I support the changes in SB 207. I support it because I support infrastructure investment in our state and if the current customers of AmerenUE (which is all of us) do not pay for it then who will? I guess Ameren could make greater use of bonds and debt instead of price increases, but that comes with increased costs of its own (e.g., interest). Who will pay for those bonding costs? Us, of course.

I think electrical companies should operate under the same terms as water and gas companies, which this bill would allow them to do.

In case you think I am shilling for the electric companies, please note that I completely support deregulating Missouri’s electrical system and giving Missouri consumers more choice in their electrical providers. They have done this in Illinois, among other states. I think we should do it here as well.

But for now, we have our regulated monopoly system in place, and I support most ideas designed to encourage real infrastructure investment in that system. (“Real” = actually produces power without ridiculous government subsidies, i.e., not wind energy or ethanol mandates.) That infrastructure investment costs money, and I think charging current customers for the expansion of a system we (or at least most of us) will use is fair.

The post Brief Comments About Long Bill appeared first on Show-Me Institute.

When I was an assistant at the Saint Louis County Council, I once received a call from a resident who had just moved to an unincorporated part of the county from Saint Louis City. He wanted a new street light installed by his house. I explained in detail the various ways he or his neighborhood association could contact AmerenUE and arrange to pay for and install a new street light. After I went on in detail for several minutes, he finally cut me off and said, “Look, I just want you [meaning my boss, the councilman] to install a street light in front of my house.” The caller then explained that he just moved from the city, and, there, if he wanted a street light, he just called his alderman and he got a street light. He could not understand a system where he or his neighbors might be expected to actually handle something like this on their own.

The current makeup of the city’s board is unusual for at least two reasons. With 28 members for 320,000 residents, it is far larger on a per-resident basis than almost any other major city’s legislative body. By comparison, Kansas City has just 13 councilmembers for approximately 460,000 people. Furthermore, Saint Louis board rules authorize the filibuster, which is rare for local government councils. The filibuster — or often just the threat of it — gives each member of the board of aldermen substantial individual authority. There are benefits to that, but allowing so many officials to make certain their constituents get their “fair share” is a recipe for the creation of political fiefdoms. The benefits of getting a “fair share” for your ward are concentrated, and the costs are widely distributed among many other officials and taxpayers. In simpler terms, “Give that guy a street light!”

The “Law of 1/n” is a widely held finding of public choice economic theory. As any legislature has more members, they will seek a larger share of the pie for their voters. Both total spending and pork-barrel spending increase as an inevitable part of that quest. Taxes increase to pay for that spending. The accounting firm KPMG just released a study that found Saint Louis has the second highest business tax burden of major American cities. Those street lights aren’t free, you know.

There are counterweights to this. Most notably, Missouri’s Hancock Amendment thankfully limits the ability of governments to grow and grow. But another counterweight is a smaller legislative body. In a smaller body, the politician’s constituent will both receive the new street light and pay for a larger share of it. The politician has to consider both benefits and costs.

What about citizen representation? Clearly, there is a symbiosis between having a large number of aldermen and residents asking their alderman to do many things. If an alderman represents a small area, he or she can try to do many things for that area. That may be great, but individuals likely could do some of those things themselves if not for the easy availability of the alderman. I am reminded of the Australians in the “Simpson’s” episode who decide they must speak to their prime minister about a certain issue, and then just run to the neighboring farmhouse to see him.

The current members of the board represent slightly more than 10,000 people each. In Saint Louis County, the councilmember for the sixth council district (South County), along with one assistant, serve the constituent needs of 140,000 unincorporated county residents. If one county councilmember and one assistant can service 140,000 constituents, I think the members of the city board of aldermen can handle 23,000. Unless, that is, they really want to give a new street light to everyone who asks for it. Perhaps the largest benefit to a smaller board of aldermen is that it will say “no” a little more often.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Reducing The Size Of The Saint Louis Board Of Aldermen appeared first on Show-Me Institute.

Here is what I wrote about the nuclear power efforts two years ago. Here is a quick Post-Dispatch summary of the just-released bill. My initial response to the proposal is very positive, but I’ll readily admit that I need to do more research on this exact proposal. The plan for multiple Missouri utilities to invest in the plant — and charge their customers for the costs — is fine with me. Because of the way the power grid system is structured, more people than just AmerenUE customers (and shareholders) will benefit from expanded nuclear power in Missouri.

The post Exciting News for “Nucular” Power in Missouri appeared first on Show-Me Institute.

From the article:

Under the proposed new law, rate hike cases could last no more than six months, meaning utilities could file two requests each year.

