Meet community choice aggregation, public power’s first cousin

In a white paper released in May 2017, the California Public Utilities Commission estimated that as much as 25 percent of the retail electric load of investor-owned utilities in California will shift to another source by the end of the year, and as much as 85 percent within the next decade.

A major contributing factor to this dramatic shift is the rapid rise in community choice aggregators — units of local government that provide an alternate energy supply to customers in a defined city or region.

Put another way, that means more than 20 million Californians may soon get their electricity from nonprofit local government agencies. And that doesn’t include the more than 20 percent of Californians already served by public power utilities.

As of 2017, seven states have adopted some form of community choice aggregation, although the entities take on different meaning from state to state. Community choice, also called municipal or community aggregation, has been adopted into law in California, Illinois, Massachusetts, New Jersey, New York, Ohio, and Rhode Island.

In California, CCAs can operate only in the service areas of investor-owned utilities. The investor-owned utility still provides transmission and distribution services and all the metering, billing, collection, and customer service to retail customers. But the energy delivered to customers is based on what the CCA purchases — and for the most part, CCAs are focused on delivering more carbon-free energy.

A boom for local energy control

California passed legislation allowing community choice in 2002, following the 2001 energy crisis, but the growth and operation of CCAs began in earnest only in the past few years.

A major reason for the high adoption in California is because customers in a CCA’s territory are automatically opted in to the CCA. When customers are informed that they are within a CCA territory, they receive basic information about what it means to be served by the CCA, options for choosing different plans within the CCA, and their choice to opt out. Marin Clean Energy, the first CCA to form in California, in 2010, serves more than 260,000 customers in 33 communities and offers customers the option to get either 50 percent or 100 percent renewable energy, or 100 percent solar energy.

CCAs also benefit from a common sentiment in California that favors local control over power supply and a hunger for more renewable energy and non-emitting sources. And in a state with an aggressive renewable portfolio standard, local government officials are taking notice of CCAs and looking to them as a relatively quick way to meet clean energy goals.

“Cities make a commitment to renewables, but when they don’t have ownership of the local utility, they can only encourage the utility to be more green,” said Barry Moline, executive director of the California Municipal Utilities Association. “This leapfrogs the system. Cities are saying, ‘We’re going to go out and buy our power from the same companies you use for power supply, but our portfolio will offer customers choice and be green.’”

Moline also noted that in California, CCAs likely benefit from the positive reputation that public power utilities have in their communities and among state policymakers. “The contrast between public power and IOUs is in our rates, but it’s also what we do to support our communities. We’re doing a good job, so when people get the choice, they accept the opt-in element of CCAs. And legislators see how local control can happen,” he said.

Customers also are mindful of the cost of electricity, and increasingly CCAs in California have touted how their rates are competitive compared with the IOUs’ rates. For example, Lancaster Choice Energy conducts an annual rate comparison with Southern California Edison and prominently features cost comparison calculators for residential and commercial customers on its website.

Growing pains and hurdles

Investor-owned utilities in California are not taking the shift lightly. As large metropolitan areas, including Los Angeles and San Diego, consider forming CCAs, the IOUs serving these areas are supporting rules and regulations that could stop CCA expansion in its tracks.

The California Public Utilities Commission, which has jurisdiction over IOUs but not CCAs, is currently reviewing the cost impact of CCAs. As directed by the Commission, IOUs charge CCA customers a per kilowatt-hour fee called the Power Charge Indifference Adjustment. Through this adjustment, the Commission is searching for a balanced way for customers of CCAs and those who remained with IOUs to share the cost recovery of long-term power supply contracts that the IOUs may no longer need. Depending how the cost recovery shifts to CCA customers, it is possible that CCA rates could become much less competitive, and growth could stall significantly. Of concern to CCAs and public power in general, this review provides a platform for the Commission to establish some authority over CCAs, which could set a precedent in expanding its jurisdiction.

As a community, CCAs are in different stages and have varying needs. Some are focused on acquiring and connecting with customers, some are trying to form and going through the legal process, and others are finding ways to make their operations more advanced and innovative. The California Community Choice Association, or CalCCA, is a newly formed group that is working to bring CCAs together across the state and represent their interests to the legislature and regulatory agencies.

