Tuesday, March 28, 2017

Wisconsin Manufacturers Call for Retail Choice

By Amanda Durish Cook

Wisconsin regulators began considering electric competition in 1994 but closed the docket in 2000, deciding not to implement retail choice. Now, with the state’s rates the highest in the Midwest, some big power users are calling for another look.

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Wisconsin’s large manufacturers are asking state regulators to grant them retail choice, warning that high power prices may otherwise cripple the state’s economic growth. Companies and manufacturing groups filed comments with the Wisconsin Public Service Commission in response to the PSC’s Strategic Energy Assessment (SEA) 2022, a biennial report finalized late last month that forecasts Wisconsin’s power needs six years into the future (5‐ES‐108).

The 70-page report notes that Wisconsin electric rates are the highest among Midwestern states and higher than the national average. In 2015, average industrial rates in the state were 7.77 cents/kWh, versus 6.86 cents/kWh for the Midwest and 6.89 cents/kWh for the U.S. Across all electric use, Wisconsin residents and businesses pay an average 10.93 cents/kWh, compared to the Midwest’s average of 9.66 cents/kWh and the national average of 10.42 cents/kWh.

In a joint comment, the Wisconsin Paper Council and the Wisconsin Industrial Energy Group, which represents more than 30 large industrial ratepayers, said “energy and capacity are not available at reasonable prices in Wisconsin.”

“This trend is of grave concern and results in more industrial load being at risk of expanding or relocating in states with greater market access and/or much lower rates. Action needs to be taken now to prevent the situation from deteriorating further,” the groups said.

The manufacturing advocates also proposed a hybrid solution as an alternative to total retail choice. It calls for competitive bidding on transmission and generation construction projects, incentive-based demand response programs and real-time pricing for all utilities.

Charter Steel, whose Saukville, Wisc., manufacturing facility is the largest single-site customer of We Energies, said the utility’s “above-market” rate increases are to blame for the “largest percentage increase in electric rates of any state in the nation” from 1997-2015. The PSC’s assessment did not contain that claim, but the report notes that in the late 1990s, Wisconsin entered a two-decade electric construction boom and utilities “are now recovering associated construction costs in rates.”

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Charter blames “a massive level of excess electric generating capacity” from WE for the hikes and says that electricity expenses are higher than labor costs at its Saukville plant. The company said the state should open a retail market for at least the largest electric customers.

“Every lapsed year with the status quo is an unnecessary tax on southeast Wisconsin electric users measured in hundreds of millions of dollars,” Charter wrote.

The Retail Energy Supply Association, a trade group of competitive retail electric and natural gas marketers active in nearby Michigan and Illinois, echoed Charter in comments, calling for a “well structured” competitive market.

RESA spokesman Bryan Lee said the Wisconsin veto of market restructuring can be contrasted with Illinois’ outcome.

“In the late 90s, when just about every state in the country was considering the failure of monopoly regulation and introducing competition, Wisconsin was the leading state. In those days, Wisconsin was the low-cost state. The regulators said Wisconsin was low-cost and decided against it while the then-high-cost state of Illinois decided to adopt it. To make a long story short, it’s a tale of two states. The states have flipped: Illinois is one of the least-cost states and Wisconsin is one of the highest cost states.”

Lee said it is a “disservice” not to have retail choice. “There’s no question that competition works,” he said. “We use competition in every other segment in our economy.”

The Wisconsin PSC opened generic docket 05-EI-114 in 1994 to collect stakeholder comments on the issue and created a 22-member advisory panel to explore the issue. By 1996, a PSC report to the state legislature suggested that competition could be introduced in Wisconsin as soon as 2001. However, the commission’s 2002 SEA concluded that “the competitive market is not providing a reliable source of capacity at a reasonable price.”

The Illinois Energy Professionals Association, an organization of consultants to industrial, commercial, government and aggregated residential electricity customers, filed comments saying the Wisconsin PSC should consider retail choice as their state had, saying it can reduce rate increases.

The group said retail choice results in more accurate and timely price signals. The regulated format “is inherently incapable of responding to prevailing conditions that are distinctly different from those for which the regulated vertical monopoly was originally designed,” it wrote.

A spokesman for Wisconsin’s Department of Agriculture, Trade and Consumer Protection said the department had no position on the matter.

Legislation Required

Jeffrey Ripp, an administrator of the Wisconsin PSC’s Division of Energy Regulation, said it would require legislative approval to switch to deregulation, even if it was recommended by the PSC. “There isn’t a whole lot we can do because we do what the Legislature tells us to do,” Ripp said.

In the SEA, the commission said it “continues to investigate ways to mitigate electric rate increases to ensure Wisconsin remains competitive in a global marketplace.” The report also said the PSC is considering allowing generators to sell excess capacity into the MISO markets.

The Citizens Utility Board (CUB), a consumer group, urged the PSC to allow utilities to sell excess capacity elsewhere. “For ratepayers to receive value from their investment, the commission and utilities must prioritize decreasing retail rates through cost control in rate cases and other measures, and utilities with existing and forecast excess capacity and energy must work to monetize this surplus through market sales, the revenues of which are returned to ratepayers through the ratemaking process.”

The CUB said the PSC’s main focus going forward should be cost control, “decreasing rate levels whenever possible.”

‘Little Evidence’

Not everyone buys the idea that retail choice results in lower prices. A study released earlier this year by Christensen Associates Energy Consulting for the Electric Markets Research Foundation concluded, “Nearly two decades later, there is little evidence that retail choice has yielded any significant benefits.”

The study also cited a lack of demand elasticity, saying customers’ short-term response to electricity prices was small and that customers’ willingness to be curtailed was “even smaller.”

According to the study, 14 states and D.C. currently allow retail choice, while eight states have since suspended or rescinded it.

Sarah Barry, executive director of Wisconsin energy consumer group Customers First Coalition, said her organization opposes deregulation efforts. Barry said rates for average consumers in deregulated states are about “30% higher than states with traditional utility regulation.”

“Wisconsin addressed this issue in the late 1990s and has successfully avoided the pitfalls of deregulation that customers in many states like Texas, California, Illinois and Michigan have faced and continue to face,” Barry said.

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