Industrial Customer Expectations

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					     Wisconsin Industrial Energy Group
      Industrial Customer Expectations
       Wisconsin Public Utility Institute
                      October 14, 2008




Industrial Customer Expectations
• Introduction
• Customer Service/Reliability
• Industrial Electric Rates




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                                            1
             Introduction
Wisconsin Industrial Energy Group (WIEG)
• 30 of state’s largest energy consumers
• Promote affordable, reliable energy for
  large manufacturers




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             Introduction
• #1 state for papermaking
• #2 state per capita manufacturing jobs
• #3 state for foundries
• Among the highest % of coal-fired
  generation
• Currently among highest electric rates in
  the Midwest


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                                                  2
            Introduction
2008-2009 Key Issues
• Global Warming Task Force
• Mercury Rule (CAMR)
• Rate Cases and Interim Fuel Hikes
• Fuel Prices/Fuel Rules
• Infrastructure approval/rejection
• MISO – ASM, EDR



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        Customer Service
Customer Reps are OK, but not great
• Some are much better than others
• Responsiveness & communication level
  varies – often reactive not proactive
• Not empowered - “just the messenger”
• “Sorry, that’s the company’s policy”




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                                              3
  Reliability/Customer Service
Reliability is generally good, but…
• Outages are infrequent, but do happen
• Outages usually addressed quickly, but
  questions over any legal or cost issues
• Weston 3 lightning strike – purchased
  power costs WIEG members thousands
  extra per month



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               Reliability
Reliability at the macro-level is good
• Late 1990s Reserve Margin of <10%
• Now our Reserve Margin is >20%
• No free lunch – rates are soaring in part
  because of infrastructure additions




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                                                  4
                                               Costs and Rates
                           • $6 billion of energy infrastructure
                             construction approved in last 4 years
                           • 40% avg increase in rates in last 5 years
                           • Industrial Rates since 1997 have
                             increased over 60% or around 7% each
                             year
                           • Double the rate of inflation



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                                              Industrial Electric Rates: Wisconsin vs. Midwest Average

                                                                   Wisconsin      Midwest Average

                               6.25

                               6.00

                               5.75
Electric Rate (cent/kW hour)




                               5.50

                               5.25

                               5.00

                               4.75

                               4.50

                               4.25

                               4.00

                               3.75
                                      2000   2001      2002      2003          2004       2005      2006   2007   2008




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                     PSCW 2006 Strategic Energy Assessment, p. 52




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     Future Cost Overview
Generation                     $3.9 billion
Transmission                   $2.7 billion
Renewable Energy               $7.6 billion*
Environmental                  $4.0 billion
Total                          $18.2 billion**

*Commissioner Azar’s estimate
**$4.5 billion collected annually in rates


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                                                                         6
        Other Cost Drivers
$18 billion estimate does NOT include:
• Increasing and volatile fuel costs
• MISO deferred costs
• Operations and Maintenance (O&M) such
  as salaries, health care, etc.
• Global warming regulations/carbon costs




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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
  within the next 10 years



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                                                 7
          Global Warming
WPSC 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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          Global Warming
“What kind of job we’ll be able to
 do for the next 20 – 30 years will
 be determined in the next couple
 months.”
          – Glenn English, NRECA



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                                                8
                                                    Economic Survival
If rates get too high, companies may fail,
   leave or be unable to expand and grow
• Internally - we need to control costs with
   conservation and efficiency measures
• Externally - we need to influence the
   policy debate: ask what is the
   cost/benefit?



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                                              Trends in Wisconsin Manufacturing Employment & Industrial Electric Rates

                                                              Manufacturing Employment    Industrial Electric Rates

                                 625                                                                                                6.25

                                                                                                                                    6.00
                                 600
                                                                                                                                           Industrial Electric Rates (cents/kW hour)




                                                                                                                                    5.75
Manufacturing Jobs (thousands)




                                 575                                                                                                5.50

                                                                                                                                    5.25
                                 550

                                                                                                                                    5.00
                                 525
                                                                                                                                    4.75


                                 500                                                                                                4.50

                                                                                                                                    4.25
                                 475
                                                                                                                                    4.00

                                 450                                                                                                3.75
                                       2000        2001     2002       2003        2004     2005          2006        2007   2008




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                                                                                                                                                                                            9
         Economic Survival
• 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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               Summary
• Customer Service is OK, could be
  improved
• Reliability is generally good
  – Questions remain over isolated outages
  – Infrastructure improvements part of reason
    for increased rates
• Industrial electric rates increase at
  double the rate of inflation - with no end
  in sight
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                                                      10
       Questions?




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Wisconsin Industrial Energy Group
 Industrial Customer Expectations
  Wisconsin Public Utility Institute
                 October 14, 2008




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