WPS Resources Corporation and Peoples Energy Corporation have signed a definitive merger agreement that will create a diversified energy company with regulated utilities serving four Midwest states and non-regulated businesses serving customers in the Northeast United States and Canada.

Under the agreement, which was unanimously approved by both companies' boards of directors, each common share of Peoples Energy outstanding immediately prior to the merger will be converted into 0.825 shares of WPS Resources' common stock. As of July 5, closing prices (prior to the publication of an article in The Wall Street Journal), this would result in an approximate value of $41.39 per share for Peoples Energy stock. This represents a premium to Peoples Energy's shareholders of approximately 14.2%, based on the 20 trading day average closing prices for Peoples Energy ending July 5, and approximately 15%, based on the closing price for Peoples Energy on July 5, 2006.

Upon consummation of the merger, WPS Resources' shareholders will own approximately 57.6% of the combined company, and Peoples Energy shareholders will own approximately 42.4%. After closing, it is intended that the dividend of the combined company will be $0.66 per quarter.

The combined company will be led by Larry L. Weyers, 61, chairman, president, and CEO of WPS Resources, who will serve as its president and CEO. James R. Boris, 61, the current lead director for Peoples Energy, will serve as non-executive chairman of the board. Thomas M. Patrick, 60, chairman, president and CEO of Peoples Energy, announced his intention to retire earlier this year. The combined company’s board will have 16 members, nine selected by WPS Resources and seven by Peoples Energy.

The combined holding company headquarters will be located in Chicago, and a new name for the combined company will be jointly selected by management from both companies. Each of the regulated utility businesses of the combined company will maintain its current name and headquarters. The non-regulated energy marketing businesses of the combined company will be headquartered in Green Bay, Wisconsin.

“This combination creates a diversified regulated utility business that will be better positioned to compete in a consolidating industry in which size and scale matter. Our regulated businesses have good operational fit and will benefit from our constructive regulatory approach and greater market and regulatory diversity when they are combined,” Weyers said.

“The combination will benefit the customers, employees and shareholders of both companies,” Patrick said. “Both companies have outstanding utility franchises at the core and our complementary, non-regulated businesses that provide additional growth opportunities. In addition, we have a shared commitment to a lower-risk operating approach, financial strength, fiscal discipline, and a strong dividend.”

The strategic focus for the combined company will be its core regulated electric and natural gas operations, which will serve about 1.6 million natural gas customers and 477,000 electric customers. When considered with WPS Resources’ investment in American Transmission Company, a significant portion of the combined company’s operations will continue to be regulated. This business profile should help ensure that the combined company maintains strong credit ratings, which is a key financial and strategic objective.

The combined company will also comprise the complementary energy marketing businesses of WPS Resources and Peoples Energy.

The transaction is subject to receipt of all necessary regulatory and shareholder approvals. The companies will be requesting expedited regulatory approval, and if granted, the transaction is expected to be completed by the end of the first calendar quarter of 2007.