Aggregation of Electricity

© 2009 F. Bruce Abel

Re: Electricity Aggregation

“Aggrevation” of Electricity and Duke Energy’s Ghost Rider in the Sky

Trust me or trust your lying eyes? Trust your friendly local utility or some Wall Street slicer-and-dicer? The PUCO? Hostage to the slicers-and-dicers. Office of Consumers Counsel? Run by Enron’s Ohio lobbiest.

Aggregation of electricity is purely a game of trust. Duke Energy used to be local but now it is controlled in Charlotte, North Carolina.

Dominion Retail, Inc.? They are traders in electricity.

Aggregation is now on the table at two levels in the Duke Energy service territory. And this time – for the first time – the rates are competitive.

But think Verizon. “You get $50 off your new phone but we’ve got you for two years on the contract.”

Individual residential electric ratepayers are being direct-mail solicited by Dominion Retail, Inc. and some municipalities such as my Village of Glendale are voting in November to allow the village to act for its ratepayers in selecting a competitor for Duke.

Of course the individual cities and villages do not have the personnel with the particular expertise to figure out what’s going on. In getting lower rates, municipalities who get involved must listen to the experts. Who presents themselves? So far, only those middlemen who themselves will be paid by the competitors in order to be able to say to the village that the whole thing is “costless” to the village.

And it isn’t just a question of expertise today. Who will be the expert at the end of the competitive period of service, such as December, 2010? Same problem, same solution.

So get to know the middlemen as well as your meter-reader, or, better analogy, stock broker: Don Marshall, CEO of his company Eagle Energy in Green Township. Get to know Spence Faxon, President of Energy Alliances. And Mark Burns, President of Independent Energy Consultants Inc.

Or ignore them and stay with Duke.

Or read the following:

Dominion Retail, Inc. offers a three-month savings on the generation part of Duke’s electric bill, generation being roughly 2/3 of one’s electric bill. So if you use exactly 1000 kwh and your Duke cost is $.10 per kwh you save $66.67 x .20 or $13.34 per month, more or less. If you use a lot more kwh in the summer because of air conditioning and do not heat your house with electricity, your savings, other things being equal, will be much more than $13.34 per month as Duke has a penny higher rate per kwh for a residential above 1000 kwh per month in the summer. (It has a stunningly lower rate for above 1000 kwh in the winter months.)

So Dominion can give you the lower rate for three months. But face the fact that it only lasts for sure until you wake with your hangover New Year’s Day 2010, not December, 2010, as Dominion promises.

Why is this assured savings so short?

The answer to the question is that Duke Energy has “Rider FPP” (fuel and purchased power) as a component of its generation portion of its electric rates that is adjusted quarterly, and is as volatile as energy itself is volatile in today’s “traders’” dominated market, being currently 3.38 cents per kwh, and having been one cent in the not-too-distant past.

The smaller the quarterly Rider FPP of Duke, the more advantage to staying with Duke and the less savings there will be in switching to Dominion. If Rider FPP went negative, or even down to 1.38 cents per kwh, on January 1, 2010, April 1, 2010, July 1, 2010, or September 1, 2010, there would then be a loss by switching to Dominion Retail.

Is this likely? I have no way of knowing without having been in Duke’s PUCO filings the past few years, but since there haven’t been rate case filings for nigh-on twenty years, things are fuzzy.

The following is hope and theory rather than knowledge and depends on Duke’s reserve margins, power pool agreements, coal contracts, and other things one could know when there were regular rate cases -- Duke, under the current depressed economy, could come in with a much lower Rider FPP for the first quarter of 2010 and thereafter. (I called Duke September 14, 2009, and drilled down to some key employees involved; I remained in the dark; they either do not know or are not allowed to give out projections nor are they able to simply lower their rate to match competitors.)

By the way if you are a heavy user of electricity in the winter but not the summer, don’t even think of switching to Dominion.

Green Township

The same dynamics exist on the natural gas side of the coin. Natural gas switching from Duke in 2008 to a fixed term was in my view (Monday-morning quarterbacking) flat-out ridiculous. Green Township switched to a fixed rate from Integrys Energy in early 2008 and there was an initial savings, but as the year wore on Duke, which buys on the spot market and changes its natural gas rates monthly in the winter (the only season that counts for residentials) now has the lower rates.

Is a switch-over costless? Pretty much, but not exactly. A city or village administrator initially spends as much as 100 hours of his valuable time the first year of aggregation talking to citizen/inquirers/complainers who are opposed to government stepping into anything it does not need to. He does this even though the new competitor (Dominion or Integrys) happily carries out that function as well. But what ratepayer wants to talk to some stranger in New York who doesn’t even know where Colerain Avenue is or the name of the latest Bengal who batted a pass away to win, but lose, the game?


Bruce Abel