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CCA Final Report_Draft 20191206 Draft Prepared for Northampton, Amherst, and Pelham Massachusetts Supported by The Urban Sustainability Directors Network By Peregrine Energy Group December 6, 2019 -- DRAFT CCA in Massachusetts: Strategies for reducing GHG emissions Table of Contents 1. Introduction and Framework ............................................................................................................ 1 2. Massachusetts structure ................................................................................................................... 2 A. Legal structure ...................................................................................................................................... 2 B. Market structure .................................................................................................................................. 4 C. CCA participants ................................................................................................................................... 4 3. Strengths and challenges for Massachusetts CCAs ........................................................................... 5 A. Strengths .............................................................................................................................................. 5 B. Challenges ............................................................................................................................................. 6 4. Funding green initiatives ................................................................................................................. 11 A. Payments for services provided by the CCA ....................................................................................... 11 B. External funding sources .................................................................................................................... 17 C. Funding comparison ........................................................................................................................... 18 5. Potential green initiatives ................................................................................................................ 18 A. Energy manager .................................................................................................................................. 18 B. Annual REC purchases ........................................................................................................................ 19 C. Long-term contracts with renewable generators ............................................................................... 20 D. Modular investments in new renewable generation ......................................................................... 22 E. Community empowerment ................................................................................................................ 22 F. Reducing electricity use at the times of greatest environmental impact ........................................... 23 G. Fuel switching ..................................................................................................................................... 24 H. Price options ....................................................................................................................................... 25 I. Energy efficiency programs ................................................................................................................. 25 6. Regulatory transition plan ............................................................................................................... 26 A. Regulatory background ...................................................................................................................... 26 B. What’s in the CCA plan? ..................................................................................................................... 27 C. Summary of approach ........................................................................................................................ 27 D. Initial CCA plan ................................................................................................................................... 28 E. CCA administration of ratepayer-funded energy efficiency programs ............................................... 29 F. Amended CCA plan ............................................................................................................................. 30 7. Multi-community consortiums ........................................................................................................ 30 A. Size ..................................................................................................................................................... 30 B. Geography .......................................................................................................................................... 33 C. Goals ................................................................................................................................................... 34 D. Flexibility ............................................................................................................................................ 35 8. Conclusion ....................................................................................................................................... 35 1 1. Introduction and Framework Many Massachusetts municipalities are using, or are considering, Community Choice Aggregation (CCA) as a tool for reducing greenhouse gas (GHG) emissions. Through CCA, municipalities have implemented a variety of GHG-reducing initiatives, including purchasing Renewable Energy Certificates (RECs), contracting with renewable energy generators, deploying distributed energy resources, and implementing energy efficiency programs. Using Massachusetts as the focus, the paper will discuss the opportunities and challenges for using CCA as a GHG reduction tool. The paper will look at structural and market issues and also discuss a range of specific CCA initiatives, including both initiatives currently being implemented in Massachusetts and potential additional initiatives. The objective of this paper is to provide information that will be useful to municipalities in selecting CCA strategies to meet their goals. As background, CCA is a form of group purchasing in which a municipality (or group of municipalities) arranges retail energy supply for residents and businesses in the community(ies). CCA has been allowed under Massachusetts state law since 1998. Currently, there are over 150 cities and towns in the state with active aggregations, including large cities such as Worcester, Cambridge, Newton, and Lowell, and small towns such as Sutton, Carlisle, and Williamsburg. In using the term “CCA”, the paper is referring to a CCA program, as distinct from the entity (a single municipality or group of municipalities) that is sponsoring that program. Entities sponsoring CCAs often sponsor additional, parallel initiatives. However, this paper is focused on what can be done with the CCA structure itself, i.e., through the core CCA function of providing retail energy supply and related initiatives funded through CCA charges to customers. The paper does not address other initiatives that a community could implement using other tools at its disposal. The paper is focused on opportunities for CCAs in Massachusetts, which means given that state’s CCA enabling statute and electricity market structure. Because of statutory and market differences between states, it is likely that there are approaches that are possible in Massachusetts that would not be possible elsewhere, and approaches that would be possible in other states but not in Massachusetts. While the paper will discuss a number of potential initiatives, we will avoid the term “CCA 3.0” to characterize some of them so as not to imply that the selection of one initiative over another is a matter of evolution rather than choice. Whether any particular initiative is right for any community depends on that community’s goals and strategies. In choosing among potential CCA approaches, it can be helpful for a community to distinguish among goals, strategies, and initiatives. For this purpose: - Goals are broad targets, big outcomes. They are “what” the organization is trying to achieve. - Strategies are things an organization does to achieve its goal. These are the “how.” 2 - Initiatives are more specific activities undertaken to implement a strategy. Like strategies, initiatives are about “how,” but at a finer level of detail. These categories are illustrated in the table below. Example CCA Goals, Strategies, and Initiatives Goal Strategy Initiative Reduce GHG emissions Increase renewable energy generation in New England Purchase additional MA Class I RECs Reduce GHG emissions Increase renewable energy generation in the community Invest in local renewable energy projects Reduce GHG emissions Reduce electricity use in the community Pay incentives for energy efficiency projects Reduce GHG emissions Switch from oil and natural gas to electricity Pay incentives for switching to electricity Reduce GHG emissions Reduce electricity use in the hours when the electricity grid is the dirtiest Notify customers of the highest GHG hours, and encourage them to reduce use at those times The items are not mutually exclusive. It is possible for a community to pursue multiple goals, or multiple strategies, or multiple initiatives in support of a single strategy. The selection of the correct initiative(s) is dependent on a recognition of the community’s goals and the strategies it has selected to pursue those goals. Any particular strategy might be right for one community because it lines up with that community’s strategies and goals, but wrong for another community that has different strategies and goals. 2. Massachusetts structure A. Legal structure CCA in Massachusetts is authorized by Section 134 of Chapter 164 of the General Laws. Section 134 (a) provides that: Any municipality or any group of municipalities acting together within the commonwealth is hereby authorized to aggregate the electrical load of interested electricity consumers within its boundaries; . . . Such municipality or group of municipalities may group retail electricity customers to solicit bids, broker, and contract for electric power and energy services for such customers. A municipality wishing to start a CCA must obtain an authorizing vote from the town meeting or city council. Then, it must develop an aggregation plan, which must be reviewed by the citizens of the 3 community and the state Department of Energy Resources and then be approved by the state Department of Public Utilities (DPU). The statute provides that CCA is “opt out,” meaning that eligible customers automatically become part of the CCA unless they affirmatively choose not to. The CCA must inform customers of their opt out rights prior to enrollment. The statute requires that the CCA allow customers to opt out without penalty any time within 180 days of being enrolled. In practice, all Massachusetts CCAs allow customers to opt out at any time without penalty. Opt-out enrollment applies only to customers on utility Basic Service, not to customers served by competitive retail suppliers. In most Massachusetts communities, between 80% and 90% of customers are on Basic Service. Typically, 5% to 10% of those customers opt out of the CCA at the time of program launch. As a result, most Massachusetts CCA are serving more than 75% of customers in the community. The Massachusetts DPU has provided a more detailed structure for CCAs through a series of orders approving aggregation plans. Among other issues, the DPU has focused on the clarity and comprehensiveness of the notices provided to CCA customers. In particular, the DPU has called out unsubstantiated claims of future savings by some CCAs, and required that CCA inform customers that savings cannot be guaranteed.1 While the DPU carefully reviews CCAs’ notices to customers, the DPU does not regulate the prices that CCAs charge. The DPU does of course regulate utility distribution rates. However, the DPU views CCA prices as fundamentally different because customers can choose whether to participate in a CCA or not. Since distribution services are monopoly services (the customer has no choice in their provider), rate regulation is necessary. But rate regulation is not needed for competitive services such as those provided by CCAs. If a customer does not like the prices a CCA is charging, the customer can simply switch to Basic Service or a competitive supplier. Section (b)2 of the CCA statute enables aggregations to go beyond providing retail electricity supply and to take control of the energy efficiency funds collected through distribution rates. These are the funds used by utility distribution companies to administer energy efficiency programs. With authorization, the CCA can take the place of the utility and become the administrator of the efficiency programs offered in their community. In order to gain access to the funds, the municipality must adopt an energy plan that details how the municipality will implement the programs in a manner that is consistent with statewide goals. That plan must be approved by the DPU. 1 Town of Avon, D.P.U. 17-182 at 15 – 16 (2018); City of Melrose, D.P.U. 18-59 at 14 - 15 (2019). 