Newshour Story on Illinois Electricity

Lynne Kiesling

Sadly my 15 minutes of television fame came over Memorial Day weekend, but you can go watch last Friday’s Newshour with Jim Lehrer story on Illinois electricity. The piece gives a decent overview of the situation in Illinois, where the 10-year-old retail rate freeze has been lifted, inconveniently at a time of rising fuel costs. This has caused affordability problems for many Illinois consumers, and because the Illinois restructuring legislation has done a poor job of inducing competing retailers to enter the market to serve residential customers, there is little competitive discipline on prices.

Naturally, though, politicians want to reintroduce the rate freeze, even though the rate freeze and the lack of retail competition is what got us here in the first place. I’ll have more to say later on other approaches that would actually achieve more robust, dynamic benefits for Illinois residential customers.

Although my interview lasted for 40 minutes, the wee bit of my tape they used articulates a vision of retail competition that I at least hope will get some people thinking differently about the problem, and will start to challenge the fundamental assumptions on which the regulation of the retail sale of electricity service rests.


6 thoughts on “Newshour Story on Illinois Electricity

  1. Economists pushed electric utility deregulation in California and it was a fiasco. Likewise for Illinois. It should have been tested and proven successful in one or two states first before it was adopted by more states. The citizens of Illinois were used as guinea pigs in an experiment that was a costly blunder.

  2. California could not be fairly convicted of deregulating anything. I am unfamiliar with Illinois.

    Price caps, “must serve” requirements, prohibitions on mid- and long-term contracting, etc. are not the hallmarks of a deregulated market; they characterize a restructured and re-regulated market.

    I would agree that CA was a fiasco. I would also agree that “gaming the system” contributed to the fiasco. So did an ISO which didn’t understand its own system as well as those who “gamed” it. So did both the utilities and the generators which “gamed” the next day market. A shortfall of hydro capacity in a capacity constrained market also contributed.

    California is merrily on its way to yet another fiasco, which will be contributed to by minimal conventional capacity reserve margins, rapid expansion of reliance on intermittent generation sources and demand growth in adjacent states which will limit CA’s access to out-of-state generation capacity. Stay tuned!

  3. The California fiasco was a complex sequence of things, neither the last nor the least of which was the hydro shortage. I would call the hydro shortage more like… huge. All estimates that I’ve seen of the price impact of “gaming” suggest that it was very minor compared with the cascade of physical and regulatory failures.

    See http://tinyurl.com/9gzx7

    The truth about California will never be generally understood by the public even if it is ever known, but until all of the dollars find their final resting pockets, the truth will be completely obscured by a cacophony of voices from interested parties. I agree with Ed on the future, although it remains to be seen whether another world-notable event will occur there like before. The system is very different now, with much more combined-cycle capacity in place than in 2000. However, until the system is stretched way beyond the norm, as it was in 2000, we won’t know whether it is incapable of adapting.

    In Illinois the biggest blunder was freezing a rate decrease in place 10 years ago. The increases in ComEd’s territory simply returns to the level of 10 years ago. AmerenIP’s rates have jumped much more than that. It is not immediately clear why that is the case, but IP’s rates were very low during the freeze.

  4. D.O.U.G.,

    They got close enough last summer when high temperatures and still air took windpower availability down to ~4%. Fortunately, the hydro was there this time.

    Hydro is part “reliable” and part “source of opportunity” power. The CA fiasco demonstrated that they had overestimated the “reliable” fraction. Wind power is all “source of opportunity” power (without excess generation and storage). As the wind power fraction of the CA generation fleet increases under the CA AGW reduction program, the system will become progressively less stable. It should logically take less “stretching” to reach the breaking point.

  5. I don’t disagree, Ed. We may be tugging at the definition of the technical term “stretching,” but that really isn’t important. California is tight, and circumstances could strike the West in a bad way at any time. They’re not outta the woods, and you’re right that their policies could only make matters worse. Some of it depends on the capacity adequacy standards that they adopt, but even if they do that in a very conservative manner, it still could take years for them to catch up.

    Whenever I hear California regulators talk, I am always struck by how they believe so strongly in what they can achieve through regulation. I have my doubts, of course. But there’s quite a bit of dumb luck involved, and they may be able to declare victory before the next disaster occurs. That would be tragic, in a way.

  6. I don’t disagree, Ed. We may be tugging at the definition of the technical term “stretching,” but that really isn’t important. California is tight, and circumstances could strike the West in a bad way at any time. They’re not outta the woods, and you’re right that their policies could only make matters worse. Some of it depends on the capacity adequacy standards that they adopt, but even if they do that in a very conservative manner, it still could take years for them to catch up.

    Whenever I hear California regulators talk, I am always struck by how they believe so strongly in what they can achieve through regulation. I have my doubts, of course. But there’s quite a bit of dumb luck involved, and they may be able to declare victory before the next disaster occurs. That would be tragic, in a way.

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