Consumer advocates have won a battle over excessive profits by utilities with transmission lines that deliver electricity across the Midwest.
In a ruling that calls for refunds to utility customers, a federal administrative law judge has found that transmission line owners in Minnesota, Iowa, Wisconsin, Michigan and other states have been getting an “unjust and unreasonable” rate of return on equity of more than 12 percent.
If federal regulators uphold the Dec. 22 initial decision, the base rate of return on transmission investments would be slashed 2 percentage points to 10.32 percent, saving ratepayers in 15 states about $200 million a year, state officials said.
“It is an important victory — it is a huge step in the right direction,” said Minnesota Commerce Commissioner Mike Rothman, whose department represents ratepayers in utility matters. “What it demonstrates is that the 12.38 percent rate was too high. … It was a rate that was exploiting consumers.”
The rate is important because many utilities don’t own transmission lines, and instead pay other utilities to deliver electricity, passing on the cost to ratepayers. Transmission rates are set by the Federal Energy Regulatory Commission, which also sets the transmission line owners’ base rate of return.
Large industrial customers challenged the Midwest transmission rates as excessive — a battle joined by the Minnesota Department of Commerce and consumer advocates from six other states. The regulatory battle focused on whether transmission companies’ regulated profits are out of touch with economic conditions and low interest rates.
“There is no question that a 12 percent rate of return is insanely high,” said Tyson Slocum, energy program director for Public Citizen, a Washington, D.C., consumer group that has intervened in other grid-pricing matters, but not the rate-of-return battle.
In Michigan, the ruling promises $40 million in annual savings on transmission-related costs, said John Liskey, counsel for Michigan Citizens Against Rate Excess. Iowa ratepayers could see $20 million in annual savings, said Jennifer Easler, an attorney in that state’s Office of Consumer Advocate who presented the states’ case before the administrative judge. Minnesota officials didn’t have an estimate of ratepayer savings.
The case represents the first time since the 1980s that Minnesota has participated in a consumer protection challenge to Federal Energy Regulatory Commission policy, said Kate O’Connell, manager of electric and gas regulation at the state Commerce Department. Minnesota also is part of a multistate coalition raising other concerns about consumer protection on the regional power grid, which is managed by a voluntary, industry-dominated nonprofit.
All of Minnesota’s electric utilities — including Xcel Energy and Great River Energy, the two largest — could be affected by the rate decision, ultimately paying or receiving refunds.
Richard Hettwer, manager of power delivery for the Southern Minnesota Municipal Power Agency, said the wholesale power supplier relies partly on other transmission-line companies to deliver electricity to its 18 municipal utilities, which include Austin, Fairmont, Princeton and Grand Marais. But he doesn’t expect to see refunds or rate relief for two years because of the slow pace of the federal regulatory process.
Another likely winner is the Southern Minnesota Energy Cooperative, a group of 12 local power co-ops that in July acquired Interstate Power & Light’s electric operations in Albert Lea, Rushford and other cities. Much of those communities’ electricity is delivered on transmission lines owned by another company and potentially subject to a rate reduction.
“Transmission is important, and we need to invest in it for reliability,” said Brian Krambeer, president and CEO of Tri-County Electric Cooperative in Rushford and chair of the Southern Minnesota Energy Cooperative. “But we are also concerned about cost. Anything we can do to lower that benefits us.”
Two Midwest transmission utilities face the prospect of broad refunds and lower rates — ITC Holdings Corp., an investor-owned company based in Novi, Mich., and American Transmission Co. (ATC), a Waukesha, Wis., company owned by municipal and other utilities. Both companies own power lines in the Midwest, including in Minnesota.
ITC said that the Federal Energy Regulatory Commission, in its final decision, needs to consider rates of return that will attract investment to modernize the grid. In a statement, ITC called the judge’s decision a “constructive step.”
ATC defended the current rate, saying it reflects the risks of transmission investments, including the complexity of such projects and the need for multiple regulatory approvals.
Even more transmission lines could be needed to carry additional wind power generated in rural areas to urban centers. “It is our hope that the incentive is still adequate to attract utilities who want to invest in infrastructure,” said Beth Soholt, executive director of the St. Paul-based industry trade group Wind on the Wires.