Should In nvestor‐Owned Utilitiess Be Worried d About Com mmunity Choice Aggreggation? By Benthaam Paulos May 1, 20 017 A) is only allo owed in sevenn states curreently, but receent developm ments Communiity choice agggregation (CCA in Californ nia have invesstor‐owned u utilities there worried. Theey fear losing up to 80% off their retail lo oad. Could the e changes in C California ultim mately serve as a model foor other comm munities seekking CCA and what does that mean for the e future of traaditional pow wer utilities? TThe answers ccould be unnerving. A new waave of compettition is coming to Californ nia, threateni ng to steal up p to 80% of reetail sales from the three big investor‐owned utilitie es (IOUs). In aa joint filing inn late Januaryy, Pacific Gass and Electric Co. (PG&E), Southern Califfornia Edison,, and San Dieggo Gas & Elecctric Co. (SDG G&E) said thatt community choice agggregation (CC CA) could cause huge amounts of “load defection.” W Without the p proper exit feees, the utilitie es are worried they could suffer big finaancial losses. A CCA is liike the Costco o of energy— —a buyers’ clu ub where locaal government agencies bu uy power on behalf of their residentts. Five CCAs already serve e California cuustomers, and many of the state’s bigggest cities are phasing in CC CA plans. In A April, San Fran ncisco, San M ateo County, and parts of Santa Clara County—ttwo counties south of San n Francisco—w will begin servving hundred ds of thousands of new CCA customers. CCA has h had mixed ressults around tthe country. C California’s exxperience, so o far, has been n very differeent from othe er states. Illinois, especiallyy, was the center of CCA aactivity in 20114, with as maany as 70% off residentiaal customers sserved by agggregations. Bu ut aggregatioon seems to h have had its day there, as numbers have shrunk in the face off maturing competitive maarkets. Cost a Driiver in Illinoiss movement be egan in Massaachusetts in 1 1997. It has b een authorizeed in seven sttates, typically as The CCA m part of a m move toward competitive markets. In m many of the sstates, it has b been a bit plaayer, but it haas been a maajor force in IIllinois. The Laand of Lincoln n had 742 com mmunities ap pprove municcipal aggregattion by citizen votes, accord ding to the Illinois Comme erce Commisssion. But CCA’’s brief momeent in the sun n may be waningg, according tto Mark Pruitt, former heaad of the Illinoois Power Autthority and now a prominent consultan nt on CCA. Illinois’ de eregulation deal in 2007 re esulted in a trransitional peeriod when deefault utility rrates were fro ozen for six yeaars to allow re etail markete ers to get started. The 20088 recession knocked down n demand and d market prrices to well b below the fixe ed prices from m utilities. CCCA was authorrized through h legislation in n 2010, and d a wave of agggregation sw wept through communitiess eager to savve money. “It was a ccost savings o opportunity, aand it was guaranteed,” saaid Pruitt. “Agggregators co ould get 30% below the e fixed price.””
Total bill ssavings peake ed in 2013 (Figure 1), when CCA custom mers saved $2258 million co ompared to ComEd’s d default rate, aaccording to data from the e Illinois Com mmerce Comm mission. But that year, Com mEd’s and Amerren’s fixed priice contracts started expirring, and theirr rates fell clo oser to markeet prices. Theyy shifted to short‐term ccontracts at p prices similar tto competitivve energy sup ppliers. As a result, CCAs w were no longerr able to save money. CCA customers in n ComEd’s terrritory actually spent $188 8 million moree than the d default rate d during the passt two years.
