-----Original Message-----
From: 	"Fein, David I. - CHI" <david.fein@piperrudnick.com>@ENRON  
Sent:	Saturday, October 13, 2001 3:09 PM
To:	Migden, Janine; 'mulrich@enron.com'; 'rboston@enron.com'; Kingerski, Harry; 'gsharfma@enron.com'; 'phil.o'connor@aesmail.com'; 'julie.hextell@aesmail.com'; 'richard.spilky@aesmail.com'; 'Dfabrizius@kaztex.com'; 'gregory.lizak@IMServ.invensys.com'
Cc:	Landwehr, Susan M.; Hueter, Barbara A.; Townsend, Christopher J. - CHI
Subject:	Crain's Article -- October 15, 2001

ComEd seeks rate hike for biz
Second proposal spurs opposition among regulators
Crain's -- October 15, 2001
By Steve Daniels <mailto:sdaniels@crain.com>
Commonwealth Edison Co. is pressing for another big hike in its charges for
delivering electricity to customers of rival power suppliers.

The Chicago utility's Aug. 31 filing with federal regulators to nearly
double transmission rates - for carrying electricity over its long-haul,
high-voltage lines for these customers - has triggered opposition from state
regulators.

That request followed a June proposal for a 37% increase in distribution
charges, for moving power through the utility's more local, lower-voltage
wires (Crain's, June 11). That bid is subject to approval by the Illinois
Commerce Commission (ICC).

If approved, the two rate hikes together will increase transmission and
distribution costs by about 50% for business customers that leave the
utility for competing power suppliers.

Perhaps more important, the new rates would clear the way for delivery
charge increases of the same magnitude on all Chicago-area power users in
three years, when a freeze on ComEd's rates expires.

Transmission and distribution rates account for 20% to 25% of a typical
business customer's total power bill - so, a typical bill could rise as much
as 10% with these increases.

Apart from the bottom-line hit to businesses, ComEd competitors and local
government officials also warn that the hikes could stymie the nascent
competitive market because they could prevent alternative suppliers from
offering savings from the utility's bundled rate.

AES NewEnergy Inc., the largest alternative supplier in Illinois with more
than 800 customers, says 86% of its customers will see their bills increase
if both proposals are approved.

"What this means is that large numbers of customers would be down to the
point where bundled (utility) service is cheaper, or it's so close that they
wouldn't bother choosing an (alternative) provider," says Philip O'Connor,
president of AES NewEnergy's Chicago office. "You cannot have competition
being viable when your base of potential customers is so small."

Arlene Juracek, ComEd vice-president of regulatory and strategic services,
counters that few businesses actually will pay higher rates in the short
term because the rise in delivery charges will be offset in many cases by a
corresponding decrease in "transition" fees paid to the utility when
customers use another supplier.

The Aug. 31 transmission rate proposal, filed with the Federal Energy
Regulatory Commission (FERC), surprised the Illinois Commerce Commission,
which asked FERC two weeks ago to block the rate hike.

The latest rate hike proposal incorporates a proposed change in ComEd's
account methodology, in which the utility would wipe off its books more than
$660 million of accumulated depreciation of transmission assets and ask
ratepayers to shoulder that investment again.

'Unjust and unreasonable'

In its filing with FERC, the ICC said the proposed change "would result in
artificially high transmission rates, and an unjust and unreasonable
windfall to ComEd at the expense of transmission ratepayers."

"They're essentially changing the rules of the game halfway through the
game," says ICC Commissioner Terry Harvill.

ComEd responds that FERC itself - in an order last year pushing utilities to
combine their transmission assets into large, regional networks - said
utilities could consider changing the accounting method.

"ComEd believes we have an obligation to the shareholders of (parent
company) Exelon Corp. to receive compensation in accordance with what is
permissible by law," says Steven T. Naumann, ComEd vice-president in charge
of transmission services. "The commission will determine if this is what
they meant (in their order) or if it is not what they meant."

Meanwhile, the city of Chicago, frustrated by ComEd's resistance to sharing
detailed financial data, is poised to ask the ICC formally to order an
outside audit of ComEd's books for 2000. The state attorney general's office
and the Cook County state's attorney's office are joining the city in the
petition, which could be filed as early as Monday, sources say.

The audit, which ComEd opposes, would be aimed at separating ordinary
maintenance and improvement costs from the extraordinary measures ComEd took
in 1999 and 2000 to beef up its distribution system, after acknowledging it
had neglected that infrastructure during the previous two decades.

The behind-the-scenes skirmishing spotlights how seriously local government
officials are taking the regulatory proceedings. While the new rates affect
only those customers in the competitive market, they'll be the benchmark
used for the power delivery charges all other ComEd customers will pay in
2005, when the utility's "bundled" rates are no longer frozen.

Setting the rules

"The company is very much aware of the fact that the rules for the future
are getting set now," says William Abolt, commissioner of the city's
Department of Environment. "Basically, the next 36 months are going to set
an awful lot of the fees for the future."

Mr. Abolt says the audit request is one option the city has to pressure
ComEd into opening its books, but says it wouldn't be necessary if the
company agreed to do so voluntarily.

A ComEd executive says the data will be made available to those who sign a
blanket confidentiality agreement - which intervenors in the case, including
the city, aren't likely to sign.

Ms. Juracek of ComEd says the utility already has sifted extraordinary costs
associated with its $1.5-billion infrastructure upgrade out of the rate
base. But she allows that most of those are minimal tree-trimming expenses.
Large amounts of overtime paid to unionized workers, as well as contractor
expenses, are included in the rates.

"There's no free lunch here," she says.

Says Mr. Abolt: "Now, it's time to sort that all out. So, let's sort it
out."


David I. Fein
Piper Marbury Rudnick & Wolfe
203 North LaSalle Street
Suite 1500
Chicago, Illinois  60601
phone:  312-368-3462
fax:  312-630-7418
e-mail:  david.fein@piperrudnick.com





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