We Energies Wants Yet Another Rate Hike
Both consumer and business advocates castigate excess profits of utilities.
It is rare that consumer and business advocates are on the same side, but Wisconsin’s public utilities have managed to bring them together in opposition to their request for yet more rate increases. All five of these public monopolies requested and got rate increases for 2023 and all five want rate increases again for 2024-25.
We Energies, which provides gas and electric power for the entire Milwaukee metro area, was awarded an 11.3% increase in its residential rates and 8.7% hike in its industrial rate for 2023 and wants to increase those rates by 3.1% and 3% respectively in 2024-25.
“Wisconsin’s utilities have recently filed for over a half billion dollars in higher electric rates, fuel surcharges and natural gas rates for 2024 and 2025. This is essentially a new half billion dollar tax on state residents and businesses,” says Todd Stuart, executive director of Wisconsin Industrial Energy Group (WIEG), a non-profit whose budget comes from 25 industrial firms that are concerned about rising rates for electricity.
The group’s concern is shared by the Citizen’s Utility Board (CUB), a nonprofit which represents consumers affected by utility rates. “We remain concerned that our electricity rates are higher than nearly all other Midwest states and that our utilities are earning profits well above what they need.” says Tom Content, executive director of CUB.
“Wisconsin’s electric rates have been above the Midwest average for almost 20 years,” Stuart charges. “A new round of rate hikes will hit manufacturers especially hard because it is one of their top costs of doing business. It also harms the state’s competitiveness for the companies looking to expand operations or relocate here.”
The very fact that these two groups were created speaks volumes about the inability of the state Public Service Commission (PSC) to truly serve the public in setting rates for utilities.
A study commissioned by the WIEG found that over a six-year period, 2014-2019, Wisconsin’s electric rates were on average, 10.2% higher than the national average and 10% higher than the midwestern average for investor-owned utilities.
But no utility in Wisconsin had higher rates than We Energies. Another study commissioned by the WIEG found that the Milwaukee-based utility had the third highest rates of any of 50 investor-owned utilities in the Midwest. No other utility in Wisconsin ranked higher than 21st.
But Brendan Conway, media relations manager for We Energies, contends that the important thing is not the rate charged per kilowatt of electricity, but the average bill, and “our typical bills are below the national and Midwest average.”
But Conway offered no research to back up this claim. And the idea of ranking utilities based on the typical bill for electricity would be misleading, because Wisconsin is one of the northernmost states and uses less air conditioning.
Conway’s contention, moreover, is undercut by the May Investor Update by WEC Energy Group, the parent company for We Energies, which brags about the company’s ever rising earnings growth over the last 20 years. The company has the “Top decile dividend growth” in the industry and marked “the 20th consecutive year of rewarding shareholders with higher dividends.”
Which is driven by the rates it charges and the resulting remarkable profits it makes.
An analysis by CUB noted that the profits for the monopoly utilities that operate in Wisconsin was $1.3 billion in 2022, including $758 million for WEC Energy Group’s two utilities, We Energies and Wisconsin Public Service (which serves a different park of the state). “The profits are far too high and well in excess of what these companies need to invest in their businesses.”
In its testimony before the PSC last year, CUB argued that the state commission had not done “a deep dive analysis or review of utility profit rates… for most of the past decade for these utilities.” CUB pushed for a reduction in the allowed profit rate or return on equity, cutting it from an average of about 10.1% for utilities in Wisconsin to about 9.1%.
Ultimately the PSC cut the profit rate to 9.8%. In the case of WEC Energy Group and its two utilities, that saved consumers $40 million. But cutting it to 9% would have saved consumers more than $100 million, the CUB analysis noted.
The whole question of how great a return on equity a monopoly utility needs to borrow money from Wall Street has gotten increasing attention from researchers. A 2019 study by researchers at Carnegie Mellon in 2019 found that “Based on a database of U.S. electric utility rate cases spanning nearly four decades…it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms.”
A 2022 report by researchers at the UC-Berkeley collected data on over 3,500 regulatory rate cases for electricity and natural gas utilities between 1980 and 2021 and found that regulators were allowing an excess rate of return on the cost of capital and that “excess costs to consumers could range from $2 billion to $20 billion per year, with the most likely number in the middle of that range.”
In short, that’s about $10 billion per year in excess profits for utilities, all paid for by rate payers. And to judge by the utility rates in Wisconsin, which are 10% higher than for both the Midwest’s and the nation’s utilities, the highest excess profits are going to this state’s utilities. And We Energies stands at the top of that group. Maybe someone at the PSC should start paying attention.
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