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Will Customers Benefit from We Energies’ Purchase of Integrys?

Regulated monopoly utility provides no evidence that rates will go down

Mar. 10, 2015
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We Energies’ business and residential customers likely won’t benefit from the utility’s proposed $9.1 billion purchase of Chicago-based utility Integrys Energy Services, according to testimony presented by consumer groups to the state Public Service Commission (PSC).

In fact, We Energies itself hasn’t provided any evidence that its customers will see lower electricity rates or otherwise benefit from the merger. It hasn’t even performed the studies that would provide that data, according to its filings—a highly unusual, if not unprecedented strategy.

“How did they not do a study of the potential benefits?,” wondered Kira Loehr, executive director of Citizens Utility Board of Wisconsin.

We Energies is seeking permission from the state PSC and other regulatory bodies for its purchase of Integrys, the parent company of Green Bay-based Wisconsin Public Service Corporation (WPS).

The transaction would create a parent company called Wisconsin Energy Group, which would span four states, serve 4.3 million customers and own a majority stake in American Transmission Company, which owns power lines in the area.

We Energies argues that the deal would build efficiencies and create synergy and improve its access to capital. But, unusually, it hasn’t offered a detailed analysis showing that this deal would create any savings for its customers. Rather, it asserts that typical mergers of this type generate 3% to 5% in nonfuel operations and management savings in five to 10 years.

The utility says that consumers will see benefits in the long run, but “little or no immediate savings,” according to its expert testimony before the PSC.

Groups representing residential customers and industry and manufacturers say that the merger will only benefit We Energies’ shareholders and the companies’ executives, and not the average customer.

Although WE Energies is a regulated monopoly with no competition in Wisconsin, its top executives are among the highest-paid executives in the area. Its CEO, Gale Klappa, received $17.3 million in compensation in 2012.

Its investors will also profit, the groups argue.

“[We Energies] directly represents only the best interests of its investors,” testified Lane Kollen, a utilities consultant who spoke on behalf of Wisconsin Industrial Energy Group (WIEG), an association of large industrial and manufacturing businesses. “Of course, the ‘best interests’ of utility consumers and the public may be diametrically opposed to the ‘best interests’ of investors.”

The consumer groups are asking We Energies to make changes in its deal to hold consumers harmless and guarantee that its customers see some quick benefits. But, thus far, the utility has refused to alter the terms of its deal.

 

In the Public’s Best Interests?

 

The state PSC, the independent body that, according to state law, regulates Wisconsin monopoly utilities “in the best interests of utility consumers, investors and the public,” is currently gathering evidence and taking testimony on the proposed merger.

As testimony is submitted to the commission, it’s clear that We Energies’ case isn’t being accepted by consumer groups.

“No quantifiable benefits to Wisconsin ratepayers have been estimated, projected or considered when assessing the impact of this proposed transaction,” testified Richard Hahn of La Capra Associates, a consultant for the Citizens Utility Board (CUB) of Wisconsin.

Hahn’s analysis indicates that the size of a utility isn’t related to its credit rating or its ability to access capital. In fact, We Energies’ credit rating outlook suffered after the deal was announced last summer, Hahn noted.

Hahn argued that because We Energies is paying a 17% above-market premium to acquire Integrys, the new company will have to earn more profits and generate more “efficiencies” to recover that additional cost. And that could come from higher electricity rates from its customers.

“It is possible that ratepayers could be harmed by the proposed transaction if it is approved as proposed,” Hahn testified. “The commission should be very concerned about this possibility, especially given the lack of synergies identified by [We Energies].”

CUB’s Loehr said We Energies could do a number of things to hold consumers harmless, or even provide a benefit for them. For example, she said, it could create an earning cap and return excess profits to its customers as a credit on their bills. Or it could not make its customers pay an estimated $200 million associated with the sale of a plant in the Upper Peninsula of Michigan.

