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Municipal Electrical Aggregation

Recent changes in electrical regulation by the State of Illinois have given residents the ability to purchase their electricity from another supplier besides Commonwealth Edison (ComEd).  As part of those regulation changes, municipalities may also bid the cost of electricity on behalf of residents in order to achieve even greater savings.  However, in order to do so, the Village must first gain public support through an advisory referendum.  The Village Board recently approved placing a question on the Tuesday, March 20, 2012, primary election ballot.  The Village's goal is to provide residents with as much information as possible to be fully informed of their options prior to voting.
 
Below are some frequently asked questions (FAQs) on electrical aggregation:
 
Q:  What is electrical aggregation?
 
A:  Electrical aggregation is simply the ability of the Village to negotiate directly with a supplier for the cost of electricity (purchased by kilowatt hour) that can be consumed by the Village's residents.  The Village has the ability to leverage the size of the population in negotiations, and this generally results in greater discounts.  Think of it in terms of buying in bulk - you receive greater discounts because you can buy more.  In this case, the buying power for an entire community can result in significant discounts beyond what an individual can get alone. 
 
Q: Why is the opportunity for municipal electric aggregation available?
 
A: On August 10, 2009, Governor Quinn signed into law Public Act 096-0176 amending Illinois' original electric deregulation legislation. This is the last part of the deregulation process. Until this Act was amended, only larger customers such as industrial, commercial, and governmental entities could participate. Three-fourths of this commercial load is currently purchased from sources other than ComEd. The new law allows municipalities to transfer their residents' and small business owners' electric accounts to alternative electric suppliers.
 
Q: What is electric deregulation?
 
A: On December 16, 1997, the State of Illinois implemented a plan to deregulate Commonwealth Edison (ComEd). Under this plan, ComEd no longer generates electricity for its customers but continues to provide power generated by others through its distribution system. Deregulation means that power can be purchased through any one of 23 Illinois Commerce Commission-approved power suppliers.
 
Q: How does the electrical aggregation process work?
 
A: Under state law, a municipality must place a referendum on the ballot to ask its voters to give the municipal government the authority to aggregate electric accounts and seek bids for power generation. Assuming voters approve the referendum, the municipality must then hold at least two public hearings to discuss and create an aggregation plan. Once the plan is in place, municipal staff, with the assistance of energy experts, will prepare and publicize a request for proposals. Only energy suppliers certified and regulated by the Illinois Commerce Commission may respond. The bid that comes closest to achieving the goals of the aggregation plan would be accepted. However, if none of the bids meet the plan's goals, there would be no obligation to accept one, and the aggregated accounts would continue to receive power from ComEd at prevailing rates. A resident or small business would have no obligation to participate and could choose to opt out of the program altogether.
 
Q:  How does electrical aggregation impact me?
 
A:  Aggregation will have no impact on you as an individual beyond the savings you will receive by participating.  To understand what this fully means, you have to have a general understanding of how electricity is purchased and distributed.  Below is a quick overview of why aggregation works by looking at the companies involved in electrical power:
 
Generation Companies: These companies generate electric power.  Aggregation has no impact on them.
 
Supplier Companies: These companies purchase power from the generators for resale.  Aggregation solely impacts your relationship with the supplier by letting the Village act as a buyer for all residents in the Village.
 
Transmitter Companies: A transmitter company is responsible for operating the grid that brings power to your home.  ComEd is the transmitter for most of the northern Illinois.  Aggregation has no impact on the transmitter companies.
As you can see, the only relationship that changes is the supplier.  Therefore, you will not see a change in service - just a change in the cost of purchasing power.
 
Q:  What does the referendum ask?
 
A:  Shall the Village of Morton Grove have the authority to arrange for the supply of electricity for its residential and small commercial retail customers who have not opted out of such program?
 
YES _____
 
NO _____
 
Q:  Do I have to participate in aggregation?
 
