11/22/2006 3:27:00 PM Guest Column Best solution is to 'phase in' power rate increase
By Sen. DALE RIGHTER For the Daily News
Over the past several weeks, there has been a great deal of discussion, debate, and political rhetoric concerning what consumers in Illinois will be paying for electricity beginning next year. Not surprisingly, this subject became a hot topic in the 2006 elections, with candidates for office working hard to convince voters that, if elected, they would stand up for consumer interests.
Now that the election has passed and the pressure to tell voters only what they want to hear has passed for the time being, it is time to have a serious discussion concerning the reality of the situation, and what is the best policy to pursue.
The discussion should start with recognition of a few basic facts. First, when the process of deregulating the Illinois electric utilities began in 1997, consumers received a reduction in their electric rates, which were then frozen for seven years. The deregulation plan, which also required Illinois' electric utilities to sell off their power generation facilities, was endorsed not only by the major utilities, but also consumer groups such as the Citizens Utility Board. The rationale behind deregulation was, and is still, that market forces, combined with customer choice, would eventually lower prices.
Next, the price of producing just about everything - from clothes to cars, and televisions to toasters - has increased over the past decade. This is also true for electricity. Labor costs, compliance with environmental regulations, taxes, construction, and a long list of other necessary components for power production are higher now than they were 10 years ago.
Furthermore, the rates we pay for electricity will eventually increase; for policymakers, the question is by how much and over what period of time. One of the many debates on this issue is whether Illinois should abandon the goal of deregulation, and return to a fully regulated system. I have doubts that doing so would be the best long-term policy, but in terms of a rate increase, it is irrelevant. Because the cost of producing power has increased, eventually the price will as well.
Unfortunately, the public debate has been focused on the extremes. On one side, utility companies advocate passing along increased power costs immediately and in their entirety. For those in the Ameren territories, that would mean an average 40 percent increase beginning Jan. 1, not including the increased utility taxes. The other side demands a three-year extension of the current rate freeze, irrespective of the utilities' increased costs.
But both of these proposals raise serious questions. Such a dramatic increase will cause a hardship on low-income households, and force some to access publicly-funded programs. A three-year extension of the rate freeze would eventually force serious financial losses, job cuts, and a weakened power delivery infrastructure.
Reliable figures demonstrate that for the three Ameren distribution utilities (CIPS, IP, and CILCO), an extension of the rate freeze would create a $1 billion deficit between what those utilities would be allowed to charge for electricity as opposed to how much they will have to now pay. To put that figure in context, it is about seven times greater than the combined profits of those same utilities for all of 2005. Considering these numbers, the state's taxpayers would likely be paying billions to prop up bankrupt utilities long before a three-year rate freeze extension expired.
The supporters of a three-year extension also contend that it is unfair to expose consumers to market prices until residential customers enjoy the choice that real competition would provide - and that is a fair point. However, competition requires the presence of actual competitors, which in this case would mean more utility companies vying for business in Illinois. In our market economy businesses do not compete in areas where they have no chance of making a profit, and extending the rate freeze is the surest way to guarantee that competition, and therefore customer choice, will never develop.
The best solution - for today's and tomorrow's consumers - is to allow rate increases to be phased in over a period of years. Doing so will achieve three important policy objectives - softening the impact for consumers, allowing the utilities to collect necessary revenues, and starting Illinois on the path of residential consumer choice. It will take a few years to get there, so it is best to start the journey now.
Sen. Dale Righter (R-Charleston) represents the 55th District in the Illinois Senate.