Phases of deregulation

This week the Illinois Commerce Commission approved Commonwealth Edison’s and Ameren Illinois’ plans for phasing in higher electricity rates, which have been frozen for nearly 10 years by a state law that expires in about a week. Essentially, residential customers, small businesses and municipalities will get to decide whether a) they want to pay the full increase each month come January 2 or b) pay smaller increases over three years with a balloon interest payment at the end. Businesses and other major electricity users not eligible for the phase-in will have to pay even higher increases or find another power supplier.

Lt. Gov. Pat Quinn doesn’t like the phase-in plans. “They’re trying to put perfume on a skunk,” he said Wednesday in a phone interview. “The concept of requiring customers to pay interest down the road — we’re going to end up having payday loan stores right next to the electric company.”

He supports legislation that has the backing of House Speaker Michael Madigan that calls for a three-year rate freeze, but the measure failed the House last month. Madigan said he expected it to gain approval in January. Yet, it’s unlikely a rate freeze would gain necessary approval in the Senate.

That means ComEd and Ameren will have to adjust to paying more for buying and distributing electricity. And customers, especially residents and businesses who use Ameren’s electricity, will have to adjust to increased monthly rates.

The Illinois Commerce Commission got to this point by trying to strike a balance between allowing utilities to collect the money they need to survive and protecting consumers from high prices and unreliable service, according to Kevin Wright, one of the five commissioners. He spoke during Wednesday’s public utility hearing in Chicago that was heard over teleconference in Springfield.

Commissioner Erin O’Connell-Diaz agreed. “It’s not a 100 percent win for everyone,” she said. “I think in these types of situations, everyone should walk away a little unhappy.”

But the tough decisions aren’t over. Come spring 2008, the commission will have to coordinate another process so utilities can start buying a three-year power supply every year, according to Harry Stoller, director of the commission’s energy division.

While the commission staff investigates the next phase of this new system, the question remains whether the process will actually spur competition and increase consumer choice. In fact, Stoller said one who speaks of a deregulated electricity system speaks of a “fictional state of affairs that will never be reached.”

Crossfire

Shots are being fired across the battlefield prior to legislators returning to Springfield. Senate President Emil Jones Jr. sent his own memo defending legislation that would phase in electricity rate increases in January. His fact sheet rejects House Speaker Michael Madigan’s interpretation of House Bill 2197 (see previous blog 12/13/06). Jones denies the phase-in proposal would be bad for consumers. Instead, he says, the plan would encourage competition, include Illinois Commerce Commission oversight, protect consumers from having to pay interest on the deferred amounts, and create a revenue source for utilities to repay the bonds that would cover ongoing costs or reduce debt.

Watch Illinois Issues magazine for more context.

More electrifying debate

House Speaker Michael Madigan is governing by letter, again. This time, he’s lobbying against a proposal to phase in electricity rate increases scheduled to start in January. It’s not just any proposal. It’s one supported by Senate President Emil Jones Jr. and House Minority Leader Tom Cross, as well as Commonwealth Edison, the company serving most northern Illinois customers.

In a letter starting, “Dear Reporter,” Madigan says he intends to continue trying to pass legislation that “protects consumers and allows the electric monopolies serving Illinois to earn fair profits.” His emphasis on “fair” is consistent with his veto session comments that he takes the utilities’ warnings of financial ruin “with a grain of salt.”

Madigan then attached a memo (1 and 2) to all House and Senate members with some details that can be summarized by this argument: If signed into law, the phase-in proposal approved by the Senate would actually be a better deal for utilities and worse deal for consumers than if the General Assembly took no action and let the Illinois Commerce Commission decide how the new rates would be carried out. “The bill has been presented as a compromise measure and a better deal for consumers,” he wrote. “It is neither.”

Something’s not adding up here. While ComEd supported the phase-in approved by the Senate, Ameren Illinois CEO Scott Cissel opposed it and said the company prefers the proposals filed with the Illinois Commerce Commission.

The company still opposes House Bill 2197, according to spokesman Leigh Morris. He didn’t know of Madigan’s memo and letters Wednesday night but said the company didn’t believe the Senate version of a phase-in would be a good deal for Ameren customers. In fact, he said the company filed a new proposal with the ICC that would 1) allow the company to charge a “carrying fee” associated with the phase in; 2) allow customers to opt into a phase-in plan, which would carry a 3.25 percent interest rate; 3) allow schools, municipalities and small businesses to opt in; 4) allow the utilities to opt out of the plan if the credit rating slipped to junk bond status; and 5) designate $15 million of non-consumer costs to energy assistance and renewable energy programs.

Ameren asked the commission to review the newest proposal before the end of the year. Lawmakers are scheduled to reconvene in Springfield a week later, when they’ll rehash the debate, again.

To me, the biggest question in this complicated, easily skewed debate remains: What power should the ICC have in regulating electricity rates?

Universal health care?

A plan to mandate health insurance for all Illinois residents, and, yes, that means a mandate on businesses to offer health benefits to employees, is sure to catch attention in the upcoming legislative session. Today’s stories (here and here) talk about a plan the state’s Adequate Health Care Task Force came up with to address a growing problem — the cost of caring for the uninsured.

You can read more details (scroll to the bottom on the page) in documents prepared for the task force’s December 7 meeting, but to gain even more context, check Illinois Issues’ June feature, “Alternative medicine.” Massachusetts enacted a similar law this summer, but that plan might not be very easy to translate to Illinois’ political and business climate. The 95th General Assembly would have to find a balance between businesses, hospitals, insurance industries and private citizens, not to mention public aid dollars.

Watch Illinois Issues for more anlysis in the next few months.