More good news yesterday! Representative Jim Hansen's bill to remove eminent domain authority from merchant transmission projects passed out of the Missouri House Rules Committee by a large margin. It's headed to the floor for a vote, possibly as early as next week! Be on the lookout for opportunities to support this much-needed legislation!
Also yesterday, the Senate companion bill sponsored by Senator Brown had a hearing in the Senate Commerce, Consumer Protection, Energy & Environment Committee. This hearing was much more contentious, and the outcome is uncertain.
The handful of Missouri municipalities who remain incomprehensibly wedded to GBE showed up to blather against the bill. Ahead of that, these folks did some kind of joint press release that resulted in a string of substantially similar news articles that were full of pie-in-the-sky thinking and misinformation.
Let's take a look at one of them... the one from the City of Chillicothe.
These stories all contain claims of savings for municipal electric customers, Chillicothe's claimed share being $425,000 annually, spread over 9,600 customers (do the math - it's $3.69 per month, rounded). That figure was taken from the more general $12.8 million annual savings for all municipalities participating in this game of Russian Roulette. Except that number is historic and probably not all that applicable right now.
The $12.8M figure came out of MO PSC testimony and was calculated years ago based on GBE replacing a contract with Prairie State that is set to expire by 2021. Prairie State was an inordinately expensive contract entered into by the municipalities years ago. It was a bad deal, and it's cost municipal electricity customers millions in increased costs ever since. It was probably not a smart contract to sign in the first place.
How smart are these municipalities when it comes to energy contracts? How much do they consider the economic impacts on the customers they serve when making contract decisions? The history here isn't very good.
Here's the thing... Prairie State will need to be replaced very soon. What have the municipalities done to accomplish that? Are they sitting around waiting for GBE to replace it? That's not going to happen. GBE won't be completed for years, if ever, so what are these customers supposed to do for energy in the mean time? Are the municipalities entering into higher-priced, short-term contracts to fill the gap, while betting that GBE will come through to lower costs at some point? Seems like an awful lot of money wasted now for something that is unlikely to ever happen. If the municipalities were smart, they would have been looking for the cheapest, long-term contract they could find to replace Prairie State now. This would be in the best interests of the ratepayers.
Signing a higher priced contract with an exit clause for the municipalities to escape in the future if GBE comes on line comes at a huge price to municipal electric customers. So would signing a short term contract based on guessing when GBE might be available.
These municipalities should be concerned with only one objective... to provide reliable, cost effective electricity for their customers at all times. Instead, they're hoping for two birds in a bush to replace the one in their hand. They continue to fixate on GBE and ignore the present needs of their customers.
GBE offered municipalities in Missouri service on its proposed transmission line at a below cost rate in order to coerce them to sign a contract that was used by GBE to create the illusion of "need" for its project. It was a gift, but it was a gift with strings attached. The strings require the municipalities to forego cheaper replacement contracts in favor of the GBE gift happening in the future. In order to create the illusion of "savings," GBE was compared to the municipalities most expensive electric contract, Prairie State. At the time, its expiration was at least 5 years in the future, so it seemed a safe bet. However, GBE has made little to no progress in that 5 year time period. Prairie State has to be replaced before GBE could ever be built, using the most optimistic view possible. This means that the municipal savings are actually shrinking, unless the municipalities went out and found an equally expensive contract to replace Prairie State, just to preserve the savings illusion. Who pays the price for this kind of wishful thinking? The municipal electric customers! The municipalities aren't acting in the best interests of their customers, and they're probably using old data to make outrageous "savings" claims.
Contracting for electricity is part price comparison, and part risk evaluation. Different contracts come with different prices, time frames, and risks. A cheap contract may lock the customer into a longer term, and it may come with a lot of risk. Another contract may be a bit more expensive, but with a shorter term, and a lower risk profile. All of this must be balanced when contracting decisions are made. It's not all about the price.
What's risk? Risk is that the resource might not be able to deliver as scheduled. GBE is a prime example of this. In exchange for a very attractive price, the contract is long term, and about as risky as it comes. If the resource can't deliver, the contract holder is left scrambling to find a replacement resource on a very short time frame. These kind of resources are going to be more expensive, due to their short term, "just in time" nature. This is what the municipalities will be facing when GBE doesn't deliver.
Why won't it deliver in time?
Also yesterday, the Senate companion bill sponsored by Senator Brown had a hearing in the Senate Commerce, Consumer Protection, Energy & Environment Committee. This hearing was much more contentious, and the outcome is uncertain.
The handful of Missouri municipalities who remain incomprehensibly wedded to GBE showed up to blather against the bill. Ahead of that, these folks did some kind of joint press release that resulted in a string of substantially similar news articles that were full of pie-in-the-sky thinking and misinformation.
Let's take a look at one of them... the one from the City of Chillicothe.
These stories all contain claims of savings for municipal electric customers, Chillicothe's claimed share being $425,000 annually, spread over 9,600 customers (do the math - it's $3.69 per month, rounded). That figure was taken from the more general $12.8 million annual savings for all municipalities participating in this game of Russian Roulette. Except that number is historic and probably not all that applicable right now.
The $12.8M figure came out of MO PSC testimony and was calculated years ago based on GBE replacing a contract with Prairie State that is set to expire by 2021. Prairie State was an inordinately expensive contract entered into by the municipalities years ago. It was a bad deal, and it's cost municipal electricity customers millions in increased costs ever since. It was probably not a smart contract to sign in the first place.
How smart are these municipalities when it comes to energy contracts? How much do they consider the economic impacts on the customers they serve when making contract decisions? The history here isn't very good.
