The Perfect StormDouble digit rate increases &

$18 billion to be spent on energy infrastructure

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Recent Rate Increase Requests

2007

• Xcel-NSP 14% (10% Industrial approved)

• WEPCO 28% (1.5% Industrial approved*)

• MG&E 5.75% (8.8 Industrial approved)

2006

• WPSC 16% (4.7% Industrial approved)

• WP&L 18% (7.4% Industrial approved)

*$1 billion sale offset

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PSCW 2006 Strategic Energy Assessment, p. 52

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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.

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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 OverviewGeneration $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

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Other Cost Drivers$18 billion estimate does NOT include:• Increasing and volatile fuel costs• MISO deferred costs - $54 million• Operations and Maintenance (O&M) such

as salaries, health care, etc.• Global Warming regulations?

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Soaring Fuel CostsFuel 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%

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Perfect Storm• Shortage of electric capacity nationally

• Rising electric demand

• Rising fuel costs

• Aggressive environmental & renewable mandates

• Cost of Global Warming regulations

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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

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Global WarmingWPSC and WP&L 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

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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”

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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

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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?