Is “Community Choice” Electric Supply a Solution or a Problem?

Big news! If you live in California, Massachusetts, New York, Illinois, or a few other states you may soon have the opportunity to ditch your local investor-owned utility and buy your electricity from a competing retailer.  And in a few locations in those states, you recently got that option.

Wait. Is that really new? “Retail choice” for electricity has existed in Texas, Pennsylvania, and Connecticut and a number of other states (as well as England, Australia, New Zealand, and other countries) for more than a decade.

CCAs1What’s new is that increasingly it’s not private for-profit companies providing consumers retail alternatives to the utility, but local governments or coalitions of governments.  These entities, known as Community Choice Aggregators (CCAs), are usually set up with environmental and other social goals in mind, such as getting a larger share of power from renewable (and sometimes local) sources, or reducing or eliminating purchases from coal-fired generation or nuclear plants.

And that’s why some people refer to CCAs as “politically correct retail choice.” (One of Jim Bushnell‘s many insightful and humorous comments.)

But snarky labels aside, what do CCAs do? Are they a good idea? And what risks might they bring?

First, retail choice, whether with a for-profit firm or a CCA, does not mean you are ditching your local utility.  The utility still owns and manages the distribution lines that carry electricity to your house.  And in most cases the utility is still in charge of metering each customer’s usage and sending them a bill.  That’s because on each kilowatt-hour you use, you still have to pay the utility’s distribution charge and, in many cases, fees for transmission and for public interest programs like energy efficiency investment and assistance for low-income customers.

CCAs3Retail choice means that your CCA or for-profit retailer replaces the utility in contracting to purchase electricity on your behalf.  The hope is that competition will have the same effect in electricity procurement as in most other markets: better prices and a wider variety of products. Of course, we have learned that electricity is not always like other markets.

For example, the electricity itself is not differentiated once it is on the transmission grid. You are not getting electricity from any particular source. Once it is injected into the grid, it all gets “mixed together” and what you get is your helping from that soup (OK engineers, you can stop wincing now). Still, if your retail provider is out there on your behalf signing contracts to put more renewable electricity generation onto the grid, that is likely to help change the mix and make the soup greener.

For instance, if your utility has a goal of getting 20% of its electricity from renewable sources, and you want your consumption to be associated with 100% renewables purchases, then a retail choice provider that contracts 100% for renewables may be the solution. Interestingly, among the for-profit retail choice providers few tout high rates of renewable generation. But among CCAs, the vast majority do.

Yet, while offering much higher renewable shares than the IOUs, CCAs are also charging prices that are generally very close to those of the incumbent IOU they compete with, sometimes even a bit lower. How can they do that?

I’ve been at a number of public discussions of CCAs and watched as this question led to raised voices and red faces.

CCAs2 

Making the case for CCAs

CCA advocates generally rest their case on two arguments: renewables are cheaper than you think and utilities are less public spirited than they claim.

First, supporters argue that renewables are much less expensive than they used to be and can compete head-to-head with conventional generation.   There is no doubt that renewables costs have dropped drastically in the last decade.  With the very favorable federal tax credits and depreciation rules they receive, wind and grid-scale solar power may cost about the same as gas for a new plant built today.

Second, the CCA advocates argue that utilities have all the wrong incentives and don’t procure power cost-effectively. In particular, utilities like to build their own power plants so they can earn a rate of return on their investment.   And when they do buy power from merchant generators they get to pass those costs along, so they are not out there searching for the best possible deal.

There is clearly some truth to this argument. One need not look far to find examples of utilities that have not been as cost-conscious as they should, even with the oversight of regulators.  Of course, it is also not hard to find examples of local governments spending money unwisely.

But CCA advocates can point out that at least governments are supposed to be acting in the interest of consumers, while the fiduciary responsibility of an IOU is to its shareholders. Furthermore, advocates argue, CCAs don’t replace the monopoly utility retailer with a monopoly CCA retailer. Rather, the CCA has to compete with the utility.

