Larry D. Habb, president and chief executive officer of Illinois Power Co., the state’s second largest power company, told colleagues in 1995 during an electricity policy meeting that the state should embrace energy deregulation as a way to increase consumer choice and pave the way toward saving energy and saving money.
“We've seen all the other highly regulated industries go through deregulation, and competition is coming to this one,” Habb said.
What is Electricity Deregulation?
Electricity deregulation can sometimes be a little complicated, but usually it’s pretty simple. The basic idea behind deregulation is that competition will provide an incentive for cheaper electricity.
In a deregulated market, although residential and commercial customers can continue to buy electricity from their utilities, customers are allowed to buy electricity from competing retail electric providers, called alternative retail electric suppliers (ARES).
In a deregulated market, the utility remains responsible for transmitting electricity and distributing it to homes and businesses, regardless of which electric provider supplies it.
1997: Electricity Deregulation Begins in Illinois
Two years after Habb’s speech, state lawmakers passed the Illinois Electric Service Customer Choice and Rate Relief Law of 1997, which deregulated the state’s two biggest electricity monopolies — Ameren Illinois Utilities (AIU), formerly Illinois Power Co., and Commonwealth Edison Co. (ComEd) — and gave large commercial customers the ability to purchase electricity from an ARES that had been approved to do business in the state.
Residential and small business customers weren’t allowed to purchase their electricity from an ARES and were forced to remain with their utility.
However, in order to protect residential and small business customers, the Illinois Commerce Commission, which oversees the state’s public utilities, reduced the price of electricity by 20 percent and froze the rate for 10 years.
1997–2007: Mandatory Transition Period
In the decade between 1997 and 2007, called the Mandatory Transition Period, the power to choose an electric provider was reserved mostly for large commercial and industrial customers, which were granted that option during a 12-month phase-in period from Oct. 1999 to Oct. 2000.
Under the Customer Choice Act, state utilities were no longer permitted to own the means to produce electricity. During the Mandatory Transition Period, utilities were required to sell their electricity generation assets to other affiliated and unaffiliated energy companies and became companies that only delivered electricity.
Illinois’ residential customers finally gained the power to choose their electric provider on May 1, 2002, when the state’s electric market was opened to roughly 4.4 million customers. However, the rate caps on electricity prices, which were going to remain in effect for another five years, effectively discouraged any ARES from serving residential customers.
However, competition among ARES for commercial customers thrived. In October 2005, approximately 22,000 commercial customers were buying their electricity from an ARES.
2006: The Retail Electric Competition Act
In 2006, the General Assembly helped the state’s many ARES to begin serving residential and small business customers by passing the Retail Electric Competition Act. The act established the Office of Retail Market Development, removed certain barriers to competition and encouraged residential and small business customers to switch to an alternative electric provider by promoting temporary, fixed-discount programs.
2007: Electricity Prices Surge as Rate Caps Expire
Immediately after the caps on the utility’s electricity rates expired Jan. 1, 2007, electricity rates in Illinois soared. Most residential customers saw rate hikes of roughly 50 percent.
Although residential customers saved an estimated $5.2 billion between 1998 and 2006 because of the rate caps, they were insulated from wholesale price increases during that time. The resulting shock that came from the inevitable price increases that followed the expiration of the rate caps led to significant criticism and amendments to the Customer Choice Act.
In the summer of 2007, the state’s General Assembly passed the Illinois Power Agency Act, which created the Illinois Power Agency and provided over $1 billion in new electricity rate relief over four years to residential and certain commercial customers.
2008: First Residential Customers Switch to an Alternative Electric Provider
During 2008, thanks to a pilot program by one ARES in ComEd’s service territory, the first residential customers — only a handful — left their utilities and switched to an ARES.
The number of small business, commercial and large industrial customers that had switched since the start of deregulation had more than doubled to 55,000.
2009: Residential Electric Provider Competition Slowly Builds
By November 2009, although only 234 residential customers had switched to an ARES, the number of small business, commercial and large industrial customers that had switched climbed to approximately 71,000.
By the end of 2009, just eight ARES had obtained Illinois Commerce Commission certification to serve residential customers.
2011: Increased Competition Hits its Stride
Four years after the utility’s rate caps expired, and 14 years after the AUI and ComEd markets were deregulated, some 52 companies are now listed as ARES on the Illinois Commerce Commission website. Of those, 13 have obtained Illinois Commerce Commission certification and registration to serve residential customers in ComEd’s territories, and 30 are certified and registered to serve ComEd’s commercial customers..In Ameren’s service area, eight ARES have obtained certification and registration to serve residential customers and 16 have been certified and registered to serve commercial customers.