Market-based, Flexible, Local.
Aggre-what? We know—it’s a wonky name for a relatively simple concept called group purchasing: in this case, electricity. In dictionary speak, Community Choice Aggregation1 allows local governments and some special districts to pool (or aggregate) their electricity load in order to purchase and/or develop power on behalf of their residents, businesses, and municipal accounts.2 Established by law in six states thus far, CCA is an energy supply model that works in partnership with the region’s existing utility, which continues to deliver power, maintain the grid, provide consolidated billing and other customer services.
Why Do It?
Through CCA, local governments and their constituents are achieving a powerful range of objectives:
- Competitive, often significantly lower, electricity rates3
- Transition to a cleaner, more efficient energy supply
- Consumer choice, consumer protection, and local control4
- Local jobs creation and economic development
- Local delivery channel for new and existing energy programs such as feed-in-tariff, net energy metering, energy efficiency retrofits, PACE, distributed rooftop and community-shared solar, and demand response technologies
- Development of new power projects to augment contracted power
Energy aggregation can be done on an opt-in or opt-out basis (depending on state statute), but the most common and successful programs are opt-out. This means that customers are automatically enrolled after a successful public referendum at the local level, as in Illinois and Ohio; or, enrolled when their local elected representatives (city council or county board) vote to form or join a CCA program, as in California. The opt-in approach is voluntary but participation rates are traditionally very low which reduces the value of group purchasing and makes it harder for local programs to achieve economic viability. Opt-out aggregation achieves the necessary market scale for effective group purchasing, but allows a customer to switch back to utility service at any time.5 Either way, customers always have the choice to stay or go.
Public Power Benefits Without the Infrastructure Price Tag
Non-profit municipal utilities, or munis, provide highly reliable electricity supply at rates averaging 15 to 20 percent below the rates of traditional investor-owned utilities. Like munis, CCAs offer cost efficiencies, flexibility, and local control. But unlike munis, they do not face the capital-intensive and open-ended challenge of valuing, purchasing, and maintaining expensive utility infrastructure. CCA offers a “hybrid” approach that exists between the investor-owned (often monopoly) utility and a municipal (or member coop) utility. CCA reaps the benefits of controlling power supply and generation without the financial drag of purchasing and maintaining sometimes antiquated utility infrastructure. In this way, it is a great option for municipalities who want control over their power supply but don’t want the financial and operational burdens of owning their own utility.
How Do You Pay for It?
Because CCA is revenue-based—not government subsidized—CCA programs are self-supporting from an existing revenue stream. That is, the electricity rates that consumers pay to a retail electric supplier or an investor-owned utility are bundled and redirected to support the group purchase of electricity through a local CCA program.
So What Happens to the Utility?
In restructured (or “retail”) states, there is a defined functional separation between energy generation and energy distribution. In this scenario, the partner/distribution role of the incumbent utility is well established and retail supply competition already exists. In these states, the utility is a ready and willing partner for aggregated communities. The retail energy suppliers understand the market value of group purchasing and compete at the municipal rather than “door to door” sales level to win supply contracts.
In partially restructured or un-restructured states (“wholesale” markets) where utilities hold monopoly positions, the reaction to CCA has been less than supportive. After all, a CCA disrupts their monopoly control of the power supply market. It’s important to note, however, that bundled utility customers are not adversely impacted and the utilities themselves are “made whole” on departing load through a mechanism called cost recovery surcharges (or exit fees). In both models (retail and wholesale), the utility retains ownership and management of the transmission and distribution infrastructure, and all power delivery, line repair, billing, and customer service functions remain with the existing utility.
- Also called municipal aggregation and government energy aggregation in the midwest and northeast, respectively
- CCA is statutorily enabled in CA, IL, OH, MA, NJ and RI with a handful of other states considering legislation; CCAs in CA and IL are permitted to develop power projects as well as contract for power. Some states (e.g. OH) also allow for gas aggregation.
- Current aggregation contracts in the midwest are yielding up to 25% rate savings with rate savings on the east coast averaging between 10%–14% (as of 9/2013)
- Especially relevant in non-restructured states such as California
- National average opt-out rates range from 3-5%