That’s not just two rate hike cases for each electric company, including AmerenUE. It also means extra rate cases for water companies, including Missouri American Water, which is seeking a 21 percent rate hike, and for gas companies, including Laclede Gas, which has a $52.6 million rate hike request before utility regulators.

Last year, when AmerenUE raised its rates by 8 percent after a 12.1-percent increase the previous year, the utility’s president justified it in order to continue “maintaining reliable electric service.” He also said:

“Much of the increase covers the costs of projects initiated to improve the reliability of our electric system, the costs of environmental and efficiency improvements at our generating plants, and the costs of fuel for those plants.”

It is hard to evaluate the validity of these claims without a field of competitors providing greater incentives for efficiency and cost reduction. That competition doesn’t exist, though, because utilities are generally viewed as a natural monopoly, an industry that requires economies of scale so large that it is most efficient to have a single supplier. As a result, municipalities generally restrict entry into utility markets. In The Concise Encyclopedia of Economics, economist David Henderson pointed out that this restriction is probably unnecessary:

Economists tend to oppose regulating entry. The reason is as follows: If the industry really is a natural monopoly, then preventing new competitors from entering is unnecessary because no competitor would want to enter anyway. If, on the other hand, the industry is not a natural monopoly, then preventing competition is undesirable. Either way, preventing entry does not make sense.

In “The Myth of the Natural Monopoly,” Loyola University economics professor Thomas J. DiLorenzo cited economist Walter J. Primeaux’s findings from more than 20 years of studying electrical utilities and competition:

• Contrary to natural monopoly theory, costs are actually lower where there are two firms operating;
• Contrary to natural monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry;
• The theory of natural monopoly fails on every count: competition exists, price wars are not “serious,” there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly;

If a utility is providing the lowest price, a competitor’s challenge will not be a serious threat. Competition itself — or the potential for competition — can keep prices low. Regulatory boards, on the other hand, historically have not been successful in lowering prices, as DiLorenzo noted:

In one of the first statistical studies of the effects of rate regulation in the electric utilities industry, published in 1962, George Stigler and Claire Friedland found no significant differences in prices and profits of utilities with and without regulatory commissions from 1917 to 1932. Early rate regulators did not benefit the consumer, but were rather “captured” by the industry, as happened in so many other industries, from trucking to airlines to cable television.

If barriers to entry are low enough, the potential for competition can increase efficiency and cost reduction in existing utilities. Instead of a focus on how often a utility company can change its rates, Missouri residents would benefit more from lowered regulatory barriers to entry in utility markets. In that case, future rate increases — like the recent decision to increase rates by 3 percent in order to promote energy efficiency — will be weighed against the possibility of a competitor attracting market share through lower prices.

The post Monopolies Seek Further Rate Hike Legislation appeared first on Show-Me Institute.

For example, the commission last week approved a program in which St. Louis-based AmerenUE can offer credits to businesses that voluntarily shut down or scale back their electricity use during peak demand. AmerenUE will be able to recoup the cost for the program that starts Thursday by increasing the rates it charges business customers.

Instead of providing more efficient or environmentally friendly energy, this program would cost most consumers more money in order for utilities to provide less energy. It’s a short-term solution to a long-term problem: As Missouri’s population grows, and our economy produces more, we will need more energy — or a more efficient way of getting energy. If the state insists on instituting some sort of environmental energy cap or tax, it would make more sense for the program to focus on increasing efficiency in energy production and fostering alternative energy sources.

The program currently under consideration would add 3 percent to energy bills in order to fund what amounts to education efforts, and utilities would remotely control some aspects of participating customers’ energy usage, such as air conditioning. From the article:

One of the company’s more popular energy-saving initiatives has provided free programmable thermostats to about 34,000 residential customers in Missouri and Kansas. [Kansas City Power & Light] can remotely control the devices to reduce the frequency at which air conditioners run during peak demand times. The power company overrode customers’ air conditioners four times last year and twice so far this summer, [KCP&L’s senior director of public affairs] said.

A better solution would involve a way for companies to choose to buy green or more efficient energy from a competing company. Deregulating the energy monopoly would force utilities to become more efficient themselves, or give way to more efficient competitors. This competitive process should be encouraged here, rather than just paying existing utilities more to produce less.

The post Energy Monopoly: Less Is Not More appeared first on Show-Me Institute.

