U of Ideas of General Interest ó November 1998
University of Illinois at Urbana-Champaign
Contact: Mark Reutter, Business & Law Editor (217) 333-0568; [email protected]
ELECTRIC SERVICE Deregulation ultimately will save consumers money, scholar says
CHAMPAIGN, Ill. ó The only sure thing about the future of electricity in Illinois is propulsive change.
In the wake of the Electric Service Customer Choice and Rate Relief Act signed by Gov. Jim Edgar last year, energy firms will come under the same fierce competitive forces that have altered telecommunications, airlines and other once rigidly controlled industries. One difference is that deregulation of electricity will affect everyone.
ìAs a measure of the complexity of the task, the Illinois law is 261 pages long,î said George Gross, professor of electrical and computer engineering at the University of Illinois. ìReliability of the system must be foremost in the minds of utility executives and regulators as the business changes dramatically.îThe Illinois law, one of a handful in the country, will let consumers pick their own power supplier no later than May 1, 2002. Industrial users will have free access by Dec. 31, 2000.
While Gross believes that deregulation will ultimately save consumers money, there will be short-term costs. Although utilities were required to lower their rates 15 percent last August, the law also permits them to include various fees for specific expenses, including ones for nuclear power plants and other high-cost facilities.
ìHow to handle nuclear plants will be a key issue because these plants are not competitive in the new environment,î Gross said. For example, Commonwealth Edison has closed its twin Zion nuclear plant and re-engineered the facility to help maintain voltages within the system. While a positive development, the cost of the Zion shutdown must be absorbed by ComEd customers.
Gross, who is also on the faculty of the U. of I. Institute of Government and Public Affairs, predicted four likely scenarios of deregulation:
ï The vertical structure of the utility industry will shatter under the pressure of competition.
ï Technological innovation will accelerate as companies find cheaper ways to generate electricity, including use of renewable energy and ultra-clean coal-fired plants.
ï Illinois will eventually become competitive with low energy-cost states like Indiana and Wisconsin, especially in serving industrial users ìwho look at three things ñ price, price, price.î
ï Pre-packaged deals and other complex marketing schemes will become commonplace, similar to those offered by phone carriers. ìThe need for programs to educate the public about power choices will be critical to the success of the law.î
The U. of I. professor added: ìI think weÃre all going to be surprised when we realize that, come 2002, we can walk away from the utility company we love to hate. But then again the company might not look and act like it does today.î
-mr-
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