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BEFORE THE PUBLIC SERVICE COMMISSION OF WISCONSIN

Joint Application of Wisconsin Electric Power Company and Wisconsin Gas LLC, Both d/b/a We Energies, to Conduct a Biennial Review of Costs and Rates – Test Year 2015 Rates

) ) ) )

Docket No. 5-UR-107

INITIAL BRIEF OF THE ENVIRONMENTAL LAW & POLICY CENTER AND RENEW WISCONSIN

INTRODUCTION

Wisconsin Electric Power Company (WEPCO) proposes to increase its monthly “fixed”

charge and decrease the variable “per-kilowatt hour” (kWh) rate its customers pay for the

electricity they use. WEPCO also proposes to charge its distributed generation (DG) customers

an additional fee, based on the size of their system, regardless of the amount of electricity

actually produced by those customers or whether the customer ever exports energy to the grid.

WEPCO claims that this case is about “fairness,” but the data does not support the

Company’s argument. WEPCO has failed to put forth any credible evidence of “cross-subsidies”

occurring between the Company’s 1.1 million retail electric customers and approximately 600

DG customers. At no point has the Company justified why it needs to increase fixed charges by

75% for all of its customers in order to “protect” them from the 0.04% of its customers that have

installed DG. According to Dr. Charles Cicchetti, a former Chair of this Commission, WEPCO is

using the fairness issue as a strawman to justify a “back-to-the-past” rate design to “protect

WEPCO’s revenue recovery at the expense of other stake-holder interests and society.” (Direct-

MMSD-Cicchetti-10, lines 7-10) The Commission should reject the Company’s proposed fixed

charge and DG proposals because they are not just and reasonable, because the Company has

PSC REF#:221379Public Service Commission of Wisconsin

RECEIVED: 10/07/14, 12:00:45 PM

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failed to carry its burden to support its proposal with record evidence, and because the proposal

conflicts with the state’s energy priority goals.

FACTS

WEPCO proposes to increase bills for small residential and commercial customers by

approximately $45.9 million by raising the fixed “facilities charge” component of bills by about

75%, from $9.13/month to about $16/month, while lowering the base “variable” energy charge

by about 3.3%, from $0.13945 to $0.13490 per kWh. (Ex.-WEPCO/WG-Rogers-14r) According

to the Company, this is just the “initial step” in the Company’s long-term plan to “mov[e] rate

design toward ultimately recovering all or most fixed costs through fixed charges.” (Direct-

WEPCO/WG-Rogers-3, line 21) Recovering “all or most fixed costs through fixed charges”

would require a monthly fixed charge of $89 for small customers and would dramatically lower

the base energy charge to approximately $0.02 /kWh. (Direct-CUB-Wallach-23, lines 9-10)

WEPCO’s “first step” to a fixed charge of $16/month already puts the Company at the high end

of the spectrum of other comparable Midwestern utilities, behind only the pending proposals

from WPS and MGE. See Fig. 1 below (Direct-RENEW-Rabago-10pr).

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WEPCO’s proposal will disproportionately affect the Company’s lowest-usage

customers, raising bills for customers that use less energy while reducing bills for the Company’s

highest-usage customers. (Direct-WEPCO/WG-O’Sheasy-8r, line 3) Low-usage customers,

many of whom are also low-income customers, will experience these bill increases more acutely,

as electricity bills represent a higher proportion of household income.1 By lowering the variable

rate for electricity, the Company’s proposal will also reduce the level of control customers have

over their bills and make their energy efficiency investments less valuable, making it harder for

them to save money by saving energy. (Direct-RENEW-Rabago-25pr) As ELPC/RENEW

witness Rabago notes, the Company offered “no analysis or studies relating to customer energy

efficiency behavior and rates, and [offered] no evidence of the specific impacts likely associated

with current or proposed rates.” (Direct-RENEW-Rabago-26pr)

The Company also proposes several changes to its customer generation service (CGS)

tariffs that, collectively, will result in a 35-47% reduction in self-generating customers’ expected

economic return. (Direct-RENEW-Vickerman-27, line 2) Solar and wind generators will be

assessed a $3.794/kW/month “demand charge” that will apply regardless of the amount of

energy these systems produce during the month. The demand charge alone will result in a loss of

approximately 28.1% of savings for typical customer-generator systems. (Direct-RENEW-

Vickerman-13, line 10) The Company also proposes to switch from annual to monthly netting

for net metering customers, will require a new $3.30/month metering charge for customer-

generators, and will prohibit “third-party ownership” of DG systems, a financing method that has

enabled lower-income customers, non-profits, religious institutions, and municipalities to obtain

DG systems at a lower cost. (Surrebuttal-RENEW-Vickerman-2r-3r) 1 The Public Comment of the National Consumer Law Center on behalf of the Wisconsin Community Action Program Association provides detailed calculations of the bill impacts of the Company’s proposal on low-usage and low-income customers.

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WEPCO justifies these changes by claiming that DG customers are imposing costs on

non-DG customers, but it has not quantified or supported this claim with data in the record. The

number of non-demand-metered solar generators interconnected to WEPCO’s system is

approximately 450, or 0.04% of WEPCO’s 1.1 million electric customers. (Surrebuttal-RENEW-

Vickerman-6r, line 6) The gross output from their solar electric installations accounts for less

than 0.02% of the electricity sold by WEPCO in 2013. (Id.) The total annual revenue that the

Company expects to collect from both the proposed facilities and demand charges on distributed

generators who net meter will be $116,657. (Direct-RENEW-Rabago-50pr, line 13) This amount

represents 0.0039% of total proposed 2015 revenues and about 0.28% of the Company’s

proposed rate increase for 2015. (Id. at line 14) Spread across WEPCO’s 1.1 million electric

customers, this amounts to less than one penny per month.

LAW

The Public Service Commission of Wisconsin (PSC or the Commission) is authorized to

“supervise and regulate public utilities” of the state and the “rates, tolls and charges” established

by public utilities. Wis. Stat. §§ 196.02 and 196.19. Wisconsin law requires that “[t]he charge

made by any public utility for any heat, light, water, telecommunications service or power

produced, transmitted, delivered or furnished or for any service rendered or to be rendered in

connection therewith shall be reasonable and just and every unjust or unreasonable charge for

such service is prohibited and declared unlawful.” Wis. Stat. § 196.03. If the Commission finds

that any rates or charges are “unjust, unreasonable, insufficient, or unjustly discriminatory or

preferential or otherwise unreasonable or unlawful,” then the Commission shall determine and

order reasonable rates and charges to be “imposed, observed and followed in the future.” Wis.

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Stat. § 196.37(1). Wis. Stat. § 227.57(6) requires all agency findings of fact to be “supported by

substantial evidence in the record.”

