Eight states – California, Illinois, Massachusetts, New Jersey, New York, Ohio, Rhode Island, and Virginia – have enacted legislation that allows cities, counties or other jurisdictions to combine (“aggregate”) individual customer purchasing power and choose an alternative electricity supplier on behalf of the residents, businesses, and municipal facilities in the jurisdiction . The electricity is still delivered by the investor-owned utility (IOU) that owns and operates the local distribution network (“poles and wires”).
Communities in CCA states might choose to procure their electricity from an alternative supplier for one or more of the following reasons:
- Providing cheaper electricity
- Increasing renewable energy content
- Establishing a new revenue stream to support local energy programs
- Creating more local jobs
- Keeping more energy dollars circulating locally
With the trend of decreasing renewable energy costs expected to continue, the cheapest energy and the cleanest energy are, or soon will be, one and the same [19,20].
The non-profit group, LEAN Energy US , operates an informative website that describes how CCA works, its history and status in the 8 states, differences between states, and key enabling legislation in each state .
The first state to enact CCA legislation was Massachusetts in 1997, and the most recent was Virginia in 2018; however, there is much variability between states in how long it took to form the first operational CCA after it was enacted. The first CCA in New York began operating in 2015, and interest in CCAs has been increasing rapidly . In New Jersey, 53 municipalities had contracted with an alternative supplier as of January 2017. In Illinois, a high point of 720 communities with alternative suppliers was reached in 2014, but that number declined after incumbent IOUs lowered their rates to be more competitive, stabilizing at about 570 communities with alternative suppliers in October 2017. California’s first CCA began operation in 2010, and interest in CCAs there has been expanding rapidly since 2014 .
CCAs are typically vetted and permitted by the state as a consumer protection measure, and states continue to adapt and improve their consumer protections. Each state has different rules governing CCAs. It is a distinct advantage that any new state considering CCA legislation will have a rich history of “lessons learned” and “best practices” from the pioneer states to draw upon.
The New Jersey experience points to an essential characteristic of successful CCA design: it should be opt-out rather than opt-in. Only when all customers are automatically enrolled, except those who later choose to opt out, can a CCA reach high enough adoption to attract competitive suppliers. Uptake under New Jersey’s original opt-in system was low until it was changed to an opt-out system in 2012 (although, commercial and municipal accounts must still opt in). The reason opt-in doesn’t work is clear and makes sense. Most individuals will simply stay with the default incumbent utility rather than devote the time and effort to learn how choice works and do their own research (inertia is a powerful thing!). However, unlike an individual, a community has the staff to undertake due diligence and make the best choice of a supplier that furthers the community’s goals. Most CCAs in California have opt-out rates below 3%, confirming that individuals don’t object to community choice, they simply don’t all want to become energy experts in order to make their own choice to opt in.
Six of the 8 CCA states are currently “restructured” states with fully competitive retail electricity markets, where vertically-integrated utilities have been “unbundled” into separate electricity generation and electricity delivery companies. The utility continues to own and operate its distribution system (the “wires company”) as a PUC-regulated monopoly. However, its generation assets were either sold off or divested to an independent generation company that must compete with other suppliers of retail electricity (independent power producers or power marketers) . Therefore, IOUs in restructured (competitive) states are no longer vertically integrated.
California is somewhat different from the other CCA states in that it is no longer a fully restructured state, having “partially re-regulated” after the ENRON-inspired California energy crisis of the early 2000s. California’s three IOUs now have default monopoly control over the electricity supply within their territory, similar to Colorado’s vertically-integrated monopoly IOUs. To be clear, California was a fully restructured state at the time that CCA legislation was passed, like the other CCA states, but it is now implementing CCA in an environment that is somewhat similar to Colorado in that its IOUs could once again be described as vertically integrated.**
Unlike Colorado, communities in California can choose to exit their IOU and form or join a CCA to provide their electricity supply. However, in other fully restructured CCA states like Illinois, communities have much more freedom because they can choose from many competing electricity suppliers operating in the state, or elect to remain with “bundled service” from the IOU.
