business plan for soar energy

The Midwest Energy Research Center

FINAL REPORT

BUSINESS PLAN FOR SOAR ENERGY COOPERATIVE Prepared by Management Consulting Services, Inc. Washington, DC On behalf of The Midwest Energy Research Center Findlay, OH December 2001

Management Consulting Services, Inc. Washington, DC

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TABLE OF CONTENTS

Abstract ....................................................................................................................................... vi

Study Objectives ...................................................................................................................... vii

1. Introduction...........................................................................................................................1

1.1 Restructuring Legislation ....................................................................................................... 1

1.2 Renewable Generation in Ohio............................................................................................... 2

1.3 SOAR Energy Concept......................................................................................................... 3

1.4 Feasibility of SOAR Energy................................................................................................... 5

2. Market Assessment and Marketing Strategy....................................................................6

2.1 Market Size .......................................................................................................................... 6

2.2 Geographic Segmentation ...................................................................................................... 7

2.3 Affinity Group Segmentation................................................................................................ 10

2.4 Implications for Marketing Strategy – Green Customers........................................................ 13

2.5 Implications for Marketing Strategy – Low Income Residents and Service Organizations ........ 18

2.6 Next Steps ......................................................................................................................... 18

3. Competitive Analysis .........................................................................................................20

3.1 Overview ........................................................................................................................... 20

3.4 Competitors........................................................................................................................ 23

3.2 Ohio Switching Rates vs. Other Restructured Markets.......................................................... 29

3.3 Green Power Plans inside and outside Ohio .......................................................................... 29

4. Power Supply Assessment................................................................................................33

4.1 Wind.................................................................................................................................. 33

4.2 Biomass ............................................................................................................................. 34

4.3 Photovoltaics ...................................................................................................................... 35

4.4 Hydroelectric Power........................................................................................................... 35

4.5 Landfill Gas........................................................................................................................ 36

5. Governance ........................................................................................................................38

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6. Operations ..........................................................................................................................40

6.1 Product Groups................................................................................................................... 40

6.2 Organization and Administration........................................................................................... 45

6.3 Operating Costs.................................................................................................................. 47

6.4 Risk Assessment ................................................................................................................ 49

7. Financial Analysis...............................................................................................................50

7.1 Member Acquisition............................................................................................................ 50

7.2 Gross Margins .................................................................................................................... 51

7.3 Net Margins ....................................................................................................................... 52

7.4 External Capital Needs........................................................................................................ 53

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APPENDICES

A. Pro Forma Financials

B. Draft Bylaws for SOAR Energy

C. Marketing Analysis Graphics

D. List of Possible Marketing Partners

E. Power Procurement & Billing Options: Diagrams & Analysis

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LIST OF FIGURES

Figure 1 Consumers Willingness to Pay for Green Electricity.......................................................16

Figure 2 Contract-for-Differences Mechanism............................................................................43

Figure 3 Traditional Power Procurement ....................................................................................43

Figure 4 SOAR Energy Member Acquisition..............................................................................50

Figure 5 Gross Margin Contribution by Membership Class.........................................................51

Figure 6 Gross Margins vs. Net Margins: 2002 – 2011 ..............................................................52

Figure 7 MERC Contributions vs. SOAR Energy payments to MERC........................................53

LIST OF TABLES

Table 1 CRES Provider Penetration through 2nd Quarter, 2001 .........................................................7

Table 2 Electric Suppliers Currently Serving Residential Consumers.................................................20

Table 3 Allocation of MSG between FirstEnergy companies and retail customer classes...................21

Table 4 Green Mountain rates vs. The Illuminating Company and Ohio Edison (cents / kWh) ...........24

Table 5 AES Power Direct prices vs. FirstEnergy Rates (Cents / kWh) ...........................................25

Table 6 WPS Rates compared with Toledo Edison (Cents per kWh)...............................................28

Table 7 WPS rates compared with Cleveland Electric Illuminating (Cents per kWh).........................28

Table 8 Allegheny Energy rates compared to Cleveland Electric Illuminating (Cents per kWh) ....28

Table 9 National Samples of Green Power Programs (As of April 2001).........................................32

Table 10 Key Elements of Risk...................................................................................................49

Table 11 Gross Margin Contribution by Membership Class – Year 1...........................................51

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Abstract

Ohio opened its electric market to retail competition in January 2001. During the first two quarters of this year, nearly 4% of the state’s eligible residential consumers opted to switch to a new electric service provider. An additional 10% to 15% of eligible customers are predicted to switch during the second half of the year as part of large government aggregations. “Green” or renewable power has not played a significant role in this market to date. This plan provides a blueprint for developing the Solar and Renewable Energy Cooperative (SOAR Energy). SOAR Energy will aggregate green electricity load for environmentally conscious residential and small commercial consumers in Ohio. Learning from the experience of other Competitive Retail Electric Service (CRES) providers inside and outside Ohio, SOAR Energy will succeed by:

� Utilizing affinity marketing to reach consumers that are concerned about the environment and/or have an appreciation for the cooperative business structure.

� Minimizing its financial exposure to fluctuating wholesale electricity prices and offering additional goods and services including natural gas aggregation and energy efficiency products and services upgrades.

� Differentiating itself from other CRES Providers by emphasizing its core environmental and conservation goals and its not-for-profit status.

The cooperative will minimize operating complexity and cost by working closely with MERC and growing incrementally with member acquisition rates. Grant funding through MERC will keep start-up costs to a minimum. Marketing activities will build on relationships already established by MERC and its sister nonprofit Ohio Partners for Affordable Energy with environmental, conservation and social service organizations throughout Ohio. Products and services will be provided through strategic partnerships with TSE Services, Inc, American Munciipal Power - Ohio, Energy Cooperative of Ohio, member agencies of Ohio Partners for Affordable Energy and AM Conservation Group. And, overseeing the operation is a Board that includes representation from all the primary target markets and stakeholder groups. SOAR Energy should be profitable in the first year of operations on an initial gas and electric customer base of approximately 900. Both memberships and profits will grow each year. By 2011, SOAR Energy should realize net margins of $170,000 on revenues of nearly $3 million and a gas & electric membership of over 9,100.

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Study Objectives

The objectives of this project were to:

� Investigate the business feasibility of a new consumer aggregation cooperative to supply electricity from renewable resources to its residential and small commercial members

� Develop a comprehensive business plan for the SOAR Energy Cooperative, which would provide guidance to its Board of Directors and enable potential lenders to assess the cooperative’s business prospects.

This first objective was met through an analysis of market conditions, assessment of electric service providers’ marketing activities, and interviews with organizations that are prospective “marketing partners.” Using a relationship-building marketing approach, coupled with outsourcing of non-core business functions. SOAR Energy should be profitable in the first year of operations on an initial gas and electric customer base of approximately 900. Both memberships and profits will grow each year. By 2011, SOAR Energy should realize net margins of $170,000 on revenues of nearly $3 million and a gas & electric membership of over 9,100. This final report satisfies the second objective, by presenting:

� The results of the market assessment and competitive analysis, together with the implications for marketing strategy, supply procurement and pricing

� An operating and staffing strategy designed to hold down costs while meeting customer electricity needs

� Detailed financial analysis and pro forma financial projections.

SOAR Energy Business Plan

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1. Introduction

The Solar and Renewable Energy Cooperative (SOAR Energy) will aggregate renewable electricity and natural gas demand for Ohio consumers and facilitate the purchase of energy efficient products and services. The combination of low operating costs and the higher degree of trust historically enjoyed by purchasing cooperatives will provide SOAR Energy with a sustainable competitive advantage and financial health. The formation of an effective green aggregation cooperative will significantly expand the use of renewable energy in Ohio. SOAR Energy will educate potential customers and acquire members interested in purchasing green electricity through affinity marketing. Members will have a choice between standard power, a 51% mini-green option, and a 100% maxi-green option following Green-e certification standards applicable to Ohio. Power plant developers will be forced to respond to this demonstrated demand by constructing new projects, which will displace the use of standard power.

1.1 Restructuring Legislation

On July 6, 1999, Ohio Governor Bob Taft signed restructuring legislation, Am. Sub. S.B. 3, into law. The restructuring legislation allowed retail customers to choose their energy suppliers beginning January 2001, and required a 5% residential rate reduction in the generation portion of their bill plus a rate freeze during a five-year transition period; three years for DP&L. The legislation also empowers the Public Utility Commission of Ohio (PUCO) to determine the amount and recovery period for stranded costs. Utilities are required to spend $33 million over six years on consumer education programs. In addition, a $100 million revolving loan fund for residential and small commercial energy efficiency and renewable energy projects has been established that is capitalized over 10 years at $15 million the first 5 years and $5 million per year thereafter. A key provision of the Ohio legislation encourages local governments (municipalities, townships, etc.) to act as “opt-out” aggregators. If the jurisdictions vote to form an aggregation, all electric customers within the entity’s boundaries will be automatically switched to a new electricity provider unless the customers choose to individually “opt-out” of the service. Customers who do not choose to “opt-out” within strictly defined time limits could face financial penalties, even though opt-out aggregations must give customers an opportunity to leave the aggregation at no charge every 2 years. This “opt-out” option could potentially account for the vast majority of Competitive Retail Electric Service (CRES) provider customers. The Northeast Ohio Public Energy Council (NOPEC), a group of 95 government aggregators representing 450,000 residential customers, has already signed power supply contracts with Green Mountain Energy, Inc. An identical law covering natural gas choice programs was enacted in early 2001.


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Ohio regulations stipulate that at least 20% of a distribution company’s customers must switch or else the utilities’ ability to recover stranded costs will be diminished. Stranded cost is the difference between what regulators would allow a utility to charge under the cost-plus environment and what the market will bear once competition is introduced. Utilities that have invested large sums of capital in expensive power plants need to recoup these investments through increased rates. Since electric power is a fungible commodity in a free market, knowledgeable and rational consumers would not choose to purchase power at a higher price, thus leaving a portion of the capital costs associated with these assets uncollectible or “stranded.” Ohio law allows for utilities to recover these stranded costs. Although the restructuring legislation has been in effect for less than one year, data regarding customer switching to alternate suppliers is beginning to appear. According to PUCO reports through the 2nd quarter of 2001, approximately 44 CRES providers have registered in Ohio. Of those, 13 are active, and out of the 13 active providers, only three are serving residential customers. Approximately 175,000 electric customers have switched in the first two quarters. Of those, approximately 160,000 are residential, which represents more than 3% of those able to choose their supplier. The vast percentage of residential customers switching suppliers is in the service territories of the three EDUs that are a part of FirstEnergy. Not coincidentally, these are also the utilities with the highest rates. In the 3rd and 4th quarters, Management Consulting Services expects between 500,000 and 1 million residential customers to switch suppliers through government aggregations. By the end of the year, over 20% of eligible residential customers could be receiving electricity from a company other than the incumbent utility.

1.2 Renewable Generation in Ohio

There is currently very little renewable energy production in Ohio.1 Less than 200 MW of hydropower is produced in the state. There is also limited biomass generation (mostly wood waste), and landfill gas plants (< 50 MW). Additional landfill gas and biomass generation projects are planned. Green Mountain Energy plans on building a small solar site to serve its government aggregation customers. Although Ohio is not blessed with tremendous renewable resources, demand and price considerations – not physical capacity restraints – are holding further development back. Interviews indicate that industry decision makers believe that customers in Ohio are not willing to pay premiums for green power. Ohio has taken a number of steps to promote energy conservation and renewable energy development. Three of these initiatives are described below: 1) Ohio legislators established the Energy Efficiency Revolving Loan Fund to invest in small-scale renewable energy projects and energy efficient products, technologies, or services for retail energy customers. With the fund, the state will purchase 50% of qualifying loans from certified lending

1 In addition to the amount of renewable energy tallied above by Management Consulting Services, OEC has counted 213 MW of grid-connected renewable energy in the state.


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institutions and charge zero interest. This process, in effect, cuts interest rates in half on loans used to upgrade energy efficiency. 2) Ohio Revised Code Section 4928.67 sets forward a policy on net generation metering. The law mandates that CRES Providers and EDU’s must develop a standard contract or tariff for net generation metering and must make these contracts or tariffs available to any customer/generator on a first come, first serve basis. The law caps the number of customers (measured by total rated generating capacity consumed) that the provider must allow to enter into these contracts at 1% of provider’s aggregate customer peak demand in the state. The net metering system facility must use solar, wind, biomass, landfill gas, hydropower, a microturbine, or a fuel cell and must be located on the customer’s premises. 3) Ohio is a participant in the Great Lakes Regional Biomass Energy Program. Funds from this program, combined with matching funds from PUCO, go toward the Ohio Biomass Energy Program (OBEP). The goal of the program is to “increase the development and utilization of biomass energy resources in Ohio in order to promote energy sustainability and a cleaner environment.”2 While there have been a number of projects undertaken in Ohio to harness biomass energy, most are scaled to serve specific uses and not available to the broader wholesale market.

1.3 SOAR Energy Concept

The creation of SOAR Energy is the culmination of five years of activities undertaken as the result of strategic alliances centered on two nonprofit organizations, Ohio Partners for Affordable Energy (OPAE) and the Midwest Energy Research Center (MERC). MERC was formed in October 1998 as a 501(C)(3) nonprofit to provide technical consulting, education, marketing and research services on energy and related issues. MERC services focus on techniques and policy options that can ensure affordable and environmentally sound energy options for residential, small business, non-profit, and governmental consumers. MERC is a sister organization to Ohio Partners for Affordable Energy (OPAE), a 501(C)(4) membership organization formed in 1996 that includes virtually all of the community action agencies and other nonprofits delivering heating assistance, weatherization and Universal Service Fund (USF) Programs in Ohio and focuses on policy advocacy activities. This relationship provides MERC with excellent access to and credibility with member nonprofits and other social service agencies with which they interact. OPAE and MERC’s executive director also serves on the Board of Directors of the Ohio Environmental Council and is a regular participant in the Ohio League of Conservation Voters Environmental Forum. As a result, MERC can insure a high degree of cooperation from these various organizations with the marketing activities undertaken by SOAR Energy. The OPAE membership network also provides a ready source of skilled providers of energy efficiency services for residential

2 http://www.puc.state.oh.us, Dec 2001.


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and small commercial customers. In addition, MERC has also developed relationship with several independent energy service companies capable of providing energy audits and efficiency retrofits for larger nonprofit facilities. MERC also has extensive experience in creating and managing aggregated purchasing pools in competitive energy markets. OPAE formed its first aggregated purchasing program in 1997, a program that still functions today. MERC has provided technical assistance to numerous public housing authorities, counties and other nonprofit entities in purchasing natural gas. MERC was also instrumental in the formation of the Public Housing Authority Aggregation Consortium of Ohio (PHAACO), an organization created this year that is currently purchasing natural gas for eight public housing authorities. SOAR Energy has strengthened these natural strategic alliances through appointments to the initial Board of Directors. Dave Rinebolt, SOAR President, serves as executive director of OPAE and SOAR, is policy committee chair of the Ohio Environmental Counsel, and serves as President of the Board of the Energy Cooperative of Ohio, SOAR Energy’s natural gas supplier. James Tenhundfeld of the Cincinnati/Hamilton Community Action Agency currently is Chairman of MERC and OPAE and has a extensive background overseeing weatherization programs for several nonprofits in the Cincinnati area. Robert Pitts is Assistant Director of the Corporation for Appalachian Development (COAD) a regional nonprofit agency operating energy programs throughout Ohio, including the Ohio Weatherization Training Center. He is also Vice Chairman of OPAE and MERC. Michael Williams, Director of Maintenance with Stark Metropolitan Housing Authority, is the current head of the Public Housing Authority Aggregation Consortium of Ohio. Under his guidance, Stark Metropolitan Housing Authority has won several awards for their innovative energy programs. Finally, Robert Martin also serves on the Board of Green Energy Ohio, a nonprofit devoted to the promotion of renewable energy resources in Ohio. He also is a past Chairman of the Rail to Trails Conservancy, an Ohio conservation and recreation nonprofit. The final initial Board member is Kurt Waltzer who is the energy programs manager with the Ohio Environmental Council. Waltzer previously worked for Ohio Citizen Action, the largest consumer advocacy organization in the state. These strategic alliances have defined SOAR Energy’s business concept and structure, allowing the cooperative to distinguish itself from its competitors and provide significant competitive advantages. SOAR Energy’s business concept and structure will distinguish the cooperative from its competitors and provide significant competitive advantages.

• Affinity Marketing – SOAR Energy will utilize a marketing partnership program targeting electric customers through environmental and conservation groups, fellow cooperatives, religious organizations, education groups, and other nonprofit organizations. SOAR Energy will work with each partner to craft messages appropriate for each organization’s membership. SOAR Energy will work hand-in-hand with its


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partners to ensure that potential customers are aware of renewable energy issues and are inspired to become SOAR Energy members.

• Consumer credibility – SOAR Energy will take full advantage of its status as a cooperative. It will highlight its trustworthiness, emphasizing its status as a not-for-profit enterprise with the mission of expanding the use of green power. SOAR Energy will ensure that potential members learn about the positive effects both green power and membership cooperatives have on our nation’s communities.

• Ease of use – SOAR Energy will use an energy purchasing approach that will provide relative transparency for the electric customer with respect to switching, billing, and acquiring certified green power. This approach will be facilitated by extensive, user-friendly internet-based customer interactions.

• A choice of products – SOAR Energy's philosophy is to be positioned to provide members with a full array of energy services -- both supply and demand – that produce the least environmental impact and is yet consistent with the lowest possible price. By combining efficiency with green power and low cost natural gas, SOAR’s strategy is to ensure that being green doesn't cost more.

• Efficient operations – SOAR Energy’s nonprofit status, efficient back-office operations, and power procurement process should lower the cooperative’s operating costs. This efficiency should ease the burden associated with green power’s premium prices.

1.4 Feasibility of SOAR Energy

SOAR Energy will utilize affinity marketing, outsourcing of non-core business functions, and a simplified energy procurement process to hold down administrative and overhead costs. Additionally, MERC has received grant funding to defray SOAR Energy’s start-up expenses and is actively involved seeking additional funds.3 Based on Management Consulting Services’ analysis, SOAR Energy could have positive cash flow from operations during its initial year of operation, on a membership base of nearly 900 gas and electric customers.

3 MERC has received $175,000 in grant funds with an additional commitment of $25,000. Grant proposals in

the amount of $115,000 and $50,000 are pending.


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2. Market Assessment and Marketing Strategy

SOAR Energy will target residential and small commercial customers in Ohio. The bulk of its customer base will be comprised of the following two groups. First, a group of low-income residential households and a network of social service organizations will provide a solid foundation for growth. The various Public Housing Authorities (PHAs) in Ohio have expressed an interest in joining this program. MERC has already established a working relationship with the Authorities regarding natural gas purchases, and PHA membership could approach 35,000 households. Additionally, MERC has developed relationships with a number of service groups, such as the Ohio United Way, Ohio Association of Second Harvest Foodbanks, the Coalition on Homelessness and Housing in Ohio (COHHIO), and the Ohio YMCAs, that are interested in joining the aggregation. Second, MERC will target environmentally minded residential customers interested in electricity generated from renewable energy resources. SOAR Energy will build on the relationships its Board and OPAE have with the Ohio Environmental Council and the Ohio League of Conservation Voters to establish contacts with over 200 environmental and conservation organizations with over 100,000 members throughout the state. Depending on their involvement, these partners could potentially share in the revenue stream through cash rebates or profit sharing programs. Prospective marketing partner candidates include:

� Environmental and conservation organizations � Progressive political, labor and religious organizations � Consumer cooperatives such as credit unions, food co-ops, housing co-ops, etc.

2.1 Market Size

As described in the introduction, Am. Sub. S.B. 3 mandates that electric utility customers be allowed to select suppliers of competitive retail electric services. Municipal utilities and rural cooperatives have the option, but not the obligation, of allowing customer choice. Municipalities, townships, and counties are authorized to act as aggregators, and all retail customers within each region have the right to “opt-out” of any proposed aggregation. The legislation also requires that at least 20% of an investor-owned utility’s (IOU) customer base must switch CRES Providers or else the utility will lose its ability to recover fully stranded costs. Eight IOUs currently comprise more than 90% of the Ohio electricity market. They account for more than 4 million residential customers, all of who have the right to choose their electric service provider. Rural cooperatives and municipal utilities combined serve only 600,000 residential customers.


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Through the 2nd quarter of 2001, 3.8% of Ohio’s residential customers switched to competitive service providers. Across the state, however, market penetration by competitive retail electric service providers has been uneven (See Table 1). While nearly 10% (70,000) of Cleveland Electric’s residential customers and more than 8% (80,0000) of Ohio Edison’s customers have switched, virtually no one has opted for new providers in the Columbus Southern, Cincinnati Gas & Electric, and Dayton Power & Light territories. These southern utilities traditionally have lower cost structures and, thus, lower rates than their northern counterparts. For this reason, CRES Providers have been reluctant to enter the market.

Table 1: CRES Provider Penetration through 3rd Quarter, 2001

CompanyResidential Customers

# switched to CRES Provider

% Switched

Cleveland Electric 557,614 91,692 14.12%

Cincinnati G&E 567,780 1,283 0.23%

Columbus Southern 598,396 281 0.05%

Dayton P&L 429,965 0 0.00%

Monongahela Power 24,466 0 0.00%

Ohio Edison 780,053 171,740 18.04%

Ohio Power 602,076 0 0.00%

Toledo Edison 245,343 14,407 5.55%

Totals 3,805,693 279,403 6.84% Source: Public Utilities Commission of Ohio

The number of customers supplied by competitive retailers is likely to grow substantially over the second half of 2001. Assorted government aggregations in the northern half of the state could result in over one million residential switchers in the next few months. Since these government aggregations represent “opt-out” programs, customers are essentially locked-up for the next two years. Customers would face $25 to $50 penalties if they elected to become a SOAR Energy member.

