Community choice aggregation: A brief introduction

This is a re-post from Yale Climate Connections by Bruce Lieberman

CARLSBAD, CA. – When it comes to paying the electric bill, most people don’t give it a second thought – it’s something that in effect is “baked in.”

But across California and several other states, local governments increasingly are thinking anew about how their residents get their power – with big potential implications for Americans’ impact on climate change.

In the San Diego area this fall, several cities have moved toward community choice aggregation (CCA) – an arrangement in which local governments take over the job of buying electricity for their residents. Many cities and counties that run CCAs hire third parties with expertise in navigating energy markets, but the overall goal is to offer residents cheaper rates and more choices for renewable sources of energy. Residents and businesses situated within the boundaries of a local jurisdiction that launches a CCA are automatically signed up in it – although they can opt out and stay as customers of their traditional utility.

The interest in the approach extends beyond California.

So far, most if not all CCAs still rely on traditional utilities to manage the transmission of power and the billing of customers.

Where is community choice aggregation allowed?

Around the country, the formation of CCAs has been authorized in nine states: California, Illinois, Massachusetts (the first state to authorize CCAs in 1994), New Hampshire, New Jersey, New York, Ohio, Rhode Island, and Virginia, according to the website of Lean Energy U.S. Another five states – Arizona, Colorado, Connecticut, Maryland, and Oregon – are investigating CCAs.

The California effort offers a snapshot of how CCAs are gaining momentum and of potential challenges they face.

In California, the state legislature approved the creation of CCAs in 2002, and since then 19 have sprouted up around the state. The first CCA formed in Marin County in Northern California in 2010 with 8,000 customers.

Over the past 12 months or so, San Diego County has seen several cities dive into discussions to form their own. The coastal community of Solana Beach was the first in San Diego County to form a CCA, which became official in June 2018. In another effort this year, known as the Clean Energy Alliance, Solana Beach and neighboring cities Carlsbad and Del Mar have joined forces, each passing resolutions and adopting a joint powers agreement. As cities join together, they can pool their residents into a larger customer base and negotiate better prices with power providers. The inland city of Santee and the San Diego County government are considering joining the Clean Energy Alliance.

The San Diego Union-Tribune has covered initiatives in the county for more than a year, and some in-depth reports offer great background on CCAs.

How much does it cost for consumers?

One big question about CCAs is whether they actually offer rates that are cheaper or at least equal to what traditional utilities offer. Energy consultants predict that customers on a basic plan under the Clean Energy Alliance will pay 2% less for electricity than they would as customers of San Diego Gas & Electric, the Union-Tribune has reported, and 50% of their electricity would come from renewable sources of energy. About 45% of the electricity that SDG&E offers its customers comes from renewable sources.

How do renewables fit in?

In 2017 the percentage of electricity offered by CCAs in California that was generated from renewable sources was between 37 and 100% – for an average of 52%, according to the Luskin Center for Innovation at the University of California at Los Angeles.

State targets for reducing greenhouse gas emissions are driving much of this move toward renewable sources of electricity in California. In 10 years, the state aims to cut emissions to 40% below 1990 levels – and get 50% of its electricity overall from renewable sources.

The city of San Diego, which has set a goal of getting 100% of its electricity from renewable sources by 2035, has been considering the formation of a CCA. In response, SDG&E is working on a plan to offer the city 100% of its energy needs from renewable sources by the same year.

How does community choice aggregation affect utilities?

Big utilities have reason to worry that CCAs could crack their monopolies on the electricity market. The Luskin Center has forecast that investor-owned utilities in California will continue to lose market share as CCAs gain momentum. In 2010, they had 78% of the market, but by 2017 that had fallen to 70%.

One unresolved factor that could affect how fast CCAs grow in California is something called a power charge indifference adjustment. The PCIA is essentially an exit fee that customers of a newly created CCA must pay, according to a requirement of the state’s public utilities commission. These exit fees are intended to cover past investments in power plants and other infrastructure for which utilities have an ongoing cost burden. The fees are intended to ensure that the utilities will not be any worse off financially for losing customers to CCAs.

The state’s public utilities commission determines the size of the fee charged to CCA customers, and the amount of the exit fee is controversial. In the fall of 2018, the commission handed investor-owned utilities a victory, allowing them to recover costs for power plant investments dating back nearly two decades.

“Specifically, the decision would allow utility-owned power plants built before 2002 to be included in PCIA calculations, as well as remove an existing 10-year cap on the inclusion of post-2002 costs,” the electricity market news website GTM (also known as Greentech Media) reported when the commission voted on the change in October of 2018.

What happens next?

Another worry, held by Michael Picker, former president of the CPUC, is that the state could be headed toward another energy crisis akin to the one seen in the early 2000s as customers seek power from sources other than the state’s heavily regulated big utilities – Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. “These are electricity markets,” Picker told the Desert Sun newspaper in 2018. “There’s no guarantee that everybody will be successful. There’s a lot of ways people can fail.”

Despite worries over exit fees and the ability of CCAs to reliably deliver power, the momentum behind CCAs and other alternatives to investor-owned utilities appears to be gathering steam. In mid-October of this year, The Nation ran a guest editorial titled “Pulling the Plug on PG&E.” It was a kind of call to action for grassroots efforts around California and the rest of the country to find alternatives to private utility companies.

The piece ran as PG&E was cutting power to millions of Californians – a precaution, the utility argued, to try to prevent wildfires sparked by downed transmission lines during the state’s dry and windy fall season. As has been widely reported, however, wildfires up and down the state erupted during the second half of October, although overall they were less destructive than what Californians experienced in 2018.

In her editorial piece, Johanna Bozuwa, co-manager of the Climate and Energy Program at the Democracy Collaborative (a research institution focused on economic inequality), wrote that Californians are growing more skeptical that PG&E will be able to provide reliable power as climate change makes fire seasons more extreme.

That skepticism, she wrote, “is fueling serious momentum for an alternative to the investor-owned model, in California and around the nation: a new, community-controlled, publicly owned energy system grounded in renewable energy, democratic governance, and decentralization.”

Building Health Lab

Architect since 2002, experienced in healthcare environment design. Master in public health sciences from the Charité Medical University in Berlin. Evidence-based Design researcher at TU-Berlin, helping ensure that urban & architectural design projects build positive health effectively. Founder of the Building Health Lab. BHL Building Health Lab Is a think tank that develops urban concepts for neighborhoods as strategy to build a sustainable healthy city. Our mission is to help government, industry, and citizens develop projects with social impact that protect people and planet health. With our expertise in health and design, we support health promotion and disease management through people-centred and climate adaptive designs.