Community Choice Energy (CCE), aka Community Choice Aggregation (CCA), is authorized or under consideration in many US states. “CCA programs reflect the values of their governing boards, the communities they serve, and the states in which they operate. Most emphasize reducing the cost of electricity. Some also focus on reducing greenhouse gas emissions, establishing new revenue streams to support local energy programs, or creating local jobs, and some are designed to accomplish several of these goals simultaneously.”[1]
AB 117 (2002) authorized CCE formation in California.[2] Much has changed since 2002 that impacts CCE implementation, including: 1) economically attractive utility scale renewable power technologies, 2) cost-saving rooftop solar power that can be paired with battery energy storage, 3) impacts of CCE formation and operations on investor owned utility (IOU) revenues and demand forecasts, 4) California’s renewable energy and GHG emissions standards, and 5) diverse individual CCE visions, goals and operations.
Providers of Electricity in California and Shares of Total Annual Supply
AB 117 provided a durable, detailed and comprehensive framework for two dozen CCEs now operating in California. The figure[3] shows that CCEs now provide more than 20% of California’s electricity supply.
CCE purchases accelerate progress toward California’s decarbonization goals by exceeding state standards and by creating additional demand for renewable supply. Trust and collaboration between California CCEs and IOUs is currently minimal but could, under better circumstances, result in:
1. Statewide electricity supply decentralization and opportunities for more resilient local electricity service;
2. Cities and counties able to determine and achieve their own best balance between locally produced and imported renewable electricity;
3. Economically beneficial integration of electricity transport infrastructure (grids) and locally owned clean electricity generation (aka “distributed energy resources”); and
4. Locally specific energy efficiency, demand-side management and energy resilience programs that reduce and shape local electricity demand and minimize outage vulnerabilities.
Trust and collaboration between IOUs and CCEs is undermined by state policies that no longer comport with relevant provisions of AB 117.[i] The law authorized clearly defined, temporary transition charges. The California Public Utilities Commission (CPUC) replaced them with permanent charges that change by large percentages every year and that have become, perhaps intentionally, highly disruptive. These de facto rate equalization fees hold California CCE industry expansion in check by adjusting CCE costs of service to match IOU generation costs. Such adjustments consume the difference between costs of providing service and costs CCEs must recover in rates.
CPUC imposed charges have the effect of throttling development of California CCE organizational capacities and minimizing CCE financial capacity to address local needs and opportunities.[ii] They focus CCE attention on wholesale electricity procurement, utility scale solar power and utility scale battery storage rather than also on the integration of local supply, storage and electricity transport with imported supply. They focus both IOU and CCE attention on competition for generation customers, which diverts attention from collaboration in serving these customers to create a resilient, low carbon mix of local and centralized generation.
Like California’s municipal electric utility industry, the California CCE industry is subject to legislated state standards. The CCE industry generally exceeds these standards. Nevertheless, the CPUC is ratcheting up its operational control on multiple fronts. The California CCE model is now evolving toward state and local co-regulation of CCE rates by the CPUC and local governing boards.
The intent of AB 117 was to enable cities and counties to assume responsibility for generation services and cost recovery. The state’s permanent involvement in CCE rate-setting undermines the essential relationship between local authority and responsibility. Active state co-regulation of local utility rates is not the historical norm in California for municipal services in general. It results in confusion, hesitation, and exposure to inordinate risk.
Long term forecasting of state imposed rate equalization fees is impossible, and even short term forecasts are unreliable.[iii] No specific corrective measures are under consideration.
At a minimum, the California legislature should amend CCE authorizing legislation to enable more accurate CCE cost and revenue forecasts, more rapid transitions to more impactful CCE local engagement, and more robust CCE/IOU collaboration. Suggested enabling reforms include:
1. Replacing permanent fees that now serve only to keep IOU and CCE rates at parity with fees that compensate IOUs for unavoidable transition costs during a transition period that ends five years[iv] after customer enrollment;
2. Establishing a framework for collaborative CCE/IOU planning and implementation of all community renewable projects located in a CCE service area and all customer-facing programs offered in a CCE service area.
In summary, California CCEs are a natural hub for collaborative engagement with and among grid owners (IOUs), prosumers, counties and cities. But without access to the (excessive, open-ended and unpredictable) share of revenues they currently pay to IOUs, California CCEs cannot effectively respond to local supply and energy resilience needs and opportunities, nor can they strike an economically beneficial long term balance between centralized and decentralized electricity supply for the areas they serve.
[1] Source: https://www.leanenergyus.org/cca-by-state
[2] Ref: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=200120020AB117
[3] Sources: Data: California Energy Commission; Comparative Analysis: Robert Freehling. Projections assume growth in on-site solar adoption but not growth in numbers of California CCEs.
[i] Transition fees were originally authorized to pay for unavoidable and verifiable stranded costs legitimately attributable to the departure of customers from IOU generation service. The California’s PUC decided in 2006 to replace transition fees with a “power charge indifference adjustment (PCIA)”, which was the difference between an IOU’s power purchase contract costs and their value. In 2018 CPUC expand the PCIA scope to include all “above-market” costs IOUs incur for generation, fees that California CCEs pay on behalf of their customers have taken on a purpose of equalizing generation rates between CCEs and IOUs and have become more volatile and disruptive to California CCEs.
[ii] California CCEs aspire to determine and respond to local needs and opportunities in their service areas but must limit their response to avoid financial instability. Customer-facing programs currently offered by California CCEs are innovative and well-conceived. This bodes well. But severely limited CCE flexibility to fund and deliver robust, widely adopted programs throughout an electricity sector transition does not.
[iii] Inability to accurately forecast transition fees disrupts CCE planning and operations. CCE financial planning horizons extend to the date of the next annual exit fee determination. CCE governing boards navigate transition fee increases by dipping into financial reserves, raising rates and deferring investment in customer-facing programs. Hoped-for financial and rate stability remains elusive in many cases.
[iv] Five years is an appropriate transition period and about the amount of time required to put an public energy service enterprise on a stable footing.