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Rate Increase Phase-In Plan Filed With ICC by ComEd

Commonwealth Edison (ComEd) last Tuesday filed a detailed proposal at the Illinois Commerce Commission (ICC) designed to ease the impact on residential customers of rate increases planned for January 2007. While ComEd has discussed its proposal for phasing in rate increases for some time, the filing allows the plan to be considered in a formal, separate proceeding.

Since 1997, Illinois residential rates have been reduced 20% and frozen through 2006. Starting in 2007, ComEd's costs to buy wholesale electricity will increase after new electricity contracts are established through an ICC-approved competitive procurement process planned for later this year. The company noted that electricity rates are rising across the country, largely due to increases in natural gas and other energy sources that power electric generating plants.

ComEd said it is concerned about the effects rate increases will have on customers -- especially low-income customers. ComEd's residential rate stabilization proposal would cap average residential increases to 8%, 7% and 6% in 2007, 2008 and 2009, respectively. Costs that exceed the caps would be deferred and recovered over three years, from 2010 to 2012. ComEd said that it is the only stakeholder to the process to have developed a specific plan for helping customers transition to market rates in 2007.

"What we are looking to do is keep rates at or below the 1995 levels through the end of the decade," said Anne Pramaggiore, senior vice-president for regulatory affairs at ComEd, during a conference call with reporters.

The plan "is competitively neutral, and what I mean by that is that the credit essentially will be applied whether you're on a ComEd rate or whether you're taking your supply from another supplier," she said. The deferral "will be applied as well, whether you're on a ComEd rate or whether" a customer has been purchasing power from "a retailer out there."

Pramaggiore noted that while "we've not seen retail competition in the residential classes to date because we've got rates that are 20% below 1995 levels" and a dearth of competitive suppliers, "we don't want to undercut competition as we move forward and on to market rates. So this will be competitively neutral in that way. We want to support retailers who would come in and want to serve these customers."

Pramaggiore said that the ICC docket will get assigned to an administrative law judge (ALJ), who will determine how long the parties will have to comment on ComEd's plan.

"We're actually proposing a schedule that would provide for several rounds of testimony, just like you would in any other case. A round of hearings and then some final briefs," she added. "We'd have a commission order coming out some time in the November time period. We're trying to provide for as much time as possible for parties to comment, but obviously we need to get it in place before January of 2007." The ALJ will ultimately determine the schedule, she noted.

The plan could terminate early under certain limited circumstances. A termination clause would go into effect if ComEd's financial condition becomes severely distressed and its senior unsecured credit rating for at least one of the three major credit rating agencies falls below investment grade. This protects ComEd's ability to provide reliable electricity service to customers, the utility noted.

"We've set up a test that's based on our credit rating," noted Pramaggiore. "If we find ourselves in a situation where we are in financial distress, we will terminate the program."

Bob McDonald, chief financial officer at ComEd, said it's "very hard to predict" the chances of a scenario occurring that would lead to implementation of the termination clause.

"You need to assess a whole number of factors," he said. "Market prices. The results of the current wires rate case. Any unknown changes that could occur over the course of the next few years. Certainly, we hope the plan can work, but we want to make sure" that ComEd "can remain in a position to provide reliable service, but I really can't handicap the chances of this trigger occurring."

The residential rate stabilization proposal will be a part of a comprehensive, multi-faceted initiative designed to ease the customer impact as Illinois transitions to new electricity rates. While the program is currently under development, other components under consideration include a low-income assistance program, energy efficiency initiatives, demand response and environmental programs. Details on these program components will be released this summer.

During the call, Pramaggiore noted that ComEd has been talking to consumer groups "throughout the course of trying to establish the transition beyond the transition period, and we'll continue to talk to them and meet with them, but we've always had an open door policy" with respect to such contact.

Later this year, ComEd will participate in the Illinois auction to buy power it needs to serve customers in 2007. The auction was designed with several features to protect consumers and promote competition, the utility said. For example, a diverse portfolio of suppliers is assured because no single supplier can win more than 35% of ComEd's load at auction. Also, the staggered contracts feature of the auction will reduce exposure to volatility in the wholesale market.

The ICC earlier this year voted unanimously to authorize ComEd and several Ameren companies -- Central Illinois Public Service, Central Illinois Light Co. and Illinois Power -- to conduct a joint auction to purchase electricity to serve nearly 4.9 million customers.

Pramaggiore noted during the call that appeals have been made related to the ICC's January order. "I think briefing schedules have been set at the appellate court level, so that is out there and pending," she said.

Steep power rate bill projections for utilities in Maryland and Delaware as a result of competitive supply solicitations resulted in phase in plans being hammered out in those two states.

"We feel like we have anticipated the situation," Pramaggiore said. "We were a little bit ahead of this." ComEd "started thinking about this...a good ten months or more ago and started talking about a cap-and-defer plan as early as that."

She noted that "if you look at Delaware and Maryland, both of them have gone to a cap-and-defer plan, with a variety of variations." While acknowledging that such plans are not "new or unique," the ComEd official said that the Exelon unit was "out there talking about them early on and we think it's interesting that Maryland and Delaware have both gravitated toward this type of program."

Maryland has "a little bit of a different situation in that their rates were, I think, even older than ours in a sense. And they're also in a market than tends to be a little more gas driven than ours," Pramaggiore said.

Baltimore Gas and Electric Co. recently filed an appeal with the Maryland Court of Special Appeals in response to a lower court ruling prohibiting the utility from communicating the specifics of a Maryland Public Service Commission-approved rate stabilization plan.

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