California’s Community Choice Energy: Sunny Days Ahead

Competition in California’s electricity market met an unseemly end after the last effort to open markets resulted in the energy crisis over 15 years ago. Cautious state regulators have been “once bitten, thrice shy” about enabling widespread competition ever since. But gradually, Community Choice Energy (aka Community Choice Aggregation) has been taking hold, with Marin Clean Energy (2010), Sonoma Clean Power (2014), and Lancaster Choice Energy (2015) currently offering service. CleanPowerSF (San Francisco county) will commence service soon (4/1/16) and Peninsula Clean Energy (San Mateo county, targeting 10/1/16) are among several new Community Choice Energy options coming soon.

(Source: Existing & Potential CCAs in California, from LEAN Energy)

 These non-profit electricity providers utilize the distribution grid of the local investor-owned utility, but offer a substantially higher proportion of clean energy, typically with at least two options: between 33-50% for the lower-priced option, and 100% at a slightly higher price. These clean energy providers are leading California and the rest of the USA towards a paradigm of distributed local clean energy with sharply lower greenhouse gas emissions.

 The recent “Business of Local Energy Symposium” in San Jose, organized by the Center for Climate Protection, featured leaders and activists in California’s local clean energy social movement. The transition to distributed clean energy is as much about distributing power literally (the grid) as figuratively (politics). The communications grid went through a similar evolution a couple decades ago when the Internet arrived, and the grid intelligence moved from a centralized hierarchical model to a distributed local model, enabling individuals and businesses instant communications across the globe. Now, the excitement and vision from protagonists accelerating the distributed energy economy is clearly evident and gaining statewide momentum.

Indeed, with the urgent need to sharply reduce greenhouse gas emissions, coupled with a realization that distributed local power can engage prosumers in peer-to-peer energy utilizing transactive power, the distributed grid is evolving steadily. In California this year, it is expected the California Public Utilities Commission (CPUC) will determine that smart inverters should be required for all new solar rooftop installations. The smart inverters will enhance grid stability and allow anyone with solar on their roof to sell electricity back to their utility to support ancillary services (e.g. volt/var control; ride-through of low/high voltage and frequency). Smart inverters will also facilitate grid-tied storage integration, further enhancing grid stability.   The smart inverter trial underway involving the SunSpec Alliance, University of California at San Diego, and Solar City is currently testing the emerging standard for advanced inverter functionality. 

Also in California, Net Energy Metering (NEM) remains a positive means for rewarding renewable energy prosumers for reducing greenhouse gas emissions, despite the failure of some other states to recognize the value of Net Energy Metering. The California electric utilities are requesting the CPUC to modify its recent decision which maintained (instead of reducing, as the utilities had proposed) the retail electric rate as appropriate compensation to prosumers producing their own renewable (primarily solar) energy to the grid. In sharp contrast, the Community Choice Energy providers are offering even greater compensation to NEM Prosumers.

 (Source: San Diego Energy District)

In a related proceeding, the CPUC recently allowed a 90%+ increase in the fee PG&E charges customers departing PG&E (e.g. for Community Choice Energy). The fee, known as the Power Charge Indifference Adjustment (PCIA), is meant to offset the unrecovered costs which result when PG&E customers depart for Community Choice Energy. The PCIA fee is intended to recover the costs of stranded grid expenditures which PG&E undertook in the expectation that the customers would not choose Community Choice Energy. But over 80% of PG&E customers in the service territories of Marin Clean Energy and Sonoma Clean Power have opted for Community Choice Energy, and the California state legislature authorized Community Choice Energy in 2002, giving PG&E (and SCE and SDG&E) ample time to adjust their forecasts.

 Additionally, by confining the cost recovery to departing Community Choice Energy customers, the CPUC is missing the essence of competitive markets. A private sector company which over-optimistically forecasts demand for its product, and incurs the costs for the demand which never transpires, must ultimately deduct those costs from Net Income, and take the loss. The costs are not pushed onto past or current customers. Investors will respond by reducing the price they pay for the utility’s stock, but that’s the proper means for achieving an efficient and fair allocation of resources in the private sector, keeping the utility focused on accurate forecasts for demand, rather than rewarding them for inaccurate forecasts.

 Furthermore, while the CPUC authorizes PG&E, via the PCIA, to charge Community Choice Energy customers for electricity they will never consume, the CPUC’s progressive energy efficiency and demand response proceedings are paying customers for not consuming electricity. Clearly, these completely contradictory policies send mixed signals to customers. A unified policy should consistently reward customers for reducing consumption of electricity which emits greenhouse gases, and incentivize customers to consume and produce electricity which does not emit greenhouse gases.

(Source: Photo (from Richmond Mayor Tom Butt) of Shawn Marshall, Executive Director, LEAN Energy, addressing CCE advocates on CPUC steps prior to CPUC PCIA rate hike, 12/15).

 The CPUC’s energy efficiency and demand response policies are leading the nation by empowering prosumers, and rewarding electric utilities for avoiding more fossil-fuel power plants.   Trials for energy efficiency and automated demand response which include data analytics of meter data are continuously determining the most cost effective means for reducing energy use. Community Choice Energy is perfectly positioned to engage prosumers in optimal energy efficiency and demand response at the grassroots level.

 And the CPUC’s leadership in setting aggressive energy storage targets for the electric utilities (2.5 to 3% of peak load, or 1.325 GW by 2020, with higher targets under consideration) is vital to integrating renewable energy sources onto the grid and achieving 50% renewable energy by 2030. Community Choice Energy providers are currently only required to deploy storage equal to 1% of peak load by 2020, but the CPUC is considering raising their targets to 2.5 to 3% as well. Currently, utilities and storage companies are seeking to accurately monetize the multiple value streams offered by energy storage.

Another source of distributed energy and reduced GHGs is electric vehicles (EVs), and California plans to have 1.5 million zero emission vehicles on the road by 2025.

Recent auctions for aggregated demand response include batteries and EVs, and electric utilities are partnering with energy management companies to shift electric loads off-peak. Community Choice Energy has an important role to play here as well, including investing in sufficient EV-charging station infrastructure.

 The CPUC is gradually realizing that the future is distributed clean energy, and the out-dated cost of service approach to regulating utilities must be replaced by performance-based incentives which enable the greater efficiencies and lower GHG emissions achievable via Community Choice Energy. The CPUC’s order for electric utilities to provide Distributed Resource Plans, and Integrated Resource Plans, is a positive step in the right direction.

These and the other related CPUC policies are evolving towards valuing each kWh of energy in real-time at each customer’s location, fully reflecting all benefits and costs of producing and consuming each kWh of energy. Ultimately, peer-to-peer transactive energy will enable spontaneous cost-effective two-way transmission of GHG-free clean energy between prosumers. We may have a long way to go, but Community Choice Energy is the vital next step. The future is bright.