1. CCA savvings blip. Community cho oice aggregatiion (CCA) savved Illinois connsumers located in ComEd d’s service territory $258 m million in 2013, but savings have petereed out since tthen. Source: Illinois Comm merce Commissiion As of June e 2016, 114 communities h had ended their programss or put them on hiatus. Th he most notable change was in Chicago o—the biggestt CCA in Illino ois (and the coountry). It staarted serving 750,000 hom mes and small businesses in n 2013, or about two million people. Buut savings driied up in 2015 5, and most w went back to Co omEd. Pruitt exp pects more residential load d to migrate ffrom CCAs ba ck to utilitiess. “Most of them are very explicit: ‘W We’re only ge etting into thiis to save money,’ ” he saidd. “Is it bad that they are ggetting out? IIf their goal is to save mo oney and theyy can’t do thaat, then they have served their purposee.” Javier Barrrios, managin ng partner with Good Enerrgy, disagreess. Good Energgy advises 20 00 CCA communitties in Illinoiss. He points out that CCA n numbers are ddropping in C ComEd’s area,, but are hold ding steady in Ameren’s terrritory. “It’s all about timin ng,” Barrios saaid. “Some off our commun nities are doing quite well.” Pruitt sees a potential new use for C CCAs. “If you start looking g at CCA as a p platform insteead of a poweer purchasin ng agreementt, you can see e other applications.” He thhinks CCAs co ould deliver eenergy efficien ncy programs to residents at a low cost, such as thro ough bulk purrchase of smaart thermostaats. State Situ uations Vary
The first C CCA in the cou untry was the e Cape Light C Compact, whiich started seerving Cape C Cod and Marth ha’s Vineyard customers in 1997. So far,, the Massach husetts utilityy commission has approveed 97 commun nity aggregatio on programs,, and at least 60 programs are active, m mostly in small towns. CCA has e experienced m more success in Ohio, with h big program ms starting in C Cincinnati, Cleveland, and the Northeastt Ohio Public Energy Council (NOPEC). N NOPEC, whichh has aggregaated 500,000 buyers in 200 communitties since 199 99, recently w went through an ugly divorrce from its lo ong‐term sup pplier FirstEneergy Solutions,, whose crediit rating dropped to a perilous CCC+ ratting as a result. Their new supplier, NexxtEra Ohio Servvices, offers a standard 50% % renewable product for tthe same pricce. Cincinnati has gone 100 0% renewable via Dynegy Energy Servicces. New Jerse ey has a hand dful of commu unities buyingg through agggregators likee Good Energyy, while New York has a pilot project in W Westchester C County, north of Manhattaan, serving 1110,000 custom mers in 20 tow wns. orizing CCA for the rest of tthe state, with a docket cu urrently open. New Yorkk is in the proccess of autho The New YYork State En nergy Researcch and Develo opment Authoority said abo out 70 communities throughout the state aare actively co onsidering CC CA. A number r of towns havve already ap pproved CCA p plans in anticipaation of a statte rule, accorrding to Barrio os. A push for CCA legislattion in Utah e encountered sstrong oppos ition from Ro ocky Mountain Power, but now three citie es, including SSalt Lake City, are workingg with the utillity to pursuee 100% renew wable energy ggoals. Their rese earch includess CCA as a po ossible vehicle e. mental Concerrns Foster California’s CCA A Growth Environm Clearly Caalifornia is the e next big thin ng in CCA, and it could havve a bigger im mpact than an ny other statee on procurem ment choices aand policies. TThe Center fo or Climate Prootection estim mates that currently operation nal or under‐d development CCAs could serve 17.7 milllion of the 299 million people currently served byy IOUs (Figure e 2). San Diego o, Los Angele es County (outtside of the ccity), San Josee, and Oakland are all close to o exiting.
