Monday, February 20, 2006

Illinois Power Crisis

I had blogged early about Illinois’ collision course with an electicity crisis. Fear of change has caused the legislature to enter deer-in-headlights mode and maintain the status quo.

If passed into law, a proposal calling for an extension on the current electric utility rate freeze would have serious consequences for every resident and business in Illinois, ComEd Chairman and CEO Frank M. Clark said today. "Freezing rates when ComEd's costs to buy power are increasing would be irresponsible public policy and would have a profound impact on our state," said Clark. "Without the ability to recover the increased costs for power, ComEd's financial viability will be immediately threatened, potentially triggering a crisis not seen in this country since the California energy crisis of 2001."

With ComEd's financial condition weakened by an extension of the rate freeze, access to capital would be more expensive and would result in higher overall costs for the company and for consumers. In that event, suppliers in the wholesale electricity market would be reluctant to do business with ComEd since payment from the company would be uncertain. The result would be higher costs for wholesale power that would ultimately be paid for by consumers.

If the proposed legislation is enacted, the situation could also have negative consequences on reliability. With a revenue shortfall in 2007 projected at $3 million per day, ComEd would find it difficult to make the needed investments in the electricity grid that now serves 3.7 million customers across Northern Illinois.

ComEd’s assessment of immediate calamity should come with a grain of salt, they have every incentive to make the picture look worse than it really is. However, ComEd is still charging late 90s pricing for late 2000s power which is a recipe for disaster. Without, at least, a consistent revenue stream infrastructure upgrades and other necessary preventative maintenance will grow increasingly rare as the company struggles.

This means increased electricity outages that will culminate in the brown-outs and rolling black-outs that marred California in 2001. Of course this time evil capitalistic [supposedly] free-markets won’t be the convenient scape-goat.

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