ACTION REQUESTED:
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Communication from the City Manager with a Request to RECEIVE and FILE a PRESENTATION on the Municipal Aggregation Program and the Current State of the Electricity Market, by Representatives of GOOD ENERGY.
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BACKGROUND: On April 14, Midcontinent Independent System Operator (MISO) held the Midwest capacity auction and the results were unexpectedly high. During the last auction, rates were $5.00/MW-day. Capacity is the component of power rates that provides payments to generators to maintain operations for grid reliability. At the auction, the region that covers the Ameren part of Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, Montana, North Dakota, South Dakota and Wisconsin ended at $236.66/MW-day. The other zones in the auction included Arkansas, Louisiana, Mississippi and Texas ended at $2.88/MW-day. Utilities that entered the MISO auction without enough owned or contracted capacity to cover their requirement (load plus reserves) will pay these prices for the amount of capacity they are ‘short’. The cost impact to consumers of those utility with a shortfall will depend on the amount they are short and the utility’s retail rate arrangement with their state regulator. Utilities that entered the auction with sufficient capacity to cover their requirement will not need to purchase capacity at these prices.
The soaring capacity auction prices signal a shortfall of generation reserves across the entire Midwest region. This affects all parties in the energy space, including Ameren’s utility default rates and aggregation contract prices. MISO stated that Illinois is one of 11 states where there is not enough owned or contracted capacity by local electricity generators, and therefore these areas will pay increased prices for limited supply. One reason cited for the shortfall is that as fossil fuel plants are phased out, renewable energy sources, while increasing, have not come online fast enough to replace the lost capacity. Additional contributing factors include the high demand for energy globally as well as the market turmoil caused by the conflict in Ukraine. MISO also said brownouts, which are an intentional lowering of voltage by a utility for a short period of time, are possible.
Residential Ameren utility rates are expected to increase more than $500 a year for average residential accounts. The rate increase, effective with the June billing period, reflects dramatic market price increases throughout all forms of energy. The utility previewed the rate increases in a recent news release and has just released its preliminary rate calculation. This reflects an annual average rate of more than 11 cents per kilowatt-hour, more than doubling the current rate.
The City purchases energy on behalf of 38,500 households and small businesses in Peoria through our Municipal Aggregation Program. In addition to Peoria, our buying group includes Peoria County, West Peoria, Peoria Heights, East Peoria, Germantown Hills, Morton, Tazewell County and dozens of other communities. When our consultants from Good Energy attempted to purchase energy (through Dynegy/Homefield and Constellation Energy) the turmoil in the markets led to both companies not offering us prices or contracts that we could execute. This meant that for the months of June and July, all members of our buying group will have to get our electricity supply from Ameren. Since the end of April, the market has come down slightly, and we still believe that we can execute a contract lower than Ameren’s published rates beginning in August.
Customers do not need to take any action for the transition from the aggregate supplier of energy to Ameren during those months. Community members may receive correspondence from other energy supply companies offering different rates. Historically, the aggregated prices have remained the lowest for our residents. Customers who take no action will return to the aggregation supply program once the contract is signed.
Representatives of Good Energy will be at the City Council to present an overview of the electricity market and answer any questions.
FINANCIAL IMPACT: The volatility in electricity prices will impact Peoria residents, businesses and the City operations.
NEIGHBORHOOD CONCERNS: Higher energy prices will impact residents.
IMPACT IF APPROVED: N/A
IMPACT IF DENIED: N/A
ALTERNATIVES: N/A
EEO CERTIFICATION NUMBER: N/A
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2017 - 2032 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Financially Sound City
2. Grow Peoria
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Support sustainability.
DEPARTMENT: City Manager's Office