Electricity production is the second largest source of greenhouse gas (GHG) emissions in the United States, [1] with approximately 62.9% of our electricity coming from non-renewable fossil fuels. [2] In light of the federal government’s failure to enact comprehensive climate legislation, [3] municipalities across the country have begun to tackle climate change at the local level. One such example is Community Choice Aggregation (CCA). Community Choice Aggregation allows local governments [4] to aggregate the electrical loads of the residents, businesses, and institutions in their geographic region to purchase energy on their behalf. [5] Since the first CCA was established in Massachusetts in 1997, [6] CCAs have continued to grow in popularity. However, no state has seen more significant growth than California. Since the launch of Marin Clean Energy in 2010, nineteen CCA programs now exist in California and reports estimate that 16% of the state load will be serviced by CCAs in 2020. [7]

Under the traditional “structured” model, electricity services (i.e., generation, transmission, and distribution to consumers) were bundled together and controlled by private investor-owned utilities (IOUs). [8] Under the structured system, IOUs received a natural monopoly over the electricity market in exchange for providing reliable service and reasonable rates. However, this monopoly was disrupted in 1996 when the Federal Energy Regulatory Commission (FERC) issued Order No. 888, [9] allowing for the “functional unbundling” of wholesale generation from transmission services and requiring open access for unbundled retail transmissions. [10] In essence, the order allowed for the competitive wholesale trading of electricity. Today, seventeen states and the District of Columbia follow a “restructured” model, [11] whereby generation and transmission are unbundled to allow for consumer choice. Of those seventeen states, eight [12] have passed CCA-enabling legislation to allow CCAs to purchase electricity on the wholesale market. For example, California enabled CCAs in 2002 with the passage of the Community Choice Aggregation Bill (AB 117), [13] which authorizes customers to aggregate their electrical loads with a community choice aggregator. [14]

In California, the CCA model works by aggregating the electrical load of consumers in a specified area to create an economy of scale. [15] The economy of scale allows the aggregator to purchase electricity generated from sources of their choosing in bulk on the wholesale market at lower prices. This then allows the CCA to set lower, independent rates for that power. [16] CCAs are a hybrid between a fully public [17] and fully private model, providing only generation, while the incumbent IOU’s maintain control of transmission, distribution, and customer billing. [18] CCAs, being solely responsible for providing the energy commodity (e.g. the electrons themselves), may or may not take on the further responsibility of owning the generation resources. [19] If a CCA does not own its own generation source, it may enter into short-term (one to three years) contracts with licensed entities known as “competitive suppliers” to procure electricity for its customers. [20] Choosing suppliers enables CCAs to curate an electricity portfolio that fits the needs and goals of the community—such as including a 100% renewable generation option. [21] CCAs also allow for local control over retail electric rates. Traditionally, the IOUs proposed service rates for generation, transmission, and distribution of energy for the California Public Utilities Commissions to either approve or reject. In a CCA jurisdiction, however, decisions about rates, generation, and public benefits programs are made locally and CCAs are held accountable to local consumers.

The City and County of San Francisco’s CleanPowerSF is an illustrative example of a successful CCA. In 2004, two years after California passed AB 117, San Francisco adopted an ordinance establishing CleanPowerSF as an independent CCA. [22] CleanPowerSF is administered by the San Francisco Public Utilities Commission (SFPUC) and monitored by the Local Agency Formation Commission (LAFCo). [23] In May 2016, CleanPowerSF began servicing its first phase of customers with an opt-out [24] 48% renewable energy product [25] and a voluntary opt-in 100% renewable product for several more dollars. [26]

CleanPowerSF completed its last phase of customers in April 2019, enrolling 280,000 customer accounts for a total client base of 360,000 residents and businesses. [27] As of April 2019, San Francisco had reduced its GHG emissions by 36% below 1990 levels. [28] Further, for the 2018-2019 fiscal year, CleanPowerSF reported a 96.6% customer retention rate, [29] highlighting the effectiveness of the opt-out model, whereby customers are automatically enrolled and must actively “opt-out” to return to the incumbent IOU. Currently, CleanPowerSF continues to offer a 48% “green” option, 15% more renewable than California’s 33% Renewable Portfolio Standard (RPS) [30] procurement rules, [31] and 100% SuperGreen option, 67% above the RPS target.

