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Clearing Up / Bearing Down

[November 2, 2018 / No. 1875]

Community Choice Aggregation in Oregon: Not So Fast!

SUMMARY: In a response to a recent column on community choice aggregation—a program that allows cities and counties to buy electricity for residents and businesses within their areas—the authors say CCAs have many more negatives than positives, and have yet to live up to their promised benefits.

Clearing Up's Bearing Down column on Oct. 19 closed with the observation, "It's a good bet that the debate over community choice aggregation in the Northwest is only beginning."

However, the column never addressed the basic purpose of CCAs—grouping residential and small commercial customers to make them attractive to power marketers in a deregulated market (which doesn't exist in Oregon or Washington).

Also, the column didn't look at the CCA track record, not just in California, but also in Illinois, Massachusetts and other states. It's a record that's at best mixed and often dismal, giving rise to serious doubts not just among utilities but also among regulators, customer advocates, labor and environmental organizations about equity and fairness to consumers, grid stability and reliability—not to mention CCAs' obvious failure to deliver on promises on local renewable power development.

In all but one state, laws allowing CCAs came about between 1997 and 2003 when those states were deregulating their electric systems, which took electric utilities out of the business of supplying generation to customers. To make this new market work for residential and small commercial customers, who on their own were unattractive to power marketers, these groups needed to aggregate their loads. Under the regulated utility model in Oregon and Washington, load is already aggregated so there's no need to "re-aggregate" these customers through a CCA.

What's more, Oregon and Washington would need a new market structure—not just enabling legislation—to support CCAs.

For example, utilities in the Northwest are increasingly looking at demand response as a tool to integrate renewable resources as we decarbonize the grid. This makes sense because the utility must integrate renewables and run the distribution grid.

However, under a CCA model, the marketer who sells to the CCA has the integration responsibility but no access to the distribution grid. Deregulated states get around this by using independent system operators to manage the grid, and organized capacity markets with independent demand-response aggregators who sell into those markets.

We don't have these in the Northwest and it would take several years to develop that kind of market structure even if customers wanted it. The latest report from the United Nations' Intergovernmental Panel on Climate Change drives home the urgent need for us to make rapid progress on decarbonization. Spending years developing a new market structure to support CCAs will stall progress on decarbonization and require a deregulated system that few customers are seeking.

California proponents of CCAs have hired local lobbyists to pitch the argument that it's time to bring this concept to the Northwest, largely to answer customer desires for renewable energy. We question whether CCAs are actually a good bet to realize clean electricity here.

Take renewables, for instance: On top of the Columbia Basin's legacy of carbon-free hydropower, our region's IOUs are firmly on a path to maximize renewable development and eliminate coal from our energy mix. In Oregon, Portland General Electric and Pacific Power partnered with customer and environmental advocates to help pass the state's Clean Electricity and Coal Transition Act and have the top two voluntary renewable energy programs in the country. Both are actively working to expand their green power offerings by developing green tariff products and have embraced the need to work with stakeholders to achieve the state's climate goals.

On the other hand, CCAs in California have little to show for their renewable energy development claims and often aren't clear about where their power really comes from. In fact, the record shows aggregators buy a substantial amount of their power from national or international suppliers like Shell Energy, Constellation and Direct Energy—not exactly small, local, community-based energy suppliers—through cheap, short-term contracts that result in little new development.

IBEW 1245, an International Brotherhood of Electrical Workers local in California, writes this is in part because third-party developers of renewable projects won't sell CCAs solar power under 20-year contracts because the CCAs have no financial history and can't offer certainty.

IBEW points further to research from California's Utility Reform Network showing that Marin County Energy, one of the largest CCAs in the state, will source only 20 percent of its renewable energy from new local renewable projects by 2019, 10 years after it formed. In contrast, Marin County Energy has a $49.9 million power contract for 2017-20 with Morgan Stanley and a $27.3 million contract for 2018-21 with Shell Energy North America.

CCAs are also falling short on reliability and resiliency, with serious potential consequences. California PUC President Michael Picker wrote earlier this year, "Now, electricity is being deregulated de facto, through dozens of decisions and legislative actions, without a clear or coordinated plan. If California policymakers are not careful, we could drift slowly back into another predicament like the energy crisis of 2001."

And what about low-cost power? That's typically part of the CCA pitch, but like deregulation back in the 1990s, it often hasn't proved out. In Massachusetts and Illinois, for instance, some CCAs have ended up shutting down or being suspended because over time they became less competitive and even cost substantially more to deliver service to customers than the local regulated utility.

In Illinois, more than 100 communities that initially climbed on board the CCA bandwagon when they were authorized beginning in 2010 ended their programs or put them on hiatus by 2016. And in Massachusetts, Attorney General Maura Healey has called for an end to the individual residential electric supply market, finding that customers in her state paid $176 million more for electricity in the competitive market between 2015-2017 than they would if they had stayed with their utility.

Likewise, claims that CCAs promote "local control and energy resources" are questionable given their out-of-state power procurement and dependence on outside vendors to navigate the complex world of wholesale power purchasing. This is a risky strategy for those communities and has negative impacts on other neighboring customers. Often, CCAs form in affluent communities that effectively abandon the existing utility system and cut their own deal, leaving the rest of the customer base to pick up the cost of maintaining the "backup" grid that still supports those affluent communities.

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That's how it has worked in California, where wealthier communities like Marin (median income $70,000 to $100,000) and Sonoma (median income $67,000) are more likely to have the organizational resources to create a CCA. The exit fees and surcharges that supposedly "keep the utility and its remaining customers whole" haven't covered the costs and investment needs of the broader system—an issue in California that has led to numerous adjustments in exit fees. The exit fees for customers in Pacific Gas & Electric's service area decreased by 62 percent from 2012-2013, only to spike by 211 percent from 2013-2016 and increase again in the most recent CPUC order.

Electric customers want clean, affordable, reliable and transparent electric service. With those values in mind, the statement in Clearing Up's column that CCAs "seem tailor-made for Oregon and Washington" doesn't reflect our region's values, goals and needs.

In reality, widespread adoption of CCAs would pick winners and losers in our communities, threaten reliability and fragment the system, making it harder to pursue a coordinated effort to meet our greenhouse gas reduction and resiliency goals.

There are also troubling questions about what market fragmentation due to CCAs would mean for state regulation and, particularly, stakeholder engagement by consumer advocate, environmental and social justice groups. The watchdog efforts of these groups would require engaging in complex planning processes with multiple CCA boards that have varied rules and procedures, in addition to Oregon PUC and Washington UTC proceedings.

We're all in favor of healthy, transparent and respectful debate as we look for the best strategies to meet our need for clean, reliable and affordable energy, yet we need to enter that debate with open eyes.

We need to be informed by facts on the ground. Legislators and other stakeholders should insist proponents of any CCA-enabling legislation answer serious questions about the benefits purportedly offered by the CCA model and whether those benefits will flow to local communities, and especially residential customers, rather than to large out-of-state corporations through an endless future of short-term power contracts.

The authors are Bob Jenks, Oregon Citizens' Utility Board executive director; Travis Eri, IBEW Local 125 business manager; Wendy Gerlitz, NW Energy Coalition policy director; Scott Bolton, Pacific Power senior VP for external affairs and customer solutions; and Dave Robertson, Portland General Electric VP for public policy.


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