State regulators worked to keep utility rate increases in check for big factories and other large energy users this year, a move that will mean higher power prices for many other businesses and homeowners.
The move is tied to Gov. Scott Walker’s job-creation goals, according to Phil Montgomery, Public Service Commission chairman.
“Is it by design? Yes. We believe it helps in job creation,” said Montgomery, one of two Walker appointees on the three-member panel that regulates utility rates in Wisconsin. Montgomery previously was a Republican state representative from the Green Bay area.
“It’s been a goal of this governor to help every way we can in job growth and creation, and we viewed that, in the setting of the rates, that if we can come up with a fair mix for all that helps job creators, then that’s a good thing,” Montgomery said.
In rate cases finalized last month involving utilities in Milwaukee, Madison and Eau Claire, large manufacturers received smaller percentage increases than homeowners and other businesses. For example, We Energies was granted an overall electricity rate increase of 4.2% for 2013, but large companies got only a 3% boost while homeowners and small businesses got rate increases of at least 5%.
The decisions favoring big manufacturers come on top of discounts already in place for the nearly 900 largest energy users in the state – primarily big manufacturers.
Big users get discounts
Those discounts originated from a 2005 law that capped how much the largest energy users have to pay to support Wisconsin’s Focus on Energy program, which provides energy-efficiency incentives and funds for renewable energy projects.
By the end of this year, those companies across the state will have paid at least $68 million less on their electricity bills since 2010 because a “temporary” cap that was written into the 2005 law remains in place.
The discount, totaling more than $18 million this year alone, means smaller businesses are paying more to make up the difference in order to fund Focus on Energy.
The discounts and the lower rate increases are justified, a manufacturers’ group says, given that Wisconsin has higher electricity rates than surrounding states and that manufacturers are facing a brutally competitive landscape.
“After making billions in investments in new infrastructure in the last decade, Wisconsin’s electric rates have gone from some of the lowest in the country to now among the highest in the Midwest,” said Todd Stuart, executive director of the Wisconsin Industrial Energy Group. “Wisconsin is a manufacturing state and manufacturing is energy intensive. Energy costs have an impact on Wisconsin companies being competitive nationally and globally.”
But homeowners and renters shouldn’t have to bear the burden, said Charlie Higley, executive director of the Wisconsin Citizens’ Utility Board. Rates for residential customers have climbed faster during the past decade than they have for factories, he said.
“While we understand the need to ensure Wisconsin businesses remain competitive, these higher rate increases put more burden on residential customers during this tough economy,” Higley said.
A review of average electricity prices in all 50 states found that Wisconsin’s rates in 2012 were higher than the national average and second-highest among eight Midwest states, both for residential and industrial customers.
At 13 cents per kilowatt-hour, Wisconsin’s residential rates were about 12% above the national average, while industrial rates averaging 7.5 cents a kilowatt-hour were 11% above the U.S. average.
Wisconsin utilities say the investment in new power plants will pay off over time. Electricity that isn’t needed by the state’s businesses and homeowners is sold into the Midwest energy market, helping offset rate increases, they say.
PSC Commissioner Eric Callisto, who chaired the commission under Democratic Gov. Jim Doyle, broke from the Republicans on the commission in objecting to the rate treatment of large manufacturers. He said the commission was unnecessarily pushing up rates for other businesses while making moves to keep industrial rate increases low – or in some case adding discounts for large manufacturers.
Callisto last week sent a letter to leaders in the state Legislature asking that the large companies’ Focus on Energy discounts be changed.
A 2011 audit by the Legislative Audit Bureau found that some large companies that received Focus incentives paid nothing at all toward the program in their rates.
The state law that established Wisconsin’s renewable energy target and funding for energy efficiency capped manufacturers’ rates at whatever they were paying in 2005. In some cases, that means they are paying nothing toward the program, while many manufacturers pay less than they would if they had not been capped, Callisto said.
“Wisconsin commercial, industrial and lighting customers that are not large enough to meet the LEC (large energy customer) threshold are required to pick up these extra amounts, and essentially subsidize the rate break enjoyed by the state’s LECs,” Callisto wrote.
Nearly 300 customers of We Energies, the state’s largest utility, will see a “rate break” of about $14 million this year as a result, Callisto said. Statewide, the discount for large users amounts to about $18.6 million this year, according to the PSC.
When he was chairman, Callisto said, the PSC in 2008 had recommended a plan to phase out the discounts over three years, but the Legislature did not act on it.
Montgomery – whose top aide came to the PSC from Wisconsin Manufacturers & Commerce, the state’s largest business lobby – said it was up to the Legislature to decide whether to make the change.
In a letter to lawmakers last week, Montgomery wrote that revisiting one piece of that bill doesn’t make sense without reopening all of the compromises that led to widespread and bipartisan support for the bill at the time.
“It’s a can of worms to reopen those debates,” said Stuart, a former state Senate aide who – like Montgomery – worked on the bill. “There were a lot of different compromises in that bill. To get large customers and business groups to sign off on the 10% renewable mandate, there needed to be a number of other provisions to limit their financial exposure.”
But Higley said the time has come to end the discounts, particularly at a time when industrial customers are seeing lower rate increases.
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