CleanPowerSF has also been able to procure significant energy from sustainable in-state sources. Currently, Shiloh Wind Farm produces 25MW (enough energy to service 20,000 residents a year [32]); Sunset Reservoir Solar Array produces 5 MW; the Geyers geothermal has a generation capacity of 725 MW, and CleanPowerSF is currently investing in Terra-Gen Voyager IV, a 47 MW Wind Project on target to deliver wind power by late 2020. [33] Lastly, a 2016 report from LAFCo estimates that CleanPowerSF has the potential to create approximately 300 jobs as a result of procurement of new renewable energy supplies and approximately 4,600 to 9,700 jobs from its purchase of renewable energy. [34]

Though CleanPowerSF illustrates the immense potential CCAs have to increase clean energy production and provide customer choice, there are significant challenges facing California CCAs. Most notable is the Power Charge Indifference Adjustment (PCIA). Traditionally, IOUs invested in power plants and recouped their investments through customer rates. [35] Today, however, with many customers leaving IOUs for CCAs, CCAs are required to pay a PCIA fee to ensure that customers who remain bundled with the IOU do not incur the sunk cost, or “legacy costs,” of prior investments when customers switch to a CCA. [36] Currently, the PCIA is measured by estimating the price difference between the IOU’s actual electricity portfolio cost (related to the IOU’s utility power procurement) and the current market value of the electricity portfolio. [37] Because the price of renewable energy is lower today than it was when the IOUs entered into contracts, the current market value of the IOU’s portfolio is lower than the actual cost, raising the amount of PCIA fees incurred by CCA’s. For example, Marin Clean Energy paid $43 million dollars in PCIA fees in 2016 alone. [38] Recent fee increases pose challenges to CCAs by derailing the construction of renewable energy projects, increasing consumer costs, and frustrating efforts to plan for the future. [39] Finding a fair methodology to determine the PCIA is also crucial to avoid over-procurement by either the IOUs or CCAs. One potential solution is to institute an expiration date on the PCIA to prevent the IOU’s from entering into new procurement contracts that they cannot feasibly afford without CCA customers. Another possible solution is to cap the PCIA to help CCAs plan for future development, while at the same time preventing against unexpected fee spikes.

Despite the challenges of measuring the PCIA, there are strong arguments for expanding the California CCA model nationwide. First, CCAs are uniquely positioned to increase renewable energy. A study by the National Renewable Energy Laboratory found that if all states with restructured markets passed CCA-enabling legislation, CCAs could service up to 983 MWh of power, or 20% of the nation’s residential and commercial load. [40] The study also showed that “CCAs have already increased voluntary green power demand by about 10% in terms of sales and have roughly doubled voluntary green power demand in terms of customers.” [41] Further, automatic enrollment through the opt-out or down model prevents customer barriers to entry and ensures high retention rates, [42] ultimately resulting in more customers using clean power. For example, in the “opt-down” method, customers are automatically enrolled into the 100% renewable product, with the option to “opt-down” to the 50% renewable product at a lower rate. [43] Peninsula Clean Energy experimented with this model, and as of 2017, only 4% of customers had elected to opt-down, demonstrating the CCA model’s ability to achieve impressively high rates of renewable energy.  Further, CCAs provide opportunities for regional cooperation when formed pursuant to a joint power authority. Collaborative planning within a CCA joint power authority may encourage innovative solutions to other climate challenges such as sea-level rise and storm resiliency. Lastly, pooling CCA resources may allow CCA’s to fund and construct sustainable energy projects closer to the community, providing power security and improving system resiliency by decreasing the dependence on the transmission grid. [44]

Though climate change is a collective action problem that no one municipality can solve, CCAs offer a way for local communities to make a significant impact. In particular, community choice aggregation in California highlights CCA’s recent successes in increasing renewable energy generation, reducing GHG emissions, and empowering communities. These triumphs suggest that CCAs should be implemented nationwide. As more states begin to pass CCA-enabling legislation, more Americans can choose to get their energy from renewable sources. Over time, the collective impact of a wide network of CCAs may have a significant impact on mitigating against the threat of climate change. Looking towards the future, we should focus efforts on resolving the PCIA debate, continuing to build renewable, local generation facilities, and working to fund the expansion of the CCA model across more states and communities.

