NICE after Ameren's electric customers
A new company is trying to break into the barren wasteland known as residential electric service in Illinois and bring competition that's long been promised but never delivered.
Join the discussion below, or Read more at State Journal-Register.
#1 Oct 11, 2008
This was interesting.
The NICE coop was very careful to say they don't promise lower rates, and I believe they are being honest about that.
Looking at Ameren, in their cash flow, they make about 13% profit on your monthly utility bill.
Of that 4.3% is paid in taxes leaving about 9.7% post tax earnings.
6.8% is paid to shareholders which is about a 4-5% yield traditionally based on stock price.
(right now it's about 9% due to low stock price and market crash).
That's a 4-5% return is a fairly conservative return for shareholders.(The growth potential in the company is very limited.) Remember, shareholders ponied up the money to help build Ameren.
This leaves 1.9% to pay off their debt, which I hope is Ameren does with revenue.
It would seem wrong to me for a somewhat regulated company to lose money,(the government shouldn't force a business to lose money). So to me, logically, the maximum that NICE could effectively save people is 1.9%.
If NICE saved people significantly more than that, Ameren would have to raise rates for other parts of their business since they do all the distribution, this would make sense.
So, any amount that NICE can save about 1.9% would mean either:
1) Ameren is increasing their debt (not good for anyone)
2) Taxes having to be made up by citizens from other areas (ie. zero net difference whether you pay taxes your utility statement or via income tax)
3) NICE is much more efficient at running a business then Ameren (is that really likely?)
4) Take the money from the shareholders (which isn't ethically correct, IMHO, since the shareholders put up the money for Ameren)
Nice has a ~1% commission on the electricity rate already, so of the 1.9%, I'm left with 0.9% savings.
And, NICE requires a 5-yr contract with a $75 cancellation fee.
Might sounds 'nice' at a glance,(pun intended) but the math doesn't add up for me.
George, an engineer
#2 Oct 12, 2008
Thanks for the info. It looks like the NICE coop is backed by Integrys, which is another (for profit) utility company. Someone's getting paid here and it looks like Integrys just wants some of Ameren's cut.
Integrys top 5 officers average over $1,000,000 each.
It does sound fishy.
#3 Oct 13, 2008
FYI, as I understand it,
If it is even possible for NICE to be cheaper on electricity, Ameren's rate increases for DELIVERY wills stick anyways since Ameren still bears the cost and responsibility of delivery.
On my electric bill last month, delivery was about the same cost as the electricity itself.
Ameren does have one of the lower rates in the industry. I pay about 8c/kWH w/ Ameren. My sister pays 12c/kWH where she's at.
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