ABAG: A Regional Approach to
Local Government Facility Aggregation
The Association of Bay Area Governments (ABAG) was among the first
to explore new power purchasing opportunities in California's restructured
electricity market. ABAG Publicly Owned Energy Resources (POWER),
a joint powers agency comprised of 106 local governments, decided
to take a regional approach to aggregating the accounts of local
government agencies. The rationale for this approach was that economies
of scale would reap larger savings than if each local government
tested the electricity market on its own.
Challenge:
Local governments are always seeking ways to reduce operating expenses.
An ABAG aggregation program saved 32 local government agencies an
average of 7% on natural gas purchases in the 1996 fiscal year,
almost three times initial savings projections. Could an electricity
aggregation program also surpass initial expectations of savings?
Implementation Strategy:
 When
ABAG launched its electricity aggregation program in November 1996just
months after the California Legislature passed AB 1890some 127 local
government agencies expressed an interest in electricity shopping.
Local governments not belonging to ABAG were invited to participate.
The first step was for all potential participants to compile data
on the "load profile" of these accounts. A load profile is the shape
of electricity demand over a certain time periodtypically calibrated
over a 24-hour day, a week, a month and seasonally.
ABAG then designed a Request For Proposals (RFP) to explore what
suppliers other than the incumbent utilityPacific Gas & Electric
(PG&E)might offer. The RFP was sent to 400 firms and attracted
20 bids. ABAG narrowed the list to twelve proposals and conducted
a detailed evaluation process which further reduced the pool of
energy service suppliers. ABAG POWER chose the following companies
to provide the following services under a one-year contract:
-
Seattle City & Light, a municipal utility, PG&E Energy
Services, an unregulated subsidiary of PG&E Corporation,
and PacificCorp, a utility which operates in seven western states,
will all provide firm power;
-
The Northern California Power Agency (NCPA), a joint power
agency consisting of twelve municipal utilities and other local
public sector consumers, was selected to provide the schedule
coordination services for all ABAG POWER participants;
-
Arizona Public Service, an investor-owned utility, will provide
consolidated billing services and firm power.
-
CellNet, of San Mateo County, will provide metering services.
The aggregation program is currently structured to purchase power
under a Master Enabling Agree-ment with the participating portfolio
of suppliers. The Master Agreement provides an umbrella contract
under which ABAG POWER acquires power for its members in a timely
fashion according to a pre-approved strategy. Quick responses to
suppliers' offers allows ABAG POWER to capture favorable market
pricing in today's fast-paced electricity market.
Results To date:
All told, 64 local government entities are participating in the
aggregation program, representing 7,000 electricity accounts and
$50 million in annual electricity costs. It is projected that participants
will save a total of $3 million in electricity costs in 1998, though
there is no guarantee of any cost savings in the early stages of
the program. Savings will vary widely among participants. The City
of Hercules, for example, stands to save $9,000 in 1998, while the
City of Oakland could reduce energy costs by $140,000.
Because of the delay in the opening of California's electricity
market to competition from January 1, 1998 to March 31, 1998, local
governments participating in ABAG POWER's aggregation program have
little information on cost savings at this time.
Lessons Learned:
One of the main lessons learned by ABAG POWER is to be skeptical
about cost savings quotes offered by potential suppliers. Often
power marketers and other sellers will quote savings of 20 to 30%,
but they are only talking about cost reductions in the generation
portion of a customer's bill, which only makes up about 25% of the
typical bill. A claim of 20% savings would, therefore, translate
into a total savings of only 5%.
Even alleged firm price bids received by local governments may
be illusory. Two bidders changed prices despite the fact they had
previously signed bid price authorization forms.
Another problem somewhat unique to local governments is the nature
of their electricity loads. Even if all members of ABAG put their
loads into the aggregation pool, it would represent 300 MWthe same
as a mid-sized industrial customer. Unlike industrial users, however,
local governments lack the flexibility to avoid the high-priced
peak power periods of noon to 5 p.m. because their facilities are
typically 9 a.m. to 5 p.m. operations.
Still, ABAG POWER does not regret its entrance into California's
new electricity market. If there are savings to be captured, they
are likely to accrue to pooled power purchase programs, such as
ABAG's, where diverse end-uses make a more balanced load profile
possible. Working together with other local governments helps defray
costs. Pooled power purchase programs also are a logical first step
for any local government considering community aggregation programs.
For More Information:
ABAG POWER (Heidi Cruz)
P.O. Box 2050, Oakland, CA 94604-2050
(510) 464-7908
fax (510) 464-7985
e-mail: HeidiC@abag.ca.gov
web site: http://power.abag.ca.gov
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