WisBusiness: State electric costs could dampen manufacturing growth

By Brian E. Clark

MADISON – Some manufacturers say the Badger State’s economic recovery is threatened by rising electricity costs that have made it one of the most expensive states in the Midwest for manufacturing.

Just ask Tari Emerson, procurement manager for Charter Steel in Saukville.

The cost of energy at her plant has risen 30 percent in the past five years. And while she said her firm has no plans to leave Saukville, electricity rates were a factor in Charter’s decision to expand in Ohio this year rather than Wisconsin.

Charter bought an existing operation in Ohio and is building a melt shop that will have 140 positions, she said. The Saukville plant has 550 jobs.

“I worry about what electric rates in Wisconsin will be five years from now,” she said. “We make our business decisions based on overall costs.

“But we probably will load up at the less expensive plant and use the more costly one for fill-in,” she said.

The story is even more dire at Vulcan Chemicals in Port Edwards, where plant manager Steve Heiger said energy costs have risen 60 percent in six years.

The company has 72 employees and contributes between $30 and $40 million to the local economy annually. It has been in operation since 1967, but is in danger of scaling back.

“Energy is one-third of our budget,” he said. “It is one of the key components to our viability.

Production may be shifted to other plants. If we can’t control our energy costs, our future is not bright.”

According to Nino Amato, executive director of the Wisconsin Industrial Energy Group, the situation for Wisconsin electricity consumers is a far cry from seven years ago, when Wisconsin could boast that it had the lowest rates across the board in an eight-state region.

Since then, industrial and residential rates have jumped to the top and commercial rates are now in the middle, Amato said, whose trade association represents large manufacturers.

“Wisconsin has clearly lost its low-cost competitive position in the Midwest on energy costs for industrial consumers,” he said.

“Worse yet, this is before most of the utility capital costs from the new building cycle for generation and transmission have begun to hit rate payers,” he said.

We Energies alone plans to spend at least $3 billion on now power plants in Port Washington and Oak Creek. Surcharges to pay for those plants are already starting to appear on electric bills. Other plants and transmission lines worth more than $1.5 billion are also in the works.

“It’s going to hurt,” Amato said. “And utilities are going to be going before the state Public Services Commission asking for more increases.”

Amato blamed the PSC for passing on what he called “unjustified” rate hikes during the Thompson and McCallum administrations. Since 1997, electric rates have risen by more than 26 percent – which he said translates into more than $767 million in energy rate increases.

“The rate of return for utilities in recent years has been the highest of any state outside of Alabama,” he said. “And this was while interest rates were the lowest since the Great Depression.”

He said things have improved under the leadership of PSC Chairperson Burnie Bridge, who was appointed by Gov. Jim Doyle.

Bert Garvin, a PSC board member who was appointed by former Gov. Tommy Thompson, said he is sympathetic to commercial, residential and industrial consumers, but said rising costs can be traced primarily to Wisconsin’s need for new plants and transmission lines.

“There are significant cost consequences to insure reliable service,” he said. Garvin also noted that natural gas rates, which can figure significantly into industrial users energy costs, are not regulated by the PSC.

In addition, he said it was unfair to compare Wisconsin to other Midwestern states such as Michigan, Illinois and Ohio – where rates have been frozen – or others such as Iowa that have not undertaken major building programs.