The first quarter 2009 net loss attributed to common shareholders of $180.2 million included $300.3 million of after-tax non-cash losses related to a $248.8 million goodwill impairment loss in the natural gas utility segment and $51.5 million of after-tax non-cash losses related to derivative and inventory accounting activities at Integrys Energy Services, Inc. First quarter 2008 net income attributed to common shareholders of $135.8 million included $39.7 million of after-tax non-cash gains related to derivative and inventory accounting activities at Integrys Energy Services. Exclusive of these after-tax non-cash items recognized in the first quarters of 2009 and 2008, Integrys Energy Group’s earnings would have increased quarter-over-quarter, to net income attributed to common shareholders of $120.1 million ($1.56 diluted earnings per share) for the quarter ended March 31, 2009, from net income attributed to common shareholders of $96.1 million ($1.25 diluted earnings per share) for the quarter ended March 31, 2008.

A net loss in the amount of $173.1 million was recognized at the natural gas utility segment in the first quarter of 2009, driven by a non-cash goodwill impairment loss. Based upon the results of an interim goodwill impairment analysis, Integrys Energy Group recorded a non-cash after-tax goodwill impairment loss of $248.8 million in the first quarter of 2009, all within the natural gas utility segment. This impairment related to several natural gas utility operations acquired over the past few years. Key factors contributing to the impairment charge included disruptions in the global credit and equity markets and the resulting increase in the weighted-average cost of capital used to value the natural gas utility operations, and the negative impact that the global decline in equity markets has had on the valuation of natural gas distribution companies in general. While the goodwill impairment charge will reduce 2009 GAAP financial results, the impairment is a non-cash charge and will not affect Integrys Energy Group’s liquidity position, cash flows from operating activities, compliance with debt covenants, or future operations.

Earnings of $27.1 million were recognized at the electric utility segment in the first quarter of 2009, representing a 298.5% increase over first quarter 2008 electric utility earnings. The increase in earnings was driven by lower than expected fuel and purchased power costs in the first quarter of 2009, compared with higher than expected fuel and purchased power costs in the first quarter of 2008. Higher capacity charges for wholesale electric customers, and an increase in base rates for retail electric customers also contributed to the higher quarter-over quarter earnings.

A net loss in the amount of $29.1 million was recognized at Integrys Energy Services during the first quarter of 2009, driven by non-cash accounting losses due to a continued decline in energy prices. For the quarter ended March 31, 2009, Integrys Energy Services’ financial results included net after-tax non-cash accounting losses of $51.5 million, compared with net after-tax non-cash accounting gains of $39.7 million for the quarter ended March 31, 2008. This net negative $91.2 million after-tax change in non-cash activity quarter-over-quarter was related to derivative and inventory accounting activities at Integrys Energy Services. Integrys Energy Services expects to recover non-cash accounting losses related to derivative fair value adjustments and inventory valuation adjustments when the related electric and natural gas transactions are physically settled.

Significant factors impacting the change in earnings and earnings per share were as follows:

A net loss of $173.1 million was recognized at the regulated natural gas utility segment during the first quarter of 2009, compared with earnings of $75.6 million recognized during the same quarter in 2008. The $248.7 million decrease in earnings was driven by:

A non-cash goodwill impairment loss of $291.1 million ($248.8 million after-tax), of which only a portion was deductible for income tax purposes.

A 7.2% decrease in natural gas throughput volumes, driven by warmer quarter-over-quarter weather conditions and the negative impact of the general economic slowdown, drove around $9 million negative after-tax quarter-over-quarter impact on the natural gas utility segment margin. This quarter-over-quarter decrease in margin included the impact of decoupling mechanisms that were first effective for The Peoples Gas Light and Coke Company (Peoples Gas) and North Shore Gas Company on March 1, 2008, and for Wisconsin Public Service Corporation on January 1, 2009.

Partially offsetting the above decreases was a $15.6 million ($9.4 million after-tax) positive quarter-over-quarter impact on margin as a result of rate cases, which resulted in rate increases and changes in rate design at Integrys Energy Group’s regulated natural gas utilities.

Earnings at Integrys Energy Services decreased $80.7 million, from earnings of $51.6 million for the quarter ended March 31, 2008, to a net loss of $29.1 million for the same quarter in 2009, driven by:

A $91.2 million after-tax decrease in Integrys Energy Services’ margin quarter-over-quarter related to non-cash activity, due to a $94.9 million after-tax decrease related to non-cash activity associated with electric operations, partially offset by a $3.7 million after-tax increase related to non-cash activity associated with natural gas operations. An overview of this non-cash activity is provided below.

Our core utility business performed very well and Integrys Energy Group’s first quarter 2009 earnings increased significantly compared to last year’s first quarter, absent the impact of non-cash accounting items, said Charles Schrock, President and Chief Executive Officer of Integrys Energy Group. We are reducing debt to strengthen our balance sheet and moving forward with a carefully managed and structured capital redeployment process which includes the divestiture of Integrys Energy Services and a core utility focus. Our dividend policy is unchanged and our earnings outlook for our core regulated utilities is solid. We are setting the stage to become a leading Midwest regional regulated utility holding company with greater earnings predictability and capital availability to fund significant investments in the growth of our rate base.