Chicago residents have voted to allow the city of Chicago to shop for electricity on their behalf. Electric choice has been available in Illinois for around a decade. However, due to recent changes in the law, municipalities can now enter into aggregation agreements with electricity providers in order to get cheaper rates for their residents.
The city of Chicago is expected to move quickly to decide on an electric provider. The plan is to seek proposals for potential suppliers starting now and pick the winning power company sometime in the January time frame. After that, the switch will take place in February with March light bills reflecting the change in provider.
It is important to note that electricity for Chicago consumers will still be delivered by ComEd. ComEd is the utility responsible for the delivery of electricity regardless of which company supplies the electricity.
Consumers are not required to get their electricity from the provider that the city ultimately selects for an aggregation deal. Residents will be allowed to opt-out of the deal and are still free to shop for cheaper electricity rates on their own. Or they can stay with ComEd as their electricity supplier. (Remember, ComEd will deliver the electricity regardless of who the supplier is.)
The deal will affect around one million residential and small business customers. According to the Citizens Utility Board, the average customer will see saving of around $100 in the first 5 months of the deal (February 2013 – June 2013).
Because of the large amount of electricity that would need to be supplied to meet the needs of Chicago’s power users, there are a limited number of electric providers capable of handling the demand. It’s possible that the city could choose multiple providers. This could open the door to smaller green energy providers who might also be able to get into the mix.
It’s the end of an era for coal power in Chicago. As reported by the Chicago Tribune, the last two coal plants to operate within the borders of a major U.S city have been shut down. The 120 year old Fisk power plant and the Crawford power plant are the latest coal burning plants to fall victim to new EPA rules requiring coal power plants to upgrade to cleaner burning technology or cease operations.
The Fisk power plant, in service since 1903, burned its final batch of coal Thursday while its sister plant Crawford shut down by Wednesday, ending Chicago’s run as the only major U.S. city with two coal plants operating in its borders.
Coal Electricity in Chicago
Their closings, confirmed by owner Midwest Generation, eliminate Chicago’s two biggest industrial sources of carbon dioxide emissions, which contribute to global warming. At their peak the plants supplied power to roughly 1 million homes.
“This marks a turning point from Chicago’s reliance on two highly polluting coal plants that use fuel from out of state to a cleaner energy future that’s less polluting and uses more Illinois wind and other clean resources,” said Howard Learner, executive director of the Environmental Law and Policy Center in Chicago.
The plant closings came after Midwest Generation declined to invest in expensive upgrades to meet federal air standards. In the last 2 1/2 years, 120 of the country’s 520 coal-fired generating plants have been shuttered because the needed environmental retrofits were deemed financially impractical.
Chicago electricity rates are not falling as fast as they should be. Natural gas prices have plummeted in recent years due to breakthroughs in drilling technology. Natural gas is a major fuel used to generate electricity across much of the country. Because of this, it would be reasonable for one to expect that electricity prices would follow natural gas prices down. While this has held true, to a certain extent, electric prices inChicagoand other parts of the country have not fallen at the same pace as natural gas.
Since last year, natural gas prices have fallen around 40%. This is on top of an already steep decline from the heights of 2008. Yet, nationwide, electricity prices appear to be on their way back up after seeing declines in recent years.
There are many factors at play besides fuel costs that will continue to push electricity prices higher. Regulatory cost is a factor that can’t be overlooked. A number of new rules passed by the EPA recently have added a compliance cost to electricity producers that will ultimately be passed through to Chicago electric companies and finally to the end consumers. The new rules include tighter air quality restrictions on both coal and gas fired power plants as well as rules meant to conserve fresh water.
Utility hedging may be another factor that has kept some of the benefit of lower natural gas prices from materializing in electricity bills. Electric providers who often have fixed rate obligations to consumers tend to hedge themselves against rapid price movements in natural gas prices. This protects them, and ultimately consumers, from big jumps in cost but it also limits the ability for utilities and consumers to see the benefits of rapidly falling prices as well.
The cost of generating the electricity is only a part of the rate equation. About 40% of the cost of electricity is in the infrastructure required to distribute the electricity from the power plant to homes and businesses. These distribution costs are going up after years of under investment in infrastructure.
According to the EIA, electricity rates inIllinois are slightly below the national average across all sectors but 4% above the national average when just looking at residential rates. Commercial electricity rates inIllinois by contrast, are 15% below the national average.