Rate Case Roundup: Wisconsin

In a rate case before the Wisconsin Public Service Commission involving three affiliated energy utilities, the commission somewhat reluctantly accepted a proposed stipulation under which an existing rate moratorium would be extended for another two years. However, the commission made clear that it had certain misgivings about the rate freeze, in that it in essence means that ratepayers could face significant rate shock once the utilities' respective revenue requirements are trued up down the road. 

The three entities — Wisconsin Electric Power Company, Wisconsin Gas LLC, and Wisconsin Public Service Corporation (collectively the WEC Utilities) — submitted to the commission an agreement they had reached with some of their large commercial and industrial customers under which the three would forgo any base rate changes before 2019. Given when their last base rate cases had been prosecuted, the two-year freeze would mean that customers will go a total of six years without any increase in their base rates. 

However, during that time, substantial capital costs that the utilities have placed in escrow accounts would continue to grow. Those regulatory assets are associated with several major system investments and will at some point have to be recovered from ratepayers. According to the WEC Utilities and their largest customers, however, to begin collecting those costs from consumers now would have a deleterious impact on the regional economy, which is only now beginning to return to economic health. They maintained that because electric rates and energy costs in general are relatively high in Wisconsin, implementation of a rate increase at the present time could discourage economic development. But because there are signs of an improving local economy, the utilities concurred with their large-volume customers that consumers would be better able to withstand a rate increase two years from now. 

While the commission voiced concern that such an approach was merely kicking the can down the road and shifting cost responsibility to future customers, it consented to the updated rate freeze plan. It reasoned that in that time, stable energy rates might stimulate more local economic activity and investment, thus broadening employment opportunities for citizens and introducing new sources of tax revenue for local governmental officials. 

Observing that the escrow accounts currently hold more than $485 million in deferred costs and that those account balances will undoubtedly increase over the next two years, perhaps by as much as $360 million, the commission ruled that even without a base rate increase, the utilities must begin reducing the escrow holdings. To that end, the commission ordered the utilities to apply $46.4 million in overcollected fuel supply costs toward the deferred cost balances. 

The commission likewise directed the companies to offset the growth in certain of the deferred accounts by taking available tax elections that will accelerate recognition of accumulated tax benefits stemming from the underlying capital investments. In addition, the commission agreed with a proposal put forth by the WEC Utilities that their respective earnings sharing mechanisms be used to help reduce the deferral account balances. 

Under the earnings sharing terms, should a utility earn up to 50 basis points above its authorized ROE, half of such excess is to be credited to the escrow accounts while the company may retain the rest. Should a utility attain a return more than 50 basis points above the target ROE, all of the excess must be used to help write off the deferred cost balance. 

The commission emphasized that it harbors some trepidation about what the utilities' rates will have to be two years from now. In the meantime, though, it said it was persuaded that the rate moratorium combined with the directives for starting to reduce the escrow account balances would prove to be in the public interest by further improving the state's economy. Re Wisconsin Electric Power Co. et al., 5- UR-108, 6690-UR-125, Sept. 8, 2017 (Wis.P.S.C.).