Advantages and Disadvantages of Electricity Aggregation: Is it Good or Not and Can We Really Know?

The Woes of Electricity Deregulation (according to me)

     I’m pretty sure I don’t care much for deregulated electricity as I live in a state where energy and electricity are deregulated. One reason I don’t like it is that I don’t really want to spend effort and time negotiating a rate. I mean, I don’t have to negotiate my water rates, my gas rates, my trash rates, my sewage rates, my grocery rates etc., so why should I have to negotiate my energy rates? I am a penny pincher these days, but I don’t want to spend all my time on such things. Another reason I don’t like energy deregulation is the constant annoying advertising. This advertising and solicitation take several forms: junk mail, phone calls, texts, and those people at my local Walmart who basically harass you while you are shopping. I’m surprised that they allow that last one. A third reason is that I know some of the failures of deregulation that have occurred in the past such as reduced power line maintenance that has led to things like blackouts and in more recent times, powerline-induced wildfires.  

     I don’t want to have to sign-up every year since I don’t want to forget and get locked into much higher rates accidentally. People have complained about such things occurring. Opting in and opting out are a kind of “nudging.” While I am not always against what has also been called “libertarian nudging” in general, it needs to be for something more worthwhile than just rate negotiation. However, I may not be opposed to having others do the negotiating on my behalf, as is done in aggregation.

 

 

What is Aggregation?

 

     According to the Canadian site energyrates.ca: “The definition of energy aggregation is when a group of local institutions, small businesses or companies partner together in order to purchase energy from one or more developers at smaller volumes while still benefitting from the economic advantages of high volume power purchases. Many small companies sign virtual power purchase agreements (VPPAs) through electricity aggregators.” The goal of aggregation is to force competition to lower prices. Simply put, it is bulk buying, which offers some advantages including lower per-unit costs, fewer shopping trips, potentially saving you time and fuel expenses, cost control, flexibility, and environmental responsibility. This buying as a collective is a kind of “collective bargaining.” The last time I voted local electricity aggregation was on the ballot. I voted for it since I thought it would offer lower electricity rates. I felt this was important since our rates just went up nearly 30%, a huge increase. The aggregation was defeated. I live in a Republican stronghold county that went for Trump 78% to 22% for Biden. Perhaps anything associated with collective bargaining will be unpopular here.

 

 

 

Pros and Cons of Electricity Aggregation  

 

     Whether electricity or energy aggregation is a net good or a net not good depends mostly on comparative negotiation. In some cases, individuals can negotiate lower rates than groups (aggregators). This varies on a case-by-case basis. A utility is an aggregator as well. However, individuals can sometimes negotiate lower rates than utilities. Those who are wary of aggregation note that bulk buying of energy, in contrast to bulk buying of goods, does not always offer better pricing for the consumer. Aggregators that require exclusivity, require upfront costs, claim best rates, and claim transparency, may not offer the best deal for consumers. Energy.ca offers the following pros and cons of aggregation:

“The benefits of energy aggregation:

Greater buying power and greater access to large projects and options suited to individual needs.

Reduced energy pricing.

Lowered transaction costs.

Partnering with other companies in investing in a portfolio of energy projects limits exposure to risk.

The risks of energy aggregation:

Matching supply with demand – project developers often want to sell the full output from their project rather than just a portion.

Smaller buyers have a less attractive credit rating as compared to larger organizations – some developers will attach a risk premium when selling to smaller buyers.

Coordination meeting the needs and requirements of every involved small business.”

     Aggregators can share legal and transaction costs among multiple buyers, attract larger deals with multiple buyers, share best practices, and allow smaller power buyers (individuals) to participate.

     According to Infolific, the advantages of aggregation are an easy enrollment process, potential for savings, and certainty, or predictability. The disadvantages they highlight are average-based rates (you may end up paying more depending on your usage), sign-in required (opt-in/out clauses), and one is locked into an agreement for a specific amount of time.

 

 

What About Community Choice Aggregation?

