CUB: Alternative power suppliers get A for savings, but problematic

Electricity competition saved Illinoisans up to $218 million in 2012, but power suppliers get an overall grade of “incomplete” for reports of misleading pitches, a lack of innovation and whether they can offer savings after a major market shift this summer, the Citizens Utility Board said Monday.

Since 2010, about 1.7 million residential customers have switched to alternative suppliers, most in 2012, which saw a 562 percent increase in participation, said a report issued by CUB.

That increase, unmatched in the nation, was largely fueled by 467 communities that have launched aggregation programs. CUB's report card graded the electric market in three areas: savings, consumer protection and marketing practices, the report said.

“It's good news that power shoppers have saved money in the short term, but Illinois is still in the honeymoon phase of electric competition,” CUB Executive Director David Kolata said. “The Land of Lincoln power market is about to undergo a big test, and alternative electric suppliers should make key improvements.”

Illinois restructured its electricity market in 1997, but alternative suppliers didn't begin competing for residential customers until more than a decade later, sparked by higher utility rates and a new state rule that allowed companies to add their charges to ComEd and Ameren bills. Now, consumers can choose an alternative supplier themselves, or, if their community passes a referendum, have local leaders choose one for them through a process called “municipal aggregation.”

The report gave short-term savings an A-minus. With some exceptions, alternative suppliers have beaten utility rates, because Ameren and ComEd have been locked in higher priced power contracts. In general, municipal aggregation has offered the lowest rates, an average price of 4.85 cents per kilowatt-hour in ComEd communities, and 4.08 cents per kWh in Ameren communities. Compare that to ComEd's current supply rate of 8.3 cents per kWh, and about 5.4 cents per kWh for Ameren. CUB estimates that competition sparked $92 million to $218 million in savings in 2012., the report said.

The big question facing Illinois' electricity market is how it will change on June 1, when the last of higher priced utility contracts expire and ComEd and Ameren rates are expected to drop, the report said.

The report also gave consumer protection a grade of C. Because of the expected drop in utility prices, CUB is concerned that many offers it is tracking charge “termination fees” of up to $175 if customers want to exit a contract early. It appears most of the municipal aggregation deals do not charge exit fees, the report said.

In addition, CUB has received troubling reports of misleading marketing. The reports often come from aggregation communities, such as Chicago, possibly because competing suppliers are racing to sign up customers before the community switches residents to its chosen supplier. Sales representatives may become more desperate as the pool of potential customers gets smaller and in the face of the expected drop in utility rates, the report said.

“Illinois consumers should be on alert,” Kolata said. “Conditions could be ripe for ripoffs.”