Community Choice Aggregation (CCA) Empowers Municipalities to Take Control of their Community's Energy Costs
There is a palpable excitement moving across New Hampshire’s energy landscape. While we were all focused on net metering caps and RPS changes, the legislature quietly passed Community Choice Aggregation (“CCA”), HB 286.
On a municipal level, this is perhaps the most impactful energy legislation of the last 10 years. While many communities have made great strides to increase their commitment to a sustainable future, there is only so much a municipality has control over outside of their campus accounts. Would it not be great if communities had a vehicle with which to enter into long term retail and wholesale power purchase agreements for both themselves, and for all rate payers within their city limits? That vehicle is CCA.
CCA empowers the community to make the most of their aggregated portfolio and take advantage of market offerings or renewable options that the utility may be unable or un-willing to offer. The utility companies are concerned with keeping on our lights, making sure our meters work and the power lines are maintained. They do not make any money selling us the underlying kwh so there is little incentive for them to innovate their Standard Offer.
The utility Standard Offer is as its name implies… standard. Typically, the Standard offer is a fixed rate that gets set every 6 months or so and never with more than the statutorily mandated renewable mix, or ‘RPS Standard’. It is intended to be a service of last resort and when viewed in that light it is easy to see how CCA is a superior choice for both the municipality and its ratepayers.
What are the advantages of CCA for ratepayers?
Roughly 90% of the large commercial and industrial rate payers in New Hampshire use a third-party electricity sup-plier other than their utility company, yet less than 30% of the residential marketplace does the same. While both customer classes have access to the electricity markets, such access is hardly equal. The larger users in the state have the benefit of their portfolio size as both a leverage mechanism and a lure when dealing with the supplier marketplace. Whereas a stand-alone residence may consume 750 kwh per month, a manufacturer like Stonyfield consumes millions of kwh. Residential offerings are typically ‘take-it-or-leave-it’ with punitive out-of-contract rates should the unsuspecting homeowner fail to renew when their contract expires.
Price is another area of significant disparity. With the power markets at near historic lows, some commercial and industrial users are seeing long-term rates in the low 6 and even high 5 cent per kwh range. Meanwhile a quick glance of the PUC’s helpful rate comparison website (https://www.puc. nh.gov/ceps/ResidentialCompare.aspx?choice=Eversource) shows the lowest rate around 7.7 cents per kwh and the highest at over 13!
CCA is the only mechanism that can truly level the playing field. In some cases, it can even tilt that field in the direction of the smaller user. A successful CCA program in Manchester or Nashua would have a larger kwh portfolio than the largest businesses in the state. When presented with the opportunity to serve large customer aggregations, suppliers jump at the chance to bid and are willing to make significant concessions to secure the business. In fact, it’s not uncommon in more mature markets for suppliers to use supply contracts written by the municipality running the CCA. This adds a layer of comfort and contract security rarely enjoyed in the commercial and industrial markets. When the municipality authors the agreement it tends to be a more consumer friendly con-tract than otherwise industry standard.
So, What’s in it for the Communities?
Our client communities often ask us, “What benefit does the municipality derive from going through the efforts to launch a CCA?” Regardless of the model that a municipality pursues, each community is different. But it can be said that CCA has something for everyone.
In Massachusetts, many of the 150 communities that participate in an active CCA program raise money via their CCA, designated to energy related improvements in their community. They may instruct the supplier serving their community to embed a small fee in the supply rate and then use those proceeds to offset the cost of street lamping upgrades, installation EV chargers, rooftop solar or even up-graded time of use metering. The City of Lebanon plans on such creative uses of CCA.
In coming years, Lebanon dreams of providing every ratepayer in the community with time of use (TOU) meters. Time of use meters allow for numerous possibilities such as time of use pricing and demand-side management. By 2022 Lebanon may have the capability of alerting all of its rate payers to the annual system peak and encourage power curtailments in exchange for significant drops in power rates. It’s entirely voluntary, but when there are material savings versus the Standard Offer such programs can be a real win-win for both municipality and ratepayer.
