How Michigan’s high electricity rates put taxpayers on the hook for auto industry ‘blank check’

It is well-understood that high energy prices make it harder for businesses to stay competitive. In Michigan, lawmakers are trying to put a taxpayer-funded band-aid on their economy by giving money to private companies to do business in their state rather than take the necessary steps to fix their broken energy system.

An article in the Detroit Times did an excellent job of explaining the situation:

In September, Ford announced plans to build new electric vehicle campuses in Kentucky and Tennessee. Michigan wasn’t in the running during the automakers’ site selection process, and state lawmakers this week proposed their response: A corporate welfare package that critics labeled a “blank check” for the auto industry.

The GOP-authored bill, approved with bipartisan support in both chambers and headed to Gov. Gretchen Whitmer’s desk, creates a new “shell” mechanism that would funnel money to the Michigan Economic Development Corporation. Lawmakers say the new fund is specifically designed to help the state land new EV battery plants, and will likely benefit automakers like Ford, which cited Michigan’s high energy costs as a reason for opening plants in other states.

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Ford’s decision to build plants outside of Michigan “sent shockwaves through our state,” Rep. Jason Wentworth told reporters on Wednesday.

“And we need to make sure we have the resources and tools ready to be competitive across the country,” he added.

Lawmakers’ perceived need for hefty new tax incentives to secure EV battery plants partly stems from DTE Energy and Consumers Energy’s high electric rates. Battery plants chew up to five times more electricity than normal auto plants, and while Ford cited a number of factors that influenced its decision, it listed cheaper energy costs as a main issue.

An Outlier Media analysis of electricity rates in Kentucky, Tennessee, and Michigan found that an industrial giant like Ford could potentially save between $18 million and $35 million annually by locating their plants in regions with cheaper rates.

Rates in Tennessee are much lower because the state is largely served by a publicly owned utility that has fewer costs than private, investor-owned utilities like DTE or Consumers. Public utilities don’t have to make dividend payments to Wall Street investors that add hundreds of millions of dollars to their annual costs, so its business model incentivizes economic efficiency. Public utilities also get lower borrowing rates and pay fewer taxes, which helps keep down costs.

That leaves Michigan at a disadvantage with its expensive energy, though battery makers have opened factories in Holland, Michigan, which is served by a public utility that’s surrounded by Consumers’ territory. Outlier found that an industrial customer like a battery plant could save $20 million annually by locating in Holland Board of Public Works territory instead of Consumers.

The article from the Detroit News did an excellent job of describing the symptoms of bad energy policy, but did not do a good job of diagnosing the cause.

Electricity rates in Michigan are skyrocketing because electric companies are rushing to shut down their reliable, affordable coal-fired power plants and replace them with an expensive combination of wind, solar, and natural gas plants. This plays a much more significant part in rising costs than utility profits, even though these expenses can be substantial.

Center of the American Experiment is currently working with the Mackinac Center for Public Policy to determine the cost of the plan put forward by Consumers Energy. This plan would shut down existing coal units and build thousands of megawatts of solar capacity, even though Michigan is one of the least sunny places in the nation.

Minnesota will see more and more stories of businesses who consider leaving the state due to high energy prices. Lawmakers will likely try to lure them to stay with taxpayer dollars, but this isn’t how our government should attempt to foster economic development.

The best way to grow Minnesota businesses is by having a business climate that rewards entrepreneurs for taking risks, starting companies, and creating goods and services that other people value. Ensuring we have affordable energy prices is an essential part of having a healthy business ecosystem.

Let’s hope Gov. Walz learns this lesson before too many companies leave the state.