The Adding Light Spotlight highlights people or organizations working to make our communities stronger, more resilient, and safer for our improved quality of life. Through the Spotlight, I hope to demonstrate that EVERYONE does not have to do EVERYTHING to make our world better as long as EVERYONE does SOMETHING.
Yesterday, a referendum passed in the City of Chicago to allow the City to negotiate the price of electricity for all of its residents and small businesses. This aggregation comes on the heels of dozens of other Illinois municipalities going through the same process and getting lower rates than they can get through the local utility, ComEd. It was good to see so much of the electorate participate (of the 1,364,371 registered voters, 846,698 voted one way or the other on the referendum), and with a noticeable but not overwhelming majority (56%) choosing to allow the City to negotiate, hopefully this will lead those in charge to pursue the measure transparently.
Midwest Energy News has a great piece today discussing many of the details of aggregation. There are four main points for everyone to understand as we head into this:
Cost Savings
The major motivator for pursuing aggregation, and the primary reason most municipalities pursue it, is cost savings. Most people do not realize that over the past decade-plus, the electricity market was deregulated...meaning that the company that connects the wires to your home became separated from the company that generates the electricity tens to hundreds of miles away. This made it easy for large companies and institutions (like the City on behalf of the buildings it owns and operates) to select among many suppliers to find the right price. For small businesses and residents, ComEd would negotiate prices, with an emphasis on reliability of price and service. They negotiated several years out to make sure they could deliver a consistent price to customers rather than entering shorter-more volatile contracts. When the State of Illinois created the Illinois Power Agency, it created a state entity to handle this negotiation, and as ComEd contracts are winding down, it looks to lower prices. That will not happen until after May of next year, so in the meantime, cities have been able (under a separate law) to negotiate on behalf of its citizens if the citizens elect for them to do so. If the city planned (like Chicago) to set up a deal where a resident would have to choose NOT to participate (known as "opt-out"), then the election had to take place as a referendum. If the city planned to offer a program that residents could choose to enter at will (or "opt-in"), then that election could be city/town/village council vote. Chicago chose the former. With this power, the City can now try to find pricing for the citizens that is less than the previous long-term pricing from ComEd (that will drop in June 2013) and hopefully better than the new pricing available next summer.
One concern in this is that after May 2013, if the City deal does not represent the best price, consumers have a chance to opt out at that time, but it is not clear how they will know. Part of the selling point of aggregation is that by aggregating they get a better deal and the City can negotiate. That takes the concern out of some people's minds, and once they are in the City deal it may be no more a part of what they worry about than the utility bills currently are. It is great that people get reduced price, but once they get the reduced price for six months, the City will need to come up with a plan to help educate consumers in order to keep them from losing the down the road savings by staying in the City deal if it is not their best option.
Renewable Energy
One interesting ramification of decreasing the unit cost of electricity to consumers through aggregation is what happens to that savings. Does all of it get passed onto consumers? Is it used to change the quality of the commodity purchased? Does the aggregator take some of the savings as part of a fee for its service? These are all questions that remain to be answered by the City, and which will be interesting to see. Entities like the Environmental Law and Policy Center have pushed for support of aggregation on the grounds that the City can use the aggregation to improve the mix of supply sources, and provide more environmentally beneficial electricity. Reportedly, the City did include a request for pricing on the mix of energy in the Request for Qualifications it sent out prior to the referendum. (The RFQ will determine which suppliers will be allowed to bid on the actual supply contract when it becomes available.) This does not necessarily mean that the City will accept a certain mix, or even that the mix will include renewables. One concern is that if it does include renewables, that may take the form of renewable energy certificates in a short-term contract. Although this provides a level of pride to the consumer, it does not actually result in the development of new renewable energy, but rather, as one of the consultants to the City - Mark Pruitt - has said, "It pays for existing operators to pay to cut the grass." Hopefully, early next year, the Illinois state legislature figures out a way to reconcile the municipal aggregation law with the renewable portfolio standard to help these short-term purchase contracts lead to the installation of new, Illinois renewable energy.
Energy Efficiency
The municipal aggregation law requires a plan for energy efficiency, and the Sustainable Chicago 2015 plan accounts for that. One way the City may choose to help pursue efficiency is to take some of the savings and use it for projects throughout the city. The question that arises is how the City would manage that fund, and how transparent this process would be. The utilities in Chicago already have energy efficiency programs, so I would hope that the City - if it chooses to pursue this option - would use an energy efficiency fund to make it even easier for residents and small businesses to take advantage of utility programs and leverage more resources.
Fees
Lastly, it will be interesting to see how much of the savings gets "eaten away" by fees for the supplier, brokers, and the City. It will be incumbent upon watchdogs to make sure that as much of the savings gets passed on directly to consumers either in the way of money in their pocket or reductions in their energy bills.
As with anything in Chicago, Illinois, getting the local government involved in a part of our lives gives us pause. Residents and small businesses have choices, so on one level it helps that we can aggregate and have one less very confusing issue about which to worry. On another level, we need to make sure that every penny of the savings comes back to our communities in one way or another.
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