Retail Rates Update WIEG Board Meeting May 6, 2010

1. Retail Rates Update WIEG Board MeetingMay 6, 2010 Presented by: Kavita Maini, Principal KM Energy Consulting, LLC

2. Main Objective • Interest in new We Energies, WPL rates? • Other rate design ideas?

3. Economic Development Rates • Approved in 2010 • WPL’s Experimental Economic Development Program Rider • WEPCO Charter Steel • Main reason: Significant demand destruction

4. WPL’s Experimental Economic Development Program Rider • Eligibility • Applicable to load expansions and attracting new load in service area; could also apply to existing load that is at risk of leaving the state (PSCW approval needed for this instance) • Must meet several pre-conditions to qualify • Rate • Floor: 105% of marginal costs • Ceiling: Existing Applicable Tariff • Declining discount phased to applicable tariff over 5 years

5. WPL’s Experimental Economic Development Program Rider Open Meeting Oral Decisions • Commission denied WPL’s deferral accounting treatment • Existing customers are unaffected in between rate cases • During a rate case, increased sales will help spread costs over larger MWh volumes • Two year experiment

6. WEPCO’s Charter Steel Contract • Filed on Feb 18, 2010 and Commission Order on May 3, 2010 • Two part real time pricing rate design • Existing load under existing rate that is a combination of firm and non firm (Cp-FN) • Incremental load under day ahead LMPs +20% • Incremental load based on comparison with threshold load shapes developed using Nov08-Oct09 • Incremental load on day ahead LMPs not subject to demand charges, fuel adjustment, point beach credits

7. WEPCO’s Charter Steel Contract • If Curtailment initiated, incremental load must comply • Charter Steel contract expires Dec 31, 2011 • WEPCO proposed a 30 day cancellation provision at any time • Can switch back all load to existing rate after contract expiration

8. WEPCO’s Charter Steel Contract Commission issued Order on May 3rd • Customer must receive market benefits and take market risks – Lower energy prices allow for benefits; change cancellation provision to require Charter Steel to a minimum of 1 year contract term for balancing market risk and removing what it considered to be a “hold harmless” clause • Utility Shareholders and utility customers will not be harmed – Defer portion of WEPCO revenues associated with incremental usage in 2011 to match up with costs that will be known in 2012 for 2011 (transmission costs) • Charter incremental usage and costs to be deducted from Fuel Rules Calculations to avoid double counting

9. Real Time Pricing Variants • WEPCO Charter Steel – Could be considered three tiered with firm, interruptible and increments @ LMP although firm and interruptible portion form the threshold load shapes • WEPCO Approach (existing RTP rate) – Two Tier with a Customer Baseline tied to firm service and deviations to be settled @ LMP plus adders; WEPCO is open to introducing an interruptible component • WPSC Approach (subject to change) – Also two tier though firm portion tied to existing rate and non firm @ LMP plus adders