Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=182019
Story Retrieval Date: 5/24/2013 2:13:47 AM CST
Gillian Holmes, MEDILL
Chicagoans stood in a line spanning half a city block on the corner of State and Lake streets Friday, waiting for free cupcakes. A Twitter message alerting people to the giveaway had gone viral and hundreds of people showed up to grab a sweet. But none of them seemed to know who was giving them away—until they walked away from the cupcake truck. In matching orange and gray windbreakers, representatives of Spark Energy Co. approached.
“Did you know you have a choice in electricity suppliers?” they asked. The people shook their heads before the reps launched into their pitch.
New electricity suppliers are moving into the residential market in Chicago this winter, competing with long-time sole-option Commonwealth Edison Co. The market has been legally deregulated for nearly a decade, so why are they all doing it now? After successfully entering the electricity market in Pennsylvania, alternative suppliers have gotten some help from an unlikely source—ComEd.
To understand how these strange bedfellows have become, well, bed-fellowed, a brief lesson in the electricity market is necessary.
There are three steps between raw energy and your light switch: the generator, the supplier and the distributor. The generator is the plant that is actually creating electricity—whether that is nuclear, coal, wind or solar. The generator then sells the electricity to a supplier, who in turn sells it the distributor—the company that actually owns the wires that go into your home. In a deregulated market, customers can choose which supplier offers the best price.
At least, that’s how it’s supposed to work. In Chicago, ComEd has been the energy giant for decades. Although it no longer generates electricity (that's done by parent Exelon Corp. and outside providers), it still controls supply and distribution to millions of residential customers. In Chicago's commercial electricity market, other energy suppliers have competed with ComEd for years, ever since deregulation, but the infrastructure needed to bill customers in the residential market didn’t make financial sense.
“If we’d served residential customers, we would have had to create bills ourselves, send them out and have collection people and services,” said Hal Poel, marketing director for Houston-based Spark Energy LP. “It was economically unviable.”
Customers would also have had the inconvenience of two bills—one from the energy supplier, and one from ComEd for the charge to use its wires.
But in December, the Illinois Commerce Commission ruled that energy suppliers could bill consumers through ComEd. Customers will receive only one bill and, after ComEd’s distribution charge, pay the supplier's rate, which is lower than ComEd's residential rate.
ComEd sells its energy for 7.6 cents per kilowatt hour, but Spark will charge customers only 6.9 cents. Champion Energy, also based in Houston, will be even lower at 6.4 cents, and Chicago-based BlueStar Energy offers 6.2 cents. In addition, Champion and BlueStar offer renewable energy options at 6.8 and 6.7 cents respectively. Even the green option, which many people perceive as more expensive, is still cheaper than ComEd.
Spark, BlueStar and ComEd will not disclose how many people have switched, and current figures from the ICC are not yet available. But representatives of BlueStar and Spark say the response hasn’t been as great as when the Pennsylvania market opened up.
Starting on Jan. 1, PECO Energy Co.—also a subsidiary of Exelon—began a similar bill-sharing program in Pennsylvania’s newly deregulated market. Nearly 20 percent of residential customers have since switched to one of 24 different choices. But BlueStar and Spark say the Pennsylvania Public Utility Commission did a better job of getting the word out than the ICC has.
“There was a significant, concerted push by the state to educate the consumer and to really explain the deregulation process,” said Jon Casadont, chief legal officer of BlueStar.
Poel, of Spark, agreed.
“In Pennsylvania, [the PUC] promoted it so much leading up to it,” he said. “It was a very big event. Here it happened quietly.”
The PUC ran public awareness campaigns, set up an informative website, and sent out postcards to customers. All they had to do was check the box of the supplier they wanted and send back the card.
In contrast, the ICC set up a website, pluginillinois.org, but has done little else.
“We have expressed on numerous occasions that the state can do more,” Casadont said. “We’re mindful that Illinois has very real budget constraints; however, there are very low-cost things they can do.”
This is where the cupcakes come in. Spark and BlueStar have initiated marketing campaigns to get the word out themselves. In addition to free desserts, Spark has partnered with the St. Baldrick’s Foundation, offering a donation to the Chicago childhood-cancer charity for every customer who switches. BlueStar is focusing on social media and neighborhood festivals, and emphasizes its renewable option, which half of its new customers opt for, Casadont said. Still, they said they need the state to tell customers that switching is safe and legal.
“There’s a perception that customers are worried that if they switch away from the company that supplies the wires, that somehow they would get poorer service, but that is absolutely not the case,” Poel said. “You would still call ComEd for outages.”
ComEd agrees, saying it's working with and not pitted against the new competition. Media representative Antonio Hernandez provided this statement from the company:
“Since ComEd passes through the cost of electricity without any mark-up, supporting customer choice does not create any financial challenges for the company. ComEd remains responsible for the electricity distribution, in addition to system maintenance and reliability, and outage restoration.”
Further information about retail electricity suppliers can be found at pluginillinois.org. Champion Energy did not respond to requests for an interview.