May 25, 2007
PBS Newshour
PBS Newshour
Illinois residents have seen a jump in electricity rates recently. NewsHour correspondent Elizabeth Brackett looks at the debate over deregulation and freezing rates in Illnois.
JIM LEHRER: Now, rising electricity rates. NewsHour correspondent Elizabeth Brackett of WTTW-Chicago reports.
ELIZABETH BRACKETT, NewsHour Correspondent: Sherrill Lausmann of Decatur, Illinois, was shocked by the size of her electricity bill last January. That's when the Illinois legislature's freeze on energy prices was lifted. Lausmann's bill had doubled to $110 a month. It meant she had to cut back on other expenses like groceries, and she had to use electricity sparingly.
SHERRILL LAUSMANN, Illinois Resident: I just didn't turn the heat on when there was sun coming through the windows. Now, there were some days, of course, when I had to turn it on, but I only turned it on when I had to.
ELIZABETH BRACKETT: The freeze had been put on nine years ago to protect customers against sharp rate hikes when the industry was first deregulated. But now that the freeze has been lifted, rates have risen 30 percent to 60 percent to even 100 percent.
It's affecting small businesses, as well. It takes a lot of electricity to maintain the ice at the Heartland Ice Arena in suburban Chicago. Owner Russ Naumenko was not prepared when his bill soared.
RUSS NAUMENKO, Illinois Businessman: I couldn't believe it. It was unbelievable. I mean, it was a big hit. I mean, it's $3,000 more than I thought it was going to be. It's tough.
ELIZABETH BRACKETT: When legislators deregulated electricity in 1997, they wanted to break the monopoly hold on the sale of power that local utilities had. They thought if they split off the producers of power from the suppliers of power and got rid of some of the government regulations, that a lot of new suppliers would want to jump into the market, that competition would lower the price of electricity.
But new companies didn't come into Illinois, and consumer advocate David Kolata says nearly all the states that have deregulated have run into the same problem.
DAVID KOLATA, Citizens Utility Board: The problem is, is that the law presupposes that it's going to be competition that protects consumers, and competition simply hasn't developed. So that, if you go forward, what are you doing? You're basically ending up with a deregulated monopoly, and that's the worst of all possible worlds.
A 1997 deregulation vote
ELIZABETH BRACKETT: Speaker of the Illinois House, Michael Madigan, looks back on that 1997 decision to deregulate with regret.
MICHAEL MADIGAN, Speaker, Illinois House of Representatives: I think that people in Illinois legislature in 1997, including myself, were sold a bill of goods by the power companies.
And please remember that the main advocate for deregulation in Illinois, 1997, was the Enron Company from Texas. People from that company were here; they were arguing and persuading us that we should move toward deregulation of electric energy. Clearly, it was a big mistake.
ELIZABETH BRACKETT: Today, rates in deregulated states average 30 percent higher than in states that remained regulated. Seven states have repealed deregulation. Now, only 15 states, plus the District of Columbia, are deregulated.
Speaker Madigan says it's easy to see why deregulating electricity hasn't worked as promised.
MICHAEL MADIGAN: Because it's a necessity of life, because there's only one place to go to get it, because the history of power producers and power suppliers in this country is real bad. They don't think about the ultimate consumer; they think about making money.
ELIZABETH BRACKETT: Barry Mitchell says that's not true. President of Commonwealth Edison, one of the two utilities distributing electricity to the residential market in Illinois, he says rates have gone up because natural gas prices have risen so much. But he says, in spite of that, ComEd customers are still getting a pretty good deal.
BARRY MITCHELL, President, Commonwealth Edison: The rates have gone up because market prices of energy have increased, and our customers have benefited from the fact that the rates have been frozen for almost 10 years after a 20 percent rate cut, so that, even taking into account the average annual increase for a residential customer, those customers are still paying no more than they paid in 1995.
