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Comparison of Default Supply Service Prices: Identifying Flaws in Another Study

A recent Report from the Illinois Commerce Commission’s (ICC) Office of Retail Market Development (ORMD) concluded shopping customers in Ameren’s service territory paid $58 million less than they would have if they were served under utility default supply service. However, in the Commonwealth Edison (ComEd) territory, the same shopping customers paid $88 million more than they would have paid if served by the utility’s default supply service. 

Unaddressed in the ORMD Report is the utilities’ default supply service has cost advantages compared to the supply products offered by retail electric suppliers (RES). While incumbent utilities and RES both procure their supply from the competitive wholesale power markets that exist in Illinois, the same cost categories incurred by shopping customers are not accounted for correctly by the utility for default service customers. Instead, default service costs are heavily subsidized by distribution service customers.

These cost advantages cause the pricing/cost disparity in the ComEd territory to be larger than it would be otherwise and simultaneously mitigate the consumer benefits shown in the Ameren territory. Any meaningful comparison should adjust for these cost misallocations. The subsidy is significant and can be more than 2 cents per kWh 1. The price differential mentioned in the ORMD Report (p. 30) for ComEd was only 1.83 cents per kWh, which could be more than offset with an appropriate allocation of utility costs to default supply service (and a commensurate reduction in delivery charges). 

In most states, the utility’s costs for customer care and many other costs needed to provide default supply service are embedded primarily in distribution rates. This means the cost of default supply service itself is artificially below market. Default supply service customers do not pay for call centers, accounting, billing, collections, finance, credit, executive salaries or other costs necessary to provide default supply service functions in the supply portion of the bill. These costs are inappropriately allocated to the distribution rates of the utility. This is in direct contrast to several longstanding utility ratemaking principles, including NARUC’s guidelines on cost allocation. 

It is time to fix default service pricing. Consumers are looking for innovative products and solutions, including environmentally friendly products, energy efficiency and energy management solutions. Competitive products will remain elusive as long as default service continues to include discriminatory economic advantages such as embedding costs in distribution rates. 

By: Frank Lacey

1 See testimony of Frank Lacey and Chris Peterson (MD PUC Case No. 9610, September 10, 2019), filed on behalf of the Energy Supplier Coalition. Also, reference testimony of Frank Lacey (NJ BPU Docket Nos. ER18010029 and GR18010030, OAL Docket No. PUC 01151-18, August 6, 2018)