Officials at MacLean-Fogg Co. are sticking with their decision to purchase electricity from competitors to Commonwealth Edison Co. even though the auto parts-maker’s electric bill unexpectedly rose 30 percent last year.
Because ComEd and MacLean-Fogg’s alternative supplier stepped in and renegotiated the deal, MacLean-Fogg still was able to save money, but only half as much as anticipated.
Paul Thomas, vice president and general manager of MacLean-Fogg’s fastener unit, said electricity deregulation is key to keeping industry and jobs in Illinois.
“We are trying to manufacture in a very high-cost energy sector in Illinois,” Thomas said. “We are facing steel tariffs and competition from China. We need to get electricity, a permanent cost in our business, down.”
The reason for the price hike was a so-called customer transition charge, a fluctuating exit fee that ComEd charged companies that switched to alternative electric suppliers. The fee allows ComEd to continue to recoup investments it made in its generating plants.
After businesses complained about the fees, ComEd this year agreed to revamp how it calculates them. Now firms like MacLean-Fogg can obtain a fixed exit fee through 2006, when the fees will be eliminated.
“We think the agreement that we reached was very significant for competition,” said Anne Pramaggiore, ComEd’s vice president for regulatory strategies and services.
Although the California electricity crisis of 2000-01 and the implosion of Enron put the brakes on electricity deregulation in most of the U.S., the competitive market for electricity in Illinois is moving ahead.
Roughly 10,000 of ComEd’s business customers have signed up with alternative suppliers, accounting for 28 percent of the utility’s non-residential electricity load.
Business customers have until July 14 to lock in a fixed 43-month exit fee. In February, customers will have an opportunity to lock in a 31-month exit fee.
“The ability to lock in a multiyear exit fee will allow customers to manage almost all their electric cost, achieve price certainty through December 2006 and capture savings for a longer period,” said Craig Sieben of Sieben Energy Associates. Sieben Energy is a Chicago-based consulting firm that is helping MacLean-Fogg choose its energy supplier.
“Customers and suppliers can now enter into longer-term contracts without worrying about exit fee increases that may erode savings in future years,” Sieben said.
Although firms still have two weeks left to lock in the 43-month exit fee, 30 percent of customers using alternative suppliers have signed up for the multiyear fee, Pramaggiore said.
Residential competition slow
Deregulation in the commercial and industrial market in Illinois, which began in 1999, was to have paved the way for eventual competition in the residential market. Now some experts predict it will be many years before suppliers attempt to compete for the state’s residential customers, if it ever happens. That’s because of the high costs involved in supplying power to such small users.
However, ComEd’s new lower exit fees have benefited smaller commercial and industrial customers that previously had been shut out of shopping for an alternative supplier.
“When all the buzz of electricity deregulation came about, we looked into it and found there was no savings there,” said Mark Friedman, president of Vanguard Management, which manages apartment and condominium buildings in the Chicago area.
“Customers that spent between $20,000 and $50,000 on electricity annually didn’t have opportunities in the marketplace,” said Friedman, noting that as a result, most of the Vanguard-managed buildings were excluded.
Now Vanguard plans to sign four contracts using ComEd’s Power Purchase Option, a rate designed to encourage customers to leave the comfort of the regulated utility’s “bundled” rate, the traditional combined wires and electricity charge.
Customers on the Power Purchase Option still receive service from ComEd while they explore the deregulated world.
A fifth Vanguard contract, for a large building, is with MidAmerican Energy Co., a Des Moines energy firm. With the five contracts, Vanguard expects to save 15 percent on its electric bills, according to David Wiers of Sieben Energy Associates, which is working with Vanguard to find the best deals.
ComEd competitors benefit
ComEd’s competitors are seeing more business as a result of the ComEd agreement.
“The amount of load that we are serving is increasing pretty significantly,” said Phillip O’Connor, president of Constellation NewEnergy, one of the largest alternative suppliers in ComEd’s service territory. “Many customers are extending their contracts with us.”
MacLean-Fogg’s Thomas’ enthusiasm for electricity deregulation has not been dampened.
“Frankly, we are headed in the right direction,” Thomas said. “If you want reward, you have to put in some investment. What’s out there, if Illinois gets this right, is additional significant savings.
“The only way we will sign a new multiyear contract is if we have certainty about the exit fees. I’m not in the business of gambling on the costs of electricity. It needs to be something I can count on so I know how to price my product.”
MacLean-Fogg still is in the middle of its multiyear contract with Constellation NewEnergy.
Multiyear contracts are key to the success of deregulation because they allow customers to gain volume discounts from suppliers. More significantly, they allow the alternative suppliers to show potential investors that they have a long-term revenue source.
Thomas noted that it would be difficult for the suppliers–primarily marketers–to win financing to build their own power plants and expand the wholesale market.
“If we don’t have alternative generation of power, there won’t be a voice demanding reform in transmission lines,” Thomas said. “Who is going to make that investment? It’s the alternative new suppliers that will push for improvements.”
How electricity deregulation works in Illinois
– Businesses can obtain electricity from competitors to Commonwealth Edison Co., which serves northern Illinois.
– The electricity from 15 certified competitors is supplied through ComEd’s delivery system. The utility charges an annual customer transition charge, or exit fee, to customers that switch.
– Two weeks remain for businesses to lock in a fixed fee for 43 months; in February businesses can opt for fixed fees for 31 months.
– So far, about 10,000 businesses have signed up with alternative suppliers, representing 28 percent of eligible commercial and industrial customers.
– In addition to alternative suppliers, businesses can choose to sign up for the Power Purchase Option from ComEd, a market-based rate designed to introduce businesses to the deregulated market.
– Businesses also can choose to remain a “bundled” customer of ComEd, which means that ComEd charges them a regulated utility rate for electricity, transmission and delivery.