 

But are CCAs really looking for a fair fight?

The incumbent utilities and other skeptics respond that the competitiveness of renewables-heavy CCAs is mostly smoke and mirrors.  They point first to the historical obligation of the utility to procure electricity every year, not just at a time when renewables costs happen to have dropped. In many cases, regulators required utilities to purchase renewables under long-term contracts that are much more expensive than current renewables prices.

This is clearly true, but it’s not a reason that CCAs shouldn’t be allowed to compete. It’s just a reason that customers leaving the utility for a CCA need to pay their fair share of the costs of past contracts. Most CCA advocates agree that some sort of “exit fee” is justified. The fight comes down to what a “fair share” is and how high that exit fee should be. A lot of accounting hocus-pocus can be introduced on both sides.

While the accounting can be complicated, the fundamental concept isn’t. A CCA should succeed or fail based on its ability going forward to procure power from the sources its customers prefer at a cost that is competitive.  Whatever regulatory mandates, managerial mistakes, or incompetence occurred in the past, customers switching to a CCA should not be allowed to shift their share of costs from past decisions onto other ratepayers.

If the exit fee is set too low, it’s easy for a CCA to offer “competitive” rates that are just a cost shift.  But it is also easy for the utility to squash efficient competition if it gets to charge the CCA’s customers an excessive exit fee.  Getting the exit fee right is central to making sure that retail choice provides fair and efficient competition.

CCAs4

Who Gets To Be the Default Provider?

Utilities also complain about a particular advantage that CCAs usually get, default status.  Most CCAs that have been established have been allowed to tell customers in the community that they are joining the CCA unless they explicitly opt out. That turns out to be a big advantage, because most customers pay little or no attention to the issue.  Utilities say that is unfair, and they are right. But the opposite is unfair as well.

In fact, from the deregulation of long-distance telephone service in the 1980s, to the introduction of electricity retail choice in the 1990s, to CCAs today, the choice of default provider has tilted the competitive landscape during the transition. No one has come up with a great solution that doesn’t unfairly advantage the incumbent monopolist or arbitrarily assign customers to a seller they have never dealt with before. CCAs argue that they are different, because they are affiliated with the local government that is supposed to be acting in the interests of residents.

 

Recreating Flawed Deregulation?

Nearly two decades of retail choice experience with for-profit companies has made clear a problem when customers have too much flexibility to jump back and forth between a utility and a competing retail provider. During California’s disastrous deregulation, when wholesale prices skyrocketed in 2000-2001, many retail providers folded and sent their customers back to the utility.

In that case, the utilities were obligated to take the customers back, but it was clear that customer option created an incentive for some retailers to bet on risky procurement strategies.  They (and their customers) knew that if the strategy failed the customers could just return to the utility rates.  But that meant the utility would then have to buy more power when it was especially costly, driving up the rates for all.

This problem has been solved in other deregulated electricity markets by making rules that customers who switch will not automatically be able to switch back to the utility’s standard rate.  In some markets, the “provider of last resort” utility just has to sell them power at a rate that reflects wholesale electricity prices, even if those prices are sky high.

Applying this scenario to utilities and CCAs, one could argue that without clear rules customers from either side might later want to switch opportunistically, creating the same sort of free riding problem we saw during the California crisis. There might, however, be one important difference of perception. Without clarity about switching rules, CCA customers seem more likely to expect they have a free option to switch back to the utility than the other way around.

CCAs5

Do These Contracts Make Me Look Green?

Finally, as I blogged about last month, merely buying unbundled Renewable Energy Certificates doesn’t necessarily mean that the electricity provider’s purchase is increasing the total amount of renewable energy on the grid, or decreasing greenhouse gases.

