League of Women Voters Milwaukee County

League Natural Resources Committee Questions for P.S.C. Chairman, Dan Ebert

The following questions were submitted in writing to Dan Ebert, Chairman of the Wisconsin Public Service Commission in November 2005. These questions were prepared by the League of Women Voters Milwaukee County Natural Resources Committee, chaired by Jennifer Runquist. The meeting related to the 2-year state energy study.

1. Is the PSC required to fund groups which oppose energy proposals submitted to the PSC (i.e. arrowhead transmission line)? Does the PSC have sufficient staff to evaluate submitted data in light of changing regulatory paradigms?

   
   The PSC is not required to fund groups who oppose energy proposals. However, state statutes allow the Commission to provide funds to intervener groups if the Commission believes these groups can bring information or insight to the investigation process that would not otherwise be provided. For larger projects, the Commission has frequently found that such interveners provided useful insight. The PSC has a dedicated, highly professional work force with significant regulatory experience. PSC staff is certainly capable of evaluating each case in a non-partial manner.

   
   

2. You have 160 employees reporting to you; can you tell us in a broad way what are their functions and responsibilities?

   
   The PSC is responsible for regulating over 1,100 Wisconsin public utilities which provide electric, heat, telephone and water and sewer services to households and businesses throughout Wisconsin. This also includes the approval, rejection or modification of major utility construction applications. PSC staff consists of auditors, accountants, engineers, rate analysts, attorneys, planners, research analysts, economists, consumer specialists, court reporters and paraprofessional and administrative support personnel. The PSC is divided into the Commissioners' Office and four divisions. These experts work in an advisory role to the Commissioners.
   

   • The Gas and Energy Division is responsible for all aspects of regulating electric utilities and the provision of natural gas service. This division looks at need, alternatives, costs and environmental impacts for all construction cases and reviews finances, corporate structure and affiliated interests in rate cases. Gas and Energy Division staff provides the Commissioners with information they need in order to make decisions regarding construction and rate cases.
     
   • The Telecommunications Division is responsible for regulating providers of telecommunication services. The division oversees; price regulation and alternative plans of telecommunication utilities, earnings and rate levels, service quality, tariffs and contracts and deployment of telecommunication infrastructure.
     
   • The Division of Water, Compliance and Consumer Affairs is responsible for regulating water and sewer public utilities in Wisconsin. The division offers assistance to all of the state's utilities for compliance with the statutes, code, and record keeping requirements and the development of consumer affairs policies. The division also coordinates consumer information and resolution of consumer complaints.
     
   • The Division of Administrative Services provides the agency with human resources,information technology and business management services.
     

   
   

3. What factors does the PSC use in modeling "cost effectiveness" in efficiency studies related to electric generation and transmission?

   
   When the Commission examines cost effectiveness of generation and transmission proposals, it uses state-of-the-art computer modeling tools and considers numerous economic and engineering inputs and assumptions. These inputs and assumptions undergo rigorous scrutiny during the technical hearing phase of a project application process. The Commission examines and considers alternatives to each proposed project. Such alternatives embrace both supply and demand-side options.

   
   

4. The PSC lost credibility when Ave Bie went to work for WEPCO (Quarles and Brady). How can you justify 12% ROI to utilities when long term interest rates are 5% and record earnings & profits for WEPCO are reported? How will you rein in a rate request by WEPCO?

   
   The Commission has significantly brought down the return on equity authorized to electric utilities during the past year. In the recent WEPCO rate proceeding, the Commission authorized a return of 11.2 percent. For comparison, the long-run average return on the overall stock market from 1928-2004 was 12.4 percent. During the recent WEPCO rate proceeding, the Commission reduced the utility's request by $30 million. It is also imperative to note that nearly all of the recent rate requests are attributable to the drastic increase of natural gas prices. The cost of natural gas, which is not regulated, has gone from $2 a decatherm to $12-14 decatherm.

   
   

5. What can the PSC do to encourage decentralized/dispersed energy generation that would mitigate problems with reliability/transmission?

   
   Reliability issues usually arise during peak usage, such as on hot summer days. One way to limit these peak demands is to encourage utility customers to be mindful of energy consumption during these times.
   Another way to alleviate peaks would be to encourage customers to install solar electric panels. Not only can the power be utilized during peaks, but the heating load on the building will be reduced as well. There are tax credits and state rebates available for those who adopt practices such as these. The PSC continues to monitor the number of solar panels used in Wisconsin, has seen an increase in customer interest and anticipates a measurable increase in the number installed.
   Another incentive to installing self-generation systems such as solar electric panels or windmills is that Wisconsin has one of the best interconnection codes in the country. This means that if a customer produces more electricity than they need, they can, in a simple and streamlined manner, sell it back to their utility. Currently the Commission has approved a buyback rate of 22.5 cents per kWh for We Energies customers who produce their own electricity.

