In order to receive PSC approval, WEC, by law, had to prove that its proposal is in the best interests of We Energies’ and WPSC’s ratepayers. However, WEC failed to identify any real, tangible benefits that customers would receive from the multi-billion dollar takeover.
With the potential for the proposed deal to impact the rates and quality of service for utility customers in 62 of Wisconsin’s 72 counties, CUB intervened in the proceeding and submitted testimony. CUB’s witness stated that approval of the proposed deal should be denied unless the PSC imposed conditions that would provide real savings and protections to customers. CUB testified that an earnings cap be set that requires the affected regulated utilities to refund money to customers when they over-earn, and that customers should not have to pay for hundreds of millions of dollars of escrowed electric transmission costs. Other stakeholders and PSC staff also identified multiple conditions that the Commission must impose to keep the takeover from harming customers and to make it beneficial to customers.
In May 2015, the PSC issued an order approving WEC’s acquisition of Integrys subject to certain conditions. Conditions ordered by the PSC included 1) a three year earnings cap on We Energies’ electric and natural gas utilities and their affiliates with excess revenues offsetting electric transmission escrow costs and West Central Natural Gas Lateral project costs, 2) a requirement that WPSC withdraw its application for authorization to construct the Fox 3 generating unit and review whether We Energies’ excess generation could offset the need for Fox 3, 3) a bar on recovering transaction costs, and setting out requirements that the utilities must meet before they can recover transition costs, or the post-closing costs associated with implementing the integration of the parent companies and their subsidiaries, in rates.
CUB hammered out an agreement that slashed $107 million from We Energies’ customer rates in 2015. Following months of negotiations, CUB (along with other stakeholders) entered into a settlement agreement with We Energies drastically reducing the 2015 forecasted revenue requirement by cutting electric costs by $82.6 million; WE-GO natural gas costs by $8.2 million; Wisconsin Gas costs by $15.3 million; and steam costs by $1.4 million.
CUB also raised issues regarding the costs and revenues associated with We Energies operation of the Presque Isle power plant (PIPP) that were not part of the settlement agreement during the rate case technical hearings before the PSC. In December, 2014, the Commission issued an order agreeing with CUB that 2015 costs and revenues associated with PIPP should be deferred, reducing We Energies’ electric revenue requirement by an additional $41.9 million!
In August 2014, We Energies’ parent company, Wisconsin Energy Corporation (WEC), sought PSC permission to acquire Wisconsin Public Service Corporation’s (WPSC) parent company, Integrys Energy Group, Inc., for $9.1 billion. Nearly three million electric and natural gas customers in Wisconsin would be impacted by the proposed takeover. Utility rates and quality of service would be affected in 62 of Wisconsin’s 72 counties.
CIn order to receive PSC approval, WEC, by law, must prove that its proposal is in the best interests of We Energies’ and WPSC’s ratepayers. However, WEC has not identified any real, tangible benefits that customers would receive from the multi-billion dollar takeover!
CUB submitted testimony that the proposed deal should be denied unless the PSC imposes conditions that provide real savings and protections to customers. CUB testified that an earnings cap be set that requires the affected regulated utilities to refund money to customers when they over-earn, and that customers should not have to pay for hundreds of millions of dollars of escrowed electric transmission costs. Other stakeholders and PSC staff have also identified multiple conditions that the Commission must impose to keep the takeover from harming customers and to make it beneficial to customers.
In September 2013, We Energies largest electric customer, two iron ore mines in the Upper Peninsula (UP) of Michigan, cancelled service from We Energies due to its high electric rates. The mines operations were powered by We Energies’ Presque Isle power plants, located in Marquette, Michigan. The mines selected an unregulated electric service provider to replace We Energies, and rely on the regional electric grid to power mine operations.
The loss of the mines caused We Energies to petition the regional electric grid operator, MISO, for authority to shut down the Presque Isle power plants which were no longer needed to provide power to the mines. However, MISO denied We Energies request stating that Presque Isle is needed to insure electric reliability in the UP. As a result, We Energies is receiving millions of dollars of payments from MISO to pay for the operation of Presque Isle which supports the electric grid in the UP, and thus the mines.
CUB is fighting before the PSC and federal agencies to ensure that Wisconsin customers only pay for their fair share of the MISO payments to We Energies. Wisconsin customers shouldn’t be forced to pay for utility costs caused by We Energies high rates, or to pay an unfair amount to keep a power plant running in another state that isn’t needed to supply Wisconsin’s energy needs.
