Integrys Energy Group's Results (Millions, except share amounts) 2008 2007 Change Income (loss) from continuing operations $24.8 $(39.6) - Basic earnings (loss) per share from continuing operations $0.31 $(0.53) - Diluted earnings (loss) per share from continuing operations $0.31 $(0.53) - Income (loss) available for common shareholders $24.1 $(16.4) - Basic earnings (loss) per share $0.31 $(0.22) - Diluted earnings (loss) per share $0.31 $(0.22) - Average shares of common stock Basic 76.6 76.0 0.8 % Diluted 76.9 76.0 1.2 %

-- The net loss from the regulated natural gas utility segment increased $5.3 million (132.5%), from a net loss of $4.0 million during the second quarter of 2007, to a net loss of $9.3 million during the second quarter of 2008. The change was driven by the following: -- A non-cash after-tax goodwill impairment in the amount of $6.5 million was recognized for North Shore Gas Company in the second quarter of 2008. -- The change in the effective tax rate from the second quarter of 2007 to the second quarter of 2008 had a negative quarter-over-quarter impact on natural gas segment operating results. Quarter-over-quarter changes in the effective tax rate occur as a result of adjustments required by generally accepted accounting principles (GAAP) to ensure the year-to-date interim effective tax rate reflects the projected annual effective tax rate. An approximate $6 million income tax benefit at the natural gas segment in the second quarter of 2007, drove a decrease in quarter-over-quarter earnings. -- Pre-tax operating and maintenance expenses at the natural gas utilities increased $8.6 million ($5.2 million after-tax), from $114.9 million ($68.9 million after-tax) during the second quarter of 2007, to $123.5 million ($74.1 million after-tax) during the second quarter of 2008, driven by $3.1 million of higher quarter-over-quarter street restoration costs at The Peoples Gas Light and Coke Company and a combined $2.0 million of amortization expense related to regulatory assets recorded at Peoples Gas and North Shore Gas for costs to achieve merger synergies and costs related to the 2007/2008 rate case. -- Partially offsetting the items discussed above, margins at the natural gas utilities increased $23.5 million ($14.1 million after-tax), from $144.6 million during the second quarter of 2007, to $168.1 million during the second quarter of 2008. A rate increase at Peoples Gas that was effective in the first quarter of 2008 had an approximate $18 million ($10.8 million after-tax) positive impact on the quarter-over-quarter margin. A 4.5% increase in natural gas throughput volumes, driven by colder weather conditions, had an estimated $3 million ($1.8 million after-tax) favorable quarter-over-quarter impact on margin. -- Regulated electric utility segment earnings increased $5.2 million (34.7%), from earnings of $15.0 million for the quarter ended June 30, 2007, to earnings of $20.2 million for the same quarter in 2008. The quarter-over-quarter increase in earnings at the regulated electric utility segment was driven by an $8.0 million ($4.8 million after-tax) increase in operating income at Wisconsin Public Service Corporation's electric utility, resulting primarily from the following: -- Fuel and purchased power costs at Wisconsin Public Service were approximately $7 million ($4.2 million after-tax) lower than what was recovered in rates during the quarter ended June 30, 2008, compared with fuel and purchased power costs that were approximately $2 million ($1.2 million after-tax) higher than what was recovered in rates during the same quarter in 2007, which drove a $5.4 million after-tax increase in operating income quarter-over-quarter. As a result of approximately $23 million of higher than anticipated energy costs in the first quarter of 2008, the Public Service Commission of Wisconsin approved an interim rate increase effective March 22, 2008, and subsequently approved a higher final rate increase effective July 4, 2008. In the second quarter of 2008, the interim rate increase enabled Wisconsin Public Service to recover approximately $7 million of the $23 million of under-recovered fuel and purchased power costs incurred in the first quarter of 2008. With the approved rate increase and assuming stable fuel costs, Wisconsin Public Service anticipates it will recover approximately 80% of the remaining $16 million of unrecovered fuel and purchased power costs by year end. -- Also contributing to the increase in Wisconsin Public Service's regulated electric operating income, electric maintenance expenses decreased $5.8 million ($3.5 million after-tax), driven primarily by significant planned outages in the second quarter of 2007 at the Weston 3 power plant and the De Pere Energy Center. -- Partially offsetting the items discussed above, a 7.9% quarter-over-quarter decrease in residential sales volumes and a 2.2% quarter-over-quarter decrease in sales volumes to commercial and industrial customers negatively impacted Wisconsin Public Service's quarter-over-quarter electric utility operating income. The decrease in electric sales volumes was driven by cooler weather in the second quarter of 2008, compared with the same quarter in 2007, which contributed an approximate $1 million after-tax quarter-over-quarter decrease in operating income. Weather normalized volumes were also down for these customer classes as customers are conserving energy as a result of high energy prices and a general slowdown in the economy. It is estimated that the decrease in weather normalized sales volumes contributed an approximate $2 million after-tax decrease in operating income