   
   

6. Are all utilities required to submit proposals to the PSC in order to gain rate increases?

   
   There are several types of utilities in Wisconsin that are regulated by the PSC and are required to obtain Commission approval for rate changes. Anytime a utility which is regulated by the PSC would like to adjust their rates, they must receive Commission approval. All requests undergo audits as well as scrutiny at both technical and public hearings.
   Investor-owned utilities are private corporations that have traded stock. These utilities generate power and sell directly to Wisconsin consumers. IOUs provide about 85% of the energy load in Wisconsin. Their rates are regulated by the Commission.
   Merchant power plants generate and sell power to utilities in the deregulated wholesale market. The PSC regulates construction and siting for these utilities' facilities, but does not regulate the prices merchants charge. However, they are under FERC authority. The PSC has the authority to review contracts between merchants and utilities for prudence during a rate case.
   Municipality or public utilities are owned by the respective governmental unit and the PSC regulates their rates. Municipalities generally do not generate their own power, but buy it from such utilities as Wisconsin Public Power Inc. or from the IOUs.
   Cooperatives are electricity providers owned and regulated by their member communities. The PSC has no jurisdiction over coops and how their electricity prices. However, the PSC has siting authority over Dairyland Power Cooperative which owns power plants that serve the coops in Wisconsin and the federal government monitors the financing activities of Dairyland.

   
   

7. Citizens want and need to be able to trust their utility companies. How can the yearly total for monthly electrical usage billings to a residence report dramatically different consumption numbers than the total provided on the annual summary report for that residence?

   
   Differences can occur when there is a difference in billing-cycle dates versus calendar-year dates. If a customer is billed in the middle of the month, the yearly total used might be calculated for the period January 15, 2005 to January 14, 2006; whereas an annual number on a calendar-year would be based on use between January 1, 2005 and December 31, 2005. Another difference can occur if the customer is comparing the estimated value to the actual value for each respective month. Such estimates are based on average weather; however Wisconsin does not exactly follow statistical averages. Some summer months can be much warmer than others, creating differences in the use of air conditioning and energy consumption.

   
   

8. The utilities and PSC talk about natural gas price increases but not about the cost increases & reliability of coal? Costs for coal in the last year increased from $25/ton to $45/ton to $60/ton & this summer we experienced transportation problems with western coal. WI's only native energy source is renewables. New York's goal is 20% for renewables.

   
   Since 1997, the price of natural gas, an unregulated commodity, used for electric generation has increased nearly six fold. Many coal prices, including rail delivery, have doubled or tripled. Such fuel price increases require the state to use a well-balanced variety of supply resources, including renewables. The Governor and the Legislature are currently working on legislation that would require the state's electricity providers to obtain up to 10 percent of energy needs from renewable resources. The Commission also requires the state's electric providers to operate effective conservation and demand management programs.

   
   

9. How often in a year can a utility seek rate reviews? Are utilities able to seek rate increases more frequently currently than in past years? Do the rate decisions consider conservation programs?

   
   Electric utilities can file a full rate request every other year. During major construction cycles, rate reviews may occur more frequently. Utilities can seek a rate increase at any time to solely recover from significant fuel cost increases. Similarly, the Commission can require rate refunds for fuel cost decreases.

   
   

10. What is the comparable cost of imported natural gas compared to US sources of natural gas?

    
    There are two figures associated to natural gas -- the 'cost' to extract, produce and deliver and the 'price' the oil companies sell it for. The price is highly dependent on supply and demand and oil companies can charge what the market will bear. The United States is limited in its supply of natural gas, so we greatly rely on other countries for the resource. Essentially the cost of domestic natural gas is slightly less than imported natural gas. However, the price is relatively the same across the board. Because demand is so high for natural gas, oil companies have recently been able to charge more than what the resource costs. The cost of imported natural gas is about $5.00 per MMBtu and the market has been allowing oil companies to sell it for about $8.00-$9.00 per MMBtu.
    
    It is important to remember that neither the PSC nor Wisconsin utilities have any jurisdiction over natural gas costs. It is an unregulated commodity. Utilities have been simply passing natural gas prices directly on to their consumers, without profit.

    
    

11. Why is the time of use rate program for home owners, businesses and manufacturers not promoted more, in order to even out daily electrical usage and reduce peak demand and increase energy efficiency?