From Left to Right: Londonderry Town Officials Kirby Brown, Executive Assistant, Steve Cotton, Administrative Support Coordinator and Kevin Smith Town Manager with the Freedom Energy Logistics team, Bart Fromuth, Chief Operating Officer, Thomas Carter, Director of Business Development & Public Relations, and Loren Stacey, Director of CCA & Recruiting. Londonderry is looking to utilize CCA to off set a recent increase in property taxes and will pass the savings to their residents.
The Town of Londonderry, for in-stance, is looking to utilize CCA as a mechanism to offset recent increases in property taxes. “If we can help our residents get some relief on the energy front, it goes a long way towards helping to bring down a cost of living that always seems be on the rise,” says Town Manager Kevin Smith. “Our goal via CCA is to prioritize savings and contract security above all else.” Londonderry will not be embedding any additional cost in their CCA rate but passing all savings on to their residents.
The City of Nashua is another example of how CCA can be used in innovative ways. Nashua owns a set of hydro dams, one of which is in the virtual net metering program but the other is not eligible due to size. As such, Nashua has difficulty getting a price per kwh that makes sense on a long-term agreement, given how low natural gas prices have fallen and power rates with them. Nashua’s solution? CCA, of course! With CCA Nashua can build their hydro production into the base load of their CCA program and get a price per kwh that has them in the black. Since the hydro dams make up such a small portion of Nashua’s total aggregated CCA load, they will still be able to offer their rate payers deep savings in yet another win-win scenario.
Sustainability is a key feature in the motivations of numerous municipalities throughout the state. CCA can provide a level of community-wide purchasing control, not offered or enjoyed through any other mechanism or program. Several communities, like the Town of Hanover, have made a commitment to reach 100% renewable energy for the town by 2030. Absent a program like CCA, Hanover would be able to follow through on this commitment for their municipal accounts but would have no authority or mechanism to achieve this goal for its residents or businesses. While CCA is not a mandatory program, it eliminates most of the customer acquisition cost and be-comes the default electricity program for the town. This means that Hanover will be making purchasing decisions for roughly 80% of its households and will likely choose to make their base line CCA offering 100% renewable, meeting some of their community benchmarks well-ahead of schedule.
Another approach to sustainability that has been widely discussed amongst municipalities would be to work in locally owned and operated renewable generators as part of a municipality’s aggregation plan. Communities like Derry are looking at installing solar arrays greater than 1MW. With an active CCA program, they will be able to lease town land to the array, while including the facility’s production in the baseline offering to the community.
There was significant hope and later frustration surrounding HB 365 last year when the legislature passed the net metering limit to 5MW. Although the bill was eventually vetoed, many communities were far along the process of taking advantage with new solar development should it have passed. Those weary of losing forward momentum with their solar initiatives have turned to CCA as a not only a viable Plan B, but perhaps as a superior Plan.
What are the Obstacles?
CCA is the energy buzzword of the day, to be sure. As we move from theoretical to reality, we are reminded of one of the reasons we want CCA to begin with- utilities prefer the status quo. Utilities are not bad actors; they merely act in their best interests as with most market forces. Their interests reward sameness. CCA is a market-driven solution to this fealty and embrace of sameness and allows the community to essentially replace the standard offer in hopes that progress on cost and innovation will be entrusted to an entity, the municipality, which is incentivized to make such changes.
While we are still in the beginning phases of this CCA market here in NH, we were recently reminded at the CCA technical session held at the NH Public Utilities Commission, that Eversource and the other utilities will not venture into this as willing partners. Eversource has openly refused to provide the customer account-level data necessary to effect successful program enrollment without express and affirmative permission from every rate payer in the program. For a city like Nashua, this could mean tens of thousands individual authorizations which is both impractical and in direct contradiction to the intent of the legislation.
RSA 53-E:4, VI clearly states that an “approved aggregation may use the individual customer data to comply with the provisions of RSA 53-E:7, II.” Considering that individual account and meter data are necessary to comply with RSA 53-E:7, II and the opt out/enrollment process, it cannot be credibly argued that the utilities may withhold such data from an approved CCA.
