• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

We Energies Defends Rate Increases

Posted on: Sunday, 10 July 2005, 15:00 CDT

By early next year, We Energies electric rates may be as much as 17% higher than they were earlier this year.

The Milwaukee-based utility this month announced that it is seeking a $143.5 million price increase, or 6.9%, on Jan. 1.

The spate of recent increases is hard to swallow, say business customers who worry that rising costs threaten to put Wisconsin at a competitive disadvantage.

"It has not been a good time for Wisconsin," said Joe Muehlbach, facilities manager at Quad/Graphics Inc. in Pewaukee. "The increases are hurting. We're in a very competitive market, and the price we receive for product today is well below what it was five or 10 years ago. When you see energy rates that are rising faster than most cost indexes, it puts a lot of pressure on us because we cannot pass that through to our customers."

At an energy conference in Madison earlier this year, a representative of Mequon-based Charter Manufacturing cited high energy costs among the reasons that the company expanded in Ohio rather than Wisconsin.

Compared with rates in other Upper Midwest states, Wisconsin's electric rates rank either second-highest or third-highest, according to state-by-state comparisons from the Edison Electric Institute.

We Energies' rates for businesses and residential customers, meanwhile, are also higher than the majority of other utilities in the Upper Midwest.

To the utility, it's a sign of the times and of timing. In essence, the company says, we get what we pay for. Wisconsin enjoyed low rates in the late 1990s, at a time when the threat of brownouts and blackouts made headlines every summer. Now that we're building new power plants and power lines, it's time to pay up.

In a filing this month, the company was asked by state energy regulators to defend the competitiveness of its rates.

Charts prepared by the utility show that, compared with 26 utilities in Wisconsin, Illinois, Indiana, Iowa, Michigan and Minnesota, rates charged by We Energies rank in the top 10 highest for commercial, residential and industrial customers.

Its rates "are competitive when compared to the state, the region and the nation," the company said. "The requested rate increase will maintain this competitive position at each of these levels."

Over the last 20 years, We Energies' electric rates have risen at a much slower rate than inflation, although electric rates have outpaced inflation over the past 10 years.

One analysis by the utility found that Wisconsin's residential rates were 14th-highest in the nation last year, while rates for business customers were in the middle of the pack, compared with all other states.

We Energies says its competitiveness needs to be measured not just in cost but in value customers are getting. We Energies gets high scores from customers in national surveys and recently won an industry award for superior reliability. In addition, Wisconsin isn't as vulnerable to power shortages as it was in the late 1990s, said Roman Draba, We Energies' vice president of regulatory affairs and policy.

A change in benchmarks

Nino Amato, president of the Wisconsin Industrial Energy Group, cited new data from the Energy Information Administration that show Wisconsin's power cost increases in 2004 outpaced the national average.

The new data also show Wisconsin losing ground to nearby states.

"This has always been the benchmark that we've used to compare ourselves to. Now that we're no longer competitive against our neighbors, the utilities want to change the standard by which we're measuring our costs," he said.

The problem with comparing Wisconsin with nearby states, Draba said, is that other states are just beginning to talk about building new power plants, whereas construction has already begun in Wisconsin. We Energies will open its Port Washington natural gas- fired plant this month, the first of four new plants We Energies customers will be paying for over the next several years.

Another factor that skews comparisons is that other states including Illinois are in a rate freeze that will result in higher rates beginning in 2007.

"It's sort of a leapfrog effect among the states," he said. "And there's an issue with respect to Wisconsin being ahead in terms of this reliability issue, and that's driving the comparison of cost."

As new power plants in Wisconsin come on line, particularly those fueled by coal, other states are likely to leapfrog back ahead of Wisconsin in rate comparisons, Draba said.

But Amato, of the Industrial Energy Group, said a key issue for customers has been the rate of increases the state Public Service Commission granted utilities increases that began even before the utilities began building their new power plants.

Middle of the pack

Within Wisconsin, We Energies' prices, which include two recent rate increases to pay for higher fuel and purchased power costs on top of new power plants are in the middle of the utility pack.

A comparison prepared by We Energies of average customer bills among the five investor-owned utilities in the state shows that its industrial bills rank second highest, commercial bills rank second highest and residential bills rank fouth.

All five utilities have price increase requests pending with the state Public Service Commission. They range from a 6% increase sought by Wisconsin Power & Light Co. to an 11% increase sought by Wisconsin Public Service Corp. of Green Bay. If the increases all are approved, We Energies' residential rates would rise to third highest.

We Energies says its rates will remain competitive in Wisconsin if commissioners approve its 6.9% increase, but Amato disagreed.

"Just because they remain status quo compared to other Wisconsin utilities does not mean that they are competitive just that other utilities are also doing just as poorly," he said.

In 2004, We Energies' commercial and industrial rates were below the national average but above the state average for commercial and industrial customers, though residential prices were lower than the state and national averages.

The increase sought July 1 will pay for construction of the Oak Creek and Port Washington power plants, as well as higher transmission costs the Milwaukee utility has faced in recent years.

Lofty rates of return

Customer groups plan to hire expert witnesses to testify against the We Energies proposal, in particular the request by the utility of a rate of return of more than 12%.

Rates of return are higher in Wisconsin than in virtually every other state, according to an inventory of recent decisions by the industry publication Public Utilities Fortnightly.

"Historically, utilities in Wisconsin have been provided rates of return from the PSC that exceed what most other states have allowed," Muehlbach said. "We've seen movement from the PSC recently that they're looking to bring the rate of return down to make it more practical with the other states."

In a recent case, regulators in Madison awarded an 11.5% return to Wisconsin Power & Light Co., which had sought a higher return of 12%. Amato's group had lobbied for a return no higher than 11%.

Muehlbach agrees that Wisconsin needs new power plants to keep up with demand and ensure the reliability of its electric network.

But he said customers were told to expect increases in the range of 2.5% to 3% a year to pay for new plants, and rates have gone up faster than that.

"We're in support of the need for new power generation baseload generation in Wisconsin. But we remind everybody it needs to be affordable," he said.

For its part, We Energies says higher costs of transmission, distribution and new power plants have been driving up rates, as well as increased reliance on buying power from independent power producers that have built natural gas-fired power plants.

The price of natural gas has tripled in recent years, contributing significantly to rising costs.

"What we're emphasizing is things we can control and things we can't," Draba said.

Absorbing costs

Customers have asked the company to control spending, and in its most recent price increase request, We Energies has frozen operating expenses, including salary levels, Draba said.

As a result, the company is absorbing the nearly $180 million increase in salaries and other employee-related costs it has experienced in recent years rather than asking customers to pay for them, he said.

"We can control the quality and level of service we provide to our customers. We have control over reliability issues. We've been working on those, and we think our customers have recognized that and see the value of the product. They don't like the price increases but understand how they fit in this whole context of better quality service and improved reliability."

To customers like Muehlbach, it's all about staying competitive. To be sure, Quad/Graphics is continuing to invest in Wisconsin, even as it expands outside the state as well, he said.

But the electric prices the printing company pays to We Energies are "considerably" higher than those it pays to Sun Prairie-based Wisconsin Public Power Inc. for its plant in Hartford, Muehlbach said.

Quad/Graphics operates plants in four other states.

"The only state with higher pricing on power than Wisconsin is New York," he said. "West Virginia, Georgia and Oklahoma are all well below what we pay here through We Energies."

Copyright 2005, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

Source: Milwaukee Journal Sentinel

More News in this Category