Nearly 1 million Chicagoans bid adieu to Exelon’s Commonwealth Edison last year, hoping to get a better deal from a new power company. A deal announced Wednesday will send them back into Exelon’s arms.
Exelon Corp. announced Wednesday it will pay $60 million to buy a unit of Integrys Energy Group that supplies electricity and natural gas to 1.2 million customers in 22 states, including most of Exelon’s former customers in Chicago.
While Integrys’ rates for Chicagoans are guaranteed through May 2015, it’s not certain what will happen after that. Moreover, the consolidation raises concerns among consumer advocates who say customers’ choices for electricity suppliers are quickly dwindling.
“If combined, these companies appear to control more than half of the retail electricity market in Northern Illinois,” said Howard Learner, executive director of the Chicago-based Environmental Law and Policy Center. “One of the promises of deregulation in Illinois was a competitive retail electricity services market that would benefit consumers. We’re concerned that this new acquisition by Exelon appears to reduce competition and increase the concentration of market power.”
Another large player in Illinois, FirstEnergy, has publicly stated that it is scaling back its retail electricity business. Other providers across the nation also have retreated because of the price volatility encountered during the polar vortex, said Travis Miller, director of utilities research for Chicago-based Morningstar.
“Volatility in the markets is a retailer’s worst enemy. Retail margins are already low and when you have extreme events, either hot or cold, retailers have a difficult time managing that risk,” he said.
Before the residential market was deregulated in May 2002, consumers had no choice about who supplied their electricity, and for many years competition largely was nonexistent.
A 2009 law, however, allowed Illinois communities to act as brokers on behalf of residents, purchasing power in bulk. The hope was that they could secure better deals with a provider other than the incumbent ComEd on behalf of their residents.
In late 2012, the fight for Chicago’s lucrative electricity supply contract was the largest such contract in the nation. The contract ultimately came down to two players: Exelon subsidiary Constellation and Integrys. In announcing Integry’s as the winner, city officials said Integrys could provide a better deal – up to 20 to 25 percent off ComEd’s rates in early months of the contract.
The Integrys contract with the city of Chicago is set to expire in May 2015, and Exelon said Wednesday that it will continue to honor the terms of that agreement, which recently was tweaked to provide Chicagoans with electricity at 5.29 cents per kilowatt hour plus a flat fee.
Some Chicagoans are trying to decide whether to opt out of the city’s deal with Integrys altogether after they were informed of the new terms, which won’t save all residents money compared with ComEd’s rates.
Under deal announced Wednesday, Integrys Energy Services, which supplies electricity for 720,000 Chicagoans will become part of Exelon's Constellation business unit, which would now serve approximately 2.5 million residential and business customers across the United States.
Andy Pusateri, senior utilities analyst at Edward Jones, said that if Constellation isn’t able to renew the Chicago contract in May, Exelon likely will have overpaid for Integrys.
“I think the company has likely had some conversations and made some assumptions about its ability to renew that contract,” Pusateri said. “It has until at least May of next year to prove to the city that there will be no change in service and that they are the best company for that contract.”
News of the deal isn’t a total surprise. Integrys Energy Group, which owns Chicago natural gas utility Peoples Gas and North Shore Gas had previously announced it would shop its retail arm -- which serves 1.2 million electric and natural gas customers -- while selling its utilities to Wisconsin Energy Corp. in a deal valued at $9.1 billion.
Mark Huston, president of Constellation Retail, the Exelon subsidiary that will take over the Integrys brand, said customers will experience no disruption to service as a result of the transaction.
The deal “adds scale to our power and natural gas portfolio,” he said, “creating a stronger, more diverse business that will continue to deliver what our customers want: a trusted partner that offers a full spectrum of energy products and services at competitive prices.”
Some consumer advocates aren’t convinced.
Before Wednesday’s deal was announced, most of the Chicago area electricity market was served by three suppliers, not counting ComEd, according to an annual report by the Illinois Commerce Commission’s office of retail market development. With Integrys folding into Exelon, there’s one fewer.
If Exelon’s deal goes through, it would own about two-thirds of the residential electricity market in Northern Illinois, according to an analysis by the Environmental Law and Policy Center.
Exelon disputed those findings Thursday, saying that its own internal analysis shows that the two companies together hold about 25 to 30 percent of the retail electricity market, an analysis which doesn't include its ComEd customers.
“We have concerns about this acquisition and will be looking very closely at how a reduction in marketplace competition could adversely affect ratepayers in Northern Illinois,” said Natalie Bauer, a spokeswoman for Illinois Attorney General Lisa Madigan.
Exelon disputed Thursday that the market is less competitive.
“According to the ICC, the market has become more competitive over the past year, and customers have dozens of providers to choose from,” the company said in a statement.
Added David Kolata, executive director of the Citizens Utility Board: “It really does consolidate the industry tremendously and consolidation of this type certainly can lead to less competition and that’s not necessarily good for consumers.”
In addition to Chicago, about 45 communities in the state that switched residents and small businesses over to Integrys for energy will now be moved over to Exelon’s Constellation.
The companies expect to close in fourth quarter 2014 or first quarter 2015.
The transaction is conditioned on approval by the Federal Energy Regulatory Commission.