1997, the majority of WPSC's regulatory assets 
          are being recovered through rates charged to customers over 
          periods ranging from two to ten years.  Carrying costs for all 
          regulatory assets are being recovered except for those associated 
          with environmental costs.  Based on prior and current rate 
          treatment of such costs, management believes it is probable that 
          WPSC will continue to recover from ratepayers the regulatory 
          assets described above.

          See notes 7 and 8 for specific information on pension and deferred 
          tax regulatory liabilities.  See note 9 for information on 
          environmental remediation deferred costs.

     (o)  INVESTMENTS AND OTHER ASSETS--Investments include ownership
          interests in Wisconsin River Power Company and Wisconsin Valley 
          Improvement Company.  Income related to these investments is 
          included in other income and deductions using the equity method of 
          accounting.  Other assets include prepaid pension assets, 
          operating deposits for jointly-owned plants, the cash surrender 
          value of life insurance policies, the long-term portion of energy 
          conservation loans to customers, and the decommissioning trust 
          investments designated for payment of income taxes.  

     (p)  RECLASSIFICATIONS--Certain prior year financial statement amounts 
          have been reclassified to conform to current year presentation.

     (q)  RETIREMENT OF DEBT--Historically, gains or losses resulting from 
          the settlement of long-term debt obligations have been deferred 
          and amortized concurrent with rate recovery as required by 
          regulators.

     (r)  COMPREHENSIVE INCOME--In June 1997, the Financial Accounting
          Standards Board ("FASB") issued SFAS No. 130, "Reporting of
          Comprehensive Income," which establishes standards for reporting 
          and displaying comprehensive income and its components of 
          revenues, expenses, gains, and losses.  The statement is effective 
          for fiscal years beginning after December 15, 1997.  WPSR will be 
          adopting the requirements for reporting comprehensive income in 
          the first quarter of 1998.  WPSR currently has no components of 
          comprehensive income other than net income.

     (s)  SEGMENT DISCLOSURES--In June 1997, the FASB issued SFAS No. 131,
          "Disclosures about Segments of an Enterprise and Related 
          Information."  This statement establishes standards for reporting 
          information about operating segments and is effective for periods 
          beginning after December 15, 1997.  WPSR will be adopting the 
          requirements of this statement at year-end 1998 and has not yet 
          determined the segments which will be disclosed.

                                   -63-

<PAGE>

NOTE 2--JOINTLY-OWNED FACILITIES

     Information regarding WPSC's share of major jointly-owned electric 
     generating facilities in service at December 31, 1997 is set forth 
     below.

<TABLE>
<CAPTION>
===========================================================================================
(Thousands,                    West Marinette      Columbia         Edgewater
except for percentages)          Unit No. 33     Energy Center     Unit No. 4      Kewaunee
-------------------------------------------------------------------------------------------
<S>                            <C>           <C>                 <C>            <C>
Ownership                             68%               31.8%         31.8%           41.2%
Plant capacity (Megawatts)           83.5               335.2         104.9           221.0
Utility plant in service          $15,914            $110,045       $22,209        $132,898
Accumulated depreciation          $ 2,774            $ 63,432       $13,204        $ 89,858
In-service date                      1993       1975 and 1978          1969            1974
===========================================================================================
</TABLE>

     WPSC's share of direct expenses for these plants is included in the 
     corresponding operating expenses in the consolidated statements of
     income.  WPSC has supplied its own financing for all jointly-owned
     projects.  

NOTE 3--SHORT-TERM DEBT AND LINES OF CREDIT  

     To provide short-term borrowing flexibility and security for commercial
     paper outstanding, WPSR and its subsidiaries maintain bank lines of
     credit.  Most of these lines of credit require a fee.

     The information in the table below relates to short-term debt and lines
     of credit for the years indicated:

<TABLE>
<CAPTION>
================================================================================================
(Thousands, except for percentages)                      1997            1996              1995
------------------------------------------------------------------------------------------------    
<S>                                                 <C>              <C>          <C>    
As of end of year
Commercial paper outstanding                           $20,706          $31,350          $11,500
Discount rate on outstanding commercial paper            6.55%            5.73%            5.65%
Notes payable outstanding                              $10,000          $26,600          $15,000
Interest rate on notes payable                           5.92%            5.81%      5.77%-6.18%
Available lines of credit                              $23,500          $40,400          $28,050  
================================================================================================
For the year                                           
Maximum amount of short-term debt                      $75,017          $70,250          $32,500
Average amount of short-term debt                      $30,092          $28,424          $14,305
Average interest rate on short-term debt                 5.50%            4.89%            5.97%
================================================================================================
</TABLE>

NOTE 4--LONG-TERM DEBT

     Substantially all utility plant assets are secured by first mortgage
     bonds.

     In June 1996, WPSC repurchased $6.9 million of the First Mortgage Bonds,
     8.80% Series, due in 2021.  The repurchase was funded through short-term
     borrowings.  The repurchase premium and the unamortized discount from
     the original issue have been deferred and are being amortized over
     approximately a two-year period to correspond with ratemaking treatment. 
     In 1998, $50.0 million of 5-1/4% bonds will mature.

     As of December 31, 1997, $8.2 million has been drawn against PDI's
     revolving credit note of $11.5 million which is secured by the assets of

                                    -64-

<PAGE>

     Stoneman.  An additional $3.3 million, which is to be paid in the year
     2000, has been committed against this note.  The note, which is
     guaranteed by WPSR, is due in the year 2000 when the plant may be
     converted to a 300-megawatt to 500-megawatt gas-fired combined cycle
     facility.

NOTE 5--COMMON EQUITY  

     Under WPSR's Stock Investment Plan, WPSR's common stock is purchased in
     the open market to satisfy shareholder and employee purchase
     requirements.

     In December 1996, WPSR adopted a Shareholder Rights Plan designed to
     enhance the ability of the Board of Directors to protect shareholders
     and WPSR if efforts are made to gain control of WPSR in a manner that is
     not in the best interests of WPSR and its shareholders.  The plan gives
     existing shareholders, under certain circumstances, the right to
     purchase stock at a discounted price.  The rights expire on December 11,
     2006.

     At December 31, 1997, WPSR had $318.6 million of retained earnings
     available for dividends.  WPSC is restricted by a PSCW order to paying
     normal common stock dividends of no more than 109.0% of the previous
     year's common stock dividend without PSCW approval.  Also, Wisconsin law
     prohibits WPSC from making loans to WPSR and its subsidiaries and from
     guaranteeing their obligations.  In January 1997, WPSC paid to WPSR a
     special common dividend of $10.0 million.  The special dividend allowed
     WPSC's average common equity capitalization ratio to remain at
     approximately 54.0%, the level approved by the PSCW for ratemaking.

NOTE 6--FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used to estimate the fair
     value of each class of financial instruments for which it is practicable
     to estimate such value:

     Cash, Short-Term Investments, Energy Conservation Loans, Notes Payable,
     and Outstanding Commercial Paper:  The carrying amount approximates fair
     value due to the short maturity of those investments and obligations.

     Nuclear Decommissioning Trusts:  The value of WPSC's nuclear
     decommissioning trust investments is recorded at market value.

     Long-Term Debt, Preferred Stock, and ESOP Loan Guarantees:  The fair
     value of WPSC's long-term debt, preferred stock, and ESOP loan
     guarantees is estimated based on the quoted market price for the same or
     similar issues or on the current rates offered to WPSC for debt of the
     same remaining maturity.

                                    -65-

<PAGE>

     The estimated fair values of WPSR's financial instruments as of
     December 31 were:

<TABLE>
<CAPTION>
=================================================================================================
(Thousands)                                  1997                                 1996          
-------------------------------------------------------------------------------------------------
                                 Carrying Amount   Fair Value        Carrying Amount   Fair Value
-------------------------------------------------------------------------------------------------
<S>                               <C>            <C>                  <C>             <C>
Cash and cash equivalents            $  6,424       $  6,424             $  5,978        $  5,978
Energy conservation loans               7,195          7,195                5,388           5,388
Nuclear decommissioning
  trusts - utility plant              134,108        134,108              100,570         100,570
Nuclear decommissioning
  trusts - other assets                11,348         11,348                5,991           5,991
Notes payable                          10,000         10,000               26,600          26,600
Commercial paper                       20,706         20,706               31,350          31,350
ESOP loan guarantees                    9,798         10,243               12,745          13,412
Long-term debt                        294,210        309,206              293,043         300,906
Preferred stock                        51,200         48,595               51,200          45,314
Gas commodity instruments                 504            436                  (61)            650
=================================================================================================
</TABLE>

NOTE 7--EMPLOYEE BENEFIT PLANS

     WPSC has non-contributory retirement plans covering substantially all
     employees under which annual contributions may be made to an irrevocable
     trust established to provide retired employees with a monthly payment if
     conditions relating to age and length of service have been met.  The
     plans are fully funded, and no contributions were made in 1997, 1996, or
     1995.  WPSC recovers pension costs in customer rates under SFAS No. 87,
     "Employers' Accounting for Pensions," and is returning to ratepayers
     through 1998 the amounts previously recovered from customers in excess
     of SFAS No. 87 costs.

     The retirement plans hold assets with a fair market value of
     $488.6 million as of December 31, 1997.  These assets consist of
     domestic and international equity and fixed income investments, and
     domestic real estate investments.