The solution to these objections brought forth by the utilities is found on one of two paths, legislative or rule making. The legislative path is likely the most efficient and least dilatory. Senator French and Feltes both have pending legislation before the general court specifically dealing with CCA policy and a few added words explicit direction to the utilities would render their arguments null and void. The rule making path, which is the clear and obvious choice of the utilities, would likely find a similar conclusion to the legislative but at significant additional cost, that cost being lost time and lost momentum. The rule making process has its strengths, but speed is unfortunately not among them.
Another obstacle to successful statewide implementation of CCA comes from the way in which our utility billing platforms are set up. At present, third party suppliers have the option to bill customers directly or to piggyback on the utility billing platform such that their supply appears as a line item on the overall utility bill. CCA’s around the country typically opt to save cost and administration by billing through the utility. In New Hampshire however, there is one key policy difference that sets us apart from the other states with robust CCA and that is the “Purchase of Receivable” (POR). Under the POR structure, the utility is tasked with collecting customer payment because they have the authority to disconnect for non-payment. The third party supplier billing on their platform is paid in full by the utility for every kwh that is invoiced, for a small fee, and anything the utility does not collect can be rolled into the next rate case as bad debt (same as if the customer was buying from the utility’s standard offer). Converting to a POR system has been debated, extensively, two times thus far during the ear of electric deregulation, both times unsuccessfully. Given that that sentiment against POR has likely not changed in the last few years, Senators French and Feltes sponsored legislation that brought us closer to the pin and would be viewed more favorably than the current billing options we have in place. After all, without interested third-party power suppliers interested in bidding on NH based CCA’s, a functional and robust program is not possible.
Both Feltes’ and French’s bills seek to direct the utilities to split all incoming CCA related customer payments 50/50 between the utility and the third-party supplier. Under current guidelines, the utility must be paid in full for their transmission and distribution service before the first penny gets sent to the third-party supplier. This scares off many would-be respondents to CCA RFP’s because they must accept all ratepayers in the community regardless of their payment history or credit score. Thus, there is significant credit risk and anyone slow-paying their utility bills could keep their lights on indefinitely by merely paying 50% of their power invoice. As such, third party suppliers would rather not bid than to take on that level of payment risk. And rightly so. Therefore, it is critical that either French’s or Feltes’ proposed legislation reach the Governor’s desk for signature, otherwise we will be well into 2021 before this particular problem is resolved.
So, we continue to tweak and improve this new law. The possibilities ahead for each community are both exciting and varied. We encourage communities to begin understanding how the many nuances of CCA will best benefit them and begin designing a CCA plan for their residents. As their goals come into vision, their voices can join with others in advocating for particular changes and they will be positioned to benefit most from this compelling new vehicle in the evolution of our local energy options.
If you or your community are unfamiliar with CCA or would like more information, we recommend reaching out to our dedicated team or logging on to our website at www.communitychoicenh.com. This resource contains robust content, including our full 45 minute presentation at the 2019 NHMA conference.
About Freedom Energy Logistics: FEL is an energy management firm based in Auburn, N.H., that specializes in unique methods of electricity and natural gas supply purchasing. Founded in 2006, FEL serves the region’s largest manufacturers, municipalities and businesses. Pioneering the ‘Direct-to-Grid’ movement, many of Freedom’s customers source wholesale energy direct from the ISO NE Pool. FEL is among the thought leaders for Community Choice Aggregation in New Hampshire. FEL is named twice to the Inc. 5000 list of fastest growing companies in America and to the list of Fastest-Growing Family Businesses in NH by Business New Hampshire Magazine. Stay Work Play’s Coolest Company for Young Professionals. Led by father and son duo Gus and Bart Fromuth, they were awarded Business Excellence Awards from New Hampshire Business Review in 2019 and 2016.
For more information visit http://www.felpower.com or call 603.625.2244.