More Eligible For Energy Aggregation

When the Maine Legislature deregulated the electricity market more than a decade ago, it created both headaches and opportunities for Maine municipalities.

On the one hand, town officials found themselves wrestling with new responsibilities regarding energy purchases. On the other, deregulation presented new opportunities to save money, or at the least stabilize costs, through the use of so-called energy aggregators, companies that pull together groups of towns to use their combined buying power to negotiate lower electricity prices from suppliers.

Call them Sam’s Clubs for electricity. The buyers’ groups are not cooperatives as such, but rather ad hoc membership organizations devoted to bargain power purchases. Similar groups have been organized among the business and non-profit communities in Maine. They are served by dozens of brokers and suppliers who have met standards set by the Maine Public Utilities Commission.

Until recently, the potential savings were available only to large- and medium-sized municipalities with power usage large enough to make aggregation attractive. That has changed, according to Robert O. Lenna, executive director of Augusta-based Maine Power Options, by far the largest energy aggregator in the municipal market with some 250 cities and towns among its 800 members.

“When the market first evolved, everyone wanted to serve the large and medium-sized customers,” he explained. “The small towns weren’t large enough (power consumers) to make them attractive. That is no longer the case. There is now a lot of opportunity for small towns, and we’ve been looking at them much more closely than in the past.”

Maine Power Options (MPO), which is co-sponsored by the Maine Municipal Bond Bank and the Maine Health and Higher Education Facilities Authority, serves both municipalities and nonprofits as an energy-buying consortium for electricity and fuel oil. It, like most aggregators, is essentially a broker that helps individual towns negotiate electricity prices. Other companies, such as Freedom Energy Logistics, out of Manchester, N.H., organize customers into a cooperative group that buys power directly and then redistributes it to members. To date that model has been more successful among businesses rather than municipalities, according to Freedom Energy representative Jerry Tudan.

“We enter into an agreement with a power provider – Constellation Energy is our current supplier – and negotiate contracts to provide our eligible members with electricity,” Lenna said. “Because we’re bringing a large group of buyers to Constellation, we’re able to get a price lower than the standard offer.”

ADDING STREET LIGHTS

Complicating the issue is the fact that towns may have up to a dozen or more different electricity accounts for everything from the local water district to street lights. Some accounts were large enough to attract aggregator attention from the beginning, while others are only now becoming eligible.

The Town of Eliot, for example, was recently able to add its smaller street light accounts to its aggregator contract after several years of buying energy for its larger accounts through an MPO contract.

INCREASED SCRUTINY

With every penny in municipal budgets coming under increased scrutiny, town officials who may have dismissed power aggregators in the past are re-examining earlier decisions to stay with power utilities’ standard offers.

“If I could reduce our power bill by even $10 to $20 a month, I’d consider signing up with an aggregator,” said Lamoine Administrative Assistant Stu Marckoon. “We pay about $225 a month now for town accounts and another $150 for the fire station, but that’s split among six different accounts. We get six bills a month from Bangor Hydro.”

Marckoon adds that the town already partners with neighboring Hancock to buy fuel oil to heat the town hall and the fire station. “We’re certainly not opposed to the idea.”

Aggregator companies emphasize that saving money isn’t the only or even the chief benefit. “It eliminates risk,” said Jonathan Youde, program director at MPO. “Towns are not exposed to price increases due to market forces, for example.”

Most towns opt for fixed-price contracts, which allow them a sturdier platform for budget planning, too. “If they know what their usage is month-to-month, they can anticipate electricity costs much more clearly,” Youde said.

Town officials and aggregators alike say that another benefit of the process is that it makes towns more energy conscious. Turner Town Manager Eva Leavitt began monitoring the town’s electrical costs three years ago, when the selectmen first considered signing up with an aggregator.

“We would have saved about $2,300 if we had signed up with Glacial Energy three years ago,” she said. The town’s total electrical bill last year was $20,529. “It’s something we’ll look at again, certainly,” she said.