The Wisconsin Supreme Court has stated that the “prevailing purpose of regulation under

ch. 196 is to ensure that public utilities’ actions are in the public interest.” Wis. Indus. Energy

Group v. Pub. Serv. Comm’n, 342 Wis. 2d 576, 592, 819 N.W.2d 240, 248 (2012). Thus, the

Commission’s “primary statutory duty [is] to protect the consuming public.” Re Wis. Power &

Light Co., Docket No. 6680-UR-110, Pub. Serv. Comm’n of Wis., 2001 Wisc. PUC LEXIS 11,

*14, 210 P.U.R. 4th 339 (Wis. PUC 2001).

In determining whether a utility’s rates are just and reasonable, the Commission must

also consider the priorities of Wisconsin’s State Energy Policy at Wis. Stat. § 1.12. Specifically,

“to the extent cost-effective, technically feasible and environmentally sound, the commission

shall implement the priorities under s. 1.12 (4) in making all energy-related decisions and orders,

including strategic energy assessment, rate setting and rule-making orders.” Wis. Stat. §

196.025(1)(ar).

Wis. Stat. § 1.12. State energy policy. …. (2) CONSERVATION POLICY. A state agency or local governmental unit shall investigate and consider the maximum conservation of energy resources as an important factor when making any major decision that would significantly affect energy usage. (3) GOALS. (a) Energy efficiency. It is the goal of the state to reduce the ratio of energy consumption to economic activity in the state. (b) Renewable energy resources. It is the goal of the state that, to the extent that it is cost-effective and technically feasible, all new installed capacity for electric generation in the state be based on renewable energy resources, including hydroelectric, wood, wind, solar, refuse, agricultural and biomass energy resources. …. (4) PRIORITIES.

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In meeting energy demands, the policy of the state is that, to the extent cost-effective and technically feasible, options be considered based on the following priorities, in the order listed: (a) Energy conservation and efficiency. (b) Noncombustible renewable energy resources. (c) Combustible renewable energy resources. (d) Nonrenewable combustible energy resources, in the order listed:

1. Natural gas. 2. Oil or coal with a sulphur content of less than 1%. 3. All other carbon-based fuels.

ARGUMENT

WEPCO claims that it must restructure its rates to promote “fairness,” but it fails to

support these claims with substantial evidence. The Company proposal will unfairly and

inequitably shift costs and raise bills for WEPCO’s lower-usage customers (many of whom are

urban, poor, and living in small multifamily housing) without any specific evidence justifying

the need for the change. The Company also unreasonably burdens its self-generation customers

with arbitrary fees, charges, and restrictive service terms that significantly undervalue self-

generation and violate its customers’ private rights to self-determination.

At its core, the Company has failed to support its factual assertions regarding “cross-

subsidies” with record evidence and has failed to demonstrate that such a significant overhaul of

its rates would be reasonable and prudent at this time. For the reasons discussed in more detail

below, the Commission should reject the Company’s rate design changes in their entirety.

I. WEPCO Has Failed to Support its “Fairness” Argument With Credible Evidence in the Record.

WEPCO argues that this case is about “fairness,” claiming that its low-usage and DG

customers receive “hidden subsidies” that must be passed along in the form of higher costs to its

other customers. However, as explained by ELPC/RENEW witness Karl Rabago, “the Company

witnesses produced no studies, surveys, analysis, or other data to support the actual existence of

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the alleged problems or that these problems are actually manifest in faulty rate design.” (Direct-

RENEW-Rabago-6pr, line 12) Simply put, the record doesn’t support the Company’s claim of

“unfairness” nor its suggested way to fix it.

Before analyzing the Company’s “fairness” argument, it is helpful to first examine its

magnitude in comparison to WEPCO’s proposed rate increase and its overall revenue. WEPCO

estimates it would collect an additional $116,000 per year if the Commission approves the

facility and demand charges it is proposing for DG customers. (Direct-TASC-Hornby-10, lines

2-4) Spread across WEPCO’s 1.1 million electric customers, this amounts to less than one penny

per month of cost. (Surrebuttal-RENEW-Vickerman-6r, line 17) In contrast, We Energies is

requesting an increase in rates which would allow it to collect an additional $78,855,661 in TY

2016, or 2.72% more than its projected 2015 test year revenue of more than $3 billion dollars.

(id. at lines 6-7; Tr. 84, line 1) These numbers support MMSD witness Charles Cicchetti’s

opinion that the Company is raising a “lost revenue straw-man” to reduce its risks for

shareholders rather than out of any genuine concern for its customers. (Direct-MMSD-Cicchetti-

25, lines 10-12)

At its core, the Company’s argument that DG customers are not paying their “fair share”

boils down to its belief that these customers use less electricity than the Company believes that

they should. As Company Witness Rogers explains, “[w]hen customers offset their own loads

with their generation, they reduce their payments to the Company for their use of the distribution

system, which are embedded in the energy charges or demand charges of their underlying retail

rates.” (Direct-WEPCO/WG-Rogers-53, lines 20-23). It is true (and a tautology) that low-use

customers use less energy than the average customer, but this obvious fact does not support the

Company’s conclusion that non-DG customers unfairly subsidize low-use and DG customers. In

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fact, the Company fails to support that a subsidy exists and fails to support why the solution is to

penalize non-DG customers by nearly doubling their fixed monthly charge.

In order to determine whether lower-use and DG customers pay their “fair share,”

WEPCO would need to know more about (1) its actual costs to serve low-use and DG customers

and (2) the corresponding benefits that energy efficiency and distributed generation provide to

the system. That would be consistent with the Commission’s recent order in Docket No. 5-GF-

233, in which the Commission observed that “[c]urrent tariffs may need to be re-examined to

ensure distributed generation buyback rates fairly reflect costs and benefits associated with

distributed generation, and to ensure that utility rate structures appropriately recover the costs

associated with providing utility service to customers with distributed generation.” Petition to

Open a Rulemaking Docket to Consider Amending Wis. Admin. Code ch. PSC 119 and Wis.

Admin. Code § PSC 113.10 Related to Distributed Resources Interconnection, Docket No. 5-GF-

233, Pub. Serv. Comm’n of Wis., 2013 Wisc. PUC LEXIS 618, *2-3 (Wisc. PUC 2013)

(emphasis added). However, the Company has failed to study either of these factors. Without

properly studying either the costs or the benefits of serving DG and low-use customers, the

Company’s conclusion that these customers are being “subsidized” by other customers conflicts

with the Commission’s prior order and is nothing more than speculation.

The fact that a DG customer (or any customer, for that matter) consumes less than the

class average does not prove that the individual customer has failed to consume and pay their fair

share of fixed costs. Stated another way, two identically situated customers (same peak load,

same distribution circuit, same service drops, etc.) that consume different amounts of electricity

will contribute different amounts towards fixed costs under standard ratemaking approaches.