In March 2013, Wisconsin Gas requested authorization from the PSC to construct a natural gas pipeline in west central Wisconsin. The pipeline was proposed to serve industrial frac sand mining operations and a small number of residential customers wanting to switch from propane to natural gas for home heating. The PSC approved the project at a cost of $180 million.
However, due to concerns raised by CUB regarding the need for the project, the PSC required Wisconsin Gas to file annual reports identifying the number of new customers by customer class served by the project, along with the total volume of gas used by these new customers. If utility projections regarding the need for the pipeline are not substantiated by these reports, CUB will challenge any unfair allocation of construction costs to residential customers.
In April 2013, We Energies requested authorization from the PSC to make major modifications to the Valley Plant at a cost of $80 million, and to charge the majority of the cost to electric customers. Valley is located in downtown Milwaukee and is relied on by 450 large businesses to provide steam for heating and industrial processes.
CUB intervened in the case and filed expert testimony showing that We Energies’ plan would almost exclusively benefit steam customers, and not residential electric ratepayers. CUB argued that electric customers should not have to pay the vast majority of the costs for a plant they do not need and will not use. However, the PSC approved We Energies’ plan, as well its proposed allocation of construction and electric uneconomic dispatch costs to residential customers.
CUB has challenged the PSC’s decision by filing a lawsuit to stop residential ratepayers from subsidizing big business interests. The case is currently before the Dane County Circuit Court.
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 a second application to spend $62 million to double the size of the coal storage facility at the shared ERGS/Oak Creek plant site. The coal storage application states the storage 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! Therefore, CUB and its witness examined the reasonableness of customers needing to pay even more to receive any value from an already astonishingly expensive power plant.
CUB concluded that the purported economic benefits of the PRB fuel flexibility project were overstated, but that the project is cost-effective even if more reasonable economic benefit assumptions are used. However, CUB opposed the coal storage project part of the application on the grounds that the applicants’ modeling assumptions overstated the project’s likely benefits, and more reasonable assumptions did not produce a benefit exceeding the cost to customers. The PSC disagreed with this argument, citing potential economic benefits of coal blends exceeding 60% PRB, and in June 2015 it approved both projects at a combined total of almost $100 million, including cost of capital and construction interest expenses.
In July 2013, We Energies requested authorization from the Public Service Commission to decrease electric fuel costs by $30.4 million beginning January 1, 2014. CUB intervened in the case to argue that ratepayers should receive at least an additional $5.1 million from a settlement We Energies entered into with the Department of Energy regarding the federal government’s failure to begin removing spent nuclear fuel from the Point Beach Nuclear Power Plant in 1998.
CUB noted that We Energies spent $13.6 million to achieve a settlement of $45.5 million while Xcel Energy spent $8.5 million to reach a settlement of $182 million with the DOE for failure to remove spent fuel. CUB argued that the Commission should order We Energies to refund $5.1 million more of the settlement funds to ratepayers because it mismanaged its litigation costs, as borne out by Xcel’s much greater success on behalf of its customers for significantly less cost.
The Commission determined there was not enough evidence in the record to reduce the amount of We Energies’ legal fees associated with the nuclear waste settlement. However, the Commission noted that future utility litigation expenses would be closely monitored. The Commission authorized a $35.7 million decrease in fuel costs for 2014.
In August 2012, We Energies applied for permission from the Public Service Commission to purchase the Montfort Wind Farm for $27 million. NextEra Energy Resources is the current owner of the 30 megawatt facility.
CUB intervened in the case and submitted comments to the PSC, asking the PSC to deny We Energies request to purchase the wind farm. CUB asserted that We Energies failed to show the benefits to ratepayers of buying the wind farm rather than continuing to purchase the power from NextEra.
Unfortunately, the PSC approved We Energies request to purchase the facility on December 6, 2012.
On March 23, 2012, We Energies filed a request with the Public Service Commission to raise electricity rates by $99 million, or 3.6 percent, starting January 1, 2013, and another increase of $100 million, or 3.6 percent, starting January 1, 2014.
We Energies also requested to decrease rates for natural gas service by $17.1 million, or about 2.5 percent, starting January 1, 2013. We Energies is not requesting any other adjustments for rates for natural gas service for 2014.
We Energies has asked to increase steam rates $2.3 million, or about 6.5 percent, for 2013, with a similar increase in steam rates for 2014.
Regarding electric rates, We Energies said the main drivers are the new coal-fired power plants at Elm Road, new pollution controls being installed at the Oak Creek power plants, the new Glacier Hills wind farm, and the new biomass-fired power plant being built in Rothschild, near Wausau.
