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entered into long-term contracts to buy power. Those deals are now set to expire and the reverse auction was supposed to
deliver power at the lowest possible price. Morris says the price jump was to be expected.
"When you're shifting from one system to another, and if rates have been held down artificially low," Morris said,
"you're going to have a jump when you go to a market-based rating system. That's inevitable."
In fact, according to Morris, the new system is working well for business and industry - just not for the residential
customer.
"The only one that it didn't work for is the residential customer," he said. "I know a lot of people would probably be
stunned to listen to me say this, but it was because their rates were too low. Competition works, but there's got to be a
way for me to come in and undersell you. If I can't do that, I'm probably not going to get very much business if I come in
and I'm selling higher than what you're selling for. That's probably not a good market model. I think we could all agree on
that. That's the key reason why the competition didn't develop. The problem is right now we are looking at rate increases,
and I think quite frankly the news media has been at best misleading. They've hammered away at the percentage increase and a
percentage increase does seem alarming, but the reality is that the average Ameren Illinois residential customer is only
going to pay about $1 a day more next year for electricity than this year."
According to Jim Monk, executive director of the Illinois Energy Association, another reason consumers are looking at
such a large rate increase is that business customers subsidized residential customers under the old regulated system.
That's no longer the case.
Monk said the vertically-integrated, highly-regulated utility system that had been used for decades was broken and needed
to be fixed.
"In the mid-90s, we had the highest prices for electricity in the Midwest," said Monk. "Chicago had some of the highest
prices in the country. The old system was pretty much a cost-plus system. As we built nuclear power plants that skyrocketed
in costs and those costs were translated into rates, our electricity prices just went through the roof."
Monk says that pressure to restructure the system came primarily from commercial and industrial customers who were paying
those high rates and trying to survive in what was increasingly becoming a globalized market.
According to Monk, business and industry is doing well under the new system. Residential customers, however, aren't
enjoying the same results.
"There's a lot of competition out there in the commercial and industrial market - and there has been for several years
now," he said. "The reason the competition hasn't directly developed in the residential market is because nobody could beat
the price that we were charging our residential customers because of the rate freeze and the decrease."
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But Jim Chilsen, spokesman for the Illinois Citizens Utility Board, isn't buying it. He says that over the past 10 years,
every state that deregulated the electric industry ended up with much higher rates. CUB contends that true competition did
not materialize in the September auction and is calling for the continuation of the rate freeze for another three years.
Chilsen says Illinois is awash in electrical power and that Ameren has seen its profits soar, even with the freeze in
place.
"Ameren's profits have nearly doubled over this rate freeze," Chilsen said. "That to me is not a company that is
suffering under this rate freeze. Ameren has done very well. Its profits in 1997 were $335 million. In 2005 its profits were
$628 million, and the $628 million last year was 18 percent up from the year before. This has been a very, very healthy
company. It flourished under this rate freeze."
Chilsen also says that a study commissioned by CUB proves that Ameren would continue to do well if the freeze were
continued - something Morris vehemently rejects.
"The contracts have been signed and the three Ameren Illinois utilities have legally binding contracts to purchase that
electricity and they will be spending approximately $1 billion more in 2007 for electricity than they will for all of 2006,"
Morris said. "That's a billion dollars more; it's a little bit more than $2.5 million more a day. As a result, those
companies have to collect more."
Ameren and Commonwealth Edison spokesmen point to the problems experienced by California when state government stepped in
and slapped a lid back on rates. Monk said that the Pacific Gas & Electric Co. was in bankruptcy and Southern California
Edison was near bankruptcy when the state was forced to step in and buy power on behalf of the utilities.
Chilsen is not convinced, however. He says there were many things wrong in California, and that Ameren's rates are
already comparable to other Midwest states - and he doesn't believe that the two big Illinois power companies couldn't have
gotten better rates out of the auction.
"They've talked about insolvency and bankruptcy," said Chilsen. "I simply believe that that's a scare tactic. What we
call it is 'bankruptcy blackmail.'"
Chilsen points to the city of Naperville, Ill. that operates its own electric utility; the city went out on its own and
negotiated the purchase of electric power. According to Chilsen, Naperville was able to get a better deal than either
Commonwealth Edison or Ameren - by about 8 percent.
"It's almost like the corner grocery store being able to buy milk cheaper than Wal-Mart," Chilsen said. "If that were the
case, customers would be leaving Wal-Mart in droves. That's not the case, so that shows how flawed the auction model is,
when a city like Naperville with a small municipal electric company is able to negotiate a cheaper price for electricity
than what ComEd and Ameren were able to secure in the auction."
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