Costs are apportioned and rates are designed across broad groups of customers, and no single

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customer has a rate that recovers precisely the proper cost of serving that customer. This is

inherent in the average embedded cost ratemaking approach that has been the long-standing

practice of the Commission. WEPCO has not provided any data in the record to determine

whether DG customers, as a class, have usage patterns that differ from residential customers

generally, or whether DG customers as a class impose costs that are out of sync with their

average fixed cost recovery through rates. Instead, WEPCO simply lumps DG customers in with

the rest of its residential and small commercial customers for the purposes of its cost of service

study. ELPC/RENEW witness Gilliam explains, “[n]owhere has WEPCO attempted to quantify

the contribution of DG customers, as a group, to the company’s fixed costs. Therefore, it is

inappropriate for WEPCO to attempt to conclude that DG customers, as a group, have failed to

consume and pay for an amount of energy sufficient to cover these unquantified costs.”

(Surrebuttal-RENEW-Gilliam-3r, lines 11-13)

The Utah Public Service Commission recently ruled on this very issue in PacifiCorp’s

2014 General Rate Case (DOCKET NO. 13-035-184). In that proceeding the utility proposed a

“residential net metering facilities charge” to “recover from net metered customers an amount

that will produce the same average monthly revenue per customer for distribution and customer

costs that is recovered in energy charges from all residential customers based on the cost of

service study.” In the Matter of the Application of Rocky Mountain Power for Authority to

Increase its Retail Electric Utility Service Rates in Utah and for Approval of its Proposed

Electric Service Schedules and Electric Service Regulations, Docket No. 13-035-184, Report and

Order of Aug. 29, 2014 (hereinafter “Utah Order”) at page 20. PacifiCorp presented an exhibit

indicating that residential net metering customers in its service territory “purchase less energy on

average, about 518 kilowatt hours (“kWh”) per month, than the residential class average of 698

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kWh per month.” Id. at 22. Like WEPCO, PacifiCorp collects some portion of fixed costs

through its variable energy charge, and like WEPCO the Company argued that its net metered

customers were not paying their fair share of utility fixed costs. PacifiCorp estimated that “the

cost shift from net metered customers to all customers is $4.65 per month per customer, or

$116,794 per year, based on forecasted test period billing units for residential customers.” Id. at

23. It further argued that it was “important to create an appropriate price structure for residential

net metered customers before the shifting of distribution and customer costs from net metered

customers produces a much larger cost burden on non-participating customers.” Id. at 21.

Notwithstanding the fact that PacifiCorp had done significantly more analysis to justify

its proposed charges than WEPCO has done here, the Utah Commission still rejected the utility’s

proposal, finding that the testimony and exhibits in the case “fall well short of providing the

Commission the substantial evidence necessary to make a determination.” Id. at 58-59. First, as

here, the Commission found that PacifiCorp’s testimony and exhibits “contain no discussion at

all of net metering program benefits.” Id. at 59. It also found the Company failed to provide

adequate evidence to support its argument that net metering customers, as a class, are any

different than any other class of customers on a cost of service basis. Specifically, it held that the

utility failed to present evidence “showing that the level of usage or the load characteristics of

net metered customers are materially different from the typical residential customer.” Id. at 62.

The Commission found the absence of load characteristic data for residential net metered

customers to be a “significant gap” in the record. Id. at 62.

We cannot determine from the record in this proceeding that this group of [net metering] customers is distinguishable on a cost of service basis from the general body of residential customers. Simply using less energy than average, but about the same amount as the most typical of PacifiCorp’s residential customers, is not sufficient justification for imposing a charge, as there will always be customers who are below and above average in any class. Such is the nature of an average.

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In this instance, if we are to implement a facilities charge or a new rate design, we must understand the usage characteristics, e.g., the load profile, load factor, and contribution to relevant peak demand, of the net metered subgroup of residential customers. We must have evidence showing the impact this demand profile has on the cost to serve them, in order to understand the system costs caused by these customers. (Utah Order at 68.) Based on its review of the record, the Commission concluded that the evidence was

“inconclusive, insufficient, and inadequate” to support PacifiCorps’ proposed rate design

changes and that more “thorough analysis” such as a “load research study” and a “measurement

of net metered customer usage at the time of system coincident peaks” would be necessary to

justify any potential future proposals. (Id. at 63, 66.) The Commission noted that the “relatively

small” number of net metering customers on the Company’s system provided PacifiCorp with

time to gather and analyze the necessary data:

We note there is at least a consensus among the parties in this proceeding that the current number of net metered customers on PacifiCorp’s system at this time is relatively small. Numerically, the rate of annual growth in net metered customers is also small, although more dramatic in percentage terms. We also note the distribution and customer intra-class cost shift asserted by PacifiCorp and supported by the Division and the Office is very small, at about 1 cent per customer per month. We conclude under these circumstances the better course is for PacifiCorp and interested parties to gather and analyze the necessary data, including the load profile data that is foundational to this analysis, and present to us their results and recommendations in a future proceeding. (Utah Order at 67.) The data gap in this case is even more significant. Witness Rabago observes that WEPCO

“offers no cost of service data, no data associated with actual solar generators, no data associated

with transmission and distribution benefits of solar generators, and no reasonable justification for

imposing demand and standby charges on those customers.” (Direct-RENEW-Rabago-51pr,

lines 14-17) The Company’s responses to intervenor data requests reveal that:

• The Company has no current data relating to the actual cost of providing standby service for customer generators. (Ex.-RENEW-Rabago-16)

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• The Company has performed no current analysis or calculations that address the capacity value of solar PV resources since it commissioned a study value analysis in 2009. (Ex.-RENEW-Rabago-17)

• The Company performed no company-specific analysis of integration or operation costs associated with distributed PV systems operations. (Ex.-RENEW-Rabago-18)

• The Company conducted no analysis for this rate case to determine if the operation of solar PV generation created any variability-related impacts. (Ex.-RENEW-Rabago-19)

• The Company did not conduct a cost of service study for customer generators or consider how the current COSS results should be adjusted for customer generators. (Direct-RENEW-Rabago-35pr to 36pr)

Consistent with the PacifiCorp proceeding, Witness Rabago, a former utility commissioner,

concludes that WEPCO’s proposal represents “an astounding failure of basic ratemaking.”

