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,
[email protected] 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.
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Declining Electricity Sales: United States
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Declining Electricity Sales: United States
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Declining Electricity Sales: United States (cont.)
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Declining Electricity Sales: Wisconsin
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Declining Electricity Sales: Wisconsin (cont.)
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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
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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.
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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
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29,000,000,000 kWh
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revenue using 2012 rates
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(29B kWh)($0.1) = $2.9 billion
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estimate 2013 expenses
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$2.7 billion
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calculate operating income (aka earnings or profit)
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operating inc. = revenues – expenses $200M = $2.9B - $2.7B
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estimate rate base
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rate base = $3.5 billion
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calculate earned rate of return
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ROR = $200M/$3.5B = 5.7%
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compare with “approved” ROR
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approved ROR = 9.5% approved earnings = (9.5%)($3.5B) = $334M
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determine earnings deficiency
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earn. def. = $334M - $200M = $134M
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determine revenue deficiency
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rev. def. = ($134M)(1.7 tax factor) = $223M
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increase rates to make up revenue deficiency
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rate increase = $223M/$2.9B = 7.7% 13
Wisconsin Residential Electric Rates
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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
[email protected] 608-251-3322 x. 14
