Agenda Cover Memorandum

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Agenda Cover Memorandum Meeting Date: February 2, 2015 Meeting Type: Committee of the Whole City Council Budget Workshop Item Title: Update Electrical Aggregation Program.

1 Agenda Cover Memorandum Meeting Date: February 2, 2015 Meeting Type: Committee of the Whole City Council Budget Workshop Item Title: Update Electrical Aggregation Program. Item Type: Transfer Budget Amendment Purchase Order Other Action Requested: Approval For Discussion Feedback Requested For Your Information Staff Contact: Jim McGuire, Procurement Officer Phone #: (847) Background: In order to foster a competitive electric marketplace for ComEd residential and small business customers, the State of Illinois authorized municipalities to secure power supply rate agreements with third-party suppliers on behalf of the entire municipality. The City of Park Ridge formed a Consortium (North Shore Electrical Aggregation Consortium, NSEAC) with seven (7) other municipalities to obtain power and related support services and selected MC2 as its power supplier for a three (3) year term that started in June, Since a possible procurement and new agreement was possible, the Procurement Officer has been attending NSEAC meetings to represent the City s interest. The Electrical Aggregation has been very successful during its three (3) year term and has saved Park Ridge residents and small business customers an estimated five million, two hundred thousand dollars ($5,200,000.00). For the next term, NSEAC again engaged the services of an energy consultant, Mr. Mark Pruitt, Principal at the Illinois Choice Aggregation Network and former Director of the Illinois Power Agency. An RFP to secure power supply rates for the next three (3) years starting in June, 2015 was issued and was two bids were received on November 24, The Consortium, along with Mr. Pruitt and the Consortium s legal counsel, Mr. Hart Passman of Holland and Knight, evaluated submittals. NSEAC met on Wednesday, January 28, 2015 and agreed to recommend that all bids be rejected (see attached NSEAC memo). The electrical energy market is expected to be volatile for the next several years. For instance, ComEd is now authorized to apply for rate changes every six (6) months instead of every twelve (12) months. The contract terms that had served the Consortium well for the past three (3) years would not be suitable in a faster changing environment. All residential customers and small business owners now have several choices in a competitive marketplace. Current MC2 Electrical Aggregation customers may move to the power supplier of the choice by the end of May, 2015 or, with no further action or charge, be returned to ComEd as a customer in June, There is no charge for current MC2 Electrical Aggregation customers to switch from MC2. Since there are no longer guaranteed cost savings and the power supply marketplace is now very competitive, the recommendation is to suspend the Electrical Aggregation program at this time. Vendor and Transaction History: Vendor Status: Current New Is Purchase Order Request supported by existing contract: Yes No If Yes, date: Is this an Annual Recurring Purchase Order: Yes No Bid Process Used: N/A Price Quotes Bid RFP Details: by NSEAC Have Goods been received or Statement of Work completed: N/A Yes No If Overage, approved by Department: Yes No Details: Recommendation: Page 1 of 2

2 Agenda Cover Memorandum Budget Implications: Does Action Require an Expenditure of Funds: Yes No If Yes, Total Cost: If Yes, is this a Budgeted Item: Yes No Requires Budget Transfer If Budgeted, Budget Code (Fund, Dept, Object)?????? Attachment(s), if any: North Shore Electricity Aggregation Consortium Report and Recommendation Page 2 of 2

North Shore Electricity Aggregation Consortium Deerfield Glencoe Highland Park Lake Bluff Lake Forest

North Shore Electricity Aggregation Consortium SUBJECT: Report and Recommendation to Idle Electric

and the Villages of Deerfield, Glencoe, Lake Bluff, Northbrook and Skokie formed the North Shore

The Consortium was created to act as a collective body of municipalities to create and manage municipal

Each Consortium community executed a three-year contract with the same selected alternative electricity

The current contract with MC Squared is set to expire following the May 2015 meter read.

due to lower rates than the ComEd default tariff service rate for its residents and small businesses,

The anticipated savings for each municipality from inception through the end of the current contract term

3 North Shore Electricity Aggregation Consortium Deerfield Glencoe Highland Park Lake Bluff Lake Forest Northbrook Park Ridge Skokie DATE: January 29, 2015 TO: Village President and Board of Trustees FROM: North Shore Electricity Aggregation Consortium SUBJECT: Report and Recommendation to Idle Electric Aggregation Program Background In December 2011, the Cities of Highland Park, Lake Forest and Park Ridge, and the Villages of Deerfield, Glencoe, Lake Bluff, Northbrook and Skokie formed the North Shore Electricity Aggregation Consortium. The Consortium was created to act as a collective body of municipalities to create and manage municipal electric aggregation services on behalf of their residents and eligible businesses. Each Consortium community executed a three-year contract with the same selected alternative electricity supplier, MC Squared Energy Services, to supply power to an estimated 90,000 Consortium customers. The current contract with MC Squared is set to expire following the May 2015 meter read. Savings Over the last three years, the Consortium has saved participating customers more than $36 million due to lower rates than the ComEd default tariff service rate for its residents and small businesses, while also acquiring a cleaner portfolio of power supply. The anticipated savings for each municipality from inception through the end of the current contract term is as follows: North Shore Electricity Aggregation Consortium Power Supply Program Savings June, 2012 through May, 2015* Municipality $ Savings (in millions) Deerfield 3.2 Glencoe 2.3 Highland Park 6.4 Lake Bluff 1.2 Lake Forest 4.8 Northbrook 6.5 Park Ridge 5.2 Skokie 6.9 TOTAL SAVINGS 36.5 *estimated

