Suburban Chicago races to unplug from ComEd

By: Steve Daniels November 28, 2011

Chicago Business

A wave of Chicago suburbs, including many of the largest, is preparing to bargain for cheaper electricity deals next year with competitors of Commonwealth Edison Co. on behalf of their residents.

City councils from Aurora, the second-largest municipality in the state, to Elgin and Evanston will decide in coming weeks whether to ask voters in March referendums to approve plans to solicit bids from ComEd competitors. As many as 130 cities, villages and towns next year could follow the 19 suburbs that already have left the utility, consultants say.

While the suburban exodus from ComEd should generate double-digit-percentage savings on the electric bills of as many as 2 million households, it's going to lead to unpredictability and volatility for residents and small businesses continuing to buy from the subsidiary of Chicago-based Exelon Corp. That includes residents of Chicago, which has no immediate plans to test the electricity market on behalf of its inhabitants.

Under state law, municipalities can buy power for residents and small businesses, but only if voters back the action in a referendum.

If trends hold, enough households and small businesses could leave for alternative suppliers by the end of 2012 that ComEd could move to have state utility regulators declare the residential market officially competitive. That would mean customers still buying from ComEd could be subject to spot-market electricity prices rather than the negotiated, firm, annual price they currently get. The earliest that could happen would be 2013. The tipping point is the departure of one-third of customers in a specific class.

In Texas, which runs a spot-market system, “the price volatility is huge, and they've had troubles with some of the vendors going under,” says Mark Pruitt, former director of the Illinois Power Agency, which buys electricity on behalf of utility customers statewide. “I don't think this is what people had in mind” when Illinois deregulated its power market 12 years ago.

For its part, ComEd says in a statement that it interprets state law to say that it will be obligated to provide a fixed electricity price to residential and small commercial customers regardless of how many customers it loses. But the Illinois Commerce Commission, which enforces the law, disagrees, saying utilities can move to force residential customers onto the spot market once the 33% threshold is reached.

WILD CARDS

Even if ComEd doesn't move to subject its customers to spot pricing, the IPA probably won't be able to drive the same bargains with power generators that it has in recent years, given the unpredictability in the demand it's trying to fill, Mr. Pruitt says. Under the recently enacted law giving ComEd automatic yearly delivery rate hikes to finance grid 

modernization, the IPA is directed to solicit bids for a four-year power contract. But municipalities that leave the utility can return anytime their contracts expire, making forecasting long-term demand difficult.

One big wild card: Will Chicago opt to leave ComEd for the competitive market? Thus far, the city has made no move to follow Oak Park, its immediate neighbor to the west, which recently won a 25% reduction from ComEd's current energy price for a product made up of renewable power sources. Farther to the west, Oak Brook negotiated a 29% savings with Chicago-based supplier Integrys Energy Services Inc., a sister company of Peoples Gas.

Increasingly, suburbs aren't waiting. Take Elgin, Illinois' eighth-largest municipality, with 108,188 inhabitants. “We believe we have at least a two-year opportunity to save our community 20% to 25% in their electricity prices,” says Colby Basham, public works superintendent. The Elgin City Council will vote on the issue as early as Dec. 7.

In Evanston, city officials are watching other communities that have left ComEd, says Catherine Hurley, sustainable programs coordinator. “We're definitely interested.” The Evanston City Council will discuss the matter on Tuesday.

Municipalities are scrambling to meet a Jan. 3 deadline to put the issue on the March 20 primary ballot.

A spokeswoman for the city of Chicago says it currently has no plans to buy cheaper power on behalf of residents.

Experts say there's a relatively short time frame in which communities can generate the 20%-plus savings they're getting now because ComEd's power prices are expected to more closely mirror the overall market within two years, as high-priced power-supply contracts expire.

“The window of easy headroom is closing,” says David Kolata, executive director of Chicago-based consumer watchdog Citizens Utility Board. “You're not going to see these kinds of deals, say, a year from now.”

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