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Once Scrappy Upstarts, Community Choice Agencies Could Become the New Power Monopoly

Community choice energy agencies, sometimes pitched as an alternative to local power monopolies, could soon become the only games in town as companies like PG&E and SDG&E look to exit the power-buying business.

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Back in the 1990s, Paul Fenn decided to write a law. He wasn’t sure what the law would be, but in the way graduate students do, he’d gotten interested in changing the world. After consulting with a professor at the University of Chicago – Robert Coase, the Nobel Prize-winning economist who inspired cap and trade programs – Fenn decided to write a law about energy.

Fenn wasn’t a fan of cap and trade, an attempt to curb air pollution using market forces. His law would put local governments in charge of buying and selling electricity, rather than big private power companies, and he hoped the power they bought would be greener – green enough to curb climate change. He eventually called the idea “community choice.”

It never occurred to him that his law would pass, much less transform the California energy market.

Fenn got a bill through first in Massachusetts in 1997. Fenn tried and failed to get a version of the law passed in California. Then the energy crisis came along.

In Fenn’s telling, lawmakers were panicked by the deregulation they’d unleashed and were looking for bills to help contain the damage. They saw his idea and ran with it.

“They were literally ripping it out of my hands. Carole Migden, she smelled meat, and she just went for it,” he said, referring to a former assemblywoman and state senator from San Francisco who sponsored the bill.

The law passed. Even Fenn expected the number of governments that formed their own energy agencies would be limited – it would be perhaps a Bay Area thing.

Now, there are 19 government-run community choice energy agencies up and running in California and more to come, including one the city of San Diego is trying to form.

These agencies, known as CCAs, could soon become monopolies in their own right.

That’s because they may be the only game left in town. Both San Diego Gas & Electric and Pacific Gas & Electric are looking to exit the energy market.

That may sound like it’s bad for business, but it may be more of an opportunity for those companies. A well-run utility can make a steady profit from charging customers for use of poles, wires, cables and meters that help deliver energy to their homes.

PG&E, in bankruptcy, is open to exiting the energy market so it can focus on ensuring its lines don’t spark fires. And SDG&E is also looking to shed the responsibility of buying and selling power in a transforming market.

Community choice’s success is poised to alter some of the rhetoric around the agencies, which were once the scrappy upstarts.

The “choice” in community choice has come to mean two things. Universally, it’s meant that communities – in this case, local governments – decide what type of electricity they use.

But activists and politicians alike have portrayed the choice as one consumers will have between the government-run agency and a privately-owned company, like SDG&E.

Two prominent Republicans, Mayor Kevin Faulconer and San Diego County Supervisor Dianne Jacob, have positioned a regional CCA they want to form as market competition, an alternative to SDG&E.

“For decades San Diegans have only had one option on where they get their electricity,” Faulconer said this week when the City Council approved his CCA plans. “Community choice will change that by injecting healthy competition into the marketplace, allowing customers to benefit from lower energy costs, and pick greener energy sources to power their home or business.”

Jacob, similarly, said approving a CCA would allow customers to “shop” for power.

But if SDG&E exits the market – an admittedly big if that would require state legislation – that may not be the case. There might be another statewide energy entity that could serve customers, but CCAs would essentially become a new monopoly.

CCA advocates agree customers may not have a choice between energy providers in the future, but they will still have choices about how the agency is run.

Craig Gustafson, a spokesman for the mayor, said while healthy competition was one selling point for Faulconer, it wasn’t the only one.

“The biggest selling point for community choice is establishing local control so we can lower energy costs for ratepayers and ensure we meet the goals of the Climate Action Plan – both of which weren’t possible under the proposal from SDG&E,” he said, referring to the city’s deadline of using only green power by 2035. “We’re confident a regional not-for-profit [CCA] will be able to provide lower costs for ratepayers as this is demonstrated by municipal utilities around the state having lower costs than investor-owned utilities even though they don’t directly compete for customers.”

Nicole Capretz, head of the Climate Action Campaign that made community choice a political reality in San Diego, had used arguments about competition while selling the idea over the past few years in order to appeal to business owners and conservatives. She said the market has changed rapidly – faster than expected – and that a public agency would be better than a private company anyway.

“Honestly, where we come from, when we’re talking about an essential human need like electricity, that is probably best left in the hands of a nonprofit public-purpose agency,” she said.

Matthew Freedman, a staff attorney for The Utility Reform Network, cautioned it’s too early to count on PG&E and SDG&E to be gone from the market. But, he said, he’s seeing community choice advocates changing how they frame the benefits of having the government take the reins of power-buying decisions.

“CCAs sometimes advocate for their interests using the language of choice, but they are increasingly moving away from that paradigm as a way to describe their value proposition,” he said.

Nick Chaset, the CEO of East Bay Community Energy, which serves over a half million customers around San Francisco Bay, said the “competitive narrative is probably more important to some than to others.”

“When we think about community choice it’s not really about competition so much as the community making the choice to form the CCA, the community making the choice to set up the governance structure and the community making the choice every month at the board meeting,” he said.

Right now, companies and the unelected California Public Utilities Commission make most major power decisions in the state.

CalCCA, the lobbying group for the state’s community choice agencies, has even worked to oppose one kind of competition, known as direct access.

Some energy customers, mostly large industrial users or campuses, have been able to get around existing power monopolies by contracting with third-party energy companies. For years, San Diego County’s government has had such a direct access deal to buy power for its own facilities. That saved the county money, which is one of the reasons Jacob is so interested in being able to shop around.

But the CCA lobby opposed more people being able to take advantage of that kind of choice.

V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies, described a bill to expand direct access as payback from unions that have been complaining about CCAs not building enough local projects.

“So, the large commercial customers that are in CCAs will have the ability now to be marketed to by non-CCA direct access providers, and the CCAs were freaked out when that bill surfaced,” he said.

Hunter Stern, the local business representative for a Bay Area chapter of the International Brotherhood of Electrical Workers, has long argued CCAs have been buying power without creating new jobs because their power comes from existing sources or out of state. Last year, Voice of San Diego uncovered instances where CCAs that claimed to be buying green energy from out of state may have simply been shuffling around power generated by burning coal and natural gas.

Stern said expanding direct access was one way to take large customers away from CCAs.

Officials from community choice agencies say they are now funding new local solar and wind farms and battery storage projects and are planning more in the near future. Chaset also pointed out that while CCAs try to have cleaner power that is cheaper, direct access companies just try to provide the cheapest power possible.

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