TO: FROM: RE: DATE:
Shelley Wieler, et al. – Town of Medway Michael Adler, GridSmart Energy Summary of Municipal Electric Aggregation 12-13-2012
INTRODUCTION The retail electricity market in Massachusetts was restructured (or deregulated) in 1997 which opened the supply (or commodity) portion of the bill to competitive markets. The delivery (or distribution) of electricity remains under the monopoly control of the investor owned utilities like NSTAR and National Grid, but consumers can now shop around for the lowest cost provider of electricity supply service. These providers are referred to as Competitive Suppliers, and they are licensed by the MA Department of Public Utilities (DPU). The supply portion of a typical electricity bill accounts for approximately 65% of the total and the delivery portion accounts for the remaining 35%. If a customer does not choose a competitive supplier, they receive what is known as basic service – the utility purchases electricity supply service on behalf of all customers who have not yet selected a competitive supplier to service their accounts. The Commonwealth reports that retail electricity customers have saved billions of dollars on electricity supply since restructuring took effect in 1997. However, monthly customer migration data published by the DPU shows that the majority of large commercial and industrial customers utilize the services of competitive suppliers but most residential and small commercial customers remain on basic service. The reason for limited adoption of competitive supply among smaller users is that the competitive offers simply never materialized for these customers. In other words, even if a small customer wants to shop around for competitive supply, the offers simply do not exist. The inability of smaller users to access the competitive marketplace is considered a market failure. In anticipation of this market failure, language was included in the original legislation that allows for Municipal Electric Aggregation. DEFINITION OF MUNICIPAL AGGREGATION A Municipal Electric Aggregation gives the chief executive of a given municipality, contingent on the approval of the governing body, to sign a competitive supply agreement that will apply to all electricity customers within a jurisdiction that currently receive basic service. Any customer that already has a competitive supply agreement in place is unaffected by the aggregation; moreover, any customer may “opt-out” to remain on basic service at the beginning of the aggregation process or with 30 days’ notice any time after the aggregation takes effect. Since most large users have already selected competitive suppliers, Municipal Aggregations are targeted primarily at residential and small business customers. Practically speaking, only the most astute customer will notice any changes once an aggregation is formed. The only difference will be that where it currently reads “basic service” under the supply cost section of the bill, it would read “Medway Municipal Aggregation.” Customers would continue to cut only one check to NSTAR each month, and NSTAR would still be contacted for all customer service inquiries. th
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WHY FORM AN AGGREGATION? The following benefits are most commonly cited in favor of Municipal Electric Aggregation: 1. Offers customers choice when there is currently no choice 2. Savings on monthly electric bills for customers enrolled in the aggregation 3. Generates revenue for the municipality to be used on energy/sustainability initiatives (For Medway, this would likely be about $34,000 per year); 4. Provides a platform for the municipality to communicate with energy users within the jurisdiction PROCESS TO FORM AN AGGREGATION Typically, a municipality will hire a consultant to assist with and finance the aggregation process. The consultant is guaranteed a fee on the backend in return for managing the process which includes: 1. 2. 3. 4.
Preparing all the necessary documents and filings Covering all legal and other fees associated with the process Hosting the 3 (or more) required information sessions for the public Setting up a website for aggregation customers to find information on pricing, enrollment, etc.
To form an Aggregation, the DOER provides the following roadmap: 1. First, the town council or governing body (town meeting) must adopt a resolution/warrant article approving the formation of the aggregation. Attached is the warrant article used by Ashland. 2. The town and consultants have a preliminary meeting with the Division of Energy Resources. 3. The consultant works with the town to prepare an aggregation plan and sample contracts to be filed with the DPU. 4. The DPU holds a series of hearings to approve the aggregation plan. 5. An RFP is issued to competitive suppliers to service the aggregation. 6. When market conditions are ideal, the chief executive of the town executes a contract with the lowest qualified vendor. 7. The winning supplier sends out postcards to all potential aggregation participants offering them the opportunity to opt-out of the aggregation. The customer only takes action to opt-out; to opt-in, they simply do nothing 8. The consultant works with the supplier and the utility to confirm customer enrollment The following municipalities (or groups of municipalities) have active aggregations or have approved aggregations and are now proceeding with the above process: Marlborough, Ashland, Lanesborough, Lancaster, Lowell, Natick, Barnstable County (the Cape Light Compact), and the Hampshire Council of Governments.
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