2 M.G.L. C. 164, § 134(b). 4 A CCA administration of efficiency programs is subject to a much higher level of DPU regulation than the CCA’s provision of electricity supply. The key distinction is the source of the funds. As discussed above, electricity supply is a competitive service; customers can choose to pay the CCA’s supply prices or not. As a result, the need for DPU regulation is limited. The efficiency funds, however, are collected through monopoly distribution rates. Customers have no choice about whether to pay those charges. Accordingly, the DPU provides rigorous oversight of the collection and use of the funds. Currently, only one Massachusetts CCA, the Cape Light Compact, is implementing the energy efficiency programs. The City of Lowell CCA has requested, but not yet been granted, permission to do so. In addition to the energy efficiency funds, Section (b) also authorizes CCAs to take control of the renewable energy funds that are collected through distribution rates. These funds are administered by the Massachusetts Clean Energy Center, a state agency. The process for obtaining the renewable energy funds is similar to the process for obtaining the energy efficiency funds. The amount of money available is much smaller -- about 5% of the energy efficiency funding. No CCAs have sought control of the renewable energy funds. B. Market structure In Massachusetts, CCAs operate within a competitive retail electric market. The market is divided into two pieces: delivery and supply. Delivery services are provided by the utilities on a monopoly basis. Delivery services include distribution, transmission, and metering. Supply services include the electricity itself. These services are competitive. Customers can choose to receive supply from either a competitive retail supplier, utility Basic Service, or the CCA. Many retail suppliers market very aggressively, and compete on price and in some cases on environmental content. Utility Basic Service prices are established through biannual auctions and as a result are closely aligned with market prices. Basic Service prices are the benchmark against which CCA prices are compared. C. CCA participants CCAs in Massachusetts work with Utility Distribution Companies, Aggregation Consultants/Brokers/Attorneys, and Competitive Retail Suppliers. The primary roles of each are as follows: Utility Distribution Companies - Provide delivery service - Meter electricity use - Bill customers and collect payments 5 Aggregation Consultants/Brokers/Attorneys3 - Develop the aggregation plan - Secure regulatory approvals - Manage a competitive procurement for a competitive retail supplier - Conduct customer education - Oversee supplier performance Competitive Retail Suppliers - Supply electricity and satisfy all ISO New England requirements - In partnership with the Utility Distribution Company, process customer enrollments, opt ups, and opt outs - Send the opt-out notice and manage opt-out replies A key difference between the Massachusetts CCA model and the California model is the role of the Competitive Retail Supplier. Given that California does not have a competitive retail market for small customers, the CCA itself performs the retail supply functions. Massachusetts, on the other hand, does have a retail supply market for all customer classes. In all Massachusetts CCAs to date, the CCA has engaged a competitive retail supplier to provide the retail supply functions. These firms are licensed by the DPU, qualified to operate in the New England wholesale power markets, and have significant financial resources and technical expertise. 3. Strengths and challenges for Massachusetts CCAs A. Strengths Opt-out enrollment CCA’s greatest strength is the opt-out enrollment mechanism. All customers on utility Basic Service automatically become part of the CCA unless they opt-out. As a result of this mechanism, CCAs typically serve over 75% of the customers in the municipality, well more than utility Basic Service and competitive suppliers combined. 3 For all but one Massachusetts CCA, these services are provided by a combined team on a turnkey basis. However, it is possible for a municipality to engage separate professionals. One Massachusetts CCA, the Cape Light Compact, performs the consultant/broker/attorney functions using a combination of in-house staff, specialized consultants, and an outside law firm. 6 Association with municipality As municipal programs, CCAs benefit from the trust that customers have for their municipal governments. CCAs operate to serve a public purpose, in contrast to the profit-making motive of competitive suppliers. An easy experience for customers Under the Massachusetts retail market structure, very little changes for customers joining an aggregation (or contracting independently with a competitive retail supplier). Customers continue to receive a single bill from the utility, and continue to remain eligible for low income discounts, net metering, and utility-funded energy efficiency programs. B. Challenges Customers can leave any time While customers become part of a CCA on an opt out basis, they are free to leave at any time. In Massachusetts, this is not a requirement, but all CCAs offer it.4 From the customer perspective, the right to leave balances the automatic enrollment feature. Some customers react negatively to the automatic enrollment, but their concerns are eased when they learn that they can opt out at any time. Because customers are free to leave any time, CCAs tend to be mindful of other offers in the market and work to keep their prices in general alignment with those other market offers. If a CCA’s price goes well above market, the CCA risks losing significant numbers of customers and losing the support of municipal officials. CCAs often offer three products: - Standard Green (the automatic enrollment product), with more renewable energy than Basic Service but a price at or below the expected average Basic Service price - Premium Green (optional), with more renewable energy and at a higher price than Standard Green - Basic (optional), with the only the minimum amount of renewable energy required by law and a price below Standard Green Market-based Basic Service prices The Basic Service price is the benchmark to which customers compare other prices, both CCA prices and competitive supplier offers. 4 The aggregation statute requires only that customers be allowed to opt out without penalty within 180 days of being enrolled. M.G.L. c. 164, §134(a). 7 Basic Service is designed to reflect market prices. The utilities purchase Basic Service twice per year for residential and small commercial customers and four times per year for large customers. The Basic Service prices reflect market conditions at the time of those procurements. Basic Service prices tend to be volatile, typically swinging 25% or more from one 6-month period to the next. Because the benchmark price is tied to short term market conditions, it is a challenge for CCAs to purchase energy supply under long-term contracts since the price under those contracts can become out of alignment with market prices. It is true that long-term, fixed price contracts can provide price stability, which is a benefit compared to the volatility of Basic Service prices. However, there is a limit to what customers will pay for price stability. If the CCA price is stable but higher, at some point customers will switch to the less stable but less expensive basic service prices. The experience of Massachusetts aggregations has been that: - There is not significant customer migration when CCA prices are moderately higher than Basic Service for a short period - There is significant customer migration when CCA prices are significantly higher than Basic Service - CCAs that launch with prices that are higher than Basic Service have a higher opt out rate than CCAs that launch with prices that are lower than Basic Service The Cape Light Compact uses a procurement approach that enables it to sign longer-term supply contracts while keeping aggregation prices in line with Basic Service. Other aggregations tend to sign fixed-price supply contracts in which the aggregation locks in a price that does not change for the term of the contract, typically two or three years. The Compact has entered contracts with longer terms, but where the price is not fixed. Instead, the price is adjusted twice per year at the times that Basic Service prices change. The advantage of this approach is that the Compact’s price is always roughly in line with Basic Service prices. The disadvantages are that the Compact’s price is just as volatile as Basic Service prices. Competition from competitive retail suppliers In addition to utility Basic Service, CCAs in Massachusetts also compete with competitive retail suppliers. Many of these suppliers market very aggressively, using direct mail, telephone, and door-to-door. CCAs need to be mindful that customers have many choices in the marketplace, not just Basic Service but competitive supply offers as well. Some have asked whether municipalities can limit competitive supplier marketing in their communities. Municipalities have tried to address deceptive marketing by those suppliers, for example by warning residents and reporting supplier misconduct to the DPU. However, communities have not typically attempted to discourage legitimate supplier marketing, reasoning that citizens benefit from having multiple offers to choose from, even if the result is to reduce participation in the CCA. 8 Funding policy initiatives through a market-based service Stepping back, perhaps the key challenge for CCAs comes from seeking to fund policy initiatives through a service that competes in the competitive market. Policy initiatives are not free, whether they take the form of purchases from renewable generators, special pricing for low-income customers, or other mechanisms. In order to fund these initiatives, the CCA must charge more than it would otherwise. Funding energy policy initiatives through a competitive service is very unusual in Massachusetts. Instead, policy initiatives are typically funded through charges that customers cannot avoid, either distribution rates or through requirements that apply equally to all suppliers. Even policy initiatives that appear to be part of the competitive market are in fact funded through non-bypassable charges. For example: - Low-income discounts: The energy bill discounts for low-income customers apply to both distribution charges and supply charges. However, the discounts are funded entirely through utility distribution rates. Even where the customer has a competitive supplier, the utility absorbs the full cost of the discount using distribution funds. - Long-term contracts for renewable energy: As required by a new state law,5 Massachusetts utilities recently entered into very large, long-term contracts with hydroelectric and offshore wind generators. Even though the utilities are purchasing energy, the contracts are funded through distribution rates. The utilities will sell the energy into the wholesale market, and collect any net loss (the difference between the purchase price under the contract and the sale price) through distribution rates. - Net metering: Net metering payments to customers with distributed energy generators are funded through distribution rates. - Energy efficiency programs: The costs of the energy efficiency programs are collected through distribution rates. - Renewable Portfolio Standard (RPS): The RPS is structured differently from the other examples, but the effect is similar. The RPS requires all retail electricity suppliers (including competitive retails suppliers, utility Basic Service, and CCAs) to include a minimum percentage of Renewable Energy Certificates (RECs) in the electricity they supply to customers. The cost of those RECs is reflected in supply charges, not distribution charges. However, since all suppliers must comply with the RPS, there is no way for customers to avoid those compliance costs by choosing one supplier over another. 