Community Choice Aggregation in California’s Utility Market
This piece will provide a description of the Community Choice Aggregation program in California’s utility market, beginning with an overview of the history of CCA models and eventual adoption by the state. It will additionally discuss the composition of partnerships within California’s utility market and the role of the California Public Utilities Commission (CPUC) in regulating CCAs in the state. Next, it will discuss the specific services that CCAs provide, who their customers are, and their designs, methods, and tools for service delivery. The funding structure, methods of stakeholder engagement, and program evaluation will also be discussed. The paper will shift to its conclusion with a critique of the CCA program structure and service delivery and will provide a set of recommendations for improvements.
History and Development of Community Choice Aggregation Models
Community Choice Aggregation is an energy supply model that allows local governments to pool their electricity load and purchase or develop power on behalf of residents, businesses, and municipal accounts within their service territory. CCAs are also government entities that work in partnership with a region’s existing utility provider which continues to deliver power, maintain the electrical grid, and provide streamlined administrative services to customers. CCA is usually implemented on an opt-in or opt-out basis, dependent on state legislation. Opt-out CCA implementations are the most common and successful. In this case, customers are automatically enrolled after a successful local public referendum or passage by elected representatives. Further, “opt-out aggregation achieves the necessary market scale for effective group purchasing but allows a customer to switch back to utility service at any time” (LEAN Energy US, p.1).
California Assembly Bill 117 of 2002
Community Choice Aggregation was established in California in 2002 through the passage of Assembly Bill 117 which authorized local governments to aggregate customer electrical load and purchase electricity for customers. It mandated that electrical corporations cooperate with CCAs and that investor-owned utility (IOU) “still maintains the responsibility of transmission and distribution of services, and continues to provide all metering, billing, collection, and customer service to retail customers that participate in a CCA. (CPUC staff, 2017, p. 2). Discussion of the customer-state relationship and program funding will be discussed in a later section.
AB 117 also provided guidance to communities on how to create CCAs. The bill says that cities and counties can pass an ordinance to implement a CCA program within its jurisdiction and can additionally utilize joint powers agency by joining with another CCA (CPUC staff, 2017, p. 2). Marin Clean Energy became the first CCA established in California and began serving customers in 2010. In 2011, the CPUC was required to open a rule making to create a Code of Conduct to govern the relationship between CCAs and IOUs (CPUC staff, 2017 May 1, p. 4).
Role of the California Public Utilities Commission
As a result of the passage of AB 117, the CPUC interpreted its provisions as granting the CPUC jurisdiction over CCA programs as follows:
“Generally, we find that AB 117 does not provide us with the authority to approve or reject a CCA’s implementation plan or to decertify a CCA but to assure that the CCA’s plans and program elements are consistent with utility tariffs and consistent with CPUC rules designed to protect consumers,” and
“Nothing in the statute directs the CPUC to regulate the CCA’s program except to the extent that its program elements may affect utility operations and the rates and services to other customers. For example, the statute does not require the CPUC to set CCA rates or regulate the quality of its services” (CPUC staff, 2017, p. 2).
Relationships within the CCA Network: Overseers, Provider Partnerships, Citizens, Customers
There are several ways individuals might interact with CCAs in the state of California. First, as described above, the CPUC is tasked with ensuring that CCAs implementation plans are consistent with utility tariffs and CPUC rules related to consumer protection. Appendices A-F show the organizational structure of the CPUC’s Energy Division.
Since CCAs in California are only responsible for procurement, they must partner with the service area’s IOU which maintains transmission lines and provides administrative services to customers. A comparison of provider-to-customer responsibilities for IOUs, CCAs, and Municipal Public Utilities, or Munis, can be found under Appendix G.
In a later section, this paper will discuss the ways in which citizens can engage in the legislative process as it relates to implementing and interacting with CCAs. Individuals also interact with CCAs as customers, receiving services in exchange for payment.
Funding for California’s CCAs and the Customer Relationship
CCAs are revenue-based and are not government subsidized. Individuals who receive services from a CCA in the state of California pay a bundled electricity rate that is redirected to support the group purchase of electricity. CCA’s purchase power while the IOUs maintain responsibility for maintaining transmission lines and providing customer service. This energy purchasing supply model enables local municipalities to gain more control over their power supply without the financial burden of capital investments for system infrastructure (LEAN Energy US, p.1). Note that while CCAs are revenue-based, many claim non-profit status.
