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A note to our fellow Chicagoans about Municipal Aggregation

Hey Chicagoans – listen up! If you live in Chicago, Illinois, you’re going to have a little more to decide than Obama vs Romney when you show up at the polls on November 6th. This isn’t about the highly contested race for the Commissioners of the Metropolitan Water Reclamation District, but about granting the City of Chicago to choose the electricity supplier for the residential and small commercial electricity customers currently being served by ComEd in the City of Chicago. This entire thing is known as Municipal Electricity Aggregation – so welcome to a discussion of #ChicagoMuniAgg!

Power2Switch wants to provide you all the necessary information to make the right choice about your electricity. We believe that by providing you with the information you need about Chicago Muni Agg, you’ll make the best choice for you and for the City of Chicago.

Municipal Electricity Aggregation in General

At a high level, Municipal Electricity Aggregation is when a municipality or city aggregates all of their utility customers in order to get a better electricity rate for all. In theory, this makes a ton of sense. By combining a large number of customers, and therefore a large amount of electricity usage, a municipality can get a larger number of retail electricity suppliers to compete for that larger electricity demand than a single customer would be able to get. The greater the competition; the lower the electricity rate. Several municipalities in Illinois have used this method to varying degrees of success.  (Check out the following link to see which municipalities have done this, and which rates they’ve been able to get: http://www.pluginillinois.org/MunicipalAggregationList.aspx)

In practice, there are several other decisions that affect the competitive bid process. Municipalities have several decisions they need to make when embarking on the muni agg process. Do they want to purchase renewable electricity as part of the generation mix? How much renewable energy do they want to purchase? Which sources of renewable are acceptable? Is nuclear a renewable energy? Is price the only factor to consider? The current electricity mix in Illinois is 42.9% nuclear, 42.5% coal, 12.6% natural gas, and 1.9% renewable (http://www.eia.gov/beta/state/?sid=IL#tabs-4). Is this more coal than you’d like, or is price the ultimate driver?

Let’s assume that the officials running the muni aggregation process are really trying to represent your best interest at heart. So, they’re going to make some trade-offs try to make everyone happy; they’re going to buy 35% nuclear, 35% coal, 25% natural gas, and 5% renewables – 4% wind and 1% solar. If you’re only concerned about price, this generation mix is probably going to be a little more expensive than a generation mix that includes more nuclear and more coal. If you work in the solar industry, you’re not happy with this, because you want more of the generation coming from solar. Ultimately, the officials are going to have to make some trade-offs, and not everyone is going to be happy about the choices they’re going to make.

When you rely on central-planning instead of the market to make these decisions, you typically end up with a less than optimal outcome. Some people are better off, some people are worse off, and the whole market itself is worse off than it would have been if the market had decided the outcome.

But, doesn’t aggregating the electrical usage of many customers give the municipalities more buying power than individual customers, and therefore the increased competition will allow all customers to get a better rate? This is absolutely correct. But, retail choice (the ability to choose your own electricity supplier) has been active in Illinois since 2007, and in that time, dozens of retail electric suppliers have signed up to serve customers in ComEd and Ameren territories (See the list of all electric suppliers by utility territory here: http://pluginillinois.org/Suppliers.aspx). Sorry MidAmerican customers, no retail electric suppliers have signed up in your area. Municipal aggregation was an important part of incentivizing retail electric suppliers to enter the Illinois market in the early going. As competition in an area grows, the benefits of municipal aggregation are more difficult to quantify.

Chicago’s Specific Challenges

The City of Chicago is currently wrestling with all of the questions that I mentioned above. I know first-hand that GreenPeace’s Chicago office (http://www.greenpeace.org/usa/en/) and the Environmental Law & Policy Center (http://elpc.org/) have been in discussions with the City of Chicago about the specific generation mix that the city should employ. They’ve discussed distributed generation (locally build) solar, wind, and other forms of renewables. They’ve discussed energy efficiency, demand response, and a whole host of other items.

Chicago Skyline 2008 (Photo credit: TomC)

These are all decisions that are being made on your behalf. If you trust the City of Chicago to make the best decisions when it comes to your electricity supply, then vote for Chicago Municipal Aggregation. If you don’t think the city will make the right choices, then you can select your own retail electric supplier that will provide you with exactly the service you want.

The other challenge that the City of Chicago faces is with the size of the municipal aggregation that they’re undertaking. If this passes, it will be the largest municipal aggregation project undertaken anywhere (http://articles.chicagotribune.com/2012-10-21/business/ct-biz-1021-power-chicago–20121021_1_integrys-energy-services-electricity-prices-electricity-suppliers). This poses its own challenges. There are only a few retail electric supplier companies that are capable of supplying the amount of electricity the City of Chicago will be looking to procure. But wait, wasn’t the benefit of municipal aggregation that it increased competition and gave the purchaser more buying power? If only a few companies are able to sell, doesn’t that neutralize the purchasing power gained by aggregating that electricity usage? The answer is “maybe”. More factors come into play with all these variables changing, and it becomes more difficult to predict how prices will be affected.

Reader’s Digest Wrap-Up  

Currently, the electricity being delivered by ComEd is purchased by the Illinois Power Authority. The IPA has to weigh the wants and needs for all of the state’s electricity users and purchase the best electricity for them. With Chicago Muni Agg, the City of Chicago will purchase electricity on your behalf. No longer will Cub fans have to share electricity with Cardinal fans, but they will still share electricity with Sox fans. (This has to be a little better, right?)

Ultimately, this is an on-going process in the democratization of electricity. If Chicago Muni Aggregation passes, you still have the option to opt-out before the contract is finalized. And, you’ll have the option to opt-out every time the City of Chicago renews its contract. We’ve presented you with the information; Contact us if you have questions.  Don’t let everyone else decide for you …

Make the Choice!  You have the power! 

Follow the discussion on twitter #Chicagomuniagg

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