Alle-Kiski Valley school districts urged to join forces for buying power

With rate caps for Allegheny Power set to expire at the end of the year, school districts served by the electric utility are considering steps to save money.

Nine of the intermediate units in Western Pennsylvania -- which provide services to nearly 200 school districts -- are recommending that the districts served by the utility retain an energy consultant that would use their collective buying power to get them lower prices for power when electricity changes to market-based pricing next year.

With the caps in place, there were no changes to electric generation rates from 1997 to 2005. The caps created a gap between what customers were paying for electricity and what it cost to produce it, Allegheny Power spokesman Doug Colafella said.

There was talk at one point that the cost of electricity could jump by about 20 percent when the caps expire, said Dennis Holodnak, director of financial services for Westmoreland Intermediate Unit 7.

"A 20 percent increase in a school's energy cost could be a large number for school districts. They were concerned," Holodnak said.

Holodnak said the intermediate units are recommending OnDemand Energy Solutions, based in Moon in the West Hills of Pittsburgh, to be the electrical consultant. It would start buying power from suppliers in April and May for use in 2011, Gary Munsch, business manager for the Armstrong-Indiana Intermediate Unit said.

"The idea is to get all the users together and go out there with a maximum load to the suppliers and let them bid on it and see what type of price we can get for a megawatt of power," Holodnak said.

Holodnak said most districts have not yet decided what to do. The issue is expected to go before many school boards for action in March.

While Allegheny Power is now predicting single-digit percentage increases for next year, based on the results of its purchases of power to date, they will come after a series of rate increases since 2005 that raised a residential electric bill by about 35 percent, according to Colafella. Increases for other users, such as schools and businesses, were similar.

Although the cap was in effect, the company was allowed to gradually increase rates by 5 percent each year in 2006, 2007 and 2008; 12 percent in 2009; and 3 percent this year.

Since 2005, the average residential bill for 1,000 kilowatt hours increased from $67 to $90.91.

Colafella said the company's intention was to ease the transition to market-based rates. The company has 715,000 customers in Pennsylvania including all or portions of Armstrong, Butler and Westmoreland counties and part of Allegheny County.

The company is now predicting that residential customers' bills would increase by 8.5 percent, or $7.74, next year. Schools fall under a commercial classification expected to see a rate increase of 2 percent.

The recession and lower demand for electricity are responsible for the single-digit rate increase, Colafella said.

"It will be interesting to see what kind of competitive offers we're going to see when the rate caps come off, considering we're only looking at a single digit rate increase," he said.

Although it doesn't appear the rate increases coming next year will be as steep as originally feared, it still makes sense for school districts to shop around, said Sonny Popowsky of the Pennsylvania Office of Consumer Advocate, a state agency representing utility consumers before the state Public Utility Commission, regulatory agencies and the courts.

"If you can do better by joining together and going into the market, that's a good thing to do," Popowsky said. "They will be able to go out into the market and see if they can get it for less. If there are no bids lower than (Allegheny Power's) price, they shouldn't take them."

Don Wukich, director of the educational market for OnDemand, said he's confident his firm will be able to save the districts money, and expects to be able to beat the rates districts are paying now. Prices would be locked in for two or three years.

"Right now is a very good time. Electricity prices in the futures market are at five year lows. We're trying to capitalize on that," he said.

OnDemand has been in business since 1994. In addition to shopping energy suppliers for the lowest rates, it provides other services intended to save money, including a conservation program and checking bills for errors, Wukich said.

Wukich said energy suppliers are anxious to get commitments from customers and lock them into agreements to be able to operate their plants at full capacity, which is best for them.

"We have a lot of opportunities to get extremely aggressive pricing from each of the suppliers based on the volume we bring to the table," he said.

Kiski Area Business Manager Peggy Gillespie said she will present a recommendation for retaining an energy consultant to the school board at its March meeting. Two different vendors are being considered, she said.

Kiski Area spends about $480,000 districtwide each year for electricity.

"We will not be fielding the waters of deregulation on our own," she said. "They will be shopping on our behalf so we're not at the mercy of the market."

Highlands School District Business Manager Jon Rupert said he also will bring the issue before the school board in March. The district spends about $450,000 a year on electricity.

"We've always been able to pull together in the intermediate unit. Bigger is usually better. It's resulted in savings with gasoline, natural gas and even electricity. I think this is going to be the way to do it."

Greensburg-Salem Business Manager Jim Meyer said the district heard presentations by two firms, including OnDemand, and he also expects the board to discuss it next month.

"From our standpoint we're still in a discussion stage. The board has not made that decision yet," he said.

Representatives of the South Butler County School District have attended meetings on the electric consortium, but the district has not made any decisions yet, spokesman Jason Davidek said.