     The following table sets forth the plans' funded status and expense
     (income).

                                    -66-

<PAGE>

<TABLE>
<CAPTION>
============================================================================
As of December 31                        1997          1996          1995
(Thousands, except for percentages)
----------------------------------------------------------------------------
<S>                                <C>           <C>           <C>
Vested benefit obligation             $(218,541)    $(189,097)    $(177,490)
Non-vested benefit obligation           (13,112)      (10,213)       (8,980)
----------------------------------------------------------------------------
Total actuarial present value of
  accumulated benefit obligation      $(231,653)    $(199,310)    $(186,470)
============================================================================
Projected benefit obligation for 
  service rendered to date            $(296,711)    $(252,268)    $(255,188)
Plan assets at fair value               488,555       429,948       391,070 
----------------------------------------------------------------------------
Plan assets in excess of projected 
  benefit obligation                    191,844       177,680       135,882 
Unrecognized net gain                  (136,264)     (121,066)      (84,098)
Unrecognized prior service cost          13,813         7,254         8,020 
Unrecognized net transition asset       (16,526)      (19,991)      (23,455)
----------------------------------------------------------------------------
Prepaid retirement plan asset         $  52,867     $  43,877     $  36,349 
============================================================================
The net retirement plan expense 
  (income) includes the following 
  components

Service cost                          $   5,854    $   6,371     $   5,888 
Interest cost                            19,363       19,097        18,211 
Actual return on plan assets            (71,729)     (48,244)      (73,242)
Net amortization and deferral            37,522       15,248        42,791 
Regulatory adjustment                    (2,442)      (4,885)       (5,326)
---------------------------------------------------------------------------
Net retirement plan (income)          $ (11,432)   $ (12,413)    $ (11,678)
===========================================================================
The assumed rates for calculations 
  used in the above tables were

Expected long-term return on 
  investments                              8.75%        8.50%        9.00%
Average rate for future salary
  increases                                5.50%        5.50%        6.25%
Discount rate to compute projected 
  benefit obligation                       7.25%        7.75%        7.75%
==========================================================================
</TABLE>

     WPSC also offers medical, dental, and life insurance benefits to
     employees, retirees, and their dependents.  The expenses for active
     employees are expensed as incurred.  

     WPSC accounts for retiree benefits using SFAS No. 106, "Employers'
     Accounting for Postretirement Benefits Other Than Pensions," which
     requires the cost of postretirement benefits for employees to be accrued
     as expense over the period in which the employee renders service and
     becomes eligible to receive benefits.  WPSC elected to recognize the
     transition obligation for current and future retirees over 20 years
     beginning in 1993.

                                    -67-

<PAGE>

     WPSC funds amounts to irrevocable trusts as allowed for income tax
     purposes.  These funded amounts have been expensed and recovered through
     customer rates.  The non-administrative plan is a collectively bargained
     plan and, therefore, is tax exempt.  The investments in the trust
     covering administrative employees are subject to federal unrelated
     business income taxes at a 39.6% tax rate.

     The postretirement plans hold assets with a fair market value of
     $121.0 million as of December 31, 1997.  These assets consist of
     domestic and international equity securities and domestic fixed income
     investments. 

     The table below sets forth the plans' accrued postretirement benefit
     obligation ("APBO") and the expense provisions.

<TABLE>
<CAPTION>
=========================================================================
(Thousands)                                1997       1996        1995
-------------------------------------------------------------------------
<S>                               <C>          <C>          <C>
APBO attributable to
Retirees and dependents              $ (44,414)   $ (43,746)   $ (46,681)
Fully eligible active plan 
  participants                         (11,637)      (5,273)      (5,983)
Other active plan participants         (57,594)     (52,112)     (58,611)
-------------------------------------------------------------------------
Total APBO                            (113,645)    (101,131)    (111,275)
Fair value of plan assets              120,960      103,748       91,038 
-------------------------------------------------------------------------
APBO in excess of plan assets            7,315        2,617      (20,237)
Unrecognized net (gain)/loss           (80,090)     (66,045)     (38,371)
Unrecognized transition 
  obligation                            36,018       38,453       40,887 
Unrecognized prior service cost          4,583       (1,897)      (2,027)
-------------------------------------------------------------------------
Accrued postretirement 
  benefit obligation                 $ (32,174)   $ (26,872)   $ (19,748)
=========================================================================
Service cost                         $   3,192    $   3,613    $   4,392 
Interest cost                            8,220        8,488        9,833 
Actual return on plan assets           (20,176)     (18,136)     (20,918)
Net amortization and deferral           14,241       13,726       17,809 
-------------------------------------------------------------------------
Postretirement benefit cost          $   5,477    $   7,691    $  11,116 
=========================================================================
</TABLE>

     The assumed before tax expected long-term return on investments and the
     discount rate used to measure the APBO under SFAS No. 106 are consistent
     with rates used to calculate the pension plans' funded status and
     expense under SFAS No. 87.  Only the administrative plan is subject to
     federal income taxes which are reflected in the expense and funding
     status.  The assumed health care cost trend rates for 1998 are 8.0% for
     medical and 7.5% for dental, both decreasing to 5.0% by the year 2006. 
     Increasing each of the medical and dental cost trend rates by 1.0% in
     each year would increase the total APBO as of December 31, 1997 by
     $20.0 million and the total net periodic postretirement benefit cost for
     the year then ended by $2.3 million.

                                    -68-

<PAGE>

     WPSC has a leveraged Employee Stock Ownership Plan and Trust ("ESOP")
     that held 2,070,144 shares of WPSR common stock (market value of
     approximately $70.0 million) at December 31, 1997.  At that date, the
     ESOP also had one loan guaranteed by WPSC and secured by common stock.
     Principal and interest on the loan are to be paid using contributions
     from WPSC and dividends on WPSR common stock held by the ESOP.  Shares
     in the ESOP are allocated to participants as the loan is repaid.  Tax
     benefits from dividends paid to the ESOP are recognized as a reduction
     in WPSC's cost of providing service to customers.  The PSCW has allowed
     WPSC to include in cost of service an additional employer contribution
     to the plan.  The net effect of the tax benefits and of the employer
     contribution is an approximately equal sharing of the tax benefits of
     the program between customers and employees.

NOTE 8--INCOME TAXES

     WPSR accounts for income taxes using the liability method as prescribed
     by SFAS No. 109, "Accounting for Income Taxes."  Under the liability
     method, deferred income tax liabilities are established for all
     temporary differences in the book and tax bases of assets and
     liabilities based upon enacted tax laws and rates applicable to the
     periods in which the taxes become payable.  Taxes provided in prior
     years at rates greater than current rates are being refunded to
     customers prospectively as the temporary differences reverse.  The net
     regulatory liability totaled $26.1 million as of December 31, 1997.

     As of December 31, 1997 and 1996, WPSR had the following significant
     temporary differences that created deferred tax assets and liabilities:

     ===================================================================
     (Thousands)                                     1997         1996  
     -------------------------------------------------------------------
     Deferred tax assets                                  
     Plant related                                $ 68,175      $ 55,040
     Customer advances                               8,187         8,232
     Postretirement medical and dental              12,831        10,844
     Other                                          16,522        14,752
     -------------------------------------------------------------------
     Total                                        $105,715      $ 88,868
     ===================================================================
     Deferred tax liabilities
     Plant related                                $192,347      $179,573
     Demand-side management expenditures            12,383        15,540
     Pension                                        20,054        13,676
     Other                                           6,735        10,287
     -------------------------------------------------------------------
     Total                                        $231,519      $219,076
     ===================================================================
     Net deferred tax liabilities                 $125,804      $130,208
     ===================================================================

     Previously deferred investment tax credits are being amortized as 
     a reduction to income tax expense over the life of the related 
     utility plant.  The components of income tax expense are set forth
     in the tables below.

                                    -69-

<PAGE>

<TABLE>
<CAPTION>
============================================================================================
(Thousands, 
except for percentages)                 1997               1996                  1995
--------------------------------------------------------------------------------------------
                                   Rate     Amount     Rate    Amount       Rate      Amount
--------------------------------------------------------------------------------------------
<S>                            <C>      <C>        <C>      <C>        <C>       <C>
Statutory federal income tax      35.0%    $30,143    35.0%    $26,329     35.0%    $31,242 
State income taxes, net            5.7       4,862     5.7       4,275      5.4       4,850 
Investment tax credit restored    (2.1)     (1,768)   (2.4)     (1,778)    (1.9)     (1,725)
Rate difference on reversal 
  of income tax temporary 
  differences                     (2.2)     (1,888)   (2.1)     (1,579)    (1.9)     (1,656)
Dividends paid to ESOP            (1.6)     (1,381)   (1.9)     (1,424)    (1.6)     (1,444)
Other differences, net            (0.8)       (698)   (2.0)     (1,465)    (0.5)       (459)
--------------------------------------------------------------------------------------------
Effective income tax              34.0%    $29,270    32.3%    $24,358     34.5%    $30,808 
============================================================================================
Current provision 
Federal                                    $29,427             $26,122              $25,628 
State                                        7,527               7,729                6,586 
--------------------------------------------------------------------------------------------
Total current provision                     36,954              33,851               32,214 
Deferred (benefit) provision                (5,917)             (7,715)                 319 
Investment tax credit 
  restored, net                             (1,767)             (1,778)              (1,725)
--------------------------------------------------------------------------------------------
Total income tax expense                   $29,270             $24,358              $30,808 
============================================================================================

NOTE 9--COMMITMENTS AND CONTINGENCIES  

     COAL CONTRACTS

     To ensure a reliable, low-cost supply of coal, WPSC entered into a long-term
     contract that has take-or-pay obligations totaling $198.4 million from 1998
     through 2016.  The obligations are subject to force majeure provisions which
     provide WPSC other options if the specified coal does not meet emission limits
     which may be mandated in future legislation.  In the opinion of management,
     any amounts paid under the take-or-pay obligations described above would be
     considered costs of service subject to recovery in customer rates.