     Community choice aggregation (CCA), or municipal aggregation, involves local governments that “procure power on behalf of their residents, businesses, and municipal accounts from an alternative supplier while still receiving transmission and distribution service from their existing utility provider.” The CCA model for aggregation has specific requirements. CCAs are popular for clean energy procurement. While they can negotiate lower rates, they can have disadvantages as well, including pushback from the utilities with which they compete, administrative costs, regulatory complexity, and confusion for customers of opt-in and opt-out clauses.

     In my 2021 book, Sensible Decarbonization, I was critical of green energy CCAs, CCAs that focus specifically on green energy procurement. Most CCAs are not green CCAs. While green CCAs can use some of the purchasing powers of CCAs to offset the higher costs of clean energy, that does not really benefit those consumers who opt-in, who often still pay more. Green CCAs buy and sell lots of renewable energy credits (RECs). Green CCAs are good for those who wish to make claims about renewable energy that are really just hype, such as when a city claims it is powered by 100% renewable energy because it buys RECs, when in fact it is powered mostly by fossil energy and just purchases renewable energy elsewhere through RECs. It is a kind of “greenwashing.”

     Municipalities have financing advantages over utilities. They can borrow at lower rates using tax-exempt bonds and loans with better terms. However, critics have argued that municipalities already have significant debt and taking on more debt is risky. Consultants, employees, renewable energy companies, and public officials can profit at the expense of taxpayers. In my book I was considering whether green CCAs were actually a kind of (unintentional) scam: “It is also important to note that even though CCAs tout cheaper rates, there is no guarantee, and over a long time period are more likely to be more expensive than power straight from utilities and if so they cannot get out of their long-term power purchase commitments. Another risk is that if too many customers opt out, which they will if costs go up too fast, then their ability to provide value for remaining customers is diminished. Other potential issues are market risk (energy markets are volatile), regulatory risk (new fees approved by utility commissions could be added), interagency conflict (CCAs often include several cities and people with sometimes competing interests), political risk (CCA’s leverage subsidized energy against non-subsidized energy which can upend energy markets), added budget pressures (high startup costs, staff time, pressuring organizations to buy power at higher prices), lack of public accountability and oversight showing taxpayer costs, and lack of energy industry experience in procuring power compared to utilities. Some think that when local utilities simply offer consumers renewable energy options the CCAs will fade away. Another argument is that local governments should not be in the electricity business and their considerable investment in that business should not compete with other services. Future generations are being burdened with unnecessary debt.”

 

     As for me, I still might still consider opting into an aggregation plan in hopes of saving money, but I acknowledge it could be risky, and I would definitely avoid a green CCA. Basically, these days I am more inclined to just stay with the utility rates and hope for the best.

 

 

References:

 

The Pros and Cons of Energy Aggregation. Mario Alexander. Infolific. The Pros and Cons of Energy Aggregation | Infolific

What is Energy Aggregation, How it Works and Pros & Cons. Energy Rates.ca. What is Energy Aggregation, How it Works, Pros & Cons – EnergyRates.ca

The Electrical Aggregation Pros and Cons Ultimate Guide. Tad Dziemian. Electrical Aggregation Pros and Cons — Neighborhood Energy (neighborhoodenergyne.com)

CUB’s Guide to Municipal Electricity Aggregation, in Citizens Utility Board (Illinois) https://www.citizensutilityboard.org/electric_municipalaggregation/

Riley, Kim, 2019. Consider Pros, Cons of Choosing Community Choice Aggregation to Source Local Electricity. Daily Energy Insider. https://dailyenergyinsider.com/featured/19691-consider-pros-cons-of-choosing-community-choice-aggregation-to-source-local-electricity/

Lack, Wendy, March 27, 2017. A Bad Idea that Only Gets Worse: “Community Choice” Electricity; Risks Outweigh Benefits of “Community Choice” Electricity. Alliance of Contra Costa Taxpayers. https://www.allianceofcontracostataxpayers.com/blog/2017/3/27/a-bad-idea-that-only-gets-worse-community-choice-electricity

Sensible Decarbonization: Regulation, Risk, and Relative Benefits in Different Approaches to Energy Use, Climate Policy, and Environmental Impact. Kent C. Stewart. Amazon Publishing, 2021.