2.2 Geographic Segmentation

SOAR Energy needs a cost-effective, niche-market strategy that will reach residential and small commercial electric customers through a network of like-minded organizations in Ohio. The key marketing challenge will be to persuade marketing partners to endorse SOAR Energy and then convince their members to participate. The marketing partners are expected to emphasize local community involvement and foster consumer trust. Given Ohio’s size and demographic diversity, it is important to segment the state geographically when considering marketing partners. While many of the proposed partners have resources across the


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breadth of the state, customer attractiveness varies widely. As a result, customer attractiveness for SOAR Energy projects is measured in four ways: voting records, household income, participation in food cooperatives, and population growth forecasts. Maps that graphically illustrate the following discussion are located in Appendix C. Voting records are considered a key part of determining market potential for a number of reasons. First, the data set is relatively current and significantly large. Nearly five million votes were cast in the 2000 presidential election. Second, environmental and conservation philosophies provide a fairly clear dividing line between the parties’ platforms. Third, given the participation of Ralph Nader and the Green Party in the election, the degree to which voters were committed to their environmental and conservation beliefs can be measured. For the purposes of this study, a vote for Nader is considered to be a strong vote in favor of SOAR Energy, a vote for Gore a vote in favor of SOAR Energy, and a vote for Bush a vote against SOAR Energy. In other words, it is likely that a Nader voter will pay a significant premium for renewable power, a Gore voter might pay a small premium for green power, and a Bush voter will be more concerned about price than source. This methodology is backed by public opinion poll data from both national and Ohio sources. In an April 2000 ABC News/Washington Post poll, people were asked how important an issue protecting the environment was to them. Sixty-five percent of Democrats believed protecting the environment was very important versus only 38% of Republicans4. An ABC News.com poll from April 2001 found that 68% of Democrats favored a treaty restricting emissions while only 52% of Republicans supported such a pact.5 Finally, University of Cincinnati’s “Ohio Poll” found that more Democrats than Republicans considered environmental and conservation problems to be the most important problem facing Ohio.6 The majority of OEC's members are Republicans - 60 to 40%, with most individual members clustered in the Columbus area. Ralph Nader received only 120,000 votes in the Ohio general election (2.5%), but, because these voters were relatively concentrated, they could serve as a useful customer base. There was significant support for the Nader campaign in the northeast section of the state and around the cities of Cincinnati and Columbus. Support in the southern and western portions of Ohio were minimal. Likewise, Al Gore’s strongest showings were in the northeastern sections of the state, particularly east of Akron and Cleveland.

4 ABC News / Washington Post, Telephone Interview Conducted March 30 – April 2, 2000,

http://www.publicagenda.org/issues/nation_divided_detail.cfm?issue_type=environment&list=1

5 ABC News / Washington Post, Telephone Interview Conducted April 11-15, 2001,

http://www.pollingreport.com/enviro.htm

6 The Ohio Poll, Sponsored by the University of Cincinnati, July 2 – July 18, 2001,

http://www.ipr.uc.edu/src/ohiopoll.cfm


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Household income is considered an important determinant of market potential for two reasons. First, the greater a household’s income, the less price-sensitive that household is likely to be to increases in electric bills. Thus, they are more likely to be willing to pay a premium for green power. Second, household income can be used as a proxy for issue awareness. Higher income households are likely to be better educated and informed on current events. This translates to a better understanding of the threats posed by air pollution and global warming. The University of Cincinnati’s “Ohio Poll” found that those making more than $60,000 are four times as likely to list the environment as the most important issue facing Ohio as are those making less than $20,000.7 Income levels are highest in and around the major cities of Cincinnati, Cleveland, and Columbus. Additionally, the counties surrounding Dayton and Findlay have higher than average income levels. The southeastern quadrant, on the other hand, suffers the lowest income levels in the state. Food cooperative locations are analyzed as both potential marketing partners and to confirm theories developed from studying voting patterns. Ten food cooperatives were identified in Ohio. Except for one in Cincinnati and one in Columbus, they are all located in the northeastern quadrant of the state. This pattern mirrors the Ralph Nader voter pattern. It is likely that these two segments have significant membership overlap. Finally, projected population growth rates were taken into account. Rising population represents not only a larger potential customer base, but also new homes and apartments. As residents move into new living quarters and arrange for phone, gas, cable, and electric service, it is more likely that they will choose to use a CRES Provider than it is likely that an established resident will choose to switch electricity providers. The new resident has to arrange for the delivery of electricity whether the EDU or a CRES Provider is chosen. but the established resident does not have to take any action to continue receiving electricity. The marginal time investment to choose a CRES Provider is much greater for the established resident. Over the next ten years, population growth is forecasted to be small (and in some areas negative) throughout Ohio. Most growth should occur in the center and southwest areas of the state, principally in the counties surrounding Cincinnati and Columbus. Given this analysis, the best regions in which to focus SOAR Energy customer acquisition efforts might appear to be the urban and suburban areas of northeastern Ohio. Northeastern Ohio is an attractive market for SOAR Energy given its progressive politics (support for Nader and Gore) and high per capita income levels. Additionally, the presence of a food cooperative network in the region points to a significant segment of environmentally conscious residents. However, 450,000 residential consumers in the area are currently tied through the NOPEC “opt-out” government aggregation to Green Mountain Energy. Management Consulting Services believes this number will rise to over 800,000 members by

7 The Ohio Poll, The Institute for Policy Research, http://www.ipr.uc.edu/src/ohiopoll.cfm, Dec 2001


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the end of 2001. Similar aggregations in the northern half of the state could account for hundreds of thousands additional customers. These consumers face a $25 to $50 charge if they opt out of the aggregations prior to late 2003. While SOAR might be able to capture some of this customer base, the $25 fine is considered a significant barrier to real success. Given the growth of government aggregation programs in the northeast, SOAR should target the Cincinnati and Columbus regions immediately. Although Nader and Gore did not perform as well in these areas, there was significant support for the candidates. Nader collected more than 10,000 votes in Franklin County, for example. The suburbs surrounding these cities will be the focus of growth in Ohio over the next ten years and the per capita incomes are equivalent to those in the northeast section of the state. Perhaps most importantly, there has been little competition to-date for residential customers in these southern cities.

2.3 Affinity Group Segmentation

After establishing through geographic analysis where to target customers, the next step is determining how to acquire customers. Based on other programs in states that have already deregulated their utility industries, the most cost-effective system for customer acquisition is the use of network, or affinity, marketing. As discussed above, affinity marketing entails using other organizations’ established membership network to streamline communications. A number of potential partners are discussed below. Appendix C provides size details and contact information for each organization.

(a) Environmental and conservation Organizations

MERC has already received a commitment from the Ohio Environmental Council (OEC) and the Ohio League of Conservation Voters (OLCV) to help develop a pool of environmentally concerned members. The OEC works as an umbrella organization for roughly 90 local, state, and national groups interested in improving Ohio’s environment. The OEC will provide a great conduit through which to communicate SOAR Energy's vision and mission. Members of these organizations are likely to among the most active and enthusiastic supporters of renewable energy in the state. Additionally, MERC has received directed grant funding to target these groups. Affinity marketing, however, cannot end with environmental and conservation organizations. While the membership in OEC affiliated groups is substantial, the membership represents a small percentage of Ohio residents. A number of large organizations belong to the council, but it is unclear how well the OEC can coordinate members’ actions. For example, the Ohio AFL/CIO is a member of the OEC, but it is difficult to find an environmental and conservation position on the group’s web site. There are a number of other organizations that could be just as effective as environmental and conservation groups, if not more so, in communicating the SOAR Energy message.


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(b) Teachers’ Unions / Education Associations

Two major teachers’ unions are currently operating in Ohio: the Ohio Teachers Federation (OTF) and the Ohio Educators Association (OEA). The OTF is affiliated with the American Teachers Federation (ATF) and the OEA is affiliated with the National Educators Association (NEA). The OTF claims a membership of 22,000 while the OEA lists nearly 125,000 members. Unlike traditional labor unions, teachers’ unions are comprised, in large part, by professionals with Bachelors and Masters degrees. The unions, representing the interests of their members, have traditionally taken progressive stances on political issues. The NEA in 2001 voted in favor of resolution B-42: Environmental Education. Among other things, the association supports programs that promote “solutions to such problems as pollution, global warming, ozone depletion, and acid precipitation and deposition [and] an understanding of energy, alternative energy sources, and energy conservation.”8

Like other unions, the OTF and the OEA offer members financial and insurance services. Management Consulting Services believes that energy aggregation can be added to that mix. Besides public school teachers, the OEA also represents faculty at assorted state universities. However, the union is not active at Ohio State University. In order to reach this population, efforts could be made at contacting the University Staff Advisory Committee (USAC). Among other things, the USAC “provide(s) a forum through which university staff can raise, discuss, and make recommendations on nonacademic issues and activities.”9 This committee represents the interests of over 5,000 faculty members, a population likely to include numerous environmental and conservation concerned energy buyers. Another organization that could provide contacts with community activists throughout Ohio is the Ohio Parent and Teachers Association (PTA). The Ohio PTA claims 140,000 members in 1,000 different chapters. While the PTA has not taken stands on environmental and conservation issues, it does generally take fairly progressive positions on other social issues. The Ohio PTA does sponsor an annual convention and other regular events to promote communication between organizational levels.10

(c) Religious Organizations

Religious organizations have played key roles in the adoption of green energy programs in other states. The Episcopal Church has been active in both California and the Northeast. Green Mountain Energy has entered into contracts with 70 churches in California that involve cash rebates for each parishioner that signs up for Green Mountain service. Other churches in Colorado and Texas have encouraged

8 http://www.nea.org/resolutions/00/resolutn.doc, Paragraph B-42.

9 http://www.osu.edu/org/usac/

10 http://www.ohiopta.org/about.htm, Select “Upcoming Events”, then “National PTA Convention”.


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members to participate in local green power initiatives. Additionally, there have been moves by interfaith organizations in Maine and New Jersey to forward the green power program.11 There are a number of statewide organizations in Ohio that could provide fertile ground for customer acquisition. The Ohio Council of Churches is a “partnership of 27 Christian faith bodies” representing 6,000 congregations and 3,000,000 members. Among other legislative and social interests, the Council sponsors the Interfaith Committee on Global Warming. A partnership with this committee could lead to contacts with a substantial number of potential cooperative members. The Episcopal Diocese of Ohio controls the Episcopal Church’s operations in the state. Given the church’s participation in similar initiatives in California and the Northeast, it is likely the Diocese of Ohio will be interested in partnering with MERC. The Diocese hosts an annual convention that is open to outside vendors and also staffs a number of socially concerned committees. The American Baptist Churches of Ohio counts 292 congregations and 62,771 individuals as members. The Ohio branch is a member of the American Baptist Church, which has taken a number of progressive stands on environmental and conservation issues. The Church has passed resolutions urging members to “(t)ake individual corrective measures to eliminate and reduce pollution in the environment”, to build and renovate homes “to be energy efficient” and to begin “programs of energy conservation and awareness”, to advocate legislation to “reduce carbon dioxide output and to set reduction targets for other greenhouse gases.”12 Under the Church’s Statement on Energy are the following lines:

• “[A] low priority set on research into the development of the generation of energy through the use of renewable non-polluting resources [is a practice] which cannot be continued.”

• “Too little attention and funding have been given to the research and development of technologies that use forms of energy that are widely available and that are renewable and non-polluting.”

• “Research and experience demonstrate that it is feasible to have individual energy generating units that measurably lessen dependence on centralized generation.”

(d) Credit Unions

The network of Ohio credit unions is a potential source of promising marketing partners; however, a significant outreach effort will most likely be required to raise awareness and encourage active participation. Credit Unions operate as nonprofits in much the same way as is envisioned for the SOAR

11 Edward Holt and Lori Bird, “Customer Aggregation: An Opportunity for Green Power?”, NREL/TP-620-

29408 (Golden CO: National Renewable Energy Laboratory, February 2001) 7.

12 American Baptist “Resolution On Environmental Concerns”, American Baptist Convention, March 1983,

(General Board Reference # 8114:9/88), http://www.abc-usa.org/resources/resol/environ.htm


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Energy Cooperative. It is possible that credit unions could market this service in much the same way they market credit cards to their members. There are 525 Credit Unions in Ohio with total membership exceeding 2.7 million. They range in size from a few hundred members to hundreds of thousands of members and are dispersed across the state in proportion to population densities. Over 230 are located in the 13 counties that comprise northeastern Ohio. Many of these have only a few hundred members and are operated for the benefit of a school, church, or union. The Ohio Credit Union League serves as the state trade association and hosts an annual convention for its members. The next convention is scheduled for Spring 2002 and they welcome vendors. This gathering will serve as an ideal way for SOAR Energy to get the word out about its mission and desire to work hand-in-hand with other community-focused organizations.

(e) Food Co-ops

Another source of promising marketing partners for SOAR Energy is the network of food co-ops. The culture of the food co-op community is closely aligned with green philosophies and direct grass-roots participation in environmental and conservation advocacy. Green power could be offered to their members as another consumer product.

(f) Municipal Governments or Government Aggregation Energy Providers

The success of government aggregations in northern Ohio has been remarkable. SOAR Energy could take advantage of this movement indirectly. SOAR Energy could approach energy providers, such as FirstEnergy Solutions or WPS, that do not offer green programs but do serve government aggregations. SOAR Energy would agree to market green energy to these customers. The green power would be priced at a premium. Using the contract-for-differences approach, the CRES Provider would continue serving “green” customers “standard” power. However, these green customers would be billed at green prices. The CRES Provider would forward the green premium to SOAR Energy. SOAR Energy would use the green premiums to purchase green power through the contract-for-differences approach. Government aggregations are discussed in-depth in Section 3, and the contract-for-differences mechanism is described in Section 6.

Implications for Marketing Strategy – Green Customers

(a) Marketing Partners

Geographic and affinity group segmentation builds a member acquisition roadmap for SOAR to follow. The first step is contacting the statewide organizations about possible marketing partnerships or


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endorsements. At the same time, different marketing themes must be developed that appeal to the members of each group. For example, many of the organizations have passed resolutions and issued statements regarding their stand on environmental and conservation issues. SOAR Energy should emphasize that supporting renewable energy generation is a way to actively support these environmental and conservation positions. Other groups might care more deeply about the cooperative spirit. For this market segment, a plan that highlights SOAR Energy’s commitment to cooperative principle could be key. There are a series of partnership levels that might be considered: Level 1: Participation without endorsement. Most of the organizations discussed above hold regular meetings and conventions. Many of these conventions are open to outside organizations. SOAR Energy should arrange to participate in these meetings as vendors and/or as presenters at panel discussions or informational programs. Level 2: Passive endorsement. This could include access to mailing lists and a statement from the partner that they recommend SOAR Energy membership. This would place the onus on SOAR Energy to operate a stand-alone direct marketing campaign. Level 3: Active endorsement. A marketing partner agrees to actively promote membership in SOAR Energy. This could include providing SOAR Energy information and membership forms in group mailings, endorsing membership at group meetings, and providing speaking and membership drive opportunities at group meetings. Level 4: Cross-selling/branding. Some of the organizations discussed above, such as the teachers’ unions, credit unions, and food cooperatives have the ability to provide SOAR Energy membership as a service in their product line. Much like the credit and teachers’ unions offer credit cards, they could also offer electricity. The food cooperatives could offer electricity as an increased level of membership. Partnership agreements, especially at Levels 3 and 4, will likely require incentives from SOAR Energy. It is important to note each organization will operate under different guidelines for financial ties with outside organizations. For example, the current NCUA “group purchasing rule” limits compensation for Federally chartered credit unions to “administrative costs only.” Incentives will have to be open to negotiation; however, they are likely to follow one of two paths:

• Rebate programs. Under a rebate program, the organization receives a cash rebate of between $25 and $50 for each new SOAR Energy member that lists the group as their impetus for joining. This system would make the most sense at Level 3 where long-term involvement is not required.


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• Profit sharing. Each organization receives between 2% and 5% of the gross margin each member that it is responsible for generates. This system would function most efficiently at Level 4 where long-term involvement between the group and SOAR Energy is assumed.

(b) Member Acquisition

Once relationships with these marketing partners have been established, geographic segmentation should be used to focus the customer acquisition process. Given the limited resources under which both SOAR Energy and its partners are likely to operate, initial attention should be given to the Northeastern region of the state and the areas in and around Cincinnati and Columbus. For practical purposes this means using the marketing partners to reach their subsidiary members in these key areas – schools, church congregations, individual credit unions, etc. While the partners might be able to include an endorsement of SOAR Energy in statewide mailings, more resource intensive marketing must be well targeted. This includes informational presentations, membership drives, and direct marketing campaigns funded by SOAR Energy. Additionally, it might be helpful to consider potential member profiles. The first people to join the cooperative are going to be people who consider the environment and its protection to be very important. Based on the University of Cincinnati’s “Ohio Poll”, this person might be a suburban woman in her twenties or early thirties with a college degree. There are many other potential profiles (union members, self-defined liberals, etc.). Similarly, profiles of poor candidates for membership can also be used accordingly. For example, targeting Republican men over the age of 65 living in rural areas could be an inappropriate use of limited resources. Marketing materials should be designed with both types of profiles in mind. As with marketing partners, different levels of membership should be utilized to segment potential customers. The National Renewable Energy Laboratory (NREL) performed a comprehensive study of surveys that found that a large majority of electricity users are willing to pay a small premium for green electricity.13 The number of customers willing to pay premiums decline rapidly as the premium is raised. However, a significant segment of the population is willing to pay higher prices for access to renewable energy. The research from NREL's study indicates that 85% of residential customers are willing to pay one dollar more per month for green power, slightly more than 50% are willing to pay $5 extra a month, and 13% are willing to pay more than a $10 monthly premium (See Figure 1). Optimally, Green Power producers would like to price their power at these monthly levels in order to attract the most number of potential customers.

13 Barbara C Farhar, Ph.D., “Willingness to Pay for Electricity from Renewable Resources: A Review of

Utility Market Research”, NREL/TP.550.26148 (Golden CO: National Renewable Energy Laboratory, July 1999) 13.


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Figure 1: Consumers Willingness to Pay for Green Electricity

85%

56%

32%

60%

34%

13% 11% 11%

4%

70%

100%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 1 2 3-4 5 6-9 10 11-14 16-19 20 >20

Monthly $ Premium

% W

illin

g t

o P

ay

Source: Barbara C Farhar, Ph.D., “Willingness to Pay for Electricity from

Renewable Resources: A Review of Utility Market Research”, NREL/TP.550.26148 , p. 13

When the above chart, however, is compared to the actual premiums charged by green power providers, an interesting pattern develops that requires further analysis. The premiums charged by green power providers are at the high end of the chart, which suggests a mismatch with the premium that consumers are willing to pay. A large segment of green power customers are not captured. Table 9 of the business plan shows numerous green power providers and the premiums they charge generally range between 2¢ and 4¢ per kWh. Assuming a household consumes 750 kWh per month, the premium ranges between $15 and $30 monthly, which places the premium on the high end of the chart. Although providers have not explained why green power cannot be priced within a lower range of $2 to $5 per month, the most probable reason may be the high cost of providing this specialty product. Despite the mismatch, CRES providers are still able to capture a sizeable segment of green power consumers. Figure 1 indicates that at least 11% of consumers are still willing to pay a premium of $16 or higher. In Ohio, this equates to approximately 440 thousand residential consumers.14

14 440 thousand residential green power consumers = 4 million residential consumers x 11% willing to pay

$16 per month or higher.


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Based on preliminary market research and operating expense projections, SOAR has the flexibility to charge a premium similar to the ranges offered by other renewable energy providers. Although detailed customer pricing options have not yet been finalized, SOAR envisions the following packages:

• Standard – Standard SOAR members will receive competitively priced “brown” power, which will include a mark-up to cover the cooperatives operating expenses. Even with the mark-up, the total cost to members will still be lower than the incumbent EDU price, due to the shopping credit offered by the EDU and the wholesale price of power that SOAR will skillfully negotiate. Like all of SOAR customers, Standard members will receive excellent service and periodic updates on SOAR Energy’s progress. SOAR’s primary market for this service will tend to be the low-income households and service organizations that are currently being served natural gas through MERC and ECO.

• 51% Green – 51% Green members will pay a premium over standard “brown” power to

acquire green. These members will receive a mix of 51% green power and the balance as standard brown power, which meets minimum Green-e standards. The green premium charged by wholesalers to SOAR will be passed through to members with a mark-up to cover operating expenses. This mark-up will be slightly higher than the one charged to Standard members in order to cover additional operating and marketing expenses that are unique to green members.

• 100% Green – These members differentiate themselves from 51% Green members by

receiving 100% Green power instead of 51%. Once again, the premium charged by wholesalers to SOAR will be passed through to members with a mark-up to cover operating expenses plus any expenses unique to green power members.

• Development Fund – Each of the above members will also have the option to pay an

additional premium toward a fund with the purpose of developing future green power projects in Ohio. Through this fund, SOAR members will have a voice in determining the type of new power projects to be developed, which should measurably impact the amount of green energy generated in Ohio.