There is another important difference between Colorado and the CCA states: Colorado is not part of a Regional Transmission Organization (RTO), which is an independent, non-profit operator of a state-size or larger integrated transmission grid. It is straightforward in areas within an RTO to send power from any producer to any city across the transmission systems of many owners, because part of being in an RTO is having a “common transmission tariff” where everyone has the same access and pays the same rates for “wheeling” power across the transmission system . In Colorado, and in most of the West except California, each utility controls its own transmission system and sets its own rules and rates, so wheeling power across multiple transmission systems is complicated by the need for individual bilateral agreements with each involved utility (called “pancaked rates”). There have been no cases of a state adopting CCA legislation without also belonging to an RTO to facilitate the movement of wholesale power. However, there is increasing momentum for a west-wide regional grid that would solve this difficulty, with the additional benefits of lower transmission costs and the ability to integrate more renewable energy cost-effectively. A western RTO may or may not involve expansion of California’s RTO (called the California Independent System Operator, or CAISO) [27,28,29].
To implement CCA in Colorado, the legislature would need to enact CCA legislation, and the PUC would need to adopt corresponding rules and regulations. This has previously occurred only in restructured states with competitive retail markets. An integrated transmission grid and wholesale electricity market would also be desirable, if not necessary.
The next section looks more closely at how CCA works in California.
** Experts disagree on when it is proper to use the term “vertically integrated.” In this paper, we use the term to indicate that an IOU controls both the supply and delivery of electricity within its territory, regardless of whether the IOU owns the electricity generation assets or whether it acquires the electricity through power purchase agreements or market purchases.
3.1.1 CCA as implemented in California
Of the current CCA states, California provides the closest analogue to Colorado because it is currently a regulated monopoly state with three vertically-integrated IOUs. To be clear, there are many differences between the Colorado and California regulatory systems, but not quite as many differences as between Colorado and Illinois.
In California, CCAs are approved by the local governing body of a city, county, or special district, unlike other CCA states that require a public vote to form or join a CCA . Everyone in the jurisdiction is automatically enrolled in the CCA, but there is an opt-out provision where individuals can choose to purchase their electricity from the IOU that delivers the electricity to everyone in its territory, both CCA customers and those that have opted out (known as “bundled” customers). Opt-out rates for California CCAs are around 3% (so, 97% participation).
CCAs, where they exist, are the only alternative to buying electricity from the incumbent IOU. CCAs are not allowed in cities with their own municipal electric utility. Some CCAs procure power for a single city, while others that represent more than one jurisdiction are run by a “Joint Power Authority” (JPA), where each jurisdiction has one seat on the JPA’s Board of Directors, usually an elected official appointed by the jurisdiction’s governing body. After a CCA has demonstrated successful operation, it is allowed to expand and add customers elsewhere in the state, as several CCAs have done.
New CCAs typically sign 5-year contracts with power providers, whereas more established CCAs, having demonstrated viability and qualified for credit, often sign 15-25 year Power Purchase Agreements (PPAs) for renewable energy. California CCAs typically try to offer at least one rate plan that is slightly cheaper and with a higher renewable energy content than the IOU, as well as one or more high-renewable or 100% renewable plan that may cost slightly more than the IOU. The relationship between rates and renewable energy content will likely change over time as the cost of renewable energy continues to decrease. Some CCAs also promote local renewable energy development as a core goal, and they often offer higher net metering credit for exported solar energy than is offered by the IOU. Some CCAs are also more adept at developing local energy efficiency or demand response programs than the IOU. The UCLA Luskin Center for Innovation summarizes the impact of CCAs on the California electricity grid .
