Gale Klappa seems like a model business leader. The energetic We Energies chief executive helped create the Milwaukee 7 group to promote the region’s economy. He is the local boy made good, a UW-Milwaukee graduate who served as co-chair of the UWM capital campaign that has raised more than $120 million, with a goal of growing the university and enhancing its impact on the community.
But ironically, Klappa’s company has meanwhile been killing local businesses – and residents – with ever rising gas and electricity prices. The company also seems lukewarm about a plan to save residents and businesses an estimated $150 million annually by retrofitting the city’s many older buildings.
Since 1999, We Energies’ per kilowatt-hour rates for electricity rose 40 percent, while gas rates skyrocketed by 112 percent per therm. The impact has been drastic. Census figures analyzed by the UW-Milwaukee Employment & Training Institute show the average cost of heat and electricity for the city’s renters nearly doubled in six years, rising from $1,318 in 2000 to $2,227 in 2006. The impact was likely even bigger for homeowners.
But rates have risen fastestfor businesses. “In the last 10 years, industrial rate increases for gas and electricity have gone up an average of about 7 percent annually,” says Todd Stuart, executive director of Wisconsin Industrial Energy Group, a nonprofit advocacy group that represents some 30 companies, mostly manufacturers (including Quad/Graphics, the parent company of Milwaukee Magazine).
Much has been written about the struggle of businesses to cope with rising health care costs. But as Stuart notes, energy costs have risen nearly as fast. He believes this has contributed to the hemorrhaging of manufacturing jobs in this region.
Most of the rise in We Energies rates predates Klappa and was caused by the skyrocketing cost of natural gas. We Energies has also faced the cost of building new plants. But its rates wouldn’t have risen as quickly if company stockholders didn’t get such a fat return. A study by Stuart’s group found that Wisconsin utilities had the
second-highest profit margin among 26 states studied, and that this high return to stockholders contributed to the increase in rates charged by the company.
Klappa has defended his electric rates, arguing they’re 5 percent lower than the national average. But the average is grossly inflated by high costs on the east and west coasts. “Wisconsin used to be among the lowest for electricity in the Midwest,” Stuart notes. “Now we’re among the highest.”
Klappa has also argued a lower profit margin could cause banks to charge his company higher interest for construction loans. But it’s hard to imagine a lower-risk debtor than a legal monopoly guaranteed a profit every year. Between 1990 and 2006, the Public Service Commission allowed We Energies anaverageannual profit of 11.44 percent. The company’s profit margin dipped below 10 percent only twice in 17 years. Meanwhile, Klappa has earned as much as $7.9 million annually.
Consumer advocates like Citizens Utility Board have been pushing state regulators to lower the allowed profits and rates charged by We Energies. And environmentalists have called for utilities like We Energies to embrace a dramatic program to retrofit older homes and buildings.
The easiest approach – the low-hanging fruit – to reducing this country’s dependence on fossil fuels is conservation: better insulation of older homes and commercial buildings, more efficient water heaters, furnaces, appliances, lighting and temperature controls. The Center on Wisconsin Strategy has estimated this city’s residents and businesses could thereby save a combined $150 million each year.
The problem is consumers won’t or can’t spend the up-front dollars to pay for this. But states like Hawaii, New Hampshire and Kansas have begun experimenting with programs that loan the money for retrofitting to customers, who then pay this back through savings on their monthly utility bill. The impact is so dramatic that customers actually pay less per month while paying back the loan. And when the home or commercial property is sold, the new buyer inherits the more efficient building and the billing arrangement created to pay for it.
All this retrofitting could provide a lot of jobs for Milwaukee while slashing the community’s energy costs. The COWS group has gotten support from Mayor Tom Barrett and a wide range of players to make this happen. But it can’t be done without the cooperation of We Energies.
A dramatic reduction in Milwaukee’s energy needs could mean less income and resulting profits for the company. But the Public Service Commission could certainly work out a deal that rewards We Energies – through its regulated rates – for embracing conservation.
The project is doable. But it ultimately requires Klappa to recognize that a publicly regulated monopoly has a responsibility to more than its richly rewarded stockholders and top executives. Residents and businesses throughout the city could benefit from conservation, if Klappa chooses to lead the way.
