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

Power Drains Our Wallets: For We Energies Customers, Prices Have Far Outpaced the Cost of Living

Posted on: Sunday, 9 April 2006, 03:02 CDT

By Thomas Content, Milwaukee Journal Sentinel

Apr. 9--Despite a limited rate freeze imposed six years ago, customers of We Energies have seen their combined electric and natural gas bills rise one-third -- far greater than inflation -- at a time when rates paid energy customers in Wisconsin soared to become the highest in the Upper Midwest.

The average We Energies customer paid more than $1,700 to the utility last year, up $400 to $500 from five years ago. That jump came at a time when household incomes barely inched ahead of where they were in 2000.

Such power bill price increases aren't limited to customers of We Energies, the state's largest utility, which provides electric power to southeastern Wisconsin and the Fox Valley, and natural gas to much of the state. Across Wisconsin, utility bills have risen sharply since the mid-1990s, fueled a new push to build power plants and high-voltage transmission lines, as well as the skyrocketing price of natural gas.

As a result, according to federal statistics released last month, Wisconsin's 2005 average electric prices for residential customers rank 15th in the nation, and the highest in the Upper Midwest. Statewide, average business rates, which in the early 1990s were among the 10 cheapest in the nation, are no longer a bargain.

Unique to We Energies was the "freeze" that the utility agreed to as a condition of its $1.2 billion purchase of Wicor, the parent company of Wisconsin Gas, in 2000. Electric rates and local natural gas charges were to be held at 2000 levels through 2005 -- with certain exceptions.

"Freeze? I haven't seen a freeze," said We Energies customer Jerid Bohmann of Pewaukee. "It's been doing nothing but going up."

A Journal Sentinel analysis of Wisconsin Energy's rates, profits and return to shareholders before and after its merger with Wicor found:

-- Electric rates are up 24% for residential customers, and even more for business customers, since 2000.

-- Residents' natural gas bills have risen 33% to 47% since 2000.

-- Profit at Wisconsin Energy Corp., the parent of We Energies, is up 18% in the five years since the merger.

-- Wisconsin Energy shareholders, whose investments declined in value in the five years prior to the merger, have profited. The company's stock has doubled since the merger -- outpacing the 6% decline in the S&P 500 over that same period. The increase in the stock price occurred even though the company cut its dividend in half, enabling the company to reinvest earnings.

-- Wisconsin Energy executives have been rewarded for that strong profit and stock performance, with $4.7 million in bonuses awarded to the top five company executives last year.

Less competitive prices

The rate increases at Wisconsin utilities have made the price of power in Wisconsin less competitive than it has been over the past 25 years, according to federal Energy Department data.

Wisconsin Energy Chairman Gale Klappa, however, says the state's competitive position is stronger than the federal report indicates. He points to a spate of increases that have just taken effect or are about to hit customers in other states, and also notes that Wisconsin is less reliant on volatile natural gas than 27 other states.

"If you looked at those 27 states and states where rate freezes are about to roll off, there will be a huge shift in the overall price of electricity that will make Wisconsin more competitive," he said.

A new study funded a Green Bay-based utility, WPS Resources Corp., says electric rates over the past 25 years have continued to rise more slowly than inflation -- with most of the pain experienced in the last decade or so. Utility executives also say Wisconsin rates will become more competitive once new power plants are running.

In the case of Wisconsin Energy, company executives and state regulators regret that the term freeze was ever used in connection to the Wicor sale, because rates paid the utility's customers have increased for a variety of reasons. Those include allowing We Energies to collect more to keep up with surging fuel costs and to build new power plants. During the freeze period, nine large and small such increases -- increasing electric rates $409.3 million -- were allowed.Electric rates, on average, are up 24% since 2000 -- and 34% since 1995, outpacing inflation and the average increase in electric rates nationwide during both periods. Including an increase authorized the commission in February -- since the five-year freeze has expired -- the typical customer will pay about $300 more this year than in 1995.

.

Gas prices are key

We Energies executives stress that the company is not taking advantage of the spikes in natural gas prices. Most customers don't realize that much of that increase is linked to the cost of the fuel itself. Excluding that, rates charged We Energies to cover local gas distribution and system maintenance have stayed relatively stable since 2000 -- up 3% for Wisconsin Gas customers and 2% for Wisconsin Electric customers, the analysis found.

