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California's local power alternatives multiply as debate over future intensifies

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Protestors in San Francisco demonstrated against a 2010 proposition that could have impeded local power agencies as alternatives
to utilities like Pacific Gas & Electric Co. Since California voters rejected the measure, the alternative suppliers have multiplied.

Source: Associated Press

Three new local California power agencies known as community choice aggregators are rolling out retail electric service in June, accelerating an erosion of investor-owned utilities' customer base that the state's top regulator has described as a possible prelude to another energy crisis.

The start of East Bay Community Energy and Valley Clean Energy, both operating in PG&E Corp. subsidiary Pacific Gas and Electric Co.'s service territory, and the Solana Energy Alliance in Sempra Energy subsidiary San Diego Gas & Electric Co.'s territory pushed the number of community choice aggregators, or CCAs, now in operation to 17, according to the Local Energy Aggregation Network. The nonprofit advocacy group anticipates four more CCAs will launch later this year.

The defections are adding up, with the California Public Utilities Commission estimating that by the end of 2018, as much as a quarter of utilities' retail electric demand will have migrated to CCAs, rooftop solar and so-called direct access providers that sell power to large companies.

The latest expansion comes as regulators, utilities and alternative power suppliers prepare to face off at a June 22 meeting in San Francisco to discuss a recent PUC report that raised concerns over the state's ability to reach its ambitious clean energy targets and maintain reliable power deliveries amid an ill-defined, de facto deregulation and rapid fragmentation of the retail power sector. Regulators also have voiced concern over how to ensure a fair allocation of costs between defectors and customers who choose to remain with their conventional utilities, which is the subject of an ongoing regulatory proceeding.

While CCAs' primary selling point is their local procurement of a cleaner power mix for customers at a lower price than investor-owned utilities, the traditional power companies continue to deliver that power, maintain transmission and distribution lines, and manage billing, metering and customer service. As the PUC noted in its report, "poles and wires are not customer choices." Regulators have questioned how utilities will continue to provide those essential services as their responsibility for power procurement diminishes. Another key question that remains unanswered is how to share the cost of the expensive legacy renewable energy contracts utilities signed several years ago, in accordance with state law, on behalf of their customers who have now left for alternative suppliers.

False alarm?

Such concerns are overblown, East Bay Community Energy CEO Nick Chaset said. "Don't be fooled by this false alarm," he wrote in a June 13 editorial in the San Francisco Chronicle. Chaset, who previously served as chief of staff to PUC President Michael Picker, said the report raised important questions but "missed the mark" on its depiction of CCAs.

"Consumers deserve more choice through innovative community programs, renewable options and local control," he said. "They shouldn't be forced into an antiquated monopoly structure pushed by the investor-owned utilities' self-interest."

In defending their emergence, CCAs have a critical new ally: Moody's Investors Service. Despite significant risks related to managing power procurement, this "new form of utility" has a "compelling and sustainable business model," Moody's analysts said in a June 13 report. That assessment came after Moody's in May assigned Marin Clean Energy an investment-grade credit rating, Baa2, the first public rating for a CCA.

The rating and Moody's overall positive assessment of CCAs counter arguments from opponents that the aggregators' lack of creditworthiness impedes their ability to procure power.

Given California municipalities' ongoing formation of CCAs and the fact that customers become automatically enrolled unless they opt out, Picker has said that more than 80% of utility load could switch to alternative suppliers by the early to mid-2020s. The extent to which that happens will depend on state policymakers' actions to balance investor-owned utilities' responsibilities for transmission, distribution and billing with CCAs' emerging responsibility for procuring clean energy, according to Moody's.