Tuesday, July 29, 2008

The cure for the MoPEP Mistake


The MoPEP mistake reveals serious flaws in Missouri’s power distribution system that must be corrected. There was a reason - but not a good one - why municipally-owned utilities have been exempt from PSC oversight regulation – the reason was politics. To our local politicians, who don’t have the skills to manage a budget or the stomach to face the voters to justify the fee increases they claim they need, the municipally-owned system with its ability to (theoretically) add a nearly unlimited local mark-up to the wholesale power cost is a sweet little money-maker. Local utility rates and revenues can and have been manipulated to provide the extra revenues city hall needed to cover up budget deficits and use for less savory but equally illegal purposes. Power costs and rates had been low and fairly stable for decades so few citizens noticed what their government was doing to them. In the 80’s, after the Hancock Amendment was passed, cities were prohibited from raising most local service fees without consent of the voters. Politicians would rather milk a mouse than ask voters to approve fee increases for trash collection or street work because such tax increase campaigns raise issues of mismanagement and political practices that politicians prefer not to stir up. With their other revenue generators cut off by Hancock, this covert source of money that could be raised under the guise of covering increased wholesale rates was a godsend. Finding more money to buy more things is what keeps politicians in office.

This covert system of taxation without representation worked so well for Marceline Missouri that over 60% of their city budget comes from their utility “profits.” Imagine the panic in Marceline’s city hall if the Hermann class action lawsuit prevails and the court confirms what the Missouri Auditor has said for years and what they also told Hermann in a 2003 petition audit: Rates for utility services should be set to cover the costs of producing and delivering services (including administrative costs), repaying bonds, and repairing and replacing infrastructure. These utility services should not generate profits to fund other services provided by the city. The existing utility rate structures have allowed the city to, in effect, levy additional taxes without a vote of the citizens.” The City of Hermann ignored the state auditor and their reward was that in 2006 some of their frustrated citizens filed a class action suit against them.

The State Auditor said the same thing to Springfield in a 2007 petition audit: “Rates for utility services should be set to cover the costs of producing and delivering services, and utility services should not generate profits to fund (through subsidization) other services provided by the city or other utility departments or provide the opportunity for CU to spend monies unnecessarily.” In 1998 the auditor said the same thing to Rolla but Rolla’s city council didn’t pay attention either. Their reward is that Rolla citizens petitioned for another state audit this time with special emphasis on their utility’s illegal practices. That audit should be done this fall.

Missouri’s unmonitored, unregulated, widely corrupted home-owned utility systems have long provided fertile ground for political abuses and many have taken full advantage of it. Kincheloe saw the weakness in these corrupt and inifficent systems and he exploited them by getting a first lien on all of our electric revenues to use as collateral for his investments in coal-fired plants. Ironically it was his exploitation and the cascade of fee increases he triggered in 2006 with his $1.2 billion in investments that focused more than one local spotlight on their utility fees; the MoPEP “wholesale” price, the size of the local markup and how that markup was being used for things other than providing power. Citizens in many of the 32 towns began to learn how they’ve been ‘had’ for decades even before MoPEP’s “economies of scale” jacked their wholesale and retail rates up by 45% or more.

Memphis Missouri has had a MoPEP contract since 2001. In a 2006 Memphis Democrat article the people of Memphis were very unhappy with the price increases they were getting from this gee-whiz MoPEP middleman who told them when they signed up that he was going to give them cheap electricity through “economies of scale.” The article in the Memphis Democrat said, Since 2001 when the city established its current rate schedule for electricity, Memphis has experienced a 71-percent increase in the wholesale cost of power. According to an independent report from the city’s engineering firm of Barnes, Henry, Meisenheimer & Gende, Inc., the city went from paying $700,000 to buy power to $1.2 million in 2006. It has baffled many of us how anyone could believe that “economies of scale” will result from adding MoPEP’s middleman markup and their “unlimited direct costs” to the wholesale price of what was your former electric supplier’s direct-to-you wholesale cost, but most of the MoPEP Kool-aid drinkers have missed the illogic in this “economies of scale” system. Duncan Kincheloe came to the Memphis meeting in an attempt to defend MoPEP’s outrageous rate increases but he just made the same lame excuses he's still making today. "It's not my fault' it's because of federal deregulation."

This is our tipping point. The world of energy is undergoing a vast and permanent change. The ‘old power’ system, that has had us trapped in a network of power lines and burning fossil fuels as our primary source of energy, is coming to an end much faster than anyone predicted. Someday our great, great grandchildren will laugh at the idea that we paid hundreds of dollars a month for power. Over the next decades, rapid changes and innovations in energy will help us reduce our oil gluttony and change forever the way we do everything. T. Boone Pickens, fossil fuel billionaire, got fed up waiting for leadership from the Washington political vacuum so he launched a personal initiative primarily in wind and solar power. T. Boone is no slouch when it comes to guessing futures in power – in fact, when and where he invests his money makes the market in power futures.