On a closely related point, I recently found one reason why AmerenUE was so intent on expanding within Callaway County — a project that hopefully will succeed eventually. Callaway County has a commercial property tax surcharge of just 11 cents per hundred dollars of assessed valuation, one of the lowest surcharge rates in Missouri. (Only two counties are lower: Reynolds and Camden.)

The post What to Do With Nuclear Waste in Callaway County? appeared first on Show-Me Institute.

KMOX reports that controversy over proposed CWIP legislation, which would have supported the construction of an AmerenUE nuclear power plant expansion, has reached its final episode today. State lawmakers did not round up enough support to pass the constitutional amendment that would have been needed to move the new plant construction forward. Altogether, this was a not-so-surprising conclusion for a bill surrounded by a stream of publicity that, many people felt, raised more questions than answers.

The post Final Blow for CWIP Legislation appeared first on Show-Me Institute.

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France has more than 60 nuclear power plants that generate more than 80 percent of its electrical power. France also is the world’s largest exporter of electrical power, sending 18 percent of its production to other nations.

We’ve followed in France’s footsteps by establishing an official language; it would be a good idea to emulate their openness to energy innovation, too.

The post Can Missouri Catch Up to France? appeared first on Show-Me Institute.

Please let me know your thoughts, especially you former interns who are now tasked with keeping our comments section flowing. You know who you are!

The post Let’s Get the 2009 Debates Started Off Right … appeared first on Show-Me Institute.

Callaway County is the home to one Ameren nuclear plant, and could possibly be the home of a second. If Ameren gets its way, the current law that prohibiting it from charging for CWIPs would be repealed, and current customers would have to finance the second Callaway County nuclear plant. Already, Ameren is trying to pass the $46 million filing fee price tag onto customers. That’s right: $46 million. For a filing fee.

Now, this isn’t the first time these shenanigans have popped up. Ameren tried to get rid of this law back in ’82, but was unsuccessful. Isn’t this the type of law that keeps Ameren a nice, friendly monopoly rather than the scary, bags-o-money, monocle-wearing Mr. Monopoly?

Ameren claims that unless it is allowed to charge customers for construction as it goes, it will not be able to afford the plant and meet the demand for electricity.

What really bugs me is this: If Ameren is claiming it will have to charge us for plants not even in operation, how is it going to finance 15-percent renewable energy by 2021 if Proposition C passes? Perhaps in this current volatile economy, a multibillion dollar nuclear plant — or, for that matter, a massive renewable energy standard — isn’t in the state’s best interest.

The post No, I Will Not Pay for Your Nuclear Plant appeared first on Show-Me Institute.

A short time ago I half-jokingly wrote about how the disaster movies of the 1970s helped fuel the safety-obsessed society we now live in. Smarter people than I have already constructed this equation: One overrated movie + one poorly timed, frightening, but ultimately minor accident + an enormous amount of activism from certain types opposed to nuclear power = a halt on expanded nuclear power in America + more dependence on the exact thing (oil) that environmentalists don’t like in the first place + higher energy costs for everyone.

What is the point of all this? AmerenUE wants to expand its nuclear plant in Cab Callaway County. The Fulton Sun has the story here, about a recent public hearing on the proposal. One of my neighbors showed up to oppose it:

Drey claimed that a natural disaster such as an earthquake or a terrorist attack would cause massive ecological and health problems for a very large area.

“Someone could get in with a plastic explosive through a metal detector and drop it into the plant and that would be the end of Callaway County and the rest of us,” she said.

Where to begin? First of all, the plant is already there (thankfully). It’s not like a terrorist is going to say, “Well, now they have two reactors instead of just one, so let’s target it. Why would we have wasted our time trying to detonate just one nuclear reactor? But now that there are two, it is worth our efforts!” The same goes for earthquakes, but I trust that the engineers who built it — and will build it — have, you know, considered that.

Everything has a cost and a risk. The extensive use of nuclear power has shown that it is safe — except, perhaps, when you let it be run by communists. Congressman Todd Akin (definitely not a communist, but an engineer) has proposed major revisions to American’s energy policy that include expanding the use the nuclear power:

“I have always been a supporter of nuclear energy,” Akin said. “The rewards are substantive as far as its low cost energy and its cleaner.” He noted that nuclear power becomes a more attractive energy source in the context of global warming.

I could not agree with him more.

The post Ameren’s Answer to Our Energy Needs appeared first on Show-Me Institute.

Under Missouri law, customers must purchase electric power from the utility that owns the service territory in which the customer is located. The Holcim cement plant site lies in CEC’s [Citizens Electric Corporation] certificated service territory. However, Holcim wants to buy its power from nearby AmerenUE (a portion of the plant site lies in Ameren’s territorial boundary) because the cement company says there would be very significant cost savings due to Ameren’s considerably lower rates.

