Some in suburbs can vote to let towns bargain for lower electric bills
Julie Simpson says all she had to do to save on her electric bill was exercise her right to vote — and let her hometown of North Aurora do the rest.
North Aurora is among 19 municipalities in which voters last April authorized the town leaders through referendum to negotiate deals for electricity for residents and small business owners. All 19 towns have since entered into contracts with electricity suppliers whose rates are cheaper than ComEd's.
“It seemed like a no-brainer,” said Simpson, who estimated she's been saving about 30 percent on electricity supply since North Aurora switched to Integrys in October. “I thought it was forward-thinking of them to do something like this.”
On March 20, voters in nearly 300 Illinois communities — scores of them in suburban Chicago — will decide whether they, too, want their municipalities to do that for them.
While municipal aggregation of electricity has the potential to save people money, experts say the key is for consumers to be well-informed before deciding what's best for them.
How it works
The referendum questions will read like this: “Shall the village of XYZ have the authority to arrange for the supply of electricity for its residential and small commercial retail customers who have not opted out of such program?”
Voting “yes” means giving municipalities the power to seek bids from and switch to any of the 25 or so retail electric suppliers certified by the Illinois Commerce Commission and registered with ComEd or Ameren Illinois, depending on the utility service territory. For a full list, visit pluginillinois.org.
While individuals already have the right to sign up with any of the alternative suppliers, negotiating a group rate generally yields better offers, said Roy Boston, Illinois state chairman for the Retail Energy Supply Association.
People are free to get together as any kind of group — say, as an apartment complex or as a group of church members — and negotiate with a supplier, Boston pointed out.
“It is always easier for a supplier to have one person representing a thousand customers rather than going out and talking to one thousand individual customers,” he said. “It's easier to market, there are lower expenses, and that is usually reflected in the price.”
Electricity suppliers can offer lower rates because of increased competition in the energy market due to deregulation, and because they can negotiate contract terms more nimbly than the annual pricing structure provided through the Illinois Power Agency, which is the basis for ComEd and Ameren's energy rates, Boston said.
The Illinois Commerce Commission estimates that as of Jan. 31, nearly 317,000 residential customers in Illinois had switched to an alternative electric supplier.
Before a municipality switches suppliers, customers get a letter explaining that they can opt out of the program. If customers do nothing, they automatically will be enrolled.
Having a different supplier won't affect service. In the Chicago area, ComEd, which owns the delivery infrastructure, will continue to bill customers and respond to service and outage calls for all customers.
ComEd supports municipal aggregation, said spokeswoman Martha Swaney. The agency makes no profit supplying electricity, only from delivery services, which account for about one-third of people's bills, she said.
“ComEd has long believed that customer choice for electric supply was the right policy to spur innovation, competition and the lowest possible prices for power,” Swaney said.
Fox River Grove resident David Witchie said the transition was seamless when the town's municipal aggregation program with Direct Energy kicked in, in September.
“We're saving at least 10 percent (on total electric bills). We have a freezer and two refrigerators, so we might be different from others,” he said. “But whenever I can save a buck, I'll save a buck.”
Michael Pruitt, head of operations at The Vine Martini and Wine Bar in Grayslake, already had switched to a new electricity supplier before the town changed its own in October. Pruitt said the rate he is paying Nordic Energy Services is slightly higher than what Grayslake negotiated with Integrys, but he still is saving almost $1,200 per year.
“Either way, it's good that we're able to shop and get lower rates than being stuck with the same rate,” he said.
Informed decisions
Consumers should always read the fine print and make thoughtful decisions, said Jim Chilsen, spokesman for the Citizens Utility Board, a consumer watchdog group.
“We think it's great that consumers are getting more choices. In order for that choice to work, it has to be an informed choice,” he said.
Even if municipalities have done their due diligence, consumers still should examine rates and contract terms, such as duration and exit fees, Chilsen said. People also should remember that while they might save on the supply of electricity, the rest of their bill, including ComEd's delivery services, taxes and other charges, are unaffected, he said.
“Switching suppliers doesn't mean avoiding ComEd's rate hikes,” Chilsen said. “Nobody should go into electricity competition and think that long-term savings are guaranteed. In the short term right now consumers have been saving money, but the jury is still out on whether they will be able to save long term.”
Also, ComEd's rates could drop in June 2013 after its own power supply contract is renegotiated through the Illinois Power Agency, so consumers should take that into account, too, he said.
David Hoover, executive director of the Northern Illinois Municipal Electric Collaborative, says some of the contracts his agency has helped negotiate ensure that consumers will never pay rates higher than ComEd's.
For example, he explained, contracts can state that if ComEd's rates drop, the new supplier's rates also will drop to at least match; contracts also can state there will be no penalty fees if customers want to switch back to ComEd when rates drop below those of the new supplier.
Hoover cautioned that “disreputable suppliers have been known to send door-to-door salesmen into communities that are in the midst of an aggregation. We've heard them say, ‘You have to sign up to take advantage of the program.' That is false, and that is unethical, in my opinion.”
Although aggregation is saving people between 17 percent and 30 percent on electric supply, anyone who promises those savings in the future is treading on dangerous ground, Hoover said.
“We don't know what (electric) rates will be like in 2012, let alone 2013,” he said.
Some suburbs are sitting out the March vote. Schaumburg officials cited the uncertainty of longer-term savings, a general reluctance to put issues up for public vote and the ability of people to sign their own deals. Elk Grove Village officials said residents should sign up on their own with the Metropolitan Mayors Caucus for an immediate 20 percent savings.
Trying again
On the other hand, some municipalities like Darien and North Chicago, whose voters rejected the proposal last April, are giving it a second try in the March election.
“Last year it was a new program and many people didn't know specifically how it would work and its potential implications,” Darien Assistant City Administrator Scott Coren said. “Since then, we've had some people asking why we hadn't done it yet. We're hoping that the increased awareness … might make them reconsider.”
In Campton Hills, voters approved the measure last April, but that was just an advisory referendum, Village President Patsy Smith said. Next month, voters will be asked to weigh in on a binding question, she said.
Only a handful of states in the U.S. have laws that allow municipal aggregation of electricity, and those programs can take on different forms. Ohio has had municipal aggregation for a decade, and by September 2011, a little over 1 million consumers had switched suppliers, said Matt Butler, spokesman for the Public Utilities Commission of Ohio.
“It's certainly been a success story,” he said.
One drawback can be the time and energy spent by each municipality's staff to seek bids, negotiate a new contract and enroll residents, Hoover said.
“The only catch is that it takes a little bit of time for the village to administer the program, and the residents benefit. To me, that's the purpose of government,” Hoover said.
Mike May, assistant to the village manager in Grayslake, agreed. Grayslake banded together with Oak Brook and Lincolnwood for its municipal aggregation program, and May served as the main coordinator.
“We did not use a broker or consultant,” he said. “It was a fair amount of work, but obviously having staff members in each community working on different parts of it helped. As one of the first communities, a lot of the questions we had, the broker was asking the same questions. Now, everybody is coming to us for questions.”