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From the desk of... Natural gas industry should make a few New Year’s resolutions David Kolata When oil executives appeared before Congress to answer questions about skyrocketing gasoline prices—and their skyrocketing profits, they might as well have been speaking about the outrageous heating prices. Those same oil barons also are making a killing off the recordhigh natural gas prices. Collectively, the five companies that were paraded before Congress by some PR-savvy politicians in November made about $30 billion in the third quarter alone. Of that, Exxon Mobil’s $9.9 billion set an American record. Despite those lofty profits, the executives didn’t leap at a bipartisan suggestion that they donate 10 percent of their profits to an anemic federal fund that helps low-income people pay for winter heat. Not surprising from the gang that gives the same, tired “supply and demand” excuse for high prices in the energy industry. Of course, there’s a convenient twist this year to that old line: the hurricanes. Yet, while Katrina and Rita had a devastating impact along the Gulf Coast, where about 20 percent of the nation’s natural gas is produced, the prices had been climbing for years and reached record levels before those twin tragedies hit. In Illinois, the utilities that buy the natural gas produced by the big producers and marketers also wash their hands of the high prices. True, under state law utilities like Ameren and Nicor Gas aren’t supposed to profit off the high prices, but Illinois residents can be forgiven for their skepticism. Both Nicor and Peoples Energy have been caught in schemes that overcharged customers during the last high-priced winter five years ago. Northern Illinois residents could choose a company other than Nicor or Peoples to supply them with gas, but that’s likely to be a bad gamble. A CUB study found that consumers were more likely to lose money with these alternative suppliers, and, as prices shot up, at least one company Round 3! SBC has new phone deregulation plan For the third time in four years, SBC is pushing to deregulate local telephone service and open the door for unlimited rate hikes on basic residential phone service. In November, SBC declared the Chicago phone market, a 123-mile area in northeastern Illinois, “competitive,” which means, under state phone rules, that it can raise rates for basic phone service as high as it wants. At press time, CUB planned to challenge that declaration before the Illinois Commerce Commission (ICC), and argue that the move would hurt typical phone callers who rely on SBC’s standard, regulated rates. SBC claims there’s no need for state regulations to keep phone rates down, since there’s plenty of competition. The company complains that Continued on p. 6 2 SBC’s Standard Rates CUB wants to stop SBC in its push to declare Chicago’s phone market “competitive,” which would allow it to raise its standard rates without state approval. For most SBC customers those rates are the best deal—along with another company’s long-distance/local toll plan for 5 cents a minute or less. Line charge of $2.55, $5.53, or $9, depending on where you live. Federal Access Charge of $4.50. 3 cents per local call (0-15 miles away). Local calls capped at $10.11 per month (337 calls). has bailed out of its supposedly airtight deal offering a “fixed rate.” Yes, the natural gas industry is quite a mess. Just ask a working mother and father trying to pay home heating bills AND afford their daughter’s braces—or a retiree on a fixed income who has to budget for food, prescription medicine, and utilities. They’d love to hear some New Year’s resolutions from the gas industry. First, the utilities should aggressively promote their “budget” plans, which even out gas bills on an annual basis. They also should offer a percentage-of-income payment plan that would allow low-income customers to pay what they can afford each month and reduce the number of customers who default on their bills. Plus, it would be nice to see the utilities offer a lower, alternative “fixedrate” for gas. Add to that an emergency federal income tax credit for people struggling to pay their bills and a wellfunded weatherization program, complete with discounted programmable thermostats or water-heater covers at big hardware chains. Also, the Illinois Commerce Commission (ICC) should immediately launch an investigation to determine the best hedging practices—or gas-buying strategies designed to protect consumers from rate shock. While they’re at it, the ICC should probe the troubling price disparity between utilities. Just why was there a 12-cent difference in the November per-therm price of Nicor ($1.19) and AmerenCILCO ($1.07)? These are just initial steps. Our biggest wish is for a total overhaul of the gas industry with federal regulators taking a much more active role in policing the business and preventing market manipulation. That would take years of brutal policy debates and a federal government willing to stand up to the companies that are profiting from the current system. Improbable, perhaps, but how long will this chaos be business as usual in the gas industry? The current laissez-faire system only benefits the Exxon Mobils of the world—whose executives can jet off to a warm-weather paradise if they ever need to escape the winter cold. Former Rockford mayor named new ICC chairman CUB applauds governor’s new pick Chairman Box commissions, including the Illinois Children’s Healthcare Foundation. “It is key that the ICC chairman be a leader with a firm grasp of the law and a firm grasp of the interests of all Illinois residents, not just utility executives,” CUB Executive Director David Commission Kolata said. “Chairman Box has all of those qualifications as he prepares to tackle the difficult cases ahead.” Among the problems facing Illinois consumers, natural gas prices are at record levels and electric utilities are seeking hundreds of millions of dollars in rate hikes. In January, the governor named Cohen his first director of consumer affairs. He will advise the governor on consumer issues ranging from energy policy to privacy protection. The CUB Voice Gov. Rod Blagojevich has nominated former Rockford Mayor Charles Box to be the chairman of the Illinois Commerce (ICC). The move came two months after utility companies blocked the governor’s first pick, former CUB Executive Director Martin Cohen. In November, Cohen became the first nominee ever to be rejected by the Illinois Senate. Box still must get confirmed by the Senate. Box, Rockford’s first black mayor, from 1989 to 2001, is an attorney who serves on several boards and