     PURCHASED POWER

     WPSC has several take-or-pay contracts for either capacity or energy related
     to purchased power.  These contracts total $38.5 million through 1999. 
     Management expects to recover these costs in future customer rates.

     LONG-TERM POWER SUPPLY 

     In November 1995, WPSC signed a 25-year agreement to purchase power from
     Polsky Energy Corporation ("Polsky"), an independent power producer proposing
     to build a cogeneration facility and sell electrical power to WPSC.  In
     October 1997, the PSCW issued a Certificate of Public Convenience and
     Necessity authorizing construction of the project.  Phase I of the project,
     which is expected to be operational during 1999, will be accounted for as a
     capitalized lease with the capitalized amount being approximately
     $77.0 million.  If Phase II becomes operational (Phase II is currently
     projected to be operational within five years of the start of Phase I), an
     additional plant asset of approximately $77.0 million will be recorded.

                                    -70-

<PAGE>

     GAS COSTS 
     
     WPSC has natural gas supply and transportation contracts that will require
     total estimated demand payments of $238.9 million through October 2008. 

     The FERC has allowed ANR Pipeline Company ("ANR"), WPSC's primary pipeline
     supplier, to recover from its customers, including WPSC, a portion of certain
     take-or-pay costs it incurred from renegotiating its long-term gas supply
     contracts.  To date, the PSCW and MPSC have granted WPSC recovery of all ANR
     take-or-pay costs.  WPSC has satisfied all current direct billed take-or-pay
     costs from ANR.  Remaining take-or-pay volumetric surcharges are estimated to
     be $0.5 million during 1998.

     In April 1992, the FERC issued Order No. 636 ("Order") which required natural
     gas pipelines to restructure their sales and transportation services.  As a
     result, WPSC was obligated to pay for a portion of ANR's transition costs
     incurred to comply with the Order.  ANR recovers these transition costs
     through a Gas Supply Realignment ("GSR") surcharge and a Pricing Differential
     ("PD") surcharge, with most charges recovered through the PD mechanism.  On
     December 31, 1997, ANR made its seventh PD cost recovery filing.  WPSC
     believes this may be ANR's final PD filing as most PD eligible contracts have
     now expired, and ANR's PD mechanism ends effective January 31, 1999.  WPSC's
     estimated remaining PD costs are $0.7 million.  Though there may be additional
     PD and GSR transition costs, which could be significant, the amount and timing
     of these costs are unknown at this time.  Management expects to recover these
     costs in future customer rates since the PSCW and MPSC have allowed such
     recovery to date.

     In December 1996, FERC approved a settlement agreement which establishes the
     price for ANR's gas purchases and demand charges from the Dakota Gasification
     Plant.  Demand charges for WPSC through 2003 are estimated to be $1.5 million.
     
     NUCLEAR LIABILITY

     The Price-Anderson Act provides for the payment of funds for public liability
     claims arising out of a nuclear incident.  In the event of a nuclear incident
     involving any of the nation's licensed reactors, WPSC is subject to a
     proportional assessment which is approximately $32.7 million per incident, not
     to exceed $4.1 million per incident, per calendar year.  These amounts
     represent WPSC's 41.2% ownership share in Kewaunee.

     NUCLEAR PLANT OPERATION

     On March 15, 1996, WPSC filed an application with the PSCW for permission to
     replace the Kewaunee steam generators.  Public hearings were held in
     January 1998.  A decision is expected in March 1998.  The total cost of
     replacing the two steam generators is approximately $89.0 million.  WPSC's
     share is $36.7 million in year of occurrence dollars.  The other two owners of
     Kewaunee do not favor steam generator replacement.

     The net book value of WPSC's share of Kewaunee at December 31, 1997 is
     $43.0 million.  In addition, the current cost of WPSC's share of the estimated
     costs to decommission Kewaunee, assuming early retirement, exceeds the trust
     assets at December 31, 1997 by $48.1 million.  If retired early, Kewaunee
     would be placed in a dormant state following the transfer of spent fuel to
     temporary storage facilities.  Under this plan, Kewaunee would remain intact

                                    -71-

<PAGE>

     with minimal monitoring and maintenance until physical decommissioning begins. 
     Actual decommissioning would probably not begin until approximately 2015.  If
     the owners of Kewaunee decide not to replace the steam generators or if the
     PSCW does not authorize replacement, management believes the carrying amount
     and any unfunded decommissioning costs at the date of Kewaunee's retirement
     would be recoverable from customers in rates, and that no write-down for
     impairment would be necessary.  On January 3, 1997, the PSCW accepted WPSC's
     recommendation to accelerate recovery of the Wisconsin retail portion of both
     the current undepreciated plant balance and the unfunded decommissioning costs
     over a six-year period, 1997 through 2002.

     CLEAN AIR REGULATIONS

     WPSC is in compliance with both the Phase I and Phase II sulfur dioxide and
     nitrogen oxide emission limits established by the Federal Clean Air Act
     Amendments of 1990.  Additional capital expenditures of $1.0 million to
     $2.0 million are projected through 1999 for Wisconsin and federal air quality
     compliance.  Management believes that all costs incurred for additional
     compliance will be recoverable in future customer rates.

     MANUFACTURED GAS PLANT REMEDIATION

     WPSC is investigating the environmental cleanup of eight manufactured gas
     plant sites.  A detailed investigation has not yet been performed for the
     eighth site.  Future investigation and cleanup costs for all eight sites is
     estimated to be in the range of $34.1 million to $41.1 million.  These
     estimates may be adjusted in the future contingent upon remedial technology,
     regulatory requirements, and experience gained through cleanup activities.

     A liability for cleanup of $41.7 million had been established with an
     offsetting regulatory asset (deferred charge).  Of this amount, approximately
     $1.5 million has been spent to date.  Management believes that cleanup costs
     net of insurance recoveries, but not the carrying costs associated with the
     cleanup expenditures, will be recoverable in current and future customer
     rates.  WPSC has received $12.6 million in insurance recoveries which have
     been recorded as a reduction in the regulatory asset.  The PSCW has authorized
     current annualized recovery for gas site cleanup of $225,000 for each of the
     years 1997 and 1998.
     
     FUTURE UTILITY EXPENDITURES

     Management estimates 1998 utility plant construction expenditures to be
     approximately $88.3 million.  Demand-side management ("DSM") expenditures are
     estimated to be $8.0 million.  No DSM expenditures will be deferred in 1998,
     and the outstanding deferred asset balance at December 31, 1997 of
     $31.4 million will be amortized over the next four years consistent with rate
     recovery.  

NOTE 10--REGULATORY ENVIRONMENT

     WPSC received a rate order in the Wisconsin jurisdiction in February 1997. 
     The impact was approximately a $35.5 million decrease in electric revenues and
     a $5.7 million increase in gas revenues on an annualized basis.  The new rates
     were effective for 1997 and will be effective for 1998.  WPSC intends to file
     an application with the PSCW on April 1, 1998, for electric and gas rate
     increases which would be effective in 1999 and 2000.

                                    -72-

<PAGE>

NOTE 11--AGREEMENT TO MERGE WITH UPPER PENINSULA ENERGY CORPORATION

     On July 10, 1997, WPSR announced an agreement to merge with Upper Peninsula
     Energy Corporation ("UPEN").  The S-4 Registration Statement was declared
     effective by the Securities and Exchange Commission ("SEC") on
     December 5, 1997.  The shareholders of UPEN approved the merger on
     January 29, 1998.  The merger is subject to (1) approval by the FERC;
     (2) approval by the SEC under the Public Utility Holding Company Act of 1935;
     (3) the expiration or termination of the waiting period applicable to the
     merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
     (4) receipt by the parties of an opinion of counsel that the exchange of stock
     qualifies as a tax-free transaction; (5) receipt by the parties of appropriate
     assurances that the transaction will be accounted for as a pooling of
     interests; and (6) the satisfaction of various other conditions.  The merger
     is expected to be completed in the second half of 1998.  UPEN will merge with
     and into WPSR, and Upper Peninsula Power Company ("UPPCO"), UPEN's utility
     subsidiary, will become a wholly-owned subsidiary of WPSR.

     The summary below contains selected unaudited pro forma financial data for the
     year ended December 31, 1997.  The financial data should be read in
     conjunction with the historical WPSR and UPEN consolidated financial
     statements and related notes.  The pro forma combined earnings per share
     reflect the issuance of shares associated with the merger agreement.