5 An Act to Promote Energy Diversity, Chapter 188 of the Acts of 2016. 9 CCAs, on the other hand, seek to fund policy initiatives through charges that customers can avoid. As discussed above, CCAs compete in the competitive retail supply market. Customers can choose whether to be part of the CCA or to go with a competitive supplier or Basic Service. CCAs do have advantages over those other offerings, particularly automatic enrollment. However, CCAs’ competitors are not without strengths of their own. Basic Service is a very lean, low-overhead product. And, many competitive suppliers are large, highly-skilled companies with the scale and expertise to offer valuable products to customers. CCAs’ advantages give them some room to fund policy initiatives while still offering a competitive product, but that room is not infinite. Metering Another limitation in the Massachusetts market is the absence of interval metering for residential and small commercial customers. Unlike California, where interval metering is ubiquitous, in Massachusetts interval metering is primarily limited to the largest customers. Nearly all residential and small customers are metered and billed based on total monthly kilowatt-hours, without regard to when those kilowatt- hours are consumed. This metering limitation has important implications for CCAs. First, it prevents CCAs from offering time- based rates and other strategies that encourage customers to shift energy use to low cost periods by giving the customer a benefit (a lower price) when they do so. Second, the metering limitation affects the ability of the CCA to achieve savings by managing its customers’ load. The CCA (or its retail supplier) is responsible for delivering into the wholesale market the total amount of electricity their customers use in each hour. Since the price of electricity varies over the course of the day, the CCA should be able to reduce its costs by encouraging customers to shift energy use from high-priced hours to low-priced hours. This works for customers with interval metering. For those customers, the supplier is responsible for the customer’s actual energy use, hour by hour. If a customer shifts electricity use from high-cost periods to low-cost periods, the supplier’s cost of serving that customer goes down. However, if the customer does not have interval metering, the customer’s hourly use is calculated using a statistical load profile – a standard use pattern for customers of their size and type. This means that the customer’s actual hourly pattern of use does not matter. The supplier is responsible for the customer’s use as determined by the statistical load profile, regardless of when the customer actually uses electricity. As a result, with the current metering limitations, a CCA does not reduce its costs when small customers shift use from high price periods to low price periods. While there would certainly be benefits from a widescale deployment of advanced meters, Massachusetts is not on a path to implement such a deployment any time soon. In 2014, the DPU embraced advanced metering, and ordered the utilities to develop 10-year plans to modernize the 10 electric grid.6 However, in 2018 the DPU changed course, concluding that the likely benefits of advanced meters were unlikely to outweigh the costs at this time, and stated that it would not authorize the utilities to invest in advanced meters.7 In the absence of a widescale deployment, individual customers can pay to have an advanced meter installed at their home or business. However, the costs are much higher when meters are installed one at a time. 8 There have been very few residential advanced meter installations under this system. No supplier-consolidated billing The Massachusetts rules for electricity billing create a barrier for CCAs. Massachusetts does not allow supplier consolidated billing, under which an energy supplier can provide an integrated bill including both supply and delivery charges. Instead, the only billing options are either a) utility consolidated billing, under which the utility bills for both delivery and supply; or b) separate bills, under which the customer receives two bills, one from the utility and one from the supplier.9 Competitive retail suppliers have argued that supplier-consolidated billing is a key to enabling integrated services, e.g., where a supplier provides a package of energy and energy efficiency services designed to reduce the customer’s total bill even if the energy price goes up. The combined bill is needed to show the customers the net benefit. In theory, this could be done with utility consolidated billing even if there is no supplier consolidated billing. However, it is not possible in practice because the utility bills do not allow for suppliers to bill for efficiency services. Perhaps because of these billing limitations, Massachusetts has seen very little innovation in the packaging of energy and energy services. This billing limitation creates a barrier for CCAs seeking to provide integrated services. Electricity CCA only Currently, Massachusetts allows CCAs for only electricity and not for natural gas. This limitation makes it much more difficult for CCAs to offer comprehensive solutions to customers’ energy needs. 6 Modernization of the Electric Grid, D.P.U. 12-76-B (June 12, 2014). 7 Petitions for Approval of Grid Modernization Plans, D.P.U. 15-120, 15-121, 15-122 (May 10, 2018). 8 Under National Grid’s advanced metering tariff, the company will install an advanced meter for a cost of $272.25 for residential customers. If the customer wishes to provide their own meter, National Grid will charge $171.38 to provide a pulse interface device to which the customer could connect their own meter. Massachusetts Electric Company and Nantucket Electric Company, Optional Enhanced Metering Service, M.D.P.U. 1318 (October 1, 2016) 9 Rules Governing the Restructuring of the Electric Industry, 220 CMR 11.04(10)(c ). See also, NSTAR Electric Company, Eastern Massachusetts, Terms and Conditions – Competitive Suppliers and Competitive REA Suppliers, M.D.P.U. No. 4, §8. 11 4. Funding green initiatives Massachusetts CCAs are implementing a variety of green initiatives, including incorporating additional Renewable Energy Certificates (RECs) into the power supply and funding the development of local renewable energy generators. Those initiatives are discussed in the next section. This section focuses on the mechanisms for funding green initiatives. For discussion, funding sources can be divided into two categories: payments for services provided by the CCA and external sources, such as funds collected through utility distribution rates. A. Payments for services provided by the CCA The primary revenue source for CCAs is customer payments for services provided by the CCA, primarily the supply of electricity. 1. Creating a margin for green initiatives While CCAs might be primarily motivated by greenhouse gas reduction, the great bulk of the funds they collect from customers goes towards the cost of providing standard electricity. If, for example, the price of Basic Service (which contains no extra renewables) is 10 ¢/kWh, it will cost the CCA close to 10 ¢/kWh to provide electricity with the same environmental profile as Basic Service. In order to provide greener electricity, the CCA must find the funds to pay for it. CCAs can consider a variety of mechanisms. Savings in the electricity procurement CCAs have had success in obtaining an electricity supply at slightly below the cost of Basic Service, creating savings that can be used to fund green initiatives. Of course, the price of Basic Service changes every six months, and so it is never possible to guarantee future savings. But, over the last several years many Massachusetts CCAs have been able to obtain a price for electricity supply that is low enough to enable them to fund green initiatives and still keep the total cost of electricity below the cost of Basic Service. CCAs that have achieve this result include the Cities of Cambridge, Newton, and Salem and the Towns of Acton, Lexington, Natick, and Swampscott. Choosing to charge a higher price CCAs can choose to charge a price that is higher than Basic Service in order to fund green initiatives. An obvious risk associated with this strategy is that the higher prices could discourage participation in the CCA.10 This strategy is different from the common practice of offering a flat CCA price in comparison to a variable Basic Service price. Basic Service prices change every six months and are typically 30% higher in 10 In Massachusetts, there is insufficient experience with this strategy to be able to quantify the impact on participation. 