Sunday, Nov. 01, 2009

Can BlueStar sign up enough customers to make electricity market competitive?

BlueStar Energy Services Inc., a Chicago-based alternative electricity provider, sparked a buzz in the metro-east last week. That's when it announced it could save Ameren Illinois customers who sign up with them 10 percent or more on their power bills.

BlueStar's announcement, occurring nearly three years after the state had deregulated its electricity market, seemed proof the grand vision behind deregulation -- to drive down consumer prices through competition -- was finally being realized.

Or was it?

Lynne Kiesling, an expert on the retail electricity market, has doubts whether BlueStar can sign up enough customers to ensure a truly competitive residential electricity market in the metro-east or elsewhere across Illinois.

Kiesling's concerns revolve around a provision in state law that makes the state's two top power companies -- Ameren Illinois and Commonwealth Edison -- the beneficiaries of what's known as the "default service contract."

When Illinois opened up its electricity market to competition, a lot of political jockeying occurred over the question of what do for customers who "choose not to choose," said Kiesling, an economist who teaches at Northwestern University outside Chicago.

"But this is an industry that has been regulated and granted a government monopoly for a century," she said. "So there's a lot of inertia. So for a lot of people the easiest option is to stay with the incumbent."

Which means BlueStar faces big hurdles in the residential market because companies like it must "make a compelling argument for having some sort of new and interesting bundle of products and services to enable you, the consumer, to manage and control your own electricity decisions," she said. "I hope they can sustain that, but I'm not very optimistic."

Guy Morgan, BlueStar's chief executive, sounded a more upbeat note, predicting that customers who switch over from Ameren Illinois will "see lower prices, better customer service and more innovation" as a result of competition.

BlueStar will succeed because of the firm's successful track record in serving commercial and industrial customers, Morgan said.

It's a track record based on the firm's ability to react quickly to changes in wholesale power prices and to buy electricity from suppliers on a daily basis, he said.

In contrast, state-regulated utilities such as Ameren and the state-run Illinois Power Authority bid on power contracts only once a year, Morgan said.

"We're more effective, we're more efficient than the utilities or the state in procuring our power," Morgan said, "because we're in the market every day. They're in the market once a year."

The nonprofit Citizens Utility Board, which has fought a series of rate increases sought by Ameren Illinois, has so far reserved judgment on BlueStar's entry into the residential market until it can learn more details, said Jim Chilsen, a spokesman for CUB.

"One competitor does not make for a healthy competitive market," Chilsen said. "There's a long road to travel yet to ensure that Illinois consumers get fair electricity prices."

Leigh Morris, a spokesman for Ameren Illinois, called Blue Star's entry into the Illinois residential market "very welcome news."

Morris noted that Ameren Illinois provides delivery services only and won't be competing against Blue Star. Blue Star must sell its electricity over Ameren Illinois power lines.

Because Ameren still would provide delivery services to Blue Star customers, they will still feel the pinch of the $226 million rate increase request that Ameren has filed with the Illinois Commerce Commission.

Meanwhile, another alternative energy competitor soon could be competing against BlueStar and Ameren in the metro-east.

The Southwestern Electric Cooperative, in Greenville, is very close to making a deal with an energy provider, said Kerry Sloan, the cooperative's chief executive officer.

"We are talking to two other companies, I cannot mention their names," Sloan said. "And one of them, I am real hopeful that they will actually belly up to the table on this thing."

A year ago, Sloan's cooperative had unveiled an alternative energy program that aimed to save Southern Illinois ratepayers up to 30 percent on their Ameren electric bills.

But the day Sloan unveiled the program, BlueStar filed a complaint with the Illinois Commerce Commission over a technicality in state law. The law mandates that retail electric companies disclose how much customers would pay per kilowatt hour -- something that Sloan couldn't do at that point because of the way his program was structured.

"And from that point forward, everything was in complete shambles due to the commission's position on the whole thing," Sloan said. "Which was mind-boggling to me ... The commission said, 'Nope, if you can't tell people what the price is, you can't do it.'"

Chastened by that experience, Sloan said his cooperative has decided to play the commission's game if it again seeks to enter the urban metro-east market. The cooperative's current primary service area includes rural Madison, Bond and Fayette counties.

"And if we have to come out and say, 'You'll never have to pay any more than what you're paying with Ameren,' then, fine, that's what we'll do," he said.