Community Choice Aggregation, or CCA, has had a number of wins over the past year. I have written about CCA before, including a description of how it works. Recently, Sonoma Clean Power in Northern California announced that it has signed contracts with Constellation Energy for a primary energy supply and with Calpine for a 10-year contract for local carbon-free geothermal power. CCA advocates celebrate that with the Calpine deal, Sonoma is the first CCA to focus on local energy, a long-term goal for CCA supporters.
I believe that in most cases, CCA is a bad deal for consumers, just like municipal power. CCA is similar to municipal power in that local government, rather than a private utility, controls energy purchasing decisions. This is a generally bad deal for consumers because the fallout from bad decisions is much more significant. Utilities have a challenging job which involves making big investments and signing long-term contracts for power under uncertainty of fuel prices and technology risks. With a well regulated investor owned utility, when the utility screws up, the investors pay. For example, in 1988 PG&E made big mistakes with its investment in Diablo Canyon nuclear plant. Diablo Canyon had seismic and design problems which led to some parts of the plant having to be rebuilt three times. PG&E's regulator ruled that $2 billion in cost overruns for Diablo Canyon were imprudently incurred, and thus had to be borne by PG&E equity holders rather than consumer ratepayers. These costs wiped out PG&E's entire 1988 earnings.
In contrast, with municipal power or CCA, the risks of investments and long-term contracts are borne by the local government, and thus by local taxpayers. For example, when SMUD made an imprudent investment of its own in the Rancho Seco nuclear plant, which was prematurely shut down, the utility nearly went bankrupt. Sacramento taxpayers paid the cost for this mistake.
Municipal power and CCA enable the use of tax-exempt municipal debt to fund energy investments. Such low cost debt should lead to lower power prices. But the lower prices come at a steep cost in terms of risk for the local consumers. Moreover, there is not clear evidence that municipal power or CCA actually do offer consistently lower power prices than investor owned utilities. With more risk and comparable prices, municipal power and CCA are a bad deal for consumers.
CCA does have one clear positive aspect: it is a threat that can provoke a utility to listen to customers. For example, San Francisco's stalled CCA program, CleanPowerSF, planned to offer customers a 100% green power option. In response, PG&E announced a 100% green power option of its own. Ultimately, CleanPowerSF has not been able to deliver on its goals of clean, cost-competitive, local power. The only benefit it has provided is prodding PG&E into offering better services, like the 100% green power option. It is frustrating that the PG&E monopoly would not offer a service customer wanted until it faced competition from CCA, but now that it does offer the option, it is surely a better deal than what CCA could offer.
A better alternative to both CCA and monopolistic distribution utilities? The answer lies with Texas' deregulated market for retail power marketers. When I tried soliciting options for a hypothetical house in Dallas (zip code 75001), I was presented with 344 competitive offers. 75 of them offered 100% renewable power.
I believe that in most cases, CCA is a bad deal for consumers, just like municipal power. CCA is similar to municipal power in that local government, rather than a private utility, controls energy purchasing decisions. This is a generally bad deal for consumers because the fallout from bad decisions is much more significant. Utilities have a challenging job which involves making big investments and signing long-term contracts for power under uncertainty of fuel prices and technology risks. With a well regulated investor owned utility, when the utility screws up, the investors pay. For example, in 1988 PG&E made big mistakes with its investment in Diablo Canyon nuclear plant. Diablo Canyon had seismic and design problems which led to some parts of the plant having to be rebuilt three times. PG&E's regulator ruled that $2 billion in cost overruns for Diablo Canyon were imprudently incurred, and thus had to be borne by PG&E equity holders rather than consumer ratepayers. These costs wiped out PG&E's entire 1988 earnings.
In contrast, with municipal power or CCA, the risks of investments and long-term contracts are borne by the local government, and thus by local taxpayers. For example, when SMUD made an imprudent investment of its own in the Rancho Seco nuclear plant, which was prematurely shut down, the utility nearly went bankrupt. Sacramento taxpayers paid the cost for this mistake.
Municipal power and CCA enable the use of tax-exempt municipal debt to fund energy investments. Such low cost debt should lead to lower power prices. But the lower prices come at a steep cost in terms of risk for the local consumers. Moreover, there is not clear evidence that municipal power or CCA actually do offer consistently lower power prices than investor owned utilities. With more risk and comparable prices, municipal power and CCA are a bad deal for consumers.
CCA does have one clear positive aspect: it is a threat that can provoke a utility to listen to customers. For example, San Francisco's stalled CCA program, CleanPowerSF, planned to offer customers a 100% green power option. In response, PG&E announced a 100% green power option of its own. Ultimately, CleanPowerSF has not been able to deliver on its goals of clean, cost-competitive, local power. The only benefit it has provided is prodding PG&E into offering better services, like the 100% green power option. It is frustrating that the PG&E monopoly would not offer a service customer wanted until it faced competition from CCA, but now that it does offer the option, it is surely a better deal than what CCA could offer.
A better alternative to both CCA and monopolistic distribution utilities? The answer lies with Texas' deregulated market for retail power marketers. When I tried soliciting options for a hypothetical house in Dallas (zip code 75001), I was presented with 344 competitive offers. 75 of them offered 100% renewable power.
