by Fritz Kreiss
The national movement for energy aggregation is named Community Choice Aggregation. Community Choice was developed to provide more choice in the energy mix and potential cost savings for communities. In addition, communities can add more renewable clean energy into their electricity mix or even require the exclusion of coal power generation for their community.
Referendum Initiated Programs
Over a 24 month period, over 375 communities in Illinois did energy aggregation. The Illinois statute required a community to vote on a referendum to decide on whether or not to do a Government Energy Aggregation program. It truly became a community choice and was massively supported by the communities.
Similarly, townships/villages in Ohio must pass a ballot referendum and hold two public hearings to discuss the aggregation program’s priorities and goals. Even if the electorate passes the referendum, the township/village is not required to move forward with a program.
Local Government Initiated Programs
California has had robust activity since the 2002 enabling legislation. Counties like Marin have been able to increase renewable energy to 50% of supply; way ahead of expectations. California’s CCA programs are opt-out programs that are approved by local ordinance. Separate, public referendum is not required.
New Jersey also chose a different route by requiring just the adoption of an ordinance by the city council. That is where the dilemma of customer choice now sits: in discussions in city councils all over the state.
New Jersey: Options for Council Members
Let’s compare the options and the impact of each decision on the residents and the community as a whole:
1. Do Nothing.
Choose to make no decision for opt-in or opt-out. This is the safest politically, but really leaves residents with no support in making energy purchasing decisions. Electricity is a complex product with a number of components that can impact whether a resident will save money or be paying more than the utility rate.
Most residents do not understand that the utility rate (‘price to compare’) changes slightly monthly, and drastically each year, every June, based on an auction conducted every February. In fact, the utility rate that will be finalized for June 2014 is actually made up of auctions that were held in 2012, 2013 and Feb of 2014. Each auction provides, in theory, 1/3 of the load purchased each year. The theory is that by purchasing the fractional loads over a 3-year period, the blended price would temper the extreme peaks and valleys.
Even if a resident signs up for a rate today that saves them money, it might cost them more later when the new ‘price to compare’ is changed by the utility the following June. The residents must each be their own consumer watchdog and energy expert to make sure they are not being taken advantage of. Individuals are not likely to negotiate a contract that allows them to leave at any time without penalty. And if they do, they usually end up paying extra for this security.
In an aggregation program, (Opt-In or Opt-Out) residents can count on guaranteed savings and an energy consultant managing the program. Local governments can negotiate for specific contract requirements, including the ability to terminate without having to pay a penalty. Aggregation provides definite consumer protection benefits.
2. Take an active role.
Utilize the tools and consumer protections provided in the Government Energy Aggregation (GEA) Act of 2003. Originally adopted solely for opt-in participation, this type of program can be politically in tune with what most people would choose if the only question was opt-in or opt-out. But, running and managing a residential opt-in electricity program is very different than doing an opt-out program, from both an operational and marketing aspect.
- The cost of running an opt-In program is higher than an opt-out program which means it usually will not provide the same amount of savings that could be achieved. Amberly Village, Ohio started an opt-in program and despite its success, ended up going for an opt-out program to further enhance savings.
- Many residents will not be reached effectively since costs need to be controlled.
- People are all busy and being bombarded by multiple incoming messages which means it is easy for the message of guaranteed savings on their home electric bill to be missed.
- Typically opt-in programs range from a 2-5% success range of people participating compared to 80-95% participation rate under an opt-out aggregation.
But it can be done. Providing that a sufficient number of people choose to opt-in, this type of aggregation can provide guaranteed savings off the utility’s price, an ability to terminate at any time during the contract period and an energy consultant managing the program while watching for future energy buying opportunities. Bonus: Individuals can opt-in for their electricity being greener than the utility standard. The opt-in aggregated load is competitively bid out (using a reverse auction platform) to drive down prices just like in an opt-out aggregation.
Since 2003 when Opt-In programs were allowed under law, there have been none that were ever done which means residents missed out on savings and consumer protection that an Aggregation can provide.
Opt-out energy aggregation just became an option in NJ in 2012 after the BPU finally supplemented the GEA Act with regulations on May 7th. Under an opt-out program, residents are automatically signed up, provided they are not already with another energy supplier or they choose to opt-out of the program.
Opposition: Many residents and council members think that the government shouldn’t sign constituents into an aggregation program that requires someone to opt out if they don’t want to participate. They think people should be able to choose to join a program, or not – and not have the government choosing for them.
Consumer protection is a key. An opt-out program has built-in protection by law, requiring that residents are guaranteed savings compared to the utility’s price at the time the contract is awarded (there is an option of no-savings subject to renewable energy and BPU approval) and that they can opt-out or terminate at any time without penalty. When the utility rate changes and the program price is higher as a result, participants will always pay the lower of the two rates.
Opt-out aggregation typically achieves a participation rate of 80-90% of the residents. Since an opt-out program provides a much higher participation rate, the larger electric volumes achieve lower pricing resulting in additional savings as compared to an opt-in.
Local Multiplier Effect
Let’s look at the economic impact for your community. For comparison sake, we will use an example of 20,000 households using 7,000 kWh each annually and $.10 per kWh for the commodity. 20,000 x 7,000 x $.10 = $14,000,000 in money that is being pulled out of your community to pay for the electric commodity.
Opt-In = Assuming a 5% participation rate with a savings percentage of 7%:
$14,000,000 x 5% x 7% = $49,000 of money saved. At a multiplier of 3X, that’s $147,000 put back into the local economy.
Opt-Out = Assuming a 90% participation rate for an Opt-Out with a 10% savings:
$14,000,000 x 90% x 10%= $1,260,000 of money saved that can be spent locally creating a ‘Buy Local’ economic multiplier. If that was all spent locally, at only a 3X multiplier, it would result in $3,780,000 in economic activity – providing sales tax revenue, local job growth and people improving their income.
The Opt-In generates $147,000 in local economic activity while the Opt-Out generates $3,780,000 in local economic activity!
Building a Sustainable Community means we also have to build a Sustainable Economy.
Fritz Kreiss has been involved in energy procurement and the field of sustainability for close to twenty years, with expertise in alternative energy development, including wind and solar farm developments. He is the President of Alternative Utility Services, Inc. (AUS), as well as Managing Member of Community Green Energy (CGE) – partnering with AUS to develop and finance renewable energy and energy efficiency projects nationwide. Services include Community Choice Aggregation for sustainable communities as well as community solar gardens, Virtual Solar PPAs and energy performance contracting.
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