The typical electricity bill for a We Energies customer would reach $150 a month in 2026 under a proposal recently submitted to state regulators.
The proposal calls for an 18.5% increase in the cost of residential electric service by 2026, including a 9.2% rate hike in 2025 and another 8.5% a year later. If the new rates are approved as proposed by the Wisconsin Public Service Commission, the typical residential customer would pay about $24 more per month than they currently pay.
In total, We Energies is seeking an additional $418.6 million from its customers over the next two years to cover increased costs associated with building new power generation sources, grid improvements, inflation, and rising labor costs.
The proposed increase amplifies a two-decade trend in which residential electricity costs have risen at more than double the rate of inflation since 2005, according to an analysis by the Citizens Utilities Board of Wisconsin.
The increase request will reinforce a renewed focus by consumer advocates on energy affordability at a time when inflation has strained household budgets, particularly among low-income households in Milwaukee and other areas where energy costs can eat up as much as 20%. % of the family budget. , according to an analysis by the Sierra Club – Wisconsin Chapter.
“The big question is how much benefit is it given people’s ability to pay when they place orders of this size,” said Tom Content, CUB’s executive director. “This is a big question and everyone, including the commissioners who regulate them, needs to keep this in mind because this is a lot for people to take on in a short period of time.”
New energy sources and grid improvements drive We Energies prices higher
As was the case with We Energies’ recent rate hikes, utility investment in renewable energy is a key driver of the proposed rate hikes.
Looking to 2025 alone, 70% of the new revenue the utility seeks, or $167 million, would begin paying for newly completed solar projects and buying a share of generating capacity at Alliant Energy’s West Riverside natural gas plant. Wisconsin utilities can only begin paying construction costs to customers when projects produce power, so new proposals like the natural gas plant the company intends to build in Oak Creek are not included in this round of increases.
Bills are also due due to We Energies’ efforts to improve the reliability of the electric grid and its ability to withstand storm damage. Burying power lines, more aggressive removal of dead and dying trees, and other improvements authorized by the Wisconsin Public Service Commission in 2022 account for about $71 million in new costs that the utility is seeking to recover.
The company said in a statement that these expenses reflect its commitment to reliably meeting energy demand, maintaining a healthy electrical grid, and transitioning to renewable energy to avoid having to spend billions of dollars on new pollution controls if it continues to rely on coal power. . The company plans to stop using coal by 2032.
“Our filing focuses on three key priorities: reducing customer service interruptions, building the infrastructure needed to support jobs and economic growth in Wisconsin, and meeting new EPA environmental rules,” said Brendan Conway, We Energies spokesman.
more:WEC updates coal-burning moratorium date, reaffirms first Oak Creek units to close in 2024
The largest increase falls on residential customers
The burden of closing this revenue gap is not shared equally. Next year, industrial customers will pay just 2.3% more for energy and will see a 1.7% increase in 2026. Small businesses will fall between industrial and residential categories depending on their size and the type of service they provide.
We Energies says it followed the cost allocations approved by the PSC in 2022 to develop its 2025 and 2026 pricing proposal. This allocation resulted in a 14.4% increase in residential property prices over two years, while industrial customers paid just under 10% more. .
“Our cost-of-service estimates reflect the PSCW’s past practice, and the committee will have the final say in how revenues are allocated,” Conway said.
The difference between small and large customers reflects the higher cost of providing service to widely distributed residences that use less energy and require more resources to serve, compared to larger customers that can be served more efficiently, company officials said.
Cost allocation may be based on a previous PSC decision, but models for determining service cost are outdated and unbalanced, Content said. This model is under review by the PSC, he said, and could lead to new formulas for allocating costs, although that work will not be done in time for this year’s interest rate decisions.
more:Electricity prices are rising as Milwaukee’s less affluent people continue to struggle to pay their bills
As customers struggle to pay bills, bad debt costs are rising
Part of the surge in residential real estate prices stems from a long-standing policy of keeping client-type-specific costs within that customer segment. As a result, residential customers must bear the cost of unpaid residential electricity bills.
These costs represent about 20% of the proposed residential price increase, much of which is related to a recently expanded program where customers who sign up for and stick with a payment plan can get up to half the amount they owe.
The program, known as the Low Income Relief Tool, was introduced on a limited scale in 2021 and PSC expanded it in 2022 by opening it to more eligible clients with income and lowering the minimum amount eligible to participate. As a result, the number of registered customers rose from 1,000 customers in December 2021 to more than 36,000 at the end of last year.
The amount of debt forgiven through the LIFT program is expected to reach $100 million by December.
