There was an interesting little question in the Post-Dispatch poll released over the weekend about electric rates. Even when told that the utilities are claiming that extending the current electric rate freeze could drive them into bankruptcy, a solid majority of 56 percent still wanted the freeze to go ahead.
QUESTION:As you may know, electric rates are scheduled to sharply increase in Illinois next year as the result of deregulation of the market. Some say the state should freeze those rates because there isn’t adequate competition in the market yet. The electric industry says continuing the freeze could drive it into bankruptcy. In your opinion, should the state:
Freeze rates at their current levels, OR
Allow the rate hikes to go into effect as planned
Here’s more from an accompanying article.
“The power companies are going to need a hell of a PR campaign'’ to win over the public to the rate hikes, predicted pollster Del Ali. “It’s not enough to threaten to go bankrupt, because people don’t care.'’
That was apparent in comments by poll respondents such as Cheri Akers of Hamilton.
“I would be more than happy to see it freeze,'’ she said. “I don’t think they would go bankrupt. I think the companies are bluffing.'’
- nomorerobberbarons - Monday, Oct 30, 06 @ 3:29 am:
Let them go bankrupt. Let the state take them into receivership.
- Anon - Monday, Oct 30, 06 @ 6:04 am:
Few people have any sympathy or trust after the profiteering and engineered shortages of the recent past. Lets keep the freeze and see what happens!
- Anonymous - Monday, Oct 30, 06 @ 6:15 am:
Bankruptcy would force Com-Ed into a judially supervised reorganization. would’nt this produce positive results for consumers?
- Bill - Monday, Oct 30, 06 @ 6:28 am:
The overpaid, underworked executive staff would still be paid their millions in salary in bankruptcy… look at United Airlines.
They would probably go after the meter readers pensions and health insurance.
Thanks to Lt. Gov. Quinn for his 30 years of consumer advocacy.
Freeze away!
- Disgusted - Monday, Oct 30, 06 @ 6:37 am:
The CEO’s of Exelon and ComEd make millions (maybe even billions) in salary and golden parachutes. The CEO of Ameren will not disclose his salary. And they expect us to take their word that the companies will go bankrupt if the freeze continues? Start at the top and run the company within reason and maybe you’ll get some sympathy.
Enron has left a bad taste in everyone’s mouth.
Learn from it.
- Dr. Yan - Monday, Oct 30, 06 @ 6:41 am:
I see on television what a great company Amerin is, how they do all these great things for the community. Couldn’t that AD money go for cheaper rates. I see ads in the SJR about how rate freeze will bankrupt them. The last time I checked when I go to pick my utilitiy I don’t have any choice, so it doesn’t really matter how civic-minded my utility is or isn’t, because I can’t pick-em. Save all of the ad dollars and lobbying dollars and move that money over to the lower rates account.
- phocion - Monday, Oct 30, 06 @ 6:47 am:
Raspberries all around. Greedy corporate executives certainly don’t help ComEd’s case. But cynical politicians who suspect that this will cause bankruptcy filing to get them off the hook - well, that’s inexcusable. A court appointed receiver will be accountable to no one, except the bankruptcy judge. Expect rates to skyrocket, and the politicians get to say, “well, it wasn’t us, it was the greedy executives and the bankruptcy court.” Expect ComEd to say, “see, when politicans come in things go south.” And expect less money of your money available toward home improvements and college education to pay for this fiasco.
- Gregor - Monday, Oct 30, 06 @ 6:50 am:
I expect what will actually happen is a compromise where the legislature puts a percentage rate cap on how much the rates can climb per year. This gives them political cover while still allowing the utilities to get their increases.
- Way Northsider - Monday, Oct 30, 06 @ 7:28 am:
I welcome these crooks going into bankruptcy - that’s the best thing that could happen!
- anon - Monday, Oct 30, 06 @ 7:48 am:
Bankrupcy - yeah that’s a plan! State of Illinois providing power to all of Chicago and downstate consumers? Brilliant. When will folks get a clue - there is no free lunch - the state pols will end up making deals that line their pockets and cost consumers more than what they will pay with the proposed rates from the utilities.
- Country Girl - Monday, Oct 30, 06 @ 8:04 am:
When Exelon Corp. can afford to give their personnel a 30% BONUS at the end of last year, then they are not going to go bankrupt any time soon. They are so far from going bankrupt that it isn’t even imaginable. This is just another ploy to increase their profits. I have no sympathy for these companies, whatsoever!
