The day after the freeze

Chicago Tribune Editorial
June 2, 2007

Illinois senators didn't vote Friday on a three-year rollback and freeze of electricity rates in the state. They will continue talks next week in Springfield about a negotiated settlement with the state's utilities. That would be the best outcome for customers and the utilities.

To recap: A nine-year freeze on electricity rates expired at the end of last year. The utilities signed contracts to buy power at prices set by an auction last September — in good faith, and in compliance with the law.

The prices set by the auction were sharply higher than energy prices were in the mid-1990s when rates were frozen. They resulted in higher electric rates for customers, which took effect in January. ComEd's rates jumped an average of 24 percent and Ameren's 55 percent. (Some customers saw their bills double and triple because they had been paying deeply discounted rates.)

The Illinois House has passed legislation to roll back to 2006 rates and hold them there for three years. If that becomes law, ComEd and Ameren would immediately head to federal court to try to block it. They would have a pretty good case, too. The state requires utilities such as ComEd to provide reliable electrical service. The state also allows ComEd to recover the just and reasonable costs of providing that service. But if rates were frozen, ComEd would be under contract to pay $1.4 billion more a year than it could collect from its customers. The state, with this legislation, would prevent ComEd from covering its costs.

Now, consider the unappealing options.

If ComEd were to win in court, the rate freeze would not go into effect. Consumers would continue to pay the higher rates that went into effect in January, and there would be no $500 million in rate relief.

If ComEd were to lose, the utility would head to Bankruptcy Court to protect its assets. In Bankruptcy Court, consumers would be at the bottom of a long list of creditors that would start with secured claims, lawyers, banks and bondholders. This legal battle would play out over months, maybe years. In the end, customers would end up paying legal costs.

The long-term damage could be even worse. Secure, reliable and affordable electricity is critical to the state's prosperity. It's a key variable companies look at when deciding where to locate or expand operations. With the state's largest utilities either in federal court fighting off a rate freeze or in Bankruptcy Court, the outlook for a growing supply of electricity would be clouded at best. And competition to provide electricity -- the key to tempering costs in the future? It would never develop. It's hard to imagine suppliers lining up to get into a state that pulls a bait-and-switch on utilities.

So, negotiate. Don't extort. Cut a reasonable deal.

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