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«SUMMARY The City’s Administration is asking City Council to enact legislation authorizing the City to conduct an electricity supply bidding process ...»

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MEMORANDUM

TO: Mayor Earl M. Leiken

Members of City Council

Jeri E. Chaikin, Chief Administrative Officer

FROM: William M. Ondrey Gruber, Director of Law

Matthew Rubino, Director of Finance

DATE: November 21, 2014

RE: Electricity Suppliers for City Accounts

SUMMARY

The City’s Administration is asking City Council to enact legislation authorizing the City to conduct an

electricity supply bidding process through the services of Aspen Energy, LLC, and then to enter into a contract for up to three (3) years with the electricity supplier providing the lowest and best offer to supply electricity for the City’s large non-NOPEC electric accounts, as well as the City’s street lighting, traffic lighting, and private outdoor lighting accounts.

The Finance Committee voted to recommend that Council enact the proposed legislation.

DISCUSSION The City has numerous electric accounts with the Cleveland Electric Illuminating Company (CEI) a subsidiary of FirstEnergy Corp., which serve all City buildings and facilities, and provide outdoor, street, and traffic lighting.

In the 1990s, the utilities providing electricity were deregulated by the Ohio General Assembly, and rules adopted by the Public Utilities Commission of Ohio (PUCO). In the past few years, deregulation has led to the creation of an electricity marketplace for residential, business, and institutional customers. Through this marketplace, electricity customers, including the City, may purchase electricity from a supplier other than CEI, and have CEI deliver that electricity over the CEI distribution system.

In 2000, the Northeast Ohio Public Energy Council (NOPEC) was established as a council of governments under Ohio law. NOPEC established an electricity aggregation program. 1 An “aggregation program” is a type of utility service, authorized by Ohio law, where customers are joined into a group (i.e.

“aggregated”) to buy electricity (or natural gas) from a single supplier. Local governments are permitted to form aggregation programs on their own or by joining with other local governments, such as through NOPEC.

CITY OF SHAKER HEIGHTS I LAW DEPARTMENT

3400 LEE ROAD I SHAKER HEIGHTS, OH 44120 I TEL 216.491.1440 I FAX 216.491.1447 I OHIO RELAY SERVICE 711 I WEB shakeronline.com Also in 2000, the City’s Council authorized and directed the Cuyahoga County Board of Elections to place a measure on the ballot at the November 7, 2000 general election asking Shaker residents if they wanted the City to establish an “opt-out” 2 electric aggregation program (Ord. 00-107, enacted on July 24, 2000). The voters approved the measure. Later that year, Council authorized the City to join NOPEC (Ord. 00-144, enacted on October 23, 2000), and adopted a plan of governance for the electricity aggregation program (Ord. 00-163, enacted on December 18, 2000).

Many of the City’s electric accounts (14) are supplied through the NOPEC Program by FirstEnergy Solutions (FES), a subsidiary of FirstEnergy Corp. However, City accounts which have usage of 700,000 kilowatt hours (kwh) or more per year are not eligible for the NOPEC “opt out” electric aggregation program, pursuant to Ohio law.

The City has 4 regular accounts that are not with NOPEC; including the two largest accounts for the Service Center and Thornton Park and Ice Rink, and two smaller accounts for outdoor lighting at Horseshoe Lake Park. Also, the City’s 17 accounts for street lighting, traffic lighting and private outdoor lighting (mostly for parking lots and parks), are not with NOPEC.

The City has received a number of solicitations over the past few years from electricity suppliers offering to serve the City’s two large accounts. No supplier was able or willing to serve the City’s street, traffic, and outdoor lighting accounts.

In order to find an electricity supplier for the two large accounts, the City would have to, on its own, or by hiring a consultant, create a process for seeking electricity supply offers from multiple suppliers. It would be a complicated and time-consuming process.

