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posted: 12/27/2012 5:00 AM

$31 billion in benefits, and counting

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By Vince Persico and Philip Novak

Imagine a public policy in Illinois that was thoughtfully developed, carefully nurtured and professionally adjusted as needed and has delivered $31 billion in benefits to the public.


Answer: our state's transition to competitive electricity markets.

Dec. 16 marked the 15th anniversary of Gov. Jim Edgar's signing of Illinois' 1997 electric industry restructuring legislation. After months of review and debate, the General Assembly passed the bill with near-unanimous votes, making Illinois a pioneer in reforming a century-old business model. Customers could choose their own electricity suppliers while continuing to rely on a regulated utility to deliver the energy over its distribution wires.

Chicago-area ComEd and downstate Ameren either sold some of their power plants or spun others off to affiliated companies focused solely on generating electricity to be marketed in a competitive market. Utilities and the regulators could concentrate on the singular task of reliably delivering energy over the distribution network and assuring equal access by buyers and sellers to the grid.

The Illinois Commerce Commission started the process in the mid-1980s with policy papers urging reliance on competition in telecommunications, natural gas and electricity as a better regulator of prices than lengthy administrative proceedings. The General Assembly passed a modernized telecommunications law in 1985 that helped accelerate the dramatic changes in telecommunications now a part of our everyday lives.

Customer choice in electricity supply is now the rule in over a dozen states accounting for more than 40 percent of all U.S. electricity consumption. Some states, such as California and Michigan, mismanaged their transitions and are facing rapidly rising rates. Illinois stayed on course as did such foreign countries as the UK, Australia, New Zealand some Canadian provinces and much of Europe.

Today, some 75 licensed alternative retail electricity suppliers (ARES) supply about two-thirds of all the electricity consumed in Illinois. The latest vivid illustration of customer choice came with this year's elections in which voters in more than 450 communities, including Chicago, have authorized municipal aggregation programs. "Muni-agg" allows local governments to arrange competitive electricity supply contracts for residential and small business customers in their jurisdictions. Customers can opt out in favor of a supplier of their own choosing.

In the decade prior to implementation of customer choice in 1999, electricity prices paid by Illinois consumers averaged 12 percent above the national average. Since then, Illinois prices have averaged 7 percent below the national norm.

This nearly 20 percent swing in Illinois' price position has been worth more than $31 billion in electricity cost savings for businesses, government, schools, hospitals and households. Data from the U.S. Energy Information Administration show that since 1997, while electricity prices nationally have risen an average of 46 percent, Illinois electricity rates have risen 17 percent, about one-third the national pace and well below the rate of inflation.

Greg Baise, president of the Illinois Manufacturers Association, has often said that Illinois' electricity choice policy has been the most successful economic development program in Illinois in many decades.

Despite a decade and a half of change, however, our mental map of the electricity business remains rooted in the old paradigm of the monopoly utility. For example, recent new stories about muni-agg report that customers are "leaving ComEd." Not so.

While, most residential and small business customers receive a monthly bill with ComEd's name on it, the electrical energy actually comes from a state government entity called the Illinois Power Agency. ComEd does not own or operate power plants. The IPA acquires power supplies through a competitive procurement process. ComEd only delivers the power and sends a bill for the energy cost, without a markup.

In the 1980s and beyond, billboards at the Wisconsin border invited businesses to cross the state line to get lower electricity rates. In 1997, average Illinois electricity rates were 47 percent higher than those in Wisconsin. The situation is now the reverse. Average electricity prices in the Land of Lincoln are 22 percent lower than Wisconsin's.

It seems that in the Dairy State, which has declined to adopt electricity competition, it's the consumers who are being milked.

Maybe it's time that Illinoisans took some pride in a public policy achievement that has become a model for much of the industrialized world.

• Vince Persico, a Republican, and Philip Novak, a Democrat, were members of the Illinois House of Representatives who co-sponsored electricity customer choice law in 1997.

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