12 winter than in summer. It is common for a CCA’s flat price to be lower than Basic Service in the winter, higher in the summer, and lower on average. That is a very different strategy from one of charging a CCA price that is expected to be higher than the average Basic Service price. Operational savings by bringing functions in-house Some have raised the possibility of reducing costs by changing the way of staffing CCA functions. In Massachusetts, all CCAs but one engage an outside firm to provide consulting, energy brokerage, and legal services on a turnkey basis, and all CCAs engage a retail supplier to perform the retail supply functions. As an alternative, it has been suggested that CCAs could perform these functions using a combination of in-house staff and consultants, and that doing so would produce significant savings. The two main categories of services – consulting/brokerage/legal and retail supply – are discussed separately below. Consulting/Brokerage/Legal The functions in this category include: Legal - Drafting aggregation plan and securing approval from the Department of Public Utilities (DPU) - Complying with annual DPU reporting requirements - Monitoring DPU orders to ensure compliance with the DPU’s evolving requirements - Negotiating the electricity supply contract Energy brokerage - Evaluating potential competitive suppliers - Conducting a competitive procurement for an electricity supplier, including soliciting and evaluating bids - Monitoring the electricity market and advising on the timing of the procurement, length of contract, etc. - Supporting the municipality in any disputes with the supplier Consulting / public education - Designing and printing public education materials - Conducting public education sessions - Designing, building, and managing program website - Monitoring competitive supplier performance, including customer enrollments and the initial and ongoing opt out mailings It is possible for a CCA to staff these functions using either a CCA specialty firm or using a combination of in-house staff and outside contractors. While all Massachusetts CCAs but one use a specialty firm, the state’s largest CCA, the Cape Light Compact, does not. Instead, the Compact staffs the functions with a combination of contractors, in-house staff, and an outside law firm. 13 However, while the work can be accomplished using either model, it is not likely that a CCA would achieve significant cost savings from using the in-house model. Among other reasons, the standard fee for an aggregation specialty firm is just one mil per kilowatt-hour. Since there are costs to provide the necessary functions on an in-house basis (even in-house staff is not free), any possible savings would necessarily be a fraction of one mil. Also, the services for which the municipality would need the most outside support are the most expensive to obtain on an hourly basis. Legal services are the best example. For the Cape Light Compact, for example, legal services account for more than 25% of the total annual budget. In fact, the amount that the Compact has budgeted for legal services, $230,000, is more than 1.25 times the total amount that a Northampton/Amherst/Pelham aggregation would collect with a one mil adder.11 While aggregation specialty firms are able to perform all of the services for one mil per kWh, this is in part because they benefit from economies of scale that would not be realized by a single CCA performing the same functions in-house. Because CCA specialty firms serve many CCAs, they are able to spread the costs of certain tasks across multiple communities. A single CCA would have to absorb the entire cost itself. Finally, the Massachusetts DPU has specifically pointed to CCAs’ use of licensed energy brokers in finding that those CCAs have the technical expertise necessary to operate the program.12 CCAs that do not use a licensed broker will need to find another way to demonstrate the necessary technical expertise. While the self-performance approach is unlikely to yield significant cost savings, it may have another benefit. Shifting some functions in house would enable CCAs to hire in-house staff who might then pursue additional GHG reduction initiatives. Municipalities with in-house energy staff are better able to pursue such initiatives, and the self-performance approach might help. However, there is another way to fund such staff. Massachusetts CCAs can charge a second adder, known as an operational adder, and use it to fund municipal staff. There is no need to take on the burden of performing the consulting/brokerage/legal functions in house in order to get funding for in- house staff. Retail supply functions In addition to the consulting/brokerage/legal functions, it has been suggested that Massachusetts CCAs could perform the retail supply functions. CCAs perform these functions in California, where there is no alternative because there is no competitive retail market for small customers. The retail supply functions include: 11 Cape Light Compacts, 2019 Operating Budget, available at http://www.capelightcompact.org/wp-content/uploads/2019/05/Copy-of-V2- CY2019-Operating-Budget-Proposed.pdf 12 Town of Watertown, D.P.U. 18-63, at 10 (March 15, 2019); City of Worcester, D.P.U. 19-41 at 13-14 (September 30, 2019). 14 - Meet all ISO New England requirements, including posting security deposits - Meet all distribution company operational requirements, including completing Electronic Data Interchange testing - Meet all DPU licensure requirements - Forecast the CCA’s hourly electric load - Forecast CCA’s regulatory obligations, including the Renewable Portfolio Standard and the Solar Carve Out - Forecast the costs of energy and capacity and of meeting the regulatory obligations - Establish a price sufficient for the CCA to meet its obligations - Purchase energy, RECs and other products needed to provide all requirements electicity service to the CCA participants - In partnership with the Utility Distribution Company, process customer enrollments, opt ups, and opt outs - Send monthly opt-out notices to new customers and manage replies While it is theoretically possible that a municipality could meet these requirements and take over the retail supply functions, it seems unlikely that a municipality could realize a benefit that would justify assuming the costs and risks. Suppliers that misjudge their load or cost forecasts can lose millions of dollars and even end up in bankruptcy. For example, Agera Energy, at one time one of the largest suppliers of CCAs recently filed for bankruptcy13 after fulfilling several CCA contracts that provided great savings for customers but undermined the company’s finances. Also, it may be difficult to secure DPU approval of this approach. The DPU looks to CCAs’ use of retail suppliers as evidence that the CCA has met the statutory requirement of reliability.14 Of the well over 100 CCAs approved by the DPU, none has proposed to serve as its own retail supplier. With only a small handful of exceptions,15 even very large and very sophisticated electricity customers in Massachusetts use retail suppliers, rather than assuming the risks of the market on their own. The first CCA that proposes to self-perform the retail supply functions is likely to encounter intense regulatory scrutiny Manage the CCA’s load profile to reduce the cost of electricity supply Both the cost and the environmental impact of electricity vary by hour. Wholesale electricity prices are higher in hours where customer demand is high and/or the supply of generating plants available to operate is low. Also, environmental impacts are high in the hours when the dirtier generating plants are running. CCA’s can affect both the cost and environmental impact of electricity generation by managing the pattern of when their customers use electricity, which is known as the customers’ load profile. 13 In re Agera Energy LLC, et al., United States Bankruptcy Court, Southern District of New York, Case Nos. 19-23802 – 19-23807. 14 City of Worcester, D.P.U. 19-41 at 2 (September 30, 2019). 15 One of those exceptions, Harvard University, explains that it first assumed the retail supply functions when the retail market was in its infancy and retail suppliers were not yet offering the sophisticated pricing options that the University was looking for. Now, those pricing options are readily available from retail suppliers. 15 CCAs can modify their load profiles in a number of ways. For example, in a demand response program, a CCA could pay customers an incentive to reduce their use in critical hours, for example by modifying thermostat settings. Or, a CCA could provide incentives for customers to install distributed energy generation and energy storage, which enable customers to reduce the amount of electricity that they draw from the grid during certain hours. The use of load profile management to reduce environmental impacts is a new and exciting area. It is discussed further under Green Initiatives in section 5. The use of load profile management to reduce costs is well-established. CCAs could certainly use these methods to reduce costs for the electric grid as a whole. However, it would be very challenging for a CCA to reduce the CCA’s costs (as opposed to overall system costs) through load profile management because of limitations stemming from the nature of CCAs, the Massachusetts metering infrastructure, and the current New England electric market. First, CCAs are typically made up of very large numbers of small customers. A CCA would need to modify the load profile of a very large number of these small customers for the impact to be big enough to have a noticeable effect on the overall cost of supply. Second, there is a cost to providing customers with the mechanisms and incentives to shift load. The savings would need to be greater than those costs in order to produce net savings that could be allocated to green initiatives. Also, as discussed above, the current Massachusetts metering infrastructure creates a significant barrier. The vast majority of Massachusetts residential and small business customers have meters that record only the total number of kWh consumed in a month and not when those kWh are consumed. As a result, the actual load profile for these customers is unknown. The wholesale cost to serve these customers is determined by a statistical load profile, not the customers’ actual load profile. The customers’ actual load profile does not matter. As a result, there is no way for either the individual customers or the CCAs as a whole to benefit from shifting electricity use to low-priced periods. In addition, even if CCA customers could be billed based on their actual load profile, the value of shifting use to off-peak periods is relatively low in the current New England electricity market. New England’s peak electricity demand has been declining since 2006, largely because of the region’s extensive energy efficiency programs. As a result, the cost premium in the most expensive hours has dropped, reducing the value of shifting load from peak hours to non-peak. The cost of capacity is also declining, further reducing the value of shifting load. ISO New England, Auction Price for Existing Capacity, WCMA Load Zone Period: 12 months beginning Price June 2018 $9.55 June 2019 $7.03 June 2020 $5.30 16 June 2021 $4.63 June 2022 $3.80 Because of all of these factors, it would be difficult for CCAs to benefit from managing customers load profiles in the short term. However, opportunities may arise in the future as technology and metering improves and if market conditions change. 2. Operational Adders Massachusetts allows CCAs to include a charge that provides funds to the municipality. The charge is known as the operational adder. Both the level and the uses of any adders must be approved by the Department of Public Utilities as part of the aggregation plan. To date, the DPU has approved operational adders to be used for: personnel costs for an energy manager position; purchases of RECs; and other forms of support for local renewable energy projects. A municipality’s use of an operational adder is also restricted by Massachusetts tax laws. An adder is a program fee, not a tax, and can be spent only for the approved uses for such a fee. The Massachusetts Supreme Judicial Court has established three criteria for program fees.16 Those fees must be: a. “charged in exchange for a particular governmental service which benefits the party paying the fee in a manner 'not shared by other members of society.’’’ b. “collected not to raise revenues but to compensate the governmental entity providing the services for its expenses.” c. “paid by choice, in that the party paying the fee has the option of not utilizing the governmental service and thereby avoiding the charge." The majority of Massachusetts CCAs currently collecting adders are using them to fund energy managers. However, two CCAs, Cambridge and Nantucket, are using adders to fund commitments to renewable energy projects. 3. Optional products and services In addition to its standard offering which customers participate in on an opt-out basis, CCA can offer voluntary services which customers participate in only if they choose to do so. Insofar as these are green options, this is another way for CCAs to fund green initiatives. 