There are generally strict rules about what utilities, CCAs and any other retailer can count towards a Renewable Portfolio Standard, the minimum renewable share that many states mandate. But beyond a state’s RPS, there are often few restrictions on what a retailer can claim counts as providing renewable power.  So, regardless of the retailer, green energy claims deserve close scrutiny.

 

So Is Community Choice Aggregation a Problem or a Solution?

My own view is that carefully implemented CCAs may benefit a community without dumping costs onto other utility ratepayers.   Benefits are more likely if either (a) the community wants a much greener power mix than the utility will provide, and the community is sophisticated about the prices and greenness of the power it buys, or (b) the utility is doing a poor job of procuring electricity cost-effectively and the community can do better.   Of course, if either situation exists, why should retail electricity competition be limited to local governments?

Regulated investor-owned utilities are flawed organizations that operate under a distorted set of incentives. But local governments are also flawed organizations subject to their own set of distortions, a fact that is often less appreciated by the local government leaders who are promoting the CCA.  If your community is considering a CCA, you need to think about which organizational structure is most likely to have the sophistication and the incentives to serve you best.

I’m still tweeting energy news articles and new research papers @BorensteinS 

About Severin Borenstein

Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.
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37 Responses to Is “Community Choice” Electric Supply a Solution or a Problem?

  1. Pingback: Is “Community Choice” Electric Supply a Solution or a Problem? - Berkeley-Haas Insights

  2. Severin,

    This is generally a nice overview of the issues with CCA, especially whether the aggregations’ brokers can time the market better than the fixed utility schedule of procurements and the need to be clear about how “green” power really is. Serious green suppliers in New England offer additional Class 1 RECs certified by the customers’ state. Sleazy suppliers offer RECs from states that have no RPS, or have a glut of renewables, such as you describe for CA. So transparent disclosure is important.

    You stated some points in ways that may confuse readers less sophisticated in the competitive markets. You start with the statement that “If you live in California, Massachusetts, New York, Illinois, or a few other states you may soon have the opportunity to ditch your local investor-owned utility and buy your electricity from a competing retailer” and asked a couple times “why should retail electricity competition be limited to local governments?” The states in your list and most of those on the map (MA, NY, IL, OH, DE, NJ) already have retail competition, with the utility supplying a generation service for customers who don’t choose another supplier. (I won’t comment on the CA situation, which is partially restructured and which you probably know better than I.) There are many retail suppliers in those states, although many of those serving residential customers are somewhat sleazy, luring customers in with a low rate when the market falls below the utility multi-month rate, and then raising the rate well above cost when the opportunity arises. The advantage of the municipal aggregator is that it has no incentive to gouge the consumers, and the local media and the community can pay attention to changing rates and suggest shifting to utility service, when that makes sense.

    In those states, the “exit fee” you refer to has been (or is being) recovered as a non-bypassable stranded-cost charge. There is a small problem with customers switching back and forth in the middle of a period with fixed prices (typically six months), but given the reluctance of residential customers to switch, this doesn’t seem to be a major burden on the utility service. (MA previously had a true-up mechanism for customer who switched in the middle of a six-month period, to avoid any gaming of the cost averaging across months, but recently dropped that rule.) The generation charges are generally a reconciling flow-through, so customers bear the costs of gaming, not the utility. Where restructured utilities have signed long-term contracts (as in MA and CT), the costs net of market revenues are non-bypassable charges, so you need not be concerned about long-term renewable contracts providing inappropriate incentives for switching to the municipal aggregator.

    Nor is aggregation new. The Cape Light Compact (an aggregation serving the 21 towns on Cape Cod and Martha’s Vineyard) has been providing generation and energy-efficiency services for about 15 years. There are dozens of other municipal aggregations in Massachusetts and Illinois; I’m not familiar with the status in other states.

    • We used to refer to aggregations in regulated states as a ‘muni lite’; all the benefits of municipalization without the cost of condemning the utility property and often building a new distribution system. It really works better in deregulated states with a standard offer.

