Currently, about 75% of the energy generated in California comes from three private utility companies:
- Pacific Gas & Electric (PG&E), which serves much of Northern and Central California (including many of our customers)
- Southern California Edison in Los Angeles
- San Diego Gas & Electric (SDGE) in L.A. and Orange County
While the above companies are privately owned by investors, the Sacramento Municipal Utility District (SMUD), which provides electricity to Sacramento County and is one of the largest publicly owned utilities in the country.
It’s understandable that many homeowners would want the option of buying their energy from a not-for-profit organization, like SMUD, or to have the option of choosing how their electricity is generated. This is why many communities in California and other states are attempting to secure lower energy prices—or to source green energy—from local utilities by creating CCAs, or community choice aggregations. CCAs are non-profit public agencies which represent geographic regions, such as communities, cities, or even counties. Homes and businesses located within a CCA’s service area are automatically enrolled in the CCA, from which they buy their energy. The CCA in turn contracts with an energy utility for electricity supply, grid maintenance, and other service needs. The CCA acts as an intermediary between the public and the utility, which continues to handle all the responsibilities it did previously. Even the billing is still handled by the utility, which includes a line item for the rate paid by CCA members.
Even though the energy is still being generated by the same utilities that currently serve Californians all across the state, the idea does make sense. Just about everyone understands the concept of buying in bulk in order to secure a lower per-unit price. The larger the order volume, the more the supplier is willing to negotiate on price. Just ask anyone who shops at Costco.
But, how well do CCAs work in achieving their advertised goals? Well, it’s a mixed bag. We’ll take a look at a couple of the CCAs operating in the Sacramento region—Valley Clean Energy Alliance, and Pioneer County Energy—discuss the benefits that they advertise, and then consider some of the underlying weaknesses of CCAs.
Valley Clean Energy Alliance serves the residents of Davis, Woodland, and unincorporated regions of Yolo County.
In September 2017, SMUD announced that it had secured a five-year contract with the Valley Clean Energy Alliance (VCE) to provide electricity, as well as maintenance and customer support services. VCE began providing energy services in June 2018, with the goal of reducing reliance on electricity generated from fossil fuels, while also reducing prices.
VCE offers two service tiers to customers:
- A competitively priced standard plan, with a goal of rates 2.5% below PG&E’s standard rates, while using more ‘clean energy’ than PG&E typically provides (with a goal of 42% of energy being derived from renewable sources). This is the plan which customers are enrolled in by default.
- For those who wish to use 100% green energy, VCE offers an ‘ultra-green’ option, for which they charge a $0.015/kWh premium over standard rates.
One of the chief goals of the Valley Clean Energy Alliance is to maximize benefits for residents with solar power systems. The VCE is still in negotiations with SMUD, with the start date of VCE’s NEM program scheduled for January 1, 2019. The policy currently being developed will compensate solar customers at a rate of 1 cent per kWh over what PG&E pays direct customers. This means that VCE’s solar customers will be better compensated for the energy they send to the grid, further reducing their power bills.
Placer County residents now receive their electricity from Pioneer County Energy.
Pioneer Community Energy was established to purchase energy from PG&E on behalf of the residents of Placer County. Managed by a board of local elected officials, the goal of Pioneer is to ensure that residents enjoy the lowest possible rates, and address the larger energy needs of the local community.
In December of 2017, Pioneer set its rates at 3% below the average rate charged at the time by PG&E. When PG%E raised its rates in March of 2018, Pioneer’s board voted to maintain the previously established price per kWh, meaning that Pioneer’s customers now enjoy rates 9% below those now charged by PG&E. It should be noted that the amount of this discount varies depending on a customer’s rate schedule, but the vast majority of customers receive a discount of 5% to 9% on their energy rates.
One of the most attractive benefits touted by CCAs are reduced rates—but this benefit is contradicted by mandatory ‘exit fees.’
California’s population has been growing explosively for decades now, and a growing population means growing energy needs. Building new electricity production facilities and the energy grids to meet this need is very costly. Thus, utilities must be very forward-looking in their budgeting. For utilities to recoup the costs of new facility construction in the short term, they would have to raise rates tremendously.
Instead, they take a long-term repayment approach, raising rates just enough to recoup costs over a period of many years or even decades. But with millions of consumers joining CCAs which negotiate lower rates that don’t cover these costs, this presents the risk that consumers still directly served by the utilities would have to bear an unfair share of the infrastructure costs.
