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REGULATORY ENVIRONMENT | 6 Months Ended
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Jun. 30, 2019
Regulated Operations [Abstract] |
REGULATORY ENVIRONMENT | REGULATORY ENVIRONMENT Wisconsin Electric Power Company, Wisconsin Gas LLC, and Wisconsin Public Service Corporation 2020 and 2021 Rates In March 2019, WE, WG, and WPS filed applications with the PSCW to increase their retail electric, natural gas, and steam rates, as applicable, effective January 1, 2020. The WE and WPS proposals are targeting effective electric rate increases of approximately $83 million (2.9%) and $49 million (4.9%), respectively, in 2020, and additional increases of $83 million (2.9%) and $49 million (4.9%), respectively, in 2021. For WE’s, WG’s, and WPS’s natural gas customers, the proposals are targeting effective rate increases of approximately $15 million (3.9%), $11 million (1.8%), and $7 million (2.4%), respectively, in 2020. WPS is proposing an additional effective natural gas rate increase of $7 million (2.4%) in 2021. The WE proposal also targets a $1 million (4.5%) effective increase in its steam rates in 2020. The proposals for WE, WG, and WPS reflect a ROE of 10.35%, 10.30%, and 10.35%, respectively. All three of these Wisconsin utilities proposed a common equity component average of 52.0% on a financial basis and proposed to continue having an earnings sharing mechanism through 2021. The proposed increase in electric rates at WE was driven by higher transmission charges, recovery of SSR revenues that were assumed in WE's 2015 rate order but were not received, and an increase in costs associated with a purchased power agreement previously approved by the PSCW. WE's proposed electric rates reflect its request to partially offset these increases with approximately $111 million of previously deferred tax benefits from the Tax Legislation. WE's proposal also includes its request for approval to continue collecting the carrying value of the Pleasant Prairie power plant and the PIPP using the current approved composite depreciation rates, in addition to a return on the remaining carrying value of the plants. The proposed increase in electric rates at WPS was driven by the inclusion of WPS's SMRP, the Forward Wind Energy Center, and WPS's investments in two solar projects in rates, along with continued investments in system reliability and the recovery of various regulatory deferrals, including the deferral of the revenue requirement for ReACT™ costs above a previously authorized level. WPS's proposed electric rates reflect its request to use $40 million of previously deferred tax benefits from the Tax Legislation to partially offset these increases. WPS's proposal also includes its request for approval to continue collecting the carrying value of Pulliam units 7 and 8 and the Edgewater 4 generating unit using the current approved composite depreciation rates, in addition to a return on the remaining carrying value of the units. The proposed increases at our Wisconsin natural gas utilities were driven by continued investment in our natural gas distribution systems. WPS’s proposed 2020 natural gas rate increase is net of approximately $7 million of previously deferred tax benefits from the Tax Legislation. Final orders are expected from the PSCW by the end of 2019, with rates effective January 1, 2020. 2018 and 2019 Rates During April 2017, WE, WG, and WPS filed an application with the PSCW for approval of a settlement agreement they made with several of their commercial and industrial customers regarding 2018 and 2019 base rates. In September 2017, the PSCW issued an order that approved the settlement agreement, which freezes base rates through 2019 for electric, natural gas, and steam customers of WE, WG, and WPS. Based on the PSCW order, the authorized ROE for WE, WG, and WPS remains at 10.2%, 10.3%, and 10.0%, respectively, and the current capital cost structure for all of our Wisconsin utilities will remain unchanged through 2019. In addition to freezing base rates, the settlement agreement extends and expands the electric real-time market pricing program options for large commercial and industrial customers and mitigates the continued growth of certain escrowed costs at WE during the base rate freeze period by accelerating the recognition of certain tax benefits. WE will flow through the tax benefit of its repair-related deferred tax liabilities in 2018 and 2019, to maintain certain regulatory asset balances at their December 31, 2017 levels. While WE would typically follow the normalization accounting method and utilize the tax benefits of the deferred tax liabilities in rate-making as an offset to rate base, benefiting customers over time, the federal tax code does allow for passing these tax repair-related benefits to ratepayers much sooner using the flow through accounting method. The flow through treatment of the repair-related deferred tax liabilities offsets the negative income statement impact of holding the regulatory assets level, resulting in no change to net income. The agreement also allows WPS to extend through 2019, the deferral for the revenue requirement of ReACT™ costs above the authorized $275.0 million level, and other deferrals related to WPS's electric real-time market pricing program and network transmission expenses. The total cost of the ReACT™ project, excluding $51 million of AFUDC, was $342 million. Pursuant to the settlement agreement, WPS also agreed to adopt, beginning in 2018, the earnings sharing mechanism that has been in place for WE and WG since January 2016, and all three utilities agreed to keep the mechanism in place through 2019. Under this earnings sharing mechanism, if WE, WG, or WPS earns above its authorized ROE, 50% of the first 50 basis points of additional utility earnings must be shared with customers. All utility earnings above the first 50 basis points must also be shared with customers. Solar Generation Projects On August 1, 2019, WE, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire an ownership interest in Badger