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WIEG Annual Meeting June 19, 2008. Gale Klappa Chairman and Chief Executive. 2007 Highlights. Named the most reliable utility in the Midwest (fifth time in the past six years)

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wieg annual meeting june 19 2008

WIEG Annual MeetingJune 19, 2008

Gale Klappa

Chairman and Chief Executive

2007 highlights
2007 Highlights
  • Named the most reliable utility in the Midwest (fifth time in the past six years)
  • Produced a record amount of electricity at the Presque Isle Power Plant – more than any other year in the 50+ years of operation at the site
  • Completed a $257 million environmental upgrade at our Pleasant Prairie Power Plant
    • On time
    • Below the $278 million budget approved by the Wisconsin Commission

2

2007 highlights1
2007 Highlights
  • Made solid progress on our Power the Future construction projects
  • Improved employee safety
    • 22% reduction in lost-time accidents in 2007
    • 5.7% reduction in OSHA recordables in 2007
    • Improvement of more than 40% in lost-time accidents and OSHA recordables since 2003

3

2007 highlights2
2007 Highlights
  • For the twelfth consecutive time, rated a perfect ‘10’ by GovernanceMetrics International for excellence in corporate governance
    • One of only three US companies to consistently earn this distinction
  • Completed 2007 with our retail electric rates below the national average

4

meeting the state s energy needs
Meeting the State’s Energy Needs
  • Wisconsin has been short power
  • Over the past three years, we’ve imported approximately 15 percent of the electricity we’ve supplied to our customers
  • In most cases, imported power has been expensive power

5

meeting the state s energy needs1
Meeting the State’s Energy Needs
  • We must expand our energy infrastructure:
    • To remain price competitive
    • To support
      • jobs and economic growth
      • population growth

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a focus on self sufficiency meeting the state s energy needs
A Focus on Self SufficiencyMeeting the State’s Energy Needs
  • The expansion of our energy infrastructure is well under way
  • A comprehensive plan called ‘Power the Future’
    • The largest construction program in state history
    • Four new generating units planned by 2010...plus
    • A major investment in wind energy
    • A demand reduction program

7

power the future plan
Power the Future Plan

Natural Gas

Status Approved by PSCW in 2002

Capacity 1,090 MW

Investment $669 million

In Service Dates

Unit 1 –2005

Unit 2 – May 23, 2008

Cost Per Unit

of Capacity $614/Kw

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power the future plan1
Power the Future Plan

Coal

Status Approved by PSCW in 20031

Capacity 1,030 MW2

Investment $1.8 billion

In Service Dates Unit 1 - 2009

Unit 2 – 2010

Cost Per Unit Approximately

of Capacity $1,850/Kw

1. Environmental permits are subject to legal challenges.

2. Approximately $350 million will be invested in the coal units by MG&E/WPPI for 200 MW of capacity.

9

power the future plan2
Power the Future Plan
  • One legal challenge still pending on Oak Creek expansion
  • Two environmental groups are seeking to overturn our permit to operate the water intake system
  • In November, an administrative law judge ruled that the expansion units at Oak Creek must be treated as a new facility for purposes of this permit

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appeal of water intake permit
Appeal of Water Intake Permit
  • So...the state Department of Natural Resources (DNR) must decide if the water intake system we’ve built is the best technology available – for a new facility
  • We believe it is clearly the best environmental solution
  • We received a draft, modified permit from the DNR in May
  • We expect a final permit from the DNR in July

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power the future plan all dollars in millions
Power the Future Plan (all dollars in millions)

1. Environmental permits are subject to legal challenges.

2. Approximately $350 million will be invested in the coal units by MG&E/WPPI for 200 MW of capacity.

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under wisconsin law more renewable energy required
Under Wisconsin LawMore Renewable Energy Required
  • Legislation enacted in 2006 calls for

10 percent of the state’s electricity to be supplied by ‘renewable sources’ by 2015

  • Given the scale we need, wind is the most cost-effective renewable source

for Wisconsin

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blue sky green field new wind project complete
Blue Sky Green FieldNew Wind Project Complete

Location: Fond du Lac County

Capacity: - 145 MW

- 88 turbines spread

across 10,600 acres

Projected Cost: Approximately

$300 million

Approval by the

Wisconsin Public

Service Commission: February 1, 2007

Completed: May, 2008

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we energies recent history of industrial electric rates
We EnergiesRecent History of Industrial Electric Rates

Excluding Fuel

Industrial Average – cents per kWh

Year 2000 2.92¢

Year 2008 3.75¢

Compound Annual Growth Rate since 2000

3.2%

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we energies recent history of industrial electric rates1
We EnergiesRecent History of Industrial Electric Rates

Including Fuel

Industrial Average – cents per kWh

Year 2000 4.28¢

Year 2008 6.74¢

Compound Annual Growth Rate since 2000

5.8%

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a look inside the numbers
A Look Inside the Numbers

Our Competitive Position

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december 2007 average retail electric prices
December 2007Average Retail Electric Prices

Source: U.S. Energy Information Administration

Numbers expressed in cents per kilowatthour

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a top 50 industrial customer of we energies
A Top 50 Industrial Customer of We Energies

* Adjusted for 2008 rate increase of 4.2%

** Reflects first quarter billings under new rate

Numbers expressed in cents per kilowatthour

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a top 10 industrial customer of we energies
A Top 10 Industrial Customer of We Energies
  • Observations from the company’s President:
    • “We Energies pricing has kept our

Wisconsin plant competitive as compared

to our Ohio operations”

    • “Our electric rates are essentially the same

in Wisconsin and Ohio”

    • “We’re at no disadvantage in Wisconsin”

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the pricing outlook
The Pricing Outlook
  • We Energies should become more competitive as we bring new, cost effective base load units into service
    • 2009 and 2010
  • New coal units will reduce our dependence on expensive gas-fired power from other states

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inflation returns to the construction site
Inflation Returns to the Construction Site
  • Driven by the price of steel, copper, and other commodities, power plant construction costs have risen dramatically
    • More than doubled since the year 2000
    • Most of the increase has taken place since 2005
  • Cost of We Energies’ Power the Future plants will be a true bargain compared to the cost of plants on the drawing board today

22

issues for concern
Issues for Concern
  • Spiraling cost of fuel
    • Diesel surcharge
    • World market for natural gas
    • Coal exports driving domestic pricing higher
  • Fuel recovery case pending before Wisconsin Public Service Commission
    • Even if new rates take effect in July, We Energies projects that it will under recover its actual fuel costs

by some $40 million this year

  • Challenge of ‘Climate Change’
    • Cost of meeting the Wisconsin mandate for renewables
    • Potential impact of cap and trade system for CO2

23

focus on customer satisfaction
Focus on Customer Satisfaction
  • Our long-term goal:
    • To be the industry leader in customer satisfaction
  • Recent customer satisfaction survey of the nation’s 28 largest utilities
    • Ranked We Energies first in the Midwest
    • Tied for sixth in the nation

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