“There’s no shortage of benefits that could and should be provided to customers,” Loehr told the Shepherd. “But Wisconsin Energy has so far not agreed to any of them.”

 

Manufacturing Jobs on the Line

 

But it isn’t just the average homeowner who could be harmed by the proposed merger. Manufacturers and other industrial groups are warning about how the deal could impact their businesses and threaten Wisconsin’s economy.

Jobs4Wisconsin advocates for competitive power rates for the state’s large industries. Its executive director is Daniel Eastman of Titus Energy. He’s also the executive chair of Wisconsin Lutheran College’s business school and was a PSC commissioner during the Tommy Thompson administration.

In his testimony before the PSC, Jobs4Wisconsin’s Technical Director Steven Vock argued that “Wisconsin’s manufacturing sector is struggling to remain competitive in a national market and the approval of this transaction will assure higher rates for decades to come.”

Vock testified that approval of the merger would have a negative impact on manufacturing and jobs.

“Wisconsin needs initiatives to restore electric rates to competitive levels,” Vock testified. “Approval of this transaction will take us in the opposite direction. Thousands of manufacturing jobs are on the line and the economic damage to Wisconsin will be pronounced if heavy manufacturing leave for lower cost states.”

 

Walker’s Appointees Now Control the PSC

 

The We Energies-Integrys deal is coming before the PSC just as the three-member commission has been completely taken over by Walker appointees.

Last month, Walker appointed Department of Administration Secretary Mike Huebsch to the PSC, replacing former Gov. Jim Doyle’s last remaining appointee. Ellen Nowak has been promoted to PSC chair while Phil Montgomery has been shifted from chair to regular commissioner. Also filling the ranks of the PSC is Bob Seitz as Nowak’s executive assistant.

Nowak, a former school voucher lobbyist, is featured prominently on Charlie Sykes’ Right Wisconsin, primarily cheerleading the state’s dependence on coal. Former GOP legislative leader Huebsch—who, like Walker, lacks a college degree—was state chair of the corporate bill-writing operation American Legislative Exchange Council (ALEC) and once served on its Energy, Environment and Agriculture Task Force. Seitz was a lobbyist for Gogebic Taconite, the mining giant that pushed a favorable bill through the GOP-controlled Legislature so that it could develop a strip-mining operation in northern Wisconsin. Gogebic secretly donated $700,000 to Wisconsin Club for Growth, the allegedly independent special interest group that was coordinating with Walker’s campaign in what the John Doe prosecutors called a “criminal scheme.”

 

Lack of Evidence in Solar Cases

 

But even when Walker’s appointees only enjoyed a 2-1 advantage on the PSC, it was willing to go to bat for the state’s fossil fuel-based monopoly utilities. Last fall, in a series of controversial cases, the Walker appointees agreed to change the rate structures of We Energies, Madison Gas & Electric and WPS so that consumers pay a higher fixed rate on their monthly bills. That switch penalizes those who use little energy while high-volume consumers will see a decline in their monthly bills.

The PSC also rubber-stamped We Energies’ request to impose new fees on its customers who have installed solar panels on their homes. The utility argued that these customers weren’t paying their fair share of their use of the grid.

However, We Energies provided no evidence supporting that assertion to the PSC. Even worse, as the Shepherd reported exclusively last October, a We Energies-funded study unearthed in that rate case contradicted its claims. The study showed that solar customers actually benefit the utility’s ratepayers and don’t harm them.

Solar advocacy groups Renew Wisconsin and The Alliance for Solar Choice are now challenging the PSC’s decision in court, arguing that the commission didn’t approve the rate hike based on concrete data. Similarly, Renew Wisconsin won a big victory in February, when a circuit court judge determined that the PSC had insufficient facts when it made an anti-solar, pro-Madison-utility decision in 2013.

Whether the PSC will require We Energies to provide more data about the impact of the proposed merger on its customers is to be determined.

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