CUB intervened in this case and investigated the cost overruns of $182 million for the two new coal-fired power plants at Oak Creek, which cost over $2.3 billion to build. CUB also raised questions about the Valley Power Plant, a two-unit coal-fired power plant that produces electricity and steam for downtown Milwaukee customers. Not only does the Valley plant pollute near-by neighborhoods with toxic emissions, the plant is very expensive to run, and the rates paid by steam customers are heavily subsidized by electric customers.
On December 21, 2012, the PSC issued its final decision, and allowed We Energies to raise its electric rates for 2013 by $114.8 million, or 4.2 percent. Ratepayers will be hit with another increase of $73 million, or 2.6 percent, when 2014 rates start next January.
The PSC agreed with CUB on a number of issues, and reduced the rate increases by $42 million. Noteworthy reductions include $24 million for converting the new Oak Creek plants to burn western coal: We Energies can’t recover this cost from ratepayers until the plants are actually able to burn western coal. Other reductions in the rate increase totaling about $12 million were for costs related to building the Oak Creek plants that exceeded the 5 percent “collar” for cost overruns. Typically, utilities get 10 percent cost-overrun collars, but CUB successfully argued in 2003 for a 5 percent collar, saving consumers millions in rate increases.
Unfortunately, the PSC allowed We Energies to increase the “facilities charge” on a consumer’s bill by 20 percent. A facilities charge (also known as “customer charge”) is one part of the electric bill that more or less stays the same each month, and doesn’t change based on usage, whereas the other part of the electric bill is the “energy charge,” which changes based on usage. CUB argued for no increase in the facilities charge, since higher facilities charges force customers who use less electricity to effectively pay higher rates, and higher facilities charges reduce the incentive for customers to save electricity.
CUB also argued to end the subsidies paid by electric customers that keep the steam flowing from the Valley plant to downtown businesses. Electric customers pay between $5 million to $35 million more each year to subsidize the production of steam at Valley. Unfortunately, the PSC decided not to end these subsidies charged to electric ratepayers.
On May 26, 2011, We Energies filed a request with the PSC, seeking no rate increase for 2012 if the Commission would allow various delays in charging ratepayers for some of the costs of providing electric service.
CUB intervened in the case, and argued that it would be better if the PSC conducted a “full rate case,” in which all the projected revenues and costs of providing electricity service are reviewed, so that rates are set as accurately as possible. CUB was concerned that the request by We Energies for a zero rate increase would keep rates higher than they should be, especially in 2013 and after. The Wisconsin Industrial Energy Group also intervened and raised similar concerns.
On August 11, 2011, the PSC accepted We Energies offer of a zero rate increase for 2012, but ordered a hearing that took place on August 24 to determine if the We Energies request should be modified, as determined by a “mini-audit” conducted by PSC staff. At the hearing, CUB and WIEG argued that rates could be lower in future years if modifications were made to We Energies request.
Unfortunately, Chairman Phil Montgomery and Commissioner Ellen Nowak supported We Energies request on October 6, 2011, with Commissioner Eric Callisto dissenting. Montgomery and Nowak were swayed by We Energies contention that its proposal will result in no increase in “base” electric rates, even though We Energies will likely raise electric rates in early 2012 due to rising costs for fuel to make electricity. Callisto dissented because the process used in this proceeding failed to accurately determine the appropriate rates for We Energies.
On October 28, 2010, We Energies asked the Public Service Commission for permission to offer a “real-time pricing” rate to its industrial customers.
A real-time pricing rate would allow an industrial customer to pay marginal costs for electricity, but not the fixed costs, resulting in a roughly 40 percent discount on electricity rates. This means that an industrial company paying the real time rate would receive a 40 percent discount compared to another industrial company that is paying the full rate for electricity. Worse yet, no residential or small commercial customer is eligible for the discount. CUB opposes these types of rates because they provide discounts to certain customers while other customers pay higher rates, which is illegal under state law.
Despite CUB’s opposition to the real-time pricing rate, the Commission approved it on August 11, 2011. Commissioner Eric Callisto voted against the rates, but Chairman Phil Montgomery and Commissioner Ellen Nowak supported them. In his dissent, Callisto noted that the approved real-time pricing rate for We Energies “is an open door to discounted electricity for a poorly defined and potentially limitless class of large energy users, selected at the sole discretion of the utility.”
On May 3, 2010, the PSC approved a request by We Energies to offer “market-based rates” to Charter Steel, which operates an electric arc melting furnace and hot rolling mill in Saukville. On April 6, 2011, We Energies applied for permission to extend the contract with Charter Steel regarding market-based rates by four years, and the PSC approved this request on August 24, 2011.
