Power crunch spotlights deregulation turmoil

With elections just weeks away, Exelon’s Commonwealth Edison and Ameren Illinois are fighting a move by Illinois lawmakers to block a rate increase set to kick in when a 10-year-old law deregulating rates expires at year's end. ComEd Chairman Frank Clark said the state’s rate freeze would make life worse — not better — for consumers.

"They'll pay more all around and have less-reliable service," Clark said.

The move toward market pricing — which was supposed to lower rates over the long term —would mean rate increases over the short term, according to the companies. Starting in January, Illinois consumers face an average increase of between 22 and 55 percent compared with what they’ve been paying for the past decade. But ComEd has said it expects lose $1.4 billion if those increases are blocked. The company also faces cuts in its debt ratings if the freeze is extended.

And Clark said “partial deregulation” was a big part of the current problem. Not enough new power generation players have entered the state to drive down prices — and rate caps are one of the reasons why.

"Competition has not developed, and the reason it has not developed is that rates are so artificially low no competitors can come in here and beat them," he said.

But Illinois Lt. Gov. Pat Quinn, who said the utility’s executives got pay packages of $2.7 million to $7 million last year, blamed the rate increases on "inflated egos with inflated salaries."

The same scenario is playing out in many of the two dozen other states that have moved toward deregulation. Even where deregulation is beginning to take hold, looming rate increases are creating a backlash.

“Even the states that have moved (to deregulate) are being pummeled with lots of concerns about where this is all going,” said Malloy.

All of which has discouraged the kind of heavy, long-term investment needed to add more power generation and upgrade the reliability of the national grid. Power generators now face rising natural gas costs; ironically, one reason for the jump in gas prices is the surge in popularity of the fuel after 1980s-era natural gas deregulation spurred a construction boom of gas-fired power plants. Now, as the industry relies more heavily on natural gas, supplies of that fuel are stained and prices are rising.

That has power companies looking for alternative sources, but the options aren’t cheap. Wind and solar are gaining on fossil fuels, but the amount of power generated by these sources is tiny. They are also only available in limited parts of the country — and then only when the sun is shining or the wind is blowing.

Coal-fired plants are still in widespread used, but eliminating carbon emissions adds to the cost of new plants. And nuclear power, though increasingly attractive to the U.S. utility industry, still faces significant hurdles. Even under the most optimistic timetables, new nuclear capacity won’t be available 2015 at the earliest.

“There’s a finite amount of fossil fuel, and the environmental regulations are getting more and more restrictive,” said Dan Keuter, head of nuclear business development for Entergy, one of the largest operators of nuclear power generators. “But there’s huge demand for energy.”

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