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*) MG&E 5.75% (8.8 Industrial approved) 2006 WPSC16% (4.7% Industrial approved) WP&L18% (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.

6 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 (O&M) 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: –WEPCO4% - 6% –WPSC 4% -5% –WPL 2% –NSP4% - 5% –MGE3.5% - 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 WP&L examples $1 billion revenue requirement 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

15 Questions?