The big deal
In February 2015, Illinois State University finalized a multiyear contract with an electrical supplier. This contract was the final step in a yearlong process in which Ron Kelley, director of the Office of Energy Management (OEM), and his staff led an aggregate of five Illinois public universities in developing a Request for Proposal (RFP), reviewing submitted proposals, conducting interviews and making final selections with the guidance and assistance of Judy Johnson, director of purchasing, and Alice Maginnis, associate university counsel.
So what’s the big deal? This sounds like the same process the University uses for hundreds of procurements every year …
Well, not quite. To explain, let’s go back to 2006 when electricity was a regulated utility in the state of Illinois. Electricity users received their power from whichever utility served their geographical area. In Illinois State University’s case it was primarily Illinois Power, Ameren (Ameren IP). There was no RFP required and no rates to be bid. Rates were determined by the utility according to the type of facility (residential, public, commercial, industrial, etc.) and the amount of power; both demand (kW) and consumption (kWh) each customer consumed.
The only action ISU could take to reduce its annual cost of electricity was to reduce consumption by being more energy efficient. There was nothing the University could do to lower or even influence the electric rate. That was soon to change.
Electricity became a deregulated utility in Illinois on January 1, 2007, meaning that the University could purchase power from any of the registered electricity suppliers in the state, a number that was growing rapidly with the change in the law. Doing so meant the University would have to go through an arduous, competitive RFP process and negotiate with a supplier to determine the rate of electricity for the term of the contract.
During an electricity procurement workshop in 2006, it became clear to several of the Illinois public universities there were advantages to creating an aggregate. If several universities combined their electricity needs—in a sense becoming one very large, very desirable customer for a supplier—it would be easier to negotiate better contracts and receive more favorable rates. By the end of that workshop five universities (Illinois State University, Eastern Illinois University, Western Illinois University, Southern Illinois University at Carbondale, and Southern Illinois University at Edwardsville) formed the basis of what is likely one of the most successful electrical aggregate groups in Illinois. Since 2007 several cities and towns, including the Town of Normal, have created municipal aggregates for the same reasons and with similar success.
As the only public university with an Office of Energy Management within its Facility Services organization, Illinois State University offered to lead the aggregate and facilitate the procurement process for all five of the universities. Working together, the aggregate was able to select and contract with an electrical service provider to supply electricity to the five universities by the first day of deregulation in January 2007.
That initial electrical supply contract is due to expire in December 2016. Accordingly, the OEM just completed a yearlong process working with members of the aggregate and others at Illinois State University to select the electrical service provider for the future. ISU’s Board of Trustees authorization in February to engage Mid-American in a multiyear contract for electrical service will extend the success of the university electricity aggregate for up to another 10 years.
The financial benefit to the university aggregate is approximately $3 million annually. An added value to deregulated electricity is the University’s ability to lock in its electrical rate for multiple years in advance, providing an opportunity to take advantage of low market rates and reducing the University’s risk of market volatility. And that’s the big deal.
Some ISU electricity facts:
Average kWh consumption: 90,000,000
Average cost per kWh 2014: 6.5 Cents per kWh
Number of ISU Electricity Bills per month: 450
Total cost for Electricity in 2007: $5.9 Million
Total cost for Electricity in 2014: $5.8 Million
kBTU per Sq Ft in 2006 147.1
kBTU per Sq Ft in 2014 115.1
See additional information from the Office and Energy Management and Energy Consumption for Illinois University.