MGE applied for a $6.9 million electric rate increase, 1.65 percent, and a $5.6 million natural gas rate increase, 3.67 percent in April, 2016. MGE’s revenue requirement request was based on a 10.2 percent ROE (return on equity, or profit).
MGE did not request an increase in its $19/month fixed customer charge for residential electric ratepayers. However, testimony was submitted by a party to the case that requested reducing the charge to $10.44/month. CUB supported that testimony. However, the PSC did not approve a change in the fixed customer charge, which remains at $19/month.
CUB jointly sponsored testimony with another intervenor requesting that the PSC reduce MGE’s requested ROE of 10.2 percent. CUB’s testimony recommended that the company’s ROE be based on a range of 9.0 – 9.8 percent, with 9.75 percent being comparable to ROE’s recently authorized in other states.
The PSC set rates for 2017 in its order issued in December, 2016. The PSC ordered a $3.3 million reduction in electric revenue for MGE, an approximately $10 million swing from what the company requested. A primary driver for the reduction was the decision to reduce MGE’s ROE by 40 basis points, from 10.2 to 9.8 percent. The PSC approved a $3 million rate increase for natural gas operations, $2.6 million less than MGE requested.
In July 2015, MGE filed an application with the Public Service Commission (PSC) for approval of a fuel cost credit to customers and for approval of its 2016 fuel cost plan. CUB intervened in the case. MGE proposed the fuel cost credit to reduce the total revenue collected from customers by approximately $10.9 million over a 16 month period. The $10.9 million total credit included: 1) $5.7 million in over-collection for MGE’s 2015 fuel cost plan during the January 1, 2015 to June 30, 2015 timeframe; 2) a $238,000 deferred account balance related to MGE’s 2013 fuel cost plan reconciliation that was not returned via a fuel credit to customers in 2014; and 3) a $5 million credit related to MGE’s proposed 2016 fuel cost plan.
In August 2015, the PSC issued an interim order approving the $10.9 million total credit to be returned to customers over the period September 1, 2015 through December 31, 2016 via a per kilowatt hour bill credit. At that time the PSC’s audit of MGE’s 2016 fuel cost plan was ongoing. To minimize possible rate changes the PSC determined that any adjustments to the fuel cost plan as a result of the audit would be made after the completion of the 2015 fuel cost reconciliation during the summer of 2016.
As filed, MGE’s proposed 2016 fuel cost plan, which covers its forecasted power plant fuel costs, was approximately $5.03 million less than its authorized 2015 fuel cost plan. The PSC staff audit resulted in additional uncontested downward adjustments totaling $3.7 million. In January 2016, the PSC issued an order approving MGE’s proposed 2016 fuel cost plan, including the uncontested adjustments and New York Mercantile Exchange updates. Consistent with the August 2015 interim order, the ultimate adjustments to the 2016 fuel cost plan will not be incorporated into rates until after the completion of MGE’s 2015 fuel cost reconciliation later in 2016, but will ultimately result in lower rates than would otherwise have been the case absent the downward fuel cost adjustments.
In April 2014, Madison Gas and Electric Company (MGE) filed an application with the PSC to increase electric rates by $11.5 million, or 2.8%. In June, MGE filed supplemental testimony proposing to increase the fixed portion of residential customers’ electric rates. The proposed changes would have increased the fixed portion of customers’ rates from $10.44 per month to $21.83 per month in 2015 and $48.65 per month in 2016. MGE also forecasted a potential fixed/demand charge of $68.69 per month in 2017.
Given its concern that increasing fixed charges harms low use customers (who are often low income customers) and dis-incents energy efficiency, conservation, and distributed generation, CUB worked with MGE to reduce the size and scope of the proposed increases to eliminate the 2016 and 2017 proposals and to reduce the 2015 proposed increase to $19. In addition, CUB and MGE agreed to work together to explore alternative ways for MGE to fairly and appropriately recover MGE’s costs to serve customers and to harness the benefits of evolving distributed generation for the benefit of all customers.
In July 2014, We Energies, Madison Gas and Electric Company, and WPPI Energy applied to the PSC for authorization to spend at least $25 million to redesign the Elm Road Generating Station (ERGS) to burn sub-bituminous coals or Powder River Basin (PRB) coals as a fuel source. The two ERGS units, each 634 MW in capacity, were originally designed in 2001 to burn bituminous coal. Since the initial design of ERGS the delivered cost for bituminous coal has increased by 35%. Because of this, ERGS owners are redesigning the plants to burn PRB coal.
