Aggregation of Electricity

© 2009 F. Bruce Abel[1]Tuesday, October 27, 2009
Re: Electricity Aggregation – I Vote “No”


Electric Aggregation is now up for a vote November 3, 2009, at a time an electric rate of Dominion Retail, Inc., a competitor to Duke Energy, is “strongly competitive.”[2]
Aggregation implies many things. It implies that deregulation is a fait accompli and that we as individuals are left on an island without the traditional support of our local utility in supplying us low-cost power. It implies that combining with our neighbors can give us sufficient market power to have some say in what our rate is. Aggregation implies that our Village officials will know best how to control our utility prices.
I truly doubt all these things.
Aggregation takes 100/hrs per year of the City Administrator’s time the first year, less thereafter.
Aggregation generally is, in my opinion, somewhat of a deregulatory diversion because there is no need to “slice and dice” our lives up any more for a one-time $13/month savings even if it lasts for a year: there is no great need for up to two more additional middlemen (the Village and, perhaps, another true middleman advising the village) between each of us and our utility.
Aggregation nevertheless is not totally irrelevant today, however, because the competitive wholesale electric market in Nymex futures (New York) has collapsed by one-half and Duke, for the foreseeable future, appears to be undercut on that score.
Aggregation does not give Glendale “market power” as the market is controlled by Nymex electricity futures. Green Township, 28,000 in population, signed up for one Dominion Retail, Inc. deal and later smaller communities got better deals as the recession continued and futures market prices for electricity went down. Single individuals (such as me) also got the better deals with Dominion Retail, Inc. through direct solicitation of Dominion two months ago or so.
Aggregation, in my opinion, puts our officials unnecessarily “on the line” in “predicting” to some extent regulated electricity prices of Duke Energy into the future. However, such predicting is no longer possible because Duke’s near- and far-term plans have been put under seal, declared trade secrets to avoid the competitors from gaining insight. And, as noted below, the Rider FPP remains a quarterly uncertainty.
Aggregation of Electricity is a Game of Trust in the Village Officials, Which May Mean the Middleman They Must Rely on.
Duke Energy and a Competitor
Duke Energy is the “default” and its rates “known,” only until the next quarter, as described below. Once off of Duke, I believe, one loses one’s rights to refunds for the period if challenges are made to Duke’s high rates. One can go back without penalty after the contract with the competitor, however.
“CG&E” (Duke) of course generates its own electricity. But from what I recently read (from testimony and actions at the PUCO in Columbus), Duke has an affiliate which is itself a trader, and you can see by the Symmes Township video I refer to below, that Duke is gung-ho towards playing this game, in order that it may try to sell elsewhere in Ohio through its affiliate.Aggregation is “costless” to the village, at least on the surface. 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. The administrator does this even though the new competitor (Dominion Retail 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 Morse Avenue is or the name of the latest Bearcat quarterback?
Third Party Experts
Also, of course, if a majority of the electorate in Glendale votes in favor of aggregation, Glendale might then rely on a third-party expert or middleman. One third-party middleman is Don Marshall, a thoroughly-decent CEO of his company Eagle Energy in Green Township, and a former manager at CG&E. If anybody “knows the territory” it is he.
The Dominion Retail, Inc. Electricity Offer
One recent offer to individuals, not through a middleman, is the specific direct-mail offer of Dominion Retail, Inc.:Dominion Retail, Inc. offered a one-year 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 us the lower rate – but technically it is lower for sure for two months. It only lasts for sure until we wake up with a hangover New Year’s Day 2010, not December, 2010, as Dominion promises.Why is this assured savings so short?
If you must know, 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. Rider FPP is adjusted quarterly, and is as volatile as energy itself, 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, Inc.Is this reduction in Rider FPP likely? “No,” but 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 even for those attending the recent hearings.A correct analysis (“guesstimate”) 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 – even a negative rate! -- 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, under the weird rules of deregulation, are they able to simply lower their rate to match competitors.)By the way if you are a heavy user of electricity (over 1000 kwh per month) in the winter but not the summer, don’t even think of switching to Dominion Retail, Inc. It does not have the steeply declining rate for usage above 1000 kwh in the winter that Duke does.
Before you vote, try to go on http:/icrctv.com/symmes-township-special-trustee-meeting-9-24-09 and, if it is posted, the second meeting of 10-22-09. This hour-long or so meeting is very informative and has a panel of all the relevant players in the field. You will note the “smallness” of the savings by and large.
The comments of Glenn Bryant, President of the Symmes Township Board of Trustees, and Chris Gilbert, Assistant Administrator, Springfield Township, are excellent. Springfield Township has the most experience doing aggregation in southern Ohio and, after trial and error, has come down to a contract which goes up and down with Nymex, I believe. An excellent choice.

Bruce Abel


[1] For 17 years I represented Armco (now AK Steel) in electric rate cases. They, had there been deregulation then, presumably had “market power,” taking 280 megawatts of power in Middletown. Glendale residents, collectively, take 1.5 megawatts. GE in Evendale takes 20 megawatts, or used to.
[2] Dominion Retail, Inc. is offering a discount which I have taken them up on individually. Thus individual residential electric ratepayers are being direct-mail solicited by Dominion Retail, Inc. also with a very attractive offer. So the process works, for electricity only, at the individual level for the two-month or perhaps one-year period offered. And it would work similarly if the village got the same deal after aggregation.