Power to the People: Electrical Aggregation

By Matt Baker

Though many Illinois residents may still not be aware of it, their utility options broadened in January 2010 with the passage of the Illinois Power Act. This legislation allows municipalities and counties to collectively bargain with alternative electric suppliers on behalf of their residents and small businesses. And in many cases, it can lead to a greater demand for alternative energy.

The groundwork for this began fifteen years ago with the deregulation of the state’s power generation, transmission and distribution, providing consumers with an open market to shop for their energy. Aggregation takes this a step further, leveraging the buying power of groups of customers, allowing them to effectively hunt for electricity bargains.

It starts in each municipality with an aggregation referendum. If it passes, residents and small businesses are automatically enrolled in the program, though they have the opportunity to opt out if they wish. If a community fails to pass a referendum, residents can still contract independently with an energy supplier of their choice.

Aggregation opens up the market and makes it less costly for energy suppliers to seek out and acquire customers. The money saved on marketing can be passed on to the consumer. Additionally, pooling customers together creates much larger loads that are more likely to receive favorable pricing.

For the moment, it would appear that villages and counties—and their residents and small businesses—are benefiting from lower prices. According to the Illinois Commerce Commission, 120 municipalities in the ComEd service area have contracted with other suppliers. So far, these are Constellation Energy, Direct Energy, FirstEnergy Solutions, Integrys Energy Services, MC Squared, Nordic Energy and Verde Energy.

The average rate that those municipalities have contracted for is 4.65 cents per kWh, though some have negotiated as low as 4.06 cents. ComEd’s annualized rate for the period ending May 31, 2012—the time which most of these contracts were signed—was 7.73 cents per kWh. That’s nearly 40% higher than the average aggregated rate.

Beginning with deregulation in the ‘90’s, the state’s two largest electric utilities, Ameren and ComEd, started shedding their energy production, though ComEd’s parent, Exelon, is still in the supply business. But ComEd still owns and maintains the lines in Northeastern Illinois and will distribute the power. So, for residents in those villages and counties that have renegotiated, ComEd will continue to bill them and respond to outage calls.

Most municipalities—but not all—have included a clause in their contracts that, should the new supplier’s rate rise above ComEd’s, residents will only pay the lower rate. “That’s something that we at NIMEC think is very important,” said Sharon Durling, Director of Marketing for the Northern Illinois Municipal Electric Collaborative. “We need this guarantee that, should a contracted rate at any particular time be above the standard ComEd rate, [the supplier] would either match it or release all those accounts to ComEd.”

Last year, 20 municipalities passed municipal aggregation referendums, of which 19 have signed contracts with alternate suppliers. In the March elections this year, 245 more referendums passed, while 60 failed.

One city that recently signed a municipal aggregation agreement was south suburban Oak Forest. Officials there, including City Administrator Troy Ishler, contracted with FirstEnergy Solutions for a rate of 4.82 per kWh for residents and 4.61 cents for small businesses. “We’re estimating between three and half to four million dollars in savings for our residents and small businesses,” said Ishler.

Included in the Oak Forest contract is an extra 8/10 of a penny per kWh to purchase renewable energy. State regulations already require every supplier to produce a minimum of 7% clean energy, but this add-on to the Oak Forest rate purchases enough renewable energy certificates (RECs) to cover 100% of the town’s power needs.

Other villages are working renewables into their contracts as well. Orland Park contracted for 25% and Elmhurst for 50%. But according to NIMEC, 40% of their municipal clients that opt for a renewable energy rate hike go for full coverage. “That’s very interesting, given that this is the first time around,” said Durling.

Just as surprising is how readily municipal aggregation is being accepted by Illinois residents, considering how novel the concept of an open energy market is in this state. Some residents, perhaps afraid of change, remain wary.

“I just hope the residents and small businesses don’t fear the unknown,” said Ishler. “There is no cost to get into or out of our program. And it’s a guaranteed rate not to be higher than ComEd, so really this is a win-win for our residents.”

What is a REC?

All renewable electricity generators produce two products: electricity and renewable energy certificates (RECs). The electricity enters the grid along with all the power coming from other plants; once there, an electron coming from a wind farm is indistinguishable from one coming from a coal-fired plant. This is where RECs come in. Since you can’t buy electricity from a grid-tied renewable source without also getting fossil-fuel derived power, RECs represent one pathway to virtually buy that electricity. One REC is equal to 1,000 kilowatt-hours (1 MWh); an organization that purchases that REC can claim all the benefits of purchasing renewable energy. These RECs are certified and the market is carefully controlled so that RECs cannot be resold. Renewable energy plants reduce demand for fossil fuels; RECs are the medium through which consumers can not only financially support those renewable sources, but claim the benefits of them as well.

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