Does Municipal Electric Aggregation Still Make Sense?

Does Municipal Electric Aggregation Still Make Sense? Presentation to the Illinois City/County Management Association October 16, 2014 © Illinois Com...
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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%

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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

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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

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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

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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

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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%)

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Upcoming Developments 

Retail Unbundling will raise prices for larger users, drop prices from smaller users

© Illinois Community Choice Aggregation Network

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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

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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

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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

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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)

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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

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