CCA Update: How New York and California are planning for the future of community choice aggregation

In California today, close to one million consumers have changed their electric service from their incumbent utility to a community choice aggregator (CCA)  — basically, a locally controlled provider of energy. These CCAs may provide cheaper power, often produced from renewable resources.

Looking ahead, the California Public Utilities Commission (PUC) has predicted that CCAs could provide 85 percent of the state’s retail load by the mid 2020s.

Those figures — and the concerns they have raised among some utilities — are a clear reflection of CCA’s potential to disrupt electricity markets and traditional business models in the industry.

Regulators in California, and the six other states that have passed laws allowing CCAs, are now grappling with how to strike a balance between this community-level push for local control of electricity, and unresolved issues about reliability and regulatory oversight. Recent decisions from public utility commissions in California and New York provide different approaches to these problems — and insights into the key role that market conditions and regulatory guidelines can play in CCA development.

In California, the emergence and spread of CCAs has occurred at the grassroots level, largely outside the regulatory structure of the California PUC. While allowing CCAs to flourish, this bottom-up approach has created tension between community choice organizations and incumbent utilities still responsible for providing power to non-CCA customers.

Specifically, utilities and CCAs have clashed over “power charge indifference adjustments” — the exit fees a CCA must pay to the incumbent utility to cover generation costs incurred prior to a customer’s switch to a CCA.

Following months of debates and hearings on the issues, the PUC this February released a decision that aims to bring together CCAs and utilities under the same initial planning reviews so that double procuring does not occur.

The decision requires the state’s CCAs to submit implementation plans — on how they plan to run their organizations and procure resources for their customers — to the commission by March 1 (with some exceptions for expanding or new CCAs).

In contrast to the ground-up effort in California, New York has developed a CCA framework that holds promise as an example of how to make the business model work within a fully deregulated state.

Specifically, CCAs in New York have been developed as part of the state’s Reforming the Energy Vision (REV) proceedings for restructuring the energy market. The commission has established a pathway with guidelines and a structure for future CCAs to ensure they are created and reviewed in an uniform way.

In February of 2015, the New York Public Service Commission (PSC) approved the state’s first CCA, an aggregation of several municipalities in Westchester County, with Westchester Power as the not-for-profit administrator.  The commission recently gave the go-ahead for five more CCAs.

At an April 2016 meeting of the PSC, then-Chair Audrey Zibelman described the key differences between New York’s and California’s approach to CCAs as follows:

“I believe initially [community choice aggregation] . . .  in California . . . was largely around aggregating supply,” she said. “I think the New York version is going to be much more about aggregating demand and thinking about how communities can work together to meet their mutual needs and mutual benefits around clean energy and energy efficiency, as well as supply, to help manage the bill and get where they want to go.”

Aggregating demand vs. aggregating supply

So what does all this actually mean, and what is the difference between aggregating supply and aggregating demand?

Let’s start with the basics. CCAs inhabit a gray area close to, but not the same as a traditional municipal utility, fundamentally changing how much input and control residential and small business consumers can have in choosing their energy services. Often growing out of local initiatives to meet or increase renewable energy targets, the model offers opportunities for these customers to aggregate their electricity demand or supply and receive bulk discounts.

CCAs also allow consumers to negotiate and determine the types of energy they want in their electricity mix and pay cheaper rates than those offered by the incumbent utility — something larger commercial and industrial customers have been doing for years.

All CCAs aggregate a certain amount of load on behalf of their customers. However, if a CCA aggregates supply, it will primarily act as a broker and will procure the electricity in bulk at a discounted rate on the behalf of this residential group. The incumbent utility is still responsible for maintaining the wires and distribution system that delivers power to the CCA customers.

In such situations, the CCA may only be purchasing renewable energy certificates (RECs), which represent the renewable attributes of a wind or solar project. Electricity generated by a specific, local renewable project may not be involved.

On the other hand, aggregated demand is based on customer load — the power a CCA’s customers need or will use on a day-to-day basis. The incumbent utility still provides distribution, but the power purchased to meet customers’ needs may come from the output of a specific project, generated at a specific time and place.

Going beyond such basic definitions, however, the New York PSC recognized that “the CCA construct provides substantial positive opportunity for meaningful and effective local and community engagement on critical energy issues and the development of innovative programs, products, and services that promote and advance the achievement of the State’s energy goals.”

In other words, New York sees opportunities for CCAs to leverage aggregated demand as a grid asset, for example, through demand response programs — which is just one of the reasons it could be a model that other states could study and customize for their own markets. New York’s model has particular elements that are worth noting:

1. In New York’s case, establishing a formal process for creating CCAs results in greater transparency for all stakeholders. Additionally, the New York PSC provides opportunities for utilities and CCA customers to develop programs or rates outside of formal hearings, which opens the door for a plethora of possible utility-CCA partnerships.
2. Even though New York’s focus is more on aggregating demand, the oversight that this model provides means that utilities and CCAs are not duplicating procurement. Rather they can coordinate their efforts to ensure that customers receive electricity services that they want – which could include lower or stable electricity prices or electricity generated by renewable energy.
3. The commission’s guidelines for CCAs also include a strong component on consumer protection. For example, CCA implementation plans must include a description of the organization’s goals and plans for value-added services, as well as public outreach plans, and drafts of written communications to customers. A data protection plan is also required, with specifics on how the CCA will ensure a high level of protection for customer data, including security protocols and restrictions to prevent the inappropriate sale of customer data. This oversight is intended to ensure that CCAs are held to the same customer protection standards as the state’s utilities and other electricity service providers.

New York’s model for CCAs is part of a bigger picture of the ongoing evolution of the  customer-focused electric power sector. With the New York model, CCAs have the potential to be the future customer engagement platform, providing a myriad of customer programs that can be optimized based on a community’s specific needs.

In fact, the PSC’s recent press release announcing the latest CCA approvals pointed to the opportunities these organizations might provide for expanding distributed generation, energy storage, and green power in general. For example, CCAs could be leveraged to help the state reach its ambitious energy storage targets of more than 1,500 megawatts by 2030.  Incentives could be offered to customers to purchase on-site residential storage, or to participate in the development of community-based microgrids.

Opportunities also exist for CCA-utility partnerships, which we’ve seen happen in California as well. Sacramento Municipal Utility District (SMUD) recently announced a partnership with Valley Clean Energy Alliance, a new CCA covering the cities of Davis, Woodland and unincorporated areas of Yolo County. In a first of its kind contract, SMUD will be providing the CCA with a range of technical, energy, data and customer services for up to five years.

Certainly, the combination of programs and partnerships will continue to evolve, as will the opportunities for new forms for customer engagement. Similarly, whether California’s bottom-up approach or New York’s top-down strategy will provide the best platform for CCAs will likely be a point of ongoing discussion.

What may be most important is whether we can learn from and build on the strengths and challenges of each, as CCAs and the evolution of the electricity sector continue to unfold.

Want to take a deeper dive into the different but complementary approaches to energy system transition in California and New York? Check out this 51st State Perspectives report.