CCA Plans Include Renewables, But Solar's Role Small at First

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Who will provide consumers' electricity, and where will the electricity come from, renewable or traditional sources?

By Erin Milnes

Published June 5, 2010

California's two new community choice aggregators say they have big plans for renewable energy, though solar will contribute only a small percentage for now.

In 2002, in response to the failure of deregulation of the electricity market, the state legislature passed AB 117. Many Californians remember it as a time of rolling blackouts, followed by a billion-dollar taxpayer bailout of private utilities. The new law tweaked earlier deregulation legislation and enabled any city, county, or city-county combination to aggregate, or bundle, the electric loads of residents, businesses and municipal facilities to permit the purchase and sale of electricity.

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Such community choice programs were already operating successfully in Massachusetts and Ohio. New Jersey and Rhode Island soon followed.

According to John Geesman, a member of the California Energy Commission from 2002 to 2008 and co-chairman of the American Council on Renewable Energy, the thinking then was that “one of California’s richest resources was innovation at the local level.”

The new, heavily regulated and elaborate CCA process, it was thought, would have the benefits of deregulation – competition and rate reduction – without the danger of another speculator-driven electricity crisis.

Unlike traditional municipal utilities, CCAs still rely on the private utilities to transmit the electricity, maintain the grid and handle billing, services for which they compensate the utilities. But like their municipal counterparts, aggregators are expected to charge lower rates than private utilities because their overhead and administrative costs are lower and they don’t have to pay shareholder dividends.

According to an analysis by the University of California, Berkeley, law school's Center for Law, Energy & the Environment, data from the U.S. Department of Energy over the last decade in California show that “the average retail price charged by public utilities has been consistently lower than that charged by investor-owned utilities, although the gap is narrowing.”

About one-quarter of the state's electricity customers are served by public utilities. Community choice and municipal utilities offer the only alternative to private utilities for residential electricity customers in California.

 “We will provide something customers currently do not have: choice,” said Charles Sheehan, project manager for CleanPowerSF, San Francisco’s newly established CCA.

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Dawn Wiesz, interim director of the Marin Energy Authority, which in early May became the state’s first CCA to begin operation, said it can save customers money: "We don’t have $900 billion in shareholder profits to pay out, no high CEO salary. We have low overhead, and municipal utility rates are 20 to 25 percent lower than those of the private utilities."

At least for now, though, it is charging the same rates as the private utility it competes with for customers, Pacific Gas & Electric Co.

Aaron Israel, chairman of the Energy Committee of the Sierra Club’s San Francisco Bay Chapter, said municipal utilities and CCAs will work harder than private utilities toward energy efficiency and conservation, increasing energy independence.

Although the Marin program is charging the same electric rates as PG&E, the incumbent private utility, it is providing 25 percent renewable energy in its mix, compared to about 15 percent in PG&E’s portfolio, according to a 2009 projection. Marin’s 25 percent exceeds the state requirement for 20 percent renewables by 2010.

The state's other large private utilities have not met the 20 percent mandate either, with Southern California Edison the closest, at 16 percent projected for 2009. SCE's percentage use of eligible renewables has been the same for the past five years, but was as high as 19 percent in 2004.

The Marin Energy Authority, which runs the program under the name Marin Clean Energy, has been serving its 6,800 customers since May 7, Ms. Wiesz said.   

The program has had more initial participants than expected, she said, with significant interest in its "Deep Green" program, which offers customers 100 percent renewable energy. Marin offers two choices: "Light Green," the default option, with 25 percent renewable energy at the same rate as PG&E; and Deep Green, at a higher rate.

The startup funds came from bank loans that are to be repaid with ratepayer revenue. The Marin Energy Authority has contracted with Shell Energy North America to be the wholesale electricity provider for five years at a locked-in cost. The contract allows the program to substitute its own local sources of renewable energy as they are created.

The program faced substantial criticism as it was being developed, including a report by the Marin Civil Grand Jury that said: “The costs of the Marin Clean Energy program remain undefined and the benefits are likely to be minimal. We believe there are alternative approaches that will better serve the community than the unproven and risky one being proposed.”

The county supervisors acknowledged that there are risks associated with the program but wrote in their response, "We believe the potential benefits of the program outweigh the risks. MEA will provide our residents with a viable and greener option to PG&E and will have experienced staff and consultants working with its public board."

Some of the program’s supporters were disappointed with the choice of Shell. PG&E pointed out that more of Shell’s electricity production contributes to greenhouse gas production because it uses more fossil fuels compared with PG&E’s large hydroelectric and nuclear sources.

The program was also slammed by the Common Sense Coalition, a PG&E-funded organization that has led the fight against Marin Clean Energy. PG&E is the primary funder of the campaign to pass Proposition 16.

 “The electricity plan could cost over $375 million, creating as much as $5,000 in debt” per participating Marin household, said one of the coalition's mailers. As well as saying it poses a financial risk to ratepayers, the opposition to Marin's CCA has decried the lack of a public vote on the program, the possibility of exit fees for opting out after the introductory period, and the default opt-in stipulation.

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Ms. Weisz said she thought that the Common Sense Coalition might have come up with the $375 million from the CCA’s implementation plan, a 100-page document that describes possible long-term plans, including issuing bonds to build local power-generating facilities. “The total of all those efforts would be similar” to the coalition figure, she said, but “no bonds are being contemplated at this time.”

Regarding the lack of a public vote, the county supervisors maintain that representational democracy and the public hearing process are sufficient means for citizens to express their views on the issue. They wrote on Jan. 7, in response to the grand jury report, "Although there has not been a vote of the public, there has been ample public discourse at the various governing bodies of the county and towns. The representative vote is through the publicly elected representatives who serve on the Marin Energy Authority board."

