Does Wisconsin have too many power plants?
Milwaukee Magazine|Matt Hrodey|November 10, 2010
A new report by the Wisconsin Taxpayers Alliance says the construction of new power plants in the state in recent years has driven up electrical rates, created excess capacity just when the recession was reducing demand, and eliminated the state's competitive edge as one of the nation's cheapest places to buy power.
A new report by the Wisconsin Taxpayers Alliance says the construction of new power plants in the state in recent years has driven up electrical rates, created excess capacity just when the recession was reducing demand, and eliminated the state's competitive edge as one of the nation's cheapest places to buy power.
Did Wisconsin go crazy for electric power at exactly the wrong time? A new report by the Wisconsin Taxpayers Alliance says the construction of new power plants in the state in recent years has driven up electrical rates, created excess capacity just when the recession was reducing demand, and eliminated the state's competitive edge as one of the nation's cheapest places to buy power.
Utilities in the state began building the plants after brownouts hit the state in the 1997 and 1998. "If you look at the 1990s, there was no investment being made, and then we ran into reliability problems," says Brian Manthey, spokesman for Milwaukee-based We Energies, the state's largest electric utility. The shortages were so bad, he adds, that some …
... more [truncated due to possible copyright]Did Wisconsin go crazy for electric power at exactly the wrong time? A new report by the Wisconsin Taxpayers Alliance says the construction of new power plants in the state in recent years has driven up electrical rates, created excess capacity just when the recession was reducing demand, and eliminated the state's competitive edge as one of the nation's cheapest places to buy power.
Utilities in the state began building the plants after brownouts hit the state in the 1997 and 1998. "If you look at the 1990s, there was no investment being made, and then we ran into reliability problems," says Brian Manthey, spokesman for Milwaukee-based We Energies, the state's largest electric utility. The shortages were so bad, he adds, that some manufacturers had to shutdown production temporarily. "We were way short," he says.
In Southeastern Wisconsin, We Energies replaced an aging coal plant in Port Washington with a new one fueled by natural gas costing $669 million. Its first half went online in 2005, and the second went operational in 2008. A more costly project was a new coal plant in Oak Creek. Its first half went online earlier this year, although it's suffered from technical problems and underperformed thus far, and the second half is scheduled to go online later this month. The total project has cost about $2.3 billion.
Those costs have been passed onto consumers. But as the capacity grew, reaching 82,502 megawatt hours in 2008, up from 58,653 in 1997, demand began falling off in the state. The recession began snuffing out industrial demand for power that could have helped pay for the plants. Power use dropped almost 2 percent in 2008, according to WisTax, and then 6 percent in 2009 as the recession set in and manufacturers closed shop or scaled back.
"Some of those jobs aren't coming back," says Todd Stuart, executive director of the Wisconsin Industrial Energy Group, which represents some of the state's largest electric customers. "There is a question of when demand will meet the infrastructure we have," he says.
According to WisTax, in 2008, the state consumed 70,122 megawatts, leaving excess capacity of about 15 percent. But Manthey says the state's recommended standard is actually 18 percent. "Your real measure of reliability is when you're able to meet peak demand," he says. Until recently, the state has relied on purchasing out-of-state power to meet demand during peak times. Between 1994 and 2003, consumption exceeded state's capacity for generating power.
Rates rise
WisTax finds that the state average electric rate rose about 5.6 percent a year between 2000 and 2009, higher than the national average of 4.2 percent. The group says the state, once ranked low nationally for its electric rates, has lost its edge. "Once well below the national average, prices here are now 20th highest nationally. In the Midwest, Wisconsin's rates have gone from low to relatively high."
Rising fuel and transportation costs, particularly rail costs, have also driven up rates in the state. We Energies is currently asking the PSC to approve a 1.4 percent rate increase due to increases in such costs. Manthey says the cost of its rail contracts swelled by $40.7 million earlier this year.
Stuart says the increasing rates are making some manufacturers in the state less competitive. The state's low electric rates, he says, "used to be one of those things we would brag about in our economic development promotions, but we can't do that anymore."
He adds, "Other states may catch up with us. They have their own mandates and retrofitting to do as well."
The PSC is also reviewing profits made by We Energies, which announced third quarter profits of about $112 million in October. Charlie Higley, executive director of the Wisconsin Citizens Utility Board, questions the profits earned by We Energies, which ultimately mean a greater return for the company's shareholders. The PSC currently allows We Energies to make an annual profit of up to 10.75 percent. "We want those profit levels reduced," he says.
More capacity coming
Many utilities in the state, including We Energies, are still adding capacity and developing new projects because of Wisconsin's new law which requires that, on average, 10 percent of the energy sold by the state's utilities come from renewable sources.
For We Energies, the standard, set by the state Public Service Commission, is about 8.3 percent. Earlier this year, the utility began work on what will be Glacier Hills Wind Park, a 90-turbine wind farm in Columbia County. It's also seeking approval to build a biomass plant in the Wausau area.
"They are being built in response to the state mandate, not a need for more power," Manthey says. He says the utility may launch another renewable energy project to help the utility meet the 2015 deadline for further increases in renewable energy.