Commissioner Lauren Commissioner Lauren AzarAzar

Speech to WIEGSpeech to WIEGFEBRUARY 6, 2008FEBRUARY 6, 2008

Today’s TalkToday’s Talk

1. Rate Update 1. Rate Update

2. MISO Update2. MISO Update

3. WIEG’s Role at the Commission3. WIEG’s Role at the Commission

Rate UpdateRate Update

PRIMARY RATE DRIVERS PRIMARY RATE DRIVERS NOWNOW

1. FUEL1. FUEL• Commodity Cost Commodity Cost • Transportation CostTransportation Cost

2. CONSTRUCTION CYCLE 2. CONSTRUCTION CYCLE • GenerationGeneration• TransmissionTransmission

MONTHLY INDEX OF NATURAL GASMONTHLY INDEX OF NATURAL GASAverage of ANR Louisiana/ANR Average of ANR Louisiana/ANR

Oklahoma Wellhead PricesOklahoma Wellhead PricesJanuary 1992 – January 2008January 1992 – January 2008

GENERATION GENERATION Recent Additions 4,105 MWRecent Additions 4,105 MW

DeveloperDeveloper Location / DescriptionLocation / Description YearYear SizeSize FuelFuel

LS Power / CoGenTrixLS Power / CoGenTrix Whitewater Co-GenWhitewater Co-Gen 19971997 227 MW227 MW GasGas

MGEMGE Rosier Wind FarmRosier Wind Farm 19991999 11 MW11 MW WindWind

MPUMPU Custer CTCuster CT 19991999 25 MW25 MW GasGas

Sky Gen (Purchased by WPSC)Sky Gen (Purchased by WPSC) DePere Phase I CTDePere Phase I CT 19991999 179 MW179 MW GasGas

WEPCOWEPCO Concord CT Inlet CoolersConcord CT Inlet Coolers 19991999 56 MW56 MW GasGas

WEPCOWEPCO Paris CT Inlet CoolersParis CT Inlet Coolers 19991999 56 MW56 MW GasGas

WPSCWPSC Lincoln Wind FarmLincoln Wind Farm 19991999 9 MW9 MW WindWind

MGEMGE West Marinette #34 CTWest Marinette #34 CT 20002000 83 MW83 MW GasGas

Southern Energy (Purchased by Alliant)Southern Energy (Purchased by Alliant) Neenah CTNeenah CT 20002000 300 MW300 MW GasGas

WEPCOWEPCO Germantown CT Inlet CoolersGermantown CT Inlet Coolers 20002000 50 MW50 MW GasGas

WEPCOWEPCO Germantown #5 CTGermantown #5 CT 20002000 85 MW85 MW GasGas

Polsky / Sky GenPolsky / Sky Gen Rock Gen – Christiana CTRock Gen – Christiana CT 20012001 450 MW450 MW GasGas

DPCDPC Elk Mound CTElk Mound CT 20012001 96 MW96 MW GasGas

Badger Wind PowerBadger Wind Power Iowa County Wind FarmIowa County Wind Farm 20012001 30 MW30 MW WindWind

WPSC WPSC Pulliam CTPulliam CT 20032003 83 MW83 MW GasGas

Wisconsin River Power Corp.Wisconsin River Power Corp. Petenwell CTPetenwell CT 20032003 20 MW20 MW OilOil

WPPIWPPI Kaukauna CTKaukauna CT 20042004 52 MW52 MW GasGas

Calpine Calpine Riverside CCRiverside CC 20042004 600 MW600 MW GasGas

Sheboygan Power, LLC Sheboygan Power, LLC Sheboygan County CTSheboygan County CT 20052005 300 MW300 MW GasGas

MGEMGE Walnut St – Madison CCWalnut St – Madison CC 20052005 150 MW150 MW GasGas

Fox Energy (Calpine) Fox Energy (Calpine) Kaukauna CC (Unit 1)Kaukauna CC (Unit 1) 20052005 315 MW315 MW GasGas

WE Power WE Power Port Washington CC (Unit 2)Port Washington CC (Unit 2) 20052005 545 MW545 MW GasGas

Fox Energy (Calpine) Fox Energy (Calpine) Kaukauna CC (Unit 2)Kaukauna CC (Unit 2) 20052005 320 MW320 MW GasGas

Manitowoc Public Utilities Manitowoc Public Utilities Manitowoc CFBManitowoc CFB 20062006 63 MW63 MW CoalCoal

DeveloperDeveloper Location/DescriptionLocation/Description Year Year Size Size FuelFuel

WPSWPS Weston 4 SCPCWeston 4 SCPC 20082008 500 MW500 MW CoalCoal

WE Power WE Power Port Washington CC (Unit 1)Port Washington CC (Unit 1) 20082008 545 MW545 MW GasGas