This is an example of one of the many ways in which the regulation of natural monopolies can create undesirable outcomes. Allowing Holcim to purchase its power from AmerenUE would increase competition in the energy market and thus put pressure on CEC to find ways to cut costs. In a normal functioning market, this is exactly what would occur. However, the state government has granted CEC an exclusive right to sell electricity within it’s geographic area — exactly the opposite of what would be beneficial for consumers. Do you smell perverse incentives? I do.

CEC defends itself, claiming that:

[…] the electric cooperative has the exclusive right to sell power to customers in its certificated service territory, adding that the contract signed by Holcim in 2002 binds the cement manufacturing firm, and that allowing Holcim to purchase power from someone else will jeopardize the utility and raise costs for other customers.

Part of the problem is that CEC is never jeopardized. In a market, firms must be efficient and innovate or cease to exist. CEC doesn’t have that problem, and thus can get away with inefficient operations and high prices. A consequence of the exclusive territorial right granted to CEC (and other utility companies in Missouri) is that the loss of one customer raises prices for other customers — but this is the symptom, not the disease. Treating the disease will almost always do a better job of solving the problem than treating the symptoms. In this context curing the disease entails removing state-enforced territorial monopolies and allowing competition at least the chance to break down natural barriers to entry.

The post Monopoly Redux appeared first on Show-Me Institute.

The Public Service Commission is allowing Laclede Gas Company to charge customers an estimated additional $127 over the November through March winter heating season. Regulators have already approved similarly sized purchase gas adjustments for the Empire District Gas Co., AmerenUE, Atmos Energy and Missouri Gas Energy.

The natural gas industry is an example of a natural monopoly. A natural monopoly faces a unique cost structure, in which high fixed costs that present a significant barrier to entry for competitors combine with low marginal costs that allow the monopolist to set its price significantly higher than it would under competition. The textbook argument for regulating natural monopolies is that if regulators can force the monopoly to set its price equal to the marginal cost of the last unit produced (in this case, of natural gas), society benefits from higher levels of production and lower prices.

The problem is, that is one huge "if." In order for regulators to force natural monopolies to set their prices correctly, they have to know both what the correct price is and be motivated to enact the regulation necessary to correctly set the price. In real life politics, neither assumption seems likely. Only the monopolist has any real idea of what industry costs look like, and regulators almost assuredly have less information — especially given the incentive for the monopolist to inflate and misrepresent costs. In addition, regulators face perverse incentives to collude with the monopolist, as well as to prevent any changes — technological or otherwise — that threaten the need for the regulatory commission to operate, and thus for the regulator’s job to remain intact.

Deregulation is not without faults, but the primary benefit to be taken into account is the innovation it spurs. If any industry has abnormally high profits, such as under a natural monopoly, there is an extremely large incentive for outsiders to break down the high cost barriers to entry and compete with the natural monopolist. Under regulation, the natural monopolist is less likely to face this sort of competition and more likely to entrench itself with a static state of technology. In the long run, Missouri would probably benefit from deregulating various natural monopolies in order to let competition and innovation break them down.

The post Junior Monopoly appeared first on Show-Me Institute.

My op-ed is here. The full version of it is here — we had to edit it down for the Post. Kirkwood’s response is here. They had the debating advantage, in that their article was written in response to mine, whereas I had not seen theirs. As such, I would like to address a few of their points, in the same respectful, courteous manner and tone in which they addressed mine.

Judging by their response, I believe they thought I was being flippant when I wrote:

And, although it’s hard to measure, having your city provide utilities can generate civic pride, much like community pride in a high school football team.

They responded:

And while, as David Stokes of the Show-Me Institute notes, we are indeed proud of our high school football team, pride is not the reason to run a business.

I want to be clear that I was not being cavalier there. I was just trying to note that there are hard-to-measure reasons for maintaining the system, and I tried to point out that a reason such as community pride is legitimate and worthwhile, while indeed being hard for either side of an argument to quantify.

Kirkwood also just had one flat-out error in their article. They write:

And consider this: As a country founded on the ideals of freedom of choice, there seems little benefit to a society served by only one bank, one grocer, one electric utility or one water utility. Ideally, choice spurs a healthy competition of alternatives. We are proud to provide Kirkwood citizens with just that.

