Community Choice Aggregation (CCA) is a complex topic, and the specifics can be hard to comprehend. But it’s something that all utility workers should take the time to understand, as the large number of CCAs that are being launched are causing great uncertainty in California’s energy market. That uncertainty hurts all utility workers and has the potential to undermine California’s ability to reach its clean energy goals.
State lawmakers are realizing the huge impact that CCAs are having on our state, and on August 23, the California State Senate Energy Committee held an in-depth hearing to evaluate the status of Community Choice Aggregation and its effects on the California energy marketplace. The hearing identified two nitty-gritty but critical financial issues that could put the future of California’s power marketplace in jeopardy, and threaten our members’ jobs.
The Power Cost Indifference Adjustment and Cost Shifting
In California, power purchase agreements last 10-20 years, which means that over the past two decades, PG&E has purchased power for customers that are now served by a CCA (in the industry, this is known as “stranded costs”). The experts at the hearing all agree that this is resulting in some amount of cost shifting, with utility customers subsidizing CCA customers — and the mechanism that is supposed to transfer the stranded costs of the utilities onto the bills of the CCA customers is not working.
CPUC President Michael Picker mentioned this issue, CPUC Energy Division Chief Ed Randolph mentioned this and other issues, PG&E mentioned it, Coalition of Utility Employees representative Marc Joseph mentioned it, and even CCA representative Geoff Syphers mentioned that this needs to be addressed. But the most important point was made by Matthew Freedman of The Utility Reform Network, who said that CCAs are financially subsidized by PG&E customers today, thereby screwing PG&E customers, and this will continue into the future unless the CPUC fixes this problem now.
According to PG&E, their former customers who are now served by CCAs are paying 35% less than needed to cover the cost of power purchases that were made on their behalf. Nobody really challenged this fact, which has big implications for the future of CCAs. It is estimated that CCAs may serve more than half of PG&E’s load by 2020. Since the CCAs currently in operation are setting rates that do not include the full cost of power to their customers, fixing this problem would mean changing the CCA’s rate structure. Several new CCAs will be launching in the first half of 2018, and they may adopt rates that do not account for this cost differential, and will then have to raise rates on their new customers after a few months.
Bottom line: THIS IS A BIG DEAL. The CPUC is currently going through a proceeding to reset the Power Charge Indifference Adjustment (PCIA), which is the fee established by the law creating Community Choice Aggregation and charged to CCAs to account for the power costs a utility made on their behalf. If the increase covers the 35% figure, it could lead to CCAs becoming non-competitive with the investor-owned utilities.
The Financial Condition of New CCAs and Their Inability to Make Long Term Power Purchases
Like the PCIA, financial worthiness is not a headline-grabbing issue. But it is critically important, and CCAs are just now recognizing that their ability to purchase power most advantageously for their customers is determined by their ability to obtain capital and enter into long-term power purchase agreements. Unfortunately for the CCAs, they were designated as ‘stand-alone’ entities under a Joint Powers Agreement (JPA), which is designed to protect counties and cities that form CCAs from any financial liability if the new agency goes belly-up. But in this case, the CCAs need the collateral of the counties to entice bankers to loan them the funds necessary to build new renewable projects. More interestingly, even the third-party developers of renewable projects will not sell power from their solar project under a 20-year contract to these new agencies, because their banks won’t lend to them to build the project when the buyer – the CCA — has no financial history or certainty. Since CCAs allow their customers to opt out at their own discretion, these agencies could go out of business any time — and the banks know this.
This lack of financial stability has big consequences:
- CCAs are not meeting their promise to develop new, local renewable projects. They are buying out-of-state power, including non-renewable hydro and fossil fuel, which still makes up much of their power supply. An analysis presented by The Utility Reform Network found that the most established CCA in the state, Marin Clean Energy, will source only 20% of its power from new build renewable projects in California by 2019, ten years after they began serving customers. By contrast, PG&E gets 100% of its renewable power from California new builds, and could be at 40% RPS by 2019. If the RPS increases are accelerated under SB 100, Marin Clean Energy and the other CCAs will not be able to meet these new requirements.
- Because the CCAs are not building new renewable projects or buying directly from these new builds, no new projects are being started in California. After remarkable growth, driven by RPS requirements under State law and clean energy policies implemented by the CPUC and CEC, projects are not being built. Why? Because the investor-owned utilities, and to a lesser extent, the public utilities, have procured enough renewables to meet California state mandates. Since the investor-owned utilities are losing customers, they don’t need any more renewable power — and the CCAs can’t step in, which means everybody is screwed. Utility workers (and their unions) are having to deal with great uncertainty, as their employers lose customers and revenue. CCAs contract everything out, which is dismantling the organized labor workforce. Additionally, this uncertainty is hitting the marketplace, as no new projects are getting built. IBEW construction workers, as well as other union workers — who have worked over two million man-hours building almost every one of these renewable projects since 2011 — are left out in the cold.
All this adds up to an enormous question mark for workers, customers and the industry as a whole. IBEW 1245 will continue to actively monitor and engage in this debate, and we are committed to advocating for both our members and the millions of people that they serve every day.
–Hunter Stern, IBEW 1245 Business Rep