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COMMUNITY CHOICE AGGREGATION FEASIBILITY STUDY INFORMATIONAL PRESENTATION
recommended action
RECOMMENDATION
Staff will present findings from MRW & Associates, Tierra Resource Consultants, and EBP-US regarding the Community Choice Aggregation (CCA) feasibility study that Council authorized in September 2020. Council is asked to understand the operational and fiscal elements associated with pursuing an initiative such as this and provide guidance regarding its interest in participating in a CCA program.
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Summary
This item is presented for informational purposes. There is no recommended Council action. Staff is seeking direction from Council on any next steps based on the information provided.
Community Choice Aggregation (CCA), also known as municipal aggregation, refers to programs that allow local governments to procure power on behalf of residents, businesses, and municipal accounts from alternative suppliers while still receiving transmission and distribution service from the existing utility provider. Under state law, CCAs are an option for communities that want more local control over electricity sources, more green power than is offered by the default utility, and competitive electricity prices. By aggregating demand, communities gain leverage to negotiate rates with suppliers and choose power sources.
The feasibility study (Attachment A) commissioned by Council investigated the various components of a potential CCA program. The analysis within the study explores the various components of a potential CCA program, and projects whether it would be successful in Stockton from a programmatic standpoint. Overall, the study indicates that CCA formation is feasible for Stockton in the event Stockton is prepared to make the necessary financial investment in startup, as well as have an appetite for inherent risk associated with such programs. Risks to consider would be, the competitive power market, the uncertainty of evolving state requirements and regulations, pre-startup costs, startup costs and working capital required to launch a CCA program. Additionally, the City must consider the various governance models, such as a single-city program a joint powers agency (JPA) or pursuing membership in an already existing CCA. The governance model has a significant impact on the City’s independence to operate a CCA program as well as the associated risks.
Council is asked to receive the presentation from MRW & Associates, Tierra Resource Consultants, and EBP-US and to provide the City Manager guidance regarding CCA.
DISCUSSION
Background
Under state law, customers are authorized to aggregate electrical loads (i.e. consumption of electricity) with community choice aggregators. Community Choice Aggregation (CCA) programs allow local governments to procure power on behalf of residents, businesses, and municipal accounts from alternative suppliers while still receiving transmission and distribution service from the existing utility provider (i.e. PG&E). Rather than default to receiving energy from the incumbent utility, CCA programs can consciously choose where to source electricity from using existing infrastructure. In doing so, communities gain leverage to negotiate rates with suppliers and choose power sources. Electricity customers are automatically enrolled in the electricity service selected by the CCA, although customers may opt out if they do not want to participate in the CCA. According to Cal-CCA, the trade association for CCAs, there are over 170 towns, cities, and counties with community choice energy providers serving over 10 million customers in California. Three major attractions of participating in a CCA include lower electric rates, the potential for local control to accelerate the transition to sustainable power sources, and the opportunity to create local jobs in sustainable energy development.
On March 19, 2019, Council approved Motion 2019-03-19-1404 directing staff to complete an application for grant funds available from Sonoma Clean Power Authority (SCPA) to support a feasibility study. Subsequently, Council approved Resolution 2019-08-20-1104 which accepted $50,000 of grant funds from SCPA and committed $100,000 of Air Quality Mitigation Public Facility Fee funding to satisfy the matching requirement of the grant and bolster the feasibility study. Following acceptance of grant funding and commitment of City funds, Staff developed a request for proposals (RFP) to solicit proposals for a CCA feasibility study. The RFP for a CCA feasibility study was issued on May 28, 2020 and closed on July 9, 2020. Council approved staff’s recommendation to select MRW & Associates for the feasibility study on September 15, 2020. City Staff worked with MRW & Associates to develop the feasibility study over the past five months.
Present Situation
MRW & Associates completed a final draft of the feasibility study on-time, fulfilling all deliverables outlined in the contract and RFP. Their study finds that a Stockton CCA is feasible, likely resulting in savings for customers, but not guaranteed. But there are also significant financial risks to consider associated with CCA formation and operation.
According to the findings, a Stockton CCA would likely be able to offer residents and businesses power at a price similar or a few percent lower than offered by PG&E but this is not guaranteed. The projected difference between the rate that could be offered by a Stockton CCA and PG&E’s rate (see Attachment B - Figure ES-4) represents a potential opportunity. The City could choose to lower rates as much as possible, passing on savings to customers which will flow back into the local economy. The City could also opt to charge similar or slightly lower rates compared to PG&E and use the revenue to fund a myriad of programs for residents, such as energy efficiency programs (i.e. replacing inefficient HVAC systems), incentive programs (i.e. offering rebates for electric vehicles), and local power generation and/or storage projects (i.e. solar installation and battery storage facilities).
Furthermore, a Stockton CCA would have complete autonomy over the sourcing of its electricity, giving the City the option to transition to renewable sources faster if desired. Of course, these benefits primarily refer to a single city agency wherein the City retains complete control over the operations of the CCA program. The City may alternatively opt to participate in an existing CCA program through a joint powers agency (JPA). Joining a JPA offers several advantages, such as minimizing the financial risk to the City by isolating its assets, increased efficiencies due to the economies of scale, and a potentially lower barrier to entry (i.e. startup costs & capital). However, the primary drawback to a JPA is the loss of independence over operations, which may result in the prioritization of programs that are not consistent with the goals of the City. There are many more benefits to consider which are presented in the report, such as the impact a CCA could have on the local economy by stopping the outflow of money spent on utilities and the pursuit of public purpose funds for energy efficiency programs.
There are several risks involved in the formation of a CCA that must be carefully considered as well. The City would be entering a competitive power market and would be subject to evolving state requirements and regulation. Both present unknown risks that could potentially result in a reduction in the savings projected in the study. However, it should be noted the study included a sensitivity analysis (Chapter 4) which “stress tested” several negative scenarios, such as higher renewable costs and lower PG&E rates. The sensitivity analysis found that in every scenario the CCA would likely still be able to offer savings to customers, but not guaranteed. Another risk is the start-up cost associated with CCA formation, which is projected at $26.4 million for Stockton.
To finance these costs, the City would have to secure a short-term loan of approximately $1.35 million to cover expenses and pre-startup costs until the CCA is operational. Once operational, the City would roll up the short-term into a longer-term loan that would include the working capital needed for startup to support the first 3 months of operation (approximately $25 million). This working capital is required due to the lag time between the initial purchase of power and the collection of bills - customers’ payments are typically received 60 to 90 days from when the power is delivered. These costs are assumed to be financed over 5 years at 5% interest; historically, CCAs have paid down these loans much more quickly. These risks and costs would need to be looked at in the overall context of the City’s fiscal condition and associated constraints, Pandemic impacts on the local economy and City revenue sources, the long-range financial plan (LRFP) and how it would impact the availability of staff resources to continue pandemic response and recovery efforts.
Pursuing a CCA would require a long-term financial commitment from the City, with associated business risk.
FINANCIAL SUMMARY
If the City were to pursue participation in a CCA program, there would be significant costs associated with the process of implementation. Chapter 10 of the feasibility study outlines the main implementation requirements for establishing a CCA and discusses the main parties with which the CCA interacts, set up requirements, and CCA structure. Completing these activities would require significant City Staff time, community engagement (i.e. direct mail, meetings, etc.), and technical assistance from experts. Should the Council wish to pursue CCA participation further, city staff will return to Council with a proposal(s) to meet these startup costs. However, such an exercise would require significant staff resources as well as external consultant support, which would impact the current fiscal year budget.
Attachment A - Stockton CCA Feasibility Study
Attachment B - Figure ES-4