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Wisconsin Industrial Energy Group June 6, 2019

Wisconsin Industrial Energy Group June 6, 2019. Discussion topics. Introductions Wisconsin regulatory update Generation reshaping We Energies and WPS rate applications Key issues Questions. Reshaping our Generation Fleet for a Clean, Reliable Future.

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Wisconsin Industrial Energy Group June 6, 2019

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  1. Wisconsin Industrial Energy Group June 6, 2019

  2. Discussion topics • Introductions • Wisconsin regulatory update • Generation reshaping • We Energies and WPS rate applications • Key issues • Questions

  3. Reshaping our Generation Fleet for a Clean, Reliable Future

  4. Taken as a whole, changes to our generation fleet should reduce costs to customers, preserve fuel diversity and reduce carbon emissions. Balancing reliability and customer cost with environmental stewardship Reshaping our generation includes: • Retiring older fossil-fueled generating units • Building state-of-the-art natural gas generation • Investing in cost-effective zero-carbon generation Reduction Goals: 40%below 2005 levels by 2030 80%below 2005 levels by 2050

  5. Coal-Fueled Generation RetirementsLowering costs & reducing greenhouse gas emissions Apr. Pleasant Prairie 1,190 MW Sept. Edgewater 100 MW Oct. Pulliam 200 MW 4,935 MW Mar.Presque Isle350 MW 3,095 MW 2019 2020 2018 2017

  6. Investing in solar Solar generation technology has improved in efficiency, become more cost-effective and complements our summer demand curve. • Badger Hollow Solar Farm (WPS/MGE) • Iowa County, Wisconsin • WPS 100 MW (MGE 50 MW) • Two Creeks Solar Project (WPS/MGE) • Two Rivers, Wisconsin • WPS 100 MW (MGE 50 MW) • Solar Pilots • Solar Now (35 MW) • Dedicated Renewable Energy Resource (150 MW)

  7. 2019 Wisconsin rate applications • We Energies (Wisconsin Electric and Wisconsin Gas) and Wisconsin Public Service filed applications with the PSCW on March 28, 2019. • After a 4-year base rate freeze, proposed rate increases will keep bills below the national average. * Electric targeted increases include fuel in 2020 and exclude fuel in 2021

  8. Key Drivers Wisconsin Public Service We Energies • Higher transmission charges currently capped at 2010 levels. • Revenue the PSCW assumed We Energies would receive from MISO that was not received. • Cost escalation in the Point Beach PPA approved by the PSCW in 2007. • Acquisition of Forward Wind Energy Center • Distribution system upgrades approved by the PSCW • Final costs for ReACT environmental project at Weston Unit 3.

  9. We Energies 2020 rate increase is driven by three drivers outside of our control Approximately 5.7 % Increase

  10. We Energies targeted increase—2.9% in 2020 and 2021 Federal tax reform continues to benefit customers 2020 2021

  11. We Energies’ Electric—2019 Key Drivers • Transmission cost recovery • Assumed MISO SSR revenues never collected • Point Beach PPA

  12. 2020 Key Driver—Transmission Costs We Energies’ transmission cost recovery has been capped since 2010 Wisconsin Electric is the only Wisconsin utility not authorized to recover its full transmission costs.

  13. We Energies also expects lower transmission capital additions in the future

  14. 2020 Key Driver—SSR assumed revenues never collected SSR Revenues assumed by the Commission are 3.1% of We Energies’ current rates and have created a $186 million balance.

  15. 2020 Key Driver—SSR assumed revenues never collected

  16. 2019 Key Driver—Point Beach PPA Annual Point Beach PPA escalation provisions increase significantly through 2031

  17. Wisconsin Public Service 2020 rate increase is driven largely by approved capital investments Approximately 12.3 % Increase

  18. Wisconsin Public Service targeted increase—4.9% in 2020 and 2021 Federal tax reform continues to benefit customers 2020 2021

  19. We Energies rate case—other key issues • Maintaining our existing real time pricing programs • Made permanent in 2017 settlement • Not proposing changes to any aspect of rates, including “adders” • Retirement of the Pleasant Prairie Power Plant (P4) • Return on equity • Rate design • Demand charge • Facility charge

  20. We have worked with WIEG to develop real-time market pricing for our high energy users over past 9 years • Provides an option for customers to access market pricing • Better positions Wisconsin to … • Attract new customers and jobs • Grow load and jobs at existing customers • Retain customers and jobs

  21. Real Time Market Pricing (RTMP) Program • Began in August 2011 • Expanded in September 2013 (to 300 MW) • Customers adding load assume rewards and risks of market prices • Prices can fluctuate but significant potential for savings • Opportunity for customers to save by shifting production to lower priced hours • Contract term no longer limited to four years • Must remain off tariff for a year if they exit and will have new “usage baseline” upon returning In 2019, we estimate that roughly 2/3 of all WIEG members are now on real time pricing programs (RTMP/NLMP & RTP/RTMP)

  22. How RTMP pricing works • ~ 11.4¢/kwh Average cost per kwh • all of our retail load combined • ~ 8.15¢/kwh Average industrial price per kwh • applies to load belowCBL (70%) • ~ 3.3¢/kwh Incremental energy price for customers under RTMP • applies to load aboveCBL (30%) • short run marginal energy cost is ~ 3.2¢/kwh

