Released: 7/3/2007
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AN agreement to settle the long-standing dispute over Illinois’ new electricity rates continues to inch forward toward closure. While all participants seem optimistic regarding a favorable outcome, no final agreement has yet been reached.
To recap, the Illinois General Assembly passed a landmark electricity restructuring and customer choice law in late 1997. The law was designed to provide a choice of electricity suppliers to customers of investor-owned electricity companies in the state, as well as allow the industry to restructure itself and move away from the traditional vertically-integrated regulated monopoly system that had been in place for nearly a hundred years.
Over the course of the ten-year transition to the new market-based electricity environment, commercial and industrial customers took full advantage of the opportunity to shop for power and saved billions of dollars in electricity costs. However, residential customers did not fare as well in terms of choice.
Part of the 1997 agreement leading to passage of the customer choice law was that investor-owned electric utilities would institute dramatic cuts in existing residential electric rates (up to 20% for most of the state’s customers) and freeze those rates at the reduced levels until the end of the transition. Those artificially low rates discouraged any alternative suppliers from seeking business from residential customers.
As the end of the transition approached in 2006, the Illinois Commerce Commission (ICC) approved and supervised an auction whereby the state’s two largest investor-owned electric distribution utilities, Ameren and Commonwealth Edison, purchased power for their residential and small business customers who had been unable to procure power from other sources.
The auction resulted in the utilities entering into contracts with electricity suppliers to purchase power at market-based prices. Under the law, the utilities then began in January, 2007 to pass along the costs of that electricity to customers. Those costs were substantially higher than customers had paid for nearly 10 years under the 1997 law. Customers complained to their legislators and the debate began regarding how to deal with the issues raised by the situation.
Discussions involving the utilities, electricity suppliers, consumer advocates, regulators and legislative leaders have continued throughout the spring. They have centered on two main issues: bringing some degree of relief to customers affected by the higher rates; and, how to procure power in the future at the lowest market prices possible for non-shopping customers.
Press reports indicate that the participants are close to agreement on a rate relief fund of nearly $1 billion. The money would come from utilities and some electricity suppliers. Disbursement of the fund proceeds was a major topic of the latest round of discussions.
In terms of power procurement, methodologies ranging from purchases by a new state power authority to different types of competitive bidding processes have been discussed in recent meetings.
Statements to the press by legislative leaders involved in the meetings indicate that they hope agreement can be reached by mid-July.
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