Getting the 'Juice' Flowing

Getting the 'Juice' Flowing

City is considering buying power in bulk.

City of Fairfax residents may get the opportunity to buy their electricity in bulk. A new program being piloted by Dominion Virginia Power would allow city residents to aggregate their power, along with residents from other parts of Virginia. "Similar to Costco or Price Club where you get savings by buying in bulk," said Mary Edwards of Dominion Virginia Power at a recent City Council work session.

"I'm completely intrigued by the concept," said Councilmember R. Scott Silverthorne.

As a result of the deregulation of the electric industry, residents and businesses are able to choose which company will generate their power. In Northern Virginia, between 1,800 and 2,000 people take advantage of this program and use suppliers other than Dominion, said David Holt of Dominion Virginia Power.

While Dominion continues to own and operate the power lines that serve people's houses, the actual electricity is generated by a different company.

As a result, Dominion is permitted to charge a competitive transmission charge. That charge is currently bundled in customer rates to all customers, but when a customer changes generators, it is listed separately. "It looks like a new charge," Holt said.

In 2007, the charge "disappears" according to state law, Holt said. The pilot aggregation programs will allow localities that adopt the program to avoid these charges now and start getting their power from another location.

The terms of the program would allow residents, churches and small, commercial businesses to join. Small businesses are defined by how much power they use. "A lot of your strip mall shops are right on the verge," Holt said.

Government buildings, such as City Hall, could also participate, in theory, Holt said, but it would depend on determining the proper rate and other potential contractual issues. "We wouldn't know what to charge them," he said.

The optimum number of participants in a given program is 30,000. The city has 9,490 eligible customers, Edwards said at the work session.

As a result, the city would have to band together with other localities that want to enter into a similar program to try to reach that threshold. Other localities that have expressed interest are the County of Chesterfield, City of Hampton, Charles City/County, the City of Charlottesville, and another which did not wish to be publicly noted, Holt said.

SHOULD THE city choose to enter into the agreement, it would enter into a sort of futures market. The agreement would lock in a price for the length of the bundling agreement, in this case, the program would run until July 2007, when the fees expire.

The biggest risk is that after the price is locked in, electric rates would drop, and customers would miss out on potential savings. However, it is also possible that rates would go up, and customers would be able to continue to enjoy the lower rate.

"Should the opportunity for savings not exist, I don't think the City Council will go for it," Silverthorne said.

It may be possible to guarantee a cost savings, but that would need to be determined, and it would also potentially change the structure of the deal. "Of course, we recommend a contract that would guarantee a cost savings to our customers," said Robert Sisson, city manager.

"That's one of the reasons you may want to hire a consultant to do this," Holt said. Since a consultant is more familiar with the trends in the market, he will be in a better position to advise the city on whether it is getting a good deal. Similar to hiring a stock broker, it will cost a bit more, but in theory that cost is made up for with better performance.

If the proposal is accepted, customers will continue to receive their bills and get service from Dominion.

Dominion will also be paid, in part, based on the amount of power a customer uses, giving the utility company an incentive to keep the power flowing and the lines well maintained. "Our rates are still on a cents-per-kilowatt-hour," Holt said.