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Monday, October 09, 2006

Playing politics with electricity rates

By Dennis Byrne
Chicago Tribune

Nothing says more about the pandering, spineless nature of our current knot of politicians than their call for a special session of the Illinois General Assembly to zap one of the best deals that electricity consumers in Illinois have ever had.

The deal was made 10 years ago when ComEd, consumer groups, businesses and the politicians agreed to roll back electric rates more than 20 percent and freeze them there. ComEd customers have saved billions.

Now, those artificially low rates are scheduled to thaw, to reflect electricity's real price. Even so, those unfrozen rates--although they will be 20 percent higher--still will be lower than 1997's. Can you name anything else that's cheaper now, especially anything related to energy?

But Illinois politicians are banking on voters seeing only the 20 percent increase, not the bigger picture. Now the politicians are calling for a special session--right before the Nov. 7 elections and billable to taxpayers, of course--to continue the freeze for another three years, during which time they'll concoct a supposedly better way to set electrical rates.

What better way? Return to the former system of a ComEd monopoly? No one is really saying, but the pols want us to trust them.

Oh, sure.

Let's review: For years and years, ComEd was bashed for its "among-the-highest-in-the nation" rates, rates that nonetheless had been set by the state's utility regulator, the Illinois Commerce Commission. Few were satisfied with the regulated system, so the hunt for a better way began.

After some years of trying, everyone, including the consumer watchdog Citizens Utility Board, at last came up with a solution--the present system. Former Gov. Jim Edgar said when he signed the bill that it was one of the most complicated pieces of legislation he had ever seen. But compli-cated is what you get in a democracy, when you balance all interests.

The new law's central idea was the deregulation of the electric companies, much the way that the phone and airline industries have been deregulated. For you, that means more choices of service and prices.

Those now seeking another three-year rate freeze argue that those choices haven't materialized for residential customers. Another three years, they insist, would allow "real competition" to develop or give lawmakers time to find a different solution.

True, I can find more selection and competition when shopping for, say, cell-phone service. But the reason I can't find similar competition for electrical service is precisely because the rates were so artificially low for the past decade. What businessperson in his right mind wants to compete by providing service that has rates lower than rates that already were artificially low?

Naively, some consumer "advocates" who want the three-year extension argue that if competition hasn't developed in the last 10 years, it won't develop now. But if these folks thought it would have been such a swell idea to compete against such artificially low rates, perhaps they should have done it themselves.

Now that rates are floating to their natural, competitive level, more companies will be willing to set up shop in Illinois and beat the unregulated price that ComEd will be charging. If they don't go into business, it'll be a sign that they can't beat the rates already offered. But if the freeze is extended, the rates will continue to be artificially low and the competition will continue to be frozen out of the market. The cycle would go on forever if it were left to the politicians.

In the meantime, ComEd's ability to deliver reliable service would be imperiled. Its business plans, based on the 1997 agreement, would be for naught, investors would be scared away by the new uncertainty and funds for capital improvements and maintenance would be unavailable.

What Gov. Rod Blagojevich, Republican gubernatorial candidate Judy Baar Topinka, House Speaker Michael Madigan and the other opportunists who are seeking the three-year extension into the unknown want is not lower rates and a system that works. What they want is political cover. What they'd give us is uncertainty, more conflict and a bankrupt utility with 5 million customers.

If this system is so bad, they had 10 years to change it. They didn't. They waited until just before the election to raise their alarms. What better time to create fear, to strike a populist pose because doing the right thing is too dangerous politically? To ignore facts they surely know for their own political gain?

Even for Illinois, where political pandering is a high art, this tops all.

Copyright © 2006, Chicago Tribune


Stephen Schade said...

Mr. Byrne:

The problem is that true competition never developed. As a result, customers will be charged 6.4 cents per kilowatt-hour for electricity that can be produced for 2 cents a kilowatt-hour.

Direct negotiations with generators should also be allowed. Naperville purchased electricity in this manner that costs several percent less than consumers will be paying under the new contract. This is the same problem that occurred with the new Medicare drug plan, which became bloated because direct negotiations were not permitted.

Anonymous said...

Can you name anything else that's cheaper now, especially anything related to energy?

Yes, almost any item related to the electronics industry.

Computers and associated equipment [printers, hard drives, routers, etc], televisions, CD Players, Video Tape Players to list a few.

In general, the electronics industry's products continually get better and at lower cost. Case in point is the current situation with respect to HDTV Televisions.