There is no fee to leave the Marin program if customers do so during the initial period. Customers have four opportunities to leave: twice within the 60 days prior to enrollment, and twice within the first two months of service. After that time, there is an exit fee ($5 for residential and $25 for commercial customers) plus a possible “cost recovery charge,” though the program claims that the likelihood of the latter charge is small.

There is no fee for enrollment in the program, which happens automatically if customers do not actively opt out using the methods permitted by state law. Before AB 117, under the original 1996 deregulation act, customer participation in CCA programs required a written declaration indicating a customer’s choice to participate (opt-in).

The purpose of the change was to lessen the community choice agency’s need to spend money marketing the program and to ensure broad customer participation. Some critics of the Marin program consider the opt-out approach unfair.

PG&E’s campaign against Marin’s CCA has been sharply criticized.

The utility refused to sign a service agreement with the program initially. The Marin Energy Authority ultimately resorted to legal pressure to compel the utility to sign.

PG&E's marketing in Marin County drew a rebuke from the California Public Utilities Commission, which issued a news release saying the utility had to begin cooperating fully with Marin’s CCA or risk penalties.

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The utilities commission ordered PG&E to cease various methods of aggressively soliciting people to opt out of Marin Clean Energy. In addition to direct mailings, these included visiting customers’ homes, telephoning them and printing opt-out forms in newspaper advertisements.

Across the Golden Gate Bridge, CleanEnergySF, San Francisco’s CCA program, is also moving forward with its plan to sell electricity. Though a start date for service has not been set, the utilities commission registered the program on May 28, making it the second CCA in the state, and a service agreement with PG&E has been signed.

Like Marin’s program, CleanPowerSF is to be entirely funded by ratepayers. The startup funding has come from the SFPUC’s electricity revenue, and won’t include any city money, according to Mr. Sheehan. “This is not a public power program. We are just going to procure cleaner energy for San Francisco’s homes and businesses,” he explained. PG&E will continue to maintain the grid, transmit power, and handle billing and customer service. “The only thing we are changing is where the energy is coming from and how it is generated,” he added.

The program’s website says rates will be “competitive” with PG&E’s. Mr. Sheehan said the contract with the energy service provider, Power Choice, has not yet been made final, so customer rates can’t be specified.

Mr. Sheehan said that rate stability is a goal of the San Francisco program, one that dovetails with its clean-energy plan. "Renewable resources translate into long-term price stability. They don’t run out," he said.

Though the Marin and San Francisco CCAs plan to offer greener power, solar won’t play a big part for the near future.

Ms. Weisz of the Marin program said the energy it purchases from the South San Joaquin Irrigation District includes a small percentage of solar. Of the 25 percent renewable energy in the mix, 3 percent is from renewable energy credits, tradable commodities that prove electricity was generated from an eligible renewable resource. The irrigation district uses the actual electricity generated by its solar installation on-site to move water.

The Marin Energy Authority is planning this summer to launch a small "solar shares" program, modeled on one offered by the Sacramento Municipal Utility District. If customers "can’t install solar themselves, they pay into a community project on a church or other community building," explained Ms. Weisz. The county created a map of Marin in 2005 showing the best locations for solar. The county’s many parking lots and shopping centers turned out to be “great locations for solar carport structures,” she added.

Solar users have been concerned that the formation of a CCA may affect solar financial incentives, but both Mr. Sheehan and Ms. Weisz said they would not change.

CCAs and municipal utilities can create their own feed-in tariff or net metering programs, and Marin Clean Energy already has one in place. Its net metering operates similarly to the existing PG&E net energy metering program, with a few changes.

For a solar owner, net consumption is valued at the customer’s selected rate schedule (Light Green or Deep Green), while net generation is valued at the Deep Green premium – currently an additional 1 cent per kilowatt-hour.

Energy "true-ups" are performed monthly, not annually, with excess generation converted to bill credits. Bill credits roll over continuously and are not lost at the end of the year.

All net generators for each month receive a bill credit equal to the minimum "non-bypassable" charges from PG&E (worth about $4).

“Our goal with this net generator credit is to encourage more local solar on rooftops and to oversize their systems,” said Ms. Weisz.

How would Proposition 16 affect solar adoption?

Robin Swanson, spokeswoman for the Yes on 16 campaign, says it will have "no impact for renewable energy."

Solar manufacturers expect robust growth in California's solar market regardless of whether the proposition passes or fails. PG&E has more solar production capacity in its service area than any other U.S. utility. Peter Darbee, chairman, president and chief executive of the utility's parent company, has been a prominent advocate for putting a price on carbon emissions, which many solar industry observers consider to have the greatest potential to transform solar into a mainstream energy source.

Mr. Israel, of the Sierra Club, sees an open power market as a solar stimulant.

"Competition allows for more market players and reduces risk. Currently, if a solar developer creates a solar plant but none of the big three [private utilities in California] want to buy the power, the plant will fail. Competition will drive down the price of renewables, and they will become affordable."

The Vote Solar Initiative, a solar advocacy group, has endorsed the No on 16 campaign, but most others in the solar industry have not taken a public position.

Mr. Geesman, the former state energy official who is closely involved in the renewable energy industry and has been an adamant opponent of the ballot measure, said: "Prop. 16, and the rationale behind it, really puts into jeopardy a lot of the thinking behind the so-called smart grid. The 'smart grid' contemplates a network that is accommodating to diversity and pluralism. It is intended to provide two-way communication – electrons flowing both ways. Prop. 16 moves in exactly the opposite direction to that."