Public Service Commission hears request for rate increases

Daily Reporter (Milwaukee), Dec 18, 2003 by Sean Ryan

Public Service Commission hearings closed yesterday for two We Energies requests to increase electric and natural gas rates to pay for three projects, including the new Port Washington generation station.

Wisconsin Electric Power Company and the Wisconsin Gas Company requested the 2004 rate increases in July to increase next year's earnings by $89.7 million. The application to the PSC said the increase would go toward:

* $66.6 million for the Port Washington natural gas plant that began construction last year as the first part of the Power the Future program

* $13.8 million to cover mandated payments to the state Department of Administration

* $583,000 to relocate the steam facilities in We Energies' Menomonee Valley generation station to make way for the Marquette Interchange reconstruction

* $17 million for the Ixonia gas lateral project.

We Energies is in the middle of a five-year rate-restriction period that the PSC enacted in 2000 when the utilities purchased Milwaukee-based Wicor Industries, which manufactures water-utility equipment. The restriction allows for increases for gas lateral projects, government mandates and abnormal levels of capital additions.

Decision pending

A PSC decision is expected in the first quarter of next year. We Energies' last rate increase came this year when it requested an additional $61.2 million to cover natural gas cost increases.

November testimony by Mary Kettle, of the PSC Electric Division staff, said the PSC has the option of deferring any rate increases related to Port Washington costs until 2005, when it will re-open the docket on its approval of the Elm Road Generation Station in Oak Creek to redetermine total PTF project costs. WEPCO, which is requesting the increase, will lease the Port Washington station from We Power, another We Energies subsidiary, once it is operational.

The commission doesn't have directives as to when it can allow utilities to raise rates to recover such costs.

Because these costs relate to the lease of a facility that is not yet used and useful, the commission will need to make a determination regarding the timing of when rate recovery should begin, Kettle said.

One perspective, she noted, is that since WEPCO is leasing the facility from We Power, it should not increase rates to cover lease costs until the lease is enacted.

One would assert that under normal business practices, in a lease situation, a person or entity would not begin making payments until they were able to use the item that they leased, she said. Costs related to the lease would be included in the lease payments, which would begin when WEPCO began to operate the plant and take power from it.

Who shoulders cost?

However, Kettle noted, allowing WEPCO to recover lease costs now would lower the chances of a jump in rate payments in the future when the plant becomes operational.

The rate increase application could also allow the PSC to reconsider its vote to allow WEPCO to use ratepayer fees to cover the mitigation payments it owes Port Washington for housing its new facility. The company requested $798,000 to cover the costs it agreed to pay Port Washington when the PSC was considering its application to build the generation station there.

The PSC originally rejected We Energies' request to pay the mitigation cost with user rates, but after Gov. Jim Doyle appointed Burnie Bridge to replace Joseph Mettner, a second vote approved the plan. Kettle notes that the approval allowed commissioners to reconsider the vote if state laws mandating municipality mitigation payments changed, and they did this July.

Kettle questions whether WEPCO can recover the mitigation costs before it leases the generation station from We Power, another We Energies' subsidiary.

On Dec. 5, Port Washington requested to become a party in the PSC deliberation and challenged the questions that Kettle raised regarding the payments. The motion to intervene said the city has concluded that (Kettle's) testimony incorrectly asserts that the city should not currently be receiving community mitigation payments.

If the PSC rejects We Energies' request, the mitigation costs would likely come from We Energies' shareholders rather than its ratepayers.