The green industrial retreat
The Hibbing Foundry closes due to soaring electricity costs.
National news outlets such as The Wall Street Journal detail recent concerns about soaring energy prices crippling heavy industry in Germany and several other European countries. The nascent deindustrialization of Europe stems from decades of bad energy policies mandating massive malinvestments in wind, solar, and Russian natural gas.
Unfortunately, some areas of the United States that have pursued similar energy policies — sans the Russian gas — are beginning to experience their own “green deindustrialization,” including Minnesota.
On Friday, March 1, Indiana-based Metal Technologies announced it would close Northern Foundry, an electric induction foundry in Hibbing, Minn., due to the state’s skyrocketing electricity costs. The Star Tribune reports:
“Electricity cost is a major expense,” MTI said in a news release. “Minnesota Power’s repeated electricity rate increases … mean Northern Foundry pays substantially more per kilowatt hour than MTI’s other facilities.”
From 2009 to 2023, Minnesota Power, the Investor-Owned Utility (IOU) that served Northern Foundry, has increased electricity prices for industrial customers like the foundry by 62 percent, compared to the U.S. average increase of only 18 percent, making it increasingly difficult for energy-intensive businesses to compete with firms in other states and countries with more rational energy policies.
Northern Foundry was the definition of an energy-intensive business. The firm used electric induction furnaces to melt ductile iron into parts used for the automotive, heavy truck, industrial, and recreational industries. When operating at full capacity, the facility consumed six megawatts (MW) of power, equivalent to the average consumption of 5,660 Minnesota homes.
In an average year, this facility likely uses more than 30,000 megawatt-hours (MWh) of electricity. As rates have risen, the prices increased Northern Foundry’s costs by an estimated $1.2 million, or about 27 percent of the company’s payroll. Ultimately, they saw the writing on the wall and closed up shop for good.
“Green energy” kills good jobs
We are constantly told that enacting “green energy” policies will create a panacea of good-paying jobs, but American Experiment has been warning for years that Minnesota’s mandates for unreliable wind and solar would drive up costs and destroy thousands of the high-paying jobs we already have.
It was only a matter of time before these warnings became a reality.
The closure of Northern Foundry means 91 people no longer have jobs. These jobs were also union jobs, as the employees at the facility were members of the United Steelworkers union. The average annual pay for employees was around $48,900, with opportunities for overtime, health care benefits including dental and vision, 401k contributions, and even a match for 529 college savings plans, so workers could save money and invest it to pay for their children’s educations.
While $48,900 may not seem like much for people living in urban areas, in Hibbing, this is a very good wage. The U.S. Census Bureau estimates the median household income in Hibbing is $52,881, meaning one person working at Northern Foundry was almost making as much as the average household in the area.
These are the jobs that are emblematic of the American Dream, where hard work allows everyday people to earn good wages, buy a house, and put their kids through school. Members of the American left used to appreciate these jobs, but the energy policies they now champion are pricing them out of existence.
Renewables are increasing rates
In 2007, Minnesota became an early adopter in mandating the use of wind and solar on the state’s electric grid, passing the Next Generation Energy Act (NGEA). This legislation mandated that 25 percent of Minnesota’s electricity come from “renewable” resources by 2025, and it has caused electricity prices to soar.
For example, Minnesota’s all-sectors electricity rates were once 18 percent below the national average in 2007, but since the NGEA was passed, Minnesota’s electricity prices have increased 1.6 times faster than the national average, as illustrated in the accompanying graph.
While the NGEA was the initial catalyst for rising rates, Investor-Owned Utilities in the state soon saw wind and solar as a way to bolster their government-approved corporate profits by building new infrastructure. It is important to remember that utility companies in Minnesota are not private companies, they are government-approved, vertically integrated utilities with the exclusive right to sell electricity in their service territory.
Because customers have no choice but to buy their power from the monopoly, it would be unfair to let the company charge whatever it wishes for electricity. As a result, electricity prices are generally set by government regulators using a mathematical formula called the Cost-of-Service formula.
In its most basic form, the formula states that utilities are allowed to charge enough for their electricity to cover the cost of providing the service to everyone in their service territory, plus a government-approved profit, often five to 10 percent, on their capital investments. As long as the expenses are approved by the regulator in their state, utilities make a profit on every dollar they spend building wind turbines, solar panels, natural gas plants, or even renovating corporate offices.
The more money utilities spend, the more money they make.
This is why companies like Xcel Energy and Allete Energy — the parent company of Minnesota Power — announced they would go above and beyond the mandates for renewable energy with their own company-wide pledges.
Unfortunately, these efforts were codified when Minnesota passed a 100 percent carbon-free electricity mandate by 2040 that did not lift the state’s ban on building new nuclear power plants. Now, Allete brags about how much money they spend on renewables in their shareholder documents:
Our updated five-year capital expenditure plan of $4.3 billion reflects the tremendous growth opportunities at Minnesota Power. We’ve added approximately $1 billion to our previous plan, reflecting the significant investments in regulated renewable and transmission projects necessary to advance a clean-energy future and meet state carbon-free energy goals.
