September 17, 2018

How Community Choice Aggregation Fits Into California’s Clean Energy Future

CCAs are pushing ahead of California utilities’ renewable energy goals—and facing challenges in sharing the burden with investor-owned utilities.

This month, California enacted one of the most ambitious clean energy goals in the country: getting 100 percent of its electricity from carbon-free sources by 2045. 

California’s community-choice aggregation (CCA) providers say they’re ready to hit that milestone — and on an accelerated schedule. 

In a Tuesday forum in San Francisco, CCA advocates laid out how these city- and county-based entities, which have grown to include millions of customers formerly served by the state’s investor-owned utilities, are pushing ahead of the renewable energy and carbon reduction goals set out in California’s just-passed SB 100. 

They also highlighted how several policies under review by state regulators could stymie the growth of CCAs, including rules that govern how investor-owned utilities are compensated for customers taken over by CCAs, and how the two parties share responsibility for procuring the energy resources needed to keep the grid stable. 

“We’ve had an explosion of CCAs in the past couple of years,” said Beth Vaughan, executive director of the California Community Choice Association. CalCCA’s 19 members now account for nearly 2.6 million customer accounts, up from about 1.85 million accounts at the end of 2017. 

Most of the action has been in Northern California. These include several of the oldest CCAs in the state — Marin Clean Energy with 470,000 customer accounts and Sonoma Clean Power with 223,000. There are also more recently launched CCAs, such as Monterey Bay Community Power with 307,000 customer accounts, Peninsula Clean Energy with 291,000, Silicon Valley Clean Energy with 275,000, and East Bay Community Energy with 550,000.

Taken together, these CCAs add up to 2.1 million customer accounts out of utility Pacific Gas & Electric’s 5.4 million electricity customer accounts and 4.3 million natural gas customer accounts. 

While Southern California hasn’t seen as many CCAs formed to date, Southern California Edison and San Diego Gas & Electric are both looking at large-scale CCAs being formed in their service territories, as well as dozens of cities interested in following the lead of Lancaster, California’s Lancaster Choice Energy. 

And the pace of CCA formation is accelerating. Dawn Weisz, CEO of Marin Clean Energy, explained that she arrived late to Tuesday’s forum because she had just come from a meeting that cemented Solano County as MCE’s newest member.

While CCAs remain a small percentage of the state’s utility customers, the California Public Utilities Commission estimates that up to 85 percent of the state’s retail load could be served by CCAs, as well as by direct access providers, by 2025. These trends are seen as an existential threat for California’s investor-owned utilities. According to state Senator Scott Wiener (D-San Francisco), the utility fight against the CCA model is continuing.

“Every year, there are probably three or four different efforts, sometimes with a fresh bill, sometimes with a quiet amendment inserted into another bill, other times trying to push something through at the last moment," that are meant "to try [to] blow up CCAs,” Wiener said at Tuesday’s forum.

The most recent example he cited was language inserted into one of this legislative session’s controversial utility wildfire bills “that would completely undermine CCAs," he said. "Some of us had to...hound people for weeks on end before the language was taken out.” 

Utilities have long protested that the rules of CCA formation leave them with too high a share of the costs of serving those customers. While CCAs take over the job of procuring energy for their customers, which allows them to exceed utility renewables mandates and increase the roster of clean energy projects being built in the state, utilities remain responsible for all other aspects of keeping the power flowing, including the costs of maintaining transmission and distribution grids and managing customer billing. 

But in the context of this week’s Global Climate Action Summit in San Francisco, CCA advocates say they’re fulfilling the promise that led legislators to create them in the first place — giving customers an avenue to support even more aggressive clean energy targets than the state has set.
How CCAs are hitting their clean energy targets 

Most of California’s CCAs have been formed with the express aim of increasing their share of renewables faster than the investor-owned utilities they’re part of, Vaughan said. To date, they’ve contracted for more than 1,300 megawatts of renewable energy. 

