It is expected that the General Assembly will be asked during the November Veto Session to green-light the construction of a power plant in Taylorville, Illinois, being proposed by Omaha-based Tenaska Inc. Normally, a decision by a private investor to build a power plant in a competitive market doesn’t require the input, review and approval of the Legislature. But in this case, Tenaska Inc. has said it won’t build the plant unless a state law is passed that guarantees Illinois consumers will buy their power – at above-market prices – for the next 30 years.
A few months ago the Chamber Foundation released a study about the benefits of building cleaner-coal technology in Illinois – projects much like the one proposed by Tenaska. In several forward-looking scenarios, the economic benefits of the construction of cleaner coal plants and their operations were very significant – especially when you consider many of the jobs would be created in areas across the state with some of the highest unemployment rates.
Nevertheless, we have decided to oppose the legislation that would enable the facility to go forward. Some people may perceive this as a confusing, contradictory stance since the Illinois Chamber is an outspoken advocate for Illinois coal and champion of energy production facilities. But when they look more closely at the situation, we believe they’ll agree that we’re striking the right balance.
What is at stake
Tenaska represents a throwback to guaranteed rate of return utility policies that Illinois abandoned more than a decade ago in favor of a more deregulated competitive market. A state guaranteed market for Tenaska’s energy production distorts the price of electricity and discriminates against employers. The law would force unnecessarily higher prices on business and governmental customers than on residential customers. It would clearly demonstrate that the state’s political establishment continues to embrace an anti-business bias by disregarding the cost of doing business. This action would likely chill what has been a robust and openly competitive marketplace for electricity because it would show that the political environment is once again unpredictable and unreliable. This special legislation opens the door for more political meddling and mischief.
Progress, but not at any price
We truly believe in the potential for Illinois coal in general and cleaner coal projects specifically. However, the state cannot afford to support cleaner coal projects (or other energy projects for that matter) at any cost to consumers – especially business consumers.
Recently the Illinois Commerce Commission came to the same answer. They gave the Legislature a report on the proposed economics of the facility and came away unimpressed, at best. Key findings for the ICC report include:
Higher electric rates for all – “the cost associated with electricity generated by the [Tenaska plant] is substantially higher than that which is associated with other types of generation facilities.” Who would pay for these higher costs? Illinois consumers would. They would pay through unnecessarily higher rates. Information from the STOP Coalition – which is a group of businesses and business organizations (including the Illinois Chamber) that opposes the legislation – shows that even if the project were built on time and on budget it could cost Illinois electricity customers $286 million more per year. That’s a total cost of more than $8 billion over the 30 years. But it is very likely the costs could be greater. If the expense of building and operating the TEC project are higher than expected, and if certain revenues are lower, Illinois electricity customers could pay much more.
Businesses and government agencies take the brunt of the burden – Because the proposed law would establish a two percent cap on the costs that can be imposed on residential consumers, most of the burden of increased rates would fall on businesses and therefore have a cascading consequence on the Illinois economy. It’s not just the private sector employers that would be affected. Governmental agencies are major energy consumers, and thus all taxpayers – including individuals – would also suffer unnecessary annual increases worth millions.
Crippling Illinois’ competitive electricity market – The ICC’s report also points out that the proposed project “could have a significant adverse impact on the retail competition model adopted by the General Assembly in 1997.” Today, more and more Illinois electric consumers enjoy the benefits of free market pricing and being able to shop among a number of competing alternative retail electric suppliers (ARES) to find the best rates, products and services to meet their electricity needs. Over half of all electricity consumed in Illinois is bought from someone other than the traditional utilities that were historically the sole providers.
The Tenaska project seeks a legislative mandate to force ARES to enter 30-year contracts for wholesale power. Such a requirement would turn the entire competitive electric market paradigm on its head. It would send Illinois back to a cost-plus form of generation investment and likely affect customer choice by chilling what has been a robust competitive market. One of the hallmarks of Illinois's current electric energy marketplace is that retail suppliers are able to purchase the power at the best prices they can find in the wholesale market. Reversing this principle could result in a death spiral for the Illinois retail marketplace as customers attempt to avoid the “Taylorville surcharge.”
It’s more about stable policy than the price
The Chamber is not naïve enough to think that electricity prices will not go up in the next 30 years. Whether the Tenaska plant is built or not, most experts predict that electricity prices will increase as a response to supply and demand factors as well as the potential cost increases associated with government imposed future carbon regulations.
We object to a government mandate to buy Tenaska’s product for 30 years at an established price, no matter what that market says that price should be.
In any event, building Tenaska under this proposal locks the state into a 30-year agreement and directs the burden of higher, uncapped rates on the business community. It’s simply not a good deal for commercial and industrial users, state and local governments, or our members. Perhaps most significantly, if the General Assembly and Governor decide to coddle Tenaska with a throwback to government guaranteed rate of return on investment financing, the “Taylorville Surchage” will undermine a decade of gains achieved by opening the market to competition.
If adopted our political leaders will have once again demonstrated an anti-business bias by telling competitive electricity sellers who have been in this market or contemplate entering the market that Illinois is an unpredictable and unreliable place to do business. The message to business owners who will be forced to pay unnecessarily higher electric bills is that Illinois legislators are insensitive to the fundamental costs of doing business and do not hesitate to impose laws that increase business costs while insulating residential consumers from similar treatment.
Tenaska is working on another coal project in Texas called Trailblazer, which does not rely on billions of dollars in subsidies from government mandated, above market pricing of electricity. Tenaska expects to sell electricity at market prices in the Texas competitive market. But here Tenaska wants the Legislature to require the Illinois Power Authority, a government agency, to purchase its output. What’s good for Texas should be good for Illinois.
What about the jobs?
There are certainly jobs that will be created as a result of the plant. Tenaska’s own estimation is about 2,500 temporary construction jobs and “hundreds” of permanent jobs. But Tenaska has only examined the gross impacts to build and run the plant, not the net impact on jobs statewide. What is often overlooked is the negative job impact of increases in electricity rates. It is an established economic fact that when you increase the expenses of running a business, jobs are lost. Legislators should not be threatening jobs by working to increase the costs of doing business in Illinois.
Hope for the future
No one hopes more than I do that cleaner coal plants find the technological, economic and environmental sweet spot to assure viable operation in our state. Ultimately I believe it will happen. But Illinois government should not be giving a single private company a long-term financial guarantee without regard for the thousands of businesses that use electricity and deserve the benefit of competitive pricing.
Email Doug Whitley: dwhitley@ilchamber.org
