By Brian E. Clark
The cost of coal is flat, natural gas prices have dropped significantly and the demand for electricity in Wisconsin has fallen over the past year.
But that doesn’t mean utility rates are going down anytime soon.
In fact, due to the way major utilities are regulated in the Badger State, falling demand means that prices can actually increase in order to pay for ongoing infrastructure costs.
It’s also because power companies are authorized to earn 10.4 percent on their investments, though in down years that can be less. In return, they are required to provide power to all customers in their service area and accept other rules.
Rates are also rising because customers will be paying for the cost of building new facilities, such as Milwaukee-based We Energies’ Oak Creek plants and wind farms that will be coming on line next year.
Last week, the state Public Service Commission granted We Energies a $90 million rate increase, which translates into an average 4 percent boost. It will take effect on Jan. 1.
And in December, several other utilities that serve Wisconsin will be going before the PSC to ask for more than $180 million in rate hikes.
Green Bay-based Wisconsin Public Service Company, which serves mainly northeast and central Wisconsin, is asking for a $49 million boost.
Madison-based Alliant Energy is requesting a $109 million increase, nearly two-thirds of which is based on declining sales. Another third, however, is for its Bent Tree wind farm in Minnesota.
Alliant lost major industrial customers in the past year, including the General Motors plant in Janesville. Since late 2008, more than 3,000 auto-related jobs disappeared in the Rock County region. Alliant took another big hit when the Domtar pulp mill closed in Port Edwards.
MGE, also based in Madison, wants a $17 million boost. And Minneapolis-base Xcel Energy, which serves much of western Wisconsin, is looking for around a $15 million rate increase.
In the We Energies case, the PSC decision means industrial users will see a 2 percent to 3 percent rate hike next year, while residential customers will face a 5 percent to 6 percent increase in their utility bills. The average residential customer will see a monthly increase of approximately $5 for electric service as a result of this adjustment.
The Milwaukee-based company had proposed an increase of approximately $190 million to pay for its Oak Creek plant and transmission system upgrades. A company spokesman said We Energies also sought the increase to cover revenue losses from lower sales.
Charlie Higley, executive director of Citizens Utility Board – which represents consumers before the PSC – said he was pleased the commission reduced We Energies rate increase by more than half.
“We wished they would have done more, given the tough economic times for residential customers,” he said. “But in general, we thought the commission was trying to send a signal to utilities that they need to control costs and reduce their profits somewhat in reflection of this recession.”
He said he hopes the PSC will cut the rate increases requested by other power companies that serve the Badger state.
Higley noted that $50 million of the rate increase request by We Energies was to make up losses from declining sales.
“It’s a strange fact of how utilities are regulated that when they have unexpected declines in sales of energy, they have to spread their (fixed) costs for providing service over those lower sales. And that’s why our rates go up.
“So if sales go down and costs remain the same, then they request an increase,” he said. “A lot of their infrastructure was built in the past, with no expectation of a decrease in sales.”
Higley said he has never seen year-over-year declining electricity sales.
“It’s because of this recession and how it’s affected industry,” he said. “Sales went down during 1981, but not like this. It’s very unusual.”
Todd Stuart, executive director of the Wisconsin Industrial Energy Group, said he, too, wished the PSC would have cut the rate increase it granted We Energies a bit more. He said he hopes upcoming rake hikes requested by other utilities will be scaled back “significantly” and that industrial customers will be treated fairly.
Stuart also warned that when $400 million in “credits” from the 2007 sale of We Energies Point Beach nuclear plant are all refunded to consumers, rates will jump dramatically in coming years.
In addition, Stuart questioned the need for additional renewable energy infrastructure such as wind farms at a time when the closure of many factories has reduced the need for power.
“This is adding upward rate pressure,” he said. “That happens any time you add infrastructure. Utilities are still building to meet what we consider an ‘artificial’ renewable mandate.”
“That puts us in a tough spot, even though our economy has tanked and we have a lot of excess generation capacity now.”
Though Stuart and Higley have bones to pick with the PSC, both said they support continued regulation of utilities by the state.
“By definition, these are different than other types of businesses,” Higley said. “We need to keep the lights on and the power flowing. That’s why utilities are allowed to recover the costs of providing service.
“Our country has a long history of regulating for-profit utilities that provide essential services,” he said. “And the commission is supposed to make decisions that don’t harm those companies while protecting ratepayers. It’s a balance.”
Stuart agreed, saying, “Overall, regulation is a good idea. Though certainly there are pros and cons to any system you choose.
“I think what we have in place is in the best interest of Wisconsin ratepayers and consumers. But that doesn’t mean we aren’t concerned about competitiveness, costs and rates.”