Municipal Electrical Aggregation & You

light bulbAn organization I belong to has hundreds of members. During a recent general membership meeting, one of them stood up and pitched the idea that the group should be selling his brand of electricity to the rest of us as a fundraiser.

The board of directors asked him to confirm whether his is a multi-level marketing venture. The response: “You say that like it’s a bad thing.”

Thus the retail electricity market in the era of “unbundling” the costs of energy supply from those of delivery suddenly appeared to take on a somewhat pyramidal shape. The meeting incident plus my own community’s pursuit of a municipal energy aggregation program prompted me to investigate these developments more closely.

Explaining Municipal Energy Aggregation
Illinoisans pay a utility, either Commonwealth Edison (Com Ed) or Ameren, to deliver electricity to their homes and businesses. That’s likely to remain the case for some time to come. However, changes in regulations have created a boom of retail suppliers of energy to compete with the utilities’ suppliers. In northern Illinois, Com Ed customers can shop, depending on location, up to about 14 energy retailers and dozens of offers that can help them save money, support green energy, choose an Illinois-based business and/or select one that that actually generates electricity, too. Some plans run month to month, while others require contracts. Residential contracts typically lock in lower rates in cents per kilowatt-hour (¢/kWh) for 12, 18 or 24 months.

Municipal (aka community) aggregation combines the potential savings of a longer-term contract with the negotiating power of a large group such as a city or unincorporated areas of a county. Residences and qualifying small businesses* participate. A program can be opt-in or opt-out, with the latter requiring approval via referendum.

Opt-out is greatly preferred by would-be aggregators. They know most customers will not take affirmative action either way**, so opt-out nearly always creates a larger pool and hence more clout.

Here are the basic steps an Illinois governmental unit must take in developing an opt-out aggregation program:

  • Determine whether the steps (or which steps) can be handled with internal resources or require the services of an aggregation consultant

  • Place a referendum question on the ballot reading, “Shall the [village, city, etc. of …] have the authority to arrange for the supply of electricity for its residential and small commercial retail customers who have not opted out of such program?”

  • Upon an affirmative vote, develop the plan and hold two public hearings on it

  • Complete the selection of an alternative supplier through a formal bid process

  • Notify customers within the jurisdiction of their choice to opt out; transfer into the new program those who don’t

Opting out only applies to customers who are using Com Ed’s or Ameren’s supplier at the time of the change. A consumer who has already selected an alternative retailer will not be switched again when aggregation comes to town.

First the community, then the utility, sends letters notifying residents about the change. One can opt out for a specified period of time following either notification.

Of some concern may be the inevitable incentives for aggregators to be found in a highly competitive environment, the cost of which undoubtedly gets passed on to the consumer. Fulton, for example, received an unrestricted “grant” of $13,000 as part of its deal with an electricity supplier, while Milledgeville felt the need to reassure its residents that it “…will not be receiving kick backs from First Energy since this would inflate the electricity cost for citizens during the length of the contract.”

Aggregation & the City of DeKalb
DeKalb is my community. Its council has made the decision to present the referendum question during the March primary election so I visited the DeKalb Municipal Building recently to find out whether electricity suppliers were throwing themselves at city officials like so many Amway representatives.

At this stage of the game, though, it’s mostly about consultants looking for government work. DeKalb has been approached since summer by several independent aggregation consultants as well as electricity suppliers who also provide these services (and yes, the multi-level marketing person has been there, too).

Administrators so far have asked the city’s attorney to give an opinion on the constitutionality of opt-out (and gotten a green light), taken the necessary steps to put the question to referendum, and assigned an intern to get other questions answered. They have not yet engaged the services of an aggregation consultant to facilitate the process but if they do, the cost will be borne by an as-yet unknown electricity supplier (and passed on to us).

DeKalb has used an energy consultant before, for its own operations. The deal includes off-peak pricing that translates to savings for street lighting and pumping well water in the wee hours.

However, chances are any contract DeKalb might negotiate for its citizens would not include off-peak or any kind of real-time pricing, just one rate to fit all residences and another for qualified businesses.

Does Electrical Aggregation Save Money?
There’s no question that aggregation can save Northern Illinois consumers money on their electric bills over Com Ed’s current rates.

Whether an aggregation program can give you or me a better rate than what we can find on our own is a more complicated question.

I’ve used the Com Ed area supplier list from the Citizens Utility Board (CUB)*** and the Illinois Commerce Commission’s current list of Com Ed-area opt-out aggregation communities to come up with rough numbers.

At first glance it looks like the aggregators win by far, with a range of 5.43 to 6.23 ¢/kWh (the high rate belonging to Fulton, the city that got the $13,000 “grant”) as compared to the CUB supplier numbers ranging from 6.087 to 8.28¢/kWh.

But I believe we are looking at mixed fruit here. The CUB numbers include two parts of the “Electricity Supply Services” portion of the Com Ed utility bill: the electricity supply charge AND the transmission services charge of .767. They do this because most of the retailers’ advertised rates use both – and CUB says Com Ed’s “Price to Compare” of 7.733 does, too. On the other hand, news articles and releases from several of the current Illinois opt-out aggregators (Oak Park, Elburn, Grayslake group, Morris) indicate that their negotiated rates only include the electricity supply charge — which makes sense because the transmission charge cannot be negotiated by the governmental unit.

My assumption, then, is that one needs to add .767 to the 19 aggregating communities’ average to get closer to apples-to-apples comparisons.

For the averages of offers for individual customers, I averaged the 24-month contracted rates.

Com Ed: 7.733 ¢/kWh
Individual rates w/green energy sourcing: 7.14 ¢/kWh
Individual rates w/o green sourcing: 6.608 ¢/kWh
Municipal aggregators: 6.582 ¢/kWh

Conclusions: You can beat Com Ed’s current rates by switching to almost anyone else, and you may be able to get a lower rate than the aggregators’ average by doing a little homework.

A Note about MLM
It was a multi-level marketer who led me into this story, but for the most part MLM is something of a red herring since it seems to comprise only a tiny contingent of the retail suppliers operating currently in Illinois.

My beef is with any sort of marketing that blurs the distinction between necessities and luxuries; but if you want a side of electricity with your order of Mary Kay, it’s really none of my beeswax, right?

Still, I’ve come across a couple interesting articles about MLM that I will include at the end of this post.

What’s Next in Illinois Energy Aggregation
About 75 communities in Illinois have placed energy aggregation referendums on their March 20 primary ballots and a similar number are considering it.

It appears to take about six months from referendum approval to signing a contract, which leaves ample time for public participation in developing the goals of an aggregation program.

CUB says that the availability of current low rates from alternative suppliers as compared with Com Ed’s are the result of several factors, such as Com Ed’s long-term power contracts and the stagnant economy. In other words, the current situation should be seen as temporary, and communities should configure contract lengths, price guarantees and other terms accordingly.

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Additional Resources:

CUB Facts: Community Aggregation

Why municipal aggregation does not maximize savings

Municipal Aggregation in Illinois: Five Things You Should Not Ignore

Shocking electricity prices follow deregulation

Municipal Aggregation & Retail Competition in the Ohio Energy Sector

The Case (for and) Against Multi-Level Marketing

Beware the “Main Street Bubble” of Multi-Level Marketing groups without U.S. Government Protection

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* Qualified businesses are those that use less than 100 kW at peak demand.
** This is known because several states were early adopters of community energy aggregation after deregulation in the late 90s – early 2000s.
***CUB is staying neutral on electricity competition in Illinois, saying, “The jury is still out on whether residential competition is going to bring real value to consumers in the long run.”