Rate Matters

6 Months Ended

Jun. 30, 2022

Rate Matters - MGE Energy and MGE.

Rate Proceedings.


	Rate increase	Return on Common Equity	Common Equity Component of Regulatory Capital Structure	Effective Date
Approved 2021 settlement(a)
Electric	—%	9.8%	55.8%	1/1/2021
Gas	4.00%	9.8%	55.8%	1/1/2021
Approved 2022/2023 settlement(b)
Electric	8.81%	9.8%	55.6%	1/1/2022
Gas	2.15%	9.8%	55.6%	1/1/2022
Gas	0.96%	9.8%	55.6%	1/1/2023
Proposed limited 2023 reopener(c)
Electric	4.38%	9.8%	55.6%	1/1/2023

(a)

The electric rate settlement included an increase in rate base but the associated rate increase was primarily offset by lower fuel and purchased power costs and a one-time $18.2 million return to customers of the portion of excess deferred taxes related to the 2017 Tax Act not restricted by IRS normalization rules. The gas rate increase covered infrastructure costs and technology improvements. The settlement agreement also included escrow accounting treatment for pension and other postretirement benefit costs, bad debt expense, and customer credit card fees. Escrow accounting treatment allows MGE to defer any difference between estimated costs in rates and actual costs incurred until a future rate filing. Any difference would be recorded as a regulatory asset or regulatory liability.

(b)

The electric and gas rate increases were driven by an increase in rate base including our investments in Badger Hollow I and a new customer information system. Also driving the requested electric increase were higher fuel and purchased power costs as well as the completion in 2021 of the one-time return of the electric excess deferred tax credit related to the 2017 Tax Act not restricted by IRS normalization rules. Included in the electric residential rate is a reduction in the customer charge.

(c)

The electric rate increase is driven by generation assets including our investments in Badger Hollow II (solar), Paris (solar and battery), Red Barn (wind), and West Riverside (natural gas). In addition, the reopener request includes a reduction in fuel costs, which MGE has partially offset with the recovery of deferred 2021 fuel costs. Changes in the fuel forecast are updated in the limited reopener filing prior to the final PSCW approval. The reopener also revises the depreciation schedule for Columbia Unit 2 and shared equipment to 2029 to align with the depreciation schedule for Columbia Unit 1. PSCW approval of the 2023 limited reopener is pending. A final order is expected before the end of the year.

Sierra Club and Vote Solar have filed petitions with the Dane County Circuit Court seeking review of the PSCW decision approving MGE's two most recent rate settlements (2021 and 2022/2023). The PSCW is named as the responding party; MGE is not named as a party. The petitions challenge the process the PSCW used to approve the portion of the settlements relating to electric rates and the electric customer fixed charge that does not vary with usage. The requested relief is unclear. The revenue requirement approved by the PSCW in the settlements have not been challenged. The PSCW is expected to vigorously defend its approval of the rate case settlements. MGE has intervened in the proceedings to further defend the PSCW's decision.

Fuel Rules.

Fuel rules require Wisconsin utilities to defer electric fuel-related costs that fall outside a symmetrical cost tolerance band around the amount approved for a utility in its annual fuel proceedings. Any over- or under-recovery of the actual costs is determined in the following year and is then reflected in future billings to electric retail customers. The fuel rules bandwidth is set at plus or minus 1%. The electric fuel-related costs are subject to an excess revenues test. Excess revenues are defined as revenues in the year in question that provide MGE with a greater return on common equity than authorized by the PSCW in MGE's latest rate order. The recovery of under-collected electric fuel-related costs would be reduced by the amount that exceeds the excess revenue test. These costs are subject to the PSCW's annual review of fuel costs completed in the year following the deferral. The following table summarized deferred electric fuel-related costs:


	Fuel Costs (in millions)	Refund or Recovery Period
2019 deferred fuel savings	$(1.5)(a)	January 2021 through December 2021
2020 deferred fuel savings	$(3.2)(a)	October 2021
2021 deferred fuel costs	$3.3	(b)
2022 deferred fuel costs	$4.1	(c)

(a)

There was no change to the refund in the fuel rules proceedings from the amount MGE deferred.

(b)

These costs will be subject to the PSCW's annual review of 2021 fuel costs, expected to be completed in 2022. MGE has proposed to include these costs as part of the 2023 electric limited reopener.

(c)

These costs will be subject to the PSCW's annual review of 2022 fuel costs, expected to be completed in 2023.