Midwestern utilities reaped excessive profits on long-distance transmission lines like one recently approved for southwestern Wisconsin, federal regulators ruled.
The Federal Energy Regulatory Commission, or FERC, voted Nov. 21 to adopt a new way of determining a reasonable rate of return on the money a public utility invests in projects.
Applying the new method to complaints against two dozen transmission owners, FERC reduced the approved return on equity from 10.32% to 9.88%.
The order is retroactive to September 2016, meaning utilities such as Pewaukee-based American Transmission Co. will have to issue refunds.
The impact on consumers is yet unknown. Wisconsin ratepayer advocates expect the refunds will be applied to future utility rate cases. Transmission utilities don’t bill customers directly, but their rates are passed on to consumers by distribution utilities.
“There will definitely be savings going forward,” said Tom Content, executive director of the Citizens Utility Board, which represents residential and small business ratepayers.
ATC spokeswoman Anne Spaltholz said the company will issue refunds as required, but affected transmission owners are reviewing the order and will meet to determine next steps.
The ruling marks the second time in the past five years that federal regulators have cut profit margins in response to ratepayer complaints.
In 2016, FERC adopted a judge’s recommendation to lower the return rate more than 2 percentage points to 10.32% for some two dozen transmission utilities working with the Midcontinent Independent System Operator, or MISO, which runs the wholesale market in 15 states.
Transmission charges, a relatively small portion of the overall electricity bill, have grown over the past decade. The increases are fueled by robust spending to replace aging equipment and to expand the network of long-distance lines to deliver energy from new wind farms in remote locations.
In 2008, transmission accounted for just under 4% of the operating expenses for major investor-owned utilities, according to the U.S. Energy Information Administration. By 2018, it had grown to nearly 7%.
At the same time, utilities have seen the cost to produce electricity fall 26 percent, thanks in part to lower natural gas prices and growing reliance on wind and solar generation, which have no fuel costs.
Between 2008 and 2018, Wisconsin utilities spent more than $2 billion to build more than 2,600 miles of transmission line, according to data provided to the Public Service Commission.
During the same period, the amount the four large utilities paid others to transmit electricity grew 60%.
Earlier this year, Wisconsin regulators authorized ATC and two other utilities to build a $492 million transmission line known as Cardinal-Hickory Creek through southwestern Wisconsin.
The decision is expected to be challenged in the courts. But the line, if built, would be the last of 17 new lines whose costs are shared among ratepayers in the 15 states and one Canadian province in the MISO service territory.