     Under the terms of the merger agreement, each of the 2,950,001 outstanding
     shares of UPEN common stock (no par value) will be converted into 0.90 shares
     of WPSR common stock ($1.00 par value), subject to adjustment for fractional
     shares.


</TABLE>
<TABLE>
<CAPTION>
==========================================================================================
                                                                                Pro Forma 
                                                    WPSR           UPEN          Combined 
(In thousands, except per share data)          (as reported)   (as reported)   (unaudited)
------------------------------------------------------------------------------------------

<S>                                          <C>              <C>            <C>
Operating revenues                              $  878,340       $ 60,104       $  938,444
Net income                                      $   53,742       $  2,067       $   55,809
Basic and diluted earnings per share                 $2.25          $0.70            $2.10
Assets at December 31, 1997                     $1,299,602       $136,844       $1,435,804
Long-term obligations at December 31, 1997      $  304,008       $ 43,007       $  347,015
==========================================================================================
</TABLE>

     UPEN is a holding company incorporated under the laws of the
     State of Michigan.  UPEN's principal subsidiary, UPPCO, is 
     an electric utility engaged in the generation, purchase, 
     transmission, distribution, and sale of electric energy in
     the Upper Peninsula of Michigan.  UPPCO serves approximately 
     48,000 customers in two-thirds of Michigan's Upper Peninsula.  
     UPPCO's service territory covers approximately 4,460 square 
     miles of primarily rural areas.  UPPCO furnishes energy to
     99 communities and adjacent areas and provides energy for
     resale to 2 other investor-owned electric utilities, 
     2 cooperatives, and 4 municipalities.  The main industries 
     in UPPCO's service territory are forest products, iron 
     mining and processing, tourism, and small manufacturing.

                                    -73-

<PAGE>


NOTE 12--SEGMENTS OF BUSINESS

     The table below presents information for the respective years pertaining to
     WPSR's operations segmented by lines of business.  

<TABLE>
<CAPTION>
===========================================================================================
(Thousands)                                                1997                   
-------------------------------------------------------------------------------------------
                                      Electric         Gas      Nonregulated
                                       Utility       Utility     Operations         Total 
-------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>           <C>
Operating revenues                    $479,388      $211,090      $187,862      $  878,340
Operating expenses
Operation and maintenance              294,897       181,784       197,581         674,262
Depreciation                            68,469         7,350         1,722          77,541
Other taxes                             23,024         3,372            52          26,448
-------------------------------------------------------------------------------------------
Total operating expenses               386,390       192,506       199,355         778,251
-------------------------------------------------------------------------------------------
Operating income                      $ 92,998      $ 18,584      $(11,493)     $  100,089
===========================================================================================
Identifiable assets(a)                $906,198      $235,490      $ 65,648      $1,207,336
--------------------------------------------------------------------------
Assets not allocated(b)                                                             92,266
-------------------------------------------------------------------------------------------
Total assets                                                                    $1,299,602
===========================================================================================
Construction and nuclear fuel 
  expenditures including AFUDC        $ 48,696      $ 16,950      $      -      $   65,646
===========================================================================================
</TABLE>

<TABLE>
<CAPTION>
===========================================================================================
(Thousands)                                                1996                   
-------------------------------------------------------------------------------------------
                                      Electric         Gas      Nonregulated
                                       Utility       Utility     Operations         Total 
-------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>           <C>
Operating revenues                    $490,506      $211,357      $156,391      $  858,254
Operating expenses
Operation and maintenance              309,212       190,331       165,844         665,387
Depreciation                            56,708         7,127         1,343          65,178
Other taxes                             23,161         3,708            (1)         26,868
-------------------------------------------------------------------------------------------
Total operating expenses               389,081       201,166       167,186         757,433
-------------------------------------------------------------------------------------------
Operating income                      $101,425      $ 10,191      $(10,795)     $  100,821
===========================================================================================
Identifiable assets(a)                $905,325      $255,200      $ 71,917      $1,232,442
--------------------------------------------------------------------------
Assets not allocated(b)                                                             98,423
-------------------------------------------------------------------------------------------
Total assets                                                                    $1,330,865
===========================================================================================
Construction and nuclear fuel 
  expenditures including AFUDC        $ 63,941      $ 17,773      $      -      $   81,714
===========================================================================================
</TABLE>

                                    -74-

<PAGE>

<TABLE>
<CAPTION>
===========================================================================================
(Thousands)                                                1995                   
-------------------------------------------------------------------------------------------
                                      Electric         Gas      Nonregulated
                                       Utility       Utility     Operations         Total 
-------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>           <C>
Operating revenues                    $489,000      $174,693      $56,155       $  719,848
Operating expenses 
Operation and maintenance              310,293       152,062       57,538          519,893
Depreciation                            58,608         6,766          253           65,627
Other taxes                             22,171         3,749            1           25,921
-------------------------------------------------------------------------------------------
Total operating expenses               391,072       162,577       57,792          611,441
-------------------------------------------------------------------------------------------
Operating income                      $ 97,928      $ 12,116      $(1,637)      $  108,407
===========================================================================================
Identifiable assets(a)                $906,029      $232,983      $33,332       $1,172,344
-------------------------------------------------------------------------
Assets not allocated(b)                                                             94,399
-------------------------------------------------------------------------------------------
Total assets                                                                    $1,266,743
===========================================================================================
Construction and nuclear fuel 
  expenditures including AFUDC        $ 56,916      $ 16,335      $     -       $   73,251
===========================================================================================

(a)  At December 31 and net of the respective accumulated depreciation.
(b)  Primarily includes cash, investments, pension assets, nonutility property, and other receivables.
</TABLE>


NOTE 13--QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
==================================================================================================================
(Thousands, except for share amounts)                                    Three Months Ended                    
------------------------------------------------------------------------------------------------------------------
                                                                               1997   
                                                March          June         September      December         Total  
------------------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>             <C>             <C>            <C>
Operating revenues                            $263,013       $191,360       $185,225       $238,742       $878,340
Operating income                              $ 33,270       $ 15,620       $ 26,390       $ 24,809       $100,089
Net income                                    $ 18,235       $  9,571       $ 12,903       $ 13,033       $ 53,742
Average number of shares of common stock        23,880         23,875         23,870         23,866         23,873
Basic and diluted earnings per share              $.76           $.40           $.54           $.55          $2.25
==================================================================================================================

------------------------------------------------------------------------------------------------------------------
                                                                               1996   
                                                March          June         September      December         Total  
------------------------------------------------------------------------------------------------------------------
Operating revenues                            $251,337       $181,628       $178,980       $246,309       $858,254
Operating income                              $ 40,999       $ 20,606       $ 23,695       $ 15,521       $100,821
Net income                                    $ 23,520       $ 10,120       $ 10,385       $  3,730       $ 47,755
Average number of shares of common stock        23,896         23,893         23,893         23,885         23,891
Basic and diluted earnings per share              $.98           $.42           $.43           $.17          $2.00
==================================================================================================================

Because of various factors which affect the utility business, the quarterly results of operations are not necessarily 
comparable.  Fourth quarter 1996 results include a loss of $.25 per share at WPSR's nonregulated subsidiaries due to 
trading losses and a loss on the write-off of an investment.
</TABLE>

                                    -75-

PAGE
<PAGE>
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            WPS RESOURCES CORPORATION

            F.  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 



To the Board of Directors of WPS Resources Corporation:

We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of WPS Resources Corporation (a Wisconsin
corporation) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended December 31, 1997.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
WPS Resources Corporation and subsidiaries as of December 31, 1997 and 1996
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.




                                                   ARTHUR ANDERSEN LLP         
                                         

Milwaukee, Wisconsin
January 29, 1998                                                 


                                    -76-

<PAGE>
<PAGE>
<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         WISCONSIN PUBLIC SERVICE CORPORATION

                           G.   CONSOLIDATED STATEMENTS OF INCOME


<CAPTION>
===================================================================================================
Year Ended December 31 (Thousands)                         1997             1996             1995
---------------------------------------------------------------------------------------------------

<S>                                                   <C>              <C>              <C>
Operating revenues
Electric                                                 $479,388         $490,506         $489,000
Gas                                                       211,090          211,357          174,693
---------------------------------------------------------------------------------------------------
Total operating revenues                                  690,478          701,863          663,693
===================================================================================================
Operating expenses
Electric production fuels                                 107,538          105,418          104,858
Purchased power                                            45,876           37,737           39,593
Gas purchased for resale                                  147,493          149,388          116,253
Other operating expenses                                  134,113          158,167          150,880
Maintenance                                                41,661           48,734           50,761
Depreciation and decommissioning                           75,819           63,835           65,374
Federal income taxes                                       26,460           25,267           25,645
Investment tax credit restored                             (1,768)          (1,778)          (1,725)
State income taxes                                          7,569            7,732            7,378
Gross receipts tax and other                               26,396           26,869           25,920
---------------------------------------------------------------------------------------------------
Total operating expense                                   611,157          621,369          584,937
===================================================================================================
Operating income                                           79,321           80,494           78,756
---------------------------------------------------------------------------------------------------
Other income and (deductions)
Allowance for equity funds used during construction           129              139              170
Other, net                                                 12,591            5,123            6,019
Income taxes                                               (1,110)            (294)             160
---------------------------------------------------------------------------------------------------
Total other income and (deductions)                        11,610            4,968            6,349
===================================================================================================
Income before interest expense                             90,931           85,462           85,105
---------------------------------------------------------------------------------------------------
Interest expense
Interest on long-term debt                                 22,530           22,512           23,409
Other interest                                              3,759            2,688            2,526
Allowance for borrowed funds used during construction        (100)            (128)             (68)
---------------------------------------------------------------------------------------------------
Total interest expense                                     26,189           25,072           25,867
===================================================================================================
Net income                                                 64,742           60,390           59,238
===================================================================================================
Preferred stock dividend requirements                       3,111            3,111            3,111
Earnings on common stock                                 $ 61,631         $ 57,279         $ 56,127
===================================================================================================

