Last week, the Illinois Commerce Commission declared electric customers at the Ameren Illinois utilities with peak demands between 150 kilowatts (kW) and 400 kW to be "competitive," meaning these customers no longer require traditional "default service" from Ameren.

Under traditional default service, which serves as a backstop source for power supplies, customers who do not choose to buy electricity from a competing alternative retail electric supplier are served by their utility, in this case Ameren, under a fixed default service electric rate.  This default service rate was generally set for the entire year, though it could vary slightly month to month to reflect monthly reconciliations.  However, the energy price was the same, flat rate for every kilowatt-hour consumed during a particularly month, regardless of the time of day.

This flat electricity rate will eventually be eliminated for customers at Ameren in the 150 kW to 400 kW class, just as it has already been eliminated for larger customers above 400 kW, and many mid-sized and large customers at neighboring Commonwealth Edison.  The 150 kW to 400 kW customer class includes many mid-sized businesses, including grocery stores, department stores, and similar retail spaces, as well as mid-sized office buildings.

Instead of receiving a fixed energy price, these customers will eventually be forced to pay a fluctuating hourly rate for default electric service from Ameren.  In other words, the price of electricity supply will float with the wholesale market -- it may be 5¢ per kilowatt-hour in the morning, but 20¢ per kilowatt-hour in the afternoon.

For new customers, this hourly pricing will start May 1, 2011, and there will be a three-year transition to hourly pricing for customers that are currently taking Ameren's fixed price default service.  Customers who shop for an alternative retail electric supplier don't have to pay the hourly electric rates, and can receive a flat rate for all hours of the day.

The hourly-priced default service is typically a bad deal for most customers, because electric rates are extremely volatile during the day, and can spike as high as three to four times the normal, flat rate that customers are used to paying.  This means customers at Ameren who are pushed onto hourly-priced default service could see their monthly rates double or triple, depending on when they use electricity.

The hourly rates shoot up when the electric grid is most stressed, and usage is at its peak -- such as hot summer afternoons when air conditioning load is maximized.  Because of all the extra demand, more power plants must come online, and these extra plants, called "peakers," are much more expensive than the "baseload" plants which meet most of the normal everyday demand for electricity.  The use of more expensive plants drives up the electricity cost, exposing customers to higher rates if they must pay the real-time hourly price for electricity.

Customers can avoid these price spikes by shopping for a competing electric supplier.  While Ameren by law must charge an hourly price for electricity, competing electric suppliers can offer customers a fixed rate that shields them from price spikes on hot summer days.  This alone saves customers money on their electric bills; however, the competing electric suppliers also offer rates lower than Ameren's "normal" rate, providing customers with a win-win.