- oh well - Monday, Oct 30, 06 @ 8:38 am:
If I had a choice in power companies, I’d feel a little symapthy. However, where I live Ameren is the sole choice. I’m so sick of corporate crybabies I could scream. There’s no reason a corporate CEO should be warm in cozy in a 10,000 plus square foot house, while their average consumer struggles to heat a bungalow.
- Jechislo - Monday, Oct 30, 06 @ 8:44 am:
This is exactly how most citizens of the State of Illinois view our State Government. They don’t believe their dire predictions about bankruptcy and insolvency. They don’t care about the money problems. And, they don’t really care what happens to ’someone else’; just as long as it doesn’t happen to ‘me’. This is the attitude that gave us George Ryan over Glen Poshard when Poshard was trying to tell the public what a crook Ryan was. And, this is the attitude that will give us another 4 years of Blagojevich the crook. I think I’m gonna be sick.
- Truthful James - Monday, Oct 30, 06 @ 8:45 am:
The pooch was screwed years ago when what is now Exelon was allowed to split in effect into two companies. One company produces and sells electricity. What we know as ComEd delivers electricity to our doors.
This enabled the first company to sell under contract the output of its mostly nuclear power plants to all comers. Because nuclear power plants produce at a lower cost, and because its profits were not limited as they had been before, the unregulated profit generating part of Exelon could sell all it wanted at a higher price tha the ComEd company was forced to pay because of the ten year contract under the ICC regulators.
The higher profits out of state offset the Illinois loss leaders.
Which is why the ComEd electric suply company would sign up with the ICC, discount and then freeze its rate for ten years.
That contract is now up. ComEd now proposes to to increase its rates to what they were ten years ago. Not to what they would be, given inflation, today without a freeze.
In other words, the consumers, represented by ICC now want both halves of the bargain. They loved the discounted, frozen rates for ten years. They do not want to pay the piper today. The Robin Hood of ten years ago now becomes King John.
Put another way, Exelon was able to keep to their part of the bargain because the higher prices paid by out of state utilities were in effect subsidizing Illinois consumers.
Politicians react to the present, don’t care about the past. They are running now. If they can deliver free lunch to prospective voters, they will. Everybody in the legislature knew what was happening ten years ago, and what would happen today. In one way it is not unlike Assessor Houlihan and his 7% Solution. It satisfied a current itch, postponing the day of reckoning. Neither the legislature nor the Assessor wants to take the current blame, each of them wants ant any cost to postpone the day of reckoning.
- zatoichi - Monday, Oct 30, 06 @ 8:56 am:
Are any utility companies currently close to bankruptcy now? Show the evidence. Admin layoffs coming? Salary cuts scheduled? Bonuses cancelled? Banks demanding loan payments? ROI negative? There is one choice for utilities in my town. Competition would be nice.
- Beowulf - Monday, Oct 30, 06 @ 9:00 am:
Commonwealth Edison had better role back the $26,000,000 salary of their CEO if they want us to listen to their cries that “they will go bankrupt unless they get what they want”. It is a little reminiscent of Marie Antoinette saying, “Let them eat cake.”
I don’t care if the CEO of Commonwealth Edison is the guy who invented sliced bread, he is not worth 1/4 of his $26 million salary. It is hilarious that this guy goes on television with his CWE commercial saying that he feels our pain so he is going to “bleed to death the average electric user slowly over a 3-5 time frame rather than all at once the first year.” My, how kind of him!
As our senior citizens struggle to pay our already bloated real estate taxes, this nin-com-poop from CWE is foolishly spending huge amounts of cash on these stupid CWE commercials. All he is really telling Illinois citizens with these commercials is that he thinks that people are stupid and that he expects them to roll over and play dead for him. Obviously he is smarter than the citizens of Illinois are or how else would he be able to con the CWE shareholders into paying him his outrageous $26 million dollar salary? Which makes me wonder how smart the CWE shareholders really are? Like I said, “Let them eat cake.”
- jerry - Monday, Oct 30, 06 @ 9:07 am:
wow, for once people are able to figure out corporate bullcrap and call them on it. ComEd is in no danger of bankruptcy.
