COMPETITION IS A RATE STABILIZER
OPINION

MAY 27, 2007 — SPRINGFIELD, ILL. — ASIDE from trying to figure out a budget, probably the hottest issue in Springfield this legislative session has been how to placate constituents angered over huge spikes in their electric rates.

Illinois' 10-year freeze on electric rates ended in January. While most all public utility customers with all-electric homes saw increases, some downstate Ameren customers saw bills double and even nearly triple.

That was for winter heating bills. Many escaped the really huge hikes because they heat with gas or propane. But you can't cool your house with gas or propane. Legislators know summer cooling bills will cause their constituents to boil over if something is not done to mitigate rates.

UNFORTUNATELY, there is no magic answer. That is partly due to the fact that legislators pretty much let the utility interests - ComEd and Illinois Power - write the 1997 deregulation law. A harder bargain could have been driven at that time that would have benefited consumers today. But that ship has sailed.

We understand why people are angry about the recent rate hikes, but it should be noted that residential consumers did save significant money during the 10 years of the rate freeze. (Some customers had not seen a rate hike for 15 to 25 years.) Anyone who doubts this should talk to a customer of a rural electric cooperative. These electric users did not benefit from the rate freeze and have been paying the "shocking" electric rates all along.

The rate freeze is also at least partly to blame for why there is no real competition in the residential electric market. Rates were low enough to discourage other companies from entering the fray. Reinstituting the freeze - a popular idea among many populist legislators - simply would delay the pain and would continue to make real competition unlikely for the foreseeable future. We think legislators truly know this, though they find it hard to admit publicly. So now they have proposed a tax on power generators instead.

This tax, which would eventually bring in more than $2 billion, seeks to accomplish a rate freeze but shift the financial burden from power providers Ameren and ComEd to the power generators. Much of the money raised would be used to lower rates. This device would preclude Ameren and ComEd from claiming they will go bankrupt as they could if a freeze forced them to buy energy at a price higher than they could sell it.

BUT A GENERATION tax also poses long-term danger to Illinois electric consumers. Generators surely will eventually make up the loss by charging more for their electricity as new contracts are negotiated. The tax also is likely to discourage new power plants from being built in Illinois.

That could include the proposed $2 billion, 630-megawatt clean-coal power plant being proposed for Taylorville. That plant would create 1,500 construction jobs plus hundreds more ongoing jobs to operate the plant and mine the coal to power it. A study says the plant would create more than $1 billion in economic activity. It would also add 630 megawatts of new generation to the Illinois electric market. That's competition. And that is what is needed to stabilize or even lower rates.

But in order to make this investment, Tenaska Inc. needs the legislature to change the law to allow utilities to enter into longer-term energy agreements. That sort of legislation makes sense. It could lead to long-term rate stability. Refreezing rates is a short-term, feel-good solution that will do long-term harm. The utilities have offered a $500 million deal that could provide significant and immediate rate relief.

It's time to forget about a freeze or onerous generation tax. Instead, the legislature needs to focus on an immediate relief package and look to long-term solutions such as making it possible to build the proposed Taylorville power plant.


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