A:  No.  If this referendum passes, that only means that the Village may bid on behalf of you and your fellow residents but does not obligate either the Village or you to actually complete the process.  If the Village does find a supplier with a favorable rate and decides to proceed, you still have the option to opt out of the program when the Village notifies residents of its choices.  Instructions for doing so will be provided at that time.
 
Q: What are the benefits of electrical aggregation?
 
A: The most important benefit is the opportunity for residents and small businesses to save money on electric supply costs.
 
Q: Can savings be guaranteed under an aggregation program?
 
A: A municipality can structure its request for proposals so that bidders set their rates at a specified percentage under ComEd's established rate. Market fluctuations make it impossible to guarantee that bids would come in under the current energy rate paid by ComEd customers. However, since that current rate is set every May, the market can react to it and often provide a lower rate. Right now, residents and small businesses pay a higher rate than most large commercial, industrial, and institutional accounts that have sought open market bids.
 
Q: What happens if a municipality cannot purchase or negotiate lower rates than ComEd?
 
A: Your account would stay at ComEd, and ComEd would remain both the provider of your power and the distributor of your power. Either way, ComEd would be your distributor.
 
Q: If aggregation means lower energy costs for customers, wouldn't ComEd simply increase charges on the distribution side to protect its profit margin?
 
A: ComEd owns the distribution system only and so does not realize profits or losses from the sale of energy. ComEd has worked for several years with large commercial and industrial customers who have switched to third-party energy suppliers and remains supportive of other customers who switch to third-party suppliers. In other words, there would be no impact on distribution rates. Illinois Commerce Commission (ICC) regulations dictate that ComEd cannot introduce any separate distribution fees on municipalities that aggregate.
 
Q: If a referendum is approved, how long will it be before the program is implemented?
 
A: State law requires that certain steps be followed to approve and implement any electrical aggregation program. If voters give the Village the authority to pursue aggregation, two public hearings must be held to gather citizen input for an aggregation plan that outlines goals such as savings targets. Once the plan is created and adopted, staff would seek competitive bids from energy suppliers via a formal request for proposals (RFP) process. Assuming a bid is received that meets the goals of the plan, a contract with that supplier would then be negotiated.  In sum, the earliest possible date such a program could be implemented would be late summer/early fall 2012.
 
Q: I have received mailings from retail electric suppliers offering lower electricity rates now. What should I do?
 
A: As previously stated, the earliest the Village's aggregation program is likely to begin is late summer 2012. Consumers who decide to switch to a retail electric supplier before the Village's program is available should consider several aspects of the retail supplier's offer:
 
Length of contract:  Many retail suppliers require a minimum 1-year contract, which would prevent a customer from getting the Village's aggregation rate until the contract ends.
 
Termination fees:  Look at the cost of early termination. Some companies charge fees and others do not.
 
Q:  What is considered a "small business" eligible for the aggregation program?
 
A:  Small businesses are those which use 100 kilowatt of electricity per month - comparable to a fast-food restaurant. The amount of electricity a property utilizes can be obtained on an electricity bill.
 
Q:  What component of the electrical bill will aggregation effect?
 
A:  Aggregation addresses only one of the three components of an electricity bill. The three components are supply (where the power comes from), transmission (getting the supply from its point of origin or from the high voltage grid), and distribution (getting the electricity from the substation to the consumer's meter). Aggregation concerns only the supply component which is typically 65 to 70% of the electricity bill. The transmission and distribution parts of the bill will be unaffected by aggregation.
 
Q: If I were to participate in electric aggregation, would I get two bills - one from ComEd for delivering the power, and another from the company that provided it?
 
A: No. ComEd would remain responsible for billing customers for all electricity, regardless of the electric supplier. The only change would be in the name of the electricity provider on the bill's electricity supply portion.
 
Q: Who would take care of my power if there was a power outage?
 
A: ComEd, by law, would still distribute power to your home or business and handle any emergency repairs.
 
Any other questions may be directed to Village Hall at 847-965-4100.
Date posted: Monday, January 16, 2012

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