(Direct-RENEW-Rabago-51pr, line 17)

WEPCO’s failure to study its costs of serving DG customers is amplified by its failure to

study or consider the corresponding benefits that distributed solar provides to the grid as a whole,

and by extension to other utility customers. Witnesses Rabago and Vickerman testified to a

number of these benefits, including “near-term reductions in fuel and expensive peak generation,

as well as reduced wear and tear on expensive utility infrastructure.” (Direct-RENEW-Rabago-

13pr, line 20) Over the longer term, DG can “defer expensive capital requirements and improve

system resilience, putting downward pressure on rates.” (Id. at line 22) These benefits and rate

reductions extend to all customers, and must be analyzed in a meaningful process. (Id. at 18)

When he addressed questions about benefits to the system, Company witness O’Sheasy

admitted that WEPCO’s costs are reduced by the presence of self-generation in WEPCO’s

service territory (Tr. 40, line 10), but also testified that he wasn’t aware whether the Company

had studied this or provided any evidence in the record regarding “the degree the costs are

reduced.” Instead, he testified that “it’s just a logical conclusion as to what types of costs would

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be impacted.” (Tr. 40, lines 16-23) However, Witness O’Sheasy ignores that WEPCO does, in

fact, possess data indicating that customer-owned PV is highly valuable to the Company; it is

just choosing to ignore it. In 2009, WEPCO commissioned a study by Clean Power Research to

assess the value of customer-owned PV to the company.2 The study included a detailed value

analysis for seven PV system configurations at three locations and included six different value

components, including generation, distribution, transmission, fuel price hedge, loss savings, and

environmental values. The study did not include capacity value, but recommended that “future

studies should include the generation capacity value of PV.” (Ex.-RENEW-Rabago-25, page 13)

The study concluded that the “estimated value of PV for We Energies over the PV system’s 30-

year lifetime was approximately $0.15 per kWh.” (Ex.-RENEW-Rabago-25, page 6) This value

is higher than the Company’s retail rate for electricity, which leads to the conclusion that

WEPCO’s customers with solar PV are subsidizing other utility customers, and not the other way

around. WEPCO’s 2009 study is consistent with many other more recent solar valuation studies

that indicate a “set of benefits that equal or exceed the retail rate.” (Direct-RENEW-Gilliam-8r,

lines 3-4) The Company did not mention the existence of the 2009 study in its direct testimony in

this case, produced it only in response to data requests, and has not explained why it ignores its

results.

In summary, WEPCO has not fairly calculated the costs and has entirely ignored the

benefits that low-usage and distributed generation customers provide to the system, including the

Company’s own 2009 study. The Company has not carried its burden to support its rate

proposals with evidence in the record. The Commission should make clear that this requires the

Company to study the actual characteristics of the customer subclasses that it asserts are

receiving “cross-subsidies,” including those customers’ load profile, load factor, and contribution 2 PV Value Analysis for We Energies, Clean Power Research (Oct. 2009) (available at Ex-RENEW-Rabago-25).

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to relevant peak demand. Moreover, as the Commission has previously indicated, the Company

should include a full and fair assessment of the “costs and benefits associated with distributed

generation.” Docket No. 5-GF-233, 2013 Wisc. PUC LEXIS 618, *2-3. Therefore, the

Commission should reject the Company’s proposals until such time as the Company gathers,

analyzes, and produces the data necessary to support its conclusions.

II. The Company’s Fixed Charge Proposal is Inequitable, is Based on Discredited Economic Theories, and Conflicts With Wisconsin’s Energy Policy Priorities. The Company’s rate design proposal is based on the Company’s desire to recover “all or

most fixed costs through fixed charges and all or most variable costs through variable or

volumetric charges.” (Direct-WEPCO/WG-Rogers-3, lines 9-23) As explained below, however,

the idea that fixed charges should be “aligned” with fixed costs is bad policy and leads to

inequitable results. As the U.S. Supreme Court has explained, “[i]t is not theory but the impact of

the rate order which counts.” Federal Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591,

602 (1944). The Company’s proposal to dramatically raise fixed charges and reduce energy rates

would inequitably shift costs to the Company’s most vulnerable customers and would discourage

energy efficiency and conservation in conflict with Wisconsin’s energy policy. The impact of

WEPCO’s rate proposal is unreasonable and the Commission should reject it.

A. The Company’s fixed charge ratemaking theory is outdated and discredited.

Fixed costs are the expenses a utility incurs that do not vary with usage. For example, the

costs of customer meters are “fixed” because they do not vary with energy use. The cost of fuel

is “variable” because it increases with increasing electricity consumption. The purpose of rate

design is to choose which of the utility’s costs should be recovered through fixed ($/month)

charges and which costs should be recovered through variable ($/kWh) charges, and, for larger

commercial customers, which costs should be recovered through demand ($/kW) charges.

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Most utilities, including WEPCO, recover a portion of their fixed costs through fixed

charges and the remainder through variable energy charges allocated to their various classes of

customers. In this case, however, WEPCO argues that there are “compelling reasons” to support

a utility rate design that recovers “all or most fixed costs through fixed charges.” (Direct-

WEPCO/WG-Rogers-3) According to Company witness Rogers, these reasons include “avoiding

cross subsidies,” sending “appropriate price signals,” and providing “more stable revenue.”

(Direct-WEPCO/WG-Rogers-3, lines 13-15)

The witnesses for CUB, ELPC, MMSD, and Staff all strongly dispute the Company’s

position that the “intent” of ratemaking is to perfectly align fixed costs with fixed charges. As

ELPC/RENEW witness Rabago explains, traditional ratemaking never intended a “symmetrical

alignment in how the Company purports to incur costs and in how the Company should be

allowed to recover them.” (Direct-RENEW-Rabago-8pr) The Company’s assertion that it should

collect fixed costs via a fixed charge is “too simplistic and unsubstantiated.” (Direct-RENEW-

Rabago-12pr, lines 5-12) Instead, according to Rabago, the “primary determinants of just and

reasonable rates are not simply the way in which the utility incurs costs, but include important

considerations of policy, fairness, and economic efficiency over both the short and long term.”

(Direct-RENEW-Rabago-21, lines 9-12) As Rabago concludes, “[t]he Company approach puts

ratemaking ahead of policy, resulting in likely confusion in both.” (Id. at 22, line 1)

MMSD witness and former PSCW chair Charles Cicchetti testifies that WEPCO

designed its rate proposal “entirely from the perspective of utility shareholders” and gave “short

shrift” to other stakeholders and society. (Direct-MMSD-Cicchetti-4, line 18 through page 5, line

2) Cicchetti explains that utilities (like any other business) assume some risk by conducting

business. That is why utility investors are awarded a return on equity. The regulatory compact

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provides utilities with a reasonable opportunity to recover their “prudent” and “used and useful”

costs of service, but does not entitle them to charge rates that “categorically” protect them from

risk, as WEPCO seeks to do here. (Direct-MMSD-Cicchetti-7, lines 11-13) Instead, “[u]tilities,

like any other business, make forecasts of future sales and decide how to serve their markets

accordingly.” (Direct-MMSD-Cicchetti-13, lines 14-16). In this case, Cicchetti is convinced that

the Company’s regulatory proposals are focused “solely on the utility and its shareholders” at the

expense of utility ratepayers and society. (Direct-MMSD-Cicchetti-13, lines 1-3) He concludes

that:

WEPCO invokes mostly outdated and previously rejected logic in an attempt to convince the Commission to let it uses its utility monopoly and mostly very limited customer choice to force customers to absorb risks in an unjust and unreasonable manner, which is contrary to economic and public policy objectives. (Direct-MMSD-Cicchetti-25, lines 13-16)

If the Commission is inclined to grant WEPCO’s rate design proposal, Dr. Cicchetti suggests that

it also reduce the Company’s authorized return on equity to reflect the substantially reduced

investment risk to shareholders. (Direct-MMSD-Cicchetti-14, lines 3-14)

WEPCO’s attempt to return to inequitable and discredited rate design approaches is not

just and reasonable and the Commission should reject it, especially in light of the significant

policy, equity, fairness, and distributional concerns the Company’s proposal would create.

