Last week, the Public Service Commission approved what amounts to an 8 percent increase in the projected monthly electric bills for residential customers of We Energies. As I reported in an Endgame last year for this magazine, the gas rates charged by We Energies rose by 112 percent between 1999 and 2007, while electric rates rose 40 percent. What business wouldn’t love to continually hike its prices faster than the rate of inflation?
We Energies, by the way, requested an 11.3 percent increase in the monthly projected rates, and that tough regulatory body, the Public Service Commission, made the company cut back to a measly 8 percent increase. This is an annual game, of course: Utilities come in with outrageous requests for price hikes, and the PSC makes the companies cut back to a rate hike that is merely exorbitant.
We state taxpayers pay for the budget of the Public Service Commission, which is $24.6 million annually. About $15 million of that budget is devoted to regulating utilities in Wisconsin. Nobody ever said regulation was cheap, but what exactly are we getting for our money?
Over the years, observers have suggested the PSC, like many government regulatory bodies, is too close to the companies it oversees, and people with ties to the industry get appointed to the PSC. Indeed, it was this argument that helped lead to the creation of the Citizens Utility Board in 1980. This agency was created by the state legislature to protect consumers (it seems the Public Service Commission didn’t do this so well) and later spun off to become an independent nonprofit. CUB’s annual budget is about $850,000.
So gosh, we have two separate agencies overseeing the utilities. Then how come they keep getting to pile on the rate increases? Maybe because the deck is still stacked in favor of the utilities.
Here’s how it works: A utility like We Energies gets to hire the best experts that money can buy to help make its case that a rate increase is needed. “They have no restrictions on what they can pay experts, and that’s paid for by the ratepayers,” says Charles Higley, executive director of CUB. (We Energies spokesman Brian Manthey says his company can only recover “reasonable costs” incurred.)
But CUB can’t afford the top experts. “We have to pay below-market rates for the experts we hire,” Higley notes. “It’s not a fair fight. It’s very frustrating.”
But it gets worse. Most of CUB’s money – about $500,000 a year – comes from the Public Service Commission. So doesn’t that make it difficult for CUB to criticize the decisions made by the PSC? “Absolutely. We have to be very careful,” Higley admits. “It does limit our independence.”
In last week’s news account of the rate hike approval, Higley actually praised the PSC for slightly reducing the maximum profit level We Energies can earn to a mere 10.4 percent. From 1990 to 2006, as I’ve previously reported, We Energies averaged an annual profit of 11.4 percent.
The thing is, We Energies is a monopoly. It will never go out of business. It will never lose its market. What could be a safer bet for stockholders than a utility? Are we to believe you couldn’t find stockholders who might be satisfied with a mere 8 percent average annual return?
Then there is the compensation earned by We Energies CEO Gale Klappa. Even as the company has socked its ratepayers and greatly increased heat and electricity costs for low-income people in Milwaukee, Klappa’s pay keeps increasing. According to Forbes magazine, Klappa earned $3.17 million in 2006, when he was the 357th-highest-paid CEO in America. That rose to $4.7 million in 2007, as Klappa rose to 310th-best-paid CEO, and then to $5.9 million in 2008, as Klappa jumped to the 226th-best-paid CEO, according to Forbes. (In a different computation for 2008, including all forms of compensation, Forbes tallied Klappa’s full take at $9.9 million!)
No one can doubt he earns his pay, given the huge return for stockholders, and the endless rate hikes for the company. Indeed, Klappa’s very success is what’s killing every ratepayer in this metro area.
Handicapping the Governor’s Race
In the wake of President Obama’s speech in Madison, the Democratic Party of Wisconsin released a statement chastising Republicans for not being nice to the president, and somehow lumped in the remark of GOP gubernatorial candidate Mark Neumann. What Neumann said was this: “Do we want for all of Wisconsin what is happening to Milwaukee?”
This wasn’t aimed at Obama but was actually a clever, bipartisan attack. Neumann was really criticizing any candidate for governor from Milwaukee, be it Republican Scott Walker or Democrat Tom Barrett. Neumann’s best chance of beating Walker in the primary is to relentlessly connect him to Milwaukee and all of its ills, from crime to poor-performing schools to Milwaukee County’s budget problems. Many outstate voters have a dim view of the state’s biggest city. If Neumann’s strategy works against Walker, it will probably work even better against Barrett.
I don’t think Neumann will succeed, mostly because Walker is a more likeable, stronger candidate. Walker has a big head start: He has really been running for the post since 2006, traveling the state and making connections that will serve him well. The fact that an old guard, Tommy Thompson-Republican like Jim Klauser has changed his mind and dropped his support of Neumann underlines the view of GOP insiders, that Walker is too formidable to be beaten by an outsider candidate.
Which means we’ll get an all-Milwaukee general election. In a state that has long been averse to Milwaukee candidates, that’s remarkable. Walker’s advantage is that the state budget is a mess, with a big structural deficit. He has already begun referring to the Doyle-Barrett state budget, though Barrett had nothing to do with it.
Barrett’s advantage is that the city looks very well-run compared to the county, which is a fiscal basket case. Barrett, of course, inherited a much better-run government than Walker did, but that may not matter to outstate voters who don’t follow these issues.
If voters want an anti-government candidate, if they believe tax-slashing will improve the economy, they will pick Walker. If they want a consensus player who will work with both parties and believes government can improve the lives of a recession-plagued populace, they will pick Barrett.
But elections are never just about issues. The personalities of candidates are important. In that sense, this could be a memorable election. For both Walker and Barrett are classic candidates, who seem like average Wisconsinites, except better-looking and more well-spoken. They are the perfectly idealized version of how we see ourselves. Voters will be able to connect to both candidates.
The wild card might be Barrett’s act of heroism in defending a woman hassled by a violent man. Barrett truly put his life in danger and sustained serious injuries that are still hurting him. Barrett has always been seen as Mr. Nice Guy, but this act suddenly put grit into that persona; it dramatized his basic decency. In an age when voters suspect every politician of insincerity, Barrett did something so genuine that it will forever define his humanity. That is not a small thing, and it may reverberate powerfully come November 2010.
The Buzz:
-Former Republican state representative Terri McCormick has entered the race for Congress against Democratic incumbent Steve Kagen. McCormick is an independent thinker who has in the past bucked party bosses and could make an interesting candidate.
-Let’s hear it for academic freedom. The student-run UWM Post is suing the administration for records. Coming on the heels of UW-Milwaukee researcher Marc Levine’s report attacking the university’s strategy for growth, no one can say there isn’t some sifting and winnowing for the truth going on.
-Good news/bad news: A highly encouraging new report shows that Milwaukee ranked 16th among all big metro areas for high-tech economic growth from 2003 through 2008, and Madison ranked 18th. But UWM researcher John Pawasarat offers sobering statistics in a recent op-ed: More than 45,000 people are unemployed in Milwaukee County, and there are 13 applicants for every job opening and 25 applicants for every job in the central city.
-And did the Bucks’ Brandon Jennings outshine the Packers? The Sports Nut tracks the new national sensation.
