Electricity market could become ‘wild, wild west,’ CUB warns
BY ANNA HELING Staff Reporter February 18, 2013 3:28PM
Updated: March 20, 2013 6:25AM
Picking who supplies your electricity could become a “wild, wild west” June 1, when ComEd comes out from under high-priced contracts that made alternative electric companies attractive the last few years, a consumer group warns.
That could also create a market “ripe for ripoffs” from companies desperate for customers, said David Kolata, executive director of the Citizens Utility Board.
The electric market opened to competition in 2002, but residents didn’t see actual offers from alternative providers until a few years ago.
Those newcomers took advantage of long-term electricity buying contracts that locked Commonwealth Edison into higher rates. But all that’s likely to end.
“The price to beat — essentially the ComEd price that they’re trying to undercut — will come down, and the question remains whether [alernative providers will] be able to do that consistently,” Kolata said Monday. “I think our view is that unless there’s more innovation, it’s unlikely that you’re going to consistently be able to save, which will make the market that much harder and makes customer education that much more important.”
Since 2010, 1.7 million residents have made the switch to alternative suppliers; 2012 alone saw a 562 percent increase in the move to these companies. Much of this exodus resulted from municipal aggregation programs in which local government officials negotiate electric-supply deals with rivals of ComEd.
As the gap between ComEd’s rate and alternative suppliers’ rates narrows — or even reverses — Kolata warned that consumers need to watch for potentially deceptive marketing practices.
Some of this deception is already in full-swing, he said.
Homeowners have reported misleading door-to-door marketing where solicitors say they’re from the city and tell homeowners they need to sign a document to get in on the city’s aggregation deal. The homeowners later find they really signed a contract for an alternative supplier.
Other consumers are discovering high exit fees — up to $175 — if they want an early-out from contracts or too-good-to-be-true prices in offers.
“If a rate seems too low, it probably is,” Kolata said. “Right now in the market, there are offers that vary from about 5.1 cents per kilowatt-hour to 9.8 cents, a very big difference. You definitely want to do your homework and make sure you understand exactly what it is you’re signing up for. It always pays to be an educated consumer.”
It’s a “confusing, misleading market,” that needs innovation — not trickery — to keep competition healthy and continue to save customers money, Kolata said.
In a CUB report card on Illinois electricity suppliers released Monday, the companies earned an unimpressive D- in innovation.
“We really haven’t seen that type of innovation yet,” Kolata said. “I think for many reasons that’s because people have been able to get big savings without [companies] doing it, but long-term, we think that that’s going to be key.”
Innovative techniques could include programs that promote energy efficiency such as lower rates for more energy-efficient homes and time-of-use rates that charge less for electricity used in non-peak times.