Looking Under the Hood: What Is Community Choice Aggregation Meant to Do?

Following up on yesterday’s post about community choice aggregators in California and the development of a political slush fund sourced from utility bills, four thoughts.

First, community choice aggregators are supposed to be electric power utilities, primarily existing to deliver a highly technical product. So who runs them? If you look at the senior leadership of a traditional electric power utility, you find engineers with MBAs: utility guys (and utility not-guys). They’re systems people, and the CEO started in the engineering department thirty years ago.

Here’s the CEO of MCE, the community choice aggregator formerly known as Marin Clean Energy:

Dawn has more than 30 years of experience developing and managing renewable energy and energy efficiency programs while working for leading public agencies in the field. Previously, she managed energy and sustainability initiatives for the County of Marin, served as the Executive Director for Sustainable North Bay, and worked as a labor and environmental justice organizer in Los Angeles.

Government job, non-profit advocacy job, professional activist. She was an environmental justice organizer, so now she runs an electric power utility.

Here’s the bio for the CEO of the Clean Power Alliance, the largest community choice aggregator:

Prior to CPA, Ted worked for Los Angeles Mayor Eric Garcetti, where he was Director of Infrastructure for the City of Los Angeles and Deputy Director of the Mayor’s Sustainability Office. Prior to that, Ted worked in the Green Urbanism Program at Global Green USA, and in the 1990s served as a foreign correspondent for the Financial Times of London, based in Mexico City and Bangkok.

Ted holds degrees from Wesleyan University and the Graduate School of Architecture at Columbia University and taught at UCLA’s Luskin School of Public Affairs for 10 years.

Politics guy, Eric Garcetti staffer, degree in architecture, adjunct professor.

Here’s the CEO of Peninsula Clean Energy:

Shawn was a founder and board member of Marin Clean Energy (MCE), California’s first CCA agency. She was also the founder and executive director of LEAN Energy US, a national organization that provides resources and market expertise to state and local governments and other organizations wishing to pursue CCAs.

Not much there about her professional training and work background, so let’s have a look at LinkedIn:

Former city council member, political consultant to low-income-housing nonprofits, former federal regulator. She has a communications degree from UC Davis, by the way, so a solid engineering background.

So community choice aggregators are led, with a very few exceptions, by political animals, not by engineers and people who know how to manage electrical systems. They’re led by politicians and activists because they’re organizations that exist to do political activism, with a sideline in electricity.

Second, if you clicked on the link I provided yesterday to the budget of the Clean Power Alliance, you saw that they generated over $1.5 billion in revenue with staffing costs of $20 million. Their staff costs a little more than one percent of the money they bring in. That’s because they don’t do anything, so hardly anybody works there. Remember from yesterday that the law creating community choice aggregators requires investor-owned utilities to deliver the electricity, maintain the grid, and provide all of the customer service and billing operations.

That leaves one thing: power generation. Community choice aggregators don’t do that. They don’t own or operate power plants, and they don’t build windmills and solar farms. They produce, literally, nothing at all. They maintain nothing. They build nothing. That small budget for staff pays for traders and lawyers who shop for electricity on the market.

So these very important new electric power utilities don’t generate electricity, don’t deliver electricity, don’t build, own, or maintain any portion of the power grid, don’t do any billing, and don’t do customer service. That’s why they have billions of dollars a year in annual revenue, you see.

Third, community choice aggregators are public utilities: governments, joint powers authorities, that are collectively controlled by city and county governments. The boards are made up of city council members and county supervisors. So in one sense, they’re kind of like traditional municipal utilities.

However. Municipal utilities are financially part of city governments, and the relationship is an exchange: cities fund their utilities, utilities return their surpluses to their cities. When a municipal utility makes more money selling electricity than it spends to produce and deliver that energy, it feeds the general fund. Your electric power bill pays for fire stations and parks. There can be some controversy about this maneuver, because people complain that their electric bill is operating as a hidden tax, but a lean, tightly run municipal utility can keep taxes down and pay for some reasonable public goods. This assumes, of course, that your local government isn’t run by sociopathic grifters, but it’s at least a hypothetical possibility.

Community choice aggregators don’t do that. Their money is theirs. I asked my local officials, early on, when my city first joined a community choice aggregator, if we would be getting transfers of surplus revenues. The response was performatively confused: why would you even suggest such a bizarre thing?

Here’s the joint powers agreement that forms the Clean Power Alliance — which, by the way, is a marketing name for the Los Angeles Community Choice Energy Authority. It sharply and fully separates the community choice aggregator as a financial entity: “7.2.1 All funds of the Authority shall be held in separate accounts in the name of the Authority and not commingled with funds of any Party or any other person or entity.”

So we’ve taken a municipal utility model and broken it, building financially separate buckets of money. If you read yesterday’s post, you see the result.

And finally, I’ve been diving into the legislative and regulatory murk underneath all of these developments. Here’s the 2002 bill that opened the door for community choice aggregation. This bill created the presumption that customers could be automatically taken from investor-owned utilities: “Customers may aggregate their loads through a public process with community choice aggregators, if each customer is given an opportunity to opt out of their community’s aggregation program.” They don’t have to ask you to opt in; you have to ask to opt out.

Nothing much happened after that. In 2004, a conservation district in rural Fresno County proposed the formation of a community choice aggregator, but it never took flight. Then, in 2010, the first functioning CCA was born: Marin Clean Energy.

And then the legislature performed another intervention: SB 790, signed into law in 2011. It seems to not be a coincidence that the law appeared right after the first community choice aggregator actually began to take customers. The bill protected ratepayers from forced speech, wink wink, by forbidding investor-owned utilities from using their ordinary revenues to market against community choice aggregators:

The bill would require the code of conduct, associated rules,
and enforcement procedures to do the following: (A) ensure that an
electrical corporation does not market against a community choice
aggregation program, except through an independent marketing division
that is funded exclusively by the electrical corporation's
shareholders, (B) limit the electrical corporation's independent
marketing division's use of support services from the electrical
corporation's ratepayer funded divisions, (C) ensure that the
electrical corporation's independent marketing division does not have
access to competitively sensitive information, (D) incorporate rules
that the commission finds to be necessary or convenient in order to
facilitate the development of community choice aggregation programs,
to foster fair competition, and to protect against
cross-subsidization paid by ratepayers, and (E) provide for other
matters that the commission determines to be necessary or advisable
to protect a ratepayer's right to be free from forced speech or to
implement that portion of PURPA that establishes the federal standard
that no electric utility may recover from any person other than the
shareholders or other owners of the utility, any direct or indirect
expenditure by the electric utility for promotional or political
advertising.

Thus handcuffed, investor-owned utilities learned to stop worrying and love community choice aggregation. The California legislature made it illegal for companies like Southern California Edison and Pacific Gas & Electric to use most of their revenue to suggest that you opt out of a community choice aggregator. It’s like forbidding Piggly Wiggly to suggest that you shop at Publix.

And so here we are, with electric power utilities run by political activists piling up giant bundles of cash.