The accompanying WPS Resources Corporation notes are an integral part of these statements.
</TABLE>

                                                  -77-

<PAGE>
<PAGE>
<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                      

         WISCONSIN PUBLIC SERVICE CORPORATION

                           H.  CONSOLIDATED BALANCE SHEETS


<CAPTION>
===============================================================================================
Assets
-----------------------------------------------------------------------------------------------
At December 31 (Thousands)                                          1997                1996
===============================================================================================
<S>                                                           <C>                 <C>
Utility plant
Electric                                                         $1,506,470          $1,474,104
Gas                                                                 251,603             240,791
-----------------------------------------------------------------------------------------------
Total                                                             1,758,073           1,714,895
Less - Accumulated depreciation and decommissioning               1,032,149             952,296
-----------------------------------------------------------------------------------------------
Total                                                               725,924             762,599
Nuclear decommissioning trusts                                      134,108             100,570
Construction in progress                                              7,266              10,301
Nuclear fuel, less accumulated amortization                          19,062              19,381
-----------------------------------------------------------------------------------------------
Net utility plant                                                   886,360             892,851
===============================================================================================

Current assets
Cash and equivalents                                                  3,921               4,165
Customer and other receivables, net of reserves                      55,893              66,234
Accrued utility revenues                                             30,750              35,326
Fossil fuel, at average cost                                          9,964               8,224
Gas in storage, at average cost                                      17,194              16,440
Materials and supplies, at average cost                              18,793              19,796
Prepayments and other                                                20,155              22,189
-----------------------------------------------------------------------------------------------
Total current assets                                                156,670             172,374
===============================================================================================

Regulatory assets                                                    78,544              96,920
Net nonutility plant                                                  2,972               4,191
Investments and other assets                                        109,408              92,612
===============================================================================================
Total                                                            $1,233,954          $1,258,948
===============================================================================================
</TABLE>

                                              -78-

<PAGE>
<PAGE>
<TABLE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         WISCONSIN PUBLIC SERVICE CORPORATION

                      H.  CONSOLIDATED BALANCE SHEETS (CONTINUED)


<CAPTION>
===============================================================================================
Capitalization and Liabilities
-----------------------------------------------------------------------------------------------
At December 31 (Thousands)                                           1997                1996
-----------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>
Capitalization
Common stock equity                                              $  457,121          $  448,425
Preferred stock with no mandatory redemption                         51,200              51,200
Long-term debt to parent                                             14,321              14,612
Long-term debt                                                      293,298             296,207
-----------------------------------------------------------------------------------------------
Total capitalization                                                815,940             810,444
===============================================================================================

Current liabilities
Note payable                                                         10,000              10,000
Commercial paper                                                     15,500              29,000
Accounts payable                                                     46,453              62,500
Accrued taxes                                                         3,514               1,350
Accrued interest                                                      7,801               8,134
Other                                                                10,049              12,324
-----------------------------------------------------------------------------------------------
Total current liabilities                                            93,317             123,308
===============================================================================================

Long-term liabilities and deferred credits
Accumulated deferred income taxes                                   127,512             131,549
Accumulated deferred investment tax credits                          26,901              28,669
Regulatory liabilities                                               50,279              48,870
Environmental remediation liabilities                                40,215              41,697
Other long-term liabilities                                          79,790              74,411
-----------------------------------------------------------------------------------------------
Total long-term liabilities and deferred credits                    324,697             325,196
===============================================================================================

Commitments and contingencies (See Note 9)
===============================================================================================
Total                                                            $1,233,954          $1,258,948
===============================================================================================

The accompanying WPS Resources Corporation notes are an integral part of these balance sheets.
</TABLE>

                                              -79-

<PAGE>
<PAGE>
<TABLE>
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          WISCONSIN PUBLIC SERVICE CORPORATION

                  I.   CONSOLIDATED STATEMENTS OF CAPITALIZATION


<CAPTION>
=======================================================================================
At December 31 (Thousands, except share amounts)                 1997            1996
---------------------------------------------------------------------------------------

<S>                                                        <C>              <C>
Common stock equity
Common stock                                                  $ 95,588         $ 95,588
Premium on capital stock                                        73,842           73,842
Retained earnings                                              297,489          291,740
ESOP loan guarantees                                            (9,798)         (12,745)
---------------------------------------------------------------------------------------
Total common stock equity                                      457,121          448,425
=======================================================================================

Preferred stock
Cumulative, $100 par value, 1,000,000 shares authorized:
    with no mandatory redemption -
                  Series      Shares Outstanding
                  ------      ------------------
                   5.00%            132,000                     13,200           13,200
                   5.04%             30,000                      3,000            3,000
                   5.08%             50,000                      5,000            5,000
                   6.76%            150,000                     15,000           15,000
                   6.88%            150,000                     15,000           15,000
---------------------------------------------------------------------------------------
Total preferred stock                                           51,200           51,200
=======================================================================================

Long-term debt to parent
                   Series      Year Due
                   ------      --------
                    8.76%        2015                            5,914            6,012
                    7.35%        2016                            8,407            8,600
---------------------------------------------------------------------------------------
Total long-term debt to parent                                  14,321           14,612
=======================================================================================

Long-term debt
  First mortgage bonds
                   Series      Year Due
                   ------      --------
                   5-1/4%        1998                           50,000           50,000
                    7.30%        2002                           50,000           50,000
                    6.80%        2003                           50,000           50,000
                   6-1/8%        2005                            9,075            9,075
                    6.90%        2013                           22,000           22,000
                    8.80%        2021                           53,100           53,100
                   7-1/8%        2023                           50,000           50,000
---------------------------------------------------------------------------------------
Total                                                          284,175          284,175
Unamortized discount and premium on bonds, net                    (890)            (978)
---------------------------------------------------------------------------------------
Total first mortgage bonds                                     283,285          283,197
---------------------------------------------------------------------------------------
ESOP loan guarantees                                             9,798           12,745
Other long-term debt                                               215              265
---------------------------------------------------------------------------------------
Total long-term debt                                           293,298          296,207
=======================================================================================
Total capitalization                                          $815,940         $810,444
=======================================================================================
</TABLE>

The accompanying WPS Resources Corporation notes are an integral 
part of these statements.

                                            -80-

PAGE
<PAGE>
<TABLE>
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          WISCONSIN PUBLIC SERVICE CORPORATION

                          J.  CONSOLIDATED STATEMENTS OF CASH FLOWS


<CAPTION>
========================================================================================================
Year Ended December 31 (Thousands)                               1997             1996            1995
--------------------------------------------------------------------------------------------------------

<S>                                                         <C>              <C>             <C>
Cash flows from operating activities:
Net income                                                     $ 64,742         $ 60,390        $ 59,238

Adjustments to reconcile net income to net cash from
  operating activities -
Depreciation and decommissioning                                 75,819           63,835          65,374
Amortization of nuclear fuel and other                           14,665           27,687          33,344
Deferred income taxes                                            (5,846)          (6,623)            103
Investment tax credit restored                                   (1,767)          (1,778)         (1,725)
Allowance for equity funds used during construction                (129)            (139)           (170)
Pension income                                                  (11,432)         (12,413)        (11,678)
Postretirement liability                                          4,952            7,150           6,917
Deferred demand-side management expenditures                         (5)          (6,250)         (8,595)
(Gain)/loss on sale of nonutility property                       (4,802)              (8)             13
Other, net                                                       (6,196)           7,069           6,627
Changes in -
Customer and other receivables                                   10,341           (4,078)         (4,120)
Accrued utility revenues                                          4,576            2,260          (8,766)
Fossil fuel inventory                                            (1,740)             477           1,804
Gas in storage                                                     (754)          (6,537)          5,880
Accounts payable                                                (16,047)           9,619         (12,455)
Accrued taxes                                                     2,164             (394)            545
Environmental remediation insurance recovery                     12,374              200               -
Gas refunds                                                        (318)          (6,175)          4,926
--------------------------------------------------------------------------------------------------------
Net cash from operating activities                              140,597          134,292         137,262
========================================================================================================

Cash flows from (used for) investing activities:
Construction of utility plant and nuclear fuel expenditures     (58,258)         (84,750)        (80,226)
Decommissioning funding                                         (16,059)          (8,978)         (8,181)
Purchase of other property and equipment                           (111)          (2,050)             77
Proceeds from sale of nonutility property                         6,255               10              29
Other                                                              (175)             939             142
--------------------------------------------------------------------------------------------------------
Net cash used for investing activities                          (68,348)         (94,829)        (88,159)
========================================================================================================

