Bruce Murphy
Murphy’s Law

Foxconn’s Gift from Electric Customers

Why are state customers paying $117 million -- or more -- for unneeded power upgrades?

By - Aug 22nd, 2019 11:41 am
Get a daily rundown of the top stories on Urban Milwaukee
Foxconn groundbreaking ceremonial. Photo from The White House.

Foxconn groundbreaking ceremonial. Photo from The White House.

It was back in December 2017 that we learned the massive subsidy for Foxconn would grow by $117 million, to pay for the construction of high-voltage power lines and a new substation to serve the company’s needs. After all, the planned manufacturing campus of 20 million square feet would draw six times more power than the next-largest factory in Wisconsin. 

But now the project is down to just over 1 million square feet in size, about 5.5 percent of the original plan, yet the massive electrical construction project is still being completed, which rate payers of We Energies and other utilities in Wisconsin will pay for over a period of 40 years. 

“They may have the greatest supply of energy ever seen in the United States,” scoffs Milwaukee Alderman Robert Bauman, a frequent critic of the state Public Service Commission (PSC), which approved the project. Bauman believes the new transmission lines may prove to be completely unnecessary. 

From the very beginning the project seemed questionable for many reasons. It was based on a promise by Foxconn to build a massive plant under a state contract that provide no protection for taxpayers (and rate payers) if all the basic infrastructure like expanded highways and electrical connections were built and Foxconn scaled back its plans. So when Foxconn demanded a massive amount of electrical power, Gov. Scott Walker, who hoped the project would get him reelected, made sure it happened. That meant that American Transmission Co., a publicly regulated company which provides electrical connections in this region, had to develop the project as Foxconn demanded, unless the PSC objected, and all three of its commissioners were appointed by Walker. 

The extensive work to be done included building a new electric substation “and an underground 138-kV line to connect the new substation to Foxconn’s campus,” as S&P Global Market Intelligence reported. The project also involved building two new 345-kV transmission lines to connect the substation with existing lines, and “rerouting the existing 345-kV Bain-Pleasant Prairie line” and “adding new equipment to an existing 345-kV line running about 12 miles from an existing substation in Racine County to a switchyard in Pleasant Prairie,” the publication reported.

Yet though the entire project was for Foxconn, none of it would be paid for by the company. Instead the entire cost would be charged over a 40-year period to rate payers of five utilities in the region served by ATC: We Energies, Wisconsin Public Service, Alliant Energy, Madison Gas & Electric and Superior Water, Light and Power.

How did ATC know none of these utilities would object, on behalf of their ratepayers, to this arrangement? Because all five utilities are co-owners of ATC, whose corporate board includes executives of the utilities. 

“Generally, projects built by ATC within our service area are paid for by ATC’s customers, which are local utilities that pass those costs to their customers,” wrote Alissa Braatz, who handles Corporate Communications for ATC, in response to an emailed query from Urban Milwaukee.  

But this was hardly a project that would seem to fit a general rule. Had ATC ever handled a similar project? I asked, and Braatz did not respond. It meant that customers of Superior Water, Light and Power, some 6.5 hors and 419 miles away from the Foxconn plant, would be helping pay for the project. For that matter, the ATC area includes all of Michigan’s Upper Peninsula, whose electric customers would never see any benefit from Foxconn, but would be helping pay for a distant project in another state for 40 years. 

Yet none of the utilities in the region objected. They are, after all, public monopolies who can pass any costs on to customers they care to, so long as the government regulators with the PSC approve it. ATC was so confident of getting approval from the three Walker-appointed commissioners that it purchased land for the Foxconn project in June 2018, a month before the PSC was to rule on the issue.

By late July of 2018, when the PSC made its ruling there were clear signs the Foxconn plant wouldn’t be as big as first announced. Two months earlier, in late May, media reports began to suggest project would be drastically scaled back to about one-third of the projected size, from a Gen 10.5 plant to a Gen 6 plant.

Yet the PSC approved the deal on a 3-0 vote. Just three weeks later Foxconn executive Louis Woo admitted the project would be nothing like what was first projected and was being radically downscaled.

