Conscious Choice: Illinois Electricity Deregulation: Year One in Review

February 1999 | News of the Earth

Illinois Electricity Deregulation: Year One in Review

by Jimmy Seidita

The results are in for Year One of the process of dismantling the electric monopolies in Illinois. After one year, the big winners are the utilities and their stockholders, and the big losers so far are the people that have to breathe the air in Illinois.

For once, the experts and pundits were correct, and the "landmark" utility reform legislation passed late in 1997 did indeed unleash powerful competitive forces on the once sleepy, antiquated electric utility industry in Illinois. Not all the developments were intended, and not all of them are beneficial, but the new law certainly did shake things up, and our electric companies changed quite a bit in 1998, after changing hardly at all for many years, if not decades.

The 1997 law set out an eight-year transition during which utility customers may gradually begin switching to other suppliers, while sharing most of the savings with their old monopoly supplier. The intention was to give time to Commonwealth Edison and the state’s other expensive electric companies to allow them to streamline operations, lower costs, and prepare for a competitive electricity market. In exchange for the long phase-in of competition, residential customers receive an upfront rate decrease of 15 percent.

In just the first year under the new law, Commonwealth Edison changed top management, put up all of it’s fossil-fueled power plants for sale, and shut down the largest nuclear plants ever retired in the United States. Downstate Illinois Power Company announced it would sell or close down its only nuclear plant, and the four other smaller electric utilities in the state were purchased by larger, out-of-state companies, eager to get a foot in the door to the lucrative Illinois electricity market.

By September, the stock price of Unicom, corporate parent of Commonwealth Edison, had more than doubled from the price twelve months earlier. Did investors imagine a dot in the middle of Unicom, mistaking "Uni.com" for some hot, fast-growing internet stock? No, Unicom investors got rich the old-fashioned way: thanks to a state bailout, passed by state legislators in Springfield that they had generously greased with campaign contributions. Apparently, investors had feared a much tougher deregulation law, one that would have let customers shop right away with no exit fees. So they rushed to embrace this approach, happy to have an eight-year reprieve from true competition, and seeing the 15 percent rate reduction as a small price to pay.

In February, James J. O’Connor stepped down after 25 years as CEO of Commonwealth Edison. O’Connor’s tenure was marked by long, bitter battles with customers over the company’s high rates and overly ambitious nuclear construction program, which made Com Ed the biggest nuclear operator in the United States. O’Connor’s philosophy is best illustrated by his remarks to a group of utility regulators, in which he defended Edison’s poor planning by explaining, "The problem is not that our company has built too many power plants. The problem is that our customers are not using enough electricity."

His successor, John Rowe, has thus far displayed a somewhat lighter touch. Rowe’s first big move came in July, when he announced that Edison would be selling off its fleet of coal-fired power plants to parties unknown. That seemed to work so well that in December Edison announced that it would also be selling their oil and gas-fired plants, leaving them with only the nuclear plants. Rowe’s comment on the remaining nuclear plants revealed how different he was from previous management, when he remarked to a newspaper reporter, "some lemons you just gotta suck."

So are we entering an era of a kinder, gentler, Commonwealth Edison? Not so fast. Those big, dirty coal plants are not disappearing or being cleaned up. They are just changing owners. The juice from those plants will continue to flow over Edison’s lines and, more ominously, the smog, soot, and air pollution will continue to pour from the smokestacks. Edison has thus far fended off all attempts to bring these plants, most of which were built in the 1950s, up to modern standards for air pollution. These plants continue to be exempted from the pollution limits established by the federal Clean Air Act of 1977 and in most cases are permitted to pollute at levels five or even ten times higher than is permitted for new plants. A crucial question is whether the new owners, as yet unidentified, will be as adept at squashing cleanup efforts as Edison has been.

In December, Decatur, Illinois-based Power Company, also under new, outside management, finally threw in the towel on their lone nuclear plant, the long-troubled Clinton nuclear plant. The plant, completed in 1988 at a cost over $4 billion, has not generated any electricity at all in the past two and a half years. IP is looking for buyers, at a "motivated seller" price. If there are no buyers, IP will retire the plant for good, and stick their central Illinois ratepayers with the hundreds of millions of dollars in costs to dismantle the plant and store the tons of radioactive waste.

