More Communities Choose Their Own Energy Future

As the effects of climate change have increased and renewable energy is becoming cost-competitive with conventional forms of energy generation, more and more towns, cities, and counties are pushing their local utilities to increase the amount of renewables in their energy portfolios. While many utilities are embracing this shift to renewable energy, others are slow to change due to significant investments in conventional generation resources and a concern that over-reliance on intermittent renewable generators such as solar photovoltaic and wind could jeopardize reliability.

Historically, if a town was not satisfied with the mix of energy that the local utility was providing, it didn’t have many options. The town could try to leave the utility, form its own “municipal utility,” and assume responsibility for customer service, power procurement, and grid operations and maintenance. However, forming a municipal utility is a major step—with significant costs and risks—that is just not practical for most small towns and cities.

The Rise of Community Choice Aggregation

Over the past 15 years, community choice aggregation (CCA) policies have emerged as a potential middle-ground approach for local entities that want to take control of their own energy destiny while not assuming all of the costs and risks of municipalization. CCA policies enable a local entity to aggregate the load of customers within its boundaries and assume power procurement responsibility. While the utility remains responsible for managing the grid, maintaining the transmission and distribution system, and billing and customer service, the CCA entity has complete authority to enter into electricity contracts on behalf of all the aggregated customers that it serves. Generally, a CCA entity can establish rates that support its power mix (usually comprised of between 50% and 100% clean energy), while utilities receive a fee for distributing the power to the CCA entity’s customers.

There are three main motivations for CCAs: obtaining cleaner power, lowering costs, and promoting the development of local generation resources. Seven states across the country—California, Illinois, Massachusetts, New York, New Jersey, Ohio, and Rhode Island—have now passed laws authorizing CCA formation. CCA entities provide electric service to approximately 5% of the U.S. population in over 1,300 municipalities, ranging from small towns and rural counties to large cities such as Chicago and San Francisco.

While CCA policies vary, many include a feature that significantly increases participation in the CCA program: Customers do not have to affirmatively opt in to the CCA service. Instead, customers are automatically enrolled in CCA service unless they opt out and remain with their utility.

Recent CCA Growth

The recent growth of CCAs has been staggering, particularly in California. For instance, Marin Clean Energy (MCE) is a CCA entity that has been serving customers within Pacific Gas & Electric’s service territory in northern California since 2010. MCE currently provides electric service to more than 175,000 retail customers, but this is expected to increase to 250,000 customers by late 2016.

Across California, a multitude of cities and towns are actively considering CCA formation. By some estimates, more than 17 million Californians could be served by CCA entities within the next few years (which would be 60% of the residents that were historically served by investor-owned utilities). A contentious CCA debate is occurring in San Diego, where the city believes that formation of a CCA is critical to meeting its goal of being 100% renewable by 2035. If a CCA entity formed in San Diego, however, San Diego Gas & Electric could potentially lose up to 40% of its customer base. Ultimately, local and state political considerations will likely dictate whether and when a San Diego CCA entity is formed. To improve their political and regulatory strength, the four major California CCA entities recently announced that they have formed a trade association to advocate for CCA issues in Sacramento and before the California Public Utilities Commission.

New York is the most recent state to allow for CCAs. Given that New York is at the forefront of renewable energy policy—most notably through Governor Cuomo’s Reforming the Energy Vision initiative—this is no surprise. In April 2016, New York’s Public Service Commission issued an order authorizing the establishment of CCA programs by municipalities statewide. Given the proven success of CCAs in California and elsewhere, the development of CCA programs is likely to accelerate quickly across New York. Over the next few years, we will also likely see more state legislatures across the country consider the adoption of CCA policies. ■

Patrick Ferguson (patrickferguson@dwt.com) is a partner in Davis Wright Tremaine’s energy practice group in the firm’s San Francisco office.

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