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Recommendation to receive and file a report on the feasibility of a Long Beach Community Choice Aggregation. (Citywide)
DISCUSSION
In August 2020, staff brought a report to the City Council that evaluated the feasibility of the City of Long Beach (City) forming a Community Choice Aggregation (CCA) entity whereby the City would assume the responsibility of being the default buyer of electricity for residents and businesses in Long Beach. During that meeting, at the recommendation of staff, the City Council deferred for one year a decision on whether to participate in a CCA, and directed the City Manager to perform several follow-up tasks.
The follow-up tasks included: (1) performing a study that analyzes CCA governance options; (2) monitoring CCAs within current and emerging energy markets and related regulations; (3) continuing work in partnership with Southern California Edison (SCE) on improving awareness of existing and emerging programs focused on increased energy efficiency and greater utilization of renewable energy sources; and (4) undertaking community outreach regarding the CCA concept along with potential risks and benefits to customers. This report provides an update on these City Council directives.
This report also recommends suspension of any further CCA feasibility efforts until such time that substantial and favorable developments in market and regulatory stability materialize.
Governance Options Study
Staff engaged MRW & Associates, who completed the original City of Long Beach CCA Feasibility Study in November 2019, to prepare a study to analyze CCA governance options available to the City. The City Council outlined the following CCA governance options for evaluation:
1. A stand-alone enterprise, where the City is the sole government agency responsible for the CCA’s creation and operation;
2. Joining the Clean Power Alliance (CPA), the CCA serving unincorporated Los Angeles and Ventura Counties along with many municipalities within those counties; or
3. Creating a new Joint Powers Authority (JPA), where multiple agencies share oversight responsibilities for the new agency.
In August 2021, MRW & Associates submitted its final governance report. The final report provides detailed analysis which examines benefits and risks related to each governance option, an in-depth overview of the financial issues associated with each governance option, and a comparison between each of these governance options.
The MRW governance report highlights the following:
• The formation of a stand-alone enterprise - the City would maintain full flexibility and responsibility for developing all policies and procedures. This means that the CCA can be tailored for and responsive to the City’s stakeholders and constituents based upon their objectives. Along with greater autonomy, the City would however assume all risk, liability, and costs (including significant startup costs) associated with operating the CCA.
Under this approach, the City would need to establish the CCA as an enterprise operation. Fees and charges would be collected for services provided and accounting and budgeting would be separate from the City’s General Fund. The CCA enterprise cannot flow revenues into the City’s General Fund without risk of violating provisions of the California Constitution. The most important aspect of this restriction is that the fees and charges would be limited to the actual costs of providing the service and not imposed for general government services. The City, however, could set rates so that revenues could be generated to support customer specific programs such as energy efficiency, building electrification, electric vehicles, and transportation electrification.
• The formation of a joint power authority (JPA) - a JPA is an independent agency that operates on behalf of the public agencies which are party to it. In this approach, the City effectively shares responsibility with the other agencies participating in the JPA. The divisions of these responsibilities and sharing of decision-making authority would be determined at the time the JPA is created.
A JPA structure may reduce the risks of implementing a CCA program to the City by protecting the financial assets of the City and the other participating agencies, and distributing the risks and costs associated with the CCA among the participating cities. It could also provide the benefits of scale and economy for certain aspects of CCA operations, such as power procurement or back office billing and accounting functions.
The key tradeoffs to the benefits of a JPA are that decision making is allocated amongst the parties and management independence is diminished. Objectives of participating agencies will likely differ, and reduced autonomy can manifest when setting priorities for local generation, economic development activities, and the importance of support programs.
• Joining with Clean Power Alliance (CPA) - The City could also elect to become a member of CPA, the CCA that services unincorporated Los Angeles and Ventura counties along with 32 municipalities within those counties. It is by far the largest CCA in the state, projected to provide over 11,000 GWhs (11 billion kWhs) this year.
CPA is governed by a board of directors with one voting member (Director) per jurisdiction. If the City were to join CPA, it would become the 33rd municipality to join CPA and would retain one vote for its jurisdiction. Votes are tallied on an equal basis, one vote per jurisdiction, no matter its size. After an affirmative vote, three directors may call for a vote based on load share (voting shares vote). A voting shares vote is a vote where each Director casts his or her jurisdiction’s voting share, with each voting share tied to the energy usage of that jurisdiction relative to the energy use of the JPA. In that case, 50 percent of the voting shares would be needed to carry the item. Other provisions allow for the vote of at least two Directors to reject an item being voted on.
The JPA that governs CPA does not require a jurisdiction to make any financial contributions. However, a jurisdiction may agree to provide contributions or advances to the JPA (subject to repayment), as well as contribute personnel, equipment, or property in place of a contribution or advance. If a jurisdiction decides to withdraw its membership, it may do so by giving a least 180 days advance written notice and receiving an affirmative vote by the jurisdiction’s governing board (i.e., City Council). However, the withdrawing jurisdiction may still be financially responsible for continuing liability, claims, demands, or damages.
It is important to note that these analyses are limited to the likely impacts of governance structure on the City of Long Beach, should Long Beach choose to move forward with a CCA. Importantly, the report by MRW & Associates does not recommend that the City move forward with a CCA at this time and, in fact, examines specific risks of CCA formation and launch during certain future time frames.