ELIZABETH BRACKETT: The jump in electricity rates has brought consumers and lobbyists to the state capitol to urge legislators to do something. AARP members were particularly angry that Exelon, Commonwealth Edison's parent company which generates power, saw a 73 percent increase in profits in the first quarter. They swarmed around State Senator Gary Forby, the sponsor of a bill to "re-freeze" rates.
GARY FORBY, State Senator: They made a lot of profit last year. They can afford it; my people cannot afford it. You know, they come into a room, negotiations come in with $2,000 suits on. They live in great, big homes. They get over $20 million in bonuses. This is wrong. And these people back here get $500, $700, $1,200 a month. Now, is this right or is this wrong? I think it's wrong.
Opposition to re-freezing rates
ELIZABETH BRACKETT: Although fellow Democratic State Senator James Clayborne has seen his own electricity rates go up by nearly 200 percent, he's opposed to re-freezing rates. He recently met with representatives from a half-a-dozen power companies who said they won't come into the Illinois market as long as there is talk of reinstating the freeze.
JAMES CLAYBORNE, State Senator: The whole purpose of deregulating is to create more competition and create more choice, in terms of suppliers coming into the residential market, as well as industry, creating industry where they will -- they do nothing but produce power. And as a result, that should cause rates to go down, should cause more competition.
But because we kept the rates low for so long, that the competition was never generated. So if we extend the rate freeze, then what happens at the end of the rate freeze? There's still no competition.
ELIZABETH BRACKETT: ComEd's Mitchell says, if a freeze is reinstated, his company could go bankrupt because of the high costs they themselves have to pay for power.
BARRY MITCHELL: The financial impact would be, is that we would lose $4 million a day -- or, annually, about $1.4 billion -- specifically because our costs have gone up, due to the fact that we need to buy power on behalf of our customers. Because we no longer generate that power, we need to buy it on their behalf.
We entered into contracts based upon the result of the procurement process, and our rates were increased commensurate with that increase in cost.
LYNNE KIESLING, Northwestern University: ...the opportunities we have with retail competition is the innovative bundling of services...
Delivering energy more efficiently
ELIZABETH BRACKETT: Economist Lynn Kiesling says, because of the freeze, true deregulation has not been allowed to happen in Illinois yet, which is why prices are so high. The only way to get prices down, she says, is to enable competitors to emerge.
LYNNE KIESLING: My vision of the future for electric power would be to have a variety of competing retailers offering differentiated products and services to residential, commercial and industrial consumers, so that customers have a lot of retail choice, and are empowered to choose, and to take control of and manage their own energy use.
ELIZABETH BRACKETT: Kiesling thinks that, rather than looking to the legislature to solve the electricity crisis, consumers and businesses should be looking to new technologies to deliver energy more efficiently.
JEFF BALCH, Illinois Resident: The energy is fairly expensive right now, so we're trying not to use too much of it.
ELIZABETH BRACKETT: Evanston resident Jeff Balch has been part of a pilot program offered by ComEd called real-time pricing. He has a high-tech device which glows red when energy is at peak demand and most expensive. It's a signal to his family to change their behavior so they can lower their bills.
It means, for instance, they should hang their wash on the clothesline or delay using the dryer until the middle of the night when the price of energy is cheaper.
JEFF BALCH: It's a valuable education for our kids, and for us. There's also a cost savings.
Long-term solutions
ELIZABETH BRACKETT: The utilities say new technologies and energy sources like wind and solar are part of a long-term solution to the energy crisis.
COMMONWEALTH EDISON AD ANNOUNCER: After a nearly 10-year freeze, electric rates have gone up due to rising energy costs.
ELIZABETH BRACKETT: In the short term, the utility companies are offering a rate relief program, if the legislature does not roll back prices and re-impose a freeze. But Sherrill Lausmann doesn't buy it. She thinks the companies are only concerned about making higher profits.
SHERRILL LAUSMANN: I don't know how they sleep nights. I really don't. It's greed; it's corporate greed. I know it's rampant, but it shouldn't be.
ELIZABETH BRACKETT: The state legislature is expected to decide whether to re-impose a rate freeze within the next few weeks.