Description of CCA Services & Service Recipients
In short, CCAs in California are responsible for purchasing energy on behalf of its customers. They coordinate with IOUs and the CPUC as needed to deliver their procurement services. California has implemented the CCA program on an opt-out basis which means that once a local has established a CCA, all potential customers in the CCA’s service area are included in the program. In order for Californians’ to deny receipt of CCA services they must opt-out of the program (CPUC staff, 2017, p. 2).
CCA Service Delivery Method & Program Design
CCA’s in California provide energy procurement services to program customers. Once a customer has been opted into a CCA, they select the energy services they need, and the CCA procures those services on the customer’s behalf. Those services are then delivered by an IOU whose service rates include the rates for the CCA’s procurement services which is redirected back to the CCA provider (LEAN Energy US, p.1).
Service Delivery Tools
CCAs provide administrative and bargaining services on behalf of their customers which likely occurs primarily through online communication channels and accounting systems. CCAs in California do not generate energy yet and thus rely on the energy generation infrastructure of the IOUs in their service areas.
Stakeholder Engagement in CCA Implementation Design
Since CCAs were established through an assembly bill and the CPUC regulates CCA activity through its mandated authority, stakeholders are required to engage in the legislative process in order to weigh in on program implementation or program changes. Typically, this would take the form of public comment filing periods and public hearings.
CCA Program Evaluation
There are currently no CCA program evaluation standards in place. However, there is research available which compares CCA options for municipalities in California. Evaluation criteria for a study conducted for the City of Santa Monica was the following:
1) “Which CCA structure gives the most authority to Santa Monica to make decisions to achieve its environmental goals?”
2) “Which option provides the most resilient structure to protect against future legislative, regulatory, and competition risks?” and
3) “Which option offers the greatest economic of scale that would support future opportunities.” (Trumbull, Gattaciecca, and DeShazo, 2017, p. 3).
CCAs in California are required to meet a series of obligations they have with the CPUC. A non-exhaustive list of those obligations include: 1) fulfilling Resource Adequacy requirements, 2) fulfilling the Renewables Portfolio Standard, 3) submitting an Integrated Resource Planning proposal, and 4) fulfilling Energy Storage requirements. (CPUC staff, 2017 May 1, p. 12) In the absence of standard evaluation measures, legislatively mandated requirements can serve as a baseline for understanding the ability of CCAs to deliver services and meet their requirements.
Successes for CCAs in California
CCAs in California have been able to offer customers a mixed energy portfolio with high percentages of renewable energy or a 100 percent renewable energy option. Additionally, they’re able to offer competitive pricing, often lower than IOUs for cleaner energy sources. CCAs have also been able to benefit from fallen wholesale renewable energy costs (UCLA Luskin Center for Innovation, p. 2).
Challenges for CCAs in California
Some of the challenges CCAs in face include: 1) ensuring fair shared costs between ratepayers, 2) ensuring grid reliability, and 3) assessing transmission and delivery fees.
The Power Exchange Indifference Adjustment (PCIA) allows costs incurred by IOUs who were required to invest millions of dollars into renewable portfolio strategies to be shared between energy consumers regardless of which entity procures their energy. AB 117 requires that energy contracts be recoverable through the PCIA if the costs are unavoidable and attributable. CCA customers have lower generation rates than IOU customers because the price for natural gas and renewable energies is lower now than it was when the IOUs signed older Power Purchase Agreements (PPAs).
The CPUC’s mechanisms for controlling short-term and long-term grid reliability are the Resource Adequacy and the Cost Allocation Mechanism (CAM). CAM spreads capacity costs amongst consumers when an IOU procures additional capacity. Resource adequacy requires all load serving entities to demonstrate their purchased capacity commitments of no less than 115 percent. This measure only looks at the forecast for the coming year and related shod-term planning.