Monitoring CCA and Energy Market Performance and Related Regulation
Currently there are 24 active CCAs in California serving 201 cities and counties. The newest, San Diego Community Power, launched in March 2021 and included the cities of Chula Vista, Encinitas, Imperial Beach, La Mesa, and San Diego. In December 2020, the cities of Irvine, Huntington Beach, Lake Forest and Buena Park formed their own CCA, the Orange County Power Authority, as a joint-powers authority. However, neither of these CCAs have yet to begin servicing residential customers to date so it is premature to use either entity as a gauge for a potential Long Beach CCA.
As the expansion continues, it is important to continue to recognize certain high risks associated with CCAs. For example, California very recently experienced its first bankruptcy of a CCA, highlighting some of the inherent credit weaknesses in the CCA business model. The bankruptcy involved Western Community Energy (WCE), which serviced six cities in Riverside County. The May 2021 bankruptcy filing of WCE, only one year after commencing service, showcases the financial challenges CCAs face in procuring market-based energy supply to serve the variable needs of the customer base.
To date, CCAs typically do not own physical generating assets and instead rely on contracts and market purchases for power supply. Inadequate risk management, unexpected spikes in demand, or arrearages related to economic downturns (i.e. COVID-19) and compliance with state mandates, including California Senate Bill 350 requiring 65 percent of renewable energy to be procured under contracts 10-years or longer, can all hinder a CCA’s ability to manage costs and provide competitively priced power supply.
While CCAs have the independent ability to adjust rates to recover costs, maintaining competitive rates is of upmost importance to many customers. This rate competitiveness is critically important to the CCA as well giving customers the ability to opt-out of the CCA and return to the incumbent investor-owned utility if displeased with the CCA’s rates.
As a result, staff specifically tracks the performance and pricing of Clean Power Alliance (CPA), the primary CCA that serves much of Los Angeles and Ventura counties, given its specific consideration as a governance option by the City Council.
In August 2020, City staff recommended the City Council to defer any commitment due to foreseeable risks including the declining margin of customer cost savings projected for a CCA in comparison with status quo billing rates available from Southern California Edison (SCE) for comparable renewable power content. Staff’s caution about this rate risk is now a reality as CPA’s residential rates are now higher than those charged by SCE, as shown in the chart below.
In November 2021, CPA’s residential customers, including low-income residential customers, are all paying higher monthly electric bills compared with SCE’s rates for comparable renewable power content. If the City were an active member of CPA today, all typical Long Beach households would be paying 5.5 percent to 6.6 percent more for electricity costs on their monthly electric bills than they would as customers of SCE, depending upon the level of renewable power content selected. Similarly, Long Beach’s typical qualified low-income residential customers would pay 1.5 percent to 7.6 percent more in their monthly electric bill.
Staff analysis shows that the drivers behind this higher pricing, including generation rates and a rate surcharge known as the Power Charge Indifference Adjustment (PCIA), are complex, volatile, and unresolved. Yet, the status remains that current CPA charges across most rate classes exceed those of SCE and may remain so for an unknown period of time. Staff will continue to track this matter.
Clean Energy Pathways Partnership with SCE
In November 2020, City staff began meeting with key members of the SCE Strategic Planning Team to create a Clean Energy Pathways Partnership. As recently discussed before the City Council on November 9, 2021, the objective of this partnership is to implement a framework that identifies, prioritizes, and efficiently executes, sustainable, affordable, and reliable energy improvement opportunities using existing and future resources of the City and SCE organizations.
To date, these strategic sessions have made rapid progress, focusing on four key objectives:
• Clean Energy Transition - Increase public awareness and participation in existing SCE clean energy programs and rate offerings through joint advocacy efforts, public awareness campaigns, and community engagement partnerships to support the sustainability goals of the City and SCE.
• Energy Solutions - Provide clean energy solutions and technologies such as demand response programs that enable City facilities, residents, and businesses to better manage their water, natural gas, and electric energy usage and to save money.
• Technology Innovation - Improve the development, acceptance, and implementation of emerging energy technology strategies such as solar and battery energy storage systems in support of the City’s renewable energy goals and SCE’s vision to achieve a carbon neutral future.
• Transportation Electrification Expansion - Enable the expansion of transportation electrification through investment, emerging technology acceptance, and streamlined processes to reduce greenhouse gas emissions and achieve the air quality goals throughout Long Beach and surrounding communities, as outlined in the Climate Action and Adaptation Plan (CAAP).
City staff are moving forward to harness the long-standing relationship with SCE to bring real, tangible, benefits to the community and further its sustainability efforts while reducing costs to ratepayers.
CCA Concept Community Outreach
Due to the COVID-19 pandemic and Health Order gathering restrictions, outreach is presently deferred. At this time, unless directed otherwise, staff do not plan to initiate such outreach and refrain from doing so until such time, as mentioned previously, the City determines that the CCA energy market and regulatory status stabilizes to the extent that the City believes the formation of a CCA merits further serious consideration.
This matter was reviewed by Deputy City Attorney Richard F. Anthony on November 9, 2021 and by Revenue Management Officer Geraldine Alejo on November 10, 2021.
TIMING CONSIDERATIONS
Council action on this item is not time critical.
FISCAL IMPACT
This recommendation is to receive a report on the Feasibility of Community Choice Aggregation in Long Beach, including updates to follow-up tasks directed by the City Council. There is no fiscal or local job impact associated with this recommendation. This recommendation has no staffing impact beyond the normal budgeted scope of duties and is consistent with existing City Council priorities.
SUGGESTED ACTION
Approve recommendation.
BODY
[Enter Body Here]
Respectfully Submitted,
ROBERT M. DOWELL
DIRECTOR OF ENERGY RESOURCES
APPROVED:
THOMAS B. MODICA
CITY MANAGER