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Emmerich: Electricity Resists Being Subject to Free Markets

Like buzzards picking the dead meat off a carcass, the salvage dealers are having a heyday carving up the defunct Kemper lignite gasification plant.

It was the biggest construction project in the history of Mississippi, over seven billion dollars. Just as mother nature doesn’t waste a thing, the free market under which the salvage industry operates will pick the Kemper leftovers clean. What will be left is a huge eyesore, a testament to the problems with regulated monopolies, which is the system under which almost all electricity is sold in the world.
The problem is wires. It’s enormously expensive to run two sets of power lines to a home. So instead of allowing competition, we give one company a monopoly and try to regulate it.
Cable companies were once a monopoly for the same reasons. But that is no more. Multiple wires go to the same home and we have choice and lower prices. In addition, wireless transmission has leapfrogged the expensive costs of wire transmission. Unfortunately, transmitting electrons is a lot more expensive than transmitting photons.
Texas and a few other states allow consumers to shop around for power plans and many do, saving hundreds of dollars a year. Such deregulation has not been adopted in Mississippi.
Solar panels may one day give consumers a choice. But the prices are not quite low enough and cheap batteries are not yet available to store excess electrons for a cloudy day.
Efficiency is providing some competition. LED light bulbs cut light bills dramatically. Indeed, electricity consumption in the U.S. is actually declining, New homes are far more energy efficient, but most people live in older homes.
Meanwhile, the regulated monopoly system we have in Mississippi creates absurdities. One such absurdity is the fact that two big regulated utility monopolies existing side by side have vastly different rates. Entergy’s rates are 50 percent lower than Mississippi Power. How can this be?
No one at the Mississippi Public Service Commission (MPC) can provide me with a clear answer. Indeed, Mississippi Power just received PSC permission to raise rates nine percent.
I emailed PSC commissioner Cecil Brown for an explanation.
Commissioner Brown wrote: “The approximate 9% increase in rates is the result of two factors.  The first is the company’s Performance Evaluation Plan or PEP.  PEP accounts for about 5% of the increase. This is the first PEP increase to be approved by the Commission since 2013. PEP determines the company’s base rate for customers based on projected revenues and expenses, asset cost recovery and rate of return on investment.
“The second part of the rate increase (about 4%) comes from the company’s Environmental Compliance Plan (ECP).  ECP allows the company to recover costs incurred as a result of legally required environment expenses by the Environmental Protection Agency not included in PEP.  Most of this cost is related to scrubbers required for coal plants. Again, the filing had to be adjusted for the new tax law and was thoroughly reviewed by the PUS.”
Apparently, the big Daniels coal plant on the coast required $300 million dollars or so to scrub out some of its pollutants that were being released into the atmosphere.
It is still amazing to me that Mississippi Power can blow seven billion, including a billion that it passed on to ratepayers, and then come back within a few months and get a nine percent raise.
Brown and the other commissioners are promising to begin a total review of Mississippi Power rates from top to bottom. This is long overdue.
While Mississippi Power was squandering billions, Entergy was buying used natural gas power plants for one-thirtieth the cost. Just this month, Entergy bought a plant near French Camp for $318 million. This plant produces more power than the failed Kemper $7 billion plant was supposed to produce. Only a regulated monopoly could produce price distortions of this magnitude.
Entergy also belongs to MISO – a shared grid involving 11 states and dozens of power plants. The cheapest electricity is sold on a transparent market daily, saving Entergy ratepayers $118 million a year. The big question: Why doesn’t the PSC require Mississippi Power and TVA to connect to this grid as well? The answer: We’re working on it.
Mississippi Attorney General Jim Hood is suing Entergy claiming it got those cheap used natural gas plants by using its transmission power to deny potential competitors access to its grid. Indeed, the U.S. Justice Department put pressure on Entergy to join MISO for the same reason.
It is ironic that Hood is attacking Entergy, which has much lower rates and gave a free pass to Mississippi Power during its Kemper disaster. Mississippi Power attorney Ben Stone has been a key Hood supporter. That’s politics.
Rather than allow our utility companies to build more owned and operated plants, the money should be spent in improving the grid so homeowners can get the cheapest electricity from hundreds of competing plants. Indeed, Entergy is actively expanding its grid connections.
If the PSC does approve any new power plants, then their construction should be put out to competitive bidding.
Technology will help. Advance metering will soon allow customers to monitor their electricity consumption on an hourly basis using apps. New microgrids will allow small groups of homeowners to split the cost of a backup natural gas generator.
Meanwhile, pity the poor ratepayers of South Carolina. They have already been hit with $2 billion dollars in higher rates from nuclear plant cost overruns. That’s $27 a month per customer. There’s another seven billion to come, thanks to the Baseload Act that allows utilities to charge customers for plants even before they produce electricity.
Mississippi has the same Baseload Act. But a group of outraged citizens, including me, raised so much hell that the Mississippi PSC never deemed Kemper prudent. So when it failed, Mississippi ratepayers were not legally on the hook. Even so, the PSC threw Mississippi Power a billion dollar bone to quash any threat of litigation.
In desperation, the South Carolina Attorney General has now filed suit claiming the Baseload Act is unconstitutional. We wish them luck. The Baseload Act is a classic example of how a regulated monopoly can manipulate the political system to the disadvantage of the ratepayers.
Mississippi dodged a seven billion dollar bullet with Kemper. South Carolina probably won’t be so fortunate. You can thank a vigilant press, and about a dozen concerned citizens in Mississippi for that.
But the problem still remains. Regulated monopolies don’t work very well.

By columnist Wyatt Emmerich

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