(c) Competition

Competition must also be considered when developing SOAR membership packages. Green Mountain Energy Company recently signed a supply agreement with the Northeast Ohio Public Energy Council (NOPEC) and its 450,000 residential customers. The NOPEC aggregation could potentially grow to over 800,000 members. These customers have the right to “opt-out” of the NOPEC program and choose to join SOAR Energy, but this could prove difficult for a number of reasons. First, potential members will incur a $25 fee if they opt out of the Green Mountain plan during an


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unsanctioned opt-out period. Second, Green Mountain promises to use and increase the supply of green energy in Ohio. Similar aggregations in Toledo, Cleveland, and Northwestern Ohio are also appearing. In response, SOAR Energy must highlight its cooperative, nonprofit status and must convince customers that it is more dedicated to expanding green power options in Ohio than is Green Mountain. The competitive environment will be considered in-depth in the next section.

2.5 Implications for Marketing Strategy – Low Income Residents and Service Organizations

SOAR Energy will rely on a network of pre-existing relationships to acquire customers in low-income and service organization segments. Historically, MERC and Ohio Partners for Affordable Energy (OPAE), and in particular Dave Rinebolt,15 have worked closely with these groups. These ties are already working to build up a large initial base of customers that will provide SOAR with aggregation buying power. Because both the service organizations and low-income households are not in a position to increase expenditures on basic necessities, they should join the cooperative as Standard members and not pay premiums. However, any margins that SOAR is able to generate from this business should be used to further renewable energy development in Ohio.

2.6 Next Steps

Over the first six months of actual operation, SOAR Energy should complete a number of tasks. Each is critical to the success of the organization and Management Consulting Services financial forecasts rely on their completion.

• Develop professional marketing materials, including information brochures and promotional items. These do not have to be extravagant or produced in large volume, but marketing materials should send a message that SOAR Energy is a professional, community-focused, environmentally concerned organization. They must both inspire trust and educate the public on the benefits of green energy.

• Develop an interactive Internet site. Potential customers should be encouraged to use the site to

gather information and to register for service. This will make it easier for them and less expensive for SOAR (reduced employment costs, etc.).

• Work with the OEC to target customers. Not all OEC members are equal. SOAR should

work closely with the OEC to find organizations that have substantial influence over members, such as groups that hold regular, well attended meetings and have membership bases that are significantly large to justify expending SOAR Energy’s resources.

15 Dave Rinebolt serves as executive director of Ohio Partners for Affordable Energy, an advocacy

organization representing over 50 non-profit community-based agencies.


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• Approach other potential marketing partners. Consideration should be given to attracting the

interest of senior management and acquiring a presence at statewide meetings and conferences.

• Work with marketing partners to devise a strategy taking into account member locations and the geographic analysis of potential customers. Effective, well-targeted campaigns will produce sufficient members to fund expanded marketing campaigns over time.


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3. Competitive Analysis

3.1 Overview

Under the Ohio restructuring legislation Am. Sub. S.B. 3, retail customers could begin choosing their electricity suppliers on January 1, 2001. As of October 11, 2001, the state had certified 44 companies as suppliers or aggregators. Table 2 lists those companies serving residential customers. The New Power Company, FirstEnergy Solutions, and the Ohio Farm Bureau Development Corp. are marketing directly to residential consumers. Green Mountain Energy, Allegheny Energy Supply, and WPS Energy Services are only serving government aggregations. AES Power Direct was targeting individual residents, but it has been acquired by The New Power Company and has ceased new enrollments.

Table 2: Electric Suppliers Currently Serving Residential Consumers Supplier Contract IOU Territory Served The New Power Company (AES Power Direct)

2 years All FirstEnergy, AEP/Columbus Southern Power, Cincinnati Gas & Electric

Green Mountain Energy 2 years Cleveland Electric Illuminating, Ohio Edison Allegheny Energy Supply 2 years Cleveland Electric Illuminating WPS Energy Services 2 years Toledo Edison, Cleveland Electric Illuminating FirstEnergy Solutions 1 year Cleveland Electric Illuminating, Ohio Edison Ohio Farm Bureau Development Corp.

1 year Cleveland Electric Illuminating, Ohio Edison

Source: Ohio Consumer’s Counsel, PUCO

Despite the S.B. 3 legislation, Ohio consumers have very few energy supply options. In most regions, only one CRES Provider is marketing residential energy services, and not a single CRES Provider is serving the Ohio Power and Dayton Power & Light service territories. A combination of high wholesale prices, burdensome transaction costs for new suppliers trying to enter the market, and Ohio’s retail rate freeze makes it difficult for new suppliers to offer consumers a price that is lower than the capped price being offered by their local electric utility.16 An additional barrier to entry is the lack of a functional RTO serving the entire state. Recent actions by FERC are designed to bring a resolution to this situation, but estimates of an operational date for a regional RTO are sketchy at best. These barriers to entry have prompted market departures and industry consolidation. Shell Energy has announced that it is exiting the Ohio market and The New Power Company has acquired AES Power Direct. However, electricity prices on the wholesale market have begun to stabilize in the last year. If wholesale prices drop and

16 Ohio Consumer’s Counsel, “Electric Market Update” Fall 2001


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remain stable, suppliers will have more room within which they can offer competitive prices to consumers.17 Not only do potential competitors face significant hurdles in the Ohio market, many suppliers do not see residential consumers as attractive customers. Residential customers are perceived as a credit risk, and it is believed that residential customers are reluctant to switch unless significant savings are promised. In the present rate freeze environment, it is difficult for suppliers to offer a rate that would result in sizeable savings.18 As part of industry restructuring, Ohio initiated three innovative programs to spur both competition and consumer interest. Market Support Generation, Switching Quotas, and Government Aggregation provide incentives to migrate retail electric customers from incumbent utilities to CRES Providers.

(a) Market Support Generation (MSG)

As part of Ohio’s restructuring plan, FirstEnergy’s three regulated utilities, Cleveland Electric Illuminating, Ohio Edison and Toledo Edison, agreed to make 1120 MW of residential wholesale power available to CRES Providers at discounted prices on a first come, first serve basis to help stimulate a competitive marketplace. In the fall of 2000, CRES Providers began applying for the discounted power. PUCO will not release settlement prices or who purchased the available generation, but it has all been sold.

Table 3: Allocation of MSG between FirstEnergy companies and retail customer classes Company Customer Class Volume

Residential 260 MW Ohio Edison Other Retail 300 MW Residential 170 MW The Illuminating Company

Other Retail 230 MW Residential 70 MW Toledo Edison Other Retail 90 MW

Total MSG Commitment 1,120 MW Source: www.firstenergycorp.com

(b) Switching Quotas

The restructuring legislation mandates that 20% of every customer class’s load must switch electricity providers by December 31, 2003. For residential customers, given fairly even electricity use across

17 Ohio Consumer’s Counsel

18 Interview with Amerada Hess Corporation representative (Amerada Hess is a certified supplier/aggregator

in Ohio), Nov 2001.


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households, this provision essentially demands that 20% of residential customers switch to a CRES Provider within the next two years. Utilities that fail to meet this quota are subject to financial penalties imposed by the Public Utilities Commission.

(c) Government Aggregation Groups

Aggregation allows customers to form a buying group and leverage greater buying power in a competitive market. Ohio law encourages local governments to form aggregations on behalf of their constituents, and the legislation allows these aggregations to operate in an “opt-out” status. In order to form an “opt-out” aggregation, the government must hold a referendum. If the referendum passes, residents are automatically included in the aggregation unless they choose not to participate. Residents must decide not to participate before the aggregation begins to supply electricity. If a customer decides at a later date to leave the aggregation, financial penalties can be levied by the aggregation. All aggregations must allow for free “opt-out” periods every two years. The aggregators are expected to sign long-term supply contracts with energy marketing companies. For the selected companies, government aggregations represent a tremendous advantage over the go it alone approach. Marketing expenses will be drastically lower and, given the financial penalty to opting-out at an inopportune time, retention rates should be very high. Local government aggregations will have the greatest impact on retail electric competition in the coming months. In excess of 1,000,000 residential consumers could soon be switching to a new electric suppliers. These customers will be members of the following government aggregations:

• NOPEC – Up to 450,000 consumers previously served by First Energy Companies will begin purchasing their electricity from Green Mountain Energy Company as members of the Northeast Ohio Public Energy Council (NOPEC) aggregation group in September and November 2001. A final tally of the number of NOPEC customers electing to “opt out” of the buying group is not yet available. NOPEC recently invited an additional 72 communities to join its group, and several new additions to the coalition have pushed

Lake

Geauga

Summit

Portage

Trumbull

Ashtabula

Cuyahoga

Lorain

Medina

NOPECCountiesNOPEC

Counties

Figure 2


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membership to more than 100 communities. Management Consulting Services believes that the final NOPEC membership count could exceed 800,000. Figure 2 lists the counties from which participating communities have been drawn.

• Toledo - The City of Toledo recently announced that it had negotiated a new electric service

contract with FirstEnergy Solutions on behalf of the city’s aggregated group of more than 100,000 residential consumers. Originally, Toledo was a member of NOAC (below), but the city council voted to leave that organization and sign a contract with FirstEnergy unilaterally. The service is scheduled to begin in early 2002.

• NOAC - Four of the eight communities in the Northwest Ohio Aggregation Coalition (NOAC)

have accepted an electric service offer from WPS Energy Services, Inc. of Green Bay, Wisconsin, and the remaining four communities are expected to make decisions soon. The NOAC group represents 50,000 Ohio households.

• Cleveland – Cleveland residents voted one year ago to form an Electric Aggregation Program.

All Cleveland residents who previously received power from the Cleveland Electric Illuminating Company (CEI) were eligible. Customers of the municipal utility, Cleveland Public Power, were not eligible for this program since deregulation does not apply to municipal utilities. The city chose WPS Energy Services as the power provider. The aggregation represents over 133,000 residential consumers.

• Parma – The city of Parma voted to form an opt-out aggregation in the spring of 2000, and

Allegheny Energy Supply was contracted as the electric provider. The program began operating in February, 2001. Over 34,000 residential households and businesses that were served by Cleveland Electric Illuminating were eligible to participate in this program.

The government aggregations, when combined with the 157,00 customers who have already switched to a competitive electricity supplier, could push the total number of residential service switchers to over 1.1 million in the state, or more than 25% percent of all residential consumers. These customers, however, are concentrated in FirstEnergy service territories. Switching percentages in other EDU territories are far below the 20% threshold and are not anticipated to increase anytime soon. These areas may be prime target markets for SOAR Energy.

3.4 Competitors

Six CRES Providers are currently providing electric service to residential consumers in Ohio. Only two providers, The New Power Company and FirstEnergy Services, are actively recruiting new customers. Green Mountain Energy, WPS Services, and Allegheny Electric Energy Services are only providing service to customers acquired through government aggregation programs. AES Power Direct was


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recently acquired by the New Power Company and has ceased all acquisition programs. These four competitors are described in detail below:

(a) Green Mountain Energy

Green Mountain Energy has signed contracts to supply power to NOPEC affiliated government aggregations at a rate promised to be below EDU prices for the length of the contract. Initially, the savings will range from 1% to 3%. The savings will rise to 1.5% to 3.5% in the final two years of the five-year contract. When combined with the 5% rate reduction mandated by restructuring legislation, NOPEC customers will be paying 6% to 8% less for electricity generation than they did last year. Actual savings will depend on how much of the MSG Green Mountain was able to obtain. Green Mountain rates are fixed each calendar year and do not vary based on season or usage. See Table 4 below.

Table 4: Green Mountain rates vs. The Illuminating Company and Ohio Edison (cents / kWh) Cleveland Electric Illuminating Company (CEI)

Rate Code

Rate Description CEI Green Mountain (1% Lower)

50 Residential 4.60 4.55 60 Residential Water Heating 4.60 4.55 70 Residential Water & Space Heating 4.54 4.49 80 Residential Space Heating 4.57 4.53

Ohio Edison

Rate Code

Rate Description Ohio Edison

Green Mountain (1% Lower)

10A Residential 4.27 4.20 11A Residential Water Heating 4.25 4.20

Source: Green Mountain Energy

Green Mountain is offering “clean energy”, as opposed to “green energy”. Green energy is power generated from renewable energy sources, such as wind, solar, geothermal, small or micro hydro, and various biomass resources. Clean power is power produced using less polluting sources, such as natural gas. Conventional power from coal in Ohio is up to 70% more polluting than clean energy. The Green Mountain product offered in Ohio includes 98% natural gas and 2% renewable energy. This 2% requirement is being met, in large part, through the purchase of tradable renewable energy certificates (T-RECs) from municipally owned joint venture projects represented by AMP-OH. Other features of the Green Mountain plan include:

• Enrollment in the exclusive Power Perks program. Program participants receive discounts and special offers from a variety of local and national organizations.


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• Construction of eight new solar arrays on local schools and the provision of renewable energy educational materials for students, faculty, and local communities.

• Funding for a feasibility study on the development of a wind farm in Ohio.

(b) The New Power Company

The New Power Company’s operations have two foundations in Ohio. The company is a registered CRES Provider in the AEP/Columbus Southern Power and Cincinnati G&E service territories and is currently recruiting new customers. To date, this effort has born little success. The New Power Company also purchased AES Power Direct during the summer of 2001. AES Power Direct: Since its acquisition by the New Power Company, Power Direct has stopped accepting new customers.19 It is not yet know if this is a temporary or permanent situation or if the company intends to continue providing its “clean” products. AES Power Direct is serving customers in the FirstEnergy territories of Ohio Edison, Toledo Edison and Cleveland Electric Illuminating. It buys low cost power generated in Ohio and markets it to retail residential, commercial and industrial customers. It supplies electricity generated by a common mix of fuel sources, including natural gas, coal, oil, nuclear, diesel, and hydro. Instead of green or renewable power, Power Direct offers customers a service called Blue Power. Blue Power gives customers the ability to “clean” their energy by retiring emissions allowances and planting trees. Power Direct offers customers three distinct program: ClassicChoice, CoolBlue and ClearBlue. Table 5 lists price comparisons for the various programs.

Table 5: AES Power Direct prices vs. FirstEnergy Rates (Cents / kWh)

Residential Pricing Classic Choice Cool Blue

Clear Blue

Average EDU Price

Toledo Edison Residential 3.55 3.95 4.42 4.42

Ohio Edison Standard (Without Water Heating) 3.60 4.00 4.31 4.31 Space Heating (Without Water Heating) 3.60 4.00 4.31 5.66

Cleveland Electric Illuminating (CEI) Residential 3.70 4.10 4.71 4.71 Residential Water Heating 3.70 4.10 4.71 4.97 Residential Space Heating 3.70 4.10 4.71 5.74

Residential Water & Space Heating 3.70 4.10 4.71 5.22

Source: AES Power Direct

19 Mr. Isaac Ackerman, AES Power Direct representative. Nov 2001.


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ClassicChoice: This plan does not include any environmental and conservation component. The rate is approximately 20% below the incumbent utility rates. CoolBlue: This program proposes to reduce global warming by planting trees. Planting trees will consume carbon dioxide and, thus, customers offset the impact of their own electricity consumption. CoolBlue tree planting occurs in conjunction with American Forests, a 125-year-old conservation organization that is a global expert on reforestation. CoolBlue plants trees in Ohio, and customers pay a 10% premium for the service. ClearBlue : This plan provides all of the benefits of CoolBlue plus it promises to reduce acid rain and smog by retiring emission allowances. The price is set to equal the incumbent utility’s rates, a 25% premium over the ClassicChoice option. Electric generating plants receive a set number of emission allowances that permit the plants to emit compounds that contribute to acid rain and smog. These emissions allowances can be sold, traded or banked for future use. Through ClearBlue, allowances are purchased and permanently retired to offset the emissions related to electricity usage. This will reduce the total amount of emissions created by electricity generation in the U.S. Power Direct claims that ClearBlue customers have already had a measurable impact by eliminating more than 1,550 metric tons of carbon dioxide, 11 tons of sulfur dioxide and five tons of nitrogen oxides. As an enrollment incentive, Power Direct agreed to charge ClassicChoice rates for the ClearBlue plan for the first three months of service. Additionally, customers received a free 100-minute calling card when they enrolled over the Internet or chose online billing.

(c) FirstEnergy Solutions

FirstEnergy Solutions is the unregulated subsidiary of FirstEnergy Corp., which also controls Toledo Edison, Ohio Edison, and the Cleveland Electric Illuminating Company. FirstEnergy Solutions is providing power to government aggregations, private buying groups, and individual consumers. It has signed contracts with the City of Toledo to supply the municipality’s 100,000 customers with electricity. It is also providing electricity to assorted Better Business Bureaus, employee organizations, and business partnerships. The company does not offer any access to green power.20

(d) Ohio Farm Bureau Federation

The Ohio Farm Bureau Federation (OFBF) acts as a cooperative aggregator. Through its “Self-Help Energy Programs,” the OFBF negotiates better natural gas and electricity rates for its members. OFBF has entered into a two-year supply contract for natural gas and electric generation with FirstEnergy Solutions Corporation, the unregulated subsidiary of FirstEnergy. Currently, the OFBF charges a flat 4.7 cents/kWh and has guaranteed that rate for one year. While this price beats EDU prices for many

20 http://www.firstenergysolutions.com, Dec 2001.


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of the residential tariffs in northern Ohio, it is above prevailing rates in the southern half of the state. Therefore, the electric program is only available to OFBF members residing in the Cleveland Electric Illuminating and Ohio Edison service territories. Farm Bureau members receive special generation pricing not available to the general public. The annual membership fees for the OFBF vary between $45 and $55, depending upon their county of residence. Half of OFBF members are farmers. The other half of OFBF customers are residential consumers living in cities and towns. In addition to energy aggregation, OFBF offers members 18 benefits, including nationwide insurance, farm bureau merchandise, car leasing, travel services, and eye care. Six thousand members have signed up for OFBF electric service since the first of the year. Most residential customers expect to save $45 to $60 per year. Five percent of the aggregation customers are new OFBF members. Ninety-five percent are residential consumers. The OFBF does not currently offer renewable or green energy. However, the cooperative does plan to participate in the “Energy Efficiency Education and Technical Development Program” for farm and rural residential consumers in the Montgomery County area. The program aims to lower rural energy consumption by studying energy use patterns and making recommendations on more efficient operations. Ohio Partners for Affordable Energy (OPAE), MERC’s sister organization, is also participating in the program. MERC is the fiscal agent and partner for the grant that funds the program.

(e) WPS Energy Services, Inc.

WPS Energy Services has been selected by the Northwest Ohio Aggregation Coalition (NOAC) to serve their member communities. WPS has also been chosen by the city of Cleveland to be the electric provider for its Electric Aggregation Program. WPS does not offer any green or clean power programs. WPS believes that there may be a market for green power, but has not done any specific research to test this proposition.21 The NOAC Aggregation program is an opt-out program.22 There will be a 21-day opt-out period. Customers wishing to opt-out during this period will not be charged any fees from NOAC or WPS Energy Services. Customers wishing to join the program later, after having opted out once, may not be entitled to the low pricing available at the beginning of the program. After the program begins, NOAC customers may switch at the end of the second year, and every two years thereafter, without paying a switching fee. NOAC customers may also switch without paying a switching fee if WPS Energy Services’ rates exceed those charged by Toledo Edison. Customers choosing to opt-out for other

21 Interview with a representative at WPS Energy Services, Inc, Nov 2001.

22 See ‘opt-out’ information in section on aggregation above


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reasons face a $25 switching fee. WPS offers fixed rates over the next two years, and service begins in January 2002 (See Table 6).

Table 6: WPS Rates compared with Toledo Edison (Cents per kWh) Consumer Class Toledo Edison WPS

Energy Savings on Total Bill

Savings on Generation

Residential Customer (750 kWh per month)

4.64 4.33 2.8% 12.0%

Source: WPS Energy Services Cleveland is also an “opt-out” aggregation. Residential aggregation program participants seeking to opt-out in the first year may be required to pay a $50 switching fee. In the second year, the penalty drops to $25. WPS has been initiating this service incrementally. The first customers began receiving WPS power in April. All customers should be receiving service from WPS by the end of 2001. As with NOAC, Cleveland customers will be allowed to opt-out at no charge if WPS rates rise above rates charged by CEI. Currently, WPS Energy predicts its prices will remain below the incumbent’s prices (see Table 7).

Table 7: WPS rates compared with Cleveland Electric Illuminating (Cents per kWh) Consumer Class Cleveland

Electric WPS Energy Savings on

Generation Residential Customer (500 kWh per month)

4.7 3.9 Up to 18%

Source: WPS Energy Services

(f) Allegheny Energy Supply

Allegheny Energy Supply, an unregulated subsidiary of Allegheny Energy, Inc., began serving the members of the Parma municipal aggregation in February 2001. The City of Parma was offered a rate of 22% below the rates currently offered by Cleveland Electric Illuminating. Table 8 details the price differences between. Because Parma was one of the first municipalities to aggregate its electricity demand, it was likely able to take advantage of FirstEnergy’s Market Support Generation program. Table 8: Allegheny Energy rates compared to Cleveland Electric Illuminating (Cents per kWh)

Consumer Class Cleveland Electric

Allegheny Energy

Savings on Generation

Residential Customer 4.7 3.7 22%


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3.2 Ohio Switching Rates vs. Other Restructured Markets

To date, Ohio has been very successful compared to other states. It is still early, though. During the Ohio restructuring debate, California and Pennsylvania were the most often cited examples of what to do and not do when deregulating electricity service. While promising at the beginning, California’s program is now in shambles and the state is moving back towards a regulated marketplace. Customer choice programs have been suspended indefinitely. In Pennsylvania, large percentages of customers switched energy suppliers at the program’s outset. However, that trend has recently reversed and there is a significant number of customers opting to switch back to utility supplied power. This is especially true of commercial and industrial customers. The percentage of switched commercial and industrial MW Load has dropped from a high of approximately 41% and 55.8%, respectively, to 4.5% and 6.5%.23 As part of restructuring, Pennsylvania capped generation rates for the incumbent utilities. Currently, competitors are unable to beat these prices and customers are migrating back to their traditional utilities. Pennsylvania recently extended the price caps, but the state raised shopping credits in a move to make the competitive services more attractive.24 Residential activity remains low in most states and is expected to remain so with the exceptions of Texas and Ohio. As in Ohio, Texas legislation has put real requirements in place to ensure that a large number of customers migrate to competitive energy providers. Texas regulations will require suppliers to maintain a ratio between their commercial and residential customers. This means that CRES Providers will not be able to enter the market and only serve large commercial and industrial customers. Energy suppliers will be forced to add a predetermined amount of residential load for each addition of commercial load.25

3.3 Green Power Plans inside and outside Ohio

Currently, consumers eligible to choose CRES Providers have no real green energy options in Ohio. There are some CRES Providers that include optional environmental and conservation components as part of their service offering, but there is no Green-e certified green power26 available in the state. Ohio

23 Dr. William R. Huss, “Ohio’s Restructuring: A Comparison with California, Pennsylvania, and Other Competitive Markets”, presentation by XENERGY Inc. to Infocast’s Ohio Power Game.

