The New(er) Kids on the Block: Community Choice Aggregators

Bethany K Speer's picture

Many rightly assume they can only buy electricity from their local utility, or in deregulated markets through competitive service providers.  However, there’s a relatively new kid on the (energy) block: community choice aggregators (CCAs). Because CCAs are not regulated in the same way as utilities, they can be movers and shakers of renewable energy (RE), energy efficiency, and demand-side management in their communities.

Background

Municipalities and counties in states that allow CCAs can form these public agencies as a means of buying generation for their residents.  CCAs do not provide other services beyond generation, such as distribution, transmission, and administrative services that are managed by the incumbent utilities.  Because of their flexibility and orientation to the community, CCAs can be well suited to meet community goals that could include supporting the renewables and efficiency markets, competitive electricity prices, and reducing greenhouse gas emissions and pollution.

This relatively new community-organized purchasing arrangement began over a decade ago, with the first CCA enabling legislation in Massachusetts [1].  Now, consumers in five additional states—Ohio, California, Colorado, Rhode Island, and New Jersey—can participate in a CCA.  San Francisco is currently developing a CCA, and others may be in development elsewhere.[2].
 

A picture of the five New Kids on the Block members standing on stage during a performance
Source: Wikimedia Commons

Some CCAs are procurement-only—like those in Ohio and Massachusetts—and support renewables by purchasing renewable energy from independent power producers and then sell that power back to the community [1].  Alternatively, the “utility model” CCAs, like California’s Marin Clean Energy, can directly invest in RE projects.  CCAs may also purchase and retire renewable energy certificates (RECs) to meet renewable portfolio standard (RPS) requirements.  And per the RPS regulations, this allows the CCA to proclaim the electricity sold to its customers as “renewable energy.”

Benefits and Challenges with CCAs

CCAs offer several benefits:
•    Low cost tax-exempt debt: As a public entity, CCAs can use low-cost tax-exempt debt.  According to the Marin Clean Energy CCA, PG&E (the incumbent utility) has a cost of capital between 12% and 13%, whereas Marin’s cost of capital is conservatively assumed to be in the range of 5.5% to 7% [3].
•    Flexibility in resource planning: CCAs do not face the same regulatory restrictions as other utilities.  Thus, CCAs may be able to provide additional products and services beyond those of typical regulated utilities. For example, the Marin Energy Authority provides (1) “light green” energy, which meets the California RPS level at a minimum, and (2)“deep green” service that includes 100% RE for a 10% premium [4].
•    Community energy efficiency and RE goals: CCAs can be aligned with community goals, including renewable energy procurement and/or project development, and energy conservation.
•    Access to RE incentives: Customers of CCAs may be able to participate in ratepayer-funded incentive programs, as is the case in California with the California Solar Initiative.  [5]
•    Support conservation: CCAs can manage successful demand-side management and consumer incentive programs. In Massachusetts, the Cape Light Compact’s 2009 energy efficiency program achieved a total resource cost-effectiveness score of 3.85, well above a ‘successful’ rating of 1.0 [7].

On the flip side, challenges associated with CCAs include:
•    A need to provide competitive pricing: From the start, CCAs must be able to provide a discount relative to the incumbent utility; otherwise, customers are likely to opt out [3].
•    Inability to use federal tax credits: As non-tax paying public entities, “utility-model” CCAs cannot make use of federal tax incentives, like the investment tax credit, which amounts to 30% of eligible project costs.  Even with lower costs of capital, CCAs may find it difficult to offer rates competitive with an incumbent utility, a common benchmark of CCA performance [7]. 
       o    A possible solution to this challenge would be for CCAs to purchase power via a third party ownership agreement, thereby making     some use of the federal tax incentives.  This option would be dependent on the availability of tax equity (which is currently low due to the economic downturn) and the investors’ view of the stability of power payments, especially considering the ability of customers to opt out of the CCA.  There may be other restrictions to this using third party PPAs, of which I’m not aware.
•    Difficulty in obtaining affordable RE: Because of their relatively small customer base, CCAs seek to procure niche-size RE projects (e.g., in the 20 to 60 MW range); smaller projects may include higher transaction costs than larger utility-scale projects sought by the traditional utilities [6].
•    Market and political barriers: After enabling legislation is passed, CCAs still need to overcome additional barriers, such as incumbent utility opposition and garnering support from the local government.
•    Challenge maintaining a customer base: This is especially true with industrial customers who may be subject to cherry picking by incumbent utilities [6].

In Summary

While community choice aggregators face several challenges to establishing a utility and providing cost-effective service, CCAs can be a catalyst for clean energy procurement and energy conservation in their communities.  Who knows? Maybe CCAs will be a hit.

Resources

[1] Local Power, Inc. April 15, 2009. Community Choice: Lessons Learned and Best Practice.http://www.local.org/CCA_Lessons_AUG3109.pdf

[2] Clean Power SF website: http://cleanpowersf.org/
[3] Marin Clean Energy. April 22, 2008. Marin Clean Energy: Blueprint for the Future http://www.marincommunityenergy.org/files/DRAFT%20Marin%20Clean%20Energy%20Overview%20(8%20page)%20062308%20copy.doc
[4] Marin Clean Energy website: http://www.mcecleanenergy.org/
[5] Pacific Gas and Electric’s (PG&E) webpage on Community Choice Aggregators: http://www.pge.com/cca/
[6] Mark Braly, The Emerging Market for Small Renewables in California: RenewableEnergyWorld.com. http://www.renewableenergyworld.com/rea/news/article/2011/05/the-emerging-market-for-small-renewables-in-california
[7] Capelight Compact’s Annual Report on Energy Efficiency Activities in 2009. http://www.capelightcompact.org/library/2010/08/8.2.10-CLC-report-on-EE-Activities-in-2009.pdf
[8] Paul Fenn, Community Choice Aggregation: A Huge New Opportunity for Energy Sustainability, Security and Competition in an Otherwise Volatile and Polluting Energy Market. http://www.local.org/commchoi.html