Madigan Testifies Against ComEd Proposal

Commonwealth Edison’s proposal to purchase electricity and set rates through an auction could produce billions of dollars of windfall profits for a ComEd affiliate while increasing electric rates for ComEd’s residential and business customers, according to expert testimony filed by Attorney General Lisa Madigan’s office.

Chicago – Commonwealth Edison’s proposal to purchase electricity and set rates through an auction could produce billions of dollars of windfall profits for a ComEd affiliate while increasing electric rates for ComEd’s residential and business customers, according to expert testimony filed by Attorney General Lisa Madigan’s office.

The testimony was filed last Wednesday, August 3, with the Illinois Commerce Commission (ICC). The ICC is holding hearings to review ComEd’s auction proposal.

“This expert testimony shows that Exelon Generation’s (ExGen) profit level could double overnight as a result of ComEd’s proposal to use an auction to set electric rates based on market prices rather than the actual cost of generating electricity,” Madigan said.

According to David Effron, a forensic accountant retained by the Office of the Attorney General to testify in the ICC case, last year ComEd purchased electricity for its customers from ExGen for approximately 3.2 ¢ per kwh; ComEd customers paid approximately 8 ¢ per kwh, and ExGen reported profits of approximately 20 percent. If ComEd were to purchase the same amount of electricity from ExGen at market prices (around 4.5 ¢ per kwh in 2004) and were to pass those prices through to consumers, ComEd customers would end up paying an extra billion dollars per year for electricity and ExGen’s profit could double.

“Illinois consumers deserve a fair proposal that produces the lowest rates possible. ComEd’s auction proposal will increase consumer rates in favor of windfall profits for ExGen,” Madigan said.

ExGen is an affiliate of ComEd that owns and operates 10 nuclear generating units that used to be owned by ComEd. Dr. Kenneth Rose, an economist testifying for the Office of the Attorney General in this case, notes that ComEd customers have paid for these nuclear plants through rates and through “securitization charges” and “transition charges” authorized by the 1997 restructuring law.

Asking these same customers to pay market prices for electricity from these power plants, Rose said, “. . . is a little like a bank or mortgage company charging you market rent to live in a house while you are also paying them a mortgage for the same house.”

“We are very concerned that ComEd’s auction proposal is not fair to Illinois consumers,” Madigan said. “There are alternatives to the proposed auction that would result in lower electricity prices.”

Dr. Philip Reny, a University of Chicago economics professor who is also testifying on behalf of the Office of the Attorney General, concludes that lower prices could be obtained through negotiation rather than through the proposed auction. Reny also notes that auction prices could be reduced considerably by establishing price caps.

Senior Policy Advisor Susan Hedman, Senior Assistant Attorney General Susan Satter, Bureau Chief Janice Dale and Assistant Attorney General Mark Kaminski are handling the case for Madigan’s Public Utilities Bureau.