Brought on by capped retail electricity prices and other market manipulations, the state of California faced an electricity shortage in 2000 and 2001, spurring the establishment of Community Choice Aggregations (CCAs) to, it was argued, ensure a more secure and reliable grid. TPR spoke with Clean Power Alliance’s (CPA) Executive Director, Ted Bardacke (pictured), and Senior Manager of Marketing and Customer Engagement, Allison Mannos, about the benefits of CCAs for communities, the industry, and the environment.
Share the essential mission of CCAs- why they exist, and how the CCA model differs from the traditional centralized utilities re delivering power to local customers.
Ted Bardacke: CCAs were formed legislatively in the aftermath of the energy crisis in the early 2000s. The thought was that if you embedded decision-making power around energy supply in the hands of local governments and local authorities, there could be no cut-and-run, less manipulation, and none of the terrible things we saw in the energy crisis.
The original thought behind the CCAs was not an environmental or customer program, but actually electricity reliability. Fast forward almost a decade later, the CCAs start to get picked up by local governments particularly in Northern California who want to use them as a vehicle to advance climate and renewable energy goals before that was established as a robust state policy. Also to have a different relationship with the customer, where electricity is considered an essential public service provided by your local authorities in much the same way water is in California.
Drawing form your experience with CCAs and the energy marketplace, what news headline would best highlight the customer value of CCAs?
The value is choice and environmental performance. We are also very precise and customer driven around what we invest in back in our local communities. Our communities are our customers, so there's a strong alignment there of mutual interest.
If a decade ago deregulation was the impulse to create CCAs, today the dominant issue impacting regulated utilities arises from the climate disasters that have forced power shut offs and caused major damage to the grid and the system's delivery capacity. Having shared what motivated the CCAs creation, would it be fair to assert that financial reliability—arising from the lawsuits &settlements the utilities have & will face—and reliable delivery are now of paramount public concern. How do the CCAs address the reliability challenge?
The first thing I would say is that the climate and renewable energy development imperative has not fallen away just because we're in the midst of some other crisis right now. The climate crisis is still something that is propelling CCA development.
For the regulated utilities the compliance is a ceiling, and for us, compliance is the floor. In our first year of operations, we met California’s renewable energy mandate of 60 percent renewables by 2030, 10 years early. While the public focus is shifting towards the grid, the energy system, reliability, and delivery, I don't want to discount that procurement is still a major motivator.
We do now have to be part of the discussion and solution around reliability. We are launching a program to install at least one clean energy with a battery-backup storage system in an essential facility in each one of our 32 member agencies. That could be at an emergency operation center or at a place where people congregate during a natural disaster, something to keep the lights on in a specific place during a time of community stress— i.e. public safety power shut offs, wildfires, earthquakes. There's a mitigation perspective and we're in a really good place because my board members are also city council people of all the member agencies. We have direct communication and shared governance with these folks.
The other piece is that we can move very quickly on the broader reliability issues around resource adequacy: is there enough capacity in the market as the once through cooling plants retire? In December we shortlisted over 500 megawatts of battery energy storage contracts from 11 different developers, to bring online between 2021 and 2023 just months after identifying the need. We're moving very quickly on what we know is the next big challenge of renewable integration, intermittency. We didn't wait for the PUC (Public Utilities Commission) to tell us we had to do it, we saw it and got out in front.
For those concerned citizens who will read this interview in 2020, the dominant concern is likely to become less about the settlements from the fires between the utilities and customers, and more on whether the balance sheet of any CCAs will ever be adequate - in light of climate change - to deal with the calamities that might befall California power system in the future.
Our business model is to not own assets, so we're insulated from the liability of the transmission and distribution system. We do power purchase agreements and our customers pay Southern California Edison for lines and wires, so thankfully we don't have to worry about that liability.
On the other hand, I do have to worry about the financial solvency and the liability risks that our IOU (investor-owned utility) partners are under. We need healthy distribution and transmission operators in the state of California, there's no doubt about that. We need someone to safely and reliably deliver the power that we put on the grid.
Allison Mannos: It's important to note that we're trying to find ways to mitigate the harm to our customers, but we aren’t going to step in and run the transmission side of the business.
Elaborate on from where the CCAs currently purchase power.
Ted Bardacke: We have two kinds of contracts we enter into. We enter into short term contracts for energy sources—renewable, natural gas, and large-scale hydro—that range from monthly, yearly, and up to five year contracts.
Then, we sign long term power purchase agreements for projects that are developed on behalf of us and our customers to be able to serve that load, and those are for exclusively for renewable energy projects as well as standalone storage. To date, we have signed almost 600 megawatts of long term power purchase agreements with well-known industry players like Nexterra, Terragen, and Clearway—the old renewables development group of NRG. That's where we get our power.