CUB intervened in this proceeding to make sure the rates paid by Charter Steel would not be subsidized by other customers, as required in Wis. Stat. § 196.192, which allows utilities to offer market-based rates to customers.
Market-based rates allow a customer to purchase electricity at current prices offered in the electricity market run by the Midwest Independent Transmission System Operator. Current prices are “locational marginal prices,” or LMPs, which are the lowest marginal prices bid by generators in the MISO market, which spans a 12-state region in the upper Midwest. Since LMPs are based on marginal costs of producing electricity, they do not include fixed costs, which are typically 60 percent of the cost of producing electricity. Therefore, a customer paying market-based rates, which are based on LMPs, do not have to pay for the substantial fixed costs of producing electricity.
With a surplus of electricity in the MISO market, LMPs are very low, so Charter Steel is receiving considerable benefits for the electricity it purchases under market-based rates. Specifically, Charter is able to buy electricity at “LMPs + 20 percent” for electricity consumption above a threshold. For electricity purchased under the threshold, Charter pays regular rates.
In approving the extension of the rate contract between We Energies and Charter, the PSC determined that the rates being paid by Charter will not force other customers to pay higher rates. Indeed, the PSC required We Energies to file a report by January 2013 that shows that other ratepayers are not paying higher rates because of the market-based rates paid by Charter. CUB will review this report and will challenge the use of these rates if there is any indication that other ratepayers are subsidizing Charter’s rates.
On October 7, 2010, the PSC asked CUB and others for comments on whether WE Energies should be required to issue refunds to ratepayers due to lower-than-expected costs for purchasing fuel to make electricity. At stake was a refund to customers of about $53 million.
CUB and the Wisconsin Industrial Energy Group submitted joint comments on October 21, 2010, noting that customers should get a substantial refund from We Energies.
One issue was whether WE Energies could keep about $53 million instead of giving it back to ratepayers. The $53 million is based on the amount of bonuses WE Energies paid its executives during 2008 and 2009. CUB and WIEG argued that WE Energies should not be allowed to manipulate the rules and force ratepayers to pay $53 million for executive bonuses.
Typically, the PSC prevents the utilities from charging ratepayers for executive bonuses. However, on February 24, 2011, PSC Chairman Eric Callisto and Commissioner Mark Meyer sided with the utility, and will allow WE Energies to keep $53 million instead of refunding it to customers. Commissioner Lauren Azar dissented, saying that the $53 million should be given back to ratepayers. In addition, she said that the $40+ million that WE Energies has given its executives as bonuses each year since 2008 are inappropriate, especially since Milwaukee (served by WE Energies) has the 4th highest poverty rate in the U.S. CUB wholeheartedly agrees with Commissioner Azar.
On March 15, 2010, WE Energies asked the PSC for permission to build and own a 50-megawatt cogeneration power plant that would burn wood and produce steam as well as electricity. Domtar Corporation, a paper company located near Wausau, would use the steam produced by the plant.
WE Energies proposed this project in part to comply with Wisconsin's "renewable portfolio standard," or RPS, which requires electric utilities to sell at least 10 percent renewable electricity by 2015.
CUB submitted testimony in opposition to the plant, because of its very high costs of nearly $5,800 per kilowatt. In addition, CUB pointed out that Domtar would get a sweet-heart deal on the steam purchased from WE Energies, with WE Energies' ratepayers paying hundreds of millions of dollars in higher rates that should be paid by Domtar.
The PSC approved the power plant on May 5, 2011, and the PSC agreed with CUB that Domtar must pay more for the steam in order to reduce costs to ratepayers of We Energies. The PSC also required the shareholders of We Energies to contribute more to the plant. CUB’s intervention saved ratepayers of We Energies at least $32 million.
On February 19, 2010, WE Energies filed an application with the PSC to increase electric rates by $60.5 million (2.8%) for increases in the cost of fuel to make electricity. The PSC approved an "interim surcharge" on March 24, 2010, with the surcharge subject to refund pending the PSC's full review, hearing, and final determination regarding WE Energies' request.
CUB's experts reviewed and assessed the changes, inputs, and assumptions used by WE Energies in developing its forecast of fuel costs for the remainder of 2010.
The PSC issued a final decision on April 28, 2011, saying that the increase in rates sought by We Energies for higher fuel costs was appropriate, and that no refund was due to customers.
On March 13, 2009, WE Energies (WE) filed an application with the PSC to increase electric rates by 2.8 percent and natural gas rates by 4.6 percent, with the new rates taking effect on January 1, 2010. On July 3, 2009, WE Energies modified its request to raise electric rates by a total of $127 million, or 4.9 percent.
