Moody’s Investors Service on May 16 said it has issued the first ever credit rating for a community choice aggregator, a Baa2 rating and stable outlook for California-based CCA Marin Clean Energy, saying that Marin Clean Energy has an established operating record as a California Joint Powers Authority.
In a report, Moody’s said the rating reflects the following strengths:
- A strong Joint Power Agency statute and Marin Clean Energy Joint Powers Authority agreement that support the CCA’s business model and customer base;
- Moody’s expectation that state policymakers will continue to support CCAs as a tool to advance the use of renewable energy;
- Marin Clean Energy’s self-regulated rate-setting authority, “established operational track record, consistently improving financial performance, and economic strengths within its service territory;” and
- Moderately lower electric rates than Pacific Gas & Electric and the adequate liquidity profile of Marin Clean Energy.
The rating agency said that a “key aspect of the value proposition” offered by Marin Clean Energy and other CCAs in the state is the requirement that renewable and clean energy be a significant component of the customers' power supply mix. “This value is one of the most significant factors that provides strength to the long-term business model,” Moody’s said.
It noted that during 2017, renewable energy accounted for 62% of Marin Clean Energy’s retail sales and its customer base currently stands at more than 400,000 customers. The CCA is the third largest municipally governed electric enterprise in the state, Moody’s said, behind the Los Angeles Department of Water and Power and the Sacramento Municipal Utility District.
Moody’s also said that Marin Clean Energy has an adequate liquidity profile due to sufficient cash on hand, access to a committed line of credit and modest working capital requirements. The report stated that Marin Clean Energy is expected to maintain growing levels of internal liquidity as its customer base expands, has access to external liquidity and implemented a credit-positive reserve policy.
The rating agency said that a major rating consideration is Marin Clean Energy’s key governing documents including the California Joint Power Agency statute requirement, along with the CCA’s JPA agreement. That agreement has been approved by each of the 33 participating municipalities and stipulates -- under Article 7 -- that the municipalities must pay their remaining cost obligations to Marin Clean Energy should they choose to depart from the CCA.
Moody’s said that Article 7 “is an important credit consideration as it is helps to mitigate MCE's substantial exposure to future power commitments and is the mechanism by which there could be recourse to each of the 33 participating municipalities should one elect to depart from MCE. While the ultimate legal underpinning of this municipal obligation to MCE has not been court tested as to its effectiveness, our rating recognizes that all participating members acknowledged and accepted this risk prior to becoming parties to the MCE-JPA agreement.”
Challenges
Moody’s said that challenges facing the CCA include Marin Clean Energy’s ability to manage power procurement risk and uncertainties concerning resource production variability and future market structure. Specifically, the CCA could potentially procure more energy under long term contracts than is needed to serve customer demand, which would lead to selling excess energy back into the wholesale power market at lower prices. This could occur if there is substantially higher number of customers who choose to opt-out and return to Pacific Gas & Electric or technological advances that permanently limit load growth.
Other challenges include the “newness” of the CCA model, the continuing evolution of the California energy market, the future outcome of the Power Cost Indifference Adjustment hearings, and the general pressure for Marin Clean Energy to sustain customer value by providing affordable renewable energy under a customer choice business model.
Public power utilities working with CCAs
In California, several public power utilities and entities are moving to provide services to CCAs.
In September 2017, SMUD said that it had been selected to negotiate a services agreement to provide Valley Clean Energy Alliance, a new community choice aggregation joint powers agency, with technical and energy services, data management/call center services, wholesale energy services, credit support services and up to five years of business operations support.
Meanwhile, California-based East Bay Community Energy, recently selected the Northern California Power Agency to provide wholesale energy services.
In November, NCPA said that it will be providing a variety of wholesale energy services to California’s Pioneer Community Energy.
With the number of community choice aggregation programs rising sharply in California, state utility regulators earlier this year set new requirements designed to ensure that there is not an excess procurement of resources by the incumbent utilities.
Association offers new CCA program membership category
The American Public Power Association has initiated a new category of membership for community choice aggregation programs.