24 Pennsylvania Office of Consumer Advocate, “A Residential Consumer’s Electric Shopping Guide”,

http://www.oca.state.pa.us/elecomp/pricecharts.html

25 Interview with Amerada Hess Corporation Representative, Nov 2001.

26 To be eligible for Green-e certification, at least half of an electricity product’s energy supply must come

from renewable resources such as wind, solar, geothermal, biomass or small hydro. The product must also contain an increasing percentage of new renewable resources each year. Any non-renewable portion of the product must be as clean or cleaner than the traditional power mix and none of the electricity for the product can be purchased directly


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compares poorly with other states in terms of green power choices. At a similar stage – approximately one year after opening the retail market – 4% of Pennsylvania households that had switched suppliers chose Green-e certified renewable energy. An additional 15% chose “cleaner” power options, such as Electric America’s large hydroelectric product and Green Mountain’s offer of 1% renewable energy. Table 9 lists a sample of green power programs across the United States. Premium charges average 2.65 cents/kWh and range from 0.17 cents/kWh to 8.70 cents/kWh. Most of the programs currently use wind power, although solar, landfill gas, and small hydropower plants are also utilized. Most green power programs are targeted at only residential consumers. It is felt that businesses are unwilling to pay a premium – especially if electricity is a significant production cost. Manufacturing firms where electricity accounts for 20% of the total cost of the finished product are unlikely to sign up for green power if any premium is charged.27 In Ohio, a number of companies are offering an array of environmentally sensitive products. Green Mountain is the largest provider of ‘clean’ power. Power Direct, which was recently acquired by The New Power Company, offers customers two environment friendly options. The City of Bowling Green offers the only true green power program in Ohio. Participants pay a surcharge of 1.38 cents/kWh for green power. The customer can choose to receive a predetermined percentage of green power – between 25% and 100% - or they can choose to purchase a predetermined amount of green power each month regardless of their actual energy consumption. Bowling Green conducted a survey two years ago and over 5% of Bowling Green residents expressed a willingness to pay more for green power. When green power was actually offered to the residents of Bowling Green, however, the participation rate was only 2.7%, and no commercial customers signed-up. The non-profit organization Green Energy Ohio (GEO) helped Bowling Green develop an educational campaign, including brochures, public forums and student outreach on the campus of Bowling Green State University. GEO’s involvement resulted in a jump in participation to about 3.5%.28 Twenty-five businesses were among the new customers. Bowling Green is now one of the top-ten green power programs in the country.29

from a nuclear facility. The Center for Resource Solutions verifies that companies are meeting their requirements through an annual verification process by an independent auditor. In addition, Green-e staff conduct a semi-annual review of product marketing materials to ensure companies are adhering to Green-e’s Code of Conduct.

27 Interview with Amerada Hess Corporation Representative, Nov 2001.

28 GEO has also executed a Memorandum of Understanding with MERC to assist in marketing SOAR Energy

and a representative from GEO sits on the SOAR Board.

29 National Renewable Energy Laboratory. Measured by percent participation.


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Bowling Green has a 6 MW share of the 42 MW Belleville hydropower plant and receives 1.6 MW of power from a landfill program. AMP-Ohio, a non-profit energy provider for Ohio municipal utilities, is in the process of obtaining a Green-e certificate for the hydropower plant. Eventually, Bowling Green expects to receive 3.8 MW from the landfill program. Bowling Green is investing all of the profit it collects through its green power program in solar and wind power resources on the Bowling Green grid, and the city matches every contribution made to the Green Power program. One-kilowatt photovoltaic systems have already been installed on two elementary schools and more are being planned. The city is currently preparing to install a 500-1500 kW wind turbine and is conducting an environmental and conservation impact assessment on the project.


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Table 9: National Samples of Green Power Programs (As of April 2001)

AL Huntsville Utilities wind, landfill gas, solar 2000 2.67

AZ Salt River Project central PV, landfill gas, small hydro 1998 3.00

AZ Tucson Electric PV, landfill gas 2000 8.70

CA City of Alameda PV, various 1999 1.00

CA Los Angeles DWP wind, landfill gas, geothermal 1999 3.00

CA City of Palo Alto small hydro, geothermal, landfill, wind 2000 2.30

CA Sacramento Municipal Utility District landfill gas, PV 1997 1.00

CO Public Service of Colorado wind 1997 2.50

IN Indianapolis P&L geothermal purchase 1998 0.90

IN Wabash Valley Power Assoc. landfill gas 2000 0.75

IA Alliant Energy landfill gas 2000 2.00

KS Western Resources wind 1999 5.00

KY Bowling Green Municipal Utilities wind, landfill gas, solar 2000 2.67

MI Lansing BW&L landfill gas, small hydro 2001 3.00

MI Traverse City L&P wind 1995 1.58

MN Great River Energy wind 1997 1.65

MN Moorhead Public Service wind 1998 1.50

MN Otter Tail Power Co. wind 2001 2.60

MN Southern Minnesota Mun. Pwr Agency wind 2000 3.00

MS City of Oxford wind, landfill gas, solar 2000 2.67

MT Flathead Electric Coop wind, small hydro 1999 2.00

ND Minnkota Power Coop wind 1999 3.00

NE Lincoln Electric System wind 1998 4.30

NM Southwestern Public Service wind 1999 3.00

OH City of Bowling Green small hydro 1999 1.38

OR Eugene Water & Electric wind 1999 2.43

OR Midstate Electric Coop wind, small hydro 1999 2.50

OR Pacific Northwest Gen. Coop landfill gas 1999 1.90

OR Portland General Electric wind, low-impact hydro 2000 5.00

SD East River Electric Coop wind 2000 3.00

TN Assorted Counties wind, landfill gas, solar 2000 2.67

TX Austin Energy wind, landfill gas 2000 0.17

TX Public Service of San Antonio wind 2000 4.00

TX El Paso Electric Company wind 2001 1.92

TX Texas-New Mexico Power Company wind 2000 1.00

UT Utah Power wind from BPA 2000 2.95

WA Orcas P&L wind, small hydro, PV 1999 3.50

WA Pacific Power wind from BPA 2000 2.95

WI Madison Gas & Electric wind 1997 3.30

WY Pacific Power wind from BPA 2000 2.95

Start DatePremium (¢/kWh)

State Utility Name Type

Source: Department of Energy’s Green Power Network: www.eren.doe.gov/greenpower


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4. Power Supply Assessment

Green power generation in Ohio is extremely limited at present. A number of small hydropower, biomass, and landfill gas projects account for nearly all renewable generation in the state. None of the electricity packages from these projects have yet to be certified by Green-e.30 The investor-owned utilities have done very little to spur retail demand for green energy and the CRES Providers that have appeared in the market so far have paid minimal attention to renewable generation. Green Mountain Energy promises that 2% of its electricity is renewable, but this 2% requirement is being met, in large part, through the purchase of tradable renewable energy certificates (T-RECs) from municipally owned joint venture projects represented by AMP-OH. Municipal systems supplied by American Municipal Power of Ohio (AMP-Ohio) have become the green power market leaders in Ohio. AMP-Ohio acquires electricity from hydropower and landfill plants and the City of Bowling Green has initiated the only true retail green electricity program in the state. Despite the lack of substantial progress, the potential for significant renewable generation in Ohio does exist. The following section details, by generation type and current production status, the long-term potential for renewable electricity in the state. Much of the research on wind, photovoltaic, and biomass potential was detailed in a report prepared for the Environmental Law & Policy Center (ELPC) titled “Repowering the Midwest, The Clean Energy Development Plan for the Heartland.”31

4.1 Wind

The ELPC report states that it is both economically and physically possible to construct 264 MW of new wind capacity in Ohio by 2010 and 920 MW by 2020, which is enough to power nearly half a million households. Based on a study performed by the Union of Concerned Scientists and cited in the ELPC report, the potential for productive wind farms is limited to the hills and valleys running north-south through the center and eastern sections of the state. For all practical purposes, however, the potential for wind power is fairly even across the entire state. Wind generation projects in Ohio could take three forms. First, Independent Power Producers (IPPs) could develop large-scale major wind farms and sell the resulting generation to the various CRES Providers, IOUs, and municipal utilities. Alternatively, IPPs could develop much smaller projects on farm or ranch land and share the revenues with the landowners. Finally, property owners could purchase smaller windmills for mainly personal use. New net generation rules would allow them to sell

30 Green-e Renewable Electricity Certification Program, “Ohio Choices” http://www.green-

e.org/your_e_choices/oh_home.html, 2001.

31 Synapse Energy Economics, “Repowering the Midwest, The Clean Energy Development Plan for the

Heartland”, Environmental Law & Policy Center, 2001.


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unused capacity back to the grid at retail rates. Net generation developments should qualify for low interest loans through the Ohio Energy Efficiency Revolving Loan Fund.

4.2 Biomass

While wind generation is often the first resource considered when discussing green energy, biomass may have the greatest potential in the Ohio market. The ELPC believes that biomass could provide over 900 MW of capacity by 2010 and 2,250 MW of capacity by 2020. The state has some of the largest biomass resources in the Midwest, much of it concentrated in the farmlands of western Ohio. In Ohio, biomass is comprised mostly of corn, wheat, and logging residues. Energy crops grown primarily for energy generation are potentially viable in Ohio, as well. There are significant barriers to overcome. Principally, the collection of crop wastes can become resource intensive. Farmers and other entities seeking to profit from biomass processing would have to see significant profit potential to invest in this process. These investors will demand stable price forecasts and a commitment by utilities and CRES Providers to support and purchase biomass generation. There are three ways to produce energy from biomass. It can be co-fired in a coal plant, used in Combined Heat and Power (CHP) applications, or converted for use in gasification-combined-cycle systems.

• Co-firing biomass in an existing coal plant is probably the easiest option. Co-firing simply replaces a portion of the coal used to generate electricity with agriculture or forest residues. However, a coal plant must undergo conversion to efficiently burn biomass. While the conversion costs are fairly low, there is a need to show demand for the cleaner energy before many operators are willing to pay even a minimal price to convert a coal plant. Demonstrations and experiments have shown that upwards of 15% of current coal use can be displaced by biomass. Burning biomass reduces sulfur and NOx emissions and results in no net increase in CO2 output since the fuel will rot and release CO2 whether or not it is not used for generation purposes.32

• Combined Heat and Power (CHP) applications provide the most efficient biomass generation.

CHP plants are usually located within larger industrial operations and produce both heat and electricity. The heat is usually used for industrial hot water and air heating, while the electricity can be made available to the retail or wholesale energy markets. Biomass accounts for 60% of the fuel used in the pulp and paper industry, and the industry accounts for most of the power currently generated from biomass. Increased generation is expected to come from increases in

32 The reader should note that co-fired biomass does not qualify under Ohio Green-e standards.


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efficiency, continued conversions of steam-only systems to CHP systems, and the development of biomass CHP systems outside the pulp and paper industry.

• Finally, there is great potential in gasification-combined-cycle systems. This process requires

the conversion of solid biomass into a gas that is burned in a dual-turbine generator that allows for the use of high and low temperature heat. Natural gas combined-cycle systems apply the same principals and are used extensively. While scientifically possible, these plants are not yet commercially feasible. The costs are high but should drop considerably over the next decade. However, the costs are not expected to drop low enough to allow commercial use without subsidy or demonstrated demand.

4.3 Photovoltaics

Generating power from the sun is not expected to have a large impact on power generation in Ohio in the coming years. The ELPC believes that photovoltaic capacity could rise to 81 MW by 2020. Solar power prospects are limited for two reasons. First, while costs have dropped, solar power is still more expensive than nearly all other generation platforms. Second, Ohio is not blessed with great solar power potential. However, solar power does have some potential in the Ohio market. Solar radiation is highly correlated to peak power use in the summer as air conditioner use rises. The use of solar power facilities as peaking units is a possibility. Additionally, solar power is a popular option for dispersed generation. Solar power cells are very scalable compared to other types of dispersed energy. Many residential and commercial customers will find that photovoltaic cells require small investments that pay for themselves in a reasonable amount of time. Ohio’s progressive net generation metering legislation and Energy Efficiency Revolving Loan Fund could potentially boost photovoltaics popularity.

4.4 Hydroelectric Power

The ELPC does not address hydroelectric power potential, but hydroelectric plants are operating in and around Ohio. The Federal Energy Regulatory Commission (FERC) database lists six hydroelectric plants in Ohio and two facilities located on the Ohio River in West Virginia.33 Currently, Green-e will only certify electricity packages from hydroelectric projects in Ohio whose output is less than 42 MW. While they could be eligible, none of the smaller projects have actually been certified by Green-e. Several hydroelectric projects are detailed as follows:

33 Federal Energy Regulatory Commission, “Hydroelectric Projects Under Commission License”

http://www.ferc.gov/hydro/hydro2.htm, Dec 2001.


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42 MW and less: • Belleville Hydroelectric operates 42 MW on the Ohio River in Belleville, West Virginia. This

power is made available to 42 participating municipalities through AMP-Ohio.34

• Bryan Municipal Utilities, located in the northwestern corner of Ohio, owns the Auglaize Hydroelectric Plant on the Auglaize River. The plant currently has 3.7 MW of installed capacity.35

• The City of Columbus operates 5.3 MW of capacity at the O’Shaughnessy Dam on the Scioto

River in southern Ohio.

• The City of Hamilton operates a 1.5 MW plant on the Miami River in Hamilton.

• The Stockport Mill Country Inn in Morgan County plans on operating a 1.5 MW generator on the Muskingum River. This electricity will be available for sale when generation commences.

Over 42 MW:

• The City of Hamilton operates 70.6 MW facility on the Ohio River at Portsmouth.

• The Ohio Power Company (AEP) operates 47.5 MW of capacity on the Ohio River at the Racine Lock and Dam in Mason County, West Virginia.

Potential: A study supported by the Department of Energy details between 180 MW and 240 MW of potential, but currently undeveloped, hydroelectric capacity in various Ohio river basins. 36 Of the 43 sites, 28 lie along the Ohio River. Thirty-three sites already have some type of impoundment or diversion structure but have no hydroelectric generating capability. One site, Bryan Utility’s Auglaize project, is already producing electricity, but has the potential to produce even more. The other nine sites have not been developed at all.

4.5 Landfill Gas

Landfill gas, when refined, is mostly methane and can be used as a substitute for natural gas. Green-e will certify landfill gas as renewable energy when it is co-fired in a natural gas plant and its contribution

34 http://www.bellevillehydro.org/, Dec 2001.

35 http://www.cityofbryan.net/Auglaize.htm, Dec 2001.

36 Idaho National Engineering and Environmental Laboratory, “U.S. Hydropower Resource Assessment for

Ohio”, U.S. Department of Energy: Dec 1997.


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to energy production can be measured separately from natural gas contribution. There are currently 10 operational landfill gas projects in Ohio according to the Public Utilities Commission. Seven more are planned and another 63 sites could be developed. Bio-Gas Technologies of West Lake, Ohio currently controls 18 MW of landfill gas production. AMP-Ohio has agreed to purchase all of this capacity for the next 13 years. Bio-Gas is currently pursuing the development of an additional 18 MW spread over 12 to 13 different sites. At least 7 MW of this capacity is still available for long-term commitments. Once all capacity has been contracted, construction will take between 18 and 36 months.37

37 Jim Hindlemier, President Bio-Gas Technologies: Oct 20, 2001


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5. Governance

SOAR Energy will be operated as a not-for-profit, buyers cooperative. Cooperatives worldwide generally operate using the same principles as adopted in 1995 by the International Cooperative Alliance. The principles are part of a cooperative statement of identity, which also includes the definition of a cooperative and a list of cooperative values:

• Definition – A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

• Values – Cooperatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

Key principals that will govern the operation of SOAR Energy include:

1. Voluntary and Open Membership – Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control – Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary cooperatives, members have equal voting rights (one member, one vote) and cooperatives at other levels are organized in a democratic manner.

3. Member Economic Participation – Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is usually the common property of the cooperative. They usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing the cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the cooperative; and supporting other activities approved by the membership.

4. Autonomy and Independence – Cooperatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

5. Education, Training and Information – Cooperatives provide education and training for their members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. They inform the general public —


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particularly young people and opinion leaders — about the nature and benefits of cooperation.

6. Cooperation among Cooperatives – Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

7. Concern for Community – While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members.

Board of Directors – The initial Board of Directors for SOAR Energy will be selected from those who participate in the organization of the cooperative. The bylaws of the organization provide for at least five, but no more than twenty-one directors who will serve two-year terms with the entire board up for reelection every other year. SOAR Energy will build on the relationships its Board and OPAE have with the Ohio Environmental Council and the Ohio League of Conservation Voters to establish contacts with over 200 environmental and conservation organizations with over 100,000 members throughout the state. Additional members of the Board will be recruited from organizations that become marketing partners of SOAR Energy through one of the approaches described in Section 2.4(a). Tax Status – SOAR Energy will be organized as a tax-exempt 501(c)(12) cooperative. As such it will not be burdened with either federal or state income taxes, but could be liable for various gross receipt, property or sales taxes. Patronage – Because the purpose of the cooperative is to further the goals of their members, but not to make a profit, margins in excess of those required to run the business will be returned to members in accordance with tax law and as deemed prudent by the board of directors. SOAR Energy members may be asked to defer voluntarily the repatriation of patronage to allow SOAR Energy to make strategic investments in selected renewable resources.


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6. Operations

SOAR Energy should gain a competitive advantage over for-profit CRES Providers by offering unique products through affinity group marketing channels. SOAR Energy’s non-profit status, fiscal discipline, efficient power procurement procedures, and measured approach to outsourcing non-critical tasks will keep costs down. Operations are designed to take advantage of economies of scale as membership increases.

6.1 Product Groups

SOAR Energy will provide natural gas and green energy aggregation and energy efficient products and services. SOAR Energy will also actively promote the growth of dispersed electricity generation in Ohio. The following sections detail how these product groups will be managed.

(a) Aggregation – Two Possibilities

SOAR Energy will provide both electricity and natural gas aggregation services. This business plan only addresses electricity aggregation, but the enclosed financial model takes natural gas aggregation into account. SOAR Energy could employ two different strategies to obtain green power: traditional aggregation or contract-for-differences. Both systems are described below. Management Consulting Services believes that a contract-for-differences approach will, in the long-term, offer SOAR Energy the greatest flexibility at the lowest cost. However, given various aspects of the Ohio restructuring legislation, it is possible that SOAR Energy will determine that a traditional approach to power procurement is the most efficient way to proceed. Diagrams illustrating how both approaches work appear on page 40. Additional information can be found in Appendix E. Contract-for-Differences. SOAR Energy can use the contract-for-differences approach to provide Ohio energy users the opportunity to displace “brown” power with green power through a “contract-for-differences” mechanism. Contract-for-differences will allow SOAR Energy to avoid the risky wholesale energy market and still guarantee green power production. For an aggregator working in a traditional electricity market, power consumption predictions must be made in advance in order to guarantee the appropriate amount of electricity is transferred into the appropriate distribution grid. Electricity load managers must forecast demand on an hourly basis, taking into account not only the number of consumers, but also weather, housing types, and appliance usage. Once consumption has been forecast and the appropriate amount of power has been procured, the aggregator loses control. The EDU is responsible for managing the load on its grid. If not enough electricity was made available to the grid, the EDU must go to the spot market to maintain sufficient power supplies. While spot market prices could be lower, they may often be far in excess of the prices that the various suppliers negotiated with long-term suppliers. This is especially true if many suppliers are forced to turn to the spot market during a heat wave, for example. If the energy had to be


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purchased on the spot market because the aggregator did not supply enough electricity to the grid to supply its customers, the aggregator will be responsible for paying the high prices. An unexpected heat wave could severely damage a small aggregator’s financial integrity. SOAR Energy can avoid the risks inherent in the traditional system through a contract-for-differences approach. SOAR Energy can manage this through a direct financial relationship with its members, the members’ EDUs, and various green power generators. The actual movement of electricity and load management will be left to the EDUs. As shown in Figure 3, the SOAR Energy “contract-for-differences” concept involves several key features:

� SOAR Energy will agree with each member to supply green power at a premium above the price that the customer would have paid to the EDU for brown power.

� SOAR Energy will identify green power generators that can supply the green power and negotiate a price for power.

� The generator will deliver the contracted amount of energy to the wholesale market over a prescribed billing period (e.g., 800 MW hours in one year) at the “standard” power wholesale price. Because many of these generators will be fairly small-scale operations, SOAR Energy might have to provide some assistance finding a wholesale buyer for this power.

