PSC Trims MGE Rate Hike, Signals Concern on Customer Affordability

  • November 3, 2023
870 450 Tom Content

MADISON – Utility regulators voted Friday to reduce the size of Madison Gas & Electric’s rate increase for customers and take a small but important step to trim the utility’s high profits.

CUB’s regulatory team put a spotlight on affordability, energy burden, and fairness in this case. Throughout the proceeding, CUB cited concerns about how much customers can continue to afford rising rates, given the aggressive building program MGE and other utilities are undertaking as part of the energy transition.

The state Public Service Commission voted Friday to approve a 5.7% overall electric rate increase for MGE to be implemented over two years. The increase is expected to be approximately 1.654% in 2024 and 4.1% in 2025, but it’s below what the utility sought when it applied for the rate hike earlier this year.

Residential customers can expect an increase of roughly 3% in 2024 and an additional increase in 2025, bringing the total to roughly 9%. Small business customers can expect increases of roughly 2.8% in 2024 and a cumulative increase of nearly 8% by 2025. CUB had sought a less onerous increase for residential and small business customers, particularly for 2025.

The PSC voted to prevent the utility from earning excessive profits by implementing an earnings sharing mechanism. In doing so the PSC decided that MGE should join the other big utilities in the state in having such an earnings cap in place.

The PSC also reduced slightly the profit rate, or return on equity, that MGE is allowed to earn. CUB sought a bigger reduction in profits, to 9.3%, but the PSC only lowered MGE’s allowed return from 9.8% to 9.7%. This reduction will produce savings of $2.4 million over the next two years. CUB’s proposal to move the return on equity to 9.3% would have saved MGE customers $12 million.

“Wisconsin utilities’ profit rates have been too high for a long time, and we appreciate that commissioners are continuing to trim them. Given the evidence CUB provided, the commissioners could have gone further and saved more for customers, but this remains a good signal that the PSC is focused on affordability for customers paying the bills. The fact that the Commission lowered MGE’s returns despite the backdrop of rising interest rates is a clear indicator of how unnecessarily high MGE’s current profits are,” said Tom Content, CUB Executive Director.

In other wins for MGE customers on Friday:

Divvying up the costs between small and large customers as the grid modernizes. In a significant win, the Commission agreed with CUB that a fresh look at how the grid operates hour to hour and over the year should be reflected in how cost increases are divvied up among small customers and big businesses. The grid is changing as more renewables are being installed, and CUB identified a need to bring how costs are allocated up to date to ensure that large energy users are paying their fair share.
Residential solar rates stay in place: The PSC decided not to allow MGE to implement a new program for customers who want to install their own solar panels. CUB had argued that the intent of the program made sense but that the way it was structured didn’t achieve a good balance between customers with solar panels and those without. Instead, the PSC said it wants to study the issue with an eye toward a more sophisticated cost-benefit analyses and a consistent statewide policy on residential rooftop solar.
Solar cost overruns aren’t included in 2024-25 rates: MGE noted it experienced cost overruns for large solar projects, but the Commission agreed with CUB that whether to include those in rates should be decided in a future case.
Reducing the fixed charge on natural gas bills: The PSC took another step to encourage energy efficiency and conservation by reducing the fixed charge MGE customers pay on their natural gas bills. The fixed charge will drop from nearly $22 a month today to $20 a month in 2024 and $18 a month in 2025. The electric fixed charge was brought down over the last two years as part of an agreement between MGE and CUB and will remain at $15 a month for 2024 and 2025. Small business customers will also see a reduction in fixed charges on their natural gas bills.
Helping those in need: The PSC voted to require MGE to propose a new arrearage management program early next year to help customers struggling to pay their bills and help them avoid having their power shut off. The Commission further voted to launch a study on innovative ideas to improve affordability and to include an energy burden analysis as part of that investigation.
• Promoting energy savings and transparency: The PSC agreed with CUB that there’s a need for utilities to help promote the incentives and rebates that will be offered via the Inflation Reduction Act starting next year. The PSC also recommended that MGE analyze its marketing programs to ensure they are in plain language, understandable and transparent.

“CUB is encouraged that there will be an earnings cap in place for the first time for MGE,” Content said, “Taken together, the PSC’s decisions on profit levels, fixed charges, solar cost overruns, and efforts to tackle affordability and energy burden will produce results for MGE customers in the years to come.”

However, CUB was disappointed that the Commission didn’t go further in providing rate relief for residential and small business customers and that the PSC decided that COVID-19 costs should be borne solely by customers. CUB had requested that remaining costs linked to the COVID-19 pandemic be shared between MGE shareholders and utility customers.

The decisions reached Friday will be formalized in a written order that the PSC will issue by the end of the year. The exact size of the official increase for residential and small business customers will be specified once the final impact of all the Commission’s decisions in the case is totaled.

For more information, check out CUB’s MGE case information on CUB’s Active Cases page.