“We have an ambitious workplan,” explained Beth Vaughan, executive director of CalCCA. “With the rapid expansion of community choice programs, it is important that we educate emerging CCAs, provide tools and templates to guide them, and create opportunities to learn from each other.”

As CCAs look for more sources of renewable energy, they are seeking partners to build new projects. Many CCAs are new, so they have not yet established credit ratings to help them finance the investment in utility-scale solar or wind generation projects. CCAs may see an incentive in partnering with public power utilities to gain an ownership share in generation — and strengthen the connection to locally owned energy.

More like public power than not

CCAs in California are not utilities; they do not own or operate the transmission or distribution system. But to the average customer, a CCA sounds a lot like a public power utility: a nonprofit energy provider governed by locally elected officials. Just as public power utilities hold board meetings open to their communities, so do CCAs.

“CCAs are certainly first cousins,” remarked Joe Nipper, president of Nipper Consulting and former senior vice president of advocacy and communications at the American Public Power Association. “They aren’t municipal utilities, but they are more like us than they are not like us.”

“There’s a lot of overlap in our basic DNA,” noted Moline. “It is a benefit to us as community-owned utilities to help them, to move them in the right direction, to be as well-trained as possible. To see eye to eye.”

Because of the similarities and potential for mutual benefit, the American Public Power Association’s board is voting on a proposal to add a special membership category for CCAs. If approved, membership would grant CCAs access to certain resources and discounts on educational opportunities, but would not include access to the full suite of utility member benefits, such as advocacy efforts.

“We want CCAs to succeed, because in the eyes of a customer in Marin County, California — they might as well be a public power utility,” said Jeff Haas, vice president of membership and strategic development at the American Public Power Association. “They are community-oriented enterprises that have customer interests in mind. If we can help them succeed, it helps public power…and if we are misconstrued as CCAs that are not performing well, that could be problematic.”

“This is a very complicated business these days. Public power utilities have a lot of assistance to be able to provide CCAs — education and training is key among them,” said Nipper. “The knowledge that folks in public power have is a great advantage for CCAs to gain access to.”

“We are in the public power business and CalCCA is interested in exploring opportunities for collaboration with municipal utilities,” said Vaughan. “One of our goals is to create a network of professionals dedicated to the successful launch and ongoing operations of CCAs around the state.”

Public power utilities have already begun to share their expertise with CCAs. Notably, three CCAs in California are led by former public power utility CEOs, and other CCAs include senior leadership and employees with public power experience.

“That gives them a level of expertise and legitimacy because they’ve got experienced people at the top. When you’ve got a former CEO, you have a lot of knowledge. It’s not amateur hour,” said Moline.

In September 2017, the Sacramento Municipal Utility District announced a joint venture with the Valley Clean Energy Alliance, a new CCA that will begin serving several communities in California’s central valley in 2018. SMUD will help VCEA to set up a variety of technical and energy services, including data management, wholesale energy services, credit support services, and business operations support.

One size does not fit all

Community choice aggregation, as it has evolved in California, has so far been embraced by public power, with CCAs and public power utilities working cooperatively in the state. While the success of California’s CCAs could prove to be a model for other regions, CCAs in other states are not necessarily aligned with public power utilities.

“From state to state, the concept of CCAs is not the same. That’s a problem, in that their quality of operations and purpose are different in different locations,” said Moline.

While there isn’t necessarily a clear picture of what community choice will look like in the future or how it will evolve, California’s CCAs continue to have many supporters and an optimistic outlook from across the industry.

“The CCAs that exist today are doing a great job. The communities that have them are pleased with them,” noted Moline. “There’s a reasonable chance that [community choice] will bleed out to other locations, but the idea that California has done it doesn’t always work for other places. People are torn about CCAs — they like the idea of communities taking the bull by the horn, but at the same time, want to make sure they’re doing it right. If a community is allowed to leave an IOU and the rest of the customers lose, that’s not a good economic model for sustainability. There has to be something that makes sense for CCA customers to depart,” he added.

“Nothing breeds success like success. We have every reason to believe that CCAs will be successful and will continue to grow,” said Nipper.