    
    The Commission strives to authorize rates that reflect the cost a utility incurs to provide the electricity to a customer. The Commission promotes the time of use program by making them available to all customers types. In the past year, the Commission has eliminated one barrier to using the time of day program. Time of day customers used to pay a higher monthly fixed customer charge than non-time of day customers. The Commission removed this barrier by authorizing the same fixed charges for both types of customers, promoting the use of the program.

    
    

12. Does the regional concept add to efficiencies and economies?

    
    The state is currently in a building stage to meet growing energy demands within the state. However, the Commission is constantly assessing regional opportunities and most cost effective ways to providing power to Wisconsin. In order to move to a more regional-approach, the state will have to improve and expand our current transmission system.

    
    

13. Why do others have excess energy? Where does the excess energy come from?

    
    Generally, areas with excess energy are areas where the generation system was overbuilt, constructed slightly ahead of time, or where demand failed to meet projections. In the future, these areas of the country may become exporters of excess electrical energy.

    
    

14. How many energy facilities are regulated by the PSC? Do they have to comply with WI regulations regardless of ownership being in or out of the state? Has the breakup of electric companies into generators and transmitters had an effect on the number of cases considered by the PSC? Is the PSC staffing level sufficient to review and decide on these?

    
    The PSC regulates five major investor-owned electric utilities, several smaller private electric utilities, and about 80 municipal electric utilities. The five major IOUs are:

    • MGE – Madison Gas and Electric
      
    • WPL – Wisconsin Power and Light – Alliant Energy
      
    • WPS – Wisconsin Public Service
      
    • WEPCO – We Energies
      
    • NSPW – Northern States Power – Xcel Energy

      
      

    For detailed information on facilities, please visit our Strategic Energy Assessment. On pages 48, 103 and 197 you will find a map of generation, capacity information and a list of the larger power plants.
    
    All of these entities must comply with Wisconsin statutes and are regulated by the PSC. Wisconsin has a unique law for utilities which are part of a holding company system, making the utility and respective affiliate transactions subject to PSC review. This includes utilities with out-of-state ownership.
    
    The break up of electric utilities into generation and one independent transmission company has not increased the number of cases at the PSC. ATC's rates are regulated by the Federal Energy Regulatory Commission, not the PSC. However, ATC must receive PSC approval for any construction of new or updated transmission lines.
    
    The PSC has a dedicated, highly professional work force with significant regulatory experience. PSC staff is certainly capable of reviewing and analyzing each case brought before the Commission.

    
    

15. Considering the regional group we have joined, what kind of control does WI have over the types of energy we want and the rates that we pay? I worry we will wind up with a California debacle.

    
    Retail rates in Wisconsin are regulated by the PSC. The PSC ensures Wisconsin ratepayers' best interests are in mind when making decisions. Most of Wisconsin's utilities belong to the Midwest Independent Transmission Operator. This regional market does not have the same design flows that California energy consumers experienced. The PSC oversees the utilities' choices of generation and access. PSC staff is also proactive in monitoring MISO and other regulatory organizations on a daily basis.

    
    

16. When discussing regional transmission, you mentioned positive impacts. What are these positive impacts?

    
    Regional operation of the transmission system can lead to reliability benefits and more effective use of the transmission lines. A regional market place could also allow access to the lowest cost power.

    
    

17. Will the IGCC Study take into account environmental impacts at the point of extraction (mine site)?

    
    The IGCC group will compare the engineering, cost and environmental impacts of a supercritical pulverized coal fired plant with that of a coal gasification plant. The group will delve into air emissions, water use and industrial waste production. While fuel type will be considered, it is not anticipated that the group will address the specifics of a mine site or extraction costs.

    
    

18. You emphasized efficiency and renewable energy. Given our growing energy demand in Wisconsin, can these alone solve our energy security or environmental problems -- global warming?

    
    Energy efficiency and renewable energy are strong components of a plan to meet the state's growing electricity needs. No single component is able to address growing demand and reliability issues. The key is using an optimal and diversified mix of both supply resources and factors such as conservation that will reduce demand.

    
    

19. How does conservation fit into the solution? Please focus on the policy implications in your explanation.

    
    Energy conservation directly lowers the rate of demand and energy growth. As such, it can delay or defer the need for new power plants or transmission lines. Cost effective conservation is an important part to solving the state's energy needs, however it is also important to provide the energy Wisconsin customers demand.

    
    

20. Can the PSC encourage energy conservation through a rate structure that rewards lower energy use? A person would pay at a lower rate for a basic amount of energy, and pay at a higher rate for energy used above the basic amount.

