Does Municipal Electric Aggregation Still Make Sense? Presentation to the Illinois City/County Management Association October 16, 2014
© Illinois Community Choice Aggregation Network
1
Outline
Background
Benefits Analysis
Upcoming Developments
Key Considerations
Checklist for Action
Conclusions
Notes on Natural Gas Aggregation
© Illinois Community Choice Aggregation Network
2
Background
Municipal Electric Aggregation (MEA) allowed local government to assist residents in capturing cost savings on monthly electricity bills
Two approaches to MEA programs:
Opt-Out. If approved by referendum, local governments can enroll accounts into supply contracts unless those account-holders affirmatively indicate that they do not want to participate.
Opt-In. If authorized by ordinance, local governments can negotiate a contract into which residents may elect to participate.
© Illinois Community Choice Aggregation Network
3
Background
726 Illinois communities control ~70% of residential and small commercial accounts Residential Accounts Served by Retail Suppliers ComEd Service Region 2011-Present 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00%
0.00%
4
Benefits Analysis
Initial cost savings were significant
ComEd: ~8¢/kWh
MEA: ~5¢/kWh
Cost savings have diminished
Ameren: All 328 active MEA programs prices are above the default rate
ComEd: 100 of the 349 active MEA programs prices are above the default rate*
Many MEA communities have idled their programs
Ameren: 49 of 277 authorized MEA programs are idle
ComEd: 69 of 280 authorized MEA programs are idle
* Multi-year contracts yielding competitive prices will be adjusted mid-term © Illinois Community Choice Aggregation Network
5
Benefits Analysis
Non-cost benefits continue to be achieved
Consumer protection. Credit waivers, exit fees, protection from door-to-door sales
Clean energy. Non-coal supply, regional wind supply, renewable energy credits
New benefits may be available with advent of ‘Smart Grid’
Peak time rebates. Rebate for reducing consumption during peak energy periods
Time-of-Use rates. One price for daytime hours during weekdays, a lower price for evenings and weekends.
Technology development. Home automation, energy efficiency, demand response
© Illinois Community Choice Aggregation Network
6
Upcoming Developments COMED UNBUNDLES TRANSMISSION RATES
EXELON BAILOUT BILL IN SPRINGFIELD
January-15
February-15
SUPPLEMENTAL PJM CAPACITY AUCTIONS
March-15
EPA CARBON RULE MAKING BEGINS
© Illinois Community Choice Aggregation Network
April-15
IPA PROCUREMENT EVENTS
NEW COMED PRICE TO COMPARE RELEASED
May-15
NEW PJM CAPACITY RATES APPLIED
June-15
NEW AGGRGEATION RULES FROM JCAR
July-15
August-15
IPA PROCUREMENT
September-15
COMED UNBUNDLES CAPACITY RATES
7
Upcoming Developments Anticipated Developments for MEA
Potential Impacts Price
Mgmt.
