(Crain’s) — Commonwealth Edison Co. is asking the Illinois General Assembly to lock in an electric rate hike for four years, freezing rates at a level above what consumers likely would pay during that time.
In return, the utility, which wants lawmakers to approve the 11th-hour proposal before the end of the week, would give $500 million to the state to help plug its giant budget deficit.
It also would earmark $1 billion over the coming decade to create an undefined “smart grid” initiative putting high-tech electric meters in homes and businesses.
Details of the proposal, which hasn't yet been introduced in Springfield, were obtained by Crain's.
The proposal would help solve a problem facing parent Exelon Corp., whose expectation that profits will plummet in coming years has caused its stock price to fall.
The benefits Exelon and ComEd would get would dwarf what they’re offering.
Chief among them would be enshrining in law a minimum 10.3% return on equity for the utility and automatically increasing customers’ rates when profits fall short of that mark.
For years, all utilities, including ComEd, have had to go before the Illinois Commerce Commission and prove in a court-like proceeding lasting 11 months that they deserve a rate hike.
Under the proposed law, a rate freeze would remain in effect until June 2014. After that, the ICC would be largely removed from assessing the need for future rate hikes. And rates would likely climb since future investment in infrastructure would necessitate higher revenues to meet return targets. Such increases would not affect residential and small-business bills until after the rate freeze expires.
ComEd rates are expected to rise 8% in June, to about 12.2 cents per kilowatt-hour from 11.3 cents.
ComEd wants to lock that price in for the next four years. Absent an unexpected reversal in today’s low power prices, it is significantly above what ratepayers likely would pay through much of that period.
The coming increase is due almost exclusively to a sharp rise in the cost of reserving power from electricity generators that furnish the juice to ComEd.
That “capacity” cost is set at an auction run by PJM, the regional power-grid operator that oversees high-voltage networks in a region that includes much of the Mid-Atlantic and Northern Illinois.
That charge is slated to drop very sharply next year, a savings that customers would benefit from if this legislation isn’t approved.
Consumers also would benefit from today’s low power prices, as the state’s higher-than-market contracts with ComEd parent Exelon, which runs six nuclear stations in Illinois, expire in the next two years.
“We have serious concerns with the bill we’ve seen and the speed at which it appears to be moving,” said David Kolata, executive director of Chicago-based consumer advocate group Citizens Utility Board. “This is a huge regulatory change, and there’s lots of money at stake for ComEd and Exelon. As it stands now, this is a very bad bill for consumers.”
ComEd’s gambit is audacious, echoing a similar strategy the utility employed seven years ago when power prices were low and it wanted to lock in higher-than-market pricing while advertising the initiative to lawmakers and consumers as “rate stability.”
Then ComEd offered to buy troubled electric utility Illinois Power Co.; in return, it requested a 9% rate hike over four years.
House Speaker Michael Madigan’s opposition blew up the Illinois Power deal. In so doing, he accused Exelon of lying to him about the details of the bill, making him and Exelon CEO John Rowe enemies thereafter.
A spokesman for Mr. Madigan said he was unaware of the proposal and didn’t know if the speaker yet knew about it. A spokesman for Gov. Pat Quinn, who has been a harsh critic of utilities’ rate hikes, had no comment.
While Messrs. Madigan and Quinn in the past would have been expected to dismiss a proposal like this one from ComEd, today they are presiding over a state in fiscal crisis. And $500 million would help.
“While we can’t share details at this early point, we can confirm that we have been talking to Illinois state leaders about a potential public/private partnership to address economic issues facing the state and its residents,” a ComEd spokeswoman said in an e-mail.