WEPCOWEPCO Calumet CountyCalumet County 20082008 203 MW203 MW WindWind

WPLWPL Fond du Lac CountyFond du Lac County 20082008 98 MW98 MW WindWind

Forward Energy LLC Forward Energy LLC Dodge/Fond Du Lac Dodge/Fond Du Lac CountiesCounties

20082008 200 MW200 MW WindWind

WE Power WE Power Oak Creek SCPC (Unit 1)Oak Creek SCPC (Unit 1) 20092009 615 MW615 MW CoalCoal

WE Power WE Power Oak Creek SCPC (Unit 2)Oak Creek SCPC (Unit 2) 20102010 615 MW615 MW CoalCoal

GENERATION GENERATION Under Construction 2,776 Under Construction 2,776

MWMW

DeveloperDeveloper Location / DescriptionLocation / Description YearYear SizeSize FuelFuel

MGEMGE Worth County, IowaWorth County, Iowa 20082008 30 MW30 MW WindWind

Calpine – (Active)Calpine – (Active) Fond du Lac CCFond du Lac CC 20122012 532 MW532 MW GasGas

WPPI (ownership in Prairie WPPI (ownership in Prairie States Energy Center) States Energy Center) (Cancelled)(Cancelled)

Washington County, ILWashington County, IL N/AN/A 99 MW99 MW CoalCoal

Rainy River -- (Cancelled)Rainy River -- (Cancelled) Superior CTSuperior CT N/AN/A 170 MW170 MW GasGas

Mirant fka SEI -- (Cancelled)Mirant fka SEI -- (Cancelled) Plover CC + CTPlover CC + CT N/AN/A 930 MW930 MW GasGas

Badger Gen. Co. (Cancelled)Badger Gen. Co. (Cancelled) Pleasant Prairie CCPleasant Prairie CC N/AN/A 1,050 MW 1,050 MW GasGas

GENERATIONGENERATION Approved 2,811 MWApproved 2,811 MW

DeveloperDeveloper Location / DescriptionLocation / Description YearYear SizeSize FuelFuel

WPLWPL Cassville or PortageCassville or Portage 20122012 300 MW300 MW CoalCoal

Marshfield UtilitiesMarshfield Utilities Marshfield, Wood CountyMarshfield, Wood County 20082008 55 MW55 MW GasGas

WPSWPS Howard County, IowaHoward County, Iowa 20092009 99 MW99 MW WindWind

GENERATIONGENERATIONApplications Filed 454 MWApplications Filed 454 MW

TRANSMISSIONTRANSMISSION

$ 1.2 Billion spent through 2000-2006$ 1.2 Billion spent through 2000-2006

$ 2.84 Billion expected before 2018$ 2.84 Billion expected before 2018

FUTURE RATE DRIVERSFUTURE RATE DRIVERS

Carbon Carbon

Other Environmental ControlsOther Environmental Controls

Global Warming Task Force IssuesGlobal Warming Task Force Issues

Cost of Electricity Cost of Electricity ResourcesResources

(Source: ACEEE 2006 & EPRI 2006)(Source: ACEEE 2006 & EPRI 2006)

RATE CASE PROCESSRATE CASE PROCESS

Utility estimates expenditures & income Utility estimates expenditures & income PSCW audits & adjustmentsPSCW audits & adjustments Projected revenue shortfallProjected revenue shortfall Cost of service for customer classesCost of service for customer classes Allocation of shortfall to customer Allocation of shortfall to customer

classesclasses Hearing heldHearing held Commissioners review record Commissioners review record

COMMISSION DISCRETION COMMISSION DISCRETION IN RATE CASESIN RATE CASES

Projected Costs & RevenuesProjected Costs & Revenues

ROEROE

Capital StructureCapital Structure

Deferrals Deferrals

Allocation among customer classesAllocation among customer classes

Requested vs. Authorized Revenue Requested vs. Authorized Revenue Changes Electric & Gas 14-Year Changes Electric & Gas 14-Year

Summary Summary Total Increase Total

Year Requested by Utilities Authorized by PSCW

1995 $ 38,644,000 $ (26,755,000)1996 $ 2,663,000 $ (43,971,000)1997 $ 116,844,000 $ (47,115,000)1998 $ 230,184,000 $ 183,994,000 1999 $ 82,548,000 $ 52,612,000 2000 $ 74,900,000 $ 65,590,000 2001 $ 92,016,000 $ 73,585,000 2002 $ 244,434,000 $ 162,742,000 2003 $ 140,252,000 $ 127,983,000 2004 $ 255,168,000 $ 154,052,000 2005 $ 315,681,000 $ 227,024,000 2006 $ 547,370,000 $ 421,417,000 2007 $ 354,852,000 $ 149,024,000 2008 $ 367,343,000 $ 188,925,000

