PSC Pares Down Profit Cap for Wisconsin Utility

Wisconsin utility regulators have allowed electric utilities to earn above-average profits compared with power companies in other states, but that may be changing, according to November 9 report in the Milwaukee Journal Sentinel.

The state’s Public Service Commission (PSC) voted (Docket No. 3270-UR-12) on March 9 to reduce the maximum profit, or return on equity, that can be earned by Madison Gas and Electric (MGE). MG&E’s return on equity is now 10.2 percent – but will drop to 9.8 percent next year.

Last April, MGE – which generates and distributes electricity to 146,000 customers in Dane County; and purchases and distributes natural gas to 152,000 customers in seven south-central and western Wisconsin counties – asked for a 1.65 percent electric rate increase and a 3.67 percent natural gas increase, effective January 1, 2017.

Instead, the Journal Sentinel reported, the commission authorized a reduction in rates of 0.33 percent, or $1.33 million, with residential rates pegged to rise about 0.5 percent. The final rate change for 2017 will be finalized before the end of the year.

That would be the lowest profit level for a Wisconsin utility since the 1970s, according to data from the state PSC; and could signal that rates of return for other utilities, such as We Energies, may be scrutinized to drop again.

We Energies’ current profit rate is 10.2 percent, the Journal Sentinel said, although the utility enjoys a much higher fixed return of 12.7 percent on its investments in its Oak Creek and Port Washington power plants.

The last time a rate of return was as low as MGE’s was in 1972, when Northern States Power in Eau Claire was at 9.76 percent, Elise Nelson, spokesperson for the PSC, told the Madison-based newspaper.

The reduction comes as a result of persistently low interest rates as well as declining rates of return for utilities around the country, Ellen Nowak, PSC chairwoman, said during the commission’s November 9 meeting.

In 2015, the average return granted nationwide was 9.56 percent, at a time when Wisconsin’s PSC was approving rates of return of 10 percent, according to testimony submitted by a former PSC analyst, James Woywod, on behalf of the advocacy organizations, Wisconsin Industrial Energy Group and Citizens’ Utility Board.

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