The
reality of utility deregulation
by
Mike Kroll
ÒEver since the administration of Ronald Reagan there
has been a growing movement away from government regulation and toward the
viewpoint that free-market economic forces are a better means of balancing the
competing interests of utilities and consumers. All the available evidence
shows that this has been a wonderful development for utility company executives
and shareholders and an economic nightmare for consumers. The huge pending
increases in electric bills are just the most timely example of how this
approach has failed with Ameren customers facing rate increases of 50 percent
or more because after 10 years no real competition has developed.Ó Randy
Fritz, president of the Illinois Citizens Utility Board and a high school
teacher in Williamsfield.
The state of Illinois deregulated electric utilities
in 1997 as the result of the Electric Service Customer Choice and Rate
Relief Law of 1997. At the time this
law was passed many Illinois communities were paying some of the highest
electric rates in the country. This included the entire Illinois Power and
Commonwealth Edison service areas. The Galesburg area has long been served by
Illinois Power (IP) and both residential and commercial electric bills reflected
IP's high rates. Meanwhile, Peorians served by Central Illinois Light Company
(CILCO) benefited from some of the lowest electricity rates in the state. A key
facet of the 1997 deregulation was rate relief, the honey if you will, and a 10
year freeze on residential rates.
Proponents of deregulation said that it would result
in new power suppliers entering the marketplace creating competition and
resulting in continually lower rates due to Òmarket forces.Ó To make this
possible most of the electric utility companies serving the state were
permitted, in fact encouraged, to separate out the parts of the company that
generate electricity from those that service and deliver the power to
individual homes and businesses. The delivery of electricity would remain a largely
monopolistic and regulated enterprise but power generation would evolve into a
commodity-like marketplace where lots of players would compete for your
business.
The vision was for a two-part electric bill. The first
part would be to the utility company who controlled the electric lines serving
homes and businesses and that would remain regulated. The second part would
reflect the cost of electricity actually used and it could in turn be purchased
from any of a number of power generation sources who would vie for the
privilege of selling power only. These alternative electric suppliers would be
available to large commercial power users (over four megawatts per month)
beginning in October 1999. By the start of 2001 any non-residential power user
could contract with an alternative electric supplier and as of May 2002 this
option became available to residential customers. Customers who did not make
arrangements with alternative electric suppliers would continue to buy from
their local utility company who would in turn purchase power from among the
various ÒindependentÓ generating suppliers.
Perhaps not surprisingly, this system never evolved as
explained above. Do you remember any alternative electric supplier soliciting
your business? Excepting for the largest customers this system never developed
as anticipated and a series of corporate sales and mergers has actually
resulted in a less diverse universe of electric companies. In the case of
companies like Excelon, corporate owner of Commonwealth Edison, the same parent
continues to own and operate both the generator of electricity and the
supposedly independent local utility that delivers the power.
The 10 year freeze on residential electric rates ends
this year and the largest utilities proposed a Òreverse auctionÓ plan to
control the cost of electricity they purchased for their residential customers
and which in turn determines what those customer will pay after January 1,
2007. ÒThis reverse auction scheme was an amazingly complicated process that
was developed by the utilities themselves,Ó explained Fritz. ÒThey proposed the
reverse auction as the one and only alternative to the Illinois Commerce
Commission, nothing else was even considered. With almost no public discussion
of input the ICC accepted the plan and the auction itself was conducted behind
closed doors. They may have called it an open auction but only the buyers and
approved bidders were permitted to attend. When the results of the auction were
presented to the ICC the commission had only days to study and determine
whether or not to accept the auction outcome. This is a group that takes months
to rule on far simpler and less critical matters but approved the auction
results in days. And still no details of the process have been made public.Ó
After the ICC approved of the auction both Ameren
(current corporate owner of the former Illinois Power and Cilco) and
Commonwealth Edison announced sizable rate increases to go into effect January
2, 2007. Residential electric customers in Galesburg will see their bills
increase by about half meaning that if you today pay an average of $100 monthly
it will go to about $150 with this increase. The increase is somewhat higher
for Peoria area customers because they previously paid less and Ameren is
looking toward equalizing its rates across the various service areas.
In a press release last Friday Ameren's president
Scott Cisel was quoted as saying, ÒWe are concerned about the price increases
on our customers. Since Ameren's Illinois utilities' own no generation, we must
purchase power from the competitive market to provide our customers' energy
needs. We will pass these costs along to our customers –
dollar-for-dollar with no mark-up. Working with a number of stakeholders, we
are searching for an approach to soften the impact of these increases, while
allowing us to safely and reliably deliver electricity and recover costs in a
timely manner.Ó
Fritz remains unconvinced and questions the entire
process. ÒThe utilities may call this reverse auction 'very competitive' but
how can anyone know when it is conducted in secret? Why should the utilities
themselves have been allowed to single-handedly create this process? Why was
this the only option presented to the ICC and why on earth would they blindly
accept it? And something Ameren didn't point out in their press release is that
they have already quietly petitioned for a rate increase in their delivery
rates on top of this increase! And consumers and voters alike should know that
far from suffering financially during the last few years under the rate freeze
Ameren has posted nice profits and Excelon has enjoyed record profits making it
the most profitable utility company in the country!Ó
ÒDeregulation did not end the monopoly status of these
companies and they still need to be overseen to insure that consumers are not
gouged. And the entire process should be open and conducted in full public
view. Secret backroom deals certainly don't inspire my confidence in the system
and the commission seems to have forsaken its oversight role in the process. At
CUB we are contending that this entire process violates the consumer
protections built into Illinois law. Utilities are required to provide service
as the lowest possible cost and to assure that rates are reasonable and the result
of prudent business practices.Ó
Fritz says CUB is now attempting to make this an
election issue for Illinois state representatives and senators in November. ÒWe
want voters to ask their state representative of senator to support an
extension of the electricity rate freeze until a better system can be developed
because free market competition certainly didn't materialize as promised. We
have a bill before the Illinois house right now [HB5766] that would extend the
freeze three more years if it can be passed during the fall veto session.