Sum $ 2,862,899,000 $ 1,689,107,000

COSTS COSTS Executive CompensationExecutive Compensation

1997 Top 3 Executives for WEPCO, WPL, WPS, 1997 Top 3 Executives for WEPCO, WPL, WPS, & MGE & MGE

1997 total executive costs: $ 4.01 M1997 total executive costs: $ 4.01 M 1997 executive cost in rates: $ 2.37 M 1997 executive cost in rates: $ 2.37 M % of 1997 total executive cost in rates = 59%% of 1997 total executive cost in rates = 59%

2004 top 3 Executives for WEPCO, WPL, WPS, 2004 top 3 Executives for WEPCO, WPL, WPS, & MGE& MGE

2004 total executive costs: $ 13.94 M2004 total executive costs: $ 13.94 M 2004 executive cost in rates: $ 3.20 M2004 executive cost in rates: $ 3.20 M % of 2004 total executive costs in rates = 23%% of 2004 total executive costs in rates = 23%

ACTUAL ROE - AVERAGEACTUAL ROE - AVERAGEWEPCO, WPL, WPS, MGE, NSPWEPCO, WPL, WPS, MGE, NSP

YEARYEAR YEARYEAR YEARYEAR

19901990 13.03%13.03% 19961996 11.79%11.79% 20022002 11.44%11.44%

19911991 13.18%13.18% 19971997 9.83%9.83% 20032003 12.01%12.01%

19921992 12.11%12.11% 19981998 10.58%10.58% 20042004 11.64%11.64%

19931993 12.30%12.30% 19991999 11.39%11.39% 20052005 9.23%9.23%

19941994 11.45%11.45% 20002000 10.55%10.55% 20062006 9.99%9.99%

19951995 12.45%12.45% 20012001 11.20%11.20%

Wisconsin Rates Compared Wisconsin Rates Compared with Other Stateswith Other States

About 19 states have higher rates for About 19 states have higher rates for bothboth residential and industrial classes (YTD residential and industrial classes (YTD 9/07)9/07)

U.S. AverageU.S. Average

(Cents/kwh)(Cents/kwh)Wisconsin Wisconsin AverageAverage

(Cents/kwh)(Cents/kwh)

IndustrialIndustrial 6.386.38 6.18 6.18

ResidentiaResidentiall

10.6510.65 10.7210.72

All classesAll classes 9.189.18 8.438.43

Allocation ’07-’08 – Rate Allocation ’07-’08 – Rate ChangesChangesUtilityUtility Type Bill Type Bill '07 to '08'07 to '08

MG&E MG&E Residential Residential 5.8%5.8%

MG&E MG&E Commercial Commercial 6.5%6.5%

MG&E MG&E Industrial Industrial 10.1%10.1%

NSPW NSPW Residential Residential 9.1%9.1%

NSPW NSPW Commercial Commercial 8.4%8.4%

NSPW NSPW Industrial Industrial 10.5%10.5%

WEPCO WEPCO Residential Residential 5.2%5.2%

WEPCO WEPCO Commercial Commercial 2.4%2.4%

WEPCO WEPCO Industrial Industrial 0.7%0.7%

WP&L WP&L Residential Residential 2.1%2.1%

WP&L WP&L Commercial Commercial 3.1%3.1%

WP&L WP&L Industrial Industrial 3.3%3.3%

WPSC WPSC Residential Residential 2.0%2.0%

WPSC WPSC Commercial Commercial 3.2%3.2%

WPSC WPSC Industrial Industrial 2.7%2.7%

Conclusion on Rate Conclusion on Rate UpdateUpdate

Full Rate Cases in ’08: WPS & WPLFull Rate Cases in ’08: WPS & WPL

Reopeners in ’08: MGE & NSP Reopeners in ’08: MGE & NSP

Continuous evaluation on reducing Continuous evaluation on reducing ratesrates Fuel Rule Revisions?Fuel Rule Revisions? Statutory Changes? Statutory Changes?

Environmental Trust FundingEnvironmental Trust Funding

MISO UpdateMISO Update

HOT MISO ISSUESHOT MISO ISSUES

1. End-User Focus Group 1. End-User Focus Group

2. Resource Adequacy and Module E2. Resource Adequacy and Module E

3. Demand Response 3. Demand Response

4. ASM4. ASM

5. Stakeholders Recommendations5. Stakeholders Recommendations

WIEG’S Role At WIEG’S Role At PSCWPSCW

The EndThe End