"You pay what we pay," Klappa told customers last fall, borrowing a line from a popular car sales promotion last year. He was seeking to reassure customers at a time when home heating costs were projected to jump as much as 40% to 50% this winter. The increase this winter wound up being much less, up roughly 19%.

Statewide, the size of the natural gas price increase since 2000 depends on which gas utility a customer has. After the merger, the gas providers were kept separate, though they both operate under the We Energies umbrella. Wisconsin Electric gas customers saw a 33% jump in their bills, while Wisconsin Gas customers saw a 47% increase.

Wisconsin Energy says its higher profits in recent years are largely due to cost-cutting that came after the Wicor merger.

Between 2000 and 2004, We Energies estimates it saved $220 million through 2004 combining operations, eliminating duplication, selling the landmark Wisconsin Gas building, closing a south side Milwaukee service center and eliminating more than 500 utility jobs.

Still, some customers complain that the utility is making too much money at a time when customers are paying more.

Customer groups, the Wisconsin Citizens Utility Board and the Wisconsin Industrial Energy Group, have filed a lawsuit in Dane County Circuit Court seeking to overturn a recent PSC decision that allowed the utility to keep $52 million in extra profit.

"We're trying to get those extra profits back to customers," said Charlie Higley, executive director of the Citizens' Utility Board.

Filings with state and federal regulators show that We Energies' electric utility earned a return of at least 12.5% in 2002 and 2003, during a period when its state-authorized profit was capped at 12.2%.

The commission determined that the utility was justified in keeping those extra profits. Regulators ruled in 2000 that We Energies could keep them while deciding that customers shouldn't have to help fund the high purchase price associated with buying Wicor and Wisconsin Gas, said Robert Norcross, administrator of the commission's gas and energy division.

Power crisis and its aftermath

Regulators say the price increases of recent years shouldn't come as a shock, given the volatile price of natural gas and the fact that Wisconsin had refrained from building new power plants and transmission lines for many years.

"Regulators and politicians took the position that rather than try to spend all this money to keep up with customer growth, we'll go borrow energy from everybody else, and use existing transmission wires to import electricity," said David Parker, utility analyst at Robert W. Baird & Co. "That kept rates down and as a result the state's power rates became very low, or very competitive on a regional basis."

Utilities were reluctant to build new plants at a time when the state was considering opening up its energy market to competition. The lack of investment in new power plants caught up with Wisconsin when near-brownouts took place in the summers of 1997 and 1998. The simultaneous shutdown of a host of nuclear power plants in Illinois and Wisconsin one summer and the untimely loss of a key east-west transmission line the next year prompted a power crisis that resulted in new laws full of incentives to build power plants.

Wisconsin's electric rates are high because state utilities invested in billions of dollars worth of new power plants, and appear even higher when compared with states like Illinois and Michigan, where state-mandated rate freezes have been in effect for years. Those freezes are soon set to expire, and Illinois and Michigan utilities are projecting that double-digit electric price increases will hit customers in the next year or two.

We Energies says it plans no price increase next year, meaning that the 11% increase that just hit customers' bills will be spread over two years. If the price of natural gas, which has fallen sharply in recent months, avoids another big price spike, We Energies customers could see a credit on their bills early next year.

And utility executives say price rankings like those recently released the federal Energy Department tend to swing around as different states move through the long cycle of building new power plants and then paying them off.

Power plants deal

Part of the heavy cost still to come for We Energies customers comes from the lucrative deal the utility was able to negotiate with customer groups and regulators to finance its new power plants. The company will be able to earn a 12.7% return, or profit, on its investment in building new power plants under its Power the Future plan.

That rate of return can't be changed state regulators for at least the next 25 to 30 years, under terms of a financing plan that the state Legislature approved to spur construction of new power plants.

We Energies says such incentives were needed to help the utility attract the interest of Wall Street and bankers to help finance its multi-billion dollar construction program. In presentations to investors, the company says that if it can avoid cost overruns, its profit starting in 2011 will be boosted nearly 50% from last year's levels, once all of its new power plants are running.

Milwaukee ratepayer Alvin Dompke is frustrated that We Energies' monopoly status leaves him with no place to turn.

"If you take a look at your telephone bill you've got how many different companies you can choose from? You can actually bring down the cost of your telephone bill," he said. "Without competition, they just have you over a barrel."

-----

Copyright (c) 2006, Milwaukee Journal Sentinel

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

NYSE:WEC, Unknown:SDP, NYSE:WPS, Unknown:BRW,

Source: The Milwaukee Journal Sentinel

More News in this Category