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Thursday, April 05, 2007

Power Mad(igan)

House Speaker Michael Madigan's come up with a great idea to fix Illinois's increased electric rates. He'd like the state to become an electric utility to compete for your business.

This all stems from the surprising fact that after a ten year price freeze was lifted the cost of electricity went up. Holy Cow, who could have seen that coming? In retrospect, anyone who's got a clue could have seen it coming, the politicians just chose to ignore that it would happen.

After listening to months of grumbling from Springfield about this surprisingly simple series of events, I've come to realize that the folks in the House and Senate knew full well what was going to happen.

However, it wasn't in their best political interest to do something before January 1st. Instead they chose to wait until the rate hikes hit, act surprised, and then start coming up with boneheaded ways to fix a problem they created 10 years ago. You see, for them to look like the heroes legislators wish they were, they had to have a problem to solve, so everyone would think they were wearing big white hats and riding to the rescue.

The truth is, they are the bad guys. Unless all of them failed basic economics (maybe that's why most are lawyers??) they knew that there would be ten years of catch up rate hikes coming. Hell, ComEd told them it was going to happen, as did the other utilities. The markets told them it was coming; when ComEd's bond status was reduced to just above junk status due to cashflow.

Now comes Mike Madigan, wanting to wear the biggest white hat. He's decided that the State of Illinois should become a power and light company. He wants the state to produce and distribute electricity, at it's cost, using Illinois coal as the prime energy source.

There are of course problems that Mike won't mention, heroes don't often tell the down side of their story.

First is the incredible cost of getting into the business, coal fired power plants cost upward of $1 billion dollars to build, the state would need a few of them to be a big enough operator to effect prices in any meaningful way. They could, theoretically buy up some older plants from Exelon and other producers, but those aren't cheap either; and the one's utilities would be likely to sell would be old and inefficient.

Second, coal is a dirty, very "ungreen" fuel to be burning, especially Illinois coal. Scrubbers and CO2 capture devices add about 20%-30% to the cost of a new plant. CPS Energy is Texas is spending $200 million just on the capture devices for one new plant. But even after that is paid, captured CO2 has to be stored. A European small scale project is hoping to be able to do that for the minor cost of only $35/metric ton of CO2, or about $1.5 million per year on an average coal plant using clean low sulfur coal. Illinois coal isn't low sulfur, so that cost would at least double.

Third, according to Madigan's bill the State would be a producer of a commerically available commodity, but not be liable to the State Commerce Commission. (H/T Archpundit) Just think a utility that didnt' have to answer to the folks utilities are required to answer too. That's rich, Mike.

Finally, because of generally sloppy government book keeping practices, it's doubtful we'd ever know if the rates charged actually were the "cost" of producing the electricity. It's pretty easy for the state to bury extra money for a project somewhere else. I have a hard time envisioning a scenario where the state provided my electricity cheap, and my tax bill didn't go up somewhere else to help cover the cost.

So, Mr. Speaker, my answer is "NO THANKS" keep the power professionals running the power industry, and let the state do what it does best, waste my tax money, in other ways.

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