      • Dave, I wish that muni aggregation provided all the benefits of a municipal utility. At least in MA, we have found the IOUs less responsive, less competent, and more expensive than munis, even on the distribution side.

        • I wish that was uniformly true in Ohio. Some of our municipal electrics are pretty good. But most are anchored by a large industrial or two and the systems bow to the needs of the large loads. AMP-Ohio, the statewide organizationthat handles transmission scheduling and manages some of the joint venture generation for the municipals offers member agencies less than robust efficiency programs, though a few cities do more. There are really no low income programs other than what our agencies provide through WAP, and the residential programs are limited pretty much to light bulbs. It has always been my hope that governmental aggregations could move beyond simply purchasing power or power and RECs, and instead combine renewables and efficiency into their bidding process. The municipals have diversified their generation base with several jointly owned turbines in Bowling Green and a couple run of the river hydro projects on the Ohio River. There is an effort to combine distributed generation and efficiency through a governmental aggregation in Athens County, Ohio. It will be interesting to see if they can pull it off.

  3. mcubedecon says:

    Severin, nice overview (that I’ll forward to our CCE advisory committee). However, I’ll make several points that I think need more exploration.

    First, in California the existing and proposed CCEs (there are probably a dozen in process at the moment to add to the 3 existing ones) universally offer a higher “green” % product than the incumbent IOU, most often a 50% RPS product. And although MCE and SCP started out relying on RECs of various types to start out, they all are phasing out most of those by 2017. I think most will offer a 100% product as well.

    The reason that these CCE’s are able to offer lower rates than the IOUs at a lower RPS is that the IOUs prematurely contracted long for renewables in anticipation of the 2020 goal. In fact, the penalty for failing to meet the RPS in any given year is so low, that the prudent strategy by an IOU would have been to risk being short in each year and contract for the year ahead instead of locking in too many 20+ year PPAs. At least one reason why this happened is that the IOUs require confidentiality by any reviewers and no connections to any competing procurement decisions. As a result the outside reviewers couldn’t be up to speed on the rapidly falling PPA prices. The CPUC has made a huge mistake on this point (and the CEC has rightfully harassed the CPUC over this policy.)

    CCE’s also offer the ability to craft a broader range of rate offerings to customers–even flat 20 year rates that can compete with solar roofs on the main issue that customers really care about: price guarantees. In addition, CCE’s are more likely to be to nimbly adjust a rapidly changing utility landscape. CCE’s are much less likely to care about falling loads because their earnings aren’t dependent on continued service.

    It’s also to recognize the difference between local government general services (e.g., safety and public protection, social services, regulation, etc.) and enterprise services (e.g., utilities of all sorts). In general, the latter are as efficient as IOUs (except LADWP which illustrates the INefficiency created by overlarge organizations). So one can’t make a broad generalization about local government problems and how they might apply in this situation. The fact is that almost all of the existing and new CCEs are or will be JPAs, which are often even leaner. (Lancaster is the exception.)

    Finally, you made this statement:

    “Whatever regulatory mandates, managerial mistakes, or incompetence occurred in the past, customers switching to a CCA should not be allowed to shift their share of costs from past decisions onto other ratepayers.”

    I have to disagree to a certain exent with this statement. Am I forced to pay for the past incompetencies of GM or GE or any other corporation? Yes, utilities have a higher assurance of return on their investments, but no where is it written that it is “ironclad.” Those utilities had an assurance first as the sole legal provider and then as the provider of last resort, but that’s eroding. In California, the CTC was a political deal to get the IOUs out of the way. The fact is in California that the CPUC abrogated its responsibility to oversee these decisions on behalf of ratepayers with the encouragement of the IOUs. If the IOUs want to retain their customers, then they should be forced to compete with the CCEs (and DA LSEs.) It’s time to reopen this matter.