16 Emerson College v. City of Boston, 391 Mass. 415 (1984) 17 Currently in Massachusetts, it is quite common for CCAs to offer optional products with a higher percentage of renewable energy content that the CCA’s standard product. Many CCAs offer an optional product is 100% renewable. To date, the participation rate in these optional products has been modest, well below 5% in most cases. However, many communities are increasing their marketing of the options, and participation rates are increasing as that marketing expands. Also, there is a great deal of room for innovation in the types of options offered. This may be a very promising area for CCAs looking to advance new types of initiatives. B. External funding sources In addition to revenue from payments for services provided by the CCA, Massachusetts laws allows CCAs to gain access to two sets of funds collected through utility distribution rates: funds for energy efficiency and renewable energy initiatives. 1. Energy efficiency programs Massachusetts operates one of the largest ratepayer funded energy efficiency programs in the country. Total annual spending between the electric and gas utilities is over $900 million dollars. The success of these programs has been the primary factor causing Massachusetts to be named the most energy efficient state in the nation for nine years in a row.17 The funding for these program is collected by utility distribution companies through distribution rates, and for the most part the utility distribution companies administer the programs. However, the Massachusetts CCA law enables CCAs to receive the energy efficiency charges paid by customers within the CCA’s territory and to administer the associated programs. CCAs must receive approval from the DPU in order to administer the efficiency programs. To date, only one Massachusetts CCA, the Cape Light Compact, has obtained approval and is administering the efficiency programs. The energy efficiency funds can be a very large revenue source for CCAs. The customer payments are nearly 2 ¢/kWh for residential customers and approximately 1 ¢/kWh for non-residential customers. Significantly, if a CCA receives approval to operate the efficiency programs, the CCA receives the efficiency funds paid by all customers within the CCA’s geographic territory, including customers that are not participating in the CCA. 17 https://aceee.org/state-policy/scorecard 18 2. Renewable energy programs Massachusetts utility customers also pay a much smaller charge in distribution rates that is dedicated to renewable energy initiatives. These funds are administered by a quasi-public agency: the Massachusetts Clean Energy Center (MassCEC). According to its website, MassCEC funds more than 40 programs including incentives for clean energy technology installations, financing for early stage companies and technology development as well as investments in training programs to build a clean energy workforce. MassCEC . . . drives innovation by serving as a clearinghouse and support center for the clean energy technology sector, providing assistance to enable companies to access capital and other vital growth resources. CCAs can also gain access to the renewable energy charges paid by customers within the CCA’s boundaries. As with the energy efficiency programs, DPU approval is required. To date, no CCA has sought approval to administer these funds. C. Funding comparison We calculated likely funding amounts for several of the potential sources for a CCA approximately the combined size of Northampton, Amherst, and Pelham, Massachusetts. 18 Funding Source Annual $ Notes Utility energy efficiency funds 4,700,000 At current levels collected in utility rates Operational adder 360,000 At $0.002 per kWh State renewable energy funds 190,000 At current rates set by statute. 5. Potential green initiatives A. Energy manager An easy and highly-effective strategy for CCAs is to use an operational adder to fund a municipal energy manager position. As described elsewhere in this report, a dedicated municipal staff person can be a driver of green initiatives. Because operational adder revenues can only be used to cover costs 18 The estimates were calculated as follows: All calculations start with total annual kWh use for the 3 communities per MassSaveData.com. Then, for Utility Energy Efficiency funds, kWh use for each community was multiplied by the energy efficiency charges in utility rates for National Grid (Northampton) and Western Massachusetts Electric (Amherst and Pelham). For an Operational Adder, total annual kWh use was multiplied by estimates of the percentage of use that would be served by the aggregation and then by 0.2 ¢/kWh. For renewable energy funds, total annual use was multiplied by 0.05 ¢/kWh, the statutory renewable energy charge. 19 associated with the program, the energy manager’s job responsibilities would need to be linked to the program. B. Annual REC purchases The most popular strategy among green CCAs in Massachusetts is to include additional RECs in the aggregation’s electricity supply, over and above the RECs required by the state’s Renewable Portfolio Standard (RPS). Among current aggregations, the percentage of additional RECs ranges from 1% to 46%. The figure below shows CCAs using this strategy and their percentages of additional RECs. Additional Percentage of Class I RECs by Massachusetts CCAs 20 The figure above shows the percentage of Massachusetts Class I RECs in the CCA’s standard product, the product that participants receive by default. Most aggregations also offer optional products, allowing consumers to opt up to a product with 100% RECs or to opt down to a product with only the minimum percentage of RECs required by the RPS. This strategy is quite easy to implement. Competitive retail suppliers will bid prices for additional RECs along with their bids to supply power. The key decisions for the CCA are what percentage and what types of additional RECs to select. The cost of the additional RECs is dependent on market prices. The price of MA Class I RECs is volatile. It has ranged between $10 and $40 over the last several years. At $10 per REC, 10% additional would add 0.1¢/kWh to the CCA price for electricity, which is approximately a 1% price increase. At $40 per REC, 10% additional would add 0.4¢/kWh, a 4% price increase. Some green advocates have discussed whether purchasing additional RECs leads to “additionality,” i.e., whether it causes more green electricity to be generated than would have been generated otherwise. The REC purchasing strategy produces additionality in the same way that the Massachusetts RPS produces additionality.19 Neither strategy produces specific, new renewable energy generators in the current year. Instead, both strategies create a market demand for RECs, which will lead to the development of new projects over time to meet that demand. Both strategies produce market-based additionality (increasing market demand) rather than direct additionality (causing a specific project to be built). Some CCAs prefer to promote direct additionality, which leads them to consider the long-term contract approach described below. C. Long-term contracts with renewable generators As an alternative to annual REC purchases, CCAs can consider entering long-term contracts with renewable generators. While this has been discussed, we are not aware of any Massachusetts CCA that has implemented it. Under this approach, the CCA would enter into a power purchase agreement (or virtual power purchase agreement as discussed below) with a renewable generator. The CCA would commit to make payments for a long term, e.g., 20 years, and in return receives the output of the project for the same period. Typically, the CCA would purchase both the energy and the RECs produced by the facility. There are several issues for CCAs to consider with regard to this approach. 19 This is a difference between Massachusetts and California. In Massachusetts, the RPS is based entirely on REC purchases. California, on the other hand, requires both REC purchases and direct contracts with renewable energy generators. 21 First, while the purpose of the initiative is to enable a new renewable energy project to obtain financing by providing a secure, long-term revenue stream to the project, it is not certain that a commitment from a CCA would be sufficient to accomplish that objective. As typically configured in Massachusetts, a CCA is just a program of a municipality; it is not an entity that can make a long-term commitment. It might be possible to overcome this obstacle by having the municipality itself back the commitment or operating the CCA through a Joint Powers Entity. This has not been tested. Second, by entering long-term contract, the CCA is taking the risk of future energy price changes. For conventional energy purchasers, a long-term contract reduces price risk; the contract locks in prices so the purchaser does not have the risk that future prices will change. A CCA, however, is effectively an energy seller. And, the CCA’s customers are not locked in; customers are free to leave at any time. As a result, by locking in a long-term supply price, the CCA takes a risk that market energy prices will drop in the future. If prices drop, the CCA will either have to sell energy at a loss or lose customers. Third, by committing its long-term revenue stream to a single project in year one, the CCA is reducing its ability to implement other environmental initiatives during the term of that commitment. Assume, for example, that a CCA generates $500,000 per year that it can apply to green initiatives. If the CCA commits $500,000 per year to a renewable generator under a 10-year contract, the CCA would have no funds for new green initiatives during that 10-year period. Finally, as they are configured today, CCAs in Massachusetts cannot buy power directly from a generator. Under the rules of ISO New England, the entity that runs the New England power grid, only qualified Market Participants can buy power at wholesale. The ISO’s requirements are complex and very expensive to meet. Very few entities other than energy companies have undertaken to meet them. Fortunately, there is a relatively easy way around this final challenge. Some large energy users such as MIT and the Boston Medical Center are making long term commitments to a generator using a virtual power purchase agreement.20 Under this approach, the customer purchases the RECs and enters a contract for differences for the energy.21 The contract for differences works as follows: The customer commits to a price for the energy. As the power is produced, it is sold into the market. The customer pays the generator the difference between the sale price and the contract price. If the sale price is below the contract price, the customer pays the generator. If the sale price is above the contract price, the generator pays the customer. Even though the customer does not take title to the energy, the contract for differences gives the generator the price certainty that can enable the project to be financed and built. 20 This project is described in a case study. Innovation through Aggregation: A case study of partnership to purchase renewable energy. A Better City. April 2017. https://www.abettercity.org/docs-new/Innovation_Through_Aggregation.pdf 21 For distributed energy projects that are eligible for net metering, the virtual power purchase agreement is not necessary. The project developer can be certain of getting the net metering price for the energy. 