Illinois Rebate Reverses Utility Rate Increases Due to Deregulation

Last year, the Illinois Commerce Commission (ICC) unanimously approved a "reverse auction" that allowed utilities to purchase electricity through wholesale energy suppliers. In doing so, the ICC no longer regulated the price of electricity and instead the state moved towards a deregulated market for electricity. The move was hailed by the right-wing Heartland Institute as "the right thing" that would eventually result in lower electricity rates.

Instead, customers saw drastic increases in their electricity rates, some of whom saw their utility bills triple in just one year. As a result, this week, Governor Blagojevich signed a $1 billion electricity-rate relief package to provide consumers with relief from the large increases. The utility restructuring legislation, SB 1592, also abolished the reverse auction program and replaced it with a new state agency that will purchase power on behalf of the state's two largest utilities. Illinois is just one of many states that is reconsidering their competitive electricity market. In Ohio, stakeholders are negotiating how to end competitive pricing. Virginia's legislature just passed a law to abolish their competitive market and restore the state to full cost-of-service regulation by the State Corporation Commission.

States are beginning to realize the false promise of deregulation. Between 2002 and 2006, prices in regulated markets rose an average of 21%. In deregulated markets, however, prices soared by an average of 36%. In Baltimore, for example, electricity prices rose by a remarkable 50% in June after a 15% jump last year when the rate caps expired. As one expert states, deregulation, "hasn't panned out the way we had hoped."

In addition to providing relief to utility customers, the Illinois legislation also requires energy-efficiency programs that will substantially decrease the growth of electricity use in Illinois. Under current regulations, this mandate will be costly for the utilities whose profits depend on the amount of electricity sold. As we will highlight on Monday, decoupling can break the link between the utility's commodity sales and revenue, giving utilities more incentive to encourage energy efficiency while guaranteeing regular, stable profits.

States Seek Answers to Rising Homeowners Insurance Rates

Even as insurance companies see record profits, homeowners in the post-Katrina Gulf Coast are struggling to find and obtain affordable homeowner's insurance and residents in other coastal states are seeing higher rates as well. While state attorneys general have sued insurers over denied claims and delayed payments, states are trying a myriad of approaches to provide affordable homeowner's insurance but no consensus has emerged on the best approach.

While some states, like Florida, Louisiana and South Carolina are providing subsidies to families, tax credits to insurance companies, or expanded access to public insurers, other states are considering stronger coastal building codes to attract insurers. Some state lawmakers are calling for regional or national disaster relief funds, but are being resisted by states historically less vulnerable to natural disasters. In typical fashion, the Bush Administration has rejected calls for a national disaster fund and has not offered any meaningful solutions, telling states they need to figure this out on their own.

Florida, where 80% of property lies in vulnerable coastal areas, has moved aggressively to resolve its insurance problems, although some critics worry only short term solutions have been enacted. Under Gov. Charlie Crist (R), the state froze rates for customers of the public Citizens Property Insurance system, known as the "insurer of last resort," until 2009 and eased eligibility for coverage under the system. Gov. Crist praised lawmakers for putting a "nail in the coffin of an industry that is hurting people." Although insurers complain that rate reductions encourage construction in vulnerable areas without regard to the dangers, Florida already has some of the strictest building codes around.

Reigning in Insurance Company Profits:  The Consumer Federation of America and Americans for Insurance Reform reported earlier this year that the property/casualty insurance industry has dramatically increased profits and surplus in recent years. Insurers are paying out lower claims in relationship to the premiums they are charging.  They have insidiously used the terrorist attacks of 9/11 and natural disasters like Hurricane Katrina to successfully lobby for taxpayer support while they raise rates and deny claims. Allstate, for instance, is paying much less than half of the premiums it collects in benefits to consumers. 

State Options: States have several options to counter these abusive practices, such as:

• Strengthen rate review and regulation to weed out excessive rate increases
• Develop a coastal weather modeling system to evaluate insurer rate increases, rates which are often based on short-term and unscientific methods to predict natural disasters
• Create multi-state funds to cover all wind risk, and
• Standardize reasonable deductibles and coverage limits 
• Publish consumer reports exposing insurance companies with a history of anti-consumer behavior.

Everyone it seems is affected by disasters, except the insurance companies who do more to increase their profits during difficult times than serve their customers. The people's government needs to step in to make sure they play by the rules.