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Illinois municipal aggregation ("Muni-Ag"), has directly affected several hundred thousand residential and small business electric customers and has gained recent attention in the local news throughout Illinois.¹ Muni-Ag allows for the aggregation of electric supply load by certain municipalities or counties, also referred to as a government aggregator ("GA") on behalf of eligible residential and small commercial retail customers. ² Generally, the Muni-Ag programs provide for an opt-out electric supply program, conducted by a municipality in accordance with Section 1-92 of the Illinois Power Agency Act ("IPA Act") 20 ILCS 3855/1-92 et seq. and the respective Ameren Illinois ("Ameren") and Commonwealth Edison Company ("ComEd") tariffs.

"Will My Participation in Muni-Ag Save Me Money?"

The most frequently asked question regarding Muni-Ag is, "Will I save money?" The quick answer is "yes" in the short run, or over the initial term of the Muni-Ag contract that usually is for a one or two year term. Beyond that time frame, the potential savings become more uncertain. That said, to determine any potential savings requires asking the following two questions: 1) What price do you currently pay for electricity supply; and 2) What price will I pay under the Muni-Ag negotiated price

1. Current Price -- Most residential customers in the ComEd service territory receive supply service under the Basic Electric Service ("BES") Rate:

   ComEd Standard BES Rate*³:

   • 6.932 cents per kWh (June-Sept. 2012)
   • 8.320 cents per kWh (October-May 2013)
   Visit www.pluginillinois.org to see the Price to Compare for Ameren and ComEd

2. Muni-Ag Price -- The data gathered from publicly available information shows that the simple average electric supply rate of the Muni-Ag communities with announced or implemented aggregation programs has decreased from 5.81 cents per kWh in 2011 to 4.87 cents per kWh in 2012. ⁴ Eligible customers should expect to receive an opt-out notice that will list the new price negotiated under the respective Muni-Ag program.

Some Retail Electric Suppliers ("RES") have recently claimed that electricity supply savings under Muni-Ag may range from 35% to 50%. These savings, however, only apply to the electric supply, which generally makes up 60% of a residential customers bill (See Exhibit A). Therefore, if a residential customer pays $1,000 annually for his electric bill, $600 is for supply and the annual savings would be from $210-$300. The entire electric bill, however, also includes distribution costs, as well as taxes and other fees. In other words, a Muni-Ag customer that saves between 35% to 50% on the supply portion of the electric bill will save 21%-30% over the total electric bill because the other charges remain constant whether you receive supply service from the utilities or from a RES under a Muni-Ag program. Also, these savings are based on a price to compare rate for Ameren and ComEd that is only valid from June 1, 2012 through May 31, 2013. The price to compare for June 2013 through May 2014 will not be available until sometime in May 2013.

Why Muni-Ag is Possible and the Reasons for Customer Savings

It is significant to keep in mind why Muni-Ag is possible and why there are savings at all. First, there was the legislative enactments that opened the door for Muni-Ag under Section 1-92 of the IPA Act as described previously in this article. Second, the IPA which procures power for both Ameren and ComEd pursuant to the IPA Act, has a portfolio of energy that includes power purchased under a hedging strategy as well as fixed-quantity swap contracts with the ComEd and Ameren affiliates that were approved by the General Assembly in 2007 and fixed-quantity contracts that were added in 2008 (both prior to the IPA's tenure). ⁵ Therefore, the IPA's portfolio of power for Ameren and ComEd includes higher priced power than is currently being offered in today's power market. ⁶ In essence, the IPA is long power in a falling market (See Exhibit B). In economic terms a market participant, or Muni-Ag community, would be expected to take advantage of the price differential since there is no exit fee to leave ComEd or Ameren supply service in order to take service from a RES at the current lower market prices. Additionally, as more and more ComEd and Ameren supply service customers switch to a RES, the more power that is left for the IPA to manage and may need to be sold in the open market at a lower price than it was originally purchased for.

For those communities taking part in Muni-Ag, the savings in the short term are certainly available. Yet, beyond the one or two years that the higher priced power contracts in the IPA portfolio expire, it becomes harder to say what the savings will be, or if there will be any savings at all. Several years from now there may even be RES customers looking to return back to ComEd and Ameren supply service.

Legal Issues a GA Should be Prepared for in a Muni-Ag Program

The following includes several legal issues a GA should be prepared for in a Muni-Ag process:

• Understanding of applicable statutes, ICC Rules, ICC Orders, and tariffs

• Conducting extensive and effective due diligence

• Conducting detailed energy contract negotiations

• Assuring competitive price offers are received by conducting a fair and efficient RFQ and RFP process

• Coordinating RFP process and the timing of the bid award

• Negotiating favorable price and non-price terms such as force majeure, termination provisions, and potential exit fees

• Communication and responsiveness to residents

• Maintaining the confidentiality of customer information

• Understanding the ICC informal and formal complaint process and assisting residents if they are receiving false or misleading information

Recommendations

Essentially, the GA is negotiating an electric supply contract on behalf of their community regarding an essential service under a process that may be confusing. Therefore, a well-run Muni-Ag program should: 1) look at what other municipalities have done to learn best practices - good information is publicly available and can be found on a city or village website and many village managers are willing to share their experiences-; 2) visit the Plug in Illinois website described previously and look at offers to compare under the Muni-Ag and standard RES offerings and review quarterly complaint information; 3) contact the Illinois Power Agency and have them review the Plan of Operation and Governance early in the process; 4) attend webinars and seminars offered by the ICC, IPA, and Ameren or ComEd and visit their respective websites; 5) understand the obligations of everyone that may involved in the process and effectively communicate with them; and 6) consider hiring an experienced energy attorney to represent the best interests of the GA and the residents under the program as the value in doing this will certainly be there.⁷

Footnotes

1. See for example, 'Emanuel Back Electrical Aggregation for Chicago', Chicago Tribune, June 20, 2012.

2. In 2011 19 municipalities implemented Muni-Ag opt-out programs in the ComEd service territory and in the March 2012 election, 245 communities for both Ameren and the ComEd service territories have passed referendums for a Muni-AG opt-out program.

3. *ComEd Basic Electric Service rate in effect from June, 2012 through May 2013 including the Purchased Electricity Supply Charge and the Transmission Services Charge but not including the Purchased Electricity Adjustment Charge which is a monthly determined charge, expected to be in the range of 0.4 to 0.5 cents per kWh.

4. Information for the 2011 and 2012 aggregation programs is reflective of data available as of June 29, 2012.

5. ComEd's price to compare is expected to drop significantly related to the June 2013 through May 2014 period, when an above-market power-purchase contract ComEd has with sister company Exelon Generation expires around June 1, 2013.

6. One reason for the decline in power prices is the result of falling natural gas (due to extensive shale gas discoveries) used to run most new generation plants and peaking facilities.

7. Many Muni-Ag programs have also relied on the services of an Agent, Broker, or Consultant. The ICC oversees the licensing of retail electric Agents, Broker, and Consultants pursuant to 83 Ill. Adm. Code Part 454.