22 D. Modular investments in new renewable generation As an alternative to entering long-term contracts, CCAs could support new, local renewable generation using a modular investment strategy.22 Under this approach, the CCA would collect funds through an Operational Adder, and make an upfront payment to a renewable energy project developer in return for a long-term commitment for the RECs and/or electricity generated by the project. A key feature of this strategy is that the CCA makes a single payment up front. The CCA is not making a long-term commitment to make payments over time. The commitment to the new project is limited to the funds collected through the adder over a year or two. In other words, the commitment is limited to the funds that the CCA has, or soon will have, on hand. The CCA does not commit future revenues. This approach limits the size of projects that can be funded in any year. However, assuming that the CCA maintains the strategy over time, the CCA would support development of multiple small projects which could sum to the size of one large project. For example, a CCA could potentially choose either: a) under a long-term contracting approach, entering a 10-year contract with one 5 MW generator; or b) under a modular approach, investing in one 0.5 MW project each year for 10 years A significant advantage of the modular approach compared to long-term contracting is that it gives the CCA a great deal of flexibility. The CCA can adjust its level of commitment each year based on market factors, e.g., the delta between the CCA price and the Basic Service price. Also, the CCA would be able to invest in different technologies in different years, and would benefit from declines in the cost of renewable energy projects. For example, according to the National Renewable Energy Laboratory, the cost of commercial PV systems fell 66% between 2010 and 2018.23 If costs continue to decline, the CCA could support larger renewable energy projects in future years for the same investment. Finally, the CCA would not have the liability of a long-term financial commitment. E. Community empowerment Another alternative is emerging to CCA long-term contracting. Known as Community Empowerment, 24 this is not a CCA, but allows long-term contracting and avoids some of the challenges that a CCA would encounter. It may be a good alternative for communities to consider if their primary objective is long- term contracting with a renewable generator.25 22 This strategy is being actively explored by one Massachusetts CCA, although it has not been implemented yet. 23 US Solar Photovoltaic System Benchmark: Q1 2018. National Renewable Energy Laboratory. November 2018. At p. 27. https://www.nrel.gov/docs/fy19osti/72399.pdf 24 www.communityempowerment.org 25 Community Empowerment would be an alternative to CCA long-term contracting. But, it does not have to be an alternative to CCA. A community could implement both a CCA and Community Empowerment. 23 As described above, long-term contracting is challenging for CCAs because of the risk that market prices will fall, leaving the CCA committed to an above-market contract. Also, there are questions about whether a CCA’s long-term commitment is sufficiently creditworthy to support the financing of a renewable energy project. The Massachusetts legislature is currently considering Community Empowerment legislation26. Like CCA, Community Empowerment would enable communities to enter into long-term contracts with renewable generators. Like CCA, customers would participate unless they opt out. However, unlike CCA, the community would not replace the customers’ electricity supplier. Instead, the costs of the long-term contracts would be collected through distribution rates. And, customers’ opt-out rights would be limited: customers would only be able to opt out in the first 60 days. The supply contract with the generator is a virtual supply contract as described above. The community purchases the RECs and enters into a contract for differences for the power. As power is generated, it is sold into the market. The generator receives the contract price. The community pays, or receives, the difference between that contract price and the market price when the power is sold. The advantage of this approach is that revenues are guaranteed because they are collected through distribution rates. It avoids the risk that a CCA would face of customers opting out and leaving the CCA without the funds to pay the generator. F. Reducing electricity use at the times of greatest environmental impact From an environmental perspective, all kilowatt-hours are not created equal. Electricity in New England is generated by a mix of power plants that have varying environmental profiles. For example, the power plants that generate electricity by burning natural gas produce about half as much CO2 per kilowatt- hour of electricity as do power plants that burn oil.27 The mix of power plants that are generating at any point in time determines the amount of CO2 emitted for each kilowatt-hour. As the Department of Energy Resources explains: ISO New England dispatches sufficient power plants to meet demand on a lowest-cost approach using energy bids placed by power plants. When wholesale electricity prices rise, non-pipeline natural gas fuels (such as oil, LNG, and coal) become economic and are dispatched. Frequently, non-natural gas fuels (oil and coal) are at the costliest end of the dispatch order, and are also the highest emitters of greenhouse gases and other air pollutants on a ton-per-MWh basis.28 26 An Act for Community Empowerment, Massachusetts 191st General Court. Senate Bill 1945. 27 NEPOOL Generation Information System, 2018 System Mix by Fuel, www.nepoolgis.com. 28 Massachusetts Comprehensive Energy Plan. Massachusetts Department of Energy Resources. 2018. at 59. 24 Because the highest emitters tend to be more expensive, they run less frequently than less expensive, cleaner generators. However, under certain conditions, the highest emitters do run, with a significant impact on GHG emissions. An extreme example occurred during the regional cold snap from December 25, 2017 to January 8, 2018. The very cold weather lead to an increase in natural gas used for heating, which limited the availability and increased the price of natural gas for electricity generation. With natural gas at a premium, oil-fired generation became economic.29 Oil-fired generation went from 2% of the mix on December 24 (before the cold snap) to 36% on January 6.30 Daily CO2 emissions during the cold snap were 250,000 short tons, up from 90,000 short tons.31 It would be possible for a CCA to implement an initiative that encourages participants to reduce use at times of maximum environmental impact. The initiative could use the same mechanisms as a conventional demand response programs, such as appeals to customers, controllable thermostats and other devices, and energy storage.32 However, instead of targeting the highest-cost hours, the initiative would target the highest-emissions hours. Because of metering limitations for small customers (discussed in section 3 above), the CCA would not be able to document its participants’ exact energy use reduction during high-emissions periods. However, this is much less important for a program focused on emission reduction than for a program focused on cost reduction. Exact metering is needed for CCAs to realize any cost savings from reductions during high-cost periods. However, an environmental benefit will be realized when CCA participants reduce use during high-emissions periods, whether or not they have the meter data to document that reduction. G. Fuel switching CCAs may wish to consider initiatives that promote fuel switching, for example from oil and natural gas heating to electric heat pumps and from conventional vehicles to electric. In the Massachusetts Clean Energy Plan, the Department of Energy Resources highlighted the importance of fuel switching for reducing GHG emissions.33 The state has achieved and will continue to achieve significant reductions in emissions from electricity generation. However, the state has done much less to reduce emissions in the thermal and transportation sectors. As a result, those sectors are responsible for an increasing percentage of emissions. The Clean Energy Plan shows that continuing to 29 https://www.iso-ne.com/static-assets/documents/2018/05/2018-05-11-egoc-a2.1-iso-ne-post-winter-1718-review.pdf, slide 20. 30 Id at slide 49. 31 Comprehenisve Energy Plan at 59. 32 Because the highest-emission hours are in the winter, the usefulness of solar PV will be limited. Irradiance is of course low in the winter, and snowfall can further reduce PV output, as happened in the 2017 – 2018 cold snap. ISO NE at slide 83. 33 Comprehenisve Energy Plan at xiv. 25 build renewable generation while neglecting address thermal and transportation will not get us to our climate goals. The state needs to move customers from relatively dirty heating and transportation fuels to cleaner electricity. The state’s energy efficiency programs are beginning to address some fuel switching measures, particularly heat pumps. However, those programs are contrained by a regulatory framework that focuses on cost rather than the environment. CCAs have much more flexibility to implement initiatives that put climate first. H. Price options One important tool at CCAs’ disposal is the prices that they charge to customers. As discussed above, limitations in metering prevent CCAs from charging prices that vary by time of use. However, CCAs can charge different prices to different customers. For example: - 100% Green Products. Many CCAs currently charge higher prices to customers choosing optional 100% green products. - Electric vehicles. CCAs could charge lower rates to customers that have electric vehicles, perhaps in conjunction with a controllable charger that would enable the CCA to shift charging times based on the environmental profile of the electric grid. Or, the CCA could perhaps provide free electricity to public electric vehicle charging stations. - Heat pumps. CCAs could charge lower rates for customers that install electric heat pumps, perhaps coupled with an incentive for the equipment. I. Energy efficiency programs Massachusetts law permits CCAs to gain access to the energy efficiency charges collected through distribution rates and to operate the associated energy efficiency programs. Given the scale of the Massachusetts rate-payer funded energy efficiency programs, this gives CCAs access to very significant funding. As noted above, for an aggregation the size of Northampton, Amherst, and Pelham, MA, the energy efficiency funds would be nearly $5 million per year. In considering whether to take advantage of these funds, CCAs should consider several factors. First, because the programs are funded through distribution rates, the DPU regulates them very closely. And, the DPU applies the same rules to CCA-administered programs as to utility-administered programs. As a result, any CCA choosing to administer the programs will need to take on a significant regulatory compliance burden. Second, the CCA should keep in mind that efficiency programs will be available to customers whether or not the CCA takes over the programs. The issue is not whether there are programs for customers. It is who administers the programs, and how the CCA might do so differently than the utilities. 