How Utility Rates Hurt State’s Economy

Oak Creek Power Plant. Photo taken November 13, 2021 by Dave Reid.

Just 25 years ago, in the late 1990s, Wisconsin had some of the lowest industrial electric rates in the nation. The rate in 1998 was lower than both the average rate for the nation and for the Midwest, according to a new study by the Wisconsin Industrial Energy Group (WIEG), which advocates for manufacturing companies in the state.

But since then rates in the state have steadily risen, led by huge utilities like Milwaukee’s We Energies. In 2002, the report found, Wisconsin’s average industrial rate had risen to the point it was higher than the Midwest average and by 2009 it surpassed the national average.

The change came because, year after year, since 2002, Wisconsin’s utilities have relentlessly raised their electric rates faster than the rate of inflation. Since 2002 the rates have risen by about 80%, which has had a huge impact on the members of WIEG, who include 25 of Wisconsin’s largest energy consumers. “Most of these companies have electric bills of of over $1 million each month, and it is one of their top costs of doing business,” the report noted.

And they have gone from having a cost advantage compared to other manufacturers in the Midwest and U.S. to a major disadvantage. “The cost disadvantage can easily add up to millions of dollars more paid annually in electric bills in Wisconsin versus similarly situated customers in the Midwest.”

And that has a ripple effect on the entire state. Wisconsin has long been one of the leading states, along with Indiana, in the percent of its workers employed in manufacturing. “Manufacturing currently employs nearly half a million people with above average wages across Wisconsin,” the report notes. “Manufacturing provides $68 billion annually or roughly 20 percent of the state’s gross domestic product.”

WIEG has presented evidence that even modest increases in electricity prices can erode the competitiveness of these companies. “In one 2021 study, the analysis concluded that just a 10 percent increase in relative electricity prices will result in a 2 percent decline in manufacturing employment. In a second, conducted in 2022, the study concluded similarly that an 8 percent increase in electricity prices would lead to a 2.1 percent decline in manufacturing employment.” In short, rising electric rates are a drag on the economy and reduce employment in Wisconsin.

When asked for comment, We Energies spokesperson Brendan Conway offered no rebuttal of this information, but said that as a result of “real-time pricing programs” offered by We Energies, “WIEG members now pay rates below the Midwest average for industrial customers.” But he offered no statistics to prove this contention.

WEIG’s study, by the way, also found that residential and commercial electric rates in Wisconsin are higher than all but one of the 11 other states in the North Central region. But as I’ve written in the past, the utilities have such clout with politicians that you would expect that consumer groups like the Citizens Utility Board would lose the battle to the high-paid lobbyists of utilities like We Energies pushing the Public Service Commission (PSC) for rate hikes.

But this study shows the state’s biggest manufacturers are also losing the battle over rates with utilities. How is this possible in a state where the Legislature has been run by Republicans for 13 years, with 8 of those years under a Republican governor, Scott Walker, whose victory speech famously declared the state was now “open for business”?

Yes, the the utilities are private companies, but they are publicly regulated monopolies with no risk of going out of business going up against manufacturers that face dog-eat-dog, national and international competition. Trying to win this game while paying far higher energy costs puts them at a huge disadvantage.

So why doesn’t the mighty Wisconsin Manufactures & Commerce, which has spent as much as any group in the state on campaign spending and lobbying, use its tremendous clout to push for lower utility rates? The group’s name declares that its first priority is the state’s manufacturers, and its mission states it is “dedicated to making Wisconsin the most competitive state in the nation.” Yet checking its website’s press releases related to utilities going back to 2011, there is not one statement, not one word calling for lower utility rates to make the state’s manufacturing companies more competitive.

Why is that? “The WMC has all of the utilities in the state on their board,” a Capitol insider tells Urban Milwaukee. “The utilities are usually the gold or platinum sponsor of every major WMC event. They also help fund the campaign finance efforts.”

But Nick Novak, spokesperson for WMC, took issue with this, stating that the group’s 53-member board includes just one from an investor-owned utility and that the WMC has recently opposed a Residential Affordability Program intended to make costs more affordable for residential rate payers, arguing this would result in utilities shifting their costs to industrial and commercial ratepayers.

But the fact that the Wisconsin Industrial Energy Group was created decades ago to lobby for lower utility rates tells us the state’s manufacturers didn’t believe the WMC was doing enough to represent their interests and felt they needed to fund a new advocacy group.

And what about the Metropolitan Milwaukee Association of Commerce, which represents 2,000 companies all over the metro area, many of whom must compete with companies in other states paying less for electricity. Why does the MMAC never fight We Energies’ aggressive requests for rate hikes?

The same reason. We Energies is a huge contributor to the MMAC, paying $194,000 in dues to the group in 2022, as noted on page 89 of the company’s recent report. And the We Energies Foundation gave the MMAC foundation a $100,000 grant in 2020. Which was a small part of the $9 million in donations the foundation distributed that year, no doubt connecting to countless friends and relatives and favorite causes of the 2,000 member companies of the MMAC. Not to mention that WEC Energy Group executive chairman Gale Klappa was MMAC board chair for some years and Scott Lauber, current WEC Energy Group President/CEO, now serves on the board.

In short, the utilities have effectively muzzled the two groups who would be their post powerful opponents and who have tremendous clout with the state Legislature. And they have done it with contributions from all the companies represented by the WMC and MMAC, who have paid ever higher prices for electricity every year. We Energies and other utilities claim the money their companies and foundations give away comes from the stockholders, but of course the stockholders money comes the utilities’ bountiful revenue, which is driven by industrial, commercial and residential rate payers. (Urban Milwaukee reached out to the WMC and MMAC for comment but has not heard back as of publication.)

The latest power grab by the utilities is a bill before the Legislature called the Right of First Refusal law, which would end the requirement for competitive bids to build hew transmission lines in Wisconsin and instead hand the business over to the “incumbent carriers” in this state, which are American Transmission Co. (ATC), Xcel Energy and Dairyland Power Cooperative.

This would be very profitable for ATC and the utilities in this state which own it (WE Energies owns 60% of ATC), and their assembled companies and advocacy groups have hired 45 lobbyists to push for the bill, one of the largest such lobbying efforts in recent memory, as Urban Milwaukee has previously reported.  The lobbyists are still hoping to pass the bill before the current Legislative session ends this month. If it does, that will further increase the costs for rate payers in this state, which will generate more money the utilities can use to buy off groups like the WMC and MMAC. You have to hand it to the utilities: they know how to play the power game.