Community Energy Aggregation: A Cheap Choice?
Community energy aggregation programs allow a local government or a group of local governments to pool (or aggregate) in order to purchase and/or develop power on behalf of their residents, businesses, and municipal accounts. This is an energy supply model that works in partnership with the region’s existing utility, which continues to deliver power, maintain the grid, provide consolidated billing and other customer services. The aggregated demand and group purchasing aspires to achieve local objectives including consumer rate savings, greenhouse gas reductions, new revenues for local energy programs, utility reform, and jobs creation.
There are currently six states with several other states considering allowing community choice aggregation:
- New Jersey
- Rhode Island
The key word is “choice.” Customers have a choice between the local utility company or the community aggregation product. Energy aggregation can be done on an opt-in or opt-out basis (depending on state statute), but the most common and successful programs are opt-out. This means that customers are automatically enrolled after a successful public referendum at the local level, as in Illinois and Ohio; or, enrolled when their local elected representatives (city council or county board) vote to form or join a CCA program, as in California. The opt-in approach is voluntary but participation rates are traditionally very low which reduces the value of group purchasing and makes it harder for local programs to achieve economic viability. Opt-out aggregation achieves the necessary market scale for effective group purchasing, but allows a customer to switch back to utility service at any time. Either way, customers always have the choice to stay or go. According to some studies, if the “opt-out period” – typically 60 days – is missed, a customer may be charged an exit fee which is one of the possible uncertain or unknown costs.
This concept intends to bring an enormous amount of benefit while also reducing cost. Sounds pretty good, doesn’t it? As studies are underway, minds are mixed on the actual cost savings as well as a possible reversal in reducing competition as opposed to enhancing it. There are many other factors to consider as you drill down into the numbers.
From a municipal standpoint, it’s important to consider the potential liabilities associated with these types of programs. These risks can be addressed and most often transferred through properly setting up the program. The delivery service providers (utility company), should retain responsibility to provide and delivery the electricity. In addition, proper contractual protections such as hold harmless and indemnification clauses should be utilized to protect your municipality from increased risks.
- Top 10 Environmental and Regulatory Exposures
- 5 Public Liability Exposures for Municipalities
- Risk Transfer for Municipalities: Understanding How and Why
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