Monday, June 11, 2007

Power Down Illinois' Electricity Dereg Play

Did you ever start a trip and have to go back for something? Maybe you left your cell phone behind, forgot to take some medicine, or didn't put water out for the dog. It's a pain to retrace your steps, but you do it or else the entire journey is tainted.
This is how I view Illinois' slog toward electricity deregulation. That's because somewhere along the line those who sought to free the state's electric utilities from the shackles of traditional regulation forgot about something that's pretty important. They forgot that deregulation is suppose to help Illinois consumers, not hurt them.
This March of Folly must come to a halt. It's up to the Illinois General Assembly, which reconvenes this week, to call for a "time out" that freezes customer rates for a reasonable span and forces everyone to take another--much harder--look at the way electric utility deregulation is playing out in this state.
Yes, I realize that it's taken years of effort, manpower and money to get deregulation up and running. Moreover, all sides of this argument have spent millions of dollars lobbying and pushing their points of view.
And I realize that the state's electric utilities have invested heavily in anticipation of Illinois' dereg era and have reconstituted their businesses. For example, Commonwealth Edison no longer makes power but instead delivers it to customers. To primp for deregulation, the electric companies agree to a 10-year rate freeze, which was lifted in 2007.
The term "deregulation" makes the hearts of "free market" types skip a beat. In this case, many vendors would compete at auction for ComEd's business. All that competition would help contain, perhaps even reduce, ComEd's cost of buying electricity. Any financial savings would be passed to happy consumers.
In essence, ComEd is telling customers: "Don't worry, I can get it for you wholesale."
It's a nice theory. But the reality has been far different.
The new power structure is accompanied by higher electric bills. Many consumers risk paying up to 20 percent or more per month, while customers downstate are being fried by surges that are double, even triple, the average percentage hike. (ComEd provides power to Northern Illinois. Another utility, Ameren does so for downstate.)
State lawmakers are hearing from shocked and angry voters, who must pay these higher prices or risk having their lights and appliances turned off.
Now, I'll grant that there's some knee-jerk reaction because nobody likes paying more for basic services like water or electricity. I'd even guess that many people are willing to pay a reasonable increase, provided they don't think they're being fleeced.
But that's where this deal is in trouble. Not only do consumers smell higher rates, they also smell a rat.
They're not alone. A growing contingent of activists, lawmakers and legal experts are questioning the state's new deregulation effort, especially the part where ComEd and Ameren buy electricity at auction.
Illinois Attorney General Lisa Madigan is skeptical. In a complaint filed with federal energy regulators last March, her office alleges that auction participants were gaming the system. As a result, "the prices produced by the auction were 40 percent higher than prices in wholesale electricity markets and approximately double the actual cost of generating electricity to serve ComEd and Ameren customers." the complaint alleges.
That strikes many people of conspiracy, not free enterprise.
But why would ComEd agree to pay such a hefty rate?
Perhaps it's because ComEd will be buying alot of that power from a unit of Exelon Corp., which is a major Illinois electricity producer, and also ComEd's parent company.
Already, the end of the rate freeze put alot of extra cash into Exelon's coffers,boosting its stock price and prestige on Wall Street.
Lisa Madigan wants to reduce the price that ComEd and Ameren paid at the September 2006 energy auction.
She isn't the only one raising doubts. So is her father, Speaker of the Illinois House Michael Madigan, who has concerns about the auction process. He's a proponent of freezing rates and has chided the deregulation process for a lack of competition. (Yeah, I know he wants his daughter to be governor but that's a story for another day.)
Of course ComEd hates the idea of another rate increase recess and reexamination of the deregulation scene.
The utility has threatened to enter bankruptcy if not allowed to collect the higher rates needed to cover what it alleges is the ever-rising cost of doing business.
That's tough talk.
But if ComEd's leaders want to go into bankruptcy reorganization then let them. I assume that responsible management has a plan for conducting business while being reorganized by the court, so the lights won't go out and repairs will be made. Remember, United Airlines kept flying and it was in bankruptcy for nearly three years.
In addition, there have been nightmare scenarios presented by ComEd backers (and some business writers and editors) who fear a rate freeze will plunge us into a darkness similar to what California experienced a few years ago.
But as I recall, that power shortage can be traced to the traders at Enron, who diverted power from California and then sold it back to the state at a higher rate.
Other state leaders from both sides of the political aisle are lining up with Speaker Madigan.
Governor Rod Blagojevich, who has a nose for a hot populist issue, has also expressed concern about the rate hikes.
The only heavy-hitter not stepping up to the plate is State Senate President Emil Jones. He's a staunch backer of ComEd, which has returned the favor by contributing heavily to his political and reelection efforts. Yet even a powerful pol like Jones may realize the cost of being too loyal.
Anything can happen in Springfield, especially when the General Assembly is facing a deadline to approve a state budget.
Still, it's not too late for lawmakers to remember their mandate, make a U-turn, and go fix this problem.

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