If CCA customers pay the same cost for the distribution system, the transmission system, metering and billing as traditional utility customers, and pay for all the same good programs that the state funds through utility bills—i.e. energy research at the CEC—and, CCAs buy their power through the same competitive exchange that utilities do, is it not logical that CCA customers’ bills have to be the same or even a little more than under the traditional regulated utility model?
I actually believe that the long-term price trend will be towards convergence between the IOUs and the CCAs. We are able to offer a discount right now because we've been able to be nimble and have a more conservative risk management strategy than the PUC allows the IOUs to do, and in the long run, that will flatten things out.
I’ll note that in 2018, Edison had an $800 million undercollection. We didn't experience that because we were more financially conservative than they are. Our fluctuations in rates won't be as volatile, and in that will be able to be competitive.
Also, note that Clean Power Alliance is unique among CCAs. We offer three rate options: Lean power, Clean power, and 100 percent Green power. In comparison to SCE rates, Lean power comes at a one to two percent bill discount, Clean power essentially comes at parity, and 100 percent Green power comes at seven to nine percent bill premium.
Our customers have a choice of what rate they are on. Just about 20 percent of our customers are on the Lean power rate, about half are on the Clean power rate, and 30 percent or less of are on the 100 percent G
reen power rate. So 30 percent of our customers are choosing to pay more to rapidly accelerate the decarbonization of the electricity system in Southern California.
Allison Mannos: And as we sign more long term PPAs, it's going to lower our costs overall.
Ted Bardacke: It's going to begin to lower that premium between the 100 percent green all renewables product and the parity product (Clean Power).
We've mostly in this interview been referencing the IOUs; what's the CCA’s relationship with public power - municipally-owned utilities like LADWP?
The municipally-owned utilities—like LADWP, Pasadena, Glendale, Burbank, Riverside, and Anaheim—have natural monopolies in their service territory, so a CCA cannot come in and establish a presence in in those areas. We are in unincorporated LA County and about 20 cities within the county, but the city of Los Angeles is off limits.
We do think there are some virtues of public power that we share, namely that we're answerable to just our customers and our governing boards, we don't have shareholders to worry about and pay out dividends to. Any money that we make on the provision of service is going to get either put in reserves to guarantee our financial stability and keep rates stable, or get invested back in the communities through local programs.
The other thing that's interesting is that some of the Munis, like Riverside and Anaheim ,are within the CAISO system and some, like LA and Burbank, are within the LA balancing authority. We do have some overlap with the munis that are in the CAISO around resource adequacy, reliability of the grid, and some things that take place at the PUC.
Since the CCAs will use the IOU utility wires, won’t CCA customers have the same reliability challenges — shut offs resulting from fires and a new climate abnormal — as those serviced by regulated utilities?
When the IOUs make their decisions about whether to do public safety power shut offs, there's no hierarchy of whether you're a CCA customer or bundled customer. CCA customers remain customers, in our case, of Edison, but they are joint customers. While we are competing with them on the generation side, we're partners with them on the transmission and distribution side. The grid is the same, it isn’t more nor less reliable.
Pivoting a bit, address the promise of both “smart” charging and new storage technologies related to supply reliability.
There's are couple of things that are really important to understand about the energy market right now. Power at eight o'clock at night can easily be 10 times the price of power at two o'clock in the afternoon. Many of us have seen the famous duck curve charts, but there's a real economic component to that in terms of the price of power. The differential between daytime and nighttime is enormous, and it ramps very quickly. Usually it's described as a technical issue, but it's also really an economic opportunity because we have to have energy capacity during that that ramp.
For energy storage, it's not only that the prices of the technology are coming down, but that the value you can derive from the technology is increasing at the same time because of this huge price differential of being able to charge the batteries when wholesale energy prices are low and discharge them when wholesale energy prices are high. They serve a technical aspect dealing with intermittency, but for those of us who are looking at investing, there's a strong economic case even at current technology prices.
The other thing about the energy storage is that it can serve as a backup power system. It has this great value of technical integration and energy arbitrage in normal times, and a broader resiliency benefit in times of crisis. You can’t monetize that, but you can certainly feel it physically and emotionally.
In closing, share some of the procurements that you're now soliciting the evidence the evolution of CCAs and the renewable power marketplace.
In addition to that energy storage—which we're doing for reliability purposes—we have also gone out for our second solicitation for long term renewable energy contracts. We will be looking to sign contracts for an output of between one and two million megawatt hours per year in 2020.
We learned something in our last solicitation that was really important. As most people know, if you're just looking at price, it's hard for projects built in our local communities to compete with the large-scale projects out in the desert. And so this year we're running two tracks; one track for the low-cost utility scale projects, and one track for smaller—10 megawatts and below—projects located just in LA and Ventura counties.
We want the good projects at the utility scale to be competing with the other good projects on utility scale and for the local projects to be competing amongst themselves, because part of the promise of the CCA is to have some these long term procurements occur in our communities so that there's positive economic development and job creation.