While nice for Minnesota Power’s shareholders, these renewable investments haven’t been very beneficial for its customers, as they are the primary drivers behind recent price hikes at Minnesota Power and have led industrial companies like the Hibbing Northern Foundry to lay off 91 people.
As Minnesota Power stated in its 2023 rate increase request to the Minnesota Public Utilities Commission (MPUC), under the section “Description and need for interim rates”:
Minnesota Power has transformed its generation fleet and added other internal resources that will assist Minnesota Power in achieving the state of Minnesota’s new goal of providing 100 percent carbon-free electricity by 2040; modernizing its transmission grid to facilitate the delivery of renewable energy; and supporting enhanced customer offerings and conservation opportunities…
Overall, Minnesota Power requires interim rates due to changes in revenue and in its overall cost of providing reliable customer service while leading efforts toward decarbonization… Without interim rate relief, Minnesota Power would be unable to recover its reasonable costs of providing electric service to its customers, and would not have a reasonable opportunity to earn its authorized rate of return.
In 2021, Xcel Energy, the utility company with the most expensive electricity rates in the state, sang a similar tune in its request to raise electricity prices on customers:
Xcel Energy seeks authority to increase electric rates, through a three-year multiyear rate plan (MYRP), to reflect the cost of providing service to our customers, including an appropriate return on common equity… The MYRP we propose builds on the success of the 2016-2019 MYRP and will allow the Company to continue providing leadership on a number of key initiatives, including: (1) expanding our renewable energy portfolio and further transforming our generation fleet as we lead the clean energy transition; (2) creating an advanced distribution grid to better serve our customers and enable further transformation of our overall energy delivery system; and (3) assisting in continued beneficial electrification.
Clearly, investments in pursuit of Minnesota’s carbon-free mandates are directly responsible for electricity rate increases in the state that far exceed the national average and are being used by regulated utility monopolies to bolster their profits at the expense of their ratepayers.
Broader implications
The states enacting unreliable wind and solar mandates likely have other business disadvantages as well, including larger regulatory burdens and more taxes.
Many of the largest manufacturing projects are accruing to states with fewer mandates for unreliable energy sources such as in Tennessee, where two such projects are slated for the future — a $1.6 billion Hankook Tire manufacturing facility in Clarksville and Al. Neyer’s contract on a $110 million manufacturing facility in Gallatin. To the extent that companies are building in blue states with 100 percent carbon-free mandates, it has partially been influenced by lucrative targeted tax breaks and other financial incentives.
For example, in Michigan, state lawmakers committed to giving Ford $1.7 billion from Michigan taxpayers to build its BlueOval Battery Park in Marshall, which will be paid through direct cash giveaways and tax abatements. Incentives like these will become even more necessary due to Michigan’s recently passed 100 percent carbon-free electricity mandate that will make heavy industry less viable in the future.
The rural-urban divide
The loss of Northern Foundry in Hibbing is emblematic of a growing urban-rural divide where the “green” policies enacted by affluent, liberal city folk undermine the economic viability of rural areas. Not only are rural residents expected to happily host the thousands of wind turbines and solar panels mandated onto the electric grid, but rural economies are also disproportionately harmed by rising energy prices due to the energy-intensive nature of their industries.
In the case of manufacturing jobs, urban areas of the United States have more manufacturing jobs overall, but manufacturing jobs are often more important to the economy in rural areas because one or two manufacturing firms can be the bedrock on which the rest of the economy in rural communities is built. If these jobs disappear, the ripple effects on the rest of the community are significant, as people have less money to support local grocery stores, bakeries, hospitals, and schools.
In states with large numbers of manufacturing jobs such as Illinois, Michigan, Minnesota, and Ohio, the mentality of the urban population centers contrast with those of the outlying manufacturing region. The urban residents tend to favor mandating expensive wind and solar facilities because they can afford the “green premium” they pay to feel good about their choices, ignoring the jobs of their neighbors that inevitably disappear.
We should all be grateful that Metal Technologies has said the quiet part out loud: Rising electricity prices are already causing heavy industry to rethink their investments in high-cost states.
Other companies are likely running the numbers and coming to similar conclusions, but they are not as willing to speak truth to power due to concerns about Environmental, Social & Governance (ESG) impacts, which means they will quietly invest in lower-cost areas while communities like Hibbing suffer the consequences.
The saddest part about this entire situation is that it was entirely foreseeable and occurred largely because of the poor policy decisions made in the state. As a result, 91 families didn’t need to learn that they’ll soon be out of a job.
Hopefully, the loss of the Northern Foundry can serve as a warning sign to policymakers so they understand that enacting the same policies as Europe and expecting different results is a recipe for green deindustrialization.