The history of CCA in California began with its authorization in 2002, but it has been a long road to success, in part because California reverted to being a vertically- integrated state, and its IOUs have waged a fierce and well-funded campaign to defeat the rise of CCAs, first by direct prevention and now by making them more expensive to operate and therefore less competitive through increased “exit fees” when customers leave the IOU (described below). As one example, in 2010 Pacific Gas and Electric (PG&E) spent $44 million to fund an initiative for a constitutional amendment that would have required a two-thirds supermajority vote by local governments before they could fund the establishment of a CCA . The initiative failed, and the legislature subsequently passed a law in 2011 that prohibits utilities from direct marketing against CCAs.
The rapid increase in CCAs after 2014 poses a threat to the monopoly IOU model, as more and more customer load departs for CCAs [33,34]. A study by the California PUC predicts that as much as 85% of customer load could be served by CCAs and other non-IOU providers by 2025 [35,36]. California could conceivably become almost a de facto restructured state again, via the roundabout path of increasingly unbundled electricity generation, a notably different path than the 14 states that became fully restructured by legislative design in the mid 1990s to early 2000s (as did California too, prior to partially re-regulating after the infamous California energy crisis).
An on-going issue of significance for the future of CCAs in California (but not in the other CCA states) concerns the assessment of “exit fees” that CCAs must pay to IOUs to account for the costs of legacy IOU generation contracts that were signed before the customer load departed to the CCA. This charge is intended to prevent the shifting of those contract costs onto the remaining IOU customers; it is also called the Power Charge Indifference Adjustment (PCIA). Therefore, a CCA can only offer lower prices than the IOU if it can procure or produce wholesale power not only cheaper than the IOU, but also cheap enough to cover the PCIA charge. This appears to be possible at the moment, but the future depends on ongoing proceedings about the appropriate level of the PCIA charge [37,38]. Over time, IOU legacy assets will be paid off, and the PCIA will presumably decrease and ultimately disappear.
Marin Clean Energy (MCE) – California’s first CCA
As California’s most mature CCA, launched in 2010, MCE provides a good example of how a CCA works and what it can offer customers . MCE serves Marin County, Napa County, and over a dozen cities. Any customer can easily opt out online and receive “bundled service” from PG&E [39-optout].
MCE offers 3 rate plans with a different mix of renewable energy (RE): “light green” (currently 61% RE); “deep green” (100% RE); and “local sol” (100% locally produced solar power) [39-energy mix]. For comparison, PG&E’s standard service is currently 33% RE.
MCE conducts integrated resource planning, and procures its energy annually in an open competitive process [39-procurement].
Detailed rate schedules are available online [39-rates]. Rates are difficult to compare because it depends on how much energy is used, and the ratio of energy charges versus fixed fees. There are two parts to rates: 1) the electricity delivery charge, which is the same for both CCA and PG&E customers; and 2) the energy charge which depends on how many kilowatt-hours (kWh) are consumed and the rate plan chosen, which each have a different kWh rate. Also, CCA customers pay the PCIA charge (“exit fee”) described earlier. This is summarized below for a typical residential customer that uses 451 kWh per month (seasonal average, valid August 2018).
|MCE Light Green|
|MCE Deep Green|
|MCE Local Sol|
(100% local solar)
* “PG&E fees” includes the PCIA charge, and the franchise fee charged by cities and counties to all customers and collected by PG&E.
Light Green is 2.5% cheaper than PG&E for a substantially higher RE content; Deep Green is 1.8% more expensive than PG&E for 100% RE; and Local Sol comes at a premium of 30% compared to PG&E. It is important to note that these rates will change over time for at least three reasons: 1) the cost of renewable energy will continue to decrease over time; 2) time-of-use rates are an option that will become the default in California in 2019 [40,41]; and 3) the outcome of the PCIA issue and how it will evolve over time is unknown.
MCE has collected a set of resources for answering questions about CCAs, as well as information and documents related to joining an existing CCA or forming a new CCA [39-resources].
— End of Section —
For more, download: Full paper | Executive summary | One-page brief
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http://www.cpuc.ca.gov/uploadedFiles/CPUC_Public_Website/Content/ News_Room/News_and_Updates/Retail Choice White Paper 5 8 17.pdf
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[opt-out] [energy mix] [procurement] [rates] [resources]
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