Messaging
ComEd Unbundling Retail Transmission and Capacity Rates
ComEd Maintaining Singular Price to Compare
Exelon Bailout Bill in Springfield
EPA Carbon Rules
JCAR Rules on Aggregation Management
Tariff
Political
Market PJM Supplemental Capacity Auctions Multiple IPA Procurement Events © Illinois Community Choice Aggregation Network
8
Upcoming Developments
Retail Unbundling
Assignment of individual Capacity and Transmission costs for each ComEd account
Cost Element in Electricity Pricing 100% 90%
Vendor Margin (.75%)
80%
Utility Consolidated Billing (.75%)
In the past, Capacity and Transmission costs were set as a flat cost for each electricity account
70%
Starting in 2015, each residential electricity account will have individual Transmission and Capacity costs
40%
60%
Illinois RPS (1.5%) 50%
Ancillaries (4.5%)
30% 20% 10%
© Illinois Community Choice Aggregation Network
Purchase of Receivables (1.5%)
0%
Transmission (9%) Capacity (20%) Shaped Energy with Losses (62%)
9
Upcoming Developments
Retail Unbundling will raise prices for larger users, drop prices from smaller users
© Illinois Community Choice Aggregation Network
10
Upcoming Developments
Retail Unbundling will have additional impacts:
Prices. Suppliers will add risk margins to “all-in” price offers because they will not be certain of the total Capacity and Transmission costs prior to the Opt-Out period
Pricing Structure. Communities may move away from the “all-in” pricing structure to an energy-only price and allow the supplier to pass through individual Capacity and Transmission costs to each account
Comparisons to the Price to Compare. ComEd will not unbundle the default rate until June 2016 (at the earliest) making cost comparisons challenging
Partnering. Communities that adopt energy-only pricing can achieve greater economies of scale by grouping their purchases
Three-Year Contracts. Communities that entered three-year contracts in the spring of 2013 will likely have those prices adjusted as early as January or June 2015
© Illinois Community Choice Aggregation Network
11
Key Considerations
Management Perspective: Outlook is challenging
Cost savings have eroded
Risk management will be more complex
Messaging to residents will be more complex
Resources to support operations are limited
Political Perspective: Services may be expected
Residents are now conditioned to expect local government guidance
Market complexity will be more of a challenge for residents on their own
Absent a Municipal Electric Aggregation offer, bottom-tier suppliers will have an opening to gain customers under less than optimal terms
© Illinois Community Choice Aggregation Network
12
Checklist for Action
Evaluate program options
valuate program options
Continue as before
Revert to Opt-In program structure
Amend and Continue
Idle the program
Make policy decisions
Make policy decisions
Go/No-Go
Partnering with other communities
Pricing structure
Added services
Educate residents
Educate residents
Program goals
Address Smart Meters/Grid
Range of options
Seek additional resources
Take early action
© Illinois Community Choice Aggregation Network
13
Conclusions
Aggregation was about easy savings, now it needs to be about something else
Growing market complexity will require higher levels of effort and greater expertise
Success will depend on strategy, not simply issuing requests for bids
Building relationships with suppliers may smooth over some near-term turbulence
Efficiency, consumer protection, economic development
Getting the right contract terms in the next year will be as important as price
Municipalities need to actively enter discussions regarding current energy issues
Exelon bailout
JCAR rules
Rate cases before the Illinois Commerce Commission
© Illinois Community Choice Aggregation Network
14
Notes on Natural Gas Aggregation
Utility and Market prices for natural gas vary on a monthly basis Comparative Natural Gas Costs ($/Therm) $1.4000
$1.2000 $1.0000 $0.8000 $0.6000 $0.4000 $0.2000 $-
Nicor Gas
North Shore Gas
NGI
15
Notes on Natural Gas Aggregation
Highest savings potential (not guaranteed) in the North Shore service region NGI vs. North Shore Gas Monthly Price and Cost 21 month history shows $156 cost advantage to NGI $60.00
$0.80
$40.00
$0.60
$20.00
$0.40
$-
$0.20
$(20.00)
$-
$(40.00)
$(0.20)
$(60.00)
$(0.40) NGI Price Advantage ($/Therm - Right Axis)
NGI Cost Advantage ($/Month - Left Axis)
16
Notes on Natural Gas Aggregation
Sufficient consumer saving potential exists for natural gas aggregation in the North Shore Gas territory
Opt-Out aggregation authority does not exist,
Communities are not prohibited from structuring an Opt-In program
Lack of Purchase of Receivables moves credit risk to the supplier
Much less savings potential in Nicor Gas territory
Will eat up a large portion of potential savings
New legislation allowing Opt-Out aggregation and Purchase of Receivables would allow communities to capture more value and consumer savings
Savings will still be challenging
© Illinois Community Choice Aggregation Network
17
Thank you
Illinois Community Choice Aggregation Network Mark Pruitt Illinois Institute of Technology campus 10 West 35th Street, Floor 16 Chicago, Illinois 60616 219/921-3828
[email protected] www.iccanetwork.com
© Illinois Community Choice Aggregation Network
18