Suppliers ready to compete if lawmakers drop electric rate freeze

Associated Press
May 13, 2007 Springfield, Ill.

Electricity marketing companies say they're ready to do business in Illinois, offering consumers more choices and lower prices — but only if lawmakers drop plans for another electric rate freeze.

They argue competition for residential electric customers that was supposed to develop over the last decade never came because lawmakers froze rates at artificially low levels. Now that the market is determining rates, they say they're ready to move in.

"Without a competitive retail market for electricity, consumers will continue to be deprived of the best long–term solution to keeping electricity rates in check in Illinois," said Mike Beck, an executive with Direct Energy.

Consumer advocates, though, are skeptical. They're pushing lawmakers to roll back rates that rose as much as 55 percent this year after deregulation ended. And they say the marketing companies are only interested in competing for customers if the rates they can charge are high.

"We don't want competition for competition's sake," said David Kolata, executive director of the Citizens Utility Board. "We want rate relief for consumers."

Competition has been the buzzword in the electric rate debate for more than a decade.

Lawmakers embraced deregulating the utilities in 1997 to spur competition, thinking market-controlled rates would encourage more companies to come in and drive prices down for consumers.

Instead, a 10-year rate freeze that ended this January kept competition away, at least for residential customers. More than a dozen competitors provide service for business customers, but residents are largely stuck with Ameren and ComEd.

Prices shot up after the freeze was lifted, with some consumers seeing their bills double and triple earlier this year. Statewide, consumers are paying an average of 22 percent to 55 percent more for service.

Now, legislators are trying to find an answer for both short-term woes and long-term policy questions.

Retail marketers say they can be part of the solution, under the right circumstances.

They point to growing competition in deregulated states like New York and Texas, where dozens of companies have come in to offer consumers an alternative to the high rates provided by the dominant utilities.

But a national electricity market expert says there's no indication yet that these companies can help drive down prices. That means consumers in deregulated states like Illinois have a choice between high and higher prices.

"That's another way of saying they can be competitive when the price is allowed to go up," said Ken Rose, a senior fellow with the Institute of Public Utilities at Michigan State University. "You need a relatively high price to entice them in the first place."

An Associated Press analysis of federal energy data found that since 1990, consumers in deregulated states have seen their electric rates increase slightly more than their counterparts in regulated states. But the marketers say they've helped keep rates in deregulated states down more than they would be if competition didn't exist.

The marketers buy power every day on the wholesale market, while Ameren and ComEd customers get power through an auction that locks in prices for a year or more. The competitors argue they can sometimes get a better price than the big utilities because they buy power as the market fluctuates rather than being locked into a certain price.

The marketers also offer packages to entice customers, such as locking in rates in the long-term when the market dips or promoting energy efficiency efforts.

But Illinois won't see those benefits if another rate freeze is enacted, just as competition would dry up if lawmakers froze gas prices, the marketers contend.

"We don't believe that a rate rollback is the answer to the issue here," said Guy Morgan, CEO of Blue Star Energy Services.

Lawmakers opposing the freeze say it's a bad idea for two reasons: the utilities will block another freeze in a lengthy court battle, and competition won't develop.

But proponents of the rate freeze are undeterred.

"Just being able to beat a price that's too high in the first place is not a benefit for consumers," said Susan Hedman, senior assistant attorney general.

Some legislators say although they're not sold yet on the marketers' claims, it's worth talking about.

"God bless them. Let's figure out a way to get them involved in the process," said Sen. Dan Kotowski, D-Park Ridge. "I think that's an exciting opportunity."

(Copyright 2007 by The Associated Press. All Rights Reserved.)

« see more