Longer power rate cap advances ; State House passes bill to keep electricity freeze through 2006

May 06 - Chicago Sun - Times -

The Illinois House Thursday overwhelmingly approved extending a freeze on electricity rates through 2006, heralded as a boon for consumers.

But the bill, if it becomes law, could be a potential drag on efforts to deregulate the electric industry, because the rate freeze could scare off competitors who won't be able to beat prices offered by Commonwealth Edison and Downstate utilities.

The House approved the bill 112-2. It now moves to the Illinois Senate, which could take it up as early as next week. The bill extends by two years a rate freeze that was set to expire at the end of 2004, a part of electric deregulation as passed by the Illinois General Assembly.

Bill sponsor Rep. Phil Novak (D-Bradley) believes the extension will give alternative electric suppliers more time to prepare for the deregulated, open marketplace that will come one day.

"There isn't any competition at the residential level. Some other power provider is not going to sell you or me power individually. There's no profit margin in it for them," Novak said. "This also gives the utilities a little more time to plan. They can go out on the wholesale market and look to lock in longer term contracts because our major concern is this: Once 2004 would come and the price freeze comes off, what is the market going to look like, what's the price of power going to be? We don't know. By locking in these price freezes, we're going to allow utilities to hopefully lock in longer term contracts to maintain price stability for us."

If utilities can take advantage of lower-price long-term contracts, it could prevent the kind of price spikes seen in California more than a year ago, some lawmakers believe. This extension, supporters say, takes out some of the risk.

"It's an effort to bring some certainty to an otherwise uncertain environment," said Richard Mathias, chairman of the Illinois Commerce Commission.

The extension comes at a time, though, when deregulation has stalled in Illinois. On Wednesday, ComEd residential customers were able to shop electric suppliers for the first time, as dictated by the Illinois deregulation law. Problem is, nobody showed up to the party, in part because low rates make it tough to compete.

That begs the question of whether the rate freeze extension will delay competition, and the open marketplace where ComEd customers can freely shop for the lowest-price electricity.

As previously reported, no electric company has registered with the ICC, the state's utility regulator, to sell power to residential customers. There are competitors to ComEd for commercial and industrial customers, but recent cheap electricity prices and other issues have made it nearly impossible for those competitors to beat ComEd's residential prices.

Those issues--critical to making the marketplace fair--are being worked through by electric suppliers and ComEd, said Phil O'Connor, president of AES New Energy Midwest in Chicago and a former state utility regulator. That will help competition blossom on the business side--and once competition flourishes, it will move to the residential market, he said. He said he doesn't see the rate freeze extension, should it get signed by the governor, as a stand-alone impediment to competition.

The utilities like the rate freeze extension, because it provides some certainty. Other say utilities like it because they potentially can make a lot of money.

Currently, there is a glut of electricity in the marketplace, which has lowered prices. A company like ComEd can now lock into a long-term contract at a very attractive price, and yet charge customers the rate dictated by the state--meaning they stand to potentially make significant profits.

If rates were unfrozen, they theoretically would have to lower the prices they charge consumers in order to stay competitive with other suppliers. One observer said the utilities stand to make "millions" of dollars.

"It provides certainty," said ComEd spokesman John Hatfield. "We know what the price will be. We can lock down appropriate long-term power purchases."

ComEd customers could save nearly $1 billion over the two years, the bill's proponents say.

Sen. Dave Sullivan (R-Mount Prospect), who sponsored the initial bill in the Senate before it was amended in the House, said he believes its chances are good to pass the Senate. "I think it will do well," he said. "It's a great pro-consumer bill. It's stability for customers, it's stability for labor unions, and it's stability for the utilities."