 

 

 

[1] Sources of Greenhouse Gas Emissions, Envtl. Protection Agency, https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions (citing that 27.5 percent of 2017 greenhouse gas emissions) (last visited Jan. 14, 2020).

[2] Id.

[3] Congress and Climate Change, Ctr. for Climate and Energy Solutions, https://www.c2es.org/content/congress-and-climate-change/; for a more detailed description of federal responses to climate change see William L. Andreen, Federal Climate Change Legislation and Preemption, 3 Envtl. & Energy L. & Pol’y J. 261, 270-272 (2008), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1348209 (The federal government has failed to pass a piece of climate legislation since the 1970 Clean Air Act, was not a party to the Koto Protocol, and recently withdrew from the 2018 Paris Climate Agreement. Further, the Trump administration has repealed much of the climate progress achieved during the Obama administration, such as repealing the Clean Power Act).

[4] Or a combination of local governments through a Joint Powers Authority.

[5] See generally O’Shaughnessy et al., Community Choice Aggregation: Challenges, Opportunities, and Impacts on Renewable Energy Markets, Nat’l Renewable Energy Laboratory, (Feb. 2019), https://www.nrel.gov/docs/fy19osti/72195.pdf; see also Rachel Henderson, Community choice aggregation: How far can it push energy sector transformation?, Smart Electric Power Alliance (June 8, 2017), https://sepapower.org/knowledge/community-choice-aggregation/.

[6] Mass. Gen. Laws, ch. 164, § 1 (1997); O’Shaughnessy et al., supra note 5, at 41.

[7] O’Shaughnessy et al., supra note 5, at 39.

[8] Lincoln L. Davies et al., Energy L. and Pol’y, 265 (2d ed. 2018).

[9] United States of America Federal Energy Regulatory Commission, Promoting Wholesale Competition Through Open Access Non-discriminatory Transmission Services by Public Utilities, Docket No. RM95-8-000, & Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Docket No. RM94-7-001, 75 F.E.R.C. ¶ 61,080 (1996), https://www.ferc.gov/legal/maj-ord-reg/land-docs/rm95-8-00w.txt.

[10] Id.

[11] Though “deregulated” is a common term used to describe restructuring in some literature, I use “restructured” to show that the electric industry is still regulated by a series of federal, state, and local agencies.

[12] California, Illinois, Ohio, New York, New Jersey, Rhode Island, Virginia, and Massachusetts.

[13] Assemb. Bill 117 § 366.2(c) (Cal. 2012).

[14] Id. (“This bill would authorize customers to aggregate their electrical loads as members of their local community with community choice aggregators, as defined”).

[15] Prior to the economy of scale created by the CCA, single residents were unlikely to switch their generation source due to high transaction costs, high rates, and minimal bargaining power.

[16] G. Patrick Stoner & John Dalessi, California Community Choice Aggregation Guide, California Energy Commission, PIER Renewable Energy Technologies Program (Sept. 2009). https://ww2.energy.ca.gov/2009publications/CEC-500-2009-003/CEC-500-2009-003.PDF.

[17] O’Shaughnessy et al., supra note 5, at 15 (municipalization is the transfer of ownership of utilities from IOU’s to public ownership, and operation by local, county, or state government).

[18] Id.

[19] Local Government Commission, Community Choice Aggregation, https://ww2.energy.ca.gov/2006publications/CEC-500-2006-082/CEC-500-2006-082.PDF.

[20] O’Shaughnessy et al., supra note 5, at 2.

[21] See e.g., CleanPowerSF, Residential Options, https://www.cleanpowersf.org/residential (CleanPowerSF offers a 100% renewable option) (last visited Jan. 14, 2020).

[22] S.F., Cal., Ordinance 86-04 (May 27, 2004).

[23] City and County of San Francisco, Community Choice Aggregation Implementation Plan and Statement of Intent 9, https://static1.squarespace.com/static/5a79fded4c326db242490272/t/5d124e6ce1faf80001ed6076/1561480813263/CCSF+CCA+IP+FINAL.pdf (updated June 2015) (hereinafter “2015 Implementation Plan”).

