Six States Have Tried Community Controlled Power: What Works?

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(Image: Light and color via Shutterstock)Last week I wrote about how a new California state entity, called Community Choice Aggregation (CCA), has begun to produce cracks in the monopoly of the century-old Pacific Gas & Electric utility, while giving its customers a choice of using more renewable energy. As communities around the state create more CCAs, consumers will be paying less money for more environmentally friendly forms of electricity. Five other states – Massachusetts, Illinois, Ohio, Rhode Island and New Jersey – have also passed legislation allowing for CCAs. Which ones have been the most successful?

The success of each state’s CCAs depends on several factors. One is how the electric status quo in the state was changed or deregulated to allow the formation of CCAs and another is what the state wanted to accomplish with this new type of state body.

Most of the reform and deregulation of the old electric utilities occurred during the late 1990s and early 2000s. The actual electric product was separated from the transportation of the electricity and the delivery infrastructure that brings it to the customer’s door. That allowed CCAs to be formed by local cities and counties to buy electricity from one or more sources to lower the price, encourage and enact more energy conservation and, if motivated, to move to cleaner forms of energy. Sometimes the CCAs put their emphasis on providing this new electric choice and sometimes state laws limited their options.

Various states have been working toward figuring out the best model to implement the CCA concept and to learn about the pitfalls and limitations of some of the CCA legislation. A nonprofit organization called Local Energy Aggregation Network (LEAN) acts as a clearinghouse for what is being done around the country, what works and what has not worked. Shawn Marshall, who helped set up the main California CCA, Marin Clean Energy (MCE), was so pleased at the potential of CCAs to lower rates and move more to renewable energy sources, she founded LEAN in early 2011 to provide information and advice to all the states experimenting with this new entity. Marshall said LEAN is a membership organization that provides help for cities and municipalities working on CCAs and that, as a 501(c)3 organization, about 50 percent of its funding comes from membership dues and 50 percent from grants and donations. LEAN has a state-by-state listing of what it sees as successes and failures in implementing CCAs, and states that it “is committed to the accelerated expansion and competitive success of CCAs.”

Massachusetts was the first state to experiment with CCAs in 1997. The first CCA, Cape Light Compact, was an aggregation of communities clustered around Cape Cod and Martha’s Vineyard. I spoke at length with Compact administrator Maggie Downey, and she said that sometimes it isn’t the best being first with the CCA concept. She said she thinks that the rest of the country could learn from its limitations, especially the limitations of Massachusetts’ laws. Unlike in California where the MCE is allowed to buy electricity wholesale from multiple choices, Cape Light is restricted to buying its electricity retail from only one vendor. This made it harder to try to compete with the existing utility structure, but it also forced Cape Light to be more creative in its approach. Cape Light began a vigorous energy efficiency campaign because every kilowatt that was saved by conservation made the overall cost of electricity lower for its clients. Cape Light also created a separate energy cooperative called Cape & Vineyard Electric Cooperative (CVEC) to buy electricity wholesale, sign long-term contracts and work on renewable energy generation – all things that Cape Light was not allowed by state law to do. On its web site, Cape Light explains how it works with this separate co-op:

CVEC was formed in 2007 from a strategic planning process commissioned and undertaken by the Compact because the Compact and its members wanted to stabilize future electric rates for all its members and ratepayers through municipally owned renewable energy generation, and wholesale power supply contracts. At the time CVEC was formed, neither the Compact nor its member towns/counties were allowed under state law to develop and own electric generation projects and enter into long-term power purchase agreements. Electric cooperatives such as CVEC, on the other hand, were empowered by statute to do so.

The Compact and CVEC are separate public entities, though the Compact is a member of CVEC and holds a seat on CVEC’s Board of Directors.

Despite having to work with the less than optimal legal situation, Cape Light has been able to make progress. According to Downey, since 2000, Cape Light has been able to beat the utility prices 65 percent of the time. This is important since Cape Light customers, like those in California, can choose to opt out of Cape Light and go back to their original utility. The CVEC is now working to create more renewable energy projects in its area. Other towns, such as Lowell, Massachusetts, are using the Cape Light template to create more CCAs in the state. So in Massachusetts, the CCA experience is working. Cape Light’s hybrid structure is accomplishing what California is doing, and Downey said she feels that Cape Light is finally getting to a level playing field in providing electricity to its customers.

Illinois has been embracing the CCA concept with breathtaking speed. According to LEAN, there has been an 18-month market shift of adding 3 million new customers to CCAs and now the state has 80 percent of its residential market. This happened despite the sometimes limiting requirement in Illinois that each municipality have a voter referendum, instead of approval by local elected officials as California and some other CCA states require. Chicago turned out to be the 800-pound gorilla in this mix when it voted to form its own CCA in November 2012. Chicago has now contracted with Integrys Energy Services to meet the CCA’s needs. This 27-month contract has no energy produced from coal or nuclear power.

This gives Integrys a monopoly contract, but it is short-term, and Chicago is working with Integrys on producing a downtown solar energy project. However, after dropping the city’s electric rate dramatically the first year, Integrys is now announcing up to an 18 percent increase in its electricity prices. Integrys claims it will still beat the utility, Commonwealth Edison Company (ComEd), when Com Ed raises its rates in June. But this new development shows the growing pains with the CCA concept, especially since the city of Chicago – unlike the model in California – is buying on the retail market and from a sole source.

