Cities and towns already wincing at the prospect of cutting services or raising taxes in the upcoming fiscal year face yet another painful item on the budget horizon: sharply higher municipal electricity bills.
Rhode Island’s municipalities could double what they currently pay for electricity when their collective power contract expires in December, said Daniel L. Beardsley Jr., executive director of the Rhode Island League of Cities and Towns.
“It’s going to mean a lot more discomfort,” Beardsley said. “Cities and towns are facing some major pitfalls when it comes to trying to balance municipal budgets.”
Virtually all of Rhode Island’s cities and towns collectively buy electricity to power their streetlights, municipal buildings and other government services through the Rhode Island Energy Aggregation Program (REAP). The consortium was established in 1999, by the Rhode Island League of Cities and Towns, to help the state’s municipalities secure cheaper electricity prices following deregulation of the state’s energy markets.
Since 2004, the municipalities have purchased electricity under a four-year, $43 million contract with Constellation NewEnergy, a subsidiary of Baltimore-based Constellation Energy.
Under its current electricity contract, REAP pays $59 per megawatt – significantly less than the state’s current standard-offer electricity rate of $93 a megawatt, for a total collective savings of about $16 million over the course of the contract thus far.
But Beardsley doesn’t expect REAP to secure a similarly attractive price for electricity when the consortium enters into its next long-term contract next January. Like all energy markets, the cost of electricity has become increasingly expensive and volatile in recent years, driven by unprecedented demand in the United States, as well as in China and other emerging economies, and political upheaval in the Middle East, he said.
As it has in the past, REAP could put its electricity load out to bid with a request for proposals when it begins the process of securing that long-term contract this spring. But the consortium is also considering securing its next power contract through an online auction, Beardsley said.
Such sales, which are private, one-day auctions for registered power suppliers, have become increasingly popular in recent years. Other energy-buying consortiums have used them successfully to score a favorable deal for a long-term power supply.
But while the auction environment can possibly spark a bidding war that results in a better deal for REAP than it would otherwise secure, it also involves a measure of risk that accompanies limiting the sale to a single day in an increasingly volatile market, Beardsley said.
“Hypothetically, if the auction was scheduled for April 1 of ’08, and on the 31st of March the Middle East became more chaotic than it currently is, or the price of a barrel of oil started to skyrocket to $103 to $110 a barrel, it wouldn’t be the most opportune time to conduct a 6-hour auction for electricity,” he said.
Savings state municipalities get through REAP may soon be extended to at least four of the state’s private colleges, Beardsley said.
Roger Williams University, Providence College, Salve Regina University and The New England Institute of Technology have all provided REAP with their electricity consumption data as part of plans to lower power costs for the schools by purchasing in bulk with the cities and towns. Bryant University is also in discussions to possibly join the consortium, according to Beardsley.
Including the colleges and universities in REAP would substantially increase the consortium’s buying power in the electricity market – the consortium currently purchases 130 megawatts annually under its electricity contract with Constellation NewEnergy. If the colleges and universities joined REAP, the consortium’s annual electricity demand would leap to 500 megawatts, Beardsley said.
Such a large electricity load would be very attractive to power suppliers, and could induce them to offer a very competitive electricity rate for the right to supply so much power over the course of several years, he said.
And the consortium could expand beyond that, to include school districts in the state that collectively purchased electricity in the past through a program run by the Rhode Island Association of School Committees, Beardsley said.
Several mayors, town managers and town administrators in the state have begun discussions with their respective school committees to bring their school districts into REAP, he said.
But the details of how public school districts participate in the consortium would have to be agreed upon by all members, because electricity used during peak hours in schools is more expensive than much of the off-peak electricity that cities and towns use to power streetlights and other night-time operations.
REAP could devise a system that enabled the cities and towns to experience the most savings possible while still lowering electricity costs for the schools, Beardsley said. REAP’s board of directors is currently considering how it would include school districts in the consortium, and will make a decision by early spring, he said.
“There are two theories out there they could choose,” Beardsley said. “The cities and towns could save, say, 25 percent and the school districts 14 percent under one scenario, rather than everyone save
17 percent under the other scenario.” •
