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Newly-released data from the United States Energy Information Administration show that electricity rates in Minnesota increased again in 2019, reaching new all-time highs. The increase in electricity costs affected all classes of consumers, resulting in higher costs for families, businesses, and factories.
It didn’t used to be this way. In fact, Minnesota once had electricity prices that were nearly 20 percent below the national average, but since 2005, when Xcel Energy was required to start adding significant amounts of wind on its system, electricity prices have increased by nearly 60 percent, which is about 30 percent more than the national average, as you can see in the chart below.
Minnesota’s electricity rates have increased by about 40 percent since 2008, whereas the nation as a whole only saw electricity prices increase by 10 percent since then. This chart clearly demonstrates that something happened in Minnesota around that time to cause electricity prices to rise far faster than the national average, but what?
In 2007, the Next Generation Energy Act was passed, which required Minnesota utilities to get 25 percent of their electricity from renewable energy sources by 2025. Not all utilities were treated equally, however. Xcel Energy was required to get 30 percent of its electricity from renewables by 2020, and other Minnesota utilities were required to generate 25 percent of their electricity from renewables by 2025. This is a key reason why Xcel Energy rates are so much higher than Minnesota’s other utilities.
Regardless of the implementation timeline, the evidence is clear: Minnesota’s renewable energy mandates have driven up electricity prices for families, businesses, and industrial facilities.
The graph below compares electricity prices for residential customers in Minnesota with the national average. Since 2005, Minnesota families have seen their electricity rates increase 22.28 percent faster than the national average.
As a result, the original discount Minnesota families once enjoyed on their electricity has completely evaporated. In 2006, these families paid nearly 20 percent below the national average for their electricity. In 2019, their electricity costs were nearly 2 percent above the national average. Unfortunately, the premium Minnesotans are forced to pay for their electricity will only grow higher as more wind and solar are incorporated on to the grid.
Businesses are also affected by Minnesota’s bad energy policy. The graph below shows commercial electricity prices in Minnesota vs the national average from 2005 through 2019. You can see that commercial electricity prices have increased nearly 36 percent faster than the national average since 2005, putting Minnesota businesses at a competitive disadvantage relative to firms in other states and nations.
The large increases in electricity costs have caused Minnesota’s commercial electricity prices to go from nearly 35 percent below the national average in 2006, to just under two percent lower than the national average in 2019. This means Minnesota companies have fewer resources to hire and compensate employees because they are paying more to keep the lights on.
Lastly, industrial electricity consumers have seen their electricity prices increase 36.58 percent faster than the national average since 2005, making them the sector of the economy that has experienced the largest increases, relative to their peers nationally. This is a major problem, because while very few, if any, individual families determine where they will move based on electricity prices, this is a huge concern for industrial customers who use massive quantities of electricity.
Minnesota used to offer energy-intensive industries a competitive advantage in electricity costs, but now we punish them. The graph below uses EIA data and shows industrial electricity prices were about 16.5 percent below the national average in 2006, but are now 12.66 percent above the national average.
This is a huge problem for Minnesota because manufacturing and mining are major sectors of our economy.
According to Enterprise Minnesota, manufacturing represents the single largest private sector component of Minnesota’s GDP totaling $49.2 Billion or 16% of Minnesota’s total GDP in 2017. In total, 319,000 Minnesotans work in manufacturing, accounting for 13 percent of private sector jobs in the state. If Minnesota has higher energy costs, it gives our manufacturers more incentive to pick up shop and move to states where taxes, labor costs, and energy costs are lower.
Minnesota’s mining industry is also threatened by rising electricity prices. Minnesota iron mines use enough electricity to power 580,000 average Minnesota homes, and the MinnTac mine in Mountain Iron reportedly uses as much electricity and natural gas as the entire city of Minneapolis. Energy costs already account for 25 percent of the cost of producing iron ore, and any legislation that increases the amount of renewables on the system will cause electricity rates to rise further, threatening the iron ore industry that currently employs about 4,000 people and supports 16,000 total jobs, and threatens future copper-nickel mining projects, which could add 14,851 jobs to Minnesota’s economy.
Low electricity prices are a crucial way to ensure that Minnesota’s economy remains competitive on a national and global scale. Unfortunately, Minnesota’s current energy policy continues to prioritize renewables over ratepayers. It is important that we do not repeat these mistakes, otherwise we will suffer similar results.