Oh, and Gregor - that’s called regulation. When you allow a private company to provide a service that the government should provide as it is a natural monopoly, regulation is how you protect consumers from being gouged while ensuring that the corporation turns a reasonable, not excessive, profit.
So, ComEd says we can save by managing our power usage and rates in real time. Raise your hand if you have the time to do that.
- Pat Hickey - Monday, Oct 30, 06 @ 9:08 am:
The Utility Companies ( call them Eddie and Constance for all I care) wil no more go bankrupt, as long as there is change wedged in a poor man’s couch, than Wally of Wally’s Last Stop in his thirty plus years of commitment to closing his bar at 85th & Kedzie.
Let Galaxy-sized salaried former mailroom regular guy get on TV and explain what a struggle the cap on rate-increases will be to him and the Cosmicall compensated guy he works for do a little coupon cutting with the old lady - and maybe snatch a couple of Super Saver envelopes from the neighbors mailboxes - HeHeHeHeHe! Oh to live in Highland Park for that one.
- anon - Monday, Oct 30, 06 @ 9:31 am:
Actually, Gregor is right on. There will be a 3 year phase in of this increase with some assurances of how competition is going to, or could, take place. But if competition does not take root, it’s nobody’s fault but the market place. Consequesntly, there is really nothing you can put into statute legally that’s going to make a potentially competing utility provide cheaper rates short of undoing dereg in the first place.
- Truthful James - Monday, Oct 30, 06 @ 9:39 am:
zatoichi –
Competition works. It gets complicated. Large users do buy electricity from a lower cost producer somewhere and then pay to have it ‘wheeled’ across lines owned by other utilities until it reaches their facility. FERC has ruled that these ‘transporters’ can not charge more than the cost of using their line. Because electricity is not identifiable as to its originating point (whose megawatt are you?), this is all a paper trail.
Municipalities on behalf of their users can buy the local ‘grid’ from ComEd. The costs are humongous, but then they become the end user and charge the annual, amortized cost of purchase, and all the other costs which ComEd is now responsible for. They become ComEd and take the poliical heat.
It is not a simple thing.
For its part, Exelon might be able to sell the power now purchased by ComEd to other utilities, leaving ComEd in the dark and forced to find another source of supply.
The questions for the lawyers is, then,
1. Is Exelon required to supply power to ComEd, and at what price?
2. Given the form of organization, can ComEd go into bankruptcy separate from Exelon?
If so, then the courts can not require that Exelon be forced to supply ComEd with power.
- Cassandra - Monday, Oct 30, 06 @ 10:47 am:
One thing that is missing here is a discussion of potential consumer costs if Com Ed is forced into bankruptcy. Somebody is going to have to pay the piper. And it will be up to the banruptcy judge to decide who pays, not the legislature. It won’t necessarily be the Com Ed stockholders. It could be us. Bankruptcy judges don’t have to worry about local politics or the careers of local politicians when they make their decisions.
I’m reasonably sure some state (California?), that is, its taxpayers, are still paying through the nose for a utility bankruptcy. One wonders what they would do if they had it to do over.
I’d like to see a few potential cost scenarios including the bankruptcy scenario before I signed on to the rate freeze extension.
What is Marty Cohen doing for his $150,000 a year consolation prize from Blago. We haven’t heard a thing from him. Isn’t it his job to run the numbers (honestly) and come up with some expert recommendations. We know our clueless legislators aren’t up to anything that cerebral.
- Wumpus the Free - Monday, Oct 30, 06 @ 11:39 am:
Yes, let these crooks go bankrupt and let the crooks in Springfield/Chicago City hall take over. Pat Quinn as chairmen!
- VanillaMan - Monday, Oct 30, 06 @ 11:44 am:
For almost 80 years, our politicians have been selling us the idea that we can have something for nothing. The politician who promises the most, wins.
We have a governor who has taken Illinois to the brink, and right over the edge, but the fact that we still haven’t struck bottom seems to be reassuring to the Democrats who are still believing they can get their something for nothing.
AllKids is a fantasy. Free healthcare is a fairy tale. Cheap electricity is another one. Every cynical voter knows there is no free lunch, but justifies their selfishness by pointing fingers at someone else.
