Trends in Electric Rates
in the Midwest
by
Charlie Higley
Citizens Utility Board of Wisconsin
for
Energy Utility Basics
Wisconsin Public Utility Institute
October 3, 2012
Overview
• What is CUB?
• What Are Electricity “Sales”?
• Declining Electricity Sales
– Trends for U.S., Wisconsin
• Determining Electric Rates
• Drivers for Wisconsin Electric Rate Increases
• Midwest Electricity Rates 1997 to 2011
2
Citizens Utility Board
• Member supported nonprofit organization; 9,000
members statewide.
• Represents residential and small business customers.
• Intervenes in utility rate cases, proposals for new
power plants, power lines.
• Five full-time staff, $900,000 annual budget.
• Saved Wisconsin ratepayers $2 billion since 2006.
• Please Join!
• www.wiscub.org, higley@wiscub.org or 608-251-3322 x. 14
3
Definition of Electricity Sales
• Electricity “sales”
– the number of units of electric energy sold in a
period of time.
– e.g. number of kilowatt-hours sold in one year.
– For We Energies, 2011 total retail sales in
Wisconsin were 27,163,986,000 kWh.
4
Declining Electricity Sales: United States
5
Declining Electricity Sales: United States
6
Declining Electricity Sales: United States (cont.)
7
Declining Electricity Sales: Wisconsin
8
Declining Electricity Sales: Wisconsin (cont.)
9
Sales in 2012 versus 2011
• 2012 U.S. sales (thru June) are 2% less than 2011
• 2012 WI sales (thru June) are 0.5% more than 2011
10
Declining Sales Can Lead to Higher Rates
• Declining sales means fewer kilowatt-hours to
recover operating expenses, therefore, rates go up, all
else equal.
–
–
–
–
Rates = operating costs/sales = $/kWh
Assume sales will decline by 5.0 percent next year.
Assume operating costs remain the same for next year.
Rates have to increase 5.26 percent to recover operating
costs.
11
Determining Electric Rates
• To determine rates for 2013, a utility:
–
–
–
–
–
–
–
–
forecasts annual kWh sales for 2013
calculates 2013 revenues using 2012 rates
estimates 2013 costs of doing business (expenses)
estimates rate base
calculates earned rate of return
compares with “approved” rate of return
determines revenue deficiency
increases 2013 rates to cover revenue deficiency
12
Fewer Sales, Same Costs = Rate Increase
•
forecast of kWh sales in 2013
•
29,000,000,000 kWh
•
revenue using 2012 rates
•
(29B kWh)($0.1) = $2.9 billion
•
estimate 2013 expenses
•
$2.7 billion
•
calculate operating income
(aka earnings or profit)
•
operating inc. = revenues – expenses
$200M = $2.9B - $2.7B
•
estimate rate base
•
rate base = $3.5 billion
•
calculate earned rate of return
•
ROR = $200M/$3.5B = 5.7%
•
compare with “approved” ROR
•
approved ROR = 9.5%
approved earnings = (9.5%)($3.5B)
= $334M
•
determine earnings deficiency
•
earn. def. = $334M - $200M
= $134M
•
determine revenue deficiency
•
rev. def. = ($134M)(1.7 tax factor)
= $223M
•
increase rates to make up revenue
deficiency
•
rate increase = $223M/$2.9B
= 7.7%
13
Wisconsin Residential Electric Rates
14
Wisconsin Electric Rates: Other Drivers for Rate
Increases
• Wisconsin electric rates 1997 thru 2011:
– Residential:
– Commercial:
– Industrial:
90 % increase
86 % increase
97 % increase
Inflation: 40 % increase
• Main drivers:
–
–
–
–
New power plants:
$7.5 billion since 2004
Total: $12.1 billion
New transmission lines:
$2.5 billion since 2001
New pollution controls:
$2.1 billion since 2000
Fossil fuel prices since 2000:
• Coal
100 % increase
• Oil
170 % increase
• Nat. Gas 40% increase, but nearly 80 % increase by 2006
15
Midwest Electricity Rates (cents per kWh, from EIA)
1997
State
Illinois
Indiana
Iowa
Michigan
Minnestoa
Missouri
Ohio
Wisconsin
Residential Commercial Industrial
10.43
7.93
5.29
6.94
6.04
3.91
8.21
6.61
3.95
8.57
7.84
4.97
7.23
6.23
4.33
7.09
6.00
4.46
8.63
7.67
4.16
6.88
5.60
3.72
2011
State
Illinois
Indiana
Iowa
Michigan
Minnestoa
Missouri
Ohio
Wisconsin
Residential Commercial Industrial
11.81
8.64
6.46
10.06
8.74
6.25
10.50
7.90
5.21
13.12
10.32
7.36
10.97
8.58
6.51
9.78
8.04
5.95
11.44
9.60
6.21
13.06
10.43
7.34
16
Midwest Electricity Rates (cont.)
Change
1997
to
2011
State
Illinois
Indiana
Iowa
Michigan
Minnestoa
Missouri
Ohio
Wisconsin
Residential Commercial Industrial
13%
9%
22%
45%
45%
60%
28%
20%
32%
53%
32%
48%
52%
38%
50%
38%
34%
33%
33%
25%
49%
90%
86%
97%
• Wisconsin had lowest rates in 1997.
• In 2011, WI = 2nd highest Residential,
Highest Commercial, 2nd highest Industrial
17
Charlie Higley
Citizens Utility Board of Wisconsin
www.wiscub.org
higley@wiscub.org
608-251-3322 x. 14