[24] In the “opt-out model,” customers are automatically enrolled in the CCA. For example, should a customer choose to return to the traditional IOU service, they must actively “opt-out” of the CCA. Conversely, in the “opt-in” model, customers are not automatically enrolled. If a customer chooses the 100% renewable option, for example, they must actively “opt-in” to that service option.

[25] At a cheaper rate than the previous PG&E rate.

[26] 2015 Implementation Plan, supra note 23, at 30.

[27] Public Utilities Commission, City Performance Scorecards: CleanPowerSF, City and County of San Francisco, (Fiscal Year 2019-20), https://sfgov.org/scorecards/environment/cleanpowersf (hereinafter “Scorecard”).

[28] City and County of San Francisco Office of the Mayor, Mayor London N. Breed Kicks Off Earth Moth by Announcing Largest and Last CleanPowerSF Enrollment & Launch of Month of Climate Action (Apr. 1, 2019), https://sfmayor.org/article/mayor-london-n-breed-kicks-earth-month-announcing-largest-and-last-cleanpowersf-enrollment (“The one-year emissions reduction of 6% represented one of the largest single-year decreases since the City started tracking emissions. Concurrent with this reduction in emissions, San Francisco’s population has increased by 22 percent and its economy has grown by 166 percent.”).

[29] Scorecard, supra note 27.

[30] California Energy Commission, Renewable Portfolio Standards, CA.GOV, https://www.energy.ca.gov/programs-and-topics/programs/renewables-portfolio-standard (“The RPS is one of California’s key programs for advancing renewable energy. The program sets continuously escalating renewable energy procurement requirements for the state’s load-serving entities. Generation must be procured from RPS-certified facilities.”) (last visited Jan. 14, 2020).

[31] California Public Utilities Commission, 33% RPS Procurement Rules, CA.GOV, https://www.cpuc.ca.gov/RPS_Procurement_Rules_33/ (Pub. Util. Cod § 399.15(b) establishes RPS procurement quantities. In 2021 and later years, all retail sellers must procure 33% of their retail sales from RPS-eligible resources.) (last visited Jan. 14, 2020).

[32] CleanPowerSF, Energy Sources, https://www.cleanpowersf.org/energysources (last visited Jan. 14, 2020).

[33] Id.

[34] Jason Fried, Study on the Job Creation Potential of CleanPowerSF, San Francisco Loc. Agency Formation Commission, (May 5, 2016), https://sfgov.org/lafco/sites/default/files/FileCenter/Documents/55829-FINAL%20-%20LAFCo%20CleanPowerSF%20Job%20Study%205-5-16.pdf.

[35] O’Shaughnessy et al., supra note 5, at 30.

[36] California Public Utilities Commission, Power Charge Indifference Adjustment 1 (Jan. 2017) https://www.cpuc.ca.gov/uploadedfiles/cpuc_public_website/content/news_room/fact_sheets/english/pciafactsheet010917.pdf.

[37] Id. at 2 (for example, if the IOU’s actual portfolio cost is above market value, new CCA customers must pay the IOU for their share of the difference based on their power consumption).

[38] Dr. J.R. DeShazo et al., The Promises and Challenges of Community Choice Aggregation in California, UCLA Luskin Ctr. for Innovation, 34 (July 2017), https://innovation.luskin.ucla.edu/wp-content/uploads/2019/03/The_Promises_and_Challenges_of_Community_Choice_Aggregation_in_CA.pdf; Clean Power Exchange, PG&E Fee Hike to Cost CleanPowerSF $20M in One Year, ‘Slow Down’ Renewable Energy Projects (Nov. 27, 2018), https://cleanpowerexchange.org/pge-fee-hike-to-cost-cleanpowersf-20m-in-one-year-slow-down-renewable-energy-projects/.

[39] Dr. J.R. DeShazo et al., supra note 38, at 31.

[40] O’Shaughnessy et al., supra note 5, at 17.

[41] Id. at 19.

[42] Id. at 8 (The opt-out method has resulted in average retention rates of 95-97% in California.).

[43] Id. at 22.

[44] Dr. J.R. DeShazo et al., A Growth in Community Choice Aggregation Impacts to California’s Grid, UCLA Luskin Ctr. for Innovation, (July 2018), https://innovation.luskin.ucla.edu/wp-content/uploads/2019/03/The_Growth_in_Community_Choice_Aggregation.pdf.