WisPolitics review: Evers’ PSC picks approve bigger utility rate increases, smaller profit margins than Walker’s

Gov. Tony Evers’ picks for the Public Service Commission have approved $2.2 billion in utility rate increases since becoming a majority on the body, more than seven times what former Gov. Scott Walker’s nominees did over a similar period, according to a WisPolitics review.

But they’ve also approved a slightly smaller return on equity — or profit — for utilities than the Walker picks in those rate cases.

The utility rate increases, expected to be an issue in next year’s race to select Evers’ successor, have been influenced by many factors, some outside of the commission’s control. Among the many issues: inflation and the price of natural gas. 

The increases also are the result of an energy infrastructure building boom that’s been years in the making — and shows no signs of abating with a string of data centers planned for Wisconsin.

Tom Content, executive director of the Citizens Utility Board, said a string of factors have “coalesced to make affordability a real challenge” in Wisconsin, including cost overruns on projects, supply chain issues and rising costs of steel, for example. 

Content, whose group advocates for consumers in rate cases before the PSC, said CUB is now turning its attention to cases coming before the regulatory body that would power planned data centers. Those behind the projects have vowed the companies will pick up the cost for the needed energy generation increase without passing it onto consumers. 

“The whole talk of the state is energy affordability, and data centers are coalescing into this real monster challenge for Wisconsin right now,” Content said.

The rise in utility rates played a role in the gubernatorial elections that Dems won in Virginia and New Jersey this fall. In the Garden State, Gov.-elect Mikie Sherrill has vowed to freeze utility rates on her first day in office, and officials around the country are facing calls for action.

Nationally, average home electric rates increased by 11.7% between January and September of this year, more than triple the rate of inflation, according to the National Energy Assistance Directors Association. The rise also shows no signs of letting up. The energy consulting firm ICF predicted U.S. electricity demand could grow 25% between 2023 and 2030, driven by data centers, with residential rates climbing 15% to 40% by 2030. The firm predicted some rates will double by 2050.

In Wisconsin, GOP gubernatorial candidate Tom Tiffany and the conservative Americans for Prosperity have regularly taken shots at Evers over the rise in rates since the Dem took office.

Still, Evers’ appointees to the PSC didn’t become a majority on the three-member body until spring 2020, more than a year after he was sworn in. With most cases decided each fall, that means much of the impact from Evers’ appointees wasn’t felt by consumers until 2021.

Rate cases are also often decided for two-year periods, meaning preliminary numbers are in for the major utilities that will take effect in 2026. The PSC hasn’t yet issued final orders in some of those cases that WisPolitics included in its review.

Looking at rate increases between the start of 2021 and those approved through 2026, the PSC has signed off on $2.2 billion in increases out of the more than $3.1 billion requested. That’s about 71% of what the major utilities sought.

Walker’s appointees to the commission, meanwhile, took over the majority in July 2011. Looking at the six years from 2012-17, the PSC approved $300.1 million in rate increases out of the $1.2 billion requested, or about 25%.

Under state law, the PSC is required to approve rate increases that cover utilities’ reasonable costs. The body is also required to provide them the opportunity to turn a profit, referred to as the return on equity.

During the windows that WisPolitics reviewed, the PSC with a majority of Walker appointees approved an average return on equity of 10.3%. Under Evers’ picks, the average was 9.9%, according to figures WisPolitics compiled with the help of industry insiders.

Both figures are above the national averages in those windows. The current average is 9.68%, according to a filing in one rate case that was before the PSC this year. In 2017, the final year of the Walker period WisPolitics reviewed, the national average was 9.78%.

Interviews with multiple utility experts pointed to a series of factors that played into the different rate increases in the periods WisPolitics reviewed.

From 2012-17 with Walker picks in the majority on the commission, the average annual rate of inflation nationally was 1.45%. During the first five years of Evers appointees comprising a majority of the commission, the average annual rate was 4.48%.

Other factors that played into the rates include the price of natural gas, which hit $8.81 per million BTU in August 2022, amid Russia’s invasion of Ukraine, according to the U.S. Energy Information Administration. By comparison, the cost topped out at $6 per million BTU in February 2014 during the span WisPolitics reviewed under the Walker years.

Then there’s the string of generation, transmission and distribution projects Wisconsin utilities have undertaken in recent decades. 

According to the Wisconsin Industrial Energy Group, Wisconsin had the lowest rates in the Midwest in the late 1990s. But it now has the third-highest industrial electricity rates in the Midwest and second-highest for residential customers, according to the nonprofit consumer advocacy trade association. 

When rates were low 25 years ago, concerns over the reliability of the state’s grid and generation capacity prompted the building projects. With the projects often paid off over decades, those costs have produced a cumulative upward pressure on rates.

More projects are on the way.

According to the Public Service Commission’s Strategic Energy Assessment 2024-30, produced a year ago, Wisconsin electric providers had plans to add: approximately 4,200 MW of new solar energy capacity, 2,500 MW of new natural gas capacity and nearly 1,200 MW of new wind capacity by 2030. 

To deal with the volume of projects in the pipeline, the PSC received approval in August 2024 from the Joint Finance Committee to add 23 full-time equivalent positions to review applications for utility generation and transmission projects.

On Dec. 11, the Joint Finance Committee signed off on another 1.5 FTEs just to review the required environmental impact statements for each project.

The industry is also now seeing signs of the coming projects to power new data centers. In November, We Energies sought approval from the PSC for $5.5 billion in projects that would add almost 3 gigawatts of power to the electric grid, largely to support coming data centers in its service area covering southeastern Wisconsin.

According to the U.S. Department of Energy, 1 gigawatt is equal to half the energy generated by the Hoover Dam and can power 100 million LED bulbs.

The We Energies plan includes seven solar projects, battery storage and two natural gas plants. The company’s filing also includes plans to upgrade current power facilities to support reliability.

In announcing the project, We Energies said the data centers will pay the full share of the power they consume, including the plants and distribution facilities that will serve them.

The PSC this spring is expected to take up the proposal, which includes the company’s vow that residential and business customers won’t subsidize the power needs of the data centers.

“This is a very important issue to us and to the data centers building in Wisconsin,” said We Energies spokesperson Brendan Conway. “We have signed agreements from them; they are committed to paying their fair share.”

Still, the public remains skeptical of those promises. A Marquette University Law School poll in October found 55% of registered Wisconsin voters surveyed believe the costs of large data centers are greater than the benefits they provide.