Utilities gearing up for changes in '07
For years, electric rates in Illinois have stayed steady.
But that could all change beginning Jan. 1, 2007.
That's when the utility companies of Ameren and Commonwealth Edison are expected to change the way they buy their electrical power. Their method of choice? A process called a reverse or vertical tranche auction.
Over the next few months Ameren and ComEd will present their cases for the auction process and the specifics of running it to the Illinois Commerce Commission, the state's utility board.
The auction is only one part of the process of changing utilities into a more deregulated environment. The utilities will also propose new delivery rates, separate charges the companies set for delivering the electricity to the customer. This covers line maintenance, bill processing, customer service and other costs.
"Will rates go up? Yes. How much? I could not speculate on that," said Ameren spokesman Leigh Morris. "Our goal, and it always has been our goal, is to keep rates as low as possible. We've worked hard to keep rates as low as possible."
AmerenIP rates dropped 20 percent in 1997 and haven't been raised since then, Morris said.
What has prompted all this planning for buying power and reconsideration of rates is a state law from 1997: the Electric Service Customer Choice Rate Relief Law, also known as the Customer Choice Law.
In response to freezing, or in some cases, cutting electric rates, utilities were allowed to spinoff the power plants they owned. Since 1997, utilities like Ameren have sold or reorganized its power plants into non-rate-regulating subsidiaries or affiliates, Morris said. Ameren signed contracts with the power plants to provide electricity.
"As of Jan. 1, 2007, those contracts expire and we go to a more competitive model. What was arrived at was this auction process," Morris said.
Illinois Commerce Commission staff, in a Dec. 2, 2004, final report to the commission, endorsed the vertical auction method.
"I think we are proceeding with the auction and the question is how it will work," said Beth Bosch, commission spokeswoman.
But the auction proposal has raised concerns among some groups and agencies in the state, including the consumer advocacy group the Citizens Utility Board and Illinois Attorney General Lisa Madigan.
"A fundamental problem with the auction, in our view, is it's really the illusion of competition. At the end of the day Ameren will have overwhelming market power," said David Kolata, director of policy and government affairs for the Citizens Utility Board. "They're repackaging Ameren's power. Essentially they've inserted a middleman to give the illusion of competition," Kolata said.
The biggest beneficiary of the auction process, according to Kolata, would be Ameren's power plants.
"The biggest buyer of power is affiliated with the biggest seller. ... That poses a huge conflict of interest," Kolata said.
Kolata said rates could increase by 20 percent if the utilities switch to the auction system.
The auction would be conducted by an independent auction manager, Morris said. Although the specifics of the auction are yet to be determined, essentially the auction would work like this: The auction manager sets an initial price and the power supply companies then compete to provide power for the utility. As the auction progresses, the prices decline.
Whatever the utility pays for the electricity is what it will charge the customer.
The utility company's entire load is up for bid the first year. After that, the contracts expire in one, two or three years. One-third of the contracts will expire every year, Morris said.
"That minimizes the impact of price volatility, if any," he said.
The commerce commission would oversee the auction and would have the power to accept or reject the results, he said.
The commission will consider the auction proposals in hearings set to begin Aug. 29, Bosch said.
"In the meantime we expect the companies to file rate proposals in the next month to lay out what the proposed costs would be," she said.
The rate cases may take about 11 months, Morris said.