� SOAR Energy will strip the green certificates from the green power and “attach” them to the power supplied to SOAR Energy members.

� SOAR Energy will arrange for payment of the difference between the market price received by the generator and the price negotiated by SOAR Energy with the generator.

� The EDU, which distributes power to the cooperative members, will bill SOAR Energy for the consumed power. SOAR Energy will, in turn, bill its members for the EDU services plus the agreed upon premium for green electricity.

The green power suppliers are obligated to deliver a prescribed amount of energy to the grid over a stated billing period. There is no attempt to actually track the hourly load shape of the aggregation represented by SOAR Energy. In effect, the cooperative is paying the generator the contract price to assure delivery of the generator's output into the grid. In addition to the above, SOAR can purchase T-RECS within ECAR and combine them with conventional brown power to achieve the same end. The basic obligation of the member is to pay SOAR Energy on a timely basis. SOAR Energy will be responsible for disbursing the proceeds appropriately. This will include payments under the contracts-for-difference to the generators and payments to the EDUs for energy delivered to the members. SOAR Energy will be a CRES Provider only in that it is providing aggregation services; it will not provide separate energy purchasing or real time scheduling coordination.


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SOAR Energy might not be able to manage bill-processing functions immediately. The number of members during the first months of operation is likely going to be small and it will take some time for the organization to develop the capability to process bills. Until SOAR Energy is technically ready to process bills and the customer base is significantly large to make bill processing economically feasible, SOAR will allow the EDUs to bill members. The EDUs will purchase SOAR Energy’s receivables on a monthly basis. These receivables will equal the green premium SOAR Energy members agreed to pay. Traditional Power Procurement/Load Management. If SOAR Energy determines that the contract-for-differences approach is not feasible, a traditional approach utilizing the services of American Municipal Power of Ohio (AMP-Ohio) is planned. AMP-Ohio and SOAR Energy will work together to locate acceptable green power. AMP-Ohio will arrange the purchase and transmission of the green power to the appropriate local distribution grids for transmission to SOAR Energy customers. AMP-Ohio will provide load management services to ensure that adequate supplies of power are dispatched at the correct times. SOAR Energy and AMP Ohio will make every effort to supply the cleanest available power to SOAR Energy members when green power demand outpaces green power supply. The traditional system provides a number of benefits. First, SOAR Energy might be able to offer potential members lower prices. This is especially true if EDUs offer shopping credits that are artificially high in order to migrate customers to CRES Providers. Second, AMP-Ohio already has access to a limited amount of green power, which will make it much easier to serve initial customer demand. Finally, the traditional system will be easier to explain to prospective members. Clear communications will play a key role during customer acquisition. There are a number of drawbacks to the traditional system. First, SOAR Energy will have to pay a significant fee to AMP-Ohio to manage the balance between generation, transmission, and distribution. Second, SOAR Energy could potentially face stiff economic consequences if demand unexpectedly surges and the EDUs have to go to the spot market to serve SOAR Energy customers. Third, the actual physical location of green generation facilities could impact AMP-Ohio’s ability to deliver it to the appropriate grids. Finally, it will be difficult to time green generation with the actual energy consumption of SOAR Energy members. Under the contract-for-differences, the green power suppliers are obligated to deliver a prescribed amount of energy to the grid over a stated billing period. Under the traditional system, they could be required to produce day-to-day or hour-to-hour. It could prove nearly impossible to promise SOAR Energy consumers 100% green power from wind or solar under the traditional system. Those generation systems simply cannot produce at a predictable rate. Green generation could sit unused if the demand is not great enough at the right time. This would not be a problem under the contract-for-differences since the green electricity would be selling at standard power prices and SOAR would not be the only customer.


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Figure 2: Contract-for-Differences Mechanism

Source: Management Consulting Services

Figure 3: Traditional Power Procurement


Contract for Differences- EDU Bills -

MembersWholesale

Market

Green Power @Brown Prices Green Premium

IOU Power@ Green Prices +

T&D Costs

TraditionalGenCo

EDUs

Green Generator

Green Premium

Cash FlowsPower FlowsGreen Certificates

SOAR Energy

Traditional Procurement- EDU Bills -

MembersWholesale

Market

Power & Transmission

Costs + Margin

Green Generator

AMP-Ohio

EDUs

SOAR EnergyPower &

TransmissionCosts

Green Power @ Green Power Price

Power Price+T&D Costs



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(b) Energy Efficient Products and Services

A critical component to SOAR Energy’s business strategy is to provide energy efficient products and services to residential and small business members in an effort to lower kWh consumption. When lower consumption is combined with higher energy prices due to green power premiums, the end result will be no net increase in member bills and a net environmental benefit to Ohio. SOAR Energy will work to spark interest in energy efficiency upgrades by educating the public and serving as a critical link between homeowners and lending institutions. SOAR Energy will ensure that homeowners complete the proper documentation to secure low interest loans through certified banks and Ohio’s Energy Efficiency Revolving Loan Fund. SOAR Energy will act as lubricant to enhance current energy efficiency programs. The cooperative will maintain a list of reputable, certified contractors that can do the work, will promote the program’s benefits to members, will help members prepare loan application paperwork, and will maintain relationships with lending institutions. In return, SOAR will receive commissions from banks for each borrower the cooperative supplies. SOAR Energy will utilize a variety of contractors and will verify each contractor’s reputation and certification. Initially, SOAR will funnel much of the business to contractors employed by Ohio Partners for Affordable Energy (OPAE) with whom MERC has developed pre-existing relationships. OPAE is an advocacy organization working to ensure affordable energy policies for low and moderate-income consumers. OPAE's members are nonprofit agencies providing weatherization services to low-income households, operating programs financed by Federal and State governments and utility companies. Many agencies also perform for-profit work. Additionally, SOAR will develop relationships with the rural electric cooperatives of Ohio that provide similar services to their members. Working with fellow cooperatives will tighten SOAR Energy’s bond with the electric cooperative network. Additionally, by contracting with rural cooperatives rather than for-profit businesses to perform efficiency work, SOAR can avoid problems arising from competition for customers among partners. The rural cooperatives will be focused on their existing members while SOAR is focused on customers in IOU service territories. In addition to providing weatherization services, SOAR Energy will provide energy efficient products to members, such as Energy Star appliances and compact florescent lighting. SOAR understands the competitive environment these products are sold and will not attempt to enter into these businesses as retailers. SOAR’s goal is to disburse catalogues and other information to its members in order to increase product use. As membership grows, SOAR will be in a position to negotiate with these retailers for referral fees, commissions, and other forms of compensation. For example, SOAR Energy has negotiated an agreement with AM Conservation Group, an established provider of energy efficiency products, to provide these products to members through both the website and catalogues.


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(c) Dispersed Generation Promotion

SOAR Energy will actively promote to members the options available under Ohio’s progressive net metering laws. The cooperative will establish relationships with providers of residential photovoltaic and wind power systems. Additionally, as prices drop, SOAR Energy might establish relationships with fuel cell and/or micro-turbine distributors. While these technologies are not green or renewable, they are far cleaner than current fossil fuel generation systems. When solar or wind power is inappropriate, these systems might serve as the next best choice. As with energy efficiency services, SOAR Energy will facilitate members’ relationships with lenders and help attain access to the Energy Efficiency Evolving Loan Fund.

6.2 Organization and Administration

MERC employees will perform initial staff work for SOAR. As the organization grows, SOAR Energy will require internal resources to support operations. The key ongoing staffing decision for SOAR Energy will be what to accomplish with in-house staff and what can be delegated to outside organizations. Below is an analysis of SOAR Energy’s critical tasks and recommendations on how and where to outsource functions that SOAR Energy cannot perform internally.

(a) Core Functions

Core functions are those tasks that are critical to SOAR Energy’s operations. Each of the following jobs must be accomplished for SOAR to succeed.

• Customer Service – SOAR Energy will be responsible for promptly responding to the questions, concerns, and needs of its members. This will require the ability to handle communications both over the phone and over the Internet. Customer service representatives must be able to discuss all facets of SOAR Energy’s operations – aggregation, efficiency, and net metering. Initially, SOAR Energy could contract out this service to TSE Services38 or a similar company. As the company grows and builds greater margins, SOAR Energy could internalize these functions in order to gain maximum control.

• Customer Billing and Remittance Processing – There are three possible ways for SOAR Energy to bill customers. The various EDUs have different policies on the billing of CRES customers. Appendix D lists the pros and cons for each alternative and provides information on each EDU’s policies as part of the power procurement analysis.

38 TSE Services is an energy services company owned by North Carolina electric cooperatives and managed

under cooperative principles. It offers load aggregation services, customer care, billing and remittance processing, customer enrollment services, and Electronic Data Interchange management.


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1) The EDU does consolidated billing. The EDU bills customers both for the services the EDU provides and for the services SOAR Energy provides. The EDU, it turn, regularly transfers collected payments to SOAR Energy.

2) SOAR Energy does consolidated billing. SOAR Energy bills customers both for the services the EDU provides and for the services SOAR Energy provides. SOAR Energy regularly transfers collected payments to the EDU.

3) Both the EDU and SOAR Energy bill members for the services each company provided. The customer pays two bills and there is no need for fund transfers between the EDU and SOAR Energy.

If SOAR Energy elects to let the EDU perform consolidated billing, the cooperative will not need to establish a billing and remittance-processing center. SOAR Energy initially will have to contract with a third party if the cooperative chooses to bill customers itself. Again, TSE Services or a similar company could provide billing services until SOAR Energy is mature enough to bring such functions in-house.

� Marketing and Sales – This is a two-step process. First, SOAR Energy needs to work with its marketing partners to spread awareness of and enthusiasm for green, renewable energy and cooperative membership. Second, the sale must be completed by signing up new members. Additionally, efforts must be made at customer retention. Members will have to be reminded periodically of SOAR Energy’s mission, goals, and accomplishments. SOAR Energy staff will perform the vast majority of this work. It’s possible that a firm like TSE Services will provide member enrollment services.

� Energy Efficient Products and Services – SOAR Energy will provide a full-service approach to upgrading members’ homes’ energy efficiency. This includes marketing, managing relationships with contractors and lenders, and loan application support. The first full-time employee hired by SOAR Energy will serve as the Energy Efficiency Services program coordinator. The actual physical labor will be performed by outside contractors and certified lending institutions will process loan applications.

� Power Procurement – Whether SOAR Energy utilizes a contract-for-differences approach or works through AMP-Ohio, SOAR staff members will play a key role in selecting green power sources. The mix of green power should be actively managed to meet member’s expectations and promote further development in the state. SOAR Energy should work through an energy marketer or consultant to negotiate actual power agreements.

� EDU Relationship Management – SOAR Energy must maintain a link with each of the distribution utilities that serve cooperative members. Initially, SOAR Energy needs to post performance bonds or a Letter of Credit with each utility. Additionally, an Electronic Data Interface (EDI) link must be maintained between SOAR Energy and each EDU to track energy use and account status. The EDI must conform to each


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utility’s requirements. EDI Services should be outsourced to the same entity controlling billing and remittance operations.

• Internet Presence – Many of the tasks described above can be streamlined and simplified

if SOAR Energy has an effective, easy-to-use, interactive web site. Customers should be encouraged to use the Internet to enroll in programs, answer questions about services, pay bills, and make comments. Heavy use of the Internet site will keep costs down by reducing manpower needs and will speed operations by eliminating delivery times associated with paper bills. MERC is currently in the process of designing an appropriate Internet site.

The Internet site should also be used to develop a sense of community for SOAR Energy members. It should highlight green energy development in the state and allow users to see, through web cams, progress on plant construction and operation. SOAR Energy members will be able to really sense that they are making a difference when the see new wind turbines turning or the sun reflecting off solar panels.

• Back Office Functions – SOAR Energy should outsource necessities such as legal services, accounting, and payroll systems. Additionally, SOAR Energy will use a third-party verification service to ensure that the cooperative is acquiring green power and funding future projects in a manner consistent with its marketing message and the agreements it has entered into with members.

6.3 Operating Costs

The overall first year operating costs for SOAR Energy, excluding cost of power, is projected to be nearly $35,000. Additionally, MERC will contribute over $60,000 non-reimbursable funds to cover most administrative expenses. Operating costs will reach nearly $450,000 in 2011 as sales volume increases. SOAR Energy will have to work diligently to maintain costs at this level. The major components of cost are:

• Contract Services – SOAR Energy should pay $1.75/mWh to AMP-Ohio for power procurement and ancillary services. First year costs are projected at $1,400. By 2011, annual payments to AMP-Ohio will rise to nearly $95,000. SOAR Energy will also contract with TSE Services for customer enrollment and customer service provision. Enrollment costs are projected to be $25 per member. On-going customer service should cost $9 per member. Total first year payments to TSE Services are estimated at slightly over $11,000. By 2011, TSE Services will bill $58,000.

� MERC Administrative Services – MERC will provide a number of services to SOAR Energy. Initially, MERC will rely on grant money to cover most expenses and SOAR Energy will be required to only provide a fraction of actual costs. With each successive year, SOAR Energy’s payments to MERC will increase. SOAR Energy will


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pay MERC approximately $2,600 in the first year. Payments to MERC will rise to nearly $60,000 by 2011.

In return, MERC will provide marketing services, office space and equipment, professional services, and Internet site development and maintenance. MERC will also cover first year regulatory fees – approximately $10,000. MERC intends on spending $120,000 in the first three years marketing to prospective customers. This spending will drop-off as MERC allocates greater resources each year to marketing to current members. Customer acquisition costs are estimated to be $25 per new member. Retention costs are an estimated $4 per existing customer. Annual Internet and professional services expenses should remain at approximately $12,000 each year. Office expenses are estimated to rise to $15,000 a year by 2006.

� SOAR Energy Administrative Expenses – SOAR Energy will accrue additional expenses beyond those covered by MERC. EDI set-up costs, spread over the first two years, are expected to approach $20,000. After system set-up is complete, annual maintenance expenses are expected to stay at $2,000 a year. SOAR Energy will pay regulatory fees of approximately $5,000 a year starting in year two.

Salary expenses will be defrayed for a time as MERC staff performs most work. SOAR Energy should hire its first full time employee late in 2003 to serve as the Energy Efficiency Services Coordinator. An administrative assistant should be hired the next year. In 2005, a full time manager will be brought onto staff. Salaries for the services coordinator and administrative assistant are estimated to be $20,000 annually. The manager’s salary is estimated to be $60,000 per year. Payroll benefits should equal 35% of salaries. Total salary expense should rise to $135,000 by 2006.

• Other Operating Expenses – Management Consulting Services believes that 1% of accounts receivable will have to be written-off annually. This write-off will consume nearly $1,000 in the first year, and it will cost approximately $30,000 in 2011.

To facilitate relationships with affinity marketing partners, SOAR Energy should consider paying enrollment incentives or entering into profit sharing agreements. The customer acquisition model assumes that customer enrollment fees of $50 will be paid to marketing partners for 10% of new customers. The model also assumes that 10% of net profit will be shared with affinity partners for 10% of the members, which is equal to 1% of total net profit. Total expenditures on the customer enrollment/profit sharing programs will approach $8,000 a year by 2011.


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6.4 Risk Assessment

Table 10: Key Elements of Risk Potential Risk Factor SOAR Energy Strategy

Competition - Communicate SOAR's dedication to real growth in renewable generation and a clean environment - Focus on unserved areas - Affinity marketing that develops personal connections above simply buying electricity - Utilize multiple price points and efficient segmentation to identify customers willing to pay premium for green power - Take advantage of Cooperative, Tax-free status and MERC support to keep costs down

Unfavorable Consumer Reaction - Incorporate consumer education into marketing materials - Target affinity groups that have already taken positive positions on renewable energy / global warming / clean air - Continue Education Campaign

- Use efficiency services to lower bills - Continue to market low-priced Natural Gas

Unfavorable Regulatory Structures

Opt-out option includes financial penalty - Position marketing strategy to take advantage of windows in opt-out schedule- Approach CRES Providers about providing green energy through contract-for-differences Approach

- Market natural gas and efficiency services to "locked-in" electricity customers - Lobby for new legislation - Publicize SOAR as real green energy choice

EERLF underpublicized, ill-coordinated - Market service to customers - Affiliate with banks eligible to participate and demonstrate a demand for loans - Stream-line application process

- Green Mountain, WPS, FirstEnergy, etc. have first mover advantage

- Price caps and FirstEnergy's MSG program limit SOAR's ability to stay price competitive

Unwillingness to pay premium for Green Power

Poor understanding of environmental issues; alternative power



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7. Financial Analysis

As a newly formed green aggregation cooperative, SOAR Energy faces several financial hurdles. Start-up costs – including EDU credit-worthiness requirements, marketing expenses, regulatory fees, and EDI set-up – are significant. Other hurdles include:

• Competitive pricing –SOAR Energy’s target market is price-sensitive, monthly electricity bills will need to be reasonably competitive with that of other CRES Providers in order to attract and retain members.

• Capital constraints – Especially in today’s economic environment, traditional lenders to

electric cooperatives will likely be reluctant to extend funds to cover initial year operating deficits, particularly since the cooperative will lack significant physical assets to collateralize borrowed funds.

7.1 Member Acquisition

Management Consulting Services believes that membership levels will increase rapidly during the first three years of operation and soon taper-off after the initial rush of membership. Figure 5 illustrates the predicted growth patterns. Electric membership could approach 1,500 by the end of the second year. Initial rapid growth will likely be a function of initial marketing funds made available by grants to MERC, and SOAR Energy’s ability to reach the limited number of residents in Ohio that are already aware of green generation’s potential and require little convincing to join the cooperative. Growth slows as customer acquisition becomes more difficult and marketing funds are restricted.

Figure 4: SOAR Energy Member Acquisition

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100% Green members, paying a premium of 3.3 cents/kWh, are expected to account for 20% of total electricity customers. Standard “brown” members, paying no premium, are limited to Public Housing Authority customers and service organizations. 51% Green customers, paying a premium of approximately 0.8 cents/kWh, should account for nearly 80% of total memberships.

7.2 Gross Margins

SOAR Energy’s gross margins from electric members should reach between $50,000 and $75,000 within two years. A large percentage of this gross margin will come from the high premium paid by SOAR Energy’s 100% Green members. While only accounting for 20% of the total customer base, they will contribute nearly 60% of the gross margin. The main reason is due to the assumption that most, if not all of these members, will also select the option to contribute an additional 1.8¢ toward the renewable energy development fund. Table 11 details each member class’ contribution to gross margin within the first year of operation and Figure 5 illustrates the growth in gross margin by customer class over the next ten years.

Table 11: Gross Margin Contribution by Membership Class – Year 1 Customer Class Contribution

(¢ / kWh) Total kWh Consume

d

GM Contribution

Standard 0.566 74,000 $ 417 51% Green 0.766 589,000 $4,510 100% Green 2.666 147,000 $3,925

Figure 5: Gross Margin Contribution by Membership Class


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7.3 Net Margins

Management Consulting Services projects positive net margins beginning in the first year of SOAR Energy’s operations. Positive results are achievable for two reasons. First, MERC will subsidize most of SOAR Energy’s start-up expenses through the use of grant funds and income from existing natural gas aggregation customers. Second, SOAR Energy will run “bootstrap” operations and aggressively manage expenses. Following initial start-up costs, nearly all SOAR Energy expenses should be variable and should only increase with membership. Additional funding should be used to increase marketing outlays. Figure 7 displays expected gross margins vs. net margins. Figure 6 illustrates the difference between the expenses MERC expects to incur and the payments SOAR intends to make to MERC. The difference equals the administrative expense deficit MERC faces, the gap that needs to be filled through grant funds, gross margin increases, or the further reduction of expenses.

Figure 6: Gross Margins vs. Net Margins: 2002 – 2011

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Figure 7: MERC Contributions vs. SOAR Energy payments to MERC

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7.4 External Capital Needs

Financial pressures are great on all new business ventures including the need to locate funding for large fixed start-up costs. SOAR Energy is no different than most other new businesses since it will also need to fund fixed start-up costs. SOAR has been successful to-date by being able to obtain grant funding for marketing and other administrative expenses. Additional external funds, however, are required. SOAR Energy will need to secure a performance bond or letter-of-credit (LC) when registering with Ohio EDU’s. Typically, the bond or LC is obtained from a bank or other lending institution that is acceptable to both parties. The amount required by each EDU is large for a small start-up organization like SOAR and can range anywhere between $500 thousand to $1.5 million dollars. The complicating factor is that SOAR does not have enough assets to pledge for the bond or LC. One way SOAR can overcome this challenge is to locate an organization willing to pledge assets on its behalf. SOAR will, most likely, need to compensate the organization for the use of its assets plus pay a fee to the bank for providing the service. The bank fee to issue a bond or LC is nominal and will range between 25 to 30 basis points annually of cash collateralized assets. Estimating the fee for the use of assets is more difficult and is a function of many factors, including the cost of capital and the default risk. SOAR may be successful in negotiating a low fee by convincing the organization of its not-for-profit status and its green power charter. Even though SOAR does not have the assets necessary to pledge for a bond or LC, it will begin to accumulate asset value through the development fund sponsored by its members. SOAR can use this


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fund to raise debt capital as long as SOAR can meet financial coverage ratios and other covenants defined by the lender. SOAR’s financial projection shows that 50% of its development funds assets are financed with debt capital.