The idea that somehow Kirkwood residents have "choice" is not accurate. You do not get to move into Kirkwood and then decide whether you want Kirkwood or AmerenUE to sell you your electricity. If you live in most of Kirkwood, you get the municipal utilities; if you live in parts of Kirkwood not served by the municipal utilities (I assume these are more recently annexed areas), you deal directly with AmerenUE or Missouri-America Water. That amounts to no more choice than the rest of us have in utilities.

Well, those two points are pretty much it for my additions. I thank Kirkwood for taking the time to respond, and for their professional tone in doing so. And thanks to the Post for the head shot!

The post Final Word on Kirkwood Utilities appeared first on Show-Me Institute.

Kirkwood is the only municipality in Saint Louis County that continues to provide utility services to its residents. Would citizens benefit if Kirkwood abandoned this service model, instead allowing private, regulated utilities to provide all utility services to residents?

In January 2002, Florissant sold its water distribution system to Missouri-American Water Company for $14.5 million. That works out to $268.78 per person. Going by that ratio, Kirkwood could sell its water distribution system for $7,344,072 (in 2002 dollars), which matches the estimates Kirkwood received in 2004 when it investigated the possibility of selling its water system.

Florissant used the profit from its sale to finance additional street repairs, public works improvements, and police department projects. It then put most of the money, $10 million, into a reserve fund that earned interest for the city. Kirkwood had to consider a similar decision in 2004 because of the major capital needs of its aging water treatment plant. Officials opted to close the treatment plant and purchase water wholesale from Missouri-American Water, but maintain city operation of the distribution system. Kirkwood Electric operates in the same manner, purchasing electricity wholesale from AmerenUE and reselling it to residents.

A 1970 study by University of Missouri economists Paul Junk and Richard Wallace demonstrated that private, investor-owned electric utilities had significantly lower operating costs per kilowatt hour than municipal utilities. While that study compared power-generating municipal utilities to private utilities, it is still relevant to the current situation. The study concluded it would be better for municipal utilities to purchase and redistribute power from outside sources, as Kirkwood now does for both electricity and water, rather than produce or treat it themselves, as Kirkwood used to do. Is it now time to move further?

There are good arguments for maintaining the existing municipal electrical and water distribution systems. Both systems continue to generate excess revenues that can be reinvested into other Kirkwood services and help keep the city’s tax rates lower. The current tax-exempt status of the municipal distribution system decreases pressure on costs and allows more revenue to be returned to other city services. In fiscal year 2005, the electric department returned $1,380,000. Although it is hard to measure, a sense of civic pride can result from having your own city provide this service, much like community pride in a high school football team.

Kirkwood’s own website states that residents pay the same rates for electricity as AmerenUE customers. From a review of the publicly listed rates for water, it seems that Kirkwood residents pay a slightly higher rate for water ($1.8353 per 100 cubic feet compared to $1.5253 for Missouri-American) than other county residents, but with Missouri-American’s recent rate hike request, the Kirkwood rate may soon be lower. The benefits to Kirkwood residents do not lie in cheaper electricity or water, but in reinvesting resale profits in the city rather than seeing them go to shareholders.

There are also strong arguments for selling off municipal utilities. The one-time profit from a sale of the water distribution system could finance immediate needs, an emergency fund, a long-term, interest-earning reserve fund, and a property tax cut for Kirkwood’s residents — all at the same time. While there might be no short-term salary savings from employee layoffs, because the utilities still generate a profit, savings from long-term employee pension costs could be significant. On top of the immediate profits Kirkwood would receive from any sale, AmerenUE and Missouri-American Water are two of the 10 largest property taxpayers in Saint Louis County. Replacing tax-exempt facilities with systems they own would increase Kirkwood’s tax base and provide a long-term revenue benefit on top of immediate profits from the sale and budget savings.

While Kirkwood utilities do make “payments in lieu of taxes” back to the city, those payments really just move government money around without generating new revenue or long-term savings. And not every year going forward will result in an operating profit to be transferred to the general fund. According to Kirkwood’s 2007 budget report, “The high average age of our (electric) system dictates more replacement and maintenance and drives our operations and maintenance costs up.” This situation will not become less expensive for Kirkwood over time.

In my opinion, Kirkwood should follow the example of the other municipalities in our area that have ceased providing utility services, and sell its facilities to investor-owned, regulated utilities. This would allow Kirkwood to focus on services that are not privately provided, such as police and fire protection. Aside from the one-time profit, however, the immediate, quantifiable savings to residents from the sale would be minimal. If the residents and leaders of Kirkwood wish to continue the current system, there are legitimate reasons to do so.

David Stokes is a policy analyst at the Show-Me Institute, a Missouri-based think tank.

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