  23. We Energies also started a unique new real time pricing (RTP) program in 2017 • Only customers served at transmission voltage are eligible • Customer nominates any portion of load they want to be subject to wholesale market prices • Adder - to pick up WEPCO’s fixed costs for that customer • $ 13.50 / MWH for Non-Firm or $ 20.50 / MWH for Firm • Adder not cost based • Actual transmission costs are passed through to customer • Additional future savings possible, if peak load managed • Building on RTMP

  24. 2019 Key Issue—Pleasant Prairie Pleasant Prairie Power Plant (P4) Overview • Two coal fired units in southeastern Wisconsin • 1,190 MW • Unit 1 (1980) and Unit 2 (1985) • Original construction cost is $750M • $400M of environmental controls installed in 2005 and 2006 • Current unrecovered balance is $657M

  25. 2019 Key Issue—Pleasant Prairie The costs to operate Pleasant Prairie far exceeded future benefits for customers Average Annual customer savings from retirement: average $120M

  26. 2019 Key Issue—Pleasant Prairie P4 Retirement delivers $2.5 – 4.8 billion in customer savings over the next 21 years

  27. Aging coal plants’ undepreciated balances are not unique to P4 *- Source: 2018 FERC Form 1 Data **-Source: Alliant 2018 Form 10-K

  28. 2019 Key Issue—Capital Structure Return on Equity Wisconsin IOU’s Currently Authorized ROEs - Utilities with an earnings cap and sharing mechanism - Utilities without an earnings cap and sharing mechanism

  29. 2019 Key Issue—Capital Structure Proposed ROE & Capital Structure • WEPCO’s and WPS’s capital structure should be strengthened

  30. 2019 Key Issue—Capital Structure Proposed ROE & Capital Structure • Proposed weighted cost of equity consistent with recent PSCW decisions

  31. 2019 Key Issue – Fixed Cost Recovery Charge Focusing on fairness—Solar Fixed Cost Recovery

  32. Reforming rates for customers with their own renewables Chronology • 2015 PSCW Order • Lowered rates paid to customers with their own generation for their “excess” generation. • From 22 cents/kwh to 3-4 cents/kwh • Proposed a capacity demand charge of $3.794/kw of installed solar • Avoided unfair shifting of fixed cost recovery to customers without solar • 2016 Dane County remand • Found insufficient evidence in the record to support the charge • 2019 Rate application • We Energies included a request for an updated demand charge with additional supporting evidence

  33. The proposed Fixed Cost Recovery Charge (“FCRC”) • Applicability • 400-500 residential customers who have their own generation and future customers • Key elements • Collect a fixed distribution cost (costs currently recovered in usage rates) • $3.53/kw monthly charge or $12-15/month for typical customer • Based on actual generation • Our objectives • Ensuring fairness in rate design • Prevent shift of costs from customers with their own generation to those that don’t

  34. The policy challenge… • Customers with their own generation use less energy BUT…. • Those same customers still rely on the same distribution system to meet their 24/7 energy needs • Most costs today are recovered through usage or “volumetric” charges • Customers who use less energy reduces their contribution to the fixed costs incurred to serve them. • Mirrors policy debate on allocating transportation costs to Electric Vehicles (EV)

  35. How the new FCRC charge works…. Residential Customer – No Generation Example Assumptions: Total Consumption: 1,000 kWh/mo..

  36. Current rate design enables customers with generation to avoid the costs to serve them Residential Customer – With Generation Lower energy usage means more fixed costs are shifted to other customers Assumptions: Consumption 1,000KWh/mo; Customer Generation 400kWh/mo; Net consumption of 600kWh/mo

  37. Our proposal recovers 1/3 of the costs shifted to customers who don’t have their own generation Residential Customer—with Generation Assumptions: Consumption 1,000KWh/mo; Customer Generation 400kWh/mo; Net consumption of 600kWh/mo

  38. Rate design basics—residential customers Residential Customer • Fixed costs • Costs that do not change based on how much electricity is consumed • Variable costs • Costs that increase or decrease as more or less energy is consumed. Our historical rate design does not align revenue collection with cost causation

  39. Rate design basics—smaller commercial customers (cont.) Small Commercial Customer (with Demand Charge) Our historical rate design does not align revenue collection with cost causation

  40. Residential proposed facilities charge increaseWe Energies • Another incremental step to collect greater common customer costs through a fixed charge. • $..78 increase 2020; • $.83 increase 2021 • Facilities charge is “fixed” & recovers: • Meters • The poles, wires, transformer(s) needed to serve one customer of that class. • Billing system • Customer care centers • Service centers

  41. Residential proposed facilities charge increase WPSC • Another incremental step to collect fixed customer costs in the fixed charge. • $1.74 increase in 2020 • $1.27 increase in 2021

  42. Residential Electric Vehicle Pilot

  43. Residential Electric Vehicle Pilot • Initial step to support electric vehicle charging in our service territories • Small capital investment • Up to $ 7.5 Million – WEPCO • Up to $ 2.5 Million - WPSC • Couples existing rate structures to provide new option for customer. • Adds second (TOU) meter only on charger; • All electric vehicle charging on TOU rate, balance of consumption at flat rate; • Provides rebates to customers to purchase level 2 chargers.

  44. EV investments are increasing across the country

  45. VW Settlement is driving additional EV investments

  46. March 28: Filed Financial Aspects May 1: File Cost of Service / Rate Design March 28 – Mid-Summer: Staff Audit of Filing Mid-Summer: Staff & Intervenor Direct Testimony Late Summer: Rebuttal & Surrebuttal Testimony Early Fall: Public & Technical Hearings Late Fall: Party Briefings November: Commission Decision December: Written Order Expected Timeline

  47. Wrap Up Questions?

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