Put energy costs in perspective

Wisconsin faces several challenges with respect to energy and the state’s long-term economic health. Affordable, reliable electricity keeps our stores open, factories running and employees paid.
For most Wisconsin manufacturers, maintaining certainty over energy supply reliability, while meeting energy demands in the most efficient and cost-effective manner possible, is a key issue.
In May, the Citizens Utility Board (CUB) and the Wisconsin Industrial Energy Group (WIEG) issued a report blaming the Wisconsin Public Service Commission (PSC) for rising electric rates, concluding that our electric rates are out of control and driving away new business and stymieing job creation.
CUB and WIEG assert Wisconsin electric rates are rising out of control, particularly when compared with surrounding states.
Electric rates have indeed gone up in the last couple of years. However, according to the most recent Wisconsin Department of Administration report on electric rates, electric power is the only major fuel source used by residences and businesses in Wisconsin which, when adjusted for inflation, has actually decreased over the last 35 years.
Compared with some other states in the Upper Midwest, Wisconsin’s electric rates have risen more rapidly. But there are artificial factors in the comparison contributing to this trend. Major energy providers in Illinois and Michigan, for example, have been under a rate freeze for several years due to statutory provisions related to retail choice initiation in those states.
Once these price freezes are removed, it is anticipated rates in Illinois and Michigan will rise significantly, in response to fuel cost fluctuations and new infrastructure cost recovery.
In other words, the very factors driving up rates in Wisconsin will have the same effect in Illinois and Michigan once the cost freezes are removed.
A more political criticism lodged by CUB and WIEG in their report contends that higher rates in Wisconsin have been heavily driven by the trend of the PSC ordering very high rates of return on utility investment in rate cases. This argument rests upon a flawed and incomplete view of traditional rate-setting policy in Wisconsin.
While it is true that the PSC-ordered returns on utility equity in Wisconsin are high compared with other states, such returns contribute to stable credit ratings, lower debt interest rates and more stable overall costs of capital.
Once the complete picture is seen, the overall weighted costs of capital for Wisconsin’s utilities compare favorably to similar costs in neighboring states. This is the reason why Wisconsin’s utilities on average maintain some of the most stable overall credit ratings in the nation. Credit stability is critical in the eyes of investors at the current time, when Wisconsin’s utilities must compete to attract billions of dollars in capital necessary to accomplish vital generation and network upgrades to enhance its reliability and provide expanded market access.
While many factors contribute to a good business climate, we must maintain access to reliable, competitively-priced electricity. Electricity is an absolute necessity for our jobs, our economy and our families and, as such, Wisconsin is ill-served by groundless attacks regarding energy costs.
R.J. Pirlot is an expert on energy policy and serves as the legislative relations director for Wisconsin Manufacturers & Commerce, the state’s largest business lobby.
August 6, 2004, Small Business Times, Milwaukee, WI