Suez pledges lower prices

Power companies operating in the US state of Illinois are preparing for the end of a nine-year electricity price freeze.

Illinois lawmakers approved a law to deregulate the market for electric power in 1997 and froze a 20% price reduction for seven years to assist residential customers. This ends on December 31, marking the beginning of a newly competitive landscape in the region.

Rates for residential and small business customers are set to rise by 22%, while commercial rates may spike by an average of 72% in the Chicago area from January 2007 onwards.

Commonwealth Edison (ComEd), which has argued against the freeze for years, is welcoming the change, claiming that without the price increase, it could slide towards losses of $1.4 billion and possible bankruptcy next year.

The company says it needs to recover power costs incurred as a result of September's 'reverse auction' enforced by the Federal Energy Regulatory Commission, where bids typically start high and fall until the suppliers' price matches the demand. Having divested its power generation capacity, the supply portion of the ComEd rates are now supplied by the winning bidders of that auction, with the new market-based rates reflecting opportunity costs and factors such as switching risk. ComEd claims that without the increase it will therefore be selling a commodity at a price below cost.

But Suez's US retail subsidiary has countered by estimating that it can offer small business and industrial customers 30% lower prices than those offered by ComEd, for customers with peak demand between 400 kilowatts and 3 megawatts - roughly 5,600 organisations - depending upon customer load profiles.

"Right now the market rate for those larger customers is lower than what the auction results were, in that the [auction prices] involve a premium for the winning suppliers for taking on the switching risk," says Lanette Johnson, Suez's director of marketing. "We're not embedding those premiums that they may have."