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Introduction
A public utility can’t just change its rates like a store owner raises or lowers the price of their goods. A utility needs to get permission from the PSC to charge its customers more or less for the heat, electricity, or water they use. This system helps to make sure customers don’t have to pay too much for their heat, electricity, or water just because they can’t shop around for these services like they can for the least-expensive car.
The PSC makes sure that the rates utilities charge are based on what it actually costs to produce the heat, electricity, or water. The PSC also makes sure the utilities are charging their customers enough to stay in business and make the repairs and improvements they need, so the heat, electricity, or water is always there when you need it.
Utility customers can give input on their rates. Opportunities to participate range from offering a comment on the PSC’s website on up to participating in a formal, trial-type hearing.
Learn all about how to participate in a case using the button below:
Public Participation
Steps in a Rate Case
The first step a utility must take in changing its rates is to file the application with the PSC. In its application, the utility provides detailed information and proposes a specific change in rates.
PSC staff receives the information before the Commissioners do. They work with the utility to gather any additional information necessary to understand why the rates might need to change. PSC staff audits the utility’s financial records, examines the utility’s forecasts and proposals, and develops its own rate proposal. The rate case then goes to a hearing, where the utility, PSC staff, interested parties (such as environmental or industry groups), and members of the public can testify.
After the hearing, Commissioners act like judges who review the all the information collected in this process to determine if a rate increase is appropriate.
Frequently Asked Questions about Rates
How are utility rates determined?
Similar to how prices are set in other industries, utility rates are set by taking into consideration the costs of providing natural gas and electric services to customers. These costs include operating expenses such as labor, cost of materials (e.g. fuel expenses) and a return on capital investments used to buy equipment. Unlike many other industries, Wisconsin's electric and natural gas utilities are a state-regulated monopoly where the PSC sets the rates that utility customers pay for energy services. In return for monopoly status, utilities have an obligation to serve all customers and cannot increase rates without authorization from the PSC.
Utilities seeking authorization to adjust rates are required to submit an application and provide evidence justifying the request to change rates. Applications are thoroughly reviewed by PSC staff, which includes a comprehensive audit of utility accounting and financial information. Evidence is further gathered through testimony and exhibits from the utility, PSC staff, and interested parties. Public hearings then create the record that is considered by commissioners when setting new rates.
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How often do utilities adjust their rates?
The frequency that utilities adjust their rates depends upon economic factors and the need to recover the costs of providing utility service. For instance, volatile fuel costs may necessitate rate changes. In addition to economic factors, investments in construction projects or technology upgrades necessary to provide safe and reliable utility service may compel a request to adjust rates.
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When demand for electricity falls and sales decline, shouldn’t my rates also go down?
Not necessarily. Utility rates are also tied to the cost of providing utility service, which includes the cost of building and maintaining power plants and transmission lines. These costs are considered fixed because they exist regardless of how much electricity is used during a given year. Fuel costs are variable and can generally be avoided when one uses less energy. Although using less energy may not lead to lower rates, it will lead to a lower monthly bill.
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Why aren’t utility rates more closely tied to the rate of inflation?
Utility rates are based on costs. The majority of costs incurred by a utility are for power plants, transmission and distribution lines, and fuel used for generating power. Utilities often go through building cycles when construction of facilities occurs to keep up with demand, to replace a retiring facility, or when transitioning to new sources of generation. When utility costs go up, it is possible that rates may increase at a rate greater than inflation. If utility costs remain stable, it is possible that rates will remain unchanged and or increase less than the rate of inflation.
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How does financing factor into utility rates?
Utilities make investments in property and equipment to serve their customers. To attract capital for these investments, utilities are allowed the opportunity to earn a rate of return. A utility’s authorized rate of return is the percent return on shareholder equity that a utility is authorized to recover in utility rates. It is set by the PSC and is designed to fairly incentivize sufficient equity investment in Wisconsin utilities. A utility’s authorized return is not guaranteed. If the utility does not adequately control costs or sells less than its forecast, it will earn a lower return for its shareholders.
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Printable Overview of
Steps in a Rate Case