4 Competitive Bidding Process With the MC Squared contract set to expire, the Consortium conducted an extensive due diligence process to determine if a new supply agreement should be considered with an alternative electricity supplier. To facilitate a competitive bidding process, the Consortium issued a Request for Proposals (RFP) on November 3, 2014, soliciting bids from all qualified providers to supply power and services for the Consortium s portfolio of customers. Two bids were received by the November 24, 2014 due date and were evaluated by the Consortium s members, legal counsel, and energy consultant. The Consortium negotiated with suppliers and was able to gain many safeguards and concessions; nevertheless, the indicative pricing from all bidders was not compelling when compared to the ComEd default rate. Therefore, the Consortium believes it will prove to be significantly more challenging to guarantee customers savings in a future power supply agreement than it has in the past. Challenges The Consortium was confronted with several new electricity market challenges. Default Rate As expected, the difference (or cost savings) between the ComEd default rate and the aggregated Consortium rate has continued to converge over the last three years. Following a high of 40% savings in the first year, savings in the past year has equated to less than 5%, and is expected to diminish further, or be negated fully, over the next few years. The difference between the two rates going forward is expected to be relatively small, due in large part to the expiration of relatively high-cost power supplies in the ComEd portfolio. As a result, it has become more difficult for alternative electricity suppliers to provide a fixed, long-term competitive aggregated electric rate that significantly beats the ComEd default rate. This is true primarily due to the complexities of the way rates are set now versus when the Consortium began its aggregation program in ComEd s price now resets multiple times per year, and is impacted by other factors described below. The Consortium s fixed rate does not reset, thereby causing concern over the risk of the ComEd default rate actually dipping below the Consortium rate during the course of a 12-month price lock period. Purchased Electricity Adjustment (PEA) The ComEd electricity rate is set by the Illinois Commerce Commission and it is equal to the sum of the default rate plus (or minus) the Purchased Electricity Adjustment. The ComEd default rate does not include the PEA. The PEA fluctuates monthly and it can raise or lower the electricity bill of a ComEd customer. It is important to note that the PEA monthly fluctuations only affect ComEd customers, not Consortium customers. Nevertheless, the Consortium monitors the PEA monthly fluctuations because it serves as a benchmark that the Consortium uses to compare effective pricing. The purpose of the PEA is to true-up any difference (over or under) between what ComEd paid to acquire electric supply and what ComEd previously charged customers for the electricity supply. When the PEA is a credit (i.e. negative), it reduces the gap between the default rate and the aggregated Consortium rate. The PEA can range from negative (credit) or positive (charge) of 0.50 cents per kwh. Monthly PEA fluctuations are not known in advance and only when taking into account the PEA monthly fluctuations can the Consortium truly determine the level of savings being provided to Consortium customers.

5 Based on extensive market research by the Consortium s energy consultant and corroborated by the suppliers themselves, the PEA is expected to be particularly volatile over the next 12 months adding even more uncertainty around the already marginal price savings. This volatility can lead to months in which the aggregated Consortium rate can either be above or below the ComEd supply rate. These challenges materially affect the potential savings realized by Consortium customers and increase the risk undertaken by the Consortium if an aggregation program were to be continued. Recommendation The Consortium recommends that all bids be rejected since there is no way to guarantee savings for the term length of the contract when considering the anticipated volatility of ComEd default rate. Consequently, the electric aggregation program would be idled at the end of the current contract term but the participating communities will continue to monitor the market and reserve the opportunity to re-enter the power markets in the future to seek alternative supply options should they deem it beneficial. With the power supply market now more competitive, residences and small businesses will have several choices available to them. Per the existing electrical aggregation agreement, customers are allowed to move to another supplier at any time or, with no further action, be returned to ComEd at the end of the contract term. Supplier Transition If the Boards/Councils of Consortium communities concur with the recommendation, then Consortium customers will automatically be returned to the ComEd default rate with the June 2015 meter read. The switch from MC Squared back to ComEd requires no action from Consortium customers and no fees are associated with the transition. The Consortium will issue a joint press release to all participating communities and additionally, in late spring, ComEd will mail a letter to Consortium customers notifying them of the expiring contract, in addition to communications from each Consortium community to its residents and small businesses. Residents and small business customers that wish not to return to the ComEd default supply will retain the ability to contract individually with alternative electricity suppliers should they wish to do so. Consumers interested in exploring other alternatives can visit the Illinois Commerce Commission s website at or the Citizen s Utility Board at for additional educational materials. Conclusion Over the last three years, the Consortium has serviced 90,000 accounts and saved customers over $36 million in the aggregate. As predicted three years ago, the pricing in the energy market has continued to converge year after year. The Consortium sought competitive pricing from multiple suppliers and determined that of all the supply options available, ComEd will likely be able to provide the lowest cost option to our residents and small business customers.

6 The Consortium will continue to monitor the electric market over the coming years and be prepared to once again aggregate electricity on behalf of residents and small businesses should alternative electric suppliers be able to provide competitive rates compared to the ComEd supply rate. The Consortium communities have all approved intergovernmental agreements that allow the Consortium to collaborate on areas other than electricity to gain economies. The Consortium has begun evaluating the potential for future projects and new ways to use their scale to provide innovative services to our residents and businesses.

Village Manager s Office

Village Manager s Office SUBJECT: Provide an update and seek direction on municipal electric aggregation program AGENDA ITEM: 5.a. MEETING DATE: January 5, 2016 VILLAGE BOARD REPORT TO: Village President