Typical We Energies electric bill would top $150 a month under updated rate hike proposal

The typical We Energies customer's electric bill would top $150 a month in 2026 under a proposal filed recently with state regulators.

The proposal calls for an 18.5% increase in the cost for residential electric service by 2026 including rate hikes of 9.2% 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 a month than they currently pay.

In all, We Energies is seeking an additional $418.6 million from its customers over the next two years to cover rising costs associated with building new sources of power generation, grid improvements, inflation and rising labor costs.

The proposed increase amplifies a two-decade trend in which residential electricity costs increases have risen at more than twice the rate of inflation since 2005, according to an analysis by the Wisconsin Citizens Utility Board.

The increase request will fuel a renewed focus by consumer advocates on energy affordability at a time when inflation has strapped household budgets, particularly among low-income households in Milwaukee and other areas where energy costs can eat up as much as 20% of a household budget, according to an analysis by the Sierra Club - Wisconsin Chapter.

"The big question is how much is the utility taking into account people's ability to pay when they're making requests of this magnitude," said Tom Content, CUB's executive director. "That's a big question and its incumbent on everybody,, including the commissioners who regulate them, to really have that top of mind because this is a lot for people to stomach in a short period of time."

New power sources, grid improvements driving We Energies rate hike

As was the case in recent We Energies rate hikes, the utility's investment in renewable energy is the primary driver of its proposed rate hike.

Looking at 2025 alone, 70% of the new revenue the utility is seeking, or $167 million, is to begin payments for newly completed solar power projects a the purchase of a share of the generating capacity of Alliant Energy's West Riverside natural gas plant. Wisconsin utilities can only begin to bill construction costs to customers when the projects are producing power, so new proposals like a natural gas plant the company intends to build in Oak Creek aren't included in this round of increases.

Bills are also coming due on We Energies' efforts to improve the electric grid's reliability and resilience to 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 of the new costs the utility is seeking to recover.

In a statement, the company said those expenses reflect a commitment to a reliably meeting energy demand, maintaining a healthy electric grid and the transition to renewable energy to avoid having to spend billions of dollars on new pollution controls if it continued to rely on coal power. The utility plans to stop using coal by 2032.

"Our filing focuses on 3 key priorities: reducing customer outages, building infrastructure needed to support jobs and economic growth in Wisconsin and meeting new EPA environmental rules," We Energies spokesman Brendan Conway said.

More: WEC moves up date to stop burning coal, reaffirms 2024 shutdown for first Oak Creek units

Largest increase falls on residential customers

The burden of filling that revenue gap is not shared equally. Industrial customers next year would pay just 2.3% more for power and would see a 1.7% increase in 2026. Smaller businesses would fall between the industrial and residential classes depending on their size and type of service.

We Energies says it followed the cost allocations approved by the PSC in 2022 to develop its rate proposal for 2025 and 2026. That allocation resulted in a 14.4% increase in residential rates over two years, while industrial customers paid a little less than 10% more.

"Our cost of service estimates reflect the PSCW's past practice, the commission will have the final say on how to allocate revenues," Conway said.

The difference between small and large customers reflects the higher cost of providing service to widely distributed residences that use smaller amounts of power and require more resources to serve, compared to the largest customers which can be served more efficiently, company officials said.

The cost allocation may be based on a previous PSC decision, but the models for determining cost of service have become outdated and out of balance, Content said. That model is under review by the PSC, and could result in new formulas for allocating costs, although that work won't be done in time for this year's rate decisions, he said.

More: Electric rates are going up as Milwaukee's least well off continue to struggle to pay their bills

As customers struggle to pay bills, bad debt costs are rising

Part of the outsized increase in residential rates stems from a long-standing policy of keeping costs that are specific to a type of customer within that customer class. As a result, residential customers must pick up the cost of unpaid residential electric bills.

Those costs account for about 20% of the proposed residential price increase, much of it tied to a recently expanded program in which customers who sign up for a payment plan and stick to it can have up to half of their past-due amount forgiven.

The program, known as the Low Income Forgiveness Tool, was introduced on a limited scale in 2021 and expanded by the PSC in 2022 by opening it up to more income-qualified customers and reducing the minimum amount owed for participation. As a result, enrollment grew from just shy of 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 top $100 million by December.

