Proposed legislation could end the possibility of a 40 percent electrical rate hike set to hit AmerenIP costumers starting in January 2007, despite warnings from Ameren that such a move could signal the end of the company’s Illinois subsidiary.

Ameren said that its operating companies, including AmerenIP, will near bankruptcy if the new legislation is approved. Advocacy groups are trying to shift the focus to Illinoisans who will potentially be hit hardest by electrical rate hikes in the absence of an extended rate freeze.

“It is easy to provoke the operating companies like IP, CIPS, and CILCO to go bankrupt,” said George Gross, professor of electrical and computer engineering at the University, who likened the rate freeze to telling a baker he must charge one dollar per loaf of bread even as the price of flour is shooting upward.

AmerenIP, AmerenCIPS and AmerenCILCO are all operating companies under the parent company, Ameren.

Michael O’Donnell, executive director of East Central Illinois Area Agency on Aging, views the rate hike in a different light.

“It certainly will affect all households on fixed incomes and especially retirees,” O’Donnell said. “We are concerned about their physical health and well-being.”

The House Electric Utility Oversight Committee voted in a 9-4 decision Monday to extend a rate freeze on residential electrical prices for another three years. This now places the matter squarely into the hands of the Illinois legislature.

House Speaker Michael Madigan, D-22, wants a special legislative session to extend the freeze before midterm elections and Gov. Rod Blagojevich said he would call one if there are enough votes to approve such a freeze. The issue could also be taken up by the entire Illinois House of Representatives next month after the election. Both Gov. Blagojevich and Treasurer Judy Baar Topinka, Republican candidate for governor, are pushing for an extended rate freeze.

Concern about electrical rates abounded when Ameren and ComEd said their prices would shoot upward when the rate freeze ends and residential electrical prices are once again determined by the free market.

The rate freeze was initiated a decade ago in the hopes that the electrical utility market would become more competitive so consumers could shop around for the best deal. The rate freeze is set to expire Jan. 1, 2007, the same date as the new legislation, Senate Bill 1714, proposes the start of a three-year extension.

In a press release, however, Ameren said that if the rate freeze is extended there will be grave consequences including “the insolvency of the Ameren Illinois utilities, significant job losses and significant risk of disruption in electric and gas service.”

Gross said the extended rate freeze will run down the reliability of the electrical utility companies by reducing the money they can apportion to maintenance.

“It’s going to hurt the economy tremendously,” said Gross who pointed out that companies would relocate or choose not to set up shop in Illinois because of the unreliability of electrical providers.

Gross also said the electrical rate hike could also dissuade competitors from entering the market because it is impossible for them to compete with artificially low prices as instituted by the price freeze.

Jim Chilsen, director of communications for the Citizens Utility Board, a consumer advocacy group in Illinois, said the Ameren press release and recent ComEd claims of potential bankruptcy were forms of coercion.

“These are scare tactics by the companies in order to secure rate hikes between 26 and 50 percent,” Chilsen said. “We call it bankruptcy blackmail.”

Chilsen said that Ameren profits nearly doubled under the rate freeze and that a rate hike will be “devastating to the economy” because individuals will have less money to pump into local markets.

Gross stressed that the price hike deals with wholesale electrical prices which constitute around 70 percent of the price consumers see on their bills. The other 30 percent comes from charges dealing with transmission, distribution and other miscellaneous charges attributed to running a business, he said.

“Just because the wholesale price goes up 40 percent does not mean that the retail price has to go up that same amount.”

O’Donnell, however, said the extended rate freeze is essential.

“I think if it’s not extended, low-income households will have to make some critical choices,” O’Donnell said. “Older adults have always been scrupulous in paying their bills. They might skip out on food purchases or making co-payments on prescription drugs.”