B. The Company’s fixed charge ratemaking theory is regressive and inequitable.

The Company’s proposal to shift more costs into fixed charges is regressive and

disproportionately harms the Company’s most vulnerable lower-use and low-income customers.

Company witness O’Sheasy acknowledges that under the Company’s rate proposal “[l]ow-use

customers will experience bill increases (which can be substantial in percentage terms) and high-

use customers will experience bill decreases.” (Direct-WEPCO/WG-O’Sheasy-8r, lines 3-4)

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Therefore, “higher-use customers would effectively pay less per unit of consumption than lower-

use customers within the same class.” (Surrebuttal-PSC-Singletary-10, line 22) This raises

important equity issues, especially where low-usage customers are also low-income customers.

Mr. O’Sheasy acknowledges that the Company’s proposal is vulnerable to criticism that it

“harms the poor while benefitting those who are better off.” (Direct-WEPCO/WG-O’Sheasy-8r,

lines 12-13) Although ELPC and RENEW disagree with Company witness Ashley Brown

regarding the value of solar, Mr. Brown does acknowledge the “socially regressive” nature of

high fixed charges. In a recent Electricity Journal article, Mr. Brown explains that:

Fixed costs are incurred equally by all customers, whereas variable costs are passed on based on levels of consumption. Hence poor customers who use small amounts of electricity for lighting, refrigeration, and perhaps entertainment, will pay the same costs as wealthy customers with a plethora of appliances consuming electricity.3 The full impact of the Company’s fixed charge proposal will be felt in future years.

Company witness Rogers explains in his direct testimony that the Company’s $16 fixed charge

proposal in this case is just an “initial step” in the Company’s longer-term plan to recover “all or

most fixed costs through fixed charges.” (Direct-WEPCO/WG-Rogers 3, line 21) These future

steps will amplify the regressive impact of the Company’s proposal, eventually requiring a

facilities charge of nearly $89/month. (Direct-CUB-Wallach-23, lines 9-18) This would

dramatically raise bills for low usage customers and make it much more difficult for all of

WEPCO’s customers to save money by conserving energy—whether they are seniors living on

fixed incomes, students in small apartments, or low-income families struggling to put food on the

table. For these reasons, CUB witness Wallach concludes that the Company’s plan is “ill-

conceived” and requests the Commission to reject it: 3 Ashley Brown and Louisa Lund, “Distributed Generation: How Green? How Efficient? How Well-Priced?” The Electricity Journal 26, no. 3 (April 2013): 32.

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Redesigning residential and small C&I rates in the fashion proposed by WEPCO would inappropriately shift load-related costs to the facilities charge, dampen and destabilize price signals to consumers for reducing energy usage, disproportionately and inequitably increase bills for the Company’s smallest residential customers, and exacerbate the subsidization of larger residential customers’ costs by these lower-usage customers. (Direct-CUB-Wallach-31, lines 15-21)

Consistent with witness Wallach’s point, a number of customers and ratepayer advocates

have spoken out about the Company’s proposal, including AARP, the National Consumer Law

Center, and the Wisconsin Community Action Program Association. As AARP explained in its

comment letter filed in this docket, “[s]hifting cost recovery from a primarily usage-based

method to a high fixed charge rate design would create a significant economic burden for low

usage customers, who include a great number of one-person or two-person senior households.”

(Public Comment of Helen Marks Dicks, Wisconsin AARP Associate State Director-State

Advocacy,10/6/2014, PSC Ref. #221075) This loss of control over energy bills matters to real

people, particularly seniors. As AARP explains:

Many older consumers diligently dedicate themselves to conserving their home energy usage, trying to keep their energy bills more affordable. It would be hard to explain to those consumers why they should not be receiving the full economic benefit of their careful conservation efforts. It is frustrating to them when they see the rewards of their frugality minimized. (Public Comment of Helen Marks Dicks, Wisconsin AARP Associate State Director-State Advocacy, 10/6/2014, PSC Ref. #221075)

The National Consumer Law Center’s detailed comments document the “disproportionate harm”

that WEPCO’s proposal will create for “low-income, elderly, African-American, Latino and

Asian electricity ratepayers.” (Public Comment of the National Consumer Law Center on behalf

of The Wisconsin Community Action Program Association)

For these reasons, the Illinois Commerce Commission recently ordered Commonwealth

Edison Company to reduce its fixed charges and increase variable charges in a similar rate case.

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The Illinois Commission held that “it is not reasonable or consistent with public policy to

structure rates so that the poor, the frugal and the energy efficient are required to subsidize those

who are not, when a more equitable method of allocation exists.” Commonwealth Edison

Company, Revenue-neutral tariff changes related to rate design, Docket No. 13-0387, Final

Order of Dec. 18, 2013, at p. 75. The same logic applies here, and the Commission should reject

WEPCO’s proposal.

C. The Company’s fixed charge proposal will encourage greater energy consumption, in conflict with Wisconsin’s state energy policy priorities.

By shifting charges from variable to fixed costs, the Company’s rate design encourages

customers to consume more energy. (Direct-RENEW-Rabago-25pr, line 13 through p. 26 line 8)

This conflicts with Wisconsin’s State Energy Policy to “reduce the ratio of energy consumption

to economic activity in the state.” Wis. Stat. § 1.12(3)(a). To the extent cost-effective, technically

feasible and environmentally sound the law requires the Commission to implement Wisconsin

energy priorities “in making all energy-related decisions and orders, including strategic energy

assessment, rate setting and rule-making orders.” Wis. Stat. § 196.025(1)(ar). This means the

Commission must consider the maximum conservation of energy resources as an important

factor when making any major decision that would significantly affect energy usage. Wis. Stat. §

1.12(4).

The Wisconsin legislature adopted these energy conservation policies for good reasons.

The preamble to 1993 Wisconsin Act 414 states that the Wisconsin Energy Priorities Law is

intended to “encourage the maximum development and use of energy conservation and

indigenous, sustainable energy resources, in order to minimize the amount of nonsustainable

energy purchased from out–of–state sources and to enhance economic development and

employment in this state.” In creating the Energy Priorities Law, the Legislature intended “to

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influence the energy-related decisions of all energy users, generators and regulatory bodies”

while preserving some discretion for agencies to “respond appropriately to the circumstances.”

Id.

