Annual Illinois Retail Market Report Details Migration Swings Due to Muni Aggregation (40% Decline in Migration -- Not A Sustainable Driver of Shopping)

The number of residential customers on competitive electric supply at Commonwealth Edison has fallen from a peak of 70% in March 2014 to only 40% as of May 2016, primarily due the termination of various municipal aggregations and their return of customers to default service, an annual report from the Illinois Commerce Commission's Office of Retail Market Development illustrates

The report paints a stark picture of migration reversals since the peak of activity in 2014, and while we stress that the ORMD report makes no such conclusions, the underlying data plainly shows, in our view, that rather than propelling Illinois into its next phase of retail competition (such as by sparking a "competitive declaration", or end of fixed price default service, in the mass market), municipal aggregation, which has now been in vogue for over four years (enough time to be judged as a market jumpstart or barrier), has merely exacerbated a boom-bust prospect for retail suppliers. The continued dominance of opt-out aggregation in the market is likely the cause of declines in non-aggregation shopping that have also been seen (noted below), as suppliers focus their capital on markets without market-distorting policies (such as providing a lower standard of customer protection for certain preferred sales channels). Indeed, while Illinois is seeing declining residential shopping, Pennsylvania has rebounded from the polar vortex and is seeing shopping growth again.

Specifically, at the March 2014 peak, 2.4 million ComEd residential customers were on competitive supply. Now, that number is 1.4 million -- a decline of 1 million customers, or 40%. Since May 2015, ComEd's number of residential customers on competitive supply has declined by 692,000

At ComEd, 783,000 of the 1.4 million competitive supply customers are served under opt-out aggregation, which is 56% of migrated customers. This share is down from about 66% last year. The number of residential aggregation customers decreased by almost 618,000 in the last year. Since the total number of residential ARES customers decreased by more than 692,000 in the last year, the number of residential customers on non-aggregation retail supply service saw a year-over-year decline for the first time since residential switching began in 2011. In May 2015, 726,000 residential customers received service from an ARES outside an aggregation program, and a year later, that number is 651,000.

Statewide, opt-out aggregation customers accounted for 64% of all residential migrated customers in May 2016. This is down from close to 70% a year earlier

At Ameren, opt-out aggregation accounts for a significantly higher share of migrated residential customers -- 86%, or 544,000 of 634,000 switched customers -- than at ComEd. Municipal aggregation's share of migrated customers is up slightly at Ameren versus last year's 83%.

The 634,000 switched residential customers at Ameren as of May 2016 is 60% of total customers, and is up from 610,000 customers in May 2015.

At Ameren, the number of residential aggregation customers increased by over 39,000 in the last year. This is a bigger increase than the increase in the number of total residential migrated customers, which was about 24,000 customers during the same period, and it means that the number of residential customers on non-aggregation retail supply service declined during the last 12 months

A total of 742 communities have passed an opt-out aggregation referendum to date, adding another 4 communities after the November 2014 referendum date and two more each in February 2015 and March 2016.

However, as of June 2016, 114 aggregation communities have decided to not continue their aggregation program

Notably, there are only two different suppliers currently serving aggregation customers in Ameren Illinois’ areas

Moreover, every initial aggregation contract in the last four sets of Ameren Illinois aggregation communities (March 2014 through March 2016 referendum dates) was won by the same supplier.

Examining market concentration among suppliers, ORMD reported that the ComEd residential market is now considered "unconcentrated" per the DOJ and FTC’s merger guidelines, with 44% of the market going to the three largest suppliers in May 2016, a significant decrease from the 61% market share that the top three suppliers had in May 2015 (largely due to the end of Chicago aggregation).

ORMD reported that 53 of the 57 suppliers with residential customers at ComEd had a market share of less than 5%, and 34 suppliers with residential customers had a market share of less than 1%. However, compared to last year, when only 19 suppliers had a market share above 1%, this year shows 23 suppliers having surpassed that mark. Given that the universe of residential ARES customers in ComEd’s area was about 1.4 million as of May 2016, 19 different suppliers had at least 21,000 residential customers as of that date. In addition, for the first time since 2012, there are more than two suppliers with a market share between 5% and 15%. For the second year in a row, only one supplier had a market share above 15%

In contrast, all three Ameren rate zones have very high market concentration in the residential market (Herfindahl–Hirschman scores of 4,000 to 6,500). Ameren’s Rate Zone II continues to be the most concentrated residential market by a wide margin. The fact that 86% of the residential ARES market in Ameren Illinois’ areas consists of aggregation customers, and that the vast majority of the aggregation programs are with the same supplier, help explain this phenomenon.

Customers Collectively Paying More on Competitive Supply

ORMD also reports that, based on a review of pricing, on average, residential competitive supply customers paid more during the last twelve months when compared to ComEd’s Price to Compare. In addition, given that the Purchased Electricity Adjustment (PEA) was a credit in all but one month during the June 2015 through May 2016 period, the gap between the ComEd supply price and the average competitive supply price increased even more.

In terms of cents per kWh, residential competitive supply customers paid about 0.64 cents/kWh more when compared to the ComEd PTC only, and about 0.95 cents/kWh more when taking into account the PEA, from June 2015 to May 2016. When considering the amount of load migrated, competitive supply customers collectively paid $80 million more than ComEd default service for June 2015 to May 2016 (or $115 million including PEA impacts)

ORMD said that it is important to keep in mind that these are total, or aggregate, comparisons, and that the comparisons for almost all individual customers differ from these averages. Additionally, ORMD noted that supplier pricing may include rewards or other value-added services, and is not comparable to default supply

ORMD said that over the most recent five-year period, residential customers on competitive supply collectively saved $132 million versus ComEd supply. The savings were accumulated in the first three years, as, on average, residential competitive supply customers paid more than the ComEd rate during the last two years.

At Ameren, ORMD found that residential competitive supply customers (which were overwhelmingly aggregation customers) paid about half a cent more per kWh than Ameren Illinois’ default service customers between June 2015 and May 2016.

Link to ORMD Report