A number of residents have asked me about a recent op-ed piece that was printed in the Dayton Daily News and written by Dr. Tony Corvo that was critical of municipal aggregation. The headline read: Municipal power aggregation: Hidden tax?
In the article, Dr. Corvo, a retired Air Force officer, suggested that government cannot be trusted. He claimed that communities would be purchasing power in bulk, then selling it at a higher rate to the residents of the community. He further claimed that utility aggregation was a way for “larger energy companies to bypass deregulation competition.” He wrote that “rates are not always the lowest available — that a large number of communities end up paying higher energy rates than before aggregation.” Finally, he stated that “local governments hide management fees in the energy costs — taxes disguised as operating expenses.”
As you are undoubtedly aware, the residents of Sidney, Fort Loramie, Russia, Botkins, Lockington and Bradford each independently voted and overwhelmingly approved an Opt-Out Aggregation Program as a means of shopping for lower natural gas and electric rates. In my view, there is no better example of a community exercising local control than through the power of the ballot box.
With the approval of the aggregation question by the voters of the six respective communities, none of those communities will be purchasing power in bulk. In fact, the city of Sidney will NEVER take possession or pay for any of the electricity or natural gas used by our residents under the aggregation program. Neither will Fort Loramie, Russia, Botkins, Lockington or Bradford!
The community’s role is simply to facilitate and coordinate a “bid” which allows suppliers to “compete for and win” thousands of customers at one time. Electric and natural gas suppliers can bid lower prices because it allows them to avoid conducting expensive marketing campaigns including direct mail, telemarketing and door-to-door sales.
The economies of scale the suppliers enjoy in supplying a large number of customers combined with the minimal cost of acquisition of those accounts allows suppliers to greatly reduce the rates offered through aggregation programs.
Sidney (and the other communities) retained the services of a consultant, Affordable Gas + Electric (AGE). They earn a commission, IF and ONLY IF an attractive rate is delivered through their efforts of bidding the aggregate. Based on the average usage of an Ohio resident, that commission is likely to be around 50 cents a month on a given customer who is likely to see savings of $15 to $20 a month by joining the aggregation program.
Electricity and natural gas are traded as commodities in much the way that other commodities are traded on the market. There is oversight which monitors fair play. The utility is regulated specifically to safeguard a fair price for delivering the source of power used, which is different from the actual electric and natural gas supply itself. This is why aggregation doesn’t actually preclude a small supplier from winning an aggregation bid.
The expertise to manage and maintain an aggregation program is lacking in nearly every community. It is expertise that no one in Sidney’s City Hall possesses, and we have no desire to hire someone who does possess that expertise. The commission rate our consultant will earn is at or below industry averages.
AGE was put through an exhaustive vetting process. That process included interviews with multiple consultants who competed to win the opportunity to serve our residents. The mayors of surrounding villages were invited to participate, and the schedules of former Fort Loramie Mayor Phil Eilerman and Russia Mayor Terry Daughtery allowed them to join Sidney’s City Council for the interview process.
I want to specifically address the notion of a “hidden tax.” The aggregation rules allow for a “management fee” to be imposed on the rate secured on behalf of the residents of a given community. However, Sidney and the other communities represented by AGE have all chosen NOT to include a “management fee,” or as Corvo calls it, a hidden tax. There may be other communities who have chosen otherwise.
We looked at aggregation as a real opportunity for the residents of our community to potentially see significant utility savings, with no downside or risk. As elected representatives, it was council’s belief that by spending a bit of time evaluating the opportunity, we could offer our residents this opportunity. We felt that because the city had not invested tax dollars in the program, we did not need to recoup costs where there were none.
With aggregation, we estimate that somewhere between $500,000-$600,000 each and every year will stay in the pockets of Sidney’s residents, and be spent in our local economy. What greater economic impact can we as a council make than to find a means to inject over $1,000,000 over a two-year period into our local economy? This is the benefit your community receives with the approval of municipal aggregation!
Rather than a “hidden tax,” aggregation will actually be an “economic stimulus” that is NOT paid by any government entity, but rather derived from the very real savings provided through municipal aggregation — a benefit provided by the bulk purchasing power it provides residents. Our desire as a council was to ensure this is not just another “government program,” but rather another form of choice. Consumers can choose to stay with their local utility, go shopping for rates from various suppliers on their own, or take advantage of aggregation.
Competition comes in many forms. Aggregation is one form. Individual shopping is another. In the deregulated energy industry, small suppliers have the same opportunity to win an aggregation bid as does a “larger supplier” which may have parental ties to a utility or a power-generating plant. Suppliers, both large and small, are competing against each other as well as the utility’s price to compare for default service.
The benefits of aggregation even surpass those of competitive utility shopping. Consumers can join the aggregate or leave at any time if they can find a better utility rate elsewhere, and leave without a termination fee. Council felt that it was important for residents to have this freedom, and built those requirements into our local program.
Aggregation will prove to be the ultimate form of local control and choice over the utility rates consumers pay. We believe will be able to deliver the lowest rates, for the longest term, from the most qualified of suppliers. Period.
We have received the timeline from AGE for the processing of bids from electrical suppliers. That timeline is provided below:
• By Jan. 29, sample aggregation contracts will have been sent to Sidney and the villages of Botkins, Bradford, Fort Loramie, Lockington and Russia from all suppliers so their attorneys can review them prior to a winning bidder being selected. This ensures that legal counsel review can completed prior to seeing the actual agreement which is date specific to capture the market price on that date.
• Request for Proposal (RFP) responses are due to AGE from the electrical utilities by Feb. 8.
• AGE will complete their analysis of the RFP proposals and make their recommendations to the mayor’s or “Approved Signatories” on Feb. 10.
• On Feb. 11, winning supplier’s contracts will be sent to each community to be signed and made effective.
• From Feb. 29 through March 5, the 21-day opt-out notices will be sent to residents on city or village letterhead confirming the rate, term and winning supplier as well as directions to opt-out of the program. The winning supplier pays for these notifications. Specific letters will be sent to residents in each community.
• Beginning the week of March 21, meters will be read by the supplier so that by the April date the meter is again read, all participating residents should be enrolled at new lower rates.
• With the receipt of the May DPL bill, the new rates for April’s electric usage should begin appearing, and residents can begin experiencing the resulting savings.
• If there are residents who desire to “opt-out” of the program, please note that upon receipt of the notice that will be sent via regular mail to every eligible resident in Sidney (and the participating villages), you will need to notify the supplier that you do not want to participate.
• For residents who pursued lower rates on their own and are currently under contract, there is likely a severance clause that would make it financially difficult for you to leave your current supplier. Once your current contract period is over, you are free to join the aggregate. Of course, you could choose not to do so — but the choice is clearly your own.
By the time that spring is becoming summer and it is time to turn on our air conditioners, we can do so with confidence that we are receiving the lowest rate we were able to receive — made possible with the passage of state law, the city’s coordination, and approved by the community through the ballot box.
Finally, natural gas as a commodity is trading at historically low rates. We may not be able to see the same significant savings we expect to receive in electric rates, and will have to make a decision as to whether to wait to aggregate natural gas when the savings to consumers can be significant.
If you have questions about aggregation or any other matter, do not hesitate to contact your local council member. Of course, you are also welcome to contact me.
This is one of a series of columns by Sidney Mayor Mike Barhorst dealing with issues of interest to residents.