POWER May 2017 - 20

Vidhya Prabhakaran
Emily Sangi
As Community Choice
Aggregation Expands,
the Battle Over " Exit
Fees " Intensifies
C
ommunity choice aggregation (CCA) continues to emerge as
a favorite tool for towns, cities, and counties interested in
pursuing local control over their energy supply, increased
renewable electricity generation, and local job creation and economic
development (see " More Communities Choose Their Own
Energy Future " in the August 2016 issue). CCA is an energy supply
model that puts the local government in charge of choosing
electricity sources for all residents, businesses, and municipal accounts,
while keeping the region's existing investor-owned utility
(IOU) responsible for delivering power, maintaining the grid,
and providing consolidated billing and other customer services.
The CCA entity has complete authority to enter into electricity
contracts on behalf of the aggregated customers that it serves.
Generally, a CCA entity can establish rates that support its power
mix (usually comprised of between 50% and 100% clean energy),
while utilities receive a fee for distributing the power to the CCA
entity's customers.
Small but Growing
CCA currently exists by law in seven states-California, Illinois,
Massachusetts, New York, New Jersey, Ohio, and Rhode Island-
and a number of other states are currently considering enacting
CCA laws. CCA entities provide electric service to a large range of
municipalities, from small towns and rural counties to large cities
such as Chicago and San Francisco.
The recent growth of CCA entities has been staggering, particularly
in California, where it threatens to inundate the state's
three largest IOUs. In fact, the IOUs-Pacific Gas and Electric
Co., Southern California Edison, and San Diego Gas & Electric
Co.-have recently reported that in aggregate, potential load
departure from CCA entities could be up to about 80% of their
total retail load, or approximately 150,000 GWh (see " Should
Investor-Owned Utilities Be Worried About Community Choice
Aggregation? " in this issue).
The Battle Over " Exit Fees "
In California, a central issue associated with CCA is how customers
leaving the utility for a CCA entity are allocated the abovemarket
costs of legacy utility procurement contracts purchased
on those customers' behalf prior to their departure from utility
service-the so-called " exit fee. " The California Public Utilities
Commission (CPUC) has labeled this exit fee the Power Charge
Indifference Adjustment (PCIA). Thus far, California is the only
state to allow such exit fees.
Both the state's CCA entities and the IOUs criticize the current
incarnation of the PCIA. The CCA entities believe that it
provides the utilities with an anti-competitive cost-shifting tool
20
to protect their monopoly and disrupt any semblance of customer
choice. The entities also criticize the lack of transparency associated
with the PCIA and the fact that the PCIA amount is not
counterbalanced by utility savings and avoided costs associated
with customers departing. The CCA entities point to the near
doubling of exit fees in recent years as proof that the utilities
intend to use them to stifle future CCA in California.
The IOUs also believe the PCIA is flawed. However, they argue
that it does not adequately prevent cost shifting to bundled
service customers. They believe that the current administratively
set Renewable Energy Credit (REC) and Resource Adequacy (RA)
benchmarks used to calculate PCIA rates overstate the market
value of the utilities' generation portfolios. The utilities argue
that when they sell excess energy at market prices due to load
departure, they do not receive revenues sufficient to cover the
underlying PCIA benchmarks. According to the utilities, their
bundled service customers are then left paying for this shortfall.
Portfolio Allocation Method Unlikely to
Resolve Issues
The IOUs have recently begun shopping around the idea of replacing
the PCIA with a portfolio allocation method (PAM) that
would eliminate reliance on administratively set benchmarks by
instead allocating the pro-rata portion of the actual net costs
and benefits of their respective generation portfolios to both
bundled service and departing load customers. They contend that
this method would facilitate a retrospective true-up to reflect
actual costs and benefits and would be more effective than the
PCIA at meeting the statutory indifference requirement that all
customers pay their share of legacy utility procurement costs.
However, the proposed PAM methodology seems to suffer from
many of the same flaws for which the CCA entities have criticized
the PCIA, including the general lack of transparency associated
with evaluating the PAM proposal, regulatory barriers associated
with benefit allocation, and failures to adequately monetize benefits
and avoided costs. For these reasons, the CCA entities are
unlikely to accept the PAM methodology.
Given that CCA is a possible business tool for local communities
to establish greater local control, this question of cost allocation
will loom large over CCA growth across the U.S. Other
states with CCA programs and those considering them will closely
watch this battle as it develops and pay careful attention to
whether, and how, the CPUC attempts to resolve the issues that
both the CCA entities and the IOUs have with the PCIA. ■
-Vidhya Prabhakaran is a partner and Emily Sangi is an
associate with Davis Wright Tremaine in the firm's
San Francisco office.
www.powermag.com
POWER | May 2017
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POWER May 2017

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