The Citizens Utility Board (CUB), Illinois Attorney General Lisa Madigan, Gov. Rod Blagojevich, AARP, and coalitions representing labor unions and some of the states largest industries have all concluded that the Illinois electricity market has failed to live up to expectations.
Even one of the nations leading proponents of utility deregulation, Exelon/ComEd CEO John Rowe, has acknowledged the market has problems.
Yet, in just a few short months, if Exelon/ComEd gets its way, the utilitys 3.6 million customers in northern Illinois will be paying rates set by the market. And are we in for a shock.
Earlier, Exelon/ComEd was predicting rates could jump by as much as 20 percent, but now it appears the increase could be as high as 40 percent. That means if your electric bill is $100 a month, you would pay $480 more next year, and those rates would be locked in for the next three years.
To hear the company talk, a rate hike of this magnitude is unavoidable. But is there really nothing Illinois regulators or lawmakers can do to protect consumers from such skyrocketing electric rates?
Of course not.
Exelon/ComEds rates have been frozen since 1997, when the legislature passed a law to restructure the electric industry. Its rates were reduced by 20 percent and locked in through 2004, with the hope that a competitive market would develop to protect consumers once the cap on rates was lifted.
Instead, Exelon/ComEd still is the only provider of electric service for customers throughout northern Illinois. Although the residential electricity market is technically open to competition, not a single alternative supplier is providing residential service. Youre stuck with Exelon/ComEd whether you like it or not.
The last nine years of reduced and frozen rates have been very, very good to the utility. Exelon/ComEds profits have quadrupled during the rate freeze to a record $2.1 billion last year. During that period, investors have seen the value of their stock increase 1,500 percent more than the increase in value of the S&P 500.
And, if the company is allowed to use its radical auction process to set rates for 2007, stockholders stand to reap even more.
Thats because an Exelon/ComEd affiliate would be a bidder in the auction. Since the auction is being conducted at a time when energy markets are extremely volatile and prices are at some of the highest levels ever seen in the industry, the prices charged to consumers are likely to be many times higher than the companys production costs.
However, under the auction, the price consumers pay will have no relation to the actual cost of producing power. Customers will be forced to pay whatever price the auction producesno matter how high. And all that extra revenue would go straight to parent company Exelons bottom line, at consumers expense.
It adds up to one of the biggest fleecings Illinois consumers have ever seen. But, fortunately, there is a way out.
The rate freeze originally was set to expire in 2004, but lawmakers extended it through the end of this year. At the time, they argued it was premature to force consumers to pay market rates when they had no choices in the marketplace.
Now, were nearing the end of 2006, and nothing has changed. There still is not a single provider other than Exelon/ComEd for northern Illinois consumers. And almost everyone involved in this debateeven the head of Exelon/ComEdacknowledges the market has problems.
Thats why extending the rate freeze again makes so much sense. It was implemented in 1997 as a way to protect consumers during Illinois transition to a competitive marketa transition that is still under way.
Under the Electric Consumer Protection Act, HB 5766, sponsored by state Rep. Lisa Dugan and others, electric rates would be frozen for another three years, through 2009. Also, state oversight of electric prices would be maintained until at least 33 percent of residential customers are served by alternative suppliers.
This would ensure that consumers are protected by reasonable regulations to keep prices in check as long as theres no competition to do the job.
But there are other steps the state could take to protect consumers. Delaying the auction from September to the spring, when energy markets typically are less volatile, would save consumers significant money. It also makes no sense to lock in prices for the next three years at some of the highest levels ever seen in the industry. Reducing the auctions three-year contract term could also produce savings.
And allowing the Illinois Commerce Commission (ICC) to conduct a full, after-the-fact review of the costs to determine wether they are reasonable could be the biggest boon. If the agency finds the company could have gotten lower prices, under state law, customers are due a refund.
All of these solutions are reasonable and Exelon/ComEd can easily afford them. What we cant afford is to pretend the electric market is fully competitive when it isnt, a move that will set Illinois on a path of skyrocketing electric rates. Weve been down that path before. Fortunately, its not too late to change course.
From the July 12-18, 2006, issue