Here's the thing... Prairie State will need to be replaced very soon. What have the municipalities done to accomplish that? Are they sitting around waiting for GBE to replace it? That's not going to happen. GBE won't be completed for years, if ever, so what are these customers supposed to do for energy in the mean time? Are the municipalities entering into higher-priced, short-term contracts to fill the gap, while betting that GBE will come through to lower costs at some point? Seems like an awful lot of money wasted now for something that is unlikely to ever happen. If the municipalities were smart, they would have been looking for the cheapest, long-term contract they could find to replace Prairie State now. This would be in the best interests of the ratepayers.
Signing a higher priced contract with an exit clause for the municipalities to escape in the future if GBE comes on line comes at a huge price to municipal electric customers. So would signing a short term contract based on guessing when GBE might be available.
These municipalities should be concerned with only one objective... to provide reliable, cost effective electricity for their customers at all times. Instead, they're hoping for two birds in a bush to replace the one in their hand. They continue to fixate on GBE and ignore the present needs of their customers.
GBE offered municipalities in Missouri service on its proposed transmission line at a below cost rate in order to coerce them to sign a contract that was used by GBE to create the illusion of "need" for its project. It was a gift, but it was a gift with strings attached. The strings require the municipalities to forego cheaper replacement contracts in favor of the GBE gift happening in the future. In order to create the illusion of "savings," GBE was compared to the municipalities most expensive electric contract, Prairie State. At the time, its expiration was at least 5 years in the future, so it seemed a safe bet. However, GBE has made little to no progress in that 5 year time period. Prairie State has to be replaced before GBE could ever be built, using the most optimistic view possible. This means that the municipal savings are actually shrinking, unless the municipalities went out and found an equally expensive contract to replace Prairie State, just to preserve the savings illusion. Who pays the price for this kind of wishful thinking? The municipal electric customers! The municipalities aren't acting in the best interests of their customers, and they're probably using old data to make outrageous "savings" claims.
Contracting for electricity is part price comparison, and part risk evaluation. Different contracts come with different prices, time frames, and risks. A cheap contract may lock the customer into a longer term, and it may come with a lot of risk. Another contract may be a bit more expensive, but with a shorter term, and a lower risk profile. All of this must be balanced when contracting decisions are made. It's not all about the price.
What's risk? Risk is that the resource might not be able to deliver as scheduled. GBE is a prime example of this. In exchange for a very attractive price, the contract is long term, and about as risky as it comes. If the resource can't deliver, the contract holder is left scrambling to find a replacement resource on a very short time frame. These kind of resources are going to be more expensive, due to their short term, "just in time" nature. This is what the municipalities will be facing when GBE doesn't deliver.
Why won't it deliver in time?
CMU General Manager Jim Gillilan said local customers would notice a reduction in their bills after the transmission line is built, which he expected to be in 2022.
Where did he get his expectation? Certainly not from GBE, whose latest claim was that it hoped the project could be ready by 2023 or 2024. That's a full two years after Chillicothe expects. Where's Chillicothe's power going to come from during those two years?
My estimate is that GBE is even further down the road. Here's why:
My estimate is that GBE is even further down the road. Here's why:
- GBE doesn't have enough customers to make the project economic. It only has 2 customers at last count, one of them being the municipalities that are getting service below GBE's cost. That means that GBE needs to find other customers who are willing to pay more than their share to cover the municipalities' discount. GBE hasn't found enough customers to make it feasible in more than 10 years. I don't see it happening any time soon.
- GBE does not have a permit in Illinois. It has to reapply from the beginning, a process that would take at least 18 months (and they haven't even applied yet -- tick, tock!). Assuming that goes beautifully for GBE (which it won't) any possible permit will certainly spend time in the courts, just like the last one that was vacated. Based on the Illinois Supreme Court opinions on both GBE and RICL, this looks a little dicey for GBE.
- GBE must receive the assent of all eight Missouri counties through which it is proposed to pass. The counties have been resistant and seem unlikely to assent any time soon.
All of these are HUGE roadblocks that make GBE's risk profile really shaky. Having a risky profile drives customers away, hence GBE's lack of customers is a self-propelled ride to failure.
It's not happening in 2022. It's highly unlikely to happen in 2023 or 2024. And the longer it sits, the worse it smells to potential customers. And we've yet to figure in time to actually build the project, assuming it's fully approved and finds customers. How long do you suppose it may take to construct? We're talking years, it's a very ambitious project.
So, when the municipalities continue to champion GBE, you might want to ask them why. What contract does it expect GBE to replace? What's the price of that contract compared to GBE? When does that contract expire? What if GBE isn't ready by the time that contract expires? What contracts are waiting in the wings to fill the gap?
Is this really about saving municipal customers any money at this point, or is it more about politics and stubborn resentment? After all, those birds flew out of the municipalities bush a long time ago. Pretending they're still there for the taking is a fool's game.
The municipalities need to take a step back and ask themselves if this continued hope for GBE is really in the best interests of their customers... before the customers themselves start asking this question.
It's not happening in 2022. It's highly unlikely to happen in 2023 or 2024. And the longer it sits, the worse it smells to potential customers. And we've yet to figure in time to actually build the project, assuming it's fully approved and finds customers. How long do you suppose it may take to construct? We're talking years, it's a very ambitious project.
So, when the municipalities continue to champion GBE, you might want to ask them why. What contract does it expect GBE to replace? What's the price of that contract compared to GBE? When does that contract expire? What if GBE isn't ready by the time that contract expires? What contracts are waiting in the wings to fill the gap?
Is this really about saving municipal customers any money at this point, or is it more about politics and stubborn resentment? After all, those birds flew out of the municipalities bush a long time ago. Pretending they're still there for the taking is a fool's game.
The municipalities need to take a step back and ask themselves if this continued hope for GBE is really in the best interests of their customers... before the customers themselves start asking this question.
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