Upside-down world of utilities

Milwaukee Journal Sentinel                           September 19, 2008

Nobody wants blackouts, but coal, the fuel of choice for We Energies, has a black lining. So black that it drove billionaire Sam Johnson to join a street protest in Racine in 2003 against the Oak Creek coal plant expansion.

Coal is one of the dirtiest fuels on Earth. It is bad for the air we breathe, emitting pollutants such as mercury. It is bad for the climate, releasing global warming gases such as carbon dioxide. It is bad for Lake Michigan, the source of our drinking water.

We Energies conceived the $2.3 billion expansion, in part, to prevent a repeat of the near blackouts of the summers of 1997 and 1998. On the surface, it looks like the utility is taking care of Wisconsin by supplying more electricity.

Clean Wisconsin, which was in court for five years opposing the expansion, sees part of the solution in reducing demand through efficiency within the power grid and through efficiency within our homes and offices.

“People always think you have to sit in the dark shivering if you cut your energy use,” Katie Nekola of Clean Wisconsin told me. “But that’s not what they’re doing in California and New York.”

Those states are so much more efficient than Wisconsin in their per-capita energy use that if we matched them, that $1,000 home utility bill would be $670. That kind of efficiency makes Wisconsin look like a rusting statue in the midst of an urban renewal project.

In the strange world of utilities, the corporations own the assets, and that gives them the keys to the information that is used to justify expansions and rate increases. We Energies is not afraid to use it to its advantage. A judge fined it for withholding evidence from the court.

Once power stations are built, the Wisconsin Public Service Commission normally allows rate increases to cover costs and to beef up profits.

Gale Klappa, We Energies CEO, is under pressure from shareholders to increase profits so the share price and dividends perpetually rise.

Wall Street feared the company would be battered financially by delays in starting up the boilers caused by the court battle. Shares dropped to $42, shaving $8 off the year’s high. That’s edging toward a billion dollars in losses for shareholders. That’s gotta hurt.

How did We Energies respond? It offered to negotiate an out-of-court settlement with opponents Clean Wisconsin and the Sierra Club. (Full disclosure: In the mid-1980s, I was a director of the Sierra Club of Eastern Canada.) From the watchdogs’ view, the plant had been built, the cooling system was nearly finished and there was the risk it wouldn’t win in court, so it was worth talking.

The parties agreed last month that the cooling system will stay. We Energies committed to build solar and biomass generators and to fund $100 million in conservation measures for the lake.

On the surface, that’s not a cheap settlement for the company, but it can pass those costs to consumers with PSC approval. The real victory for We Energies was its share price. That rose. Shareholders made money.

And consumers will get more electricity than they need — and foot the bill. Isn’t the consumer king? That’s the rule of competitive business.

We Energies as a monopoly is taking care of shareholders, be they in Wausau, Wall Street or Dubai. That’s the rule of monopoly.

Welcome to the upside-down world of utilities.








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