Electricity costs are at a critical point in Minnesota without government issuing more mandates. Current proposals in the Legislature, if left unchecked, will make it tougher for our company and hundreds of others to compete in the national and international marketplace. The result will be fewer jobs and a dramatic impact on the state's economy.
A reliable and affordable supply of electricity is among the Minnesota Chamber of Commerce's priorities and integral to a competitive economy. Both are at risk.
State policy-makers continue to promote renewable energy mandates with little discussion -- or even knowledge -- of their potential effect on electricity costs or reliability.
The latest example is Gov. Tim Pawlenty's directive in his State of the State speech that Minnesota set a "strategic goal" to produce 25 percent of its energy from renewable sources by 2025. No specifics were offered, but advocates of mandates take this as a "green light" for requiring utilities to add renewable generation regardless of its consequences for business and residential customers alike.
Businesses already are seeing substantial increases in electricity bills compared with a year ago. Utilities are imposing and/or seeking higher rates, in part due to compliance with government policies on renewable technology, reliance on the wholesale electric market to meet daily electricity needs rather than building their own generation, and higher costs for the fuel that powers their generators. For example, on any given day, Xcel Energy is buying a significant portion of its electricity on the wholesale market. Most of this electricity is produced with natural gas which makes it very expensive due to significant increases in gas costs during the past year.
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Manufacturers now are competing with utilities for gas. They need it to meet strict environmental requirements. We, on the other hand, need it to make our product. Rising costs hurt us all.
Double-digit increases in energy cost per kilowatt-hour are fast becoming the norm across the state. For example, a downtown St. Paul office building saw its January cost increase by 25 percent over last year. The cost at a St. Cloud manufacturer rose 16 percent, and the cost at our facility in Owatonna also is 25 percent higher than a year ago.
Several utilities -- including Xcel Energy, Southern Minnesota Municipal Power Agency, Dairyland Power and Alliant Energy -- have increased base rates. Other utilities seem likely to follow in the coming months.
Two legislative proposals would worsen the situation. One bill would require that utilities generate 20 percent of their electricity from renewable sources by 2020. The Minnesota Chamber supports development of renewable technologies but opposes additional mandates. Renewable technologies remain expensive, because to maintain reliability standards, they frequently require backup generation from a "dispatchable" power source -- typically, natural gas.
Another bill would mandate dramatic reductions in mercury emissions from power plants on a far more aggressive timetable than exists in current federal law. The Minnesota Chamber continues to work with all stakeholders to reduce pollution through voluntary efforts, but opposes legislative mandates to achieve reductions that may not even be possible with existing technology.
This nation is moving toward a cleaner energy future, and Minnesota is leading the way. Our state's commitment to current renewable technologies as well as financing research and development to create new ones leads the nation in almost every category. Hardly a week passes without a report on an alternative energy initiative.
Witness the fact that Xcel Energy has overtaken Southern California Edison as the nation's largest purchaser of wind energy, according to the American Wind Energy Association. Minnesota also ranks first in customer participation among leading utility green-power programs, according to the U.S. Department of Energy. Our state's commitment to community-based wind energy, a law passed in 2005, gives Minnesota farmers and small wind entrepreneurs a leg up on big producers like GE Wind and Florida Power & Light -- ensuring that the wind generation stays in Minnesota. A mandate would threaten these homegrown energy sources.
Renewable technology initiatives are good -- but there is a cost, especially when legislators insist on expensive mandates rather than incentives to grow the industry. We all must be keenly aware that every decision made by policy-makers or utilities may come with additional expense to customers.
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Jay Johnson is president of Bushel Boy Farms in Owatonna and a member of the Minnesota Chamber of Commerce's Energy Policy Committee.