But Duncan Kincheloe - a slave to his own dirty coal investments – has us trapped in the old fossil fuel power system and he tells us to resign ourselves to paying the horrific “stable” high prices he will eventually charge us to pay off the China/India-inflated construction costs of the newest plants he has foolishly invested in. These late-to-the-table, belching coal-fired dinosaurs MoPEP has invested in will eventually be replaced by diverse, renewable and less lethal forms of power generation. If we allow ourselves to be trapped by MoPEP’s tired ideas and narrow thinking, our rural towns will not be able to take advantage of the new power sources and innovations that will significantly increase the appeal of living and working in rural America. We will not be able to offer businesses the lower cost of energy they will look for in the new economy. Who do we want to take our lead from, Duncan Kincheloe or T. Boone Pickens?

Rockport Missouri is already getting 124% of their power from the giant windmill farm in northwestern Missouri. Greensburg Kansas was devastated by a tornado in May 2007. The Greensburg City Council passed a resolution on May 19, 2008, that “all city building projects will be built to LEED Platinum level standards.” Think about that. They’re not just going to rebuild their town they’re going to do it to Platinum standards! Greensburg owned their own utility too but they are rebuilding ‘green’ with 100% renewables and a lot of wind and solar power in large and small scale applications. They aren’t doing this thing halfway. They set the highest standards for their rebuilding and as a result they have had millions of dollars worth of national publicity, have been featured in a TV special and will continue to be a spotlight community for the nation. If they can do this from a tornado stripped and devastated town, we should be able to do it from where we are. The Greensburg mayor said, “This makes us the first city in the United States to do this and it shows the world "how green we are." What more could you ask for to become an economic development magnet and market your town as having the highest quality and the lowest cost of living of any town in America? Greensburg is the Platinum standard we should be studying but first we have to get our of our MoPEP trap.

The Guardian newspaper in the U. K. reports that the European Union is planning to build solar thermal collectors in the Sahara to power all of the EU. At least they have a plan; all we have is T. Boone Pickens. Despite the lack of political will in Washington the public will not be denied and people, towns, schools and corporations are going ahead with conversions to wind and solar on their own at a phenomenal rate. The Highway Patrol Troop I Headquarters in Rolla has just put up a windmill. It won’t supply all their power needs but it’s a smart beginning. Columbia Missouri’s voters have mandated that their city government bid only power companies that get a certain percentage of their power from renewable sources. If other communities follow that trend, that type of pressure will give suppliers incentive to take a different road in investing and developing new power sources. The only countries still building coal-fired plants are the underdeveloped countries of China and India. Since their largely coal-fired smog has embarrassed them and fouled the Olympic Games, even China is beginning to rethink their carbon power policies but not Kincheloe - he just keeps buying stock in coal-fired power.

We either need to sell off our small town antique utility systems to the large commercial power suppliers - at which time we can legitimately charge them annual “franchise” fees for public access and the revenues can legitimately be spent as part of the general fund revenues - or we must demand our legislator’s pass new laws to put our local utility rate-setters under PSC regulation and stop them from illegally raising utility rates in violation of the Hancock Law to use as patronage payments and to cover up city budget mismanagement. Our local politicians have proven they can’t be trusted to run our city-owned utility departments fairly and ethically so it’s time to take their pork toys away and make them balance our budgets the old fashioned way – by living within their means…and ours. From now to November it’s prime political season. We must nail all the people running for state offices about the MoPEP situation and demand to know what they’re going to do for us. Which candidates are with the electric rate payers and which are with the MoPEP gang?

For a decade or two power demands will continue to be supplied in large part by the old technology but as new tech power takes over, as we learn to conserve and as we switch to more energy efficient mechanics, demand for ‘old economy’ power will decline. As their formerly captive customers fall away, the coal-fired dinosaurs will have to raise kilowatt prices ever higher to repay the billions in revenue bond debt it cost to build these belated generation plants that have capital costs many times higher than the older coal plants. The more they raise their prices the more affordable and desirable home solar, wind, biogas and geothermal alternatives become and the less willing communities will be to use coal sources. Detroit became fat and complacent because they dominated the market until they thought they were the auto market. “What was good for General Motors was good for America” they said. They believed they would dominate the world market forever. Now they can’t give away their gas-guzzling SUV’s.

We don’t want our well-loved small towns to become SUV’s in the coming Prius world.