Andrew Fiske and Hart Passman are Associates in our Chicago office

On January 1, 2010, an amendment to the Illinois Power Agency Act, 20 ILCS 3855/1-92, (the "Act") brought municipal electric aggregation to Illinois. Electric aggregation allows municipalities to create a program to obtain lower rates for residential and small commercial electricity customers by jointly purchasing electricity for the aggregated customers (the "program"). Several municipalities have initiated or even completed the process to establish their programs. Electric aggregation is increasingly capturing the attention of Illinois municipalities and 2012 appears to promise a dramatic increase in municipal interest in electric aggregation.

"Opt-Out" or "Opt-In" Programs

The Act allows a program to operate in two different ways – as an "opt-out" program that applies to all customers who do not affirmatively choose not to participate, or as an "opt-in" program that applies only to customers who volunteer. Opt-out programs require approval by referendum; opt-in programs do not.

The Statutory Steps to Establish a Program

Although the Act leaves out many significant details, the Act does provide a comparatively straightforward process for establishing a program. The necessary steps include all of the following:

  1. for opt-out programs only, presenting a referendum question at a general election
  2. adoption of an ordinance authorizing the program
  3. approval of a plan of governance for the program
  4. identifying and contracting with electricity suppliers through a public bid process
  5. implementation of the program

Step 1: Referendum Question

The Act's requirement for referendum approval only for opt-out programs makes sense from a policy standpoint because opt-out programs apply throughout the municipality and place the burden on customers to exclude themselves from the program by affirmatively opting out.

The municipality initiates a referendum question by first approving the question by resolution, then submitting it to the county clerk for placement on the ballot. The Act provides the precise language that must be used for the referendum question: "Shall the [municipality] have the authority to arrange for the supply of electricity for its residential and small commercial retail customers who have not opted out of such program?" The Illinois Election Code requires that a resolution placing a referendum question on a ballot must be adopted at least 79 days prior to an election. So, for example, a referendum for the March 20, 2012 election must be authorized by resolution no later than Tuesday, January 3, 2012.

If the referendum passes, the municipality may – but is not obligated to – proceed with an opt-out program. If the referendum fails, the municipality can, if it chooses, operate an opt-in program instead.

Step 2: Adoption of Ordinance

All programs, whether opt-out or opt-in, require the municipality's corporate authorities to pass an ordinance establishing the program (the "ordinance"). The Act does not specify the form or contents of the ordinance. It is recommended that the ordinance state that the program is adopted pursuant to the Act, that the program is either opt-out or opt-in, and that the municipality's staff are authorized to proceed with the statutory steps necessary to implement the program.

The Act also does not specify whether the ordinance should be "stand-alone" or incorporated as amendments to the municipal code. Either approach will suffice; the choice between them will depend on the municipality's practice and preference.

Step 3: Consideration and Approval of the Plan of Governance

After approval of the ordinance, the Act requires the municipality to develop and approve a plan of governance for the program (the "plan"). The essential purpose of the plan is to describe how the program will operate. The Act requires two public hearings to consider the plan, published pursuant to newspaper notice at least once a week for two consecutive weeks prior to the first public hearing. Once the two public hearings are complete, and the municipality has made any revisions to the plan based on public comment, the corporate authorities must approve the plan.

As with the ordinance, the Act provides little guidance on the specific contents of the plan, other than three general elements, including that the plan must accomplish the following:

  1. provide for universal access to all applicable residential customers and equitable treatment of applicable residential customers
  2. describe demand management and energy efficiency services to be provided to each class of customers
  3. meet any requirements established by law concerning aggregated service offered pursuant to the Act

These elements are vague and therefore not very helpful because they use specific terms that the Act leaves undefined (such as "universal access," "demand management," "energy efficiency services" and "class of customers"), and much of the information relevant to these elements may only be known after the bid process ends and suppliers identify the nature and scope of their services. Given these limitations, the most practical approach to the plan is to provide as much specificity as possible about how the program will operate, particularly concerning how customers will be notified about the nature of the program and, for opt-out programs, how customers can choose not to participate.

Step 4: Public Bidding Process

After approval of the plan, the municipality must conduct a public bidding process to identify electrical suppliers. Note that the services required from suppliers will be limited because the electric utility – not the supplier – remains responsible for actually delivering electricity to customers, including maintaining the necessary equipment to provide and maintain customers' electrical service. Suppliers will be responsible for delivering the actual electricity to the electric utility, such as ComEd, and can be required to perform related program services that the municipality specifies, such as identifying eligible customers and managing information concerning customers who opt out of the program.

The services provided by the supplier should be memorialized in an agreement with the supplier that is reviewed and approved by the municipality's attorney (the "agreement"). In preparing bid packages for the program, it will be helpful to include the draft agreement along with the bid package, so that suppliers are notified from the beginning of the bid process as to the municipality's contractual requirements and expectations.

Step 5: Program Implementation

After choosing the supplier and executing the agreement, the final step is the actual implementation of the program pursuant to the agreement. The key step here is ensuring that customers receive notice as required by the Act explaining how the program will work and, for opt-out programs, how customers can choose not to participate. Customers must receive notice of the price of electricity under the program, how the program will impact them, and how the customer can choose not to participate and continue to receive electricity through ComEd or another alternative supplier. Implementation will require close cooperation between municipal staff and the supplier, so it is again important that the agreement clearly establishes the supplier's responsibilities to the municipality in implementing the program.

Other Factors to Consider

Here are some factors to keep in mind in considering whether to adopt a program:

Teaming up with other municipalities

The Act specifically authorizes municipalities to work together in creating aggregation programs via an intergovernmental agreement. These joint efforts can be limited to the bidding and contracting process or include the actual implementation of the programs. By pooling their customers together, joint efforts may result in lower electricity rates from suppliers than each municipality would receive individually.

Input from the Illinois Power Agency

The Act states that the Illinois Power Agency (IPA) will assist municipalities in developing their plans, bidding documents and agreements. The expertise of the IPA in the technical aspects of electricity supply is an important and welcome resource for municipalities. However, the legislature has placed a heavy responsibility on the IPA by requiring it to assist municipalities with the aggregation process – in addition to IPA's existing responsibilities concerning statewide electricity issues – without providing any commensurate increase in IPA's staffing or resources. Despite these challenges, municipalities should not hesitate to reach out to the IPA for its technical expertise, and many municipalities have already received helpful substantive guidance from IPA in implementing their programs.

Consultants

Electricity supply is a highly competitive business – and companies and suppliers offering aggregation-related services are everywhere. Municipalities with any level of interest in aggregation may be overwhelmed by information and offers from consultants or suppliers. Much of this information may be helpful; some of it may not. In considering whether the services of a consultant may be helpful in the aggregation process, it is advisable to consult with your municipal attorney to help ensure that your aggregation process proceeds in an effective, cost-efficient manner that complies with the requirements of the Act.

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