CCAs also provided the first 100 percent clean energy options for customers in the state — a move that prompted utilities like PG&E to follow suit, Wiener said. 

At the same time, CCAs have been able to deliver their customers lower rates than their utility counterparts for both their standard renewable-rich plans and their 100-percent-clean offerings. That’s largely because CCAs have been able to procure their renewables much more cheaply over the past several years, compared to utilities that have been procuring solar and wind power under state mandate for more than a decade, back when wind and solar were much more expensive. 

According to a 2017 report from UCLA’s Luskin Center for Innovation, this underlying market reality has allowed CCAs to offer a much larger share of renewable energy than their affiliated utilities, up to 25 percent more in some cases. Looking at a 12-month period before its publication last year, the report estimated that these efforts have helped reduce carbon emissions by about 590,000 metric tons, which under the state’s cap-and-trade regime translates to $7.5 million in annual savings for electricity ratepayers. 

“Through our analysis, we found that continued development of CCAs may enable California to surpass its 2020 renewable energy targets by up to four percentage points,” the Luskin Center report said. This analysis was based on the performance of the five oldest CCAs, however, and doesn’t account for the new ones that have been created or proposed since then.

Tuesday's event brought out several CCAs to tout their accomplishments on this front. Marin Clean Energy, founded in 2008, now has $1.8 billion in committed contracts for a total of 924 megawatts of resources, said Heather Shepard, MCE public affairs director. As of this year, 80 percent of that generation is greenhouse-gas-free. By 2025, MCE plans to bring that figure up to 100 percent, with 80 percent of it in the form of renewable energy — a target that would put MCE far ahead of investor-owned utilities in meeting the state’s new SB 100 goals. 

This includes a fair share of wind and solar projects outside its service area, but MCE has also deployed just under 20 megawatts in local projects, said David Potovsky, MCE’s power supply contracts manager. Its feed-in tariff program, launched in 2012 for projects smaller than 1 megawatt, is now fully subscribed for first 15 megawatts, and is adding another 15 megawatts, he noted. 

CleanPowerSF, the CCA launched by San Francisco Public Utility District in 2016, now has about 114,000 customers, including some showcase clients like Salesforce, which is buying 100 percent renewable energy for its Salesforce Tower and two other office buildings. In June, CleanPowerSF signed long-term contracts for 100 megawatts of solar and 47 megawatts of wind, said San Francisco Public Utilities Commission assistant manager Barbara Hale.  

And San Mateo County-based CCA Peninsula Clean Energy, which began serving its first customers in late 2016, inked its first 200-megawatt solar contract last year, and has since signed up big commercial customers for its 100 percent clean energy offering, including Facebook's Menlo Park, Calif. headquarters, communications director Kirsten Andrews-Schwind noted. 

The continued growth of CCAs is of concern to the CPUC, which published a report this year that questions whether CCA growth could undermine the state’s broader clean energy and carbon reduction goals. 

But MCE CEO Dawn Weisz asserts that “what the [CPUC's report] got wrong is, there is no crisis” resulting from CCA expansion. “If anything, we’re creating a more diverse marketplace. And adding local accountability and transparence really adds a lot of strength.”

How key policy decisions could support or undermine CCA clean energy plans 

Despite their record to date, CCAs have had some challenges that utilities don’t face in procuring large-scale renewables, such as their relative lack of financial reserves and creditworthiness to ink long-term contracts. And as the Luskin Center report noted, “whether CCAs can remain cost-competitive with their incumbent IOUs depends on several policy decisions that could occur in the near future.” 

The first big issue is over the Power Charge Indifference Adjustment, or PCIA — the “exit fee” that CCAs pay utilities when they take over their customers, Weisz said. The goal of the PCIA is “to make investor-owned utilities whole,” or "indifferent" as to whether or not the customer stays with them or joins the CCA, she said (hence the term “indifference adjustment”).  

