Updated 09/12/11 – 4:28 p.m.

CHICAGO (CBS) — Gov. Pat Quinn has vetoed controversial legislation that would have changed the way ComEd rates are determined in order to pay for a so-called “smart grid.”

“In my opinion, this is a bad bill,” Quinn said as he announced the veto Monday morning at the Thompson center. “It may be a dream come true for Commonwealth Edison, but it’s a nightmare for Illinois consumers.”

As CBS 2’s Dana Kozlov reports, Quinn was very clear, saying if he’d approved the controversial “Smart Grid” legislation, electricity customers would be gouged and ComEd would be guaranteed huge profits.

So the governor vetoed a bill that would have raised rates to help pay for that conversion.

“We don’t think that raising rates to help the company get more profits is the best way to get better service,” Quinn said. “The best way to get better service is for the company to pay more attention to the fundamentals of service performance.”

LISTEN: WBBM Newsradio Political Editor Craig Dellimore reports

Following the widespread and nearly weeklong power outages that many Chicago area residents suffered after a round of storms on July 11, some experts said a smart grid would have reduced the length of the outages.

Illinois Attorney General Lisa Madigan, who also opposed the legislation, stood with Quinn as he announced his veto.

“This bill would have been devastating for Illinois consumers,” Madigan said. “In the midst of a recession, when people are already struggling to make ends meet, this bill would have resulted in enormous annual rate increases of approximately 9 percent a year.”

Madigan argued the rate hikes would have guaranteed ComEd double digit profits, while reducing the utility’s accountability to consumers by cutting regulatory oversight.

But ComEd disputed that it would have been guaranteed any rate hikes or profits and wasn’t backing down and is fighting to override Quinn’s veto.

In the General Assembly, supporters of the legislation have been trying to gather enough votes to override a veto, which Quinn promised shortly after the bill was approved in May.

Opponents have argued the legislation, informally called “the Smart Grid bill,” would lock in guaranteed returns, and let ComEd sidestep Illinois Commerce Commission approval for certain rate hikes.

In exchange, ComEd would upgrade and modernize its power grid.

In a statement Monday, ComEd officials said they were disappointed with Quinn’s veto.

“In the coming weeks, we will work to show how this legislation provides a diverse array of important benefits to Illinois,” ComEd officials said in a prepared statement. “It is a jobs bill, an economic development bill, an environmental bill, a consumer benefits bill, a regulatory reform bill, and an infrastructure bill. It is supported by an extraordinary cross-section of business groups, labor unions, environmental organizations, high-tech advocates and green tech entrepreneurs.”

LISTEN: WBBM Newsradio Political Editor Craig Dellimore reports

Supporters of the legislation said the $3 billion, 10-year plan is needed to fund a “Smart Grid” that would monitor energy use and reduce waste. The legislation would have provided ComEd and its downstate counterpart, Ameren, with money for basic infrastructure for the “Smart Grid.”

ComEd has argued that converting to a “Smart Grid” would eventually save customers approximately $3 billion over a 20-year period by providing daily usage information that would help them monitor costs.

Utility companies say Illinois must upgrade its electrical grid if it is to remain competitive in attracting business. ComEd says the bill forces the company to fine itself if the upgrades outlined aren’t reached by a certain time.

“Despite the rhetoric of the legislation opponents, [the legislation] does not guarantee profits, will not result in automatic rates increases and does not strip the authority of the ICC,” ComEd said.

But the head of the Illinois Commerce Commission said the proposed “Smart Grid” legislation wasn’t the only way to accomplish the goal of improving the state’s power grid.

“It’s our hope that this veto … will stand and that we can continue to have a dialogue about what the right process is going forward,” ICC Chairman Doug Scott said.