PUBLIC SERVICE COMMISSION OF WISCONSIN SERVICE COMMISSION OF WISCONSIN ... 5-UR-107 FINAL DECISION...

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Transcript of PUBLIC SERVICE COMMISSION OF WISCONSIN SERVICE COMMISSION OF WISCONSIN ... 5-UR-107 FINAL DECISION...

  • PUBLIC SERVICE COMMISSION OF WISCONSIN

    Joint Application of Wisconsin Electric Power Company and Wisconsin Gas LLC, both d/b/a We Energies, for Authority to Adjust Electric, Natural Gas, and Steam Rates

    5-UR-107

    FINAL DECISION

    This is the Final Decision concerning the application of Wisconsin Electric Power

    Company (WEPCO) and Wisconsin Gas LLC (WG) (collectively We Energies) for authority to

    change electric, natural gas, and steam rates on January 1, 2015, and to change electric rates and

    WG natural gas rates on January 1, 2016.

    Final overall rate changes in 2015 are authorized consisting of a $11,235,000 annual rate

    decrease for WEPCO Wisconsin retail electric operations, a 0.39 percent decrease; a

    $10,660,000 annual rate decrease for WEPCO natural gas operations (WE-GO), a 2.39 percent

    decrease; a $481,000 annual rate increase for WEPCOs Valley Steam (VA Steam)1 operations,

    a 2.02 percent increase; a $1,241,000 annual rate increase for WEPCOs Milwaukee County

    steam (MC Steam)2 operations, a 7.25 percent increase; and a $17,097,000 annual rate increase

    for WG, a 2.63 percent increase, for the test year ending December 31, 2015, based on a

    10.20 percent return on common equity for WEPCO and a 10.30 percent return on common

    equity for WG.

    Additional overall rate changes in 2016 are authorized consisting of a $26,614,000 annual

    rate increase for WEPCO Wisconsin retail electric operations, a 0.92 percent increase; and a

    $21,400,000 annual rate increase for WG natural gas operations, a 3.21 percent increase; for the

    1 Valley Steam operations are sometimes referred to as Downtown Milwaukee Steam (DMS) operations. 2 Milwaukee County Steam operations are sometimes referred to as Wauwatosa Steam (WS) operations.

    PSC REF#:226564Public Service Commission of Wisconsin

    RECEIVED: 12/23/14, 1:08:01 PM

  • Docket 5-UR-107 test year ending December 31, 2016. There is no additional 2016 rate change for WE-GO or the

    two steam utilities.

    Introduction

    On May, 30, 2014, We Energies requested Wisconsin jurisdictional revenue increases of

    $55.4 million (1.91 percent) in 2015 and $29.8 million (1.01 percent) in 2016 for its electric

    operations; a $10.7 million (2.39 percent) revenue decrease for its natural gas operations

    (WE-GO) in 2015; a $0.5 million (2.10 percent) revenue increase in 2015 for its VA steam

    operations; and a $0.8 million (4.56 percent) revenue increase in 2015 for its MC Steam

    operations. WG requested increases of $21.1 million (3.27 percent) in 2015 and $21.4 million

    (3.21 percent) in 2016 for its natural gas operations.

    Prior to the application, We Energies initiated discussions with Citizens Utility Board

    (CUB), Wisconsin Industrial Energy Group (WIEG), Wisconsin Paper Council (WPC)

    (collectively, the Settlement Parties), and Commission staff regarding the possibility of limiting

    the number of contested issues in its rate application. Before these discussions, Commission

    staff began a review in early April 2014 of working papers and other records supporting

    We Energies forecasted test-year revenue shortfalls or surpluses that it indicated would have

    been sought in a fully-litigated rate case proceeding. As a result of Commission staffs review

    and proposed non-fuel adjustments, and discussions among the Settlement Parties, a settlement

    agreement was reached on the majority of revenue requirement issues for the 2015 and 2016 test

    years.

    The test-year 2015 adjustments that We Energies and the Settlement Parties agreed to

    amount to a $82,618,000 reduction to Wisconsin retail jurisdiction electric revenue requirement,

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  • Docket 5-UR-107 an $8,161,000 reduction to WE-GO natural gas revenue requirement, a $763,000 reduction to

    VA Steam revenue requirement, a $621,000 reduction to MC Steam revenue requirement, and a

    $15,313,000 reduction to WG revenue requirement. We Energies then used the resulting

    deficiencies and surpluses after the settlement adjustments as the starting point for its filed rate

    change requests. The settlement agreement includes a 2016 step increase in electric rates of

    $26.614 million for fall-off of fuel and Treasury Grant credits and elimination of a Cross-State

    Air Pollution Rule (CSAPR) amortization that ends at the end of 2015, as well as a 2016 step

    increase in WG rates of $21.4 million for the West Central Lateral project and the pension credit

    amortization fall-off. Issues not included in the settlement agreement include fuel costs, annual

    payments to the Fund for Lake Michigan, costs for a solar project, treatment of System Support

    Resource (SSR) charges and revenues, and all cost of service and rate design issues.

