Tired of rising rates? Let's aggregate
The decision made by the Rhode Island Public Utilities Commission on Tuesday to approve National Grid’s increase in electricity rates from 6.3 to 9.5 kilowatts per hour, equating to about $17 extra a month on the average residents’ power bill, has sparked a storm of conversation and emotional arguments.
However it seems that one of the most potentially fruitful discussions is not being had. This is the concept of making it easier for residents and businesses to aggregate and purchase energy – which could potentially solve problems associated with relying on National Grid to purchase and supply energy wholesale.
The philosophy behind aggregating to purchase energy for lower costs is simple. Cities and towns, or even a consortium of small and large businesses, can gain more leverage and get better prices when they join together to purchase electricity than if any one individual goes on the market to purchase electricity. This is similar to buying any product in bulk rather than buying it by individual units.
In fact, this strategy is already available to all 36 members of the Rhode Island League of Cities and Towns through the Rhode Island Energy Aggregation Program (REAP), and has been available since 1999. REAP, actually the longest-running program of its kind in the country, essentially streamlines the process by which a municipality can purchase energy to run its municipal buildings and facilities and, most importantly, gives them options outside of National Grid.
REAP works with consultants to find the most competitive energy prices from multiple energy providers, and then works out a fixed-rate contract with one chosen provider, removing the uncertainty of National Grid’s confusing and volatile system for setting rates. Each member community can then choose whether or not they want to be a part of that contract or not. The current aggregation contract through REAP is with Direct Energy, and is signed through 2018.
Whereas National Grid goes out to bid for their electricity prices twice a year, in November and May, and only those two times a year, other electricity providers are not similarly handcuffed, and can go to bid whenever electricity prices are lowest. Combine this fact with their ability to draw up fixed-rate contracts between one and three years, and the instability problem with electrical rates all but goes away.
However, these options are not currently available to the regular, everyday ratepayer or commercial user in Rhode Island. Although Rhode Islanders have the option to choose energy providers outside of National Grid through the Empower RI website, individuals may find very little, if any, cost savings through this method. If people were able to aggregate and gain a competitive advantage, this would not be the case.
So why isn’t this a choice for residents and businesses in Rhode Island, when it is already being done in hundreds of communities across the country, including dozens in Massachusetts?
Currently, in order for communities to partake in an opt-out aggregation program (which means people would automatically be enrolled in the program, and would have to choose to not be a part of it), such a program must be put to a ballot initiative and voted on.
However a legal barrier is created because, in order to have a ballot initiative proposing an aggregation program, the proposed rates that individuals and businesses would be paying would have to be included in the question. However the available price of electricity, as any National Grid customer knows, is likely to change between the time a municipality approves an aggregation program through a ballot and when they’re ready to ink an official contract, which can take months of consulting and weighing different options.
Encouragingly, a bill (H5336) addressing this obstacle passed through the Rhode Island House on June 1, and its coinciding Senate version (S0877) was recommended for passage on June 28. However no further action regarding the legislation has yet been proposed, and it is uncertain if the matter will be on the list of priorities when the legislative session picks up on Sept. 19.
Aggregating to purchase energy is good for cities and towns, and it is also a good idea for residents and businesses. Depending on the provider selected, a certain percentage of renewable energy can also be made part of the contract, so it has potentially huge positive implications for the environment as well. Even more, if you don’t want anything to do with such a program, opting out and choosing for yourself is always an option.
It may seem complicated on its face, but the fundamentals of energy aggregation are simple, they can save municipalities and ratepayers money and they only look more logical in the wake of the most recent hullabaloo following National Grid’s rate increase.