posted on Monday, August 13, 2007 9:20 AM by Gunnar Birgisson

Illinois Rate Settlement Bill Awaits Governor’s Approval

Following months of contentious litigation and recriminations, Illinois power companies, politicians, and regulators have negotiated legislation to settle to the state’s retail electricity pricing dispute.  The settlement package would extend for four years, provide $1 billion in rate relief, and revise how utilities procure power going forward.  However, the tense uncertainty has not yet fully abated as Gov. Rod Blagojevich is reportedly studying the bill and has not yet decided to sign it.

The origins of the crisis extend back to the 1997 Illinois Electric Service Customer Choice and Rate Relief Law (Restructuring Law), which forced the state’s utilities to sell their generating units, although purchasers included the utilities’ independent merchant generation affiliates.  The Restructuring Law also reduced retail rates by 20 percent and froze electricity rates for bundled retail customers until 2006. 

Predictably, when the rate freeze expired, power prices spiked, consumers kvetched, and everyone pointed accusing fingers at the politician authors of the Restructuring Law and the power companies.  In March 2007, the state’s attorney general alleged sellers had manipulated 2006 auctions through which utilities bought power for resale to consumers for the period following the rate freeze.  In a complaint to FERC, the Attorney General asked FERC to order refunds and even revoke the market-pricing authority of some of the energy vendors who sold into the auction.  In response, wholesale sellers as well as ComEd and Ameren point out that the rate freeze had kept the retail electricity rates artificially low, and that increased fuel costs and inflation ― not manipulation ― were the main cause for the higher power prices. 

The most interesting part of the rate settlement is the method to be used for wholesale power procurement going forward.  In a move reminiscent of California's creation of a state power purchaser in 2001, a new state agency, the Illinois Power Agency, will oversee power procurement by utilities, and may even build generators and sell their output to municipal utilities and cooperatives.