Joint Application of Wisconsin Electric Power Company and Wisconsin Gas LLC, both d/b/a We Energies, for Authority to Adjust Electric, Natural Gas, and Steam Rates
|Public Comment Open Period:
06/02/2014 - 10/07/2014
|Wisconsin's electric utilities are at a serious crossroads that effect their own and Wisconsin`s well being.
Wisconsin`s electric utilities made excessive investments that must be paid for over the next decades. With technical innovation and stabilized electricity use, Wisconsin needs less of the utilities` expensive new investments.
Meanwhile, Wisconsin must embrace the new electricity sector innovations to create jobs and grow. By embracing innovation, Wisconsin will be more cost efficient, more competitive, and create new opportunities. Much like the telephone and the Internet industries, Wisconsin must embrace innovation.
For decades our electric utilities were habituated to adding power plants, transmission lines and distribution systems (i.e., utility assets) to meet the Wisconsin`s regular growing electricity demands. Electric customers` electricity use increased by about 6% per year.
Electric utility profits are based on 10% of the value of their shareholder equity, (i.e., the value of their assets (power plants, transmission and distribution lines, buildings, etc.) less their current liabilities. So if a utility has $10 billion in shareholder equity the Public Service Commission of Wisconsin (PSCW) allows them a 10% annual profit of $1 billion. That profit is largely distributed to the utility`s stockholders.
Given this method of setting electric utility profits, utilities are strongly motivated to increase their assets to increase their profits and pay their shareholders. It is the PSCW`s job to ensure that new asset purchases are in the ratepayers` interest.
Over the last 15 years Wisconsin's industrial sector has changed (e.g., the Janesville GM plant closure) and their electricity use declined. Also, Wisconsin`s economy slowed down and customers became more efficient. As a result, Wisconsin's electricity use has not increased since the year 2000.
Also during the last 15 years, technical innovation in the electric sector accelerated. That innovation includes new energy efficient technologies, energy management systems, smart meters and smart grids, wind power, solar power, biogas systems, batteries and electric cars. Many of these innovations are now cost-effective and many more are on the cusp of cost effectiveness. That innovation replaces the need for conventional utility investments.
Excess Capacity Investments: Oak Creek
Yet, over the last 15 years, Wisconsin`s electric companies kept making capacity investments. Perhaps most notable is WE Energies investments in the Oak Creek Plants, which were brought online in 2010 and 2011. These plants had a first cost of over $2.3 billion. They are expected to operate for 50 years. And Wisconsin`s electricity customers will pay for it 50 years - so that the utility can pay their monthly note.
Due to the Oak Creek Plants` high cost and lack of customer`s electricity demand growth - the plant operated far fewer hours than expected for a base load power plant. The new Oak Creek Plants operated 19% of 2012 and 32% of 2013. A typical base load power plant operates 65% of the year. So, the Oak Creek Plant operated 25% to 50% of its expected level.
In other words, Oak Creek`s capital cost (as well as their interest payments and their profit) per kilowatt-hour generated, was 400% to 200% of what is normal in 2012 and 2013, respectively. Yet the $2.3 billion Oak Creek Power Plant increased utility profit by about 250 million dollars per year (another reason the utilities` fixed cost increased). The utilities are well paid for this mistake.
Solar Systems the Utilities` Scape Goat
The utilities` proposed new rate structures increase fixed charges to pay for their excessive investments in electricity infrastructure. The fixed and demand charges provide a stable income stream. While the reduced the kWh charge encourages customer to use more power. This is the Wisconsin`s electricity utilities` solution to their excessive investments.
Wisconsin electric utilities have used renewable/solar energy as a scapegoat. They have stated that their new rate designs are needed because of renewable energy.
Utilities are Thriving Following their Old Models - but it`s a new world
Wisconsin`s electric utilities have prospered. MGE just increased their dividend for the 39th straight year, and their stock is up almost 100% over the last ten years. We Energies stock is up about 175% in ten years and currently has a 3.5% annual dividend yield. While WPS (owned by Integrys) is up almost 100% in the last ten years and has a 4% annual dividend yield.
Wisconsin`s utilities made a mistake by investing too much in assets such as power plants. What happens when companies make mistakes, well their earning should suffer and their shareholders should suffer. But this has not happened in Wisconsin.
Yes, the PSCW failed by approving the electric utilities` capital investments. When groups like the IBEW were aligned behind the new power plants - building a new powerpant becomes an almost unstoppable force.
The Real Questions Wisconsin Must Face are:
· How do we pay for the excessive and costly electricity infrastructure?
· How with this burden does Wisconsin embrace innovation in the electricity sector? The same innovations that are creating economic opportunity/jobs and significant financial savings in other states?
Until these questions are answer, I request that all Wisconsin IOU rate requests be denied and rates structures kept as they are.