June 26, 2012

If Chicago ditches ComEd, those still with utility would pay more

By Julie Wernau, Chicago Tribune reporter | www.chicagotribune.com 26 June 2012

The city of Chicago is considering leaving ComEd for another electricity supplier, a move that could prove costly for towns and customers that stick with the utility.

Already, more than 250 Illinois communities are buying electricity in bulk or will be from providers other than Commonwealth Edison Co. as a result of a 2009 law that opened the door for municipalities to negotiate cheaper electricity prices on behalf of residents.

Residents in those communities save 15 to 40 percent, on average, from ComEd’s rates. But none of those municipalities approaches the size of Chicago, which accounts for 31 percent of ComEd’s 3.4 million residential customers in northern Illinois.

The city is expected to vote Wednesday on whether to hold a referendum that would allow it to move residents to another electricity supplier. If Chicago joins other municipalities that are departing as a result of deregulation of the power industry in Illinois, 70 percent of ComEd’s customers could be gone by early 2013, according to the company. Mayor Rahm Emanuel supports the measure.

Experts say that if Chicago goes, ComEd’s remaining customers could pay double the price for the same amount of electricity supplied to neighbors who have signed with alternative suppliers. That’s because the remaining ComEd customers would be left to shoulder more of the burden for expensive electricity contracts the utility signed in 2007, as well as pricey long-term contracts for wind power and solar power.

ComEd isn’t worried about the loss of customers, because it makes its money on distribution fees and it gets paid by residential customers for delivering power, regardless of what entity supplies the electricity. But for Illinois residents who opted out of or voted against “electricity aggregation,” there is worry about the impact.

“So many things in Chicago end up affecting us,” said Bobbi Kraklio, manager at Bannerman’s Sports Grill in the Bartlett, a town of about 43,000 that recently voted down a measure that would allow the village to strike an electricity deal for its residents. “It trickles down to us. Really, what can the common person do about it? We just have to sit here and wait and watch what happens.”

There could be additional costs beyond the burden of expensive contracts. Assuming Chicago makes the switch, ComEd would be forced to sell excess power at a loss. And ComEd customers would pay the difference through a charge on their electricity bills.

Some customers might opt out or back in. With such a large customer base in flux, ComEd might have to guess how much electricity it should purchase for customers.

“It’s really bad news for whoever is left, because then you have several months of excess power that will be sold back to the market at a loss, and that loss will hit the customers who are left,” said Mark Pruitt, program manager at the Illinois Community Choice Aggregation Network, which advises municipalities about electricity aggregation, negotiating bulk purchases on behalf of residents.

With so many people saving on electricity bills, Pruitt said, electricity aggregation might go down as “the largest economic development project in the state.”

“When you start calculating the cost difference across hundreds of thousands of households, it’s a huge cost savings to the entire economy,” he said.

But for those left behind, there will be a cost.

On average, about 5 percent of residents in communities that have aggregated electricity have chosen to opt out of the program, Pruitt said. Several communities, including Waukegan and Joliet, voted down referendums to allow aggregation and remain with ComEd.

“I was very outspoken against aggregation,” said Frank Napolitano, a Bartlett village trustee. “I don’t think it is really a place where the government should be. I don’t think a village or municipality of any sort should be selecting an energy provider for its residents.”

Some Bartlett residents wanted all-green power. Some wanted the best price, he said, and if the village chose a company residents didn’t like, the village would face their wrath. Just like shopping for a cable or cellphone provider, Napolitano thought it would be best that residents shop for alternative suppliers on their own.

“Everybody in Bartlett still has that ability to get their own deal. Their best deal for them isn’t the best deal for someone else. People have different priorities and needs, and they still have that ability to shop around,” he said.

In Oak Park, which recently switched residents to Integrys at a rate well below that of ComEd, K.C. Poulos, the village’s sustainability manager, said several residents who opted out of the program did so out of loyalty to ComEd.

Others, Poulos said, didn’t understand the program and decided to stay with ComEd.

“They want to stay with what they know,” she said. “It’s the most ironic of situations. The customers who are the most loyal to ComEd are the ones who will be paying the higher electricity bills.”

ComEd hasn’t made an issue of the cost discrepancy.

“ComEd supports competition. If the city of Chicago decides to pursue an aggregation program, we will work cooperatively with them to provide the same information we have provided to other municipalities and governments that elected to aggregate,” ComEd said in a statement.

With observers just beginning to focus on Chicago’s pending decision, there hasn’t been much discussion about the impact across the region. Predictions about the cost difference are fluid, but several experts agree there would be a significant short-term impact. The question is what happens over time.

In large part, the anticipated higher electricity prices for ComEd customers would come from a contract reached five years ago that locked in until 2013 a rate that is 161 percent higher than today’s market prices, according to ComEd. Utility customers also pay for energy that comes from renewable resources such as wind and solar power as part of the state’s so-called Renewable Portfolio Standards. Those rates are 169 percent higher than today’s market prices.

ComEd customers don’t feel much of an impact from those contracts because they are blended with lower-priced electricity from the market and spread across a huge customer base.

But with fewer customers, the above-market-rate contracts would cover most electricity demand with little need to supplement with lower-price power from the market.

ComEd said there are caps on how high rates can soar because of excess electricity that is sold at a loss, as well as caps on the impact to bills that can come from the purchase of renewable energy. But Michael Strong, chief legal counsel for the Illinois Power Agency, which purchases electricity on behalf of ComEd, said that even with the caps, consumers would feel the impact.

Six states allow municipal aggregation, and every state has different rules for procuring electricity and for dealing with the risk associated with fleeing customers.

“There are going to be a lot of intelligent people who don’t always agree, but who will have a number of points of view about how to resolve these issues should Chicago leave,” Strong said.

URL to article:  https://www.wind-watch.org/news/2012/06/26/if-chicago-ditches-comed-those-still-with-utility-would-pay-more/