DEREGULATION UPDATE

Illinois

Overview

On Dec. 16, 1997, Illinois Gov. Jim Edgar signed into law House Bill (HB) 362. Both the Illinois House and Senate passed the bill during the 1997 fall veto session. Industry experts call it the most comprehensive, cooperative-friendly deregulation legislation adopted by a state legislature.

The bill calls for open access to be phased in over a four-year period. Once direct access is completely implemented, economists estimate residents could save nearly $3 billion a year on their electricity bills.

Recovering "Lost Revenues"

HB 362 uses a "lost revenues" approach to determine the costs utilities can recover from customers during the transition from a regulated to a competitive environment. Investor-owned utilities (IOUs) are allowed to collect transition costs through Dec. 31, 2006. They can petition the Illinois Commerce Commission (ICC) to extend the deadline until Dec. 31, 2008, based on the IOUfs judgment, financial integrity, ability to provide service and impact on competition.

A New Tax Structure

The statefs revenue-based utility tax system will be revamped under the bill to treat all suppliers equally and maintain revenue neutrality as closely as possible. The state will move to a "use" tax system where charges are based on consumption of electricity rather than revenues. This system will apply to utilities and municipalities.

Cooperatives and Municipals

HB 362 gives electric cooperatives two options: They can operate like they did in a regulated environment, or they may choose to allow customers to select an alternate electricity supplier.

Cooperatives will continue to be the exclusive provider of distribution facilities to the existing and future customers it is entitled to serve.

The cooperative also can "opt-in" to competition and compete for customers outside the cooperativefs current service territory. Cooperatives which opt-in will be required to provide delivery services on the cooperative system to the utility or utilities in whose service area the cooperative has elected to compete.

The Four-Year Phase In

In an effort to lower rates to the average Midwest rate, residential customers will receive mandatory rate reductions beginning Aug. 1, 1998. Residential customers of Illinoisf utilities Commonwealth Edison and Illinois Power will receive a 15 percent rate reduction, with an additional 5 percent discount on May 1, 2002. Central Illinois Public Service will reduce its rates by 5 percent for residential customers.

Industrial customers with loads of four megawatts (MW) or more and aggregated commercial retail customers with loads of 9.5 MW or more will be allowed to choose their electricity provider on Oct. 1, 1999. On that same date, 33 percent of all other commercial and industrial customers will be placed in a lottery and allowed to choose their supplier.

Beginning Dec. 31, 2000, remaining commercial and industrial customers will be phased into competition. On May 1, 2002, Illinoisf residential customers will be eligible to receive direct access. However, residential customers who switch from their current local utility to an alternate energy provider before 2006 will be subject to a transition fee.

Ensuring Reliability

HB 362 calls for the establishment of an independent operating entity to assure reliable operation of the transmission systems that will bring power to competitive market suppliers. It also requires the ICC to adopt new transmission reliability rules, establish criteria for assessing performance, and periodically review reliability and identify deficiencies.

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