The price of electricity has shot up faster in Wisconsin than in all but five other states since 2000, which could pose a threat to the state’s economic competitiveness, a new analysis by the Wisconsin Taxpayers Alliance says.
Wisconsin businesses and homeowners are paying more than most surrounding states, as the state continues to pay for power plant upgrades that followed near-brownouts in the late 1990s.
That, coupled with rising natural gas and coal prices, has pushed rates up. The state’s electricity prices, which ranked 11th-lowest in the nation in 1990, now rank 20th-highest, the report found.
“We need to recognize that energy prices really do have an effect on the competitiveness of the state,” said Kyle Christianson, policy research analyst at the nonpartisan Taxpayers Alliance. “We’re talking about trying to attract employers and adding new jobs, and particularly in a manufacturing-intensive economy like Wisconsin, energy prices are a major cost of doing business.”
Utilities regulators defend Wisconsin’s power plant building boom as important to keeping the state’s economy competitive over the long run.
“A manufacturing state simply cannot survive without a reliable electric infrastructure,” said Bob Norcross, administrator at the state Public Service Commission. “Wisconsin responded to its reliability crisis by making necessary investments that were in large part supported by the state’s business community, and they were sound. The rebuilding period that accompanied those infrastructure investments is now reaching an end, but we need to pay for them – and that’s why we have rate pressure.”
Looking Forward
The recession has exacerbated the rate pressure on Wisconsin because utilities have had to respond to slowing sales with rate hikes to cover their fixed costs.
Most Wisconsin ratepayers can expect to see prices go up again in January if the Public Service Commission approves price increases proposed by four of the state’s five investor-owned utilities, including We Energies. A typical We Energies residential customer now pays nearly $99.50 a month, about 61% more than in early 2001, according to the PSC.
In addition to the costs of building power plants, rising prices for natural gas and particularly for coal have played a role in pushing prices higher. The price of coal has doubled since 2000, Christianson said.
“That’s really a major driver because coal supplies the majority of our electricity, so when the price of that goes up, that affects us more than states that rely on nuclear power or hydro,” Christianson said.
Gale Klappa, chairman and chief executive of the state’s largest utility, We Energies, said his utility’s prices are competitive – lower than Illinois and Michigan and in line with Minnesota, where rate hikes are about to take effect.
Power plant and transmission line upgrades have helped improve the competitiveness of power that’s sold by Wisconsin utilities into the Midwest wholesale electric market. Wisconsin’s power was $10 per megawatt-hour above the rest of the Midwest region in 2005, but that disadvantage has been narrowed to just over $1, Klappa said. Improved transmission ties with other states have helped utility customers because the state’s utilities pay less when they have to buy power in the wholesale market, said Jackie Olson, spokeswoman for American Transmission Co.
“From a competitiveness standpoint and electric price standpoint, we’re actually beyond the worst period,” Klappa said. “The peak of our competitive disadvantage was really 2005. We’ve gotten more competitive since then.”
Customer groups say it’s time for Wisconsin to take a look in the mirror and assess whether too much has been built – and whether the state should move ahead with plans to add more electricity generation.
Todd Stuart, executive director of the Wisconsin Industrial Energy Group, said he is hopeful that other states will catch up to Wisconsin as they expand their renewable power supply and retrofit aging coal-fired power plants.
“Being on the front end of some of that, I hope we end up paying less in the long run,” Stuart said. “In the meantime, we need to take a deep breath. We do have excess capacity. We’ve built a tremendous amount of infrastructure and we have the perfect storm with the recession wiping out a lot of demand. We need to take a deep breath from building a whole bunch of new projects right now.”
Power glut?
Charlie Higley, executive director of the Wisconsin Citizens’ Utility Board, is concerned that rate increases will continue for residential customers.
“Our households are paying a high price for electricity, and it’s hurting their ability to make ends meet,” Higley said.
Wisconsin now has a power glut that prompted the state Public Service Commission to launch an investigation into whether some of the state’s older power plants should be mothballed or shut down.
Shutting down coal would help the state’s customers from having to cover the rising coal prices, Higley said.
“Since we get most of our power from coal that means we’re very susceptible to paying higher rates because of higher coal prices,” Higley said. “It underlies our calls for moving toward cleaner energy solutions like renewable energy and energy efficiency, which don’t have fuel costs.”
But Klappa said the record power use this summer – in the midst of an economy that’s slow to emerge from the Great Recession – underscores that Wisconsin doesn’t have a power glut.
“We never had a 95-degree day this summer and we set two energy consumption records for customers, July for residential customers and August for small commercial and industrial customers,” he said. “There’s not a lot of excess.”
The key question facing businesses thinking about locating in Wisconsin is what the competitive landscape will be in the years to come, not the past, Klappa said. And We Energies, he said, is well-positioned from that perspective because it has moved ahead with installing pollution controls at its major power plants faster than many other utilities.
A suite of new environmental rules aimed at promoting cleaner air and water are expected to require advanced scrubbers – or retirement of coal plants – across the country.
“Many, many companies in the Midwest and elsewhere in the U.S. are going to incur far greater expense because they have far greater need for environmental upgrades than we’ll have to spend on our systems,” Klappa said.
Todd Berry, president of the Taxpayers Alliance, said the goal of his report was not to second-guess the construction of power plants and transmission lines that has taken place since the late 1990s.
“Producing energy is not like turning on or off a bathtub,” Berry said. “We were not attempting to say that we’ve built too much; it’s just the nature of the industry because we were way underbuilt in the 1990s.”
