Solar panels for Valley Clean Energy, a community choice aggregator that serves parts of Yolo County.

Power Politics

The growing number of publicly owned CCAs offer cheaper and cleaner electricity than for-profit utilities — so are they viable in the long-term?

Back Longreads Oct 30, 2018 By Steven Yoder

David Baker has noticed a change in his energy bill. The president of RobbJack, a Lincoln-based manufacturer of carbide cutting tools, used to get his electricity from Pacific Gas & Electric, until this past February when Pioneer Community Energy launched in Placer County. Baker says representatives from Pioneer worked closely with him on a plan to cut electricity costs. RobbJack runs air conditioning and power for industrial machines in a 42,500 square-foot space, so Baker says even small savings make a big dent.

“Currently, we know collectively we’re saving ratepayers here in Placer County $10 million a year.” Jenine Windeshausen, treasurer/tax collector, Placer County

Pioneer’s entrance into the market has also been a win for Thunder Valley Casino Resort, another customer. It has seen rates drop by 2-3 percent, says Doug Elmets, a spokesman for the United Auburn Indian Community, which owns the casino. For a facility that’s open all day and all night, and cycles through 16,000 people every 24 hours, that’s a significant savings, he says. (Pioneer customers save 5-7 percent compared with PG&E, according to Pioneer’s data.)

“Currently, we know collectively we’re saving ratepayers here in Placer County $10 million a year,” says Placer County treasurer and tax collector Jenine Windeshausen of the switch to Pioneer. “And it’s highly likely that money is going to be spent here.”

A Primer on the Changing Electricity Market

There are two main parts to getting electricity to businesses and consumers: procurement (buying the rights to electricity from a given power source) and transmission (delivering it through the wires and poles). While transmission remains in the hands of regulated utilities, procurement has fractured into multiple competing producers in the last decade or so. Here are the major procurement players in California’s market.

  • Investor-owned utilities (IOUs): Private companies like PG&E, responsible to shareholders, that both buy electricity and build and maintain the infrastructure to deliver it.
  • Municipally owned utilities (MOUs): Publicly owned organizations like SMUD that buy electricity and build and maintain the infrastructure to deliver it.
  • Community choice aggregators (CCAs): Publicly owned organizations like Valley Clean Energy and Pioneer that buy electricity that’s distributed through a transmission system maintained by a utility.
  • Electric service providers (ESPs): Usually privately owned companies, sometimes headquartered out of state, that buy electricity that’s distributed through a transmission system maintained by a utility.
  • Rural electric cooperatives: Local nonprofit cooperatives that purchase and deliver electricity, including building and maintaining the infrastructure to deliver it. There are few in California.

Pioneer is just one of a large number of “community choice aggregators” — electric-power purchasing organizations run by a municipal or county government or some combination of the two — that have entered the state’s energy market in recent years. Valley Clean Energy, which launched June 1, serves Woodland, Davis and unincorporated Yolo County.

CCAs are quickly taking over from investor-owned utilities how electricity is bought in California. They’re the latest test of whether local, publicly run ventures can deliver cheaper and cleaner power. But electricity procurement can be a fickle industry, and time will tell how well they’ll navigate regulatory and market changes.  

GAINING GROUND

The state’s electricity crisis in 2000 and 2001 helped pave the way for an influx of CCAs. The shortage of electrical power and resulting large-scale blackouts led policymakers to rethink the rules governing the industry. In 2001 and 2002, a package of bills was passed to ensure there wouldn’t be a repeat, including a 2002 law that authorized the formation of CCAs.  

But setting up the technical and governance structures took time, and the first CCA — Marin Clean Energy — wasn’t launched until 2010. With MCE’s launch came a template for others to follow, and the number of CCAs is growing: Today there are 18, nine of which started this year. If current trends hold, within 10 years, CCAs may serve the majority of the state’s consumers now served by the big three investor-owned utilities, according to a July report from the UCLA Luskin Center for Innovation.

Lower energy rates are a fundamental aspect of the CCA promise: Valley Clean Energy set its rates 2.5 percent below PG&E’s, and Pioneer’s have come in an average of 9 percent lower. Their boards are made up of local elected officials who regularly face voters and are therefore, proponents say, incentivized to negotiate harder on contracts. And as nonprofits, they don’t need to build in returns for private shareholders or pay federal taxes, says Pioneer spokesperson Alexia Retallack.

CCAs also say they’re more accessible to customers and able to adapt to their needs. “People can walk into our office [on Second Street in Davis] and talk to the executives,” says VCE spokesperson Jim Parks.

Related: Why Businesses Should Care About Energy Efficiency

Related: Behind the scenes with the Sacramento Municipal Utility District

Related: Valley Clean Energy director on community choice aggregators.

As VCE was planning its launch, there was a small uprising of rooftop-solar customers worried they’d pay more under VCE than PG&E. So VCE held public meetings that brought out standing-room-only crowds. The board took comments, and as of August was working on a new proposal. RepowerYolo, a Davis-based solar consulting company that runs an influential blog and was skeptical of the original plan, advised customers to stick with VCE after the hearings, writing on its blog that VCE “listened to our concerns, analyzed our recommended changes” and “is diligently doing the right thing.”  

The timing is also ripe for CCAs: Electricity prices are far lower now than when investor-owned utilities were required under state law to invest millions in contracts for renewable energy from 2002 to 2012.

MORE RENEWABLE OPTIONS

Electricity will make or break California’s ambitious climate agenda. By 2030, state law requires greenhouse gas emissions to fall 40 percent below 1990 levels. Under a new law passed in September, 100 percent of the state’s electricity generation must be carbon free by 2045. That means ever-rising demands on the grid: more electric vehicles plugging in, electric heat pumps replacing gas boilers, induction stoves taking over from their gas-fired relatives.

