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updated: 8/6/2012 1:50 PM

Some suburbs boost budgets with electric aggregation fees

Several suburbs are skimming some electric aggregation savings to help fill holes like taxes lost after a store closes

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  • Hoffman Estates is one of only seven communities in the Northwest suburban region collecting a civic contribution as part of the electric aggregation program. It could see up to $120,000 by year's end and plans to use that money for sustainability projects.

       Hoffman Estates is one of only seven communities in the Northwest suburban region collecting a civic contribution as part of the electric aggregation program. It could see up to $120,000 by year's end and plans to use that money for sustainability projects.
    Mark Welsh | Staff Photographer

  • West Dundee Village President Larry Keller stands in the parking lot of a closed Best Buy. West Dundee is one of only seven communities in the Northwest suburbs collecting what's called a civic contribution as part of the electric aggregation program. It expects about $20,000 per year and will use that money to help close a gap created by Best Buy leaving and taking its $200,000 a year in sales tax with it.

       West Dundee Village President Larry Keller stands in the parking lot of a closed Best Buy. West Dundee is one of only seven communities in the Northwest suburbs collecting what's called a civic contribution as part of the electric aggregation program. It expects about $20,000 per year and will use that money to help close a gap created by Best Buy leaving and taking its $200,000 a year in sales tax with it.
    Rick West | Staff Photographer

  • Electric aggregation revenue

    Graphic: Electric aggregation revenue

 

Editor's note: This story was updated to change the amount of civic contribution in Sugar Grove to .1-cent-per-kilowatt-hour.

West Dundee village officials found out Best Buy was closing its local store in February and the retailer was gone in March, leaving them to scale back the village budget by $200,000 due to lost sales tax revenue at about the same time as municipal elections.

Officials had the option of accepting a new revenue source when voters approved electric aggregation, giving village staffers the go-ahead to negotiate electricity rates with alternative suppliers to ComEd.

First Energy offered a "civic contribution" to the village in its bid, pledging to set aside one-tenth of a penny per kilowatt hour of electricity residents used as incentive to pick that vendor.

Unlike the vast majority of communities negotiating contracts through electric aggregation, West Dundee officials chose to accept the civic contribution. They expect to collect about $20,000 each year of the two-year contract.

"At this point, any new revenue is some assistance," Village President Larry Keller said.

Hoffman Estates, Pingree Grove, Hanover Park, Island Lake, Sugar Grove and Wood Dale also are expecting varying amounts from the civic contribution, and Campton Hills is getting $11,500 as an administrative fee from its chosen supplier, MC Squared Energy Services.

The remaining 60 towns across the Northwest and West suburbs surveyed by the Daily Herald decided against accepting the civic contribution -- some more vehemently than others.

"Our board was very unanimous in our position that that was just a hidden tax," Gilberts Village President Rick Zirk said. "If you put those fees on for essentially doing nothing, you're just increasing the tax burden on your residents."

Deregulation

Illinois opened up the electricity market for municipalities to negotiate contracts for their residents in 2010. The idea was to save consumers money by giving local governments the option of using bulk purchasing power.

By aggregating all the residential and small business electricity accounts into one group, officials expected lower rates from suppliers competing against ComEd for business. ComEd still delivers the electricity through its existing infrastructure, but the source of the power changes with a new supplier.

Municipalities had to get permission from residents to launch the aggregation process, leading to a trickle of ballot questions in 2011 that turned into a flood in March.

While the vast majority of voters cast ballots in favor of electrical aggregation, there were holdouts preventing the program in some towns including Carpentersville, Algonquin, Barrington Hills, Bartlett and Villa Park.

Some communities, including Schaumburg, are looking at the November election as another chance to get the program approved by voters. The Glen Ellyn village board already has passed an ordinance placing the question on the ballot. Communities have until mid-August to make the November ballot.

Extra revenue

Many of the seven communities collecting a civic contribution are using the revenue as a boost to their general funds. Hoffman Estates, though, plans to dedicate much of the money to sustainability initiatives.

The village is collecting one-hundredth of a penny per kilowatt hour, which could generate as much as $120,000 by year's end.

Deputy Village Manager Dan O'Malley said some of that money will be used to improve energy efficiency in municipal buildings and sponsor a rain barrel program for residents. The village's prior sustainability projects include converting all the lights in the village hall parking lot to LED and making roof improvements to increase the energy efficiency of the building.