Recently we were approached by Aspen Energy, an electricity supply broker, which has offered, at no cost to the City, to seek supplier bids and assist the City to select the lowest and best offer to supply electricity for all of the City’s non-NOPEC accounts. Aspen is the first company we have found that has offered to solicit and find suppliers able to serve the City’s street, traffic, and private outdoor lighting accounts.

NOPEC has not yet offered aggregation service for street, traffic and private outdoor lighting for it members. NOPEC officials recently informed us that they have not yet determined whether and when to offer such service.

Aspen Energy Corporation, of Powell, Ohio, is a PUCO-certified broker. Brokers assume the contractual and legal responsibility for the sale and/or arrangement for the supply of retail electric generation service to a retail customer without taking title to the power supplied. It is considered a type of Competitive Retail Electric Service (CRES) provider under PUCO rules. Aspen Energy Corporation (“AEC”) was established in 2000. It has one owner, Jonathan Peele. Manta.com estimates that AEC generates annual revenues of approximately $1.9 million dollars and employs between 20-49 workers.





Aspen will be compensated by the supplier that is ultimately selected by the City. Thus, the City will not expend any funds for the bidding process.

While we do not know yet which company will ultimately provide the lowest and best offer for the City’s non-NOPEC electricity accounts, Aspen solicited bids for the City in anticipation of a potential “Opt out” aggregation is a type of aggregation program in which all eligible residential and small business customers are automatically included in the aggregation, unless a customer individually “opts out” by notifying the utility that they do not want to participate. Customers who have entered into individual contracts with suppliers are not eligible for the “opt out” program, though they usually may “opt in” by canceling their contract in order to join, or join when their contract expires.

2 of 4 contract in order to provide examples of potential savings. In that process, Direct Energy Business LLC presented the lowest and best offers.

Direct Energy Business LLC, is a PUCO-regulated marketer and Competitive Retail Electric Service (CRES) provider. Marketers assume the contractual and legal responsibility for the sale and provision of retail electric generation service to a retail customer and have title to the electric power provided at some point during the transaction.

Direct Energy Business LLC, with its regional office in Pittsburgh, PA., is a subsidiary of Direct Energy, headquartered in Houston, TX. Direct Energy is a fully integrated energy company and one of the largest retail providers of electricity, natural gas, and home services in North America; supplying electricity and natural gas to over 20 million homes and businesses in North America and Europe.

Direct Energy employs over 6,000 workers and has invested over $2 billion over the last three years in acquiring other energy service providers. Direct Energy was acquired by Centrica, plc in 2000, making it a wholly owned subsidiary of the British energy conglomerate.

When the City, through Aspen, would solicit and accept bids, they would be only from PUCO-certified suppliers like Direct Energy. We will ensure that the ultimate supplier selected is fully capable of meeting its supply contract with the City.

Due to volatility in the electricity market, offers to supply electricity must be acted upon quickly once presented to the City (through Aspen). That is why the Administration is asking City Council to approve legislation giving the Administration the authority to solicit bids for electricity supply service through Aspen Energy, and then contract for one to three years with the lowest and best supplier.

Pursuant to Section 141.03 of the City’s ordinances, “Council may authorize…expenditures of the funds of the City in amounts exceeding twenty-five thousand dollars ($25,000) without public bidding,…for the product or services of public utilities…” The City’s electricity accounts with CEI are primarily still operated as a monopoly service under PUCO-approved tariffs rather than through contracts. Even after deregulation, most of the electric bill (about 2/3) for each City account is non-competitive. It is comprised of by charges for distribution (including the poles, wires, and meters), and services such as meter reading and billing by CEI.

With deregulation, approximately 33% of the electric bill is comprised of by electricity supply that is now subject to competition (which is referred to as the “bypassable” portion of the electric bill). This means that the supply for which the City would be seeking bids, impacts about 1/3 of the City’s electricity account expense.

The City spends about $1.15 million on electricity annually for electricity. Approximately 1/3, or $383,000 is subject to competition. The City spends a little less than $800,000 per year alone on street and traffic lighting. About 1/3 of that amount, or around $260,000, is subject to competition.