Hollow II, a solar project that will be located in Iowa County, Wisconsin. Subject to receipt of the PSCW's approval, WE will own 100 MW of the output of this project. WE's share of the cost of this project is estimated to be $130 million. Commercial operation for Badger Hollow II is targeted for the end of 2021. On May 31, 2018, WPS, along with an unaffiliated utility, filed an application with the PSCW for approval to acquire ownership interests in two solar projects in Wisconsin. Badger Hollow I will be located in Iowa County, Wisconsin, and Two Creeks Solar Project will be located in Manitowoc County, Wisconsin. WPS will own 100 MW of the output of each project for a total of 200 MW. WPS's share of the cost of both projects is estimated to be $260 million. The PSCW approved the acquisition of these two projects in April 2019. Commercial operation for both projects is targeted for the end of 2020. The Peoples Gas Light and Coke Company and North Shore Gas Company Illinois Proceedings In December 2015, the ICC ordered a series of stakeholder workshops to evaluate PGL's SMP. This ICC action did not impact PGL's ongoing work to modernize and maintain the safety of its natural gas distribution system, but it instead provided the ICC with an opportunity to analyze long-term elements of the program through the stakeholder workshops. The workshops were completed in March 2016. In July 2016, the ICC initiated a proceeding to review, among other things, the planning, reporting, and monitoring of the program, including the target end date for the program, and issued a final order in January 2018. The order did not have a significant impact on PGL's existing SMP design and execution. An appeal related to the final order was filed by the Illinois AG in April 2018. On June 28, 2019, the Illinois Appellate Court issued its ruling affirming the ICC’s final order. Qualifying Infrastructure Plant Rider In July 2013, Illinois Public Act 98-0057, The Natural Gas Consumer, Safety & Reliability Act, became law. This law provides PGL with a cost recovery mechanism that allows collection, through a surcharge on customer bills, of prudently incurred costs to upgrade Illinois natural gas infrastructure. In September 2013, PGL filed with the ICC requesting the proposed rider, which was approved in January 2014. PGL's QIP rider is subject to an annual reconciliation whereby costs are reviewed for accuracy and prudency. In March 2019, PGL filed its 2018 reconciliation with the ICC, which, along with the 2017 and 2016 reconciliations, are still pending. In June 2019, PGL agreed to a settlement of the 2015 reconciliation, which includes a rate base reduction of $7.0 million and a $7.3 million refund to ratepayers. The ICC approved the settlement on July 17, 2019. The settlement will not have a material impact on earnings. As of June 30, 2019, there can be no assurance that all costs incurred under PGL's QIP rider during the open reconciliation years will be deemed recoverable by the ICC. Minnesota Energy Resources Corporation 2018 Minnesota Rate Case In October 2017, MERC initiated a rate proceeding with the MPUC. In December 2018, the MPUC issued a final written order for MERC. The order authorized a retail natural gas rate increase of $3.1 million (1.26%). The rates reflect a 9.7% ROE and a common equity component average of 50.9%. The final rates were implemented on July 1, 2019. The final approved rate increase was lower than the interim rates collected from customers during 2018 and through June 30, 2019. Therefore, as of June 30, 2019, we estimated that $7.6 million will be refunded to MERC's customers in September 2019. The final order addressed the various impacts of the Tax Legislation, including the remeasurement of deferred tax balances. All of the impacts from the Tax Legislation have been included in base rates. The order also approved MERC's continued use of its decoupling mechanism for residential customers. Effective January 1, 2019, MERC's small commercial and industrial customers are no longer included in the decoupling mechanism. Upper Michigan Energy Resources Corporation and Michigan Gas Utilities Corporation Tax Cuts and Jobs Act of 2017 In February 2018, the MPSC issued an order requiring Michigan utilities to make three filings related to the Tax Legislation. The first of those filings, which was filed in March 2018, prospectively addressed the impact on base rates for the change in tax expense resulting from the federal tax rate reduction from 35% to 21%. UMERC and MGU proposed providing a volumetric bill credit, subject to reconciliation and true up. In May 2018, the MPSC issued orders approving settlements that resulted in volumetric bill credits for all of UMERC's and MGU's customers effective July 1, 2018. The bill credits will remain in effect until each company's next rate proceeding. The second filing, which was filed in July 2018, addressed the impact on base rates for the change in tax expense resulting from the federal tax rate reduction from 35% to 21% from January 1, 2018 until July 1, 2018. UMERC and MGU proposed to return the tax savings from these months to customers via volumetric bill credits over multiple months. The MPSC issued orders approving settlements in September 2018. In accordance with the settlement orders, the savings were returned to UMERC's and MGU's customers via volumetric bill credits that were in effect from October 1, 2018 through December 31, 2018. The third filing was filed in October 2018 and addressed the remaining impacts of the Tax Legislation on base rates – most notably the re-measurement of deferred tax balances. UMERC and MGU proposed providing a volumetric bill credit, subject to reconciliation and true up, to return these remaining impacts of the Tax Legislation to customers. The MPSC issued orders approving settlements in May 2019. The settlement orders provide for volumetric bill credits to UMERC’s and MGU’s customers effective June 1, 2019. The bill credits will remain in effect until each company's next rate proceeding.

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