Public Service Commission to start announcing electric rate increases this week

State regulators are about to decide how much Wisconsin electric power companies can raise their rates in 2024.

Between now and the end of the year, the Public Service Commission (PSC) is expected to act on rate increase petitions from five electric power companies.

Two requests include proposals to charge ratepayers for the cost of putting coal-fired power plants out of commission. Two include changes in how power companies will charge and compensate homeowners who install solar power arrays.

“The PSC is setting prices for customers as a proxy for competition because these utilities are monopolies,” says Tom Content, executive director of the Citizens Utility Board (CUB). CUB is authorized by Wisconsin law to represent consumers in rate cases before the commission.

Utilities submitted their rate hike petitions earlier this year, and consumer advocates and other interested groups have submitted countervailing arguments as well. They include CUB, representing residential customers and small businesses; the Wisconsin Industrial Energy Group, representing large businesses in the state; and advocacy groups focusing on the environment, renewable energy, or the interests of specific groups of utility customers.

The PSC will decide the first case Friday, for Madison Gas & Electric.  In this year’s rate requests utilities are citing cost increases driven by inflation in the last couple of years as well as their ongoing investment in new capacity, especially through renewable sources such as solar power.

Profit margins

Three of the utilities’ requests include provisions to accommodate their target return on equity, or profit margin. The companies argue that the return needs to be high enough to encourage investment.

For CUB, “the big [issue] is profits and how much the utilities should be allowed to earn,” Content says. The industry’s average return on equity of 9.8-10% in Wisconsin is “much higher than the national average,” he adds. “They’ve come down some, but they need to come down further because they’ve been so high for so long.”

CUB’s recommended rate structures would give each of the three companies — Madison Gas & Electric, Xcel Energy/Northern States Power Company, and Alliant Energy/Wisconsin Power and Light, a 9.3% return instead of the higher returns in their petitions. That would save those utilities’ customers $125 million over the next two years, Content says.

Xcel Energy’s Northern States Power Company unit is asking for a 7.8% rate increase in 2024, including 7.8% for residential customers and 8% for small business. The proposal assumes a return on equity of 10.25%.

CUB argues that is needlessly high, favoring shareholders at the expense of the power company’s customers. The organization contrasts the Wisconsin request with the 9.25% return that was figured into the rate case result for Xcel’s Minnesota unit.

While lowering the return “may be an ‘adverse regulatory decision’ for NSPW’s shareholders because stock prices fall, millions of NSPW customers would benefit from the more affordable rates and energy burden reductions,” CUB states its brief to the PSC on the Northern State request.

Xcel argues that undercutting the company’s preferred return rate would hurt the company and by extension its customers. The reduction in the permitted return in Minnesota “caused a substantial reduction in its parent company’s stock price and resulted in an increase in [the Minnesota unit’s] cost of capital.”

Alliant Energy is seeking to raise rates 14.3% overall over the next two years for its Wisconsin Power and Light (WPL) unit, including 19.2% for residential customers and 8.7% for small business customers.

Alliant Energy told the PSC it needs a 10% return on equity. That “reflects the true cost of the increased risks it is facing, and their impact on its financial health and ability to access debt and equity markets on reasonable terms for the benefit of customers,” says the company’s brief.

In its response to Alliant’s rate hike petition, CUB says that a 9.3% return “would be an important step toward more affordable rates that better balance costs and benefits for WPL’s richly rewarded shareholders versus cost and benefits for WPL’s customers.”

Blacks for Political and Social Action of Dane County has also opposed the Alliant/WPL rate increase and wants the commission to direct the company to do more for low-income customers unable to pay their utility bills.

Changing policies for home solar users

Madison Gas and Electric is seeking a rate increase totaling 7.3% over 2024 and 2025, including 9.5% for residential customers and 8.8% for small business customers. The utility has a return on equity target of 9.8% and argues that CUB’s recommendation for a lower figure would be “punitive” and would discourage investment in renewable energy — an argument that CUB disputes.

Another element in MG&E’s proposal would change how homeowners who install their own solar arrays are compensated for supplying some of their power to the utility. The current system, called “net metering,” grants solar homeowners credits for the power they release to the grid. The homeowners can use those credits to reduce the cost of power that they draw from the utility when they need to — on a cloudy day, for instance.

For new solar-installing homeowners, MG&E proposes replacing net metering with a credit up front for power delivered to the utility. The proposed change “continues to encourage and [offer an incentive for] customer-owned solar arrays while also balancing the interests of all other customers,” the utility says in a brief explaining its proposal.

CUB, along with renewable energy advocates and businesses have opposed MG&E’s proposal.

In a joint brief the Solar Energies Association and RENEW Wisconsin, a pro-solar nonprofit, contend that MG&E’s plan would discourage more homeowners from installing their own solar generating capacity. As a consequence, they argue, it “will cause irreparable harm to Wisconsinites, the state’s clean energy goals, and workers in the solar sector.”

Alliant/WPL’s proposal also includes a change in charges and compensation for solar homeowners.

While CUB has challenged the Alliant/WPL proposal to hike rates 14.3% through 2025, the organization has endorsed Alliant’s solar proposal. RENEW Wisconsin has also backed the Alliant plan after negotiating a two-year phase-in to end net metering with the company.

Other clean energy advocates aren’t satisfied, however. Clean Wisconsin has argued that the Alliant proposal, even after the negotiations that led to RENEW Wisconsin’s support, would replace net metering too soon and could stifle the state’s home solar installation market.

Both proposals “unfairly treat a rooftop solar owner that has a dozen solar panels on their home in the same way that they do a large corporation that installs hundreds of solar panels on a warehouse,” said the coalition Healthy Climate Wisconsin in a statement in September.

Decommissioned coal plants

Another element of the Alliant/WPL rate increase request involves whether the company can recover the $473 million investment it would lose with the 2025 shutdown of its Edgewater coal from ratepayers.

Alliant argues for maintaining a 2021 agreement with CUB and the Wisconsin Industrial Energy Group (WIEG) to cover those costs through the rates charged to electricity customers. Both organizations, however, want the PSC to consider requiring Alliant/WPL to refinance the entire debt instead.

Recovering lost investments from shut-down coal plants is also a factor in Wisconsin Electric Power Co.’s rate proposal.

In 2022 Wisconsin Electric Power was awarded a 9.2% rate increase for 2023. A provision in that rate finding allowed the utility to reopen the case and seek an additional 2.5% increase for 2024. The new rate case does not include a calculation for return on equity.

In reopening the Wisconsin Electric Power rate case, the PSC told the utility that it can recover its investments in new plants going online in 2023 and 2024, as well as address reduced operational and maintenance costs as it retires coal plants in the future.

WIEG has argued that the shutdown coal plant’s costs could be refinanced, saving ratepayers money. Wisconsin Electric Power contends its requests are reasonable and that the commission lacks the authority to require the company to order the refinancing.

Wisconsin Electric Power’s parent company, We Energies, has another unit seeking rate changes: Wisconsin Public Service. That rate case also is reopening the company’s 2022 case and does not include a return-on-equity calculation.

Unlike the other companies, however, WPS proposing to lower its rates, cutting them by 2.1% overall, including reductions of 1.8% for residential customers and 1.9% for small business customers.