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The History of Electricity Deregulation in Illinois

Energy Deregulation in Illinois

If you wonder how a deregulated energy market is different from a regulated market, the difference between the two is quite simple. In a regulated energy market, there is only one provider, often referred to as the utility company, which owns the entire infrastructure – from the wires to the transformers to everything in between. The utility company purchases the energy, sell it to customers, and distribute to homes and businesses (and some even generate that electricity. In a deregulated market, the utility company still owns the infrastructure and distributes electricity, but companies called Alternate Retail Electricity Suppliers (ARES) buy it from the generators and sell it to customers. This brings energy choice to customers in terms of who they buy energy from and at the price they want.

In the Beginning

Up until 1997, the people of Illinois were paying some of the highest electricity rates in the country. Illinois began the deregulation journey when state lawmakers passed “The Illinois Electric Service Customer Choice and The Rate Relief Law.” This Customer Choice Act” turned Ameren Illinois Utilities and Commonwealth Edison Company solely into utility companies and allowed large businesses the opportunity to purchase electricity from an ARES.

This energy choice was implemented by October 1999 and made available to all large commercial customers by May 2002. In addition, for the homes and small businesses who weren’t allowed to buy deregulated energy, legislators decreased electricity prices by twenty percent and kept them locked in for ten years to compensate for the lack of choice.

A Shift in Events

Things changed in 2002. Due to the rate caps from the 1997 Customer Choice Act not expiring until 2007, ARES’s were slow to enter the residential markets. Thus, energy choice was expanded to all residential customers and small business in hopes of increasing the number of energy companies entering the Illinois market. At the same time, industrial and large commercial customers were switching in large numbers to the ARES’s available to them.

However, things didn’t improve over night. Due to the limited services the active ARES’s were providing to residential customers, the State General Assembly passed the Retail Electric Competition Act in 2006. This helped many of the ARES’s operating in Illinois to develop programs serving residential and small business customers. The act removed some of the barriers to competition, encouraged residential and small business customers to switch to an ARES by promoting temporary discount programs, and establishing the Office of Retail Market Development.

Deregulation Arrives

Upon the expiration of the residential rate freeze in 2007, electricity prices in Illinois soared to compensate for the 10 years when no increases were permitted. As a result of the sharp price increase, the General Assembly of Illinois intervened and passed the Illinois Power Agency Act which offered one billion dollars in rate relief to residential and commercial customers over a period of four years.

Finally in 2008, the first residential customers began leaving their utilities and switching to an ARES. In 2009, only eight ARES’s were serving residential customers in the state, but according to the Illinois Commerce Commission, there are now 87 providers operating in 2014, bringing energy choice to Illinois.

While it has taken some time to see the positive effects of deregulation of electricity in Illinois, due to competition among suppliers, the state now boasts one of the lowest electricity prices in the nation. And at a time when other neighboring states have seen electricity prices rise, Illinois prices have decreased, and in 2013, were among the ten lowest in the US.