Herfindahl-Hirschman Huh???


How municipal aggregation is sidestepping anti-trust laws.


“Many of life’s complexities can be traced back to a lawyer”- Jason Fried


We’ve covered it before, but Com Ed’s municipal aggregation is tiptoeing the monopoly line. According to Energy Choice Matters, the market concentration is now “moderately concentrated”.

Recently, these municipal aggregation opt-outs have given a few firms an exorbitant comparative market share.  In fact, In Illinois, 37/41 supplies have a share of less than 5%. Additionally, 29 of those 37 have less than 1% market share. So, a few large players are currently dominating the residential market (fine- call it an oligopoly).

ComEd is expediting that way. The ICC recently denied their filing to give aggregators more information on the customer. As the municipal aggregations continue, the share of residential supply customers is slowly dropping.  Recently in ComEd’s territory- there was a Decrease in Residential Supply Customers- which we covered in the past few weeks.

Additionally, municipal aggregation opt-outs are a hot (ok, fine-lukewarm) issue in Ohio. Utilities in Ohio support disclosure in opt-out aggregation contracts, and they should be subject to public records. Energy Choice Matters posts some comments regarding this here.  Ohio is just a part of these municipal aggregation oligopolies.

In order to truly measure the competition within an industry, the Herfindahl-Hirschman Index serves as the main indicator. Therefore, the higher the HHI score, the more significant the decrease in competition within that industry.


It happens, it’s “econ speak”.

The nuts and bolts are that this mathematical formula measures the market share of the main players in a market. It compares them and aggregates them into score that goes up to 10,000.  In this score, a lower number means more competition, and a higher score is more monopolistic.


So in the graph below:
Screen Shot 2013-07-09 at 1.24.39 PM



The HHI is shown for the Illinois residential retail electric market.  The graph doesn’t give the disparity justice it deserves.  However this showing of supplier market share in ComEd territory, paints another picture of just how oligopolistic the Illinois retail electric market is:


Screen Shot 2013-07-10 at 10.45.57 AM

So, the main takeaway is that municipal aggregation has silently yielded a growing disparity in both ComEd and Ameren territory. The field is becoming increasingly less competitive as large suppliers continue to dominate market share through municipal aggregations, turning a “competitive” environment into an oligopoly.


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