Cash flows from (used for) financing activities:
Redemption of first mortgage bonds                                    -           (6,900)              -
Proceeds of long-term debt from parent                                -            8,668               -
Proceeds from issuance of commercial paper                      257,100          153,300          51,500
Redemptions of commercial paper                                (270,600)        (135,800)        (52,500)
Preferred stock dividends                                        (3,111)          (3,111)         (3,111)
Common stock dividends                                          (55,882)         (55,926)        (43,970)
--------------------------------------------------------------------------------------------------------
Net cash used for financing activities                          (72,493)         (39,769)        (48,081)
========================================================================================================
Net increase (decrease) in cash and equivalents                    (244)            (306)          1,022
========================================================================================================
Cash and equivalents at beginning of year                         4,165            4,471           3,449
========================================================================================================
Cash and equivalents at end of year                            $  3,921         $  4,165        $  4,471
========================================================================================================

Cash paid during year for:
Interest, less amount capitalized                              $ 22,311         $ 22,100        $ 21,177
Income taxes                                                   $ 41,151         $ 35,662        $ 34,562
Other information
Construction and nuclear fuel expenditures, including
  accruals, allowance for funds used during
  construction and customer contributions                      $ 65,646         $ 81,714        $ 73,251
========================================================================================================

The accompanying WPS Resources Corporation notes are an integral part of these statements.
</TABLE>

                                                  -81-

PAGE
<PAGE>
<TABLE>
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           WISCONSIN PUBLIC SERVICE CORPORATION

               K.  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS


<CAPTION>
====================================================================================
Year Ended December 31 (Thousands)                1997           1996          1995
------------------------------------------------------------------------------------

<S>                                          <C>           <C>           <C>
Balance at beginning of year                    $291,740      $290,387      $280,730
Add - Net income                                  64,742        60,390        59,238
------------------------------------------------------------------------------------
                                                 356,482       350,777       339,968
------------------------------------------------------------------------------------
Deduct -
Cash dividends declared on preferred stock
    5.00% Series ($5.00 per share)                   660           660           660
    5.04% Series ($5.04 per share)                   151           151           151
    5.08% Series ($5.08 per share)                   254           254           254
    6.76% Series ($6.76 per share)                 1,014         1,014         1,014
    6.88% Series ($6.88 per share)                 1,032         1,032         1,032
Dividends declared on common stock                45,882        44,926        43,970
Dividend to parent                                10,000        11,000         2,500
------------------------------------------------------------------------------------
                                                  58,993        59,037        49,581
------------------------------------------------------------------------------------
Balance at end of year                          $297,489      $291,740      $290,387
====================================================================================

The accompanying WPS Resources Corporation notes are an integral part of these statements.
</TABLE>

                                               -82-

<PAGE>

<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA         
        
        WISCONSIN PUBLIC SERVICE CORPORATION

              L.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Notes to Consolidated Financial Statements for Wisconsin Public Service
Corporation are incorporated in the Notes to Consolidated Financial Statements
for WPS Resources Corporation at page 57 of this report.


                                    -83-

<PAGE>

<PAGE>
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            WISCONSIN PUBLIC SERVICE CORPORATION

            M.  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 



To the Board of Directors of Wisconsin Public Service Corporation:

We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Wisconsin Public Service Corporation (a
Wisconsin corporation) and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income and retained earnings and cash
flows for each of the three years in the period ended December 31, 1997. 
These financial statements are the responsibility of the Company's management. 
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wisconsin
Public Service Corporation and subsidiary as of December 31, 1997 and 1996,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.




                                                   ARTHUR ANDERSEN LLP


Milwaukee, Wisconsin
January 29, 1998


                                    -84-

<PAGE>
<PAGE>
ITEM 9.     CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

  None.



                             PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information about WPSR's directors and those Class A directors seeking
re-election may be found on pages 3 and 4 of WPSR's March 23, 1998 Proxy
Statement.  Such information is incorporated by reference as if fully set
forth herein.

     Information regarding the executive officers, which is not a part of
WPSR's Proxy Statement, is set forth in Part I, Item 4A, at page 32.


ITEM 11.    EXECUTIVE COMPENSATION

     Information required under Item 11 regarding compensation paid by WPSR
to its Chief Executive Officer and other executive officers of WPSR may be
found in WPSR's March 23, 1998 Proxy Statement, which information is
incorporated by reference herein.


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information concerning principal securities holders and securities
holdings of management which may be found on pages 2 and 3 of WPSR's March 23,
1998 Proxy Statement is incorporated by reference as if fully set forth
herein.


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     There have been no transactions since the beginning of fiscal year 1997,
or any currently proposed transactions, or series of similar transactions, to
which WPSR or any of its subsidiaries was or is to be party in which the
amount exceeds $60,000 and in which any director, executive officer, any
nominee for election as a director, any security holder owning of record or
beneficially more than 5% of the Common Stock of WPSR, or any member of the
immediate family of any of the foregoing persons had or will have a direct
material interest.

                                    -85-

<PAGE>
<PAGE>
                                    PART IV


ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

       (a)  Documents filed as part of this report:

            (1)  The following financial consolidated statements are included
                 in Part II at Item 8 above:

                        Description                         Pages in 10-K
                        -----------                         -------------

                 WPS RESOURCES CORPORATION

                 Consolidated Statements of Income and             52
                 Retained Earnings for the three years 
                 ended December 31, 1997, 1996, and 1995            

                 Consolidated Balance Sheets as of                 53
                 December 31, 1997 and 1996                

                 Consolidated Statements of Capitalization         55
                 as of December 31, 1997 and 1996          

                 Consolidated Statements of Cash Flows for         56
                 the three years ended December 31, 1997, 
                 1996, and 1995       

                 Notes to Consolidated Financial Statements        57

                 Report of Independent Public Accountants          76


                 WISCONSIN PUBLIC SERVICE CORPORATION

                 Consolidated Statements of Income for the         77
                 three years ended December 31, 1997, 1996, 
                 and 1995 

                 Consolidated Balance Sheets as of                 78
                 December 31, 1997 and 1996                

                 Consolidated Statements of Capitalization         80
                 as of December 31, 1997 and 1996          

                 Consolidated Statements of Cash Flows for         81
                 the three years ended December 31, 1997, 
                 1996, and 1995 
 
                 Consolidated Statements of Retained Earnings      82

                 Notes to Consolidated Financial Statements        83

                 Report of Independent Public Accountants          84

                                    -86-

<PAGE>


            (2)  Financial statement schedules.

                 The following financial statement schedules are included in
                 Part IV of this report.  Schedules not included herein have
                 been omitted because they are not applicable or the required
                 information is shown in the financial statements or notes
                 thereto.

                         Description                          Pages in 10-K
                         -----------                          -------------

                 Schedule III - Condensed Parent 
                 Company Only Financial Statements 
                          
                 A. Report of Independent Public                   95
                    Accountants

                 B. Statements of Income and Retained              96
                    Earnings

                 C. Balance Sheets                                 97

                 D. Statements of Cash Flows                       98

                 E. Notes to Parent Company Financial              99
                    Statements


            (3)  All exhibits, including those incorporated by reference.

                                    -87-

<PAGE>
<PAGE>
Exhibit
Number                         Description of Documents
-------                        ------------------------

  3A-1    Restated Articles of Incorporation of the Company. (Incorporated
          by reference to Appendix B to Amendment No. 1 to the Company's
          Registration Statement on Form S-4, filed February 28, 1994 [Reg.
          No. 33-52199]).

  3A-2    Articles of Incorporation of Wisconsin Public Service Corporation
          as effective May 26, 1972 and amended through May 31, 1988
          (Incorporated by reference to Exhibit 3A to Form 10-K for the year
          ended December 31, 1991); Articles of Amendment to Articles of
          Incorporation dated June 9, 1993 (Incorporated by reference to
          Exhibit 3 to Form 8-K filed June 10, 1993).

  3B-1    By-Laws of the Company as in effect July 11, 1996. (Incorporated
          by reference to Exhibit 3(ii) to Form 10-Q for the quarter ended
          September 30, 1996). (File No. 1-11337)  

  3B-2    By-Laws of Wisconsin Public Service Corporation as in effect
          July 11, 1996. (Incorporated by reference to Exhibit 3(ii) to
          Form 10-Q for the quarter ended September 30, 1996). (File
          No. 1-3016) 
  
  4A      Copy of Rights Agreement, dated December 12, 1996 between
          WPS Resources Corporation and Firstar Trust Company (Incorporated
          by reference to Exhibit 4.1 to Form 8-A filed December 13, 1996
          [File No.1-11337]).                

