the perfect storm double digit rate increases & $18 billion to be spent on energy infrastructure
TRANSCRIPT
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?