This is why California’s Public Utilities Commission (CPUC), which regulates the state’s energy industry, requires that customers joining CCAs must pay an ‘power charge indifference adjustment’ (PCIA), better known as an ‘exit fee.’ Exit fees essentially itemize infrastructure costs for CCA customers—the main share of your bill is dedicated to your energy costs, but you pay an additional fee per kilowatt of energy used to cover infrastructure costs.
For CCA members, this means that in some cases, their rates may increase, rather than decreasing. Valley Clean Energy and Pioneer Community Energy currently state that their advertised rates are inclusive of exit fees.
But exit fees are subject to regulatory changes. In October 2018, the PUC adopted a proposal that will increase exit fees. With the new fees, CCA customers in PG&E territory will see their rates increase 1.68%. Customers elsewhere are being hit harder. Consumers served by Edison will see bills rise by 2.5%, and those served by SDG&E will experience a rate increase of 5.24%.
These rate changes underscore how CCA members may not actually benefit from the touted benefits of CCA membership long-term.
If exit fee rates rise again in the future, CCAs may face an awkward situation where their rates are actually higher than utilities. Another worry is that some CCAs may go bankrupt, and the cost of transitioning consumers back to utility companies may be extensive.
Another criticism is directed at the greener energy options offered by CCAs. Utility customers receive electricity that is generated by a blend of different sources, including fossil fuels, wind, and solar. Depending on demand and time of the day, percentage of energy produced from green sources may increase or decrease.
But CCAs are pushing hard on offering energy options that have a much higher percentage of energy sourced from green facilities. For instance, recall that VCE’s goal for its standard service is 42% green energy, while also offering a 100% green energy option.
The issue is that the utilities generating electricity aren’t meeting these demands by producing more energy from green sources. Instead, they’re engaging in what’s known as ‘resource shuffling.’
Utilities like PG&E don’t guarantee a certain percentage of energy produced from green sources for services provided to direct customers. So, imagine that on average, PG&E averages about 20% green-sourced energy across the board for all of its customers. But then half of their customers join a CCA that guarantees a baseline of 30% green energy. PG&E meets this requirement by directing more green-sourced energy to the CCA customers, and more fossil fuel-derived energy to its own customers to compensate. The CCA customers use energy that’s 30% green, while PG&E’s customers use energy that’s 10% green—working out to the original average of 20%. This means that the CCA isn’t doing anything to actually benefit the environment.
But this doesn’t appear to be slowing the public’s embrace of CCAs.
CCAs are emerging all over California, with more than 8 million Californians now buying their electricity from CCAs.
According to the California Community Choice Association (CalCCA), there are now 18 CCAs providing services in California as of November 2018. The largest of these is East Bay Community Energy, which manages more than half a million customer accounts. Other notable CCAs include Monterey Bay Community Power (which serves Monterey, San Benito and Santa Cruz Counties), Peninsula Clean Energy (San Mateo County), and Silicon Valley Clean Energy (Santa Clara County).
Other counties currently considering CCAs include Butte County, Lake County, and San Joaquin County. Southern California counties looking into establishing CCAs include Fresno, Tulare, San Luis Obispo, Santa Barbara, and many more.
We are often asked by our customers if they should stay in a CCA they have been enrolled to, or choose to opt out—every CCA enrollee has the right to opt-out for free, as long as they do it quickly, usually within 60 days of enrollment. The answer to that question depends on your personal preferences, and your risk tolerance. Consider the following:
- With the currently offered rate, will you see a cost reduction significant enough to take the risk that future exit fee hikes may reduce discounts, or even result in higher rates down the line?
- If your CCA fails, you may have to pay a significant reenrollment and/or settlement fee with your local utility. Do you have the financial means to bear this cost?
- If environmental concerns are a key factor for you, is your local utility committed to a significant reduction in the use of fossil fuels, or is it likely they will use resource shuffling to compensate for your CCA’s cleaner energy?
- CCAs are often managed by local government officials. Are you comfortable with your local government making energy decisions on your behalf?
It is almost certain that more CCAs will be formed in the short-term. We will continue to watch these developments closely, and will share follow-up posts as necessary to keep our customers apprised of new developments.