Electric Deregulation Saves Illinois Customers Billions

Electric deregulation has saved Illinois customers as much as $37 billion over the past 16 years, a report released Monday said.

Commissioned by four business groups, the report says the average household has paid $3,600 less overall or about $240 annually than if the average annual electricity rates had stayed the same as they were before the 1998 deregulation.

That law allows Illinois utilities to compete for business on the open market rather than being regulated monopolies whose rates are set. Utilities had supplied, as well as delivered, electricity to consumers. The Legislature also restructured the natural gas market.

"Illinois' decision to competitively restructure its natural gas and electricity markets has been emphatically vindicated by the results," the report said. "Supplier competition, access to broad regional energy markets and customer choice are the products of well-considered and conscientiously implemented policies to open the monopoly utility industry to market forces."

The Illinois report, titled "Electricity & Natural Gas Choice in Illinois a Model for Effective Public Policy Solutions," was issued by the Illinois Chamber of Commerce, the Illinois Manufacturers' Association, the Illinois Retail Merchants Association and the Illinois Business Roundtable.

It said traditional regulation of monopoly service worked well when gas and electricity were high-growth industries, but that regulation did not move quickly enough to respond to new technologies and changing conditions when good conditions deteriorated.

When deregulation began in mid-1998, Illinois had the 13th highest average electricity prices in the United States; in 2013, they were among the 10 lowest, the report said.

Of the $37 billion in savings, nearly half or $18 billion was saved by residential customers, even though they account for less than one-third of all electricity use in Illinois.

David Kolata, executive director of the Citizens Utility Board, which advocates for consumers, said there's no question consumers have benefited from deregulation, but the law included built-in rate cuts to correct the problems of the past system. Before deregulation, consumers were seeing large rate hikes almost annually for, among other things, paying off very expensive nuclear-powered generating plants.

"Is that really a market mechanism that's producing those savings? Probably not," Kolata said. "It's more a correction of the old system and trying to put in place a new system that hopefully going forward will benefit consumers."

The law also moved Illinois from producing just enough power to serve Illinois to becoming a key exporter for the upper Midwest, producing 32 percent of the region's total generation. Indiana, Michigan and Ohio all saw their shares of generation fall, while Wisconsin's increased slightly.

"We have moved strides forward, and a lot farther than our neighboring states, with making Illinois a better place to buy electricity," said David Vite, former president and CEO of the Illinois Retail Merchants' Association.