• WisBusiness

Stuart: In midst of recession, warnings that energy price increases on the way
4/14/2009

By Brian E. Clark
For WisBusiness.com

With job losses pegged in the thousands, it’s been a brutal year for Wisconsin manufacturers.

No one knows that better than Todd Stuart, executive director of the Wisconsin Industrial Energy Group, which represents many of those battered companies.

“In this turbulent economy, (our members) have been really taking it on the chin,” says Stuart, noting many WIEG members have “extremely slim” profit margins.

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“Some of the board meetings and conference calls that I’ve been on over the past few months have been depressing,” Stuart says in a recent WisBusiness.com interview. “Certain pockets of the state have double-digit unemployment, with furloughs and mass layoffs for some of these companies, if not complete shutdowns.

“It’s really been the kitchen sink this past year,” he adds. “Just about every (member) company has had some major layoffs, with the automotive sector being particularly bleak. And there’s not much light at the end of the tunnel there. “

Because of the down economy, he's seen data showing vehicle purchases have fallen by nearly half.

“That’s hit a lot of foundries, or anyone who manufactures anything related to GM or any of the other automakers,” he says. Janesville’s economy has been hammered especially hard with the shutdown of the GM assembly plant and numerous suppliers, costing that Rock County community close to 2,000 jobs alone.

Papermakers, who employ thousands in the Badger State, also have been suffering and have posted big layoffs, Stuart says.

Though many people don’t know it, he says Wisconsin has the second- highest number of manufacturing jobs per capita behind only Indiana.

“That’s a double-edged sword,” he adds. “Those jobs have wages that are 26 percent higher than average (salaries), so when you lose them it really hurts. Communities like Janesville, Beloit and Sheboygan are really suffering.''

While Stuart is convinced the economy will improve by 2010, he says Wisconsin is at a crossroads with many businesses now in a “survival mode.”

Because WIEG members are some of the largest power consumers in Wisconsin, he says it's the state’s energy and environmental policies that will determine if manufacturing jobs return and ultimately guide Wisconsin’s economy for decades.

Stuart hopes the economy has bottomed out and points to a few positive signs, such as durable goods production rising several points in February, loosening credit and the anticipation of federal stimulus money arriving in the state.

“Hopefully those things will help,” he says. “So there have been some bright spots... but you just don’t know.”

Stuart says his major concern is how unemployment will drag down the economy and “become a vicious cycle.”

On the legislative side, Stuart is worried that and effort to reform how rules governing volatile fuel costs are figured may adversely affect WIEG members.

“Generally, we are OK with the status quo… but if there is a change, we don’t want the risk to be shifted to the consumer,” he says.

“If a provision does come along to reform the process, we can probably build a better mousetrap. We’ll just try to work out a compromise between utilities and the Public Service Commission and some of the other consumers groups. We want to do it right and make sure utilities have incentives to manage fuel costs.”

Several other issues before the PSC include a plan by Alliant Energy to invest nearly $500 million in a 200-megawatt Minnesota wind farm known as “Bent Tree” and a $76.5 million (2.8 percent) rate-increase request by We Energies for 2010.

Stuart called the Bent Tree investment “huge” and says he wants to make sure electricity rates from the wind project are “reasonable.” As for the We Energies increase, Stewart calls the request “relatively small compared to recent years, but the devil is in the details.”

In the second half of the year, after the budget has been put to bed, the next big issue will be the global warming package.

“That is of tremendous concern to my members because they are such large energy consumers,” he says. “We really hope to get some cost containment measures either strengthened or added to that package.

“Otherwise, it could spell real trouble for my members and the struggling manufacturing economy,” he says.

Stuart says energy costs in the state have risen 7 percent annually over the past decade -– twice the rate of inflation.

“That trend is certainly going to continue, if not accelerate, going forward,” he says, predicting a doubling of energy prices in the next 10 years.
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