    On June 27, 2014, a prehearing conference was held to determine the issues to be

    addressed in this docket and to establish a schedule for the hearings. Hearings were held on

    September 24, 2014, in Madison to receive technical information, and on October 8, 2014, in

    Milwaukee to receive public comments into the record. The Commission received

    approximately 2,000 comments from members of the public as part of the Commissions public

    hearing process that involved the opportunity to submit written comments through the

    Commissions website, or at the public hearing, or to testify at the public hearing.

    The Commission considered this matter at its open meeting of November 14, 2014. The

    parties, for purposes of review under Wis. Stat. 227.47 and 227.53, are listed in Appendix A.

    Others who appeared are listed in the Commissions files.

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  • Docket 5-UR-107

    Findings of Fact

    1. Presently authorized rates for WEPCOs Wisconsin retail electric utility

    operations will produce operating revenues of $3,266,825,000 for the test year ending

    December 31, 2015, which results in a net operating income of $376,504,000 and an annual

    revenue excess of $11,235,000.

    2. Presently authorized rates for WE-GO will produce operating revenues of

    $447,593,000 for the test year ending December 31, 2015, which results in a net operating

    income of $43,836,000 and an annual revenue excess of $10,660,000.

    3. Presently authorized rates for WEPCOs VA Steam utility operations will produce

    operating revenues of $23,828,000 for the test year ending December 31, 2015, which results in

    a net operating income of $2,107,000 and an annual revenue deficiency of $481,000.

    4. Presently authorized rates for WEPCOs MC Steam utility operations will

    produce operating revenues of $17,123,000 for the test year ending December 31, 2015, which

    results in a net operating income of $1,174,000 and an annual revenue deficiency of $1,241,000.

    5. Presently authorized electric and natural gas rates of WEPCO are unreasonable

    because they produce excess electric and natural gas revenues.

    6. Presently authorized steam rates of WEPCO are unreasonable because they

    produce inadequate steam revenues.

    7. Presently authorized rates for WGs natural gas utility operations will produce

    operating revenues of $653,422,000 for the test year ending December 31, 2015, which results in

    a net operating income of $63,060,000 and an annual revenue deficiency of $17,097,000.

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  • Docket 5-UR-107

    8. Presently authorized natural gas rates of WG are unreasonable because they

    produce inadequate natural gas revenues.

    9. For the WEPCO Wisconsin retail electric utility, the estimated rate of return on

    average net investment rate base of $4,432,940,000 at current rates subject to the Commissions

    jurisdiction for the test year is 8.49 percent, prior to the application of certain credits, which is

    inadequate. After inclusion of certain credits, the estimated net income at present rates is

    excessive.

    10. For WE-GO, the estimated rate of return on average net investment rate base of

    $435,187,000 at current rates subject to the Commissions jurisdiction for the test year is

    10.07 percent, which is excessive.

    11. For the WEPCO VA Steam utility operations, the estimated rate of return on

    average net investment rate base of $28,097,000 at current rates subject to the Commissions

    jurisdiction for the test year is 7.50 percent, which is inadequate.

    12. For the WEPCO MC Steam utility operations, the estimated rate of return on

    average net investment rate base of $22,523,000 at current rates subject to the Commissions

    jurisdiction for the test year is 5.21 percent, which is inadequate.

    13. For WG, the estimated rate of return on average net investment rate base of

    $875,941,000 at current rates subject to the Commissions jurisdiction for the test year is

    7.20 percent, which is inadequate.

    14. A reasonable increase in operating revenue for the test year to produce an

    8.60 percent return on WEPCOs average net investment rate base for Wisconsin retail electric

    operations is $8,233,000, prior to the application of certain credits. After inclusion of certain

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  • Docket 5-UR-107 credits, a decrease in operating revenues of $11,235,000 is reasonable to produce an 8.60 percent

    return on WEPCOs average net investment rate base for Wisconsin retail electric operations.

    15. A reasonable decrease in operating revenue for the test year to produce an

    8.60 percent return on WE-GOs average net investment rate base is $10,660,000.