State PSC Gives Huge Giveaway to Businesses
Electric ratepayers in one-half of the state will subsidize downtown Milwaukee businesses.
In March, the state Public Service Commission made a remarkable ruling that will have tremendous benefits for downtown Milwaukee businesses. The commission approved a plan by We Energies that essentially requires all of its electric rate payers — more than one-half of the state’s population — to subsidize the steam power it provides to downtown customers, mostly businesses.
On April 16, the Citizens Utility Board filed suit, charging the plan “would force We Energies’ electric ratepayers to pay more than $250 million to subsidize big business steam customers in downtown Milwaukee.” The Commission’s decision, the suit says, blatantly violates Wisconsin law prohibiting rates that are “unjust, unreasonable, insufficient or unjustly discriminatory.”
The PSC oversees public utilities in the state, and has three board members appointed by the governor. In this decision, the two board members appointed by Republican Gov. Scott Walker, Phil Montgomery (board chair) and Ellen Nowak, ruled in favor of the We Energies plan, while Eric Callisto, a holdover on the board appointed by Democrat Jim Doyle, opposed it.
There’s been almost no media coverage of this story, though it has huge ramifications. The decision was favored by the Metropolitan Milwaukee Association of Commerce and other business lobbyists, and is certainly favorable to Milwaukee. But what about the many homeowners and renters who will help provide this subsidy? Their only lobbyist is the tiny, Madison-based Citizens Utility Board, which is likely to be badly out-lawyered when this case goes to court.
The plan revolves around the Menomonee Valley plant, the oldest facility run by We Energies. For year it has used been powered by coal, with very negative environmental consequences. The company plans to convert to natural gas, and the capital costs of converting to a gas-fired plant are an estimated $80 million.
The valley plant originally was oriented more toward providing electricity but as the company has added newer, more efficient plants, the valley facility’s primary purpose has been to provide steam for heating, hot water and air humidification for 450 downtown customers. The majority are businesses, but there are also government buildings, colleges (notably, Marquette University), churches, apartments, condominiums and entertainment venues that are served, says We Energies spokesperson Brian Manthey.
The plant generates 500 million kilowatt hours of electricity and 2.1 billion pounds of steam annually, according to We Energies. But CUB has estimated that, with the new plants added over the years, the valley plant was needed at most to provide 21 hours total in 2013 for electricity generation or system reliability, and at most 142 hours in 2023.
The We Energies plan approved by the PSC offers no breakdown of how much of the power provided goes to electric rate payers today, but instead offers a ratio established back in the 1960s, when the customer base was very different. The plan calls for steam customers to pay only $6.4 million or 8 percent of project’s capital costs, while electric customers will pay $74 million — 92 percent of total costs.
Even worse, over the life of the plant electric ratepayers would pay 100 percent of the estimated $185 million in “uneconomic dispatch costs,” added costs incurred solely to provide steam heating. (In essence, the plant will generate electricity at a cost considerably beyond market rates, and charge rate payers for this.)
We Energies notes that electric rate payers will benefit from operational savings once the plant is upgraded. But so will steam customers, though Manthey contends the benefit will be smaller for them.
As Urban Milwaukee has previously reported, John Feit, a staff member and economist with the PSC, declared that if not for steam customers, the valley plant would be retired. Feit also said the cost structure in the We Energies plan was based on “no analysis” by the company.
Yet the PSC’s two-person majority approved this. ”The commission makes no pretense that its adopted cost allocation is derived from any analysis of cost causation or the relative value of the plant among customer classes,” Callisto’s opinion charged. “Nowhere… is there an attempt to compare the value of Valley [plant] among electric and steam customers and assign costs accordingly.”
Richard Hahn a principal consultant with La Capra Associates Inc., an energy consulting firm retained by CUB, testified at the PSC hearings, saying “a strong case can be made that none of the cost of gas conversion should be allocated to electric customers.” If the PSC does allocate some of the cost to electric customers, it should at most be in the range of 11 percent to 22 percent, he added.
CUB has argued that electric customers should pay no more than 22 percent of capital costs and 0 percent of the uneconomic dispatch costs because the latter is all due to the need to supply steam customers.
“It is unfair to require electric ratepayers to cover 92 percent of the capitol costs for converting a utility plant that is inarguably a steam plant first, with electric output secondary,” Callisto contended. “It is similarly unacceptable to continue to require those same electric ratepayers to pay all of the plant’s uneconomic dispatch costs,” given that they are “caused entirely by the needs of steam customers.”
The PSC majority opinion noted that spreading the costs among the many electric ratepayers (We Energies serves 53 percent of the state) would prevent a huge rate increase to steam customers. “Many steam customers testified that the increase in steam rates that would result… would have a detrimental impact on them individually, or downtown Milwaukee as a whole,” the decision noted. “The commission finds that maintaining the economic health of downtown Milwaukee is an important factor that must be taken into consideration.”
Callisto blasted this reasoning, saying the decision “is well out of line with long held, generally accepted principles of just and reasonable ratemaking.”
Instead, Callisto suggested, the hike in steam customers’ rates (resulting from using a different, arguably fairer cost allocation) could be phased in over a period of years. But Montgomery wrote a separate opinion to respond to Callisto, saying even a phased-in rate hike “would be too dramatic, particularly in light of the state of Milwaukee’s economy.”
All of which is good news for Milwaukee’s economy, or at least the portion of it located downtown. But for the millions of electric ratepayers, including low-income people barely making ends meet and retirees on fixed incomes, the prospect of having to subsidize Milwaukee’s businesses is unlikely to cheer them. That is, if the mainstream media ever informs them that this is happening.