The Hoffman Estates electricity rate of 4.96 cents per kilowatt hour also specifies 100 percent green energy, which will make sure enough energy from alternative sources makes it into the grid to offset Hoffman Estates residents' usage. Utility companies cannot direct energy once it is in the grid, but they can control where the supply comes from.

O'Malley said village board members tried to balance a desire to purchase as much green energy as possible while still getting a good rate for residents, the same balance they tried to find with the civic contribution.

Participating customers will save 28 percent on the electric supply portion of their bills through September, with the savings increasing to 40 percent when ComEd's rates jump in October. Officials secured no early termination fee and a commitment by First Energy to match ComEd's rate if it dips below the 4.96 cents per kilowatt hour rate during the life of the two-year contract.

"The program worked out really favorably for Hoffman Estates residents," O'Malley said.

In Island Lake, the village board decided to set aside its estimated $20,000 from the civic contribution for specific projects benefiting the community. The board does not want the money to go toward everyday expenses through the general fund.

Village Clerk Connie Mascillino said one example of a project could be finishing the sidewalk at Veterans Park.

"Not only did it provide the residents with less expensive electricity, but we now have the added bonus of being able to use that money for something that will absolutely benefit the residents that perhaps we couldn't afford otherwise," Mascillino said.

But opponents say the savings to residents could have been greater without the towns getting such kickbacks.

Mundelein decided against accepting money from its chosen provider, Integrys. Village Administrator John Lobaito said officials didn't see aggregation as a revenue opportunity for the town.

"We just didn't feel it was right," Lobaito said. "The intended purpose of electrical aggregation was to get the lowest possible rate for residents."

Rate variety

The difference in rates municipalities have been able to negotiate seems to depend more on the market than whether they are collecting a civic contribution.

Wood Dale, which signed its electric aggregation contract in September 2011, didn't get as low a rate as the towns that negotiated more recently, but residents have seen savings for longer as the 5.83 cents per kilowatt hour charge is still less than ComEd's rate.

Brad Wilson, Wood Dale's finance director, said the village will see $10 per enrolled customer and expects $35,000 this year. He said the board decided to take the civic contribution because the rate difference between doing so and not was "nominal."

Electricity is a commodity, which means prices vary by day and towns negotiating aggregation contracts were at the mercy of timing. Elgin ended up with a rate of 4.915 cents per kilowatt hour with the promise of 100 percent renewable energy.

Elgin officials decided against getting a civic contribution, partly because of a new utility tax that took effect July 1.

Colby Basham, Elgin's public works superintendent who oversaw the negotiations, said if the city had bid the week before it may have seen rates that were a half cent cheaper, but the week after would have been half a penny more expensive per kilowatt hour.

"We got lucky on the days that our aggregation came up for bid because those days the rates were favorable," Basham said.

Like Wood Dale, Sugar Grove also negotiated early, securing a rate of 5.99 cents per kilowatt hour last summer. Village officials did not have an estimate for total revenue from the .1-cent-per-kilowatt-hour civic contribution but expect to earmark that money for conservation or energy efficiency-related expenses.

"Until we have a handle on how much funding we're talking about, it's kind of hard to go too far with it," Village Administrator Brent Eichelberger said. "The intention has been to tie it into something that provides a community benefit in some way."

Long-term benefits?

While the savings secured with electric aggregation are impressive, exceeding 40 percent compared to ComEd's planned winter charges, the longevity of those savings is still up in the air.

Communities that secured rates of less than 5 cents per kilowatt hour will be in line for major savings, especially from October through May 2013 when ComEd's rate is set to top 8 cents per kilowatt hour, said Jim Chilson, a spokesman for the Citizens Utility Board, a nonpartisan, nonprofit entity tasked with representing the interests of residential utility customers across Illinois.

Next summer, though, ComEd's rates are expected to drop significantly. ComEd signed long-term contracts in 2007 for its energy supply and was locked into above-market rates once electricity prices dropped in the recession. When the last of those contracts expire in 2013, ComEd will be free to lower its rates.

"The jury is still out on what will happen to municipal aggregation after that," Chilson said.

Most alternative suppliers agreed to waive exit fees for electric aggregation customers wanting to switch back to ComEd or to another company. Many offered to match ComEd's rates if they dip below those outlined in municipal contracts.

But for communities that didn't get the rate-matching provision, Chilson wonders whether consumers will keep getting the best deal.

"A major question about the success of competition in Illinois is not just will consumers be able to switch from ComEd, but will they have the information they need to switch back to ComEd if the utility's rates become better?" Chilson said.


• Daily Herald staff writers Hailey Czarnecki and Russell Lissau contributed to this report.

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