ned utilities’ p projections arre correct, CCA CA programs ccould result in n the 2. Mass exxodus? If the investor‐own departuree of up to 80% % of their reta ail customers and load. Souurce: Southerrn California EEdison
San Diego officials have already set a goal of going to 100% renewable electricity by 2035, and they see CCA as the primary vehicle to achieve that goal. SDG&E currently has enough renewable power under contract to meet 45% of its load by 2020. Unlike Illinois, most of the communities in California are driven by clean energy and climate desires. They want their renewables now, rather than waiting until 2030 for the state to reach its 50% renewables portfolio standard (RPS). Marin Clean Energy (MCE) was the first of the existing CCA programs, serving 255,000 customer accounts in two counties and six other communities. It has executed 50 contracts with various suppliers, and currently gets 53% of its power from “RPS‐eligible” renewable sources—well in excess of the 33% required by the state RPS by 2020. Overall, 75% of MCE’s supply comes from zero‐emission sources (including large hydro, which is not an RPS‐eligible resource), and it aims to go carbon‐free by 2025. Marin offers three products: a default “Light Green” option of 50% renewables, a “Deep Green” 100% renewable plan, and a new “Local Sol” offering of all locally produced solar. Deep Green power comes from renewable projects located in California, while Local Sol, which is expected to become available this spring, will be sourced entirely from solar projects within MCE’s service territory. Marin plans to increase its Light Green option to 80% renewable by 2025, with the balance coming from large hydro plants. Only 2.6% of MCE’s sales are to Deep Green customers, mostly to small businesses. Aggregation also allows CCAs to set distributed energy policies. MCE has 9,600 net metering patrons— about 4% of its customers—who own 77 MW of solar capacity and who get paid full retail rate plus 1¢/kWh for surplus energy. It also offers a feed‐in tariff for up to 15 MW of small‐scale renewables. MCE is building a 10‐MW solar project on a brownfield site owned by the Chevron oil refinery in Richmond. San Francisco is finally rolling out its CCA program after literally a century of debate about public power, dating back to the Hetch Hetchy dam dispute in 1913. CleanPowerSF began serving customers in May 2016. It is enrolling customers in waves over the coming years. Peninsula Clean Energy (PCE) started serving 80,000 customers in October, and will enroll another 220,000 next month, including tech giants like Facebook, YouTube, and Genentech. It is a joint powers authority of all 20 cities in San Mateo County, on the peninsula south of San Francisco. The CCA was approved by a unanimous vote of all 20 city councils. Like Marin, PCE has a default product that is 50% RPS‐eligible renewables plus 25% big hydro, and a green product that is 100% RPS‐eligible renewables. The default product is pegged at 5% below PG&E’s price. “It’s greener and cheaper, which is a great value proposition,” said PCE spokesperson Dan Lieberman. Direct Energy and Constellation currently serve PCE, with implementation support from Calpine. Its plan is to build up a portfolio of contracts over time and decrease purchases from marketers. PCE recently announced the development of a 200‐MW solar plant (Figure 3) with a 20‐year contract at “much less” than $50/MWh, according to Lieberman. Frontier Renewables will develop the project. Frontier’s largest completed project is the 60‐MW Five Points Solar Farm in Fresno County (shown in the opening photo).
3. Local so olar. Frontier Renewables is developing g a 200‐MW ssolar photovooltaic power p plant, on the lland shown here, in Merced d County. The Wright Solarr Park, as it is to be called, will provide rrenewable en nergy for Peninssula Clean Eneergy customeers in San Mateo County. CCourtesy: Fronntier Renewa ables So far, about 23% of cu out, choosingg to stay with ustomers in M Marin’s cities and countiess have opted o PG&E. But that rate haas been declin ning. Seven to owns joined i n Septemberr, with 90% off their custom mers staying with MCE. Despite th hese clean en nergy committments, MCE has retail ratees that are co omparable to PG&E. The p price it pays forr generation iis much lower, according tto MCE spokeesperson Jamie Tuckey, bu ut a power charge indifferen nce adjustmen nt, or PCIA, im mposed by PG G&E brings thhe retail rate u up to parity w with PG&E. The Exit FFee Debate The PCIA or “exit fee” reimburses P PG&E for pow wer contractedd to serve thee customers w who departed d due to the CCA A. It has been n a source of ccontroversy in California. TThe charge iss intended to reimburse IO OUs for long‐term contracts previously ssigned to servve the custom mers that are now departin ng with the C CCA, leaving re emaining IOU customers “iindifferent” (ssee “As Comm munity Choice Aggregation n Expands, th he Battle Ove er ‘Exit Fees’ Intensifies” in n the Legal & Regulatory ssection of thiss issue). But neithe er side is happy with the size of the chaarges and how w they are calculated. Utilities have neaarly tripled the e fee over the e past two ye ears, from 1¢//kWh to almoost 3¢/kWh. A is flawed and does not prrevent cost sh hifting to bunndled service customers,” according to a “The PCIA recent filing by the three IOUs. “The e current adm ministratively‐‐set benchmaarks used to ccalculate PCIA A rates significantly overrstate the market value of the utilities’ generation portfolios.” Th he IOUs would d prefer instead to have a “retrospecttive true‐up tto reflect actuual costs and benefits.” CCA manaagers agree th hat reform is necessary. “W We have to ppay our fair sh hare, that makes sense,” saaid PCE’s Lieb berman. “But [the PCIA] is a little bit of a black box. IIn theory, it sshould be decclining over time, but it’s no ot.”