It is time to grow up. Pay your bills. Stop demanding that someone else pays your way. The New Deal is dead. The sooner you discover that only you can take care of yourself, the sooner you will take control over your own life. Don’t find yourself on your roof watching the flood waters rise and demanding a helicopter. You owe it to yourself and to your children to pay your way. You have no one to blame but yourself for the situations you find yourself in.
And for crying out loud - quit whining about what everyone else has!
- Shareholders Need to Eat It! - Monday, Oct 30, 06 @ 1:14 pm:
Ameren pays out $520 million each year in dividends to shareholders. They say they will lose $1 million per day if the freeze happens - that’s $365 million. Take the $365 million out of the dividends and the shareholders still get $155 million each year - that’s plenty. Cut the dividend!!!
- The Federalist - Monday, Oct 30, 06 @ 1:27 pm:
Maybe Com Ed and Ameren will turn off the power on election day. That way the Dems can’t complain about election fraud on the electronic machines.
- Truthful James - Monday, Oct 30, 06 @ 1:46 pm:
SNTEI –
One of the neat things about never having worked in finance is you don’t have to know anything to pontificate.
The dividends paid on utility stock represents the return to the shareholders in a regulated industry. Price appreciation is scant, and the dividends are usually fixed dollar wise.
The utility makes a profit and from that after tax profit a portion is devoted to Dividends, the remander is reinvested into the company into investment in improvements, new construction and the paying down of debt.
The investors are expecting (If 100,000,000 of shares are outstanding, say, a fixed payout per share of $5.20. The ICC has determined if this is a fair return on equity. Arbitrarily, let us say that the price per share in the marketplace is $100.00 That is a return of 5.2% That might work, because the yield on 2 year treasuries is 4.98% and to buy shares you should demand a rate of return above that on U.S. Governments. You now propose to cut the dividend down to 1.55%
All right, smart guy, what happens to the value of that piece of paper held by the investor? It drops a hell of a lot. For two reasons. First because it still has to be priced relative to Treasuries and secons because you have removed the consistency which holders of utility stocks demand.
And third, you have interfered with the underlying security that bondholders — who are senior to the shareholders — demand. They have specific covenants regarding the revenue structure as it affects the security of their senior and junior bonds
I could spend time discussing in more detail the protection that bondholders desire, but you likely don’t know and don’t care.
Suffice it to say that you have affected and possibly put into technical default bonds — a default which would trigger a rate increase itself.
Unilaterally, you put the utility company in jeopardy by screwing with their capital structure.
All in the name of politics.
- Cassandra - Monday, Oct 30, 06 @ 1:46 pm:
Executive compensation is irrelevant to the utility debate. It is set by the Board of Directors whose loyalties lie with the shareholders. Maybe somebody should be lobbying the shareholders (remember, they have an infinite number of investment options) to see if they would be willing to take a pay cut on our behalf
(yeah).
- Anon - Monday, Oct 30, 06 @ 2:05 pm:
Next, we’ll be discussing the diffferences between shareholders vs. stakeholders and consumers vs. customers. Egads! This whole deal stinks and we all know it. Freeze it, cap it, whatever. Let’s just not let these characters get away with another one!
- Lovie's Leather - Monday, Oct 30, 06 @ 2:16 pm:
Does anyone remember the Gray Davis recall??? You know, it happened a few years back. And if you forget why he was recalled, it was for freezing electric rates and the power company started shutting down. There were brown outs and black outs and he was blamed. Just remember, there are no recalls in Illinois… so be very careful about this rate freeze. I am not saying that the rates shouldn’t be frozen, but I am saying that if Com-ed and Ameren do get into financial trouble and we see black outs and brown outs, the elected officials are going to take the heat for it. Walk softly, politicos
- Truthful James - Monday, Oct 30, 06 @ 2:19 pm:
Anon –
Which “characters” are you talking about? The ICC which ratified the deal, the ratepayers who got discounted electric service for ten years, the company who wants to raise rates to where they were ten years ago, before the discount was granted…or the politicians who want another helping of free lunch?
- Wumpus the Free - Monday, Oct 30, 06 @ 2:34 pm:
Yeah, piss off the shareholders, smart!! 10% increase for 5 year cap. Done,
Wumpus for Governor!
- Anon - Monday, Oct 30, 06 @ 2:51 pm:
Good to see the spirit of “Kenny Boy” lives on! Bet you guys feel that Fastow was a RAT and Skilling got a raw deal…