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Wisconsin utilities seek future returns on COVID-19 pandemic expenses, losses

Wisconsin utilities seek future returns on COVID-19 pandemic expenses, losses

Forced to guarantee service to all during the COVID-19 coronavirus pandemic, Wisconsin’s investor-owned utilities are seeking to profit on expenses and lost revenue incurred as a result of the response.

Following a March 22 order from Gov. Tony Evers, the Public Service Commission suspended utility service disconnections, late fees and deposits for reconnection during a statewide health emergency that has closed businesses and directed people to stay home to slow the spread of the virus.

The utilities, through their trade association, have asked the PSC to allow them to recover pandemic-related expenses and foregone revenue — along with interest — once the crisis is over.

If approved, the costs would be considered in future rate cases, with consumers ultimately picking up the tab.

Wisconsin, Texas and Nevada are the first states where regulators are exploring COVID-19 expense recovery, according to BofA Securities, which expects utilities and regulators in other states to begin exploring ways to recover bad debt. The investment bank says the utility sector is one of the best-positioned to endure the pandemic.

The Wisconsin Utilities Association (WUA) says it’s too soon to estimate the full financial impact of the pandemic, though it has identified potential sources of expenses, including overtime and sequestration of essential workers, equipment to allow others to work remotely and increased borrowing costs.

Utilities also anticipate revenue losses associated with the commission’s suspension of customer deposits and late fees, and with deferred payment plans for those who can’t pay.

Since the utilities will have to absorb these costs until their next rate cases — up to two years away in some cases — they are seeking to collect interest much as they would on money invested in a power plant.

The WUA proposes using the “weighted average cost of capital,” which ranges from 7.22% to 7.77% depending on the utility.

Utilities are also bracing for lost revenue as factories are idled and businesses closed during the health emergency and likely economic recession. The U.S. Energy Information Administration projects electricity sales will fall 3% in 2020 as a result of stay-at-home orders and the economic slowdown.

The WUA has not proposed any special accounting measures to recover those losses “at this time.” But over the long term, lower sales generally result in higher rates, since utilities require a certain amount of revenue to cover fixed costs.

Customer advocacy groups say it’s reasonable for the utilities to recover costs but with a lower rate of return — between 2.7% and 3.4%.

The Citizens Utility Board and Wisconsin Industrial Energy Group also suggest utilities look for cost savings to offset pandemic expenses, such as putting off planned capital projects.

Regulated utilities are “among the chosen few” businesses that can recoup losses in the future, the groups state. “There are numerous industries with dire situations with no opportunity to defer current unexpected cost impacts or other adverse impacts,” they said in a statement.

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