Karlee Weinmann A trio of Wisconsin utilities owned by WEC Energy Group is pushing to raise customers’ rates in concurrent proceedings that mark the first major tests for a state utility regulatory panel shaken up earlier this year when Republican lawmakers ousted Commissioner Tyler Huebner.
Republican legislators effectively fired Huebner in January when they refused to confirm his appointment to the Wisconsin Public Service Commission (PSC), though Huebner had served in the role for nearly four years prior. The obstructionist tactic – delaying and denying confirmation – is a repeat play for Wisconsin Republicans intent on disrupting the agenda of Democratic Governor Tony Evers, who had nominated Huebner.
Huebner’s dismissal marked an acrimonious end to his time on the PSC, where he had established a reputation as an advocate for consumers and clean energy. Republicans cited Huebner’s support for aligning utility rates with customers’ ability to pay as justification for their vote denying his reappointment.
During his tenure, Huebner challenged utilities’ efforts to benefit their shareholders while burdening their customers with higher bills – including by limiting utilities’ guaranteed return on equity, or ROE, a key profit driver for utilities and a cost that is borne by customers. ROE, set by state regulators, is the profit margin utilities can collect from customers on qualifying expenditures. For example, if regulators set an ROE of 10% and a utility built a $100 million power plant, customers could ultimately cover the $100 million cost of the plant plus another $10 million in utility profits.
Wisconsin State Senator Rob Cowles, the lone Republican to vote with Democrats to keep Huebner on the PSC, said in a statement provided to the Energy and Policy Institute that Huebner was an informed, thoughtful advocate for utility customers – and applied appropriate scrutiny to utilities, especially WEC, the largest utility company in Wisconsin. Multiple WEC Energy subsidiaries have filed requests to raise rates this year, which will be considered by the revamped PSC.
“After decades of the continued cycle of ratepayer robbery, former Commissioner Huebner fought back, going after returns on equity in rate cases and shooting down an unnecessary monopolist encroachment into the private market,” Cowles said, pointing to a WEC Energy solar program criticized for muscling out competition. “I believe [Huebner’s] ratepayer advocacy will be sorely missed as we unfortunately head into another cycle of rate hikes this year.”
ROE is often hotly contested in rate cases. Meant to offset investors’ risk, consumer advocates say the metric has ballooned to the point of overburdening utility customers – particularly in Wisconsin. The Wisconsin Citizens Utility Board (CUB), which represents the interests of small business and residential utility customers, estimated that the PSC’s efforts to limit ROE had saved Wisconsinites $95 million since 2023.
“ROEs are much higher than utility investors require them to be,” Huebner wrote in response to the PSC’s December 2022 decision to trim ROE for WEC Energy subsidiary We Energies to 9.8% from the requested 10%. Citing expert testimony, he argued that “reductions in authorized ROEs have not matched the pace or magnitude of the decline in interest rates over the past 30 years.”
At that time, Huebner also telegraphed his intent to keep ROE in focus, noting that “additional focus will be needed, now and into the future, among this Commission, the utilities we regulate, and intervenors and stakeholders to continue achieving the balance between the financial goals of the utilities and the ability of customers to afford the services.”
In November 2023, the PSC reduced the ROE for three other utilities: Madison Gas & Electric, which saw its ROE cut from 9.8% to 9.7%; Alliant Energy, which saw its ROE cut from 10% to 9.8%; and Xcel Energy, which saw its ROE cut from 10% to 9.8% after it initially requested to raise its ROE to 10.25%. Huebner’s ouster came less than two months later, though all three of those utilities backed his appointment, according to lobbying disclosure filings. Madison Gas & Electric did so as part of a coalition that includes rural electric cooperatives and municipal utilities. WEC Energy, an influential player in Wisconsin energy policy, withheld its support.
Absent Huebner, it remains to be seen how exactly the current regulators – Chair Summer Strand and Commissioners Kristy Nieto and Marcus Hawkins – will weigh customers’ interests against utility profits, but WEC Energy leadership expressed optimism about the new mix of commissioners on February investor call.
“We’re looking forward to working even more closely with Summer. And then the other most recent appointment is a person who’s been at the commission and has headed up divisions and staffs at the commission for, I believe, more than a decade,” WEC Executive Chairman Gale Klappa said. “So a good bit of experience to join Summer Strand. … I think we feel like both of these appointments are very balanced.”