The Commission should consider Wisconsin’s Energy Priorities Law to be another

reason to reject the Company’s proposal. As Staff Witness Singletary concludes, the

Commission should carefully examine the “outcomes” of the Company’s rate design proposal:

If the desired outcome is to encourage more economically efficient customer consumption, I do not see how increasing fixed charges accomplishes that objective since customers are unable to respond to increasing fixed charges except through grid defection. Moreover, if one believes that price signals influence customer behavior, it would stand to reason that one would conclude that decreasing variable charges would encourage increased consumption. This would seem to be contrary to the state’s energy priorities law. (Surrebuttal-PSC-Singletary-11, lines 6-12)

For all the reasons explained above the Company’s rate design proposal will create outcomes

that are unjust, unreasonable, and tend to conflict with Wisconsin’s energy policy priorities. The

Commission should therefore reject it.

III. The Company’s Customer Generation Charges and Tariffs Are Flawed, Unreasonable, and Are Not Supported by the Record. In addition to proposing to increase fixed charges, the Company proposes a variety of

changes to its customer generation service (CGS) tariffs that, collectively, will reduce the value

of customer investments in distributed generation by 35-47%. (Direct-RENEW-Vickerman-27,

line 2) These changes include a new “capacity demand charge” for self-generation customers

that WEPCO proposes to charge whether or not the customer ever exports power from their

property to the grid. Like its fixed charge proposal, the Company has failed to support these

customer generation charges with evidence in the record.

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A. The Company’s proposed self-generation rates and charges are not supported by the record.

Beginning at page 49 of his direct testimony, Company witness Eric Rogers describes the

Company’s proposals to significantly change its customer-owned-generation rates. Mr. Rogers

begins with a series of “principles,” the first of which is the Company’s belief that “customer-

owned-generation rates should provide customers with payment for their generation based on the

costs the utility avoids.” (Direct-WEPCO/WG-Rogers-50, lines 1-2) According to Rogers, the

Company’s current CGS tariffs, especially its net-metering tariffs, unfairly subsidize DG

customers because they compensate customers at levels much higher than the utility’s avoided

costs. (Direct-WEPCO/WG-Rogers-54, lines 1-15)

Although Mr. Rogers asserts that DG customers are being compensated unfairly, the

Company fails to support that claim with evidence in the record and it fails entirely to support

the new rates and charges that it proposes as a solution. WEPCO proposes to credit customers on

its new COGS-NM tariff for the value of their exported PV energy at $0.0424 per kWh, which is

based on the MISO LMP plus an avoided transmission cost. (Direct-PSC-Singletary-20, line 16)

WEPCO would also compensate biogas and other larger DG customers on WEPCO’s new direct

sales tariff (COGS-DS) at the same $0.0424 per kWh rate. The problem, as Staff witness

Singletary points out, is that this rate does not “reasonably reflect utility avoided cost.” (Id. at

lines 12-14) First, it treats DG as “purely marginal” and ignores DG’s potential to displace utility

generation capacity over the longer term. (Direct-PSC-Singletary-20, lines 17-20) This means

that WEPCO assigns zero value to the fact that customer generation can help offset the need for

expensive new generation capacity, which would benefit all of the utility’s customers. Secondly,

WEPCO considers the “avoided cost” of each DG system as a single unit, rather than as part of a

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larger system. (Direct-PSC-Singletary-21, lines 1-3) Singletary explains that this has important

implications for system planning:

If the utility were to view DG as an aggregate resource rather than an unrelated assemblage of individual generators, it could meter, model, and forecast DG output and incorporate that production information into its load and supply forecast modeling. In contrast, current utility practice treats customer owned DG system as if they are solitary, ephemeral, here-today-gone-tomorrow resource that have no value beyond the current price of marginal energy. This approach completely ignores the fact that DG resources, once installed will typically continue supplying power for years if not decades. (Direct-PSC-Singletary-21, line 4-11)

Witness Singletary also has concerns about the Company’s lack of support for its

proposed $3.79/kW/month “demand charge” that it proposes to impose on its DG customers.

According to Singletary, the Company hasn’t proven that the DG “demand charge” bears any

reasonable relationship to the costs (or benefits) that DG customers create. (Direct-PSC-

Singletary-27, lines 3-4) According to Mr. Singletary, the Company has based the proposed

“demand charge” on the “speculative position” that a customer’s generation “might become

inoperable,” without any evidence that the Company has actually studied the true likelihood of

this occurring on an individual or, more importantly, on a classwide basis. (Surrebuttal-PSC-

Singletary-8, lines 10-16) The Company’s theoretical position that it must maintain standby

service for each and every one of its DG customers is arbitrary and inconsistent with how it

manages its own generation resources. As Mr. Singletary explains:

The utility’s proposal to mandate standby service for certain DG customers, and to impose capacity charges on others is akin to asserting that all customer DG will fail, will fail consistently, and will always fail coincident with the system peak. If the utility were held to the same standards it seems to hold for DG, WEPCO would have redundant facilities for every one of its power plants.” (Surrebuttal-PSC-Singletary-9, lines 14-17)

Mr. Singletary’s testimony underscores that the Company has not supported its position

on the need for standby service for customer-owned DG with credible evidence.

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Mr. Singletary also points out that the Company’s proposed treatment of customer-owned

generation is also “entirely inconsistent” with the way it treats its own utility-owned wind farms.

In contrast to WEPCO’s wind farms, which “can be modeled, predicted, and incorporated into

the utility’s overall generation capacity,” WEPCO treats customer-owned DG “as 100 percent

marginal with no long term avoided capacity cost.” (Direct-PSC-Singletary-21, lines 22 through

p. 22, line 13)

WEPCO also proposes a double-standard between what it’s seeking for its own proposed

solar array and what it’s proposing for customer-owned solar. WEPCO is currently seeking

ratepayer recovery for a utility-owned 7.5 MW solar PV array at a total estimated cost of $25.8

million. (Surrebuttal-RENEW-Vickerman-12r, lines 13-14) As calculated by RENEW witness

Vickerman, this translates to approximately 11.47 cents/kWh. (Id. at lines 16-18) If, on the other

hand, one of WEPCO’s customers decides to invest in solar energy themselves, WEPCO will

credit them only 4.24 cents/kWh for electricity not offsetting consumption. It is not fair or

reasonable for WEPCO to seek rate recovery from its customers for utility-owned solar at a rate

that is roughly three times what it proposes to offer for customer-owned solar.

WEPCO’s proposed customer-generator rate for exported energy (4.24 cents/kWh) is

also much lower than its “value” to the Company calculated by Clean Power Research for

WEPCO’s 2009 value study. (Ex.-RENEW-Rabago-25, at p. 6) When factoring in the impact of

the Company’s proposed capacity “demand charge,” the Company’s effective rate for its

customers’ exported energy drops to approximately four-tenths of a cent per kWh (that is,

approximately $0.004), which is approximately 2.7% of the value in the 2009 study of $0.15.