    
    This type of rate structure can encourage lower energy use by some customers. The disadvantage of using this type of structure is that many lower income customers may have higher than average energy use. This is because these customers tend to have less efficient homes and old and inefficient appliances. These customers generally do not have the financial means to make the changes necessary to lower their energy use.

    
    

21. Could the PSC require We Energies to be more proactive to help residents and businesses conserve energy? Is the PSC studying future import of electricity from wind generated by other states?

    
    The PSC has already required We Energies to be more proactive. As part of a power plant construction order in November 2003, the PSC required We Energies to achieve an additional 55 megawatts of demand reduction by the end of 2008. Beginning in 2005, We Energies expanded load management programs and began implementing electric energy efficiency programs for both business and residential customers. We Energies has also implemented natural gas energy efficiency programs to address the unprecedented increase in natural gas prices.

    
    

22. With a 10% renewable energy portfolio standard for the State, what generation processes (hydro, wind, biomass, solar) will grow? How will these new percentages compare to the current percentages that you reported for WI in your presentation?

    
    Additional wind resources will be coming on line. There will also be additional solar and biomass. At present, about 4 percent of all retail electricity sold in Wisconsin comes from renewable sources, most of it from hydro facilities. Under proposed legislation, 10 percent of energy will come from renewable resources by 2015.
    The Midwest Independent System Operator (MISO) has started a multi-state study to assess the movement of wind power from Iowa and Minnesota. American Transmission Company has also started a study on how to import power in the new MISO energy market. PSC staff is continues to monitor all of these studies.

    
    

23. We hear about the loss of birds from wind farms. What is the loss of birds due to coal power plants and pollution resulting from them?

    
    Environmental impacts can be generally classified into either direct or indirect effects. Two direct impacts to birds from coal-fired power plants are the loss of habitat from the construction of the plant and collision impacts associated with transmission services connected to the power plant. These impacts occur for both coal-fired and wind-powered generation facilities. If wind facilities are properly sited, avian impacts should not be ecologically significant.
    Indirect impacts to birds from coal fired power plants are difficult to measure. The primary indirect impacts for birds appear to be associated with habitat degradation, such as acid rain. This may also affect populations of insects – a food source for many birds. However, power plants use a variety of methods to prevent materials that caused acid rain from inappropriately entering the environment.

    
    

24. Please discuss the justification for funding cuts for Focus on Energy in light of your emphasis on renewables, efficiency, etc . . .

    
    The state has faced a daunting budget deficit and difficult decisions had to be made. All areas of government had to participate in filling a budget gap. Unfortunately this also affected Focus on Energy efforts. With the cuts, Wisconsin still ranks 7th in the nation in the amount spent on energy conservation programs.

    
    

25. Clean energy policy legislation is about to be introduced. How can Public Benefits funding be maintained?

    
    On September 30, 2003, Governor Doyle created the Task Force on Energy Efficiency and Renewables with the goal of restoring Wisconsin's leadership in conservation and renewable energy. The task force released its report in October 2004 and the Governor recently released his Conserve Wisconsin agenda. These recommendations include reforms that would secure public benefits funding by requiring the PSC to set the funding levels and monitor effectiveness of the program.

    
    

26. In your talk you mentioned that the PSC's realm included the "economic, reliability" and the DNR realm was environmental. Where in the decision-making process are externalized costs of health addressed?

    
    Health effects are taken into consideration by the DNR and the EPA when setting various emissions limits. Under state law, the PSC must defer to the expertise of the EPA and the DNR in how to set appropriate thresholds. For externalized costs, the Commission may consider sensitivity cost analyses. For instance, with carbon dioxide, one of the greenhouse gases, there is no present regulation; but the PSC does do cost sensitivity analyses with its computer models to perform risk assessments on generator project selection should there be a carbon tax.

    
    

27. Are there new developments in nuclear energy to build safer types of nuclear plants with smaller amounts of nuclear waste? Are other countries using new technology for their nuclear plants?

    
    Several companies market advanced nuclear plant designs, which they believe are safer than the nuclear plants currently operating in the US. General Electric (GE) and Westinghouse both have new plant designs that are approved by the Nuclear Regulatory Commission (NRC). According to GE and Westinghouse, the new plant designs incorporate passive safety systems that contain fewer moving parts and require less operator intervention. The NRC indicates there are four more plant designs in the pre-application review stage, including designs from Canadian and European companies. Both GE and Westinghouse are engaged in nuclear plant construction in Asia.

    
    

    Interested in working with the League on energy issues? Fill out our contact form and a League member will contact you.