Nonetheless, saving money is a primary motivator for towns looking at signing up with aggregators.

“Whenever we’ve renewed our contract, the price has been lower than the standard offer from Central Maine Power,” said Dan Blanchette, the veteran administrative assistant in Eliot. Blanchette said savings have ranged from 5 to 10 percent.

“The savings have been in the hundreds or maybe low thousands of dollars,” he allowed. “It’s not huge but it’s certainly something.”

In Leeds, administrative assistant Joyce Pratt said the town recently began buying its electricity through a contract with Glacial Energy. “I’m working now to see how it has affected us in terms of savings,” she said.

She added that the shift has allowed the town to take a closer look at its electrical consumption and plan conservation measures.

SAVINGS IN BREWER

Brewer has conducted several municipal energy audits over the years, and while not directly responsible for prompting the city to sign up with an aggregator, the audits have come in handy not only for reducing energy usage but also for comparing costs.

The city first signed a fixed-rate contract with Constellation in June 2010 for its medium-sized accounts, including school buildings, and added street lights later, City Manager Steve Bost said.

Bost said the variable nature of standard power pricing — it can change monthly for some customers — means “some months show major savings while other months show very small losses.” The overall trend is lower costs.

For example, their streetlight accounts are fixed at 6.15 cents per kilowatt hour, compared to the standard offer price in November of 8.25 cents. “Although the standard offer price will likely come down, it has never fallen below our fixed price,” Bost said.

The city’s fixed price for its medium-class accounts is 6.43 cents per kilowatt hour, while Bangor Hydro is charging 7.561 for December 2011, 8.771 for January 2012 and 8.52 for February.

Bost says the transition to using an outside energy supplier went smoothly, despite some early bumps over billing. “We’ve been very happy so far,” he said. “We have no plans to change.”

While aggregation contracts are by far the most common method of buying electricity, the potential savings have encouraged several Maine municipalities to investigate creating their own power companies.

BUCKSPORT EXPERIENCE

Several years ago, Bucksport seriously considered building its own energy generation system using wind turbines and waste steam from the Verso Paper mill. Madison has operated a town-owned electric utility company for more than a century, a factor that attracted a commercial greenhouse operation to the community.

In 2010 the City of South Portland looked into creating its own nonprofit energy supply company, encouraged by the potential of saving upward of 40 percent on its electricity costs. The company would buy electricity at wholesale prices from the New England Power Pool and distribute it to residents and businesses.

“Energy is one of the biggest costs for business in Maine,” said Assistant City Manager Erik Carson, who took the lead on the project. “Bringing down that cost would have been a major advantage for businesses here.”

A public survey and talks with neighboring Scarborough and Cape Elizabeth to join the effort were both positive, Carson said, but two major barriers emerged in early 2011.

“The standard offer from Central Maine Power (negotiated through Maine Power Options) came in at a surprisingly low 8.4 cents per kilowatt hour,” Carson said. “The savings over the wholesale rate were kind of skinny, only 5 to 10 percent.”

Additionally, initial estimates of $25,000 to $40,000 to set up the company proved far too optimistic. “The start-up costs mounted to almost $1 million to establish the accounts with the New England Power Pool,” Carson said. “It would have taken two to three years to break even. Because taxpayer funds were involved, we wanted to make sure it was a reasonable process.”

The city has put the project on hold but it has not closed any doors. “It’s worth holding as an option if prices go up in the future,” Carson said. “It’s not in the normal scheme of things for municipal government to be entrepreneurial, but this would have allowed us to be creative in a way that would have benefitted the taxpayers and enhanced the city’s attractiveness for business.”

Keeping their options open might well be the key focus for town officials as the energy markets in all their aspects seem to grow more volatile by the week.

As Eliot’s Dan Blanchette put it: “Nothing is simple any more, not even buying electricity.”