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The Post-Recession Environment: An Industry Perspective SURFA Financial Forum 2011 Draft: 27 March 2011.

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Presentation on theme: "The Post-Recession Environment: An Industry Perspective SURFA Financial Forum 2011 Draft: 27 March 2011."— Presentation transcript:

1 The Post-Recession Environment: An Industry Perspective SURFA Financial Forum 2011 Draft: 27 March 2011

2 THEN large periodic projects to support strong load growth required infrequent, but major, rate cases NOW Ongoing investment well above depreciation and slower sales growth requires ongoing rate increases Illustrative A Paradigm Shift Costs Sales Growth

3 Regulatory LagCapital Investment Cost of CapitalCredit Worthiness Realized Return Energy Growth Per Customer Overview of the Problem

4 Natural Gas

5 SURFA Presentation Vincent L. Ammann, Jr. Vice President & CFO April 14, 2011

6 6 Decoupling Mechanisms District of Columbia: Virginia: Maryland: March 2010, Virginia SCC approved RNA for residential customers (CARE) Approval for commercial customers dependent tariff changes which included in rate case filed in January 2011 Filed for Revenue Normalization Adjustment in December 2009 DC PSC deferred review until next rate case RNA mechanism approved in 2005

7 7 Infrastructure Trackers District of Columbia: Virginia: Maryland: Approved Settlement Agreement for $28 million in additional infrastructure investments over 7 years Surcharge allowed after rate freeze expires 10/1/11 Proposed legislation in 2011 to permit accelerated infrastructure spend and surcharge was unsuccessful Potential proposal in upcoming rate case to be filed soon Accelerated infrastructure spending legislation with surcharge mechanism passed into law in 2010 Approval of spending plan and surcharge calculation currently pending

8 Electricity

9 Electricity Sales (GWh) Three Year Average Demand Growth % Source: Department of Energy, Energy Information Agency Annual Energy Outlook 2009, Updated Reference Case PeriodGrowth 50's9.8% 60's7.3% 70's4.7% 80's2.5% 90's2.3% 00's1.4% 10s (p)1.1% 20s (p)1.0% Industry Industry Trend

10 By 2030, the electric utility industry will need to make infrastructure investments of $1,830 Billion This level of investment is nearly triple the US Shareholder –Owned Electric Utilities current net plant value of roughly $650 billion $654B $1,830B Source: Transforming Americas Power Industry, The Brattle Group, November 2008 Looking Out 20 Years

11 Capital Expenditures and Depreciation U.S. Shareholder-Owned Electric Utilities; $ Billion DepreciationCapital Expenditures Gap of $50 billion in capital would translate into $8 billion in rate requests Capital Investment vs Depreciation Source: SNL Financial, company reports and EEI Finance Dept. Note: Starting in 2008, the universe of companies drops from 69 to 63, removing six companies that did not file Form 10-K with the SEC.

12 Decline in Credit Quality Source: Standard & Poors, SNL Financial and EEI Finance Dept.

13 Water

14 14 The U.S. Water Industry

15 Aging US Infrastructure Investment Remains Critical 15 Source: U.S. Environmental Protection Agencys 2007 Drinking Water Infrastructure Needs Survey and Assessment. In billions, adjusted to January 2007 dollars. US EPA Estimated 20 Year Total Needs of US Public Water Systems American Society of Civil Engineers (ASCE) grades US infrastructure 2009: $335 billion 2005: $277 billion 2002: $154 billion 2009: $335 billion 2005: $277 billion 2002: $154 billion 2009 Grade: D Grade: D Grade: D 2009 Grade: D Grade: D Grade: D Transmission & Distribution: $200.8 Treatment: $75.1 Storage: $36.9 Source: $19.8 Other: $2.3 Total: $334.8 Billion US EPA estimates upwards to $1 trillion needed for public water and wastewater systems

16 16 Without renewal or replacement of existing systems, pipe classified as poor, very poor or life elapsed will increase from 10% to 44% by 2020 Without renewal or replacement of existing systems, pipe classified as poor, very poor or life elapsed will increase from 10% to 44% by 2020 Source: American Water Works Association, Dawn of the Replacement Era: Reinvesting in Drinking Water Infrastructure, May 2001 Aging Pipe Infrastructure Network Propels Need for Capital Expenditures Percentage of Pipes by Classification

17 Water Utility Expenditures 17 Water vs Other Utility ExpendituresWater Use in the Home

18 Appendix

19 Electricity Infrastructure Needs For continued reliability and carbon mitigation: Transmission ($297.8 billion) – To support new non-wind generation, bring wind generation to market, reinforce the grid for reliability Distribution ($581.5 billion) - To replace aging infrastructure, connect new customers, enhance reliability, improve power quality, deploy Smart Grid components Generation ($951 billion) – To serve new load, meet renewable resource mandates, build new nuclear generation, build new coal generation with CCS, retire carbon-intensive generation, deploy advanced metering and programs for realistically achievable EE/DR improvement

20 Overview of the Solution: Electric Ratemaking Innovative regulatory policies and mechanisms: Future test year Tracker/rider mechanisms CWIP in rate base Formula rate plans Decoupling Performance-based rate plans (rate caps, revenue caps) Strategies to mitigate rate shock, preserve credit worthiness, incent efficient management


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