  4B      Copy of First Mortgage and Deed of Trust, dated as of January 1,
          1941 from Wisconsin Public Service Corporation to First Wisconsin
          Trust Company, Trustee (Incorporated by reference to Exhibit 7.01
          - File No. 2-7229); Supplemental Indenture, dated as of
          November 1, 1947 (Incorporated by reference to Exhibit 7.02 - File
          No. 2-7602); Supplemental Indenture, dated as of November 1, 1950
          (Incorporated by reference to Exhibit 4.04 - File No. 2-10174);
          Supplemental Indenture, dated as of May 1, 1953 (Incorporated by
          reference to Exhibit 4.03 - File No. 2-10716); Supplemental
          Indenture, dated as of October 1, 1954 (Incorporated by reference
          to Exhibit 4.03 - File No. 2-13572); Supplemental Indenture, dated
          as of December 1, 1957 (Incorporated by reference to Exhibit 4.03
          - File No. 2-14527); Supplemental Indenture, dated as of
          October 1, 1963 (Incorporated by reference to Exhibit 2.02B - File
          No. 2-65710); Supplemental Indenture, dated as of June 1, 1964
          (Incorporated by reference to Exhibit 2.02B - File No. 2-65710);
          Supplemental Indenture, dated as of November 1, 1967 (Incorporated
          by reference to Exhibit 2.02B - File No. 2-65710); Supplemental
          Indenture, dated as of April 1, 1969 (Incorporated by reference to
          Exhibit 2.02B - File No. 2-65710); Fifteenth Supplemental
          Indenture, dated as of May 1, 1971 (Incorporated by reference to
          Exhibit 2.02B - File No. 2-65710); Sixteenth Supplemental
          Indenture, dated as of August 1, 1973 (Incorporated by reference
          to Exhibit 2.02B - File No. 2-65710); Seventeenth Supplemental
          Indenture, dated as of September 1, 1973 (Incorporated by
          reference to Exhibit 2.02B - File No. 2-65710); Eighteenth

                                    -88-

<PAGE>

Exhibit
Number                         Description of Documents
-------                        ------------------------

          Supplemental Indenture, dated as of October 1, 1975 (Incorporated
          by reference to Exhibit 2.02B - File No. 2-65710); Nineteenth
          Supplemental Indenture, dated as of February 1, 1977 (Incorporated
          by reference to Exhibit 2.02B - File No. 2-65710); Twentieth
          Supplemental Indenture, dated as of July 15, 1980 (Incorporated by
          reference to Exhibit 4B to Form 10-K for the year ended
          December 31, 1980); Twenty-First Supplemental Indenture, dated as
          of December 1, 1980 (Incorporated by reference to Exhibit 4B to
          Form 10-K for the year ended December 31, 1980); Twenty-Second
          Supplemental Indenture dated as of April 1, 1981 (Incorporated by
          reference to Exhibit 4B to Form 10-K for the year ended
          December 31, 1981); Twenty-Third Supplemental Indenture, dated as
          of February 1, 1984 (Incorporated by reference to Exhibit 4B to
          Form 10-K for the year ended December 31, 1983); Twenty-Fourth
          Supplemental Indenture, dated as of March 15, 1984 (Incorporated
          by reference to Exhibit 1 to Form 10-Q for the quarter ended
          June 30, 1984); Twenty-Fifth Supplemental Indenture, dated as of
          October 1, 1985 (Incorporated by reference to Exhibit 1 to
          Form 10-Q for the quarter ended September 30, 1985); Twenty-Sixth
          Supplemental Indenture, dated as of December 1, 1987 (Incorporated
          by reference to Exhibit 4A-1 to Form 10-K for the year ended
          December 31, 1987); Twenty-Seventh Supplemental Indenture, dated
          as of September 1, 1991 (Incorporated by reference to Exhibit 4 to
          Form 8-K filed September 18, 1991); Twenty-Eighth Supplemental
          Indenture, dated as of July 1, 1992 (Incorporated by reference to
          Exhibit 4B - File No. 33-51428); Twenty-Ninth Supplemental
          Indenture, dated as of October 1, 1992 (Incorporated by reference
          to Exhibit 4 to Form 8-K filed October 22, 1992); Thirtieth
          Supplemental Indenture, dated as of February 1, 1993 (Incorporated
          by reference to Exhibit 4 to Form 8-K filed January 27, 1993);
          Thirty-First Supplemental Indenture, dated as of July 1, 1993
          (Incorporated by reference to Exhibit 4 to Form 8-K filed July 7,
          1993); Thirty-Second Supplemental Indenture, dated as of
          November 1, 1993 (Incorporated by reference to Exhibit 4 to
          Form 10-Q for the quarter ended September 30, 1993).  All
          references to periodic reports are to those of Wisconsin Public
          Service Corporation (File No. 1-3016).

10A       Copy of Joint Power Supply Agreement among Wisconsin Public
          Service Corporation, Wisconsin Power and Light Company, and
          Madison Gas and Electric Company, dated February 2, 1967
          (Incorporated by reference to Exhibit 4.09 in File No. 2-27308).

10B       Copy of Joint Power Supply Agreement (Exclusive of Exhibits) among
          Wisconsin Public Service Corporation, Wisconsin Power and Light
          Company, and Madison Gas and Electric Company dated July 26, 1973
          (Incorporated by reference to Exhibit 5.04A in File No. 2-48781).

10C       Copy of Basic Generating Agreement, Unit 4, Edgewater Generating
          Station, dated June 5, 1967, between Wisconsin Power and Light
          Company and Wisconsin Public Service Corporation (Incorporated by
          reference to Exhibit 4.10 in File No. 2-27308).

                                    -89-

<PAGE>

Exhibit
Number                         Description of Documents
-------                        ------------------------

10C-1     Copy of Agreement for Construction and Operation of Edgewater 5
          Generating Unit, dated February 24, 1983, between Wisconsin Power
          and Light Company, Wisconsin Electric Power Company, and Wisconsin
          Public Service Corporation (Incorporated by reference to
          Exhibit 10C-1 to Form 10-K of Wisconsin Public Service Corporation
          for the year ended December 31, 1983 [File No. 1-3016]).

10C-2     Amendment No. 1 to Agreement for Construction and Operation of
          Edgewater 5 Generating Unit, dated December 1, 1988 (Incorporated
          by reference to Exhibit 10C-2 to Form 10-K of Wisconsin Public
          Service Corporation for the year ended December 31, 1988 [File
          No. 1-3016]).

10D       Copy of revised Agreement for Construction and Operation of
          Columbia Generating Plant among Wisconsin Public Service
          Corporation, Wisconsin Power and Light Company, and Madison Gas
          and Electric Company, dated July 26, 1973 (Incorporated by
          reference to Exhibit 5.07 in File No. 2-48781).

10E       Copy of Guaranty and Agreements and Note Agreements for Wisconsin
          Public Service Corporation Employee Stock Ownership Plan and Trust
          (ESOP) dated November 1, 1990 (Incorporated by reference to
          Exhibits 10.1 and 10.2 to Form 8-K of Wisconsin Public Service
          Corporation filed November 2, 1990 [File No. 1-3016]).

10F-1     Copy of Power Purchase Agreement Between De Pere Energy LLC and
          Wisconsin Public Service Corporation dated November 8, 1995 and
          amended by a Letter Agreement dated February 18, 1997.  (Included
          as Exhibit 10F-1 to this Form 10-K for the year ended December 31,
          1997, filed March 6, 1998 [File No. 1-3016]).

10F-2     Agreement and Plan of Merger, dated as of July 10, 1997, by and
          among WPS Resources Corporation and Upper Peninsula Energy
          Corporation (Incorporated by reference to Appendix A to the Proxy
          Statement/Prospectus forming part of Amendment 2 to the
          Registration Statement on Form S-4, filed November 21, 1997
          [Reg. No. 333-3401]).

                 EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10G-1     Copy of amended and restated WPS Resources Corporation Deferred
          Compensation Plan for executives and non-employee directors,
          effective January 1, 1998.  (Included as Exhibit 10G-1 to this
          Form 10-K for the year ended December 31, 1997, filed March 6,
          1998 [File No. 1-11337]).

                                    -90-

<PAGE>

Exhibit
Number                         Description of Documents
-------                        ------------------------


10G-2     Copy of Form of Executive Employment and Severance Agreement
          entered into between WPS Resources Corporation and each of the
          following:  Ralph G. Baeten, Daniel P. Bittner, Diane L. Ford,
          Richard E. James, Thomas P. Meinz, Phillip M. Mikulsky,
          Wayne J. Peterson, Patrick D. Schrickel, Charles A. Schrock,
          Clark R. Steinhardt, Bernard J. Treml, and Larry L. Weyers
          (Incorporated by reference to Exhibit 10.6 to Form 10-Q for the
          quarter ended June 30, 1997, filed July 25, 1997 [File
          No. 1-11337]).

10G-3     Copy of WPS Resources Corporation Short-Term Variable Pay Plan
          effective January 1, 1998.  (Included as Exhibit 10G-3 to this
          Form 10-K for the year ended December 31, 1997, filed March 6,
          1998 [File No. 1-11337]).

                                    -91-

<PAGE>
<PAGE>
Exhibit
Number                Description of Document                   Pages in 10-K
-------               -----------------------                   -------------

10F-1     Power Purchase Agreement Between De Pere
          Energy LLC and Wisconsin Public Service
          Corporation dated November 8, 1995 and
          amended by a Letter Agreement dated             
          February 18, 1997
               Wisconsin Public Service Corporation                  100

10G-1     WPS Resources Corporation Amended and Restated 
          Deferred Compensation Plan Effective January 1, 
          1998
               WPS Resources Corporation                             213

10G-3     WPS Resources Corporation Short-Term Variable 
          Pay Plan Effective January 1, 1998
               WPS Resources Corporation                             240

11        Statement Regarding Computation of Per Share 
          Earnings                                         
               WPS Resources Corporation                             248

21        Subsidiaries of the Registrant                             249
                                                     
23        Consent of Independent Public Accountants                  250

24        Powers of Attorney                                         251

27        Financial Data Schedule
               WPS Resources Corporation                             259
               Wisconsin Public Service Corporation                  260

                                    -92-

<PAGE>
<PAGE>
     (b)  Reports on Form 8-K

          Form 8-K dated October 20, 1997 and filed October 21, 1997
          transmitting a press release dated October 20, 1997 regarding the
          financial results of WPS Resources Corporation for the quarterly
          period ended September 30, 1997.

