Local Energy Companies Accused of Price Gouging

As the mercury dropped this week, many area residents were anxious about the projected rise in heating costs. While Chicagoans brace themselves for this winter's heating bill, Gov. Rod Blagojevich and Citizens Utility Board (CUB) are urging state regulators to make Peoples Gas pay consumers for a potential overcharge from the 2000-2001 season.

Last week, a ruling from an administrative law judge found that Peoples Gas had overcharged consumers $118 million at a time when the company had dealings with Enron Corp. The individual rebate would break down to about $100 to $150 per person.

In a letter to the Illinois Commerce Commission (ICC)— the legislative body that would make the final decision on the People's Gas payout— the Governor wrote, "This refund could be very helpful for families struggling to pay this winter's rising home heating bills."

In protest, People's Gas say they have evidence that their past prices weren't unreasonable. But this local war on energy costs proves much bigger than one past year or one energy company. ComEd is pushing a new plan that involves an auction market for electricity and higher prices for consumers. The plan stems from a ten year restriction, beginning in 1997, in which several Illinois utilities were bound to fixed prices on retail energy rates. As the restriction period nears a close, ComEd must renegotiate contracts with power generation companies. Including CUB, who say consumers could expect a 37% increase under the ComEd plan, the energy buying proposal has many critics. In August, Blagojevich vehemently opposed ComEd's controversial electricity auction, threatening to fire any ICC commissioner who voted in favor of it.

On Monday, ComEd officials challenged CUB to come up with a viable energy buying plan for 2007, claiming that the watchdog group's proposed rate increase figures were irresponsible, harmful and a gross disservice to the customers it claims to represent. ComEd points out that CUB has overlooked their safety net feature that would keep residential rate increases to single digits through 2009, remaining at or below 1995 levels.

"CUB's efforts are designed to alarm and mislead consumers by distorting the facts on major public policy issues regarding the electric industry," said Tabrina L. Davis, a ComEd spokesperson. "Yet they have offered no viable plan to ensure the purchase and reliable delivery of electricity for 2007 and beyond."

ComEd reasons that after a 10 year price freeze, energy costs are sure to be higher when a new contract is negotiated. The company claims that if they're not able to collect the difference from customers, their operating costs would exceed revenues, with an estimate gross annual revenue shortfall of approximately $1 billion, based on current market prices for power.

"It is disingenuous to suggest that ComEd could lose millions of dollars a day without any impact on the operations of the company," Davis said. "Frequent and extended outages could happen either because power suppliers were no longer willing to do business with ComEd due to our financial instability, or because ComEd simply no longer had adequate resources to maintain its infrastructure."

Supposedly, ComEd's plan for a reverse auction would be a competitive process that would involve the best price for the consumer. However, some argue that since ComEd will be bidding on energy produced by Exelon Generation— both of which are wholly owned subsidiaries of Exelon Corp— there is a clear conflict of interest.

After offering a counter proposal to the ICC in testimony on behalf of the Building Owners and Managers Association of Chicago, Arthur B. Laffer— chairman of an economics consulting firm and Patrick N. Giordano— managing director of an energy law firm, wrote in the Wall Street Journal, "ComEd's proposal makes sense from its perspective. Higher prices for electricity supply directly benefit Exelon Generation, and thereby the parent company of both ComEd and Exelon Generation. Any proposal by ComEd that didn't benefit Exelon Generation disproportionately would be a breach of Exelon Corp.'s fiduciary duty to its shareholders."

Gov. Blagojevich's office maintains that, "This is a debate over what is best for consumers in Illinois, not what is best for Exelon."

The final decisions lay in the hands of the ICC commissioners who are projected to make a ruling on ComEd's plan sometime in January. They are scheduled to take up the Peoples Gas case on December 13th.