New Competitor Hopes to Pry Customers from ComEd
Your next electric bill could sting. The price of power from ComEd will jump more than 10 percent starting in June. And if you don't like it, there hasn't been anywhere else to go. Since Illinois began deregulating its electricity market 13 years ago, nobody stepped in to compete for ComEd's residential customers. But this month a new player entered the market, promising big savings. WBEZ's Gabriel Spitzer explains why the time is ripe for competition, and why more choice may - or may not - be good for consumers.
Brown line trains rumble past the Chicago Avenue stop, and a couple of young women fight the din to get out their message.
KELLEHER: Save money on your electric bill and go green?
Their sales pitch is straightforward. BlueStar Energy will sell you electricity for 11 percent less than ComEd. For a slightly smaller discount, you can buy electricity made entirely from wind power.
KELLEHER: Do you want to save money over ComEd? Now we're offering a choice over ComEd. Competition is good!
It's a tough day for leafleting … people aren't biting much. Maybe it's because it's Friday afternoon … or maybe because the Cubs just lost. Amy Tewes gives anyone wearing Cubs gear the soft sell.
TEWES: I feel bad for ‘em. I say I understand what you're going through, but we can save you some money now. Sorry about the Cubs.
It's an option consumers around here haven't had before. Chicago-based BlueStar is one of five companies licensed to sell power to Illinois residents … but it's the first to hang out its shingle for customers. Here's co-founder Aaron Rasty.
RASTY: What you're looking at is essentially 100 years of a monopolized market. There's a lot of opportunities for customers now to have a choice in the power they use and the type of power they have.
Choosing green power had never been on the menu before in Chicago, even though half of consumers nationwide have the option. The electricity all comes from the same place, by the way. You just pay a little extra to subsidize wind power somewhere.
Even with that premium, BlueStar is still cheaper than ComEd, and the way they can do that has to do with how wholesale power is bought and sold. The big utilities get their electricity though the state, which buys it once a year. Independents like BlueStar can buy whenever the price is right.
RASTY: We are in the market every day. Currently the market rate for electricity is low, and there's plenty of opportunity for us to compete with the utilities.
That's the essence of deregulation: Buy low, and pass the savings on. But there's a flip-side. When ComEd wants to raise rates, it has to go to state regulators and make the case. Companies like BlueStar can charge whatever they want, once a customer's one-year contract is up. David Kolata of the consumer advocate Citizens Utility Board says he's withholding judgment.
KOLATA: I think the jury is still out on whether residential competition is ultimately going to produce lower prices, which is what consumers care about. I think you look around the country, and the record is really a mixed bag.
Right now wholesale electricity is pretty cheap, so there's room to undercut the utilities. But Travis Miller says that may not last forever. He analyzes utilities for MorningStar. He he says an upward swing in the wholesale price could really hurt new players.
MILLER: That could price some of these retailers out of the market. We saw this, actually, back in the 2007-2008 time period when we had the big spike in commodity prices. You had many retailers who had just tried to get in the market have to close doors.
Miller says he doesn't expect the price to jump again any time soon. And BlueStar executives say people can always switch back once their contract is up, with no strings or penalties.
So, is ComEd trembling at the new competition? If they are, they're not letting on. In a written statement, a spokeswoman said ComEd is a “champion and advocate” of competition, and they quote: “support the right of our customers to choose their energy supplier.” That may seem strange, until you understand the vagaries of the electricity biz. Travis Miller says the price difference is coming on the commodity – the power itself.
MILLER: ComEd doesn't earn a return on ythat portion of the business.
SPITZER: I see their name on the line item on my bill, but that's not where they're making their margins?
MILLER: That's not where they make their money. They make their money in another line item on your bill. They make their money by maintaining the wires that anybody from whom your buying your electricity has to use anyway.
Anybody, including BlueStar. So even if you bolt for the allure of a new competitor, ComEd will still be making money on the deal.
Music Button: Goran Ivanovic Group, "Episodes From a Village Dance", from the CD Goran Ivanovic Group, (Balkan Song)