MPR: Electric Demands Could Exceed Minnesota Capacities

Electric Demands Could Exceed Minnesota Capacities
By Andrew Haeg
December 12, 2000

The state Department of Commerce predicts demand for electricity in Minnesota will outstrip supply in five years. Now business leaders and others are urging state regulators to prevent a shortfall without permitting big price hikes. The Minnesota Chamber of Commerce held a forum to examine the choices Minnesota faces in deciding how to restructure its power sector. The Chamber also brought in officials from other states to relate their triumphs, and failures.

THE CHAMBER CHOSE A FITTING TIME to press its case - thermostats and Christmas lights are sucking more energy now than just about any other time of year.

But December 2006 might find state consumers less festive, and sleeping in sweaters, if government estimates are right. In five years, the Department of Commerce predicts Minnesota will be short 3,000 megawatts of electricity, roughly the power produced by three Prairie Island power plants.

"We are not in a crisis situation, but we could move to that," says Linda Taylor, the state's deputy commissioner for energy.

In the 1970s and '80s, Taylor says, Minnesota power suppliers built too many plants. But she says the strong economy and the spread of computers and other power-hungry appliances are bringing the era of excess electricity to a close.

"In the last decade, we have used up that excess capacity, or we're close to doing that and demand has grown twice what the projections were," says Taylor.

But power companies haven't activated a new, large plant since 1987, and aren't planning to soon because they think current regulations don't provide them enough return on their investment.

"In order to have a viable market there has to be choice," says Bill Blazar, senior vice president of the Minnesota Chamber of Commerce.

Blazar and others would like the state Legislature to open electricity markets to competition and allow more than one supplier sell power to a community. They hope the promise of profits will encourage suppliers to build new plants, thus averting a power shortage.

Restructuring is tricky. It requires legislators to delicately balance incentives with sanctions to ensure reliable, universal service, all while keeping prices reasonable.

Blazar urges the Legislature to restructure the power the energy industry, so the state's businesses can plan for the future.

"The Legislature needs to make that decision and tell everyone, customers and power producers alike what the rules of the road are going to be in Minnesota, so that we can make investments not only in additional power supplies, but also in conservation efforts accordingly," Blazar says.

Restructuring is tricky. It requires legislators to delicately balance incentives with sanctions to ensure reliable, universal service, all while keeping prices reasonable.

To find that balance, Minnesota is looking to other states for lessons. Many consider Pennsylvania's regulatory reform a success. Before restructuring in 1996, 11 energy suppliers provided power to the state; today, there are 130 suppliers. Proponents say Pennsylvania's electricity consumers have reaped big savings.

"Our economy has grown at a faster rate than the national average," notes Frank Tulli, a Republican member of Pennsylvania's House of Representatives. "Our retail sales have grown at a faster rate than the national rate than the national average, because these Pennsylvanians had an extra $1 billion in their pocket last year."

Lest deregulation seem a no-brainer, California provides a cautionary tale. The state's recent deregulation coincided with a supply shortage, in part due to the dramatic rise in power demands from the state's heavily wired dot-com economy.

MINNESOTA'S ENERGY FUTURE
Read more about how Minnesota uses energy and about what the state might do to accommodate those needs in a draft report prepared by the Department of Public Service. Download pdf file.

Now, Californians' electric bills are skyrocketing; some parts of the state have experienced brownouts; and fears of blackouts loom.

Experts say deregulation only exacerbated the underlying supply shortage. So Becky Kilbourne, Director of Market Development for the California Power Exchange, says Minnesota would be wise to make sure the supply is there before restructuring.

"If you wait until you get to the situation where you need to add capacity before you develop an energy-services industry, then it's too late, and you'll be in a situation like California," according to Kilbourne.

Bill Blazar of the Minnesota Chamber of Commerce says the group will use the lessons of California and Pennsylvania to shape a bill it plans to put before the Legislature in the upcoming session.

Next: Natural Gas Prices Skyrocket

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