  4. James Roumasset says:

    As you have said a few times before, Severin, the trouble w/ opting out (including partial opting out via solar panels) is that the utility’s volumetric pricing includes fixed costs (including the PG&E bailout fund). If Cali would fix its pricing, you wouldn’t have to worry about Goldilocks exit fees, right?

    Btw, Hawaii hasn’t really committed to 100% by 2045. The formula has renewable generation (including rooftop) in the numerator and utility sales (net of line losses) in the denominator. So it’s possible to have 50% renewable generation and still qualify as “100% renewable.” You can also have lot’s of non-renewable spinning reserves that don’t get counted in the formula.

    • The problem doesn’t arise from the fact that the stranded costs are collected volumetrically. Most of those costs were energy-related, and the only fair way to collect them is through an energy charge. But stranded costs shouldn’t be bypassable.

      • Richard McCann says:

        Why shouldn’t stranded costs be bypassable? They are in every other industry. We’re seeing the end of the captive customer.

  5. I would recommend you take a look at Ohio’s governmental aggregation provisions: http://codes.ohio.gov/orc/4928.20v1 Ohio is a deregulated state. Governmental aggregations have been able to squeeze some benefits from competition for small customers. Several communities have gone 100% renewable via governmental aggregations; Cincinnati comes to mind. The governmental aggregations come into the market, solicit bids, and determine whether they are better than the standard offer. It the bid is better, it is accepted. Opt-out is the only way to make this work. Otherwise, you have to pay the marketing costs that governmental aggregation seeks to avoid.

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  7. “Whatever […] managerial mistakes, or incompetence occurred in the past, customers switching to a CCA should not be allowed to shift their share of costs from past decisions [by privately owned companies] onto other ratepayers.”
    I must disagree with this. While a case may be made about recovering costs imposed by regulatory mandates, any costs (as would any benefits) resulting from “managerial mistakes or incompetence” should be borne by investors, not previously captive customers.

    • mcubedecon says:

      Miquel, I agree. And I wonder why we would effectively transfer the power of taxation to private corporations such as utilities? If we’re going to give them such power, then they should be incorporated fully into the government where they can be held directly accountable. In addition, arguing that the IOUs should be allowed to recover costs for past mistakes means that all risk is being transferred to ratepayers. Then why do we have a risk premium above corporate debt rates on equity if there’s no risk?

    • mcubedecon says:

      By the way, the logic of this statement is that ANY customer who leaves the system, including moving to another area, state or nation, should have to continue to pay these stranded costs. Why should we draw the line arbitrarily at whether they happen to still get distribution services even though the generation services have been completely severed? Particularly if someone moves from say, San Francisco to Palo Alto, that customer still relies on PG&E’s transmission system and its hydro system for ancillary services. Why not charge that Palo Alto customer? And don’t give an answer about “political practicality.” Either ALL customers are tethered forever, or no customers are required to meet this obligation.

      • Not really. The utility has rights and responsibilities to a service territory, not to individuals. If I am served by a low-cost hydro-based WA muni, I can’t take my share of the low-cost hydro to Puget Power or Pacificorp territory, let alone to San Francisco. Fair is fair. If you want the benefits of rate regulation and embedded-cost pricing, you need to bear those embedded costs when things go wrong or the situation changes. Otherwise, it’s heads I win, tails you lose.

        Please note that I work primarily for consumer advocates and environmental groups. I’m not a shill for the utilities.

        • mcubedecon says:

          But by that logic, then new customers who didn’t pay for the low cost power shouldn’t be able to benefit unless they pay an entry fee to the service territory to reflect the value of the “beneficial assets.” If a customer moves from San Francisco to Palo Alto, they haven’t paid anything towards the investments that created the lower rates for Palo Alto ratepayers. Why should they be able to benefit then? The logic runs both directions. You’re arguing there are property rights in the service territory and implicitly customers must buy and sell themselves in and out.

          • That’s your logic, not mine. I said “The utility has rights and responsibilities to a service territory, not to individuals.” You move to the territory, you get the benefits and pay the costs. You leave, you lose the benefits and avoid the costs. Not complicated.