The recent offers solicited by Aspen to give the City an example of what bid prices might mean for the City of Shaker Heights would save the City approximately $37,000 annually over a 3-year contract for the 4 regular non-NOPEC City accounts (including the Service Center and Thornton Park and Ice Rink.) The savings for street and traffic lighting could be as much as $80-90,000 per year. (Note that these amounts are rough estimates and subject to the market prices available at the time the City, through Aspen, actually solicits bids.) That means that the City may be able to save $110-120,000 per year on electric costs through the competitive bidding process, or about 10% of the total cost, or 30% of the bypassable or competitive portion of the City’s bills.

3 of 4 At its meeting on November 17, 2014, the Finance Committee voted to recommend that Council enact the proposed legislation authorizing the Administration to solicit bids and enter into a contract with the supplier/marketer submitting the lowest and best proposal for the City’s non-NOPEC electric accounts.

REQUEST

We request that City Council enact legislation authorizing the City to solicit bids for electricity supply through Aspen Energy, LLC, and enter into a contract for electricity supply for its non-NOPEC electric accounts with the lowest and best bidder, for a period of up to three years.

We request that this legislation be enacted on first reading and as an emergency in order to take advantage of savings at the earliest time possible.

wog14/councilmemos/1114ElectricitySuppliersCOUNCIL

–  –  –

Authorizing the City to solicit bids for electricity supply service through Aspen Energy, LLC, and then contract for one to three years with the lowest and best supplier for certain electric accounts, pursuant to Section 141.03 of the Codified Ordinances, and declaring an emergency.

Whereas, the City has numerous electric accounts with the Cleveland Electric Illuminating Company (CEI) a subsidiary of FirstEnergy Corp., which serve all City buildings and facilities, and provide outdoor, street, and traffic lighting; and Whereas, due to the deregulation of electricity supply in Ohio, an electricity marketplace has emerged, through which the City may purchase electricity from a supplier other than CEI, and have CEI deliver that electricity over the CEI distribution system; and Whereas, many of the City’s electric accounts are supplied by FirstEnergy Solutions (FES), a subsidiary of FirstEnergy Corp., through the City’s membership in the Northeast Ohio Public Energy Council’s (NOPEC’s) Electric Aggregation Program, but City accounts with usage of 700,000 kilowatt hours (kwh) or more per year are not eligible for the NOPEC “opt out” Program, pursuant to Ohio law and NOPEC’s Program does not serve street, traffic and private outdoor lighting accounts; and Whereas, the City has four regular electric accounts, including the two largest accounts for the Service Center and Thornton Park and Ice Rink, and two smaller accounts for outdoor lighting at Horseshoe Lake Park, and seventeen street, traffic and private outdoor lighting accounts that are not served through the NOPEC Program; and Whereas, the City is working with Aspen Energy, LLC, an electric supply broker, which has offered, at no cost to the City, to seek supplier bids and assist the City to select the lowest and best offer to supply electricity for all of the City’s non-NOPEC accounts; and Whereas, due to volatility in the electricity market, offers to supply electricity must be acted upon quickly once presented to the City, such that it is reasonable and necessary for this Council to authorize the City to solicit bids for electricity supply service through Aspen Energy, LLC, and then contract for one to three years with the lowest and best supplier; and Whereas, Section 141.03 of the City’s ordinances allows Council to authorize expenditures in amounts exceeding twenty-five thousand dollars ($25,000) without formal public bidding for the product or services of public utilities.

NOW, THEREFORE, BE IT ORDAINED by the Council of the City of Shaker

Heights, State of Ohio:

Section 1. This Council hereby authorizes the City to solicit bids for electricity supply service through Aspen Energy, LLC, and then contract for one to three years with the lowest and best supplier for certain electric accounts, pursuant to Section 141.

03 of the Codified Ordinances.

Section 2. The Mayor is hereby authorized to enter into a contract for electricity supply for certain City electric accounts pursuant to the process authorized in Section 1 of this ordinance, in a form approved by the Director of Law.



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