(Surrebuttal-RENEW-Vickerman-8r, lines 21-22) It is not fair or reasonable for WEPCO to

credit its customers for their solar generation at a level that is only a fraction of the value

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indicated by the Company’s study. If WEPCO believes that the 2009 study is outdated or

incorrect, then it should have provided new or updated data in this case.

Finally, WEPCO sponsored lengthy rebuttal testimony regarding net metering and the

value of solar energy from Ashley Brown of the Harvard Electricity Policy Group. Mr. Brown

testifies that once solar PV reaches “substantial levels of market penetration,” then it may be

appropriate to reconsider net energy metering with more sophisticated pricing. (Rebuttal-

WEPCO/WG-Brown-17, lines 12-14) Mr. Brown’s testimony, however, fails to include any data,

studies, analysis or discussion of WEPCO’s customer-generation proposals or any other relevant

information regarding the solar market in the State of Wisconsin. (Surrebuttal-RENEW-Rabago-

13r, lines 3-9) On cross examination, Mr. Brown could not further define what he meant by

“substantial levels of market penetration” or whether or not that condition has yet occurred in

Wisconsin.4 (Tr. 10, lines 6-24) Mr. Brown was not aware, and his testimony fails to

acknowledge, that only 365 WEPCO customers are enrolled in tariffs that meet his definition of

“retail net metering,” and that all of WEPCO’s “retail net metering” tariffs are closed to new

customers. (Tr. 81, lines 2-10, discussing Ex.-TASC-Hornby-17) Mr. Brown’s argument

regarding the value of solar did not even reference WEPCO’s 2009 solar valuation study

conducted by Clean Power Research, a fact that ELPC/RENEW witness Rabago found

“remarkable.” (Surrebuttal-RENEW-Rabago-12r, line 14) As Mr. Rabago observes, Mr. Brown’s

testimony is simply not credible or pertinent to the actual issues before the Commission in this

case:

Simply stated, stripped of the charts and tables with no demonstrated relevance, witness Brown’s testimony amounts to normative economic arguments

4 For example, Mr. Brown relies on what has become known as “The Duck Curve” in California to demonstrate the need for action in Wisconsin. (Rebuttal-WEPCO/WG-Brown-24) However, San Diego Gas & Electric has 88,000 DG customers while WEPCO has less than 600. There is no evidence that solar is negatively shifting peak in Wisconsin.

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insufficient to replace the positive facts and analysis needed to sustain the Company’s proposals regarding customer generators. (Surrebuttal-RENEW-Rabago-13r, lines 5-9)

For all of the above reasons, the Commission should reject the Company’s proposed

changes to its self-generation rates and charges as not sufficiently supported by substantial

evidence in the record.

B. WEPCO has not supported the need for a “capacity demand charge” for DG customers.

WEPCO’s proposes a new “capacity demand charge” of $3.79/kW/month based on the

nameplate capacity of a customer’s generating equipment for intermittent (solar and wind) and

$8.60/kW/month for biogas systems. (Surrebuttal-RENEW-Vickerman-2r, lines 19-21) WEPCO

proposes to charge this extra monthly fee regardless of whether or not the electricity produced by

the customer’s renewable energy system ever leaves the customer’s premises.

The Company has not established why a capacity demand charge is warranted for DG

customers alone. Customers frequently make choices that reduce or increase their electricity

consumption. Some customers choose to reduce their energy consumption by investing in solar,

some install more efficient lighting or appliances, and some choose to conserve energy by setting

their thermostat higher in the summertime. As witness Gilliam points out:

If a retail customer installs more efficient lighting or replaces a refrigerator with a more efficient one, the utility does not charge that customer a fixed charge or a higher rate to make up for lost revenue. Likewise, if a residential customer has a shrinking household for any of a number of reasons, with a commensurate reduction in electricity consumption, the utility doesn’t add a fee to make up the difference. (Direct-RENEW-Gilliam-5r, lines 3-7)

As Mr. Gilliam’s testimony explains, the Company’s decision to single out customer generators

for special surcharges in this case is arbitrary and discriminatory.

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WEPCO argues that it needs to treat DG customers differently because self-generation is

“likely to have sudden fluctuations, to which the grid must respond immediately.” (Rebuttal-

WEPCO/WG-Rogers-17, lines 18-21) However, WEPCO has failed to provide evidence to

support its “sudden fluctuations” rationale. ELPC/RENEW witness Gilliam points out that DG

causes no more “fluctuations” than do typical consumer appliances. (Surrebuttal-RENEW-

Gilliam-4r, lines 5-6) The Company relies on its “diversity of load” to manage fluctuations in

customer demand and there is no evidence that it cannot similarly manage fluctuations in

customer generation. As explained by Mr. Gilliam:

Entire subdivisions do not use their microwave ovens at precisely the same time. Similarly, a broad set of solar resources will not be impacted by clouds at the same time. Indeed, a typical residential solar system produces less power than two blow dryers and a coffeemaker. (Surrebuttal-RENEW-Gilliam-4r, lines 8-11)

WEPCO has simply failed to support the need for, or the amount of, its proposed capacity

demand charge.

More fundamentally, a monopoly has no “right” to insist on a certain amount of

consumption. Historically, a customer’s decision to use as much or as little energy as they want

was a “basic right of self-determination.” (Direct-RENEW-Gilliam-4r, lines 12-18) The

Company has not justified the need for a departure from that principle here. The fact that

WEPCO’s capacity demand charge applies to customer generation that never leaves the

customer’s property is even more problematic and creates bad precedent. The regulatory

compact does not provide utilities with carte blanche to charge customers for choosing to use

less electricity. WEPCO’s proposed “capacity demand charge” is an extraordinary and

unjustified expansion of the Company’s monopoly over its customers’ private conduct and it

should be rejected.

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C. The Company’s proposal to bar third-party ownership through a tariff amendment is unreasonable.

Third-party ownership enables customers to enjoy easier access to renewable energy by

reducing the upfront cost hurdle and by providing professional services for developing and

managing a solar, small wind, or biogas facility. (Direct-TASC-Friedman-4) In this case,

WEPCO proposes to require customers on its self-generation tariffs to own the generation on

their property, which effectively bans third-party financing. (Direct-TASC-Friedman-7) The only

rationale provided by WEPCO for this decision are two informal, nonbinding and non-

precedential staff memoranda from the Commission, stating staff’s view that in some

circumstances third-party owners may be public utilities as defined by Wisconsin Statute, section

196.01(5). (Direct-TASC-Friedman-11)

The Company’s attempt to preempt third-party ownership through a tariff amendment is

the wrong way to resolve this issue of statewide importance. Barring third-party ownership

would limit the market to customers that could afford to buy or finance themselves and “deny

middle-income and low-income customers, as well as churches and non-profit organizations the

opportunity to participate in the self-generation market.” (Direct-RENEW-Rabago-44pr, lines 1-

