As the cost of electricity in the Northeast is pushed up by higher capacity costs and lingering impacts of last winter's polar vortex, several municipal electric aggregations in Illinois are now charging higher electric rates than Commonwealth Edison or Ameren.
The above-market municipal aggregation electric rates come even as ComEd itself saw a 40% hike in its electric rate on June 1. Municipal aggregations are also charging more than a customer would find with a competitive electric supplier if they shopped for power on their own.
Municipal aggregations came to prominence in the last few years, ostensibly to produce savings for electric customers. The theory behind municipal aggregations is that local towns and cities could pool together their buying power to produce lower electric rates for customers.
However, the savings from municipal aggregations have never been meaningfully higher than the savings from the low rates available to customers individually choosing their own electric supplier, as customers are permitted to do in Illinois.
And the catch for municipal aggregations has always been that customers were switched without their affirmative choice. Unless customers specifically acted to "opt-out", the local government switched the customer's electric supplier to the supplier chosen by the municipal aggregation.
Now, another downside is emerging to municipal aggregations. Despite the fact that some municipal aggregations no longer provide savings versus the local utility's electric rate, many aggregations are keeping their customers, even though it means customers are paying a higher rate.
Some municipal aggregations, recognizing that they can no longer save customers money, are ceasing their aggregations and freeing customers to shop for alternative electric suppliers that can offer savings. But that's not always the case.
Crain's Chicago Business reports that even though many municipal aggregations have higher rates than the utility, it's "not stopping mayors and boards from continuing to set their residents' electricity rates via municipal contracts with suppliers."
"The urge, indeed, is so strong that some of the largest municipalities in northern Illinois are agreeing to prices that are higher than ComEd's," Crain's reports
Some municipal aggregations are paying 8% more than the ComEd rate, Crain's notes.
No satisfactory explanation has been provided for municipal aggregations' insistence that they retain their customers even if it means paying higher rates than ComEd. However, the reasons those municipal aggregations loath to give up their customers in the face of lower prices are two-fold.
First, many municipal aggregations receive payments from the aggregation's supplier for how many customers are served under the aggregation -- essentially creating a conflict of interest for the municipal aggregation, between doing what is best for its customers, and what maximizes its payments from the supplier.
Second, local governments have built infrastructure and bureaucracy around municipal aggregations which need to justify their continued existence. Ending the municipal aggregation because it no longer saves customers money jeopardizes the fiefdoms that local officials have established.