“I like the idea of an ‘indifference adjustment’ and not a death spiral,” he added. “PG&E provides excellent [transmission and distribution] and reliability services. But really, how high can this thing go?” The California Community Choice Association has been exploring a number of reform options, including buying out the existing IOU contracts, or paying the PCIA up front. “Options are on the table,” according to Barbara Hale, assistant general manager for power with the San Francisco Public Utilities Commission. Exit fee negotiations have not been helped by the utilities’ past opposition to CCAs. PG&E bankrolled Proposition 16, a ballot measure in 2010 that would have required a two‐thirds vote of the public to allow a community to start or join a CCA. PG&E spent $46.1 million on the measure, but lost. PG&E also aggressively opposed the startup of MCE, running ads and phone banks urging customers to opt out. That was likely a big factor in raising MCE’s opt‐out rate to 23%, while PCE has less than a 2% opt‐out rate. The fights led to passage of a state law in 2011 that bans the use of ratepayer funds for marketing against CCAs. Sempra Energy, parent company of SDG&E, is so far the only utility to use shareholder funds to oppose CCAs. The law ordered the California Public Utilities Commission (CPUC) to develop a code of conduct for utilities, “to provide Community Choice Aggregators with the opportunity to compete on a fair and equal basis with other load serving entities, and to prevent investor‐owned electric utilities from using their position or market power to undermine the development or operation of aggregators.” An Evolving Power Landscape The growth of CCA is calling into question what the California utility market will look like in the future. “We need to have a discussion,” Michael Picker, chair of the CPUC, wrote in an email to POWER. “The growth of third party providers—direct access, net energy metered renewables, and CCA’s—point to a growing activist trend on the part of consumers. These alternative sources of energy will likely be serving 40 percent of load by the end of this year.” If the utilities’ long‐term prediction of 80% load defection bears out, the electric business will look substantially different in California. CCA already contributed to the early demise of the Diablo Canyon nuclear plant (Figure 4). PG&E found that between CCA, energy efficiency, and the growth of distributed energy, its sales are likely to decline by as much as 30% by 2030. That, combined with a 50% RPS, leaves no room for a big baseload nuclear plant.
4. Casualtty of the renewables boom m. Pacific Gas and Electric ((PG&E) annouunced last year that it wou uld close the D Diablo Canyo on nuclear pow wer plant by 2 2025. The com mpany said itt recognized tthat “Californ nia’s new energ gy policies wiill significantlyy reduce the n need for Diabblo Canyon’s eelectricity outtput.” Source: Nuclear R Regulatory Commission And the ambitious renewable goalss of CCAs mayy be a factor i n pushing leggislators to bee more aggressive. State Senate Presidentt Kevin de Leó ón (D‐Los Anggeles) recentl y proposed aaccelerating C California’s 50 0% goal by fivve years and e extending it tto 100% by 20 045. ompetitive market—with C CCA at its cen nter—could trransform IOU Us into just traansmission an nd A more co distributio on companiess. CCA and the desire for cclean energy ccould pick up p where dereggulation left o off in 2001. Accordingg to a recent rreport from M Moody’s, “The e growth of CCCAs has … caaused the California regulaatory commissio on to publiclyy discuss its desire to revissit expanding retail choice by reopeningg Direct Accesss.” Chairman Picker asked d, “What doess a shift from a centralizedd procuremen nt model meaan for our greenhouse gas reducttion goals, forr reliability an nd capacity, aand for fundin ng our public goods programs?” Although P Picker didn’t provide the aanswers, he ddid note that tthe CPUC, alo ong with the California Energy Commission and tthe California Independentt System Opeerator, would d convene a jo oint workshop p on May 19 ““to begin the exploration.”” ■ —Bentham m Paulos is a freelance wrriter and conssultant speciaalizing in enerrgy issues.