26 The greatest value that the CCA would add from administering the programs would come from offering something different from what the utilities offer, for example, programs that better fit the specific needs of the CCA’s customers, or programs that are optimized for GHG reduction rather than cost reduction. However, a CCA’s ability to offer something different is limited. Massachusetts has placed a high premium on program consistency across all program administrators. As a result, the DPU has taken a dim view of unique offerings. The recent experience of the Cape Light Compact is instructive. In its most recent three-year plan, the Compact proposed two new “enhancements” to the statewide plan. (Enhancements are unique offerings that are materially different from what all program administrators are offering.) One of the Compact’s enhancements focused on energy storage and the other on strategic electrification -- a package of heat pumps, solar PV, and energy storage. The DPU rejected both enhancements.34 The DPU did invite the Compact to modify and resubmit its strategic electrification enhancement. The DPU’s ruling on the revised enhancement should provide some guidance on whether a CCA that takes over the programs will be able to offer something unique or may simply end up end up running the same programs that had been run by the utility that the CCA replaced 6. Regulatory transition plan This section discusses a regulatory transition plan for a Massachusetts CCA35 that wants to implement advanced GHG reduction initiatives. The discussion is focused on regulatory transition plans – how and when the aggregation plans that must be approved by the state should be drafted, and potentially amended, to authorize various green initiatives. It does not address the business transition plans that would be needed to implement the initiatives. A. Regulatory background To operate a CCA, a municipality must develop an aggregation plan and have the plan approved by the DPU. In order to be approved, the aggregation plan must satisfy both procedural and substantive requirements. To satisfy the procedural requirements, the municipality must demonstrate that it has 1) obtained local approval before initiating a process to develop an aggregation plan; 2) consulted with the Department of Energy Resources (DOER) in the development of the plan; and 3) allowed for citizen review of the plan.36 In addition, the CCA plan must contain five statutorily specified plan elements: 1) the organizational structure of the program, its operations, and funding; 2) details on rate setting and other 34 Three-Year Energy Efficiency Plans for 2019 – 2021, D.P.U. 18-110 through 18-119 at 113 -133, January 29, 2019. 35 The discussion is focused on Massachusetts CCAs; the rules and transition strategies will be different in other states. 36 Id. 27 costs to participants; 3) the method of entering and terminating agreements with other entities; 4) the rights and responsibilities of program participants; and 5) the procedure for terminating the program.37 To satisfy the substantive requirements, the plan must provide for universal access, reliability, and equitable treatment of all classes of customers.38 As part of the reliability analysis, the DPU examines the municipality’s capability to implement the initiatives listed in the plan. In addition, the plan must satisfy all other requirements for aggregated service. For CCAs that want to assume administration of the energy efficiency programs that are funded through utility rates, there is a second regulatory hurdle. After obtaining approval for the aggregation plan, the municipality must adopt and obtain DPU approval of an “energy plan” that describes the energy efficiency programs the municipality intends to implement and shows that those programs are consistent with the state energy conservation goals.39 B. What’s in the CCA plan? Many municipalities are implementing a host of GHG reduction initiatives. While some of these initiatives are necessarily part of a CCA, many others could be implemented in parallel with a CCA but as distinct initiatives. Initiatives need to be included in the CCA plan if they are directly tied to their CCA. For example, initiatives must be included if they use the CCA’s opt-out enrollment mechanism or are funded through the CCA’s rates. However, the initiatives do not need to be included in the plan if they are opt-in and are funded in other ways, for example through separate bills. Communities should consider whether it is beneficial to make these optional initiatives part of CCA. It can be argued that bringing the initiatives under the CCA umbrella would increase their impact. On the other hand, making the initiatives part of a CCA will subject the initiatives to rigorous state scrutiny. Initiatives that are part of a CCA plan are reviewed carefully by state regulators, who examine both the municipality’s expertise to implement the initiative and the benefits and costs for customers. In addition, including any previously-untried initiative in a CCA plan would likely delay approval of the CCA plan as state regulators examine the new initiative. C. Summary of approach For communities considering launching a CCA, and considering implementing advanced green initiatives, we recommend the regulatory approach described below. The approach is designed to get a CCA up and going quickly in order to enable the municipality to gain experience and to begin delivering benefits 37 Id. 38 Id. 39 M.G.L. c. 164, § 134(b) 28 for customers. Then, additional initiatives can be added over time. The key elements of the approach are as follows: Initial CCA Plan The initial CCA plan should include as many of the green elements as possible without jeopardizing or significantly delaying plan approval. As discussed below, the green CCA plans that the DPU has approved include several green initiatives. Energy Plan for administration of the energy efficiency and renewable energy funds Under Massachusetts law, CCAs wishing to administer the energy efficiency and/or renewable energy funds must submit for approval an energy plan detailing how they will use those funds. This is separate from the CCA plan and must be submitted after the CCA plan is approved. Amended CCA Plan If the community determines that it wishes to implement additional green initiatives, and wishes to do so as part of the CCA rather than as independent initiatives, the community can file an amended CCA plan to request authorization for the new initiatives. The amended plan would go through the same approval process as the initial plan. An advantage of addressing these newer CCA elements as part of an amended plan is that the likely regulatory scrutiny of the new initiatives would not delay approval of the core plan; the core plan would be up and going while the new initiatives are being reviewed. Also, with this approach, the CCA will have time to fully plan the new initiatives, increasing the likelihood that the CCA will be able to satisfy state regulators’ detailed questions about how the initiative will work and how customers will be affected. D. Initial CCA plan The aggregation plans filed by many green CCAs in Massachusetts, and approved by the DPU, provide templates for initial plans for communities that wish to evolve toward more advanced green initiatives. These plans cover the core elements of CCAs as well as green CCA elements such as providing additional40 Renewable Energy Certificates (RECs) in the aggregation’s standard product and even more RECs in an optional product. Several CCAs have also included operational adders to fund green initiatives. An operational adder is a charge added to the price of electricity, the proceeds of which go to the municipality. An operational adder must be used to pay costs associated with the program. The DPU has approved the following specific uses: - personnel costs associated with an Energy Manager position, one of the responsibilities of which is to assist with the aggregation program; 40 “Additional” meaning in addition to the RECs required by the state Renewable Portfolio Standard. 29 - REC purchases; and - other forms of support for local energy projects that create benefits for program participants. E. CCA administration of ratepayer-funded energy efficiency programs Massachusetts offers very extensive energy efficiency programs that are funded through distribution rates. Statewide, funding for the electric programs is nearly $700 million per year. The programs are for the most part administered by the utilities. However, the Massachusetts aggregation statutes enables CCAs to assume administration of the programs their territories41. To date, one CCA, the Cape Light Compact, has received permission to administer the energy efficiency programs, and has been administering those programs since 2001. In 2018, another CCA, the City of Lowell, submitted to DOER a proposal to administer the energy efficiency programs. That proposal has not been acted upon. The aggregation statute provides that a municipality seeking to administer the energy efficiency programs must: adopt an energy plan which shall define the manner in which the municipality or municipalities may implement demand side management programs and renewable energy programs that are consistent with any state energy conservation goals developed pursuant to chapter 25A or chapter 164.42 Then, the plan must be submitted to the DPU for certification that it is in fact consistent with state energy conservation goals. The review process ended there when the Cape Light Compact was approved as a program administrator nearly 20 years ago. However, the statutory scheme governing the energy efficiency programs has changed significantly since then. Originally, the efficiency programs were utility-specific and operated under annual plans. However, the 2008 Massachusetts Green Communities Act43 changed that system to one of statewide programs operated under three-year plans. No CCA has become a program administrator since this new regime took effect. It appears from correspondence between the DPU and the City of Lowell that a CCA can only implement programs that have been approved as part of the statewide three-year plans, and that a CCA cannot participate in the three-year planning process until after its energy plan has been certified.44 41 G.L. c. 164, § 134 (b) 42 Id. 43 Chapter 169 of the Acts of 2008. 44 Letter dated October 25, 2018 from Shane Early, General Counsel, Massachusetts Department of Public Utilities, to James Avery, regarding City of Lowell Petition to Amend Municipal Aggregation Plan. 30 Since that statewide planning process takes place only once every three years, a CCA could have a very long wait before being able to implement programs. It would likely take a year or more to develop an energy plan and get it certified by the DPU. Then, depending on where we are in the statewide cycle, there could be an additional one to three years before the CCA’s programs would be approved as part of the statewide three-year plans and could be implemented. There is another factor that adds uncertainty to the process. The programs have become much larger since the Cape Light Compact first became a program administrator. In 2001, when the Compact first received approval to administer the energy efficiency programs, the total efficiency budget for the Compact territory was under $5 million per year.45 Currently, that budget is over $50 million per year.46 The size of the budget does not preclude new CCAs from becoming program administrators. However, it may affect the level of scrutiny the DPU applies to any proposal and the degree of detail that a CCA will be required to include in an energy plan. F. Amended CCA plan Once an approved CCA plan is in place, a municipality can seek approval to amend the plan if needed to add additional green initiatives. The regulatory process for a plan amendment is the same as for the initial plan approval. The DPU will review the entire new plan, not just the amendment. However, since the original plan had been previously reviewed, the degree of regulatory scrutiny of the original plan elements is reduced. The review of the amended plan can be focused on the new initiatives. 7. Multi-community consortiums This section discusses issues related to multi-community consortiums for CCA in Massachusetts. It addresses issues including size, geography, and culture. It also discusses flexible approaches to expand or shrink a consortium for specific initiatives. A. Size The size of the CCA is the first issue to consider. Is there a maximum size? What is the minimum size for the CCA to be effective? How might the size of potential joint CCAs in Massachusetts compare to the size of joint CCAs in other states? 45 Cape Light Compact, D.T.E. 00-47-C (2001) p. 5. 