A renowned Northwestern University economics professor today called upon Illinois lawmakers and regulators to "resist repealing the laws of supply and demand" and approve plans to move forward with a competitive bidding process for procurement of electricity beginning in 2007.
Dr. Morton Kamien, Joseph and Carole Levy Distinguished Professor of Entrepreneurship at Northwestern's Kellogg School of Management, released a white paper today that states, "the show must go on" with regard to moving to a competitive market for electric power in Illinois. ComEd commissioned the paper, entitled "Making Electric Utility Restructuring Work in Illinois: Where We Are, How We Got Here, and Where We Are Going," in which Kamien reviews the viability of a reverse auction competitive bidding process and ComEd's proposal for a distribution rate increase.
"Illinois has come too far to falter at the brink of success," writes Kamien, a regular observer of utility industry economics and policies. "History has taught us that embracing competition has been the source of the wealth of nations, while rejecting it has been the source of their impoverishment."
Earlier this year, ComEd filed proposals with the Illinois Commerce Commission for competitive energy procurement and a delivery rate increase. To purchase power for its customers, ComEd is seeking the approval of a competitive bidding process known as a "reverse auction," which will yield the lowest available market price. The proposed delivery rate increase will permit ComEd to keep pace with the higher demand that comes with the growth of its northern Illinois service territory and customers' increased use of electricity.
Kamien finds a complementary relationship between the two proposals, noting that to fully develop a robust competitive market for electric power, ComEd needs the financial strength to invest in the infrastructure that will accommodate an increasing number of power market competitors and ensure system reliability.
"Customers can't just reach up and grab a 'box of electricity'," writes Kamien. "Given the physical properties of electricity, it has to be moved through the grid to make its way to the customer. If the delivery rates do not reflect the true costs of getting electricity to the power supplier, investment in the necessary infrastructure will be discouraged."
Kamien also found that, in New Jersey, the reverse auction helped to temper increased market prices. He writes that the auction is a proven methodology that is highly accepted by New Jersey stakeholders, and believes the transparent and open process would lead to the lowest possible cost of power for Illinois customers.
Illinois legislators, according to Kamien, showed great wisdom by moving toward restructuring the electric industry via the nine-year transition period, which was expected to lead to a competitive power market after 2006. Dr. Kamien writes, "Illinois utilities have used this time to tighten their belts, enhance their efficiency and invest in the infrastructure necessary to bring Illinois to the point of being ready for full competition."