The Perfect Storm

1

• The Perfect Storm

Double digit rate increases 18 billion to be
spent on energy infrastructure
2
Recent Rate Increase Requests

• 2007
• Xcel-NSP 14 (10 Industrial approved)
• WEPCO 28 (1.5 Industrial approved)
• MGE 5.75 (8.8 Industrial approved)
• 2006
• WPSC 16 (4.7 Industrial approved)
• WPL 18 (7.4 Industrial approved)
• 1 billion sale offset

3
PSCW 2006 Strategic Energy Assessment, p. 52
4
Costs and Rates

• Industrial Rates since 1997 have increased 59.
• Average increase for industrials were around 7
  each year.
• Wisconsin is now among highest rates in the
  Midwest.

5
Costs and Rates

• 6 billion of energy infrastructure construction
  approved in last 4 years
• 40 increase in rates in last 5 years
• 18 billion in infrastructure in generation,
  transmission, renewables and environmental
  retrofits in the next decade.

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Cost Overview

• Generation 3.9 billion
• Transmission 2.8 billion
• Renewable Energy 7.6 billion
• Environmental 4.0 billion
• Total 18.3 billion
• 4.5 billion collected annually in rates

7
Other Cost Drivers

• 18 billion estimate does NOT include
• Increasing and volatile fuel costs
• MISO deferred costs - 54 million
• Operations and Maintenance (OM) such as
  salaries, health care, etc.
• Global Warming regulations?

8
Soaring Fuel Costs

• Fuel costs nearing post-Katrina levels
• Last week, oil trading at 126 per barrel pushes
  natural gas to 11.40 mmbtu
• Natural gas up 80 since September and 30 since
  December 2007
• Fuel impact on industrial electric rates
• WEPCO 4 - 6
• WPSC 4 -5
• WPL 2
• NSP 4 - 5
• MGE 3.5 - 6

9
Perfect Storm

• Shortage of electric capacity nationally
• Rising electric demand
• Rising fuel costs
• Aggressive environmental renewable mandates
• Cost of Global Warming regulations

10
Global Warming

• Regulation seems inevitable
• Allocation vs. auction debate
• Wholesale up estimated 50 to 80
• Retail up estimated 25 to 40
• Add this to other baked in costs and your bill
  could easily double or triple

11
Global Warming

• WPSC and WPL examples
• 1 billion revenue requirement
• 10 - 15 million tons CO2 annually
• 10/ton 100 million or 10 increase
• 50/ton 500 million or 50 increase

12
Demand Destruction

• No industrial load growth for some state
  utilities
• Demand Destruction lost factories, jobs,
  production
• If rates get too high, companies may fail, leave
  or be unable to expand and grow
• Vicious cycle created or death spiral

13
Higher Rates, Fewer Jobs

• Since 1999, the state lost 100,000 manufacturing
  jobs
• Factory employment in Wisconsin is now at lowest
  level in 17 years
• 21 of workforce in manufacturing in 1999 18
  of workforce in 2006
• Manufacturing pays 26 more than the average
  private sector job

14
Recommendations

• Federalize global warming and air emissions
  policies
• Resist new/expanded renewable energy mandates
  consider petition for the off-ramp
• Expand Environmental Trust Financing
• Consider Special Contracts
• Encourage Self-Directed energy programs

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Questions?