quarter-over-quarter. -- Financial results at Integrys Energy Services, Inc. increased $53.0 million, from a net loss of $44.0 million for the quarter ended June 30, 2007, to earnings of $9.0 million for the same quarter in 2008, driven by the following: -- Integrys Energy Services recognized a combined $121.1 million ($72.7 million after-tax) increase in retail and wholesale electric margins, driven by derivative accounting treatment of customer supply contracts. Integrys Energy Services recognized $70.5 million ($42.3 million after-tax) of unrealized gains on derivative contracts in the second quarter of 2008, compared with $50.2 million ($30.1 million after-tax) of unrealized losses during the same period in 2007. These non-cash unrealized gains and losses result from the application of derivative accounting rules to customer supply contracts, requiring that these derivative instruments be valued at current market prices. No gain or loss is recognized on the corresponding customer sales contracts, which are not considered derivative instruments. As a result, Integrys Energy Services generally expects to experience non-cash losses on supply contracts in periods of declining market prices and non-cash gains in periods of increasing market prices. These non-cash gains and losses will ultimately reverse as the related sales contracts settle. Electric prices experienced an increase from April 1, 2008 to June 30, 2008, compared with a decrease over the same period in 2007. -- Integrys Energy Services also recognized a $15.2 million net loss from its investment in a synthetic fuel production facility during the three months ended June 30, 2007. Production and sale of synthetic fuel by Integrys Energy Services ended when Section 29/45K of the Internal Revenue Code, which provided for Section 29/45K federal tax credits from the production and sale of synthetic fuel, expired effective December 31, 2007. -- Partially offsetting the increases noted above, Integrys Energy Services' natural gas margins decreased $62.9 million ($37.7 million after-tax), driven by an $84.8 million ($50.9 million after-tax) decrease in quarter-over-quarter margins related to derivative accounting treatment, partially offset by a $21.9 million ($13.2 million after-tax) increase in quarter-over-quarter realized natural gas margins. -- Unrealized losses were $84.2 million ($50.5 million after-tax) in the second quarter of 2008, compared with unrealized gains of $0.6 million ($0.4 million after-tax) in the second quarter of 2007. Period-by-period variability in the margin contributed by Integrys Energy Services' retail and wholesale natural gas operations was primarily related to changes in the fair market value of basis swaps utilized to mitigate market price risk associated with natural gas transportation contracts and certain natural gas sales contracts, as well as contracts utilized to mitigate market price risk related to certain natural gas storage contracts. These non-cash unrealized gains and losses result from the application of derivative accounting rules to the basis and other swaps (requiring that these derivative instruments be valued at current market prices), without a corresponding market value offset related to the physical natural gas transportation contracts, the natural gas sales contracts, or the natural gas storage contracts (as these contracts are not considered derivative instruments). Therefore, no gain or loss is recognized on the transportation contracts, customer sales contracts, or natural gas storage contracts until physical settlement of these contracts occurs. -- Realized natural gas margins increased $21.9 million ($13.2 million after-tax), from $18.0 million ($10.8 million after-tax) in the second quarter of 2007, to $39.9 million ($24.0 million after-tax) in the second quarter of 2008. This increase was driven by realized wholesale natural gas margins that were $15.8 million ($9.5 million after-tax) higher quarter-over-quarter, primarily as a result of realized gains on natural gas storage transactions and increased emphasis on structured wholesale natural gas transactions through continued expansion into new markets. The margin from retail natural gas operations in Illinois also increased $4.6 million ($2.8 million after-tax) quarter-over-quarter, driven by further market penetration in Illinois and a quarter-over-quarter reduction in the amortization of certain customer contracts that were required to be marked to fair value and recorded as intangible assets as a result of the acquisition of the nonregulated operations of Peoples Energy Corporation. -- Financial results at the Holding Company and Other segment improved $10.4 million, from a net loss of $6.2 million during the quarter ended June 30, 2007, to earnings of $4.2 million for the quarter ended June 30, 2008, due primarily to the following: -- Interest expense decreased $7.1 million ($4.3 million after-tax), resulting from the repayment of short-term debt and commercial paper with a portion of proceeds received from the sale of the oil and natural gas production business in the third quarter of 2007, as well as a quarter-over-quarter decrease in working capital requirements at Integrys Energy Services. -- Earnings from Integrys Energy Group's approximate 34% ownership interest in American Transmission Company LLC increased $3.9 million ($2.3 million after-tax), from after-tax earnings of $7.2 million in the second quarter of 2007, to after-tax earnings of $9.5 million in the second quarter of 2008. -- Operating income at the Holding Company and Other segment increased $8.6 million ($5.2 million after-tax).