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Sorry to have to ask, but I need your help. I voted "No" on SB1652, the
Electrical Energy Infrastructure Improvement Program. Although I agreed with its objectives of
strengthening reliability, reducing outages, and stabilizing rate-setting
procedures, I thought that the initial proposal's cost was too expensive. SB1652 passed the Senate and House over my
objection in close votes. Governor Quinn
vetoed the bill and I anticipate that we will vote on a "veto
override" motion in the Senate within the next month.
The work to
be done under this legislation is good and, where the first impression
circulated was that rate-making and increases would become automatic (very
bad!), that interpretation was inaccurate.
The utility rate review process would become a stable and methodical
annual process rather than one that leads to spikes and troughs. We want reliability and stability, but we
don't want to overpay.
Unfortunately, the cost issue boils
down to facts about definitions of complicated financial measurements of return
on investment. When I first learned that
the "return on equity" for the infrastructure improvements would be
600 basis point (6%) over the 30-year government bond interest rate
(currently, approximately 4%), I said, "Whoa Nellie, no one gets 10% on
their investments these days!".
Therefore, I voted "No".
However, after deeper study of what
statistics I ought to be using to make an accurate assessment, I have learned
that there is a substantial difference between "return on equity" and
"shareholder return". Knowing
that these statistics can be as different as watermelon and oranges, that
knowledge doesn't make it too much easier for me to understand. I asked one expert, "If it's this hard
for me to distinguish after a lifetime in finance and accounting, how are my
constituents . . . who are busy with raising families, running small
businesses, and fighting hard to just make ends meet . . .going to assess the
fairness of this proposed legislation?"
One way of better understanding
what something like "return on equity" is, is to understand what it
is not. Return on equity is not
the interest rate that Commonwealth Edison pays to its bondholders. This statistic is currently approximately 6.2%
for all maturities and going down as new bonds at lower rates are issued in an
environment of declining long-term interest rates.
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