SOAR Energy Appendix A

INCOME STATEMENT 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenue - Electric 44,179 317,802 922,119 1,579,712 1,981,517 2,211,494 2,425,149 2,621,900 2,799,846 2,955,038 Revenue - Gas 13,536 20,818 30,193 36,139 39,169 42,015 44,663 47,052 49,148 50,911 Revenue - Services 13,200 30,900 30,300 13,800 10,200 9,600 8,700 7,800 6,900 5,700

Revenue 70,914 369,520 982,613 1,629,651 2,030,886 2,263,109 2,478,512 2,676,752 2,855,894 3,011,649

Cost of Power - Electric 35,327 254,127 737,364 1,263,201 1,584,501 1,768,399 1,939,246 2,096,576 2,238,869 2,362,967 Cost of Power - Gas 0 0 0 0 0 0 0 0 0 0 Cost of Services 0 0 0 0 0 0 0 0 0 0

Cost of Power 35,327 254,127 737,364 1,263,201 1,584,501 1,768,399 1,939,246 2,096,576 2,238,869 2,362,967

Gross Margin - Electric 8,852 63,675 184,756 316,511 397,017 443,095 485,903 525,323 560,977 592,071 Gross Margin - Gas 13,536 20,818 30,193 36,139 39,169 42,015 44,663 47,052 49,148 50,911 Gross Margin - Services 13,200 30,900 30,300 13,800 10,200 9,600 8,700 7,800 6,900 5,700

Gross Margin 35,587 115,393 245,249 366,450 446,386 494,710 539,266 580,176 617,025 648,682

Operating Expenses 2,583 9,805 18,731 24,098 26,856 29,517 31,966 34,201 36,170 37,801 Administration & General 12,588 40,334 72,870 136,943 181,933 186,127 190,041 193,611 196,771 199,450 Contracted Services 12,637 48,964 87,955 104,340 110,709 120,998 130,425 138,988 146,413 152,375 Bond / LC 6,500 13,000 26,000 26,000 39,000 39,000 52,000 52,000 52,000 52,000

Operating Expenses 34,307 112,103 205,555 291,381 358,498 375,642 404,432 418,800 431,354 441,626

EBITDA 1,280 3,290 39,694 75,069 87,888 119,068 134,834 161,375 185,671 207,056

Depreciation & Amortization 0 0 0 0 0 0 0 0 0 0

EBIT 1,280 3,290 39,694 75,069 87,888 119,068 134,834 161,375 185,671 207,056

Interest Expense 53 487 1,975 4,976 9,248 14,277 19,839 25,894 32,397 39,301

EBT 1,227 2,802 37,719 70,094 78,640 104,790 114,995 135,482 153,273 167,755

Income Taxes 0 0 0 0 0 0 0 0 0 0

Net Margins 1,227 2,802 37,719 70,094 78,640 104,790 114,995 135,482 153,273 167,755



Percent of Sales

Revenue - Electric 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Revenue - Gas 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Revenue - Services 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Power - Electric 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% 80.0% Cost of Power - Gas 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Cost of Services 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Cost of Power 49.8% 68.8% 75.0% 77.5% 78.0% 78.1% 78.2% 78.3% 78.4% 78.5%

Gross Margin - Electric 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Gross Margin - Gas 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross Margin - Services 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Gross Margin 50.2% 31.2% 25.0% 22.5% 22.0% 21.9% 21.8% 21.7% 21.6% 21.5%

Operating Expenses 3.6% 2.7% 1.9% 1.5% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% Administration & General 17.8% 10.9% 7.4% 8.4% 9.0% 8.2% 7.7% 7.2% 6.9% 6.6% Contracted Services 17.8% 13.3% 9.0% 6.4% 5.5% 5.3% 5.3% 5.2% 5.1% 5.1% Bond / LC 9.2% 3.5% 2.6% 1.6% 1.9% 1.7% 2.1% 1.9% 1.8% 1.7%

Operating Expenses 48.4% 30.3% 20.9% 17.9% 17.7% 16.6% 16.3% 15.6% 15.1% 14.7%

EBITDA 1.8% 0.9% 4.0% 4.6% 4.3% 5.3% 5.4% 6.0% 6.5% 6.9%

Depreciation & Amortization 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

EBIT 1.8% 0.9% 4.0% 4.6% 4.3% 5.3% 5.4% 6.0% 6.5% 6.9%

Interest Expense 0.1% 0.1% 0.2% 0.3% 0.5% 0.6% 0.8% 1.0% 1.1% 1.3%

EBT 1.7% 0.8% 3.8% 4.3% 3.9% 4.6% 4.6% 5.1% 5.4% 5.6%

Income Taxes 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Net Margins 1.7% 0.8% 3.8% 4.3% 3.9% 4.6% 4.6% 5.1% 5.4% 5.6%



Per Customer

Electric customers 330 1,383 2,734 3,589 4,026 4,433 4,808 5,150 5,452 5,703Gas customers 795 2,533 4,056 4,601 5,110 5,591 6,031 6,422 6,760 7,035Service customers 44 147 248 294 328 360 389 415 438 457

Total customers 1,169 4,063 7,038 8,484 9,464 10,384 11,228 11,987 12,650 13,195

Revenue - Electric 133.87 229.79 337.28 440.15 492.18 498.87 504.40 509.11 513.54 518.15 Revenue - Gas 17.03 8.22 7.44 7.85 7.67 7.51 7.41 7.33 7.27 7.24 Revenue - Services 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00

Revenue 60.66 91.94 142.59 197.87 221.47 225.05 228.06 230.79 233.42 236.08

Cost of Power - Electric 107.05 183.75 269.70 351.96 393.57 398.92 403.34 407.10 410.65 414.34 Cost of Power - Gas 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Cost of Services 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cost of Power 30.22 63.23 107.00 153.38 172.79 175.86 178.44 180.77 182.99 185.23

Gross Margin - Electric 26.82 46.04 67.58 88.19 98.61 99.95 101.06 102.00 102.89 103.82 Gross Margin - Gas 17.03 8.22 7.44 7.85 7.67 7.51 7.41 7.33 7.27 7.24 Gross Margin - Services 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00

Gross Margin 30.44 28.71 35.59 44.49 48.68 49.20 49.62 50.02 50.43 50.85

Operating Expenses 2.21 2.44 2.72 2.93 2.93 2.94 2.94 2.95 2.96 2.96 Administration & General 10.77 10.04 10.57 16.63 19.84 18.51 17.49 16.69 16.08 15.63 Contracted Services 10.81 12.18 12.76 12.67 12.07 12.03 12.00 11.98 11.97 11.94 Bond / LC 5.56 3.23 3.77 3.16 4.25 3.88 4.78 4.48 4.25 4.08

Operating Expenses 29.35 27.89 29.83 35.38 39.09 37.36 37.21 36.11 35.26 34.62

EBITDA 1.09 0.82 5.76 9.11 9.58 11.84 12.41 13.91 15.18 16.23

Depreciation & Amortization 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

EBIT 1.09 0.82 5.76 9.11 9.58 11.84 12.41 13.91 15.18 16.23

Interest Expense 0.05 0.12 0.29 0.60 1.01 1.42 1.83 2.23 2.65 3.08

EBT 1.05 0.70 5.47 8.51 8.58 10.42 10.58 11.68 12.53 13.15

Income Taxes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Net Margins 1.05 0.70 5.47 8.51 8.58 10.42 10.58 11.68 12.53 13.15


BALANCE SHEET 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

ASSETSCurrent Assets Cash and General Funds 13,198 1,927 79 5,480 7,259 29,375 54,176 92,526 142,433 201,473 Accounts Receivable 30 5,829 30,372 80,763 133,944 166,922 186,009 203,713 220,007 234,731 247,533

Total Current Assets 19,026 32,299 80,841 139,424 174,181 215,384 257,889 312,534 377,164 449,006

Property, Plant & Equipment 0 0 0 0 0 0 0 0 0 0 Green Power Development Fund 2,650 21,711 77,018 171,766 290,613 423,254 568,710 725,966 893,895 1,071,133 Reserve Fund 534 4,378 15,532 34,639 58,607 85,356 114,690 146,403 180,269 216,012

TOTAL ASSETS 22,210 58,388 173,391 345,829 523,401 723,995 941,289 1,184,903 1,451,329 1,736,150

LIABILITIES AND EQUITYCurrent Liabilities Accounts payable 30 2,904 20,887 60,605 103,825 130,233 145,348 159,390 172,321 184,017 194,216 Short-term debt 1,325 10,855 38,509 85,883 145,307 211,627 284,355 362,983 446,948 535,566

Total Current Liabilities 4,228 31,743 99,114 189,708 275,540 356,975 443,745 535,304 630,964 729,783

Long-Term debt 0 0 0 0 0 0 0 0 0 0

Equity Memberships 16,755 22,616 32,529 44,280 57,380 71,747 87,277 103,849 121,342 139,589 Patronage Capital 1,227 4,029 41,748 111,842 190,482 295,273 410,268 545,749 699,023 866,778

Total Equity 17,982 26,645 74,277 156,121 247,862 367,020 497,544 649,598 820,364 1,006,367

TOTAL LIABILITIES & EQUITY 22,210 58,388 173,391 345,829 523,401 723,995 941,289 1,184,903 1,451,329 1,736,150


BALANCE SHEET 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

ASSETSCurrent Assets Cash and General Funds 59% 3% 0% 2% 1% 4% 6% 8% 10% 12% Accounts Receivable 26% 52% 47% 39% 32% 26% 22% 19% 16% 14%

Total Current Assets 86% 55% 47% 40% 33% 30% 27% 26% 26% 26%

Property, Plant & Equipment 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% Green Power Development Fund 12% 37% 44% 50% 56% 58% 60% 61% 62% 62% Reserve Fund 2% 7% 9% 10% 11% 12% 12% 12% 12% 12%

TOTAL ASSETS 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

LIABILITIES AND EQUITYCurrent Liabilities Accounts payable 13% 36% 35% 30% 25% 20% 17% 15% 13% 11% Short-term debt 6% 19% 22% 25% 28% 29% 30% 31% 31% 31%

Total Current Liabilities 19% 54% 57% 55% 53% 49% 47% 45% 43% 42%

Long-Term debt 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Equity Memberships 75% 39% 19% 13% 11% 10% 9% 9% 8% 8% Patronage Capital 6% 7% 24% 32% 36% 41% 44% 46% 48% 50%

Total Equity 81% 46% 43% 45% 47% 51% 53% 55% 57% 58%

TOTAL LIABILITIES & EQUITY 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%


CASH FLOW 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cash Flows from Operating Activities Net Margins (loss) 1,227 2,802 37,719 70,094 78,640 104,790 114,995 135,482 153,273 167,755 Depreciation & amortization 0 0 0 0 0 0 0 0 0 0 Decrease (Increase) in Accounts receivable (5,829) (24,543) (50,391) (53,181) (32,978) (19,087) (17,704) (16,294) (14,724) (12,802) (Decrease) Increase in Accounts payable 2,904 17,984 39,718 43,220 26,408 15,115 14,042 12,931 11,695 10,200

Cash from Operations (1,698) (3,757) 27,046 60,132 72,070 100,819 111,333 132,119 150,245 165,154

Cash Flows from Investing Activities Capital Expenditures 0 0 0 0 0 0 0 0 0 0 Reserve Fund (534) (3,844) (11,154) (19,108) (23,968) (26,749) (29,334) (31,713) (33,866) (35,743) Green Power Development Fund (2,650) (19,061) (55,307) (94,748) (118,847) (132,641) (145,456) (157,256) (167,929) (177,237)

Cash from Investments (3,184) (22,905) (66,460) (113,855) (142,815) (159,390) (174,789) (188,970) (201,795) (212,980)

Cash Flows from Financing Activities Earnings Distributions 0 0 0 0 0 0 0 0 0 0 (Decrease) increase in Short-term debt 1,325 9,531 27,653 47,374 59,424 66,320 72,728 78,628 83,965 88,619 (Decrease) increase in Long term debt 0 0 0 0 0 0 0 0 0 0 (Decrease) increase in paid in capital 16,755 5,861 9,913 11,751 13,100 14,368 15,530 16,573 17,493 18,248

Cash from Financing 18,080 15,392 37,566 59,125 72,524 80,688 88,257 95,201 101,457 106,866

Net Increase (Decrease) in Cash 13,198 (11,271) (1,848) 5,401 1,779 22,116 24,801 38,350 49,907 59,040

Cash at Beginning of Period 0 13,198 1,927 79 5,480 7,259 29,375 54,176 92,526 142,433

Cash at End of Period 13,198 1,927 79 5,480 7,259 29,375 54,176 92,526 142,433 201,473


Program

Enrollment Breakdown (Electricity

Only)

Annual Consumption (MWh or Mcf)

Premium (¢ per kWh)

Premium (Monthly Charge)

Standard 10% 9.6 0 051% Green 80%

Northeast Section 8.3 0.8 6Northwest Section 8.85 0.8 6Southeast Section 11.44 0.8 8Southwest Section 9.63 0.8 7

100% Green 20%Northeast Section 8.3 3.3 23Northwest Section 8.85 3.3 24Southeast Section 11.44 3.3 31Southwest Section 9.63 3.3 26

Natural Gas 115

Customer Breakdown 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Duplicate Customers 75% 75% 75% 75% 75% 75% 75% 75% 75% 75%Service as % of New Customers 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Total Customers

Standard 30 126 249 327 366 403 437 469 496 519

51% Green 240 1,005 1,989 2,610 2,928 3,224 3,496 3,745 3,965 4,148

100% Green 60 252 496 652 732 806 875 936 991 1,036

Electric Customers 330 1,383 2,734 3,589 4,026 4,433 4,808 5,150 5,452 5,703

Natural Gas Customers 795 2,533 4,056 4,601 5,110 5,591 6,031 6,422 6,760 7,035

Total Gas & Electric Cust. 1,125 3,916 6,790 8,190 9,136 10,024 10,839 11,572 12,212 12,738

Less Duplicate Customers 248 986 1,834 2,315 2,586 2,840 3,074 3,286 3,466 3,614

Net Gas & Electric Cust. 878 2,931 4,956 5,876 6,550 7,184 7,765 8,286 8,746 9,124

Service Customers 44 147 248 294 328 360 389 415 438 457


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% of Customer Pool

Standard 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1%

51% Green 0.0% 0.1% 0.2% 0.3% 0.3% 0.3% 0.3% 0.4% 0.4% 0.4%

100% Green 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

Total Electric Customers 0.0% 0.1% 0.3% 0.4% 0.4% 0.4% 0.5% 0.5% 0.5% 0.6%

Natural Gas Customers 0.0% 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3% 0.3%

Service Customers 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

New Customers

Standard 30 96 123 78 39 37 34 32 27 23

51% Green 240 765 984 621 318 296 272 249 220 183

100% Green 60 192 244 156 80 74 69 61 55 45

Electric Customers 330 1,053 1,351 855 437 407 375 342 302 251

Natural Gas Customers 795 1,738 1,523 545 509 481 440 391 338 275

Total Gas & Electric Cust. 1,125 2,791 2,874 1,400 946 888 815 733 640 526

Less Duplicate Customers 248 738 848 481 272 254 234 212 180 149

Net Gas & Electric Cust. 878 2,053 2,026 919 675 634 581 522 460 378

Service Customers 44 103 101 46 34 32 29 26 23 19


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total Consumption

Standard 74 529 1,536 2,632 3,301 3,684 4,040 4,368 4,665 4,923

51% Green 589 4,236 12,290 21,055 26,411 29,476 32,323 34,946 37,318 39,386

100% Green 147 1,059 3,073 5,264 6,603 7,369 8,081 8,736 9,329 9,847

Total Electric (MWH) 810 5,824 16,899 28,951 36,315 40,529 44,445 48,051 51,312 54,156

Natural Gas (Mcf) 45,713 191,360 378,868 497,778 558,383 615,308 668,265 716,048 757,965 793,213

New Consumption

Standard 74 456 1,007 1,096 669 383 356 328 296 259

51% Green 589 3,647 8,055 8,765 5,355 3,065 2,848 2,622 2,372 2,068

100% Green 147 912 2,014 2,191 1,339 766 712 656 593 517

Total Electric (MWH) 810 5,015 11,075 12,051 7,364 4,215 3,916 3,606 3,261 2,844

Natural Gas (Mcf) 45,713 145,648 187,508 118,910 60,605 56,925 52,958 47,783 41,918 35,248


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Standard (Brown Power)

Revenue ¢ per kWh 4.266 4.266 4.266 4.266 4.266 4.266 4.266 4.266 4.266 4.266

Commodity cost to Generator 3.100Green Premium to Generator 0.000Transmission & Ancillary Services 0.600Total Cost ¢ per kWh 0% 3.700 3.700 3.700 3.700 3.700 3.700 3.700 3.700 3.700 3.700

Reserve fund 0.066Green Premium (Development Fund) 0.000Margin 0.500Gross Margin ¢ per kWh 0% 0.566 0.566 0.566 0.566 0.566 0.566 0.566 0.566 0.566 0.566

Total Revenue 3,140 22,587 65,539 112,276 140,834 157,180 172,365 186,349 198,996 210,026

Total Cost of Power 2,723 19,591 56,843 97,380 122,149 136,325 149,496 161,625 172,594 182,161

Total Gross Margin 417 2,997 8,695 14,896 18,685 20,854 22,869 24,724 26,402 27,866

51% Green

Revenue ¢ per kWh 5.078 5.078 5.078 5.078 5.078 5.078 5.078 5.078 5.078 5.078



Total Revenue 29,901 215,094 624,107 1,069,178 1,341,128 1,496,780 1,641,386 1,774,550 1,894,988 2,000,024

Total Cost of Power 25,390 182,648 529,963 907,896 1,138,823 1,270,995 1,393,788 1,506,865 1,609,135 1,698,327

Total Gross Margin 4,510 32,446 94,145 161,282 202,305 225,784 247,598 267,685 285,853 301,697

3.100

3.712


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

100% Green

Revenue ¢ per kWh 7.566 7.566 7.566 7.566 7.566 7.566 7.566 7.566 7.566 7.566



Total Revenue 11,138 80,120 232,473 398,257 499,555 557,534 611,398 661,001 705,862 744,987

Total Cost of Power 7,213 51,889 150,558 257,925 323,529 361,078 395,962 428,087 457,141 482,479


Total Electric

Total Revenue 44,179 317,802 922,119 1,579,712 1,981,517 2,211,494 2,425,149 2,621,900 2,799,846 2,955,038

Total Cost of Power 35,327 254,127 737,364 1,263,201 1,584,501 1,768,399 1,939,246 2,096,576 2,238,869 2,362,967


4.300


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Natural Gas Customers

Revenue $ per MCF 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050

Total Cost 0% 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Reserve fund 0.000Margin 0.050Gross Margin 0% 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050 0.050

Total Revenue 2,286 9,568 18,943 24,889 27,919 30,765 33,413 35,802 37,898 39,661

Total Cost of Power - - - - - - - - - -


Energy Efficient Products and Services

Administrative Fee per Customer 0% $300 300 300 300 300 300 300 300 300 300

Total Revenue 13,200 30,900 30,300 13,800 10,200 9,600 8,700 7,800 6,900 5,700


Expense Detail 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110% Inflation

SOAR ENERGY OPERATING EXPENSES

Accounts Receivable Discount/Writeoff 1% 709$ 3,695$ 9,826$ 16,297$ 20,309$ 22,631$ 24,785$ 26,768$ 28,559$ 30,116$ Customer Enrollment (10% of all new Electric customers) 50$ 1,650 5,265 6,755 4,275 2,185 2,035 1,875 1,710 1,510 1,255 Customer Profit Sharing (10% of Electric customers) 10% 224 845 2,149 3,526 4,362 4,851 5,306 5,724 6,101 6,430 Total 2,583$ 9,805$ 18,731$ 24,098$ 26,856$ 29,517$ 31,966$ 34,201$ 36,170$ 37,801$

SOAR ENERGY EMPLOYEE DATA

Number of new Electric accounts 330 1,053 1,351 855 437 407 375 342 302 251 Total Number of Electric accounts 330 1,383 2,734 3,589 4,026 4,433 4,808 5,150 5,452 5,703

Number of new Weatherization Customers 44 103 101 46 34 32 29 26 23 19

Manager - - - - 0.5 1 1 1 1 1 1 Administrative Assistant - - - 0.5 1 1 1 1 1 1 1

Products & Services Coordinator 2,000 - 0.5 1 1 1 1 1 1 1 1 Total Employees - 0.5 1.5 2.5 3.0 3.0 3.0 3.0 3.0 3.0

Salary of Manager 60,000 60,000$ 60,000$ 60,000$ 60,000$ 60,000$ 60,000$ 60,000$ 60,000$ 60,000$ Salary of Administrative Assistant 20,000 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$

Salary of Service Coordinator Employee 20,000 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$ 20,000$

SOAR ENERGY ADMINISTRATION EXPENSES

Admin & Gen EDI set-up & maintenance 10,000 10,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Board of Director expenses - - - - - - - - - - Regulatory Fees (EDU, LDC, PUCO, Green-e) - 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Total Admin & Gen 10,000 15,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000 7,000

Salary ExpensesManager - - - 30,000 60,000 60,000 60,000 60,000 60,000 60,000 Administrative Assistant - - 10,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Service Coordinator - 10,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Total Salaries - 10,000 30,000 70,000 100,000 100,000 100,000 100,000 100,000 100,000

Payroll Benefits 35% - 3,500 10,500 24,500 35,000 35,000 35,000 35,000 35,000 35,000