In October 2014, WEPCO filed an application to spend $62 million to double the size of the coal storage facility at the shared ERGS/Oak Creek plant site. The application states the expansion is needed to accommodate fuel switching at ERGS and to solve coal storage issues experienced by the Oak Creek generating units. In December 2014, the Commission consolidated WEPCO’s two applications.
CUB filed expert testimony with the Commission calling out significant shortcomings in the utilities’ applications. Though there may be cost-savings associated with the burning of lower cost PRB coal, the costs associated with equipment modification to accommodate fuel-flex capability and increased coal storage need to be carefully scrutinized. The capital cost to construct both ERGS units as originally designed to burn bituminous coal, with return on investment, is projected to cost ratepayers approximately $9 billion over 30 years!
CUB is examining the reasonableness of customers needing to pay even more to receive any value from an already stupendously expensive power plant. The PSC will decide the case in 2015.
On April 15, 2013, Madison Gas & Electric applied with the Public Service Commission to freeze 2014 electric and natural gas rates at 2013 levels.
This is the first time in fifteen years that MGE has not requested a rate increase. MGE’s electric rates have more than doubled since 1996, rising on average 6 percent per year, much faster than the rate of inflation.
CUB, the Wisconsin Industrial Energy Group, and Airgas Merchant Gases submitted a joint brief in this case, offering qualified support for MGE’s plan to freeze rates, provided that MGE pay down old expenses with any money it may over-collect from customers in 2013 and 2014 above and beyond the cost of fuel for making electricity.
The PSC decided the case on July 11, 2013, freezing MGE’s electric and gas rates for 2014.
On March 23, 2012, Madison Gas & Electric applied with the Public Service Commission to raise electric rates by $22 million, or 5.8 percent, starting January 1, 2013. MGE also requested to increase the rates for natural gas service by $4.3 million, or 2.6 percent.
Regarding electric rates, MGE said the main drivers for the increase are the new coal-fired power plants at Oak Creek, south of Milwaukee, in which MGE has a small ownership share along with We Energies and WPPI Energy. Other drivers include new pollution controls being installed at the Columbia power plant near Portage and additional costs for transmitting power from power plants to substations.
CUB intervened in this case and investigated MGE’s attempt to dramatically increase a residential customer’s “customer charge,” the part of the electric bill that more or less stays the same each month, and doesn’t change based on usage (the other part of the electric bill is the “energy charge,” which changes based on usage). When customer charges make up more of a bill, they dampen the cost savings customers can realize by saving energy. CUB is opposed to higher customer charges because they can reduce a customer’s incentive to save energy.
On December 14, 2012, the PSC issued its final decision on this case, allowing MGE to raise its electric rates by $14.9 million, or 3.8 percent. Though CUB challenged MGE’s attempt to raise the “customer charge” by 40 percent, the PSC still decided to increase the charge by 20 percent. This means that customers that use less electricity than average will pay higher rates, and customers will also have less incentive to save energy. CUB also dug through hundreds of pages of utility paperwork and found a math error, saving customers more than $500,000.
On May 4, 2011, MGE filed a request with the PSC to raise electric rates by $17.9 million, or 4.9 percent. MGE provided an update of its proposed rate hike on August 26, 2011, to $21.5 million, or 5.9 percent. If approved, the new electric rates would take effect on January 1, 2012.
MGE said that the main drivers for the electric rate increase are projections of higher costs for fuel to make electricity, and higher costs to purchase electricity for re-sale to its customers.
CUB intervened in the case to determine whether MGE’s projection of fuel and purchased power costs were appropriate.
The PSC issued its final decision on December 15, 2011, and allowed MGE to increase electric rates by $15.6 million, or 4.3 percent. The PSC agreed with CUB and others and rejected MGE’s request to increase rates by $14 million to comply with the Cross-State Air Pollution Rule.
Unfortunately, the PSC decided to raise the rates for residential and commercial customers in part to pay for a discount to Airgas Merchant Gases, an industrial customer of MGE that distributes industrial, medical, and specialty gases. Airgas will receive about $100,000 in subsidies through lower electric rates.
On April 22, 2010, MGE filed an application with the PSC to increase electric rates by $32.8 million (9.4%), with the new rates to take effect in January 2011.
CUB intervened in the case and argued against several proposals made by MGE.