CUB study: Exelon a profit giant now and in the future Continued from p. 1 posal. CUB will appeal any vote against consumers. A wide spectrum of critics—from Gov. Rod Blagojevich to a former Reagan Administration economist—have said an auction would lead to unreasonably high rates. After conducting similar auctions, New Jersey’s rates increased by 28 percent and Ohio was so unhappy with the outcome that it did away with the system. Although Illinois law mandates that utilities buy power at the least cost possible, the consultant who designed the auction for Exelon admitted in testimony before the Illinois Commerce Commission (ICC) that producing the lowest price isn’t an auction goal. In fact, the auction would all but end the authority of Illinois regulators to ensure that rates are fair, opening the door for unlimited rate hikes. Yet, under current regulation, Exelon has been a profit giant—even with a 20 percent rate cut and freeze implemented by the 1997 state law that restructured the power industry, a CUB study found. Study author Edward Bodmer, a Take Action former ICC staffer and vice president of the First National Bank of Chicago, found that Exelon’s stock value has jumped by $18 billion since 1997, and its 21 percent return on investment beats all other major utilities across the country. In fact, the utility has outperformed the S&P 500, a stock market barometer, by more than 1,500 percent. The future also looks bright for Exelon. Even under a rate freeze or cut, its profit rate would remain far above the average return on equity of about 10 percent allowed for electric utilities by other regulatory commissions. Under a rate freeze, Bodmer projects Exelon’s profit rate would hover between 18 and 19 percent through 2012. With a 5 percent rate cut, the profit rate would be around 17 percent. “Far from suffering under sensible regulation, ComEd’s parent company has been a profit juggernaut,” CUB Executive Director David Kolata said. “Simply put, Exelon wants ComEd to become a deregulated monopoly—making obscene profits while wiping out meaningful regulation in Illinois.” Rate-hike Roundup A summary of the three Exelon/ComEd rate-hike proposals—totalling 39 percent—before state or federal regulators. Potential Rate Hike Case (39% total) Update Delivery rate hike. (Dispute over what ComEd should charge customers to deliver power.) Auction case. (Dispute over how ComEd will buy power in 2007.) Federal rate hike. (Dispute before federal regulators over plan to raise wholesale rates.) 6% CUB and the Illinois Attorney General’s office filed testimony with Illinois Commerce Commission (ICC) to wipe out proposed increase—and give customers a rate cut of at least $115 million. An ICC ruling is expected by end of July. 16% At press time, a ruling on the case was expected by end of January. CUB will appeal any anti-consumer ruling. 17% CUB has joined with consumer advocates to argue against wholesale rate increases before the Federal Energy Regulatory Commission (FERC). Federal ruling expected by end of 2006. Breaking news: Rate-hike plans revealed ComEd and Ameren propose hundreds of millions of dollars in rate hikes—on top of the increases their “auction” plans would bring. The proposed increases are to “delivery-service tariff” (DST) rates— what utilities can charge customers to deliver power to their homes. ComEd proposes a $350 million Fact vs. Fiction Your guide to ComEd’s claims CUB Executive Director David Kolata announces an ad campaign to answer ComEd’s misleading claims. In hopes of securing nearly $1 billion in rate hikes, ComEd and its parent company, Exelon, have been spreading misinformation through a front group called CORE and a $4 million TV campaign. What follows is an analysis by CUB of arguments made by ComEd over the past several months to justify a 39 percent increase in power bills. ComEd Claim: If we don’t get a rate hike, we could go bankrupt and Illinois could suffer widespread power outages, similar to the crisis California endured several years ago. CUB Analysis: Illinois has so many power plants that we export electricity to other states. Talk of ComEd bankruptcy ignores the fact that its parent company, Exelon, had a record profit of $1.9 billion in 2004, and analysts predict it will continue to flourish even if rates are frozen. While Exelon says it absolutely needs higher rates in Illinois, it sings a different tune in Pennsylvania, where it locked in a $120 million rate cut through the increase in DST rates. Ameren— the parent of AmerenCILCO, AmerenCIPS, and AmerenIP—proposes three separate “DST” rate hikes totalling $200 million. CUB has proposed wiping out Exelon’s rate hike, and the consumer group is studying the Ameren proposal. end of the decade. ComEd Claim: Our rates are the same today as they were in 1995. No company can be expected to go so long without raising prices. CUB Analysis: Just because ComEd hasn’t had an increase doesn’t mean it automatically deserves one. Its customers used to pay some of the highest rates in the nation, before a 1997 state law ordered a 20 percent rate cut. It took a record rate cut just to get ComEd’s prices at roughly the Midwest average, and yet the company still is raking in record profits. ComEd Claim: Our “auction” plan does NOT limit state oversight of the power industry. CUB Analysis: ComEd’s plan is a radical departure from current law, which requires the Illinois Commerce Commission (ICC) to ensure that rates are “just and reasonable.” The proposal would strip the ICC of any meaningful power to make sure consumers are charged a fair rate. ComEd Claim: Consumer groups that oppose an “auction” system have not proposed any alternatives. CUB Analysis: Consumer groups have said all along that ComEd can have its auction, or any other power-buying system it wants, as long as Illinois regulators retain the authority to assure fair rates. ComEd’s auction is just a clever way to lift reasonable regulations that for years have allowed the company to earn a healthy profit while protecting consumers. Contact your state legislators and urge them to take consumer-friendly positions on utility issues. To be connected directly to your legislator’s office, call AARP’s electrical advocacy hotline, 1-800-719-3020, or log on to www. StopComEdRateHike.com. Ameren has similar proposals. Find out more at www.StopAmerenRateHike.com. Winter 2005-2006 3
Page 1: Winter 2005-2006 A Publication of t
Page 5 and 6: Pop Quiz! So how well do you know y
Page 7 and 8: The answers to CUB’s gas-bill pop

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