                                    -93-

<PAGE>

                                <PAGE>
                            SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                     WPS RESOURCES CORPORATION
                                 and
                WISCONSIN PUBLIC SERVICE CORPORATION

                             (Registrant)


                      By /s/ L. L. Weyers
     --------------------------------------------------------------------
     L. L. Weyers                    L. L. Weyers
     Chairman, President, and        Chairman and
     Chief Executive Officer         Chief Executive Officer
     WPS Resources Corporation       Wisconsin Public Service Corporation



     Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

     Signature                    Title                           Date
------------------------------------------------------------------------------

A. Dean Arganbright              Director                      March 6, 1998 
Michael S. Ariens                Director
Richard A. Bemis                 Director
Daniel A. Bollom                 Director
M. Lois Bush                     Director
Robert C. Gallagher              Director       By  /s/ L. L. Weyers
Kathryn M. Hasselblad-Pascale    Director           --------------------------
James L. Kemerling               Director               L. L. Weyers
                                                        Attorney-in-Fact



/s/ L. L. Weyers                 Principal Executive           March 6, 1998
---------------------------------Officer and Director             
    L. L. Weyers 
 

/s/ D. P. Bittner                Principal Financial           March 6, 1998
---------------------------------Officer
    D. P. Bittner


/s/ D. L. Ford                   Principal Accounting          March 6, 1998
---------------------------------Officer
    D. L. Ford 

                                    -94-

<PAGE>
<PAGE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)

          A.  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of WPS Resources Corporation:

We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of WPS Resources Corporation included in
this Form 10-K, and have issued our report thereon dated January 29, 1998.   

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole.  Supplemental Schedule III
is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and
is not part of the basic consolidated financial statements.  This schedule has
been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.




                                                   ARTHUR ANDERSEN LLP



Milwaukee, Wisconsin
January 29, 1998                       

                                    -95-

<PAGE>
                          <PAGE>
<TABLE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)

                      B.  STATEMENTS OF INCOME AND RETAINED EARNINGS

<CAPTION>
===============================================================================================
Year Ended December 31 (Thousands)                       1997             1996           1995
-----------------------------------------------------------------------------------------------

<S>                                                <C>             <C>              <C> 
Income
Equity in earnings of subsidiaries after dividends    $ (1,432)        $ (8,941)       $ 11,236
Cash dividends from subsidiaries                        55,882           55,926          43,970
-----------------------------------------------------------------------------------------------
Income from subsidiaries                                54,450           46,985          55,206
-----------------------------------------------------------------------------------------------
Investment income and other                              2,901            2,251             872
-----------------------------------------------------------------------------------------------

Total income                                            57,351           49,236          56,078
===============================================================================================


Operating expenses                                       2,864              585             589
-----------------------------------------------------------------------------------------------
Income before interest expense                          54,487           48,651          55,489
Interest expense                                           417              454              68
-----------------------------------------------------------------------------------------------
Income before income taxes                              54,070           48,197          55,421
Income taxes                                               328              442              78
-----------------------------------------------------------------------------------------------
Net Income                                              53,742           47,755          55,343
===============================================================================================

Retained earnings, beginning of year                   311,794          308,965         297,592
Common stock dividend                                  (45,882)         (44,926)        (43,970)
-----------------------------------------------------------------------------------------------

Retained earnings at end of year                      $319,654         $311,794        $308,965
===============================================================================================
</TABLE>

                                                  -96-

PAGE
<PAGE>
<TABLE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)

                          C.  BALANCE SHEETS

<CAPTION>
==============================================================================
At December 31 (Thousands)                            1997             1996
------------------------------------------------------------------------------
<S>                                               <C>              <C>
Assets
------------------------------------------------------------------------------
Current assets
Cash and equivalents                                 $      5         $      3
Accounts receivable - affiliates                          417              614
Other receivables                                         217               12
Notes receivable - affiliates (note 1)                  4,498           14,875
------------------------------------------------------------------------------
Total current assets                                    5,137           15,504
==============================================================================

Long-term notes receivable - affiliates (note 2)       15,950           16,382
==============================================================================

Investments in subsidiaries, at equity
Wisconsin Public Service Corporation                  457,121          448,425
WPS Energy Services, Inc.                               4,495            2,443
WPS Power Development, Inc.                                 7            2,238
------------------------------------------------------------------------------
Total investments in subsidiaries, at equity          461,623          453,106
==============================================================================

Net equipment                                             321               68
Other investments                                       2,856            3,025
Deferred income taxes                                      45               52
------------------------------------------------------------------------------

Total assets                                         $485,932         $488,137
==============================================================================


==============================================================================
Liabilities and Capitalization
------------------------------------------------------------------------------
Current liabilities
Notes payable                                        $  5,206         $ 18,950
Accounts payable - affiliates                             549               86
Accounts payable                                        1,699              519
Dividends payable                                         626              948
Other                                                      29               62
------------------------------------------------------------------------------
Total current liabilities                               8,109           20,565
==============================================================================

Other liabilities                                           -               48
==============================================================================

Capitalization
Common stock, $1 par value, 100,000,000 shares
   authorized; 23,896,962 shares outstanding           23,897           23,897
Premium on capital stock                              145,021          145,021
Retained earnings                                     319,654          311,794
ESOP loan guarantees                                   (9,798)         (12,745)
Shares in deferred compensation trust                    (951)            (443)
------------------------------------------------------------------------------
Total capitalization                                  477,823          467,524
==============================================================================

Total liabilities and capitalization                 $485,932         $488,137
==============================================================================
</TABLE>

                                         -97-

PAGE
<PAGE>
<TABLE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)

                                    D.  STATEMENTS OF CASH FLOWS

<CAPTION>
=====================================================================================================
Year Ended December 31 (Thousands)                           1997             1996             1995
-----------------------------------------------------------------------------------------------------

<S>                                                     <C>              <C>              <C>
Operating
Net income                                                 $ 53,742         $ 47,755         $ 55,343

Add equity in earnings of subsidiaries after dividends        1,432            8,941          (11,236)
Deferred income taxes                                             7               46              139
Other - net                                                       3            1,883              (30)

Changes in other items
Receivables                                                      (8)            (463)          (1,740)
Accounts payable                                              1,258              357               64
Other                                                           (16)             110              285
-----------------------------------------------------------------------------------------------------
Net cash - operating                                         56,418           58,629           42,825
=====================================================================================================

Investing
Notes receivable - affiliates                                10,809          (21,346)          (1,825)
Capital contributions - affiliates                           (7,005)          (5,250)          (5,400)
Investments - other                                             (87)          (2,371)          (4,434)
-----------------------------------------------------------------------------------------------------
Net cash - investing                                          3,717          (28,967)         (11,659)
=====================================================================================================

Financing
Proceeds from short-term debt                               536,200          333,264           15,000
Payments on short-term debt                                (549,944)        (319,314)         (10,000)
Purchase of deferred compensation stock                        (507)            (443)               -
Common stock dividends                                      (45,882)         (44,926)         (43,970)
-----------------------------------------------------------------------------------------------------
Net cash - financing                                        (60,133)         (31,419)         (38,970)
=====================================================================================================

Net change in cash                                                2           (1,757)          (7,804)
Cash, beginning of period                                         3            1,760            9,564
-----------------------------------------------------------------------------------------------------
Cash, end of period                                        $      5         $      3         $  1,760
=====================================================================================================
</TABLE>

                                                    -98-

PAGE
<PAGE>
SCHEDULE III - CONDENSED
PARENT COMPANY FINANCIAL STATEMENTS
WPS RESOURCES CORPORATION (PARENT COMPANY ONLY)

       E.   NOTES TO PARENT COMPANY FINANCIAL STATEMENTS

The following are supplemental notes to the WPS Resources Corporation (parent
company only) financial statements and should be read in conjunction with the
WPS Resources Corporation Consolidated Financial Statements and Notes thereto
included herein:


SUPPLEMENTAL NOTES

Note 1    WPS Resources Corporation ("WPSR") has short-term notes receivable
          from WPS Energy Services, Inc. ("ESI") and WPS Power Development,
          Inc. for $3.2 million and $1.3 million, respectively.  These notes
          bear interest at between 6.90% and 8.50%, depending upon the
          operational use of the loaned funds.

Note 2    WPSR has long-term notes receivable from Wisconsin Public Service
          Corporation for $5.9 million and $8.4 million bearing interest at
          8.76% and 7.35%, respectively.  The notes are to be repaid in
          monthly payments of $51,670 and $63,896 through January 2015 and
          May 2016, respectively.  WPSR also has a long-term note receivable
          from ESI totaling $1.6 million and bearing interest at 7-7/8%. 
          The note is to be repaid in quarterly payments of $69,076 through
          October 2005.

                                    -99-