Immediately after getting over one hurdle, Exelon Corp. now finds itself standing in front of another in its quest to purchase Dynegy’s Illinois Power (IP) unit. First announced in late September (see NGI, Sept. 29), the $2.225 billion deal has been under constant fire from the Illinois government as well as consumer groups.
Commonwealth Edison Co. (ComEd), Exelon’s utility subsidiary, said early last week that it would no longer submit a rate proposal for IP in conjunction with an Illinois Commerce Commission (ICC) review of Exelon’s proposed acquisition of IP. The legislation is currently making its way through the Illinois General Assembly. Exelon withdrew its similar rate proposal for ComEd earlier in the month.
The legislation — House Bill 2200 in the senate and SB 25 in the house — surrounding the acquisition has undergone six revisions since first being unveiled by ComEd at the start of the legislature’s fall veto session three weeks ago (see NGI, Nov. 10). Now the deal faces scrutiny over the power purchase agreements that would require Exelon Generation to buy 6,000 MW from Dynegy.
According to the Chicago Tribune, Exelon CEO John Rowe said last Monday before the Illinois House Public Utilities Committee that the deal was off unless the state legislature approves the long-term power purchase contracts, which could allow for future rate increases. The Tribune quoted Rowe as saying, “it’s the core of the Illinois Power transaction. We simply couldn’t do it” without the power purchase agreements that are part of a stripped-down bill Exelon wants passed.
ComEd spokesman Tim Lindberg said that Rowe’s comments were not part of prepared testimony, therefore he could not verify the Tribune’s account.
The Illinois Citizens Utility Board (CUB) said that while the latest draft of the bill removes the explicit authority for the ICC to directly tie a rate increase for ComEd and IP customers to the takeover, it retains a provision that allows the company to boost electric bills through the long term power purchase agreements.
CUB said the legislation would tie the proposed merger of ComEd and IP to approval by the ICC of exclusive long-term power purchase agreements between the utilities and Exelon Generation. The utility watchdog organization believes the bill would allow the utilities to enter into long-term, speculative arrangements with affiliated companies. Citing data reported in the Tribune, CUB pointed to ComEd’s existing contract in place with Exelon Generation, which last year paid an average of $42.16/MWh under the deal, 61% above the average market price of $26.60.
If ComEd’s legislation passes, the ICC will consider quick approval of new long-term affiliate contracts to begin after the current rate freeze ends in 2006 as part of its expedited consideration of the ComEd takeover of IP. If the company doesn’t get the rate levels it seeks, it has vowed to scuttle the merger. “Once these power contracts are in place, the ICC won’t be able to prevent a series of rate hikes beginning in three years,” said CUB Executive Director Martin Cohen.
Taking CUB to task for its comments, ComEd said the organization’s suggestion that the power purchase contracts represent a possible rate increase is false.
“This legislation doesn’t enact a rate increase, and doesn’t seek review of a rate increase,” said ComEd President Frank M. Clark. “It’s that simple. CUB is making accusations that have no factual basis.”
Citing a CUB-sponsored statewide poll conducted by McCulloch Research & Polling, CUB’s Cohen said over 72% oppose the special legislation being pushed by ComEd and that the level of opposition is as strong in central and southern Illinois as it is in ComEd’s own northern Illinois service territory.
“Under this legislation both ComEd and Illinois Power customers will see higher electric bills beginning in 2007 and escalating in subsequent years. Whether the increase comes in through the back door or the front, the end result is the same,” Cohen said, referring to the recent changes in the legislation.
The survey polled 1,200 randomly selected registered voters across the state Nov. 12-15. The poll has a margin of error of plus or minus 3.2%. It found that only 11.6% support the legislation while 16.2% don’t know how they feel about it. When those same respondents were asked whether lawmakers should even consider the bill in the veto session, only 20% agreed. The majority of consumers, 55.6%, said the issue should wait until the spring session, while 24.4% said they didn’t know.
The poll included 200 Illinois Power customers and asked if they support the proposed takeover of their electric company by ComEd. Forty-two percent of Illinois Power respondents support the takeover, but only 8.5% said they would support it if it means higher electric bills for consumers.
Late last Tuesday, ComEd fired back at the legitimacy of the poll, which it called “misleading” and “irrelevant.”
“This poll is based on information that is a week old, and a lot has happened in that week,” said Clark. “At best, this poll is unscientific, misleading and out-of-date. By its own timing, CUB’s poll is irrelevant.”
Even though talk of rates has been dropped from Illinois House Bill 2200 since the poll was taken, ComEd also took issue with the CUB’s wording. “The [legislation] contained a process for rate review — not a rate increase — for Illinois Power customers,” the company said, adding that “it comes as no surprise that consumers wouldn’t support legislation that includes a rate increase.” Exelon noted that the proposal never requested a rate increase.
“If we issued a poll asking people about what this legislation is really about, we might have even more lopsided results than CUB,” Clark said. “The proposed legislative initiative is about protecting jobs, promoting local economic development and ensuring continued improvements in electric service. That’s why this is so important.”
In response to Exelon’s backing off of its IP rate request as part of the legislation, Illinois Gov. Rod R. Blagojevich last Monday, said “This morning I made it clear that I would not support legislation concerning Exelon’s pending purchase of Illinois Power if the legislation included an early rate review for consumers. This afternoon, Exelon agreed to the conditions I outlined, ensuring that the legislation will not ask consumers to shoulder the cost of the merger.
“Exelon also agreed to reduce the number of planned layoffs by as much as half, make significant investments in Central Illinois’ energy infrastructure to reduce the likelihood of blackouts, and make substantial new investments in renewable energy.
“By rescinding their requests for rate reviews for Exelon and Illinois Power customers, the legislation can now protect consumers, preserve jobs, strengthen the infrastructure, and help the environment. [last Monday’s] news is a good step forward,” Blagojevich added.
CUB said it continues to oppose the bill, as do Lt. Gov. Pat Quinn, Illinois Attorney General Lisa Madigan, the Environmental Law and Policy Center of the Midwest, AARP-Illinois, Citizens Action Illinois, Illinois Public Interest Research Group, the National Federation of Independent Businesses, the Building Owners and Managers Association, the Illinois Environmental Council, the South Austin Coalition, Ameren, Midwest Generation and the NAACP Illinois Chapter.
As for the next step regarding the legislation, ComEd’s Lindberg, said “We hope the legislature takes up the bill and we hope that this is something that they can support.”
Late Thursday night, the version of ComEd’s legislation passed out of the senate. A coalition of consumer groups, which includes CUB, said the senate version would lead to unwarranted rate hikes for consumers to pay for the inflated power contracts between ComEd and Exelon. However, the consumer coalition said it supports the house version of the bill, SB 25, which would protect consumers by allowing the ICC to review whether the costs of the contracts are prudent and reasonable in future rate cases. ComEd opposes the house version.
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