REGULATORY ENVIRONMENT

6 Months Ended

Jun. 30, 2019

Regulated Operations [Abstract]

REGULATORY ENVIRONMENT

REGULATORY ENVIRONMENT

2020 and 2021 Rates

In March 2019, we filed an application with the PSCW to increase our retail electric and natural gas rates, effective January 1, 2020. Our proposal is targeting an effective electric rate increase of approximately $49 million (4.9%) in 2020 and an additional increase of $49 million (4.9%) in 2021. For our natural gas customers, the proposal is targeting an effective rate increase of approximately $7 million (2.4%) in 2020 and an additional increase of $7 million (2.4%) in 2021. Our proposal reflects a ROE of 10.35% and a common equity component average of 52.0% on a financial basis. We also proposed to continue having an earnings sharing mechanism through 2021.

The proposed increases in our electric rates were driven by the inclusion of our SMRP, the Forward Wind Energy Center, and our 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. Our proposed electric rates reflect our request to use $40 million of previously deferred tax benefits from the Tax Legislation to partially offset these increases. Our proposal also includes our 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 natural gas utility were driven by continued investment in our natural gas distribution system. Our proposed 2020 natural gas rate increase is net of approximately $7 million of previously deferred tax benefits from the Tax Legislation.

A final order is expected from the PSCW by the end of 2019, with rates effective January 1, 2020.

2018 and 2019 Rates

During April 2017, we, along with WE and WG, filed an application with the PSCW for approval of a settlement agreement we made with several of our 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 our electric and natural gas customers. Based on the PSCW order, our authorized ROE remains at 10.0%, and our current capital cost structure 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. Additionally, the agreement allows us 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 our 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, we also agreed to adopt, beginning in 2018, the earnings sharing mechanism that has been in place for WE and WG since January 2016, and agreed to keep the mechanism in place through 2019. Under this earnings sharing mechanism, if we earn above our 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 May 31, 2018, we, 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. We will own 100 MW of the output of each project for a total of 200 MW. Our 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.