3) In order to resolve this issue, the Commission requires further factual development and legal

analysis, beyond that available in this limited rate case proceeding. While Wisconsin courts have

not yet ruled on this specific issue, there is substantial recent precedent from other state courts

and commissions supporting third-party ownership. See, e.g., SZ Enterprises v. Iowa Util. Bd.,

850 N.W.2d 441 (July 11, 2014) (finding third-party ownership legal under Iowa law).5 The

5 Several other state commissions, including Arizona, Nevada, New Mexico, and Oregon—have recently upheld the legality of third-party ownership under their respective statutes or constitutional provisions. See In re Application of SolarCity Corp., Ariz. Corp. Comm'n, Docket No. E-20690A-09-0346, 2010 Ariz. PUC LEXIS 286, at *55 (July 12, 2010); Order, Pub. Utils. Comm'n of Nevada, Docket No. 07-06027, 2008 Nev. PUC LEXIS 283, at *10 (Nov. 26, 2008); In re A Declaratory Order Regarding

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Company’s attempt to short-circuit the full and fair resolution of this legal issue in Wisconsin

through a tariff change is unreasonable and should be rejected. As noted by ELPC/RENEW

witness Rabago, “[i]n my 24 years in electric utility regulation, I am stunned that a utility would

seek to sneak a major and legally complex policy change of this nature into a proposed tariff

amendment in such a way.” (Direct-RENEW-Rabago-44pr, lines 10-13)

IV. WEPCO Has Not Demonstrated a Need For Significant Rate Restructuring in This Rate Case. As testimony from Staff witness Singletary demonstrates, WEPCO is not facing an

imminent threat to its revenue or earning stability. In fact, although WEPCO has experienced a

“slow decline in overall sales” since 2007, the rate of decline has actually slowed in the past few

years, to “about 0.4 percent per year.” (Direct-PSC-Singletary-14, lines 10-12) When

considering the number of “risk mitigation measures” available to Wisconsin utilities, including

“forward looking test years, opportunities for biennial (if not annual) base rate cases, cost of fuel

adjustments, and a variety of escrow treatments,” Mr. Singletary concludes that WEPCO’s trend

in sales “hardly seems to present a great deal of risk.” (Id. at lines 15-17) Mr. Singletary also

points out that the majority of the Company’s sales erosion is coming from industrial customers,

not the residential and commercial customers that will be required to pay increased fixed charges

under the Company’s proposal. (Direct-PSC-Singletary-15)

As Mr. Singletary points out, Wisconsin policy allows utilities to look forward to a future

test year and adjust for anticipated changes in sales due to energy efficiency and self-generation.

Thus, if the company anticipates selling less power, it should adjust the energy rate accordingly

to reflect that projection. Consistent with Mr. Singletary’s testimony, WEPCO has failed to

Third-Party Arrangements for Renewable Energy Generation, N.M. Pub. Reg. Comm'n, Case No. 09-00217-UT, at 13 (Dec. 30, 2009); Honeywell Int'l, Inc. v. PacifiCorp, Pub. Util. Comm'n of Oregon, Docket No. DR 40, Order No. 08-388, 2008 Ore. PUC LEXIS 320 , at *19 (July 31, 2008).

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demonstrate any difficulty in adjusting the test year for lower sales from either efficiency or

distributed generation. In fact, the Company fails to discuss the critical test year issue at all. As

Mr. Singletary concludes, WEPCO “has not presented any evidence as to why such a dramatic

increase in customer charges must be undertaken in this proceeding.” (Direct-PSC-Singletary-18,

lines 14-17)

More fundamentally, virtually every business has risks, including electric utilities.

MMSD witness Cicchetti explains that WEPCO “seeks to shift these risks to regulated utility

customers and away from shareholders.” (Direct-MMSD-Cicchietti-19, lines 4-6) Thus, if the

Commission approves WEPCO’s rate design proposals here, Dr. Cicchetti recommends that the

Commission also adjust WEPCO’s return on equity to the “lower end of the reasonable range” to

“reflect the reduction in risks that WEPCO would have achieved.” (Direct-MMSD-Cicchetti-14)

V. If the Commission Determines it Needs to Address Issues Regarding the Future of Distributed Generation it Should Open a Policy Proceeding.

WEPCO is not the only utility facing the risks and opportunities presented by new

technologies and innovation. According to ELPC/RENEW witness Rabago:

[t]he utility industry is, across the nation, undergoing a move toward a fundamental transformation. This transformation involves a transition from a central station, high fixed cost business model to a more robust, dynamic, and flexible business model that embraces two-way and even three-way flows of energy and value, and that embraces, rather than shuns, a growing contribution of customer and distribution system sited distributed energy resources. (Direct-ELPC-Rabago-31pr, lines 19-23)

While there are likely many options to help create a smooth transition for customers and utilities,

the Company’s proposal to shift revenues to high fixed charges in the context of a rate case does

not allow for consideration of all of the issues that need to be addressed. Moreover, over the long

term, the Company’s approach could “accelerate the very problems the rate changes were aimed

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to address—the loss of revenues that would otherwise cover fixed cost investments that benefit

all ratepayers and the grid.” (Direct-ELPC-Rabago-31pr, lines 3-7)

In contrast to WEPCO’s proposal here, several utilities and regulatory commissions are

working proactively on forward-looking solutions to the utility business model challenges in

ways that encourage innovation, competition, and customer choice. Notable examples of these

utility efforts include the Minnesota Energy Futures Study, the Minnesota e21 Initiative, the

Massachusetts Grid Modernization proceeding, and the New York “Reforming the Energy

Vision” proceeding. (Direct-RENEW-Rabago-33pr, lines 1-5) ELPC/RENEW witness Rabago’s

direct testimony includes exhibits with more information about each of these proceedings, which

could serve as a model for future proceedings in Wisconsin. Id. The bottom line however, is that

WEPCO fails to justify shifting revenue to fixed costs in this proceeding.

CONCLUSION

Despite WEPCO’s public pronouncements, the facts and record do not support the

Company’s “fairness” rationale for its rate design proposal. The facts and testimony in this case

demonstrate that (1) the actual risks to WEPCO are low, (2) WEPCO has other mechanisms it

can use to manage those risks, and (3) increasing fixed charges is unfair to WPSC customers and

could increase sunk fixed costs over the long term.

For all of the reasons set forth above, the Commission should reject WEPCO’s rate

restructuring proposal and customer-generation charges in their entirety. If the Commission

believes it needs to act to address future issues related to distributed generation, it should open a

separate statewide proceeding to examine long-term issues facing Wisconsin’s utilities instead of

the short-term fix proposed by WEPCO in this case.

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Dated this 7th day of October, 2014.

Respectfully submitted, s/ Bradley D. Klein Bradley D. Klein

Environmental Law & Policy Center 222 S. Hamilton Street, Suite 14 Madison, Wisconsin 53703 (608) 204-9735 bklein@elpc.org Attorney for the Environmental Law & Policy Center