Rivals undercutting city’s electricity deal with Integrys

By Steve Daniels   January 10, 2013

The city of Chicago lowered residents’ electric bills with its landmark deal last month to buy in bulk from an alternative supplier to Commonwealth Edison Co., but that doesn’t mean city households can’t get even cheaper rates.

Competitors already are offering residents and small businesses lower prices than the city negotiated with Integrys Energy Services, the Chicago-based supplier that won the two-year deal to serve nearly 1 million households and small businesses.

Chicago-based MC Squared Energy Services LLC is offering 5.19 cents per kilowatt-hour, 4 percent cheaper than the city’s 5.42-cent deal with Integrys. For customers who use electricity to heat their units, many of them in downtown high-rises, MC Squared is offering 4.75 cents per kilowatt-hour, 12 percent less than the Integrys deal.

MC Squared’s deal runs through May 2014, the same time frame that the city’s negotiated price covers. The offer is good through the end of the month.

Likewise, Lake Geneva, Wis.-based electricity broker Cost Containment International is negotiating cheaper deals on behalf of residents in downtown buildings, particularly those who rely on electric heat.

The offers are a sign of how brutally competitive the power-supply market is in the Chicago area, which in just over a year has seen the vast majority of households evolve from getting their power from ComEd to buying from retail suppliers. ComEd continues to deliver electricity for all customers in northern Illinois and handles billing on behalf of the retailers.

“It’s a major effort on our part,” said Sharon Hillman, executive vice president of business development and regulatory affairs at MC Squared, a unit of Arlington, Va.-based AES Corp. “It’s one of the largest direct campaigns for us to date.”

She declined to say how many mailings MC Squared sent out to city customers this month. But a particular target is customers who heat their homes with electricity and as a result use far more power than most consumers. ComEd charges them less than it does customers who use natural gas for heat. The city’s deal with Integrys is lower than ComEd’s for both electric-heat and gas-heat customers, but it’s also the same for both kinds of customers.

Suppliers, meanwhile, are willing to give deeper price breaks to electric-heat users.

Cost Containment President Hans Herrmann, who has negotiated power prices for residential customers in high-profile skyscrapers such as the John Hancock Center and Lake Point Tower, said electric-heat customers can save $300 to $400 annually over the city’s deal.

Mark Pruitt, who managed the city’s electricity bidding process, said the lower offers aren’t a surprise. Suppliers have tried to undercut some of the prices area suburbs negotiated last year. About 3 percent of customers who otherwise would have been part of the municipality’s deal will go with the alternative suppliers, he said.

“Once you (set) a price, you become a target,” Mr. Pruitt said.

Part of the reason suppliers can offer cheaper prices is that the city chose to require bidders to keep coal-fired power out of their supply mix and to meet city contracting requirements on use of minority- and women-owned businesses.

“The price we got for the values we were able to negotiate, I still think it’s a great deal,” he said.

And, if city residents want to take advantage of even cheaper rates, that should be OK with municipal officials, he said. “This isn’t about owning the customer,” he said. “It’s about providing an option that saves them money.”

MC Squared, now taking aim at Integrys’ deal with the city, has been on the other side of this kind of competition. MC Squared last year won the right from a consortium of North Shore suburbs to supply electricity to their residents and small businesses. It then saw some rivals pick off a relatively small percentage of customers — particularly those heating their homes with electricity — with cheaper rates, Ms. Hillman said.

“What aggregation really does is educate the customers about choice,” she said.

(Editor’s note: The per kilowatt-hour cost has been corrected in this updated story.)

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