46 2019-2021 Energy Efficiency Plan Term Sheet (October 19, 2018), Attachment A, CLC 31 Size relative to CCAs in California The consideration of joint CCAs often begins with a look at California. There, the CCA market has developed around joint CCAs, unlike Massachusetts where individual-community CCAs dominate. And, of course, California is much larger, with a population of 40 million, as opposed to 7 million in Massachusetts. In California, 19 CCAs serve over 10 million customers.47 In Massachusetts, there are over 125 CCAs that together serve fewer than 1.5 million customers. The tables below show the number of customers served by selected CCAs in California and Massachusetts. California Massachusetts CCA Customer accounts CCA Customer accounts Clean Power Alliance of So. California 1,000,000 Boston48 175,000 East Bay Community Energy 540,500 Cape Light Compact 140,000 MCE (Marin and Napa Counties) 475,000 Worcester49 48,000 Peninsula Clean Energy 300,000 Cambridge 39,000 Monterey Bay Community Power 235,000 Somerville 34,000 Sonoma Clean Power 224,000 Newton 27,000 Pioneer Community Energy 85,000 New Bedford 26,000 Valley Clean Energy 65,000 Lowell 23,000 Redwood Coast Energy Authority 63,000 Brookline 20,000 Pico Rivera Innovative Municipal Energy (est.) 30,000 Northampton, Amherst & Pelham50 17,000 San Jancito Power 16,000 Pittsfield 15,000 Rancho Mirage Energy Authority 15,000 Lexington 10,000 Solana Energy Alliance 7,000 Most others < 10,000 Maximum size One question that has been asked is whether there is a maximum size for a joint CCA. There is no practical maximum, at least for a state the size of Massachusetts. California has one CCA with 1 million customers. It is difficult to even imagine a CCA in Massachusetts ever approaching that size. 47 CALCCA, www.cal-cca.org. accessed October 31, 2019. 48 The Boston CCA is under development and has not launched. This is an estimate of the number of customers that it will serve when it launches. 49 The Worcester CCA is in the process of launching. This is an estimate of the number of customers that it will serve. 50 This is an estimate of the number of customers that would be served by a joint aggregation made up of Northampton, Amherst, and Pelham. 32 Minimum size Another question is whether there is a minimum size for a joint CCA. Here, the answer likely depends on what the CCA intends to do. Providing power supply For the core CCA function of providing power supply, a few thousand customers is likely sufficient. There are many individual community CCAs in Massachusetts that are smaller than that. Also, while there is a common impression that the larger the CCA the better the price it gets for electricity, that is not true in practice. As long as a CCA is of a minimum size, the price is determined by the nature of the CCA’s electric load and not by the size of that load. Providing a greener power supply For providing a power supply that includes additional Renewable Energy Certificates, the most popular green CCA strategy in Massachusetts, a few thousand customers is also likely sufficient. This is something that even small, individual-community CCAs are doing in Massachusetts now. Administering the energy efficiency programs funded through the system benefit charge As discussed above, Massachusetts CCAs can apply for authorization to take over the administration of the system-benefit-charge-funded energy efficiency programs for customers in their geographic footprint.51 When this is allowed, the CCA replaces the utility as the administrator of those funds. Only one Massachusetts CCA has been approved to administer the energy efficiency funds: the Cape Light Compact, the largest existing CCA. To estimate a minimum size to administer the energy efficiency programs, we looked at the size of the existing program administrators, using as “size” their electricity efficiency program budgets. We also estimated the likely size of the budge for a joint aggregation the size of Northampton, Amherst, and Pelham. Annual budgets – Electricity Efficiency Programs Program Administrator Annual Budget ($ million) Eversource 306 National Grid 291 Cape Light Compact 54 Unitil 6 Northampton-Amherst-Pelham (est.) 5 51 The CCA assumes the administration of the programs for all customers within the CCA’s boundaries, including customers that are not receiving power supply through the CCA. 33 As the table shows, the potential Northampton-Amherst-Pelham joint CCA would be the smallest of the program administrators, just 10% of the size of the Cape Light Compact and less than 2% of the size of Eversource and National Grid. However, the joint CCA would be roughly the same size as the smallest program administrator, Unitil. At this size, Unitil is able to provide effective programs for its customers, and it is reasonable to assume that a joint CCA of the same size would be able to do the same. Importantly, a new program administrator would not have to perform all of the program functions in- house. All of the program administrators, including the largest, outsource program delivery to outside vendors. Also, the program administrators jointly procure many services, including evaluation and certain program management tasks. Moreover, a new program administrator would not have to build all of the required program administration infrastructure. For example, to meet Department of Public Utilities reporting requirements, program administrators must maintain a complex database. However, rather than building its own, a new administrator could possibly contract with the Cape Light Compact to use the Compact’s database. There would of course be a cost associated with this, but it could be significantly less expense to pay to use an existing database than to building a new one. B. Geography Another question about joint CCAs is whether they need to share a common geographic identity. It is certainly true that the existing joint CCAs tend to share a geographic identity. For example, - Cape Light Compact (Cape Cod) - Clean Power Alliance of Southern California - East Bay Community Energy - Silicon Valley Clean Energy - Sonoma Clean Power - Westchester Power This geographic identity is useful for marketing purposes. It associates the CCA with something familiar to customers and gives them sense that the organization is local, even if it is not limited to just their municipality. Whether there are other advantages depends on the particular CCA function. For power supply, at least in the Massachusetts electric market, geographic proximity is not required. The participating communities do not need to be adjacent, or even near to each other. The CCA’s electricity supplier buys power in the New England power market; municipal boundaries are irrelevant. The only geographic requirement is that the communities be in the same state; this is because CCAs and retail electricity suppliers are regulated at the state level. It is true that if the communities are scattered, they are more likely to be served by different distribution utilities. However, this is not an impediment. In Massachusetts, some individual towns with CCAs are served by two utilities. For example, the Town of Bellingham is served in part by Eversource and in part 34 by National Grid. Also, Westchester Power in New York is a multi-community CCA that includes communities in two different utility service territories, Consolidated Edison and NYSEG. The need to deal with two utilities creates some additional administrative challenges, but the challenges are not insurmountable. For CCA 3.0 programs that involve work at customer locations, e.g., energy efficiency or installation of on-site solar, geographic proximity can be an advantage, reducing travel time between jobs and potentially the number of crews required. However, this challenge can be overcome. CCAs typically use third-party vendors for on-site work, rather than performing this work with staff. To serve a wide footprint, a CCA can contract with vendors in multiple locations or vendors that serve all of the CCA’s communities. One factor that is likely related to geography is whether the communities have a history of working together. The communities on Cape Cod have a long history of joint action. Indeed, the Cape Light Compact came out of their county government. Many of the Massachusetts communities that have run joint energy programs, such as Solarize (a PV program) and HeatSmart (a residential heat pump program) have a history of working together on economic development and other issues. Communities can of course always make new partnerships. But, it can be easier to have success with partners you know and have worked with in the past. C. Goals Perhaps more important than whether the communities share borders is whether they share goals. Joint CCAs are more likely to be successful if the communities want to use CCA to advance the same purpose, reducing greenhouse gas impacts, for example. A joint CCA may be less successful if some communities prioritize reducing emissions and others prioritize customers’ bills. Even this challenge may not be insurmountable. It is possible for a CCA to offer different default electricity products for different participating communities. With Westchester Power, for example, residents in some communities receive a green product by default, but can choose a lower cost, “basic” product, while residents in other communities receive a basic product by default, but can choose a green product.52 Also, it would seem possible for a CCA to offer 3.0 programs that some communities participate in and others do not. However, if the members of the joint CCA don’t share the same goals, it would be fair to ask whether there is a reason to have a joint CCA. A joint CCA can accommodate members with divergent goals, but it might not create much value beyond what the members could create through individual CCAs. 52 https://westchesterpower.org/basic-or-green-supply/ 35 D. Flexibility Choosing the right set of communities for a joint CCA can seem to be a daunting task. Are we big enough? Close enough? Similar enough in our goals? However, the model is quite flexible. Communities can partner on CCA initiatives whether or not they are part of the same legal joint entity. In Massachusetts, communities and other entities regularly conduct joint procurements for power supply and other energy services. Because they are not part of the same legal entity, each community signs its own contract with the supplier. However, much of the upfront work is done together: the program is designed together, the procurement conducted and the supplier chosen together, and the contract negotiated together. Examples of this joint activity include: - A joint procurement for a CCA power supplier by communities in southeastern Massachusetts - Joint procurements for electricity and natural gas by members (municipalities and notprofits) of PowerOptions, a buying consortium - Joint procurement for energy efficiency services by communities in metro Boston and in the Merrimac Valley These examples are not offered as reasons not to form a true joint CCA. Rather, they are offered to encourage communities considering forming such a CCA to move ahead, and not to wait to get the perfect initial group. The joint CCA can always be expanded, either by adding full members or simply by partnering with other communities on an initiative-by-initiative basis. Also, as noted above, if, after a joint CCA is formed, it turns out that some communities want a different approach, the CCA can tailor its offerings for different member communities. 8. Conclusion CCA is a tool that communities can use to reduce greenhouse gas (GHG) emissions. It is a flexible tool; many different GHG reductions initiatives can be implemented within the CCA framework. Municipalities should choose the set of initiatives that fits best with their own goals and strategies.