Municipal Electric Aggregation

Law allows voters to grant Municipalities the right to choose who supplies residential electricity

By Richard M. Joseph

How would you like to offer the benefit of lower utility rates for the citizens and small commercial establishments in your municipality?  Many Illinois municipalities have recently responded yes to this question and are in the process of investigating and implementing procedures for Municipal Electric Aggregation for their residents and small commercial electric users.

Municipal Electric Aggregation is the process of pooling residential and small business electric users to take advantage of the resulting economy of scale in order to help facilitate lower rates.  For a number of years, businesses and governmental bodies have, through various pooling arrangements, sought to purchase electricity from a retail electric supplier for themselves at a cost savings.  Individuals residing in Illinois have had the same ability, but have not been fully able to take advantage of the cost benefits of deregulation due to lack of negotiating power.  Simply put, one individual lacks the “buying power” to effectively negotiate a lesser rate, much less effectively analyze and compare the costs and alternatives from retail electric suppliers.

Recently, however, the Illinois Power Agency Act was amended to give municipalities and counties the right to solicit bids and enter into service agreements to facilitate the purchase of electricity for their residents and small commercial retail electric users.  If the existing energy supplier is not chosen, the local utility (ComEd or Ameren for most in our area) remains the distributor of the electricity, but the new supplier sells the electric power.

There are two methods allowed by the Act:  the “opt-in” method and the “opt-out” method.  Under the “opt-in” method, residential users and small commercial users must contact the municipality and “opt in” by signing up for the program.  Under the “opt out” method, the matter is first presented to the voters at referendum and, if passed, the municipality has the authority to negotiate electric service agreements for all residential and small commercial users within the municipality, except for those individuals who “opt out” by notifying the municipality that they have chosen not to participate.  While both the “opt-in” and “opt-out” methods give the municipality authority to accomplish electric aggregation, we recommend the “opt-out” method as that provides a larger group; which gives the municipality more bargaining power.

The “opt-in” method is commenced by the municipality adopting an ordinance under which the municipality may aggregate residential and small commercial retail electric loads located within the municipality and, for that purpose, solicit bids and enter into service agreements to facilitate the purchase of electricity for those residences and small commercial users who have opted in as part of the program.

The procedure for the “opt-out” method is started by the municipality first adopting an ordinance providing for a referendum to allow voters to decide if the municipality should have authority to arrange for the supply of electricity for its residential and small commercial retail customers.  If the referendum passes, the municipality can then adopt an ordinance providing for the aggregation of residential and small commercial retail electric loads within the municipality, soliciting bids and entering into service agreements to facilitate the purchase of electricity for all residences and small commercial users (other than those that have provided an “opt-out” notice to the municipality).

The first opportunity for this referendum question to be submitted is at the general primary election to be held on March 20, 2012.  In order for the municipality to have that referendum question presented to the voters on March 20, 2012, the municipality must adopt the ordinance and the municipal clerk must certify the question to the County no later than January 12, 2012.

Approval of the question at referendum merely vests the municipality with authority to negotiate and enter into service agreements for electric providers on behalf of its residents – it does not provide the obligation.  Thus, there is no downside to the municipality.

Regardless of the method (“opt-in” or “opt-out”) if the municipality wishes to utilize electric aggregation, it must adopt a plan of operation and governance for the aggregation program.  The Act specifies that this is done with assistance from the Illinois Power Agency.  Before adopting such a plan, the municipality is required to hold at least two public hearings on the plan.  Any aggregation plan must (i) provide for universal access to all applicable residential customers (no discrimination); (ii) describe demand management and energy efficiency services to be provided; and (iii) meet such other requirements as are established by law.  With that plan in place, the municipality then can solicit bids for electricity and other related services.

If the municipality is utilizing the “opt-in” method, then, within 60 days after receiving the bids, the municipality must allow residential and small commercial users to commit to the terms and conditions of the bid selected by the municipality.

If the municipality is utilizing the “opt-out” method, then it is the duty of the chosen electric supplier to notify the residential and small commercial users that they have the right to “opt-out.”  This notification must state all charges and include a full disclosure of the cost to obtain electric service.

Many municipalities lack the expertise or staff to handle the aggregation process on their own.  Additionally, the bigger the “pool” the greater bargaining power.  Accordingly, it may be prudent for the municipality to consider retaining a consultant.  The consultant should work closely with the municipal staff and legal counsel to provide assistance in analyzing load data, facilitating the bidding process, negotiating agreements with suppliers and, if chosen prior to the referendum question, educating the voters on the referendum.

Municipal Electric Aggregation provides an opportunity to benefit the residents and small commercial users of your municipality by providing an opportunity for savings with little cost to the municipality (assuming the right consultant).


Posted in Local Government and Public Finance, Richard Joseph