In the last State Bulletin column, I detailed three state policy trends to watch for in 2018: nuclear subsidies, PURPA reform and ratemaking for distributed energy resources.
Well, three trends weren’t enough, so I’m back this week with another one: community-choice aggregation.
The next column will round out this series with additional input from EQ Research.
Trickle to a flood: The rise of community choice energy
Community-choice aggregation has become national-level energy news.
Community choice programs allow a not-for-profit aggregator, typically a municipal or local government, to buy or generate electricity on behalf of the customers within a defined jurisdiction. Incumbent utilities continue to own and operate the grid infrastructure, while community entities take control of power procurement decisions -- often with the aim of purchasing low-carbon resources.
The rise of community-choice aggregators is more evident in California than anywhere else, but it’s not the only state experiencing this phenomenon.
On Jan. 18, the New York State Public Service Commission approved the third community-choice aggregation (CCA) program in upstate New York, enabling five municipalities to make bulk purchases of electricity and natural gas for residents and small businesses. The newest CCA will serve the central New York villages of Fayetteville and Minoa, along with the Village of Coxsackie and the towns of Cairo and New Baltimore in the Capital District.
The PSC previously allowed 20 municipalities in Westchester County to form a CCA, and more recently it approved a CCA implementation plan submitted by the Municipal Electric and Gas Alliance (MEGA) for the City of Elmira and the towns of Oneonta, Montour, Horseheads, Union and Binghamton, plus the Village of Montour Falls. MEGA recently submitted a petition to include several more towns and villages in its initial CCAs.
New York state’s third CCA could begin operating as soon as the second quarter of 2018. The program was organized by the nationwide energy consultant Good Energy, which has helped to create CCAs for more than 60 communities in other states.
“Community-choice aggregations are growing across New York state, providing greater control over energy bills and energy choices,” said Commission Chair John Rhodes, in a statement. “Residential and small-business customers can reduce their energy bills, take advantage of renewable energy choices and enjoy other money-saving services thanks to the leverage enabled by the bulk purchasing available through these community-based associations.”
Massachusetts was the very first state to authorize community choice back in 1995. Cape Light Compact is the nation’s first CCA and still serves more than 200,000 customers.
CCAs are also active in Illinois, which was actually the fastest-growing community choice market in the U.S. in 2012. At that time, municipal electricity aggregators, or MEAs, as they’re called in the state, offered rates of about 5 cents per kilowatt-hour at a time when Commonwealth Edison was charging about 8 cents per kilowatt-hour.
In November 2012, Chicago voters approved a referendum to launch an MEA, making it by far the largest U.S. city to embrace community choice. By the midpoint of 2014, more than 720 Illinois communities had done the same. But by the second half of 2014, the price advantage MEAs initially enjoyed began to erode, as the two large investor-owned utilities were able to obtain cheaper electricity supplies and lower rates. Roughly 100 MEAs, including the one encompassing Chicago, returned to the bundled services offered by Ameren Illinois and ComEd.
Then, in 2016, MEA programs became competitive again. According to Local Energy Aggregation Network, local governments were able to sign contracts that offered a 1-cent per kilowatt-hour price advantage over the utilities, which stemmed the decline in MEAs.
Roughly 600 communities, representing around 1.9 million customer accounts, are currently served by MEAs in Illinois. Whether or not the state will see a renewed expansion of community choice programs remains to be seen.
A total of seven states have enacted CCA legislation: California, Illinois, Massachusetts, New Jersey, New York, Ohio and Rhode Island. Other states including Utah and Minnesota have launched studies to consider community choice, and more could follow.
CCAs will be a big deal in 2018, with seven of them expected to launch in California this year alone. This has triggered a broader debate about local control, the role of the utility and resource management.
The California Public Utilities Commission released a report last year that found up to 85 percent of the retail electric load served by the state’s investor-owned utilities could shift to another source within the next decade. According to the Center for Climate Protection, CCAs that are currently operational or under development could serve 17.7 million of the 29 million people served by IOUs today.
A separate Center for Climate Protection report found that this move to CCAs will produce significant greenhouse gas reductions and cost savings.
This mass migration away from bundled retail electric service has incumbent utilities, regulators and other stakeholders concerned.
As consulting firm ScottMadden recently pointed out in its latest Energy Industry Update report, when a CCA forms, utilities are left with legacy assets, including power-purchase agreements, that were initially intended to serve all customers. With millions of customers having their electricity procured elsewhere, there’s a concern about a cost shift onto the remaining utility customers. Pacific Gas & Electric, for instance, estimates that $180 million will be shifted to remaining non-CCA customers in 2017, and that number will grow to $500 million by 2020.
This trend is only accelerating. Eight California CCAs bought 3.75 million megawatt-hours of power in the second quarter of 2017, according to ScottMadden. That’s a 408 percent increase compared with the purchases made in the second quarter of 2016 and 4.7 percent of all wholesale market sales in the California ISO.
Given that California CCAs are typically formed to help meet a community’s clean energy goals, solar power purchases have soared. According to GTM Research, the cumulative volume of utility-scale PV driven by community-choice aggregators now in development or operating stood at 1.2 gigawatts as of last October. The total addressable market for California CCAs is set to reach 3.9 gigawatts by 2022 and grow beyond that projection in later years.
The CPUC has launched a multi-stakeholder discussion on the potential need for regulatory changes in light of the ongoing expansion of CCAs, including a possible road map for full deregulation. Sacramento lawmakers have also taken notice.
CCAs, meanwhile, are fighting policy battles to form and remain viable. One of the biggest issues for communities looking to take control of their energy purchasing decisions is the fee they must pay to depart the utility, dubbed the Power Charge Indifference Adjustment, or PCIA.
Utilities say the PCIA fees aren’t high enough to cover the costs of their stranded assets. As a result, the fee is expected to increase, squeezing the margins for CCAs and creating an Illinois-like scenario. CCA organizers view the push for higher exit fees as an attempt to quash the CCA movement.
“CCAs have always had to fight to stay alive, and it’s normal that IOUs would fight new competitors,” said Ann Hancock, executive director of the Center for Climate Protection, speaking at the Business of Local Energy Symposium 2017 conference last May.
“Fortunately, we are getting stronger and stronger,” she continued. “We call on the California Public Utilities Commission to level the playing field, to protect all bundled and unbundled customers, to let community choice entities be competitive. This [was] the intent of the law when community choice was created.”
If you did not attend that the Business of Local Energy Symposium and wish you had, you can watch videos of all the sessions here. In another relevant video, Samuel Golding, president of Community Choice Partners, recently detailed how CCAs are becoming more sophisticated and finding ways to stay competitive despite the fee increases.
It’s unclear if CCAs will take off in other states as they have in California. As CCAs expand and mature in the Golden State, it’s possible they’ll serve as models for communities elsewhere. But it could also raise a new set of issues.
Public power utilities, for instance, are supportive of California’s CCAs, but say the arrangements in other states are not as favorable.
“From state to state, the concept of CCAs is not the same," according to Barry Moline, executive director of the California Municipal Utilities Association. "That’s a problem, in that their quality of operations and purpose are different in different locations."