The PSC issued its decision in this case on December 22, 2011: electricity rates for MGE's customers were increased by about $8 million, or 2.3 percent. Here are some of the outcomes of CUB intervention in the case.
MGE proposed to increase the customer charge for residential service from the current rate of $8.70 per month to $9.50, an increase of 9.2%. The PSC agreed with CUB and kept the customer charge at the current rate of $8.70 per month; keeping the customer charge at the current level will provide more appropriate price signals to customers, and mitigate rate impacts for customers that use modest amounts of electricity.
MGE tried to have its customers pay for producing electricity at the West Campus Cogeneration Facility when it was not economical to do so. This situation arises when MGE is required to provide steam to the UW, but the electricity that is also produced has to be sold at a loss. The PSC agreed with CUB and reduced rates by $1.8 million, which will protect customers from paying for these uneconomic costs of producing electricity.
Finally, at CUB's urging, the PSC reduced MGE's return on equity (profits) to 10.3 percent, which reduced rates by $500,000.
Altogether, CUB's intervention reduced rates by about $2.3 million.
On April 29, 2009, MGE filed a request to raise electric rates by $15.9 million or 4.5 percent, and natural gas rates by $4.4 million or 2.3 percent. The rate increases would take effect in January 2010.
CUB intervened in this case and reviewed the utility's level of profit and the design of rates for residential customers.
The PSC issued its decision in this case on December 22, 2009. The PSC approved an increase in electric rates of $11.9 million (3.3 percent) and a decrease in gas rates of $1.5 million (0.74 percent). The PSC agreed with CUB and reduced MGE's return on equity (profits) from 10.8 percent to 10.4 percent, a savings to customers of $2 million. In addition, the PSC also agreed with CUB and reduced rates by $78,000 for lobbying expenses that were incorrectly charged to ratepayers. The PSC also agreed with CUB to require MGE to use electric rates for residential customers with lower fixed charges and higher volumetric charges, which provide incentives to customers to save electricity.
On May 7, 2007, MGE applied to the Commission for an electric rate increase of $19.6 million, or 5.75%, and a natural gas rate increase of $9.1 million, or 3.73%. The proposed rate increase totaling approximately $29 million would go into effect in 2008. CUB sought the development of alternative rate options that would allow a customer to better control their electric energy costs while also reducing the cost drivers for the utility. Improved rate designs are especially important given increasing utility costs as well as future cost drivers such as peak growth and global warming.
The Commission issued its order on Dec. 14, 2007, in which it instructed MGE to continue working with CUB to develop alternative rate designs. Regarding 2008 rates, the Commission approved electric rate increases of $16.2 million, or 4.8 percent; and natural gas rate increases of $7.8 million, or 2.8 percent.
In a follow-up to this rate case, CUB consultants worked with MGE on alternative rate designs, which would encourage customers to use less electricity.
On January 19, 2007, MGE applied to the Commission for an order approving of the use of "fixed financial parameters" at the proposed Top of Iowa Wind farm. This was the second instance of a utility asking to use this mechanism of financing for the construction of a generation unit (the first was Wisconsin Power & Light).
"Fixed-financial parameters," is an assault on traditional regulation. In traditional regulation regulators can adjust a utility's return on equity on the utility's invested capital every several years in order to maintain a balance between the interests of ratepayers and shareholders. If interest rates or equity returns change significantly, or if the utility's job performance is good or bad, regulators can reward or punish or hold harmless shareholders by adjusting the return on equity. Regulators have used this approach for at least 100 years.
CUB intervened in the MGE proceeding to review the potentially negative impacts to ratepayers of using fixed financial parameters at the Top of Iowa project, since once in place, the parameters could not be changed for the life of the generation project. On May 4, 2007, in recognition of the Commission's decision regarding fixed financial parameters for WPL's Cedar Ridge Wind project, MGE withdrew its application to use fixed financing.
In late June, 2006, MGE requested permission to "reopen" its rate case for 2006 rates, so that it could update forecasts for the cost of natural gas, and for other items. New prices would go into effect on January 1, 2007.
The PSC issued its decision on Dec. 26. MGE allocated the increase associated with costs for its share of the Oak Creek Power Plants using non-coincident class demands. CUB argued that the use of a mix of demand and energy allocators for production-related costs is appropriate for spreading the Oak Creek costs to the customer classes. The Commission agreed and found that using a 60/40 mix of coincident demand and energy allocators is the most reasonable way to allocate production related costs like the Oak Creek costs.