With the sale or closure of Clinton, Illinois Power, along with all the other downstate electric companies, will be making electricity exclusively from burning coal, in power plants built mostly in the 1950s and still polluting at 1950s levels. As the federal government, in an effort to improve air quality nationwide, inches closer to imposing limits on the amount of air pollution coming from Illinois smokestacks, pressure is building to finally do something about the huge chunk of our air pollution "quota" that comes from this handful of aging coal-fired power plants.

This is the biggest failure of the new law. While all these power plants are changing hands or shutting down and being replaced, this should have been our best opportunity in decades to finally develop non-polluting ways of making electricity, such as solar, wind, or energy from crops. Instead we have shiny new owners for the same old dirty power plants. The only new resource being planned is more natural gas, which, while cleaner in some respects than coal, still contributes to the global warming problem.

Similarly, we have dropped the ball on energy efficiency. While surrounding states have been investing for years in customer efficiency as a substitute for more production, Illinois utilities have stubbornly refused to join in such efforts. The new law only increases their financial incentives to push customers to use, and waste, as much electricity as possible. In the first half of 1998, Illinois utilities reported sharp increases in usage, even before the big rate reduction went into effect.

Environmentalists and many legislators saw these problems coming and sought to add some provisions for efficiency and renewable energy to the 1997 law. Those efforts came up short, and clean energy supporters came away with a "promise" from legislative leaders that those provisions would be considered by the General Assembly during the 1998 session. But that promise turned out not to be worth much, as the "dereg cleanup bills" never made it to the floor or received a vote in 1998. Cleanup advocates are trying again in the 1999 session.

Ironically, while ratepayers come up big winners, one of the big losers in this whole process may be their representative, the Citizens Utility Board. CUB negotiated the unprecedented 15 percent rate reduction for all residential customers that took effect in August, (with an additional 5 percent decrease scheduled for 2002.) But CUB may end up as a victim of its own success, as its direct mail fundraising program, which sustained the organization through 15 tough years, will now suffer as a result of the end of high-profile rate increase litigation. Yet many important issues remain unresolved. Without some form of state support, to defray the costs of representing customers in expensive hearings before the Illinois Commerce Commission, CUB may shut down as early as next year. Lawmakers may address this situation as well in the upcoming session.

So stepping back, one year after the new law was passed, we have new management at the two biggest electric companies, and new owners of the other four electric companies in the state. Commonwealth Edison is selling off all of its fossil-fueled power plants, and now operates two fewer nuclear plants. Illinois Power Company will become "nuclear free" (other than the nuclear waste it created, which will be with us all for hundreds of thousands of years). Beginning in August, customers started paying 15 percent less for electricity, but face the prospect of 7 more years of transition with no consumer representation.

But despite these big changes, the basic electricity infrastructure remains ominously unchanged. Almost all of the electricity in Illinois comes from outdated, high-polluting coal plants, and expensive and unreliable nuclear plants. While companies restructure and reorganize, cleaner and more efficient electric technologies are still shut out of the market. And that will not change until the state legislature revisits the 1997 law and adds some support for efficiency and renewables.

What you can do:
To join the effort for a legislative cleanup of the deregulation law, call Hans Detweiler at the Environmental Law and Policy Center, at 312-795-3720, or visit www.elpc.org. To support CUB, call the CUB hotline at 800-669-5556, or visit their web site.

Timeline of Illinois Electric Deregulation Law

October 1997: Illinois General Assembly passes Electric Service Customer Choice and Rate Relief Law of 1997

December 1997: Governor Edgar signs bill, to become effective January 1, 1998.

January 1998: Commonwealth Edison announces permanent closure of two nuclear units at the Zion station, the largest nuclear retirement ever in the United States.

March 1998: John Rowe replaces Jim O’Connor, after 18 years as Com Ed CEO.

June 25, 1998: During early heat wave, market price paid by utilities for wholesale electricity skyrockets to $5/kwh, about 100 times the usual price. Illinois Power, caught short and paying through the nose, says "market is out of control," and asks for federal intervention.

July 1998: Commonwealth Edison announces it will sell all of its coal plants.

August 1998: Com Ed and IP lower rates for all residential customers by 15 percent.

October 1998: Stock price for Commonwealth Edison parent Unicom shoots above $40/share, more than doubling the price from before the dereg law was passed.

November 1998: Peoria-based Central Illinois Light Company ("Cilco") bought by AES Corp., a Virginia-based company that owns power plants all over the world.

December 1998: Edison announces it will sell its oil and gas plants, becoming essentially a "fossil-free" electricity producer. Separately, Illinois Power announces it will sell or close its Clinton nuclear plant, becoming a "nuclear-free" producer.

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