Chicago can’t beat ComEd price — so raise it?

By: Steve Daniels
September 19, 2013

The city of Chicago is asking the state to change its method of buying power for utility customers in a way that almost certainly would hike electricity rates for those still getting their electricity from Commonwealth Edison Co.

The move, also endorsed by retail power suppliers, would make it easier for the city’s supplier, Chicago-based Integrys Energy Services, to beat ComEd’s rates when its contract with the city comes up for renewal in May. But it likely would boost electric bills in large suburbs like Joliet and Waukegan whose constituents have rejected referendums that would have allowed their city officials to buy power on their behalf from outside suppliers.

Chicago residents already are seeing savings that are nominal at best from the Integrys deal, negotiated in December. Mainly because of how ComEd allocates certain costs, Integrys has warned that it may be all but impossible to offer a lower price when the pact must be repriced in May.

The Illinois Power Agency negotiates contracts for power purchases that set the energy price ComEd customers pay. The city wants the IPA to change the procurement process it’s used since its creation in 2007 and ask power generators for bids to provide electricity around-the-clock, year-round. Generators typically tack on 20 percent or more to the wholesale power price to cover the volumetric risks they take in that “full requirements” approach.

It was that very approach that led to a 24 percent hike in ComEd’s rates in 2007, which created a political firestorm in Springfield. The resulting state statute seized the authority to procure power from utilities like ComEd and handed it to the state in the form of the IPA.

The IPA buys power in discrete blocks from generators and shoulders the risk of having enough juice under contract to meet utility customers’ demand. The prices it obtains accordingly are significantly cheaper than if it handed off that risk to the generators.

CUB OPPOSES CHANGING PROCESS

David Kolata, executive director of consumer advocacy group Citizens Utility Board, opposes changing the IPA’s procurement process.

“It’s not a good policy to artificially increase (utility) prices to artificially claim there are savings,” he said.

A spokesman for Mayor Rahm Emanuel disputes that a full-requirements solicitation would raise rates for ComEd customers beyond what they’d pay under the IPA’s current method.

For its part, the IPA in its draft procurement plan for next year rejects changing its power purchasing method. But it proposes two procurements next year instead of its normal once-a-year bid solicitation. That would allow it to buy more supplies in the fall if the city decides to send its nearly 1 million utility customers back to ComEd.

The IPA will finalize its plan later this year, and the Illinois Commerce Commission, which regulates utilities, will have final say over it in December. Observers think it’s unlikely the IPA or the ICC will shift to full-requirements contracts.

The city and power suppliers, including Chicago-based Exelon Corp.’s retail arm, argue that ComEd’s energy price isn’t comparable to the prices they offer households and businesses. ComEd deals with month-to-month imbalances in how much power it has on hand to meet demand through an addition to customers’ electric bills called the purchased electricity adjustment. That PEA can take the form of either a charge or a credit and is never any more than 0.5 cents per kilowatt-hour.

In months when ComEd charges the full 0.5 cents, that adds about 9 percent to its energy price, which makes up well over half of customers’ electric bills (the remainder is the rate ComEd charges to deliver the juice).

By contrast, markups from wholesale prices in full-requirements contracts in the past have been significantly higher than that. For example, in New Jersey, which sets prices per a full-requirements auction, the price in 2010 was more than 40 percent above prevailing wholesale prices at the time, according to the IPA’s draft procurement plan.

Acting IPA Director Anthony Star said in an email: “The IPA analyzed the impact of the premiums in full-requirements products in Illinois during a specific time frame. The results compared to block purchases did not lead the IPA to recommend a full-requirements procurement at this time, but the IPA will continue to analyze the issue.”

Mr. Emanuel’s spokesman disagreed that a full-requirements process would raise prices for customers still with ComEd.

“A full-requirements approach will not result in increased rates for ComEd customers,” he wrote in an email. “A full-requirements approach will incorporate this hidden and variable fee (the PEA) into (ComEd’s) price to compare, giving customers more transparency and certainty about the rates they will pay, whether they remain with ComEd or choose to shop for an alternative supplier.”

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