          • mcubedecon says:

            So you would drive people to the low-cost regions where they don’t have to pay an entry fee so that they can escape the tax in the high cost region. That’s the inefficiency of the solution your suggesting. And as I said I disagree with your initial premise that the utility is obligated to the service territory not the individuals. I don’t see how that works.

          • You are correct that you “don’t see how that works.” Maybe you should learn something about utility regulation. Or sue for the right to pay Seattle City Light for utility service in Fresno.

          • mcubedecon says:

            Paul, that comment is uncalled for. I have 30 years of utility regulation experience. I don’t know how your view works in the world in which I work. You need to provide evidence to support your assertion that a utility is obligated to a service territory rather than to customers. In California, that’s not the case. In Washington, there are so many public utilities such SCL that the case may be different.

            I gave you the example of how someone in Palo Alto is still connected to the PG&E wires so there is no real difference with a CCE. There is a distinction between service by wires and generation. CCE’s no longer require generation service. That’s the issue in question. Why is joining a CCE for generation service different than joining Palo Alto?

          • mcubedecon: I was quoting your statement that you do not understand the obligation of utilities to their service territories. You have acknowledged that you cannot take the cheap generation or distribution you may have been paying for in one territory to another utility territory, and the utility cannot make you keep paying its stranded costs when you move elsewhere. That’s true in CA and everywhere else. If you don’t believe it, tell PG&E that you will be paying some muni’s rates, and not paying PG&E at all, even though you are connected to their distribution system.

            There are lots of differences between joining a CCA and leaving the territory, including the fact that a CCA customer can return to the utility service (under rules that vary by state), without relocating. If PG&E never provided generation services to Palo Alto, there is no basis for PG&E to charge Palo Alto or its customers for stranded costs.

            I really don’t care why you keep going on about this new regulatory theory of yours. Let’s leave it be.

          • mcubedecon says:

            No, I won’t let it rest because your response is incorrect. The CCE is the default provider in California and must procure to meet the loads of the customers in its service territory. Yes, customers can return, but they are limited in when they can make a decision. And its the customers that must pay the exit fees, going either way, not the CCE or the IOUs. Those exit fees cannot run in perpetuity–no utility procures for a customer forever–yet that’s the structure of the exit fees. By your logic, CCE customers who return to the IOUs should be required to pay stranded contract costs if there are any. But wait, shouldn’t they also then be able to bring along their stranded benefits if those exist? They’re switching between providers.

            So buy your argument if GM had planned on you buying a car, then you are obligated to pay a portion of its costs even if you buy a cheaper Hyundai. The utilities are making the same claim. The fact is that the utilities have made procurement decisions over time and customers should not be obligated to accept those decisions. Trying to hide behind the shield of Commission decisions as somehow providing an obligation that is not written into state laws is not correct.

            As I said before, that requirement was in the provision of sole service to captured customers, not an obligation to take on an investment. There is nothing in California law that makes the obligation as you portray it. (The limit on direct access in fact was a means of maintaining the captured customer method.) The captured customer is disappearing, and so is the ability to rely on that to recover stranded costs.

            Finally I point out that we don’t require cable customers switching providers to pay stranded costs. The network situation and investment are nearly identical to energy utilities. Make that case that these are different situations.

    • mcubedecon says:

      And this belief is probably a key motivation for Assemblymember Gato’s proposal to sunset the CPUC. Read both Joe Mathew’s and Joel Fox’s commentary starting from here: https://mcubedecon.wordpress.com/2016/02/04/thinking-outside-the-box-on-the-cpucs-future/

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  9. James Roumasset says:

    Correction: Even if California were able to mandate and enforce an ideal two-part tariff, it wouldn’t fix Severin’s opting out problem because consumers could opt out of the fixed part as well as the variable part. (My bad for suggesting otherwise.) But due to the difficulties of implementing Goldilocks (“just right”) exit fees, other solutions may be warranted. As I understand New Zealand’s solution, there is no problem of opting out as a utility customer, because there is no utility — only retailers and a distributor, and all retailers have to pay a distribution fee. So the Cali equivalent would be for the utilities to separate their retail and distribution charges. You could then opt out of the retail part, but not the distribution part. (Better yet, unbundle retailing and distribution altogether.)

