Aggregation: Lower utility bills through competition

On November 8, 2011, city voters overwhelmingly approved Issues 44 and 45, which authorized the city to negotiate group buying rates for electricity and natural gas for eligible residents and small businesses. The city will soon seek bids from suppliers for the citywide buying group, allowing Cincinnati residents and small businesses to leverage savings through competition.

City Council's Budget and Finance Committee will hold two public hearings on the city's plan for operating the buying group.

Monday, January 30, at 6 p.m.

Monday, February 6, at 1 p.m.

Both hearings will be held in City Council Chambers, Room 300 City Hall, 801 Plum Street

Copies of the Plans of Operation and Governance will be available from the Clerk of Council’s office beginning January 25, 2012.

Please attend one of the hearings and voice your support for residents of Cincinnati saving money through aggregation.

Background

On Election Day last November, Cincinnati voters overwhelmingly approved Issues 44 and 45, authorizing the city to negotiate group buying rates for electricity and natural gas — and provide savings to residents and small businesses.

Vice Mayor Qualls introduced the ordinances to place the issues on the ballot so that Cincinnati residents would have the opportunity to realize the savings that many of our suburban neighbors have secured by pooling their buying power to get better deals from energy providers.

More than 300 communities across Ohio have saved hundreds of millions of dollars on their electric bills since Ohio made this innovative tool — known as aggregation — available in 2000, so that small utility customers would finally be able to reap the benefits of competition when the state opened up the power supply market by forming community buying groups.

The results? Aggregation is a proven, effective way for residential and small business utility customers to save money. Instead of competing for individual customers, suppliers compete for the business of the large buying group. That saves suppliers marketing and administration costs, which translates into savings for the consumers in the buying group.

Experience in surrounding communities shows that when suppliers compete for community buying group contracts, consumers save a lot of money. The City of Cheviot’s supply contract saved its residents 65 percent over Duke Energy Ohio’s best price. The average resident of the Village of Indian Hill saves $74 a month on electricity with a guaranteed rate. West Chester Township homeowners and small businesses saved nearly $5 million (an average of $332.82 per household) on their electric bills in ten months. According to Ohio Citizen Action, electric rates negotiated by buying groups in the area range from 2 to 3 ½ cents per kilowatt-hour less than Duke’s current generation rate, or 'price to compare.' Read the full report on aggregation in southwest Ohio here.

Here’s how it works:

The city is now working to create the community buying group for both electricity and natural gas. All eligible residential and small business customers will be automatically included in the buying group, unless they choose to opt out.

First, the city must establish a plan that spells out how the buying group will work, including details related to services, pricing, eligibility, and procedures for opting out. City Council is required to hold two public hearings on the plan so that residents can weigh in on what they think the city should take into consideration when choosing a supplier – for example, encouraging cleaner sources of power – and to learn more about the process and current market conditions that could affect savings.

Once council approves the plan and receives approval from the Public Utilities Commission of Ohio, the city will put the contracts out to bid, analyze the responses and recommend a provider to the City Manager. The city will then notify residents of the terms of the contract and how the program will work, including how residents can opt out if they wish.

The city expects that the process should be completed — and residents can start saving money on their monthly bills — as soon as June 1. Read the administration’s report on the process and timeline here.

Quick facts about community buying groups

Background

Ohio's state law allowed local governments to begin forming buying groups in 2000. The largest buying group in the nation is the Northeast Ohio Public Energy Council, which includes more than 100 communities in nine northeast Ohio counties and has saved customers $80 million in utility costs.

Ohio was the second state in the country to establish public 'opt-out' aggregation, after Massachusetts; California and Illinois have since established programs.

Indian Hill was the first southwest Ohio community to aggregate, in 2001. As Duke's residential rates rose to become the highest in the state in recent years, more competitors have entered the market with offers for individual customers, and more communities int the region put aggregation on the ballot, including: Springfield Township, Colerain Township, West Chester Township, Symmes Township, Lockland, Evendale, Greenhills, Glendale and Cheviot.

How community buying groups work

When the buying group is formed, eligible residential and small business customers are automatically included unless they choose to 'opt out.'

Customers are given a chance to opt out at no cost during an initial opt-out phase before the program begins. Customers must be given the opportunity to opt out at least every three years for electric service, and two years for natural gas.

Customers who are enrolled in the Percentage of Income Payment Plan, have signed a contract as an individual customer with another energy supplier, or are in arrears with Duke Energy Ohio at the time the buying group is formed are not eligible to participate in the buying group.

Customers will continue to receive just one monthly bill from Duke Energy Ohio, who will continue to be responsible for repairs and maintaining the transmission and distribution system.

Duke may bid for the buying group contract through its retail affiliate, Duke Energy Retail. In fact, Duke Energy Retail has entered into agreements with buying groups in several local communities.

Aggregation and the environment

Communities are using aggregation programs to choose cleaner sources of energy. The Village of Oak Park, Illinois recently negotiated a contract for electric power supply that included 100% renewable energy sources. Oak Park solicited bids for both a lowest rate alternative and an alternative for a cleaner, greener supply of electric power. The winning bidder provided a bid that offered rates so close for the two alternatives that the village’s review committee recommended accepting the bid for 100% renewable power supply because it not only provided significant savings, but also allowed Oak Park to become the first community in Illinois to choose a supply mix that dramatically reduces its greenhouse gas emissions.Read more here. Environmentalists also advocate using aggregation programs to finance energy efficiency improvements.