ComEd mulls power rate hike to offset loss of suburban customers
The heralded arrival of competition in the residential electricity market is leading to an unwanted consequence: higher rates for those still with Commonwealth Edison Co.
The electric utility confirms that it's considering a shift in how it charges customers for the cost of buying power that could lead to a significant increase in rates—at least in the short term.
Putting a precise number on the ratepayer hit isn't yet possible. ComEd had been planning to more than double the “purchased electricity adjustment” charge on its bills in March, a move that would have resulted in a 4 percent increase in overall electric rates for the month. After questions arose last week, it called the plan off. But the company said it will revisit the issue soon.
ComEd is trying to solve a problem caused by the expected mass exodus of customers to competing suppliers later this year, as 200 suburban communities move to buy power on their residents' behalf at prices cheaper than ComEd's. That could create a situation in which the Exelon Corp. subsidiary will have contracted to purchase more electricity than it needs to serve its shrinking customer base. The adjustment charge would let it collect enough from remaining customers to cover its costs.
The challenge is expected to intensify now that residential competition is here, 13 years after Illinois deregulated its electricity market. Under the state's power market structure, households and small businesses can move between non-utility suppliers and ComEd as their supply contracts expire. That makes it hard for the Illinois Power Agency, which negotiates to buy power consumed by utility customers statewide, to predict how much juice to purchase.
“While we've always had moving market prices, we now have moving volumes,” says Mark Pruitt, former director of the agency. Mr. Pruitt is a consultant to suburbs planning to buy power on behalf of their households. “We still need protection for the people who don't want to (shop).”
He adds: “The issue today is people leaving the (utility) portfolio. The issue tomorrow may be people coming back to the portfolio.”
Either way, the adjustment charge will rise as power purchases prove too generous or too skimpy.
For its part, the utility says it will try to improve its power-demand forecasts to avert major rate fluctuations.
“With respect to volatility in the future, ComEd strives to forecast its (demand) as accurately as possible, including the effect of (customer) switching,” the company says in an email. “To the extent we can reasonably estimate these changes, the PEA volatility should not be significantly impacted by switching.”
' We still need protection for the people who don't want to' shop for electricity.
But as long as wholesale power prices are lower than the utility's, which reflect higher-priced long-term contracts entered into years before, higher rates created by evaporating demand could become self-reinforcing. As more customers leave, those left have to shoulder the costs of the unneeded power, prompting even more to exit and raising rates further.— Mark Pruitt, former IPA director
Customers of ComEd competitors don't pay the adjustment charge, giving those alternative suppliers an edge.
ComEd says a key justification for hiking the charge soon is to ensure that departing customers pay for at least some of the power the utility has purchased on their behalf.
In recent years, ComEd has kept the PEA charge relatively level, near 0.5 cent per kilowatt-hour, and absorbed the monthly fluctuations in the small imbalances between power bought and power sold. Now, it's considering passing the monthly costs (or credits) to customers.
Before tabling its rate hike, ComEd told the Illinois Commerce Commission that it planned to raise the PEA charge to more than 1 cent per kilowatt-hour, a 4 percent increase in the household rate, to almost 13 cents per kilowatt-hour.
ComEd later told the ICC that it might spread out or phase in the cost of the near-term fluctuations to reduce rate shock. But there have been no final decisions.
While the ICC regulates utilities, it says it has no authority over the purchased electricity adjustment charge; ComEd can make changes unilaterally.
Seven percent of ComEd's household customers already had left for competitors as of December, according to the ICC. Mr. Pruitt estimates that as much as 30 percent could depart later this year. Individuals, of course, are free to switch to competing suppliers on their own, but municipalities buying in bulk have reaped bigger savings than people shopping on their own.
© 2012 by Crain Communications Inc.
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