    Incidentally, NZ does not require unbundling of generation and retailing. Instead the generation and retailing divisions/subsidiaries must do all their acquisition/disposition on the wholesale market. Since bidding and asking prices must be within 5% of one another, they act (almost) as if there’s a separating hyperplane.

    • How do you envision a customer opting out of a fixed charge? Installing solar and storage, and cutting the service drop? That’s not a solution for the CCAs. Nor can CCA customers opt out of utility non-bypassable volumetric charges for stranded costs, public benefits, transmission or distribution.

      In your discussion of NZ, does “retail” mean “generation,” or something else? When the utilities divested (or unbundled) their generation, were there stranded costs or benefits? Are those flowed through the “distribution” charge? If so, the NZ system looks just like the standard US restructuring approach, plus the confusion for the customer about not dealing directly with the distribution utility on whom they are entirely dependent for power delivery.

  10. Wendy Lack says:

    “Regulated investor-owned utilities are flawed organizations that operate under a distorted set of incentives. But local governments are also flawed organizations subject to their own set of distortions, a fact that is often less appreciated by the local government leaders who are promoting the CCA. If your community is considering a CCA, you need to think about which organizational structure is most likely to have the sophistication and the incentives to serve you best.”

    As a layman with no vested interest in CCAs, utility companies or the renewable energy industry/consultant/advocacy community, this statement is the most important in your article. Local government CCAs — whether city-based or via JPA — are not publicly accountable in practice. JPAs in particular are virtually invisible to the public; most don’t know they exist. In Contra Costa County, where I live, no one knows how many JPAs are operational. The press does not scrutinize JPAs. And JPA governing boards have no expertise to inform decisions.

    In California, JPAs issue more debt than any other category of public agency, second only to the State. This fact, along with the fact JPAs are neither transparent nor accountable, is troubling. (See also the State Treasurer’s Task Force on Bond Accountability that acknowledges the fact JPAs lack adequate oversight: http://www.treasurer.ca.gov/tfba/index.asp).

    Contra Costa is currently considering establishing its own CCA; alternatively, some cities are joining Marin Clean Energy (joining the cities of San Pablo, El Cerrito and Richmond that previously did so). My research concludes that either option has a net negative impact on taxpayers:

    https://contracostabee.com/community-choice-electricity-in-contra-costa-county-a-bad-choice/

    • mcubedecon says:

      Wendy, I read your article in the Contra Costa Bee earlier. It has a number of critical errors about how CCEs are run and the connection to the county government. You should look more closely at the rate comparisons between PG&E and the CCEs. Most notably you missed that PG&E’s RPS content is less than 30% while both MCE and SCP offer a minimum of 50%, yet are competitive or cheaper than PG&E. Each of your other statements are either in error or out of context as well. Having worked on a committee that reviewed the options for a Yolo/Davis JPA I am quite familiar the advantages and drawbacks of CCEs. I also have worked extensively on regulations and rate setting at the CPUC. If you think JPAs are opaque, the byzantine nature of the CPUC easily trumps them.

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  13. Hal Bray says:

    I hope you are all still here! I have two questions that I am having a problem with concerning Community Choice Aggregation. As the former Vice-Chair of the Contra Costa Republican Party and a person who has wrutten guest editorials for various newspapers (and a former Republican Party blog)I have been researching the issue from a political, and what I consider a practical, point of view. My 2 related questions/issues:

    1. Tax consequences: Every advocate for Community Choice Aggregation studiously avoids the issue of tax consequences. In your article, Severin, the only mention you make is that “renewables costs have dropped drastically… with the very favorable federal tax credits and depreciation rules…”.. Are tax credits and depreciation rates the only/main reason renewables are competitive? We have had no other breakthroughs that are of consequence (maybe because of the tax credits, etc.)