Yet to We Energies the PSC decision was a good one. “The project underwent a thorough, transparent and open review which concluded the project was necessary to provide adequate and reliable service to present and future electric customers,” company spokesman Brendan Conway told Urban Milwaukee. 

To Bauman the decision proves the state body that’s supposed to protect the public does no such thing. “It doesn’t protect the rate payers, it protects the shareholders of the utility companies. There’s been total regulatory capture in Wisconsin. The utilities run the PSC and quite possibly the Legislature.” 

The non-profit Citizens Utility Board was created decades ago precisely for this reason: to protect consumers, since the PSC, which was created to protect the public, was dominated by the utility industry. CUB executive director Tom Content offered a comment to the Milwaukee Journal Sentinel on the ATC project, saying “We’re trying to watch every penny because our rates are so high.”

He also noted that the state deal with Foxconn would allow it to pay the wholesale price for its electricity from We Energies — 2.9 cents to 4.3 cents per kilowatt-hour, versus the more than 8 cents per kilowatt-hour paid by regular rate payers since 2013. In short, in addition to paying for this $117 million project for Foxconn, ratepayers would be subsidizing Foxconn by paying about twice as much for their electricity. 

Moreover, the $117 million is being repaid over 40 years, which presumably includes an undisclosed amount in interest costs on money borrowed or bonded to pay the upfront cost. When asked about this ATC’s spokesperson Bratz did not offer an explanation.

Ultimately, the PSC dismissed any objections as to whether ratepayers should be charged for the project, declaring this was not an issue to be decided when approving the permit for ATC. 

Remarkably, ATC has continued with this unneeded project even as it became clear, through repeated admissions by Foxconn, that the planned mega-project will never happen. In February 2019 S&P Global Market Intelligence reported that ATC was moving ahead with the project despite questions “about whether the multibillion-dollar manufacturing facility would be built.” The company had “already spent $23.5 million on the roughly $117 million project, according to a progress report filed with Wisconsin regulators Jan. 30.”

“While it’s been reported that Foxconn’s manufacturing plans have shifted, from our perspective, nothing has changed at this time,” Bratz tells Urban Milwaukee. She expects the project will be finished by December. 

It’s difficult to imagine a real business operating this way, and building $117 million in unneeded infrastructure. But ATC and all the utilities involved in this project are all publicly regulated monopolies whose CEOs are typically millionaires, and worry far more about pleasing the shareholders who approve their compensation and the politicians who approve their projects than the millions of customers who pay for all this. As a result, a Taiwanese company with a proposed project that has turned out to be a fantasy will get massive electrical connections that it will probably never need.

If you think stories like this are important, become a member of Urban Milwaukee and help support real independent journalism. Plus you get some cool added benefits, all detailed here.

More about the Foxconn Facility

Categories: Business, Murphy's Law

6 thoughts on “Murphy’s Law: Foxconn’s Gift from Electric Customers”

  1. David Coles says:

    Are the electricity rates quoted here correct? My bill indicates the retail cost is $0.13111/kWh, not the $0.08/kWh quoted in the article.

  2. Bruce Murphy says:

    David, I corrected it, the estimate for regular rate payers was that it averaged more than 8 cents per kWr since 2013

  3. Swblackwood says:

    Meanwhile in the Fantasyland known as local TV news, the stations showed up to see the FIRST VERTICAL WALLS go up. PROGRESS!

  4. blurondo says:

    Private monopolies guaranteed a profit by a government agency. How quaint.

  5. Paul Trotter says:

    The electric power lines to nowhere.

  6. huk730 says:

    Another flagrant act of journalism, Bruce.

Leave a Reply

You must be an Urban Milwaukee member to leave a comment. Membership, which includes a host of perks, including an ad-free website, tickets to marquee events like Summerfest, the Wisconsin State Fair and the Florentine Opera, a better photo browser and access to members-only, behind-the-scenes tours, starts at $9/month. Learn more.

Join now and cancel anytime.

If you are an existing member, sign-in to leave a comment.

Have questions? Need to report an error? Contact Us