We Energies assumed these costs as collateral, but is now authorized by the PSC to collect these and future costs from residential customers. Most of that bill will be due in 2026, when the company proposes to collect $115 million from residential customers.
Content said the utility’s numbers may not tell the full story about the costs and benefits of LIFT participants paying at least part of their unpaid bills and avoiding disconnections.
“This clearly underscores that there is an affordability challenge for We Energies customers who are struggling to make ends meet,” he said. “One question is: By enrolling, you can see the costs, but I’m not sure if we have the full picture of the benefits.”
This cost-benefit trade-off, including the potential for the program to generate revenue for We Energies that might otherwise be written off, warrants careful examination of We Energies’ cost estimates by consumer advocates and PSC staff, he said.
“In every case where there is bad debt, the unpaid bills are passed on to all the other customers, and this has been a long-standing problem given some of the challenges of poverty in the community,” Content said. “And so, one of the questions the PSC staff asks them is to get information about LIFT, just make sure the numbers on file are appropriate.”
Coal plants, profit margin is a key point for customer savings
Consumer advocates will focus on two key areas to cut potential costs: Reducing the amount utility customers will pay about $400 million in debt still owed for pollution controls at the Oak Creek Power Plant, where a shutdown begins this month and lasts into next year, we asked Energy. Return to 10% profit margin after energy company commissioners reduced it to 9.8% in 2022.
Commissioners rejected a proposed settlement in the 2022 interest rate case that involved using a financial instrument known as securitization to refinance $100 million of that debt, pushing the case to this year. Previously, customers saw about $40 million in savings when they owed a similar amount after the Pleasant Prairie power plant closed in 2018.
Whether this option can be revived is largely up to We Energies and its willingness to reach a settlement with stakeholders that includes a refinancing package. Commissioners cannot order We Energies to refinance debt and the company has not proposed doing so in its rate filings.
“The dead coal plant issue is clearly an opportunity for savings,” Content said. “In their own testimony, they talk about the savings that can be achieved through securitization or through other alternatives, but then they don’t offer any savings at all. Their plan is not just to take their current profit rate on this dead engine, but actually to take their current profit rate “Up on him.”
When commissioners cut We Energies’ profit margin in 2022, they did so with the goal of gradually moving it from 10% to 9%.
We Energies’ request to return to a 10% profit rate, or return on equity, on its capital investments reflects the impact of inflation on those costs and the need to demonstrate financial stability to shareholders, said Brendan Conway, a spokesman for We Energies.
“Today, the limit is at a 40-year low, despite rising interest rates,” Conway said. “Our request simply takes into account the current inflationary environment and our need to demonstrate financial stability.”
However, even at 9.8%, We Energies is generating some of the highest profits among utilities in the country even as more customers struggle with their bills, Content said.
“We’re in a situation where Wisconsin has given us the fifth highest rates in the country even though they’re low,” Content said. “From a customer perspective, it is critical that the trend toward reducing this continues and even accelerates.”
As cost pressures rise, advocates are looking to longer-term solutions
The pressures on electricity customers are not expected to ease in the coming years, as We Energies’ parent company, WEC Energy Group, seeks to implement a five-year, $23.4 billion capital plan focused on transitioning to renewable energy, and building and improving additional generation capacity. Reliability across the multi-state service area.
For We Energies, this includes spending $1.4 billion on a new Oak Creek gas plant and natural gas storage facility, smaller on-demand natural gas-fired generation facilities at various locations, and hundreds of millions of dollars in additional investments in solar energy.
Consumer advocates have raised concerns that regulators, under state law. Reviewing projects is largely on a case-by-case basis, but is largely precluded from reviewing how they fit into the bigger picture. They warn that this could lead to building up excess generating capacity, locking up costs at gas plants that will not be needed in the future, and being unable to ensure that long-term decision making is in the best interests of consumers.
A bill was introduced last year in the state Legislature to address the issue but died without a vote.
“There’s no justification,” said Antonio Potts, CEO of Walnut Way Conservation Corp. in Milwaukee. “Because our state legislators (did not act), there is no codification for integrated resource planning. So there is no tool available to us to conduct a long-term decision-making process that is inclusive, respects vulnerable communities, and emphasizes transparency and accountability so that we get a fair and equitable outcome.”
Butts said Walnut Way, the neighborhood development organization that first became active on energy affordability issues during the 2022 rate case, will nonetheless emphasize that integrated approach as an intervener in the current case.
“We have to work together to make some really strong long-term decisions in partnership with utilities,” he said.