Ohio was another early starter on the CCA concept by authorizing its creation in 1999; but the goals for creating a CCA were primarily to save money for electric customers without a large push towards renewable energy. The largest aggregator in the state, called Northeast Ohio Energy Council (NOPEC), has saved around $175 million for its customers since 2001. But Ohio is one of the largest coal-consumption states, so, according to LEAN’s Marshall, it was slow to embrace the renewable energy part of CCAs. The city of Cincinnati, in late 2011, started its own aggregation program. Like Chicago, Cincinnati has to deal with buying electricity retail from one supplier. Like Massachusetts’ Cape Light CCA, Cincinnati is working to bring in more renewable energy. The city negotiated with First Energy Solutions (FES) and is working through renewable energy credits toward having a 100 percent renewable energy contract. FES is also the main contractor for NOPEC, thus making it a major competitor to other utilities in the state.

Unlike California, where CCAs can have a mix of contracts with various companies, buy electricity on the wholesale market and retain control of the day-to-day management of their customers’ needs, Ohio now has a contractor, FES, to the two largest CCAs, which sets up a monopoly for as long as the contract lasts.

As in all human endeavors where money and power are up for grabs, there will be problems with fraud, mismanagement and corruption. FES was caught by Public Utilities Commission of Ohio paying too much for renewable energy credits and now has to refund its Ohio customers $43 million. NOPEC and the city of Cincinnati now have exclusive, multiyear contracts with FES. If they were able to buy wholesale with multiple sources and keep control of the daily operations, they would not be captured by this company’s malfeasance.

New Jersey and Rhode Island also have passed CCA legislation and, according to LEAN’s Marshall, their potential CCA programs are just now getting a foothold. New York, Utah and Maine are seriously looking at CCA legislation.

But there is a group that wants to stop this march towards CCAs as an alternative to traditional utilities and traditional fuels. Citizens Against Municipal Aggregation (CAMA) is a national group that says it is against cities handing their choice and power away to aggregation companies such as FES in Ohio and Integrys in Chicago. CAMA is worried that consumer choice is being manipulated to take the utility monopoly and give it to an aggregation company as a monopoly (albeit, for only the length of the contract).

CAMA is for as much deregulation as possible and, based on its web site’s explanation of municipal aggregation, it seems mostly concerned with the retail market and the restrictions in some states about using only one energy company. It is not clear from its web site, which has no contact phone numbers, that CAMA would be as concerned with the California MCE model, which keeps control within the government entity to buy wholesale from multiple energy companies and manage the renewable energy mix and renewable energy projects.

But in its talking points, CAMA goes beyond being concerned over the Chicago style of CCAs (known in the East Coast and Midwest as municipal aggregation). They show that CAMA also wants complete deregulation for for-profit energy companies and against government, even local government work in communities to promote green energy projects. Here are two talking points that seem to show an agenda beyond a concern for local governments getting stuck in monopolistic contracts:

• BIG BROTHER IS WATCHING: In aggregated communities the consumer’s personal energy usage will now be accessible by government agencies. Through smart meters and aggregation, they are now able to track energy usage, both on an individual and municipal level thereby monitoring what you’re doing, making inroads into your daily life and setting the stage for further government intervention.

• SHOULD (LOCAL) GOVERNMENT BE ABLE TO ENTER THE MARKETPLACE IN A DEREGULATED STATE? – While our government is one of the best in the world, let us not forget that our individual voices made us what we are. We are still fighting all over the world for personal freedom, and the right to choose. Let us not be too eager to give up our choice and hand over more control to our (local) governments. Energy independence in America is being fueled by deregulation. Should local governments be involved in manipulating the FREE MARKET? Anytime BIG GOVERNMENT begins making choices unintended consequences arise. Government should be the referee not the player. [Emphasis not added]

CAMA says it is a nonprofit and operates only on donations, but does not detail the sources of those donations. Since it does not say that you can take a tax deduction for donations, it is probably a 501(c)4 organization, which does not have to name donors, unlike a tax-deductible 501(c)3 organization.

Based on my research, I believe that the best CCAs are the ones that have, as in California, the right to buy retail energy with multiple contracts and are able to take some of their profits and invest them into local energy production that they, in turn, buy for their customers. Cities and other communities that have to give away the right to control their energy function and mix to a sole company can be stuck for years without the option of replacing a company that is not performing.

Also, when the main reason for establishing a CCA is to lower energy costs with a low commitment to renewable energy, there could be scenarios where you could lower costs using mainly or only fossil fuels, and you could encourage a situation where consumers have the incentive to use cheaper dirty electricity. Unless the CCA community is dedicated to the highest level of renewable energy possible, has a strong conservation effort, and invests in the local community to produce more renewable energy to be used by the CCA, the long-term view for getting control of our energy costs while building clean energy might not materialize. Each one of the successful CCAs claims to have that in its goals, but the background rules and set-up of California CCAs seems to encourage all the incentives for the long-term view of getting away from for-profit energy with its proclivity for dirty fossil fuels.