The state’s electricity sector as a whole is getting cleaner: One-third of electricity procurement by all providers must be renewable by the end of 2020. The state’s investor-owned utilities are there already, generating 35 percent of their electricity from renewable sources on average.  

But the CCAs are doing even better, while increasing the overall share of renewables on the grid: A May 2017 Luskin Center analysis concluded that all five of the state’s CCAs then in operation sourced a larger share of renewable energy than did their affiliated investor-owned utilities. Locally, 75 percent of VCE’s standard electricity package is made up of renewable or large hydro sources, compared with 51 percent for PG&E. Only 29 percent of Pioneer’s energy portfolio is from renewables, with the remainder from “unspecified sources of power.” Retallack says that’s because Pioneer has been running only six months and hasn’t secured all of its long-term contracts; with time, its renewable percentage will rise. “We’re very cognizant of renewables, but we’re also very cognizant of cost,” she says.

POWER STRUGGLE

You might not think control of the electrical grid could start a knife fight — but if you lived in Yolo County in 2006, you’d know that’s wrong. That year, local activists and elected officials got two measures put on the November ballot to expand the service territory of Sacramento Municipal Utility District — one of the 10 largest publicly owned utilities in the U.S. — into parts of the county. (PG&E had fought hard against SMUD’s formation, tying it up in the courts for almost 25 years, after voters first approved its formation in 1923.) Then and now, SMUD’s residential electricity rates beat PG&E’s by about 30 percent.

SMUD is not a CCA (and CCAs can’t legally operate in areas served by a municipally-owned utility) and so would have needed to buy PG&E’s poles and wires in Yolo County, paying back the cost over time. But PG&E had no plans to go quietly. It got mirror proposals put on the ballot in Sacramento and Placer counties’ SMUD territory, putting the decision to voters. And it launched an $11 million publicity blitz (with which SMUD, a public entity, could not compete) to convince them that the deal could raise their rates dramatically.

That turned public sentiment. Sacramento and Placer’s voters turned down the expansion by a wide margin, and even Yolo’s broke for and against the referendums in almost equal numbers.

But the proponents promised they wouldn’t abandon efforts in these communities to take control of their own power choices. Just over a decade later, Pioneer and VCE are aimed to make good on that promise.

In 2010, PG&E spent about $45 million on a ballot measure that would have made it tough for CCAs to launch by requiring two-thirds voter approval. That backfired. Not only did the measure fail, but the next year, legislators passed a law directing the California Public Utilities Commission to establish a code of conduct forbidding utilities from using ratepayer revenues to “market against” CCAs — which it did.

So today PG&E cooperates with CCAs. PG&E spokeswoman Ari Vanrenen said the company wouldn’t make anyone available for an interview. But she released a statement by email that read in part, “We respect the energy choices that are available to our customers and will continue to cooperate with local governments as they consider pursuing and/or developing a CCA program.”  

VCE’s Parks says he has weekly calls with his PG&E counterpart, and they collaborate to publish rate mailers. “We’ve had coffee together. It’s a pretty friendly relationship,” he says.

Still, changes in state law and regulation or the market could in theory jeopardize CCAs’ success.

There is the issue of a potential increase to the exit fee paid by customers who depart for a CCA. Remember those bargain rates for clean energy that CCAs enjoy that IOUs didn’t? The mechanism for dealing with that market problem is the exit fee. Set by the CPUC, it is supposed to compensate customers who stay with the utilities for the difference between the utility’s higher, legacy cost of electricity and the current market price.

“The idea that a big, even really safe utlity could go bankrupt is not crazy.”J.R. DeShazo, director, UCLA Luskin Center for Innovation

Now, the CPUC is in the middle of deciding on a new methodology for calculating it, and its choice could threaten the CCAs’ ability to beat utilities’ prices. One option on the table would make it “uneconomic for new CCAs to launch,” according to the California Community Choice Association, which represents CCAs and others.

There is another rising competitor in the power market: electric service providers, or ESPs — private companies that procure and sell electricity direct to business customers. By law, ESPs have been allowed to deliver about 13 percent of the state’s total utility load, a cap set after the 2000-2001 disaster. But a new bill signed in September raises that cap. That means more CCA business customers can leave for ESPs if they get better prices. Indeed, so high is the demand for cheap, tailored electricity plans that ESPs have a waiting list 1,700 commercial customers deep, says Scott Olson of Direct Energy, a Houston-based ESP that serves parts of California. (For more on the various players in California’s energy market, see “A Primer on the Changing Electricity Market” on page 42.)

In any case, CCAs’ long-term success is no guarantee, according to the Luskin Center’s J.R. DeShazo. “The idea that a big, even really safe utility could go bankrupt is not crazy,” he says. “It just takes the wrong set of conditions and bad policy by the legislature.” He points to  PG&E’s bankruptcy in 2001. Ratepayers are still footing the bill for that failure, he says.

Windeshausen acknowledges the risk that a CCA could fail but says it’s overstated. Pioneer was funded through a $16 million bond issued by the Placer County treasury.  Pioneer has already paid down $3 million and is on track to repay the full $16 million within about two years, she says.

Windeshausen is willing to put her reputation behind Pioneer’s success: She’s been re-elected multiple times since 1994. “I live here, I’ve raised my family here, and I’m very passionate about Placer County,” she says. “We have a history and a track record of really solid deals.” 

Editor’s Note: This story has been updated to reflect that Direct Energy is based in Houston, not Pittsburg. We regret the error. 

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