Ten Things to Know about CCAs in California

For the past several years, Community Choice Aggregation (CCA) programs have proliferated across California. Since the launch of Marin Clean Energy (now known as MCE) in 2010, new CCAs have formed in communities across the service territories of California’s three largest investor-owned utilities (IOUs):  Pacific Gas & Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E). According to Cal-CCA, the trade association representing CCAs in California, there are currently 19 CCAs serving millions of customers in the state, with many additional communities considering joining a CCA or forming their own.
CCA programs are expected to become the dominant energy provider model in California. The California Public Utilities Commission (CPUC) Staff estimate that as much as 85% of bundled retail load will be unbundled, with generation provided by CCAs, Electric Supply Providers (Direct Access), or distributed generation rather than the incumbent utility by the mid-2020s. PG&E directly attributes 42% of bundled load loss to the growth of a dozen CCAs in its territory.

It is important to note that California CCAs, unlike CCAs in other states, procure physical power and directly provide energy programs for their customers. Here are the top ten things to know about CCAs in California:

  1. CCAs give communities, businesses and families a choice in energy. CCAs are nonprofit public entities operating in IOU territory and formed by local communities working together to supply the electricity needs of their residents. By aggregating the electric load of their residents, CCAs can purchase wholesale power at competitive rates to supply the energy needs of their communities. The incumbent IOU still owns the transmission and distribution grid infrastructure (i.e., the poles and wires) and delivers the electricity procured by the CCA to the CCA’s customers.
  2. CCAs are required to contribute to a safe and reliable power grid. Just like IOUs and other load-serving entities, CCAs spend millions of dollars every year procuring their share of Resource Adequacy (RA) capacity in addition to energy contracts to ensure the energy provider will meet or exceed their forecasted demand. For this reason, RA is sometimes described as “blackout insurance.”
  3. CCAs are governed by locally elected public officials. CCAs are empowered to set ambitious GHG emissions reduction goals, procure renewable energy in excess of state mandates and develop unique programs. CCAs have implemented a range of programs including the common practice of retail net metering rates with a premium for excess generation (see MCE and Peninsula Clean Energy as examples), EV charging rebates, comprehensive energy efficiency programs and a community-scale microgrid.
  4. CCAs focus on local development and, when possible, use local union labor. Many CCAs enact Project Labor Agreements with local unions for their local projects.
  5. CCAs have signed long-term renewable energy contracts totaling 2 gigawatts and are now the largest driver of clean energy growth in California. Most CCAs are well ahead of the California RPS targets, often offering almost double the 33% by 2020 requirement. Given the launch of 10 new CCAs in 2018, the CPUC estimates that CCAs have an immediate RPS procurement need of approximately 6,900 GWh beginning in 2020. And by 2021, at least 65% of RPS procurement must come from long-term contracts.
  6. Many CCAs are lowering customer electric bills. Many CCAs in California offer a 2-3% discount compared to the existing utility’s electric rates. Although CCAs are empowered to set their own rates and rate design, most have elected to mirror the rate design used by the incumbent utility, allowing customers an easy rate comparison.
  7. CCAs have low “opt out” rates. Though CCAs are the “default provider,” customers can easily opt out of service and return to the incumbent utility. To date, few customers have chosen to opt out of CCA service. Clean Power SF reported an opt-out rate of 2.4% and Peninsula Clean Energy reported an opt-out rate of 2.5%.
  8. CCA customers pay non-bypassable charges. Most notably, CCA customers pay the Power Charge Indifference Adjustment (PCIA), an exit fee designed to make the utility—and its remaining customers—“indifferent” to the loss of load when a new CCA launches. CCAs have expressed concern about the PCIA for its lack of transparency, complicated methodology, and specific costs that utilities have been allowed to recover through the PCIA, such as generation procured before 2002. (CCAs did not begin operating in California until 2010.) In 2018, the PCIA was about 3.3 cents per kWh for most vintages for residential CCA customers in PG&E’s service territory. Another non-bypassable charge incurred by CCA customers is the Cost Allocation Mechanism (CAM), which allocates costs of utility procurement across all benefiting customers. PG&E recently received permission to use the CAM to recover the costs of 567.5 MW of energy storage resources that it procured in response to a local capacity need arising from Calpine retiring three gas-fired generators. As a result, CCAs are no longer mandated to procure energy storage, but also do not receive the benefits energy storage would provide to their portfolio.
  9. CCAs share best practices. CCAs often collaborate in order to develop joint comments on pending legislation and regulation. CCAs also engage in the sharing of information for data management. They even sometimes jointly procure portfolio resources.
  10. CCAs are bankable. While most CCAs do not yet have credit ratings from Moody’s or S&P, they have proven adept at demonstrating their creditworthiness through alternative means. When a CCA is beginning operations, it may leverage a revolving line of creditwith a bank based on its future outlook and/or hire a third-party service provider to facilitate its transactions until it can use other aspects of its financial health, such as a debt ratio or amounts in reserves, in collateral negotiations. Ultimately, a CCA may want to have a credit rating from Moody’s or S&P, but this is not necessary for doing business. MCE was the first CCA to acquire a credit rating in May 2018 from Moody’s, and more are expected to follow.

About EQ Research

EQ Research provides customized research, procurement assistance, regulatory monitoring, and compliance filing review and assistance to CCAs.

EQ Research provides policy research, analysis and data services to businesses active in renewables, energy efficiency, energy storage and electric vehicles. EQ Research’s areas of expertise include state regulatory policy and utility proposals, state legislation, financial incentives, local government policy, RPS and REC issues, net metering, rate design, and general rate cases.

Prior to forming EQ Research, several of its analysts managed and operated the nationally recognized DSIRE project for the U.S. Department of Energy, from 2007 to 2013. EQ’s team also includes the founders of Keyes & Fox LLP, a firm of national legal experts in renewables, distributed energy resources (DERs) and low-carbon transportation fuels. Keyes & Fox attorneys have shaped state-level energy policy through appearances before more than 40 states’ public utility commissions, and through engagement with state legislatures across the country.

To gain expert insight from EQ Research or to learn more about Policy Vista™, visit eq-research.com, call 919-238-4360 or email info@eq-research.com.

 

Ten Things to Know about CCAs in California, by Miriam Makhyoun and Ben Inskeep, EQ Research, February 13, 2019.

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