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Bay Area Economic Forum Releases Report on Economics of Community Choice Aggregation

Posted on: Tuesday, 5 June 2007, 21:00 CDT

The Bay Area Economic Forum today released a new report on the economics of Community Choice Aggregation (CCA).

With the passage of AB 117, California's local governments have the option of deciding whether they, rather than utilities, should become the wholesale purchaser of electricity for their residents and businesses. This study asks whether CCAs can be expected to provide lower-cost power to their customers.

It finds that communities considering CCA must consider two elements of their resource portfolios: supply secured through the market, and supply generated through capacity they own. They therefore need to ask whether they can outperform the utility in market trading, and whether they can develop their own generating capacity at sufficient scale.

If the utility owns generating capacity, particularly below-market power such as nuclear or hydro, a CCA will find it difficult to provide lower-cost power to its customers.

A CCA's ability to provide competitively priced power will depend on its success in using tax advantaged financing to develop, own and operate efficient, capital intensive generation. If CCAs are to be economically viable and avoid taxpayer subsidies, communities considering them will need detailed resource plans that specify the source and amount of CCA-owned generation, its cost, and location. With growing competition for limited renewable generating capacity, identifying such resources may prove difficult.

To the extent that CCAs are successful in developing efficient renewable energy on a significant scale, they may be able to hedge the long-term price risk that comes with fossil energy. Until that capacity is in place, however, CCA-served communities face a significant risk of higher electricity costs. Since AB 117 allows CCA customers to opt-out in favor of service from the utility company, there is an additional risk that higher rates could accelerate the departure of business customers, increasing rates even further for the remaining customers.

Sean Randolph, President & CEO of the Bay Area Economic Forum, observed that "The idea that communities can more directly control their electricity purchasing, for example to obtain more green power, is attractive. To be economically viable, however, communities considering CCAs need to look hard at the numbers, and be ready to make firm commitments to investment in the right kind of generation."

The Bay Area Economic Forum is a public-private partnership of business, government, university and labor leaders that focuses on issues impacting the long-term competitiveness of the California and Bay Area economies. The report can be downloaded from the Bay Area Economic Forum's website at www.bayeconfor.org.

 Contact: Sean Randolph Bay Area Economic Forum (415-946-8722)  

SOURCE: Bay Area Economic Forum

Source: MARKET WIRE

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