WEC President and CEO Scott Lauber replied: “Yes, very balanced, and having that experience in the commission and [to] be able to fill one of the spots very quickly is good to see.”
Latest rate hike requests a bellwether for WEC, new commission
Though it has raised rates over several consecutive years, We Energies – the WEC Energy subsidiary – did not waste time in returning to the PSC with a fresh rate hike request after Huebner’s dismissal. In April, less than three months after the Senate vote, We Energies filed to hike electric and gas rates in 2025 and 2026 – and to raise ROE to 10%. WEC Energy’s Wisconsin Public Service Corporation and Wisconsin Gas also filed rate hike requests that include 10% ROEs and increases in equity ratios.
Source: WEC Energy Group June 2024 Investor Update
In November 2023, the same month Huebner and the PSC released orders with ROE decreases for several Wisconsin utilities, the Illinois Commerce Commission – that state’s utility regulator – slashed the ROE for WEC Energy subsidiaries Peoples Gas and North Shore Gas, which provide gas service in Chicago and surrounding communities. The approved 9.38% ROE was lower than WEC Energy and market watchers had expected after the gas utilities requested a 9.9% ROE. The Citizens Utility Board of Illinois said the decision was an example of state regulators “[reining] in reckless profit-mongering by the state’s gas utility in ways we haven’t seen in a long time.”
Coupled with other exclusions, Klappa called it “a disappointing regulatory decision in Illinois.”
In both Wisconsin and Illinois, escalating utility bills have become a flashpoint as rising costs of living have put pressure on households and businesses.
WEC Energy, meanwhile, faces pressure from shareholders to continue delivering strong returns. The company recently marked its 327th consecutive quarter paying a dividend to shareholders, dating back to 1942. Looking back at the past year in May, WEC Energy leadership celebrated a record-high $984 million in dividends paid to shareholders, noting that dividends had risen for 21 years in a row.
“[WEC Energy]’s shareholders have done very well — much better than almost every other utility in the country, and much better than the broader stock market,” CUB Executive Director Tom Content told Wisconsin Public Radio in April, after We Energies filed its latest rate hike request. “It shows that a return to balance is overdue. That’s why [the PSC] will need to keep affordability at the top of their mind when they’re deciding these cases.”
WEC Energy shareholders are not the only ones that benefit when ROE rises. Klappa, Lauber, and other company executive officers earn more in compensation when ROE for all utility subsidiaries is higher. The company’s annual proxy filing details how executives receive significant payouts based on the weighted average ROE of all WEC Energy subsidiaries, over a three-year period.
Latest rate hike requests a bellwether for WEC, new commission
While Huebner stood out on the PSC for his attention to ROE, he was not the only Wisconsin official focused on right-sizing utility profits in order to protect customers.
Former PSC Chair Rebecca Valcq voted with Huebner in favor of lower ROEs in a series of rate cases last year. She called Xcel Energy “bold” for requesting to boost its ROE from 10% to 10.25% after the PSC previously cut ROE for other utilities. Xcel’s requested 10.25% ROE would’ve been “far and away the highest in Wisconsin and out of line with the national average,” according to CUB. The PSC ultimately lowered Xcel’s ROE to 9.8%.
Like Huebner, Valcq – also an Evers appointee – no longer serves on the Commission. She announced her resignation days before Huebner’s ouster.
Additionally, a 2022 letter submitted to the PSC by three Republican state senators, including Cowles, sharply criticized WEC for failing to justify a rate hike for its subsidiaries that year – including an increase to ROE. They also noted their constituents’ “displeasure and even fear” of the impact of utility rate increases.
“We submit that the current return on equity need not be sacrosanct in an environment of substantial, possibly persistent, inflation that heightens the responsibility on the Commission to properly weigh competing interests,” the senators wrote. “These include, but are not limited to: 1) ensuring a return sufficient to draw investment; and 2) promoting the public interest in rates that are reasonable, affordable, and as low as possible.”
While Cowles voted to keep Huebner on the PSC, the letter’s second signer – Senator Duey Stroebel – joined the partisan push to fire him despite Huebner’s consistency on matters the letter identified as concerns. The third signatory, former Senator Jerry Petrowski, was not in office when the Senate removed Huebner.
Image source: Flickr creative commons, user Richard Hurd. https://flic.kr/p/cdpexL