    So, what are the other tax consequences?

    CCA’s can make use of tax free bonds, giving them a cost/price advantage that private industry does not have. True? And, as a governmental JPA they pay no income taxes, no sales taxes, no property taxes, no taxes what so ever? what are the consequences? And, as a government entity, they have the power to tax their competition (for example, they or the cities/counties represented by the JPA can pass a Utility User Tax on their competitors and exempt themselves. True?
    2. Second question/issue. What value add does a governmental JPA bring to the table, other than the tax exempt status it conveys. It does nothing. It creates a “master-slave” relationship between itself and PG&E, with PG&E (or any power provider) possessing all the knowledge and performing all the work to do all the tasks involved to deliver the electricity. PG&E runs the distribution system, the billing systems, the customer sales, the customer service, virtually everything. They hire, train and manage all the employees. The JPA just sits atop this world and does what? The Board members, all from city councils or Boards of Supervisors, have no particular knowledge or skills to run the organization. Do they or the cities and counties they represent share in the profits (they have profits, they just don’t call them profits; I think Marin calls their profits their “net position”). So Why should a county or city be legal structured to run a JPA if they get nothing from the operation other than some nebulous “social goals”? Couldn’t a CCA exist without government involvement?

    thank you for any insight, perspective and knowledge you can and are willing to provide.

    • mcubedecon says:

      To address your first question, neither the CCAs or PG&E pay taxes on the power purchase contracts. The CCAs can retain a portion of the difference between their purchase cost and the rates they charge customer, which then go to government coffers. Is it it important to you as to where the tax revenues go, so long as they go to some government entity?

      As for the second issue, the CCAs in California are building up capability to deliver more than just purchased power. Both MCE and Sonoma Clean Power have local energy management programs and plans for expanding. They also focus on purchasing from and financing local energy projects. Not only do these projects facilitate local economic growth, but they also will lower future distribution and transmission system costs (the latter have skyrocketed more than 100% in the last 15 years). The CCAs also are better positioned to integrate with other local systems like transportation and building energy use because they are limited by state law and the CPUC to a very narrow silo. Unfortunately, Severin was unfamiliar with these other aspects of CCAs when he wrote this post.

      • Hal Bray says:

        First, thanks for responding. I am trying to determine the tax consequences of CCA and the value add of having local government participate. I see no value in local government participation, other than it brings the tax exempt status with it (giving it an unfair competitive advantage, among other things). It also brings no other skills, knowledge, workers, etc to the table. It appears to be just an added cost structure that a for profit company would have to add to its costs.

        Also, PG&E pays hundreds of million of dollars in income tax annually; Marin Clean energy pays zero. Unfair! It also takes tax revenue away from government; who makes up for the lost government (state) revenue?

        Also, for example, my city (Brentwood) is considering passing a Utility User Tax to fund the local Fire District. I am pretty sure that if we (the City) formed or joined a CCA we would exempt that JPA from the utility user tax, thus reducing the revenue for the fire district (and giving the JPA a clear competitive price advantage).

        When I look at Marin Clean Energy’s 2015 financial statement it shows revenue of $100,658,412, expenses of $96,960,129 and a “increase in net position (profit) of $3,698,283. So…..where does that $3,698,283 go? To shareholders, to dividends, or ??? and there are no taxes paid, so who funds the loss of tax revenue? Finally, does the city and county government entities share in the $3+ million of profit/net revenue?

        By the way, as far as job creation and local projects that will be created, we wiil have to see. That was always a part of the Enron equation when they contracted with cities for local telecom, CATV, energy or fiber runs within the cities and other projects. And we know how that ended up.

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