TOTAL ADMIN. & GEN. EXPENSES 10,000 28,500 47,500 101,500 142,000 142,000 142,000 142,000 142,000 142,000

Per Gas & Electric Customer 9 7 7 12 16 14 13 12 12 11


Expense Detail 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

ADMINISTRATION EXPENSES

Web design & maintenance 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Professional services (Legal, Accounting, & Verification) 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Marketing - New prospects 25$ 40,000 40,000 40,000 21,375 10,925 10,175 9,375 8,550 7,550 6,275 Marketing - Current members 4$ 1,320 5,532 10,936 14,356 16,104 17,732 19,232 20,600 21,808 22,812 Office Expense (Rent, phone, lights, heat, supplies, etc.) 5,000$ - 2,500 7,500 12,500 15,000 15,000 15,000 15,000 15,000 15,000 Regulatory Fees (EDU, LDC, PUCO, Green-e) 10,000 - - - - - - - - - MERC 63,320 60,032 70,436 60,231 54,029 54,907 55,607 56,150 56,358 56,087

Administration Fee (MERC) per MCF 0.04$ 0.04$ 0.04$ 0.04$ 0.04$ 0.04$ 0.04$ 0.04$ 0.04$ 0.04$ Administration Fee (MERC) per MWH 0.94$ 0.72$ 0.60$ 0.54$ 0.48$ 0.48$ 0.48$ 0.48$ 0.48$ 0.47$

Administration (MERC) 1,829$ 7,654$ 15,155$ 19,911$ 22,335$ 24,612$ 26,731$ 28,642$ 30,319$ 31,729$ Administration (MERC) 759$ 4,179$ 10,215$ 15,532$ 17,597$ 19,515$ 21,310$ 22,969$ 24,452$ 25,721$ SOAR Energy 2,588 11,834 25,370 35,443 39,933 44,127 48,041 51,611 54,771 57,450

Per Gas Customer 2.3 3.0 3.7 4.3 4.4 4.4 4.4 4.5 4.5 4.5 Per Electric Customer 2.3 3.0 3.7 4.3 4.4 4.4 4.4 4.5 4.5 4.5

CONTRACTED SERVICES

Gas procurement, Balancing, etc. (VES) per MCFGas procurement, Balancing, etc. (VES)

Per Gas Customer - - - - - - - - - -

Electric procurement, Ancillary Services (AMP-O) per MWH 1.75$ 1.75$ 1.75$ 1.75$ 1.75$ 1.75$ 1.75$ 1.75$ 1.75$ 1.75$ Electric procurement, Ancillary Services (AMP-O) 1,417$ 10,192$ 29,574$ 50,664$ 63,550$ 70,926$ 77,778$ 84,088$ 89,795$ 94,773$

Per Electric Customer 4 7 11 14 16 16 16 16 16 17

Customer Enrollment (TSE) (Cost per new customer) 25$ 8,250 26,325 33,775 21,375 10,925 10,175 9,375 8,550 7,550 6,275 Customer Services (TSE) (Cost per existing customer) 9$ 2,970 12,447 24,606 32,301 36,234 39,897 43,272 46,350 49,068 51,327

Total 11,220 38,772 58,381 53,676 47,159 50,072 52,647 54,900 56,618 57,602

Performance Bond / Letter of Credit

Number of Bonds / LC's 1 2 4 4 6 6 8 8 8 8Amount Each 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 Total Amount 500,000 1,000,000 2,000,000 2,000,000 3,000,000 3,000,000 4,000,000 4,000,000 4,000,000 4,000,000

Bank Fee 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30% 0.30%Total 1,500 3,000 6,000 6,000 9,000 9,000 12,000 12,000 12,000 12,000

Use of assets 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%Total 5,000 10,000 20,000 20,000 30,000 30,000 40,000 40,000 40,000 40,000

Total 6,500 13,000 26,000 26,000 39,000 39,000 52,000 52,000 52,000 52,000


B - 1

APPENDIX B

BY-LAWS

OF

SOLAR AND RENEWABLE ENERGY BUYERS COOPERATIVE

Article I - Name

This Association shall be known as Solar and Renewable Energy Buyers Cooperative and isincorporated as a cooperative under Chapter 1729 of the Ohio Revised Code. The principaloffice of the Association shall be in the City of Findlay, County of Hancock and State of Ohio.

Article II - Objects

The objects for which this Association is incorporated is mutual help, not having capital stock,for the purpose of assisting its Members by performing services connected with the purchase ofvarious types of environmentally sound energy, and any other lawful activities permitted underChapter 1729 of the Ohio Revised Code and Internal Revenue Code 501(c)(12), as amendedfrom time to time.

Article III - Membership

Section 1. -Eligibility. Any corporation, limited liability company, partnership or other entityduly incorporated or formed under applicable state law and individuals shall be eligible formembership in this Association.

Section 2. -Membership.

a) Membership shall become effective upon unanimous acceptance by the Board of Directors.

b) Members shall comply with such obligations and requirements imposed by the Board ofDirectors. If a corporation, limited liability company, partnership or other duly formed legalentity, then an officer of such company shall sign a copy of the Membership Agreement onbehalf of such company to indicate that such company ratifies these By-Laws and agrees to bebound thereby. Individuals may sign on their own behalf.

Section 3. -Certificate of Membership. A Certificate of Membership may be issued by theAssociation to each Member. Such Certificates, if issued, shall not be transferable.

Section 4. -Resignation and Termination of Membership.


B - 2

a) Any Member may resign its membership by giving notice by registered mail addressed to theoffice of this Association.

b) Any Member shall forfeit its membership upon proof sufficient in the opinion of the Board ofDirectors that the Member has ceased to have the qualifications requisite for membership.

Section 5. -Expulsion from Membership. The Board of Directors may levy charges against anyMember if the Board shall determine that such a Member has violated any of the provisions ofthese By-Laws or has been guilty of conduct detrimental to the Association. The charges shall bereduced to writing and served by registered mail upon the Member, together with notice of thetime and place for a hearing upon said charges before the Board of Directors. Following such ahearing, or in the event of the default of the Member to appear, the Board of Directors may expelsuch Member by a two-thirds vote of the whole number of the Directors. Pending the hearing,the Board of Directors, by a two-thirds vote of the whole number of the Directors, maysuspend the services of the Association for the Member.

Section 6. -Effect of Termination on Membership. Termination of Membership for any causeshall not affect any existing right, title or interest of a retiring Member in the property of thisAssociation, or right or lien, which this Association has against the retiring Member, or his, heror its property; withdrawing and current Members do not forfeit any of their accrued rights in thesavings and assets of the Association. However, any and all obligations of the retiring Memberto the Association, and any and all obligations of the Association to the retiring Member, shall befinally ascertained and paid no later than three (3) months following the first meeting of theBoard of Directors held after the termination of the membership, except that written obligationsproviding for a definite payment date may be paid at the date therein set forth, subject to theprovisions in Article IV hereof.

Section 7. -Financial Obligations of the Association. In the event of a default by a Member, theexisting Members jointly agree to assume and discharge, by payment, any obligation of theAssociation to a surety, if any, which shall provide any bond or bonds to the Association and/orsupplier of product and services. If the amount is beyond the Association’s reserves, eachMember will be assessed an amount on a patronage basis. The Association would takeappropriate action to recover the amount from the Member that defaulted and return theassessment to the other Members.

Section 8. –Property Rights and Interests. A Member’s property rights and interests in theAssociation shall be determined on a patronage basis; Members’ rights and interests in theAssociation’s savings shall be determined in proportion to their business with the Association.The Association must equitably allocate costs, savings and losses among the Members of eachparticular service so that savings or losses are returned to each Member in direct proportion tohis or her patronage. Also, each member and former member shall be entitled to receive on apatronage basis a distribution on any gains from the sale of an appreciated asset upon dissolutionof the Association if such member or former member was a member when the Associationowned such asset. Upon the dissolution of the Association, Members and former Members shallbe entitled to distributions on retained earnings, if any, which shall be determined on a patronage


B - 3

basis. With respect to the patronage of the Association’s electricity commodity services, eachMember will be credited with 1 Unit for each $1.00 her or she gives to the Association inexchange for the Association’s electricity commodity services. In regard to the patronage of theAssociation’s gas commodity services, each Member will be credited 1 Unit for each $1.00 he orshe gives to the Association in exchange for the Association’s gas commodity services. Savingsand losses of the Association will be allocated based upon the number of Units each Member hasin any given year divided by the aggregate number of Units credited in such given year to allMembers. Furthermore, a $1.00 loss attributable to the Association’s electricity commodityservices shall equal a $1.00 loss attributable to the Association’s gas commodity services.

Article IV - Method of Operation

Section 1. -Handling.

Every Member agrees to be bound by the By-Laws of this Association until his, her or itsmembership is terminated. In the event any Member fails to abide by the By-Laws, the Memberagrees to pay to the Association as liquidated damages such amounts as are so designated in anyagreement between the Member and the Association.

In addition to the provisions of these By-Laws, the obligations of each Member to theAssociation may be determined by an assessment on the Member as determined by the Boardof Directors. The method of assessment and the method of distribution shall be determined bythe Board of Directors and shall continue in effect until subsequent redetermination by theBoard of Directors.

Section 2. -Dissolution. Upon the dissolution or winding up of the Association in any manner,the assets shall be used first to pay all debts of the Association and any balance remaining shallbe distributed to Members on an patronage basis, determined by the Board of Directors.

Article V - Duties and Rights of Members

Section 1. –Grievances. Any Member having a grievance or complaint against the Associationmay attend any meeting of the Association and state his, her or its case to the personsassembled.

Section 2. –Annual Dues. Each Member shall be required to pay an amount equal to $20.00 onan annual basis in order for the Association to carry on its business, pay its officers, etc. (the“Annual Dues”). Each Member’s Annual Dues shall be due and payable on or before January1 of each year. Notwithstanding the foregoing, each Member who is newly accepted into themembership on a day other than January 1 of any given year shall pay a pro-rated portion ofthe Annual Dues on the day of such Member’s acceptance into the membership. For everyyear thereafter, such Member shall be obligated to pay the full amount of the Annual Dues.

Members purchasing natural gas or electricity commodity service through the Association areexempt from the Annual Dues.


B - 4

Article VI - Fiscal Year

The fiscal year of the Association shall be the calendar year commencing on the 1st day ofJanuary and end on the 31st day of the following December.

Article VI - Meetings of Members

Section 1. -Annual Meeting. The annual meeting of the Members of the Association shall be heldon the 1st day of May of each year, or if a legal holiday, on the next business day thereafter, oron such date and at such time as may be fixed by the Board of Directors and named in the call,for the election of Directors and for the transaction of such other business as may properly bebrought before the meeting.

Section 2. -Special Meetings. Special meetings of Members may be held at any time in theinterval between annual meetings. Special meetings may be called by the President, or by requestof a majority of the Board of Directors, or by the Secretary upon the written request of not lessthan twenty percent (20%) of the Members entitled to vote at the meeting, which written requestshall state the purpose or purposes of the meeting and the matters proposed to be acted onthereat. In the event that a special meeting of Members is called by the Secretary upon suchwritten request, such requesting Members shall pay the reasonably estimated costs of preparingand mailing notices of such meeting. Nothing contained herein shall limit the right and power ofDirectors or Members to require a special meeting for the election of Directors pursuant toapplicable law.

Section 3. -Place of Meetings. Each meeting of Members shall be held at the principal office ofthe Association or at such other place within or without the State of Ohio as the Board ofDirectors may from time to time determine.

Section 4. -Notice of Meetings. Written notice of the date, time and place each meeting ofMembers, indicating that it is being issued by or at the direction of the person or persons callingthe meeting, shall be given personally, by mail or by electronic or telephonic transmittal, not lessthan ten (10) days nor more than fifty (50) days before the date fixed for the meeting, to eachMember entitled to vote at the meeting. In the case of each special meeting of Members, suchnotice shall also state the purpose or purposes of the meeting, and at the special meeting nobusiness shall be acted upon which is not related to the purpose or purposes stated in the noticeof the meeting. If mailed, the notice is given when it is deposited in the United States mail, withpostage prepaid, addressed to the person at the person’s address as it appears on the records ofthe Association. If notice is sent by electronic or telephonic transmittal, notice is given when anelectronic or telephonic confirmation of delivery is received by the Association.

Section 5. -Record Dates. For the purpose of determining the Members entitled to notice of or tovote at a meeting of Members or any adjournment thereof, the Board of Directors may fix a dateof record which shall not be more than fifty (50) days nor less than ten (10) days before the dateof such meeting. For the purpose of determining Members entitled to express consent to ordissent from any proposal without a meeting, or for determining Members entitled to receive


B - 5

payment of a distribution or the allotment of any rights, or for any other action, the Board ofDirectors may fix a date of record which shall not be more than fifty (50) days prior to suchaction.

Section 6. -Quorum. At each meeting of Members, in order to constitute a quorum there shall bepresent in person or represented by a delegate Members constituting at least ten percent (10%) ofthe membership that is entitled to vote thereat; but if there be no quorum, the Members sopresent or represented may by majority vote adjourn the meeting from time to time (but not for aperiod of more than thirty (30) days at any one time) without notice other than by announcementat the meeting, until a quorum shall attend. At any such adjournment at which a quorum shallattend, any business may be transacted which might have been transacted at the meeting asoriginally called. When a quorum is once present, it is not broken by the subsequent withdrawalof any Member.

Section 7. -Voting. At each meeting of Members, each Member entitled to vote thereat shall haveone (1) vote. Upon demand of at least ten percent (10%) of the membership entitled to votethereat, voting shall be by ballot. A plurality of the votes cast shall be sufficient to electDirectors, and a majority of votes cast shall be sufficient to take any other action, except as mayotherwise by provided by these By-Laws. Unless stated otherwise herein, there shall be nocumulative voting.

Section 8. -Proxies. Every proxy shall be in writing, subscribed by the Member giving the same,or his or her duly authorized attorney, and dated. No proxy which is dated more than eleven (11)months before the meeting at which it is offered shall be accepted, unless such proxy shall, on itsface, name a longer period for which it is to remain in force. The person authorized to vote onanother person’s behalf shall at times be referred to as a delegate.

Section 9. -Conduct of Meetings. Each meeting of Members shall be presided over by theChairman of the Board (if any) or, in his or her absence, the President, or in the absence of bothof them, by an Executive Vice President (if any) or, in the absence of all such officers, by achairman chosen at the meeting. The Secretary of the Association or, in his or her absence, aperson chosen by the chairman of the meeting, shall act as Secretary of the meeting.

Section 10. -Action Without a Meeting. Whenever Members are required or permitted to takeany action by vote, such action may be taken without a meeting on written consent, setting forththe action so taken, signed by at least sixty percent (60%) of the Members entitled to vote onsuch matter or action.

Article VII - Board of Directors

Section 1. -Election and Powers. The Board of Directors shall have the management and controlof the business and affairs of the Association. The Directors shall be elected by the Membersentitled to vote thereon at every other annual meeting of Members, and each Director shall serveuntil his or her successor is duly elected or appointed and qualifies, unless his or her directorship


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shall be earlier vacated by his or her death, resignation or removal as provided by these By-Laws.

Section 2. -Number. The number of Directors constituting the entire Board of Directors shall besuch number not less than five (5) and chosen by the Directors, unless the number of Members isless than five (5), in which case the number of Directors may be equal to the number ofMembers. As used in these By-Laws, the term "entire Board" shall mean the total number ofDirectors which the Association would have if there were no vacancies.

Section 3. -Vacancies. Vacancies on the Board of Directors (including any vacancies resultingfrom an increase in the number of Directors) created for any reason except the removal of one ormore Directors by the Members, may be filled by vote of the Board of Directors. If the numberof Directors then in office is less than a quorum, such vacancies may be filled by a majority voteof the Directors then in office. A successor Director elected under this Section shall hold officefor the unexpired portion of the term of the Director whose place was vacated. In the event of anincrease in the number of Directors, each additional Director elected under this Section shallhold office until his or her successor has been duly elected or appointed and shall have qualified.

Section 4. -Removal. Any one or more Directors may be removed from office, with or withoutcause, by the Members entitled to vote in the election of Directors. Any vacancy on the Boardresulting from such removal may be filled by the Members entitled to vote in the election ofDirectors, and any successor Director elected to fill such vacancy shall hold office for theunexpired portion of the term of the Director who was removed.

Section 5. -Meetings. Regular meetings of the Board of Directors shall be held at such times asthe Board may from time to time determine. Special meetings of the Board of Directors shall beheld at any time, upon call by the Chairman of the Board, the President or at least one third of theDirectors then in office.

Section 6. -Place of Meetings. Each meeting of the Board of Directors shall be held at theprincipal office of the Association or at such other place, within or without the State of Ohio, asthe Board may from time to time determine.

Section 7. -Notice of Meeting. Written notice of the date, time and place of each regular andspecial meeting of the Board of Directors shall be given to each Director either (a) by deliveringthe same to him or her personally, or sending the same to him or her by telecopy, telex, telegraphor similar mode of communication, or leaving the same at his or her residence or usual place ofbusiness, in each case at least twenty-four (24) hours before the meeting, or (b) by placing thesame in the United States mail, first-class postage prepaid, or delivering the same to a reputableexpress mail delivery service, and addressed to him or her at his or her last known addressaccording to the records of the Association, in either case at least three (3) days before themeeting. No notice of any adjourned meeting of the Board of Directors need be given other thanby announcement at the meeting.


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Section 8. -Waiver of Notice. Notice of any meeting of the Board of Directors need not be givento any Director who submits a signed written waiver thereof whether before, during or after themeeting, nor to any Director who attends the meeting without protesting, either prior thereto or atits commencement, the lack of notice to him or her.

Section 9. -Quorum. A majority of the entire Board shall be necessary to constitute a quorum forthe transaction of any item of business at each meeting of the Board of Directors; but if at anymeeting there be less than a quorum present, a majority of those Directors present may adjournthe meeting from time to time without notice other than by announcement at the meeting, until aquorum shall attend. At any such adjournment at which a quorum shall be present, any businessmay be transacted which might have been transacted at the meeting as originally called.

Section 10. -Action Without a Meeting. Any action required or permitted to be taken by theBoard of Directors or by any committee thereof at a duly held meeting may be taken without ameeting if all Members of the Board of Directors or of the committee, as the case may be,consent in writing to the adoption of resolutions authorizing the action. Such resolutions andsuch written consents shall be filed with the minutes of the proceedings of the Board of Directorsor of the committee.

Section 11. -Personal Attendance by Conference Communication Equipment. Any one or moreMembers of the Board of Directors or of any committee thereof may participate in a meeting ofthe Board or of such committee by means of a conference telephone or similar communicationsequipment allowing all persons participating in the meeting to hear each other at the same time.Participation by such means shall constitute presence in person at the meeting.

Section 12. -Compensation. Directors may, but need not, receive compensation for their servicesin that capacity. By resolution of the Board of Directors, a fixed sum and reimbursement ofexpenses may be paid to Directors for attendance at each meeting of the Board. Nothing hereinshall be construed to preclude a Director from serving the Association in any other capacity andreceiving compensation therefore. The Board of Directors shall approve any compensationagreements the Association enters into with any Director or officer.

Section 13. -Executive Committee and Other Committees. The Board of Directors may, in itsdiscretion and by a majority vote of the entire Board, appoint an Executive Committee, or one ormore other committees of the Board, to consist of three (3) or more Directors, as the Board ofDirectors may from time to time determine. The Executive Committee shall have and mayexercise between meetings of the Board all the powers of the Board of Directors in themanagement and control of the business and affairs of the Association, and other committees ofthe Board shall have such powers as are conferred upon them by the Board of Directors, exceptthat neither the Executive Committee nor any other committee shall have power: (a) torecommend to Members any action requiring Member approval; (b) to fill vacancies on theBoard of Directors or on any committee thereof; (c) to fix compensation of Directors for serviceon the Board of Directors or on any committee thereof; (d) to adopt, amend or repeal by-laws; (e)to amend or repeal any resolution of the Board of Directors which is not by its terms madeamendable or repealable by such committee; or (f) to remove, or fix the compensation of, any


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officer who is elected by the Board of Directors. In the absence of any member of the ExecutiveCommittee or of any other committee of the Board, the Members thereof present at any meetingmay appoint a Director previously so designated by the Board of Directors as a committeealternate to act in place of such absent member. The Board of Directors shall have the power atany time to change the membership of the Executive Committee or of any other committee of theBoard, to fill vacancies in such committee or to dissolve it. A majority of the Members of theExecutive Committee or of any other committee of the Board shall constitute a quorum for thetransaction of any item of business of such committee. The Executive Committee and each othercommittee of the Board may make other rules for the conduct of its business, and may appointsuch subcommittees and assistants, as may from time to time be necessary, unless the Board ofDirectors shall provide otherwise.

Article VIII - Officers

Section 1. -Election of Officers. The Board of Directors shall elect or appoint a President,Secretary and Treasurer, and may elect or appoint a Chairman of the Board from among theDirectors, one or more Vice Presidents, and such other officers as it shall determine. Each officershall serve at the pleasure of the Board of Directors and until his or her successor is duly electedor appointed and qualifies, or until his or her earlier death, resignation or removal as provided bythis Article. Any vacancies in any office may be filled by the Board of Directors.

Section 2. -Assistant and Subordinate Officers. The Board of Directors may from time to timeelect or appoint one or more Assistant Secretaries, one or more Assistant Treasurers and suchother subordinate officers or agents of the Association as it may deem proper, each of whomshall hold office at the pleasure of the Board of Directors and shall have such powers and dutiesas are assigned to him or her by the Board.

Section 3. -Removal. Any officer of the Association may be removed at any time, with orwithout cause, by the Board of Directors.

Section 4. -Compensation. The Board of Directors shall fix the compensation of all officers ofthe Association, except that the Board of Directors may authorize the President to fix thecompensation of such officers (other than the President) as the Board may specify.

Section 5. -Chairman of the Board. The Chairman of the Board, if there be one, shall preside atall meetings of the Board of Directors and Members and shall perform such other duties as theBoard of Directors may direct.

