Isn't it time voters mattered more than money?

Power Markets

How the Legislature Determines Who Can Sell Electricity (and How!)

The average Illinois household could pay an additional $275 for electricity next year, according to the Citizens Utility Board. Utilities are hoping a regulatory structure created in 1997 will enable them to raise consumers’ bills, boosting industry revenue between $390 million and $1.2 billion each year. But don’t look to the legislature to block the rate hikes. After $1.3 million in political contributions by the industry, the 1997 changes may be here to stay.

You don’t have to be an old-timer to remember the old days of utility regulation. Power companies were regulated by the state. They owned their own generators, their own transmission lines, and they sold power to businesses and households. But in 1997, the legislature changed the rules, and the landscape has since changed dramatically. Generation, transmission, and retail are all separate businesses. The central question now is whether the legislature will change the rules again to rein in the utilities, or if it will allow the broadest reading of the 1997 law to determine Illinois’ new energy policy.

The 1997 law made several changes. On the consumer side, it cut rates 15% immediately, with another 5% cut in 2002. And it set aside millions to fund research and advocacy on energy issues. For industry, it allowed businesses to shop around for energy in 1999 (some got special rate cuts immediately). And the utilities themselves got a new regulatory structure that allowed them to separate billing for power and the transmission of that power. Utilities have changed in the intervening years to maximize this last shift.

Top Electric Utility Donors, January 1, 2003-June 30, 2005

Exelon and subsidiaries $535,400
Ameren and subsidiaries (incl IL Power) $504,200
MidAmerican Energy $141,325
Edison International $40,000
IL Action Committee for Rural Electrification $34,025
TOTAL All Electric Utilities $1,373,500

The two largest power utilities in Illinois in 1997, Commonwealth Edison and Illinois Power, owned large generators and transmission lines, and their fees were set by state regulators. Since then, they’ve both formed new corporate structures. Both are now subsidiaries of larger corporations, and both do little beyond deliver power to consumers and businesses. The generation and transmission of power are handled by separate entities, though both Com Ed and IP are parts of different corporate families with siblings that generate and transmit power. Generation and transmission are no longer performed by regulated subsidiaries, and those companies are not required to sell to their own siblings. Now, even though Com Ed has a corporate sibling that generates power, it wants approval from the Illinois Commerce Commission to buy power through an auction, where it will have to submit the highest bid in order to win the contract.

The fight over the auction is really a fight over the meaning of the 1997 deregulation. The industry claims that government has no choice but to grant rate increases, because the failure to grant increases will lead generators and transmitters to sell to someone else. Opponents claim the state retains the ability to limit rate hikes.

As an industry, utilities have contributed over $1.3 million to Illinois state candidates since January 1, 2003. Taking advantage of Illinois’ no-holds-barred campaign finance rules, these funds have come directly from the utilities as well as from directors, officers, employees, and corporate-sponsored PACs. In most states, such large corporate giving would be illegal.

Top Recipients of Electric Utility Giving, January 1, 2003-June 30, 2005

Senate President Emil Jones $219,400
Senate Republican Leader Frank Watson $163,250
Gov. Rod Blagojevich $141,500
House Speaker Michael J. Madigan $129,550
House Republican Leader Tom Cross $72,700
Sen. Steve Rauschenberger $41,225

Sen. James Clayborne $21,325

Sen. Dave Sullivan (retired) $15,850

Rep. Tom Holbrook $15,100

Sen. Denny Jacobs (retired) $14,300

The leader within the industry is Exelon, which accounts for $575,300, or more than 40% of all industry giving. Most of their contributions came directly from Exelon Corp., the regulated subsidiary Commonwealth Edison, and CEO John Rowe. A close second is Ameren and its subsidiaries, which combined for $504,200 in giving to state politicians. Ameren giving came primarliy from Ameren itself, Dyn-PAC and Employees Political Involvement Committee (IL Power)*.

The electric companies’ giving strategy suggests that they think the law is on their side, and that they want principally to stop any changes. The top two recipients are Senate President Emil Jones and his Republican counterpart, Sen. Frank Watson. If those two refuse to take action on electric utility reform, the 1997 law stays unchanged.

The electric utilities could be wrong, of course. Regulatory changes could limit rate increases, and lawsuits could clarify the meaning of the 1997 law in ways adverse to the utilities’ view. But the giving pattern suggests that legislative change will be very difficult if neither caucus leader in the upper chamber is willing to press the issue.

*Ameren, based in Missouri, bought Illinois Power from Houston-based Dynegy in 2004. Prior to the sale, Illinois Power operated the Employees Political Involvement Committee (IL Power), while its parent company Dynegy operated an Illinois political fund called Dyn-PAC. Illinois Power closed Employees Political Involvement Committee (IL Power) in December, 2004. Dynegy, which still operates power generators in Illinois, continues to control Dyn-PAC. Employees Political Involvement Committee (IL Power) and Dyn-PAC, as well as their respective corporate owners, were all active during the period covered by the Briefing.