Additionally, Californian’s pay a fixed delivery fee which fails to take into account the type of infrastructure needed to deliver electricity from the energy source to the customer which should included distance and high-voltage transmission lines. This means that regardless of the actual transmission costs, delivery fees remain static. Some view this as a market distortion that impedes local energy production (UCLA Luskin Center for Innovation, p. 29–35).
Critique of Program Structure and Service Delivery
CCAs are unique because they empower municipalities by providing more control over their energy costs. They serve a clear function: to procure energy on behalf of its customers. CCAs have been able to chip away at the monopoly power of IOUs in the state while offering a greater selection of renewable products. They seem to cause few problems, though issues a rate setting and exit-costs remain. Considering the immediate need to shift to renewable energy sources, the state’s continued problems with IOUs (specifically Pacific Gas & Electric), the relative simplicity of CCAs function, and the benefits they offer communities, CCAs seem to be proving themselves an effective alternative to energy markets monopolized by IOUs. I hope that the growth of CCAs continues and that other states are able to adopt such energy purchasing structures to relieve customers from the burden of inefficient and sometimes negligent providers.
Recommendation 1: Conduct Program Implementation Analyses
Now that CCAs are being recognized as an attractive option for municipalities, researchers should investigate trends in the implementation of CCA programs in different places. This would allow practitioners the opportunity to share best practices and lessons learned from implementation in a variety of contexts and markets. Further, it would be helpful to study any shifts toward renewable energy sources as a result of CCA development and growth.
Recommendation 2: Make Information on Shared Costs Publicly Accessible
There is a lack of transparency in terms of how the PCIA is calculated in the energy portfolios of IOUs which makes planning difficult for CCAs to be able to integrate that knowledge into their implementation plans. Policymakers should define what contracts that are “unavoidable and attributable to departing customers” so that the PCIA rate is more predictable (UCLA Luskin Center for Innovation, p. 29–35).
Recommendation 3: Plan for Long-Term Energy Procurement Needs
As discussed earlier, energy procurement plans for CCAs are still relatively short-term. It’s possible that a shift away from IOUs to CCAs will result in fewer long-term procurement contracts. CCAs may also experience difficulty issuing bonds or borrowing money because of a lack of credit history. Policymakers should assist CCAs in growing their credit and help shift CCAs to offering longer-term contracts.
Recommendation 4: Revise Transmission Costs
Policymakers should reassess how transmission costs are distributed among customers and determine whether or not distinctions between local and more remote sites should be taken into consideration.
Recommendation 5: Develop Public Information Campaign About CCAs
As frustrations over the actions of IOUs like PG&E mount, CCAs should take the opportunity to educate local governments about the option to adopt CCA legislation and transition to use renewable energy more and to divest from monopolizing forces in the energy markets.
California Public Utilities Commission staff (2019, May). Energy Division Functional Organizational Chart. Retrieved from: https://www.cpuc.ca.gov/WorkArea/DownloadAsset.aspx?id=6442461201. (pp. 1–6).
California Public Utilities Commission staff (2017, February 1). Community choice aggregation en banc presentation. Retrieved from: https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/Utilities_and_Industries/Energy/Energy_Programs/Costs_and_Rates/CCA_and_Direct_Access/FinalStaffEnBancPresentation2.1.17.pptx. (pp. 1–16).
California Public Utilities Commission staff (2017). Community choice aggregation en banc background paper. Retrieved from: https://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/About_Us/CCABackgroundPaperv2.pdf. (pp. 1–13).
LEAN Energy US (Local Energy Aggregation Network). What is CCA. (n.d.). Retrieved from: https://leanenergyus.org/what-is-cca/. (p. 1).
Trumbull, K., Gattaciecca, J., & DeShazo, J.R. Evaluating community choice aggregation alternatives for the city of santa monica (2017 December). Retrieved from: https://innovation.luskin.ucla.edu/wp-content/uploads/2019/03/Evaluating_Community_Choice_Aggregation_Alternatives_for_the_City_of_Santa-Monica.pdf (pp. 1–48).
UCLA Luskin Center for Innovation. The promises and challenges of community choice aggregation in California (n.d.). Retrieved from: https://innovation.luskin.ucla.edu/wp-content/uploads/2019/03/The_Promises_and_Challenges_of_Community_Choice_Aggregation_in_CA.pdf. (pp. 1–41).