As Americans grapple with surging home energy bills, state regulators are starting to take a harder line on utilities proposing to hike household electricity rates.
Regulators in at least three Midwest states are already blocking power companies from taking on costly grid upgrades that rely on consumer rate hikes to foot the bill. Instead, the utilities are being told to delay less urgent projects and absorb some costs they usually pass on to customers. As more and more households struggle with stubbornly high inflation, analysts warn that such regulatory pushback could spread across the country.
“With customer bills rising, you are going to see regulators shine a lot more light on specific spending on projects,” CreditSights utilities analyst Andy DeVries said in an interview. “They are going to be asking: why do they need to spend all of this money?”
The shift poses a challenge for utilities that depend on rate hikes to keep profits flowing and pay for big projects needed to modernize grids. That could slow efforts to fight climate change as regulators seek a balance between keeping energy affordable for consumers while encouraging companies to invest in renewable energy.
Moody’s Investors Service lowered its outlook for the U.S. utility sector to negative last month because the credit rating agency was concerned that higher natural gas prices, inflation and rising interest rates are driving up customer bills, increasing the risk that regulators will push back on further rate-hike requests.
State authorities in Michigan, Minnesota and Wisconsin are already balking at increases.
In Michigan, regulators allowed just a fraction of the $388 million in rate hikes sought by DTE Energy Co. this year, limiting the increases by the utility to $30.6 million after hundreds of consumers spoke out at a rare public hearing in August. Much of the difference was due to the Michigan Public Service Commission disagreeing with a sales forecast by the Detroit-based company, but the regulator also nixed spending on a battery storage pilot project and a proposal to bury some power lines.
“It was very clear that customers are fed up,” said Amy Bandyk, executive director of Citizens Utility Board of Michigan. “This was a pretty stunning decision.”
DTE said in an emailed statement that its “efforts remain focused on improving reliability and maintaining affordability for our customers.”
In Minnesota, Xcel Energy Inc. last week withdrew its September request to increase rates an additional 4% next year to recover $122 million from customers.
“Due to inflation and other factors, we recognize that some of our Minnesota residential customers are currently struggling to pay their electric bills and have fallen behind,” the Minneapolis-based utility said in an emailed statement.
Xcel had faced opposition from Minnesota’s commerce department and Attorney General Keith Ellison, who said that the rate increase would pose a burden on families already struggling in the face of high inflation, high utility bills and the lingering impact of the pandemic.
“We’re well aware of the challenges of affordability,” John Stiles, deputy chief of staff for the attorney general's office, said.
Wisconsin’s Public Service Commission this month approved less than 80% of a rate request for WEC Energy Group Inc.’s two electric utilities in the state. The request were made to help offset investments in renewable energy and costs to make the power grid more resilient.
“Everything bears more scrutiny in the environment we’re in right now,” Tyler Huebner of the Public Service Commission said in an interview.
WEC’s utilities also agreed to absorb $34 million in late fees and unpaid bills accrued during the pandemic as part of a deal with consumer advocates including the Citizens Utility Board of Wisconsin, an unusual move in an industry that typically passes along such write-offs to customers.
Not all regulators are pushing back this hard. Southern Co.’s Georgia Power unit reached an agreement Wednesday with regulatory staff that granted the company a rate increase of about $1.8 billion over three years. While that’s about 40% less than the utility’s initial request, it is more than triple the $529 million that the staff had initially recommended. The agreement still requires state approval.
“It’s a really bad deal for residential customers,” said Liz Coyle, executive director of consumer advocacy group Georgia Watch.
Increased scrutiny of rate-hike requests will likely spur utilities to put projects on hold or prompt regulators to reject proposals, said Edna Marinelarena, an analyst for Moody’s and lead author of the report that downgraded the utility sector.
“Regulators might say ‘let’s put a pause on some of these nice-to-have things,’” she said. “We think everything is on the table.”
