Sunday, July 29, 2007

Experts Sour on Rushed Illinois "Rate Relief" Bill


What's not to like about the electricity rate relief package that Gov. Rod Blagojevich is poised to sign?
Once it becomes law, the bill would shower $1 billion worth of rebate checks and credits on Ameren and Commonwealth Edison customers, while slashing their 2007 electric rates.But energy experts interviewed -- citing sobering lessons from California and Canada -- contend the deal could boomerang badly, shooting up power rates and leaving taxpayers on the hook for billions of dollars' worth of soured deals. How could this happen?
Because the rate relief bill sets up the Illinois Power Agency. In theory, this new arm of government could flex its immense purchasing muscle to negotiate low electricity prices, selling power with little mark-up to Ameren and ComEd, which would pass on the savings to customers.
David Kolata, the executive director of the Citizen's Utility Board in Chicago, compared the new agency to Costco or Wal-Mart in its buying power.
"I'm cautiously optimistic this will work and produce lower prices," Kolata said.
But economist Robert Michaels predicted a different outcome in Illinois, based on the track record of the California power authority.
"Basically, you're simply putting a lot more of ratepayers' money on the table and saying, 'Let's let the state government gamble with it,'" said Michaels, an economics professor at California State University-Fullerton.
Panicked by a power crunch in 2001 -- which was manipulated by rogue traders with Enron -- California's power authority signed long-term electricity deals at huge mark-ups that taxpayers there are still paying for, Michaels said.
"This is just unbelievable," he said of Illinois. "You're basically looking to make the same blunders California did. You have an incredible train wreck to behold."
State Rep. Tom Holbrook, D-Belleville, argued that a state power authority makes more sense than what it replaces -- the reverse power auction in September that Ameren and ComEd designed.
The auction sent their profits soaring, but also triggered a harsh public outcry as electricity bills doubled and even tripled for many residential customers when new rates took effect Jan. 2.
"You can debate it all day. That's the system we have here, and that's the relief that's in there," Holbrook said of the new power agency. "And it's better than what we had, and I don't hear anyone putting any better alternatives on the table."
Jeff Mayer, the president and CEO of MXenergy, of Stamford, Conn., predicted that Illinois' power authority will backfire, based on the experiences of California and the Canadian province of Ontario, which set up a power agency in 2004.
"All this is going to do is add another layer of cost, and it's going to drive consumer prices higher, not lower," said Mayer, whose firm supplies natural gas and electricity to customers in the U.S. and Canada, including Illinois.
If the rate relief bill has a "saving grace," it is that it puts government in the middle of the pricing process, defusing the populist reaction to high power costs, Mayer said.
"The prices aren't going to change," Mayer said. "But at least the utilities won't be cannon fodder anymore."
House Speaker Mike Madigan proposed the power authority three months ago. With the help of Emil Jones Jr., the Senate president, Madigan sent the rate relief bill racing through the General Assembly in record time.
The measure, which spans more than 300 pages of text, landed on lawmakers' desks on Wednesday.
A day later it sped through both statehouse chambers with no public hearing or legislative scrutiny. The final bill resulted from secret talks between a small team of lawmakers headed by state Sen. James Clayborne, D-Belle-ville, and Ameren and ComEd.
Scott A. Cisel, the president of Ameren Illinois, called the bill the product of an "open process" that benefited from the input of lawmakers and utility experts.
"And so I think an adequate amount of time has occurred enabling all the parties to carefully consider the various different scenarios that we can face," Cisel said.
Patty Schuh, a spokeswoman for state Sen. Frank Watson, R-Greenville, disagreed. Senate Democratic leaders allowed only four members to speak on the bill Thursday before voting on it, Schuh said.
"So instead of allowing a full public hearing on the issue and on the implications of this package, they rushed it through, and that's a mistake," Schuh said.
A decade ago, the General Assembly moved too fast when it passed the electricity de-regulation law that led to the problems the current rate relief bill is trying to fix, Schuh said.
"We should've learned from that," she said. "You cannot rush utility legislation, and that's what this is."

Contact reporter Mike Fitzgerald at or 239-2533.

© 2007 Belleville News-Democrat and wire service sources. All Rights Reserved.