Rise in Locally Controlled Utilities Reshaping California’s Electric Business
By Ryan Baron, Best Best & Krieger LLP
California communities are shaking up the electric business.
Pursuing lower costs, local control and renewable sources, communities from Humboldt to San Diego are embracing government-run energy programs — or Community Choice Aggregation models — to address local energy needs that traditional, investor-owned utilities may not be as adept at meeting.
Such benefits have led to CCA legislation being passed in states nationwide, including Illinois, Massachusetts, New Jersey, New York, Ohio and Rhode Island.
In California, Assembly Bill 117 cleared the way for CCA programs in 2002, allowing cities, counties and joint-power authorities to aggregate their own electricity, purchasing electricity at wholesale and selling it to residents and businesses at competitive rates where none had existed before.
Getting off the Ground
It would take nearly a decade before the State’s first CCA launched.
California’s three largest investor-owned utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric — opposed the CCA model from the start, which essentially takes away customers while leaving utilities with the weight of keeping power systems up and running.
In 2011, state lawmakers barred such utilities from using ratepayer dollars to lobby against CCA.
Rather, utilities are now required to apply to the California Public Utilities Commission to create independent lobbying divisions funded solely by shareholders.
Operating since 2010, Marin Clean Energy is an affiliate-membership CCA serving communities with less than 40,000 customers in or within 30 miles of Marin, Napa, Contra Costa and Solano counties. With $2.2 million in working capital at its launch, MCE says it recouped start-up costs within 1 year, and has annually contributed an average of $5 million in net revenues to a reserve fund since.
MCE works collectively with PG&E — which collects energy meter data, bills customers and resolves service issues — to deliver power to local customers. However, when it comes to generating electricity, the entities compete to provide customers with their preferred form of electricity generation.
Residents and business owners in MCE’s service area can opt out of the CCA for continued PG&E service, or opt in and purchase power from the CCA at varying levels of renewable-energy procurement, which powers the local grid using solar, wind, bioenergy, geothermal and small-hydro sources.
Lancaster Choice Energy powers almost every public building from Lancaster’s City Hall to a minor-league baseball stadium with green energy. The City, home to some 160,000 people, became the first U.S. municipality to require that all new, single-family homes be equipped with solar panels and is on its way to being the nation’s first net-zero energy city, producing as much (or more) energy than it consumes.
With nine operational CCAs in 2017, and many more coming online this year, community choice power, giving customers options and municipalities control, is set to reach exponentially more Californians.
Community Choice on the Rise
Collectively, investor-owned utilities currently buy and sell more than 75 percent of California’s electricity. But, according to the CPUC, 30 to 40 percent of their customers already receive some electrical service from alternative sources, including rooftop solar and community choice aggregators.
According to the advocacy group CalCCA, the current operational CCAs have an estimated 2.6 million customer accounts statewide. Aggressive projections suggest these numbers could grow to more than 80 percent by the mid 2020s as communities shift away from traditional investor-owned utilities.
The Clean Power Alliance of Southern California (known until earlier this year as Los Angeles Community Choice Energy) launched in February and is rapidly expanding.
The alliance serves municipal customers in unincorporated Los Angeles County with commercial service set to come online this summer. Service to all customers within the CPA’s service area is expected to follow in early 2019. Once fully launched, the alliance will represent some 2.3 million residents in more than 30 cities across Los Angeles and Ventura counties.
In June alone, Solana Energy Alliance, Valley Clean Energy Alliance and East Bay Community Energy launched, serving the City of Solana Beach, Yolo County and Alameda County, respectively. Many more communities in San Diego and Riverside counties, too, are actively looking at community choice options.
With the push for community choice aggregation gathering steam in Southern California, the costs shared by CCAs and utilities remains contentious. The CPUC will require future CCAs to bear a portion of the common burden relating to the Commission’s Resource Adequacy program to ensure sufficient generation sources are contracted to meet grid needs during peak demands.
The CPUC is also set to release a proposed decision in late July or early August that would potentially revise the investor-owned utilities “exit fee” methodology.
Currently, the utilities are allowed to charge CCA customers a hefty exit fee upon leaving for CCA service. The fee is intended to cover the costs of contracts that the utilities have entered into on the customer’s behalf. The exit fee has escalated dramatically in recent years – more than 3 cents/kWh – and is criticized for its lack of transparency in how it is calculated.
Forming a CCA
According to CalCCA, California’s CCAs have saved customers tens of millions of dollars in energy costs. Lower energy costs, along with greater local control, the development of regional power sources, energy-efficiency programs allowing customers to purchase higher renewable power content and attracting businesses looking for lower electric costs have led to the rapid expansion of CCAs statewide.
Each of the State’s operational CCAs faced a different timeline for formation, but according to the CPUC, depending on the level of community interest and support, a CCA could be formed within a 1- to 3-year timeline. Here are the steps it takes to form a CCA:
- Conduct a Feasibility Study: To get started, communities can conduct a feasibility study to better understand local electricity needs, energy resources and target rates. While not required by law, such studies can help identify energy costs and renewable content, load sizes and management options.
- Submit a Declaration to Pursue: If choosing to move forward, an official declaration must be sent to the service area’s investor-operated utility and CPUC.
- Pass an Ordinance: Cities or counties must then pass a local ordinance or resolution making its CCA membership official and to pursue the formation of a legal entity.
- Form Enterprise Fund or Joint-Power Authority: Depending on the model the community chooses (joint-power or single jurisdiction), a JPA or division within the local government must be established to oversee the program.
- Implementation Plan Approval: The CPUC must certify the implementation plan prior to launch.
Once a service agreement has been established with the local investor-owned utility and energy supplies, data management and electricity scheduling services have been secured, it’s time to buy power.
Ryan Baron is of counsel in Best Best & Krieger LLP’s Environmental Law & Natural Resources practice group. Based in the firm’s Irvine office, Ryan offers strategic counsel on a variety of utility and environmental law matters, including: community choice aggregation, public utility regulation and infrastructure development. Get in touch with Ryan at firstname.lastname@example.org.