We Energies has been carrying those costs in escrow, but is now authorized by the PSC to collect those and future costs from residential customers. Most of that bill will come due in 2026, when the company is proposing 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 disconnection.

"Clearly it underscores the that there is an affordability challenge for We Energies customers who are struggling to make ends meet," he said. "One of the questions is: from the filing, you can see the costs, but I'm not sure if we have the full picture of the benefits."

That cost-benefit tradeoff, including the likelihood that the program is generating revenue for We Energies that might otherwise be written off, warrants careful scrutiny of We Energies' cost estimates by consumer advocates and PSC staff, he said.

"In every case where there's bad debt the unpaid bills are passed on to all the other customers, and that's been a long standing issue given some of the poverty challenges in the in the community," Content said. "And so, one of the questions PSC staff is asking them is for information about LIFT just make sure that the numbers in the filing, are appropriate."

Coal plants, profit margin eyed as key points for customer savings

Consumer advocates will hone in on two key areas for potential cost reductions: reducing the amount utility customers will pay toward $400 million in debt still owed on pollution controls at Oak Creek Power Plant, where shutdown begins this month and continues through next year, and We Energies' request to return to a 10% profit margin after PSC commissioners cut it to 9.8% in 2022.

Commissioners rejected a proposed settlement in the 2022 rate case that included using a financial tool known as securitization to refinance $100 million of that debt, pushing the issue into this year. Previously, customers reaped about $40 million in savings when a similar amount debt after the Pleasant Prairie Power Plant closed in 2018.

Whether that option will be resurrected is largely up to We Energies and its willingness to reach a rate settlement with intervenors that includes a refinancing package. Commissioners cannot order We Energies to refinance the debt and the company has not proposed doing so in its rate filings.

"Clearly the dead coal plant issue is an opportunity for savings," Content said. "In the utility's, own testimony, they talk about the savings that could be achieved through securitization or through other alternatives, but then they don't offer any savings at all. Their plan is to not only take their current profit rate on that dead powerplant, but actually a higher profit rate of return on it."

When commissioners reduced We Energies' profit margin in 2022 they did it with an eye toward incrementally 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 inflation has had on those costs and the need to show financial stability to shareholders, We Energies spokesman Brendan Conway said.

"Today, our allowed is at a 40-year low, despite higher interest rates. Our request simply takes into account the current inflationary environment and our need to demonstrate financial stability," Conway said.

Yet even at 9.8%, We Energies is earning some of the highest profits among the nation's utilities even as the number of customers struggling with their bills is increasing, Content said.

"We're in a position where Wisconsin has awarded the fifth highest profit rates in the country even though they're coming down," Content said. "From from a customer's point of view, it's paramount that the trend to bring that down continues and even accelerates."

As cost pressures rise, advocates look to long-term solutions

Pressures on electric customers aren't expected to let up in coming years as We Energies' parent company, WEC Energy Group, pursues a $23.4 billion five-year capital plan that is focused on the transition to renewable energy, building additional generating capacity and improving reliability across its multi-state service territory.

For We Energies, that includes spending $1.4 billion on the new gas plant at Oak Creek and a natural gas storage facility, smaller on-demand natural gas powered generating facilities in various locations, and hundreds of millions of dollars of additional investments in solar energy.

Consumer advocates have raised concerns that regulators, under state law. review projects largely on a case-by-case basis, but are largely prohibited from reviewing how it fits into the bigger picture. They warn that could result in building excess generating capacity, captured costs at gas plants that will be unneeded in the future, and an inability to ensure that long-term decision making is in the best interest of consumers.

A bill was introduced last year in the state Legislature to address the issue but died without coming to a vote.

"There's a lack of justification," said Antonio Butts, executive director of Walnut Way Conservation Corp. in Milwaukee. "Because our state legislators (didn't act), there's no codification for integrated resource planning. So there's no tool in place for us to have a long-term decision making process that's inclusive, that's respectful to vulnerable communities and that emphasizes transparency and accountability so that we have a fair and equitable outcome."

Butts said Walnut Way, a neighborhood development organization that first became active on energy affordability issues during the 2022 rate case, will nonetheless stress that integrated approach as an intervenor in the current case.

"We have to work together in order to make some really solid long-term decisions in partnership with the utility," he said.

This article originally appeared on Milwaukee Journal Sentinel: Electric bills would top $150 a month under updated We Energies rate plan