The CPUC has been working on the PCIA issue for more than a year. Last month, it issued a proposed decision that, while far from perfect from both the utility and the CCA perspective, does take important steps toward “fair cost allocation,” Weisz said. These include measures to stop charging CCAs for utility-owned generation built before 2002, as well as to limit post-2002 generation costs to a 10-year cost recovery period. These factors will take a significant chunk of legacy utility costs out of the equation.

CalCCA believes these changes will help reduce today’s cost shifts from utility “bundled” to CCA “departing load “customers, which it calculates as up to $492 million annually for PG&E and up to $25 million annually for Southern California Edison in 2018. But utilities complain that these changes will unfairly burden them with legacy generation costs that should be shared by their former customers, and could potentially lead to CCAs disrupting the state’s energy markets.

Now, the CPUC is also considering an alternative PCIA plan that would increase, not decrease, those charges by retaining legacy generation costs, as well as imposing additional burdens on CCAs, according to CalCCA’s analysis. The CPUC is expected to make a final decision later this month.

“The real crux of the issue is that we want to make sure that what’s going into that fee are the unavoidable costs to utilities,” Weisz said. “There’s a lot of stuff in that fee that could have been avoided." 

The second big issue before CCAs is resource adequacy, or RA — California’s term for the capacity resources that all load-serving entities, including CCAs, have to procure to ensure grid reliability during times of peak demand. Under current CPUC regulations, CCAs have covered the cost of their host utilities procuring resource adequacy through the PCIA charge. It's a method that made sense when CCAs were few and small, but which becomes increasingly difficult to manage under their current growth rates. 

In February, the CPUC adopted a resolution that would force CCAs to contract for some portion of their share of RA requirements in the current year. CCAs protested, saying it could undermine their low-cost renewables goals by forcing them to buy short-term contracts for resources such as natural gas peaker plants that can meet the state’s needs.   

“CCA compliance in resource adequacy requirements has been good. But it is challenging, because the market is tightening, and products can be difficult to procure,” SFPUC’s Barbara Hale said at Tuesday's event. 

Beyond that, CCAs want to see changes in how the PCIA calculates RA costs, Weisz said. “Right now, resource adequacy is being valued in this PCIA in very short-term increments — one year, two years,” she said. CCAs are pushing for a methodology that allows for the RA value of their long-term contracts to be calculated as well. 

The long-term role of CCAs in California’s energy future

Weisz conceded that “the lion’s share of resource adequacy services are natural gas” power plants, increasing their share of fossil fuel-fired power. 

At the same time, CCAs are moving alongside California’s investor-owned utilities to find cleaner ways to manage resource adequacy, including distributed energy resources such as energy efficiency, demand response, energy storage and EV charging, she said. 

MCE has a pilot project attempting to shift loads at customers’ homes and businesses from peak afternoon and evening hours to earlier in the day when solar power is plentiful, she said. It’s also employing EV charging incentives that encourage workplace charging during peak solar generation hours, rather than later in the day. CalCCA’s Vaughan noted that all of its group's members are working on EV charging infrastructure plans aimed at accomplishing similar load-shifting and -shaping goals. 

As CCAs grow their share of the California energy market, their role in maintaining and creating new resources for grid stability will increase. This could well lead to more regulations to incorporate them into state energy policy. CPUC President Michael Picker has laid out some ideas on this front, including creating a statewide integrated procurement process to rationalize what could become an increasingly fragmented market for renewables project development. 

And in the longer run, CCAs that have relied on short-term procurements because of their lack of creditworthiness for longer-term power-purchase agreement contracts will have to grow to a scale that can support their share of the state’s long-range needs. Under SB 350, by 2021 at least 65 percent of a CCA’s renewable portfolio will have to come from contracts of 10 years or more — a rule that “could impact the cost-competitiveness of some CCAs due to their lack of credit history,” the Luskin Center report noted. 

Getting to a 100 percent clean energy portfolio by 2045 is likely to bring additional challenges.

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