CUB intervened in the case and reviewed WE Energies' requests for recovery of costs related to burning excess coal, costs associated with the Midwest Independent Transmission System Operator (MISO), WE Energies' off-balance sheet obligations, rate allocation and design, and whether WE Energies had too many power plants on-line, which could unnecessarily cause electric rates to be higher than reasonable.
The PSC issued its decision regarding rate increases for WE Energies on December 18, 2009. The PSC approved an increase in electric rates of $85.8 million (3.4 percent) and a decrease in gas rates of $2.1 million (0.35 percent).
The PSC agreed with CUB and reduced WE Energies rates by $17.3 million, including: a reduction of $2.3 million for unnecessarily burning excess coal; a reduction of $3.8 million for extra costs associated with MISO; and a reduction of $11.2 million by lowering WE Energies' return on equity (profits) from 10.75 percent to 10.4 percent.
The PSC also agreed with CUB and will open an investigation to address the fact that Wisconsin utilities have too many power plants on-line, a situation known as "excess capacity."
On November 5, 2008, WE Energies submitted a request for a "declaratory ruling" by the Commission to approve plans and future costs associated with meeting Wisconsin's requirement for renewable electricity. CUB is intervening in this docket, and will challenge WE Energies request for a declaratory ruling, which if granted, would provide WE Energies with a "blank check" for meeting renewable electricity requirements.
On June 18, 2008, WE Energies submitted a request to the Commission for authorization to build a 200 megawatt wind farm at an expected cost of $450 million in Columbia County.
The PSC approved the project on January 22, 2010. The PSC agreed with CUB that going forward, WE Energies will need to use a more thorough process for evaluating proposed wind projects developed by the company and competing proposals developed by others. The goal of this improved selection process is to make sure the best and lowest cost wind projects are selected for providing wind power to the customers of WE Energies.
On June 21, 2007, WE Energies applied for permission from the PSC to install pollution control devices on the Oak Creek Power Plant. The utility estimated that the pollution control devices would cost $820 million, which was about the same cost as a new power plant.
CUB and the environmental group Clean Wisconsin intervened in this case together, to explore whether WE Energies looked at reasonable alternatives to installing pollution control equipment on an old power plant. These alternatives included retiring the Oak Creek Power Plant and, instead, making investments in energy efficiency or renewable energy.
CUB and Clean Wisconsin also examined the assumptions used by WE Energies to estimate the costs of the pollution control equipment, and whether the equipment would allow WE Energies to comply with clean air requirements.
Based on our analysis, WE Energies did not provide enough evidence to support placing pollution controls on the Oak Creek plant. CUB and Clean Wisconsin urged the PSC to reject WE Energies' application.
The PSC decided the case on June 27, 2008, and ruled in favor of WE Energies. Pollution controls will be added to all four boilers.
On May 7, 2007, WE Energies applied to the PSC to raise its electric rates by $712 million or 28 percent in 2008, the largest single-year increase in the utility's history. The utility had also requested to raise its natural gas rates by about 4 percent for 2008.
In its request, WE Energies asked for permission to collect higher rates to cover costs from increases in the price for fossil fuels used to produce electricity, for higher costs to transmit power on high-voltage transmission lines, and to pay for higher costs caused by the regional electricity marketplace operated by the Midwest Independent Transmission System Operator (MISO).
Once the sale of the Point Beach Nuclear Plant was completed, WE Energies reduced the electric rate increase to 7% in 2008 and 7% in 2009.
CUB challenged many aspects of WE Energies' request to increase rates, and urged the PSC to require WE Energies to offer innovative rate designs so that its customers can use electricity more efficiently.
On January 17, 2008, the PSC issued its written order. The PSC approved an increase in 2008 electric rates of 3.4% and gas rates of 2.2 percent. The PSC agreed with CUB that WE Energies was responsible for causing an outage of Point Beach to last longer than it should have. The lengthy outage forced WE Energies to purchase $22 million in electricity, and therefore, WE Energies was not allowed to recover the $22 million from ratepayers. The PSC also agreed with CUB that WE Energies could not keep $70 million in proceeds from the sale of Point Beach for contingencies.
On December 20, 2006, WE Energies proposed to sell Pt. Beach to FPL Energy, a subsidiary of a Florida-based utility holding company. CUB opposed the sale because of concerns that rates would go up for WE Energies' customers, and that Wisconsin would lose jurisdiction over a nuclear power plant located in Wisconsin. On September 5, 2007, in a 2 to 1 vote, the Commission approved the sale of the plant to FPL.