What Joe Maddon can teach Illinois lawmakers about competition
Illinois policymakers are considering a sprawling, damaging and wasteful energy bill that seeks to bail out two unprofitable Exelon Corp. nuclear plants. This massive 446-page piece of legislation—dubbed the Future Energy Jobs Bill, S.B. 2814— must be rejected quickly.
The bill reflects a log-rolled accumulation of special interests with everyday Illinois citizens left to foot the bill. Rather than allow competitive electricity markets to continue to produce benefits for the Illinois economy, Exelon hopes to appeal to tepid political partners by pushing a “Christmas tree” of giveaways that could cost up to $24 billion over 23 years. There are provisions for energy efficiency and renewables to entice environmental groups. A last-minute addition of subsidies for coal plants sought to build support in downstate Illinois. Various provisions to change the structure of electric ratepayer charges—issues the Illinois Commerce Commission is better equipped to handle—have come and gone.
Wrangling this array of interests may well sink the bloated bill, as many provisions conflict with the interests of those favoring other provisions. Indeed, the far-reaching bill includes “something for everyone to hate.” The haggling is happening in haste with just days left in the Illinois legislative session. This hectic process undermines the thoughtful policy Illinois citizens deserve.
While the eventual winners remain unclear, as the bill’s provisions fluctuate wildly, consumers are sure to lose. The chief of the Public Interest Division for Illinois’ attorney general said the bill would add $10 billion in costs for Illinois customers through 2030, with the nuclear provision alone coming to $285 million a year. Even considering the claims of 1,400 nuclear jobs saved, it would cost more than $200,000 a year for each job saved, ignoring the job losses that would be caused by higher electricity bills.
One alarmed business group called it “the largest rate hike in U.S. history.” Another de facto tax hike is something the tapped-out state of Illinois can’t afford.
Illinois Gov. Bruce Rauner has valiantly fought an uphill battle to straighten out the state’s finances. His conservative accolades suggest he’d clearly reject the bill; the governor’s office once called the bill’s rate increases “insane.” After all, special-interest-driven economic policy led the state into its current financial mess. Rauner and other conservatives should be alarmed by the direct cost to consumers, as well as the damage done to competitive markets. But unfortunately, some bill tweaking may have garnered his support.
In the haste of special-interest pandering, it’s important to reflect on what’s at stake. Illinois was a pioneer in the late 1990s, when it broke with the regulated monopoly model and made power companies compete, while enabling customers to choose their power provider. At the time, Illinois electric rates were well above the national average and double-digit rate increases were the norm.
After the reforms, Illinois electricity prices have been consistently below the national average. A report by four business groups concluded that competitive reforms saved Illinois customers up to $37 billion over 16 years, with the average household saving $3,600. Competition drove electric prices down by demanding efficiency and innovation from companies that want to be successful. Fundamental to this is that competition puts the risk of capital investment on investors, not ratepayers.
Bailouts for unprofitable power plants breaks this commitment to markets. The political precedent they would set encourages businesses to seek subsidies, not business practice improvements. Low-priced natural gas has shifted electricity economics dramatically, with consumers benefiting most in states with competitive markets. Captive ratepayers in monopoly-utility states have been left to finance uneconomic coal and nuclear plants, but in competitive states the investment loss is borne by shareholders. That is, unless states abandon their commitment to markets and cave to corporate welfare pleas.
Economic development relies on allowing markets to work. Companies should succeed or fail based on their market positions, not political ones. This can create difficulty for unprofitable enterprises, whether that’s Kodak and Blockbuster failing in the digital age or retiring power plants in the low-priced natural gas age. A more appropriate political response would be to examine worker retraining and other ways to reduce the sting of a local economic shift.
But subsidizing unprofitable enterprises is an unnecessarily expensive route to help power plant communities and undercuts the benefits of competitive markets. It can also severely distort market prices that creates artificial investment risk for competitive suppliers. This escalates investment costs and exerts upward pressure on electricity prices.
Clearly, competition is a win for the economy, but it’s also a victory for the environment. The geographic scope and transparency of prices in competitive electricity markets are essential to clean-energy development. Competition spurs innovation to cut fossil-fuel consumption, as demonstrated by more efficient operation of power plants by competitive “merchant” power producers compared to monopoly utilities. Competition also democratizes clean energy, evidenced by customers with choice increasingly opting for “green” power supply. This creates organic demand for cleaner energies.
Proponents of nuclear subsidies argue the plants deserve compensation for something they lack – pollution. But this misapprehends the underlying concepts. The market failure is underpricing of pollution, not overpricing of green energy. Failing to enact efficient emissions pricing (e.g., an emissions tax) does not warrant abandoning market principles (e.g., distortionary subsidies). As former Exelon Chairman and CEO John Rowe stated “in a world that’s driven by unfriendly market prices and unfriendly public policy, you shut them down… it is the proper market-driven answer.”
Illinois legislators should take a page from the World Champion Chicago Cubs’ playbook. As skipper Joe Maddon noted, he’s “not into overlegislating the human race.” S.B. 2814 embodies an excessive legislative burden. After a lifetime of struggle, the refreshing mantra of personal freedoms yielded a cohesive clubhouse that brought the “lovable losers” their first championship in 108 years. Likewise, the liberation of energy consumers has made winners of hurting Illinoisans. Let’s keep the momentum going by protecting energy choice and competition to keep the Illinois economy a winner for years to come.
Image by Derek Henkle