Section 6. -President. The President shall be the Chief Executive Officer of the Association andshall, subject to the direction of the Board of Directors, have the general management of theaffairs of the Association. If there is no Chairman of the Board, or in his or her absence orinability to act, the President shall perform all duties of the Chairman of the Board subject,however, to the control of the Board of Directors.


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Section 7. -Vice Presidents. Anyone or more of the Vice Presidents may be designated by theBoard of Directors as an Executive Vice President. At the request of the President, or in his orher absence or inability to act, the Executive Vice President shall perform the duties and exercisethe functions of the President. If there be no Executive Vice President, or if there be more thanone, the Board of Directors may determine which one or more of the Vice Presidents shallperform any of such duties or exercise any of such functions; if such determination is not madeby the Board of Directors, the President may make such determination; otherwise, any of theVice Presidents may perform any of such duties or exercise any of such functions. Each VicePresident shall have such other powers and duties as may be properly designated by the Board ofDirectors and the President.

Section 8. -Secretary. The Secretary shall keep full minutes of all meetings of Members and ofthe Board of Directors in books provided for that purpose. He or she shall see that all notices areduly given in accordance with the provisions of these By-Laws or as required by law. He or sheshall be the custodian of the records and of the corporate seal, if any, of the Association and heor she shall affix the corporate seal, if any, to all documents the execution of which on behalfof the Association is duly authorized by the Board of Directors, and when so affixed he or shemay attest the same. The Secretary shall have such other powers and duties as may be properlydesignated by the Board of Directors and the President.

Section 9. -Treasurer. The Treasurer shall keep correct and complete books and records ofaccount of the Association. Subject to the control and supervision of the Board of Directors andthe President, or such other officer as the Board of Directors and the President may designate, theTreasurer shall establish and execute programs for the provision of the capital required by theAssociation; maintain banking arrangements to receive, have custody of and disburse theAssociation's moneys and securities; invest the Association's funds as required; obtain insurancecoverage as required; and direct the granting of credit by and the collection of accounts due tothe Association. The Treasurer shall have such other powers and duties as may be properlydesignated by the Board of Directors and the President.

Article IX - Indemnification

Section 1. -Generally. To the fullest extent permitted under applicable law, each person who wasor is made a party to or is threatened to be made a party to or is otherwise involved in any action,suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a"proceeding"), by reason of the fact that he or his testator or intestate (a) is or was a director orofficer of the Association or (b) is or was a Director or officer of the Association who serves orserved, in any capacity, any other corporation, partnership, joint venture, trust, employee benefitplan or other enterprise at the request of the Association (hereinafter an "indemnitee"), shall beindemnified and held harmless by the Association against all expense, liability and loss,including without limitation ERISA excise taxes or penalties, judgments, fines, penalties,amounts paid in settlement (provided the Board of Directors shall have given its prior consent tosuch settlement, which consent shall not be unreasonably withheld by it) and reasonableexpenses, including attorneys' fees, suffered or incurred by such indemnitee in connection


B - 10

therewith, and such indemnification shall continue as to an indemnitee who has ceased to be aDirector or officer and shall inure to the benefit of the indemnitee's heirs and fiduciaries;provided, however, that no indemnification may be made to or on behalf of any Director orofficer if his or her acts were committed in bad faith or were the result of active and deliberatedishonesty and were material to the cause of action so adjudicated or otherwise disposed of, or ifhe or she personally gained in fact a financial profit or other advantage to which he or she wasnot legally entitled. Notwithstanding the foregoing and subject to the Association’s Articles ofIncorporation, except as contemplated by Section 3 of this Article, the Association shallindemnify any such indemnitee in connection with a proceeding (or part thereof) initiated bysuch indemnitee only if such proceeding (or part thereof) was authorized by the Board ofDirectors.

Section 2. -Advancement of Expenses. To the fullest extent permitted by applicable law, allexpenses reasonably incurred by an indemnitee in connection with a threatened or actualproceeding with respect to which such indemnitee is or may be entitled to indemnification underthis Article shall be advanced to him or her or promptly reimbursed by the Association inadvance of the final disposition of such proceeding, upon receipt of an undertaking by him or heror on his or her behalf to repay the amount of such advances, if any, as to which he or she isultimately found not to be entitled to indemnification or, where indemnification is granted, to theextent such advances exceed the indemnification to which he or she is entitled. Such person shallcooperate in good faith with any request by the Association that common counsel be used by theparties to any proceeding who are similarly situated unless to do so would be inappropriate dueto an actual or potential conflict of interest.

Section 3. -Procedure for Indemnification.

a) Not later than thirty (30) days following final disposition of a proceeding with respect towhich the Association has received written request by an indemnitee for indemnificationpursuant to this Article or with respect to which there has been an advancement of expensespursuant to Section 2 of this Article, if such indemnification has not been ordered by a court, theBoard of Directors shall meet and find whether the indemnitee met the standard of conduct setforth in Section 1 of this Article and, if it finds that he or she did, or to the extent it so finds, theBoard shall authorize such indemnification.

b) Such standard shall be found to have been met unless (i) a judgment or other finaladjudication adverse to the indemnitee established that the standard of conduct set forth inSection 1 of this Article was not met, or (ii) if the proceeding was disposed of other than byjudgment or other final adjudication, the Board of Directors finds in good faith that, if it hadbeen disposed of by judgment or other final adjudication, such judgment or other finaladjudication would have been adverse to the indemnitee and would have established that thestandard of conduct set forth in Section 1 of this Article was not met.

c) If the Board of Directors fails or is unable to make the determination called for by paragraph(a) of this Section 3, or if indemnification is denied, in whole or part, because of an adversefinding by the Board of Directors, or because the Board of Directors believes the expenses for


B - 11

which indemnification is requested to be unreasonable, such action, inaction or inability of theBoard of Directors shall in no way affect the right of the indemnitee to make applicationtherefore in any court having jurisdiction therein. In such action or proceeding, or in a suitbrought by the Association to recover an advancement of expenses pursuant to the terms of anundertaking, the issue shall be whether the indemnitee met the standard of conduct set forth inSection 1 of this Article, or whether the expenses were reasonable, as the case may be (notwhether the finding of the Board of Directors with respect thereto was correct). If the judgmentor other final adjudication in such action or proceeding establishes that the indemnitee met thestandard set forth in Section 1 of this Article, or that the disallowed expenses were reasonable, orto the extent that it does, the Board of Directors shall then find such standard to have been met orthe expenses to be reasonable, as the case may be, and shall grant such indemnification, and shallalso grant to the indemnitee indemnification of the expenses incurred by him or her inconnection with the action or proceeding resulting in the judgment or other final adjudicationthat such standard of conduct was met, or if pursuant to such court determination such person isentitled to less than the full amount of indemnification denied by the Association, the portion ofsuch expenses proportionate to the amount of such indemnification so awarded. Neither thefailure of the Board of Directors to have made timely a determination prior to thecommencement of such suit that indemnification of the indemnitee is proper in the circumstancesbecause the indemnitee has met the applicable standard of conduct set forth in Section 1 of thisArticle, nor an actual determination by the Board of Directors that the indemnitee has not metsuch applicable standard of conduct, shall create a presumption that the indemnitee has not metthe applicable standard of conduct. In any suit brought by the indemnitee to enforce a right toindemnification, or by the Association to recover an advancement of expenses pursuant to theterms of an undertaking, the burden of proving that the indemnitee is not entitled toindemnification, under this Article or otherwise, shall be on the Association.

d) A finding by the Board of Directors pursuant to this Section 3 that the standard of conduct setforth in Section 1 of this Article has been met shall mean a finding (i) by the Board of Directorsacting by a quorum consisting of directors who are not parties to such proceeding, or (ii) if sucha quorum is not obtainable, or if obtainable, such a quorum so directs, by the Board of Directorsupon the written opinion of independent legal counsel that indemnification is proper in thecircumstances because the applicable standard of conduct has been met, or by the Members upona finding that such standard of conduct has been met.

Section 4. -Contractual Article. The rights conferred by this Article are contract rights whichshall not be abrogated by any amendment or repeal of this Article with respect to eventsoccurring prior to such amendment or repeal and shall, to the fullest extent permitted by law, beretroactive to events occurring prior to the adoption of this Article. No amendment of Chapter1729 of the Ohio Revised Code, insofar as it may reduce the permissible extent of the right ofindemnification of an indemnitee under this Article, shall be effective as to such person withrespect to any event, act or omission occurring or allegedly occurring prior to the effective dateof such amendment, irrespective of the date of any claim or legal action in respect thereof. ThisArticle shall be binding on any successor to the Association, including without limitation anyperson or entity which acquires all or substantially all of the Association's assets.


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Section 5. -Non-Exclusivity. The indemnification provided by this Article shall not be deemedexclusive of any other rights to which any person covered hereby may be entitled other thanpursuant to this Article. The Association is authorized to enter into agreements with any suchperson providing rights to indemnification or advancement of expenses in addition to theprovisions therefore in this Article, and the Members and the Board of Directors are authorizedto adopt, in their discretion, resolutions providing any such person with any such rights.

Section 6. -Insurance. The Association may, to the extent authorized from time to time by theBoard of Directors, maintain insurance, at its expense, to protect itself and any Director, officer,employee or agent of the Association or of any other corporation, partnership, joint venture, trustor other enterprise against any expense, liability or loss, whether or not the Association wouldhave the power to indemnify such person against such expense, liability or loss under this Articleor applicable law.

Section 7. -Indemnification of Employees and Agents of the Association. The Association may,to the extent authorized from time to time by the Board of Directors, grant rights toindemnification and the advancement of expenses to any employee or agent of the Associationwith the same scope and effect as provided by this Article to Directors and officers of theAssociation.

Article X - Finances

Section 1. -Distributions. Subject to the Association’s Articles of Incorporation, the Board ofDirectors, in its sole discretion, may declare distributions on the retained earnings, if any, of theAssociation, payable upon such dates as the Board of Directors may designate.

Section 2. –Reserves. Before payment of any distribution, there may be set aside out of anyfunds of the Association available for distribution such sum or sums, as the Board of Directors,in its sole discretion, may from time to time deem proper as a reserve or reserves to meetcontingencies, or for repairing or maintaining any property of the Association, or for such otherpurpose or purposes as the Board of Directors shall deem conducive to the interests of theAssociation, and the Board of Directors may modify or abolish any such reserve or reserves inthe manner in which it was created. Notwithstanding the foregoing, the Association may notretain more funds or savings than the Association needs to meet its losses and expenses.

Section 3. -Bills, Notes, Etc. All checks or demands for money and notes or other instrumentsevidencing indebtedness or obligations of the Association shall be made in the name of theAssociation and shall be signed by such officer or officers or such other person or persons as theBoard of Directors may from time to time designate.

Section 4. –Books. The Association shall keep adequate records of each Member’s rights andinterests in the assets of the Association.

Article XI - Amendments


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Section 1. -Power to Amend. These By-laws may be adopted, amended or repealed by theMembers entitled to vote in the election of Directors. In addition, By-Laws of the Associationmay be adopted, amended or repealed by the Board of Directors by a majority vote of the entireBoard, but any By-law adopted by the Board of Directors may be amended or repealed by theMembers. Any amendments made would not take effect for a minimum of thirty (30) days andeach Member shall receive forty (40) days written notice of any such amendment.

Section 2. -Notice of Amendment Affecting Election of Directors. If any By-law regulating animpending election of Directors is adopted, amended or repealed by the Board of Directors, thereshall be set forth in the notice of the next meeting of Members for the election of Directors theBy-law so adopted, amended or repealed, together with a concise statement of the changes made.

Article XII - In General

The provisions of these By-Laws shall at all times be subject to the provisions of applicable lawin effect from time to time and the provisions of the Articles of Incorporation of the Association,as it may from time to time be amended. In the event of any necessary conflict between anyprovision of these By-Laws and any provision of applicable law then in effect, such provision oflaw shall control. In the event of any necessary conflict between any provision of these By-Lawsand any provision of the Articles of Incorporation then in effect, such provision of the Articles ofIncorporation shall control. The Article and Section headings of these By-Laws are forconvenience of reference only and do not form a part hereof and do not in any way modify,interpret or construe the intention expressed hereby. Wherever used in these By-Laws, themasculine pronoun shall include the feminine and the neuter, as appropriate in the context.

Oct 17 2001 11:25 ABO COL 00000/0365/282856 Ver 2


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Appendix C: Market Analysis Maps

Source: http://www.state.oh.us/sos/presidential_results_00.htm

ColumbusColumbusColumbusColumbusColumbusColumbusColumbusColumbusColumbus

DaytonDaytonDaytonDaytonDaytonDaytonDaytonDaytonDayton

AkronAkronAkronAkronAkronAkronAkronAkronAkron

CincinnatiCincinnatiCincinnatiCincinnatiCincinnatiCincinnatiCincinnatiCincinnatiCincinnati

ClevelandClevelandClevelandClevelandClevelandClevelandClevelandClevelandCleveland

FindlayFindlayFindlayFindlayFindlayFindlayFindlayFindlayFindlay

> 3.0%2.7% to 3.0%2.3% to 2.7%2.0% to 2.3%< 2.0%

% of votes castfor Ralph Nader

in 2000 by County







> 10,0002,000 to 10,0001,000 to 2,000500 to 1,000< 500

Total number ofvotes cast for

Ralph Nader byCounty


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Source: http://www.state.oh.us/sos/presidential_results_00.htm

Source: http://www.census.gov







> 60%50% to 60%40% to 50%30% to 40%< 30%

% of votes castfor Al Gore

in 2000 by County

> $30,000$26 - $30,000$22 - $26,000$18 - $22,000< $18,000

Per CapitaIncome - 1999








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> 500,000120 to 500,00080 to 120,00040 to 80,000< 40,000

Census 2000Population







> .75%.50% to .75%.25% to .50%0% to .25%< 0% (negative)

Proj. AnnualGrowth Rates

2000-2010


C - 4

Source: http://www.ohiocreditunions.org

http://www.prairienet.org/co-op/directory

56 Credit Unions

~ 15 Credit Unions

~ 5 Credit Unions

1-2 Credit Unions

Credit UnionLocations

YoungstownYoungstownYoungstownYoungstownYoungstownYoungstownYoungstownYoungstownYoungstown


OberlinOberlinOberlinOberlinOberlinOberlinOberlinOberlinOberlinKentKentKentKentKentKentKentKentKent

ClevelandClevelandClevelandClevelandClevelandClevelandClevelandClevelandCleveland Cleveland HeightsCleveland HeightsCleveland HeightsCleveland HeightsCleveland HeightsCleveland HeightsCleveland HeightsCleveland HeightsCleveland Heights


ToledoToledoToledoToledoToledoToledoToledoToledoToledo

WoosterWoosterWoosterWoosterWoosterWoosterWoosterWoosterWooster


Rural CoopsCertified ServicesCoop HQsFood Coops

Food andRural ElectricCooperatives


D - 1

Appendix D: Potential Marketing Partners

Group Membership Internet Site Phone Number

Ohio Environmental Council 1,500 http://www.theoec.org/ (614) 487-7506

Ohio Education Association (NEA) 124,500 http://www.oea.columbus.oh.us/ (614 228-4526

Ohio Federation of Teachers (AFT) 20,000 http://www.oft-aft.org/ (614) 258-3240

Ohio State University Staff Advisory Committee 4,000 http://www.osu.edu/org/usac/ (614)688-USAC

Ohio Parent and Teachers Association 140,000 http://www.ohiopta.org/ (614) 781-6344

Ohio Council of Churches 6,000 churches http://www.ohcouncilchs.org/ (937) 429-3582

Episcopal Diocese of Ohio 107 churches http://www.dohio.org/ (216) 771-4815

American Baptist Churches of Ohio 292 churches http://www.abc-usa.org/regions (740) 587-0804

63,000 members

The Ohio Credit Union League 600 credit unions http://www.ohiocul.org/ 1-800-486-2917

2.7 million members

Food Cooperative Location Phone Number

Clintonville Community Market Columbus (614) 261-3663

(Calumet Natural Foods Co-op)

Bexley Natural Market Columbus (614) 252-3951

Phoenix Earth Food Co-op Toledo (419) 476-3211

Cleveland Food Co-op, University Circle Cleveland (216) 791-3890

Cleveland Food Co-op, Co-op on Conventry Cleveland Heights (216) 321-9292

Kent Natural Foods Co-op Kent (330) 673-2878

Akron Cooperative Market Akron (330) 869-2590

Good Food Co-op Youngstown (330) 747-9368

Wooster Food Co-op Wooster (330) 264-9797

Twin Pines Natural Foods Cincinnati (513) 681-3663

Good Food Co-op Oberlin (216) 775-6533


E - 1

Appendix E - Energy Procurement Options: Tables & DiagramsStrengths and Weaknesses of the two Power Procurement Options:

Strengths and Weaknesses of the Various Customer Billing Options:

Energy Flow Description Strengths WeaknessesTraditional - Take advantage of

Shopping Credits / Incentives to offer lower rates

- Must pay AMP-Ohio load management and transmission fees

- No need to help generator locate wholesale buyer

- Increases risk associated with load management

Contract-for-Differences

- Allows great flexibility in choosing green generation type and location

- Might have to help green generator locate wholesale buyer, even at brown prices

- SOAR avoids participating in the load management process; AMP-Ohio not needed

- No ability to offer below IOU prices; no ability to take advantage of shopping credits

- Flows from generator through correct distribution grid to SOAR member, using AMP-Ohio to manage transmission and load management

- EDU manages flow of electricity to member; Green Generator sells output at brown prices to alternate wholesaler

Who Bills? Strengths WeaknessesEDU - No need to set-up or

contract out customer accounting systems

- Surrenders key customer relationship

- Avoids liabilities if member fails to pay

- Limits SOAR's ability to consolidate members' energy payments

SOAR - Maintains vital link with customer; able to issue one bill for all services

- Increases operational complexity and company's liability

- Can use as marketing tool to aid affinity relationships

Dual - Limits liability but allows SOAR to maintain customer relationships

- Expensive - Both EDU and SOAR process bills for the customer - has to be paid for somehow

- Places extra burden on member - two bills a month


E - 2

EDU Requirements & Options for maintaining relationships with CRES Providers:

Definitions:Rate Ready: The CRES Provider gives its rate structure to the EDU. The EDU calculates bill.Bill Ready: The EDU gives the CRES Provider usage data for each member and the CRESProvider calculates the bill and sends the billing information back to EDU.Billing Credit: Amount EDU will credit CRES Provider for each bill CRES Provider preparesand services.Dual Billing: The EDU and CRES Provider each bill the customer directly.2nd Switch: The switching fee will only be charged the second time a customer voluntarilychanges electric service providers. Opting out of a government aggregation does not count as avoluntary switch.Shopping Credit: The amount the EDU will deduct from the total energy bill if a customerswitches to a CRES Provider. The switching credit could match actual generation expenses or itcould be in excess of generation expenses in order to stimulate customer migration to CRESProviders.

Rate Ready? Bill Ready?Purchase

ReceivablesBill Ready?

Billing Credit

Cleveland Electric yes no no no yes

Ohio Edison yes no no no yes

Toledo Edison yes no no no yes

Monongahela yes yes no Jul 02 yes

DP&L yes Jun 02 no Jun 02 yes

CG&E yes Jan 02 Jan 02 Jun 02 yes

Columbus Southern Power no yes yes yes $1 yes

Ohio Power Company no yes yes yes $1 yes

UtilityEDU Billing CRES Billing

Dual Billing?

Cleveland Electric $250 $53 $150 $5

Ohio Edison $250 $53 $150 $5

Toledo Edison $250 $53 $150 $5

Monongahela $250 $65 $150

DP&L $250 $41 $150 $5

CG&E $145 $75 $150 $7

Columbus Southern Power $100 $150 $10

Ohio Power Company $100 $150 $10

UtilityRegistration

FeeTechnical

Support Fee

4.109

5.000

0.250

0.29758

printed on bill

printed on bill

printed on bill

3.209

Shopping Credit

(cents/kWh)

Customer List Fee

(Quarterly)

Switching Fee

(2nd Switch)


E - 3

Power Procurement and Billing Option Diagrams:

Traditional Procurement- EDU Bills -

MembersWholesale

Market

Power & Transmission

Costs + Margin

Green Generator

AMP-Ohio

EDUs

SOAR EnergyPower &

TransmissionCosts


Power Price+T&D Costs


Traditional Procurement- SOAR Bills -

MembersWholesale

Market

DistributionCosts

Power Price +T&D Costs

Green Generator

AMP-Ohio

EDUs

SOAR EnergyPower &

TransmissionCosts




E - 4

Traditional Procurement- Duplicate Billing -

MembersWholesale

Market DistributionCosts

Power & Trans.Costs

Green Generator

AMP-Ohio

EDUs

SOAR EnergyPower &

TransmissionCosts



Contract for Differences- EDU Bills -

MembersWholesale

Market

Green Power @Brown Prices Green Premium

IOU Power@ Green Prices +

T&D Costs

TraditionalGenCo

EDUs

Green Generator

Green Premium


SOAR Energy


E - 5

Green Power @Brown Prices

Contract for Differences- SOAR Bills -

MembersWholesale

Market

Green Premium

T&D Cost plusIOU Power Price

IOU Price + Green Premium +

T&D Costs

TraditionalGenCo

EDUs

SOAR Energy

Green Generator


Green Power @Brown Prices

Contract for Differences- Dual Billing -

MembersWholesale

Market

Green Premium

T&D Cost plusIOU Power Price

Green Premium

TraditionalGenCo

EDUs

SOAR Energy

Green Generator


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Documents

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management consulting

outside ohio

market assessment

green power plans

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market size